TWE has put the Ryecroft winery, T’Gallant and Bailey’s properties up for sale as part of its strategy to focus on fewer brands.
The winemaker is making significant changes to its supply chain network in the USA and Australia and has identified further opportunities to reduce its overhead cost base.
TWE plans to accelerate its focus on the Luxury & Masstige versus Commercial portfolios globally, by making significant changes to its supply chain network and cost base in both the USA and Australia.
Australia
The packaging and warehousing of wines previously processed at Karadoc near Mildura Victoria, will now occur at TWE’s state of-the-art Wolf Blass facility in the Barossa, South Australia. The phased closure of packaging and warehouse operations at Karadoc is due to be completed during fiscal 2016.
As a result, the utilisation of the Wolf Blass packaging and warehousing facility will be significantly enhanced.
Furthermore, Commercial wine currently processed at TWE’s Great Western and Wynn’s Coonawarra facilities will be transferred to the Karadoc site, with Karadoc to become exclusively focused on the production of TWE’s Australian Commercial wine portfolio.
At the same time, the processing of Masstige wine at Great Western and Wynns Coonawarra will be transferred to Wolf Blass. This will, in turn, result in increased luxury wine processing and warehousing capacity at these sites.
United States of America
In the USA, TWE will consolidate its production facilities such that TWE’s Asti winery in Sonoma County, California, will become surplus to the company’s production needs.
Asti's wine production will be transferred to other wineries within TWE’s network, with the majority of Commercial and Masstige wine production transferred to Paso Robles and Luxury wine transferred to Beringer. This will increase utilisation at both facilities.
Collectively, these steps will further facilitate TWE’s separate focus on the Luxury & Masstige versus Commercial portfolios in the region.
Finally, packaging lines at TWE’s Napa Bottling Centre (NBC) are being consolidated to further optimise production efficiency.
Expected outcome of supply chain optimisation
These initiatives are expected to be complete by the end of fiscal 2016. The supply chain network optimisation benefits are not immediate, rather they are recognised through Cost of Goods Sold (COGS) at the time wines are sold.
As a result of actions to optimise the Company’s supply chain, TWE expects to recognise a provision in fiscal 2015 for a cash cost of approximately $35 million. The COGS benefits from this initiative will ramp up from fiscal 2016 and reach $50 million per annum by fiscal 2020.
TWE plans to reinvest some of the savings from supply chain optimisation into the company’s Commercial portfolio globally, while at the same time improving TWE’s base business and delivering enhanced returns to shareholders.
Furthermore, the Company does not expect a net incremental increase in capital expenditure to result from these changes.
Overhead reduction program
As reported at the Company’s interim 2015 result announcement on 27 February 2015, TWE remains on track to deliver $35 million in cost savings in fiscal 2015, as part of an overhead reduction program previously announced to the market in May 2014.
Following additional work to ‘right size’ the Company’s cost base, a further $15 million in overhead cost savings has been identified and is expected to be realised in fiscal 2016.
Accordingly, TWE has raised an additional provision of $15 million to support these savings.
Michael Clarke, TWE’s Chief Executive Officer, said “I am very pleased that we, at TWE, are now embedding a cost conscious culture. Not only are the cost reductions funding the 50 percent uplift in consumer marketing in fiscal 2015, the savings are also supporting actions to improve the quality of TWE’s base earnings, while delivering profit growth for shareholders.”
“The changes announced today are significant ones for our business and demonstrate our commitment to delivering on the Company’s strategic roadmap. By continuing to reduce costs, and optimising the scale and efficiency of our supply chain networks in major production areas, TWE is well placed to pursue growth opportunities that exist for our wine brands in key markets around the world.”