Treasury Wine Estates Limited

Thank you for standing by and welcome to the Treasury Wine Estates TWE FY26 half year results briefing. All participants are in a 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 one on your telephone keypad. I would now like to hand the conference over to Sam Fisher, Chief Executive Officer and Managing Director. Please go ahead.

Thank you, Operator, and good morning and thank you for joining Treasury Wine Estate's 2026 Interim Results Briefing. Joining me on the call today is Stuart Boxer, our Chief Financial and Strategy Officer. You may notice that our divisional leaders aren't on today's call, which is a shift in how we would like to present our results moving forward, with Stuart and I to lead this forum while allowing the rest of the team to remain fully focused on the business and our commercial execution. Going forward, we will of course provide opportunities for you to engage with the broader leadership team, including at our Investor Day in early June and other engagement events that our investor relations team will lead. Turning now to the key messages that we'd like you to take away from today's announcement, which are an update on the key areas we laid out in our update in mid-December. In first half 2026, EBITS of $236 million was just ahead of the guidance range from December, and statutory NPAT was a loss of $626 million, driven by the non-cash impairment of US assets that, again, we announced on 1 December. While the headline results announced today are clearly disappointing, They also reflect the decisive action we are taking to return TWE to a path of long-term, sustainable, profitable growth. In recent months, we've cleared some major hurdles and I'm feeling optimistic and energised about the future business we are creating. A key driver of this optimism comes from the positive underlying performance of the business with depletions growth continuing in key markets and across key brands. Most notably, Penfold's continued delivery of strong depletions growth in China and in the US outside of California, where Treasury America's depletions grew against broader market weakness. I'll talk in some more detail about depletions shortly. Retaining the strength of our capital structure is a key priority. We reported leverage at 2.4 times in line with guidance. Our decision to suspend payment of the F26 interim dividend is a temporary measure that reflects clear and definitive action to reduce our balance sheet gearing towards our target levels. Resumption of the dividends will be the subject of future financial performance and our leverage improvement trajectory. This action is just one element of an active program we are undertaking, focused on meaningful capital preservation initiatives, elevating our focus on costs and cash, and we will cover this in greater detail later in the presentation. We are also taking decisive action to maintain the strength of our brands and the health of our distribution channels. In the half, we significantly reduced penfold shipments in order to restrict parallel import activity. We also commenced our planned reduction of US and China customer inventory, which will continue over the next two years in line with the timeline we presented in December. As announced last week, we reached a settlement agreement with RNDC, bringing clarity to our route to market in the US. We are pleased to have reached this conclusion, with RNDC remaining a committed partner to TWE. We also look forward to partnering with Reyes Beverage Group in six states once that planned transaction takes place later this year. And finally, TWE Ascent. Our multi-year transformation program is progressing at pace and our confidence in our ability to execute the change required is high, with plans and targets to be presented at our Investor Day in Sydney in early June. So it's been a busy couple of months since we last spoke, with many positive developments as we work towards creating a stronger future TWE business. Turning now to the first half of 26 financial performance and some key metrics. Three key factors impacted top-line performance, including category trends, particularly in the US and China, our deliberate focus on restricting penfold shipments that were contributing to parallel import activity and the cycling of elevated shipments in the prior year period. NSR per case fell 5%. primarily impacted by reduced ultra-luxury sales in Penfolds, which were disproportionately impacted by our actions to reduce parallel and inventory in China. EBIT's margin also decreased seven percentage points to 18.2%, driven by the change in sales mix and higher cost of doing business from the operating model. Roche declined 1.7 percentage points to 9.5%, driven by the decline in EBITs. Pre-material items. Pre-material items, net profit after tax was $128 million and EPS of 15.8 cents per share. As I mentioned earlier, we have made the decision to suspend the F26 interim dividend as an important temporary measure. Turning now to divisional performance, where final delivery in each division was slightly ahead of the expectations we set in December. Penfold's delivered EBITS of $201 million. The result reflected the restriction of shipments contributing to parallel import activity in China, and the cycling of an elevated level of shipments in the prior period associated with the initial distribution build following the removal of tariffs on Australian wine. Pleasingly, demand for Penfold's brand remains strong across key markets, with great in-market execution driving continued depletions growth. The heartland of the portfolio, bin 389 and 407, continued to perform well. Penfold's F26 EBITS is expected to be approximately $400 million, with EBITS margin expected to be approximately 40%. Treasury Americas delivered EBITS of $44 million. The result reflected the moderation in US luxury wine market sales, disruption from the Californian distribution transition, and cycling the excess of shipments to depletions in the prior period. We saw some good momentum outside of California with key brands showing ahead of category depletions growth. TWE also outperformed the category in on-premise led by Dow, Frank Family and Stag's Leap. Treasury America's full year 26 EBITS is expected to be approximately $90 million excluding the impacts of the RNDC settlement. Treasury Collective delivered EBITs of $28.1 million in the half. The result was driven by weaker sales in the US, with the softer US market conditions and the impact of the California distribution transition also impacting performance here, in addition to the reduction of customer inventory by approximately 200,000 cases. The Treasury Collective portfolio continues to perform in line with expectations in Australia and EMEA, with the impact of commercial volume declines partially offset by the momentum behind the growth and innovation portfolio, with gains led by Pepperjack, Matua and Squealing Pig. For Treasury Collective, second half 26 EBITS is expected to be higher than the first half. Turning now to depletions performance, which provides a clearer view of the underlying momentum of the business. Depletions are well ahead of the reported NSR metrics, with some great growth being achieved against the more challenging market conditions. For Penfolds, combined depletions of BIN 389 and 407 were up 11%, while China depletions continue to be strong despite recent changes in the market, up 17% in the period August to December. This positive momentum is continuing into the important Chinese New Year period, which officially starts tomorrow, where we expect to see good growth on the prior year. These are very pleasing outcomes, reflecting Penfold's strong brand equity in the market and continued strengthening of the brand health metrics, with demand power increasing in all key markets over the last quarter. For Treasury Americas, California depletions were impacted by the distribution transition, with some improvement in scan trends visible in January. Outside of California, we achieved a material increase in points of distribution in the driving depletions growth led by Dow, Frank Family Vineyards and Stag's Leap. This is pleasing and a great sign of what we can achieve when we elevate our focus on execution and the opportunities that exist in the market. For Treasury Collective, we saw positive depletions in Australia led by Pepperjack, Squealing Pig and 19 Crimes. In the US, 19 crimes continued to drive declines, partially offset by the ongoing momentum behind Matua. While there are some clear areas we need to drive a step change in performance, namely in California and across the Treasury collective portfolio in the US, there are some very positive underlying growth trends throughout the business. reinforcing the strength of our brands and what I see as the considerable potential for growth across our brand portfolio. Behind these positive results is the momentum that our teams are driving. Again, focused on execution excellence to deliver depletions growth. I've been incredibly impressed by the standard of the brand activations that I've seen on my recent visits to Asia and the US in the past couple of months. For Penfolds, category-leading activations are behind the strong depletion's growth in China. A recent collaboration with Maybach was a huge success, building connection between two iconic luxury brands and providing buyers of high-end luxury cars direct engagement with the Penfolds brand. We will see more of this type of activation going forward, putting the Penfolds brand at the centre of key gifting occasions, festing occasions and collaboration opportunities with other luxury brands, all to cement the luxury icon positioning of the Penfolds brand. Dow is an amazing brand. We've just scratched the surface from a growth opportunity perspective, with meaningful runway to expand distribution of the core portfolio and further grow the on-premise channel. The expansion in category-weighted distribution has been the key to growth outside of California, with considerable opportunities remaining. Frank Family is another fabulous brand with huge potential. We are seeing strong depletions growth driven by on-premise strength, and like Dow, increased distribution outside of California as the brand continues to build its status with the US luxury wine consumer. And in the premium space, Matua continues to grow ahead of the category in the US. A key driver of recent growth has been extended distribution of Matua Lighter, which has a strong presence in the better-for-you segment and growing at around double the rate of the core brand tier. We believe there is a big opportunity for the brand elsewhere, with Australia an increasing focus, delivering double digit depletion growth, again led by distribution expansion in the major retailers. Ensuring we remain focused on best in class execution is critical to our growth ambition. Turning to the short and medium term agenda, we have a clear set of immediate priorities guiding our focus. First, in-market execution remains a critical area of focus. I mention it all the time. We are intensifying our depletions-led execution performance across all markets and sustaining momentum behind our core brands through disciplined activation and distribution. Second, we are taking an elevated focus on cash right across TWE. In addition to our decision to suspend the interim dividend, we have deferred all non-essential expenditure and capital investment. We are also accelerating the program of work supporting the divestment of non-core assets and actively managing 2026 vintage intakes lower. And finally, TWE Ascent, the multi-year enterprise transformation program to create a stronger TWE with a focus on delivering attractive returns and cash generation. We are moving at pace to maximise the delivery of the previously announced cost and cash benefits, which will be realised from fiscal year 27. Talking about TWE Ascent in a little more detail, we have a high level of confidence in our ability to realise the $100 million in cost savings from F27 over a two to three year period as previously announced, in addition to the potential benefits of portfolio rationalisation. As we laid out in December, TWE Ascent is a significant program of work focused on creating a stronger TWE under three core pillars. From a portfolio perspective, we are focused on having a portfolio of brands that are both individually and collectively positioned to outperform the market. Critical to this is alignment to category, consumer and competitor trends, as well as our competitive position, ensuring that we are best placed to grow our business in partnership with our retailers and distributors. Further, as part of the alignment of our balance sheet to our future strategy, we see an opportunity to release capital. Since December, we've made good progress on this work and today I'm pleased to share our expectations for the key components of our in-state portfolio, which will include The strengthening of our luxury red wine leadership in key markets, led by our existing portfolio of acclaimed luxury brands, like Penfold's Dow, Frank Family Vineyards, Stag's Leap and Bailiw Vineyard. Building on that, we will be strengthening our position in luxury white wine, where we already have some great offerings across the luxury portfolio. But we will dial up our focus in what is a clear growth area for wine consumers. And third, we will elevate our focus on modern refreshment through mature and squealing pig. We have a great platform in place and are well placed to continue driving growth through disruptive innovation. In addition to the operating model, it's all about increasing organisational speed, consistency in everything we do and delivering flawless in-market execution. And from a cost lens, we are working to materially reduce operating costs. Our target of $100 million per annum in savings is benchmarked both from a cost and performance perspective. It will be enabled through maximising our use of data and automation with significant programs of work well underway in this regard. In terms of process and timeline, Ascent is being executed in three distinct yet integrated phases of work. As the slide shows, we are currently well into the defining the future phase, with work expected to progress through to the end of March. At this point, we'll commence work on the detailed future state and design. We will then lay out our conclusions, plans and targets at our 2026 Investor Day to be held on the 4th of June in Sydney. We look forward to the opportunity to share with you our plans for a stronger, future-fit TWE then. I'll now hand over to Stuart to cover key components of the financial result.

Thank you, Sam, and hello, everyone. We'll start with material items. A post-tax material items loss of $751 million was recognised in the half, which primarily relates to the non-cash impairment of US-based assets, as we foreshadowed in our announcement to the market on December 1st. This impairment is the result of applying more conservative growth assumptions to our US portfolio in response to the moderation of US wine category trends. It includes the write down of our US Goodwill to Zero which we are required to recognise first under accounting standards. A write down of selected brands including Stirling and Behringer and inventory, the largest component of which relates to excess bulk wine from the most recent 2025 vintage. I should point out that the Dow, Frank Family Vineyards and Staggs Leap brands were not written down as part of this impairment. Now moving to the balance sheet. Net assets decreased $930.9 million on a reported currency basis with $226.6 million of this decrease due to foreign currency movements and $771 million due to the US impairment. Excluding these, the key balance sheet movements overall were in line with the usual seasonal variances other than inventory which I will go through shortly. Net borrowings were higher by $91.2 million, driven by lower operating cash flows, partly offset by the foreign exchange translation benefit on our US denominated debt. So turning now to inventory. Against the prior corresponding period, total inventory volume reduced 2% while value increased 2% or $16 million, reflecting increased luxury inventory largely offset by a reduction of premium and commercial inventory. Current inventory decreased $231.9 million reflecting the moderated sales expectations in Penfolds and Treasury Americas. Non-current inventory increased $278.4 million predominantly driven by this transfer of inventory from current to non-current together with the luxury intakes from the most recent vintages. In Australia we made good progress towards our focus on rebalancing supply and demand with initial intake reductions already locked in for the 2026 vintage and we remain confident that we will achieve a balance over the two to three vintage period. In the US we are taking action to manage our intake, starting with the 2026 vintage. where key initiatives will include the fallowing of selected controlled vineyards and the reduction of grower intake. Moving now to cash flow and net debt. Net operating cash flow before interest tax and material items was $264.6 million for the period, a decrease of 38.1% on the prior corresponding period and cash conversion was 82.4%. We expect full year cash conversion to be lower than the first half outcome driven by the net inventory build post the Australian vintage but notwithstanding the reductions in this intake I just mentioned. Capital expenditure was 76.8 million and included maintenance and replacement capex of 56.3 million and growth capex of 20.5 million. This growth had capex largely related to the in-flight BV development in Napa which is scheduled to complete at the end of this half. Full year capex is expected to be approximately $125 million, reflecting the completion of projects currently in progress and a tightening on all other non-essential capex. Turning now to capital management. Leverage was 2.4 times in line with the guidance provided in December. We expect full-year leverage to be higher, predominantly due to the flow-through of the lower trailing 12-month EBITDAs together with the lower cash conversion. Our liquidity position remains healthy with $1 billion of cash in committed undrawn debt facilities on hand and a well-diversified debt maturity profile. with no meaningful debt maturities until June 2027. And we retain significant headroom to the financial covenants under our borrowing arrangements. As we've already mentioned, we have an elevated focus on near-term cost and cash initiatives, including deferral of all non-essential or committed capital expenditure, divestment of non-core assets and managing vintage intake. and we are seeking to accelerate the realisation of Project Ascent cost and cash benefits in order to reduce leverage towards target levels. The decision to not pay an F26 interim dividend was a key part of this focus, with the resumption of dividends in future periods subject to our financial performance and this leverage improvement trajectory. Thank you. I'll now hand back to Sam.