Treasury Wines Luxury Penfolds brand to drive long-term earnings growth.

About Treasury Wine Etates Limited

Treasury Wine Estates Limited (ASX: TWE or Treasury Wines) is a global winemaking and distribution business selling wines in 70 countries under luxury and premium quality brands such as Penfolds, Wolf Blass, Pepperjack, Beringer and Lindemans. Treasury Wines produces its own grapes in Australia, France, Italy and the US from 11,300 hectares of vineyards. TWE was formerly the wine division of Fosters Group before its demerger from Fosters in May 2011.

Luxury brand sales drive FY24 profit

Treasury Wines’ Luxury brands portfolio led by the iconic Penfolds brand, now accounts for 75 percent of Group net profit and approximately 50 percent of Net Sales Revenue. The considerably higher sales margin on Luxury brands compared to the Group’s Commercial brand portfolio, explains the disproportionately higher profit contribution from Luxury brand sales.  Penfolds delivered a 42 percent EBIT margin in FY24, compared to the overall margin at Group level of 24 percent. The Commercial brands EBIT margin came in at 10 percent. It is highly likely that TWE will divest its Commercial brand portfolio in the foreseeable future.

Net Profit After Tax before Material Items increased by 8 percent to $407 million, on 13 percent higher Net Sales Revenue of $2,739 million. Net Sales Revenue per case was up 14 percent to $125.20 per case. This adjusted Net Profit After Tax is equivalent to 52.3 cents earnings per share, from which a 19 cents 70-percent franked dividend will be paid on 1 October. This takes the full year dividend to 36 cents per share, or 72 percent of Net Profit After Tax, a 16 percent increase on FY23.

By owning much of its grape producing assets in vineyards located in the world’s best wine producing regions, Treasury Wines has control over production costs and the quality of its wine vintages. This is a critical aspect of owning and running a Luxury brand portfolio.  Cost of grapes and oak barrels account for 65 percent of wine production costs. Bottles, labels and cartons account for 20 percent of production costs, leaving warehousing and production overheads at about 10 percent with packaging and site overheads at 5 percent of production costs.

Vision to be the world’s most desirable luxury wine company

Luxury-led growth is TWE’s clear strategic focus, underpinned by its Penfolds brand, with a deliberate emphasis on re-establishing its Luxury portfolio in China to complement the Group’s existing market leadership in Asia. Luxury and Premium brand portfolios account for 49 percent and 39 percent respectively of TWE’s global revenue, up from 25 percent and 22 percent respectively in 2015. This trend is continuing with the Group’s geographical focus being Australia, China and the Americas.

Alcohol beverages are considered defensive stocks in that irrespective of economic conditions, consumer demand typically remains resilient through the business cycle.  This isn’t always the case with premium priced alcohol, however demand for Penfolds and Treasury Wines’ other Luxury brands ($30+ per bottle) has remained buoyant despite soft economic conditions in key markets over the past 12 to 24 months.

Strong long-term earnings profile  

TWE does not compete on price but on the quality and status of its premium product and Luxury brand that is exclusively sought by upmarket consumers in growing numbers. This branding of refined quality typically takes decades to establish and is a high barrier to entry for competitors seeking to position themselves at the higher margin luxury point of the market.

TWE maintains a conservative balance sheet with net debt / EBITDA at 2 times and available liquidity of $1.2 billion, comprising cash of $458 million and undrawn committed facilities of $730 million.

TWE expects to deliver FY25 EBIT in the range of $780 – $810 m with top-line revenue growth driven by continuing strong sales momentum in TWE’s Luxury brand portfolio. This implies at least a 20 percent lift in FY25 earnings and a similar rise in TWE’s annual dividend.