Treasury Wine Estates Limited

Thank you for standing by and welcome to the Treasury Wine Estates FY26 full year results. 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 Mr. Sam Fischer, Managing Director and Chief Executive Officer. Please go ahead.

Good morning and thank you for joining Treasury Wine Estates 2026 full year results briefing. Joining me on the call today is Justin Pepito, our interim chief financial officer. As Justin and I and other members of our team shared with you in some detail at our recent investor day, in F26 we took decisive action to ensure the health of our brands and channels and commenced our comprehensive ascent transformation program focused on reshaping TWE for future success. While this decisive action has impacted financial performance in the short term, I'm confident will emerge a more focused and financially strong company capable of sustained attractive returns. And you can see this story of these actions reflected throughout today's announcement. including our key messages, which I'll turn to now. F26 EBITS of $492 million was ahead of our guidance, driven by Penfold's performance in the fourth quarter. Statutory NPAT was a loss of $1.1 million, driven by the non-cash impairment of US assets. This includes the additional $558 million impairment relating to US supply chain rebalancing initiatives that we announced on Monday, which has been recognised in the second half. And we are reiterating our guidance for F27 EBITs, which are expected to be at least equivalent to F26. Importantly, the underlying performance of our key brands remains strong. with depletions growth continuing for Penfolds, led by China and our Asia markets. And in the US, depletions returned to growth nationally for the year, despite the impact of California distributor transition in the first half. We progressed our previously announced initiatives to ensure brand and channel health, including action to significantly reduce parallel imports into China. We also progressed with the planned reduction of customer inventory and we're on track to complete this effort in both China and the US within the two-year timeframe that I communicated last December. Retaining the strength of our capital structure remains a key priority. We reported leverage at 2.8 times and we expect this to be the peak ahead of our return to our target are below two times by the end of F28. We have also made substantial progress with Ascent. As we shared at our investor day in June, we have a clear vision and we're taking deliberate actions to focus where we will win, transform our operating model and shape a future fit supply chain to make it happen. We are currently finalising our organisational structure ahead of our transition to a regional operating model on the 1st of October. And we are on track to realise our cost savings of $100 million per annum in full by F29, with approximately $40 million to be realised in F27. Our global supply chain transformation has commenced and processes to divest a number of non-priority brands and assets are underway, with a pleasing response to date. As announced in June, we are also undertaking a strategic and operational review of our US business. This process is also underway, with advisors appointed to review all available options. The decision to reduce US vintage makes from 2026 reflects the type of clear and decisive actions we will be taking to ensure that we improve shareholder returns from the Americas. So that's a high-level summary of the result and our transformation agenda. While I am acutely aware that there is still a lot of work to do, I am pleased with the progress we have made since I joined the business last October and both transformation and operational momentum has gathered pace throughout the year. Turning now in more detail to our financial performance, which was impacted by a number of factors, including the moderation of category trends. Our deliberate initiatives to protect brand and channel health and the cycling of elevated shipments in the prior period. NSR per case fell 3% reflecting portfolio mix and in particular the impact of our actions to reduce parallel activity and inventory in China. EBIT's margin decreased to 19% driven by the decline in NSR and accompanied by higher costs of doing business. ROSI declined to 7.9%, driven by decline in EBITs. Pre-material items, net profit after tax was $275 million and EPS was 34 cents per share. And our dividend program remains suspended. This is a temporary... Yet important measure as we reprioritise our focus on returning leverage to target. Turning now to divisional performance. Where, pleasingly, momentum has improved in the second half. Penfolds delivered EBITs of $404 million, supported by continued depletions growth in China, in Asia ex-China and Australia. However, earnings were moderated by the deliberate reductions we've made in inventory cover and restrictions of shipments contributing to parallel import activity into China. It is terrific to see the continued progress Penfolds is making across its key markets, with first-class brand building and execution continuing to translate into increased consumer awareness and demand for the Penfolds brand. More on this shortly, but I am extremely pleased with how the team is showing up in market to consistently drive this growth. Treasury Americas delivered EBITs of $90 million. The result reflected softer market conditions, disruption arising from the Californian distribution transition in the first half, and cycling the excess of shipments to depletions in the prior period. Despite these challenges, We were pleased to see depletions returning to growth in California in the second half, which supported the return to depletions growth nationally. And underlying brand for our key brands in the US remains strong and ahead of category. Having finalised the transition of distribution away from RNDC in several markets, we now turn our attention to reducing customer inventory levels through F27, targeting completion in the first half of F28. Treasury Collective delivered EBITs of $68 million, which was in line with expectations in Australia and EMEA, with positive momentum behind focus brands and continuing declines in the commercial portfolio. In the US, performance was again impacted by declines in the premium portfolio, led by 19 crimes. Turning now in more detail to depletions, which are the clearest view of underlying consumer demand across our portfolio and markets. Importantly, we saw improved momentum for Penfolds and Treasury Americas in the second half. Penfolds continues to achieve strong depletions in China. This is a result of the strength of our brand and encouraging trends in consumer demand. Performance in the fourth quarter relative to prior year and the benefit of transitioning volumes previously parallel imported into our authorised distribution channels, which contributed approximately half of the depletions growth. Outside of China, depletions remain strong in several markets including Thailand, Malaysia and Indonesia. Penfolds is well known among Chinese communities in these countries. and the wine category continues to develop. So we believe there's a substantial long-term growth opportunities for the Penfolds brand in these markets. In Australia, strong execution through Chinese New Year and other key activations drove momentum in independent retail channels. Within Treasury Americas, total US depletions were positive, driven by growth from Dow, Frank Family Vineyards and Stag's Leap. While California was impacted by the distribution transition during the first half, the business returned to growth in the second half with strong momentum demonstrating improving execution. The depletion's growth was driven by ongoing distribution gains, with Frank Family Vineyards in particular expanding its reach in the on-premise. In Treasury Collective, Squealing Pig, Pepper Jack and Wins led The Australian depletion's performance, supported by strong execution with key partners in innovation. In the UK, pricing actions taken to offset higher alcohol duties impacted volumes, while in the US, 19 crimes continued its above category declines. Declines in the commercial portfolio were also driven by the UK. Overall, the key takeaway is that depletion trends are strengthening across many of our priority brands and markets, giving us confidence in our core strategy and the underlying health of the business. And this makes us well positioned to return to NSR growth from F28 once we have completed inventory rebalancing. Penfolds continues to strengthen its position as one of the world's most recognised luxury wine brands. Over the course of the year, we increased investment behind activations designed to enhance brand awareness, luxury credentials and deepen consumer engagement. These initiatives continue to drive demand power growth across our key markets. Our Global Grange campaign is a great example. This has created a halo for the brand as a whole, reinforcing Penfold's luxury positioning with consumers around the world. At the same time, market-specific activations such as From Penfolds to the World in Bangkok demonstrates how we are creating culturally relevant experiences that bring the brand to life. And I really want to get across that these initiatives are not simply marketing investments. They not only underpin the sustained strong depletions growth Penfolds is delivering, but they are also building long-term brand equity. As outlined at Investor Day, our portfolio is focused on three pillars, and these represent the most attractive market segments where we have conviction in our right to win. During the year, we continued to strengthen our leadership in our first pillar of luxury red wine. And while Penfolds remained central to that ambition, Dow delivered another year of strong category depletions growth in the U.S., Penfolds in Luxury White Wine and third, we're building an excellent position in modern refreshment. Matua is a clear example of this strategy in action, delivering yet another year of growth in the US, both in the core range and in the continued success of Matua Lighter. So you can already see some of the benefits of us focusing our attention behind our best opportunities and there will be more to come as we accelerate our investment behind our power brands and regional heroes in the future. During the year, we also made significant progress against our previously announced brand and channel health initiatives. In China, customer inventory cover reduced by approximately 200,000 cases, approximately halfway towards our previously communicated target with the rebalancing expected to be completed in F27. Strong depletions in China through the fourth quarter allowed us to finish ahead of expectations on this front, which is very pleasing. We also continued our efforts to minimise parallel import activity in China. Availability of unauthorised product reduced materially during the second half, with recapture into authorised channels on track and reflected in the China depletions, as I mentioned earlier. While they have significantly reduced We have identified some further sources of unauthorised shipments in recent months and taken corrective action. As I have said previously, manage this will require continued vigilance to ensure it remains under tight control and we are absolutely committed to staying on top of it. Importantly, our action to date has helped stabilise online pricing and we're seeing pleasing signs of pricing improvement for key bins in July. In the US, customer inventory cover remained stable. We repurchased inventory from RNDC in California and have sold approximately 40% of that back into the market at nil margin. The RNDC transition is now largely complete, with our residual exposure now immaterial at less than 3% of America's NSR. and our new distribution partners are performing to expectations in the transitioned markets. We now shift our attention to completing the planned 300,000 case inventory reduction ex-California progressively over the next 18 months. We are continuing to make meaningful progress against our four ascent priority areas, focused on the bright future we are seeing for TWE as a more focused, market-centered, simpler, and financially strong wine company. I'm really pleased with the progress we're making, and I've already touched on a number of these key highlights in today's presentation. We look forward to continuing to provide our investors with regular updates as we progress this journey. I will now hand over to Justin who will cover the financial results in more detail.

Thanks Sam and good morning everyone. Starting first with material items. A post-tax material charge of $1.3 billion was recognised for the full year, which includes $458 million recognised in the second half relating to initiatives to accelerate the rebalancing of the US supply chain, and a further 100 million impairment of US brands, predominantly Dow, Frank Family and Bolu Vineyard, recognised as a result of the year-end impairment review process. We are taking proactive steps to address the structural misalignment in the US, including, among other things, a reduction in North Coast vintage make sizes from vintage 2026 to rebalance our supply chain. The material item recognised reflects asset impairments from lower future utilisation across the network, the write-off of capitalised costs already incurred in Vintage 26, and a write-down of predominantly bulk wine inventory, which will help accelerate solves in the open market. These actions are intended to accelerate an improvement in the Americas region profitability over the medium term. Additional material items include ascent-related restructuring and redundancy costs and the RNDC settlement to compensate TWE for the impact of RNDC's closure in California. This amount is net of amounts incurred by TWE to execute the buyback. and note the cash portion shown includes the buyback of inventory at original sales value net of the cash realised on resale of the inventory in the second half which is included in ordinary cash flows in the statement of cash flows. Other items includes the sale of supply chain assets in Australia, write down of assets held for sale outside of the ascent program and the non-cash half one accounting associated with the contingent Dow earn out. Turning to an update on Ascent one-off costs following the additional US initiatives announced earlier this week. Ascent will give rise to a number of one-off material items with the majority of P&L and cash impacts expected to be recognised by F28. Our expected one-time costs remain consistent with what was shared at the Investor Day. To these costs, we have added the costs associated with the US Strategic Review announced earlier this week to reflect a revised, updated total expectation for the Ascent program. On a cash basis, we continue to expect Ascent to be cash positive on a post-divestment basis. Moving now to the balance sheet. Net assets decreased $1.3 billion on a reported currency basis, with $187 million of this decrease due to foreign currency movements and $1.3 billion due to write-downs associated with the US. Excluding these, the key balance sheet movements overall were a decline in payables with reduced vintage intake, a key driver of a reduction, and a reduction in inventory, which I'll talk about more shortly. Net borrowings were broadly unchanged, with reduction of interest-bearing debt from cash in the first half. Turning to inventory in more detail. Against the prior corresponding period, total inventory decreased in value by 7%, with the major drivers being the US inventory write-downs and foreign currency movements. On a current, non-current basis, Current inventory decreased $182 million, reflecting the moderated sales expectations in Treasury Americas and Treasury Collective. Non-current inventory increased $7 million, driven by the transfer of inventory from current and partly offset by inventory write-downs. In Australia, we make good progress towards our focus on rebalancing supply and demand. In the US, as mentioned earlier, we are taking action to rebalance our inventory position, starting with Vintage 2026, where we will fellow a number of North Coast vineyards to reduce grape intake. Turning now to cash flow and net debt. Net operating cash flow before interest tax and material items was $535.3 million for the period, a decrease of 34.7 on the prior comparative period, driven by the lower top line, while cash conversion was 81.4%, reflecting cash costs associated with intake and production from the F26 vintages. Capital expenditure was $113.4 million and included maintenance and replacement capex of $70.7 million and growth capex of $42.7 million. This growth capex related to the redevelopment of the BV Cellar Door in Napa, with that project now complete and the new site opening in July. F27 capex will be reduced to approximately $75 million, reflecting the elevated focus on cash preservation to support deleveraging. And finally, turning to capital management. Leverage was 2.8 times, slightly ahead of the 2.9 times we communicated at the Investor Day, and this is expected to be the peak ahead of a return to target below two times by the end of F28. We have a deliberate and disciplined approach to deleveraging, including an elevated focus on near-term cost control and working capital initiatives to support free cash flow generation, including accelerating TWE assent benefits where possible. Expected proceeds from asset rationalisation, namely brand and supply assets, where several sale processes are currently underway. The ongoing rightsizing of CapEx with this reduction supported by a well-invested asset base and reduced asset footprint and continued suspension of dividends with the board to consider resumption as leverage trends towards our target level. Our liquidity position remains healthy with available funds of $1.3 billion at June and a well-diversified debt maturity profile. As previously communicated, $300 million in additional commitments was established in March with strong ongoing support from our lending group. Thank you and I'll now hand back to Sam to talk about the F27 outlook.