The Treasury Wine Estates Ltd (ASX: TWE) share price will be on watch this morning after the winemaker and marketer delivered its full-year FY20 result.
Unpacking Treasury Wine Estates’ FY20 report
Treasury Wine revealed that its net sales revenue (NSR) fell by 6% to $2.65 billion, attributing the fall to challenging conditions in the US wine market and the impact of COVID-19.
The company’s EBITS dropped by 22% to $533.5 million (click here to learn what EBIT means, the S stands for SGARA – the change in value of its vineyard plants), and its EBITS margin declined by 4 percentage points to 20.1%.
Management said one of the key drivers of the lower EBITS was unfavourable volume and portfolio mix during the second-half of FY20 due to COVID-19. The closure of key channels for higher-margin luxury wine led to lower luxury sales and consumer trading was also down in some markets.
Further drivers of the decline in EBITS and EBITS margin were challenging conditions in the US wine market, which was flagged in January, and higher cost of goods sold (COGS).
This translated to a 25% fall in net profit after tax to $315.8 million, while earnings per share suffered a similar fate, decreasing 26% to 43.9 cents per share.
On a more positive note, NSR per case came in at $81.90 and increased across all regions, supported by continued portfolio premiumisation. The luxury and masstige (mass-market prestige) portfolio now contributes 71% of global NSR, up from 69% in FY19.
How did each region perform?
As expected, Americas fared the worst, recording a 37% decline in EBITS to $147.3 million and a 6.8 percentage point drop in EBITS margin to 13.8%.
The all-important Asia segment reported a 14% drop in EBITS to $243.7 million, while the EBITS margin increased by 0.3 percentage points to 39.5%. This near-40% margin is what makes the Asia region so valuable to Treasury Wine.
Australia and New Zealand saw a 16% fall in EBITS to $133.3 million, with the EBITS margin decreasing 3.7 percentage points to 22.5%.
Finally, the smaller Europe, the Middle East and Africa (EMEA) region suffered an 18% decline in EBITS to $51.7 million, while the EBITS margin fell 2.7 percentage points to 14%.
TWE’s dividend
Treasury Wine declared a final dividend of 8 cents per share, fully franked, representing a 60% cut to the 20 cents per share final dividend in FY19.
This takes full-year dividend to 28 cents per share, down 26% compared to FY19.
What next?
Unsurprisingly, Treasury Wine decided not to provide earnings guidance for FY21 given the continuing levels of uncertainty across its key markets.
Commenting on the company’s outlook, chief executive Tim Ford said: “While we have recently seen positive signs of recovery across a number of our key markets and channels, we are cautious on the near-term outlook given the uncertainty that remains around the pace of that recovery. We remain optimistic around our ability to return to sustainable profit and margin growth over the medium to long-term.
Supporting this optimism is our comprehensive strategic agenda, which is focused on building upon what is already a very strong business and positioning it for the next phase of TWE’s growth journey and the achievement of our ambition to be the world’s most admired premium wine company.”
Treasury Wine is working on a US business restructure that will save the company at least $35 million a year. It’s also commenced a global supply chain restructure which is set to deliver annualised COGS benefits of at least $50 million by FY23. While promising, there are a lot of moving cogs in this business so I’m happy to watch from the sidelines.
For daily coverage throughout August, make sure to bookmark Rask Media’s ASX reporting season page and separate reporting season calendar.
