TWE reveals how it returned to growth

TWE has returned to growth after prohibitive tariffs were placed on Australian wines exported to China in 2020.

Australian winemakers exported about $1.3 billion worth of wine a year to China before the tariffs were imposed. TWE was the biggest Australian exporter and was hit with a tariff of 175.6% for five years..

However, the company has posted a 5.3% rise in annual profit for FY22, with strong US sales and price rises offsetting the loss of most of its Chinese market.

“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,” said Treasury Wine chief executive Tim Ford (above, with .

“After two years of significant change, we enter 2023 with momentum, focused on our objectives of delivering quality earnings growth, efficient capital utilisation and sustainable shareholder returns.”

Path back to China

TWE said its Penfolds inaugural French release had ioined the Australian and Californian portfolios to form the 2022 Penfolds Collection, with its inaugural China country of origin wine to launch in the first half of FY23.

The Chinese-made Penfolds wine will sell for between $30 to $50 a bottle and will hit the market in China in late September.

The company announced it had acquired for $60 million the Chateau Lanessan winery in Bordeaux in France to boost volumes in its Penfolds-made French wine portfolio.

TWE also received a landmark win in the Supreme People’s Court of China earlier this month, against Chinese-Australian company Rush Rich, which it alleges has been copycatting its Penfolds wine in China.

The decision ends a long standing battle in courts in Australia and China, which TWE sees as highlighting its determination to stamp out fakes and copycatting of its popular Penfolds brand in the China market.

TWE said the court decision followed moves by Rush Rich to register trademarks which were similar to a large number of luxury brands selling in China including Penfolds and car company Bentley.

“The decision was made on the grounds of bad faith and Rush Rich’s illicit conduct in registering a large number of trademarks for a range of renowned global luxury brands including Penfolds and Bentley,” TWE said in a statement.

The brands driving TWE growth

The Penfolds division experienced an 8% decline in earnings to $319.3million and a 9.1% dip in sales to $717.3m, reflecting the sharp decline in shipments to China, but partly offset by strength in other markets.

In North America there was a 2.5% lift in sales to $963.4million and a 20.5% rise in earnings to $185.6million led by brands such as Beringer, Stags’ Leap, Matua and 19 Crimes.

Sales fell 5.3% for Treasury Premium Brands to $796million, however earnings rose 27% to $79.6million. The strong performance was led by brands including 19 Crimes, Pepperjack, Squealing Pig and Wynns.

Ford told the Australian Financial Review that he’s not seeing any signs that consumers are cracking under the weight of surging inflation and higher interest rates.

“We really haven’t seen that at all,” Ford said. Retailers are allocating a bit less space for these mid-priced wines (with more space to cheaper and more premium drops), but he said sales volumes have held up even in the face of price increases.

The company lifted the price of Penfolds Grange early last month to $1000 a bottle for the new 2018 version, up from $950. It has also lifted prices for higher-end Penfolds cabernet wines.

Wines such as Matua from New Zealand had a price increase of $1 a bottle; Squealing Pig from New Zealand also went up; while higher-end wines from California under the Frank Family and Stag’s Leap went up $5 or more a bottle.

Innovations leading the way

TWE said it was investing in high profile partnerships to raise brand awareness, such as teaming up with Warner Bros to celebrate the release of HBO’s House of the Dragon, the hotly anticipated prequel to one of the most-watched TV series in history – Game of Thrones.

Wolf Blass has launched a limited-edition wine, available in three limited-edition labels. Fans can step back into the World of Westeros with Wolf Blass’ House of the Drago Cabernet Sauvignon Shiraz, a fiery, classic Australian red blend wine.

In September, TWE will extend its partnership with Snoop Dogg to include 19 Crimes Cali Gold sparkling wine.

TWE has also partnered with the Sydney Gay and Lesbian Mardi Gras as the official wine supplier and proud partner of the festival.

The new three-year partnership incorporates the 2022 to 2024 festivals as well as the global pride event Sydney WorldPride in 2023, which is expected to be the largest event in Sydney since the 2000 Olympics and the largest celebration of inclusivity and pride in the Southern Hemisphere.

The partnership focuses on Treasury Premium Brands, including Squealing Pig.

TWE Pride Lead ANZ Leon Butler (pictured main) said that its members have been instrumental in ensuring the partnership between TWE, its brands, and Mardi Gras is brought to life in a meaningful way.

“It’s an absolute delight to be working closely with the team at Sydney Gay and Lesbian Mardi Gras – the ultimate celebration of diversity in Australia – to bring our love of equality to life for all,” he said.

Future perspectives

TWE said its long-term financial objective remains to deliver sustainable top-line growth, high single-digit average earnings growth and a Group EBITS margin target of 25%+.

Supporting this objective will be continued portfolio premiumisation, growth in distribution, demand and availability for TWE’s priority brands, cost optimisation and category leading, consumer-led innovation.

TWE said wine consumption in its key global markets is currently, and expected to remain, strong for premium and luxury price points, reflecting the continuation of long-term premiumisation trends and the historical resilience of category performance through past economic downturns.

Supply chain and input-cost inflationary pressures are expected to continue, with an incremental $25million currently estimated in FY23.

In addition, TWE’s luxury inventory which will be sold in FY23 will be primarily from the 2020 Australian and Californian vintages, which were both lower yielding and higher cost.

TWE has implemented further price increases within all divisions in F23, specifically on growing premium and supply constrained luxury brands.

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