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TWE reports surge in Chinese demand post-tariff removal

Published:  20 June, 2024

Treasury Wine Estates (TWE) has provided a significant update on its Penfolds brand and strategic direction in China, almost three months after the lifting of tariffs on Australian wine imports. 

The company’s CEO, Tim Ford, shared insights into the brand’s renewed momentum in the Chinese market, highlighting the enthusiastic reception of Penfolds’ luxury wines by local consumers.

Ford expressed his excitement over the resurgence of Chinese interest, hinting at the market's potential for long-term growth: “We are delighted to be bringing more of our Australian luxury wines back to China, at a time when the luxury wine market presents significant long-term growth opportunities for Penfolds and the wine category overall. By leveraging our unique Penfolds brand status to drive ongoing demand, we remain steadfast on our clear ambition to be the number one luxury wine brand in the market,” Ford said.

Adding to TWE’s optimism, the company announced a record 2024 Australian vintage, which will significantly increase the availability of Penfolds Bin and Icon wines starting in the second half of 2026. Ford attributed this success to a combination of factors, including an extensive grower network and strategic measures to ensure the production of luxury-grade fruit.

“Since 2018, TWE has invested AU$100m in vineyard replanting and acquisitions to enhance long-term production capacity, focusing on soil revitalisation and vine redevelopment. Additionally, from 2018-2022 we invested AU$180m in TWE’s Barossa winemaking and packaging facilities to ensure world-class supply chain capabilities to cater for increased luxury wine production and availability,” Ford added.

Penfolds MD, Tom King, highlighted the brand’s unique portfolio of globally sourced luxury wines, which includes selections from Australia, America, France and recently, China: “Our most recent Penfolds China wine releases have provided excellent praise from wine critics and present an incredible opportunity to drive further connection and engagement with our consumers in China, and to become a global ambassador for Chinese luxury wine,” King said.

TWE provided an optimistic financial outlook for Penfolds, with expectations for significant growth across the next few years:

Fiscal Year 2024 (F24): Penfolds’ earnings before interest, taxes, and special items (EBITS) are projected to range between AU$418-$421m, driven by robust growth across all portfolio tiers. The EBITS margin is expected to be around 42%, reflecting the reestablishment of entry-level Australian luxury tiers and higher onshore overhead costs in China following tariff removal.

Fiscal Year 2025 (F25): Penfolds anticipates low double-digit EBITS growth, fuelled by price increases and a modest rise in Bin and Icon portfolio shipments. This growth will be partially offset by a AU$20m investment in brand building and overheads in China ahead of increased portfolio availability from 2026. The EBITS margin is expected to improve to 43-45%.

Fiscal Years 2026 and 2027 (F26 and F27): Penfolds aims for annual EBITS growth of approximately 15% across both years, driven by the significant increase in Bin and Icon portfolio availability from the record 2024 vintage. The EBITS margin is targeted to align with the long-term goal of 45%.

TWE also announced a global price increase for Penfolds Bin and Icon wines, effective 1 July 2024, in response to ongoing strong demand.

Tim Ford concluded by emphasising the exciting prospects for TWE and Penfolds in the post-tariff era: “This is an exciting time for TWE and the Penfolds business as we enter a post-tariff era as a stronger and more diversified global business, with all the necessary elements at our disposal to maximise the incredible long-term growth opportunities in China,” he said.