Wine merchant Treasury Wine Estates says the market in China is growing so strongly that it is finding it hard to keep up with demand.
Treasury Wine’s earnings from its Asia operations grew by 47 per cent to $150.1 million in 2016/17 as the company expanded the number of brands that it offers, particularly in China and Japan.
Fortifying the result was a boost in earnings margin for Treasury’s Asia business to a higher-than-anticipated 38 per cent, and improvements in the company’s distribution channels.
Treasury’s Australian brand portfolio in China grew sales volume by 33 per cent in the year, led by the Penfolds, Rawson’s Retreat and Wolf Blass labels.
China sales volumes for Treasury’s US brand portfolio more than trebled, as consumers responded well to a campaign promoting US labels with a rating of 90 points or above.
As a result, Treasury’s share of US wine imports into China by value grew from two to 20 per cent.
Treasury’s North Asia managing director Robert Foye said the certain brands were finding significant support in China.
“The challenge for us in China, across all our channels, is to satisfy customer demand for brands like Penfolds, Rawson’s Retreat and (US label) Beaulieu Vineyard,” Mr Foye said on Thursday.
Chief executive Michael Clarke said that although the company holds strong inventories of luxury and what it terms “masstige” – for mass prestige – wines destined for the Asia market, it needs more.
“”In China, in Asia, we have only just begun,” Mr Clarke said.
“”Most of our partners in Asia are wanting more luxury and masstige wine from us.
“We’re not satisfying that demand at the moment.”
Treasury Wine expects to grab more market share in China when it starts selling a range of French wines, under the Maison de Grand Esprit label, in November.
For 2016/17, the company’s net profit jumped 55.3 per cent to $269.1 million, mainly boosted by earnings growth in Asia and the Americas, and cost savings.
Earnings for the Americas business rose 44 per cent to $189 million while its business in Australia and New Zealand lifted earnings by 24 per cent to $111.1 million.
Europe’s earnings grew just 0.6 per cent to $48 million, but was adversely affected by the depreciation of the British pound.
Excluding foreign exchange impacts, Europe earnings lifted by 46 per cent.
Mr Clarke said the result was strong, highlighted by robust earnings growth across every region in which the company operates and margin growth of four percentage points to 19 per cent.
The company said its acquisition of Diageo Wine continued to boost group profits.
Treasury Wine said its outlook continues to be positive and is on track to deliver at least $100 million of cost savings from improvements to its supply chain before fiscal 2020.
It also said it will buy back up to $300 million of the company’s shares in the 2018 financial year.
Shares in Treasury Wine were 15 cents, or 1.2 per cent, higher at $12.73 at 1448 AEST.
STRONG GROWTH IN CHINA, US BOOSTS TREASURY WINE PROFIT
* 2016/17 profit up 55.3 per cent to $269.1m
* Revenue up 8.1 per cent to $2.53b
* Final dividend up one cent to 13 cents, 50 per cent franked