Sour grapes for Treasury as boss axed
The shock departure of Treasury Wine Estates boss David Dearie yesterday after less than three years in the role has sparked fears of further write-downs and senior management departures, drenching the balance sheet in red ink and hitting shareholders with even more losses.
"Further US write-downs or more drastic change may come as a new CEO starts with a clean sheet," said Citi analyst Gino Rossi.
Mr Dearie, a 25-year veteran of the beverages and hospitality industries, was anointed the first CEO of Treasury Wine Estates when it demerged from Foster's Group in late 2010 to create two stand-alone businesses covering beer and wine.
His opposite number at the beer arm, John Pollaers, also didn't last long in his role after the Foster's beer operation was bought out by global brewer SABMiller in 2011 for $12 billion.
Mr Dearie told BusinessDay on Monday that he was planning to take a family holiday in the US and would return to Australia in a few weeks to assess his future.
Shares in Treasury Wine Estates, which inherited a portfolio of wine brands from Foster's including Penfolds, Wolf Blass, Seppelt, Lindemans and Rosemount, plummeted nearly 10 per cent on yesterday's announcement that Mr Dearie had been shown the door after a review into his performance by the board.
Shares closed down 30¢, or 6.3 per cent, at $4.45 - a 12 month low.
The board review and decision to eject Mr Dearie was sparked by July's admission from Treasury Wine Estates that it had supplied too much cheap wine into the US market for several years, with that now coming home to roost to cause a $160 million write-down for 2012-13 as well up to $35 million of unwanted wine being destroyed in the US.
That admission in July, which included a profit warning, saw Treasury Wine Estates share price slump 12 per cent on the day and set the scene for Mr Dearie's sudden exit just over three months later.
Although analysts and investors have been calling on Treasury Wine Estates to dispose of its underperforming American wine business since the demerger - as well as before that when it was part of Foster's - chairman Paul Rayner yesterday doggedly stuck to the belief that there was still value in the business and it was of core importance to the company. "I remain confident that we can get an acceptable return out of the American business with the right management in place," Mr Rayner said.
"The US is a very important part of the business, I think half of our volumes are sold in North America, that's very significant and we need to focus on the assets there so we get the best return on them."
Its American arm also delivers up to one-third of Treasury Wine Estates' pre-tax profits and crucially soaks up a massive proportion of the company's Australian and New Zealand wine produced at its local factories.
However, Mr Rayner admitted the US operation, built around its flagship Beringer wine brand which Foster's bought for $2.9 billion in 2000 in an ill-fated and expensive global expansion, had never really done well under the Foster's/Treasury Wine Estates' structure.
Mr Rayner conceded a good Beringer performance was to be found in the historical records.
Analysts raised concern about the rushed nature of Mr Dearie's departure, questioning if major shareholders had exerted pressure on the board. "It reminded me of the call they made for the US inventory write-down in July, sort of rushed, I didn't feel like it had been particularly planned well," said Alex Beer, of CIMB Securities.
"The timing is questionable and we are scratching our head at it trying to make sense of it."
Mr Rossi of Citi added: "The timing of Mr Dearie's removal appears hurried and may have been driven by shareholders.
"Perhaps the board may also embrace shareholders' pressure to exit the US. We think this is a mistake. US earnings are depressed due to the inventory de-stocking and we expect the US wine cycle will be positive for US producers."
Mr Rossi said the market has concerns that Treasury Wine Estates' accounts lack transparency.
As a replacement for Mr Dearie is found, Treasury Wine Estates non-executive director Warwick Every-Burns will be temporary CEO.
Mr Dearie will leave with a payout of around $1.35 million, equivalent to one-year's pay.
Frequently Asked Questions about this Article…
Treasury Wine Estates' board removed CEO David Dearie after a performance review triggered by a July admission that the company had over-supplied cheap wine into the US market, which led to a $160 million inventory write-down for 2012–13 and the destruction of up to $35 million of unwanted US stock.
The US arm caused a major hit: a $160 million write-down, up to $35 million of wine destroyed, and ongoing depressed US earnings — despite the US operation contributing up to one‑third of Treasury Wine Estates' pre‑tax profits and taking up a large share of its Australian and New Zealand production.
Shares slumped sharply after both events: the July profit warning and inventory write‑down caused a one‑day 12% fall, and the announcement of Mr Dearie’s exit saw shares plunge nearly 10% intraday and close down 30¢ (6.3%) at $4.45 — a 12‑month low.
Chairman Paul Rayner has said the board believes there is still value in the US operation and that it is core to the company, noting the US accounts for about half of volumes and is important for getting the best return on the group's assets with the right management in place.
Yes — analysts flagged concerns the CEO removal was rushed and possibly driven by shareholders, raising the prospect of further US write‑downs or senior departures. Citi analyst Gino Rossi warned a new CEO starting with a clean sheet could trigger further write‑downs or drastic change, and others cited worries about transparency in the accounts.
Non‑executive director Warwick Every‑Burns has been appointed as temporary CEO while the board looks for a permanent replacement.
Treasury Wine Estates inherited a portfolio from Foster's that includes major Australian wine brands such as Penfolds, Wolf Blass, Seppelt, Lindemans and Rosemount, and its US business is built around the Beringer brand.
Investors should monitor announcements about any further US inventory write‑downs, clarity or changes to the company’s US strategy (including talk of disposal), updates on accounting transparency, the appointment of a new CEO, and whether the US wine cycle improves — all factors highlighted by analysts in the article.
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