TWE: ‘robust’ year as profits rise 55%

Treasury Wine Estates saw annual profits rise by 55%, as it reported that the integration of the newly-acquired Diageo wine business and its overall EBIT margin was three years ahead of schedule.

TWE chief executive Michael Clarke

The Australian Wine giant reported its net profit after tax rose 55.3% to AUS$269.1 million in the 2017 financial year, with overall earnings before interest and tax (EBITS) up 36% to AUS$455.1 million.

Chief executive officer Michael Clarke said he was delighted by the strong result, which had seen “robust earnings growth” across every region, as well as an accelerated EBITS margin (up 4 percentage points to 19%) that was three year’s ahead of expectations.

“This result was delivered despite continuing to sell through short vintages of luxury and ‘masstige’ wine, and highlights our continued focus on strategic customer partnerships in all our markets, significantly enhanced sales and marketing execution, and optimisation of our cost base,” he said.

Volumes rose 8.5% on a reported basis to 36.4 m 9L cases, helping to boost the net sales revenue (NSR) by 11.3% to AUS$2,401.7 m on a constant currency basis, with revenue per case rising 3% as a result of premiumisation and price increases on key brands.

The total inventory grey on the back of a high quality vintage in Australia in 2017, and California, in 2016.

Growth was seen across the company’s four key regions, supported by investment in strategic partnerships with wholesale and retail partners.

Volume growth in Australia helped boost the Australia and New Zealand region by 24% to $111.1 million. while the acquisition of Diageo’s wine business and ‘robust underlying volume growth’ lifted the American markets, with EBIT growth of 44% to AUS$150.1 million. The US market, which was growing ahead of the category, also benefited from distribution and consumer-led brand building investment to boost availability, it said,

Asia also saw strong growth, notably in China and Japan, where new warehousing facilities were established, with EBIT up 47% to AUS$150.1 million. Warehousing in China is set to follow in 2018, which the company said would provide greater opportunities, along with a greater focus on ‘insight-driven” partnerships and business-planning.

Earlier this month, the company hit back at ‘negative’ comments by analysts, reaffirming positive and sustainable growth and margin in Asia.

Growth was more muted in Europe, which saw EBITs up 0.6% to AUS$48 million, largely as a result of the exchange rate driven by the devaluation of Sterling (excluding this adverse effect saw EBIT increase 46% across the region). The UK market remained “challenging” on the back of the declining category and Brexit uncertainty, and the company noted that while the commercial brands were declining, the luxury and masstige segment was in growth. Going forward, the UK, Sweden and the Netherlands would remain a key focus, with priority brands including Wolf Blass, Lindemen’s, Blossom Hill and 19 Crimes.

“Delivering revenue growth and margin accretion over time remains a priority, supported by our investments in building closer, more efficient and strategic partnerships with customers and by positioning TWE as the wine supplier of choice across multiple brand portfolios and countries-of-origin,” Clarke added.

In addition, the company made savings of around AUS$39 million in this financial year, making it on track to realise AUS$100 million of savings by the 2020 financial year.

The company also vowed to reward staff for the positive results with a one-of payment, and announced a buy-back shares to the tune of AUS$300 million during the 2018 financial year.