Treasury Wine Estates announced that it will be writing off $260m from its fiscal 2014 full year profit.
TWE said that the ‘non-cash brand and related-asset impairment’ is reflective of the combination of historical prices paid for pre-demerger acquisitions, and the decline in market growth rates for commercial wine globally. The write off is also related to the company’s commercial brands, IT, plant and equipment assets.
“Today’s announcement of an asset impairment further highlights the need for TWE to do things differently. The current business model is not being optimised and fails to reflect the company’s outstanding capability, brands and people,” said TWE CEO, Michael Clarke.
Clarke says that fiscal 2015 will be a “reset year” for the company as it strives to deliver improvements in performance through “greater focus and brand prioritisation, structural reform and major marketing initiatives to drive consumer engagement.”
As part of its plan, TWE announced that it will be making significant changes to its business model including changing the release of its flagship Penfolds wines to better manage allocations and availability, and the separation of the Australian Commercial portfolio from its Luxury & Masstige portfolio.
The company will move the release dates for new vintages of its Penfolds Bin Series, and Penfolds Icon & Luxury Collection wines to one combined annual release, commencing 16 October which according to TWE, will ensure that Penfolds wines are available for sale over a much longer trading period and aid in establishing a more sustainable business model.
This change will also mean that TWE will be better placed to manage allocations and inventory levels with key customers around the world throughout the year, as opposed to selling through the release in the final quarter of each fiscal year.
“Since starting on 31 March my team and I have moved quickly to initiate changes to deliver improved performance, support our brands, reduce costs and demonstrate that we are prepared to drive changes to unlock value and sustainably deliver results.”
“The changes we are making to our business model, including moving Penfolds release dates, not only make commercial sense but are also good for our brands.
Penfolds’ chief winemaker, Peter Gago supported the move to an October release.
“Releasing Penfolds wines in October, rather than in March and May as we have in the past, means these wines will now be shipped from the winery in cooler conditions, ensuring ideal quality when they arrive in market.
“Our current release dates also mean Penfolds winemarkers are often busy making wine for the present year’s vintage and are severely constrained in their ability to support sales and marketing efforts. An October release frees them up to provide the support out Bin Series and Icon & Luxury wines deserve”.
In relation to the separation of the Australian Commercial and Luxury & Masstige brand portfolios, Clarke says that the move will deliver greater focus on market and competitor dynamics and drive efficiency and profitability for both categories. Clarke also added that the change to the Australian brands complements action already underway in the Americas.
“The Commercial wine market is markedly different to that of Luxury & Masstige and we need to consider new operating models and ways of working to realise growth and improve profitability across both,” he said.
Structural changes to the company's ANZ operations were also communicated. Under the new business model, ANZ operations will be jointly run by Angus McPherson – current general manager Australia who will lead the team focused on TWE’s Australian commercial portfolio and Simon Marton, who currently holds the position of chief marketing officer and will lead the team focused on TWE’s Luxury & Masstige portfolio.
TWE’s ANZ operations will be run separately to its Asia and Europe, Middle East & Africa (EMEA) regions and as a result, Andrew Carter, chief commercial officer APCA & EMEA has decided to resign. Additional information of the management of the company’s EMEA regions will be communicated in due course.
Clarke assumed the position of CEO in February following the exit of David Dearie in September last year. Under Dearie's leadership, the company wrote-down a $160m hit to before tax earnings after ambitious sales forecasts led to an oversupply of wine in the US.