During Covid, Aussies loaded up on alcohol, with sales increasing over 30% in March 2020 as compared to March 2019 and growing further as the pandemic progressed. In the same period, global superstar Adele even released an affirmatory song—I Drink Wine, an anthem defining the state of plenty of us.
Of course, who benefits from this more than premium wine companies like Treasury Wine Estates (ASX: TWE)? In 1H FY23, the Company reported revenue of $1.3 billion, comprising a strong earnings growth, with EBIT up 17% to $307.5 million and EBITS margin up 3.2ppts to 23.9%. Its net profit is up over 72% to $188 million.
This growth was primarily delivered through Treasury Wine’s luxury portfolio, even as it saw price increases and supply chain cost savings.
TWE’s Chief Executive Officer, Tim Ford, said, “We are very pleased to have delivered strong progress towards our financial growth objectives in 1H23, with EBITS growth of 17% driven by improved revenue per case and EBITS margin expansion across all divisions. Our Luxury wine portfolios in particular continue to perform exceptionally well across all markets and channels, and the fundamentals of the category are expected to remain strong at these higher price points.”
In the second quarter of FY23, it saw softer consumption trends than expected, given that people didn’t really strike a fancy to entry-level premium wines in the US and UK and commercial wine globally. This resulted in volume declines for Treasury Americas and Treasury Premium Brands.
That’s probably why its net sales revenue declined marginally by 1.1%, as the luxury portfolio growth across all divisions partly offset the reduced commercial portfolio volumes in the UK and Australia.
Aussie wine producer and a TWE brand Penfolds reported a 10% increase in EBITS to $181.6 million and an EBIT margin of 44.3%. It performed well in Asia, Europe, the Middle East, Africa and Australia, supported by continued growth in distribution and consumer demand.
Another brand portfolio division Treasury Americas, reported a 35.2% increase in EBITS to $115.2 million and a margin of 23.7%. Its net sales revenue increased by 4.1%, driven by favourable foreign exchange rates and supported by the performance of crucial luxury portfolio brands like Frank Family Vineyards and Beaulieu Vineyard, along with growth for Matua and innovation within 19 Crimes.
Ford added, “We consider this set of results to be an important and additional proof point of our teams’ ability to navigate the changing and variable economic, consumer and market dynamics, whilst maintaining our focus on the delivery of our financial objectives.”
That said, the Company’s working capital increased by $120 million, driven by higher inventory following the 2022 Californian vintage and a decline in payables in line with the seasonal timing of grower payments.
Treasury Wine expects the rest of the financial year to look more or less the same. In FY23, it forecasts the EBITS margin to be about 23%.
*EBITS = Earnings before interest, tax, material items and Self-Generating and Regenerating Assets
Alinda is a Business Reporter for The Sentiment
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