Treasury posts 42% profit rise

Treasury Wine Estates’ (TWE) strategy to up its premium offer appears to be paying off, with the company reporting a 42% rise in net profits in the first half.

Treasury Wine Estates’ CEO, Michael Clarke

The first financial statement since its acquisition of Diageo Wine in January, the company reported a 42% increase in its first-half net profit to AUS$60.6 million in the six months to December 31, up from $42.6 million a year earlier.

Total net sales revenue meanwhile increased by 22% to $1.8 billion, with volumes of nine-litre cases increasing by 5%, the equivalent of 722,000 nine-litre cases, to 15.8m.

On a regional basis, TWE’s American division reported a 67% uplift in EBITS (earnings before interest and tax) to $56.2m, reflecting double digit growth in its luxury and masstige portfolio.

TWE already owns US wine brands including Beringer, Chateau St Jean and Stag’s Leap. However its recent acquisition of Diageo Wine for £361m saw the Australian producer take control of Diageo’s UK wine business Percy Fox, which includes wine brands Blossom Hill and Piat d’Or, and its US-based Chateaux & Estate Wines, whose brands include Beaulieu Vineyards, Sterling Vineyards, Acacia, Provenance and Hewitt.

TWE said its acquisition would drive a “crucial step-change” for the growth of its luxury and masstige portfolio in the US, by providing instant access to more premium fruit, part of a wider strategy to focus on its premium offer.

Australia & New Zealand (ANZ) meanwhile reported 6% growth to its EBITS to $46.7m, driven by solid volume growth, despite the Australian market generally falling flat.

Europe reported an increase of 138% to its EBITS, which totalled $17.2m, with TWE acknowledging a “challenging pricing and trading environment in Europe, characterised by highly competitive customer landscape and currency headwinds”.

Asia reported an “outstanding” first half result with EBITS up $26m to $46.5m, with net revenue rising more than 100% to $157.3m, up from £69.6m the previous year. This was driven by increasing demand for imported wine and “enhanced routes-to-market” in China, Singapore, Malaysia and Japan, with volumes increasing by 612,000 nine-litre cases to 1.2m cases.

“We have continued to embed a sustainable and more balanced business, with revenue and earnings growth being driven by all regions and across the portfolio of brands”, said Michael Clarke on TWE’s outlook.

“We remain committed to our guidance range for the full year. From a longer term perspective, we remain highly focused on driving EBITS margin accretion and ROCE improvements; thereby delivering genuine value to our shareholders.

“I am confident margin accretion will be delivered over time as we continue to premiumise our portfolio, optimise our brand building investment, bring margin accretive innovation to consumers, remain vigilant on managing our cost base and deliver on our Supply Chain Optimisation initiatives.”

Its continued upward trajectory in the first half follows much improved financial results in 2015, which saw the company post a net profit of AU$77.6 million after tax, up $178.5m on 2014 when it reported a crushing loss of AUS$100 million (£56m) in its end of year results, prompting plans to restructure its business driven by newly appointed CEO Clarke.

Clarke was appointed CEO of the company in March 2014. Treasury’s Australian brands include Penfolds, Wolf Blass, Lindeman’s and Rosemount.