TWE reaffirms positive growth in Asia

Treasury Wine Estates (TWE) has hit back at ‘negative’ comments by analysts, reaffirming positive and sustainable growth and margin in Asia.

The Australian winemaker said it wanted to clarify its outlook in response to Goldman Sach’s downgrading its outlook yesterday on the back of “unrealistic” expectations of the Chinese market, which it said potentially gave rise to “misleading statements”.

It argued that volume growth and profitability of its business model in China, and the region had been driven by “significant” routes to market investment and brand-building, along with the favourable backdrop of imported wine in the Chinese market.

“Significant opportunity for continued, sustainable growth exists in China”, it said, pointing to its expansion into strategically important cities and provinces, as well as in cities it was already active in. It noted that it had extended its reach across different channels in China in these existing cities, and that more higher income earners were coming into the imported wine category.

As a result, the company argued that the Asia region would deliver EBITS margins of 30-35% “on a sustainable basis”, underpinned by its “disciplined approach to driving luxury and ‘masstige’ [mass prestige brands] volume growth”.

“TWE expects to have significantly more luxury and ‘masstige’ wine available for sale in F19 and beyond as the 2016 and 2017 Australian vintages and the 2016 Californian vintage becomes available for sale. In addition, with a multi-region sourcing model and by pursuing portfolio growth that spans multiple countries-of-origin, TWE is well positioned to satisfy growing demand for premium wine, globally,” it said.

It reiterated the guidance provided in February, saying the second half EBITS were expected to be broadly in line with the first half.

Treasury Wine has seen its market share of China grow over the last three years, and last August the company reported its earnings before tax (EBITS) in Asia had grown by 40% compared with the previous year, to AU$102 million.