Treasury Wine to split, China earnings slump

Treasury Wine Estates will split its operations into three and sell unwanted US brands, as China tariffs take their toll on profits.

Treasury Wine Estates CEO Tim Ford. Picture: Aaron Francis

Treasury Wine Estates chief executive Tim Ford has pledged to pursue a split of the winemaker into three new divisions with a sense of “boldness and pace”, as he looks to secure new markets for wine now shut-out from China, sell off unwanted American brands and give better focus to his portfolio of luxury wines.

As foreshadowed by The Australian earlier this month, Mr Ford has pushed ahead with his revamp of the global wine group to unveil on Wednesday a new structure from July that will be formed around its luxury brand Penfolds, a premium-to-commercial division called Treasury Premium Brands and Treasury Americas.

The punishing weight of the Chinese tariffs imposed from November, disruption from COVID-19 across all its markets and lost trade from shuttered restaurants and bars bruised Treasury Wine’s half-year accounts which were reported on Wednesday to show net profit down 42.8 per cent to $120.9m. Revenue slipped by 8.2 per cent to $1.42bn.

It also warned earnings in the second half would be lower than the first half.

For the first time Treasury Wine also broke out its China business to unveil an immediate slide in sales, with revenue down 22 per cent and earnings from the key export country that was once the key profit engine for Treasury Wine slumping by 37.1 per cent to $78.7m.

Taking action to drag Treasury Wine from the earnings slump and prepare it for the new realities of the pandemic and a blocked China market, Mr Ford has set about cleaning house and will sell as yet unnamed US brands to generate as much as $300m. Treasury Wine has also booked in the December half an after-tax loss of $45.6m on the divestment of particular US brands and assets as well as costs around the expansion of its luxury wine infrastructure in South Australia.

Mr Ford set out the structure for the new Treasury Wine as he released the first-half results and is promising investors the revamp will help to bring better focus to the key wine brands and, importantly, see more wine end up in the hands of consumers.

“There are multiple ways we will focus on growth but it is through focus and accountability, they are the two words that are driving the whole design of this process and how we are actually putting the structure in place,” Mr Ford told The Australian.

“We know how do it. You have a separate focus on your portfolio that meets different consumer needs … and you must develop better campaigns if you are doing that. You will have much better focus on different market growth opportunities for Penfolds versus some of the Treasury Premium Brands brands … they are different margin structures, different investment profiles and different rebate structures.

“So by focusing and measuring themselves separately you are not subsidising each other or not in a shadow of another, and I am convinced it will help us sell more bottles of wine at better margins and continue to premiumise.”

The executives to lead each division have also been named, with the current head of Asia for Treasury Wine, Tom King, handed the coveted role of running Penfolds. But he will likely stay in China as Mr Ford refuses to give up on the country despite Beijing’s crippling 200 per cent-plus tariffs now imposed on Australian wine.

“With the future operating model, with Penfolds and Tom taking the leadership role of Penfolds you might think we are wearing a lot of costs staying in China, but Tom and a number of his future leadership team will remain based in Shanghai … because we are not giving up on China at this point and it is still an ongoing (Chinese government) investigation.”

Meanwhile, in terms of its operating regions for the December half, Asia, which is dominated by China, saw revenue fall 18.1 per cent to $333.2m and earnings down 28.6 per cent to $127.2m. In the Americas sales fell 7.2 per cent and earnings were weaker by 2.7 per cent. In Australia and New Zealand sales were down 0.6 per cent to $323.8m and earnings down 16 per cent to $75.3m.

It announced an interim dividend of 15c per share declared, fully franked, down from 20c in 2020.

Shares in Treasury Wine ended up 24c at $10.14.