One of the most challenging jobs in global drinks has gone to an executive with no experience of the wine industry.
Beleaguered Treasury Wine Estates, Australia’s biggest producer, has named as its new chief executive Michael Clarke, the former chief executive of Britain’s Mr Kipling to Oxo food giant Premier Foods and an ex head of Kraft’s European unit.
Treasury, which has suffered a series of problems stretching back for more than a decade, is desperate for a change in its fortunes but this is improbable during its present financial year, which ends in June. Clarke does not join until the end of next month when he will take over from interim chief executive Warwick Every-Burns.
The magnitude of the job facing Clarke can be seen by the fact that the owner of Penfolds, Wolf Blass, Rosemount, Lindemans and Beringer in the US, Every-Burns, said yesterday: “This company does not have good enough systems and processes in some instances. We have not been as effective or efficient as we could.”
Yesterday Treasury announced its half-year figures which showed a 30.1% slump in earnings in its Australia and New Zealand operations, primarily the result of declining to discount prices in the Christmas market.
The US operations fared even worse. Its earnings were down by 46.2% after being forced to cut shipments to the American market, which is suffering a glut. Treasury was forced to destroy some £34m worth of stock in the US last year in an attempt to preserve its strategy of moving up the price and quality scale. It also wrote down a further $160m worth of product.
In Asia, Treasury’s second largest market, sales were battered by the Chinese government’s austerity measures, a drive that has had a distinctly dampening effect on all alcohol companies trade in the past year. Volumes to Asia fell by 17% in the half-year.
After demerging in 2011 from its unhappy marriage to Fosters, Treasury has suffered a series of traumas. Following the oversupply to the US market, which cost $160m in writedowns as well as the $34m stock destruction programme, the company axed chief executive David Dearie in September. The finance director had left suddenly a month earlier.
Then earlier this month Treasury was forced to issue a profits warning for this full year. Had it not been able to announce Clarke’s appointment yesterday, the shares could have faced a further battering. As it is, they rose marginally in Sydney overnight but are still more than 30% down since July.
Initial reaction among analysts to Clarke’s appointment have been mixed. Both he and Treasury said they were “excited” and looking forward to a challenge but shareholders are not expecting miracles. Treasury admitted yesterday that its core Australian sales would remain depressed because of trade destocking.
Meanwhile the US operation remains mired by oversupply problems.
The reaction to Clarke’s appointment was also mixed in Sydney financial circles. Some suggested that his lack of exposure in the wine sector would be an advantage as he would bring to Treasury much need retail and distribution experience.
But another broker said: “We’re still in the midst of a wine glut. The concept of higher margin wine isn’t as relevant when you’ve got an oversupply of quality product.”
And others were sceptical of Clarke’s record. They pointed out that he had been brought into Premier Foods to boost its performance. But between August 2011, when he became chief executive, and January 2013, when he left, the shares had shed 17%. During that time Premier sold assets worth £275m but its debt ratios were untouched.
Clarke will no doubt trim costs and improve systems but the basic problem of Australia’s wine glut cannot be eradicated overnight and speculation persists that it would be better in the long term to sell US interests including Beringer.
He has probably got until the end of this calendar year to analyse the problems and draw up action plans. After that he will have about another year to show they are working. It’s a short timetable.