I know a fellow who has, as his What’s App profile, a photo of the Bentley he possesses via hire purchase. As I discovered when he boasted to me and some others of his acquaintances (he is difficult to like enough to have real friends), a Bentley is far more expensive than a Ferrari or a Lamborghini or a Maserati (he is, like me, ethnically Italian so I was rather surprised he did not go for an Italian luxury car). I am not sure if he still has the Bentley, but I am pretty sure he does not have any of the money he spent leasing it (although as he used it as a prop to help him pick up women, I suspect he got exceptionally good value out of it).
It did get me thinking about all the sorts of material possessions we would like to own which might give us a little bit of pleasure, but cause us a lot of financial grief. Whilst I have no real interest, not having a drivers license, in getting a sports car, I do dream of other luxury toys I might acquire.
However, I am very well aware of the old saying:
What are the two happiest days in a boat owners life?
The day he buys his boat, and the day he sells it.
You can substitute a lot of expensive toys in place of a boat – like a sports car, or a pub, or a holiday house…
… Or, perhaps, a winery.
It has long been one of my dreams to own a vineyard or a country pub. I expect that either would very quickly turn into a nightmare of the money pit variety.
As a substitute for owning my own vineyard, I own 1000 shares in Treasury Wine Estate, Australia’s largest wine company. Those shares have recently taken a battering, and are now at about $9 each – about 10% under what I paid for them 5 years ago. Ouch!
The headwinds which seem to be battering Treasury are also affecting other local wine producers, and all of them seem to be reacting in the same way to the challenges, by tying to slash brands.
Late last year, Treasury announced its intention to sell off several of its less premium brands which are not generating as much profit. Those include Lindemans, Yellowglen, and Wolf Blass. Mind you, I do take exception to calling Wolf Blass less premium, as indeed would Wolf Blass himself, the not so shy founder of that label. Wolf Blass Black Label is a very known super premium wine of relatively ancient lineage after all, and I do still regularly enjoy the Grey Label, which is priced more reasonably.
Apparently, that attempted sale has fallen through, as no buyer has emerged who is willing to pay anything near the price Treasury expects for those brands.
Which probably means that some brands will be more or less retired and written off, as has been the case with Jamison’s Run and Rosemount, for instance. I just hope that if they take the axe to Wolf Blass, they do not get rid of the Grey or Black labels.
Australian Vintage Group, currently the only other ASX listed wine company, has got similar problems, but is a much smaller company than Treasury. Since I dumped my shares 23 months ago at around 40 cents (a loss of about 20 cents per share) when they announced that they were not paying a dividend for the foreseeable future, the price has declined down to around 10 cents per share. The intervening period has seen the CEO sacked by the Board, then rehired by the new Board after a Board purge, and then retire recently in what passes at AVG as an orderly succession plan.
Much as they cannot really sell off or retire individual brands due to having a much more limited range than Treasury, what they did concede at some stage was that everything was on the table, that is, that the sale of the entire company to any interested buyer was not out of the question.
I am somewhat skeptical as to whether that is going to happen. The company, at a market capitalisation of $20 million, is not big enough to make any particular dent in the Australian domestic or export market, and has lost about 98% of its value over the past two decades.
[Of course, if I were to win Powerball megadraw, the first hint you might get would be if I were to do something so puerile as to put in a takeover bid for Australian Vintage Group.]
Much larger than AVG, and probably on a similar scale to Treasury, is the newly created Vinarchy. This is a merger of Accolade (which was previously known as Constellation and before that was the ASX listed wine conglomerate BRL Hardy – it currently is owned by private equity) and the Pernod Ricard owned Australian wine businesses. They have announced recently that they will shed 50 or so of their currently held brands so as to focus on 100 brands.
This is similar to what Treasury has down in recent years, where it has gone from over 80 brands at the time of initial listing circa 2010 down to just over 20 labels currently.
I follow those developments with interest, both as a long term investor in the wine industry (I have at various times owned shares not only in Treasury and AVG, but also Fosters Group, Southcorp and BRL Hardy), but as an avid consumer of the product.
Just as Holy Illium (ie Troy) fell, no business, not even any of my favourite wine labels, can be immune to market forces. Family owned multi general winery McWilliams went into administration several years ago and is now owned by a totally different family. Various small ASX listed wineries went under when the 1990s wine boom ended. Rosemount was once the second selling wine brand in Australia and is now a footnote in the Treasury annual report. Yellow Tail (ie the Casella Family) has steadily and shrewdly been buying up brands discarded by the conglomerates.
Which makes my attendance at the Treasury Annual General Meeting in 5 months’ time even more compelling – I do need to get as much value as I can out of the catering, which includes as many glasses of Penfolds Bin 28 as I can drink! If only it were Grange!
Lost For Words! 