TWE Poised for Growth After F15 ‘Reset’ Year

Rising from years of progressive loss, Treasury Wine Estates has posted its second largest profit in over four years with a strong plan in place for continued, sustainable growth.

The company, who has past battled a number of challenges including unwanted stock and a presumed over-reliance on the Penfolds brand, will now enter fiscal 2016 stronger than ever according to a recently released annual report.

CEO Michael Clarke attributes the recent turnaround to a number of strategic factors including portfolio premiumisation, reduction of overhead, and an overall transition for the company globally.

“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,” said Clarke.

“Our full year result reflected the combination of portfolio premiumisation together with deliberate actions to improve the quality and strength of our earnings. We 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 also represents the first successful year of TWE’s journey to transition from being an order-taking, agricultural company to a brand-led marketing organisation”.

Reinvigorating TWE’s brand portfolio beyond Penfolds was a key focus for the company during the second half the 2015 financial year, with 11 of TWE’s 15 “priority” brands reporting growth compared to only 6 in F14.

Supported by an uplift in consumer marketing investment of over 50 percent, collectively these priority brands delivered 13 percent NSR growth (versus 3 percent in fiscal 2014), with key highlights including Beringer, Wolf Blass, Penfolds, Stags’ Leap, 19 Crimes, Wynns Coonawarra Estate, Rawson’s Retreat, Pepperjack, Chateau St Jean, Etude and Matua.

“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,” Clarke continued.

“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.”

During the second half of F15 TWE also progressed its focus on the luxury market versus commercial portfolios with the announcement a simplified production facilities in both Australia and California.

From fiscal 2016 onwards, the company will continue to focus on Australian and Californian luxury and masstige wine separately from commercial wine.

TWE will also reduce excess production capacity, principally focused on the commercial segment.

“Despite growing demand for Luxury and Masstige wine globally, TWE continues to face declining consumer demand for commercial wine in most of its key markets and as a consequence, competition is increasing.

“Reducing cost and complexity from TWE’s supply chain is critical to defending volume and improving margins in this challenging segment, globally.”

In an effort to bring greater focus to TWE’s brand portfolio and facilitate increased international distribution, the company also reports enhancements to its routes-to-market in key growth countries in Asia— including Greater China, Korea and Singapore.

TWE has also invested in new and emerging markets, siting Latin America, the Middle East and Global Travel Retail as “representing exciting avenues for future growth”.

“Our ambition is to become the world’s most celebrated wine company; a company that enriches peoples’ lives with quality wine brands,” Clarke concluded.

“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.”

TWE Annual Report Financial Headlines:

• Statutory net profit after tax $77.6 million; up $178.5m on prior year
• Net Sales Revenue (NSR) up 8.4% on a reported currency basis and by 3.8% on a constant currency basis
• Of the 15 priority brands, 11 brands delivered NSR growth versus 6 brands in the prior year
• $40+ million overhead reduction achieved and 50%+ step-up in consumer marketing investment delivered
• EBITS $225.1 million, up 21.9% on a reported currency basis and 16.2% on a constant currency basis, reflecting premiumisation, strategy to grow NSR across priority brand portfolio and reduced cost base
• EPS of 21.9 cents per share up 25.9% on prior period (before material items, SGARA & $80.5 million tax benefit in fiscal 2014); reported EPS 11.9 cents per share
• Strong cash conversion at 102.5%
• Final dividend 8 cents per share bringing total dividend to 14 cents per share, unfranked, 1 cent per share higher than the prior period
• Distributor inventory realignment program in USA complete
• Depletions ahead of shipments in all regions in fiscal 2015
• Exciting pipeline of consumer marketing programs including brand innovation and campaigns in place for fiscal 2016

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