- Feb 18 2016 at 8:52 AM
- Updated Feb 18 2016 at 4:41 PM
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Treasury Wine chief executive Mike Clarke has led a strong revival of the wine group which makes Penfolds, Wolf Blass and Rosemount. David Mariuz
by
Simon Evans
Treasury Wines Estate chief executive Mike Clarke says the company can continue to grow its booming Asian business, as the company tries to convert a new generation of beer and spirits drinkers to wine by targeting 300 million basketball fans.
Treasury's Asian business was the standout performer in the first half of 2015-16 as it more than doubled profits to $46.5 million to be within a whisker of overtaking the Australasian operations in the contribution to overall profits at the company, which makes Penfolds, Wolf Blass and Wynns.
But Mr Clarke said Treasury is being deliberate and growing at a controlled pace. It is expanding its range into a greater number of provinces and fine-tuning its distribution arrangements after a big shift last year where it took in house its distribution in China for retail customers, and is also introducing new products to market alongside the big brands Penfolds and Wolf Blass.
"We're constantly filling the hopper with new things," he said. While he wouldn't quantify the jump he expects the Asian business to make in profits, he said the upward trajectory will continue. "You'll see continued momentum."
Treasury signed a big sponsorship deal for the Wolf Blass brand in December with the China National Basketball Association – an arm of the United States NBA powerhouse competition – in a country with 300 million basketball fans. Those younger-generation fans are generally beer and spirits drinkers and Mr Clarke says even if the company can persuade just 1 per cent of them to try its Wolf Blass range it will be a big winner.
"Let's get them off spirits and beer and let's get them into the Wolf Blass," he said. Mr Clarke is also annoyed at the tardiness of some customs officials when large shipments arrive in China, which delays distribution, and said that will need to be fixed for the company to get the full benefit of the free trade agreement in the future.
Overall, Treasury generated a 72 per cent rise in first-half earnings to $146.8 million, with bottomline net profit after tax up 42 per cent to $60.6 million.
This was towards the upper end of Treasury's new earnings forecast range of $140 million to $150 million outlined in late January, when it upgraded its profit outlook because of booming China sales, which triggered a $1 billion jump in its market capitalisation on January 22.
TWE
TREA WINE FPO (TWE)
$9.420.323.52%
volume
4974046value
47008653.9
Oct12May14GMT+1000 (AUS Eastern Standard Time)May11Feb164683.2388.782
Last updated: Fri Feb 19 2016 - 16:59:37
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US MANAGEMENT REVAMP
Treasury lifted its interim dividend to 8¢ from 6¢ previously, and has revamped its management in the United States with Bob Spooner, the current chief supply chain officer across the group, to take over running the Americas region for Treasury, replacing Sandra LaDrew, who has departed after four years.
Mr Spooner takes control at a crucial time in the US because Treasury is in the early stages of overhauling the Californian wine business of British drinks giant Diageo, which it acquired for $754 million last October. Mr Clarke says the same template of reinvesting in marketing ad focusing on the premium end will be used to fix up the ex-Diageo brands, which include Sterling Vineyards and Beaulieu, as he used to reinvigorate the Australian brands when he arrived at Treasury in March 2014.
"The road map is pretty much, boringly, exactly the same," Mr Clarke said. Mr Spooner was a close confidant of Mr Clarke when they were both executives at British gravy, cakes and sauces maker Premier Foods. where Mr Clarke was chief executive for two years until mid-2013.
Craig Woolford, the head of consumer retail research at the firm, says shareholders are likely to see a fatter dividend at the company's full-year results. "The payout is likely to shift higher in the second half," he said.
Treasury's Australasian arm, which sells mainly through the big liquor chains owned by Woolworths and Coles, lifted profits by 6 per cent to $46.7 million in the six months ended December 31, 2015. Mr Clarke says the brand investment by Treasury is also being recognised by the big retailers who stock the brands because they realise there is sustainable profit growth for both parties from that strategy. "Trust me, they [the retailers] don't do it because they want to be nice to us," he said.
Profit margins in the Asian operations were steady at 30 per cent, double that of Australasia, which sits at 15 per cent.
Treasury's Americas operations delivered a big jump in profits on a reported currency basis, rising by 67 per cent to $56.2 million for the first half. Profit margins in this business achieved a handsome jump to 13 per cent from 9 per cent previously, as sales at the premium higher end registered double-digit volume growth.
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