China wine probe puts a cork in Treasury Wine hopes

Treasury Wine Estates, the nation’s biggest winemaker was only last week touting a rebound of sales into China.

Treasury Wine Estates managing director and chief executive Tim Ford. Picture: Rachael Dere

Treasury Wine Estates, the nation’s biggest winemaker which only last week touted a rebound of sales into China, had $1.2bn stripped from its market capitalisation on Tuesday as it faced a potential tariff hit from its biggest export customer.

A statement from China’s powerful Ministry of Commerce revealed that an anti-dumping investigation had begun into imports of wine from Australia in containers holding two litres or less in 2019.

It said its investigation, in response to a complaint from the China Alcoholic Drinks Association, would also investigate any damage done to the industry between 2015 to 2019.

The probe will determine whether Australian winemakers “dumped” bottles of wine at deliberately low prices in order to crowd out local producers and claim a bigger market share.

The nation’s $6bn wine industry had feared for some time it would follow Australia’s meat and barley industries in facing punitive action from China because of the Morrison government’s stance on Hong Kong and the South China Sea and calls for a global investigation into the origins of the COVID-19 pandemic.

Shares in Treasury Wine Estates, which makes wines such as Penfolds, Wolf Blass and Lindemans, collapsed by 14 per cent as more than $1.2bn in market value was wiped from the Melbourne-based company.

It obliterated almost all the recent share price gains when the winemaker’s new chief executive Tim Ford last week unveiled its fiscal 2020 results, showing steady improvement in its China business and strong demand in June and July.

Treasury Wine Estates later closed down $1.76, or 14.26 per cent, at $10.58. Australian Vintage, the other major listed winemaker whose brands include McGuigan, fell 3.3 per cent to 43.5c.

Brokerage Macquarie said “geo-political risks” were increasing for Treasury Wine Estates.

“In the last “normal year” Treasury Wine exported around $750m of wine to Asia, with China accounting for 85-90 per cent, Macquarie said.

“It is a high margin, high growth and high value market for Treasury Wine. Any negative impact on volume to Asia will have a disproportionally large impact on profit for the group,” it said.

In statement, Treasury Wine Estates said it would co-operate with any requests that it receives for information from Chinese or Australian authorities. “Treasury Wine Estates has had a long and respectful relationship with China over many years through its team, partners, customers and consumers,’’ it said.

“As an importer of high-quality, premium Australian wine, including brands such as Penfolds, Treasury Wine Estates remains committed to China as a priority market and will continue to invest in its Chinese business and its relationships with customers and consumers.”

Later Mr Ford, who only took the helm of the winemaker in July, issued a short statement on the investigation.

“This decision matters deeply to our business and the entire wine industry, both in Australia and China. We have played a long-term positive role in growing the wine category in China, and we will continue to take a leadership role as this issue plays out. We now roll up our sleeves and work with governments at all levels to resolve the situation.”

Yarra Capital Management managing director and head of Australian equities Dion Hershan said there was always a risk for companies with large exposure to China.

“The growth associated with China is always exciting, but the risk associated with China is often underestimated, particularly for products where China can source alternatives from multiple markets,’’ Mr Hershan said. The trade in China is crucial to Treasury Wine Estates, with the company generating almost half its pre-tax profits from Asia.

Treasury Wine Australia employs about 200 people in China and recently held its only public event for the launch of the latest Penfolds vintage in the country.

Earlier this month Mr Ford said he was growing more confident about Treasury Wine Estates’ business in China and was not concerned about retaliation from the Chinese government over growing political tensions between Beijing and Canberra.

“We haven’t seen anything on the ground or anything with our customers that would suggest any issues with that — and compliance, dealing with our customer base and local rel­ationships, are a very important part of that. That’s our focus in terms of driving that business and (there is) no impact at this point.

“We certainly see demand and consumption (in China) returning back to pre-COVID normals, which is fantastic,’’ Mr Ford said.