Treasury Wine Estates unveils its historically strongest results

Treasury Wine Estates boss ­Michael Clarke has proved his doubters wrong by unveiling the company’s strongest results.

Treasury Wine Estates chief executive Michael Clarke. Picture: Stuart McEvoy.

Treasury Wine Estates boss ­Michael Clarke proved his doubters wrong yesterday by unveiling the strongest results in the company’s history ­based on growth across all regions and a pledge to hit earnings targets two years early.

But a highly anticipated ­demerger, splitting off Treasury Wine’s commercial wines to ­devote more attention and capital to its high profile labels such as Penfolds and Wolf Blass is now seen as less likely after Mr Clarke said his bottom-priced commercial wines were finally starting to ramp up their profit contribution to the group.

Powered by ripping out more than $80 million in costs from its supply chain and with that cost-cutting now set to ramp up to a run rate of $100m by 2020, Mr Clarke justified his heavy ­investment in marketing and ­rebranding of some of his tired wines, including the ­cheaper ­labels, as earnings ­almost doubled in the Americas this year, tripled in Europe and lifted by one third in Asia.

The promise of even stronger earnings in the years ahead as even the troubled Americas ­region — long time a disaster for Treasury Wine after it split from Foster’s in 2011 — showed a ­resurgence was enough to send investors rushing for shares to send its stock to an all-time high.

Shares in Treasury Wine rallied more than 13 per cent to $10.845 before closing $1.10 higher, or 11.52 per cent, at $10.65

The shares have more than tripled since Mr Clarke was ­appointed chief executive two years ago, as a desperate board grabbed for the one-time Coca-Cola, Reebok and Premier Foods executive to rescue it from a string of profit warnings, writedowns and circling, predatory private equity suitors.

Mr Clarke yesterday justified that pick, as well as his company-wide upheaval of the organisation that has included asset sales and last year’s $754m ­acquisition of Diageo Wine, by announcing Treasury Wine had more than doubled its full-year net profit to $179.4m, against $77.6m the previous year.

Revenue increased by 18.9 per cent to $2.34 billion in fiscal 2016, from $1.97bn a year earlier. Earnings in Asia rose 39.9 per cent to $102m, in Europe by 198 per cent to $47.7m and in the Americas by 63.8 per cent to $136.3m.

“We have improved profitability on our brands,’’ Mr Clarke said. “We have really stepped up the ­investment in our brands and therefore the ‘consumer pull’, which has allowed us to ­(increase) prices. In time we have also been able to take costs out of our system that improved cost of goods sold and therefore profitability.

“So we are driving the more profitable parts of our business, focusing on making sure everything we sell is more profitable.’’

Synergies from its Diageo Wines acquisition are expected to reach a run rate of $US35m by 2020, up from $US25m.

Better and higher marketing, investing in brands and stripping out costs will combine to see Treasury Wine deliver high-teens EBIT margin by 2018, two years ahead of schedule.

Treasury Wine will continue to polish its commercial wines, bringing to life their brand power so they do not get lost in the supermarket aisle, with its commercial portfolio probably staying inside the company for now rather than sold or spun off.

At the premium end, Treasury Wine is sitting on inventory of $800m worth of luxury wines that will slowly be drip fed to customers to maximise the earnings power of older vintages.

Treasury Wine will pay shareholders a final dividend of 12c a share on October 7.