Penfolds maker’s profits slide as it hopes for end of Chinese wine tariffs

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Penfolds maker Treasury Wine Estates has seen its profits slide despite raising prices for several of its brands as sales of budget labels such as 19 Crimes and Wolf Blass faltered in the cost-of-living crunch.

The global wine giant’s net profit slid 3.3 per cent to $254.5 million for the 2023 financial year, down from $263.2 million the previous year, as it wrote down the value of several commercial wine brands and announced the closure of one of its Victorian wineries used to make budget wines. Net sales declined 2.2 per cent to $2.4 billion.

However, the strong performance of its marquee Penfolds brand and an average 12.7 per cent price rise for its wines helped drive operating earnings higher to $583.5 million.

Penfolds maker Treasury Wine Estates has revealed its 2023 full-year results.

The company will pay a final dividend of 17 cents per share fully franked, taking its payout for the year to 35 cents per share, a 12.9 per cent increase on the year before.

Treasury Wine Estates chief executive Tim Ford said the company delivered earnings growth while navigating the tighter economic environment across many of its key markets.

“The Penfolds result was the standout, with strong top-line luxury [portfolio] growth reflecting the unparalleled strength of this exceptional brand and outstanding execution by the team,” Ford said.

Treasury Wine said it’s closely watching for “continued improvement” in the relationship between Beijing and Canberra to reallocate Penfolds to China if the country’s hefty tariffs on Australian wine are lifted.

“In light of this, Penfolds will take a measured approach to phasing of shipments across all markets in order to retain the flexibility of its global distribution and pricing model,” the company said in a statement on Tuesday.

Treasury Wine announced a multi-country of origin collection strategy last financial year to circumvent Beijing’s wine tariffs and meet demand from Chinese consumers. Wine from the ‘One by Penfolds’ collection is sourced from Ningxia China, Bordeaux, France and California, US.

Ford also travelled to China earlier this year to rebuild customer relationships as winemakers and wine exporters wait for Beijing to drop its tariffs on wine, as it already has with barley and coal.

However, some industry insiders do not expect the Chinese wine market to be the same as it was in its heyday before COVID, when it was a $1.2 billion industry. Beijing’s wine tariffs pushed many wine growers out of the industry altogether and has driven an oversupply in red wine that may force some growers to mothball their vineyards this year.

While Treasury will be leaning on Penfolds sales to drive future growth, its commercial wine brands, including American rapper Snoop Dogg-backed 19 Crimes, have performed poorly as cheaper plonk continues to decline in popularity.

In early July, Treasury announced this factor was behind its decision to shut its winery in Victoria’s north-west town of Karadoc amid high production costs and falling sales.

“Demand for commercial wine is likely to remain challenged in both Australia and the UK, with further volume declines expected in this segment for Treasury Premium brands,” the company warned.

Treasury announced on Tuesday its chairman Paul Rayner will retire at the next annual general meeting on October 16 and will be replaced by former Telstra chairman John Mullen, who is currently a non-executive director on Treasury’s board.

Rayner said Mullen had the right skills to steer Treasury Wine for future growth. “He has my full support as chairman elect and I look forward to handing over the role to him as part of the company’s broader succession strategy,” said Rayner.

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