Australia’s wine giant Treasury Wine Estates (TWE) has agreed to a AU$65 million (US$43.47 million) settlement to resolve a class action alleging the company breached its continuous disclosure obligations and provided misleading earnings guidance following a downgrade in 2020.
The legal action was initiated by TWE shareholders after the company revised its fiscal year 2020 earnings guidance on January 28, 2020, reducing its expected EBITS (earnings before interest, taxes, and self-generated interest) growth from 15-20% to 5-10%. This revision triggered a sharp drop in TWE’s share price, falling from AU$17 to under AU$13.
The downgrade occurred as China, TWE’s largest export market, was grappling with the early impact of the COVID-19 pandemic and lockdowns that severely disrupted business. By February, as the pandemic spread across China and globally, TWE issued a further warning, stating it no longer expected to meet the revised 5-10% growth target due to the “significant impact” of the pandemic on wine consumption in China.
By the end of FY20, TWE’s EBITS had fallen by 22% to AU$533.5 million, with EBITS margins declining by 4% points to 20.1%. Shareholders accused the company of “misleading or deceptive conduct” and failing to meet its continuous disclosure obligations.
Compounding TWE’s challenges, China launched an anti-dumping investigation into Australian wine later that year, resulting in punitive tariffs of up to 218% on Australian wine, including a 175.6% tariff on TWE products.
Immediately following the formal imposition of the tariffs in March 2021, TWE revealed that its revenue in mainland China has plunged by more than 97% or about AU$76.2 million from July to December 2021, as we have reported.
Slater and Gordon lead lawyer Mitchell Coidan said the settlement would provide compensation to shareholders who sustained losses as a result of TWE’s allegedly misleading conduct.
“The outcome means that group members who sustained losses as a result of Treasury’s allegedly contravening conduct will receive compensation in the short term,” Coidan told local media.
Law firm Maurice Blackburn also filed a claim on behalf of investors, which was consolidated into a joint action.
While TWE has agreed to the settlement, the company emphasized that it was not admitting any liability.
“The settlement was a commercial decision made in the best interests of shareholders to enable TWE to remain focused on executing its strategy,” the company said in a statement.
The AU$65 million will be distributed to investors who purchased TWE shares between June 30, 2018, and January 28, 2020.
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