Treasury Wine Estates earnings turn sour as COVID-19 hits

Treasury Wine Estates earnings turn sour as COVID-19 hits

COVID-19 has had a significant impact on Treasury Wine Estates' (ASX: TWE) earnings in FY20 across all geographies with a particularly harsh decline in the Americas.

For the full year TWE, the company behind wine brands like Penfolds, 19 Crimes and Wolf Blass, expects EBITS to be between $530 million and $540 million, a decline against the prior year of approximately 21 per cent.

In terms of regional declines, the Americas market was the worst drop, down 37 per cent in FY20. Elsewhere TWE witnessed earnings declines in Asia of 14 per cent, in ANZ of 16 per cent and in Europe, the Middle East and Africa (EMEA) of 18 per cent.

While the decline is a hit to the company's stellar growth achieved pre-COVID, the expected EBITS of $530 million is still well above the company's FY18 EBITS result of $530.2 million.

The news is the first business update from fresh TWE CEO Tim Ford, who commenced in the role on 1 July 2020.

Ford says COVID-19 has been a unique period for the vintner, but he has been impressed with the way the company has overcome many of the challenges associated with the pandemic.

"The second half of fiscal 2020 has been a unique period for the industry and all of the communities in which we operate," says Ford.

"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.

"Both myself and the leadership team, which I have immense confidence in, strongly believe that TWE is very well positioned to manage through and beyond the currently impacted trading environment in markets around the globe, and believe that the challenges we have faced will lay the platform for an even stronger business in the future."

Despite the decreases in earnings, TWE says there are some green shoots showing in a number of regions, particularly in China where positive signs of both consumption and sales recovery are emerging as the country reopens its economy.

The company also says e-commerce sales in China are performing strongly, with consumers shifting their buying behaviour to this channel.

"Whilst these recent trends are positive, TWE remains cautious on the short to medium term outlook, with gatherings and social occasions, which drive consumption of luxury wine, yet to fully recover to previous levels," says TWE.

In Australia, strong retail performance remains at elevated levels compared to FY19 for the winemaker, but COVID-19 restrictions have impacted overall portfolio sales volume in 2H20.

The company remains in a strong capital position, with cash on hand of approximately $448 million and undrawn committed debt facilities of $920 million, providing total liquidity of approximately $1.4 billion.

The company will not be providing earnings guidance for FY21 at this point in time as the COVID-19 pandemic is ongoing.

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