Treasury Wines has announced a write-down of $354 million pre-tax, or -33%, to its Treasury Premium Brands division. The write-down reflects weak profitability in commercial wine under $10 per bottle, of which Treasury is not alone. In many respects, we see the announcement as accounting catching up to the market reality for such wines. The bigger question on our mind is what form a divestment of commercial brands could take. These commercial brands are less than 5% of group gross profit but may be close to 20% of volumes. The challenges in commercial wine vindicates the increasing focus on luxury wines in the market. 

Treasury hosted a meeting with Treasury Premium Brands MD, Peter Nielson. The message was very clear about driving a higher EBITS margin. However, the path there is dependent on many factors. A better channel mix towards on-premise, more sales to Asia and leveraging 19 Crimes, Wynns, Pepperjack, St Huberts The Stag and Squealing Pig were all called out as drivers. We also see lower COGS as a factor in supporting margins over the next three years. Treasury Premium Brands accounts for 9% of our enterprise value. We expect the key business drivers to remain as Penfolds and the Americas.