The Distillery: In vino veritas

Treasury Wine Estates chairman Paul Raynor has waved goodbye to chief executive David Dearie in the wake of the wine company’s embarrassing inventory problems. The former Foster’s arm just can’t shake its history as it tries to write a new story, according to Australia’s business columnists.

The Australian Financial Review’s Matthew Stevens says Raynor strikes him as the Henry Ford-type, at least in terms of philosophy.

“Like the car man who coined the idea that “history is more or less bunk”, the chairman of Treasury Wine Estates has little time for those who consider precedent a productive guide to present strategy or future potential. Which might explain how Raynor and the rest of his board at TWE found themselves sacking a chief executive over the weekend, but by Monday recommitting to a long-embedded and value-destructive strategy that has once again proven beyond an executive’s ken to manage. David Dearie was sacked in what amounts to a career-shattering delayed reaction to $160 million worth of writedowns that were announced in July as the result of a massive and undetected inventory cock-up in his US wine business.”

The Australian’s John Durie says the move reeks of incompetence on behalf of the board, having failed so spectacularly in terms of succession planning.

“Chairman Paul Rayner went out of his way to say there was no new news behind the decision. The board simply thought Dearie's reign should end. Given Rayner was doing the rounds of shareholders ahead of next month's annual meeting, the idea was no doubt pressed home by the owners of the company. This also suggests it is not the last move being contemplated by the board, with a partial or complete break-up a clear possibility. The Treasury, nee Foster's, board also has form on this issue. Amid the turmoil, the company also confided last week that KPMG would replace PricewaterhouseCoopers as auditor.”

Fairfax’s Brian Robins writes that Treasury actually makes some terrific wines, but it lets itself down when it comes to distribution and marketing.

“Given the primary importance of the US to Treasury's fortunes, the group faces a fundamental decision: should the chief executive actually be based in the US, or should they simply hire someone who knows the US market for alcoholic beverages? As for Treasury shareholders, they need to answer one simple question: do I need to be here? Sure, there's no gain without pain, but in the absence of any takeover, it is hard to see much prospect for a quick recovery in the shares. And banking on a takeover may also be an exercise in futility for the time being, since any corporate interest in Treasury will hinge closely on how quick a turnaround in the US emerges.”

Business Spectator’s Stephen Bartholomeusz explains that the US market is improving for Treasury, though it’s working through the excess inventory foul up.

“Dearie, having restructured and rationalised his domestic production base and cleared the decks in the US, has also built a big stock of non-current inventory — about $450 million — in the luxury and ‘masstige’ segments, which represent a future store of high margin profits as US demand at the higher price points continues to improve. The group’s prospects within Asia are particularly exciting. Dearie had been planning a major investment in Treasury’s brands, particularly in Asia, as part of a new phase in the group’s development. The other potential improvement in the settings within which Treasury operates is currency. The group is highly sensitive to currency relationships, particularly the US dollar and sterling, because of its predominantly Australian production base.”

Elsewhere, Fairfax’s Tim Colebatch runs through the inevitability of a rise in the GST. It’s a simple matter of fact that without such a rise the funding for services like education and health will increasingly fail to meet the needs of the public.

And finally, The Australian Financial Review’s Chanticleer columnist is of the understanding that the now departed NBN Co board members helped save taxpayers billions of dollars.

We’ll perhaps never know this for sure however because the departing chairman Siobhan McKenna didn’t offer a public defence at the end.