Treasury Wine Estates returns to profit even without China on the books

Treasury Wine Estates has reported an EBIT of $510.3m, returning to profit even with the $77.3m decline from losing China.

Reflecting growth of 3 per cent, it seems that this is thanks to TWE taking immediate action, changing its strategic direction as soon as the MOFCOM investigation was launched in China a year ago.

Secondly, to TWE's shift to a brand portfolio divisional operating model which has significantly reduced overheads for the business across all markets

And the aggressive pursuit of new market opportunities, particularly in America.

TWE’s new operating model came into effect in on 1 July with Penfolds, Treasury Premium Brands and Treasury Americas, each charged with the ambition of making TWE the most admired wine brand in the world.

The strategy towards premiumisation, luxury acquisitions in US, and new market development have all played a part of TWE coming back to profit.

TWE’s Chief Executive Officer Tim Ford said: “F21 was a year of both significant change and achievement for our business, with the financial results we have announced today a testament to the commitment and strength of our global teams.

“Most pleasingly, despite a backdrop of significant external disruption, we have delivered on the priorities we set for ourselves at the start of the year, and therefore we remain very well placed to deliver on the long-term growth ambitions we set out in our TWE 2025 strategy.”

The business enjoyed growth in both the US and Australia. And where China fell away, TWE has concentrated efforts – and re-directed wine that had been intended for China – to meet consumer demand in Malaysia, Indonesia, Thailand, Hong Kong, Singapore and Taiwan. Vietnam and Japan are next on the list.

Managing Director of Asia, Tom King says, the “focus is on identifying where we can recruit new consumers, making distribution happen and ensuring we have the right portfolio in place. In Asia, TWE's regional EBIT $205m represented a decline of 15 per cent.

Treasury Americas leader, Ben Dollard, had lots to celebrate with a 23 per cent increase in EBIT to $205.4m and with net sales revenue (NSR) up 2 per cent led by premiumisation in retail and ecommerce. He said that he expects continued uplifts and for performance to accelerate once the country is fully operational.

US Consumer trends to premiumisation continue with the “Above $11” market growing by 12 per cent for the year. Matuas, Beringer Bros and St Hubert's have benefited from this but none more so that 19 Crimes with its Cali Red the number one growth brand in the category and 19 Crimes Cali Rose resonating strongly with consumers after launching in March

The business in the US has undergone to changes to its asset base, exiting its non-priority brands and informed by the business’ commitment to premiumisation.

Staying in the US, TWE has just signed with a second iconic celebrity to 19 Crimes for the release of new varietals including Chardonnay and Malbec and Dollard is optimistic about the Penfolds California release which has been extremely well received by critics, retails, consumers.

TWE’s distribution partnership with Republic National Distribution has proven beneficial and a solid foundation, making up a third of TWE’s business in the key markets of California and Texas

In ANZ growth in the Premium portfolio $10-30 was recorded led by 19 Crimes, Pepperjack, Squealing Pig, Beringer Bros and Matua. Although as in America, these growth trends were hindered somewhat by ongoing global pandemic disruption and higher costs of goods (COGS).

ANZ reported a 10 per cent increase in EBITs of $142.7m and an EBITS margin of 23.7 per cent reflecting ongoing portfolio premiumisation, including growth in Penfolds Bins & Icons.

EMEA reported a decline in EBITS to $46.6m.

The company will pay a final dividend of 13¢ per share, up from 8¢ a year ago.