Treasury Wine boss warns of slow recovery from Covid-19 lockdowns

Recovery from Covid-19 lockdowns in key markets has been weaker than expected, the Penfolds and Wolf Blass maker says.

Treasury Wine Estates CEO Tim Ford has warned that while international markets were reopening out of lockdowns, wine sales were slower than expected to recover. Picture: Aaron Francis/The Australian

Treasury Wine Estates chief executive Tim Ford has warned shareholders at the winemaker’s annual general meeting that its key markets across the US, Australia and Asia are emerging from pandemic lockdowns but the recovery of the luxury wine segment is slightly behind expectations.

Mr Ford on Friday said the slower-than-hoped rebound by luxury wine channels was particularly acute in its key wine market in the US, where bars, clubs and restaurants were once again opening for business but wine sales were proving slow.

Shares in Treasury were sold off heavily on the warning, closing down 5.4 per cent at $11.63.

Protracted lockdowns in NSW and Victoria had delayed Treasury Wine’s plans for 2022 around retailers and especially for its luxury Penfolds wine brand, while in Asia there were significant disruptions to key luxury sales channels across large parts of the region.

However, Mr Ford – whose Treasury Wine owns a large portfolio of wines such as Penfolds, Wolf Blass, Wynns and Lindeman’s – was hopeful the continued rollout of Covid-19 vaccines would bolster the winemaker’s growth plans for the year ahead.

“While the momentum in these channels is slightly behind, we remain confident that as vaccination programs gain momentum and restrictions ease across these key premium and luxury wine sales channels, that we are well placed to execute our plans to deliver growth,” Mr Ford said in his AGM speech.

Treasury Wine also revealed it was close to clinching a deal to buy more vineyards in the prized French wine growing region of Bordeaux to add to its sourcing for its luxury wine brand Penfolds.

“We are currently finalising the acquisition of an additional winery and vineyards in Bordeaux that will provide incremental sourcing and production capacity for Penfolds,” Mr Ford said.

In a trading update Mr Ford said the Penfolds business in Asia, ex-mainland China, saw depletions (the movement of wine from its warehouses to retailers) increase 19 per cent in the three months to the end of August and inventory days were in line with prior year.

In Australia, the 2021 Penfolds release was performing well with pricing remaining stable, Mr Ford said.

The more commercial Treasury Premium Brands division, which holds the bulk of Treasury Wine’s well-known brands, posted improved net sales per case and growth ahead of the market in Britain, led by its 19 Crimes and Squealing Pig wine brands.

In the Americas, Treasury Wine’s portfolio continues to outperform, growing 3 per cent in the category of $8-plus wines.

But the winemaker was still hamstrung by the slower than expected rebound coming out from lockdowns, particularly for its luxury and premium wines.

“As we exit the first quarter of the 2022 financial year, the recovery of key luxury channels impacted by the pandemic are slightly behind the expectations we had at the beginning of the year,” Mr Ford said.

“This is particularly the case in the US, where reopenings continued at a gradual pace, but with on-premise depletions growth slower than we had anticipated, and in Australia, where extended lockdowns in Sydney and Melbourne have resulted in the closure of the on-premise channel, delaying our execution plans outside of the large retailers, particularly for Penfolds.

“In Asia, significant disruptions to key luxury sales channels continue across large parts of the region.”

Mr Ford said the retail and e-commerce channels continued to perform strongly, albeit with moderating growth rates compared to the prior year, when there were significant shifts in consumer purchasing behaviour.

Treasury Wine was also facing challenges from disruptions to the global supply chain caused by Covid-19, which has constrained access to shipping containers and increased the price of shipping and freight.

“Consistent with other global businesses, we are seeing pandemic-related impacts to global logistics and supply chains, with reduced vessel availability and shipping delays becoming more pronounced,” Mr Ford said.

“We expect these challenges to be ongoing and will continue to ­actively manage this with our customers. Outside of these factors, our global business is performing in line with our expectations and we are pleased with the underlying performance of our divisions in the first quarter.”

Mr Ford said he remained positive on the performance of its business in the 2022 fiscal year, led by the continuing momentum behind its premium portfolio and the execution of growth plans for Penfolds across key global channels and markets.

“Globally, our underlying business is performing in line with expectations, however the pandemic related factors will continue to have a bearing on our performance in the short term, both with respect to the timing and pace with which key sales channels re-open and recover across key markets,” he said.