Pernod Ricard writes down value of Absolut

Pernod Ricard has been hit by a 15% drop in 2014/15 full year net profits following a substantial write-down of its Absolut Vodka brand.

Absolut Vodka has been hit with an impairment charge of €404 million

The French drinks group took a €404 million impairment charge on Absolut as the brand continued to struggle in its key US market.

Overall, the firm’s net profits plummeted 15% to €861m, however organic profit increased 2% to €2.2 billion and organic sales also grew 2% to €8.5bn.

Pernod said Absolut, the group’s largest brand by volume, had experienced a “disappointing year” in the US, where sales fell by 5% in a “competitive” environment. In total, the brand saw its net sales slide 1%, with its flavoured portfolio experiencing the poorest performance.

The group said it will put a “strong action plan” in place to “stabilise” the brand in the medium-term, focusing on the development of its super-premium brand extension Absolut Elyx.

Pernod’s top 14 spirits and Champagne brands returned to growth with a 2% organic sales increase, driven by Jameson and The Glenlivet, both of which grew net sales by 10% and 11% respectively.

Martell Cognac returned to marginal growth, reporting a net sales increase of 2% as its key Chinese market begins to stabilise. However, the brand’s prestige offerings have continued to be affected by the country’s on-going austerity measures.

Royal Salute was also hit by turbulence in the Chinese market, with net sales falling 8%, while Chivas Regal sales also stood stagnant and Ballantine’s saw a marginal uplift.

Malibu, which the Pernod last year admitted might have released “too many” innovations, also continued its downward trend as net sales dropped 3%.

Market turbulence

In terms of markets, the group returned to growth in the Asia and ROW region, attributing a 4% sales increase to “improving” performance in China, where Pernod’s sale dropped 2% – a significant improvement on its 23% sales dive in 2013/14.

The group also recognised “very strong dynamism” in India as sales shot up 18% thanks to the strength of its Indian whisky brands.

Excluding the poor performance of Absolut, the US had a “stable” year with Jameson, The Glenlivet and Martell all reporting double-digit growth. While sales grew 5% in the Americas excluding the US, Pernod’s figures dropped 2% in Brazil in Q4 due to a “worsening macroeconomic environment”.

In Western Europe, sales stood stagnant, while Russia demonstrated “good resilience” in Eastern Europe.

“Our full year results are solid, delivering improving sales and profit from recurring operations in line with guidance,” said Pernod Ricard CEO Alexandre Ricard. “Our strategy has remained consistent and is delivering results.

“For FY15/16, despite a challenging and volatile macroeconomic environment, we aim to continue gradually improving our business performance. We will continue to support priority brands and innovations while focusing on operational excellence.”

Pernod Ricard’s cost-cutting programme, Project Allegro, decreased the group’s structure costs by 3%, leading to savings of €150m. The initiative was revealed in February last year and included plans to shed 900 people from the firm’s global workforce.