• Half-year net profits up by 54.4% to AUD40m (US$43m), lifted by one-offs
  • Net sales down 7.4% to AUD858.1m
  • Profits before interest and tax and one-off items (EBITS) up by 0.2% to AUD91.7m
  • Group cuts volumes to improve profitability
Treasury Wine Estates reduces UK volumes to lift profits

Treasury Wine Estates reduces UK volumes to lift profits

Treasury Wine Estates continued to see overall sales fall in the first half of its fiscal year, but profits crept up thanks to cost cutting and strong consumer demand for its luxury wines.

The company said today (17 February) that it is making progress in reorienting its wine portfolio towards higher price-points, backed by investment in key brands. However, for now, the Australian wine group's fortunes remain mixed.

Net sales for the six months to the end of December fell by 7.4% on the same period of the previous year, to AUD858.1m (US$924m), the Wolf Blass and Beringer winemaker said. The fall was largely due to a 6% drop in volumes, which largely reflects declines in the US and UK.

In TWE's Europe, Middle East & Africa arm, volume sales slid by 24% for the half-year, to 3.7m nine-litre cases. The firm said that it drained volume from the UK market in order to exit discount channels; a strategy also being pursued by several of the group's rivals. Net sales for the division fell less steeply, by 21% to AUD131.4m, yielding an increase in revenue per case.

There are signs that TWE's efforts to premiumise are taking hold. The firm said that demand for luxury wine globally is exceeding its supply.

However, a strong Australian dollar continued to hamper results. For example, in TWE's key Americas division, currency swings added amost eight percentage points of decline on the firm's net sales, which fell by  tenth to AUD388m. Americas volumes fell by 1.5% to 8.2m nine-litre cases.

Currency also ate into TWE's operating profits. Earnings before interest, tax and charges would have risen by 16.5% at currency levels constant with the same six months of last year. But, in real terms, they crept up by 0.2%, to AUD91.7m.

There was brighter news at the bottom-line, with net profits jumping by 54.4% to AUD40m. This reflects one-off items, partly as a consequence of the firm's split from Foster's Group in May 2011.

As expected, Asia proved to be the success story of the year. Volumes rose by close to 22% to 0.5m cases, while net sales increased by 32% to AUD41.3m. TWE's CEO, David Dearie, said: “We will allocate more funding for brand building initiatives, more of our allocated wine brands will be released to Asia and we are currently increasing the size of our China-based team."

In Australia and New Zealand, meanwhile, TWE reported volumes up by 1.7% to 4.5m cases and net sales down by 0.1% to AUD297.4m. This reflects strong price competition in Australia's highly-consolidated retail sector.   

Overall, Dearie said that the group is making progress against its goals. He said: “While many of our markets are impacted by a subdued consumer environment and the strong Australian dollar impacts our brands’ competitiveness, we expect to show continued progress against our strategic priorities in the second half of this fiscal year.”

For the company announcement, click here.