Chapter 5

Capital Allocation

Pernod Ricard deployed capital pro-cyclically. In FY2023, at the top of the cycle, it spent roughly €1.9bn on acquisitions and buybacks combined and pushed strategic investment toward a €1.2bn peak; as sales, margins and the share price then fell, it cut buybacks to near-zero and turned to selling assets. The policy behaved exactly as written — buybacks rank last — and the current disposals are disciplined pruning. But the timing means shareholders funded the top and are watching management tidy up at the bottom.

The stated order

Management publishes an explicit priority ladder, unchanged through the cycle: first, organic investment in strategic inventories and capital expenditure; second, value-creating acquisitions; third, a dividend at about half of recurring net profit; and only fourth, "Share buyback, when above priorities are fulfilled" [1]. Buybacks are the residual, the last claim on cash. That ordering matters for what follows: it means the buyback line is designed to swell when cash is abundant and to vanish when it is not — which is close to the opposite of buying value.

Deployment at the peak

The two boom years put that residual to work. In FY2022 the group spent about €750m on buybacks and roughly €723m on acquisitions [2]. FY2023 was heavier still: another ~€750m of buybacks and €1,129m of net acquisitions — "the most active year in a decade, with over €1bn invested to complement our portfolio," in management's words [3] [4]. The acquisitions were concentrated in exactly the pockets that later reset: US Premium-plus and agave — Código 1530 tequila, Skrewball flavoured whiskey, the Canadian ready-to-drink leader Ace Beverage, and a reinforced stake in Sovereign Brands.

Source: net acquisitions of financial assets and treasury-share cash lines, FY2023 results [5] and FY2025 results [6]. Negative values denote net inflows from disposals.

Sources: FY2023 results, cash flow statement [7]; FY2025 results, cash flow and highlights [8] [9].

Strategic investment — capital expenditure plus the aged spirit laid down for future years — is a slower lever and the least discretionary of the three, but it too peaked with the cycle. Management put "€1.2bn in Capex and Strategic Inventories" in FY2024 and has been walking it back since, guiding FY2026 strategic investment to below €900m [10]. The whisky and cognac laid down at peak prices will age into a market that is, for now, softer than the one it was ordered for.

The reversal

Once cash tightened, the residual did what a residual does. Buybacks fell from ~€750m a year to €334m in FY2024, then €11m in FY2025, and €10m in the first half of FY2026 [11] — effectively switched off, even as the shares fell by roughly two-thirds over five years. The acquisition line reversed sign: net acquisitions of €723m and €1,129m in FY2022–FY2023 became net inflows of €38m and €134m in FY2024–FY2025 as disposals overtook purchases [12]. The company that was the market's most active buyer in FY2023 had, two years on, become a net seller. The pause is consistent with the leverage picture set out in Cash and the Dividend — at 3.8x net debt to EBITDA, halting buybacks is prudent, not a blunder — but it is also the mechanical outcome of a policy that spends when the price is high and stops when it is low.

The bolt-ons that soured

Two of the boom-era purchases have already been written down in part. The wine assets acquired and held through the cycle drove a €495m impairment in FY2024 (partly offset by a reversal on Kahlúa) [13], and the first half of FY2026 carried a further €186m of goodwill and asset impairment [14]. Set against that, the balance-sheet damage has been contained: group goodwill rose from €6,145m (FY2022) to roughly €6,800m as the deals closed, then edged down to €6,406m by June 2025 — a modest net movement, not a wholesale re-rating of the acquired brands [15]. The impairments so far are the visible edge of a portfolio bought late in the cycle, not evidence that the core franchise value has cracked.

Pruning in the trough

The reversal is not only forced restraint; part of it is genuine housekeeping. Through FY2024–FY2026 the group has sold its Australian, Spanish and New Zealand wine business, then the Imperial Blue mass-market Indian whisky division to Tilaknagar Industries in November 2025, and signed to sell its US sparkling wine brands — Mumm Napa, Mumm Sparkling California and DVX — to Trinchero [16]. The stated logic is coherent with the pricing story in Pricing Power: shed the lower-margin, local and wine assets to "focus its resources on its international premium spirits and champagne brands" [17]. And these were not distress sales: the group booked net gains on disposals of €292m in FY2024 and €93m in FY2025 [18], and a further €310m gain in the first half of FY2026 [19] — proceeds above carrying value, which argues the pruning is disciplined rather than desperate.

Sources: FY2022–FY2023 results and FY2023 URD [20] [21] [22]; H1 FY2026 interim report [23].

The read

On the evidence, capital allocation over this cycle rates as competent stewardship undermined by timing. The franchise itself was built by a generation of large, value-creating deals — the acquisitive DNA traced in After the Boom — and today's portfolio surgery is the same instinct applied sensibly: sell the low-margin tail at a gain, concentrate on premium international spirits, protect the investment-grade rating. The strongest fact against a harsher verdict is that the disposals cleared their carrying value and goodwill has barely moved, so the boom-era brand book has not, so far, proved a mirage.

The strongest fact for a harsher verdict is the shape of the deployment curve. The group put its largest discretionary cash to work — roughly €1.9bn of acquisitions and buybacks in FY2023 alone — at the peak of earnings and the peak of its own share price, then withdrew both as the price collapsed. A buyback that is the residual claim on cash will always do this; it is a feature of the stated policy, not an accident of one year. Two things would change the read. If buybacks resume in scale once leverage falls back toward 3x, executed at prices far below the FY2023 levels, the pro-cyclical criticism softens into "bought high once, then bought low." If instead goodwill impairments accelerate on the Premium-plus bolt-ons as the US agave and flavoured segments stay soft, the FY2024–FY2026 write-downs stop looking like an edge and start looking like a trend.