The Treasury Wine Estates Ltd (ASX: TWE) share price has aged like a fine wine this morning after announcing its half-year results for FY22.
TWE share price
Treasury Wine share priced buoyed by ex-China growth
Currently, the Treasury Wine share price is up 12.24% to $11.83.
Key financial results for the half ending 31 December 2021 include:
- Revenue of $1.27 billion, down 10.1% year-on-year
- Earnings before tax, interest, SGARA and material items (EBITS) of $262.4 million, down 6.7% YoY
- Net profit after tax of $109.1 million, down 7.5% YoY
- Interim dividend of 15.0 cents per share fully franked
With revenue and profit falling, why is the Treasury Wine share price up 10%?
The result may not look that flash, but it has exceeded market expectations since China effectively banned wine imports from Australia.
Removing the impact of the sales to Mainland China, EBITS actually increased 28% illustrating the growth in Treasury Americas and Treasury Premium Wines.
In fact, despite losing the highly profitable China region, Treasury’s earnings margins expanded by 80 basis points to 20.7%.
Furthermore, net profit and earnings per share marginally increased once currency impacts are removed.
ESG tailwind
The business announced a suite of sustainability initiatives to boost its ESG credentials.
Treasury Wine will join the RE100, a global program aimed at committing companies to 100% renewable energy.
The business also will refinance $1.4 billion in debt into sustainability loans, reducing its cost of capital in the long run.
Companies taking into account ESG typically benefit from higher market multiples, aiding the performance of the Treasury Wine share price.
Shift to premium
The business has stated previously its ambition to move towards premium and luxury wines to capture higher margins and pricing power.
Subsequently, net sales revenue per case increased by 16%. This means Treasury Wine is selling its wine at a higher purchase point to consumers.
The sales per case uplift were largely driven by a change in product mix.
During the half, Treasury Wine completed the divestment of its lower-margin Americas portfolio.
The company then replaced it with the acquisition of luxury Californian winemaker Frank Family Vineyards.
What next for the Treasury Wine share price?
Management did not provide concrete guidance for the remainder of FY22. However, it did say trading conditions are expected to be consistent with the first half.
Treasury will be shifting its focus away from ‘recovery and restructuring’ to one of ‘growth and innovation’.
“TWE’s financial objective remains to deliver sustainable top-line growth and high-single digit average earnings growth over the long-term”
