Treasury shares dive after China wine delays

Shares in Treasury Wine slumped as it blamed red tape for holding up Australian shipments of wine to China.

A young Chinese couple drink Penfolds wine in Beijing. Pic: Shannon Fagan

Shares in Treasury Wine Estates slumped more than 7 per cent after the winemaker admitted there had been a slowdown in shipments of its wine to China, as blockages and red tape at key ports delayed wine deliveries to distributors and buyers.

Treasury Wine (TWE) chief executive Michael Clarke was to hold an analyst and investor call this morning to update the market on its shipments to the key export region and to hose down concerns a China slowdown could crimp full-year earnings.

Mr Clarke has placed a huge emphasis on the Chinese market over the last few years and it is viewed as a crucial centre of earnings growth for the company, whose brands include Penfolds, Wolf Blass, Rosemount and Lindemans.

Any setback in China could have a huge impact on Treasury’s financial performance.

In fiscal 2018 Treasury Wine posted a 47 per cent lift in earnings from Asia to $150.1 million, making it the second biggest region in terms of profits.

Shares in Treasury Wine, which have nearly doubled over the last year, dived 7.49 this morning off the back of news of possible supply and distribution problems in China.

Ahead of the analyst call, Treasury Wine shares were down $1.35 to $16.67.

At 1pm (AEST) its shares were still down $1.11, or 6.2 per cent, at $16.91 - a four-month low.

In a statement to the ASX, Treasury Wine said it was “comfortable” with the sustainability of its operating model in China and with its “disciplined” approach to managing inventory levels with its customers.

However, there were shipment problems that many Australian companies were now facing, including Treasury Wine.

“Regarding separate commentary on certain industries in Australia seeing a slowdown on clearance of imports into China, Treasury Wine confirms it is also experiencing delays for some of its Australian country of origin shipments being cleared by the general administration of Customs China to replenish its inventory levels.’’

The winemaker said it was co-operating with authorities and relevant agencies in China to meet all regulatory requirements.

“The company is seeking greater understanding of new and additional verification requirements which have been applied since April 2018 and seemingly appear to only apply to Australian country of origin wines and to Australian exporters operating ‘warehouse models’.”

The winemaker said it did not believe the slowdown would be “a long term issue”.

It is also engaging with senior Australian government officials, including the Minister for Trade and Investment, the Department of Foreign Affairs and Trade, the Department of Agriculture, the Australian Border Force and Wine Australia.

“The benefits of our global operating model means that we can allocate luxury wines across regions, channels and fiscal years,’’ said Mr Clarke.

“This ensures brand scarcity is preserved and luxury wine benefits from further maturation. Therefore we have flexibility as to when and where this wine is sold in the short term.’’