Treasury Wine Estates: What’s the outlook following Chinese tariff hikes?

We look at how both investors and Treasury have responded to China’s dramatic increase on the tariffs applied to Australian wine imports.

Treasury share price continues to slump

The Treasury Wine Estates (TWE) share price plunged 11.25% on Friday, before being put in a trading halt, after the Chinese Ministry of Commerce announced a dramatic increase on the tariffs of Australian wine imports.

Those tariff increases, which came into effect on Saturday, would range from 107.1% to 212%. Specifically as it relates to Treasury, the company said it would face tariffs of 169.3% on tariffs on the imports of its wine containers of 2 litres or less.

Whether or not these provisional measures remain in place will be determined by the anti-dumping investigation the Chinese Ministry of Commerce initiated in August. Until then, the provisional measures may remain in place up until August 28, 2021.

The company said that until these measures were lifted, it expected demand for its Chinese products to be ‘extremely limited’.

When trade resumed on Monday, TWE was again bid lower, falling a further 11% within the first 20 minutes of trade. At the time of publishing, Treasury traded at $8.58 per share.

This comes after the company outlined to the market the provisional measures it would be taking in response to the Chinese tariff hikes. Some of these key measures include:

  • Pivoting the Penfolds Bin and Icon range away from China to other ‘luxury growth markets’ with unmet demand, including Australia, US, Europe and alternative Asian markets.
  • Step up in marketing and sales activity in these other luxury markets
  • Reduce global costs; and vintage intakes commencing in 2021.
  • 'Alternate operating and supply chain models for TWE's China business.'

Unfortunately, it was noted that the benefits of these measures would be unlikely to have an immediate impact, but rather be felt in the coming 2-3 years. China, after all, accounted for around 30% of TWE’s group earnings in fiscal 2020.

Management commentary

Echoing the sentiments of Australia's Agriculture minister last week, Treasury's Tim Ford said:

'We are extremely disappointed to find our business, our partners' businesses and the Australian wine industry in this position.'

'We will continue to engage with MOFCOM as the investigation proceeds to ensure our position is understood. We call for strong leadership from governments to find a pathway forward.'

Speaking to the far-reaching implications this tariff hike would have, Mr Ford worryingly noted that:

'There is no doubt this will have a significant impact on many across the industry, costing jobs and hurting regional communities and economies which are the lifeblood of the wine sector.'

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