A 37 per cent fall in earnings in the Americas spearheaded the declines, followed by falling revenues in Europe (18 per cent), Australia and New Zealand (16 per cent) and Asia (14 per cent).
Australia’s largest wine company says the reduced earnings of between $530 million and $540 million reflect the significant impact the COVID-19 pandemic has had across all its major markets in the second half of the financial year.
It has been a tough six months for TWE following a period of record sales.
A boom in Chinese exports in the past two years led to a 2018/19 net profit of $419.5 million and helped drive TWE’s share price to $19 in late November.
But weaker than expected US sales and the COVID-19 pandemic saw the share price bottom out at $8.61 in mid-March.
ASX shares opened at $11.28 this morning and fell more than 50 cents in the first 90-minutes of trade following the announcement.
In its announcement to the ASX this morning, TWE also said its 2020 Australian vintage had been impacted by extreme heat during key growing periods, resulting in a smaller volume, higher cost vintage with a reduced intake of 30 per cent compared to the previous year.
Treasury Wine Estates announced in April it is considering a plan to split off its flagship Penfolds brand into a separate premium wine company by the end of 2021, which it confirmed today it was continuing to investigate.
Other well-known South Australian TWE brands include Wolf Blass, Wynns, Coonawarra and Rosemount Estate.
New CEO Tim Ford, who took over from Michael Clarke on July 1, said the second half of the 2020 financial year had been a unique period for the industry.
“I am proud of the way that our people, customers and suppliers have managed through the disruptive impacts of the COVID-19 pandemic giving me continued confidence in our team, brands and operating models and their combined strength,” he said.
“While it is right to remain cautious on the near-term outlook, given uncertainty remains around the timing and pace of recovery in our key markets, we remain optimistic around our return to both margin and profit growth.
“Both myself and the leadership team, which I have immense confidence in, strongly believe that TWE is very well positioned to manage through and beyond the currently impacted trading environment in markets around the globe, and believe that the challenges we have faced will lay the platform for an even stronger business into the future.”
Ford said a restructure of the US business had been completed and would save at least $35 million in the 2021 financial year.
The savings will help efforts to sell luxury wine, as the company has found it harder to compete at the lower end of the market due to what it says is oversupply in the $US8 to $US15 range.
Treasury Wine Estates has also started examining the sale of some of its brands and assets in the US.
The company is due to post full-year results on August 13.
Meanwhile, COVID-19 restrictions have shattered the on-premise market for wine sales in the United States – Australia’s second largest export market by volume – according to the latest Rabobank Wine Quarterly report.
The report said, barring a vaccine, the on-premise US wine sale channel would likely take years to recover and had already cost the industry billions.
Rabobank senior wine analyst Hayden Higgins said although the on-premise channel typically accounted for less than 20 per cent of annual wine sales in the United States, it was extremely important for small, premium wine brands which sold a greater proportion of their product into restaurants and bars.
Higgins said Australian wine brands needed to consider how their distributors were currently working with US retailers, and also plan for future channel changes in the way consumers purchase wines such as digital strategies.
“While the on-premise sales are currently facing monumental challenges, the growth in e-commerce has been well-documented, and will provide an important opportunity for wineries seeking alternative growth strategies – both in the US, Australia and other markets,” he said.
“We’re already seeing this process well underway in Australia, as wineries try to offset the decline in tasting room sales with e-commerce.”
Despite an 11 per cent decrease in the volume of Australian wine exports to the US in the 12 months to March 2020, the value of exports only fell by 2 per cent.
The average price per litre of Australian wine in the US has risen to its highest level since 2009, reflecting the premiumisation trend for wine in the US and Australia’s efforts to capture more of this market.
– with AAP
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