Treasury Wine Estates (TWE) is implementing a global response plan given huge duties being slugged on its wine by Chinese authorities and is confident it can sell its Penfolds Bins and Icon range in other markets as trade tension between the two nations heighten.
TWE has acknowledged China’s Ministry of Commerce (MOFCOM) final decision on its anti-dumping and countervailing investigations into certain Australian wine exports into China. The final official determination is that a combined anti-dumping and countervailing duty rate of 175.6% shall be applied to TWE’s Australian country of origin wine in containers of two litres or less imported into China – that is, all bottled wine sold in China. The duty rate is consistent with provisional measures.
The final determination will apply from March 28th, 2021 and will remain in place for at least five years. As previously announced as part of its half year results release, TWE is executing a detailed response plan to maintain the long-term strength of its business model and brands, with benefits expected to progressively reach their full potential over a two to three-year period.
TWE is implementing a new divisional operating model, aimed at maximising the benefits of separate focus across its brand portfolios, rather than regions. From financial year 2022, TWE will operate under three new internal divisions being Penfolds, Treasury Premium Brands and Treasury Americas.
Shares in TWE are trading around $10 after falling to as low as $8.00 in November after the duties were announced. TWE expects that demand for its portfolio will remain extremely limited while the provisional (or similar) measures announced by MOFCOM remain in place and is therefore planning for minimal [earnings] contribution from China in 2H21.
Despite the loss of the huge Chinese market, TWE is becoming increasingly confident around its plans for reallocation of the Penfolds Bins and Icon range from China to other markets as it continues to engage with its customer and consumer base, with modest benefits to commence towards the end of the fiscal year 2021.