Treasury Wine Estates (TWE) has announced further restructuring plans during its FY2024 results announcement, which saw its net profit fall 61% to $98.9 million.

The profit slump is related primarily to impairments of $318 million linked to the upcoming sale of wine brands including Wolf Blass, Lindeman’s, Yellowglen and Blossom Hill.

TWE said it intends to combine its Treasury Premium Brands business with its Treasury Americas premium brands portfolio by July 1, 2025.

“TWE considers this model to be the optimal way to drive value from its Premium portfolio brands whilst continuing to
leverage scale benefits across its global network,” the company said.

Expected benefits from the TWE restructuring and establishment of a new Global Premium division include:

• A globally focused Premium business with a streamlined operating model and more effective prioritisation of
  portfolio opportunities across key markets, including improved investment allocation enabled through
  consolidation and a global focus;
• The ability to execute and grow more effectively key global Premium brands, such as 19 Crimes, Matua and
  Squealing Pig, and global innovation opportunities; and
• Unlocking optionality for TWE to create additional future shareholder value through its global portfolio of
  Premium brands to support its Luxury-led growth strategy

TWE Chief Executive Officer Tim Ford said: “Our fiscal 2024 performance reflects the excellent momentum we continue to build behind our Luxury brand portfolios in Penfolds and Treasury Americas, which now represent over 75% of Group EBITS.

“These two outstanding Luxury wine platforms have very clear strategic direction and execution priorities, and we have great confidence in both as strong drivers of long-term growth for Treasury Wine Estates. In relation to our Premium brands, we are focused on improving the performance of this global portfolio to deliver greater value to TWE overall, with implementing key changes to enable the evolution to the new Global Premium division a key focus through F25.”

TWE announced earlier this month that it was selling iconic labels such as Wolf Blass (acquired 1996), Yellowglen (acquired 1996) and Lindeman’s (acquired 2005).

The company said in an ASX statement: “As announced at its F24 half year results in February, TWE has been assessing the future operating model for its global portfolio of premium brands. As part of this review, TWE has determined that it will seek to divest its commercial brand portfolio and will provide investors with a full update on its ongoing review of the future operating model for its global portfolio of premium brands as part of the FY24 full-year results announcement.”

Ford added during the FY24 results presentation: “We don’t see those as creating value for us going forward, whereas from a global premium brand perspective, it’s about how do we create the most value, and there’s multiple different scenarios that we’re talking about as a management team and talking about with the Board.”

TWE said that in FY24, the contribution of the commercial brands it is offloading represented less than 5% of the company’s gross profit.

E&P analyst Phil Kimber estimated TWE might only make about $100 million from the sale of its commercial wine brands, “given limited demand” from the small pool of potential buyers.

However, Ford told analysts TWE had received inquiries and inbound interest “even before we made this announcement that sort of gives us a sense that there’s a level of interest out there”. He said the company would also consider selling the brands separately.

“If you can do it in one transaction great, but if it makes more sense to sell them separately because they’re not necessarily tied to specific assets, then we’ll look at that as well,” he said.

Penfolds powers ahead

TWE EBITS increased 12.8% to $658.1 million driven by strong Luxury portfolio growth in Penfolds and Treasury Americas,
including the 2H24 contribution from the acquisition of DAOU.

Penfolds reported a 15.5% increase in EBITS to $421.3 million. TWE said the result was driven by strong top-line growth across all portfolio tiers and price points, with the weighting of Bin and Icon portfolio shipments to 2H24 completed as planned.

“Momentum accelerated across the portfolio in Asia, particularly in Hong Kong, Thailand and Taiwan, in addition to the commencement of Australian COO portfolio shipments to China in 4Q24 following the removal of tariffs,” TWE said.

With global demand for the Penfolds Bin & Icon portfolio expected to exceed availability in the near term, TWE has implemented price increases across a number of key Bin & Icon portfolio wines, effective from 1 July 2024.

In addition, TWE said the record Luxury wine intake from the 2024 Australian vintage will support a significant step-up in availability of Bin and Icon portfolio wine from 2H26, with expansion of sourcing from future vintages a priority to support incremental portfolio availability and growth.

In FY25, Penfolds expects to deliver low double-digit EBITS growth:

• Top-line growth driven by price increases and a modest increase in shipments for the Bin & Icon portfolio
• Partly offset by a step-up in brand building investment and overheads in China of approximately $20 million ahead of increased Bin & Icon portfolio availability from F26
• EBITS margin is expected to improve to within the range of 43-45%

In F26 and F27, Penfolds will target annual EBITS growth of approximately 15% across both years, driven by the
significant increase in availability for the Bin & Icon portfolio from the record 2024 Australian vintage intake, and will
target EBITS margin delivery in line with its long-term target of 45%.