Strong Asia sales spark growth in earnings for Treasury Wine Estates

A potential buyer examines a bottle of wine made in Australia at a duty-free shop in Nantong, Jiangsu province.[Xu Congjun / For China Daily]

China's thirst for luxury wine gave Australia's Treasury Wine Estates Ltd a surprise earnings boost, lifting profits above expectations and allowing its CEO to predict that the Asia unit will be its biggest by 2017.

A year after revealing a bribery crackdown was hurting China sales, the Penfolds maker surprised analysts on Wednesday by saying Asia pre-tax earnings leapt 54 percent in the year to end-June as it sold a quarter more product and revenue per case rose by a fifth.

The unexpectedly strong Asia result vindicates the strategy of new Chief Executive Officer Michael Clarke to beef up sales operations in the region and focus on selling more high-end labels.

"This is a region that has been scary for Treasury Wine in the past (but) I'm absolutely confident that the Asia business is going to overtake the other businesses in terms of profitability," Clarke told analysts in a teleconference.

The company's net profit of A$77.6 million ($56.87 million) for the year to end-June compared to a A$100.9 million loss the prior year when it wrote down the value of its US operations. Revenue rose 8.1 percent.

Clarke said he expected Asia to be Melbourne-based Treasury's biggest earnings contributor within 18 months, from its current ranking behind the United States and its home market of Australia.

"This is about mainstream Chinese drinking a lot more wine," CLSA analyst David Thomas said.

"It absolutely is a sustainable base that they're going to grow from."

Australian wine exports posted their first rise in eight years in the 12 months to June 30, gaining 5 percent to A$1.89 billion thanks to a 26 percent surge in sales to Asia, official figures show.

As well justifying Clarke's move to cut Treasury's mass-market offerings and focus on top-shelf wine, the company's highest annual net profit since 2012 justified his decision to walk away from a takeover war between KKR & Co and TPG Capital late last year.

The company's shares were trading on Wednesday at a 21 percent premium to A$5.20 the rival private equity giants had offered.