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TWE profits down 24% due to pandemic and China tariffs

Global pandemic coupled with China's crushing anti-dumping tariffs on Australian wines have shaved off 24% of profits for Australian wine giant, Treasury Wine Estates, parent company of Penfolds.

Global pandemic coupled with China’s crushing anti-dumping tariffs on Australian wines have shaved off 24% of profits for Australian wine giant, Treasury Wine Estates, parent company of Penfolds.

In its latest report for the first half of its 2021 fiscal year, the wine group said its net profits after tax were down 24% to AU$175.3m and its earnings dropped by 23% to AU$284.1 million.

TWE explains that global pandemic disrupted sales channels for higher margin luxury wine in key markets, and reduced shipments in China resulting from the anti-dumping and anti-subsidy investigations initiated by the Chinese Ministry of Commerce.

Penfolds collection in Shanghai (pic: Penfolds)

In August 2020, the Chinese Ministry of Commerce (“MOFCOM”) announced twin investigations into imports of Australian wine, and in November and December announced anti-dumping tariff of up to 212% and another 6.4% anti-subsidy tariff on Australian wines.

TWE, parent company of Penfolds, Wolf Blass, and Rawson’s Retreat, is by far the biggest Australian wine exporter to China and was hit with an aggregate tariff of 175.6%.

It sells about AU$500 million of wine annually to China, which represented about 30% of TWE’s Group earnings in F20. This means the wine giant has most to lose of the 800 Australian producers that combined were exporting about AU$1.3 billion of wine a year to China until last November.

As a result, Asia, which China normally contributes about two thirds of its earnings, reported a 28% decline in EBITS to AU$127.2m and an EBITS margin of 38.2% (down 4.9ppts).

On today’s results announcement, TWE’s Chief Executive Officer Tim Ford commented: “Our first half fiscal 2021 results demonstrate that we are making progress against our TWE 2025 strategy, despite a period of  significant disruption.

“Our progress is the result of disciplined execution of the plans we put in place to  manage through these disruptions and highlight the strength of our business models in all regions. I would  like to thank our team who have done a great job in delivering these results, and I am incredibly proud of the  agility and resilience we have shown during this period. I remain confident that this team has the ability to  grow our business in existing and new markets, just as it has done in the past.”

Looking ahead, the group expects limited demand from China with the current punitive tariffs. However, the wine group is still invested in the Chinese wine market. Earlier, it floated the idea of developing a Penfolds range in China using grapes sourced from the country.

In Americas, the group’s EBITS dropped 15% to AU$83.1m, with performance impacted by disruptions from pandemic restrictions and the Californian wildfires on  key channels for higher margin luxury wine.

Australia & New Zealand (ANZ) reported a 12% decline in EBITS to AU$75.3m and an EBITS margin of 23.3% (down 3.1ppts).

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