Posted: Feb 14, 2019
Australia's biggest wine company Treasury Wine Estates is looking to buy wineries and vineyards in France to satisfy the growing Chinese appetite for French wine.
Wine from France is the number one wine imported into China, and Treasury plans to buy vineyards in the first half of this year as it ramps up sales and penetration in the China market.
Treasury Wine Estates says it is expecting to buy French wine assets this half.
Treasury confirmed its continued China push as it unveiled a 31 per cent jump in earnings across Asia in the December half, with chief executive Michael Clarke saying the company was "firing on all cylinders" across the region, not just mainland China.
"The fundamentals of the Asian wine market as a whole remain enormously attractive, and we are not seeing a slowdown in demand for our brands," Mr Clarke said.
"We also see tremendous opportunity to expand our penetration into more cities and across more partners in China. We have an ambition to expand our presence and availability by more than 50 per cent in the next three years," he said.
Sales in China are also expected to benefit from the wind back of tariffs on Australian wine exported to the world's most populous nation. Treasury said the tariff had been abolished from the beginning of January.
The wine company, which has a market capitalisation of more than $12 billion, is the largest importer of wine into China. But despite increasing its share substantially over the past 12 months in China, Treasury only has a market share of less than 5 per cent of imported wine.
"We see tremendous opportunity to grow that share, using our multiple country of origin portfolios. The French category, in particular, is one where we see huge opportunity to win share. It's the largest import category...and is highly, highly fragmented," Mr Clarke said.
He was speaking as Treasury, the owner of the famous Penfolds brand, unveiled a 17 per cent jump in net profit for the December half and a bigger dividend.
On a statutory basis, net profit after tax rose 17 per cent to $219.2 million, fuelled by earnings growth across all of its operating regions.
Treasury lifted its interim dividend by 20 per cent to 18 cents a share. The fully franked dividend will be paid on April 5.
The company also said it would reinstate its dividend reinvestment plan, which would be available to Australian resident shareholders in time for the upcoming interim dividend.
Treasury said the growth in its net sales revenue for the December half, up 13 per cent on a constant currency basis to $1.51 billion, was "the strongest organic growth rate in company history". Earnings before interest, tax, the accounting standard SGARA and material items (EBITS) rose 19 per cent to $338.3 million.
The company's performance in Asia was one of the highlights of its result, with EBITS up 31 per cent to $153.1 milion and an EBITS margin of 38.9 per cent.
Treasury also reiterated guidance of about 25 per cent EBITS growth for fiscal 2019.
In a note to clients Citi analysts said the Asia segment accounted for two thirds of the wine company's "earnings growth and had impressive pricing growth". Citi also said return to volume growth in Treasury's America's division was a positive.
"The surprise weakness in the result was operating cash flow, which the company has said is mostly a timing issue," Citi analysts said.
Citi said Treasury reported operating cash flow of $93 million, which was down 49 per cent.
Shares in Treasury at first traded lower, but rebounded throughout the day to close up 10 cents at $16.90.
By Darren Gray
February 14, 2019
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