Shares of USL, however, rose 7.45% to Rs 2,553.20 on the Bombay Stock Exchange as the company's board also approved a series of licence and distribution agreements with entities of the Diageo group, which will give it exclusive rights to import, manufacture and distribute liquor brands belonging to Diageo. Currently, these licences are held by Diageo's Indian arm.
The transfer of these licenses marks the last leg of its integration with the British spirits firm which owns brands such as Johnnie Walker, Smirnoff and VAT 69 in an acquisition process that began nearly two years ago. These arrangements will result in an expansion in the business activities that USL currently performs on behalf of the Diageo brands, with the intention for USL to capture increased market share of value in India, USL said.
The board also gave its nod to sale of two factories in Malkajgiri (Andhra Pradesh) and Palakkad. Besides it also approved a proposal to monetise the surplus assets of the company.
The loss during the April-June quarter was partly on account of an additional provision of Rs 42.79 crore related to the sale of its Scottish subsidiary Whyte&Mackay (W&M). USL's net sales declined 11.12% year-on-year to Rs 1,908.98 crore from Rs 2,147.88 crore a year ago.
In the previous quarter, USL had made provisions of Rs 4,321.63 crore for write-offs in the W&M sale as the sale proceeds were insufficient to fully repay intra-USL loans. The Scotch distiller was sold to address competition concerns in the UK arising from Diageos acquisition, but the write-offs have led to an erosion of USL's net worth and the company will have to file a report under Section 23 of the Sick Industrial Companies (Special Provisions) Act, 1985.
The board of directors has approved reporting to the Board of Industrial and Financial Reconstruction the fact of the accumulated losses of the company as at the end of the financial year March 31 2014 resulting in the erosion of more than 50% of the company's peak net worth during the immediately preceding four financial years and for this purpose the board has approved the convening of an extraordinary general meeting, the company said in a communication to the stock exchanges.
USL's quarterly results have been delayed because of the review of its books under its new owners, and the company only announced its FY14 earnings in September. The liquor firm, in which Diageo now controls 54.78%, had ordered a detailed probe into receivables of Rs 590 crore from various debtors who claimed to have provided loans to certain "alleged" entities of the Mallya-owned UB Group. The board had also asked USL's managing director to inquire into the recoverability of pre-existing loans given to the Mallya's holding company United Breweries Holdings (UBHL).
Meanwhile, former CEO of Diageo, Paul Steven Walsh, resigned as a director on the board of USL with effect from October 20. The board has approved the appointment of Nicholas Bodo Blazquez, who is President, Diageo Asia Pacific and Africa.