Rising Costs and Integration Risks Shadow Treasury Wine Estates’ Strong Interim Gains

Strong Financial Performance Amid Premiumisation

Treasury Wine Estates (ASX:TWE) has reported a strong set of interim results for the half year ended 31 December 2024, underscoring the company's successful pivot towards premium and luxury wine segments. Revenue from ordinary activities rose 19.6% to $1.57 billion, while net profit after tax attributable to shareholders jumped 32.5% to $220.9 million. This performance reflects both organic growth and the strategic acquisition of DAOU Vineyards, which contributed to the uplift.

The company’s earnings before interest, tax, SGARA (the fair value adjustment for agricultural produce) and material items (EBITS) surged 35.1% to $391.4 million, with the EBITS margin expanding by 2.8 percentage points to 25.3%. This margin improvement highlights effective cost management despite increased investments in brand building and overheads, particularly to support Penfolds’ re-establishment in China.

Portfolio Mix Shift and Pricing Power

Treasury Wine Estates continues to benefit from a premiumisation trend, with net sales revenue per case improving 16.1%. The growth in the luxury portfolio, especially the Penfolds Bin and Icon ranges, has allowed the company to implement price increases that more than offset rising costs. Cost of goods sold per case increased by 5.2%, reflecting the shift towards higher-value products.

The Treasury Premium Brands segment experienced some softness in commercial and premium shipments, but this was more than compensated by the luxury segment’s performance and the contribution from DAOU Vineyards. On an organic basis, net sales revenue increased 5.1%, indicating solid underlying demand.

Dividend Increase Signals Confidence

Reflecting its strong cash flow and earnings growth, the Board declared an interim dividend of 20.0 cents per share, up from 17.0 cents in the prior corresponding period. The dividend is 70% franked and will be paid on 2 April 2025, with a record date of 6 March 2025. Treasury Wine Estates’ Dividend Reinvestment Plan remains in operation, offering shareholders an opportunity to increase their holdings.

The company’s balance sheet remains robust, with net tangible asset backing per share rising to $3.17 from $2.85 a year earlier. Total borrowings stood at $2.34 billion, supported by a mix of US private placement notes and syndicated debt facilities with staggered maturities, reflecting prudent financial management.

Strategic Moves and Outlook

During the period, Treasury Wine Estates completed the acquisition of DAOU Vineyards, a premium Californian winery, which has been integrated into the Treasury Americas segment. The company also announced an agreement to acquire a 75% stake in Ningxia Stone & Moon Winery in China, signaling a strategic push into a key growth market.

While the company reported a small SGARA loss of $14.7 million due to vintage outcomes in Australia and France, this was partly offset by unwinding prior losses. Management remains cautious but optimistic, focusing on premiumisation, geographic expansion, and operational efficiencies to sustain momentum.