Tim Ford

Treasury Wine Estates profits down 25%

August 13, 2020
By Alana House

Treasury Wine Estates has announced its net income was down 25% to $315.8 million in the year to June 30. Sales revenue fell 6% to $2.65 billion, as COVID-19 affected its trading performance across the world.

TWE said the pandemic had reduced the demand for luxury wine sales, with market growth is being driven by the $10-20 price point, where it said it is growing ahead of the market.

CEO Tim Ford said: “Financial year 2020 was a unique year for TWE, our industry and the markets within which we operate. Our ability to navigate the disruptions of the COVID-19 pandemic through the second half of 2020 and continue to deliver profitability and strong cash flow performance is representative of the fundamental strength of our global business.”

Among the signs of recovery are volumes sold in the Chinese market rising 40% in June compared to the previous corresponding month.

TWE noted that in-home consumption has increased during lockdown periods, with both bricks and mortar retail and e-commerce channels performing strongly.

“Broader consumption trends we have seen at home, food-led wine consumption growing,” Ford said. “In response, we will increase our investment in our focused-brand portfolio, and we will take a consumer and experience-led approach to brand building to implement interactive models that enhance engagement with the consumer whilst at home using technology more so than traditional formats.”

Peter Gago Penfolds

Shoppers have been prioritizing speed and convenience of purchase and well-known and trusted brands are performing particularly strongly, which has resulted in TWE’s key focus brands continuing to perform well across these channels.

“The Penfolds brand in China clearly is a trusted brand, but it’s the same across the globe,” Ford told The Australian last week. “There is going to be … a global economic recession … but there will still be discretionary spending on luxury items.

“With that discretionary spending, people are going to ­become very specific about what they spend it on and make sure that it delivers on that luxury experience. And we ascertain that Penfolds as a brand in any market will guarantee that luxury experience and quality of product.

“So, we certainly believe there will still be luxury discretionary spending and our belief is it will be more on Penfolds than other portfolios around the globe.”

Treasury Wine Estates regional highlights

• Americas reported a 37% decline in EBITS to $147.3million, with “challenging US wine market conditions throughout F20” and the closure of key sales channels outside retail and e-commerce through 2H20 the key drivers.

• Asia reported a 14% decline in EBITS to $243.7million, with volume lower through 3Q20 as key consumption occasions for wine were impacted by government mandated restrictions throughout the region. TWE said “positive trends were noted” in 4Q20, with consumption and sales depletion recovery across the portfolio, particularly in June. TWE also performed strongly in e-commerce during the period, with volume and value growth significantly ahead of the total wine category.

• Australia & New Zealand (ANZ) reported a 16% decline in EBITS to $133.3million, with the closure of key channels away from retail and e-commerce, along with consumer trading down, the drivers of performance. TWE continues to target a 25% market share in ANZ, with current value share at 21%.

• EMEA reported an 18% decline in EBITS to $51.7million, with strong performance in UK retail offset by declines in Continental Europe and Middle East and Africa which were impacted by key channel closures.

Treasury Wine Estates demerger update

TWE said long-term value creation was expected from a separate focus for Penfolds and its other premium brands. It is currently determining the operating model that will best deliver growth.

Penfolds Collection 2020

Options include the potential demerger of Penfolds or “internal divisionalisation”. TWE intends to provide a further update on this by the 1H21 results.

Ford was slightly less bullish about the demerger than the company had been previously.

“My role as CEO as I see it is to develop and define what the best operating model and for our portfolio is across the globe — how we are going to best grow those portfolios — and one option is that we would look at and assess a demerger,” he told The Australian. “There are other alter­natives for how we structure our business going forward as well.

“They are big decisions but we have got to make sure we have strong portfolios and strong regional businesses before we make any decisions around that.

The company intends to expand its sourcing capacity for Penfolds, including French and US products. It will also build distribution through Asia and the US.

The company declined to make any earnings forecasts for the new financial year, citing the uncertainties caused by COVID-19.

“While we have recently seen positive signs of recovery across a number of our key markets and channels, we are cautious on the near-term outlook given the uncertainty that remains around the pace of that recovery,” said Ford.

Watch a virtual tasting of the 2020 Penfolds Collection

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