Treasury Wine Estates (TWE) has released its HY24 results, which show its operating profit was down 5.8% to $289.8million. The company’s net profit dropped by 11.4% to $166.7 million.

TWE said the results were in line with expectations, reflecting the planned weighting of Penfolds Bin and Icon shipments in F24 to 2H24 in order to retain the flexibility of Penfolds global distribution and pricing models should there be a positive outcome in relation to the review of tariffs on Australian wine sold into China.

TWE said it anticipates a determination to be made in March 2024, in line with the five-month review period announced last October.

Top-line performance was stable with Luxury NSR up 4.3%, offset by lower Premium and Commercial portfolio sales
which declined 2% and 6.5% respectively

TWE said market trends were broadly in line with expectations, with continuing strength of demand for luxury wine in key
markets, resilience in premium wine and the continued shift of consumer preference away from commercial wine.

TWE Chief Executive Officer Tim Ford said: “I am pleased with the ongoing underlying performance of Treasury Wine Estates this period, with strong consumer demand for our priority Luxury brand portfolio continuing around the globe.

“Penfolds continues to perform and strengthen, whilst Treasury Americas has made significant progress in reshaping
its portfolio focus with continued growth of its Luxury brands now supported by the acquisition of DAOU in
December.

“The Premium wine category, whilst resilient, is highly competitive and we continue to innovate and invest to achieve the goal of outperforming the category and importantly attracting new consumers to wine.

“The business is on-track to deliver mid-high single digit earnings growth in F24 and we remain confident that our
premiumisation strategy, preeminent brand portfolio and attractive market fundamentals at luxury price points will
allow us to continue to deliver our long-term growth ambitions.”

The plan for China

Should there be a positive outcome from the tariff review process in China, TWE said would pursue several key initiatives which include:

• Continuing TWE’s existing multi-country of origin portfolio growth strategy, led by Penfolds French, US and Chinese portfolios;
• Re-establishing distribution for Penfolds Australian entry level Luxury portfolio, which includes Penfolds Max’s, Koonunga Hill and One by Penfolds;
• Implementing price increases across certain Bin and Icon tiers, given the expected shift in global demand
  relative to availability, while maintaining the standardised margin structure to Penfolds sales globally in order
  to ensure long-term brand health and price integrity;
• Reallocating a portion of Penfolds Bin and Icon tiers from other global markets to progressively re-build
  distribution in China while maintaining strong momentum of growth in those other markets where Penfolds has
  successfully grown its business in recent years;
• Re-establishing distribution for the Treasury Premium Brands Australian sourced priority portfolio in China,
  including Rawson’s Retreat;
• Incremental sourcing for the Penfolds Bin and Icon tiers to meet existing and future demand, commencing
  with the upcoming 2024 Australian vintage, noting the three to five-year age of release; and
• Expanding sales and marketing resources and investment in China to support incremental portfolio growth
  over time

“From a market perspective, we’re confident that China does remain an attractive Luxury wine market for our brands and a significant growth opportunity for Penfolds over the long term,” Ford said.

:Our confidence in this opportunity, however, goes well beyond the market itself and the dynamics that may exist in the market today and reflects the way that we have maintained our business and the Penfolds brand in China, particularly over the last three years whilst the tariffs have been on Australian wine.

“The retention of a very strong organizational presence onshore has been critical, with our team of over 120 people today, led by an experienced local leadership team who were a key part of the journey in China prior to 2020, and have retained strong connections with our customers, our consumers and relevant industry bodies as well. And our investment in the multi-country of origin portfolio has paid clear dividends, allowing us to retain not only wine on the shelf, but genuine brand presence in the market. We’ve also been very methodical and deliberate in reinvesting the onshore earnings from those sales back into AMP, allowing Penfolds to retain its unique appeal with the Chinese wine consumers.”

Best and worst performing brands & markets

Penfolds reported a 2.9% increase in EBITS to $186.9 million. The result was driven by strong momentum across the portfolio in Asia and Australia.

Treasury Americas reported a 17.5% decline in EBITS to $93.1m and an EBITS margin of 20.8%. Premium portfolio NSR declined 13.9%, driven by lower shipments of 19 Crimes Modern tier range released in December 2022, while the 19 Crimes Classics tier had not experienced growth and performed in line with the prior year.

Treasury Premium Brands reported a 3.2% decline in EBITS to $45.8 million. While the priority Premium portfolio NSR grew 7.8%, led by Squealing Pig and 19 Crimes, double digit declines in Commercial portfolio shipments and reduced Premium portfolio shipments in Asia contributed to a 4.5% divisional NSR decline.

The stand-outs for Treasury Premium Brands

Treasury Premium Brands Managing Director Peter Neilson said: “In Australia, the rollout of Squealing Pig’s Summer of Love campaign has once again been a huge success and runs through the summer period across the Australian Open and Mardi Gras period, including on premise and in-store activations, ensuring widespread visibility of the brand across summer.

“In EMEA, 19 Crimes was the number one share of voice for an alcohol brand during Halloween, with the introduction of two new designs and an interactive advertising campaign. A huge limited time offer innovation success for the brand.”

Global travel retail

Penfolds Managing Director Tom King said global travel retail was “going really well” in key airport locations, particularly across Asia Pacific, but also globally.

>Sydney Airport continues to be a massive bright spot for us and we’re doing really well,” he said. “We’re up there with the best of the Luxury brands overall, not just in wine or alcohol, but all categories. So I’m really pleased with how the brand is coming to life, the engagement we’re getting with shoppers and the support we’re getting from our retail and airport partners in terms of space to activate.

“That’s been driven by international travellers from a number of different markets. So in the past, a lot of our travel retail business was heavily skewed towards Chinese travellers. But we’re now seeing a much broader mix of travellers buying Penfolds in airport locations. You know, the likes of travellers from Vietnam, Malaysia, Thailand. Brands where we’ve been investing in the domestic markets in those countries, we’re now seeing the benefit as those domestic consumers travel and shop internationally.”

How DAOU is performing

In December 2023, TWE completed the acquisition of DAOU for an upfront consideration of US$900 million.

The company said the move established Treasury Americas as the leading Luxury wine business in the United States with an existing portfolio of iconic Napa Valley brands that includes Stags’ Leap, Beaulieu Vineyard, Frank Family Vineyards and Beringer.

“We remain very confident in the strategic and financial benefits that we expect this acquisition to deliver to TWE, which we laid out in October, but I’d like to reiterate,” Ford said.

“What it will allow us to do is accelerates our transformation in the United States into a Luxury focused wine business in what is still the world’s largest Luxury wine market with attractive fundamentals.

“It accelerates our global premiumization focus, increasing the contribution for Luxury brands across TWE to greater than 50% of our global revenue with immediate accretion to earnings growth, NSR per case and margins. It will fill a key gap in our portfolio at the $20 to $40 U.S. dollar price point, in addition to strengthening the existing portfolio at higher price points.

“Importantly, it provides scale in Luxury wine to support. We’ve outlined today as our future standalone Treasury Americas Luxury group and division, which I’ll touch on in some more detail shortly. And we’ll also deliver mid to high single digit EPS accretion in F’25, the first full year of ownership, inclusive of the pro forma cost synergies of more than U.S. $20 million per annum. It’s important just to reiterate, now we own that business, we’ve had a couple of months in that business that our objectives continue and remain as we outlined at the end of October.

“DAOU’s 2023 calendar year performance was significantly ahead of the market and in line with the expectations, driven by strong growth across all of the portfolio price tiers and in several key U.S. markets. Pleasingly, the team are delivering sustained growth, particularly outside of California, where the significant distribution, expansion and growth opportunities lie, as reflected in the data on our presentation for the last 26 and 52 weeks.

“Looking forward, our expectations for DAOU are unchanged. The EBITS contribution for the first – sorry, the second half of this fiscal year, or either half we’re in, is expected to be in the range of U.S. $23 million to $25 million. And over the medium term we expect DAOU to deliver average annual low double digit NSR growth, led by the growth of the discovery and journey tiers, which will be ahead of the category, well ahead of the category, and accelerated growth in the ultra-Luxury tiers with brands like Patrimony.”

TWE continues to expect the EBITS contribution from DAOU to be in the range of US$23-25 million in 2H24.

Future focus

Ford said: “Longer term, we do see strong potential benefit in creating a global Premium division, which would consist of Treasury Americas and Treasury Premium brands as a second step, particularly given the similarities that exist in the category dynamics and the consumer trends within these Premium price points across our key markets, and with the opportunity to centrally drive insights, innovation, and brand building with brands that are sold across multiple markets.”

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