Money owed by disgraced billionaire Vijay Mallya helped plunge United Spirits Limited (USL), the Indian business controlled by Scotch whisky maker Diageo, into quarterly losses.
USL – India’s biggest alcoholic-drink company – reported net losses of around £183million for the three months to March 31.
The shortfall was partly caused by the firm setting aside a provision to cover for cash owed by businesses controlled by its chairman, Mr Mallya, whose business interests span Formula 1 racing team, football and cricket club ownership as well as alcoholic drinks.
USL, which is in the midst of a boardroom battle and an accounting scandal, recorded exceptional items worth about £178million in the quarter.
These included an amount of more than £100million due to the company from United Breweries (Holdings), the holding entity of Mr Mallya’s United Breweries Group (UBG).
On April 25, USL’s board asked Mr Mallya to resign after an internal probe suggested he may have been involved in financial irregularities.
The investigation was led by chief executive Anand Kripalu, who was appointed last year by Diageo, which owns close to 55% of the business.
Mr Mallya refused to quit, saying the accusations against him were unjustified and false, while the inquiry – conducted with the help of audit firm PwC – was “severely flawed”.
According to USL, which threatened to go to USL shareholders to seek Mallya’s removal, the alleged financial irregularities occurred between 2010 and July 2013.
Diageo, whose whisky brands include global market leader Johnnie Walker, Bell’s, Buchanan’s and J&B, has contractual obligations to support Mr Mallya continuing as non-executive director and chairman of USL.
But the UK company has already said it will review its shareholder deal with Mr Mallya.
Among other issues, USL’s internal inquiry looked at loans given by the firm to prop up Mr Mallya’s now defunct Kingfisher Airlines operation between 2010 and 2013.
USL said the inquiry revealed the company may have understated the amount owed by United Breweries (Holdings).
The companies struck a deal in July 2013 to consolidate existing loans into one worth £136million, but USL is now suggesting the amount may be higher.
USL has been losing market share to rivals Pernod Ricard India and Allied Blenders and Distillers over the past four years.
Total income from operations rose 5.5% to £208.6million in the March quarter as higher prices offset weak demand.
The company also said it would have to get an approval from the central government to pay the salaries of Mr Kripalu and chief financial officer P.A. Murali, who left the company last month, as their salaries exceeded the limits allowed under India’s Companies Act.
London-based Diageo, which also makes Guinness and Smirnoff vodka, took control of USL from UBG in a £1.3billion deal in 2013.