The Treasury Wine Estates Ltd (ASX: TWE) share price could come under more pressure today after China’s tariff news.
What has China done to TWE now?
China’s Ministry of Commerce (MOFCOM) has released its final determination of its anti-dumping and countervailing investigations into Australian wine exports into China.
The final determination is that a combined anti-dumping and countervailing duty/tariff rate of 175.6% will be applied to TWE’s Australian country of origin wine in containers of two litres or less when imported into China.
This duty rate is the same as the provisional measures that have been in force. The final determination will apply from 28 March 2021 and will remain in place for at least five years.
What can TWE do to compensate for the China problems?
As previously announced as part of its half year results release, the company is implementing a plan to maintain the long term strength of its business model and brands, with the benefits of that expected to progressively reach their full potential over a two to three year period.
Management said that the final Chinese determination doesn’t result in any change to those plans.
At the time of the FY21 half year result, the company said that it has increasing confidence around its plans for reallocation of the Penfolds Bins and Icon range from China to other markets.
TWE is seeing retail and e-commerce channels continue to perform at elevated levels across all TWE’s key markets, reflecting the consumer behaviour towards in-home consumption of well-known and trusted brands during the pandemic.
Another part of TWE’s recovery plan is to change into a new divisional operating model aimed at maximising the benefits of separate focus across its brands portfolios, rather than regions. The three divisions will be – Penfolds, Treasury Premium Brands and Treasury Americas.
Summary thoughts
TWE has some quality brands, but if that wine isn’t getting into consumer’s hands then the business can’t generate earnings. The Chinese impacts are certainly significant and disappointing. It’s seemingly going to last some time.
The TWE share price is on course to fall today in reaction. It could be a long term opportunity, but I’m not sure how much growth potential TWE has without China.
