Treasury Wine Estates: glass half full despite election chaos

Big business hopefully learned in the election there was a disconnect between its wish list and the average punter.

TWE chief Michael Clarke. Illustration: Sturt Krygsman.

The election result was bad news for big business, which hates uncertainty but also hopefully learned there was a huge disconnect between its wish list and the concerns of the average punter.

Business can react as some have by decrying populism and telling punters they were conned and voted the wrong way or accepting the result and working at better selling its message politically by connecting the lines.

The latter is the smarter course while of course business concentrates on its day job.

The relaxed response by the stockmarket yesterday with the S&P/ASX 200 index climbing 0.7 per cent to 5281.8 points was encouraging.

The policy environment will be obviously difficult and as business tends not to excel in politics it will be even more challenging in a weak economic environment.

The reality is big business doesn’t have a great standing in the community right now after a long list of snafus from big banks behaving badly to allegations of bribery, misleading claims, market rigging, profit shifting and on the list goes.

Business needs to devote some effort to getting its house in order first before it embarks on a campaign telling others how to do their jobs then engage its friends and, with careful and consistent messaging, better sell its virtues.

Amid the election confusion, Treasury Wine Estates boss ­Michael Clarke showed the way, quietly unveiling a profit upgrade while disclosing the sale of around one quarter of his US brands.

The brands sold were cheap so-called commercial brands with sales of around the $30 million mark. The buyer was not disclosed and it was more house cleaning than revolutionary but was getting on with business.

Clarke confided earnings for the 2016 year would come in around the $330m-$340m mark, which compares with a consensus forecast of about $325m.

The fact is, people voted for their own reasons and if business had any sense it would get on with business.

One lesson to be gained from the election is that big business doesn’t have too many friends in Canberra once the votes are counted and it’s time to keep its head down while quietly working overtime to get more people on side.

Treasury’s Clarke also quietly reminded punters that Europe, including Britain, accounts for around one-tenth of total earnings, so the Brexit debacle is not a major issue for the company.

At the outside, sales to Britain may at least come in at lower duty levels or at least on equal terms to European suppliers.

Clarke has attempted to focus more on Asia and the US and the wine sold is at the lower end, which is not where he wants to play.

The sale actually unclogs the Treasury systems allowing its team to focus more on the high-end wine sales, so it’s a net positive on that score. In effect, the sale was another example of how Clarke is working to reshape his portfolio to maximise sustainable long-term earners.

Business getting on with business also depends on Canberra setting the right guidelines and it is here business leaders need to work with what friends they do have to get their message across to the right people.

Watchdog’s bad record

In baseball parlance over the past 12 years the ACCC is batting 0 and four on merger matters, which are challenged either before the Australian Competition Tribunal or the Federal Court.

The latest loss was the Australian Competition Tribunal decision in the Sea Swift case, which on paper looked like an easy win for the ACCC.

That, according to practitioners, is the problem. The ACCC doesn’t present its arguments well in difficult cases and tends to grab material that supports its case rather than looking at potential rival arguments.

The arguments are not tested at the ACCC as they would be in court. The commission’s failure to challenge its arguments can lead to self-fulfilling conclusions.

At the very least the ACCC’s dismal track record in merger cases should warrant some sort of internal review and potentially change in practice because clearly when challenged it is found ­wanting.

The tribunal is different in the respect that it can approve a merger that lessens competition but is in the public interest, which is the test the Harper Review said should be used by the ACCC at the first instance.

The tribunal has the luxury of the time to spend a couple of weeks on the one case while ACCC commissioners are laden with myriad other issues.

Bringing the public interest test to the ACCC may solve some of the business concerns but it must also be noted that the ACCC ­handles about 220 mergers a year, only a handful of which are rejected and an even smaller number are challenged.

This is mainly for commercial reasons because few vendors have the time or patience to wait the six to nine months needed to get decisions reviewed.

This small number of appeals also tells you that the ACCC gets most of its decisions right.

The Australian Competition Tribunal is popular because it guarantees a decision in three months and its rulings can only be challenged on a point of law.

Still, some argue the fact that the ACCC has lost every challenge in the past 12 years tells you it is not looking at the issues as it should.

Some say it is too conservative and is not prepared to let the ­market work or at least see the ­issues through to their logical ­conclusions.

Obviously, only rare cases are challenged and these tend to be the most difficult, although the track record is such that more business should see the benefits of appealing where possible.

Sea Swift was a Cairns-based ferry service acquired by Champ Private Equity, which under new ownership challenged Toll, which operated island ferry services from Darwin.

Toll responded by challenging Sea Swift and both suffered heavy losses, to the extent that Toll decided to quit the business altogether. A merger was agreed under which the now Japan Post-controlled Toll would own 20 per cent of the combined business.

The implied price paid in the $45 million merger also suggested it was merely one competitor taking out its nearest competitor and paying premium for the pleasure.

The arguments presented said none of the services operated could handle more than one carrier and with Toll withdrawing the merger was the best solution.

This was ultimately what the tribunal accepted.

Healing Medibank

New Medibank boss Craig Drummond spent his first day on the job yesterday preaching the importance of customer service, which needs to be his rallying cry.

Last Thursday, on one of the busiest days of the year, a systems upgrade caused several computer crashes and blew out customer waiting times to over 20 minutes.

To compound the problem, Telstra’s network crashed in the afternoon, which wreaked further havoc.

Last month the ACCC took Medibank to court alleging unconscionable conduct for failing to tell customers about changes to hospital cover that would mean they had to pay extra.

The company’s stock price yesterday closed up 0.7 per cent at $2.97 compared with a near-term high of $3.28 on May 5.

Drummond’s first day was spent with his senior leadership group, then a branch visit, followed by further senior leadership meetings.