TWE rebounds in ‘re-set year’

Treasury Wine Estates is toasting its “first successful year” in its transition to a “brand-led marketing organisation.”

Treasury Wine Estates chief executive Michael Clarke

The company posted its full year results for 2015 today (19 August), which showed a net profit of AU$77.6 million after tax, a result $178.5m on last year. Its earnings before interest (EBITS) reached $225.1m, up 22% on last year. The news corroborates the announcement earlier this year that TWE saw itself as “on-track” to meet its targets.

Net sales revenue (NSR) was up 8.4% on a reported currency basis and 3.8% on a constant currency basis to $1.85bn and 11 of the 15 “priority brands” saw growth compared to just six last year.

In line with CEO Michael Clarke’s proposals to get TWE back on-track, the company also reported that its $40+m overhead reduction had been achieved as had a 50% increase in consumer marketing campaigns.

Clarke said of the results: “Fiscal 2015 was a re-set year for our Company; a year where substantial strategic, operational and cultural change was embedded to enhance the quality and sustainability of TWE’s base business.

“The team has achieved in just 12 months, what might reasonably be expected to occur over a two to three year period and for that, I would like to acknowledge and thank everyone at TWE for their hard work and commitment.

“In this context, I am delighted to report NSR growth of 8% and EBITS of $225.1 million, up 22% for the 12 months ended 30 June 2015.

“Our full year result reflected the combination of portfolio premiumisation together with deliberate actions to improve the quality and strength of our earnings. We realigned the portfolio by transitioning the Penfolds release date, increased and optimised our brand investment, enhanced our routes-to- market in several regions, improved sales and marketing execution and removed excess overheads and supply chain costs.

“Fiscal 2015 represents the first successful year of TWE’s journey to transition from being an order- taking, agricultural company to a brand-led marketing organisation”.

The strongest growth was reported in Australia-New Zealand and Asia with the company saying it had “successfully enhanced its routes-to-market” in Greater China, Korea and Singapore, as well as investing in Latin America, the Middle East and Global Travel Retail.

Australia and New Zealand reported EBITS growth up 15% to $84.4m, “driven by portfolio premiumisation and focused investment on priority brands,” among other reasons. Overall volumes were somewhat below last year because of TWE’s new focus on sustainable volume and inventory reduction but volumes in Australia did increase 1.6%.

Europe, Middle East & Africa saw a reduction in EBITS to $14.4m not helped by the “increasingly competitive” UK off-trade. Nonetheless, lower volume was expected due to TWE’s “deliberate exit from unsustainable volume in select UK retailers” and this was partially offset by an improving volume situation in Western Europe, the Middle East and travel retail.

There were also signs in the second half of the year that consumer marketing in the key UK and Nordic markets was gaining traction.

In the Americas, EBITS were in line with last year but were hit adversely to the tune of $14.1m dollars thanks to a depreciation of the Canadian dollar against the American.

The company’s luxury and “masstige” brands saw respective volume growth of 16% and 20% in the US, while priority commercial brands grew 1%, Canada likewise saw “positive momentum” with growth in the luxury and masstige sectors.

Asia reported a 54.5% EBITS growth to $73.1m, this “outstanding” growth was driven by premiumisation, increased distribution breadth and “strong sales and marketing execution” the company reported.

Volume growth in Greater China was up 36% and 13% in Southeast Asia, reflecting “growing brand strength” and “positive” consumer responses to the company’s marketing campaigns.

Looking at 2016 and beyond, Clarke added: “Fiscal 2015 was a re-set year for our Company. Fiscal 2016 is about growth, as we leverage the step-change in consumer marketing investment and sales execution, lower overheads and more sustainable base business that we have embedded in fiscal 2015.

“TWE enters fiscal 2016 with the greatest pipeline of consumer marketing programmes in place in the Company’s history, including brand innovations and campaigns. By the end of the first half of fiscal 2016, 10 of our 15 priority brands will either be relaunched, refreshed via outstanding innovation or promoted via exciting advertising and brand activation campaigns.

“Demonstrating TWE is transitioning from an agricultural company to a brand-led, marketing organisation, higher COGS in fiscal 2016 and 2017, driven by adverse vintage and production costs, are expected to be offset by supply chain optimisation initiatives announced earlier this year.

“Wine is by nature a capital intensive business and TWE is now focused on delivering a more efficient capital base, thereby improving TWE’s Return on Capital Employed. Improved asset returns will now be delivered via both earnings growth and capital employed optimisation.

“TWE concluded the fiscal 2015 year with a very robust cash position. Management and the board are keen to deploy this capital in a careful and Earnings Per Share accretive manner. We are therefore evaluating all our capital management options and we will update the market by no later than our interim 2016 result announcement.

“As we execute our strategic roadmap, we are confident that TWE will generate high-teens EBITS margins by fiscal 2020.

“Finally, I, together with my management team and everyone at TWE, look forward to continuing to drive our Company forward in order to deliver consistent, sustainable financial outperformance and value creation for our shareholders.”