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Treasury Wine Estates prepares for Chinese market rebuild amid tariff review

Treasury Wine Estates (ASX:TWE) has announced its readiness to re-establish its presence in the Chinese market, particularly for the premium Penfolds wines, following the most promising sign yet of a potential reduction in the punitive 200% plus tariffs imposed by the Chinese government.

The company welcomed the Australian government’s announcement of a five-month review of tariffs on Australian wine imports into China, during which Australia has agreed to suspend its complaint to the World Trade Organization (WTO). An interim WTO report on Australia’s complaint indicates a favorable shift in the process.

The five-month review period allows time for Prime Minister Albanese’s visit to China and the possibility of China dropping the tariffs early next year, preserving face.

In a statement released on Monday, TWE revealed detailed plans to ensure a smooth and margin-friendly transition if the Chinese tariffs are lifted. They stated, “Should tariffs be removed, these measures will be implemented sustainably and with the aim of growing the business in China.”

TWE had informed shareholders at its recent annual meeting about its preparedness for a potential tariff removal and the expected revenue and earnings boost in the June half-year.

The company’s strategies for rebuilding its China business include reallocating Penfolds Luxury lines from other global markets to China, increased investment in sales and marketing resources in the country, and a focus on maintaining margins without compromising its other global markets.

TWE acknowledges that reintroducing some premium wines could take three to five years due to the aging process. Over the past two decades, the company has built strong relationships in China and aims to continue its commitment to Chinese consumers who enjoy its brands.

In summary, Treasury Wine Estates is well-positioned to rebuild its business in China, with a comprehensive plan in place to ensure a successful transition should the tariffs be removed after the review period. Their approach is geared toward sustainable growth in the Chinese market without compromising opportunities in other key markets.

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