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Treasury Wine Estates (ASX: TWE) is slashing $354 million off the value of major brands including Wolf Blass, Yellowglen, Blossom Hill and Lindeman’s, reflecting challenging market conditions across its business.
The wine producer says the impairment comprises $115 million in goodwill and a further $229 million for the brands, which will be recorded as a $290 million non-cash impairment charge in the company’s upcoming FY24 earnings results.
The write-down in the value of these wine labels has been announced in tandem with plans by Treasury Wine to sell the long-held brands in a move that was flagged earlier this year.
The brands are recognised by the group as part of its Commercial division and sit within the Treasury Premium Brands portfolio, which also includes high-end brands it will be holding onto such as Wynn’s, Pepperjack, Squealing Pig and 19 Crimes
The group has owned Wolf Blass and Yellowglen since 1996, with Lindeman’s acquired in 2005 and Blossom Hill in 2015.
Treasury Wine instead plans to focus on its Premium portfolio which the company says has scope for improvement.
Treasury Wine notes that its Premium Brands division has been underperforming due to pricing that does not reflect the value of its brands.
The company earlier this year revealed plans to increase prices for its Premium division once the China market resumed imports.
While the impairment announced today will hit the bottom line, Treasury Wine has revealed that unaudited EBITS before material items for FY24 has risen 12.8 per cent to $658.1 million over the past year. The pre-tax earnings performance is in line with expectations.
Treasury Wine says the decision to sell the Commercial wine division, which contributes less than 5 per cent of the group’s gross profit, follows an assessment of the operating model for its global portfolio of Treasury Premium Brands (TPB) announced earlier this year when the company released its half-year result.
“As part of this review, Treasury Wine has determined that it will seek to divest its Commercial brand portfolio and will provide investors with a full update on its ongoing review of the future operating model for its global portfolio of Premium brands as part of the FY24 full-year results announcement,” says the company.
Treasury Wine says the impairments reflect “moderated top-line expectations as a result of challenging market conditions for Commercial wine, across all markets, and the underperformance of TPB’s brands relative to the category at these Commercial price points”.
“These adverse trends have offset the benefits from TPB’s strategic focus to premiumise its portfolio, where it has delivered a three-year net sales revenue CAGR (compound annual growth rate) of 10 per cent for its priority Premium brands,” says the company.
Treasury Wine plans to release its FY24 full-year results on 15 August 2024.
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