Release Date: February 14, 2024
For the complete transcript of the earnings call, please refer to the full earnings call transcript.
Positive Points
- Luxury net sales revenue grew 4% globally, supporting stability in the top line.
- Penfolds continued strong momentum, particularly in Asia and Australia, despite shipment phasing.
- Treasury Americas luxury portfolio returned to growth driven by increased availability.
- Net sales revenue per case increased 9%, reflecting ongoing premiumization of the portfolio mix.
- The acquisition of DAOU is expected to deliver mid to high single-digit EPS accretion in FY25.
Negative Points
- EBITS declined 6% in the half to $289.8 million, with EBITS margin down 2.9 percentage points.
- Net profit after tax declined 5.9%, and earnings per share fell 7.5%.
- Cash conversion was below the annual target, at 66% excluding changes in premium and luxury non-current inventory.
- Leverage increased to 2.2 times due to borrowings for the DAOU acquisition.
- Treasury Premium Brands saw lower NSR and EBITS due to reduced shipments to Asia and double-digit declines in the commercial portfolio.
Q & A Highlights
Q: Can you dissect the strong Asia volumes for Penfolds and specify key regions? Were any sold indirectly or directly into China?
A: Tom King, Managing Director, Penfolds: We saw strong performance across Asia, particularly in China with new product launches like CWT and One by Penfolds. Other key markets include Thailand, Malaysia, and Hong Kong, where retail activations have been very successful. We have not shipped ahead into a warehouse in Hong Kong; all stock is in Australia.
Q: There's been a slight reduction in full-year guidance from high single-digit to mid to high single-digit growth. What prompted this change? Is the guidance on a constant currency basis?
A: Timothy Ford, CEO: The adjustment is primarily due to the premium business in Asia within Treasury Premium Brands (TPB), where depletions have softened. We are balancing shipments to avoid inventory build-up. The guidance covers both constant and reported currency bases.
Q: Can you provide more detail on the earnings drag from the limited availability of the 2020 vintage in the Americas? How should we think about the swing as availability improves?
A: Timothy Ford, CEO: The 2020 vintage had lower availability, but pricing has held firm. We expect double-digit availability increases next year, which will drive growth. Our pricing has remained stable, and we anticipate margin improvements as we transition to selling the 2021 vintage.
Q: What are the plans for the future operating model for Treasury Premium Brands? Is a potential demerger or sale being considered?
A: Timothy Ford, CEO: We are assessing the future operating model for our premium brands, including the benefits of scale and integration with our luxury portfolios. All options are on the table, but no decisions have been made yet.
Q: Can you explain the significant increase in receivables? Did you ship a large volume of Penfolds into Asia in December?
A: Stuart Boxer, CFO: The increase in receivables is due to the timing of shipments, particularly in Asia and the Americas. Customers are ordering later due to cost of funds, leading to a back-end weighted shipment profile. This is not a demand issue but a timing one.
Q: Can you clarify why there was no earnings contribution from DAOU in the first half, despite the acquisition settling on December 13?
A: Stuart Boxer, CFO: The net contribution from DAOU was immaterial due to the timing of shipments and costs. Most shipments occur earlier in the month, and the costs are linear, leading to an immaterial net contribution for the half.
Q: What is the outlook for the pending vintage '24 in Australia? Are you confident in getting enough high-quality fruit to meet potential Chinese demand?
A: Timothy Ford, CEO: We are optimistic about vintage '24 in Australia, with strong vineyard conditions. We are sourcing incremental luxury Cabernet to prepare for potential Chinese demand. The outlook for the Chinese market remains positive, and we are well-prepared to re-establish our presence if tariffs are removed.
Q: Will you implement global price increases for Penfolds if tariffs on Australian wine are removed?
A: Tom King, Managing Director, Penfolds: We work to global pricing templates and frameworks, ensuring consistent margins across all markets. We have a roadmap for future pricing adjustments, but we will communicate specifics at the appropriate time.
Q: Can you provide more detail on the phasing of Bin and Icon shipments for Penfolds? What should we expect for FY25?
A: Timothy Ford, CEO: The strategy for this year is a 45-55 split between the first and second halves. We do not plan to maintain this split going forward and expect a more balanced 50-50 or slightly first-half weighted approach in FY25.
Q: What drove the 45% decline in premium brands' Asian revenue? Was it due to in-market demand or shipment adjustments?
A: Peter Neilson, Managing Director, Treasury Premium Brands: Our performance is in line with the market. The decline is due to a correction in shipments to match depletions and avoid inventory build-up. We see opportunities to drive our core portfolio and innovate in the Asian market.
For the complete transcript of the earnings call, please refer to the full earnings call transcript.
