Treasury Wine takes a hit in China

(BusinessSpectator) - Winemaker Treasury Wine Estates will shift some its luxury wines out of China and into other Asian markets after a drop in consumer demand in the world's second largest economy.

The company behind brands including Penfolds and Wolf Blass said austerity measures implemented by the Chinese government had dented demand for premium wine, especially for giving as a gift.

"We are continuing to see strong demand for Penfolds across other key Asian markets, and TWE will optimise its flexibility by reallocating wine to markets in Asia to provide brands and profits optimisation," interim chief executive Warwick Every-Burns said.

"Let us not forget however that Asia is much more than simply a China story."

Mr Every-Burns said the company's performance was outstanding in Hong Kong, where Wolf Blass was the number one Australian wine by volume and value.

Japan also continued to be a market with huge potential, he said.

But the company's earnings in Asia in the first half of the financial year fell 63 per cent to $4.9 million.

The volume of wine sold in Asia fell 18 per cent due to the drop in Chinese demand, a change in Thailand's alcohol tax, a typhoon and earthquakes in the Philippines, plus category decline in Singapore.

Mr Every-Burns described the fall in the China market as "a correction".

"Some of the luxury wine that was previously used for gift giving has gone away, but there is still a very strong middle class and wealthy class of Chinese who want to drink luxury wines such as Penfolds Grange," he said.

Treasury Wine made a net profit of $106 million in the six months to December 31, more than double its $52 million profit in the prior corresponding period.

The result included a tax benefit of $80.5 million.

Earnings dropped by 38 per cent to $45.8 million, partly reflecting the challenging conditions in Asia and an increased investment in marketing and distribution.

Mr Every-Burns described the company's half year result as disappointing.