Listed wine producer Treasury Wine Estates to divest lower-end labels, records impairment hit

Australia’s top wine producer Treasury Wine Estates will slash more than $350 million off the value of its premium brands and has announced plans to divest its lower-end labels.

The Tim Ford-led company on Tuesday revealed that as part of a review announced in February, it would divest its commercial wine brands, including Wolf Blass, Yellowglen, Lindeman’s and Blossom Hill.

It would also recognise a non-cash impairment charge of $354m, or $290m post-tax, in its full-year results to be released on August 15.

The impairment relates primarily to the write-down of goodwill ($115m) and commercial brands ($229m).

Wolf Blass and Yellowglen were first acquired in 1996, before the listed winemaker acquired Lindeman’s in 2005 and Blossom Hill in 2015.

The company on Tuesday said these commercial brands now represented less than 5 per cent of Treasury Wine’s gross profit.

“The changes to the carrying value assessment reflect moderated top-line expectations as a result of challenging market conditions for commercial wine, across all markets, and the under-performance of (Treasury premium brands) relative to the category at these commercial price points,” it said.

The company added these adverse events have offset the benefits from its strategic focus to premiumise its portfolio, where it had delivered a three-year net sales revenue annual growth rate of 10 per cent for its priority premium division — which encompasses brands Wynn’s, Pepperjack, Squealing Pig and the Snoop Dogg-backed 19 Crimes.

“TWE has been assessing the future operating model for its global portfolio of premium brands,” it said.

“As part of this review, TWE has determined that it will seek to divest its commercial brand portfolio.”

But E&P analyst Phil Kimber estimates Treasury Wine Estates to get about $100m from the sale of the lower-end brands “given limited demand” from a small pool of potential buyers.

Treasury Wine Estates in recent years has pushed deeper into the premium segment, with the winemaker last October inking a $US900m ($1.4 billion) deal to buy Californian wine operation DAOU Vineyards.

Treasury Wine Estates at the time said it had been the fastest growing luxury wine brand in the US over the past year.

The acquisition was said to fill a key $US20 to $US40-a-bottle gap in Treasury Americas portfolio

The company on Tuesday said earnings before interest and tax for the 2024 financial year are expected to hit $658.1m, up 12.8 per cent on the prior corresponding period.

Shares in Treasury Wine Estates closed up 0.9 per cent to $11.70 on Tuesday.

The news from Treasury Wine Estates comes at a tumultuous time for the nation’s wine industry, which has been forced to dramatically adjust after China in 2020 imposed onerous tarrifs of as much as 200 per cent on bottled Australian wine exports.

In April, China’s Ministry of Commerce finally ended its tarrifs on Australian wine.

It also comes as Australian wine growers are forced to destroy thousands of hectares of vineyard in response to an intensifying oversupply crisis.