Treasury Wine Estates portfolioBusiness

Inside the Treasury Wine Estates restructure

Treasury Wine Estates has revealed that it will restructure its business to shift from a sales region led business model to a brand led one.

Effective July 1, 2021, it will operate under three new divisions – Penfolds, Treasury Premium Brands and Treasury Americas – with each having unique strategic, geographic and consumer characteristics to maximise growth opportunities. 

The three divisions will be serviced by centralised business, supply and corporate functions. 

The first division, Penfolds, will be led by Tom King, current Managing Director Asia. CEO Tim Ford said the move will give it the opportunity to “focus on becoming a truly global luxury iconic brand”.

“Tom and his team will focus on driving future growth by building the consumer base globally, developing new sales channels in key geographies and by driving the new U.S. and French country of origin portfolios,” Ford added.

The second, Treasury Premium Brands, will be led by Peter Neilson, current Managing Director ANZ. Ford said the division will “elevate its focus on delivering consumer-centric and innovative premium offerings that meet multiple consumer occasions”.

“The focus for Peter and his team will be to drive top line momentum and to step change profitability, implement a fit-for-purpose capital base and unleash the potential of a diverse and iconic portfolio of brands through innovation, away from the shadow and competing needs of the Penfolds portfolio,” Ford explained.

“We believe the ability to unlock the full potential globally of brands such as Wynns, Pepperjack, Squealing Pig, Seppelt, Wolf Blass and St Huberts The Stag, to name a few, must be enhanced with this separation.”

The third, Treasury Americas, will see current President Ben Dollard focus on leading the premium wine category in the region.

“With respect to the divestiture of brands and assets, we are progressing the planned exit of a significant portion of the commercial brand portfolio in the US,” Ford said. “And further, we are announcing today that we’ll be exploring additional opportunities for brand, asset and lease portfolio rationalization as we continue to prioritize the growth of our focused premium brand portfolio to drive the future performance and growth in that region.”

Supporting the three portfolio led divisions will be Treasury business solutions to be led by Matt Young. Supply operations will be led by Kerrin Petty, current Director Global Supply Chain. He will be responsible for the growing, sourcing, production and delivery of all the TWE portfolio in all geographies, except for the US, which will fall under the responsibility of Treasury Americas and Dollard.

Treasury Wine Estates interim 2021 results

TWE also announced its interim 2021 financial result, revealing that its net profit after tax is down 24% to $175.3million. 

On a statutory reported basis, net profit after tax was down was down 43% to $120.9million, while TWE reported EBITS of $284.1million, down 23%  One of the key reasons behind the fall was the ongoing impact from global pandemic disruptions to sales channels for higher margin luxury wine across key regional markets, in addition to reduced shipments in China resulting from the Chinese government’s investigations into imports of wine by Australian producers. 

Asia reported a 28% decline in EBITS to $127.2m and an EBITS margin of 38.2% (down 4.9ppts) with China shipments reduced due to the MOFCOM investigations in addition to pandemic restrictions which continued to impact luxury portfolio performance across other Asian markets. 

However, TWE said it saw “progressive and consistent recovery in consumption through 1H21”, with positive trends in a number of markets.

Americas reported a 15% decline in EBITS to $83.1million, with performance impacted by disruptions from pandemic restrictions and the Californian wildfires on key channels for higher margin luxury wine. 

However, Dollard said the launch of 19 Crimes Cali Red has been a “tremendous success: in the half.

“[It was] recognised as the most successful launch of a new brand in the category in 2020, with IRI scans more than two times the next brand introduction,” Dollard said. “Of note, we are delighted that 77% of Cali Red consumers are new to the 19 Crimes brand, and 20% of consumers are new to the wine category. We are very pleased with the trade and consumer response.

“We are really excited to announce the launch of Cali Rosé in March to coincide with the spring season.”

Dollard added that the consumer “continues to premiumize” in the US, with the $11 to $20 and above $20 price points growing in retail by 18% and 26%, respectively, in the six months to December 2020. 

The wins and losses in Australia

Treasury Wine Estates Australia and New Zealand reported a 12% decline in EBITS to $75.3million, reflecting the ongoing impact of restrictions on people movement to key sales channels for higher margin luxury wine. TWE said that in retail and e-commerce, its portfolio continues to perform strongly.

Neilsen said Squealing Pig “continues to dominate across the market” in Australia.

“We successfully activated our largest campaign to date this half across media and retail channels,” he added. “Squealing Pig is a great example of product innovation to meet consumer demands across different consumption occasions, and we have seen tremendous success with our Prosecco and Sparkling Rosé and the recent addition of Ginsecco to the portfolio.”

Meanwhile, in addition to retaining its number one Australian Shiraz position, Pepperjack now has the number one Cab Sav and the number one Malbec in the market.

CEO Tim Ford said: “Our first half fiscal 2021 results demonstrate that we are making progress against our TWE 2025 strategy, despite a period of significant disruption. 

“Our progress is the result of disciplined execution of the plans we put in place to manage through these disruptions and highlight the strength of our business models in all regions. 

“I would like to thank our team who have done a great job in delivering these results, and I am incredibly proud of the agility and resilience we have shown during this period. I remain confident that this team has the ability to grow our business in existing and new markets, just as it has done in the past.” 

TWE’s response to ongoing China issues

Treasury Wine Estates said key actions to date regarding the export situation in China include the acceleration of sales, marketing and brand building investment into other priority Asian markets and overhead cost base reductions in China and across corporate functions that net of reinvestment will deliver annualised benefits of $10million from F22 onwards.

TWE said it is becoming “increasingly confident around the opportunity for reallocation of the Penfolds Bins and Icon range to other global markets.”

The company said it expects that demand for its portfolio will remain “extremely limited” while the provisional (or similar) measures announced by MOFCOM remain in place and is therefore planning for minimal EBITS contribution from China in 2H21. 

However, Ford said: “We’ve got the Penfolds California collection which will be launching in China in H2, and we’re seeing strong demand for this. And at the same time, looking further forward, there is strong appetite and demand for the Penfolds French portfolio, of which we are continuing the development at pace.”

As for TWE’s outlook, Ford concluded: “While we expect disruptions to continue across a number of our sales channels through the remainder of fiscal 2021, we are well placed to further our recovery once conditions improve in key channels for luxury wine. The fundamentals of our diversified global business remain strong and I am confident they will continue to support our execution into the future. 

“Further, the momentum behind our strategic agenda continues to build, and the changes we have announced today, particularly in relation to our future operating model, are key foundational milestones towards the ongoing delivery of our TWE 2025 strategy.”

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