A bigger write down and more rumours of possible takeover interest, and it ended up being one of the better days recently for embattled grog group, Treasury Wine Estates (TWE) (the old Southcorp).
The shares ended up 5% at $4.96 after there was talk in the media of possible interest from LVMH, the big French-owned luxury group which owns a swag of high level wine brands, including some of the best known champagnes and cognacs.
That news broke before Treasury updated the market in a four page statement on the latest moves to improve the company’s operational and financial position.
It was in fact the second such update in the past five weeks (the previous was on May 20, along with the news of the rejection of a $3 billion indicative takeover approach from buyout group, KKR).
In yesterday’s release the company revealed it would boost write downs and impairments to a huge $260 million for the year to June 30.
"TWE has now completed a detailed review of its long-term plans and will now recognise a non-cash brand and related-asset impairment of up to $260m (after tax, unaudited) in fiscal 2014," the company explained in yesterday’s statement.
"The impairment reflects the combination of historical prices paid for pre-demerger acquisitions and the decline in market growth rates for Commercial wine globally; and relates to the Company’s Commercial brands, IT, plant and equipment assets."
And the company’s new CEO Michael Clarke has now called the 2014-15 financial year a ”reset year” when the winemaker commits to delivering much-awaited improvements after years of disappointments, falling earnings and hundreds of millions of dollars in write downs for over-valued assets and the tough trading environment here and in major markets such as the UK, Europe, the US and China.
TWE 1Y – Treasury Wine Estates resets, writes down $260m
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"Fiscal 2015 will be a reset year – and the Company remains committed to delivering improvements in performance through greater focus and brand prioritisation, structural reform and major marketing initiatives to drive consumer engagement," Mr Clarke said.
“I am looking forward to the start of the new financial year with great enthusiasm, and we will continue to drive transformational change throughout TWE over the course of fiscal 2015. We have already taken significant steps to reset consumer marketing investment, our cost base and business model, and over the coming year we must fully realise the benefits of these changes."
Mr Clarke also announced a range of structural changes, including changing the release date of its iconic Penfolds wines to better manage allocations and availability for the company’s most popular luxury wine brand.
Treasury said the overhaul of the way it makes Penfolds available to the public would mean the brand would be available for sale over a much longer trading period and would help Treasury Wine establish a more sustainable business model.
Penfolds’ wines would now be released at one combined annual release, commencing October 16 this year.
”An October release also means the company is better placed to manage allocations and inventory levels with key customers around the world throughout the year – in contrast to selling through the release in the final quarter of each fiscal year,” the company said.
Mr Clarke said the changes to its Penfolds release dates put the consumer at the heart of its new business model.
In the May 20 announcement (when Treasury Wine revealed it had been approached by KKR) Mr Clarke promised to use cost savings of $35 million from his cost cutting take to boost the consumer wine marketing spend by 50%.
In yesterday’s announcement, the company said there will also now be a structural divide between the winemakers’ cheap commercial wines and its more expensive portfolio of brands, dubbed by the company ‘’Luxury & Masstige’’. Mr Clarke said this will allow better focus on both ends of the market. (Masstige is just a fancy way of saying a company wants to extend its high value brands downmarket, without diluting the image of the high value brands.)
This divide has already begun at Treasury Wine’s US business and will be be extended into the Australian business.
There was no mention of any actual trading news concerning sales revenues and earnings.
At the time of the May announcement, the company maintained it 2014 earnings forecasts to $190 million to $210 million.
The $260 million in write downs means the company will have a bottom line loss for 2013-14.
