By James Atkinson
Treasury Wine Estates (TWE) has announced that more than five per cent of its 3500-plus workforce will lose their jobs, as well as the rejection of a takeover bid by global investment firm Kohlberg Kravis Roberts.
TWE yesterday said the company would take immediate action to drive sustainable profit growth through increased investment in consumer marketing, to be funded by a comprehensive overhead and cost reduction program – measures that were foreshadowed by CEO Mike Clarke last month.
The cost savings will be generated from a reduction in full time roles (impacting all regions and functions) and associated costs such as office space rationalisation, leased IT equipment and service contracts as well as a reduction of all non-essential overhead costs and discretionary expenditure.
Under questioning from media and analysts, Clarke confirmed the job losses would be in the hundreds.
However, the CEO said he did not want the job cuts to overshadow what should be viewed as a positive day for the company.
He said the measures had established a clear roadmap for TWE's turnaround and should restore confidence in the business "as an attractive asset to acquire".
Brands have been neglected: Clarke
Clarke reiterated that TWE’s brands had suffered from a lack of consumer facing marketing investment and said the company will address this next financial year with a 50 per cent increase in spend relative to the prior year.
"It is imperative that our marketing and sales capabilities are more in line with the company’s ability to make outstanding wines across all categories," he said.
He said the bulk of the marketing spend will be focused on about 20 brands out of the company's total portfolio of 83 brands.
"We will hopefully then see an improvement in the trajectory of the growth of those [priority] brands – those brands also tend to be more profitable brands in our portfolio," Clarke said.
"As we get a return from that investment in those top end brands, we will then be able to take some of those improved margin accretions and invest in the rest of the portfolio too."
KKR bid rejection
Also yesterday, the Board of TWE announced it had rejected a takeover bid by global investment firm Kohlberg Kravis Roberts (KKR) at a price of $4.70 per share ($3.05 billion).
The Board said it had considered the KKR proposal in the context of the turnaround initiatives announced by Clarke.
"While these plans may drive potential asset impairments, they are fundamental to a turnaround in TWE’s short term performance and the company’s ambitions to deliver long-term sustainable growth," TWE said.
"The Board has considered the KKR proposal in the context of these renewed plans and concluded that the proposal does not reflect the fundamental value of the company and it is therefore not in the best interests of shareholders."
TWE's acknowledgement of the KKR bid follows the winemaker's recent denials of takeover interest from both Pernod Ricard and Constellation Brands.
Clarke downbeat on hitting earnings guidance
TWE once again reiterated that difficult trading conditions persist in Australia, and Clarke appeared to be preparing the market for the possibility that it will fall short of its previous earnings guidance – as previously suggested by analysts.
"TWE is now in the midst of its most crucial trading period, with the 2014 Penfolds luxury and icon wine collection released earlier this month," the CEO said.
"While the business is working hard to deliver the previously communicated EBITS guidance range in fiscal 2014, as stated previously, I will not engage in short term practices to the detriment of our long term objectives," he said.