Treasury Wine Estates Ltd today announced its interim 2019 financial result, with net sales revenue (NSR) increasing by the largest organic growth rate in the company’s history.
On today’s result, TWE’s chief executive officer, Michael Clarke, commented: “I am very proud to see the foundation established in the previous years continuing to deliver sustainable growth, as shown by yet another strong set of financial results.”
TWE delivers strongest organic NSR growth rate in its history: net profit after tax (NPAT) up 17% (1) and earnings per share (EPS) up 19%
• NSR (2) up 16% to $1,507.7m; NSR increase of 13% on a constant currency basis represents the strongest organic growth rate in company history. (3)
• 1H19 EBITS (4) up 19% to $338.3m; EBITS margin accretion to 22.4%, up 0.5ppts.
• NPAT (5) up 17% to $219.2m; EPS (6) up 19% to 30.5 cents per share with an 18.0 cents per share interim dividend declared, up 20%.
• EBITS growth delivered in all regions through top line execution – volume growth, portfolio premiumisation and price realisation. One off investments and charges included, and offset, within EBITS.
• TWE’s competitively advantaged business model, brand portfolio and outstanding sales execution enabled strong performance in Asia with 31% EBITS growth to $153.1m and an EBITS margin of 38.9%.
• Execution of US route-to-market transition progressing well and on track.
• Shipments broadly in line with depletions and forward days inventory cover in line with prior year, globally.
• Simplify for Growth initiatives to deliver operational efficiencies. Establishment of the Global Business Services division commenced in 1H19 with investments and restructuring costs included within EBITS.
• TWE reiterates guidance for F19 reported EBITS growth of approximately 25% and expects growth in F20 reported EBITS in the range of approximately 15% to 20% (7), which is broadly in line with consensus.
1H19 result summary
Treasury Wine Estates Ltd (ASX:TWE or “the Company”) today announced its interim 2019 financial result, with NSR increasing by the largest organic growth rate in the Company’s history.
EBITS were $338.3m, up 19%, with growth delivered across all regions. The Company also delivered EBITS margin accretion of 0.5ppts to 22.4%, representing another step forward on TWE’s journey to a 25% EBITS margin.
Reported NPAT up 17% to $219.2m and EPS up 19% to 30.5 cents per share.
The Board declared an interim dividend of 18.0 cents per share, fully franked, up 20% on the previous corresponding period (pcp) and has reinstated its Dividend Reinvestment Plan (DRP), which will be available to Australian resident shareholders for the 2019 interim dividend.
On today’s result, TWE’s Chief Executive Officer, Michael Clarke, commented: “I am very proud to see the foundation established in the previous years continuing to deliver sustainable growth, as shown by yet another strong set of financial results for the Group. Like in previous years, we’ve delivered on expectations while continuing to implement significant changes to the business and investing for future growth.”
1: Unless stated otherwise, all percentage movements in Media Release are on a reported currency basis. 2: Net sales revenue 3: Excludes the impact from the Diageo Wine acquisition in F16 4: Earnings before interest, tax, SGARA and material items 5: Statutory Net Profit After Tax (including material items) 6: Reported basic Earnings Per Share 7: Assuming no material changes due to vintage or foreign exchange movements, and does not include impacts from the application of AASB16 Leases in F20
Key highlights from a regional perspective include:
• Americas reported 12% EBITS growth to $112.1m and an EBITS margin of 18.5%. NSR grew 20% through positive execution under the new route-to-market model combined with underlying premiumisation, offset by higher costs of doing business (CODB) reflecting a new sales organisation, and including transitional overhead investment carried above the line, not in material items.
• Asia reported 31% EBITS growth to $153.1m and an EBITS margin of 38.9%. NSR growth of 32% driven by increased availability of Luxury and Masstige wine and outstanding sales execution. TWE continued to optimise and expand its distribution presence across the region.
• Europe reported 10% EBITS growth to $26.3m and an EBITS margin of 15.0%. NSR growth of 10% was driven by Masstige-led premiumisation as well as continued focus on the strengthening of strategic customer partnerships.
• Australia & New Zealand (ANZ) reported 13% EBITS growth to $77.4m, and an EBITS margin of 23.2%. Masstige-led premiumisation delivered 4% NSR growth in Australia, offset by impacts of cycling New Zealand distributor model transition. COGS and CODB optimisation continues.
TWE targets financial metrics that are consistent with an investment grade credit profile. As at 1H19, TWE reported net debt/EBITDAS of 2.0x (8) with interest cover of 13.9x (9). The new US$350m syndicated debt facility established in November 2018 has increased balance sheet flexibility and will support key investment priorities.
Cash conversion of 53.5% principally reflects revenue growth and the timing of sales execution in the Americas and Asia within 1H19, and the foreign currency translation of working capital balances in the US. Cash conversion for the seven months ended January was 85%.
TWE entered F19 with increased availability of Luxury wine, a strong pipeline of innovation and New Product Development, strengthening customer partnerships in all regions and brand portfolio initiatives that have the potential to be incremental to the Company’s existing 5-year expectations.
Current macro-economic uncertainty has created challenges for some global consumer companies, however the strength of the Company’s routes-to-market, particularly in key markets like China and the US, has provided TWE with a significant competitive advantage, and supported the delivery of another strong result. Through these optimised business models, and the underlying strength of its people and brands, TWE is well placed to capitalise on its current momentum and deliver sustainable growth through 2H19 and beyond.
In China, TWE sees tremendous opportunity to continue growing its share of the imported wine market from the current sub 5% level (10) by leveraging its brands and multiple country of origin portfolio. The French category is one where the Company is particularly focussed on gaining share given it is the largest import category, accounting for around 30 to 40% of the market, and remains highly fragmented. TWE will aim to build on its existing French country of origin proposition, Maison de Grand Esprit, using the Penfolds and Beaulieu Vineyard brands.
TWE reiterates guidance of approximately 25% EBITS growth in F19 and expects reported EBITS growth in F20 in the range of approximately 15% to 20%, which is broadly in line with consensus. The Company will provide a further update on expectations for F20 at the time of the full year results release in August 2019.
On TWE’s outlook, Michael Clarke commented: “The results presented today demonstrate not only the strength of our premiumisation strategy and global balance, but in particular they highlight the strength of our competitively advantaged regional business models. We are confident we have the brands, the people and the business models in place to maintain the momentum of this half and continue delivering sustainable growth for shareholders.”
8: Net debt adjusted for capitalisation of operating leases. Operating leases capitalised using the S&P lease capitalisation methodology. 9: Interest cover is calculated as the ratio of earnings to net interest expense, where earnings is the consolidated pre-tax profit (pre material items and SGARA) plus the sum of the amount of net interest expense adjusted for amortised interest costs, per financial covenants. 10: Sources: IWSR, China customs data, TWE management estimates