Unaudited financial results for the quarter ended 30 September 2022 - Diageo India

Second quarter performance highlights:

• Net sales increased 17.7%, reflecting a strong quarter. The growth reflects resilient consumer demand in off-trade, rebounding in on-trade, and continued mix improvement.

  - Prestige & Above segment net sales grew 23.1% benefitting from the momentum of innovation and renovation done in prior quarters. The growth was broad-based and reflects the depth of our portfolio and the strength of our brands.

  - Popular segment net sales grew 1.7% within which the priority states grew 3.8%.

• Gross margin was 39.5%, primarily reflecting the adverse impact of double-digit inflation in COGS.

• Our marketing reinvestment rate during the quarter was 5.5% of net sales.

• Reported EBITDA was Rs. 446 crores, up 4.8% and EBITDA margin was 15.5%. Underlying EBITDA, excluding one-offs in the prior years, was up 11%.

• Interest cost of Rs. 14 crore is on account of the customary non-debt related items.

• Exceptional items primarily comprise a one-time profit of Rs. 381 crores arising from the slump sale of the business undertaking associated with 32 brands in the ‘Popular’ segment.

• Reported PAT, after incorporating the exceptional gain accruing from the slump sale transaction was Rs. 563 crores, up 105.9%.

First-half performance highlights:

• Net sales increased 24.3% lapping weak prior-year comparators in Q1.

  - Prestige & Above segment net sales increased by 30.8%. The growth was driven by resilient consumer demand in off-trade, mix improvement, and continued growth momentum in on-trade.

  - Popular segment net sales increased by 6.9% within which the priority states increased by 9.6%.

• Gross margin was 40.1%, primarily due to the adverse impact of inflation on COGS.

• A&P re-investment rate was 5.9% of sales.

• Reported EBITDA was Rs. 720 crores, up 21%. The reported EBITDA margin was 14.3%, down 34 bps primarily due to a reduction in gross margin and one-offs. Excluding the one-offs, underlying EBITDA was at 14.8%, up 76 bps.

• Reported interest cost of Rs.31 crores is on account of non-debt-related items. Excluding the one-off reversal in the prior year, underlying interest costs were down 25% driven by the zero-debt status in the current financial year.

• Exceptional items primarily include a net one-time profit arising from the slump sale of the business undertaking associated with 32 brands in the ‘Popular’ segment partially offset by ongoing business restructuring expenses.

• Profit after tax was Rs. 773 crores and the PAT margin was 15.3%.

  Performance highlights of select Popular brands sold and franchised to Inbrew Beverages.

• Net sales during the quarter included Rs. 351 crores from brands that are part of slump sales and franchise arrangement transactions closed with Inbrew. Net sales for this portfolio increased 2.9% during the quarter and were 697 crores for the first half, up 9.1% vs. the prior year

Hina Nagarajan, chief executive officer, commenting on the quarter ended 30 September 2022, said, “We have delivered a quarter of strong top-line growth and resilient bottom-line performance. The performance is underpinned by continued growth momentum and strong mix improvement from recent innovation and brand renovations. We have completed the sale of the business undertaking associated with 32 brands in the ‘Popular’ segment to Inbrew Beverages and have given effect to the franchise of 11 other brands for a period of five years. This is aligned with our mission and key to our Portfolio Reshape Strategy.”

“The external environment remained challenging during the quarter with ongoing scotch pricing negotiations in select states, route to market change in Delhi, and unprecedented levels of input cost inflation. We maintained cost discipline while investing in long-term priorities.

Looking ahead, in the shorter term, we expect inflation challenges to continue. Scotch price discussions have successfully concluded in a few states. We are focused on maintaining the momentum while driving revenue growth management initiatives and ramping up productivity across the value chain. With the consumer at the heart of our business, the strength of our reshaped portfolio, and the investment we are making to accelerate our strategic priorities, we are confident of growing the business consistently and sustainably to create long-term value for all our stakeholders,” she concludes.