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03 JUL 2017

03 JUL 2017 Press release

Unaudited financial results for the quarter ended 30 June 2017

PAT increased 44% despite short term regulatory challenges                                  

  • Reported net sales declined 13% impacted by the highway ban and the one off impact of operating model changes. Underlying net sales declined 7% excluding the one off
  • Prestige & Above segment reported net sales declined 8%.
  • Popular segment reported net sales declined 20% impacted by the one off impact of operating model changes. Underlying net sales declined 8% excluding the one off impact. Priority states declined net sales by 7% in the segment.
  • Gross margin of 46%, up 265bps driven by price increases, productivity initiatives and operating model changes. Underlying gross margin improvement of 116bps.
  • EBITDA Rs. 157 Crores, declined 26%, EBITDA margin of 8.8%, down 162bps both primarily driven by decline in net sales as we continued to invest in the business. Underlying EBITDA declined 20% and EBITDA margin of 10.0%, down 153bps excluding the one off impact.
  • Interest cost Rs. 70 Crores, lower by 32% driven by favourable rates and mix of debt.
  • Profit after tax Rs. 63 Crores, up 44%.

Anand Kripalu, CEO, commenting on the quarter ended 30 June 2017 said:           

"Performance in the first quarter, as expected, was impacted by the highway ban which has led to lower consumption due to a reduction in the number of retail outlets. We have also witnessed destocking by customers during the first quarter.

The highway ban has significantly impacted the on premise channel and has led to a net sales decline of 8% in the Prestige and Above segment. Depsite these challenges, Signature continued to show positive momentum supported by the succesful renovation and grew net sales 14%. The re-launch of Antiquity has started towards the end of the first quarter in select states with early signs of positive consumer and trade response. Popular segment net sales declined 8% excluding the operating model changes.

Our continued focus on productivity initiatives and select price increases has led to an underlying gross margin improvement of 116bps. EBITDA margin declined 153bps negatively impacted by the decline in net sales as we continued to invest in the business.

Lower interest cost and exceptional items have resulted in an overall PAT increase of 44%.

Looking forward we expect the impact of the highway ban to continue in the second and third quarter in F18, however, to a lesser extent. With the recent Supreme Court ruling allowing states to de-notify particular stretches of highways within city limits, we are starting to see early signs of outlets opening again which is encouraging.

The implementation of GST effective 1 July has resulted in additional taxes on input materials and services which will result in stranded taxes and impact margins. We are working with state governments to seek clarity on some state specific taxes and also approaching them for appropriate price increases. Additionally, we continue to work to minimise the impact through internal measures. We expect to have better clarity on the financial implications of GST in the next few months as we navigate through the above measures.

Despite the regulatory challenges, the long term consumer opportunity remains strong for spirits. We continue to focus on our strategic priorities to capture this opportunity in this attractive market, and achieve our medium term ambition to grow top line by double digit and improve margins to mid-high teens."

ENDS

Media enquiries to:        

Charlotte Rodrigues       

+91 99 8726 5110            

Charlotte.Rodrigues@diageo.com

Investor enquiries to:    

Richard Kugler  

+91 80 3964 2172            

richard.kugler@diageo.com

About Diageo

Diageo is a global leader in beverage alcohol with an outstanding collection of brands across spirits, beer and wine categories. These brands include Johnnie Walker, Crown Royal, J&B, Buchanan's and Windsor whiskies, Smirnoff, Cîroc and Ketel One vodkas, Captain Morgan, Baileys, Don Julio, Tanqueray and Guinness.

Diageo is a global company, and our products are sold in more than 180 countries around the world. The company is listed on both the London Stock Exchange (DGE) and the New York Stock Exchange (DEO). For more information about Diageo, our people, our brands, and performance, visit us at www.diageo.com. Visit Diageo’s global responsible drinking resource, www.DRINKiQ.com, for information, initiatives, and ways to share best practice.

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