By Scott Wright

SCOTCH whisky giant Chivas Brothers has reported a steep fall in sales amid the fall-out from coronavirus, as its chief executive and chairman emphasised the importance of the removal of US trade tariffs on single malt for the future of the industry.

Dumbarton-based Chivas saw Scotch sales fall by 11 per cent as lockdown measures brought in to halt the spread of the virus had a dramatic effect on the on-trade and travel retail markets around the world in the second half of its financial year, offsetting a “resilient” off-trade performance.

Chivas Regal and Ballantine’s, the distiller’s flagship blended Scotch whiskies, reported sales falls of 17% and 8%, with The Glenlivet the only part of its core whisky portfolio to grow over the year. At patent group level, owner Pernod Ricard reported profits from recurring operations fell by 13% to €2.26 billion, with the French drinks giant warning that it faces “continued uncertainty and volatility” and “challenging economic conditions”.

Jean-Christophe Coutures, chairman and chief executive of Chivas, said the distiller’s Scotch whisky portfolio had shown “resilience” in the face of tough market conditions, pinpointing The Glenlivet as its “star performer” over the period. Sales of the luxury Speyside malt grew by 2% globally, which came amid growth of 6% in the domestic market and 16% in the US.

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However, Mr Coutures said the future prospects of the single malt category in the US depend on the removal of tariffs imposed by the Trump administration, which official figures show have resulted in a steep declined in exports to the market since their introduction in October.

Figures released by the Scotch Whisky Association suggest the 25% import tariff has resulted in £30m of exports being lost to the industry each month. Last year the industry exported £1 billion of Scotch to the US, of which single malt accounted for £300m.

Mr Coutures said bringing an end to the tariffs in the biggest export market for Scotch whisky was important not just for major brands such as The Glenlivet but for the many small distillers which are “suffering” and unable to gain “traction” in the market because of the regime. He said the tariffs are putting pressure on smaller players to increase their prices in the market, which he said could put the “category at risk and lose its interest to connoisseurs in the US”.

“From a category point of view, it is important that it is not overly-taxed and, for the viability of those small distillers, important they can still reply on this US business, which for them is so important.”

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The introduction of the tariffs led Chivas to increase its prices in the US, which has had an effect on sales at the higher end of the Glenlivet portfolio, with entry-level whiskies in the range performing better. However, those trends may also have been driven by the weakening in consumer confidence caused by the pandemic.

Mr Coutures added: “Even for us, owning The Glenlivet or Aberlour, which are large brands… it is very clear that we need the richness of the category in order for us to keep performing.”

Mr Coutures acknowledged efforts to have the tariffs cut were being hampered by the Covid crisis and the forthcoming US Presidential election, but he expressed confidence a resolution could be reached by the middle of next year. He signalled his hope that the UK could bring more influence on the matter after it formally leaves the European Union on December 31. The current US tariffs on single malt were brought in by Washington in retaliation to subsidies given by the EU to Airbus, the French aircraft manufacturer.

On Brexit, Mr Coutures signalled his hope that a deal will be agreed between the UK and the EU by the end of the year, though Chivas prepared for no-deal by increasing inventory levels in the event there is congestion at borders. He also expressed his hope that the UK will be able to strike free trade deals with countries such as India and China after Brexit that could benefit Scotch.

Mulling the outlook, Mr Coutures said he was still confident about the growth prospects for Scotch, pointing to the rapid growth it experienced following the financial crisis of 2008 and 2009. “I remain very optimistic on the resilience of the category,” he said.

Mr Coutures said the company has completed the transfer of its bottling operations from Paisley to Kilmalid in Dumbarton. Production at its 13 distilleries has returned to nearly full capacity following the interruptions caused by lockdown.

Pernod reported a 9.5% fall in organic sales for the year to €8.45bn. Sales dropped by 6% in in the Americas and Europe, where the company said performance has been “resilient”. But sales fell more steeply, by 14%, in Asia and the rest of the world, driven largely by China, India and the travel retail market “against a basis of high comparison” with the year before.

Alexandre Ricard, chairman and chief executive of Pernod, said the company had shown resilience throughout the year but warned that it “expects continued uncertainty and volatility, in particular relating to sanitary conditions and their impact on social gatherings, as well as challenging economic conditions.”

He added: “We anticipate a prolonged downturn in travel retail but resilience of the off-trade in the USA and Europe and sequential improvement in China, India and the on-trade globally.”