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.

Thanks, Justin. As we transition to the regional operating model, The performance of our power brands and regional heroes gives us great confidence in the future of our portfolio. Currently, these represent around 70% of global NSR and 80% of gross profit, and pleasingly, each of the portfolios delivered depletions growth in F26. From F28, we will be increasing our investment behind the portfolio in line with the overall uplift to group brand investment focused on unlocking the full potential of these brands. Also, as you can see on the slide, our non-priority portfolio declined 14%, most of which was driven by commercial brands decline, showing the divergent trends within the portfolio. We will continue to carefully manage the contribution of these brands to meet customer commitments and maintain production scale in line with our Ascent strategy. Turning now to our group and regional outlooks. In F27, strong depletions-led momentum for our power brands and regional heroes will be offset by the continued progression of channel health initiatives. As I've mentioned at the start, we reiterate our expectation for group EBITs to be at least equivalent to F26, with top-line growth for Penfolds and the benefits of Project Descent and many more. For greater China, F27 EBITs is expected to be in the range of $280 to $310 million with continued depletion strength for pen folds to drive growth as customer inventory rebalancing is completed. EBITs will be second half-weighted primarily due to the phasing of shipments for Bin 407. For emerging markets, EBITs is expected to be in the range of $95 to $115 million and with Penfolds continuing to be the driver of regional performance. As noted on the slide, our ongoing vigilance may see some further transition of shipments from emerging markets to Greater China, which we have accounted for in the outlook ranges. In the Americas, EBIT is expected to be approximately $50 million, reflecting the impact of customer inventory rebalancing, sell-through of remaining R&DC inventory at nil margin, and further premium portfolio declines. EBITs will also be second half-weighted, driven by the phasing of customer inventory rebalancing and the sell-through of R&DC inventory. In ANZ and Europe, F27 EBITs is expected to be in the range of $100 to $120 million, with top-line growth for Penfolds and Ascent Savings driving EBITs growth. Our Ascent initiatives are intended to progressively improve the quality and sustainability of earnings over time, while strengthening our balance sheet and enhancing returns. We thought it would be worth recapping the timeline we shared at our Investor Day. From F28, with customer inventory having been rebalanced, we expect to return to depletions-led revenue growth, driven by our power brands and regional heroes, as we continue to manage declines in non-priority brands. Over time, we see a strong pathway to improving profitability with EBIT's margin progressing to our long-term target of 25% plus, driven by the top-line growth and supported by Ascent cost savings hitting full run rate by F29. Additionally, the work we are doing across our supply chain in both Australia and the US will support margin delivery over that time horizon. We also have an elevated focus on ensuring our ROSI returns to an appropriate level with earnings growth supported by a more disciplined capital allocation focus. In summary, F26 was a year of decisive action and significant change. We enter F27 with improved momentum and clear priorities which include continuing above category depletions growth for our power brands and regional heroes through a disciplined focus on execution in market, advancing customer inventory rebalancing for completion in F28, reducing leverage with an elevated focus on cash and working capital, progressing the TWE's Thank you again for joining us today. I'll now hand over to the operator to take your questions.

Thank you. If you wish to ask a question, please press star 1 on your telephone and wait for your name to be announced. If you wish to cancel your request, please press star 2. If you're on a speakerphone, please pick up the handset to ask your question. Your first question today comes from Michael Simotas with Jefferies. Please go ahead.

Good morning, everyone, and well done on all the work you've done so far. First question from me is on the FY27 outlook. And I just want to understand your confidence in delivering group EBITs at least equivalent to FY26. And the reason I ask is you've given ranges for each of the divisions. If we look at the bottom end of those ranges it would imply something quite a bit below the group level. How should we think about what it would take to land within the ranges for the divisions?

Thanks Michael and I might just start this myself and then pass over to Justin just to give you some confidence around the numbers but What really gives me confidence in relation to our outlook is the strength of our underlying business and the depletion momentum that I talked through in the presentation. When we look at the execution focus we've got on these power brands and regional heroes and what we did in H2 in relation to building momentum behind that, I think that confidence comes from the strength of those brands and the work our teams have done around the world Thank you very much. Thank you very much. So really that's what underpins my confidence. I might pass to Justin just to give a sense of the numbers.

Yeah, thanks, Sam. And good morning, Michael. Look, I think it's important we anchor to the expectation that group EBITs will be at least equivalent to F26. That's the guidance and that's what we are very confident to deliver. And on top of the execution momentum that Sam has talked to and the market-facing momentum, the result will be underpinned by the coming through of Ascent-related benefits of at least $40 million. So we've got good confidence on that being delivered. The ranges we provided are just to help with the new look of the world under the regional model, more so than being definitive. So as I say, start with the group guidance and that's exactly where we expect to be at the end of the year.

Yep, that makes a lot of sense. Thank you. And then my second question is relating to the Americas. You're assuming in your outlook a significant decline in the Americas down another about $60 million on the new way of looking at things. I mean, the reasons for that are obvious as you work through the inventory. How should we think about more of a mid-cycle earnings number for that Americas business? I mean, if I infer from your written down carrying value, it would suggest an earnings number probably something around the FY26 number or even higher. Is that the right way to think about a base that you can then hopefully grow from once you've cleaned up all of the inventory?

Yeah, again, I might start, Michael, and then I'll pass to Justin. I think that we've been clear that we're fixing some structural imbalances in the market. We're really taking proactive action as it relates to supply chain initiatives, operating model and Trade Inventory. So these things are really proactively being addressed right now and that's clearly having an impact on that comparable earnings number that you reference. We expect and will continue to update the market as we develop these initiatives, that to improve over time. But right now there's still a whole lot of work in progress. We're addressing those core issues and that's what's driving the number that you see.

Yeah, Michael, again, just to build. So I think you're right on F27, you know, we expect the headwind from the sell through of the remaining R&DC stock, the ongoing taking of inventory out of the trade and then ongoing declines across the premium portfolio led by 19 crimes. I think from a mid to long term, you know, that will come back. However, the and what we talked about a lot at the Investor Day, that COGS imbalance or that COGS drag that comes through because of the structural imbalance, structural misalignment, does weigh on the result in the medium term. So just be careful in terms of how quickly that bounce back happens.

That's helpful. Thank you.

Your next question comes from Michael Turner with RBC. Please go ahead.

Hi, Tim. I have a question on the Asia X China depletions data, 18.1% growth. I can see that it's adjusted to exclude the estimated value of depletions contributing to parallel activity from the region. I'd be curious to know what that adjustment number is and sort of how you estimate it, like what the methodology is. Yeah.

Thanks Michael, it's Justin here. It's approximately 10 percentage points of growth. I think there's a comment around the China depletions growth being approximately half contributed to the parallel capture and an adjustment for Southeast Asia. I think the way the team's looked at that particularly from a China point of view where we can cross-reference it to anecdotal feedback from customers, analysis of the e-commerce data and what we can see coming through cross-border e-commerce. There's been a bit of triangulation work to try to quantify that on the China side and that has then been applied back to the Southeast Asia side. That's essentially how we've done it.

Okay, thanks. And I thought I might ask... Michael's question earlier, just like a slightly different way. I'm curious how big the margin headwind from the RNDC inventory that you repurchased in California was to 2.526. Just to help us inform that margin drag into FY27 from the remaining sort of 60%, and then we can get an understanding of what sort of a true underlying margin might be in F28.

Yeah, sorry. I think at a total America's level, the impact's about four percentage points of margin. I think we've communicated previously that buyback of inventory for luxury was approximately 100 million Aussie at full sales value. We've noted today that 40% approximately has come through in F26 with the remaining 60% in F27. And I think if you just apply a and a standard sort of luxury margin to that, you'll work down the EBITS impact.

Okay. Thanks very much.

Your next question comes from Sean Cousins with UBS. Please go ahead.

Thanks. Good morning, Sam and Justin. Maybe just my first question just around Penfolds and the halting of BIN 407 shipments. Just keen to understand sort of why now? What does it reflect about, I guess, the level of grey market supply of that product and maybe current pricing trends and the risk that you might have to do this with other product ranges? Thanks.

Sure. Hi, Sean. Thanks. Yeah, we have taken, again, some decisive action as it relates to 407. We saw some trade practices in China with 407 that it was being used as a kind of a commercial lever to help migrate some of that cross-border trade. Thank you very much. Thank you very much.

Great. My second question is just around the Americas and depletion sort of growth. Can you just talk a bit about the fourth quarter 26 depletion trends in the US? It seems to have improved. Really, how much of that is TWE benefiting from an improving luxury market over there? Or is TWE out executing the market and hence regaining some of the market share that's been lost in some of that improvement in the back end of fiscal 26 plus?

Yeah. No, look, thanks, Sean. I think that Thank you very much. Some of that momentum is starting to be felt. But I've started to talk about execution really since I began and focusing on really strong brand plans, really strong in-market execution, depletions being our core measure, brand health being our core measures. So all of those things have really changed the focus of our business onto that in-store, in-market, in-channel execution. And No doubt, you know, that is having an impact. So I think it's a bit of both, but really pleasing second half performance. And, you know, our goal is to take that all the way through 27 and beyond based on the strength of brands that we all know we've always had.

Great. Fantastic. Thanks, Sam.

Your next question comes from Craig Wolford with MST Marquee. Please go ahead.

Morning, Sam and Justin. I think we're all trying to just wrestle with the implications of the destocking on earnings, particularly for the Americas. But just trying to understand when you go through the destocking, it's both Penfolds and the Americas. Are there any other costs other than the cost of goods sold? Are there any costs that are avoided? Trying to think through the loss because of destocking. Is it just the gross profit or is there any other cost items that would be... impacted by the process of destocking?

Yeah, Craig, it's Justin here. I think the answer's no. It's really just the lost shipment. You know, AMP is there to sort of, that's there to drive depletions in the market. And so, you know, you might get a little bit of tidy up here and there, but, you know, by and large, the cost just comes through the shipments line.

and I'd add Craig that you know we've always had two areas of focus here to drive if you like the correction of our inventory and one of those is reducing shipments but going back to the previous comment the second is that focus on driving faster depletions because again that eats away at that inventory and normalises it faster so we've got two areas of focus in doing that principally you know driving depletions on the back of brand health and then reducing shipments in a very controlled way so we can bring us back to the levels that we've articulated in the presentation.

Okay. That makes sense. Just a question about BIN 407 issue that you've raised. Just more broadly, is the phasing of releases going to be much different to what it has been historically? The BIN 407 seems more of a transitory issue. And the reason I'm asking this is just trying to understand What the typical skew of earnings is going to be between the first half and the second half, which will largely depend on how you choose to release the premium lines? Yeah.

No, I think, look, I don't think we plan on any change. You know, the release dates, which we're right in the middle of it at the moment, are working well for us. It's a date in everyone's diary. You know, we've got huge activation behind it. You know, use this as an opportunity just to say how excited I am about this year, our 75th year of Penfolds and Penfolds Some of the ratings that we got for the wines, particularly white wines, were extraordinary. So, you know, we're excited. The trade waits for this date. You know, we know consumers and customers all around the world are lined up to it. So no change as far as I'm concerned going forward.

So bin 407 will shift back once you've sort of recalibrated things?

Yes. Correct.

Thank you.

Your next question comes from Tom Kerath with Baron Joey. Please go ahead.

Morning, guys. Just on the 200,000 cases of destocking you did with Penfolds, can you give us a bit of a guide on how much revenue, the impact on the revenues and which region that destocking occurred in so we can kind of, I guess, get a bit of an underlying base for the second half?

Look, Tom, I think in relation to which region that's kind of universal across China is where that's been reduced. It's kind of also a bit linear across the whole portfolio. We really focused on making sure that the whole portfolio was reduced in line with where we thought that we had too much stock or too much demand. Thank you very much.

In America, the business, I think a few years ago, you're saying it's going to make $400 million. Now it's going to make $50 million. I assume, well, there's a strategic review going on. It's hard to motivate the troops. Can you give us a bit of a timeline as to when you expect to have some decisions on the future of that business?

Yeah. Look, I think it's fast as possible. We've started the review. I've been pleased, actually, with how much progress we've made. We've really understood what we need to do in the supply chain and those initiatives are We've outlined here, again, we've taken some significant inventory provisions. We shared those on Monday. Again, they help us right-size that mismatch that we've got across our supply and demand organisations. And, you know, we've appointed some advisors to look at further options as they relate to brands and assets across the market. We commit to come back to you as they progress. There's nothing more to update you in relation to that at the moment except to say that We've been pleased with the response and we expect to give some material updates in the near term. What keeps everyone excited, just picking up on one of your points, is the momentum that we're building in the market around brands and execution and innovation. That's exciting. We look at what we're doing with Dow and Frank Family and Some of the innovations that we put into the market in the second half that helps support that depletion growth, really, really promising. We're starting to see share gains on the back of that execution, and that's what excites our teams in those markets. And again, we've got great plans for 27 that give us great confidence that we can continue that momentum. Great. Thanks, Sam.

Your next question comes from Peter Marks with GS. Please go ahead.

Oh hey guys, I just wanted to talk about China again. Can I just clarify with the depletions number, I think it's about 35% and you're saying about half of that is driven by, you know, diversion of parallel imports. So can we call it like 17% underlying? And I guess where I'm going with that, do you think you can sort of sustain that level of depletion growth into FY27? Because Then once you get to FY28, if you can do that level of depletions, it implies like a massive year for Penfolds in FY28 if your sales catches up to where your depletions are. Does that make sense?

Yeah. Yeah, I mean, I think I've talked very, very positively about Penfolds almost since I began and the strength of the brand and it transcends wine, really. It's a luxury brand. You know, when we, during our investor day, you know, we kind of outlined Thank you very much. The runway for Penfolds is long and the portfolio opportunities we've got are also long. So I'm not about to give guidance in relation to depletions, but we've got great confidence in the growth areas, the growth opportunities for Penfolds and the organisation is aligned behind all of them. Whether that's the distribution expansion opportunities in China, whether it's innovation, whether it's white wine, the brand's still got huge opportunity.

Okay that's great and then my second one just on the the Americans drivers into FY28 just so I can get my thinking clear like it sounds like RNDC should be done in FY27 so that margin impact should roll out you'll still have some inventory you know rebalancing the press in sales so but that will roll out in FY28 but then FY28 has the Cogsburg cage headwind so I'm just trying to like flip my head around the moving past there like is FY28 a year of earnings growth for the America's business or is the Cogsburg cage headwind going to offset those sort of tailwinds coming out from RNDC and destocking in 27?

Yeah we've been quite transparent on all of those things the zero margin coming back in from the return goods and Look, the great news for us is that we've navigated a pretty tricky situation with R&DC really, really well. We've managed to transition into our new distributor pretty seamlessly, those businesses and those partners doing really well for us. We've taken stock back and offset that, got settlement for various disputes, and now we've got really very, very small exposure. So that's great news. I did talk about some of those structural mismatches, the imbalance that we've got. We're working on those things now, and the best guidance I can give is that we do expect our earnings profile to improve over the medium term, but we will come back with much more material updates as we develop those strategic options, as we've got further into understanding what value they might bring to us so that we can reliably inform you. JP, have you got anything to add?

Yeah, Peter, I think, yeah, while we're not giving long-term guidance today, I think you're thinking about it the right way in terms of the progressive rundown of the 300,000 nines. You know, most of that will be, or the bulk of that will be done this year with some carryover into half one next year. R&DC is a one-time item this year. So we do see those things being corrected and we'll eventually get that business into a depletions-led top-line growth position which should give us revenue growth going forward through 28 and that should translate to better earnings. Makes sense. Thanks, guys.

Your next question comes from Brian Raymond with JP Morgan. Please go ahead.

Good morning. My first one is just actually just on the ascent benefits. Just want to make sure we have them allocated properly, the 40 million in 27. I think it was called out in the ANZ and Europe division. Is that where most of it's flowing or is there a bit of a mix across the four new divisions?

Yeah, hi, Brian. It's Justin here. The benefits flow across all divisions, maybe with the exception of China, greater China, where we'll be investing in the ongoing growth in that region. You know, the 40... So, as I say, the 40 million is going to come from all divisions, all regions. It probably weights more to where the teams are bigger at the moment, so Australia and the US.

Right, OK. and then just maybe on inventory obviously the write down in the US you called out earlier this week is contributing to that coming down a bit year on year but just wanting to understand sort of let's call it volume or underlying inventory and that path from 2.8 to 2 times leverage just interested as to whether we think underlying inventory has peaked and it's now just a matter of that coming down or do you have some more Let's call it historical vintages flowing through that's going to add to that. But we need to just be mindful of in that path down to two times leverage. Thanks.

Yeah, I think we touched on this a little bit at the Investor Day and certainly from where we're sitting at the moment. You know, F27 will still be another modest increase in working capital. And that's really talking to the speed at which the supply transformations, both in Australia and the US, can take hold. So, you know, whilst not significant, we do expect to see another slight build in inventory and that's why, you know, that pathway to leveraging, yes, we're confident we're at the peak at 2.8 and we'll go down from here. You know, that will accelerate in terms of F27 to F28.

Just to follow up to that, should we just assume a sort of linear profile or would it be a bit more... A bit more of a reduction in inventory in 28 year-on-year versus 27 year-on-year?

Probably more the latter, yeah. Okay, perfect. Thank you.

Your next question comes from Benjamin Gilbert with Jordan. Please go ahead.

Just the first one from me, just in terms of all the work you're doing around inventory realignment, I appreciate it's sort of nine a month away, but do you think it's going to give you scope to take some price on next year's release, particularly in penfolds? And in that light, do you think you can grow revenue into fiscal 27?

Yeah, hi, Ben. Look, I think, you know, we've been disciplined in relation to pricing in the past and usually as a result of, you know, kind of how we're trying to position the brand and kind of The Elasticity in Market So do you think you could grow revenue into fiscal 27 then if you were able to get some price back in on the next vintage? I mean, I think the goal for us across the business is to grow revenue. You know, we've got some structural things we're dealing with, particularly as it relates to parallel and inventory and other things. But, yeah, we do see that price will be a lever for us across all of the businesses as we look at year-on-year planning processes. So, yeah, I mean, I do think price can be a lever.

Just a fun one for me. Just on your white versus red mix in 10 thoughts, obviously white's... How quickly can you ramp that up? You can probably release a little bit more quickly. Have you been out there trying to secure more supply? I'm just trying to get a picture for how materially you could ramp that up, particularly given the demand we're seeing in Asia and China specifically for it at the moment.

Yeah, it's exciting. I think just about all markets around the world, we're seeing some real momentum in white wine through female consumption, through refreshment occasions. So are doing really well, and Early Signs, our Penfolds white wine collection is doing really well, as I mentioned in the presentation. Actually, white wine in China also showing some real growth potential, so that's a big opportunity given the strength of the brand. I do think it's going to play a bigger role. We haven't given guidance in relation to that mix impact yet, but at a headline level, we see it as being a significant growth driver.

Are there much decent juice or grapes around that you can actually get in the Chardonnays and those sorts of things, or is this a five-year type thing where you've actually got to build it out?

Yeah, we've looked at that modelling, Ben, and I think we feel very confident that we've got appropriate supply that underpins our ambition. Fantastic. Appreciate it.

Your next question comes from Caleb Wheatley with Macquarie. Please go ahead.

Morning, Sam and Justin. Just wanted to come back to the depletion strength in Penfolds and particularly in China. Sort of alluded to it a little bit throughout some of the prior questions, but even taking out sort of half of that growth that's relating to parallel importing that Thanks for the question. I think, again, we went into quite a lot of detail during the investor day on

Thank you very much. and other third, fourth, fifth tier cities. We look at portfolio and we say, look, there's lots of opportunities to fill distribution gaps across the portfolio. You look at white wine, festive occasions like mid-autumn and Chinese New Year, exceptionally strong the release. So, you know, add to that kind of migration from Baijiu and we see some of that happening, particularly in restaurants. and moderation trends really favouring the alcohol strength that sits inside of our wine. And finally, again, I keep talking about Penfold's the brand that transcends wine. This is a luxury brand in China and that status continues to drive growth. So all of that, along with a recovering wine category, give us great confidence that we can continue through the enormous market of China to drive growth. and that's what underpins our assumptions.

Okay, great. And then just sort of moving forward on the Penfold side, but I guess more broadly across the brands, just as you shift to the geographic segmentation, just wondering what kind of disclosure we can expect around those major brands, just conscious the market clearly focuses quite strongly on Penfolds, but will increasingly focus on the three power brands that you're calling out.

Yeah, I mean, PEPFOLDS is a key driver globally. Clearly, we can see on the back of the strength of the equity of the brand that there's huge opportunities in all markets globally. I've talked about India. You know, I can't wait to get to India and start to explore the opportunities that exist in that really interesting market. It's nascent at the moment, but has lots of opportunities. Look, I think Mature is an interesting one. You know, kind of we're already getting lots of feedback from Mature in China and the opportunity that exists there and and we'll look to spread that more broadly around the world. And early days on Dow, but we've had Dow up in China and the emerging markets of Southeast Asia. Early signs are positive, but we've got more work to do in relation to those opportunities. So it's predominantly led by penfolds with Matura and Dow having opportunities. And look, when we look at some of those regional heroes, we also see opportunities for brands like Squealing Pig in the UK or Pepper Jack in other markets around the world. So we'll continue to look at them in the context of those brand priorities and see whether or not opportunities exist in markets outside of their home markets.

Caleb, it's Justin here. Just to build on Sam's response, in terms of your question about what to expect going forward from a disclosure point of view, geographic segments is obviously how we're going to look at this business going forward and that'll be our primary way of reporting. We're sort of working through the other stuff that sits around that, so at a minimum we'd expect to give insights, pretty strong insights on our power brands as we move forward. But as I'd emphasise, we're still working through some of that.

Okay, that's great. Thank you very much.

Your next question comes from Richard Barwick with CLSA. Please go ahead.

Thank you. Good morning, guys. Can I just pick up a couple of points and draw them together? I think on one of your slides, Justin, you were talking about the project ascent being cash flow positive post divestments. So I guess my first question really is, should we be expecting more in the way of one-offs and write-downs because right now you're talking about the cash impact being up to a negative 195. So therefore, the divestments have got to be something greater than that. Can I just clarify those points, please?

Yeah, hi Richard. Yeah, your thinking's right. I mean, I'm just trying to find the slide, but I think you asked two questions there in terms of can you expect more one-time items on top of what we've disclosed today? You know, I think the work around the America Strategic Review is still ongoing. So, you know, we've made good progress to date with what we've been able to do and the decisive actions we've been able to take around supply, but ultimately we are continuing to do that work. In terms of what's outlaid as the expected cash costs on the remaining elements of the ASSEM program, they're our estimate of today. I think correct, you know, take the sum of those and if we're saying cash positive it means the divestment side is expected to be greater and that's correct. I would also just draw back then into the leverage comments, you know, and we emphasise this at the investor day as well. We see a pathway to two times leverage or lower without those divestments in the plan. So a couple of things there just to cover off.

You're saying you can get to two times without divestments?

Correct. That's right. And that's consistent with what we committed to or noted at the investor day.

That's what I thought, but just the wording today, it actually made me think the opposite, that the two times was reliant on or included divestments.

No, apologies if that's been the way it's been interpreted. That's certainly not the case. The divestments are still part of our capital management plan and we've been pretty pleased with the response on what we've tried to take to market to date. But we still see a pathway to two times or less without those divestments.

Okay, thank you. And just to round that off, you're saying that there's several divestment processes underway. In terms of the, I guess, the cash contribution, you're sort of flagging there could be brands but also productive assets. Should we be expecting most of the cash to be coming from brand divestments or from the productive assets?

It's a mix. It's a mix, Richard. So without getting into too much detail now, there's a number of assets we've identified across the hard assets, vineyards, and then production assets and also brands, and we're working through a number of them at the moment.

Richard, I think we'll come back to the market, I suspect, before the end of the year with an update on that and give some progress around Yep, okay, that's really helpful, thank you.

Your next question comes from Phil Kimber with E&P Capital. Please go ahead.

Hi guys, just a question around the new divisions and I don't know if this is the right way to look at it, but if I look at Greater China in the second half, EBITS has jumped about 30 million and I look at emerging markets in the second half and EBITS have dropped 23 million. So it looks like A lot of the EBITs that drop is because you've cracked down on the parallel importing, so that effectively shifts profits out of emerging markets into greater China. and then I look at your guidance and I get the Greater China one you know 280 to 310 and you look at the second half and then you think about the 407 issue and that fair enough but I look at emerging markets and I go you did under 40 million in the second half and you're saying your full year is going to be you know let's call it 100 and What's changing there? Am I thinking about it wrong and you can't just annualise the second half? I just wanted to understand that a bit better, thanks, in particular around emerging markets.

Yeah, good morning, Phil. Hi. Yeah, I don't think annualising the second half is sort of the right way to look at it. It's been a bit more nuanced as we've worked into it. I think the other comment to make is within those emerging markets, there are a number of strong domestic markets that still continue to grow and present opportunities. So you've got a bit of a balance of domestic growth, potentially some trade-out of parallel markets, but that gives us you know the range we've presented today.

Okay thanks and if I do sort of the same thing in the ANZ in Europe business again I mean should we assume that to get to the 100 to 120 When you look at the second half, run rate, I mean, you need a lot of those cost savings actually will end up falling in that ANZ business. That'll be the bulk of the cost savings because I just sort of couldn't get it to reconcile otherwise.

Yeah, again, I think you're looking at it pretty well there. A lot of Ascent savings will be weighted to ANZ in Europe and that drives a lot of the uptick in that P&L. I think also, you know, as we communicated today, we see ongoing strong depletions growth for Penfolds and that will play a part. You know, we had 5% experience this year. We'll expect growth next year and, you know, improved mix supporting that. So there's a couple of drivers, but Ascent will be, you know, one of the keys there.

Awesome. Thank you.

Your next question comes from Sam Tigger with Citi. Please go ahead.

Hi, Sam. Hi, Justin. Well done on the progress you've made turning this company around to date. I wanted to ask around, what's the price range you are targeting for Bin 407 in China? And based on the improvements you're seeing in Bin 407 pricing over the current quarter, what's the potential that this shipment pause might end earlier? Following on from that, to what extent are your global penfold distributors seeing increased demand for BIN407 right now, given the China shipment pause?

I'm just hoping I'm understanding this question right. I think what we're looking for in China, we've been trading about 10% below where we would like, so your target price is sort of north by about 10% is what we're targeting from a portfolio perspective. Again, some of these actions are all in service of ensuring that we provide the conditions that will allow us to deliver that and that we organise our... route to market across the region in a way that brings control back into that pricing and how the product flows. So, you know, really this is a complicated system and it's quite a little bit imperfect, but that's kind of what we're looking to achieve through all of these programs. That's where we would like it positioned from a brand perspective, you know, across the rest of pricing as it relates to Penfolds. You know, we think about that with each market and then in the context of, Thanks. And given the growth we're seeing in Chinese wines,

Could you please give us an update around the Ningxia Stone and Moon Winery? When might we see increased products coming from here?

We continue to be excited about our investment in Ningxia. We've now looked at developing grapes that we can put into our China-sourced Penfolds products and we've had a lot of exchanges with Chinese winemakers and our winemakers really developing capability that would allow and some of that grape to go into Penfolds. The Stone and Moon brand continues to be sourced from there and again we continue to execute that in the market but the opportunity for us is to start to develop a Chinese sourced grape variety for Penfolds and I think that we're progressing well as it relates to that investment. I would also say that we have a strong relationship with the government there that continues to support us as well. So that investment is playing a huge role in how we develop the overall industry in China and I'm excited about that. Great, thank you.

Your next question comes from Mark Southwell-Keeley with Select Equities. Please go ahead.

Hey guys, thanks for taking my call. I have two questions. Just firstly, I'm interested, Sam, perhaps, in terms of what learnings you take from the wholesale pricing of Grange at the moment. So you've reduced allocations of Grange. You've also spent or invested significantly in the global Grange campaign. and yet wholesale pricing continues to deteriorate and be soft. Just wondering what your learnings are from that?

Yeah I mean I think... and I think the response to that has been really fantastic. The campaign again just reinforcing that Aspirational Inspirational Positioning. So I feel like we're on the track to ensuring and protecting the critical role that it plays inside the portfolio and I'm conscious at release that there's often lots of noise around wholesale pricing. In fact my feedback from the release has been that some of that noise has been significantly reduced coming into this release and and the pricing is more stable than it has been in the past. So again, another anecdotal data point to say all of these actions are really kind of supporting the role that we want Grange to play. So the learnings are that the actions that we're taking are really strengthening the propositioning and its positioning. So I'm quite pleased.

My second question is in relation to the pause on the shipments of BIN 407. I'm just wondering if you can explain the logic or the consistency of the logic perhaps in terms of on the one hand you're saying to the trade that you're necessarily temporarily suspending the shipment of the product and on the for a three-month period but on the other hand you're telling the market essentially that you're guaranteeing a certain product volume over a 12-month period. Can you just maybe reconcile those two logics?

I think you know what we'd seen happening at a market level with 407 was concerning. You know I would say it was kind of being used as a Thank you very much. 407 or other parts of the brand. So it's really just a signal to the market about the conviction we've got of bringing Our route to market as it relates to Penfold is back into control and the role that we need it to play in the development and support for the brand. And I think that message has been received. It's not been done before. It's a strong message. And it says if you don't adhere to the conditions that you sign up to when you become a partner of ours, there are ramifications. Longer term, you know, we've set that standard and we've said, right, we can go back to normal trading as long as you adhere to those conditions and that's why the allocation has remained the same. So that's kind of the psychology of it. It's really about sending a strong message on the back of trading activities to our partners in our distribution chain. Does that make sense? Not really, but thank you. Okay.

Your next question comes from Michael Simotas with Jefferies. Please go ahead.

Hi, thanks for taking another one. Just an accounting question, if I can, relating to the impairments and write downs that were announced earlier in the week. So there should be a P&L tailwind from less depreciation on physical assets, less lease depreciation on the written down right of use assets, and then maybe some implications from written down inventory as well. appreciate that a lot of that will be tied to COGS but just want to understand how that will flow through the P&L in terms of phasing and also whether there'll be a little bit of a cash versus earnings mismatch as that starts to come through presumably not for a year or two?

Yeah, hi Michael. I think when you said accounting query, that was coming straight to me. You're right, there will be some lease and depreciation savings as a result of the write downs we made or announced on Monday. That flows 100% into our vintage costing and will be capitalised into our vintage 26. It's captured as part of our vintage 26 COGS process. So in a normal year that would take two to three years to flow through the P&L. You know, albeit we are working through some elevated levels of inventory, so that flow through will probably take a little bit longer. So there is a benefit as a result, but it does take time to realise. And I think that's probably the key point. Remind me, what was the second part of your question on the inventory?

So that's helpful. Thank you. And then by the time we get out there, as the benefit comes through the P&L, will cash match it or will there be a bit of a cash shortfall given... I mean, even if you look at something like lease, your cash outflow might be bigger than what you're taking through the P&L?

I'm not sure I understand fully, Michael. Let us come back to you on that one, if that's okay? Okay.

All right, we'll follow up later. Thank you.

Your next question comes from Brian Raymond with JP Morgan. Please go ahead.

Thanks for taking a follow-up. Just another one, I think, Justin, just following up on the answer you made earlier in the call. Just around... to be cautious around the bounce back in the US from the $50 million base in 27. We've gone through a number of times a lot of the short-term impacts that are sort of driving the number down to that level. Given how low it is, I just want to understand if there's something I'm missing beyond even in 28 and beyond that would not make it bounce back a bit more quickly. It just seems like such a low baseline. Is there something out there that we need to be cognizant of that's going to stop that and many more. Thanks. Hi, Brian.

Thank you very much. they're the only sort of two core lets I think that sort of give a bit of pause on sort of how quickly to expect it to get back.

Okay, okay and then just a final one if I can just on the dividend coming back it's obviously suspended for now if you get to two times leverage with that is that kind of a benchmark that you'd be looking at to reinitiate the deal for the board to decide to bring the dividend back?

Yeah, I mean, I think that's certainly when we'll start having the discussions with the board about, you know, an appropriate time depends on how everything looks going forward. Our goal right now is to focus hard on delivering us back into the target range in that timeframe. And that's when we would expect that conversation to start happening again with the board. Okay. And just on the previous question, I would just say that some of these structural options that we're looking at have the potential of a material impact on those earnings. I mean, we do expect to have earnings progression going forward from this point. Exactly what they look like depend quite materially on some of the outcomes of the discussions we're having inside of those structural options. Those structural options that are being reviewed at the moment. And look, we will commit to come back to you as soon as we start to get more clarity around those on a very regular basis.

Okay, thanks.

There are no further questions at this time. I'll now hand back to Sam Fisher for closing remarks.

Okay, thank you very much everybody. We appreciate your time today and we appreciate your support in this ongoing journey. We look forward to coming back to you in the near term. Thank you.