Treasury boss vows end to brand bashing

Treasury Wine Estates chief Michael Clarke has damned the ”bastardisation” of Penfolds under former management, describing as ”nuts” the 30-year practice of forcing through sales of its high-end luxury Penfolds collection in the final quarter of the year.
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The recently appointed Treasury Wine boss, who has cut his teeth from decades of executive roles within the global consumer brands sector, has promised a wholesale cultural and behavioural change for the winemaker that will place the power and value of its brands at the centre of everything that it does.

”We will drive cultural change. This is a branded company but we have not behaved like a branded company,” he said. ”So take Penfolds, it’s our biggest and most important brand, and we have actually bastardised it in the past by trying to sell everything in the fourth quarter, it’s just nuts.

”Building brands is the best thing for us to do.”

Determined to resuscitate Treasury Wine’s flagging earnings, Mr Clarke has unveiled his blueprint to rebuild the winemaker into a house of brands with a radical shake-up touching its most expensive wines down to its cheaper blends that he hopes will flow into improved margins and profits.

The underperforming US business, which takes in California’s Napa Valley based-Beringer winery, would be kept within the business. But poor decisions of the past, including overpaying for brands that underdelivered in terms of profits, would see a $260 million write-down taken to Treasury Wine’s full-year accounts for fiscal 2014.

The non-cash write-down was the latest in a string of hits to its accounts and followed a $160 million impairment in July 2013.

Shares in Treasury Wine reacted calmly to the the latest write-down, gaining 24¢ to $5.07, as the market was relieved Wednesday’s briefing did not include a profit downgrade and that the winemaker was still sticking to its earnings guidance of $190 million to $210 million for fiscal 2014 despite arduous trading conditions for wine companies.

The improved share price also puts pressure back on circling US private equity giant Kohlberg Kravis Roberts which last month threw a $4.70 per share takeover

bid on the table, valuing the world’s biggest pure-play listed winemaker at $3.1 billion.

As part of his pitch to defend Treasury Wine from being snatched and carved up by opportunistic bidders and improve the lot of long suffering shareholders, Mr Clarke also unveiled structural and operational changes for the group.

From this year, the annual release of Penfolds, which represents the bulk of the company’s earnings, will be shifted from March/May to October, allowing its winemakers, distributors and retailers to engage in a much longer marketing campaign to run into the new calendar year rather than rushed in the final months before June 30 to hit an artificial earnings target.

Mr Clarke said this would signal an end to the ”short-term mindset” that had hurt the company.

A wider structural separation would see its Australian and New Zealand division ”unzipped” into commercial wines and more expensive luxury wines, allowing proper focus and investment at both ends of the price curve.

Angus McPherson, the general manager of its Australian arm and a former executive at juggernaut winemaker Casella, the owner of powerhouse brand Yellow Tail, would head up its new local commercial division.

”In order for us to not have another impairment in the future, I want to actually run commercial differently as opposed to it being lost in the rest of everything.

”If I focus on commercial I know I can get a better performance from that.”

He said in the US its commercial wines were actually growing and that its luxury wines were hitting growth rates of 20 per cent plus.

”I think people will be pleasantly surprised how well we are going in North America.”