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Treasury sees 50% profits dip due to unsold wine in US

Published:  22 August, 2013

Treasury Wine Estates has seen annual net profits slide by 50% due to one-off charges on unsold wine in the US, but sales in the UK have shown signs of recovery in recent months.

Treasury Wine Estates has seen annual net profits slide by 50% due to one-off charges on unsold wine in the US, but sales in the UK have shown signs of recovery in recent months.

Write-down charges, largely related to the firm's decision to destroy excess wine in the US, saw Treasury Wine Estates' global net profits for the 12 months to the end of June fall by around 50% on the previous year, to A$42.3 million. Operating profits dipped by 0.5% to A$209.2 million.

TWE chief executive David Dearie had already warned that the winemaker's bottom line would not make pretty viewing. For that reason, shares in the wine group only dropped by another 2% on the Australian stock exchange following the results statement, with many gains made earlier in the year having already been eroded.

Dearie warned that the profits malaise would likely continue into the first half of the new fiscal year, because of ongoing charges in the US.

However, it was not all bad news for the group. Global volume sales crept up by 0.9% for the year, to 32.1 million cases, and net sales increased by 2.9% to A$1.69 billion. Prior to one-off items, net profits would have risen by 1% for the year.

TWE faced a mixed 12 months in the UK. After weak figures in the first half of the year, the group's UK business outpaced the UK wine market in terms of volume and value sales growth in the second six months.

Nielsen figures published by TWE showed a drop in the firm's UK retail sales of 4% and 6% in value and volume respectively for the full year, but corresponding sales growth of 14.8% and 13.3% in the fourth quarter - against a shrinking market. Wolf Blass led the recovery, according to TWE.

For the Europe, Middle East and Africa business unit as a whole, TWE saw volumes drop by 3% for the year, to 6.7 million cases, and net sales fall by 1.8% to A$248.5 million. However, net sales per cases rose by 1.4% and operating profits, prior to interest, tax and one-off items, leapt by 181% to A$16 million, thanks to cost savings and better sales execution, the group said.

Emerging wine markets in Asia performed well for the group, which released extra supplies of 2013 Penfolds to meet rising demand for the wine. Group net sales in Asia rose by 27.5% to A$135.4 million, backed by a near-21% increase in volumes, albeit to just 1.4 million nine-litre cases.

Dearie said that, globally, TWE remains focused on brand building. "While fiscal 2013 was a challenging year for TWE, the fundamentals of the global wine industry have not changed," he said.

"The supply and demand cycle is moving towards balance and global consumer demand for premium wine brands continues to grow." 

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