Treasury Wine ‘extremely disappointed’ by China move, pivoting to other markets

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“We’re spending our time planning on … what we know now and what we do with our business over the next three [to] five years based on this being in place,” he told The Age and The Sydney Morning Herald.

While it was widely expected China would introduce a tariff after it investigated whether Australian wine was dumped in China at discounted prices, the scale of the tariffs announced last week will be a savage blow to the Australian industry.

Thousands of companies exported wine from Australia to China in 2019, Australia’s biggest export market, but they now face a tariff slug on their exports of between 107.1 per cent and 212.1 per cent.

Mr Ford, whose company is behind famous labels including Penfolds, Wolf Blass and Coldstream Hills, said Treasury aimed to boost its luxury wine sales elsewhere, including mature markets where it already had a strong presence and there was “unmet demand”, and fast-growing Asian markets.

“Short-, medium- and long-term, our intention is very clearly on building our business outside of China over the next period of time,” he said.

“The real exciting growth and the future growth will come from the US, and from markets in south-east Asia, such as Malaysia, Thailand … those markets are all growing significantly from a percentage point of view,” he said.

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China is a lucrative market for ASX-listed Treasury, generating about two-thirds of its Asian earnings in 2019-20, equal to about 30 per cent of total earnings. Last financial year Treasury delivered EBITS (earnings before interest, tax and the agricultural accounting standard SGARA) of $533.5 million.

Analysts now expect Treasury’s profits to be significantly dented in the short term, with Morgans analyst Belinda Moore saying it would take at least three years for the company’s mitigating strategies to repair earnings, a pitch some investors might find too hard to stomach.

“Management’s working very hard behind the scenes with mitigating strategies, but in the short to medium term, it’s going to severely impact their earnings. And for some, the investment case will just become too hard,” she said. “You’ve got to feel extremely sorry for them.”

Shares in Treasury Wines fell 6.9 per cent on Monday to $8.59, continuing a 17.5 per cent drop since China announced the tariffs on Friday.

Mr Ford, who took over as chief executive from Michael Clarke in the middle of the year, said Treasury would not slash prices.

“We are not going to discount price to move volume. We don’t believe we need to do that,” he said.

China’s decision to introduce a tariff on imported Australian wine in containers of two litres or less is the latest in a string of moves by the country that have hurt the export of Australian agricultural goods, with beef, barley, timber and seafood already hit.

In its current form, the wine measure, described as “provisional”, can remain in place until August 28 next year. Whether it becomes permanent depends on the outcome of China’s anti-dumping investigation.

“TWE expects that while the provisional measure announced remains in place, demand for its portfolio in China will be extremely limited,” Treasury told the ASX on Monday.

Treasury, Australia’s biggest winemaker, said it would cut its global costs of doing business, including overhead and supply costs, and reduce its future vintage intakes to soften the impact on its earnings.