Diageo India Company Secretary Registered & Corporate Office V
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United Spirits Limited Annual Report 2016-17 Proud to be Diageo India Company Secretary Registered & Corporate Office V. Ramachandran “UB Tower”, #24, Vittal Mallya Road Bengaluru - 560 001. Auditors Price Waterhouse & Co Chartered Accountants LLP, Registrars & Transfer Agents 5th Floor, Tower ‘D’, The Millenia, Integrated Registry Management Services Private Limited 1 & 2 Murphy Road, Ulsoor, Bengaluru - 560 008. (Formerly known as Integrated Enterprises (India) Limited), Tel. No.: 080 4079 5000 30, Ramana Residency, 4th Cross, Sampige Road, Malleswaram, Bengaluru - 560 003. Tel. Nos.: 080 2346 0815-818 We are... Part of something bigger Diageo is a global leader in beverage alcohol with an outstanding collection of brands across spirits and beer. These brands include Johnnie Walker, Crown Royal, J&B, Buchanan’s and Windsor whiskies, Smirnoff, Ketel One and Cîroc vodkas, Captain Morgan, Baileys, Don Julio, Tanqueray and Guinness. The company employs Diageo is a global company, approximately 32,000 and its products are sold talented people worldwide in more than 180 countries with offices in around 80 around the world. The countries. company is listed on both the London Stock Exchange (DGE) and the New York Stock Exchange (DEO). Diageo was formed in 1997, following the merger of GrandMet and Guinness, and is headquartered in London. Its manufacturing facilities The word Diageo comes from are located across the globe the Latin for day (dia) and including Great Britain, the Greek for world (geo). Ireland, United States, Canada, We take this to mean every Italy, Africa, Australia, Latin day, everywhere, people America and Caribbean. celebrate with our brands. 02 UNITED SPIRITS LIMITED BUSINESS OVERVIEW Strategic Review Statutory Reports FINANCIAL Statements Global giants Regions All five regions contributed to overall sales growth Johnnie Walker Captain Morgan Smirnoff North America Asia Pacific No. Scotch No. Standard No. Vodka in whisky in rum in the the world 1 the world 2 world 1 3% 3% Europe, Russia Latin America & Tanqueray Baileys Guinness & Turkey Caribbean Premium No. No. Stout in No. Liqueur in 1 5% 11% gin in the the world 1 United 1 the world 1 States Africa 1. Canadean Intelligence 4% Net Sales# Categories £6,421m +4%* Broadbase growth across categories Volume# Scotch Gin 129.4EUm +2%** 6% 7% North American Operating Profit# Whiskey Tequila £2,065m +4% (before exceptional items) 15% 18% * Organic Net Sales Growth ** Organic Volume Growth # Half yearly results as on December 31, 2016 No. of people employed 32,000 ANNUAL REPORT 2016-17 03 have been on a journey to transform the Company into a world-class organisation that is known and recognised for its Chairman’s performance, compliance culture, ethical values and transparency, thereby gaining message the trust and respect of all stakeholders and society at large. We have made fair progress in the pursuit and achievement of companies, including ours – but, I believe that vision leading to being accepted and we have outperformed competition in this acknowledged as a valuable and integral challenging environment. We have also part of the Diageo group. On our part, over performed favourably compared to most the last few years we have aligned and other fast-moving consumer goods (FMCG) strengthened our business strategy, brand peer companies. We will continue to build portfolio and investments, compliance on this momentum. standards, governance and financial/ operational control mechanisms, talent For the year, while overall net sales grew development, environmental footprint by a modest 4%, you will be happy and sustainability efforts and much more, to note that our Company improved to those of Diageo’s standards globally, to gross margins by 156 bps to 42.9% and pursue greater integration with the parent, profit after tax grew 39%, both aided by in true spirit of inter-dependence. We now improved productivity and operational identify and adhere to the Diageo ethos efficiencies. The above, coupled with more closely than ever before, even while stringent corporate governance and we build on the positive aspects of our Dear Shareholders, compliance norms, your Company has legacy, including our understanding of the adopted and adhered to, have led to a Indian market, consumer franchise of our I write to you at an important moment in further upgradation of our long-term credit brands and well-established distribution our Company’s history – our transition into rating to AA which will enable it to access network. the next phase of our growth trajectory, more economical sources of debt. It will be underpinned by performance momentum our endeavour to deleverage the balance I thank you all for your continued faith and despite a subdued industry environment. sheet and reduce the level of overall debt, support which has in no small measure including through the disposal of non- enabled the Company to adapt and face Two policy developments during the year core assets, to further improve financial the challenges in a bold and determined – demonetisation and the judicial ban on performance by optimising on total debt manner. the sale of alcohol along national and state and financing costs. highways – adding to the introduction of Yours sincerely, prohibition in the State of Bihar, created a In the last three years since Diageo took Mahendra Kumar Sharma volatile and tough environment for alcobev a controlling interest in United Spirits, we Chairman Board of Directors Mahendra Kumar Sharma V. K. Viswanathan Rajeev Gupta Randall Ingber Chairman Independent Director Independent Director Non-Executive Director Anand Kripalu Vinod Rao Dr. (Mrs.) Indu Shahani John Thomas Kennedy Managing Director & Non-Executive Director Independent Director Non-Executive Director Chief Executive Officer D. Sivanandan Sanjeev Churiwala Independent Director Executive Director 04 UNITED SPIRITS LIMITED BUSINESS OVERVIEW Strategic Review Statutory Reports FINANCIAL Statements governance norms this year with the introduction of the Diageo Know Your MD & CEO’s Business Partner Programme, a more thorough due diligence of our business message partners. We also restructured our organisation to fit effectively as possible have helped us our strategic objectives and ensure that we survive and grow in this tumultuous year. respond quickly to customer and consumer needs, making it leaner, flatter and more On the other hand, our industry agile; roles and spans are bigger; decision fundamentals remain promising as making is faster; and accountability demographic factors, increasing aspirations sharper. and changing attitudes to alcohol continue to fuel growth. We have significantly We firmly believe that when consumed increased the quantum of investments responsibly, alcohol can be part of a behind our focus brands during the year, balanced lifestyle and play a positive communicating more creatively with role in social occasions and celebration. consumers, and at scale. Our strategy of We champion responsible drinking and premiumising offerings, refreshing and support road safety programmes all renovating brands as well as innovating over India. This year we extended our with new consumption occasions, led partnerships to other corporates such as Dear Shareholders, to strong, ahead-of-industry, growth of Essar Oil to create awareness and drive It gives me great pleasure to share that the our Prestige and above segment, which behaviour change through their network transformational journey we embarked grew net sales 14% during the year. Our of 3,200+ petrol pumps, many of which are upon three years ago has led to holistic, renovated brands, McDowell’s No. 1 whisky situated along national highways. impactful and sustainable change across net sales grew 8%, Royal Challenge grew almost every single aspect of our Company. 16% and Signature grew by 29% in this Over the last few years, we have No stone has been left unturned, and no year, gaining market share as well. Our transformed and aligned ourselves more effort spared to examine every brand, Scotch category also grew net sales 32%, closely to the Diageo value system which every assumption, every process or control driven by Johnnie Walker, Black Dog, Black has begun to underpin our entire business and much more, in our quest to become & White and VAT 69. value chain, as well as our relationships the best performing, most trusted and with all our stakeholders, including our respected consumer products Company To stay focused on the most profitable employees and the community at large. in India. parts of our business viz. Prestige and Moving forward, I see these values-led and above, we created a fit-for-purpose value-creating relationships propelling our I am very pleased with our performance business model to selectively participate growth even more appreciably forward. We delivery in the year gone by and how we’ve in the Popular segment in certain states. are part of something bigger, and we are held up against what can be described In others, we have begun franchising our certainly proud to have become an integral as the single-most challenging year from Popular brands to local partners to improve and valuable part of Diageo. a regulatory perspective. Our results are operational and cost efficiencies. commendable seeing as they come in I would like to thank all our employees the face of a very subdued economic At Diageo, standards are everything. Our for making this happen, and for their environment and several regulatory high-quality standards are manifest in incredible support during the year. changes. Beginning with the surprise every product in our portfolio and our state-of-the-art Technical Centre is the announcement of total prohibition I would also like to thank you, all our in Bihar, coping with the aftermath of custodian of our valued portfolio. Our new shareholders, for your continued support in demonetisation and culminating in Packaging Centre at Kumbalgudu will more our journey. the Supreme Court banning the sale of fully serve our innovation agenda, going alcohol near national and state highways! forward.