TWE ‘increasingly optimistic’ around prospects for earnings recovery

09 November, 2020 by Andy Young

Treasury Wine Estates is hopeful the second half of the financial year will improve for the business, according to CEO Tim Ford.

Speaking at the company’s Annual General Meeting earlier today, Ford outlined positive underlying trends in key markets which point to earnings recovery, although he did add that there is still some uncertainty around the timing of the recovery.

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“We are becoming increasingly optimistic around the prospects for earnings recovery from the second half of fiscal ‘20 in each of our markets outside of China, where the MOFCOM investigation remains a considerable point of uncertainty,” Ford said.

“Supporting this optimism are the positive underlying trends we have outlined across these markets through the first quarter.

“We do note that a degree of uncertainty remains as to the pace and timing of the recovery, particularly due to ongoing restrictions to key sales channels for higher margin luxury wine, and the upcoming November and December holiday season will be an important period for our overall first half earnings performance.

“Therefore, based on this, we are not in a position to provide earnings guidance.”

In Ford’s presentation to the AGM, he spoke in detail about TWE’s 2020 financial year results, with the company reporting a 25 per cent drop in its net profit after tax to $315.8m, which was largely driven by the impacts of COVID-19.

He then gave a trading update for the first quarter of FY21, highlighting a number of positive trends in key markets.

He said: “In Australia, trading conditions are consistent with those we called out at the full year results, with elevated retail performance driven by the above $10 price points. TWE’s performance continues to be weighted to the masstige and lower luxury portfolio, and our masstige portfolio is growing ahead of the market, up 21 per cent value in Q1.

“Upper end luxury wine sales, whilst lower than the prior year comparative quarter, are showing improving trends compared to the second half of fiscal ’20.”

He added: “Across Asia we have seen progressive and consistent recovery of demand month on month, with depletions for the total Treasury Wine Estates brand portfolio growing 14% in the first quarter versus the prior year. This is despite ongoing restrictions to travel and on-premise venues throughout the region, which led to a variation of recovery across some of our key markets through the quarter.

“In China specifically, we have continued to see strong recovery in consumer demand for our brands. Pleasingly, we also saw strong consumption throughout the Golden Week holiday season and mid-autumn festival in September and into early October, driven by outstanding brand building investment execution from our local team and the return of banquet and social gathering occasions.”

Ford also commented on the ongoing MOFCOM investigation into anti-dumping and countervailing duties.

He said: “Yesterday, we advised the market that the Chinese Alcoholic Drinks Association had applied to MOFCOM requesting that imports of Australian wine in containers of two litres or less into China be subject to retrospective tariffs. At this point in time it is unclear whether this application will be successful.”

He also said that while some recent media reports have speculated China will place an embargo on Australian exports into China, including wine, the company has not received any advice or notification about this, and the investigations do not change TWE’s long-term commitment to China or its continued focus on building brands in the market.

Wrapping up his AGM presentation, Ford said: “In conclusion, whilst fiscal ‘20 was a challenging year, the outlook for your company remains fundamentally strong, with consumer premiumisation trends continuing in our key markets and strong customer support for our brands. The trends outlined in our first quarter trading update provided today reflect that strength.

“We continue to invest to drive the strengths of our business – including increased Luxury sourcing, investment behind growing sales channels such as e-commerce, and behind our COVID-19 plan ahead agenda – investments that will place us in an even stronger position as trading conditions recover.”