Wine tariffs imposed by the China have resulted in a 7.5% drop in net profit after tax in the first half of FY22 for Treasury Wine Estates.
Reported EBITS declined 7% to $262.4million, however they were up 28% excluding Australian COO sales to Mainland China, driven by global distribution growth for Penfolds and growth in TWE’s other Luxury and Premium portfolio brands. Net service revenue (NSR) per case improved 16%.
The company said the strong premiumisation trend saw 83% of NSR contributed by the Premium and Luxury portfolios.
NSR declined 10.1% to $1,267.0million, reflecting the impact of TWE’s US Commercial portfolio divestiture – including the Provenance and Chateau St Jean brands and surplus supply chain assets – and the significant decline in shipments to Mainland China.
TWE CEO Tim Ford (above) said: “We are very pleased with our first half results, where we delivered comparable EBITS growth of 28% when taking into account the effective closure of the Mainland China market, while at the same time continuing with the implementation of important changes across the business.
“This performance reflects the focused execution of our plans and strategic priorities, led for the first time by Penfolds, Treasury Americas and Treasury Premium Brands. Each division is now on a clear and positive trajectory towards their respective long-term growth objectives, with the benefits of separate focus and accountability already very evident throughout TWE.
“Following the past two years of significant change within TWE and the markets in which we operate, we have shifted our focus from a mindset of ‘recovery and restructuring’ to one of ‘growth and innovation’. We have great confidence that by leveraging the unique strengths of our business – our people, our brands and our asset base – we are well placed to capitalise on the significant opportunities across the global markets in which we operate.”
The company noted that “focused execution of strategic priorities under the new divisional operating model delivered positive momentum throughout TWE”.
Penfolds reported a 19% decline in EBITS to $165.1million due to reduced shipments to Mainland China, partly offset by strong growth across global priority markets and channels, with NSR and EBITS outside of Mainland China increasing by 49.1% and 32.1% respectively on a constant currency basis. Penfolds growth was particularly strong in Asian markets outside of Mainland China, where NSR grew 119%, supported by strong depletions trends. Increasing distribution in Asia, ANZ, Europe and the United States was described as “a key execution highlight”.
Penfolds is also transitioning to a single global release date for its multi country of origin portfolio, commencing in August 2022 when the Australian, Californian and French country of origin wines will be released as the Penfolds Collection. As a result, the Californian and French portfolio releases that were due in the second half of FY22 will now be deferred to the first half of FY23.
Penfolds Managing Director Tom King said the Penfolds Californian portfolio was creating growth in China.
“The real positive from the release in the California collection is that we’re seeing huge demand for it globally, it’s across the board,” he noted. “So we’re having a tough time in terms of managing the allocation of that to where the demand is. Priority markets where we’ve been allocating that are absolutely the US. That is supporting our ambition to build the Australian portfolio and we’re seeing some really strong results at the back of that, and also in China.
TWE noted that Penfolds’ partnership with the Victorian Racing Club as the new Victoria Derby Day partner had been a huge success with influencer activity alone, generating over 25 million organic views across social media during the week.
In November, Penfolds partnered with BlockBar, a leading NFC marketplace to launch a limited edition NFC tied to a rare Penfold rare Penfolds Magill Cellar 3 barrel. The NFT sold in just 12 seconds for $US130,000.
Treasury Americas reported a 19% increase in EBITS to $85.2million. The TWE priority portfolio continued its strong momentum, delivering 18.8% NSR growth, led by Luxury portfolio performance in the on-premise and DTC channels where progressive reopening trends continued.
Premiumisation remains a dominant theme in the US wine market, with continued growth in the above US$11 price points offsetting declines below US$11. TWE said restoring momentum in Treasury Americas US$8-11 portfolio would be a “key execution priority”.
Regarding 19 Crimes, Ford said the UK is fast approaching the US in terms of the volume.
“Trajectory is significant – 19 Crimes globally for us is broadly 40% sold outside of the US,” he said. “So while it’s performing brilliantly for us in that market, the UK’s leading the charge, as are some of the markets here in Asia and ANZ as well.”
Treasury Premium Brands reported a 19% increase in EBITS to $39million. NSR declined 5.6%, with the impact of reduced Commercial portfolio volumes in EMEA and ANZ, moderated by the growth of key Premium portfolio brands, including 19 Crimes, Squealing Pig and Pepperjack. Treasury Premium Brands continued its focus on innovation led portfolio growth, with the successful launch of the Wolf Blass Zero alcohol range and new multi-country of origin offerings for Rawson’s Retreat and Blossom Hill key execution highlights.
Managing Director Peter Neilson said: “We continue to see exceptional growth in 19 Crimes across our priority global markets with strong sales growth continuing in EMEA and sales and distribution growth across Asia. Pepperjack continued its momentum in Australia and successfully gained distribution in new markets overseas, including Sweden, Singapore, Thailand, and Malaysia with other markets to follow pending customer registration. Wynns achieved significant overseas growth with strong depletions in Southeast Asia, significant distribution growth in Hong Kong, and some major listings in UK retail and the on-premise.
“We successfully launched Wolf Blast Zero in the half, premiumising the fast-growing non-alcohol segment with an icon wine. Early performance indicators have been strong with positive customer feedback in wine reviews and leading rates of sale in distributed outlets. This is an area we will continue to invest in, further evolving our technology and offerings in this segment.”
TWE said it expects that trading conditions for the remainder of FY22 will be broadly consistent with those in the first half of FY22 across all key global markets and channels.
In Australia, TWE said vintage 2022 growing conditions have been mixed to date, with welcome early winter/spring rainfall at the start of the season followed by pockets of frost across key growing regions, in addition to hailstorms in the Barossa Valley and Adelaide Hills.
It has been a mild and dry summer in all key viticultural regions, with current expectations for average yields in inland regions and lighter yields in cooler regions.
“Proactive adjustments to sourcing will continue to be made in response to Commercial category volume declines and
changed demand expectations for Mainland China,” TWE said.
In California, vintage 2021 was lighter than average due to persistent drought conditions across California, yet TWE said quality is expected to be high, particularly for premium reds. Yields in Napa Valley and Sonoma County vineyards were more impacted than the Central Coast, which was assisted by early irrigation from ground water. The lower than average
vintage 2021 has brought the market into supply deficit across a number of tiers and varietals, which has led to
limited availability of bulk wine and upward pricing for fruit and bulk wine.
New Zealand’s vintage 2022 growing conditions for the Marlborough region have been positive, with warmer than average
temperatures and average rainfall. Current expectations are for above-average industry tonnage across the
regions. TWE said it is comfortable with the supply position for its NZ sourced portfolio compared to expectations for
demand in F22 and F23.
In France, vintage 2021 industry volume was historically low due to the spring frost and challenging growing season. Quality
was variable between key regions and sub regions, with Cabernet Sauvignon a standout in terms of high quality.
Low supply of luxury red and white wine has led to price increases across the market.
However, TWE said it was a good quality third vintage from Bordeaux despite the challenging weather conditions.