Yesterday’s full year results from Treasury Wine Estates (TWE) were interesting in that they showed the company’s financial position as at June 30 last, but as the basis for wondering about what lies ahead, they were useless because of one and possibly two buyout offers priced at the moment at $5.20 a share.
Until those offers are finalised by KKR/Rhone, and a second group, believed to TPG, the data released yesterday has an historical feel to it and no more. Except the unchanged final dividend to shareholders of 7c a share. That took the amount for the full year to a steady 13c a share.
The two offers value the company around $3.4 billion at $5.20 a share, and the share price closed yesterday down 2.4% at the offer price of $5.20.
TWE saw its bottom line fall to an annual loss of $101 million after suffering heavy asset write-downs totalling $281 million.
Ignoring those, the company’s underlying earnings for the year fell 14.6% to $184.6 million, but even that was a bit stretched.
The group was forced to rely on currency adjustments to reach a previously projected profit guidance band of $190 million to $210 million.
CEO Mike Clarke said that after adjusting for foreign exchange rates, earnings before interest, tax and the SGARA accounting standard were $193 million.
So in analyst-speak, the result wasn’t of the highest ‘quality‘.
TWE YTD – Low quality result from Treasury Wine
In June, Treasury forecast an impairment charge of up to $260 million for the year to June to try and end a troubled 12 months with a new business model.
It was a tough year in all its markets – Australia, Europe, the US and Asia, coming a year after the unsaleable wine lake in the US and other problems.
TWE said the last of the unsaleable wine should be disposed off this financial year.
In the year to June, total volume slipped by 2.1 million cases to 30 million cases, while net sales revenue rose 1% to $1.706 billion.
That was principally driven by the planned reduction in US shipments and challenging trading conditions in Australia and New Zealand, according to the company.
"As a result of the volume decline, lower production overhead recoveries resulted in a $2.32 per case increase in Cost of Goods Sold (COGS). Cost of Doing Business also increased principally due to costs incurred in relation to the organisational restructure in the first half of fiscal 2014," Mr Clarke said in yesterday’s statement.
In that statement, Mr Clarke said that, “Having taken the necessary steps in the final quarter of fiscal 2014 to drive improved performance, including increasing consumer marketing, reducing TWE’s cost base and addressing structural challenges within the business, I am confident the Company is now positioned for future success.
“Investing in our sales and marketing capabilities is an important step to ensuring that the 50 percent increase in consumer marketing investment in fiscal 2015 is optimised. Crucially, it will also facilitate a deeper understanding of our customers and underpin more collaborative and sustainable relationships across all our regions.
"TWE further strengthened its robust and flexible balance sheet during the period, with net debt of $209.4 million; broadly in line with the prior year.
"With a strong balance sheet, TWE is well positioned to pursue growth opportunities in order to satisfy growing demand for premium wine, globally," he said.
TWE said the ANZ group stood out with the weakest performance.
"ANZ reported a disappointing EBIT performance in fiscal 2014, down 31.5 percent to $75.1 million, driven by a reduction in in-market programming in challenging trading conditions, a reduced allocation of Penfolds and a $10 million reduction in New Zealand EBIT, " the company said.
And looking to the rest of this financial year, Mr Clarke said, "Fiscal 2015 is a reset year for the Company and I am delighted that we are already seeing the benefits of the increased consumer marketing investment, with the Penfolds wine fridge promotion in Australia, the most successful brand activation program in TWE’s history; well surpassing expectations.
“The first half of fiscal 2015 will see the release of the 2015 Penfolds Bins Series and Icon and Luxury wines, including the highly anticipated 2010 Penfolds Grange. As announced in June, Penfolds will now be marketed and sold throughout the year and will be available for sale during key festive and gift giving periods.
“With our flexible and robust balance sheet, we remain well positioned to pursue both organic and inorganic growth opportunities,” he said.
The big question now is whether he will get to enjoy the improvement he has forecast for 2014-15.
