Treasury sells US vineyard at $7.5m loss

Treasury Wine Estates (TWE) has sold its Asti Winery, Souverain brand and vineyard assets in California to E&J Gallo Winery at a loss, as it continues to restructure its business.

Treasury Wine Estates’ chief executive Michael Clarke

While the sale price was not disclosed, the Australian-based winemaker said it would book a pre-tax loss on the transaction of about US$7.5 million. Under the agreement Gallo will buy the 535-acre Alexander Valley property that is home to the Asti winery, including 275 acres planted with grapes and its Souverain brand. In return, Treasury will enter into a long-term lease agreement with Gallo to obtain grapes from a portion of the vineyard that has traditionally provided it with fruit for its premium wines.

The sale sees Gallo further boost its premium portfolio in California, and follows its acquisition of two vineyard sites in Napa Valley – Cypress Ranch and part of the Palisades Vineyard in Pope Valley, near Calistoga. Weeks earlier, Gallo acquired Sonoma-based sparkling wine producer J Vineyards & Winery.

Announcing the sale today, TWE said: “As a result of this transaction, TWE will recognise a loss on disposal of this asset group of approximately US$7.5M (pre-tax) which will be reflected in the financial results for the year ending 30 June 2015.

“As communicated to the market on 31 March 2015, TWE is executing plans to optimise its supply chain and accelerate a separate focus on the Company’s Luxury & Masstige versus Commercial wine portfolios, globally. This includes simplifying its supply chain network and removal of excess capacity, both in the USA and Australia.”

Late last year the makers of Penfolds, Beringer and Wolf Blass said it was considering retiring up to 25 “non-priority” brands so that it could focus instead on its high-end ranges.

Speaking to shareholders at the company’s AGM chief executive Michael Clarke, who took over the company in February, said that of Treasury’s 80 brands, 15 had the potential to become “global umbrella brands”.

In 2014 the group reported a crushing loss of AUS$100 million (£56m) in its end of year results, prompting plans to restructure its business driven by newly appointed CEO Clarke.