Treasury Wines faces 30pc profit wipeout from China tariff hit

Penfolds owner Treasury Wine Estates faces a wipeout of more than 30 per cent of its annual profits from the heavy tariff impost by the Chinese government, with the only minor salvation being that high-end products such as Penfolds Grange have enough clout to be diverted to other countries.

Analysts have all but conceded that all Australian wine producers must now accept that China is a ''lost market'' and that any future profits will vanish because the tariffs will price them out of the market for even the most loyal drinkers in China.

The only minor glimmer of hope for Treasury Wines, which makes up about 40 per cent of Australia's total annual exports to China of $1.3 billion, is the the strength of the upper end portfolio of the Penfolds luxury range which will enable those products to find a new home in Australia and offshore.

In 2018-19 the luxury end of the Penfolds range made up about 85 per cent of the earnings before interest and tax of Treasury's profits from Asia, the lion's share of which is derived from China.

The extent to which Treasury Wines is able to divert the luxury end of the Penfolds range into other markets besides China is the biggest swing factor in how large the damage will be to Australia's biggest wine company.

It is the most exposed of the Australian wine producers, having rapidly built a China business over the past six years which UBS has valued at $4 billion.

He calculated that the hit to earnings at Treasury Wines for 2021-22 would be around $235 million in total, with China profits vanishing and a dent to Australian profits because of increased discounting as all wine producers selling into China rapidly diverted their own wines.

Barossa Valley winemaker Rolf Binder, the co-owner of Rolf Binder Wines, said on Sunday the tariffs were a disaster, but it might open up other markets in the future as producers such as Chile and Argentina ramped up their own China push.