Record half-year global profits at TWE, but Brexit costs lead to category decline in the UK

Treasury Wine Estates (TWE) is on its way to exceeding its 2016 full-year profit, having reached 75% of last year’s full-year profit after tax while only half way through the year.

In its interim results released this morning, TWE’s chief executive officer Michael Clarke said it was a strong result, with double-digit earnings growth in all geographical markets.

For the six months to December 31, the company posted $136.2 million (AUD) net profit after tax for the first half of the financial year, the equivalent of 75% of last year’s full-year profit after tax of $179.4 million.

The lion’s share of growth came from the US, where the company nearly doubled its earnings before interest, tax and material and other items (EBITS) to $90.7 million, up from $48.1 million for the first half of 2016.

There was continued volume growth reported in Asia and Australia, with volume in the Americas and Europe benefitting from the acquisition of Diageo Wine.

However, there was category decline in the UK, where movements in foreign exchange rates as a result of Brexit led to higher costs of goods for Australian and US imported wine, notably Blossom Hill.

There was also a reduction in under-bond trading in the UK in response to changes introduced by HMRC to tighten up the control of alcohol sales.

While distribution of its leading brands such as Wolf Blass remained strong, an SKU rationalisation program is expected to continue to lower overall volume in Europe in the second half of 2017.

The company said that the impact of Brexit on customer and consumer demand remains uncertain, and cost and revenue mitigation plans have been put in place to deal with the impact.

TWE, which is the world’s leading standalone wine company, is predominantly based in Australia and New Zealand where they have 9,000 hectares under vine.

They also have 4,000 hectares across the US, including Sonoma County and Napa Valley.

In Europe they have the Gabbiano vineyard in Tuscany, Italy.

In its summary, the company said its strong interim results demonstrates the success of TWE’s transition from an agricultural, order-taking company to a brand-led organisation.

The company, which boasts Penfolds and Wolf Blass from Australia and California’s Beringer in its portfolio, has been vocal about its move towards brand-led identities. 

Before Christmas, Dan Townsend, MD Europe at TWE, told Harpers: “Strong brands, those which truly connect with consumers – will thrive and become even more relevant. But only the strongest. Weak brands will wither and die.”

The results also showed the impact of the Diageo Wine business, which TWE acquired on 1 January 2016.

TWE said the acquisition had already delivered “positive upside” particularly in the US, where the increased access to luxury and masstige products helped to achieve strong results.

Under Clarke, TWE has rebuilt its US business in recent years as well as increased exports to Australian free trade partner, China.

In addition to TWE’s interim 2017 result, TWE also announced the appointment of Gunther Burghardt, to the role of chief financial officer.

He will be based in Napa.

Matt Young, TWE’s current financial controller has also been promoted to deputy CFO, based in Southbank, Australia.

 

 

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