Penfolds owner Treasury Wine hit with first strike over pay
Key Points
- Why it matters: Treasury Wines is Australia’s biggest wine group but suffered a big protest vote against a decision to pay incentives to CEO Tim Ford.
- Mr Ford says sales of luxury and premium wines have been strong in the September quarter.
- The company is holding back on allocations of Penfolds in readiness for China’s tariffs being dropped.
Penfolds owner Treasury Wine Estates was hit with a 46 per cent protest vote over executive pay on Monday after the board allowed share-based incentives to chief executive Tim Ford on the basis that no-one could have foreseen the heavy profit drop from punishing wine tariffs imposed by China.
It was the first time in its 12-year history as a standalone ASX company that Treasury Wine was dealt a first strike around remuneration, meaning votes cast against the resolution exceeded the 25 per cent level necessary to qualify as a strike.
Treasury Wines boss Tim Ford. Eamon Gallagher
Chairman Paul Rayner, who retired from the position on Monday after 12 years, was defiant in the face of the heavy protest vote as three proxy advisory firms admonished Treasury over the vesting of $2.26 million of shares under the long-term incentive scheme linked to the 2020-21 financial year.
“We think we made the right call. We think we are being even-handed,” Mr Rayner told shareholders.
Mr Rayner is handing over the reins as chairman to John Mullen. Mr Rayner praised Mr Ford’s handling of the sudden tariffs imposed by China in late 2020, which caused 35 per cent of Treasury’s profits to disappear almost overnight. Treasury Wine diversified into other markets including Malaysia, Thailand and Singapore.
Mr Ford told the meeting luxury wine sales were strong and drinkers were expected to keep spending on higher-priced premium wine despite tougher economic times.
Trading in the September quarter was in-line with the group’s expectations, with consumers buying at the upper-end of the wine segment not cutting back. This is in contrast to a squeeze in the commercial wine sector in the under-$10 a bottle price bracket, which Treasury Wine is steadily exiting.
“First quarter trading conditions were consistent with our overall expectations and we expect continued strong demand for luxury wine, and resilient category dynamics for premium wine, globally,” the chief executive said on Monday.
Mr Ford said when combined with the benefits of cost-cutting programs and a deliberate shift in the group’s asset base to tap into the premiumisation shift across the sector, the company was on target to meet its ambitions of profit margins exceeding 25 per cent.
White no-alcohol better than red
He also reinforced that Treasury was keeping more of its higher-priced Penfolds wines in reserve than usual, in readiness for a possible scrapping of wine tariffs by the Chinese government.
Punishing tariffs of about 175 per cent were imposed by the Chinese government in late 2020 which decimated Australia’s $1.3 billion in annual wine exports to China. Treasury had the most lucrative China export business thanks to the Penfolds brand.
A resumption of hay exports to China and the lifting of barley tariffs has given the Australian wine sector hope that wine tariffs may be next.
Mr Ford said the deliberate strategy to hold off on making decisions about higher-end wine allocations means profits will be higher in the June half than in the December half of 2023-24. The stock rose 1.1 per cent to $11.56.
“This is a specific strategy in light of the potential for a future review on tariffs on Australian wine in China,” he said.
Earnings before interest, tax and the SGARA accounting standard are weighted towards a first-half versus second-half split of 45 per cent-55 per cent.
Mr Rayner, in response to a shareholder questioning the taste of some of the no-alcohol red wines the company is making, said $10 million was being invested on improvement programs. He also conceded that the no-alcohol white wines and sparkling varieties were superior.
“We’ll continue to work on the red, it will get better,” he said.
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