Treasury Wine fends off China slump to decant a higher profit

Treasury Wine fends off China slump to decant a higher profit

Treasury Wine Estates (ASX: TWE) has defied a slump in revenue from China with strong growth across its other global markets helping Australia’s largest wine producer to decant a slender increase in profit for FY21.

The company reported full-year net profit of $250 million, up 1.9 per cent on the previous year. The result was built on revenue of $2.68 billion, up a slender 0.2 per cent.

Treasury Wines’ EBITS also held steady with the previous year at $510.3 million, despite a fall of $77.3 million in EBITS for mainland China.

A jump in premium wine sales across its portfolio helped Treasury Wines hold its ground over FY21.

Net sales revenue per case increased across all regions, with the company’s Luxury and Premium portfolios contributing 77 per cent of global revenue, up from 71 per cent previously.

The company says it delivered strong growth in the $10 to $30 Premium portfolio in the Americas, Europe and the Australia-New Zealand regions, led by its key brands of 19 Crimes, Pepperjack, Squealing Pig, Beringer Brothers and Matua.

“These positive growth trends were moderated by ongoing global pandemic disruptions, higher cost of goods sold and significantly reduced shipments to mainland China following the introduction of import duties on Australian wine,” the company says.

Treasury Wines offset the China squeeze by picking up some of the slack in other Asian markets. The Asia division saw a 15 per cent drop in EBITS to $205.4 million even though China sales effectively fell off a cliff.

“Pleasingly this impact was partially offset by continued growth across the rest of the region, in particular for Penfolds Bins & Icons, despite ongoing pandemic restrictions to key Luxury sales channels,” says the company.

The bright spot for Treasury Wines is the Americas, where it reported a 23 per cent increase in EBITS to $168.3 million. The group’s Premium brand portfolio continues to outperform the market there, led the 19 Crimes label.

Australia and New Zealand recorded EBITS growth of 10 per cent to $142.7 million, with margins also up 1.7 percentage points to 23.7 per cent, reflecting a rise in premium wine sales during the pandemic.

EBITS actually slipped 6 per cent to $46.6 million while margins also fell in the European division with some of that caused by Brexit-related costs. The company says its key brand continue to perform well in this region.

Treasury Wine’s CEO Tim Ford describes FY21 as “a year of both significant change and achievement for our business”.

“The financial results we have announced today (is) a testament to the commitment and strength of our global teams.

“Most pleasingly, despite a backdrop of significant external disruption, we have delivered on the priorities we set for ourselves at the start of the year, and therefore we remain very well placed to deliver on the long-term growth ambitions we set out in our TWE 2025 strategy.”

Treasury Wines says it remains optimistic that it can continue to drive growth of its premium portfolio Penfolds Bins & Icons in key global markets outside of China.

The company is paying a final dividend of 13c per share, fully franked, up 62.5 per cent from FY20. The full-year payout is 28c.

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