By Jessica Yun
Penfolds drinkers around the world are paying more for red wine after China’s move to scrap tariffs increased demand and put pressure on global supply, leading parent company Treasury Wine Estates to raise prices.
The top drop will cost around 6 per cent more this year on average, with chief executive Tim Ford saying prices weren’t being increased “just because we can”.
“We’ve got to be really, really careful with price rises,” he said.
Penfolds is raising prices amid greater global demand.
“We look at global demand versus global supply, we look at how much wine we’ve got to sell, what the demand is, where we think [the] price should be to cater for not just next year, but also multiple years after that to get that balance right. So it’s quite a sophisticated level of analysis we do before we take any price increases.”
Melbourne-based Treasury Wine reacted quickly after China finally scrapped its hefty tariffs on Australian wine in late March. Shipments of Australian-made Penfolds arrived in China some six weeks later and have been selling “exactly in line with our expectations”, Ford said.
Ford visited Beijing last week to meet key distributors and customers who took Ford and Penfolds managing director Tom King through 12-month plans to sell their product.
Left to right: Penfolds managing director Tom King; chief winemaker Peter Gago; Agriculture Minister Murray Watt; and Treasury Wine Estates CEO Tim Ford during Chinese Premier Li Qiang’s visit to Magill Estate in Adelaide.Credit: Alex Ellinghausen
“We’re seeing reordering from all of our customers after their initial shipments, which is a very strong sign, so we’re really happy with the first three months, and also the customer feedback in terms of where they’re seeing the distribution growth and the demand build going forward as well.”
Treasury Wine’s net profits dipped 61.1 per cent to $98.9 million for fiscal 2024, impacted predominantly by a $318.1 million write-down of goodwill and the value of its sub-$10-a-bottle commercial brands Wolf Blass, Yellowglen, Lindeman’s and Blossom Hill, which it announced last week it is selling.
Before material items and assets are taken into account, net profits rose 8.3 per cent to $407.5 million. Overall revenue rose 12.9 per cent to $2.8 billion in the 2024 financial year thanks to price increases, with revenue per case ticking up 14.2 per cent.
Treasury announced a final dividend of 19¢ a share, bringing the full-year dividend to 36¢ a share.
Spin-off speculation
Investors appeared pleased with the update, with the share price closing 2 per cent higher at the end of Thursday’s session.
The company is rearranging its organisational structure and will combine its Treasury Premium (Squealing Pig, 19 Crimes, Pepperjack) and Treasury Americas portfolios in a move that has generated speculation of a potential spin-off or demerger.
“We think TPB global division formation could potentially enable a demerger catalyst,” said Jarden head of research Ben Gilbert in a note that described Treasury’s numbers as a “good result”.
Ford said there were a handful of brands that spanned both divisions. “It makes sense we have one single point of accountability driving those brands globally,” he said.
”We’re also working on some global innovations that we would, in [the] current structure, sell through [both divisions] … From an effectiveness of bringing those to market, we think it makes sense to have it under one team, one leadership structure.“
Earnings from its Treasury Americas brands rose 13.1 per cent to $230.5 million, while Treasury Premium earnings declined 7 per cent to $76 million due to lower demand as well as underperformance of some brands.
“We’ll divest the commercial brands as we’ve announced as our first set and really work on running this premium business more effectively with this new model, and we’ll assess whatever we assess going forward.”
As the flagship brand, Penfolds remains a top performer. Its earnings increased 15.5 per cent to $421.3 million, boosted by demand in Hong Kong, Thailand and Taiwan. However, its earnings margin dipped slightly by 2.4 per cent to 42.1 per cent, which was attributed to higher costs involved in sending more shipments from Australia to China.
Its Penfolds brand and Treasury Americas division, which encompasses brands such as Matua, Beringer, Frank Family Vineyards, Stags’ Leap and the recently acquired Daou Vineyards, together account for 75 per cent of the company’s earnings.
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