Treasury Wines shrugs off China woes as earnings recover

Treasury Wines shrugs off China woes as earnings recover

Treasury Wines (ASX: TWE) has shrugged off its China woes with a better-than-expected underlying profit forecast for the current financial year, lifting shares by more than 4 per cent in early trading today. 

Although still facing lower EBITS (earnings before interest, tax and SGARA) compared with FY20, Treasury Wines has announced the underlying profit figure will land between $495 million and $515 million.

The figure is ahead of market consensus and represents an increase of 33 per cent over the group's troubled first half.

The latest forecast compares with EBITS of $533.5 million in FY20.

Treasury Wines CEO Tim Ford earlier this year announced a plan to split the company into three new divisions in the wake of the massive disruption to its growth model created by China's punishing tariff regime on Australian wine imports.

The strategy is aimed at allowing the company to focus more sharply on its key wine brands, among them the premium Penfolds range.

"Over the long-term, TWE is targeting the delivery of sustainable top-line growth and high single-digit average earnings growth," says the company in a statement to the ASX.

"TWE's long-term financial objectives also include the continued premiumisation of its sales mix, expansion of its group EBITS margin to the target of 25 per cent and restoring and then growing ROCE (return on capital employed)."

Treasury Wines provided a detailed insight into the margins of each of its new divisions, highlighting the importance of the Penfolds brand to the group.

The Penfolds division is targeting 40-45 per cent EBITS margin, while Treasury Americas is maintaining its 25 per cent EBITS margin target and Treasury Premium Brands is aiming for the high teens.

The company is also tightening up its global supply chain which Treasury expects will deliver savings of at least $75 million by FY23, up from the $50 million previously announced.

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