Treasury Wine Estates raises a glass as luxury strategy delivers

Treasury Wine Estates raises a glass as luxury strategy delivers

Treasury Wine Estates (ASX: TWE) saw a 34 per cent lift in NPAT to $360.3 million in FY18 despite a drop in US sales and delays for Australian wine imports into China during the fourth quarter.

The company is sipping on the rewards of a premiumisation across its inventory mix, including a shift to more luxury and Masstige wines, as well as growth across markets in Asia, Australasia and Europe.

TWE chief executive officer Michael Clarke expects profits to grow by a quarter every year for half a decade, with FY19 set to be an "exciting year" following several milestones in FY18 including a $300 million share buyback, the launch of a French wine portfolio, the establishment of a warehouse in China and a move away from lower margin commercial wines.

The group's luxury wine inventory has lifted by 24 per cent over the past year to reach $1.1 billion, as part of a total inventory worth close to $2 billion.

"We have the wine, the brands, the business models and the organisational talent to propel our Company into its next phase of growth that will see TWE become the world's most celebrated wine company and deliver a 5yr EBITS CAGR of 25%," says Clarke.

Net sales revenue for FY18 was marginally higher at $2.43 billion, despite its leading market the Americas registering a 13 per cent fall in sales to $962 million and EBITS dropping 1.5 per cent to $193 million.

Part of this decline can be explained by a $25 million adverse impact from the wine producer and distributor's route-to-market transition in the US. More positively in the Americas, strong EBITS growth was seen in Canada, Latin America and its direct-to-consumer businesses in the region.

In other markets, TWE notched a 37% boost in EBITS in Asia to reach $205.2 million, along with positive profit results in Australia and New Zealand ($136.1 million; +23 per cent) and Europe ($49.5 million; + 21 per cent).

"I am delighted to report another stellar financial result for F18; a year we have coined a 'foundation year' for our Company," says CEO Michael Clarke.

"The momentum in our business, together with the strength of our organisational talent, brand portfolios, operating models and customer partnerships, enabled us to execute transformational changes to our operating model in the US and still deliver strong profit growth.

"Over the past four years, we have delivered an EBITS CAGR of 25% whilst embedding meaningful changes that will drive continued long term, sustainable growth and value accretion for our shareholders."

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