Treasury Wine Estates lifts interim profit on China demand, US pick-up

Treasury has posted earnings growth from all its key regions, as it reshapes its portfolio to focus on premium wines.

Treasury Wine Estates CEO Michael Clarke. The result was helped by a weaker Aussie dollar.

Treasury Wine Estates has for the first time since it split from Foster’s in 2011 posted earnings growth from all its key regions, as chief executive Michael Clarke pushes ahead with reshaping the winemaker’s portfolio to focus on premium and luxury wines and shift away from low margin commercial wines.

The winemaker (TWE), whose brands include Penfolds, Lindemans, Wolf Blass and Saltram, has posted a 42 per cent jump in first half profit to $60.6 million on the back of booming sales into China and a turnaround in its long-suffering Americas division.

Profit before material items, which include millions of dollars in writedowns and charges as Mr Clarke pruned the company’s operations, tightened its supply chain and ripped costs out of the business, more than doubled to $87.6m.

Sales rose 22 per cent to $1.138 billion for the December half, led by a resurgence in Asia after a corruption crackdown and austerity drive in China which had hit banquets and business meetings.

Treasury sales in Asia rocketed more than 100 per cent to $157.3m.

North America also provided some welcome positive news for the winemaker, after years of underperformance and disappointment that saw Treasury destroy $35m worth of unwanted and spoiled wine in 2013. Sales for the first half were up 22 per cent to $450.8m.

For the first time since Treasury listed on the ASX the company harnessed earnings growth from all its core regions — Australia, New Zealand, the Americas, Asia and Europe.

Pre-tax earnings in Australasia were up 6 per cent to $46.7m, earnings in Europe more than doubled to $17.2m, earnings in the Americas were up 67 per cent to $56.2m and Asian earnings more than doubled to $46.5m.

The Americas, long a problem child of the Treasury portfolio, saw accelerated growth in luxury and lower priced premium wines as the wine market in the US improved. The winemaker also focused on more brand-building campaigns in the US, while narrowing its attention on a smaller handful of commercial brands.

The shift in Treasury’s fortunes has followed a radical strategic change led by Mr Clarke, who was appointed CEO in 2014. He has devoted more marketing and advertising to its higher margin luxury and premium wines to drive strong group profits.

This move into the premium end of the global wine market was enhanced late last year by Treasury’s purchase of Diageo’s US wine business for $754m. The deal brought in a portfolio of premium American wines as well as some commercial wine brands in the UK.

Treasury, which was demerged from brewer Fosters in 2011, also reconfirmed its earnings guidance for full-year profit to be at the upper end of its guidance range of $270m to $290m.

The December half result was helped by a weaker Australian dollar which increases the value of the company’s offshore earnings when translated back into the local currency.

Treasury declared an interim dividend of 8 cents a share, compared to 6 cents a year ago.