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Consumers ‘Trading Down’ in These Challenging Times: Michael Clarke

By Wednesday 8 April 2020April 15th, 2020No Comments

Michael Clarke, CEO of Treasury Wine Estates, says consumers across the world are “trading down” during the coronavirus pandemic.

“In the short term these are unusual and very challenging times with consumers trading down,” he says in an ASX announcement this morning.

“TWE is not in a position to provide detailed numbers or detailed timelines at this stage as it is unclear how trading will play out in the short term.

“We do know that, post Covid-19 and as consumption rates normalise, the underlying longer-term growth potential of the business and therefore the value of the Penfolds franchise and the remaining TWE portfolio is significant.”

In China, TWE’s staff have recently returned to working in the office, as have most of its partnership network.

“While Q3 depletions and shipments were significantly impacted as a result of the nationwide shutdown, TWE is now working closely with these partners to resume operations through the remainder of F20, where shipments will remain appropriately calibrated to the rate of depletions as consumption rates normalise,” TWE says in the announcement.

“It should be noted that while consumers are getting back to work, socialising and consumption levels remain at subdued levels, impacting the recovery of the Q3 depletions shortfall to plan.”

TWE says that in other regions, strong retail depletions growth towards the end of Q3 has reflected consumer behaviour to stock product and the greater propensity for in-home consumption during government-imposed shutdown periods, coupled with strong momentum for the portfolio through e-commerce channels.

“Performance during this period has however been skewed towards the lower margin Commercial and Masstige portfolios,” TWE says.

“Channels outside of retail and e-commerce will remain closed in line with government shutdown protocols in each region – these channels include cellar doors, on-premise venues and global travel retail which focus on high margin and Luxury wines.

“Supply chain operations continue to function in each geography, with no material interruptions having been experienced thus far.

“TWE has had in place heightened hygiene and social distancing procedures as part of its business continuity plans for some time.”

TWE says certain parts of the business have been, or are expected to be, impacted as a result of increasing government restrictions requiring people to stay at home and self-isolate.

“TWE will manage employee work-load based on business activity levels and will seek to align remuneration levels with the corresponding level of business activity, and government requirements going forward,” the company says

“This is in order to safeguard the ongoing roles of our team members during this period and until trading returns to more normal levels.

“TWE’s thoughts remain with its staff, our partners and all family members during this challenging time, and TWE will continue to provide support to its team members to the greatest extent possible including providing them with greater flexibility to access accrued leave entitlements where appropriate.

“TWE maintains a flexible and efficient capital structure that is consistent with an investment grade profile, including a stable and well diversified debt maturity profile and significant headroom with respect to its financial covenants. At 31 March 2020 TWE’s liquidity, comprising cash and undrawn committed debt facilities, was approximately $1.1 billion.”

TWE is considering a demerger of Penfolds.

“Regardless of the potential demerge of Penfolds,” the company says, “TWE has concluded that it will deliver a future state Luxury business that continues the premiumisation strategy and will pursue a range of initiatives to reduce the size and scale of its Commercial wine business, particularly in the United States.”

Photo: Cellar Door Fest (Simon Casson).


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