High-potential SMEs

Egm under the X-ray: Italian Wine Brands doubles profits (9.1 million)

Net profit rose 97.6% for the company, which decided to exit telephone sales and focus on online sales

by Valeria Novellini

20 September 2024

5' min read

Key points

Numbers
Strong presence in Prosecco and launch of new references
Release from telephone sales and enhancement of production agreements

5' min read

"N'ombra de vin' or rather 'Shadows on wine'? The recent findings of the Italian Wine Union outline an Italian wine sector between lights and shadows. The recent UIV-Ismea Observatory appears positive overall, with an increase in Italian wine exports in the first half of 2024 of 2.4% in terms of volume and 3.9% in value. But if we separate out the sparkling wine sector (Prosecco in the lead), exports are at a standstill (+0.1% in value). And it should not be forgotten that wine sales in large-scale distribution in Italy have meanwhile fallen by 2.5% in volume terms (again with a positive trend for sparkling wines) and that sales in this channel were also weak in the United Kingdom and the United States.

In this context Italian Wine Brands is a happy exception. Yes, in the first half of 2024, sales revenue decreased by 2.8% to 191.2 million. But this slight contraction was exclusively due to the Distance Selling channel (-6.4% to 28.1 million), while the revenues of the Wholesale division (which resells to large-scale distribution) increased by 3.7% to 135.4 million and those of the Ho.Re.Ca. channel jumped by 24.3% to 27.6 million. The group's turnover in Italy rose by 15.7% to 36.2 million (driven by the Wholesale division with +29.9% to 24.2 million), while abroad there was a decrease of 6% to 154.9 million (-8.5% to 111.2 million in the Wholesale division).

The numbers

The best performance of Italian Wine Brands, however, can be measured in terms of profit margins. In fact, in the first half of 2024, EBITDA jumped 25.2% to Euro 20.3 million (on an adjusted basis for non-recurring costs for industrial reorganisation, it would have risen 27.1% to Euro 21.9 million), EBIT by 31.4% to Euro 14 million, and net profit by 97.6% to Euro 9.1 million (+91.9% to Euro 10.3 million on an adjusted basis). The almost doubling of net profit was almost entirely due to the sharp drop in net financial expenses from EUR 3.6m to EUR 1.7m. As at 30/6/2024, net financial debt amounted to EUR 108.1m (Debt/Equity ratio of 0.51 times and therefore quite comfortable), slightly higher than the EUR 100.7m at the end of 2022, but significantly lower than the EUR 138.5m at the same date in 2023.

Strong presence in Prosecco and launch of new references

How did Italian Wine Brands achieve these results? By focusing on premium wines with higher margins (and yes, in particular on Prosecco which is currently the star of the market: +13% national exports in volume and +7% in value in the first half of 2024 according to the Uiv-Ismea Observatory, and +4.2% in volume and +3.5% in value for sales in Italy in large-scale distribution of the entire sparkling wine category). Among other things, it should be emphasised that 42.5% of sales of this wine are through large-scale distribution and that it has a higher incidence than other wines in online sales.

Not only Prosecco: at the last edition of Vinitaly, the new Tuscan IGT red wine 'Rirò', which can also be used as an aperitif or as an ingredient in cocktails, was presented, and at the 'International Salute to Excellence' competition in Amsterdam, two of the company's wines were awarded prizes: Grande Alberone Rosso in the 'Best Quality' category and Almoso Rosso in the 'Best Value' category.

As a result, raw material costs as a percentage of sales decreased from 67.3% in H1 2023 to 65%. In addition, the reduction of transport and energy costs and commissions as a result of the commercial integration within the group also led to a decrease in the proportion of service costs from 17.5% to 16.5%. In absolute terms, raw material costs decreased by 6.1% to EUR 125.4 million and service costs by 7.8% to EUR 31.9 million.

On the other hand, labour costs increased by 10.9% to EUR 13.1 million as a result of the increase in wine production and bottling carried out internally, which reduced the costs for external processing, as well as contractual harmonisation within the group.

Out of telephone sales and expansion of production agreements

These results were not achieved entirely 'painlessly': the gradual downsizing of telephone sales in favour of online sales (in the first half of 2024, the latter in fact rose by 2.3% to EUR 9.3 million, mainly through the Svinando platform acquired in 2018, while those via telephone fell by 10.3% to EUR 5.6 million) led to the closure of the Valle Talloria site in Diano D'Alba (Cn) with the transfer of only the production staff to the Calmasino di Bardolino (Vr) site 'brought as a dowry' by the acquisition of Enoitalia in 2021.

On the other hand, as far as optimising production capacity is concerned, a partnership and collaboration agreement was strengthened last May with the cooperative Cantine Ermes di Mansuè (Tv), which has 14 plants in 6 Italian regions and will supply Italian Wine Brands with greater volumes of wine (under the supervision of dedicated technicians and pre-established specifications); Cantine Ermes also acquired the Torricella (Ta) plant.

This agreement will obviously have the greatest effect as of the second half of 2024, which therefore still looks decidedly positive for Italian Wine Brands. Certainly, some important markets for the group (first and foremost Germany and the United Kingdom) are currently characterised by a weak economic environment, but the company will continue to pursue its focus on high-end wines and focus on emerging trends in drinking by the new generations (organic, low and no-alcohol wines, off-premise aperitifs, i.e. at home, using Prosecco, sparkling wines and Charmat method sparkling wines). Internationally, Italian Wine Brands is focusing on the United States and some emerging Asian markets (Vietnam, Malaysia).

But above all, the group intends to further strengthen its market share by pursuing its strategy of growth through external lines (several dossiers are already being examined by the management), and precisely for this reason, after the completion of a first tranche of buy-back at the end of July (through which the company came to hold 0.67% of the shares), another tranche was immediately launched with the aim not only of allocating treasury shares to management incentive plans, but also and above all to possible exchanges as consideration for extraordinary transactions.

It should be noted that Italian Wine Brands is one of the few 'public companies' in Euronext Growth Milan, with a free float of 72.39% of the share capital (the institutional investor Otus Capital Management Ltd. has also been present in the shareholding structure for some time with 5.71%).

What about the increasingly pressing issue of ESG aspects? The company has a photovoltaic plant and recycles 100 per cent of its waste. It has also adhered to the 'Viva' certification on sustainable viticulture promoted by the Ministry of the Environment and Energy Security, which allows the company's performance to be measured by analysing indicators on air, water and land (not on the vineyard in this case, since Italian Wine Brands does not own any land by choice). Only the sustainability report is missing. But given that Italian Wine Brands fully falls within the size parameters (turnover, assets, number of employees) set by the European CSRD directive on sustainability reports that has recently been implemented in Italy, the company has already committed to drawing up such a report one year before the actual entry into force of this obligation. Currently only 38.6% of Italian wine companies with a turnover of more than 50 million draw up a sustainability report.

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