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TWE under pressure after A$160m write-off

Published:  16 July, 2013

Treasury Wine Estates has come under pressure to justify its continued presence in the Americas after announcing it will be forced to spend tens of millions of dollars to destroy excess wine in the US.

The Australian wine group said this week that it will be forced to record one-off charges of up to A$160m for the 2013 fiscal year, which ended on June 30.

Chief executive David Dearie said the firm needs to destroy "old and aged commercial stock" in the US, as well as discount wine that it is struggling to sell in the country. Greater distributor efficiency is part of the problem, but Dearie also conceded that the action is partly a result of "over ambitious forecasting".

Treasury Wine Estates' (TWE) global profits before tax and one-off items is still expected to hit A$216m for the 2013 fiscal year, as projected, but this was not enough to satisfy all analysts and investors.

By the end of Tuesday in Australia, the Beringer and Penfolds wine producer's share price had tumbled by close to 18% on the Australian stock exchange since the start of the week, erasing most of the gains made in the past few months.

On a conference call with analysts, Dearie was forced to defend TWE's continued ownership of its Americas business, which has struggled with successive write-down charges, albeit under different leadership.

"You've cleaned the business out now, why not just sell it?" asked Merrill Lynch analyst David Errington. "You just can't get this business right."

Dearie countered that TWE is seeing "real progress" under its new leadership in the region. He added: "The US is forecast to go from about 300m cases to 450m cases in the next ten years. It's a fantastic growth opportunity at the right price points. We have to participate."

He said that, in the 2014 fiscal year, TWE expects to ship between 1.5m and 2m fewer cases of wine in the Americas. It sold 15.7m cases in the region in 2012.

TWE will report its full year results for the 2013 year on August 22. A spokesperson for company declined to comment on the impact that charges in the US would have on other parts of the business, including TWE's UK arm, because the firm is now in a blackout period prior to its results announcement.