Treasury Wine Estates Ltd (ASX:TWE) today announced its interim 2017 financial result, with Reported Net Profit After Tax (NPAT) and Earnings Per Share (EPS) more than double the previous corresponding period2 (pcp) with NPAT at $136.2m and EPS at 18.5 cents per share.
TWE reported Earnings Before Interest, Tax, SGARA and material items (EBITS) of $226.8m, up 58.8% on a reported currency basis.
The Company also delivered outstanding EBITS margin accretion, up 4.3ppts to 17.5% in 1H17 and up 2.5ppts relative to TWE’s F163 EBITS margin of 15.0%, which included 6 months of the Diageo Wine contribution.
The Board declared an interim dividend of 13.0 cents per share; representing a 5 cent per share increase (+63%) and a 64% payout ratio.
On today’s result, TWE’s Chief Executive Officer, Michael Clarke commented: “I am delighted to report a strong interim 2017 financial result highlighted by further margin accretion, excellent cash conversion and outstanding EPS growth, despite the higher share base. All regions delivered double digit EBITS growth and importantly, growth was delivered sustainably”.
TWE’s Supply Chain Optimisation initiative delivered Cost of Goods Sold (COGS) savings of $15m in 1H17 bringing the total cumulative savings to $56m, driven by realisation of cost reductions and benefits from production asset optimisation. This was partially offset by higher vintage costs from the 2014 and 2015 vintages in Australia and the 2015 vintage in the US.
The acquisition of the Diageo Wine business on 1 January 2016 has already delivered positive upside to TWE, despite the significant investment in re-setting the brands as well as addressing unsustainable volume and customer contracts in F16. As stated at the time of acquisition, the rationale for acquiring Diageo Wine was to secure increased access to Luxury and Masstige fruit which would in turn, deliver immediate portfolio mix benefits to TWE’s US business. The immediate portfolio mix benefit of the acquisition is evident in the America’s 1H17 result.
Having commenced a number of Supply Chain integration initiatives, TWE is well positioned to deliver run- rate, cash synergies of US$35m by F20.
TWE targets financial metrics that are consistent with an investment grade credit profile. TWE’s balance sheet continues to provide the Company with the flexibility to pursue value accretive opportunities for shareholders, with net debt / EBITDAS (adjusted for operating leases) of 1.5x and interest cover of 16.0x.
Continued strong cash conversion of 104% in 1H17 was driven by TWE’s strong operating performance across all regions and favourable movements in working capital.
In addition to TWE’s interim 2017 result, TWE also advised today the appointment of Gunther Burghardt, as the Company’s Chief Financial Officer (CFO), based in Napa. In addition, Matt Young, TWE’s current Financial Controller has been promoted to Deputy CFO, based in Southbank.
Michael Clarke will be co-locating between Australia and the US over the next 12 months. On Mr Clarke’s co-location, TWE’s Chairman, Paul Rayner commented: “With a global and highly collaborative Management team, I am pleased our Chief Executive Officer is able to spend more time in the US; one of TWE’s regions with the most potential.”
The outlook for TWE remains positive, with the Company continuing to deliver against its strategy of transitioning from an agricultural to a brand-led, high performance organisation.
Absent significant fluctuations in foreign exchange rates, TWE expects 2H17 EBITS to be broadly in line with 1H17.
Beyond F17, TWE is on track to deliver total, run-rate cash synergies recognised from the acquisition of Diageo Wine of US$35m by F20 as well as at least $100m of run-rate COGS savings by F20 driven by the Company’s Supply Chain Optimisation initiative.
Furthermore, TWE is also on track to deliver a high-teens EBITS margin by F18 and at the same time, deliver enhanced value to shareholders via improved Return On Capital Employed.
Michael Clarke commented on TWE’s future prospects: “Today’s result announcement demonstrates that we are executing on all the initiatives we have communicated to the market and importantly, that TWE is continuing to deliver sustainable value to its shareholders”.