Potential demerger of Treasury Wine Estates’ Penfolds Business and COVID-19 Update

  • Apr 09, 2020 AEST
  • Team Kalkine
Potential demerger of Treasury Wine Estates’ Penfolds Business and COVID-19 Update

The havoc wrought by coronavirus has immensely impacted almost all the industries around the globe. One such industry is the wine industry which has witnessed a massive fall in consumption level as retail shops are closed due to the lockdown situation. Ongoing disruptions in trade exacerbate the decline. The worsening COVID-19 impact is creating considerable uncertainty concerning the international wine trade in 2020.

Also Read: Wine Industry stocks: TWE, AVG

In this article, we will look at the wine stock Treasury Wine and its recent announcements amid the coronavirus outbreak.

Treasury Wine Estates Limited (ASX:TWE)

An ASX-listed winemaking company, Treasury Wine was founded in 1843. The Company is engaged in three main activities, including growing of grape and sourcing, the making of wine, and brand-led marketing. TWE has a portfolio of more than 70 brands offering premium, luxury and commercial wines to its consumers.

The Company operates in four central regions across the globe, namely, the Americas, Asia, Australia & New Zealand, and Europe. TWE’s wine is distributed in over 70 countries worldwide. Treasury Wine employs over 3,400 people globally with access to over 13,000 planted hectares of vineyards.



Let’s have a look at the Company’s most recent announcements.

Recently, the Company withstood a class action filed against it and the restructuring of senior management. As an impact of coronavirus, the Company had provided multiple updates on its revised guidance for FY 2020.  For further details, please read: The Story of Treasury Wine: Class Action Lawsuit, Financial Performance and Outlook

Possible Demerger of Penfolds:

On 8 April 2020, the Company notified the market about the outcomes of its strategic review. TWE announced that by the end of CY 2021, it intends to consider a demerger of its Penfolds business and its associated assets. The demerger will lead to a creation of a separate entity being listed on the ASX.

The probable demerger would give rise two separate entities - Penfolds and the New TWE (which excludes Penfolds. The demerger is likely to create incremental long-term value as one entity would focus on driving the activities of Penfolds multi-country of origin portfolio (French, Australian and the US sourced propositions), while the other entity (the new TWE) would focus on right-sizing and decreasing the Commercial portfolio while also expediting the mix-shift towards Luxury.

The decision to ponder Penfolds’ demerger would be followed by the below-mentioned activities:

  • A thorough review of the Company’s portfolio.
  • An evaluation of the business structure and optimal strategy.
  • Builds on the Company’s internal operating model aimed at premiumisation.
  • Expediting a separate focus for the Commercial versus Luxury portfolios across the globe.

It is noteworthy for the current investors of TWE to know the change which would come for shareholders. In case the demerger is executed, the Company’s shareholders would own shares in both the New TWE and Penfolds, which would be proportional to their current holdings in TWE.

The detailed assessment of costs and shareholders benefits would determine the potential demerger along with shareholder, final Board, regulatory and third-party approvals on satisfactory terms.

Depending on the prevailing volatility of market and turmoil created by the coronavirus, if a decision is made to proceed, it is likely to be finalised by the end of CY 2021.

In case the demerger is completed, the Company expects that it would make a new top ASX 100-150 company listed on ASX for New TWE and ASX 50-100 company for Penfolds.



About Penfolds:

In 2019, Penfolds was recognised as the World’s Most Admired Brand by Drinks International.

Penfolds showcased impressive margins and substantial growth runway across all its operating regions. TWE CEO Michael Clarke highlighted that while Penfolds contributes only around 10 per cent of the total volume of TWE, the contribution to earnings is significantly higher.

In 2019, Penfolds, in alliance with Champagne House Thienot, had launched Thienot x Penfolds Champagne on a global scale.

Key facts of Penfolds:



 Restructuring of commercial wine business:

The Company has stated that it will provide a future state Luxury business and will continue its premiumisation strategy, irrespective of the possible demerger of Penfolds. To lessen the scale and size of its commercial wine business, specifically in the US, the following initiatives will be taken:

  • To improve the cost of goods sold, TWE will restructure its supply chain.
  • Deletion or divestiture of the Company’s selected brands and their production assets. It will either be for individual brands or in combination.
  • To have a quicker reduction of lower margin for commercial tier brands.
  • To lower fixed costs and to associate with the future scale of the right-sized business, TWE is altering its organisational structure and operating model. As well as pursue an enhanced performance and engagement with its clients.


In terms of liquidity, TWE held cash and committed debt facilities (undrawn)of around $1.1 billion, as on 31 March 2020. The Company’s CEO states that TWE is unable to give detailed timelines or numbers, given the prevailing circumstances with the rate of consumption going down.

Analysts believe that a potential demerger of Penfolds, coupled with the restructuring of the US business will have a favourable impact on Treasury Wine in the future.

Business Update: With respect to the COVID-19 pandemic, the Company provides the following business updates:  

  • The staff in China recently resumed work in the office. Due to the global shutdown, the shipments were significantly impacted, resulting in depletions in Q3 results. Now, Treasury Wine is closely working with the partners to continue operations for the remaining year. The Company shares the concern that while the clients are resuming work and getting socialising. However, the consumption levels are still subdued. Therefore, the recovery of the Q3 depletions is impacted.
  • In the other operating regions of TWE, there were massive reductions in retail growth by the end of Q3. This has reflected the greater tendency for in-home consumption and consumer behaviour to accumulate product during the lockdown period. The Company mentioned that there was a strong momentum of products through e-commerce channels. Other than retail and e-commerce, all other channels will remain shut as per government-directed protocols in each region. These other channels comprise of on-premise venues, cellar doors and global travel retail.
  • The Company has had implemented business continuity plans for a while and placed social distancing procedures and increased hygiene in place. In each geography, supply chain operations remain functional with no significant interruptions.
  • Based on business activity, Treasury Wines will manage the workload of its employees and allows them access accrued leave entitlements.


The TWE stock closed the day’s trade at $10.560 on 09 March 2020, a decline of 0.471 per cent compared to the previous closing price.

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