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Summary
- Treasury Wine share price surged over 12% at the end of the day’s trading session following the announcement of FY2020 results.
- Due to the challenging market situation globally, the Company reported a 6% decline in net sales revenue and a substantial drop in EBITS for FY2020.
- The winemaker, however, witnessed a strong recovery in China in Q4 FY2020 and implemented critical changes to its US operating model and global supply chain.
- The Company is optimistic that it would deliver respective annualised cost savings of A$35 million from F2021 onwards and A$50 million by FY2023.
Treasury Wine Estates Limited (ASX:TWE) is an international wine business which has a portfolio of luxury, premium and commercial wines. It holds a strong position in key global markets.
The Company aims to become the world’s most admired premium wine Company.
On 13 August 2020, Treasury Wine posted its FY2020 results. Post which the Company’s share, by the end of the day’s trade on 13 August 2020, settled at A$12.850, up 12.325% from its previous close. In the last five days, the shares have jumped by over 6% and more than 13% in the last three months. TWE has a market cap of A$8.25 billion and around 720.8 million outstanding shares.
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In this article, we would look at the recent update made by the Company that supported the Company’s shares to rise on the ASX.
FY2020 Highlights:
Like many other industries, Treasury Wines also experienced challenges during FY2020 with a drop in the net sales revenue by 6% to A$2,649.5 million. The decline reflects the tough conditions in the US wine market along with the COVID-19 pandemic, which had a substantial impact on its financial performance worldwide in the second half of FY2020.
Earnings before interest, tax, SGARA (EBITS) and material items for the period declined 22% to reach A$533.5 million. NPAT decreased by 25% to A$315.8 million and EPS by 26% to 43.9 cents. The full-year cash conversion was 94.7% with the net operating cash flow in line with the previous year. The Company declared a final dividend of 8 cents per share, substantially lower than 20 cents in pcp.
With the rising market uncertainty, the Company updated that it is not in a position to provide earnings guidance for F2021.
Key highlights from a regional perspective:
- Americas reported a drop of 37% in its EBITS to A$147.3 million and an EBITS margin of 13.8%, down 6.8ppts because of the challenging US wine market conditions throughout F2020 and closure of critical sales channels outside retail and e-commerce during the second half of 2H FY2020. TWE’s focus brand portfolio continued to perform well during the period.
- EBITS from Asia declined 14% to A$243.7 million and an EBITS margin of 39.5%, up 0.3ppts because of lower volume during the third quarter. However, positive trends were seen in the fourth quarter of FY2020, with recovery in consumption and sales depletion across the portfolio. The Company did well in e-commerce during the period with volume and value growth ahead of the total wine category.
- ANZ witnessed a 16% drop in EBITS to A$133.3 million and an EBITS margin of 22.5%, down 3.7ppts. The result was affected by the closure of crucial channels away from retail and e-commerce plus consumer trading down.
- EMEA region reported an 18% decrease in EBITS to A$51.7 million and an EBITS margin of 14%, down 2.9ppts. The results are swayed by robust performance in UK retail but got offset by falls in Continental Europe and the Middle East & Africa which were impacted by significant channel closures.
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Outlook:
While uncertainty prevails in the market, Tim Ford stated that the Company lately noted positive signs of recovery across a number of our key markets and channels. Hence, the Company remains on the near-term outlook given in the present scenario.
Positive signs of recovery in China was seen with depletions up by 13% in Q4 FY2020 as compared to the previous corresponding period. Several fundamental changes were made in the US operating model as well as the global supply chain. The Company expects that these steps would deliver respective annualised cost savings A$35 million from FY2021 beyond and A$50 million by FY2023.
Further steps have taken by the Company to explore the potential divestiture of selected brands and assets in the US. TWE has started working on the restructuring of the global supply chain, which aims at driving optimisation and efficiency across all areas of production. The initiatives taken is expected to provide annualised COGS benefits of at least A$50 million by FY2023 based on wine age of release.
The Company is upbeat about its ability to return to sustainable profit and margin growth over the medium to long-term. To aid the optimism, TWE has a comprehensive strategic plan under which it would concentrate on building upon the already robust business and position it for the next phase of the growth journey.
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Despite the existing market turbulence driven by COVID-19 and the challenging US wine market, the Treasury Wine’s performance has been resilient. TWE has managed to remain profitable and has an impressive cash conversion with a healthy balance sheet.
While the stakeholders and market participants are aware of the prevailing market situation, an improvement in the Chinese market performance and a positive outlook from the Company gives them the confidence that TWE has a bright future.
