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Treasury Wine Estates Profit Surges on Penfolds Demand in China, Shares Soar

Treasury Wine Estates Sees Profit Surge on Robust Penfolds Demand in China, Shares Soar

MELBOURNE, Aug 12 (Reuters) - Treasury Wine Estates, the world's largest standalone winemaker, reported a significant uptick in its annual profit on Monday, fueled primarily by a resurgence in demand for its premium Penfolds brand in China following the removal of hefty tariffs. The positive financial results sent the company's shares surging by as much as 15%, marking one of the strongest trading days for the Australian firm in recent years.

The Melbourne-based company, known for its portfolio of high-end wines including Penfolds, Wolf Blass, and Beringer, disclosed that its net profit after tax rose to A$164.4 million ($108.2 million) for the fiscal year ended June 30, up from A$98.9 million the previous year. This growth was largely attributed to a rebound in sales to China, where Australian wine exports had been hampered by diplomatic tensions and punitive tariffs imposed by Beijing in 2020. Those tariffs, which reached up to 218%, effectively shut Australian winemakers out of their largest export market, leading to billions in lost revenue for the industry.

The turning point came in March when China lifted the tariffs, allowing Treasury Wine to re-enter the market aggressively. The company highlighted that demand for its luxury Penfolds Bin and Icon ranges was particularly strong, with sales in Asia (excluding China) also contributing to the uplift. "The removal of tariffs on Australian wine imports into China has enabled us to recommence distribution of our portfolio," Treasury Wine CEO Tim Ford stated in a conference call with investors. "We've seen encouraging early demand for Penfolds, and we're optimistic about building on this momentum."

Beyond China, Treasury Wine's performance was bolstered by solid results in other key markets. In the Americas, earnings before interest and tax (EBIT) climbed 10.5% to A$303.7 million, driven by higher pricing and cost efficiencies. The company's premium brands segment, which includes Penfolds, saw EBIT soar by 35.4% to A$242.3 million, underscoring the strength of its luxury offerings. However, the Treasury Americas division faced some headwinds, with EBIT dipping slightly due to softer demand for commercial wines amid economic pressures.

Overall, group EBIT increased by 12.8% to A$663.7 million, aligning with analyst expectations. Revenue for the year grew modestly by 1.2% to A$2.5 billion, reflecting a strategic focus on higher-margin products rather than volume growth. Treasury Wine also announced a final dividend of 20 Australian cents per share, bringing the full-year payout to 35 cents, a 2.9% increase from the prior year. This dividend hike signals confidence in the company's financial health and future prospects.

Analysts praised the results, noting that the swift recovery in China exceeded initial projections. "Treasury Wine has executed well on its re-entry strategy into China, capitalizing on pent-up demand for Penfolds," said Jarden analyst Ben Gilbert in a note to clients. He added that while challenges remain, such as competition from local and international brands, the company's brand strength positions it favorably for sustained growth.

Looking ahead, Treasury Wine provided an optimistic outlook for fiscal 2025, forecasting mid-to-high single-digit growth in EBIT. This projection factors in continued momentum in Asia, particularly China, where the company plans to expand distribution networks and invest in marketing to recapture market share. Ford emphasized that Penfolds remains the "jewel in the crown," with plans to introduce new vintages and limited-edition releases to appeal to affluent consumers.

The company's shares reflected this enthusiasm, closing up 12.5% at A$13.25 on the Australian Securities Exchange, their highest level in over a month. This rally added approximately A$1.2 billion to Treasury Wine's market capitalization, bringing it to around A$9.6 billion. The stock performance outpaced the broader market, with the S&P/ASX 200 index rising only modestly by comparison.

The resurgence in China is a broader win for the Australian wine industry, which had diversified exports to markets like the United States and Europe during the tariff period. Treasury Wine, for instance, ramped up its presence in the U.S. with acquisitions and brand investments, which helped mitigate losses from the China ban. However, the return to China is seen as critical, given that pre-tariff, it accounted for about 30% of Australia's wine exports by value.

Industry experts suggest that while the immediate boost is promising, long-term success will depend on navigating geopolitical risks and evolving consumer preferences. China's wine market has matured, with increasing interest in premium and ultra-premium segments, where Penfolds holds a strong reputation. Treasury Wine is also focusing on sustainability initiatives, such as regenerative farming practices, to appeal to environmentally conscious buyers globally.

In addition to financial metrics, the company reported progress in its cost-saving programs, achieving A$50 million in savings through supply chain optimizations and operational efficiencies. These measures have helped buffer against inflationary pressures on inputs like glass, cork, and freight, which have plagued the industry.

Ford also touched on potential challenges, including currency fluctuations and economic slowdowns in key markets. "We're not immune to macroeconomic headwinds, but our diversified portfolio and focus on premiumization provide resilience," he noted.

The results cap a challenging few years for Treasury Wine, which included a major restructuring in 2020 to separate its commercial and premium businesses, as well as navigating the COVID-19 pandemic's disruptions to hospitality and travel retail channels. With the China market reopened, the company appears poised for a new growth phase, leveraging its iconic brands to drive profitability.

Investors and analysts will be watching closely as Treasury Wine executes its China strategy in the coming quarters. Early indicators, such as strong initial shipments and positive feedback from distributors, suggest a bright outlook. For now, the profit rise and share jump underscore a successful pivot and the enduring appeal of Australian wine on the global stage.

This development not only benefits Treasury Wine but also signals a potential thaw in Australia-China trade relations, which have been strained over issues like foreign investment and human rights. As one of Australia's top agricultural exporters, the wine sector's recovery could have ripple effects on rural economies and jobs in wine-producing regions like South Australia's Barossa Valley and Victoria's Yarra Valley.

In summary, Treasury Wine's fiscal 2024 results highlight a robust recovery driven by strategic market re-entry and brand strength, setting the stage for continued expansion in the competitive global wine industry. (Word count: 912)

Read the Full reuters.com Article at:
[ https://www.reuters.com/world/asia-pacific/treasury-wine-profit-rises-strong-penfolds-demand-china-shares-jump-2025-08-12/ ]