Treasury reveals profit drop and China plans

Treasury Wine Estates CEO Tim Ford

Treasury Wine Estates (TWE) has released its half-year results in a presentation yesterday to investors, outlining a near 6 percent drop in net profit after tax, and detailing its preparations for the prospect of a removal of the tariffs on Australian wine exports to China.

Treasury has retained a presence in China despite the tariffs on Australian wine, which TWE CEO Tim Ford said has been instrumental in securing the company’s position as “the number two imported wine brand for awareness in China”, beaten only by French luxury brand Chateau Lafite.

Ford noted that the company’s wine sales were strong at the premium price points, consistent with its understanding that consumers are shifting away from commercial wine. This is a trend that Ford said is expected to continue “throughout the remainder of the fiscal year”.

“Overall, our luxury net sales revenue grew 4% globally, supporting stability in our top line and offsetting the lower premium commercial revenue, which declined 2% and 6% respectively, and drove the EBITS declines in Treasury Americas and Treasury Premium brands.”

Examining overall divisional performance, Ford admitted that there was a 14% decline in Treasury’s net sales revenue, which he said was due to “the lower shipments of the 19 Crimes modern tier innovations that were launched in the same period last fiscal year”.

Meantime, last year’s acquisition of DOAO has established Treasury Americas as “the leading luxury wine business in the United States”.

TWE is “both prepared and well-placed” for the possibility of a removal of China’s tariffs, on which Ford said the business expects a decision in March.

“Importantly, our outlook does not include any benefit from a positive outcome in relation to the tariff review,” said Ford.

“Should the tariffs be removed, we don’t think of this as re-establishing our business in China, but instead executing a clear plan to re-establish the Australian country of origin portfolio in that market.”

This strategy includes reintroducing the Bin and Icon brands back into China, with price increases planned for selected ranges, as Ford explained the company expects “global demand to significantly exceed global supply”.

Treasury also plans to re-establish its entry-level Penfolds portfolio in China, such as One by Penfolds, Max’s and Kanunga Hill.

“We are confident that China does remain an attractive luxury wine market for our brands and a significant growth opportunity for Penfolds over the long-term,” said Ford.

“Our confidence in this opportunity however goes well beyond the market itself, and the dynamics that may exist in the market today, and reflects the way that we have maintained our business and the Penfolds brand in China, particularly over the last three years, whilst the tariffs have been on Australian wine.”

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