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- Apr 16 2018 at 9:59 AM
- Updated Apr 16 2018 at 9:59 AM
Treasury Wine Estates believers buoyed by China export boom
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Penfolds chief winemaker Peter Gago is a big driver of Treasury Wines' success in China and Hong Kong. supplied
by
Simon Evans
Australia's annual wine exports to China have soared through the $1 billion mark for the first time in another positive sign for sharemarket darling Penfolds owner Treasury Wine Estates.
Industry body Wine Australia on Monday revealed that total wine exports by all players to China had jumped by 51 per cent to $1.04 billion in the 12 months ended March 31.
Treasury Wines, which also sells the Wolf Blass brand, is a major driver of the export success to China as it targets the growing middle class in that country, with its share price having quadrupled to $17.50 over the past four years.
Treasury Wines now has a sharemarket capitalisation of almost $13 billion. The China jump also bodes well for United States private equity giant The Carlyle Group, which two weeks ago
acquired the Accolade Wines business for $1 billion from fellow private equity firm CHAMP. Carlyle aims to lift exports to China for the business, which owns premium brand Grant Burge and the Hardys range, but does have a larger skew to lower-end commercial wines and bag-in-a-box cask wines through labels such as Banrock Station.
Wine Australia chief executive Andreas Clark said on Monday that Australia's total exports for the 12 months ended March climbed by 16 per cent to $2.65 billion. But sales to the United States slipped 7 per cent to $439 million. Sales in the off-premise trade, which covers restaurants and bars, were down in the US.
But the China export figures were up strongly, having benefited from a drop in tariffs in January, 2018 as part of the China–Australia Free Trade Agreement.
Mr Clark said tariffs would be removed completely in January 2019, delivering an important competitive advantage over producers from France, Italy and Spain.
Chinese wine drinkers were increasingly looking to consume wine at home, rather than in restaurants or business functions.
"There was very strong growth at all price points as imported wine becomes more approachable and is increasingly consumed by middle-class drinkers and seen as suitable for consumption at informal gatherings and while relaxing at home," Mr Clark said. The figures include Hong Kong and Macau, and mainland China.
Treasury Wines profits in the booming Asian region jumped 48 per cent in the first half of 2017-18, with profit margins growing to 39.3 per cent.
Figures from IRI Worldwide for 2017 showed Australian sales in the off-trade market in the US declined by 1 per cent in value. But at the higher price points there was some encouraging rises. In the US$20 to US$24.99 per bottle segment, sales were up 22 per cent.
The spotlight is on Treasury as it scours the US market for potential acquisitions in the premium wine segment.
Macquarie last week highlighted several potential acquisition targets. They included family-owned Foley Family Wine, Jackson Family Wines or Vintage Wines Estates.
The stockbroking house also said Treasury may be able to pick off a business from a conglomerate where wine wasn't the main focus. It outlined one prospect as Altria Group's Ste. Michelle.
Treasury is also going through a major revamp of its United States distribution channels in a big test for the company. It is overhauling distribution in 15 states.
Gunther Burghardt will on May 1 become the executive vice-president of operations for the Americas, in a role heavily focused on the supply chain for the US business. He will work with Robert Foye, Treasury's President Americas and chief operating officer.
Matt Young has been elevated from deputy chief financial officer to chief financial officer, and he will be based in Melbourne rather than California where Mr Burghardt has been based. Mr Young has been with Treasury since 2014, and earlier in his career worked for PwC.
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