August 14, 2019 / 11:31 PM / 2 months ago

Australia's Treasury Wine posts record profit on strong China demand

SYDNEY/BENGALURU (Reuters) - Australia’s Treasury Wine Estates (TWE.AX) posted a record annual profit due to robust demand for its premium wines in China, adding that its strategy to geographically diversify was helping it cope with the U.S.-China trade war.

FILE PHOTO: Bottles of Penfolds Grange, made by Australian wine maker Penfolds and owned by Australia's Treasury Wine Estates, sit on a shelf for sale at a wine shop in central Sydney, Australia, August 4, 2014. REUTERS/David Gray//File Photo

The results vindicate the stance of the world’s biggest standalone winemaker that a presence around the globe will help it keep growing profit even as China, its biggest market, and the United States, where it owns production facilities, are engaged in a deepening trade dispute.

“We are not reliant on any individual or any region,” CEO Michael Clarke said on a call with analysts on Thursday. “Our results reflect that.”

The owner of the Penfolds and Wolf Blass labels had bought production and vineyard assets in France’s Bordeaux region, which would spread its geographic footprint and grow its higher margin upmarket offerings, added the company.

Shipping its products to China from France would reduce the risk to Treasury if Beijing put curbs on imports from the United States.

Overall net profit for the year to end-June rose 16.4% to A$419.5 million ($284.34 million), largely because of a 43% jump in pre-tax profit in Asia. The company sells wine from North America to South America to Europe but makes nearly half its profit in Asia.

Treasury’s Asia sales, which include sales in China, rose 36.8%.

Australia’s wine exports to China, the nation’s top market by value, rose 18% to A$1.14 billion ($818 million) in 2018, data from Wine Australia showed, although the pace of growth was the slowest in four years as trade tensions dragged on consumer spending.

The company also repeated guidance that it expected to grow pre-tax profit between 15% and 20% in the next financial year.

Shares of Treasury rose as much as 4.3%, while the broader market was down more than 2% because of fears of a global recession as a result of the Sino-U.S. tensions.

“The company has shown a very strong cash position, which is pleasing, and we do believe that should calm investors’ fears from previous halves,” said Jun Bei Liu, a portfolio manager at Tribeca Investment Partners, which owns Treasury shares, referring to the company’s cashflow which rose by a third.

Some analysts have interpreted previous fluctuations in the company’s cashflow as signs it could be exaggerating sales, which the company has repeatedly denied.

A week earlier, an independent Hong Kong research house said the company may have inflated pre-tax profit by 50% in the previous two years, prompting Treasury to complain to regulators.

Asked about the allegations on Thursday, CEO Clarke denied them and said that “some investors and analysts from gold-plated organizations seem to want to recycle the garbage that gets repeated.”

Treasury declared a final dividend of 20 cents per share, higher than the 17 cents per share declared a year ago.

($1 = 1.4754 Australian dollars)

Reporting by Byron Kaye in Sydney and Aby Jose Koilparambil and Shreya Mariam Job in Bengaluru; Editing by Maju Samuel, Rashmi Aich and Muralikumar Anantharaman

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