Wine group points to 20pc earnings fall
TREASURY Wine Estates has flagged a 21 per cent earnings slump compared with the previous financial year as impacts from the COVID-19 outbreak damages global operations.
The Penfolds manufacturer has tipped earnings before tax and interest for the last financial period to be between $530 million and $540 million, noting costs of doing business throughout the pandemic and the challenging US wine market affected performance.
TWE also highlighted extreme heat during key stages in the growing season resulted in a smaller yield and the 2020 Australian vintage total intake to be approximately 30 per cent lower than what was produced in 2019.
“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,” TWE chief executive Tim Ford said.
Across its operating region, TWE has predicted a 14 per cent decline in its Asian market, 37 per cent in the Americas, 18 per cent within Europe and 16 per cent across Australia and New Zealand for the 2020 financial year.
The group noted the Chinese market was showing signs of recovery in both consumption and sales depletion, with April and May volumes up 1 per cent compared with the previous corresponding period. However, he remains cautious on the short and medium-term outlook as restrictions on social gatherings could impact luxury wine sales.
An oversupply of wine within the US market continues to cause ongoing challenges, as wines need to be sold at lower price points.
TWE said the persisting challenges driving down price has reaffirmed the group’s decision to reduce its size and scale with the North American market, which it expects will save at least $35 million for the current financial year.
“This redesign will ensure that the overhead cost base is aligned with the future volume and margin objectives of the business in the Americas and, importantly, will drive an increased and separated focus on luxury wine sales across the region,” TWE said in an update to the ASX.
TWE noted sales in Australia and New Zealand remained at elevated levels – except for wines sold in the higher margin luxury market, which is experiencing reduced consumer demand.
The company also flagged the potential demerger of its luxury Penfolds division into a separate entity is still being considered and could occur by the end of the 2021 calendar year.
It noted that it expects global cost of goods sold per case to increase by approximately 3 per cent in the 2021 financial year compared with the previous period.