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Treasury Returns To Profit As Growth In Asia, Americas Sparks Turnaround

August 19, 2015

What a difference a year makes. After reporting an A$100.9 million ($74.1m) net profit loss in fiscal 2014, Treasury Wine Estates (TWE) posted an A$77.6 million profit gain in fiscal 2015 (ended June 30, 2015).

The Australian wine giant’s success came largely on the strength of its Asian business—which was helped by a relatively weak Australian dollar—and a turnaround in the U.S., where Treasury rid itself of the excess inventory that had been plaguing it in recent years. Profits were also bolstered by CEO Michael Clarke’s sharp focus on cost-cutting, and by the favorable exchange rate impact.

Treasury’s premiumization strategy has also paid off. While the company’s volume was up by 0.4% to 30.1 million cases, its net sales rose by 8.4% to A$1.85 billion ($1.36b)—including a 45.6% jump in Asia, where volume grew by 23%. Eleven of the company’s 15 priority brands posted net sales growth, compared to six in fiscal 2014.

Treasury enjoyed solid growth in the Americas, with net sales revenue up by 8.6% on 1% shipments growth (depletions rose by 0.7%). The company reported robust depletions growth in its luxury (+16%), masstige (+20%) and priority commercial (+1%) segments, all of which were offset by a marked dropoff in its non priority commercial tier (-13%).

Faced with a distributor inventory excess of roughly 3.5 million cases in 2013—which led the company to take a A$160 million writedown under former CEO David Dearie—Treasury slashed the oversupply by destroying nearly 10% of it and utilizing A$61 million ($44.8m) of the writedown to facilitate the sell-off of nearly 2 million cases. Additionally, TWE’s commercial U.S. depletions exceeded shipments by 1.5 million cases over the past two years, allowing the company to fully eliminate the excess.

“Fiscal 2015 represents the first successful year of TWE’s journey to transition from being an order-taking, agricultural company to a brand-led marketing organization,” said Clarke, who joined the winemaker as CEO in late 2013 after holding a number of executive posts in the consumer goods industry.

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