China's austerity drive takes toll on sales at Treasury Wine
Treasury Wine Estates, the world's largest pure-play winemaker, has warned that consumer demand for wine in China has softened as a result of March's leadership change and a recent austerity drive pushed through by the communist government.
The slowdown in the company's biggest growth market comes as Treasury also searches for a new chief executive following the ejection of former boss David Dearie last month. Chairman Paul Rayner told shareholders at the annual meeting on Wednesday that the board was conducting a worldwide search for a boss, which could take nine months.
Treasury Wine Estates has also become an unexpected victim of the recent US government shutdown with its plans to destroy $35 million of unwanted wine in America delayed by the budget battle that closed the US government for business.
Mr Rayner admitted that a $154.3 million provision against the company's 2013 accounts, which included the destruction of past-its-best wine, could have been avoided if the winemaker had better reporting and inventory systems.
"The information was not available to us, but now is," he said in response to a shareholder question. "You could argue that it should have been, and I'd agree with you if you argued that."
Interim chief executive Warwick Every-Burns confirmed the company was on track to post pre-tax earnings of between $230 million and $250 million in fiscal 2014.
Although investors had already borne the painful brunt of a shock profit downgrade in July due to an oversupply of unwanted wine in the US - an admission that triggered a $160 million write-down that led to Mr Dearie's departure - the bearish commentary on conditions in China was new.
Mr Every-Burns said the souring demand for luxury products in China had been witnessed by other beverage and fashion companies. A slowdown in consumption of wine in China could loom as a serious threat to Treasury Wine Estates' growth projections with Asia, and China in particular, the winemaker's strongest market.
In 2012-13, pre-tax earnings growth in the Asian region was 35.6 per cent to $54.5 million, representing a quarter of the company's total earnings for the year.
Its sales by volume to China and Hong Kong combined grew by 39 per cent last financial year.