Diageo takes 772 mn pound write down for Indian market amid COVID-19

Diageo said in its earnings statement said that it has made impairment for its businesses in India, Nigeria, Ethiopia and the Windsor whisky brand in South Korea. "Exceptional operating items included non-cash impairment charges of 1.3 billion pound.


PTI | New Delhi | Updated: 04-08-2020 16:49 IST | Created: 04-08-2020 16:44 IST
Diageo takes 772 mn pound write down for Indian market amid COVID-19
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World's leading spirits maker Diageo has taken a write down of 1.3 billion pound, including an impairment of 772 million pound for the Indian market, reflecting the impact of COVID-19 and challenging trading conditions. Diageo said in its earnings statement said that it has made impairment for its businesses in India, Nigeria, Ethiopia and the Windsor whisky brand in South Korea.

"Exceptional operating items included non-cash impairment charges of 1.3 billion pound. These were in India, Nigeria, Ethiopia and on the Windsor brand in Korea, reflecting the impact of COVID-19 and challenging trading conditions,” it said. The company, which owns United Spirits Ltd (USL), the leading liquor firm here, said the impairment was based on the value "in use calculation and fair value less costs of disposal methodologies" to assess the recoverable amount of the India cash-generating unit.

"Based on this, in the year ended June 30, 2020, an impairment charge of 655 million pound in respect of the India cash-generating unit containing the India goodwill was recognised in exceptional operating items,” said Diageo, which follows July-June fiscal calendar. Besides an "impairment charges of 78 million pound in respect of the Old Tavern brand, 38 million pound in respect of the Bagpiper brand and 1 million pound in respect of fixed assets in India were also recognised in exceptional operating items," said Diageo.

Diageo's India subsidiary had on July 27, posted a consolidated net loss of Rs 246.6 crore for the April-June quarter and its revenue from operations was down 47.60 per cent to Rs 3,820.7 crore. "Forecast cash flow assumptions were reduced principally due to the general economic downturn further aggravated by the COVID-19 pandemic, including pandemic related recent regulatory changes, negatively impacting both demand and margins," it said.

"The actions we have taken to strengthen Diageo over the last six years provide a solid foundation to respond to the impacts of the pandemic. We are now a more agile, efficient and effective business," Diego Chief Executive Ivan Menezes said. Diageo's operating profit declined 47.1 per cent to 2.1 billion pounds for 2020, driven mainly by exceptional operating items and a decline in organic net sales in countries as India.

Diageo, which own brands such as Smirnoff, Johnnie Walker, Baileys and Guinness reported a decline of 8.4 per cent in organic net sales to 11.75 billion pounds. It was 12.867 billion pounds in 2019. The company has witnessed a drop in sales from Africa and Asia Pacific, which has important markets including India, Greater China, Australia, South East Asia and North Asia.

"Asia Pacific net sales declined 16 per cent. Despite the growth in the first half for the region, all markets other than Australia declined due to the impact of COVID-19,” it said. Sales from Greater China declined 7 per cent as scotch, liqueurs and beer growth was offset by declines in Chinese white spirits, while Australia net sales grew 6 per cent, driven by ready to drink, liqueurs, gin and scotch.

"India net sales declined 17 per cent, driven by the continued economic slowdown exacerbated by lockdowns impacting both Prestige and Above and Popular segments," it said. In the first half, growth was impacted principally by an economic slowdown which was further exacerbated in the second half by the nationwide total lockdown of on-trade and off-trade alcohol sales, regulatory changes and continuation of on-trade closures thereafter.

"Prestige & Above declined 14 per cent, driven by IMFL whisky and scotch. Popular brands declined 23 per cent, driven by Old Tavern Whisky and McDowell's No. 1 Rum. These declines were partially offset by Innovation growth," it said. While, South East Asia declined 23 per cent, driven by scotch in Key Accounts and beer in Indonesia and North Asia declined 15 per cent, driven by a double-digit decline in scotch, partially offset by beer growth.

(This story has not been edited by Devdiscourse staff and is auto-generated from a syndicated feed.)

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