Treasury Wine Estates chief executive Mike Clarke has told an investor day briefing that he’s open to demerging the group’s wine brands.
The scenario would see the lower-priced commercial arm of Treasury Wine Estates – which generates about 30% of overall sales for the company – spun off from the higher-end business.
“Demerger is still on the cards if we do the right M&A,” Clarke told an investor day briefing on Tuesday.
The “right M&A” deal would involve joining with another large commercial wine business.
“That still makes a huge amount of sense,” Clarke said.
Clarke said Treasury Wine Estates had set up its global management structure in a way that would make it easy to undertake a demerger, without having two layers of management to sort out.
He also noted that premium wine – bottles costing more than $10 – now account for 70% of sales for TWE, up from 43% five years ago.
A spokesman later added: “There are no immediate plans to demerge the commercial business from the luxury wine business – the comments were made in the context of explaining how the business had resourced its leadership in recent years in the event that this might happen – however TWE has been so effective at taking costs out of the business and making the commercial brands more profitable that this would only make sense now in the event of an appropriate M&A opportunity.”
Clarke addresses rumour mongering
Prior to the investor day, Clarke told The Australian he was tired of constant accusations about the business, such as allegations of “channel stuffing”.
“Do I channel stuff? No! I allocate the wine over a five-year period. We have been very diligent doing that and we have been able to grow our numbers every single year,” he said.
“I think there is a bit of this tall poppy syndrome going on.’’
“There’s an element of ‘you have had five great years and you are going to run out of luck’.
“They believe it’s luck, so there is an element of ‘now we can bet against you because the odds are now stacked against you because what you have done over the last five years is just luck’.
“And it’s not luck, it’s bloody hard work.”
Clarke also pointed to the company’s consistent results.
“There is no other beverage company in the world or FMCG (fast-moving consumer goods) company growing that revenue at that rate, and the profit,” he said.
“Over the last six years, 30% EBIT compound annual growth rate. There is no beer, wine or spirits or FMCG company growing top line or bottom line at that pace.”
Clarke said the company’s business model – he proudly referred to Treasury Wine Estates as the most self-distributed wine company in the world – had been hugely successful and highly beneficial to retailers.
“That is what is helping us connect with the retailers: we are helping them take our product and turn it into cash quicker than anybody else is doing because everybody else is spending money on a distributor margin and we are spending it on helping to pull that product through, convert it into cash and make the retailer richer. The retailers have a higher cash margin in our business than anyone else.’’