Treasury profits hit by US problems

Treasury Wine Estates has reported a dramatic 53% profit slump in its full year results, which the company blamed on a weak performance in the US market.

David Dearie, CEO of Treasury Wine Estates

The Australian group, which owns brands including Penfolds, Beringer, Lindeman’s, Wolf Blass and Wynns Coonawarra Estate, saw its 2013 net profit slide to A$42.3 million, down from A$89.9m in 2012.

The result reflects the A$154.3m cost of reducing inventory in the US market after over-estimating its performance there. This “tough but necessary” step involved the destruction of A$35m-worth of “old and aged commercial stock.”

Despite its US problems, TWE enjoyed combined growth of 17% in its three other regions of EMEA, Asia and ANZ.

Although volumes in EMEA fell compared to 2012 as a result of the group’s “planned exit from unprofitable sales”, improved margins helped pre-tax profits rise by A$11.6m to hit A$16.0m, a 263% increase on the previous year.

Within the UK market, Wolf Blass performed particularly well in the second half of the year, achieving volume growth of 21.5% and value growth of 11.9%

In Asia, pre-tax earning leapt by 35.6% to A$54.5m, with TWE increasing the region’s allocation of its 2013 Penfolds release to meet demand.  In order to capitalise on this opportunity, the group confirmed a plan to step up its Asian brand building investment by 70% in 2014.

Meanwhile TWE enjoyed 6.5% volume growth in the declining Australia and New Zealand market as a result of “a targeted campaign to drive growth in the masstige portfolio.”

As part of its drive to strengthen the upper end of its portfolio, 2013 has seen TWE invest A$67m to acquire “premium” vineyards in both South Australia and Napa Valley. Last November saw the group buy the remaining 50% stake in its New Zealand winery, packaging and warehouse facility, now called Matua Marlborough.

Further investments over the last year included a strengthening of TWE’s global travel retail team as it seeks to rival the success of spirits in this sector.

Emphasising the importance of “flawless brand building,” TWE chief executive David Dearie said: “TWE’s portfolio of iconic wine brands continued to outperform the competition in major awards and international wine shows over the course of the year, providing further evidence to the excellence of our viticultural and winemaking teams, and TWE’s enduring commitment to quality.”

Despite its US problems, the group concluded: “TWE’s full year results show that the fundamentals of the Company’s strategy are working, and why TWE will continue to focus on driving top-line growth, building exceptional brands, and investing in luxury and masstige wines.”