Penfolds owner Treasury Wines delivers improved profit while flagging price increases

Penfolds owner Treasury Wines delivers improved profit while flagging price increases

Image via Treasury Wines. 

Treasury Wines (ASX: TWE), the owner of major wine labels including Penfolds and Wolf Blass, was able to effectively manage the closure of the mainland China market to Australian wine products in FY22, seeing net income rise by 2.6 per cent to $523.7 million in the period despite a 5.7 per cent drop in overall revenue.

Navigating macroeconomic challenges, including the global pandemic, significant supply chain disruptions, and inflationary cost pressures, the Melbourne-headquartered winemaker lifted its profit margins by 1.3 per cent from FY21 to 21.1 per cent.

The performance was driven by standout growth in its premium and luxury portfolios, which enabled Treasury Wines to introduce targeted price increases in FY22, with additional price hikes expected to be implemented on selected brands in early FY23.

Founded in 1843 with the establishment of Lindeman’s Vineyard in the Hunter Valley, Treasury Wine's FY22 results come a week after it secured an unprecedented and historic win in the Chinese courts against Penfolds copycat brand Rush Rich.

“Relentless execution of our F22 priorities resulted in strong operating and financial performance in each of our brand portfolio divisions,” TWE CEO Tim Ford said.

“Pleasingly, we have returned to delivering margin accretive earnings growth in a year where we managed through the effective closure of the mainland China market, materially reshaped our Treasury Americas division and navigated a global macroeconomic backdrop that included the global pandemic, significant supply chain disruptions and inflationary cost pressures.

“The results we have announced today reflect the fundamental strengths of our diversified global business, the flexibility of our operating model and the outstanding execution capability of our teams.”

Treasury Wines began FY22 by transitioning to a new brand-portfolio-led operating model consisting of Penfolds, Treasury Americas and Treasury as it looked to accelerate its focus on its premiumisation strategy.

This approach included raising awareness of its brands by investing in high profile partnerships, including tying up Wolf Blass with HBO during the launch of Game of Thrones: Houseof the Dragon, Pepperjack with the AFL, and Squealing Pig with the Australian Open.

The Penfolds division, which reported an 8 per cent decline in EBITS to $319.3 million during FY22, is gearing up to launch its first wine produced in China and made for the Chinese market.

Expected to sell for between $30 and $50 per bottle, the range will be predominantly cabernet-focused, using grapes from winemaking regions Ningxia, in China’s central-north, and Shangri-La, in the south-western Yunnan province.  

It was the division most impacted by the significant decline in shipments to China, partly offset by a 106 per cent growth across other Asian markets.

Penfolds continued to grow its international presence during the year, purchasing an additional winery and vineyard in Bordeaux to support its French portfolio.

It also plans to acquire a 78.6 per cent stake in Chateau Lanessan from the Bouteiller Family for approximately $60 million – set to be completed early in early FY23, which would more than double Penfolds vineyard footprint in Bordeaux and significantly increase production capacity.

Treasury Premium Brands continued to drive growth across the Asian market, sourcing wine from South Africa and Chile for its Rawson’s Retreat label in response to Chinese tariffs, ensuring its popular brand doesn’t lose momentum.

The division reported a 27 per cent increase in EBITS to $79.6 million, with the margin increasing 2.5 percentage points to 10 per cent, with a strong performance by priority brands including 19 Crimes, Pepperjack, Squealing Pig and Wynns.

Following the completion of significant changes in the brand portfolio and asset base, the materially reshaped Treasury Americas division is now concentrating on luxury and culture-led experiences for the world’s largest wine market.

The Americas arm reported a 21 per cent increase in EBITS to $185.6 million, led by standout growth from Beringer, Stags’ Leap, Matua and 19 Crimes - now Treasury Wines' second global growth brand behind Penfolds.

It snapped up Frank Family Vineyards in November last year for US$315 million (AUD$433 million at the time) as it looked to fill a critical portfolio gap for luxury chardonnay.

Treasury Wines is targeting a significant opportunity to become a global leader in emerging segments of the wine category, launching Matua Lighter in the United States and the Wolf Blass Zero range in Australia during the year.

With uncertain economic and geopolitical trends set to continue in global markets throughout FY23, Treasury Wines believes its global footprint and flexible operating model are well positioned to navigate these headwinds.

“After two years of significant change, we enter F23 with momentum, focused on our objectives of delivering quality earnings growth, efficient capital utilisation and sustainable shareholder returns,” Ford said.

“Our recent track record of successfully adapting our business to deliver growth, despite a number of challenges, gives me great confidence in the fundamental strengths of our business and our capability to navigate future challenges and uncertainty.”

Treasury Wines expects long-term macro trends to continue supporting category premiumisation, with the wine industry historically resilient through past economic downturns. It believes it is well-positioned to continue its momentum to deliver strong growth and predicts EBITS margin expansion toward the 25 per cent group target.

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