Treasury Wine Estates Limited

Thank you for standing by and welcome to the Treasury Wine Estates FY25 half-year results briefing. All participants are in a listen-only mode. If you wish to ask a question, you will need to press the star key followed by the number one on your telephone keypad. I would now like to hand the conference over to Tim Ford, CEO. Please go ahead.

Good morning, everybody, and thank you for joining Treasury Wine Estates 2025 interim results briefing. Joining me today, we have Stuart Boxer, our Chief Financial and Strategy Officer, Tom King, who's in Bordeaux, our Managing Director of Penfolds, Ben Dollard in Napa Valley, President of Treasury Americas, and Angus Lilley, our Managing Director of Treasury Premium Brands, who, as we've announced today, will take the leadership of our new Global Premium Division upon transition to our modified operating model and ELT from 1 July this year. So I'm pleased to announce today our results for the first half, our period where clearly our luxury-led focus drove strong performance, as reflected in all of our key metrics. EBITS grew 35.1% to $391.4 million, driven by the continued growth of Penfolds and the contribution of Dow in Treasury Americas. Our luxury portfolio net sales revenue increased 52% in the period and now represents approximately 56% of our total group NSR. Our premium and commercial portfolios did decline approximately 5%, reflecting the continued softness in demand around the globe for wine at lower price points. And on an organic basis, to be clear, that is excluding the top line expansion from Dow specifically, our group's net sales revenue also increased by 5%. Penfold's performance clearly was a significant highlight. It led by the outstanding growth in Asia and we're extremely pleased to have successfully re-established the Australian country of origin portfolio in China. with very positive sentiment towards the brand from both our consumers and our customers in that market in particular, strengthening our confidence in what we see as an incredible long-term opportunity for the Panfolds business. In Treasury Americas, Dow's NSR grew 11%, in line with our target for low double-digit NSR growth, and business integration is also progressing very well to plan. And pleasingly, we have announced today the upgrading of our cost synergies of that acquisition to a total run rate of US$35 million, up from previous guidance of US$20 million-plus, further strengthening the business case for this acquisition. Having now created the leading luxury wine platform in the United States market, we now look forward to further capitalising on the great opportunity in the years ahead. As I touched on the operating model front, preparations are progressing well ahead of the transition to a global premium division from the start of F26, or 1st of July this calendar year, with global alignment and consistency for brand planning and investment planning now in place. As outlined previously, we consider this model to be the optimal way to drive value from our premium brands portfolios moving forward, while importantly playing a supporting role to our luxury-led focus for the company. We've also completed the process to explore the divestment of our commercial brand portfolio for brands in particular that we announced back in August. We've concluded that the offers received for these brands did not represent compelling value and therefore that their attention is the best and responsible course of action. We expect F25 EBITs to be approximately $780 million, which is at the lower end of the previously guided range of $780 to $810 million back in August, driven primarily by the reduced expectations for Treasury premium brands. Now, touching on some of the key elements of our financial performance, which Stuart will cover in more detail shortly, reporting our group net sales revenue increased 20.2% on a reported basis and 20.5% on a constant currency basis. Organically, it increased 5.1%. NSR per case increased to $138 per case, up 16%. And pleasingly, EBIT's margin also expanded 2.8 percentage points. with the strengthening of both metrics reflecting the significant shift in our portfolio to luxury wine and the quality of this result. Net profit after tax increased 31.5% to $239.6 million and earnings per share grew 20% to 29.5 cents per share, the latter moderated by the increase in shares on issue following the equity raising that was used to fund the acquisition of Dow in late 2023. Cash conversion was 90.4%, and excluding the change in inventory was 83.8%, another good result. Leverage was two times, and an improvement on the previous year to within our target range of 1.5 to two times. Finally, the Board declared an interim dividend of 20 cents per share, 70% frank, which represents a payout ratio of 68%, and an increase on the prior year of 17.6%. Turning briefly to the divisional performance, which Tom, Ben and Angus will cover in more detail as of a normal, start with Penfolds. I guess complementing the strong delivery from Asia was the continuation of the positive momentum from previous years in a number of other key markets, where despite the reallocation and the partial reallocation of Bin and ICOM wines to China as we re-entered that market, we saw continued consumer demand supporting the delivery of what were relatively modest NSR declines in those markets impacted by the reallocation, specifically Australia and EMEA. This is particularly pleasing given our focus and the priority to grow penfolds across all key markets over the longer term. Please note the growth rates shown on this slide do in part reflect the expected phasing and planned phasing of bin and icon shipments for the first half of this year, given the opportunity of rebuilding distribution in China in the first quarter. In Treasury Americas, growth rates were largely driven by the contribution of Dow, as reflected in the organic NSR, which is broadly in line with the prior year. Across the other luxury portfolio brands, excluding Dow, NSR did decline 8%, reflecting below planned performance in the US trade, some decline in our direct-to-consumer business as we've deliberately reduced discounting in that channel on luxury brands, an important channel with high margin sales, and also some weight in our shipments to the first half. The increased contribution from luxury, NSR per case and EBITs, saw a real increase in the margin structure that gets us right towards our goal of high 20% over time for Treasury America. So we're certainly on track for that, which is pleasing. And finally, Treasury premium brands saw NSR decline 8%, driven by lower commercial and premium shipments. The team have implemented a number of important structural changes over this half, led by Angus, which we are confident will support some improvement in top-line performance and in the cost and margin profile of the business from the second half onwards. So with that, as a highlight, I'll hand over to Stuart, who will cover the financials in more detail.

Thank you, Tim, and good morning, everyone. I'm pleased to share with you the financial highlights for the first half of fiscal 25. Starting with our summary of our key performance metrics where you can see that the overall health of the business is in good shape with the benefit of our luxury led focus starting to come through. Starting at the top left, the chart clearly shows the impact of our active strategy to focus the business towards luxury wine with the luxury portfolios now representing 56% of Group NSR, up from 37% four years ago. driven by Penfolds and the transformation of the Treasury America's portfolio over the period. The improved quality of the portfolio is also reflected in our NSR per case, which has increased by two thirds over the same period, including the 16.1% increase on a reported basis in the first half, as Tim mentioned earlier. On a constant currency basis and excluding the acquisition of Dow, NSR per case increased 8.4% in the first half. Whilst not shown on the chart, COGS per case increased 4.9% driven by portfolio mix with mix-adjusted COGS per case in line with the prior period. Whilst cost of doing business increased 35%, this was driven by the addition of Dow and the investment in brand building and overheads to support the re-establishment of Penfold's Australian country of origin portfolio in China. Which takes us to the EBITS and EBITS margin chart on the top right. Tim has already talked to the drivers of the 35% increase in EBITs on a constant currency basis to $391.4 million. We were very pleased to deliver a 2.8 percentage point increase in EBITs margin to 25.3% the first time we've broken the 25% barrier. Return on capital employed increased 0.1 percentage points to 11.2% so it has effectively been flat over the past three periods impacted by the acquisition of Dow. However, I do want to pause on that for a moment. We acquired US$63 million of EBITs against a price of US$900 million. Today we've confirmed that the cost synergies will be US$35 million. which when added to the US $63 million gives us a pro forma EBITS before any top line growth of around $100 million US, which equates to an 11% return on capital employed pre-growth. So it's a pretty good start and given the performance of Dow so far and the growth potential, we remain confident about the medium term returns from this acquisition and the flow through benefit to TWE. Leverage ended the year at two times unchanged from 30 June and impacted by adverse foreign currency movements on the group's US dollar borrowings with the AUDUSD exchange rate having declined by 6% in the half resulting in a mismatch between the average exchange rate used for EBITDA and the period and spot rate used for debt. Based on current rates and outlook we expect leverage to be at the upper end of our 1.5 to 2 times range by the end of the year. Material items totaled a total of $0.2 million pre-tax and a half. They relate to the gain on sale from the divestment of the Caradoc winery, largely being offset by integration costs associated with the acquisition of Dow and the Dow integration and the accounting of the Dow earn-out agreement. On a post-tax basis we recognise material items loss of $8 million with the difference being driven by the tax effect pertaining to the divestment of Caradoc. We expect that the Australian commercial wine supply chain program to be completed in the second half of the fiscal year in line with the initial program net cost of $90 million pending the sale of a final commercial vineyard and associated water rights in Australia. And we also expect that the remainder of the Dow integration costs will be incurred during the second half of this fiscal year. Now moving to the balance sheet. Net assets increased $263 million on a reported currency basis though $200 million of this increase was due to foreign currency movements and you'll see FX figure explanations appearing pretty heavily on this slide. So the net movement excluding currency was relatively small with the largest driver being working capital driven by higher receivables reflecting NSR growth and lower payables due to seasonality. Net borrowings were also impacted by vineyard lease renewals in Australia. Moving now to inventory analysis. As a reminder we do this analysis on a prior corresponding period basis to address seasonality and these charts are not adjusted for FX. Across the 12 months total inventory volume reduced 15% while value was increased 4% reflecting the growth of luxury inventory in combination with the reduction of premium and commercial inventory. Current inventory increased $35 million driven by the expected growth in luxury sales and partly offset by moderated expectations for the commercial and premium portfolios. Non-current inventory increased $67 million driven by luxury intake from the 2024 Californian Vintage. Total luxury inventory increased 13% in value terms. reflecting increased intake for the Treasury of America's luxury brands including Dow, Stag's Leap and Frank Family Vineyards. Please note that if you do exclude the impact of foreign currency movements from these movements the trends are similar but moderated. Moving to cash flow and net debt. Net operating cash flow before interest tax and material items was $427.8 million for the period, an increase of 56% on the prior corresponding period. Cash conversion, we were pleased, was 90.4% and excluding the change in non-current luxury and premium inventory, cash conversion was 83.8% reflecting the favourable phasing of Penfold shipments during the half and in particular the Q1 sales into China as we rebuilt distribution, which you can see reflected in the lower working capital outflow this half compared to the prior year. We continue to expect full year cash conversion of approximately 80% excluding the change in non-current luxury and premium inventory. So we'll move now to CapEx. Total CapEx for the period was $78 million. which included maintenance capex of 53.2 and growth capex of 24.8 million. The growth capex included investment in low and no alcohol wine production technology, the commencement of the Beaulieu Vignard brand home refurbishment in the US and the continued expansion of our luxury winery operations in France. The outlook for capex for F25 is slightly higher than previously outlined. with maintenance capex in line at approximately $100 million and growth capex of up to $65 million planned. This is higher than the $50 million outlined at the full year, mainly due to the acquisition of a couple of luxury vineyards in Australia to support Penfolds, which we foreshadowed but excluded in our outlook at the full year, together with FX impacts on US capex. Please note that the growth capex figure also excludes the acquisition of Stone and Moon for RMB $130 million or approximately $27.5 million Australian dollars which we expect to complete in the second half. And finally, capital management. TWE's investment grade structure remains efficient and flexible. Our liquidity position is strong with $1.2 billion of cash and committed undrawn debt facilities on hand. And today we've announced an interim dividend of 20 cents per share, franked 70%, representing growth of 17.6% and a payout ratio of 68% which is within our 55% to 70% target payout range. So thank you. I will now hand over to Tom King.