Ford toasts Treasury Wine rebuild after profit sinks 25pc

Treasury chief Tim Ford is putting navigating the winemaker through the pandemic over a potential demerger of Penfolds.

Treasury Wine Estates CEO Tim Ford. Picture: Aaron Francis

Treasury Wine Estates chief executive Tim Ford is prioritising navigating the winemaker through the COVID-19 pandemic over a potential demerger of his luxury Penfolds brand, with his US business also in need of greater attention to return it as a growth engine for the group.

A renewed commitment to recapturing growth, especially in the US where its business has stumbled, help propel Treasury shares almost 15 per cent higher yesterday, despite a weakened profit and crunched final dividend.

Mr Ford, who replaced Michael Clarke as CEO in July, has softened the focus and possibly slowed the pace around a Penfolds separation, in contrast to the more aggressive stance by his predecessor who first signalled work was being done on splitting out Penfolds in April.

A Penfolds demerger could still go before shareholders in 2021 as first outlined by Mr Clarke, but Mr Ford reflected on Treasury’s 25 per cent slide in net profit for fiscal 2020, its slimmest earnings in three years, and said there was a recognition that other priorities now took precedence.

“What has become clear is that there is value to be created out of separate focus between Penfolds and the rest of our portfolio. However from a time-frame point view we are focusing ... just to make sure we work through the pandemic period and recover the business to the point we want to,’’ Mr Ford told The Australian.

“We have got a pretty serious global pandemic and that has had an impact on the business, and we are starting to recover in some of our markets and we have to do that. We have to deliver a reshaped US business as a growth engine for Treasury.’’

Penfolds is the jewel in the crown for the global winemaker and also dominates its profitability, with the brand accounting for 10 per cent of volumes but generating more than 50 per cent of earnings.

Delivering his first results as CEO, Mr Ford outlined his strategy for the next few years which includes selling some of its commercial US wines and harnessing growth in luxury wines. There was also an upbeat assessment of improving sales into China where business was recovering as more wine was shipped to retailers.

But the scars of COVID-19 were evident in the winemaker’s 2020 performance. It reported a 25 per cent fall in full-year net profit to $315.8m as sales dropped 6 per cent to $2.649bn, with earnings sliding across all its key regions of Australia, North America, Europe and Asia.

The weakened profit has forced Treasury to take an axe to its final dividend, cutting it to 8c per share, down from the 20c. The final dividend will be paid on October 2.

Mr Ford said the winemaker would make changes to its US operating model and global supply chain, which is expected to deliver respective cost savings of $35m from 2021 onwards and $50m by 2023.

Treasury is also investigating the divestment of some US assets, some of which were inherited from its previous incarnation as Foster’s in 2000 and which for two decades have struggled to make a return on its investment.

Treasury said it would not provide guidance for 2021 as the volatility in world markets caused by the COVID-19 pandemic clouded long term views.

Pre-tax earnings fell 22 per cent to $533.5m.

Net sales revenue per case increased across all regions supported by continued portfolio premiumisation, with the luxury and masstige portfolios now contributing 71 per cent of global net sales revenue, up from 69 per cent in 2019.

Across its key regions, Americas reported a 37 per cent decline in EBITS to $147.3m, while in Asia — its biggest market driven — reported a 14 per cent decline in EBITS to $243.7m. However there were early signs of a recovery in China as depletions (wine sold to retailers) were up 13 per cent in the fourth quarter and better by 40 per cent in June.

In Australia and New Zealand there was a 16 per cent decline in EBITS to $133.3m, while in Europe, Middle East and Africa profits were down 18 per cent to $51.7m.

Treasury shares closed up $1.41, or 12.3 per cent, at $12.85.