Investors have given a cheer or three for Treasury Wine Estates (TWE) and its December 31 financial report which clearly showed the company’s wounds from China’s unilateral imposition of punitive tariffs have healed as the new diversification strategy is clearly working.
While the country’s biggest wine-maker saw a 7.5% fall in profits to $109.1 million in the six months to December, the report confirms the new policy of going deeper into the huge US market and concentrating on higher-priced wine brands, is paying off.
What TWE calls ‘Net Sales Revenue (or NSR) fell 10% to $1.267 billion for the half and earnings before interest and taxes (EBIT) dropped 6.7% to $262.4 million.
The company left interim dividend steady at 15 cents a share for a payout ratio of 66% of earnings.
All this saw the shares surge more than 11% to $11.77 at the close.
Despite the weaker earnings, TWE says it remains optimistic about its future prospects as it continues to expand away from China.
A major part of this push has been to ramp up its presence in the United States with repositioning of key brands and price points, changes in distribution and rationalisation of brands.
In November the company signed to buy a top of the range US winemaker in California’s Napa Valley for $433.5 million. That deal has just been settled.
Treasury Wine CEO Tim Ford said in Wednesday’s release that he was “very pleased” with the company’s first half results given the “effective closure” of the mainland Chinese market, pointing out that the business’ earnings before tax and interest grew 28 per cent when this market was excluded.
All three divisions were on a “clear and positive trajectory” towards long-term growth objectives. “We have shifted our focus from a mindset of ‘recovery and restructuring’ to one of ‘growth and innovation’,” Mr Ford said.
“We have great confidence that by leveraging the unique strengths of our businesses – our people, our brand and our asset base – we are well placed to capitalise on the significant opportunities across the global markets in which we operate.”
The company revealed that earnings on its lingering links to China earned a profit of $2 million, down from $78 million a year ago.
TWE revealed that with “83% of its NSR was contributed by the Premium and Luxury portfolios.”
TWE said it expects trading conditions for the remainder of 2021-22 will be broadly consistent with those in the December half across all key global markets and channels.
