United Spirits

 
Chairman's Statement
 
Dear friends and shareholders,
 
None of us have remained untouched by the effects of the global melt down in financial markets, which has
quickly encompassed all corners of the world, including economies such as India and China, which were widely
thought to have been insulated from Western economies. The growth projection for the Indian economy is now
definitely showing signs of slowing with various sectors, primarily, realty, automotive and white goods,
having shown a sharp drop in demand, reflecting the effects of the financial crisis.
 
As the nation readies itself for a general election in the next several months, the attention of the
political leadership will inevitably turn to populism, even as we have to grapple with the effects of a
devastating terrorist attack on Mumbai.
 
It is a sign of the growing sophistication of the Indian consumer and the continuing confidence that the
young Indians have in the economy at large and on their future in particular, that the effects of slow down
are not largely in the FMCG and other consumer goods sectors.
 
USL, as one of the bell weather companies in the FMCG category has got off to an explosive 17% growth in
the first half of the current fiscal year, following on an equally impressive 11% growth in the financial
year under review. Importantly, we are proud not merely to have sustained overall growth in volumes but also
to have been able to continue with the trend of focussing towards the premium end of the product range, thus
ensuring sustained profitability in the face of sharply increased input costs.
 
USL’s position as the third largest distiller in the world was further consolidated by the acquisition,
in May 2007, of Whyte & Mackay of Glasgow, which is the fourth largest distiller of Scotch whiskies. Your
Company’s basket of Millionaire brands has risen to 17 during the year, with the inclusion of Romanov vodka,
which saw growth of over 12% during 2007-08. McDowell’s No. 1, which was created as an umbrella brand having
whisky, rum and brandy variants, has become the most valuable brand in USL’s portfolio. It’s sales of 27.56
million cases contributed to 39% of USL’s overall contribution. "McDowell" is now India's largest
single consumer brand by retail value. Bagpiper remains the world’s largest non Scotch whisky brand with
sales of 14 million cases.
 
USL is the distinct market leader across all flavours of the spirits market and across all geographies in
the country. The Company has retained this distinction over many years by a constant process of anticipating
emerging trends, constant innovation and sustained nvestments in both brand and manufacturing. All of these
are held together by an enlightened HR and IT policy that facilitates reward for enhancing performance.
 
While the Company had made significant international nvestments having paid GBP 595 million for Whyte
& Mackay on top of the acquisition and recent capacity enhancement of Bouvet Ladubay, a sophisticated
winery in France, USL remains an India focused entity. With half of India’s population below the age of 35, I
am confident that our business can grow by leaps and bounds with increasing economic growth and enhanced
disposable income.
 
must also point out that the IMFL business that USL straddles, sits on top of an enormous unbranded
"Country Liquor" market, which has historically been many multiples of the branded IMFL market.
Increasing awareness, health concerns, aspirational values as well as increasing liquidity have dramatically
changed the ratio in recent times, enabling the IMFL segment to grow in double digits for the last five
years. I expect to see this process accelerating and USL would be well placed to take advantage of profitable
growth in the future.
 
The Whyte & Mackay acquisition provides the Company with two long term advantages:
 
(a)     It provides a perennial source for Scotch whisky, which is an important blending
material for our core IMFL business.
 
(b)    The strong suite of brands of both blended as well as single malt whiskies owned by
Whyte & Mackay gives us a firm foothold in this super premium category.
 
Indians have historically been consumers of whisky, which still accounts for well over half of all
spirits consumed. Within the flavour, Scotch sits on top, as the most aspirational segment and the Whyte
& Mackay brands, together with USL's distribution muscle are poised to take advantage.
 
Similarly, we are seeing an emergent demand for wine. Although on a small base, the demand for wine is
growing sharply. The acquisition of Bouvet Ladubay, a 150 years old company in France, provides us with not
only access to sophisticated wines, but also to viticulture for developing indigenous grape varietals for the
future. During the current year, we will also commission a brand new state of the art winery in Baramati.
 
The challenges facing the Company are primarily to do with sharply increasing input cost as a consequence
of global phenomena. Your Company as one of the largest consumers of almost all input materials such as
spirits, glass containers, aluminum caps, paper and board has proactively managed the cost situation. This,
together with the premiumization of sales has helped the Company to defend margins in extremely hostile
conditions. Our efforts on these lines continue during the current year, which has seen some unprecedented
increases in certain areas, particularly the cost of energy. Having said this, I am pleased to state that
prices are on the decline now following steep decreases in prices of crude and other commodities.
 
On the regulatory front, your Company continues to lead intense efforts with Government to ensure a
balanced environment for sustainable growth.
 
It remains for me to thank all who have contributed to the Company’s achievements during the year - our
people, the consumers who have enthusiastically purchased our products, our suppliers, our financial partners
and most of all, you dear fellow shareholders.
 
Dr. Vijay Mallya Chairman