Yesterday, 16 October 2023, Treasury Wine Estates (TWE) held its Annual General Meeting and addressed its shareholders with a Q1 trading update. The following summarises the address from Chief Executive Officer Tim Ford and the outgoing Chairman, Paul Rayner, who retired at the conclusion of the meeting.
Premiumisation and Innovation
This financial year, Treasury Wine Estates saw continued profit and EBITS margin growth thanks to its premiumisation strategy and strong category fundamentals.
It invested in priority brands and innovation, expanding its global production sites and optimising its assets to enhance sustainability and support premium and luxury product growth.
Despite ongoing global geopolitical and macroeconomic shifts post-COVID, the company continued to experience growth.
Treasury’s diversified global business model, spanning various brands, markets, channels, and countries of origin, proved to be a significant strength, allowing it to adapt to the evolving consumer and economic landscape.
The global wine sector continued to experience the trend of premiumisation, with consumers leaning towards more premium and luxury offerings.
To reallocate investment for growth, the company made the decision to close its commercial winery in Karadoc and divest smaller commercial vineyards.
To strengthen TWE’s position in the luxury wine market, it acquired a majority shareholding in Chateau Lanessan in Bordeaux.
This move aligns with the business strategy to transform the historic site in France’s premier winemaking region.
In response to consumer demand for lighter red wines, the acquisition of Beenak Vineyard in the Yarra Valley was completed, featuring cooler-climate varietals like Chardonnay and Pinot Noir.
Treasury Premium Brands experienced growth in demand across Asia, especially in Southeast Asia, with brands like Pepperjack and Squealing Pig gaining strong consumer support.
The acquisition of Frank Family Vineyards in the US proved successful, further enhancing their luxury wine portfolio.
Chinese market
Despite challenges due to Chinese tariffs on Australian wine, the company continued to nurture its relationships with Chinese customers and maintained a strong team within China.
The launch of the ‘One by Penfolds’ tier showcased its commitment to the Chinese market. The range now features wines from China’s Ningxia region alongside those from Australia, France, and the USA.
Its multi-country sourcing strategy includes Australia, the United States, New Zealand, France, Italy, South Africa, Chile and now China for Penfolds. The first China-produced Penfolds Bin wine released this year received critical global recognition.
Sustainability Strategy
The sustainability strategy has made progress, focusing on climate change, renewable electricity, water stewardship, and social aspects of sustainability. The business has integrated sustainability into its financial framework through a Sustainability Linked Loan.
Notably, it unveiled large solar installations at various sites, emphasising its commitment to renewable energy. It also developed a global water strategy to manage this resource responsibly.
The company increased sustainability-related certifications across its growing and production operations, supporting grower partners and the industry. They introduced an Alcohol and Health Policy to promote product health transparency and responsible marketing.
To cater to the growing demand for no and low-alcohol wines, it allocated $10 million for production equipment and research and development.
Despite these achievements, the business acknowledges that more work is needed in sustainability. It expressed eagerness for further collaboration and knowledge sharing to build a resilient business, foster healthy and inclusive communities, and produce sustainable wine.
In conclusion, Rayner thanked shareholders for their continued support and investment.
He emphasised the company’s goal of delivering top-line growth and high single-digit average earnings growth in the long term. He acknowledged the resilience and dedication of their global team.
Financial and Operational Performance
Tim Ford, the CEO, provided an overview of the company’s financial and operational performance for fiscal year 2023. The company achieved strong results, including earnings growth, increased margins, and progress in strengthening its operating model. The business continued to see strong demand for luxury wines globally, reflecting the premiumisation trend in the wine category.
Key financial highlights included a 2% decline in net sales revenue, offset by strong growth in luxury sales and price increases in key brands. The company’s focus on premium and luxury wines resulted in a 13% increase in revenue per case. Net Profit After Tax and Earnings Per Share increased by 17%. Cash conversion was 61%, reflecting the timing of sales to Asia, and leverage remained within the target range.
The company’s three brand portfolio divisions—Penfolds, Treasury Americas and Treasury Premium Brands—made progress toward their strategic objectives.
Penfolds stood out with a 14% increase in NSR and EBITS, driven by strong momentum across the portfolio in key markets.
The Treasury Americas business delivered strong results despite declining NSR due to wine availability issues, and the acquisition of Frank Family Vineyards was a highlight. Treasury Premium Brands experienced a decline in NSR but made progress with priority premium brands.
Ford emphasised the importance of maximising the opportunity presented by the strong consumer demand for luxury wine, supported by the global distribution model and the strength of luxury brands like Penfolds.
Toward 2024
The company’s priorities for the fiscal year 2024 included leveraging its global strengths, investing in technology, pursuing innovation, and continuing its sustainability commitments.
Despite challenging conditions, Ford expressed confidence in the company’s ability to deliver long-term growth and margin expansion. He thanked Rayner for his significant contribution as Chairman and expressed his gratitude for his leadership during a period of growth and challenges.
John Mullen assumes the role of Chairman of Treasury Wine Estates.
