February 20, 2014 / 3:15 AM / 4 years ago

UPDATE 1-Australia's Treasury Wine hires new CEO to lead way out of profit slump

* Weak China sales, rising costs cut H1 profit 38 pct

* Food industry executive Michael Clarke appointed CEO

* Company expects tough conditions to continue in H2 (Adds new CEO details, share price movements)

By Byron Kaye

SYDNEY, Feb 20 (Reuters) - Australia’s Treasury Wine Estates Ltd confirmed weak sales in China and rising costs cut its profit by over a third, saying it hired Michael Clarke, chief executive of British food maker Premier Foods Plc, to lead a turnaround drive.

The world’s second biggest winemaker by sales on Thursday followed a drastic profit warning it issued in January by reporting operating earnings for the first half ended Dec 31 skidded 38 percent to A$45.8 million ($41.37 million) from A$73 million a year earlier.

That warning from the maker of Penfolds and Beringer wines led to a 20 percent slide in the company’s shares, stoking speculation that Treasury could eventually become a takeover target.

The first-half profit was toward the top of the range Treasury indicated in January, and Treasury shares were trading up 2.4 percent at A$3.80 on Thursday. Sydney’s benchmark index was flat.

The company’s problems have mounted in recent months: In September it sacked CEO David Dearie over poor inventory controls in the company’s United States arm. Company director Warwick Every-Burns took over from Dearie on a temporary basis pending the recruitment of a new CEO.

On Thursday the company said first-half sales fell 7.5 percent to 15.26 million cases, and warned that tough trading conditions would continue in the second half. Interim net profit rose to A$106.2 million from A$45 million previously, but that included an A$80.5 million tax benefit.

In a conference call after the earnings were released, analysts questioned new CEO Clarke’s suitability for the job, saying he has no experience of the wine trade. Clarke has previously held senior roles at Kraft Foods Group and The Coca-Cola Co, as well as Premier Foods.

Treasury’s Chairman Paul Rayner defended the appointment.

“He’s been able to pick up different brands, different products, different segments of the world, and make those businesses improve,” Rayner said. “We chose him on the basis that we think he can do that with Treasury.” ($1 = 1.1071 Australian dollars)

Reporting by Byron Kaye; Editing by Jane Wardell and Kenneth Maxwell

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