TWE responds to Chinese tariffs with a new direction

Anticipating a significant fall in demand as a result of Chinese Ministry of Commerce (MOFCOM) tariffs, TWE will take action and enact its detailed response plan immediately, although recovery from the hit is not expected to be fully realised for two to three years.

Treasury Wine Estates’ share price continued to slide today when it re-commenced trading , having gone into trading halt on Friday after the MOFCOM announced that TWE product in containers of two litres of less would be hit with a 169.3% tariff from Saturday.

The company issued a statement and hosted an investor call this morning as trading recommenced. Of enacting this new and urgent direction - in development since the commencement of the investigation - the statement from TWE said:

“Benefits are likely to be limited in F21, but will progressively reach their full potential over a two to three year period…These initiatives aim to reduce the impact on earnings and maintain the long-term diversification and strength of TWE’s business model and brands.”

Among other things, the plan includes

• Diversifying global strategy
• Reallocation of Penfolds Bin and Icon range from China, targeting luxury growth markets, including Asian markets outside of China (such as Singapore and Vietnam), Australia, the Americas and Europe
•  To support this reallocation with investment in sales and marketing resource capabilities to drive incremental demand and expand Penfold’s distribution footprint,
• AccelerateTWE's multi-country of origin portfolio growth strategy
• Reduction of global operating costs.

In closing, CEO 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.

“The strength of our brands, including Penfolds', combined with our diversified business model will allow TWE to implement a range of changes and plans that will enable us to manage through the significant impact of these measure going forward…

“However, there is no doubt this will have a significant impact on many cross the industry, costing jobs and hurting regional communities and economies which are the lifeblood of the wine sector.”