Treasury Wine Estates Limited

Thank you for standing by and welcome to the Treasury Wine Estates FY25 Full Year Results Call. All participants are in listen-only mode. There will be a presentation followed by a question and answer session. If you wish to ask a question, you will need to press the star key followed by the number 1 on your telephone keypad. I would now like to hand the conference over to Mr. Tim Ford, Managing Director and Chief Executive Officer. Please go ahead.

Thank you, Operator. Good morning, everyone, and thank you for joining TWA's 2025 four-year results briefing. Joining me today, as normal, are the members of our leadership team, Stuart Boxer, Tom King, Ben Dollard, and Angus Lilley, who's now the Managing Director of Treasury Collective. And I'm pleased to announce today our results for Fiscal 25. Certainly a year where we navigated a number of economic and category headwinds and delivered another year of great performance and growth for TWE. Our net sales revenue grew 7.2% to $2.9 billion and our EBITs grew 17% to $770.3 million, driven by the continued growth of Penfolds and the full year contribution of Dow in the US. On an organic basis, however, the NSR did decline 1%, reflecting the reduced commercial and premium portfolio sales. Penfold is once again a significant highlight, led by a strong growth in Asia, where we successfully re-established the Australian-sourced portfolio in the China market, whilst we continued our positive momentum in other markets across the regions. In Treasury Americas, our growth was driven by Dow. However, performance was moderated slightly towards the lower demand trends in the US market through the second half of the fiscal year, which we'll touch on later. Treasury premium brands, top line and EBITS did decline for the year. However, we did see improvement in the second half with cost improvements supporting EBITS growth versus the prior comparable period. Our operating cash flow grew 22.9%, driving a reduction in our leverage to 1.9 times, which is back within our target range. And today we have also announced an on-market share buyback of up to $200 million, which will be completed progressively throughout F26 in accordance with our capital management framework. The buyback will supplement our dividend policy and reflects our continued focus on allocating our surplus capital to support shareholder returns. As of July 1, we also, as we all know, but just to put a point on it, we have now transitioned to our new divisional operating model, which sees Treasury Americas from fiscal 26 become purely a luxury-focused division alongside Penfolds, which it has been, and the formation of Treasury Collective as our new global premium branch division, led by Angus as I said at the start. Today we've also provided an update on the California distributor transition, including our current expectation for an NSR impact in the year in Treasury Americas of approximately $50 million. That $50 million reflects the difference in our business plans versus our new distribution arrangements between RNDC and Breakthrough Beverage Group, while noting that the overall impacts to NSR and EBITS will remain uncertain until we finalise our transition planning and exit negotiations with RNDC, which are ongoing. Given that, I'd just like to make a couple of other points on the topic, which clearly I'm sure we'll cover more in the Q&A. We clearly didn't expect the sudden closure of the business of our distribution partner in California and we are working with RNDC constructively to achieve an outcome that mitigates this impact of the resulting reduction to shipments, mitigates at an EBITS line. There are a range of factors that will contribute to that net financial outcome and today we have given some transparency and outlined what we believe is the right information to share with investors at this point in time. But more importantly and secondly, we are very much looking forward to expanding our partnership with Breakthrough Beverage Group in California, putting in place the shared playbook for growth we have with them that is driving head of category performance in a number of other key markets in the United States, with an expectation and it's a joint expectation between ourselves and BBG that we will return California back to depletions growth in fiscal 26. And thirdly, Outside of California, which clearly is the source of some noise at the moment, the Treasury America's business remains in a very strong position as the leading luxury wine business in the world's largest luxury wine market. With the number one luxury wine brand in Dow complemented by brands such as Frank Family that are delivering growth ahead of the category and with a very healthy margin profile. So hopefully that's helpful. Finally, on this slide, we reiterate our expectation for FY26 to deliver another year of EBITS growth, led by Penfolds. Now touching on some of the other elements of our financial performance, where we saw improvement across all key metrics, and Stuart will cover in more detail soon, but just to highlight, NSR per case increased to $138 per case, up 10%. EBITS margin expanded 2.2 percentage points to 26.2%, with the strengthening of both metrics reflecting the continued multi-year shift in our portfolio mix to luxury wine, which represented 55% of group net sales revenue. Pleasingly, Roche also improved a half percentage point to 11.9%, driven by growth in EBITS, and we can expect that to continue over the years ahead. Net profit after tax increased 15.5% to $470.6 million and earnings per share grew 10.8% to $0.58 per share. The latter being moderated by the increase to the shares on issue following our equity raising in late 2023 to fund the acquisition of Dow. And the Board declared a final dividend of 40 cents per share, 70% franked, which represents a payout ratio of 69%, which is at the top end of our target payout range and is an 11.1% increase on the prior year. Turning briefly now to the divisional performance, which obviously Tom, Ben and Angus will cover in more detail, but the headlines from my perspective, with Penfold's EBITs grew 13.2%, driven by the strong growth in our Bin and Icon portfolio shipments to China as part of the return of the Australian portfolio to that market, and also taking into account the price increases that were taken across the Bin and Icon portfolio given the wine availability in the year. While China was the priority from an allocation perspective in the year, we also continued to deliver strong depletions growth in Asia, Australia and in Europe, with Penfolds continuing to build its strength as the leading luxury wine brand across a number of markets. Margin also increased strongly in the year to 44.4%. In Treasury Americas, EBITs grew 33.9%. driven by the full year contribution of Dow, which grew NSR at 8.2% on a like-for-like basis versus the prior comparable period. And we also saw another year of growth for Frank Family Vineyards, whose NSR was up 3.7% for the year. Looking at the premium portfolio in the US, net sales revenue did decline 5.5%, largely driven by 19 crimes but partly offset by our continued growth for the brand Mature. And approximately US$12 million of synergies relating to the Dow acquisition were realised in the P&L and F25 in combination with the strengthened portfolio mix drove a 3.3 percentage point improvement in margin to 26.4%. And finally, TPB NSR declined 7% driven by lower commercial and premium shipments and margin reduced 2.4% to 7.9%. When it comes to sustainability, I'm just going to touch on some of the key highlights where in fiscal 25 we achieved tangible and meaningful progress across the areas most material to the long-term performance of this business, particularly in relation to decarbonisation, climate resilience, innovation and most importantly our people. We achieved 100% renewable electricity across our global operations at the end of 2024, not only reducing our emissions, but also our operating costs. We installed smart meters across all of our own vineyards, wineries and packaging sites in the high and medium risk water catchment areas, supporting smarter, more sustainable resource use and strengthening our preparedness and data for climate risk and greater water use efficiency. We made progress in embedding inclusion, equity and diversity into our culture, increasing our female representation in senior leadership to 48.8% and across our full workforce to 45.1%. We also launched further investments into low and no alcohol wine innovation, including a world first flavour retention process, positioning TWE at the forefront of product innovation. And 98.4% to be exact of our eligible owned and leased vineyards and wineries are certified to be recognised sustainability standards today. With this work extending through our value chain where a significant proportion of our growers and our bulk wine providers are now also adopting sustainability certification. Whilst these achievements are substantial and important, there is more work to do and we look forward to collaborating not just within ourselves but outside the industry. to deliver holistic and measurable impacts for the category and the industry across the value chain. So with that, I'll hand to Stuart to cover the detail of the financial performance.

Thank you, Tim, and good morning, everyone. I'm pleased to share with you the financial highlights for fiscal 25. Starting with our summary of key performance metrics over time, where you can see that F25 was another year of improvement in our key measures of performance. reflecting the benefit from our luxury led strategy and the corresponding strengthening in the quality of our business. As we look across the five year period we see, moving clockwise, a two third increase in NSR per case, an approximately 50% increase to EBITS and a six percentage point increase to EBITS margin. The strength of our balance sheet has been a constant with leverage retained within the target range providing us with a foundation to invest behind our luxury lead growth focus and to reward shareholders. Firstly, consistently through our dividend policy and where appropriate, supplemented by capital management as we have announced today. While return on capital employed has been relatively flat, we were pleased with the improvement in F25 and we expect this metric to improve further as we shift our focus to execution and to leveraging the strategic investments that we have made. Material items totaled $7.1 million pre-tax in the year and relate to the gain on sale from the divestment of the Caradoc Winery in Australia, which was recognised in the first half. The last of the Dow integration costs, the Dow earn-out accounting and the UK EPR first-time impact. In relation to the Dow integration costs, you may note that the final total of $105 million is slightly higher than our prior $98 million estimate, with the difference relating to the write-down of surplus property assets that are now held for sale. Given the significant over-delivery of synergies against our original estimate, we are comfortable with the net outcome, particularly given the cash component of $91 million remains well below our original estimate. The Dow earn-out component, which was an income in the period, reflects moderated expectations for the delivery of the relevant earn-out thresholds, noting that these thresholds were incremental to the acquisition business case. The Extended Producer Responsibility or EPR legislation in the UK is a newly enacted scheme where producers bear the costs associated with packaging waste attributed to their production. During the period the final rates and accounting treatment were finalised with the requirement that a full year's amount be recognised despite the scheme being enacted in the half. Given this retrospective treatment this was recognised as a material item for this period only. Going forward, it will be an operating item with an offset expected through pricing. On a post-tax basis, we recognise the material item's loss of $13.9 million, with the negative tax component driven by the tax effect pertaining to the divestment of the Caradoc winery. Now moving to the balance sheet. Net assets increased $190.9 million on a reported basis. though around half of this increase, $91.5 million, was due to foreign currency movements. The key balance sheet impacts were increased working capital given by higher inventory, higher property, plant and equipment and intangibles, which increased by $51.9 million and $48.3 million respectively, both driven by foreign currency movements and the acquisition of Stone and Moon. and higher net borrowings of $70.4 million driven by foreign currency movements on US dollar denominated borrowings, the Stone and Moon acquisition and slightly lower cash. Turning to inventory in more detail. Against the prior corresponding period, total inventory volume reduced 9%. while value increased 5%, reflecting increased luxury inventory and the reduction of premium and commercial inventory. Current inventory decreased 35.1 million, about half of which related to luxury, driven by the moderated F26 sales expectations in the US, including the impact of the California distribution change, and partly offset by the step up in inventory to support Penfold's growth. Non-current inventory increased $156 million driven by luxury, impacted by the strong intakes in Australia and California. Total luxury inventory increased 12% in value terms, supporting our future growth through our luxury portfolio. Turning now to cash flow and net debt. Net operating cash flow before interest tax and material items was $819.2 million for the period, an increase of 22.9%. Cash conversion was 87.4%, which was ahead of expectations and reflected favourable phasing of shipments, particularly penfolds in the second half. Excluding the change in non-current luxury and premium inventory, cash conversion was 105.4%. We expect fiscal 26 cash conversion to be approximately 80% excluding the change in non-current luxury and premium inventory, driven by the expected late phasing of Penfold shipments in the year, given the increased availability for the Bin and Icon portfolio which becomes available from the fourth quarter in F26. Moving now to CapEx. Capital expenditure for the period was $137.1 million. which included maintenance capex of $87 million and growth capex of $50 million. The growth capex included the purchase of vineyard assets in Australia, expansion of the Penfolds Winery operations in France, refurbishment of the Beaulieu Vineyard brand home in Napa and investment in the no and low alcohol production facility in South Australia. The outlook for capex in F26 is maintenance capex of approximately $100 million and growth capex of up to $50 million, including the completion of the Beaulieu Vigneaux brand home refurbishment. Turning to capital management now. TWE's investment grade capital structure remains a key financial strength as reflected in the leverage outcome of 1.9 times. Our liquidity position also remains in a healthy position with $1.2 billion of cash and committed undrawn debt facilities on hand. Today we've announced a final dividend of 20 cents per share franked to 70% with a full year dividend of 40 cents per share representing growth of 11.1% and a payout of 69% which is at the upper end of our 55 to 70% target payout range. And finally, so today we announced an on-market share buyback of up to $200 million in F26. This is a reflection of the board's confidence in TWE's luxury-led strategy, our financial strength and our long-term outlook, in addition to the board's belief that the company's shares are materially undervalued. The buyback will be completed progressively throughout F26 in accordance with our capital management framework. with leverage to be maintained at approximately two times throughout the year and it will be funded from existing available liquidity. Thank you. I'll now hand over to Tom King.