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April 2014 Issue of Wines & Vines

Treasury Appoints CEO as Earnings Drop

by Jim Gordon, with Paul Franson
Treasury results 2014

NAPA, CALIF.—Treasury Wine Estates made significant moves to address its poor financial performance, announcing the selection of a new CEO, a new VP of marketing for its Americas division and a new look for its Souverain label, among other moves.

The publicly traded, Australia-based company had little good news in its report to stockholders covering the first half of fiscal 2014, however, as earnings for the Americas division dipped 28% below a year ago, and dropped 38% for the company as a whole.

Treasury Wine Estates (TWE) Americas owns seven wineries including iconic brands Beringer in Napa Valley and Chateau St. Jean and Souverain in Sonoma County, as well as 25 vineyards encompassing 8,000 planted acres. It employs 1,140 employees. By contrast, the Australian operation has 10 wineries and 25 vineyards covering 21,799 acres.

On Feb. 20 Treasury announced the appointment of Michael Clarke as its new managing director and CEO, to fill the role left vacant in September, when the company dismissed David Dearie in the wake of an AUS$160 million write-down involving the destruction of 600,000 cases of out-dated inventory held by U.S. distributors.

Clarke was most recently CEO of Premier Foods Plc, based in London. He joins TWE with more than 20 years of senior leadership experience and a track record at some of the world’s most-recognized consumer goods companies. He was to move from London to Melbourne, Australia, and start formally on March 31.

Clarke ran the Kraft Foods European business and sat on Kraft’s global operating board. At The Coca-Cola Co., where he spent more than 12 years, Clarke held a number of senior executive roles, including running the Northwest Europe & Nordics business unit. He also led Coca-Cola’s South Pacific & Korea business unit for five years, during which time he was based in Sydney, Australia.

In the TWE Americas unit, Barry Sheridan was promoted from within to be VP of marketing, replacing John Grant after four months on the job. A company memo stated that Sheridan had been instrumental in successful marketing strategies that grew Chateau St. Jean’s sales and repositioned Etude as a Pinot Noir specialist using multiple AVAs. Sandra LeDrew remains chief commercial officer for the Americas.

TWE’s report for the first half of 2014 states a net profit after tax of AUS$106 million, down 43% from the first half of 2013, and earnings before interest, taxes and self-generating and regenerating assets (EBITS) of $45.8 million (exchange rate of AUS$1 = 90 cents U.S.). The company acknowledged this was significantly below the previous year and “reflects increased investment in marketing and distribution, challenging conditions in Asia” and other factors.

The Australian wine industry in general has struggled, not only in Asia but also in terms of exports to the United States. Sales of Australian brands dropped 5% in value in the 12 months through February, according to market research firm IRI, and dropped 6% in volume.

At press time the company’s stock was trading at AUS$3.75. Its highest point in the past year was AUS$6.47, reached in May 2013.

As for the Americas division, shipments were down by 13%, largely due to the “inventory realignment” in the United States. Volume and value also decreased in U.S. Nielsen data, counter to the overall off-premise growth trend in wine sales.

A 14% increase in net sales revenue per case was one bright spot for the Americas and reflects, according to the company, “volume growth in Canada and improved portfolio mix across the region.” It cited Nielsen data that Beringer Classics’ volume was up 7% in the first half of fiscal 2014, and that Lindeman’s volume in the Americas was up 1%.

TWE uses the term “masstige” to describe its mass-produced, higher priced wines such as Chateau St. Jean, Matua, Gabbiano and Sledgehammer. It reported that TWE masstige wines outperformed the category.

Treasury Wine Estates traces its roots back to the establishment of Penfolds in South Australia in the mid-1840s.

Foster’s brewing began to build its wine division from 1995 and built the division into one of the worlds largest wine producers. In 2005 it acquired the Australian winemaking group Southcorp, adding Penfolds, Lindemans and Rosemount and around AUS$1 billion in revenues.

Texas Pacific Group brought Beringer and other properties in its portfolio for $350 million in 1996. TPG sold Beringer to Fosters in 2000 for a reported $1.5 billion. It was originally called Beringer Blass.

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Wine Industry Metrics
Off-Premise Sales » Month   12 Months  
August 2015 $608 million
$8,178 million
August 2014 $568 million $7,729 million
Direct-to-Consumer Shipments » Month   12 Months  
August 2015 $80 million
$1,908 million
August 2014 $78 million $1,686 million
Winery Job Index » Month   12 Months  
August 2015 261
August 2014 218 224
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