Treasury Wine Estates announced a 21 per cent profit downgrade and walked away from previously outlined targets for 2021, in a 9 July business update.
CEO Tim Ford, who officially started in the job on 1 July, said: “These are unique times which require an increased level of transparency and insight into our business performance.”
The company revealed its FY20 earnings before interest and taxes (EBITS) were down by 21 per cent on the prior year. TWE expects EBITS to be between $530-$540 million, it said in the 9 July update.
In January the company forecast EBITS growth at 5-10 per cent in FY20, which was down from its earlier prediction of 15-20 per cent growth. It expected F21 reported EBITS growth of around 10-15 per cent. They have been abandoned in this latest update.
The company was squarely putting the blame on COVID-19 and vintage impacts on extreme weather.
In the 9 July update, regional declines were roughly 14 per cent in Asia, 37 per cent in the Americas, 16 per cent in ANZ and 18 per cent in EMEA.
TWE was hit hard by China with depletions of more than 50 per cent in February and March compared to the same period prior year. Depletions in April and May were up 1 per cent compared to the same time a year ago, and while e-commerce was performing strongly, the company remained cautious for the short to medium term outlook.
The luxury wine market was yet to fully recover due to social gatherings and special occasions yet to return to pre-COVID-19 levels.
The US has seen strong growth across all price points with premiumisation driving 20 per cent + value and volume growth in luxury and massage portfolio price points versus the prior year. Its priority brand portfolio including Stags Leap, 19 Crimes, Matua, Beringer Brothers and Beaulieu Vineyard grew collectively more than 35 per cent across the same period in retail channels.
Ford said the proposed demerger between Penfolds and TWE was still the preferred option and would likely happen by the end of CY21.
Former CEO Michael Clarke announced the proposal in April after the unexpected profit downgrade in January. That was caused by poor performance in its US markets wiping $3 billion off its value and a share price drop of around 40 per cent.
Clarke said Penfolds accounted for about 10 per cent of the company’s volume, but well over half its earnings.
After its losses in the US in April, Ford said operational and organisational restructures in the US had been completed and should save the company at least $35 million in F21. It will drive an increased and separated focus on the luxury market in the region, he said.
It has also started offloading selected commercial wine brands and assets in the US and restructured its supply chain.
“The second half of fiscal 2020 has been a unique period for the industry and all of the communities in which we operate. While it is right to remain cautious on the near-term outlook, given uncertainty remains around the timing and pace of recovery in our key markets, we remain optimistic around our return to both margin and profit growth," Ford said.
