Winemaker Treasury Wine Estates wants to go on something of a ‘wine diet’ by getting rid of a reported $300 million in unwanted brands and associated assets as it revamps itself to move away from depending too much on selling into China for growth.
What it plans is a combination of rebirth and relaunch, with a touch of back to future strategising (such as looking to grow in the US, yet again).
In its December half year report on Wednesday, Treasury revealed that it would look to generate “at least” $300 million through a series of various asset sales – which will not include its high-end Penfolds brand which has emerged as the ongoing anchor for the slimmed down business.
The company confirmed plans it would split its business into three new internal divisions of Penfolds, Treasury Premium Brands and Treasury Americas, highlighting the company’s plans to boost sales in the growing US market.
The US ambitions have been a perennial storyline for TWE and its predecessors such as Fosters and Southcorp and those aspirations have, for the most part, gone unmet thanks to botched marketing, channel stuffing (distributing too much wine for the market to absorb) and dud management.
In fact the December half results contain millions of dollars in asset impairments in the US which underlines just how flakey the company’s performance in that huge market for liquor has been over the years.
The company also it is accelerating its marketing into other Asian markets such as Thailand and Hong Kong and was also reducing its cost base in China.
CEO Tim Ford said the business expects demand for its wine in China to remain “extremely limited” for the foreseeable future thanks to laughable restrictions and other official obstacles created by the Chinese government to punish Australia.
“While we expect disruptions to continue across a number of our sales channels through the remainder of fiscal 2021, we are well placed to further our recovery once conditions improve in key channels for luxury wine,” he said.
“The fundamentals of our diversified global business remain strong and I am confident they will continue to support our execution into the future,“ he added.
But the bottom line is TWE has to recreate itself and find more, smaller markets because China is all but shut and the country is now an unreliable trading partner for Australian companies.
The woes in China were the main driver behind the 43% slump in statutory net profit to $120.9 million for six months to December
That nasty drop in profits was further hurt by a $45.6 million impairment related to the divestment of a number of US brands and assets.
Net sales revenue for the half fell 8% to $1.4 billion.
The weak performance and need to husband cash to pay for the revamp was behind the 25% drop in interim dividend to 15 cents a share.
TWE said that was a payout ratio of 62% of net after tax profit, “which is consistent with TWE’s long-term dividend policy.”
Profits from sales into Asia dropped 28% due to the action from the Chinese government and broader pandemic restrictions, though Treasury noted “progressive recovery” was beginning.
The Americas reported a 15% decline in earnings while there was a 12% drop in Australia and New Zealand. Emerging markets saw a 22% slide.
The market have been waiting to see Treasury’s plans to regain the 30% of earnings the company will lose due to the Chinese tariffs (up to a punitive 169%), with market-some concern that it could take a long time to re-allocate the sales, which could come at lower margins.
TWE shares finished the session with something of a rush, rising from being up around 0.2% about 2pm to a solid 2.4% gain for the day and closing at $10.14.
That was a small victory for the company and its newish growth ideas.
