Treasury Wine Estates in revenue and earnings decline, hit by China’s trade dispute

Treasury Wine Estates has announced a plan to split into new divisions. Meanwhile its tevenue has been hit by China’s trade dispute with Australia. See how it affected the company’s earnings.

The wine manufacturer has suffered a 22.5 per cent fall in earnings, partly due to China’s trade dispute with Australia.

UPDATE: WINEMAKER Treasury Wine Estates is splitting into three divisions based on brands, effective from July.

TWE chief executive officer Tim Ford announced the company would divide into Penfolds, Treasury Premium Brands and Treasury Americas, each with their own marketing focus and accountability designed to unlock growth potential of the company as a whole.

“Under the new model, we will shift from a sales regional business model to one that is brand-led operating under three new stand-alone portfolio divisions,” Mr Ford said.

He said the Penfolds division, which included the Penfolds, Max’s and Koonunga Hill brands, would focus on becoming a global luxury brand.

The Treasury Premium Brands would push brands such as Wolf Blass, 19 Crimes, Matua, Seppelt, Wynns and Squealing Pig across a number of regional markets.

He said Treasury Americas would focus on developing premium brands from the US.

It would sell off a number of a significant proportion of its commercial brands in the US to focus only on premium wines.

Mr Ford said the three divisions would be overseen by a central Treasury Business Solutions led by chief financial officer Matt Young and a corporate office which would look after functions such as group strategy, culture, governance and capital management.

He said the new operating model would enhance Treasury Wine Estates existing long-term business case to drive future growth.

Announcing its first half results for the six months to the end of December last year, the company said revenue fell 8.2 per cent on a reported currency basis and 5.9 per cent on a constant currency basis to $1.4 billion, compared with $1.54 billion for the previous corresponding period.

TWE said earnings before interest and tax had fallen by 22.5 per cent to $284.1 million from $366.7 million in the previous corresponding period.

“Net sales revenue declined 5.9 per cent due to the ongoing impact of COVID-19 disruptions in key sale channels for luxury wine, the impact of the MOFCOM (Ministry of Commerce of the People’s Republic of China) investigations in China and the proactive reduction of commercial volume in the US,” the company said in a statement to the Australian Securities Exchange.

Mr Ford said all market segments — Australian and New Zealand Asia, Americas and

Europe, Middle East and Africa — were in various stages of impacts and recoveries after being hit by the COVID-19 pandemic.

“Across the board, retail and e-commerce sales channels remain open and continue to demonstrate strong growth, reflecting the consumer shift to in-home consumption of well-known and trusted brands during the pandemic,” he said.

“While we are seeing a positive shift in both retail and e-commerce trading up, the disruption to sales channels for high margin luxury wines is continuing to have a negative impact on our overall business performance.

“The on-premise, cellar door and travel retail channels remain significantly disrupted in each of our markets and for the Americas and ANZ specifically, this has been a key driver in the decline in the sales volume revenue and EBITs when you compare year on year.

“We remain confident that as these channels re-open and consumption demand returns to these channels, we are very well placed to further the pace of our recovery.

“However, the timing of this is difficult to forecast.”

TWE was expecting a minimal contribution to earnings from China after the Chinese Government hit the wine industry with hefty tariffs due to its political disputes with the Australian Government.

Mr Ford said TWE would keep an office in Shanghai to protect its brands and to help launch its US brands into China.

He said Hong Kong would become a focus market in the reallocation of wine that would normally be sold in China.

But he said Hong Kong would not be used as a back door to get into China.

TWE will pay a 15-cent fully franked dividend on April 1 for shares held as at March 4.

Shares fell as low as $9.74 in early trading on the ASX this morning after closing yesterday at $9.90 but have since rebounded to a high of $10.25 in the afternoon trade.

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