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Decision To Cut U.S. Inventories Leads To Ouster Of Treasury Chief David Dearie

September 23, 2013

Treasury Wine Estates today announced the immediate departure of chief executive David Dearie, expressing clear-cut disapproval of his recent move to write down excess U.S. inventories.

TWE chairman Paul Rayner made no secret of the board’s displeasure with the decision, unveiled in July, to destroy more than A$35 million ($33m) of aged and excess stock in the U.S. market and offer major discounts after demand was overestimated. The discounts and excess stock destruction were part of a broader A$160 million ($152m) writedown.

“Following the writedown of U.S. inventory, the board has undertaken a review and concluded that now is the right time to look for a new CEO,” Rayner said. “The board believes TWE needs a leader with a stronger operational focus to deliver the company’s growth ambitions.”

Dearie’s interim replacement is Warwick Every-Burns, who’s been a non-executive member of the Treasury board since its May 2011 demerger from Foster’s Ltd. Every-Burns began his career at Unilever and has worked in the consumer packaged goods sector for more than 30 years, most recently as president of international business at Clorox, based in Oakland, California. Every-Burns, who divides his time between Australia and the United States, will serve as CEO until a replacement for Dearie is found.

Treasury Americas managing director Sandra LeDrew, reached for comment, touted progress in the U.S., notwithstanding the inventory issue. The Americas remains TWE’s biggest market, comprising roughly 40% of its global business.

“As Paul Rayner has underlined, the number-one strategic imperative is to win the Americas,” said LeDrew. “We rolled out a new strategy about a year ago, and our Nielsen numbers since the start of 2013 show that it’s working. We’re in double-digit growth at the $10-$20 retail price point, led by Chateau St. Jean but also by Matua Valley. And we’re repositioning Souverain, with a major relaunch set for our second half that will focus on Bordeaux varietals from North Coast Sonoma.” LeDrew added that the company has a larger supply of luxury-end wine to sell this year. Its latest pre-selling period is currently in progress, with a goal of gaining 2,500 new points of distribution.

As for Treasury’s bigger brands, LeDrew said Beringer Classics has been in growth mode since January and was up 12% in Nielsen figures through August 17. “Those were the strongest numbers we’ve ever had,” she said, adding that Lindemans is also in positive growth territory. “This part of our commercial tier is strong.”

The long-term trend for Treasury, however, has been daunting. Its portfolio volumes have dropped from 16.5 million cases in 2009 to below 13 million cases last year, according to Impact Databank. All its top five brands in the U.S. market—Beringer, Lindemans, Stone Cellars, The Little Penguin and Meridian—have lost ground over the past three years. But Beringer (+0.7%) and Lindemans (+1.2%), which account for over 60% of Treasury’s U.S. sales, did return to growth last year. And Chateau St. Jean grew by 9.4% to 554,000 cases, while Matua Valley was up 28% to 137,000 cases.

In its 2013 annual results announced in August, Treasury’s net profit fell 53% to A$42.3 million ($41m) after the move to discount or destroy wines in the U.S. that were past their used-by dates. Operating earnings declined by 0.5% to A$209.2 million ($197m), short of Treasury’s guidance of $216 million ($204m). But the sales and volume picture was much brighter. TWE’s total volume grew by 0.9% to 32.1 million cases, while net sales advanced by 2.9% to A$1.76 billion ($1.59b).

Rayner said Treasury is standing by the projections stated in the 2013 annual results (released on August 22nd), which forecast an EBITS range of between A$230m-A$250m ($217-$236m) for its fiscal 2014, ending June 30, 2014.

Dearie had been Treasury’s chief executive since May 2011, just before its demerger from Foster’s. After the U.S. inventory reduction was announced this past summer, Dearie defended the move as being necessary to restore long-term growth in the U.S. market. “Old and obsolete product is limiting the company’s growth ambitions,” he said. “As such, decisive action must be taken to address these barriers to growth, and I am confident that the steps we are taking support our long term growth agenda.”

Treasury’s shares today closed down 6.3% on the Australian Securities Exchange to A$4.45 ($4.20) a share.

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