Italian Wine Brands IWB.MI FY22 Results

Introduction to Italian Wine Brands IWB.MI FY22

Italian Wine Brands (IWB) reported its FY22 results last week. Before diving into them, it is worth remembering that Italian Wine Brands is a leading producer in the Italian wine sector covering the entire value chain of wine, excluding the production of grapes. With a capital-light business model, IWB does not own vineyards but purchases raw materials from around 200 Italian vineyards and wine producers. These materials are then processed in the group’s cellars (65%) and third parties’ facilities (35%). In 2022, IWB focused on growth and consolidation of its market position, completing two strategic acquisitions – Barbanera, a premium Tuscan wine producer, and Enovation, a US-based wine distributor. These acquisitions have increased IWB’s pro-forma revenue to €430 million (+5.2% YoY), making it the leading private wine group in Italy. By expanding its portfolio and entering the US market, IWB has laid the groundwork for a new strategy centered on value and diversification.

Italian Wine Brands FY22 Results

Italian Wine Brands (IWB) reported FY22 pro-forma revenues of €430.3 million, a slight decrease compared to the previous year’s pro-forma revenues of €431.4 million.

Margins were lower than expected, with  EBITDA at €35.9 million, resulting in an EBITDA margin of 8.4%. This decrease in margin was due to a combination of factors, including inflation and rising costs of electricity, as well as issues with the availability and pricing of glass due to supply chain problems.

Net profit was €14.2 million, showing a decrease compared to the previous year. Indebtedness was higher than the previous year, with net financial debt at €146.5 million (including € 17.0m of right of use liabilities deriving from the application of IFRS16)

The consumption of raw materials (costs for purchases) was higher, at €298.4 million compared to €295.5 million in FY21 (pro-forma). The cost for services was €78.2 million, compared to €72.4 million in FY21 (pro-forma), and the cost for personnel was €24.3 million, compared to €20.5 million in FY21 (pro-forma). Other operating costs were €1.5 million, compared to €1.2 million in FY21 (pro-forma).

Despite the challenges faced by IWB during FY22, including inflation and rising costs, the company remains focused on its strategy of integrating acquired companies, simplifying the group’s structure, and focusing on high-value-added premium red wines and sparkling wines, which it expects to drive mid-single-digit growth in the short to medium term.

Outlook for 2023

Italian Wine Brands’ outlook is positive as the company remains focused on its strategy of integrating acquired companies, simplifying the group’s structure, and concentrating on high-value-added premium red wines and sparkling wines, which are expected to drive mid-single-digit growth in the short to medium term. The global wine industry’s growth is expected to be driven by Sparkling/Prosecco and Premium wines, in which IWB has a strong presence. In particular, the company has approximately 60 million bottles sold per year in the Sparkling wines segment, with a 10% global market share. IWB is also well-positioned in the US market through Enovation Brands, generating around $40 million in turnover, with the medium-term goal of reaching around $100 million. Other promising geographical areas for IWB include Germany and emerging markets, particularly Asia.

Looking ahead, IWB anticipates developing and distributing premium/luxury wines to improve margins, with a particular focus on the US market, where there is strong interest in this segment. The company also aims to create a leaner structure by centralizing the management of various activities, such as production, logistics, and IT. This reorganization should maximize synergies between group companies in terms of both costs and sales.

Many of the problems IWB faced in 2022 have begun to ease, and they are not expected to be as severe in 2023. The gradual stabilization of input costs and improved bargaining power from recent acquisitions should lead to a recovery of margins in 2023, with an estimated EBITDA margin of 9%. Overall, Italian Wine Brands is well-positioned to benefit from the growing demand for Sparkling/Prosecco and Premium wines and its strategy to optimize its operations and focus on high-value-added wines.

Our thoughts on Italian Wine Brands

We are optimistic about IWB’s future, as the company’s focus on premium wines and operational efficiency, along with its recent acquisitions, positions it well to capitalize on the growing demand for Italian wines in the global market. Despite facing some challenges in 2022, the company’s capital-light business model and strong bargaining power with suppliers provide a competitive advantage and contribute to its ability to maintain solid margins. We believe the recent stock price decline presents a buying opportunity, given the company’s strong track record since its IPO in 2015 and its potential for future growth in the premium US market and other promising geographical areas.