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Treasury Wine profit warning

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Wine industry giant Treasury Wine Estates (TWE) has downgraded its profit forecast by around 20 per cent as it battles international volume declines and local competition.

The company – which owns major brands Penfolds, Lindeman’s, Rosemount Estate, Seppelt, Wynn’s Coonawarra and Wolf Blass – went into a share trading halt on Tuesday while it re-assessed its profit expectations.

In a statement today TWE lowered its 2014 financial year profit forecast from a range of $210 million to $230 million, down to a range of $190 million to $210 million.

Investors reacted badly. After the opening of trade on the stock exchange today, TWE shares plunged 21 per cent.

The statement pointed to a surplus of product held by distributors in the USA, resulting in reduced shipments to that market, marketing decisions in Australia and declining sales in China.

“In Australia, TWE’s decision to increase prices, participate in less deep promotion initiatives across the portfolio over the Christmas period, together with significant competitive activity, resulted in higher than expected volume declines,” the statement said.

“The company was observing signs (in October) that the well documented government austerity measures in China were impacting consumer demand for premium wine.

“The impact on TWE has since intensified, resulting in a reduction in volume.

“TWE does not expect to recover the first half shortfall and expects these challenges to continue in the second half.”

The profit downgrade is more bad news for TWE’s investors after the company controversially poured more than $35 million worth of excess or aged commercial stock  down the drain due to the disappointing performance of its US  decision.

The decision, which was part of a broader $160  million writedown, ultimately led to the departure of chief executive David  Dearie.

TWE said details of its financial performance for the first half of fiscal 2014, and consequent  management actions, will be provided to the market on 20 February 2014.

TWE owns 11,000 hectares of vineyards, sells of 32 million cases of wine annually, and has revenues of about $1.7 billion.

It employs more than 3,500 winemakers, viticulturists, sales, distribution and support staff across 16 countries.

Analysts expect pressure on costs management could result in job losses.

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