Today, Treasury Wine Estates (TWE) announced the next step in the premiumisation strategy for its commercial wine portfolio and provided an outlook for performance expectations.

Tim Ford, Chief Executive Officer at TWE, said he and his team are perpetually assessing the performance of their portfolio in relation to consumer spending and economic pressures to ensure they can deliver on their growth strategy.

“We continually and proactively assess our business performance, our structure and our cost base to make sure we’re in the best position to continue to deliver on our premiumisation and growth strategy.

“With changing consumer preferences and a tightening economic environment in most major markets, we’re taking the opportunity to make changes in our business now, so we have increased flexibility in the future to continue to grow our Premium and Luxury portfolios,” he said.

Within the larger TWE portfolio, Treasury Premium Brands (TPB), which includes labels such as Wynns, Pepperjack, Squealing Pig and 19 Crimes, is under the microscope as market trends and consumption in the category remain challenging, especially in Australia and the UK.

TWE said in a statement that in recent years, this has led to further declines in TPB’s lower margin Commercial portfolio volumes, a market dynamic that is expected to continue in the future in the inflationary environment.

Since commencing this strategy in F21, the contribution of TPB’s Premium and Luxury brand portfolios has increased to greater than 60 per cent of division NSR, an improvement of 13ppts, driving growth in NSR per case and EBITS margin, reflecting the success to date of the premiumisation focus.

As part of the ongoing premiumisation strategy, TWE will implement a range of initiatives, including:

  • Adjusting TPB’s operating model and organisational structure to align with the future scale of the business to reduce fixed costs and increase focus on priority brands
  • Undertaking a review of the commercial wine supply chain, particularly in Australia, focusing on improving operational flexibility and reducing total network cost
  • Exploring divestiture and/or rationalisation of selected assets, either individually or in combination

As for the performance outlook, TWE reports sales in the Penfolds, Treasury Americas, and Treasury Premium Brands divisions align with expectations, with Penfolds, in particular, performing strongly.

As consumer demand for luxury wine globally remains strong, TWE expects a series of performance outcomes to eventuate in F23:

  • Group NSR to decline by approximately 2-3% compared toF22, with declines in Treasury Americas and Treasury Premium Brandsto be partly offset by growth for Penfolds
  • EBITS of between $580m to $590m, representing growth of approximately 11 per cent to 13 per cent on F22
  • Group EBITS margin of approximately 23.5 per cent (F22: 21.1 per cent)

A further update on the above initiatives, including timelines, financial impacts and one-off costs, will be provided as part of TWE’s F23 full-year results announcement in August.

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