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TWE slashes growth predictions as US business stalls

Published:  29 January, 2020

Treasure Wine Estates (TWE) has cut its predictions of growth for 2020 from between 15% and 20% to between 5% and 10% after its first half-year figures were released yesterday.

The contraction has been driven by sharp declines in the company’s US division, where earnings before interest and tax (EBITS) fell back 26.4% for the six-month period on a constant currency basis.

Additional problems in Europe, the Middle East and Africa, where the company’s sales declined by 4.8% on the same basis, were offset by a strong performance in Asia, up 22.1%, and Australia and New Zealand, up 13.6%.

Overall, TWE’s profits for the half rose 5% to AU$229.2m.

The company attributed its struggles in the US market to a range of factors, including unforeseen senior management changes, deep discounting by rival producers, and the growth of cheaper private-label wine sales.

Its performance in the US market contrasts strongly with 2019, when sales in the Americas were up 9.4% to AU$1.13bn.

Premiumisation continues to be a key driver of growth for the company globally, with its luxury and masstige market segments growing by 7% for the first half-year. Together, the categories comprise 73% of TWE’s sales.

CEO Michael Clarke said:“The results announced today demonstrate the continued momentum behind our premiumisation strategy across all markets, and the strength of our diversified, global business model.

“We are very pleased with our performance across Asia, ANZ and EMEA, all markets in which we are executing well and continuing to deliver improving financial returns for our shareholders. While current conditions in the US wine market are challenging, we are confident that we will re-gain momentum under the new Americas regional leadership team and return the region to growth once the market impacts subside.”

TWE is predicting EBITS growth of between 10% and 15% for 2021.

Clarke previously announced that he will stand down from the TWE leadership role in the autumn. The company’s chief operating officer, Tim Ford, has already been appointed to replace him.

The downgraded profit projections shocked the market, causing TWE’s stocks to tumble 26% which lost the company over AU$3.1bn in market capitalisation.