Diageo integration with USL takes off

Legal hurdles loom round the corner

Diageo, the global spirits major which recently acquired management control of India’s largest spirits company — United Spirits, has kicked off the integration process in right earnest within weeks of coming onboard, in early July.

“Since closing the transaction during early July, we have made a number of appointments and our transition team has already been established in Bangalore working with the USL management. This is real progress within a short period and we intend to maintain the pace. We are looking at the short term, for example, ensuring we have a successful selling season around Diwali, and we are looking at the long term, at investment and organisation,” Ivan Menezes, CEO, Diageo, told investors.

Diageo is pretty much optimistic about its strategic foray with United Spirits, despite a clutch of legal hurdles which it is facing on its own and is also wary of the ongoing legal battle between the UB Group and a section of lenders.

“Diageo is a defendant in Customs Proceedings in India that challenge the declared customs value of products imported by Diageo India. Diageo continues to defend its position vigorously in these proceedings,” the company said. Diageo, best known for the Johnnie Walker scotch whisky and Smirnoff vodka, imports a clutch of these and variations of these brands to be sold in India even as its net sales went down 2 per cent and volumes dropped 5 per cent as stock in trade was reduced during the first quarter.

Diageo’s scotch brands net sales grew 3 per cent helped by an increased investment in India, behind VAT 69 and Black & White which delivered strong net sales and volume growth and led to a 4 percentage point increase in the total Diageo scotch share. In a declining vodka category, Smirnoff gained 0.5 percentage points of share and grew net sales 1 per cent with a volume decline of 6 per cent. The high stock in trade in the first quarter was the main driver for the 5 per cent decline of Johnnie Walker’s net sales.

Despite these uncertainties, the growth for Johnnie Walker Black Label and Johnnie Walker Red Label was robust during the second half of the year.

In addition to the ongoing legal issue which Diageo India is involved, Diageo, as part of its 25.02 per cent stake in United Spirits, has said the two winding up petitions against UB Holdings from lenders may have an adverse effect on its presence in USL.