Treasury Wine declares it's ready to re-enter China as review of crippling tariffs under way

Treasury Wine Estates (ASX: TWE) has declared itself ready to re-enter the Chinese market after confirmation over the weekend that the crippling tariffs imposed on the Australian wine industry could soon be lifted.

Treasury Wines, among the hardest-hit Australian wine producers from China’s tariff regime introduced in November 2020, has been buoyed by news that China will conduct a review of its tariff policy over the next five months.

The move, which comes ahead of a planned meeting by Prime Minister Anthony Albanese with Chinese President Xi Jinping next month, comes after Australia put a pause on its case to the World Trade Organisation that challenges the wine tariffs pending the review.

The news pushed Treasury Wine shares more than 5 per cent higher in early trade to a high of $12.39. But by 10.25am (AEDT) they were trading at $12.17.

After announcing its FY23 profit result in August, Treasury revealed to the market it was prepared to allocate more supply to China should tariffs be eased,

Pending China's review, Treasury Wines today confirmed it would be lifting investment in sales and marketing resources in China to rebuild the distribution footprint of its premium Penfolds brand.

“It’s great to see an agreement for an expedited pathway forward to allow our Australian brands and wine to be sold in the Chinese market,” says Treasury Wines CEO Tim Ford.

“There are only positives to come out of a favourable review for the Chinese consumer, customers and the wine category, for the Australian wine industry and for TWE.

“Both governments have worked constructively to achieve this outcome and we now look forward to a new era of positive engagement that ultimately will build a strong and growing China wine category should the review see the removal of these tariffs.”

Treasury Wines, which posted a net profit of $254.5 million for FY23, down 3.3 per cent from a year earlier, moved to decouple its business from China in 2020 following the introduction of the wine tariffs which led to a payable duty of 169.3 per cent on its high-end Penfolds wines.

At the time, China represented 25 per cent of total exports of Treasury's Penfold Bin and Icon range.

Despite the new tax devastating its China export markets, Treasury says it has maintained its commitment from 20 years ago to grow its China customer base.

The company is also committed to building on its strategy of growing its multi-country of origin products, including the first Chinese sourced and produced luxury Penfolds wine, building on a similar strategy in place in France and the US.

Treasury says it is well placed to rebuild its business in China should the tariffs be lifted following the five-month review by Chinese authorities.

The company says it will rebuild its distribution base for the Penfolds Australian entry-level luxury portfolios in China, including Penfolds Max’s, Koonunga Hill and One by Penfolds.

As mentioned in August following the release of its annual profit results, the company says it is also ready to reallocate a portion of its Penfolds Luxury and Icon tiers from other global markets as Chinese sales ramp up. However, it is keen to maintain momentum in these other global markets which picked up some of the slack over the past three years.

Treasury Wines says there will be no discounting to recoup market share with plans to maintain margins globally for Penfolds to ensure ‘long-term brand health and price integrity’.

“This ensures that sales prices and margins from luxury wine are materially consistent in all markets,” the company says.

“Should tariffs be removed, these measures will be implemented sustainably and with the aim of growing the business in China, but not at the expense of the long-term growth opportunity in other key markets.”