The imposition of restrictions on imports of Australian wine into China have crushed Penfolds producer Treasury Wine Estates’ (ASX: TWE) earnings in the December half, despite the company witnessing growth in other overseas markets.
The company says the EBITS (earnings before interest, tax and material items) contribution from Australian sales to Mainland China fell from $78.2 million in 1H21, to just $2 million this recent half.
TWE notes this was partially offset by global distribution growth for Penfolds and its other luxury and premium portfolio brands, with reported EBITS declining 7 per cent to $262.4 million overall.
Excluding Australian sales to China, Treasury’s earnings would’ve actually risen by 28 per cent.
“We are very pleased with our first half results, where we delivered comparable EBITS growth of 28 per cent when taking into account the effective closure of the Mainland China market, while at the same time continuing with the implementation of important changes across the business,” TWE CEO Tim Ford said.
“This performance reflects the focused execution of our plans and strategic priorities, led for the first time by Penfolds, Treasury Americas and Treasury Premium Brands.
“Each division is now on a clear and positive trajectory towards their respective long-term growth objectives, with the benefits of separate focus and accountability already very evident throughout TWE.”
Ultimately, the company reported a 7.5 per cent decline in net profit after tax to $109.1 million for the half, while net sales revenue declined 10.1 per cent to $1.27 billion thanks to the divestment of its US commercial portfolio and the decline in shipments to China.
Treasury’s crown jewel brand Penfolds reported a 19 per cent decline in earnings to $165.1 million, with reduced shipments to China partially offset by growth across other international markets.
Meanwhile, both Treasury Americas and Treasury Premium Brands reported a 19 per cent increase in EBITS.
It comes after a half during which TWE’s Americas arm divested brands Provenance and Chateau St Jean, as well as surplus supply chain assets.
Treasury Premium Brands saw net sales revenue fall 5.6 per cent, with the impact of reduced commercial portfolio volumes in EMEA (Europe, the Middle East and Africa) and ANZ moderated by the growth of key brands in the portfolio including 19 Crimes, Squealing Pig and Pepperjack.
TWE expects that trading conditions in the second half will be broadly consistent with those in 1H22 across all key global markets and channels.
“Following the past two years of significant change within TWE and the markets in which we operate, we have shifted our focus from a mindset of ‘recovery and restructuring’ to one of ‘growth and innovation’,” Ford said.
“We have great confidence that by leveraging the unique strengths of our business – our people, our brands and our asset base – we are well placed to capitalise on the significant opportunities across the global markets in which we operate.”
Get our daily business news
Sign up to our free email news updates.
Help us deliver quality journalism to you.
As a free and independent news site providing daily updates
during a period of unprecedented challenges for businesses everywhere
we call on your support