Executive Summary of Treasury Wine Estates Ltd

In the wine industry, Treasury Wine Estates Ltd is the leading wine company. Around the world, 300 countries have the outlets for Treasury Wine Estates with the various wine flavors. The countries include Japan, Australia, New Zealand, Italy, France, and Argentina, etc. The current market standing of this company shows that it has more than 720,000 shares outstanding at the Australian Stock Exchange. The current study is about the financial analysis of the Treasury Wine Estates Ltd. The company is aimed at continuous growth in order to enhance the organization’s profitability. The company’s strategies also include mergers and acquisitions. The accounting analysis shows that the organizational profits and the earning per share are improving continuously. Also, the net income is showing slight improvements with the passage of time. But there exists a gap between the actual amounts generated from the sales and the expected sale’s limit.

Introduction of Treasury Wine Estates Ltd

Treasury Wine Estates Ltd is the leading wine company in the wine industry. Treasury Wine Estates is working in 300 countries around the world including Japan, Australia, New Zealand, Italy, France, and Argentina. Market research shows that the primary activities of Treasury Wine Estates are linked with wine production and selling. The current product line of the Treasury Wine Estates is based on the various flavor of wine offered under different brands' names. Coldstream Hills, Wolf Blass, Beaulieu Vineyard, Lindeman, Rosemount Estate, and Penfolds are the famous brands of Treasury Wine Estates. Additionally, key options o the company includes growing vineyards, leased vineyards, and grapes grown for wine production. Having a focus on viticultural assets Treasury Wine Estates is crafting and selling a variety of best-quality wines in four geographical segments. The data in the company’s financial reports show that as per the corporate management of the company, there are more chances for the company to have increased profitability in the coming years. The difference is comparable for different countries i.e., China, America & the French markets, etc. The comparison parameters are based on the competitive environment and level of consumption in different regions of the specified countries.

Company Overview of Treasury Wine Estates Ltd

According to an estimation, Treasury Wine Estates has a workforce of 3500 employees for making wine, managing workplace activities, distributing and selling wine in the targeted market. Financial reports indicate that Treasury Wine Estates company generates more than 360 million dollars each year as net profit after meeting all costs and expenditures related to distribution and manufacturing processes. The estimated revenue of Treasury Wine Estates earned in a fiscal year is 2.5 billion dollars. Comparative analysis indicates that Treasury Wine Estates Ltd is working 13.18 billion worth market shares in Australia. In 2016, the company was ranked 4^th best global wine player with a global market share of 1.12%. However, in Australia and Asia market capitalization by Treasury Wine Estates is greater than many competitor companies. Key competitor companies with relatively similar products are E&J Gallo Winery Inc., Castel Groupe, Accolade Wines Ltd., and Constellation Brands Inc. Stock market analysis shows that Treasury Wine Estates has more than 720,000 shares outstanding at the Australian Stock Exchange.

Characteristics of Board of Treasury Wine Estates Ltd

It is important to look at the board of directors with their relevant information so that different characteristics are explained in brief. Treasury Wine Estates Ltd, which is listed on the Australian Securities Exchange, is the world’s leading wine company. The company has an employee count of 3500 talented people across the globe (i.e., across four key regions). The company is not only making a great presence in Australia, but it also intends to serve different regions of the world through outstanding wine brands, world-class facilities to produce the wine and prized viticulture assets. The products of the company are supplied to more than 100 countries, which show the range and expansion of the company across the globe. The stake for the shareholders relies on the company’s ability for providing high-quality products across the world.

The chairman of the board is Mr. Paul Rayner, who has been working as a member of the board since 2011. In 2012, he was appointed as chairman of the board. It is important to mention here that Paul Rayner is an Australian, and he has been in this field for so many years. He has great international experience as he has been working in different regions of the world such as Asia, North America, and Europe. He has been working in different fields including manufacturing industry, general management of consumer goods, corporate transactions as well as finance. He is also working as Director for Qantas Airways Limited since 2008. His vast experience and range of expertise have been instrumental for the success of Treasury Wine. Michael Clarke is the CEO of the company, and he was appointed as CEO in 2014. Mr. Clarke is also a member of the board. Earlier, Mr. Clarke has been working with Quiksilver Inc. as a Director from the year 2013 till 2016. He has also worked as a Director of Wolseley plc from 2011 till 2014.

The year 2019 also provides the records for the high-quality services of the Treasury Wine Estates Ltd. This performance is purely based on the strategies of the board of directors who also consider the other stakeholders in the decision-making. The effective formulation and the implementation of the strategies by the Chairman and the board of directors have proved that the company is on the exact way to become the world’s global wine company. The business models, being defined by the company’s board are competitive. The company’s growth policies are highly based on the collaborative customer’s partnership. It helps the company to maintain its competitive advantage in the market place even though there exist serious industry challenges.

Investment and Financing Decisions of Treasury Wine Estates Ltd

Treasury Wine Estates Ltd. is focused on continuous growth and enhance the profitability of the company. Treasury Wine Estates Ltd. has invested in some companies to acquire assets and merge it as a subsidiary of Treasury Wine Estates Ltd. to facilitate production and distribution processes. Somehow, Treasury Wine Estates Ltd. is also investing in some companies to share financial benefits. According to the annual report of Treasury Wine Estates Ltd., the company invests in the retail industry to strengthen long term relationships with suppliers and distributors. Last year Treasury Wine Estates Ltd. also invested in Wolf Blass and Wine on Top which resulted in the increase of overall profitability at the end of the fiscal year. After successful business operations in Australia, Treasury Wine Estates Ltd. is now investing in China. In October 2017, the company established a new warehouse in Shanghai to promote its business in China. In accordance with information presented in the annual report, corporate management declared that in the coming years Treasury Wine Estates Ltd. will generate more profit from China as compared to American and French markets because of in competitive environment and level of consumption. However, last year the company also increased its budget for promotion and advertisement. Last year investment made in advertisement and promotion is around $530 million. Somehow, the investment made in the fixed assets of Australian, US, and New Zealand workplaces is almost double to this amount. According to the annual report, the total investment made in the intangible assets during the last year was more than $17million.  

Corporate Governance Recommendations of Treasury Wine Estates Ltd

Treasury Wine Estates Ltd. is focused on maintaining the highest standards of corporate governance. For this purpose, the company is following recommendations of corporate governance council and Australian stock exchange about corporate governance strategies and practices. The company is enhancing its commitment to human rights and environmentally friendly operations. Treasury Wine Estates Ltd. is working with the suppliers to ensure the promotion of responsible consumption of alcohol in societies to protect consumers from health issues. Considering Corporate responsibilities framework organizational objectives are to promote good health, responsible consumption, climate actions, gender equality in workforces, and affordable clean energy.      

External Audit of Treasury Wine Estates Ltd

Treasury Wine Estates Ltd. has developed a framework for internal and external auditing teams of the company to ensure the delivery of accurate and authentic information to the stakeholders and investors by the financial details printed in annual reports of the company. External auditors and internal auditors are grouped to work independently as an audit and risk board committee to oversee all financial details and organizational operations. According to the remuneration of the auditors and evaluation process carried out in the company, external auditors are free from external and internal pressure. In the annual report, external auditors have confirmed that they are not delegated any professional engagement in the internal affairs of Treasury Wine Estates Ltd. Thus they can work independently and assist the audit committee. Although, fixed remuneration amount for 2017 and 2018are $2, 200,000 and $2, 500, 000 respectively. However, key audit matters identified in the company relates to the valuation of inventory and recognition of discounts. According to KAM, inventory and finished goods require judgment and evaluation by auditors. Valuation models of inventory need to focus on forecast demand and period of inventory turnover. Grapes inventory and use in the winemaking process require comprehensive analysis to bring improvement in the holding period and possible cost of inventory management in the company.

Ethics and Ethical Judgments of Treasury Wine Estates Ltd

            The ethics and values are pivotal for any company to determine its business objectives and strategic direction. Treasury Wine also understands the importance of responsible and ethical behavior. The company takes its reputation very seriously with regards to its code of conduct and ethics. The company has a clear goal to move forward with a business ideology which is based on strong commitment and trust developed with all stakeholders. The company strongly believes in ethics by respecting the basic rights of humans, so they comply with the ILO 1998 Declaration on Fundamental Principles and Rights at Work, and the UN Universal Declaration of Human Rights. The company ensures that they are following the highest standards of moral values as well as ethical conduct so that they are known as a company, which has a sense of responsibility for people and society. This dedicated ethical policy is ensured at all levels, and it is expected that employees will always comply with this policy by showing ethical behavior. For instance, if any misconduct or breach of conduct is noticed by any member of the company, it is their ethical responsibility to report the issue with the higher management so that adequate action can be taken.

Top Investors of the Treasury Wine Estates Ltd.

Treasury Wine Estates Ltd. shares are offered on Australian stock exchange to get investment from the public for the execution of business operations. However, some investors directly invest in the business in return for the percentage of ownership in the company. According to the analysis of 2018, the top five investors of Treasury Wine Estates Ltd. are HSBC Custody Nominees Limited, JP Morgan Nominees Australian Limited, Citicorp Nominees Pty Limited, National Nominees Limited and BNP Paribas Noms Pty Ltd. These companies have more than 300,000,000 shares of Treasury Wine Estates Ltd. According to the investors report analysis, ranked first company in top investors “HSBC” covers around 43.13% ordinary shares of Treasury Wine Estates Ltd. While the ranked 5^th company covers only 3% of total ordinary shares offered to the public for investment and financing of business operations.

Analysis of Financial Statements of Treasury Wine Estates Ltd

In this section, financial ratios and other important financial details are presented to elaborate on the financial performance and financial condition of the company in 2018. The presented below headings show ratio analysis for liquidity, profitability, assets management, and market value of the company at a specific date.

·         Liquidity of Treasury Wine Estates Ltd

Liquidity ratios are presenting the financial strength of the company to meet its current financial requirements and short term obligations dues within a year. The current ratio of Treasury Wine Estates Ltd. is 2.15 that shows the company's strength to pay back short term loans and credits without liquidating fixed assets. However, the quick ratio is less than 1 and lower than the current ratio. The huge difference between quick and current ratio shows that the company is overemphasizing on inventory for liquidity rather than cash and other cash equivalents. Thus, the cash ratio of 0.11 is below the minimum required ratio”1”. 

·         Non-current asset management efficiency of Treasury Wine Estates Ltd

In this section, ratios are indicating the efficiency of managerial staff in utilizing and managing fixed assets of the company. According to the total asset turnover ratio 0.46, it is clear that managerial staff o Treasury Wine Estates Ltd. is unable to meet the minimum efficiency requirement in asset management. Total sales generated from the assets are less than the possible sales limit. However, fixed assets turnover shows that managerial staff is using fixed assets more efficiently as compared to non-current assets but still there is a gap for improvement.

·         Capital Structure of Treasury Wine Estates Ltd

Capital structure projects managerial practices for utilizing different resources and assets as input to deliver outputs. The capital structure covers information about debt, assets and equity capital of the company. The debt to equity ratio of 2018 is 0.56. The debt to equity ratio shows that creditors and investors do not have an equal stake in the business. A ratio lower than 1 shows that Treasury Wine Estates Ltd. implies a more financially stable business. However, a continuous decrease in the ratio will reduce the company's advantage in increasing profit from financial leverage. Debt to total assets ratios 0.36 is lower than the debt to equity ratio 0.56. It indicates that the company is paying more attention to debt financing as compared to asset financing. 

·         Profitability of Treasury Wine Estates Ltd

Gross profit margin, net profit margin, and return on assets ratios are indicating towards the profitability of the company. In accordance with financial analysis of 2018, gross profit margin, net profit margin, and return on assets are 0.424, 0.144, and 0.066 respectively. Gross profit margin is greater than the profit margin which indicates the percentages of cost and expenditures incurred in the operations of production, distribution, and advertisement.  

·         Market Value of Treasury Wine Estates Ltd

Market value ratios are calculated on the basis of information extracted from a stock exchange about share prices and a total number of outstanding shares in 2018. However, average share prices are around $17 that remains high over the year because of the continuous increase in the profitability and earning per share of the company. Earnings per share 49.7 and price-earnings ratio 0.35 are favorable for the future business operations of Treasury Wine Estates Ltd.

·         Overall Performance, financial status, and Cash Flow

In this section, overall organizational performance, financial status, and cash flow of 2018 are discussed in detail. According to financial analysis, Treasury Wine Estates Ltd. is working efficiently to reduce its cost of operations and increase its profit margin. In the presented below graph, the total cost is presenting a declining trend while total revenue is at the following growth trend.  

In the presented below graph, the total income generated by Treasury Wine Estates Ltd. is presented in comparison to the total revenue generated from business operations. The analysis shows that the net income trend is slightly improving with the passage of time. In 2016, net income was 179 that is increased to 360 in 2018. 

Cash flow of Treasury Wine Estates Ltd

In the presented below table, cash flow details are projected for 2018. Considering this, total cash in-flow and out-flow from activities and business operations execution are about $149.70 million in a fiscal year.

Operating Cash Cycle of Treasury Wine Estates Ltd

            It is important for every company to look at its operating cash cycle so that it can measure how much is being taken for its purchase of inventory to turning into cash receipts. The other terminology used for operating the cash cycle is the cash conversion cycle. Actually, it is a time period taken by a business to turn its purchases to receipts of cash as this cash comes from customers. The annual cash conversion cycle for the company was 142.43 in June 2019, whereas the quarter cash conversion cycle for the company at the end of June 2019 was 155.44. It is important to understand that a lower number will show a better conversion cycle, whereas if it number goes up, then it shows that the cash conversion cycle takes too much time. Looking at the operating cash cycle of the company, it can be said that they are doing good enough, but there is certainly an area of improvement to bring this number down as much as possible.

Conclusion of Treasury Wine Estates Ltd

After looking at different aspects of the company and analyzing relevant facts & figures, it can be said that Treasury Wine Estates Ltd is one of the major players in the global wine industry. The company has marked its success not only in Australia but in almost all regions of the world as they have outlets in 300 countries. It is not easy to cover such a huge market for one business, but Treasury Wine Estates Ltd has been able to do so with so much success. The company is rightly looking to expand its business further in different parts of the world, where they have not made any considerable presence. They can expand and work on different growth strategies because their accounting analysis has clearly shown that the company is doing well in all aspects. They are earning good enough revenue with handsome profits, and things are looking positive for the future as well. The net income of the company is gradually improving and after looking at current numbers, it is expected that net income, profit as well as revenue will increase in the future. The growth strategy based on acquisition and mergers is very much considered for the company, and they should do it to capture more market share.

Appendix

Liquidity of Treasury Wine Estates Ltd

1.      Current Ratio

2.      Quick Ratio

= 0.98

3.      Cash Ratio

Non-current asset management efficiency

4.      Total asset turnover

5.      Fixed asset turnover

Capital Structure

6.      Debt- equity ratio

7.      Debt to Total Assets Ratio

Profitability

8.      Gross Profit Margin

9.      Net profit margin

10.  Return on assets

Market Value

11.  Earnings per share

12.  Price-earnings ratio