Full Year 2024 Treasury Wine Estates Ltd Earnings Presentation Transcript

The following is excerpted from the question-and-answer section of the transcript.

Question: Michael Simotas - Jefferies - Analyst : Good morning. My first question is on the commercial business. And I was just hoping you could give us a little bit of help with understanding the range of financial implications from that divestment. So looks like there's about $60 million of gross profit. Then if I use your fact book as a guide, REFINITIV STREETEVENTS | www.refinitiv.com | Contact Us consent of Refinitiv. 'Refinitiv' and the Refinitiv logo are registered trademarks of Refinitiv and its affiliated companies. AUGUST 15, 2024 / 12:00AM, TWE.AX - Full Year 2024 Treasury Wine Estates Ltd Earnings Presentation there's probably about $60 million of production and packaging overheads associated with that portfolio. How should we think about your ability to offset costs associated with that product as the volume and gross profit comes out of the P&L?

Question: Michael Simotas - Jefferies - Analyst : Okay, that's helpful. Just a quick clarification, I guess. Should we think about the lost, let's just call it, $60 million of gross profit as a worst-case scenario? Or could it potentially be a little bit more of a drag than that given you've still got some fixed production and packaging costs?

Question: Michael Simotas - Jefferies - Analyst : Yeah. Okay. That's clear. Thank you. Then my second question is on China. So there's a huge amount of wine at luxury price points exported into China in the June quarter. Now I'm presuming Treasury was responsible for a lot of that. How much of that has actually gone through your P&L versus just product moving from Australia? REFINITIV STREETEVENTS | www.refinitiv.com | Contact Us consent of Refinitiv. 'Refinitiv' and the Refinitiv logo are registered trademarks of Refinitiv and its affiliated companies. AUGUST 15, 2024 / 12:00AM, TWE.AX - Full Year 2024 Treasury Wine Estates Ltd Earnings Presentation Just trying to understand the comment that the earnings impact or the earnings benefit in FY24 was very small? Is that because you made money in the China market somewhat offset by cost increase, but then you had to take the product from elsewhere, so you made less in Australia and EMEA

Question: Michael Simotas - Jefferies - Analyst : Got it, thank you.

Question: Lisa Deng - Goldman Sachs - Analyst : Hi. Thanks. So two questions from my end. One is also on China. So it seems that the consumer environment has worsened sort of every quarter from December to March and then most recently in June, I was there in July as well. Your first sell-in, which is executed very well. And obviously, we consider in the cash commitments as well. How are you seeing the depletions, as I think you guys referred to earlier to expectation but how are we starting to see the sell-through, the reordering, the consumer -- or the distributor sentiment? And then when are they usually due to reorder again, if we can get a bit more color on that, please?

Question: Lisa Deng - Goldman Sachs - Analyst : And just on the past -- sorry, I guess on the terms of reordering because I think we also talked about the cash conversion being potentially lower in 2025, given the cash sales into China will go back to normal patterns. Are we extending more sales on credit or how are we thinking about that? And then the follow-up on that is also parallel import. When I was there in July, I did actually see a decent amount of parallel imports in the market potentially only because I've visited two locations. So, it's granted not a full conclusive view, but what are the on-the-ground feedback on parallel imports potentially being a disruptor? Thanks.

Question: David Errington - BofA Global Research - Analyst : Good morning, Tim. Stuart, this to you, too, and probably Mr. Dollard in the US. But I've got two questions. The first one is the second half in the US. I was absolutely thrilled to see your premium business or your Luxury, I should say, forgive me, your Luxury business growing 14% in that second half, given the backdrop in the US where Luxury has been coming off. REFINITIV STREETEVENTS | www.refinitiv.com | Contact Us consent of Refinitiv. 'Refinitiv' and the Refinitiv logo are registered trademarks of Refinitiv and its affiliated companies. AUGUST 15, 2024 / 12:00AM, TWE.AX - Full Year 2024 Treasury Wine Estates Ltd Earnings Presentation But I'm back solving some numbers here. And if you exclude the DAOU acquisition, the -- your sales basically, your margin dropped to 18%. Your EBITS -- the first half EBITS was $93 million. The second half, excluding DAOU was $100 million, and yet you would have had over 20% growth in that luxury portfolio in that second half. So I'm really surprised that, that second half wasn't stronger in terms of earnings performance given the wonderful achievement of Luxury in that second half. So can you go into that? Because my concern is that the premium business in terms of earnings is really falling away? And the second question, if I could, getting upfront, Stuart, these material items, I'm not enjoying them. I mean over the last four years, and Tim, you only want to be measured in the last three or four years, but your material items have now hit $1 billion pre-tax. And that's an enormous write-down. Can you go into saying how long this material item is going to go on for? Because they're big numbers now that you're taking below the line. So if you could address those two issues, that would be wonderful. But congratulations to Bin. That luxury business, given what competitors are doing, fantastic second half but the numbers look really weak outside of that, and those material items really are starting to concern me. So can you go through those two issues, that would be really appreciated.

Question: David Errington - BofA Global Research - Analyst : Has the EBITS in premium stabilized then? So I think you gave some numbers at your presentation today, and we can back-solve the EBITS was around that $90 million, $95 million for Premium. Can you stabilize that at that level? Or is it going to continue declining?

Question: David Errington - BofA Global Research - Analyst : Thank you and well done on the Luxury side of the business. REFINITIV STREETEVENTS | www.refinitiv.com | Contact Us consent of Refinitiv. 'Refinitiv' and the Refinitiv logo are registered trademarks of Refinitiv and its affiliated companies. AUGUST 15, 2024 / 12:00AM, TWE.AX - Full Year 2024 Treasury Wine Estates Ltd Earnings Presentation

Question: Ben Gilbert - Jarden - Analyst : Good morning, Tim, Tom. Just a question for me. Just on the decision, which I think, obviously, is well flagged around creating a global TPB business. What's the view around the future of that business sort of sitting within Treasury today? Because arguably, market undervaluing the premium business given to say, your Luxury business, given the growth you've got your some other luxury brands globally and it's obviously a pretty strong track of demergers in Australia that I think over two-thirds can typically create value from an aggregate. What's the board thinking around that? Is this something that if you were going to see it would happen post July 1 last year, just coming on some of the thinking that yourself from the Board have got behind that at the moment.

Question: Ben Gilbert - Jarden - Analyst : Just on the -- I appreciate it -- it's a big task doing this, but you started and well progressed. Are there any big risk factors like separate ERPs, and these sorts of things that we need to think about, or is it nothing straightforward in the scale, but is it relatively derisked do you think, in terms of the path through to July 1 next year?

Question: Ben Gilbert - Jarden - Analyst : Just one final one for me. You've obviously done a lot of stuff around productivity and you're obviously going to consolidate a few of those production facilities for DAOU into the big one you've got sitting in that [sort of levels] What sort of materiality are you going to see or do you expect to see in terms of cost per liter, both from Penfolds over the next sort of 12 months to 18 months? And then from DAOU, bring that any? Is it sort of double-digit type benefits from the productivity gains you put in across both of those?

Question: Tom Kierath - Barrenjoey - Analyst : Morning, guys. Just one on Penfolds. Can you give us a split of how much sales were sold into China versus Asia ex-China in either the half of the year? Just give us a sense of where you are in China versus FY19 levels?

Question: Tom Kierath - Barrenjoey - Analyst : Okay. And the second one is just with that 7 million cases that you're divesting, how much of that are you making like making yourself versus using a third party because I presume that deleverage is only on the stuff that you're making yourself so much would be helpful just to give that breakdown.

Question: Tom Kierath - Barrenjoey - Analyst : Cool. That's it. Thanks.

Question: Richard Barwick - CLSA - Analyst : Hi. Good morning, all. Can I just clarify back Stuart's comments when he's talking about the financial impact from this commercial divestment just so I understood it correctly. So I understand you're talking about that $60 million of -- from a GP impact. And were you effectively saying, Stuart, that from the cost side, so the cost of doing business side, you're hoping to sort of neutralize the cost. So, if you think about this through to a bottom line, are you saying, there's a $60 million hit to GP and [CADV] you're hoping for it to be a wash. And so therefore, the -- you're talking about a $60 million hit to EBITS.

Question: Richard Barwick - CLSA - Analyst : No, I understood that. I think no one will dispute. You'll end up with a better-quality business. It's just trying to get our head around what's the new earnings base from which you're then going grow from. One other question, just to be clear as well, you're talking about expectations for Treasury Premium Brands looking into '25. And basically, top line stability and the delivery of EBITS broadly in line with PCP. However, that excludes any -- the one-off benefit. However, that excludes the one-off benefit from asset sales in 2024. So can you just be clear on what exactly the EBITS contribution was in 2024 from asset sales?

Question: Richard Barwick - CLSA - Analyst : Right. And so that therefore implies if you're going for top line stability and you're taking $10 million or $10.5 million of EBITS then you look for, so your guidance is effectively for a pretty material step down in the margin that you're expecting to deliver through Treasury Premium brands?

Question: Richard Barwick - CLSA - Analyst : Yeah. And that -- we can put that down to discontinued deterioration in commercial brands, assuming that they're still part of the portfolio. REFINITIV STREETEVENTS | www.refinitiv.com | Contact Us consent of Refinitiv. 'Refinitiv' and the Refinitiv logo are registered trademarks of Refinitiv and its affiliated companies. AUGUST 15, 2024 / 12:00AM, TWE.AX - Full Year 2024 Treasury Wine Estates Ltd Earnings Presentation

Question: Richard Barwick - CLSA - Analyst : Yeah. Okay. Right. Thanks for that.

Question: Bryan Raymond - JPMorgan - Analyst : Thanks, guys. Just one back on the US, just interested in how you see the pricing outlook given the improvement in supply for you guys and across the industry, particularly, obviously, Napa going to have a lot more wine in the market, but then also for Paso with the DAOU business. I'd imagine they benefited to some degree in recent years with a constrained Napa backdrop. So just keen to understand how you think about pricing across both parts of the business looking forward into 2025 and 2026. Thanks.

Question: Bryan Raymond - JPMorgan - Analyst : Right. So just to confirm -- thanks for that color, it's great. Just to confirm, though, you're saying pricing went up a lot, well, went up meaningfully across the market and for you guys, but in a supply-constrained environment and you expect to hold largely going forward? Or would you expect further price to be taken? Just keen to understand the dynamic.

Question: Craig Woolford - MST Marquee - Analyst : Good morning, Tim and Stuart and the whole team. Can you just clarify with the commercial portfolio. Like would you -- are there different ways you would consider selling it? Would you sell individual brands? What if you don't get a decent price or a decent offer, is it a sale at any price? And also what capital is actually tied up in that commercial portfolio of the $6.6 billion in capital employed that you have?

Question: Craig Woolford - MST Marquee - Analyst : Okay. Thank you. And then the other one, just do you expect -- there's always lots of moving parts in this business, particularly with the acquisition of DAOU and some of the changes in the mix of the portfolio. But just organically, do you expect in FY25 that your price per case growth will outstrip COGS per case?

Question: Craig Woolford - MST Marquee - Analyst : Thanks, Tim.

Question: Mark Southwell-Keely - Select Equities Pty Ltd. - Analyst : Hi, there. On page 3 of today's results announcement, you said that global demand for Penfolds Bin and Icon portfolio exceeds availability. I'm just wondering how you explain the fact that consumer prices for Bins 407 and 389 in China are currently trading around 20% below wholesale prices and around 40% below RRP.

Question: Mark Southwell-Keely - Select Equities Pty Ltd. - Analyst : It's about 100% of transaction volume going through the e-commerce site at the moment. It's not a small amount. So usually when we see this, it indicates that they're stressing the value chain, which may require intervention by the brand, for example, by limiting supply or providing additional investment. So I'm just wondering if these trends don't change. What are your thoughts around that?

Question: Shaun Cousins - UBS - Analyst : Thanks. Good morning. Tim. Maybe just on DAOU, the company sort of highlighted over historic years that the second half of the calendar year has been 63% of the calendar year EBITS. Is there any reason why that wouldn't happen in calendar '24?

Question: Shaun Cousins - UBS - Analyst : Okay. And maybe just a question on gearing and cash flow. You've called out your reported cash at 82 -- cash conversion had mid 82% and 94.6%, excluding the non-current luxury and premium inventory, and then you're guiding now to 80% for fiscal 2025, excluding Premium and Luxury inventory. Should we see reported cash conversion, sort of get down to, say, 65%, and the reason I ask is around how you think about your plans to deleverage. Your guidance is to get in the low end of the 1.5 to 2 times net debt-to-EBITDAS at the end of fiscal 2025. Given what could be a lower cash conversion on a reported basis, how does that -- are you confident that you get to that level of gearing? And how do you think about reported cash conversion place for '25?

Question: Shaun Cousins - UBS - Analyst : But you're still confident of getting within the range of that 1.5 to 2 times net debt-to-EBITDAS at the end of Fiscal 2025?

Question: Phil Kimber - E&P Capital - Analyst : Hello. Just a question, I think it's a slide 10, where you show the global operating model and the Luxury versus the Premium business. So can I just confirm the EBITS that you show there for the Premium brands business of 170, you're basically saying that includes commercial and that's going to come down, let's just talk round numbers to about $100 million. You talked about 60 of GPs and sort of stranded costs. So I just wanted to check that that's correct? And then secondly, you talked about optionality around that global premium brands business. Is -- does that optionality potentially include a similar impact where there could be a lot of stranded costs that need to be considered when we're thinking about any potential sort of optionality that you might undertake in that business? If you could sort of comment on those two, that would be awesome. REFINITIV STREETEVENTS | www.refinitiv.com | Contact Us consent of Refinitiv. 'Refinitiv' and the Refinitiv logo are registered trademarks of Refinitiv and its affiliated companies. AUGUST 15, 2024 / 12:00AM, TWE.AX - Full Year 2024 Treasury Wine Estates Ltd Earnings Presentation

Question: Phil Kimber - E&P Capital - Analyst : And sorry, just to be clear, those numbers there, I don't think include the $70-odd million of corporate overhead that you separately reported. Is that correct?

Question: Phil Kimber - E&P Capital - Analyst : Yeah. Sorry. And then one more, just if I can. Just on the Asian side, I noticed in your fact book, you've given sort of some largest Luxury wine markets, and we talk a lot about China, which is quite understandable. But if I look on page 9, Asia x China is $3.8 billion versus China $1.1 billion. Can you talk a little bit about some of the other markets, Asia x China, how they're performing? Like I'm guessing Japan is a big one in that. And doesn't tend to get as much focus, but it sounds like they're quite big markets themselves as well. REFINITIV STREETEVENTS | www.refinitiv.com | Contact Us consent of Refinitiv. 'Refinitiv' and the Refinitiv logo are registered trademarks of Refinitiv and its affiliated companies. AUGUST 15, 2024 / 12:00AM, TWE.AX - Full Year 2024 Treasury Wine Estates Ltd Earnings Presentation

Question: Sam Teeger - CITI - Analyst : Hi, Tim and team. Can you talk to the different performance that Frank Family is seeing across the various channels and the key driver that Leslie to join the Board?