Treasury Wines slashes expectations as coronavirus hits key China market

Treasury Wine has slashed its expectations for the full financial year on the back of the slowdown in the Chinese market due to the outbreak of Covid-19 (coronavirus).

Treasury Wine Estates chief executive Michael Clarke (Photo: Treasury)

In a statement issued to the market yesterday, the Australian wine giant said that while the full operating and financial impacts of there outbreak were yet to be fully determined, it had sufficient information to suggest the impact that had already been seen in February was likely to continue “at least” through March.

Sales had been strong in the run up to Chinese New Year, but since then there had a “significant” adverse impact on depletions growth (ie goods moving from the distributor’s warehouse to the end consumer) and it would ensure shipments to distributors were calibrated accordingly until the situation returned to normal.

As a result, it said it no longer believed it would reach its guidance on EBITS growth, which had been set at 5 – 10%, but remained committed to being a supportive long-term partner to its customers in China.

Last month the company reported growth in its Asian business of around 19%  in the first half of the year, to $175.5 million, which totalled more than three-quarters of its total profits.

It added that it did not expect its F21 plans to be impacted, as long as the impacts of the virus were resolved in this financial year.

“Asia is a predominantly luxury wine sales region, and TWE has the flexibility to allocate luxury wines to later fiscal periods or other geographies in order to deliver sustainable earnings growth,” it said.

In line with government infection containment controls, TWE staff throughout China are currently working from home, as well as its partnership networks which includes wholesalers, retailers and logistic providers and it said will actively support them through this period.

It also noted that the virus outbreak might also impact other markets, but said at this stage they were not expected to have a material impact.

A further update will be provided at the end of year results.

It is the second profit warning issued by the Australian wine giant this year, after the underperformance in the US during the first half prompted it to slash its profit expectations by around 15%.

The drinks sector has been one of the hardest hit sectors by the coronavirus (Covid-19), as China accounts for some 35% of global luxury goods sales. See here for db analyses of the impact of the outbreak

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