Saturday 19 October 2019

Treasury Wine Estates reports ‘positive momentum’ and a net profit of $419.50 million

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Treasury Wine Estates today announced a net profit of $419.5 million for the 2019 financial year – up 16 percent on last year.

Asia and fine wine sales are big contributors to the strong result.

TWE reported earnings before interest and taxes (EBITS) of $662.7 million, up 25 percent on a reported currency basis, with EBITS margin increasing to 23.4 percent.

“Another meaningful step forward on the journey to an EBITS margin of 25 percent and beyond,” TWE said in a statement.

Premiumisation was a key driver of performance, with NSR from the Luxury and Masstige segments growing 27 percent in F19, and now representing 69 percent of Group NSR.

Return on capital employed (ROCE) increased 2.3ppts to 14.9 percent, underpinned by enhanced profitability in all regions and supported by TWE’s disciplined approach to capital allocation.

The Board declared a final dividend of 20 cents per share, fully franked. F19 full year dividend of 38 cents per share – up 19 percent on the previous corresponding period.

TWE CEO Michael Clarke said, “I am extremely pleased to announce yet another high-quality set of financial results for our shareholders in fiscal 2019, delivering a five-year EBITS CAGR of 30 percent.

“Today’s results confirm the positive momentum in our business which is being delivered through our premiumisation strategy, the disciplined investments we have made in our business over recent years and importantly, exceptional execution by our global team.

“While the competitive and macro-economic landscape has presented challenges for the industry in some of our key growth markets, our competitively advantaged business models and collaborative customer partnerships have enabled TWE to continue delivering strong underlying growth.”

• Americas reported 13 percent EBITS growth to $218.7 million and an EBITS margin of 19.3 percent (down 0.8ppts) while successfully embedding route-to-market changes and investment in the US. Premiumisation continues to be a key driver of performance, with increased Luxury and Masstige volumes complemented by growth in Canada and Latin America.

• Asia reported 43 percent EBITS growth to $293.5 million and an EBITS margin of 39.2 percent (up 1.7ppts), driven by increased availability of Luxury and Masstige wine, growing demand for TWE’s portfolio of brands and outstanding execution. TWE continues to invest in driving distribution, brand building and organisational capability throughout the region to support future growth.

• Australia & New Zealand reported 15 percent EBITS growth to $156.5 million and an EBITS margin of 26.0 percent (up 3.3ppts), driven by growth across the Masstige and lower Luxury portfolios, improving performance in the on-premise channel and an ongoing focus on managing costs.

• Europe reported 4 percent EBITS growth to $51.4 million and an EBITS margin of 14.9 percent (down 0.5ppts), driven by targeted investment behind priority brands in focus markets throughout the region.

TWE says it is well placed to continue the successful execution of its premiumisation strategy in F20 and beyond.

“The 2019 Australian vintage represents yet another outstanding Luxury intake for TWE, and current investments in French production assets and Australian Luxury winemaking capacity will support the next phase of the premiumisation journey,” Mr Clarke said.

“Further strengthening of the Company’s competitively advantaged route-to-market remains a priority, particularly in the US and Asia, both of which remain attractive markets for premium wine consumption and where TWE sees significant opportunity to continue growing a focused portfolio of brands.

“The Simplify for Growth program, targeting operational efficiency and enhanced returns from brand building investment will continue to support cost optimisation, and TWE will increasingly leverage the newly established Global Business Services function over time.

“TWE reiterates guidance of approximately 15 percent to 20 percent reported EBITS growth for F20, which will be delivered by growth in all markets, through continued top line growth and premiumisation as well as ongoing operational efficiency. A patient and disciplined approach to execution through the improved US route-to- market model will be taken in seeking to achieve this target, and TWE will also seek to navigate adverse impacts to Commercial COGS15 from the 2019 Australian vintage.

“The results announced today demonstrate the exceptional returns we are delivering for our shareholders, and they are a direct result of the investments and structural change our team has made in our global business over the past five years. Sustainability is at the heart of everything we do at TWE, and we will continue to pursue opportunities to enhance the fundamentals of our business with a mindset of prioritising long-term success over short-term outcomes. We look to the future with confidence, knowing that we have the people, the brands, the wine, the business models and the customer partnerships to continue delivering sustainable, margin accretive growth.”

Australia and New Zealand
“Australian wine market volume remains flat, with value growth being driven by premiumisation. TWE maintains its aspirational 25 percent market share target, to be achieved through prioritising growth across the Luxury and Masstige portfolios; 22 percent value share in F19. TWE has strong and collaborative relationships with strategic customers, supported by well-established joint business planning processes. Maintaining greater focus in the on-premise category remains a priority, and TWE continues to improve performance through category growth initiatives such as Wine on Tap.”

Asia
“Fundamentals of the Asian wine market remain attractive; consumption continues to grow, particularly at premium price points. TWE’s route-to-market, focused on self-distribution, provides a key competitive advantage to maintaining growth momentum across the region through changing macro-economic cycles. Growing a portfolio of strong brands from multiple COO’s remains a priority for TWE throughout the region; TWE is currently delivering growth across its Australian and French COO portfolios and momentum for US brands is expected to return once the US / China trade relationship improves. TWE sees tremendous opportunity to continue growing market share from the current sub five percent level by working closely with its wholesale and retail partners.”

Vintage update – Australia
“The 2019 harvest compares favourably with 2018, with TWE delivering around 10 percent incremental growth in volume across its Luxury wine portfolio. This is despite some central regions experiencing early season frosts, hail and intense heat in late January which resulted in significant yield reductions in the Barossa Valley in particular. The impact of the lower yields in central regions were partially offset by the exceptional quality of the fruit received which will fulfil demand for super Luxury wines. The Limestone Coast experienced a slightly cooler growing season and has as a result delivered high volumes of high quality fruit that more than offset the lower intake from the Barossa and McLaren Vale. Irrigated region commercial wine and fruit intake was in line with expectations for both quality and quantity.”

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