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Treasury Wine Estates Announces Further Cost Cutting

Treasury Wine Estates Announces Further Cost Cutting
Oct 06, 2015 By Imran Valibhoy

Treasury Wine Estates (ASX:TWE), a leading international wine maker has announced the next stage of its supply chain optimisation program it initiated on 31st March 2015.

The second phase of Treasury Wine Estates’ program will include further cost management and simplification of its supply chain network through:

  • Removing excess overhead costs and spare assets by means of divesting its supply chain infrastructure
  • Enhancing returns on under-performing wineries and vineyards by clustering non-core assets
  • Simplifying and optimizing its logistics, warehousing and freight arrangements globally

The phase II of TWE’s program is expected to deliver a Cost of Goods Sold (COGS) benefit of approximately $30 million per annum by FY2020, with the rising trend to start from FY2017. This phase is also expected to benefit all geographical areas of the company which include Americas (approximately 50%) as well as Australia and New Zealand (ANZ), Europe, Middle East and the Africa (EMEA) regions.

The wine maker is planning on recognising a provision for a cash cost of approximately $14 million and a non-cash asset write-down of $20-30 million on production assets – including vineyards, wineries, packaging and warehousing facilities earmarked for closure or sale in fiscal year 2016.

Michael Clarke, TWE’s Chief Executive Officer, said “TWE’s strategy of driving top line momentum, investing in our priority brands, enhancing both existing and new routes-to-market while reducing cost and complexity is continuing to deliver improved returns for our Company and for our shareholders.”

Treasury Wine’s recent financial FY2015 statements showed a profit of $283.7 million, recovered from a loss of $88.2 million in 2014. Earnings per share have also recovered from a negative 15.6 cents to a positive 11.9 cents from FY14 to FY15. The stock price has performed well since the release of its financial results in June 2015, seeing a rise of approximately 34% over the three months. This program aims at demonstrating a transition of TWE from an order-taking agricultural company to a more efficient, brand led marketing organisation.

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Imran Valibhoy Author: Imran Valibhoy Oct 06, 2015

Since Joining the firm in 2006, Imran has worked on a range of M&A and Capital Market transactions in the natural resources, mining as well as projects in the renewable energy sector. Prior to joining Wise-owl, Imran worked at Euroz Securities in Perth, aiding in the advisory and valuation of companies in the mining and industrial sectors in Australia. Imran has a Masters in Banking & Finance from City University's Class Business School in London and a Bacheloor degree in Commerce from UWA.

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