Treasury Wine Estates faces class action over alleged disclosure breaches

Slater & Gordon has alleged in its class action suit that Treasury Wine Estates gave ‘misleading guidance’ before its earnings downgrade.

The Sonoma County vineyards in California. Picture: Mariah Harkey/ Sonoma County

Treasury Wine Estates, the maker of wines such as Penfolds, Wolf Blass and Lindemans, ought to have known that an oversupply of grapes from a record harvest in California combined with falling sales volumes in the US and a departure of its key executives would dent its ability to hit stated profit targets, a new lawsuit says.

`A statement of claim lodged by law firm Slater & Gordon lists a litany of instances such as record grape harvests, prevailing US market conditions, the difficulty in maintaining prices for premium wine and the surprise resignation of a handful of senior executives, especially in the crucial US market, through 2019, and says Treasury Wine should have been aware of and should have tempered their earnings outlook.

Treasury Wine said on Friday it had been served with a proceeding filed in the Supreme Court of Victoria in the wake of its recent profit warnings that saw its share price tumble.

The proceeding has been filed by Slater & Gordon on behalf of the plaintiff, who brings the claim on behalf of shareholders who acquired an interest in Treasury Wine shares between February 14, 2019 and January 28, 2020.

The statement of claim includes allegations of contraventions of the Corporations Act in relation to continuous disclosure and the Corporations Act and ASIC Act in relation to misleading or deceptive conduct.

Slater & Gordon senior associate Kaitlin Ferris said: “As a result of our investigation following Treasury’s profit downgrade on 28 January 2020, we concluded that there was a strong basis to allege that the company provided misleading guidance, and was obliged to correct the market’s understanding of its financial position at a much earlier time.

“The claim relates to conduct which predates any Treasury announcement about the impact of coronavirus on its business and operations”.

The statement of claim says Treasury Wine ought to have known the pressures on its business coming from a range of factors lashing the US market. In 2019 the Americas represented 40 per cent of the company’s sales and 33 per cent of its pre-tax earnings.

“By no later than 14 February 2019 the 2018 grape harvest in the US was expected to be a record with 4.4 million tonnes forecast for California, and the Pacific Northwest also expected to set records; the US wine industry was expected to transition to a period of flat to negative volume growth, low sales growth,’’ the statement of claim said.

“As a result of the matters set out ... at the end of 2018, the US wine market had an oversupply, there was generally a lead time from wine grape harvest to sale of wine products in the global wine market of more than six months.

“There was and was likely to continue to be an added supply of private label wine products in the US wine market; the matters alleged ... were likely to create a downward pressure on prices in the US wine market going forward, including in the premium wine segment. It was likely to be more difficult for participants in the US wine market to rely on premiumisation to maintain or increase profits.’’

Treasury Wine said it strongly denied all allegations of wrongdoing and intended to vigorously defend the proceeding.