United Spirits H1 hit by ‘consumption slowdown’

Diageo-controlled Indian drinks group United Spirits saw its 2019 first-half net sales grow by 7%, but was impacted by “broad-based consumption slowdown”.

For the six months to 30 September 2019, United Spirits’ sales reached Rs. 4.2 million crores (US$59.8m).

Sales were impacted by general elections in the first quarter and “consumption slowdown coupled with liquidity challenges in certain markets and temporary supply chain disruption” in the firm’s bottled-in-origin Scotch portfolio during the second quarter.

United Spirits said these factors “were temporary and have since been addressed”.

Anand Kripalu, CEO of United Spirits, said: “Our revenue growth in this quarter was impacted by broad-based consumption slowdown as well as liquidity challenges in the trade channel in certain markets.

“We also faced some one-off operational issues. Consequently, net sales for the second quarter grew 3%, including the sale of bulk Scotch inventory; net of that, underlying net sales growth for the quarter was flat.

“For the first half of this year, we have experienced significant inflation in our key raw material costs. While this led to significant compression in gross margin, we have still delivered an underlying EBITDA [earnings before interest, taxes, depreciation, and amortisation] margin of 16.8% during the first half of the year.

“This is particularly encouraging as judicious management of our operating costs contributed more to this improvement than the phasing effect of marketing investment.”

During H1, net sales of the company’s ‘prestige and above’ portfolio increased 4%, while the ‘popular’ segment rose 1% after the adjustment of the “operating model changes”.

Kripalu added: “Looking ahead, we are seeing some signs of revival in consumption with the onset of the festive season and we are investing behind all growth levers.

“And while it is too early to say that the consumption slowdown is behind us, we remain committed to capturing the opportunity in the spirits market in India and to grow top line by double digits and to improve EBITDA margin to mid-high teens over the medium term.”

In August this year, Johnnie Walker owner Diageo increased its shareholding in United Spirits to 55.2% following a US$27.3m investment.

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