Finally Australia has a wine company that is showing it can deliver on the promises of being good brand manager, wine grower and maker, exporter and can take Australian wine to the world and make money.
It also involves making and marketing American wines to Americans, a task that nearly every Australian wine company that has tried, has failed to do with any success.
Plenty have promised ands failed – Fosters (twice), Southcorp, Hardy, Berri and smaller groups. Yellow Tail, the privately owned NSW winer maker and exporter is a leader.
But among the many listed groups, there has been a dearth of success stories until now with Treasury Wine Estates (TWE) which under CEO, Michael Clarke, is delivering on its promises.
And yesterday we had confirmation of that success with a 55% jump in earnings for the year to June and a promise of more to come as it hit some of the profitability targets it had set for itself to reach in 2020 (such as earnings before interest and tax in the high teens).
Shareholders will get the benefits with a higher dividend and a $300 million buyback (but many might decide to ride the wave for a bit longer).
On top of the buyback, TWE lifted the final dividend to 13 cents a share from 12 cents, making 26 cents for the year, up 6 cents or 30% from 2015-16.
Treasury shares rose 3.4% yesterday to $13.05 before retracing in the afternoon session as investor confidence waned under the impact of the selling wave hitting Telstra. TWE shares ended the day up 3% at $12.96.
The stock is now up nearly 40% in the past year and not too far off its record of $13.75 in June when the company upgraded its forecasts for the June 30 year – which were confirmed yesterday.
Treasury Wine Estates is world’s largest listed wine company with brands such as Penfolds, Wolf Blass and Berringer. Many of these are premier wine brands and Clarke and his management team have managed to get premier returns from them and other labels in the portfolio.
He has now committed to boost margins to 25% over the long term – they are now around 19%.
TWE said yesterday that net profit for 2016-177 was up 55% at $269.1 million on a much slower 7.6% rise in group revenue to $2.4 billion.
Pre-tax earnings were up 36% at $455.1 million.
Driving the improvement was the purchase of the American and European wine business of the giant global alcohol group, Diageo in late 2015. The 2016-17 saw the first full year’s contribution from this $US552 million purchase.
Treasury Wine said it also enjoyed profit gains across all its regions, Australia, New Zealand, Europe, Asia and North America, although pre-tax earnings from Europe were only slightly positive due to the impact of currency movements (the rise in the value of the euro).
One of the hallmarks of Clarke’s time at TWE since becoming CEO in March 2014 (when the share price was under $4) has been tough cost controls and cuts and the ability to deliver on them.
So it was no surprise that TWE has promised to continue cost cuts, aiming to delivery on the $100 million a year promised by 2020 – $80 million has been cut already.
“Delivering revenue growth and margin accretion over time remains a priority,’’ CEO Clarke said yesterday, “supported by our investments in building closer, more efficient and strategic partnerships with consumers and by positioning TWE as the wine supplier of choice across multiple brand portfolios and countries of origin.’’
