Half Year 2025 Treasury Wine Estates Ltd Earnings Presentation Transcript

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

Question: Craig Woolford - MST Marquee - Analyst : Good morning, Tim and team. I thought the disclosure on the Penfolds China was quite interesting and obviously try to give us some more color where you can. Can you just explain the metric you've used for that 1H '25 versus 1H '20 performance and maybe a bit more context around those numbers? And then you do give a very confident statement again about the outlook for '26, '27 for Penfolds. Can you give us some substance as to is it about distribution reach? Is it about more brands going in? How do we get more meat on the bone around understanding that confidence for the next couple of years with Penfolds in China?

Question: Michael Simotas - Jefferies LLC - Analyst : Morning, everyone. Can we talk a little bit about cash realization? It was pretty solid in the first half and above the level that you've guided to for the full year. Remembering back to August, you had suggested that cash realization might have been a little bit softer in the first half based on less cash sales into China. How are you managing to collect the cash so quickly? And can you just maybe without putting numbers on it, just give us some indication of the dynamic across the businesses and whether it is, in fact, reflective of being able to collect the cash in China more quickly than you used to in the past?

Question: Michael Simotas - Jefferies LLC - Analyst : Okay. Thank you. And could I just ask another quick one on Penfolds pricing. When you gave us the guidance on Penfolds, you made the comment that there were no further substantial price increases beyond -- or assumed beyond the FY25 year. Given the success you're having in China and depletions being as strong as they are now as well as the fact that your non-China markets look like they're supply constrained, do you think there might be some ability to take some additional price? REFINITIV STREETEVENTS | www.refinitiv.com | Contact Us consent of Refinitiv. 'Refinitiv' and the Refinitiv logo are registered trademarks of Refinitiv and its affiliated companies. FEBRUARY 12, 2025 / 11:00PM, TWE.AX - Half Year 2025 Treasury Wine Estates Ltd Earnings Presentation

Question: Michael Simotas - Jefferies LLC - Analyst : Makes sense. Thank you.

Question: David Errington - BofA Global Research - Analyst : Morning, Tim. Good to talk to you again. Tim, just two quick questions. The first one on Penfolds, and I'm going to play a little game with you. I'm going to be the devil's advocate here, and I want to hear what your response is. I'm going to say to you, okay, you give depletions, and it looks quite positive, and that Slide 17 looks positive. But your depletion basically, as you say, is just from distributors to retailers. I'm going to say to you, I don't believe you that more consumers are drinking Penfolds. I don't believe you that people are buying Penfolds and storing it in their cellars. In other words, what Tom said, you're only using indicative data as to what the strength is at the consumer end. So can you convince us because the main important question is, what is the end consumer demand growth? I mean you're building up distribution again, you're rolling out new cities, you're doing all of that. But I know e-commerce, but who can -- you can't really compare e-commerce today compared to 2020. So I'm playing a game. I'm being devil's advocate. -- please convince us that your end consumer, Chinese are drinking more Penfolds or they're drinking a lot of Penfolds and/or they're storing it or whatever. So I'd like to get to that end consumer, not to the distributor, not to the retailer. It's not just the distribution field. This is genuine consumer demand for Penfolds.

Question: David Errington - BofA Global Research - Analyst : Okay. Good answer.

Question: David Errington - BofA Global Research - Analyst : Yeah. Yeah, you did. Yeah, you did. Now this one is going to be an even better one. Treasury Americas, I'm playing devil's advocate. Because at the end of the day, excluding DAOU, that looked a pretty ordinary result where your net NSR is down 8% on luxury, excluding DAOU. You've basically found another $15 of synergies where you've just got them and you've got currency support. So can you convince us that Treasury Americas is on track and doing a good performance, given that you're supported by synergies and given that you've got currency support, can you convince us that TAM is on a good result, too. So same deal, can you convince us why TAM, why we should be okay with that result?

Question: Lisa Deng - Goldman Sachs - Analyst : Hi, Tim and Tom. Thank you for taking the question. I have one on Penfolds. I appreciate that the China market is quite volatile and frantic through calendar '24 as you reentered. But I just wanted to understand from an Asia perspective, I see that the growth year-on-year was about 50%. From your best information, how much of that was restocking of channels and how much of that was the retail, so not depletion, but how much of that would have been a retail sell-through, please?

Question: Lisa Deng - Goldman Sachs - Analyst : Got it. And then I have a follow-up specifically on China retail pricing. So we do track the Bin 389 and 407, I guess, China retail prices regularly. And what we saw is that -- correct me if I'm wrong, but Bin 389 did see a noticeable price drop, I guess, into January and February. So RMB718 normally and then now RMB598 on some of the major e-comm channels. If we are understocked, I suppose, and if we did raise our sell-out prices, why are we not seeing that reflected through the retail channels? And how do we get comfort around the 5% parallel import or the CBEC import, which is priced at 30% to 40% discount to the China prices, please?

Question: Lisa Deng - Goldman Sachs - Analyst : RMB958, normally RMB1080. I think today -- sorry, RMB975 with the gift box.

Question: Lisa Deng - Goldman Sachs - Analyst : 407 has been strong, just 389.

Question: Richard Barwick - CLSA Australia Pty Ltd - Analyst : Tim and team, I just had a question on DAOU. I mean you've given volume, you've given NSR, but I can't see anywhere where you've actually talked to an earnings number for the brand for the half. So I just wanted to -- I guess -- but you're also saying it's on target. So I just want to clarify, when you bought the business, you talked about just the weighting first half, second half. So we know what it delivered for the previous half, you disclosed that in US dollars. Is it fair to say that seasonality, the historical seasonality has still played out. So we use that the last reported number to gross up for the full year, we'll get this half? REFINITIV STREETEVENTS | www.refinitiv.com | Contact Us consent of Refinitiv. 'Refinitiv' and the Refinitiv logo are registered trademarks of Refinitiv and its affiliated companies. FEBRUARY 12, 2025 / 11:00PM, TWE.AX - Half Year 2025 Treasury Wine Estates Ltd Earnings Presentation

Question: Richard Barwick - CLSA Australia Pty Ltd - Analyst : Okay. And then the -- just a little bit of confusion, I think, around -- you talked about the remainder of the luxury portfolio being down at 8%. But then there's a comment saying on an organic basis, NSR was broadly in line with PCP. Can you just clarify is that -- when you're talking about organic basis, so that is literally about the remainder of the luxury portfolio? Or is that a comment that is capturing everything? Is that -- does that comment relate to the luxury portfolio?

Question: Richard Barwick - CLSA Australia Pty Ltd - Analyst : So it's everything.

Question: Richard Barwick - CLSA Australia Pty Ltd - Analyst : So therefore, I mean, that tells us that the luxury ex DAOU basically pretty weak. And so really, you've done probably a hell of a lot better on the ex luxury piece in the US?

Question: Richard Barwick - CLSA Australia Pty Ltd - Analyst : Is that a surprise? I mean you had been -- if you go back to the way you've been talking about the guidance, you said you're expecting double-digit increased availability in luxury and a fairly stable outcome in the remainder, whereas the numbers you reported is weaker luxury but stronger for the premium.

Question: Bryan Raymond - JPMorgan - Analyst : Good morning. Just on Penfolds, just going back to the USD20 million that you guys outlined last year in terms of investment in the market there to grow the brand and implementation, obviously. How did that phase in? Is the -- because I was surprised at the strength of the Penfolds EBITS delivery in the first half to the upside. Is that fully implemented? Would there have been circa USD10 million of post costs in there in the first half? Or do we need to think about phasing that in and think about that into the second half and potentially why the second half EBITS might be down slightly to get to your lower-digit guidance?

Question: Bryan Raymond - JPMorgan - Analyst : No, that's right. So that's why I'm just trying to think about the risk to the upside or downside going forward for second half and then into '26.

Question: Bryan Raymond - JPMorgan - Analyst : Right. Excellent. And then just in the US, the DAOU synergy upgrade, not entirely surprising given I think it's a little conservative initially. But just wanting to understand again how that phased in and how you're expecting those synergies to be realized. So is there a way you could help us understand how much of that contributed to the first half result, how much you think in the second half? I think you've guided to USD30 million in FY26, but just trying to think about the underlying performance ex synergies in Americas.

Question: Bryan Raymond - JPMorgan - Analyst : Right. So just to be clear, first half versus second half, how much synergies were realized in each period?

Question: Ben Gilbert - Jarden Australia - Analyst : Hi. Good morning. Just first question for me, maybe to you, Tim, and no disrespect to Ben and Angus with this question. But it feels like you look at the business, obviously, Penfolds is flying, its not enough product to satisfy demand in the second half. It seems like your confidence is materially higher for your fiscal '26, '27 expectations, but the multiple is not reflecting it. And arguably, the halo is from some of the lower multiple businesses in Americas and TPB. The commercial sale is obviously not happening. How -- when you're talking to the board, Tim is the Board and yourself thinking about capital structure, would -- is there an option? Or would you explore demerging Penfolds to realize the multiple? Just interested in how you guys think about that because it doesn't feel like Penfolds is being rewarded for the performance and opportunity within the group at the moment.

Question: Ben Gilbert - Jarden Australia - Analyst : Maybe just a second question for me. Tim, just on the outlook for wine consumption. Like it looks like the West Coast in the US has had a shocker from production, not you guys specifically, it looks like production is down over 20% from 30%-plus in capstone and throughout. How are you thinking about the demand outlook? And I suppose, particularly how you can have confidence saying that your TPB profits are going to be flat year-on-year in the second half. Are you seeing anything to give you confidence around improving supply-demand balance? How much cost have you actually taken out to TPB to give us confidence around getting a flat outcome for second half? REFINITIV STREETEVENTS | www.refinitiv.com | Contact Us consent of Refinitiv. 'Refinitiv' and the Refinitiv logo are registered trademarks of Refinitiv and its affiliated companies. FEBRUARY 12, 2025 / 11:00PM, TWE.AX - Half Year 2025 Treasury Wine Estates Ltd Earnings Presentation

Question: Ben Gilbert - Jarden Australia - Analyst : Yeah around the US, looks like the vintage has been pretty terrible. Seems like low quality, but it's got to be helpful.

Question: Thomas Kierath - Barrenjoey - Analyst : Morning, guys. Just got a question on the Americas business. Shipments exceeded depletions by about 300,000 cases, excluding new products. And most of that is from DAOU and Matua. You did 3.4 million cases in the half. Like it's a good chunk of it. And I think you're saying a lot of that build is from DAOU, which only did 700,000 cases. So I guess I'm just thinking like when does that square up? Or are we going to continue to see shipments exceeding depletions for the Americas business in the foreseeable future?

Question: Thomas Kierath - Barrenjoey - Analyst : And then just -- I mean, secondly, just related to that, I mean, I look at the Nielsen scan data and for the last two-week period, 19 crimes, negative 18%, DAOU, up 8%, which has been in the 20%s, Frank down 16%. But I think Ben was saying he was happy with how scan was going. So I'd just be really interested in how you square that away. REFINITIV STREETEVENTS | www.refinitiv.com | Contact Us consent of Refinitiv. 'Refinitiv' and the Refinitiv logo are registered trademarks of Refinitiv and its affiliated companies. FEBRUARY 12, 2025 / 11:00PM, TWE.AX - Half Year 2025 Treasury Wine Estates Ltd Earnings Presentation And are you getting a lot more growth in the on-prem and some of the independent channels? It'd just be interesting to hear some comments around that channel because, obviously, the data that certainly I look at is not consistent with that.

Question: Thomas Kierath - Barrenjoey - Analyst : Okay. Great. Thanks, Ben. Thanks, Tim.

Question: Shaun Cousins - UBS Securities - Analyst : Great. Thank you. Maybe just in fiscal '26 Penfolds guidance, just it looks like your luxury volumes are somewhat constrained. And further to Mike's question, you don't really go on price. I'm just curious how you actually grow by 15%. Is it that margin expansion or you access more volumes at the low-end Penfolds where volumes are more easily able to get access to or you get the non-Australian volumes. Just if you could just break that up a little bit about how you get there just in that it's -- your business is a product of what you've got to sell. It seems as though really only in the fourth quarter '26, do you get more volumes of those luxury -- the important luxury volumes to sell. So just maybe just break down some of the building blocks, please, for '26.

Question: Shaun Cousins - UBS Securities - Analyst : Yeah. Great. And then 19 Crimes, further to Tom's question, if I look at October, November, December or July, August, September, you're both in Nielsen, it's down 13% and 14%. So I think that's a reasonable indication. You've called out that 19 Crimes has declined slightly. Is 13%, 14% the right number? Or is there a bunch of other channels out there that makes 19 Crimes more that drives growth? And more generally, you've had ambitions to stabilize this brand for some time. This is a question on your ability to execute in 19 Crimes, which I don't think has been as good as what you've done in Matua. I'm just curious, can -- are you confident you can actually get to stabilization? Or is this a brand like a Lindeman's that's in a managed decline?

Question: Shaun Cousins - UBS Securities - Analyst : Okay. Thank you, Tim. REFINITIV STREETEVENTS | www.refinitiv.com | Contact Us consent of Refinitiv. 'Refinitiv' and the Refinitiv logo are registered trademarks of Refinitiv and its affiliated companies. FEBRUARY 12, 2025 / 11:00PM, TWE.AX - Half Year 2025 Treasury Wine Estates Ltd Earnings Presentation

Question: Phillip Kimber - E&P Capital - Analyst : Hi, guys. My question is back on China, where all the feedback and what you're saying suggests is actually been very strong and demand is exceeding the limited supply, particularly at the upper end at the moment. But some of those numbers, I think Lisa quoted, and I know they're retail prices, but they're materially higher than what you can buy the product for in Australia. So it's AUD150 versus AUD100-ish, AUD120 your website, AUD100 at Dan Murphy's. Can you confirm whether there is a material difference in what price -- they're obviously retail prices, what price you're selling at in China for? Just because there's been a number of articles on this parallel importing issue. And I know ultimately, you're selling the product somewhere, but I just wanted to understand whether there was a material difference in wholesale prices in China versus other markets like, say, Australia.

Question: Phillip Kimber - E&P Capital - Analyst : Sorry, you said decreasing. So it started off higher, which was as expected when you reenter the market. But do you feel that it's washing through now to see --

Question: Phillip Kimber - E&P Capital - Analyst : Okay. That's great. Thank you.

Question: Mark Southwell-Keely - Select Equities - Analyst : Thanks for taking my call. I have two questions. My first question relates to today's comments around the level of parallel imports currently in China. Back in August, you said there were only isolated instances of these products and you expected these products to be cleared by the end of 2024 and before Chinese New Year. Given today's acknowledgment by the company that there's continued availability of these products, how can the market be confident in relation to the update on this issue?

Question: Mark Southwell-Keely - Select Equities - Analyst : In terms of my second question, a number of Penfolds top-tier distributors in China are state-owned enterprises who are motivated by a number of factors, some of which are not related to profit. This can lead to situations, for example, where they might buy inventories from a brand, notwithstanding relatively weak consumer demand for the product. How do you think dealing with these customers is impacted on the behavior of management and the health of Penfolds value chain?

Question: Mark Southwell-Keely - Select Equities - Analyst : So you don't believe you're overstocking the market?

Question: Mark Southwell-Keely - Select Equities - Analyst : Well, how do you explain the fact that a retail consumer can easily purchase Bin 407 today via a variety of platforms well below the recommended wholesale price?

Question: Sam Teeger - Citi Investment Research - Analyst : Hi, Tim. Good morning. Thanks for taking my question. I've got two quick ones for you, one on China distribution and one on US luxury. The first question, the disclosure you gave of being in 10,000-plus outlets in China is really helpful. How many outlets do you think you might be in at the end of the financial year? And is there a longer-term target? And how many potential outlets are there in China overall? And the second question on the US luxury, can you just help us understand a bit more around your plans to stabilize some of the NSR declines ex-DAOU and get them back into growth? To what extent is some of the older brands such as Beringer and Stags' need some investment and how much?

Question: Jason Palmer - Taylor Collison Ltd - Analyst : Yeah. Thanks for taking my call. I just had one question. Just in respect of the Americas 2023 vintage. I think 12 months ago, Tim, you were talking quite positively about the volume, and you touched on it in Ben's response around the COGS benefits, but also the volume benefits. Now I would have thought some of that luxury in Americas, in particular, the cabernet for Napa and the Sonoma chard would have been tailwinds for the luxury business very late this financial year and into FY26. I'm just curious whether you can explore that a little bit more for everyone. That's my question.

Question: Jason Palmer - Taylor Collison Ltd - Analyst : Sure. But you've included that in your synergies for DAOUs.

Question: Jason Palmer - Taylor Collison Ltd - Analyst : Okay. So you're not willing to advise us what the intake increase would be because the crush data for those regions for those years are actually very high, in particular 2023.

Question: Jason Palmer - Taylor Collison Ltd - Analyst : It makes sense. I don't disagree with what you're saying there. It was more so I thought it would have been more of a positive for 2026 with obviously more volume of luxury if you can sell it in fact. And I thought you might explore that a little bit more in your response around the type of volume availability increase that we might have for V '23?