SALES and profits in Asia are continuing to surge for Treasury Wine Estates as chief executive Mike Clarke's twin strategy of investing heavily in big brands like Penfolds and Wolf Blass while at the same time ripping costs out of the supply chain, pays off.
Treasury shares hit a record high on Tuesday, despite the wobbles in global markets, which have caused the broader Australian sharemarket to shed more than 13 per cent in the past six months. Treasury shares, currently trading around $6.70, have moved beyond the buoyant levels of $6.47 in May 2013.
That was just before the embarrassment of a United States oversupply glitch that claimed the scalp of previous chief executive David Dearie and caused the company to use steamrollers to crush 2.4 million bottles of cheap wine pulled from overstocked warehouses.
Mr Clarke, who is now 18 months into his stint as chief executive, said on Tuesday the momentum in the Asian business, in particular, was strong.
"The accelerated momentum in our business continues to be delivered across all regions, most notably Asia," he said.
Treasury declined to be more specific but industry players suggested it had experienced a particularly robust start to the first three months of the new financial year.
The buoyant profits are likely to add to the speculation that Treasury may seek to bolster its luxury wine portfolio in the United States through a potential acquisition of high-end brand Sterling Vineyards and other labels from global alcoholic beverages giant Diageo Plc.
It has been looking closely at high-end luxury wine assets that come with locked-in grape supply in the United States but it is unclear whether Diageo will allow piecemeal sales of its broader wine division, which also includes big selling commercial brands such as Blossom Hill.
Treasury's Asian operations were the star for the company in 2014-15, with profits rising 53 per cent to $73.1 million, with profit margins running at 36.5 per cent compared with 14.4 per cent in the Australian business where big liquor chains run by Woolworths and Coles and large infrastructure investment keeps margins lower.
Treasury on October 15 will conduct the global launch of the new 2011 version of its flagship wine Penfolds Grange in Shanghai, underlining the importance of China to the company's fortunes.
Mr Clarke, who was previously the chief executive of Britain's Premier Foods, hired one of his former colleagues from that company in February, Bob Spooner, to become Treasury's chief supply officer, overseeing all of the infrastructure, vineyards and other assets that fuel the finished product sold on retailer's shelves and in restaurants.
Mr Spooner has been busy. Treasury announced on Tuesday that a "Phase II" of a supply chain overhaul would strip out an extra $30 million in costs by 2020, on top of savings that had already been identified in a first phase announced in March, which included the sale of the Asti winery in the United States. The latest Phase II overhaul will result in asset write-downs of between $20 million to $30 million, and means Treasury will book one-off provisions of $14 million in its 2015-16 results.
Treasury was split off from Foster's Group in May, 2011 to become a stand-alone wine company and on its first day of trading without the beer brands Victoria Bitter and Carlton Draught which were its Foster's stablemates, closed at $3.45. The shares have almost doubled in a little over four years.
