Treasury Wine Estates Faced With Second Class Action
Barely five months into the new year, it is apparent that Australia’s largest wine company, Treasury Wine Estates (TWE), is struggling hard to overcome obstacles coming its way. Presently, the firm has been served with two class actions, witnessed less than ideal operational results and is considering a demerger with its iconic Penfolds brand. Back in February 2020, Treasury Wine has cautioned that as a result of the COVID-19 pandemic, consumption across discretionary segments has been adversely affected in China. As a result, the EBITS guidance of 5 to 10 per cent previously announced is unlikely to be achieved. The dismal update provides a bleak outlook as the company currently makes approximately 40 per cent of its total profits from Asia, primarily from the world’s second-largest economy.
Recently, the firm was served with its first class action by Slater and Gordon over a profit downgrade which occurred in late January, clearing out as much as $3 billion from the company’s market capitalisation. The law firm will be acting on behalf of shareholders who bought the company’s shares between 14 February 2019 and 28 January 2020. The loss in market capitalisation came followed the firm announced a 17 per cent decline in earnings in its first-half report for the six months ending 31 December 2019.
Specifically, the profit downgrade was largely attributed to a wine glut over in the United States. Yet, Treasury Wines is not the only player who has been hit hard by the overwhelming supply of cheap wines. Chateau Ste. Michelle Wine Estates has also posted significant losses in the three months leading to 31 December 2019 due to the massive availability of affordable wines. To recoup losses, Chief Executive Mike Clarke has decided to make changes to its product portfolio.
More notably, the firm intends to separate its lower-priced wines from the luxury wine brands such as Penfolds, to prevent a sharp plunge in margins. The plan was finalised when the firm announced the likely demerger in April where Penfolds will operate as a stand-alone company. Presently, Penfolds constitutes more than 50 per cent of the firm’s profits and could potentially be worth over $10 billion as a business on its own. The valuation is also in part attributed to the sales surge in China where it has been positioned and regarded as a fine, luxury wine. Mr Clarke was of the view that the separation would witness the creation of longer-term value with a renewed focus on traditional Australian luxury wines.
More recently, Treasury Wine has been served with a second class action by Maurice Blackburn when it was accused of misleading the market for 1.5 years before the firm admitted in late January that its US business was taking a hit. Maurice Blackburn asserted that problems within the division, such as diminishing sales and poor branding date back to mid-2018. While the firm’s future remains unknown, it is certain the Treasury Wine will continue to cut back on expenditure. Additionally, current CEO will be succeeded by Tim Ford from 01 July 2020.
By Caroline Wong
Click here for a 7 days access to our Lotus Blue Portal.