UPDATE 2-Australia's Treasury Wine to focus on top brands; sees slower 2013

Fri Aug 17, 2012 1:45am EDT

* FY 2013 earnings growth to be below recent years

* Earnings in Asia surged 41 pct in 2012; U.S. down 12 pct

* Shares jump 5 pct, the most in 13 months

By Victoria Thieberger

MELBOURNE, Aug 17 (Reuters) - Australia's Treasury Wine Estates, the world's second-largest wine firm, posted a better-than-expected second-half profit due to surging sales in Asia, but cautioned earnings growth will slow in 2013 due to higher costs as it builds inventory of premium wines.

Shares in the maker of Penfolds, Beringer and Wolf Blass jumped as much as 5 percent, the largest gain in 13 months, after the results.

Treasury Wine has been moving away from unprofitable, low-end wines in the UK and Europe to target consumers developing a taste for premium wines in China and other emerging markets like India, Brazil and Russia.

"They have tremendous potential in Asia, particularly with the premium brands which are well regarded in the region. And premium is where the margin is," said F.W Holst research manager David Spry.

"The wine industry has been on its knees for a long time and it is finally getting its turn," he said.

Treasury Wine said its earnings growth for fiscal 2013 would be below the average of the past two years, as its supply of premium wines will fall short of demand and it costs more to build up its inventories of these brands.

But with an eye to future growth, Treasury Wine said earnings will rebound from 2014 onwards, helped by the focus on higher-margin, premium wines.

Treasury Wine, which was spun off from Foster's Group last year, made strong inroads into Asia, where earnings surged 40.6 percent in fiscal 2012 and contributed about 20 percent to group earnings, up from 15 percent in the prior year.

Australian wine still has a small market share in China, trailing France in imports, and Treasury sees room for growth in overall sales and in market share, even if Chinese consumer spending slows.

"There is growing demand for red wine in particular and it is very important for the consumers there that the brands have history and heritage," Chief Executive David Dearie said, noting some brands such as Penfolds date back to the 1840s.

Treasury Wine recently launched a rare vintage, the $1,000-a-bottle Penfolds Bin 620, in Shanghai to widespread publicity as part of a push into the lucrative Chinese market.

Dearie said the vintage had sold out globally, but declined to give sales figures.

China has become the biggest market for Australian wine priced at more than A$10 a litre, and imports in that price range almost equal those of the U.S. and UK markets combined, according to data from government agency Wine Australia.

Treasury Wine shares last traded up 4.5 percent at A$4.62, after rising as much as 5.1 percent, the most since July 2011. The broader market was up 0.8 percent.

PROFITS JUMP IN AUSTRALIA

For the second half to June 30, net profit after tax before one-off items was A$76.9 million ($80.7 million), based on Reuters calculations. That was higher than analyst forecasts of A$71.3 million, according to Thomson Reuters data.

For the year, earnings in Australia and New Zealand rose 12 percent, helped by cost-cutting and higher prices for some brands, despite a tough retail environment.

U.S. earnings declined 11.6 percent as Treasury Wine spent more on building brands.

Earnings in the UK and Europe returned to profit, despite a 19 percent slide in sales volume as Treasury pulled out of unprofitable, cheap wine sales in England.

There is no comparable year-earlier period for net profit because Treasury Wine was spun off from Foster's Group in May 2011.

Sales revenues for 2012 fell 5.6 percent from a year earlier on a decline of 4.4 percent in volume.

Treasury Wine is second to Constellation Brands Inc in global sales. Constellation sold its Australian brands to private equity firm CHAMP last year.

Total Australian wine exports fell to A$1.86 billion in the year to June, according to government data, the lowest level in 10 years, as local wines became more expensive as the dollar surged above parity.

The high currency has made Australia's cheaper wines uncompetitive in offshore markets, and prompted the shift towards premium markets.

Foster's made writedowns on its struggling wine business totalling $3 billion, or roughly half the amount it spent buying California's Beringer Vineyards and Australia's Southcorp, maker of Penfolds, at the peak of the cycle.

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