Things to Know about Treasury Wine Estates and its Wine Story

Summary

• Treasury Wine Estates, one of the biggest wine companies in the world, was beaten down during the COVID-19 pandemic, with shares delivering a negative return of over 12% in the last six months.
• TWE would declare its FY2020 results on 13 August and expects EBITS in the range A$530 million-A$540 million.
• In 2H FY2020, the Company experienced a significant impact on the trading performance across all geographies.
• 2020 Australian Vintage was impacted by extreme temperature during the vital stages of the growing season, which resulted in a smaller volume, higher cost vintage for the global winemaker.

Treasury Wine Estates Limited (ASX:TWE) is amongst the largest wine companies in the world. The Company is known for its superior winemaking and brand marketing. The business aims at meeting growing consumer interests internationally plus delivering sustainable growth. Any action taken by the Company is dedicated to realising its vision to become the most renowned wine Company in the world.

TWE focuses on four principal regions across the world. These are Australia and New Zealand; the Americas; Europe; and Asia.

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Treasury Wine’s Business:

A vertically integrated business, TWE focuses on three principle activities. These are:

• Grape Growing and Sourcing
• Winemaking
• Brand-led Marketing

TWE has more than 3,400 employees globally. It has a portfolio of over 70 brands. TWE has access to over 13,000 planted hectares of owned and leased vineyards in globally recognised regions.

Brands:

Some of the popular brands of TWE includes:

Diversity at Treasury Wine Estates:

Established in 1843, the Company focuses on gender diversity, flexibility, and inclusive leadership. The Company comprises of people from diverse backgrounds who are committed to creating a high-performance culture, attracting, and retaining the best possible talent.

Treasury Wine’s Stock Performance:

TWE shares have experienced an adverse impact on its share price in the last six months delivering a negative return of 12.48% over the period. However, an improvement is seen in the previous three months as the shares have given a return of 6.92%. TWE has a market cap of A$7.68 billion and by the end of the day’s trade on 6 August 2020, the shares settled at A$10.790, up 1.22% from its previous close.

Treasury Wine’s Business Update Amid COVID-19 Pandemic:

On 9 July 2020, Treasury Wine Estates Limited provided an update on its business, including preliminary performance outcomes for FY2020. It also updated on its business progress on key strategic initiatives before its F2020 full-year results announcement on 13 August.

For FY2020, the Company expects its EBITS in range in between A$530 million to A$540 million, driven by COVID-19 pandemic. The pandemic had a significant impact on TWE’s trading performance across all geographies in H2 FY2020. TWE implemented cost initiatives throughout this period, which resulted in reductions in the costs of doing business. It includes no payment to of any discretionary employee incentives.

F20 EBITS dropped by ~21% for the Group as compared to the previous corresponding period. In Asia, the decline was 14%, in the Americas, the fall was 37%, 16% in Australia and New Zealand while 18% in EMEA.

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Australian Vintage Update:

The 2020 Australian Vintage was impacted by extreme temperature during the vital stages of the growing season. It resulted in a smaller volume, higher cost vintage for TWE with a total intake of ~30% less than the previous year.

As highlighted by the Company in 1H FY2020, cost impact from 2020 Australian Vintage is likely to result in elevated commercial and masstige COGS in FY2021. TWE feels that it would have an effect on all of TWE’s sales regions, but a considerable impact would be seen in the ANZ and EMEA region. The COGS per case is expected to increase by ~ 3% in FY2021 as compared to FY2020. The percentage is equivalent to A$50 million growth in global COGS, excluding the impact of volume and mix. On this front, the Company has initiated in its work on the restructuring of its global supply chain cost base. This, in turn, will support in achieving lower COGS per case over time.

TWE is well placed in the present times through the flexibility of its luxury wine allocation program. This is the major strength of the Company’s business model that enables TWE to manage through short-term modifications in demand or single vintage variation. TWE’s multi-regional sourcing strategy provides it with added flexibility to tackle single vintage variation and supports sustainable long-term earnings growth.

Using this flexible allocation model, the Company has actions that are put in place. The Company plans to carry forward unsold wine (earlier assigned to 2H FY2020) and reallocate luxury wine (previously allocated to FY2021).

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Strategic Priorities:

• The prolongation of the challenging conditions at a lower price in the US wine market re-confirms the plan of the Company to provide a future state premium wine business.
• TWE completed the implementation of the operating model and organisation structure changes in the US business. It would help the Company to provide annualised cost savings of at least A$35 million in FY2021.
• TWO started the possible divestiture of selected commercial wine brands and assets in the US. It also initiated the restructuring of its supply chain. These programs are anticipated to provide an acceleration of TWE’s margin premiumisation strategy in the Americas. This would improve the shape of P&L as well as a platform for future growth.
• Relate to the potential demerger of Penfolds, work completed since the market announcement in April remains on track to confirm the probability that value will be created via a distinct focus for Penfolds as well as the Company’s other brands, worldwide.

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2016 Grange Leads The 2020 Penfolds Release

A family of fine wines, Penfolds Collection 2020 covers five remarkable white and red wine Australian vintages. The collection is led by the 66th consecutive release of Grange, which is a proof to the evergreen winemaking philosophy passed through generations of winemakers.

The 2020 Collection wines provides multi-region and multi-vineyard blends, single-region wines, and a single-vineyard wine. The new version comprises red wines of unique refinement and cellaring potential plus white wines which deliver on complexity and flavour.