Treasury Wine Estates’ Penfolds Demerger On Hold As Company Focuses On U.S., ChinaNovember 5, 2020
Treasury Wine Estates (TWE) is pausing its previously announced plan to demerge its Penfolds business as it sharpens its focus on restructuring in the U.S. and surfing tumultuous market conditions in China, where new tariffs are being threatened on Australian wines.
Treasury announced in April that Penfolds—which accounts for 10% of company volume and more than half of profits—could be spun into its own business to allow the rest of the TWE portfolio to accelerate its premiumization drive. CEO Tim Ford said the company continues to see value in that plan, but will not complete the demerger by the end of 2021 as previously floated. Instead it’s focusing on building momentum in the U.S., where it’s continuing “to explore the potential divestiture of selected brands and assets,” as it stated in August. Treasury’s Americas region saw sales slip 6% to A$1.1 billion (A$790m) in the year through June, with EBITS down 37% to A$147 million ($105m).
Ford said U.S. conditions improved in its fiscal first quarter ended in September, with total depletions up 5% and its focus brands up 31%. He added that the company’s Sterling winery saw “minor external damage to buildings and surrounds” from the recent California wildfires, and that TWE expects its California business to see “a reduced overall intake, particularly for the luxury tiers, driven both by the impact of the fires, related smoke taint, and lower overall yields.”
Meanwhile, TWE said it “has been advised that the China Alcoholic Drinks Association (CADA) has submitted a written request to the Chinese Ministry of Commerce (MOFCOM) that imports of Australian wine in containers of two liters or less into China be subject to retrospective tariffs.”
It’s unclear whether the Chinese government will accede to the request, but if enacted the tariffs could stunt Australian wine’s growth in its largest export market by far. Australia’s shipments to China advanced 4% to A$1.17 billion ($840m) in the 12 months through September, according to Wine Australia. Ford said TWE has seen “strong recovery in consumer demand for its brands” in China over the past few months following the disruption earlier in the year due to Covid-19.—Daniel MarstellerSubscribe to Shanken News Daily’s Email Newsletter, delivered to your inbox each morning.
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