Treasury Wine Estates
The company is a global wine company with a leading international portfolio of new world wines. It's passion for wine is shown in some of the world’s most recognised and awarded wine brands, including: Penfolds, Stags’ Leap, Etude, Pepperjack, Wynns Coonawarra Estate, Wolf Blass, Beringer, Chateau St Jean, Matua, Castello di Gabbiano, Lindeman’s, Rosemount, Yellowglen and many others.With 11,000 hectares of vineyards, sales of 30 million cases of wine annually, and revenues of about AU$1.7 billion, the company employs more than 3,000 winemakers, viticulturists, sales, distribution and support staff in 16 countries and its brands sell in more than 70 countries around the world.
Recent developments
The company has reached an agreement for the sale of its Asti Winery, Soverain brand and inventory and co-located vineyard assets Sonoma County, California and part of the agreement involves a long-term lease of part of the vineyard which has traditionally provided the company with Luxury fruit. The disposal will result in a pre-tax loss of approximately $ 7.5 million which will be recognised in FY 2015.
TWE Financial Highlights (Source - Company Reports)
The company is making significant changes to its supply chainboth in the US and Australia and it has identified further opportunities to reduce overhead costs. The company is executing plans for savings from supply chain optimisation and accelerating the separate focus on Luxury and Masstige versus its Commercial portfolio on a global basis. In the US, the consolidation of production facilities will make the Asti Winery surplus to the company's needs and production will be transferred to other facilities to increase utilisation. Packaging lines at the Napa Bottling Centre will be consolidated to further optimise capacity utilisation. In Australia, the packaging and warehousing of wines will be transferred to the state-of-the-art Wolf Blass facility in the Barossa, South Australia and the phased closure of the operations at Karadoc will be completed in FY 2016.
Finally, the company has successfully refinanced its $ 300 million syndicated debt facility due to mature in April 2016 and the refinanced facility has been split into two tranches of $ 150 million due in April 2018 and April 2020 respectively. In line with the policy of maintaining financial flexibility, the average duration of debt has been extended, the spread has been improved and spread over basic interest rates lowered.
Half yearly results to 31 December 2014
Net sales revenues grew by 8.7% on a reported currency basis and 6.2% on a constant currency basis. The company is on track to deliver a 50% increase in investment in consumer marketing and the program to reduce overheads by $ 35 billion in FY 2015. EBIT came to $ 85.2 million making a growth of 86% on a reported currency basis and 77.5% on a constant currency basis reflecting successful strategy execution. Statutory net profit after tax was $ 42.6 million and an EPS of 7.8 cents per share grew strongly while the reported EPS was 6.6 cents per share. Unfranked dividend of 6 cents per share was in line with the previous year and the distributor inventory realignment in the US was on track for completion during FY 2015.
The company is progressing on its journey to becoming the most celebrated wine company in the world and transforming itself from an order taking agricultural company to a global marketing led organisation. By challenging the traditional cottage industry mindset of winemakers, to outstanding quality brands combined with scale and sustainability. It is establishing proven FMCG supply and marketing principles and hopes to achieve scale and the flexibility with global umbrella brands. It is aiming to satisfy consumer needs for trusted brands while satisfying their quest for experimentation and discovery.
Update on progress
In the first half of FY 2015, there was a seamless transition to the Penfolds release date to October and there was a significant increase in consumer marketing as well as a new Penfolds marketing campaign. Steps were taken to improve the quality of earnings by eliminating unsustainable and unprofitable volumes particularly in the UK and New Zealand. The first half saw destocking in all four regions in pursuit of the targeted overhead reduction. Investment was made in more focused routes to the market in North Asia particularly China. Planning for the supply chain optimisation initiative was completed and the company was defend against two private equity firms over a period of three months. Plans for the second half include the acceleration of Luxury and Masstige compared to the Commercial is portfolio globally and the quality of earnings will continue to be a point of focus. The portfolio of brands will be strengthened and J Walter Thompson has been enrolled as a partner to provide global discipline in brand marketing. Identification and implementation of further cost savings including supply chain optimisation will continue.
TWE Daily Chart (Source - Thomson Reuters)
Cost of goods sold per case increased by $ 0.38 on a constant currency basis reflecting the improved product mix in the Luxury segment across all regions compared to the previous year and favourable conditions in the US driven by increased production overhead recoveries from shipments higher than in the previous year. The cost of doing business margin was broadly in line with the previous year increasing by 0.3% to 24% because of the benefits of the overhead reduction program support the 50% increase in investment in consumer marketing and the improvement in the earnings base across all the segments.
The capital structure and the debt profile continue to be robust with $ 593.3 million of committed undrawn syndicated debt facilities compared to $ 525.8 million the previous year. The weighted average term to maturity of committed facilities is now four years with the earliest maturity in April 2016. 62% of the gross debt is floating and the balance of 38% is fixed. Net debt/EBITDAS and interest cover amount to 1x and 9.8 xrespectively.
The company was the target recently of private equity funds eager to buy one of the largest global winemakers in the world and is still viewed as a possible takeover target. However, we believe that the company programs for supply chain optimisation and cost reduction there is no immediate financial upside and we consider it likely that these measures are intended to obtain the best price from future acquirers. The share price is near its 52 week high and we would recommend that you take advantage and sell the stock.
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