Treasury Wine Estates has revealed continued demand for luxury wine in the September quarter, with consumer spending remaining high.
CEO Tim Ford told the company’s annual general meeting that wine lovers were still buying premium wine despite tougher economic times.
“First quarter trading conditions were consistent with our overall expectations and we expect continued strong demand for luxury wine and resilient category dynamics for premium wine globally,” he said.
Ford said that cost-cutting programs and the company’s continued shift to premiumisation meant TWE was on target to meet its ambitions of profit margins exceeding 25 per cent.
Hopes for China resolution
Ford said TWE was keeping higher-priced Penfolds wines in reserve in anticipation of an end to prohibitive tariffs by the Chinese government.
Tariffs of about 175 per cent were imposed on TWE in late 2020. The lifting of barley tariffs has given hope that wine tariffs may be next.
Ford said the deliberate strategy to hold off on making decisions about higher-end wine allocations means profits will be higher in the June half than in the December half of 2023-24. The stock rose 1.1 per cent to $11.56.
“This is a specific strategy in light of the potential for a future review on tariffs on Australian wine in China,” he said.
In an address to the Australia-China Business Council Networking Day 2023 this week Federal Minister for Trade Don Farrell said the Government was serious about stabilising and developing Australia’s relationship with China.
“There are still several challenges and unresolved issues on the trade front that we need to work through.
“As I’ve said before, we would prefer to resolve our trade issues with China through discussion and dialogue rather than through the World Trade Organization’s dispute settlement system.
“We have been very clear that the approach used for the lifting of tariffs on barley is the pathway we’d like to use for dealing with the wine dispute.
“In the meantime, we will continue to press our case for wine through the WTO.
“We’ll keep actively engaging to resolve outstanding trade impediments affecting not only wine, but also live lobster and red meat.”
Nearly half of shareholders voted to reject TWE’s remuneration report after the board allowed long-term share incentives for Ford to vest despite the impacts of the Chinese wine tariffs.
TWE received a first strike after 46.1% of investors voted against the adoption of the remuneration report. It is the first strike in the company’s history.
A second strike — a vote of 25% or more — at the next annual meeting in 2024 – will result in the board having to consider a spill motion.
Outgoing chairman Paul Rayner said no one could have predicted the heavy profit drop from China’s wine tariffs.
“The board strongly feels its decision in relation to the long-term incentive plan was appropriate given the circumstance in the tariffs imposed by China,” Rayner said at the annual general meeting.