Australia’s largest wine producer plans to significantly expand its operations in China by using shipments from other markets to bypass the crushing tariffs Beijing has imposed on exports from the Pacific nation.
Accolade Wines, owner of popular brands Hardys and Echo Falls, said it would ship wine to China from Chile and elsewhere, bypassing tariffs of up to 218 percent imposed in November following an increase in diplomatic tensions.
As a result, Australian wine exports to China fell 96 percent year over year to just A $ 12 million between December and March, according to data from Wine Australia, a government agency.
The plan is part of the efforts of Accolade, which was purchased for A $ 1 billion (US $ 778 million) in 2018 by private equity group Carlyle, to expand beyond the Australian and UK core markets and sell more premium wines.
The company is also considering an IPO, with Hong Kong as a possible location.
“We believe we can acquire a significant stake in China,” said Robert Foye, CEO of Accolade, who admitted the company has been slow to respond to the decade-long wine boom in China. “I just think [Accolade] didn’t have that global management team that really knew how to run the business. “
Foye believes the Chinese wine market could grow for another 15 years due to low per capita consumption and a growing middle class.
Accolade, which generated A $ 1.2 billion in sales last year, also aims to boost sales in Asia, the US and other markets, Foye told the The Washington City Times.
Matthew Reeves, an analyst with research group IbisWorld, said smaller Australian producers had been hit hard by the tariffs, but the country’s largest winemakers could have bought produce from elsewhere for the Chinese market.
“Accolade is backed by private equity, so it is a viable strategy to import from other locations in China,” he said.
Foye, who built a successful business in China as chief operating officer at rival Treasury Wine Estates before being fired for an unspecified internal policy violation, said Accolade has drawn up a list of acquisition targets. The company has brands in Chile, the US and South Africa and is looking to add more premium wines suitable for Chinese palates, such as red wines with a fruity, sweeter taste, he said.
Accolade has purchased two premium Australian wineries in the past year, Rolf Binder Wines and Katnook Estate.
However, Foye admitted that Chinese tariffs would slow expansion as most of the production took place in Australia.
Accolade aims to boost sales to markets outside the EU and the UK to 60 percent of the group’s total within three years, up from around 40 percent by 2021.
The winemaker made a loss of A $ 11.6 million in the year to June 2020, the accounts showed.
The company’s leverage peaked at nine times its 2020 earnings before interest, taxes, depreciation and amortization, according to Moody’s Investors Service. The rating agency downgraded the parent company of Accolade’s debt to B3 from B2, deeper to speculative level, just over a year ago, citing higher-than-expected restructuring costs, manufacturing issues and the coronavirus pandemic.
Foye said the group predicted 25 percent earnings growth for the year to June and was considering a stock exchange listing.
“I want to do an IPO. And that’s what we’re going to do at Accolade Wines. So we’re going to do that for the next two to three years, either on the Australian Stock Exchange, or actually I’d like to do it on the Hong Kong Stock Exchange. “
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