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Operator: Thank you for standing by, and welcome to the Treasury Wine Estates (TWE) FY '26 Half Year Results Briefing. [Operator Instructions] I would now like to hand the conference over to Sam Fischer, Chief Executive Officer and Managing Director. Please go ahead.
Samuel Andrew Fischer: Thank you, operator, and good morning, and thank you for joining Treasury Wine Estates 2026 Interim Results Briefing. Joining me on the call today is Stuart Boxer, our Chief Financial and Strategy Officer. You may notice that our divisional leaders aren't on today's call, which is a shift in how we would like to present our results moving forward, with Stuart and I to lead this forum while allowing the rest of the team to remain fully focused on the business and our commercial execution. Going forward, we will, of course, provide opportunities for you to engage with the broader leadership team, including at our Investor Day in early June and other engagement events that our Investor Relations team will lead. Turning now to the key messages that we'd like you to take away from today's announcement, which are an update on the key areas we laid out in our update in mid-December. In first half 2026, EBITS of $236 million was just ahead of the guidance range from December, and statutory NPAT was a loss of $626 million, driven by the noncash impairment of U.S. assets that again, we announced on the 1st of December. While the headline results announced today are clearly disappointing, they also reflect the decisive action we are taking to return TWE to a path of long-term sustainable profitable growth. In recent months, we've cleared some major hurdles, and I'm feeling optimistic and energized about the future business we are creating. A key driver of this optimism comes from the positive underlying performance of the business with depletions growth continuing in key markets and across key brands. Most notably Penfolds, continued delivery of strong depletions growth in China. And in the U.S., outside of California, where Treasury Americas depletions grew against broader market weakness. I'll talk in some more detail about depletions shortly. Retaining the strength of our capital structure is a key priority. We reported leverage at 2.4x in line with guidance. Our decision to suspend payment of the F '26 interim dividend is a temporary measure that reflects clear and definitive action to reduce our balance sheet gearing towards our target levels. Resumption of the dividends will be the subject of future financial performance and our leverage improvement trajectory. This action is just one element of an active program we are undertaking focused on meaningful capital preservation initiatives, elevating our focus on costs and cash, and we will cover this in greater detail later in the presentation. We are also taking decisive action to maintain the strength of our brands and the health of our distribution channels. In the half, we significantly reduced Penfolds shipments in order to restrict parallel import activity. We also commenced our planned reduction of U.S. and China customer inventory, which will continue over the next 2 years in line with the time line we presented in December. As announced last week, we reached a settlement agreement with RNDC, bringing clarity to our route to market in the U.S. We are pleased to have reached this conclusion with RNDC remaining a committed partner to TWE. We also look forward to partnering with Reyes Beverage Group in six states once that planned transaction takes place later this year. And finally, TWE Ascent. Our multiyear transformation program is progressing at pace and our confidence in our ability to execute the change required is high with plans and targets to be presented at our Investor Day in Sydney in early June. So it's been a busy couple of months since we last spoke with many positive developments as we work towards creating a stronger future TWE business. Turning now to the first half '26 financial performance. and some key metrics. Three key factors impacted top line performance, including category trends, particularly in the U.S. and China, our deliberate focus on restricting Penfolds shipments that were contributing to parallel import activity and the cycling of elevated shipments in the prior year period. NSR per case fell 5% and primarily impacted by reduced ultra-luxury sales in Penfolds, which were disproportionately impacted by our actions to reduce parallel and inventory in China. EBITS margin also decreased 7 percentage points to 18.2%, driven by the change in sales mix and higher cost of doing business from the operating model. ROCE declined 1.7 percentage points to 9.5%, driven by the decline in EBITS. Prematerial items, net profit after tax was $128 million and EPS of $0.158 per share. As I mentioned earlier, we have made the decision to suspend the F '26 interim dividend as an important temporary measure. Turning now to divisional performance, where final delivery in each division was slightly ahead of the expectations we set in December. Penfolds delivered EBITS of $201 million. The result reflected the restriction of shipments contributing to parallel import activity in China and the cycling of an elevated level of shipments in the prior period associated with the initial distribution build following the removal of tariffs on Australian wine. Pleasingly, demand for Penfolds brand remains strong across key markets with great in-market execution, driving continued depletions growth. The heartland of the portfolio Bin 389 and 407 continued to perform well. Penfold's F '26 EBITS is expected to be approximately $400 million with EBITS margin expected to be approximately 40%. Treasury Americas delivered EBITS of $44 million. The result reflected the moderation in U.S. luxury wine market sales disruption from the Californian distribution transition and cycling the excess of shipments to depletions in the prior period. We saw some good momentum outside of California, with key brands showing ahead of category depletions growth. TWE also outperformed the category in on-premise led by DAOU, Frank Family and Stag's Leap. Treasury Americas full year '26 EBITS is expected to be approximately $90 million, excluding the impacts of the RNDC settlement. Treasury Collective delivered EBITS of $28.1 million in the half. The result was driven by weaker sales in the U.S. with the softer U.S. market conditions and the impact of the California distribution transition also impacting performance here, in addition to the reduction of customer inventory by approximately 200,000 cases. The Treasury Collective portfolio continues to perform in line with expectations in Australia and EMEA with the impact of commercial volume declines, partially offset by the momentum behind the growth and innovation portfolio with gains led by Pepperjack, Matua and Squealing Pig. For Treasury Collective second half '26 EBITS is expected to be higher than the first half. Turning now to depletions performance. which provides a clearer view of the underlying momentum of the business. Depletions are well ahead of the reported NSR metrics with some great growth being achieved against the more challenging market conditions. For Penfolds, combined depletions of Bin 389 and 407 were up 11%, while China depletions continue to be strong despite recent changes in the market up 17% in the period, August to December. This positive momentum is continuing into the important Chinese New Year period, which officially starts tomorrow, where we expect to see good growth on the prior year. These are very pleasing outcomes, reflecting Penfold's strong brand equity in the market and continued strengthening of the brand health metrics with demand power increasing in all key markets over the last quarter. For Treasury Americas, California depletions were impacted by the distribution transition with some improvement in scan trends visible in January. Outside of California, we achieved a material increase in points of distribution in the half, driving depletions growth led by DAOU, Frank Family Vineyards and Stag's Leap. This is pleasing and a great sign of what we can achieve when we elevate our focus on execution and the opportunities that exist in the market. For Treasury Collective, we saw positive depletions in Australia, led by Pepperjack Squealing Pig and 19 Crimes. In the U.S., 19 Crimes continued to drive declines partially offset by the ongoing momentum behind Matua. While there are some clear areas we need to drive a step change in performance, namely in California and across the Treasury Collective portfolio in the U.S. There are some very positive underlying growth trends throughout the business, reinforcing the strength of our brands and what I see as the considerable potential for growth across our brand portfolio. Behind these positive results is the momentum that our teams are driving, again, focused on execution excellence to deliver depletions growth. I've been incredibly impressed by the standard of the brand activations that I've seen in my recent visits to Asia and the U.S. in the past couple of months. For Penfolds, category-leading activations are behind the strong depletions growth in China. Our recent collaboration with [ Maybach ] was a huge success building connection between two iconic luxury brands and providers and providing buyers of high-end luxury cars, direct engagement with the Penfolds brand. We will see more of this type of activation going forward, putting the Penfolds brand at the center of key gifting occasions, feasting occasions and collaboration opportunities with other luxury brands, all to cement the luxury icon positioning of the Penfolds brand. DAOU is an amazing brand. We've just scratched the surface from a growth opportunity perspective, with meaningful runway to expand distribution of the core portfolio and further grow the on-premise channel. The expansion in category weighted distribution has been the key to growth outside of California with considerable opportunities remaining. Frank family is another fabulous brand with huge potential. We are seeing strong depletions growth driven by on-premise strength. And like DAOU increased distribution outside of California as the brand continues to build its status with the U.S. luxury wine consumer. And in the premium space, Matua continues to grow ahead of the category in the U.S. A key driver of recent growth has been expanded distribution of Matua Lighter which has a strong presence in the better-for-you segment and growing at around double the rate of the core brand tier. We believe there is a big opportunity for the brand elsewhere with Australia an increasing focus delivering double-digit depletion growth, again, led by distribution expansion in the major retailers. Ensuring we remain focused on best-in-class execution is critical to our growth ambition. Turning to the short and medium-term agenda. We have a clear set of immediate priorities guiding our focus. First, in-market execution remains a critical area of focus. I mentioned it all the time, we are intensifying our depletions-led execution performance across all markets and sustaining momentum behind our core brands through disciplined activation and distribution. Second, we are taking an elevated focus on cash right across TWE. In addition to our decision to suspend the interim dividend, we have deferred all nonessential expenditure and capital investment. We are also accelerating the program of work supporting the divestment of noncore assets and actively managing 2026 vintage intakes lower. And finally, TWE Ascent, the multiyear enterprise transformation program to create a stronger TWE with a focus on delivering attractive returns and cash generation. We are moving at pace to maximize the delivery of the previously announced cost and cash benefits which will be realized from fiscal year '27. Talking about TWE Ascent in a little more detail. We have a high level of confidence in our ability to realize the $100 million in cost savings from F '27 over a 2- to 3-year period, as previously announced, in addition to the potential benefits of portfolio rationalization. As we laid out in December, TWE Ascent is a significant program of work focused on creating a stronger under three core pillars. From a portfolio perspective, we are focused on having a portfolio of brands that are both individually and collectively positioned to outperform the market. Critical to this is alignment to category, consumer and competitor trends as well as our competitive position, ensuring that we are best placed to grow our business in partnership with our retailers and distributors. Further, as part of the alignment of our balance sheet to our future strategy, we see an opportunity to release capital. Since December, we've made good progress on this work. And today, I'm pleased to share our expectations for the key components of our end-state portfolio, which will include: The strengthening of our luxury red wine leadership in key markets, led by our existing portfolio of acclaimed luxury brands like Penfolds, DAOU, Frank Family Vineyards, Stag's Leap and Beaulieu Vineyard. Building on that, we will be strengthening our position in luxury white wine, where we already have some great offerings across the luxury portfolio, but we will dial up our focus in what is a clear growth area for wine consumers. And third, we will elevate our focus on modern refreshment through Matua and Squealing Pig. We have a great platform in place and are well placed to continue driving growth through disruptive innovation. In addition to the operating model, it's all about increasing organizational speed consistency in everything we do and delivering flawless in-market execution. And from a cost lens, we are working to materially reduce operating costs. Our target of $100 million per annum in savings is benchmarked both from a cost and performance perspective. It will be enabled through maximizing our use of data and automation with significant programs of work well underway in this regard. In terms of process and time line, Ascent is being executed in three distinct yet integrated phases of work. As the slide shows, we are currently well into the defining the future phase with work expected to progress through to the end of March. At this point, we'll commence work on the detailed future state and design. We will then lay out our conclusions, plans and targets at our 2026 Investor Day to be held on the 4th of June in Sydney. We look forward to the opportunity to share with you our plans for a stronger future fit TWE event. I'll now hand over to Stuart to cover key components of the financial result.
Stuart Boxer: Thank you, Sam, and hello, everyone. We'll start with material items. A post-tax material items loss of $751 million was recognized in the half, which primarily relates to the noncash impairment of U.S.-based assets as we foreshadowed in our announcement to the market on December 1. This impairment is the result of applying more conservative growth assumptions to our U.S. portfolio in response to the moderation of U.S. wine category trends. It includes the write-down of our U.S. goodwill to zero, which we are required to recognize first under accounting standards. I write-down of selected brands, including Sterling and Beringer, and inventory, the largest component of which relates to excess bulk wine from the most recent 2025 of vintage. I should point out that the DAOU, Frank Family Vineyards and Stag's Leap brands were not written down as part of this impairment. Now moving to the balance sheet. Net assets decreased $930.9 million on a reported currency basis, with $226.6 million of this decrease due to foreign currency movements and $771 million due to the U.S. impairment. Excluding these, the key balance sheet movements overall were in line with the usual seasonal variances other than inventory, which I will go through shortly. Net borrowings were higher by $91.2 million, driven by lower operating cash flows, partly offset by the foreign exchange translation benefit on our U.S.-denominated debt. So turning now to inventory. Against the prior corresponding period, total inventory volume reduced 2% while value increased 2% or $16 million, reflecting increased luxury inventory, largely offset by a reduction of premium and commercial inventory. Current inventory decreased $231.9 million, reflecting the moderated sales expectations in Penfolds and Treasury Americas. Noncurrent inventory increased $278.4 million, predominantly driven by this transfer of inventory from current to noncurrent together with the luxury intakes from the most recent vintages. In Australia, we made good progress towards our focus on rebalancing supply and demand with initial intake reductions already locked in for the 2026 vintage, and we remain confident that we will achieve a balance over the two to three vintage period. In the U.S., we are taking action to manage our intake, starting with the 2026 vintage, where key initiatives will include the falling of selected controlled vineyards and the reduction of grower intake. Moving now to cash flow and net debt. Net operating cash flow before interest, tax and material items was $264.6 million for the period, a decrease of 38.1% on the prior corresponding period, and cash conversion was 82.4%. We expect full year cash conversion to be lower than the first half outcome driven by the net inventory build post the Australian vintage, but notwithstanding the reductions of this intake I just mentioned. Capital expenditure was $76.8 million and included maintenance and replacement CapEx of $56.3 million and growth CapEx of $20.5 million. This growth CapEx largely related to the in-flight BV development in Napa, which is scheduled to complete at the end of this half. Full year CapEx is expected to be approximately $125 million, reflecting the completion of projects currently in progress and a tightening on all other nonessential CapEx. Turning now to capital management. Leverage was 2.4x in line with the guidance provided in December. We expect full year leverage to be higher predominantly due to the flow-through of the lower trailing 12-month EBITDA, together with the lower cash conversion. Our liquidity position remains healthy with $1 billion of cash and committed undrawn debt facilities on hand and a well-diversified debt maturity profile with no meaningful debt maturities until June 2027. And we retained significant headroom to the financial covenants under our borrowing arrangements. As we've already mentioned, we have an elevated focus on near-term cost and cash initiatives, including deferral of all nonessential or committed capital expenditure, divestment of noncore assets and managing vintage intake, and we are seeking to accelerate the realization of Project Ascent cost and cash benefits in order to reduce leverage towards target levels. The decision to not pay an F '26 interim dividend was a key part of this focus. With the resumption of dividends in future periods, subject to our financial performance, and its leverage improvement trajectory. Thank you. I'll now hand back to Sam.
Samuel Andrew Fischer: Thanks, Stuart. In summary, our first half '26 performance and full year expectations reflect both the impact of conditions in our key markets and the deliberate actions we have taken to maintain brand strength and ensure healthy sales channels. Looking ahead, we expect second half EBITS to be higher than that delivered in the first half. Importantly, the underlying performance of our key brands remains positive as reflected in the depletion trends that we presented earlier. Our immediate agenda is focused on three key priorities: one, market execution; two, cash focus; and three, accelerating the TWE Ascent program of work with high confidence around expected future benefits. Combined with our strong business foundations, including a powerful portfolio of brands with leading market positions, the continued outperformance of our key brands in key markets underpins our confidence in returning TWE to the delivery of sustainable profitable growth. I'm full of optimism and energy around the progress we're making and the future we are shaping. While we have work ahead of us to address some key specific areas, it is the underlying strength of our brands and wealth of opportunities in our markets that continues to excite me. Thank you again for joining us today. I will now hand over to the operator to take your questions.
Operator: [Operator Instructions] The first question today comes from Ben Gilbert from Jarden.
Ben Gilbert: I was wondering if you could just talk around pricing and has there been much investment in wholesale pricing in the China market to clear inventory, and it does look like there's been some further weakness on the pricing front through January.
Samuel Andrew Fischer: Yes. Thanks, Ben. I think we're still in the midst of Chinese New Year. We're just getting some more data. We haven't changed anything in relation to our wholesale pricing, and we haven't given any kind of extraordinary discounts that would allow there to be any change in pricing. I do think as parallel dries up and we are seeing the parallel drying up and kind of those parallel operators look to get volume elsewhere. There could be some increased competition in the market, and there may be some margins that distributors are using to get that business. But generally speaking, I'm feeling very positive about this parallel initiatives that we're taking. We're getting very positive feedback from all of the formal distributors inside of China, and I will expect to see more stability and elevation in our wholesale pricing going forward.
Operator: The next question comes from David Errington from Bank of America.
David Errington: Sam, look, I suppose the key issue, the most pressing issue for investors right now outside of the operating performance, is the balance sheet repair, and that's probably where I'll address my question. If I look, you've got -- you've literally got, what, $2.5 billion worth of inventory at cost your payables basically broadly meet your receivables. So it's literally -- you've got $2.5 billion of cost that is your future growth of the business. Now how do you manage that -- how do you manage the company? I'm really intrigued because as you know, I'm a massive bull on Penfolds and the less said about the U.S., the better. How do you manage this where -- two of your three priorities is cash management, cost control because to me, the most -- the best way out of this balance sheet predicament is to grow, get your earnings growth back you're going through this transition period at the moment where you're rebasing. But I would like to think that that's not what we base our earnings growth on. How do you get your growth back whilst maintaining and repairing your balance sheet. It's going to be a pretty hard act. I want to see growth coming back for Penfolds. So I want to see growth. I don't want to see cash management. I don't want to see -- I just -- that's -- I just expect that. I want to see you growing again. So how do you manage getting that growth back, but at the same time of being in these constraints of having to control your cash and having to cut costs because I worry about that as to whether you can do -- you can wear two hats. Generally, growth companies don't have to worry about cost control. They just manage their cost. They don't have the cost control. They don't have to cut costs. How can you get both, if you like? Because if you can, it will be fantastic, but can you do both? You've got all this inventory, your payables equal, your receivables, you're in a wonderful position, but you need growth. How do you get both Sam because that's the magic source for mine? How do you do both? How can you do it -- how do you do it? You've been there, what, 100 days? How are you going to do it for us?
Samuel Andrew Fischer: So thanks, David, for your question. And I'm glad to see that we agree with each other because I think you're right about growth. And I don't know how many times through that presentation, I mentioned execution, activation distribution gains, momentum at a core brand level. And that's what underpins the whole of what we're focused on as we go in at an operating unit level in the business. . That's a cultural shift in relation to what we do on the shelf, what we do on the menu, what we do with wine consumers and activation across core components of the business. And I'm really encouraged by some of the early signs. You're right. I haven't been at this for very long. But we've wired depletions growth and execution standards into our performance rhythm. And that is the premise of the conversation we have with all of our teams every single month. The positive news coming out of China around momentum of the Penfolds brand is you just can't underestimate that impact for us. It's early days, and we're not even in the Chinese New Year, but lots of what happens at a brand level happens before the actual celebration. And we've got some great anecdotal feedback on the strength of the brand, how well it's being received from a gifting perspective in the year of the horse. So lots to be really pleased with there. I think DAOU and Frank family Stag's Leap, I've talked a little bit about in the U.S. and Matua again, all growing outside of this disrupted channel of California. And I've met with BBG on now twice in the two trips that I've had to the U.S. And I'm increasingly confident that they're really getting their arms around our California challenges so that H2 will be much more positive than we saw in H1. So we do need to focus on discipline inside of our organization. That discipline starts with how we execute and how we drive depletions, but it also starts with being fiscally responsible. And we just have to make sure that we spend all of our money on supporting the growth that you talked about and that we control our cash spend through CapEx. So that's the short term. And in the longer term, I've talked a lot about Ascent. It's difficult for me to bring real color to the momentum that Ascent is having inside of our business in clarifying exactly the portfolio that we will execute and ensuring that we've got a fit-for-purpose operating model to support that growth agenda and that we remove where possible, any duplication and wastage, so we can free up funds to support growth. So it's all really clear for us, but you're right, depletions sits really at the core of everything.
David Errington: So clarifying, once, '26 transition year. I get that. Is '27 a transition year as well? Or can we -- can this start materializing getting some growth back? Look, Penfolds 17% depletions is terrific. Coming into Chinese New Year. But do we have to go through 2 years of transition. Is that what you're asking us, Sam? Or can we just go through 1 year and then we can reexpect to be coming back again. That's important because if you're asking for 2 years, that's fine. But what are you actually asking for 1-year transition plus we reignited? Or do you want 2 years?
Samuel Andrew Fischer: I think, David, the process of Ascent, we've said is multiyear. This is a really big transformation program, and we'll continue to develop that project through that period of time, and we're dealing with some things inside of the business that are going to take longer than 1 year. And we've talked about some of those inventory challenges. But in relation to building momentum behind the core brands that we're going to focus on, I expect that momentum to continue to build through that period of time while we deal with some of those structural challenges that we've talked about.
Operator: The next question comes from Shaun Cousins from UBS.
Shaun Cousins: Just a question regarding Penfolds and this is possibly better for Tom King, but I learned he is not on the line. I think in October '25, the company admitted that sort of reallocating product previously you marked to China was less of a plan as there was risk of that product going -- ending back up into China by way of a gray market. Did Penfolds kind of lack curiosity around the ultimate end market demand for those non-China and non-Australian markets? Or was demand generation ineffective? Or was there just pressure reallocated? It just seems to be that this is another reason for your -- the challenges you have in Penfolds is that you haven't built enough demand in other markets and it looks like you've lost a little control of your supply, please?
Samuel Andrew Fischer: I think those markets do look disrupted because of the really specific actions we're taking around operators that we've identified as contributing to parallel. But actually, when you look underneath that and we look at the performance in key markets like Malaysia, Thailand, Singapore, and we see how that brand is being developed actually is outstanding work. One of our Board members was up and saw an activation at a table in a restaurant where it was just full of Penfolds. So I really think the brand in the markets outside of China is in great health. The numbers are just being disrupted a little bit as we kind of normalize what is domestic consumption versus what is consumption that's been driven from outside of the markets. So I think that's the best answer. I think the brand is in a great place in all those markets that I've seen outside of China.
Shaun Cousins: But how are you selling too much product in because -- are you not able to appropriately determine what the end market demand is because if you're worried about product going in that it ends up in China, then that would suggest you don't have your arms around the appropriate end market demand, even though the comment you've made is pleasing around the brand being developed well, but it looks like you don't appropriately understand how to size what that true demand is.
Samuel Andrew Fischer: I mean, I've used this word before, but I think we have had a really forensic look at volumes in some of those markets. We've looked for anomalies. We've looked at what doesn't seem to add up to what we would expect to be in market consumption where we've seen sort of anomalies in specific channels we've taken corrective action. Difficult for me to speak about the past because I wasn't here, but certainly from now going forward, we've made really significant corrective actions to erase those anomalies and focus wholly and solely on in-market depletion and execution.
Operator: The next question comes from Richard Barwick from CLSA.
Richard Barwick: I just want to just clarify the commentary that you provided on Americas EBITS So about $90 million for FY '26. But you actually -- you've got -- I guess, you've got the caveat there, excluding any benefits and costs of the RNDC settlement. So can you just clarify exactly what those benefits and costs are as they relate to EBIT, please?
Samuel Andrew Fischer: So I think -- Richard, I think the way that I'd sort of answer that one is that we've described that there's a benefit coming from the California settlement, and there will be some costs associated with that. The net of the benefits less the cost will be a positive number. So that's the first piece. And then the guidance we tried to give you around that $90 million is to say that is excluding the flow-through of any of that benefit. So treat it for the purposes of trying to think about your outlook is just excluding that net positive benefit from your numbers, if that helps you.
Richard Barwick: All right. So -- but when we get around to August, Stuart and you're reporting Americas EBIT, therefore, we should be thinking about $90 million, then plus some small net positive.
Samuel Andrew Fischer: That's probably right. And whether we ultimately treat that as a material item or in the income. We haven't finalized yet, Richard, but we'll be clear on that when the results come around.
Richard Barwick: Okay. And then one other clarification on the Americas EBITS You also talked about as far as for the group, you mentioned obviously second half growth -- sorry, second half EBITS to be a little bit higher than first half. But the sort of the -- I guess, the reference or the description that goes along with that is improved momentum in California following completion of distributor transition. How -- where are we in that? Is the when do you sort of classify the distributor transition has completed? Has that occurred already? Again, just trying to get a little bit of better understanding there, please.
Samuel Andrew Fischer: Yes, sure. Thanks, Richard. I think when we transferred the business to BBG, there were many others that transformed and there were some real operational challenges that they went through, which really impacted our ability to put product on the shelf. So having met with BBG, the CEO in January, I got great comfort that they've rigorously worked through some of those operating challenges. We saw some real improvement in January. It's only 1 month. We're not declaring victory. But I guess what we're saying is that we would expect to see continued improvement through the first half on the back of the significant interventions that BBG has made to their operation.
Richard Barwick: Okay. All right. So for what you can see, it looks like it's progressing, but it's a process that will take place across the half.
Samuel Andrew Fischer: Yes, I think that's fair. .
Operator: The next question comes from Sam Teeger from Citi.
Sam Teeger: Just another question on the U.S., please. How are you thinking about the potential disruption outside of California and the seven other states that RNDC is getting out of. I know none of them are as big as California, but looking at market data collectively, they are bigger. And I guess when will Reyes finalize their sales plans for your brands in these markets? And what the potential here that the sales plans could be lower than what RNDC? So you have the view and just how does the inventory transfer across Will that be clean or anything we should consider on this?
Samuel Andrew Fischer: Thanks, Sam. I'll try and answer that. I just had a little bit of trouble hearing you, if not I'll get Stuart to supplement it. But Reyes is a business we know well. I've met with them and have known them in my previous life. So a huge distributor in the U.S. They've got multi-beverage capability, having taken on a large portion of the RNDC business in California. So we feel great confidence. I believe that the transaction is progressing. And I don't know exactly when it will complete, but we would expect in the half. So that's very positive and I think goes a long way to supporting and strengthening RNDC's overall balance sheet. I think from our perspective, it will be about 5% of our business, again, reducing our reliance on RNDC and they're taking over the RNDC business. So lots and lots of the capability that exists in those -- in RNDC is transferring to Reyes. And all of those people know our brands really well. So we're expecting really a much, much smaller disruption through transition. And we're already speaking to Reyes about kind of building plans. So again, we've got a really seamless transition once the transaction is complete. So I think we feel great confidence. We're working with the team already, and we've got lots and lots of respect for Reyes as a business. Stuart, anything to add?
Stuart Boxer: Look, the only thing I'll say just to sort of further clarifies it's quite different to the California transition in the way that Sam described in that the arrays will pick up the business people, et cetera, from RNDC. So it picks up an operating business. which makes it a whole lot simpler from a transition perspective than what we've seen in California where BBG basically had to gear up from a zero start. So it's quite a different situation there. Obviously, these things always have elements of change associated with them. But fundamentally, we see us being significantly smoother than what we saw in California.
Operator: The next question comes from Michael Simotas from Jefferies.
Michael Simotas: First one from me, another question on the U.S., if I can. When you repurchase the inventory from RNDC in California, you're going to be holding it on your balance sheet at a cost which would effectively give you 0 gross margin. What confidence do you have in your ability to recover that cost? And is there a risk that you will need to impair that inventory?
Samuel Andrew Fischer: Look, we're pretty confident about that. We're sort of well aware of the nature of that inventory, our team sort of working through that detail and that we are confident that inventory will be sellable in the way you described. Obviously, the shape of the P&L will be a bit of a challenge in the way you've described, but we'll sort of help you out with that when we get to the full year. So you can see through it. But certainly, what from what we see, it's going to be from a recovera perspective.
Michael Simotas: And then a broader question as part of Ascent plans to evolve the portfolio further. There's a lot of debate around structural versus cyclical impacts or factors in wind. But one thing that seems pretty clear in every market around the world, including China as consumer preferences are shifting towards lighter red and white. Outside of Frank Family, none of your brands are really known for either of those styles. What does that evolving the portfolio look like? And is that organic? Or would you need to make more decisive -- or take more decisive action on the portfolio either exiting brands or potentially acquiring new brands?
Samuel Andrew Fischer: Yes. Thank you, Michael. Yes, I think that's right. And the work we're doing is data led and future back. So we sort of have a look sort of 5 years down and look at the big trends we see at a category level and overlay our brands against those trends. And I guess that's where the luxury white came from. We sort of looked at that and said, "Gee, we can see luxury white wine having really interesting runway starting to get a lot of traction". And we looked at our portfolio and said, well, we've got some really incredible brands here led by Yattarna, can that play a much, much bigger role as we look into the future. Luxury red, of course, we can still see that whole premiumization trend over the 5 years, playing a real role as well. So they're playing right into the core. Again, when we look at some of these lighter styles, that's where we really looked at Matua and Sauvignon Blanc continues to play a real recruitment role for the category. It brings wine into new occasions on the back of Marlboro, Sauvignon Blanc and we've got an incredible brand and an incredible position in Marlboro. So that's one -- that's actually playing straight into that, what we call refreshment or lighter styles. And where we've got other gaps, you mentioned things like Rosé and perhaps Pinot Noir. We're very much looking into our portfolio and saying, how do we innovate or how do we bring a variant forward so that we can really play a much, much bigger role in those growth areas. So again, without getting into too much detail, a whole lot of opportunity there. We're already doing it with brands like Squealing Pig, they're disruptive. They're innovative but how we do that with our luxury portfolio, we're still working through.
Michael Simotas: Okay. So it's more about scaling products that you've already got and potentially launching new products within existing brands rather than anything more dramatic than that. .
Samuel Andrew Fischer: We're blessed with a wealth of brands and products and vineyards. So we've got everything we think we need to really play a much, much bigger role in the parts of the category that we see as having real growth potential. That's our priority.
Operator: The next question comes from Tom Kierath from Barrenjoey.
Thomas Kierath: Just a bigger picture one. I suppose like over the last 15 years or so, every 4 or 5 years, TWE have these kind of big write-offs, overstocking issues, how do you kind of improve your processes? And I suppose, understanding of where inventory is so that you don't have these issues going forward. I mean, it would just give people a lot more confidence that the reported numbers are actually a lot more reflective of what's going on. Do I have any color you can provide on that, Sam?
Samuel Andrew Fischer: Sure. I mean difficult, again, just to talk into that past. But I do think this medium- to long-term strategy we're employing through the Ascent program is going to give us much more clarity. We're really looking at the category, understanding the trends and then understanding kind of how we wire ourselves to tap into those trends, but also to compete harder. And I really do see that as an opportunity. I've mentioned execution and activation and all these words so often, but culturally inside of our organization. what is going to underpin future and consistent growth is winning in the marketplace. And I keep talking about how blessed we are with the portfolio of brands that we've got, the market positions that we've got. We've got to take all of that DNA and turn it into winning in market through execution. That's what will underpin the consistency of the future. Some of that's a bit of a cultural shift inside the business. Some of that's taking a much, much longer-term view and making sure we're positioning ourselves against those trends. So I'm conscious of the change, and I'm conscious of this history. But I guess I'm thinking about it from a forward perspective and saying, how over the next 5 years, can we position ourselves to drive that consistency.
Operator: The next question comes from [ Noah Hunt ] from MST Financial.
Unknown Analyst: I just had a question on the composition of the Americas EBITS, so if I take down earnings out of the Americas earnings result, the rest of the luxury wines in the Americas looks to be close to, if not loss making. Is this the right way to look at this? And if so, why is this the case? And what's the fix going forward?
Samuel Andrew Fischer: I would -- look, the reality is that, that Treasury Americas business is one business. It's not run as five individual P&Ls with different brands. So it's difficult to extract one brand out of it and look at the rest. But I certainly understand the mathematics that you've tried to do there. I think the component of the results we've already talked to around what's driven the top line performance and some of the issues there in California, et cetera. So you've got a result driven by the things we've talked about, which has resulted in an outcome that you've described in a way you have. But I think back to what we're focused on, we're focused on driving depletions growth across the entire portfolio to move through this period of distributor transition in California to be able to move through the period of working through that distributor stock that we've talked about over the last couple of calls. To get ourselves into a position where we've got a well-performing portfolio of brands in that market. And so at a point in time, I get your point, but we're sort of taking a long-term view as to the outlook of that business overall with that collection of brands.
Operator: The next question comes from Caleb Wheatley from Macquarie.
Caleb Wheatley: Just a follow-up on Penfolds and the depletions in China. I appreciate the earlier comments, there wasn't any material change from wholesale pricing or funding on that side that plus 17% depletion still looks relatively strong compared to PCP. I just came to understand if there's anything else to call out from your respect in terms of what drove that number? And any potential thoughts on how it may trend as you work through this destocking process, please?
Samuel Andrew Fischer: Thanks, Caleb. I think, look, we've had Tom has been up in China in January. He's been in the south. He's been with distributors first, second and third tier distributors. And the brand is in great shape is his feedback, which is terrific. It's being mentioned in the same sentence as Moutai as being two of the brands through the Chinese New Year at that point that are doing really well. I think what's underpinning that performance is, one, the strength of the brand. And two, the strength of the team and the activation the team is working on in the market. And we talk about kind of that [ Maybach ] execution, but it's extraordinary to see what that drove on social media and at a brand level through that touch point. So I really think it is about kind of quality execution. It's about engaging with consumers where they are, our social media activations. And also the fact that we've got such confidence now coming from our Tier 1, Tier 2 and Tier 3 distributors. They've seen this really definitive action that is designed to strengthen their position in the market, and I think that's giving them confidence that they can continue to support and invest in Penfolds for the longer term. So there's just a suite of things here that are getting us excited about, one, this Chinese New Year, and two, kind of the future. And I guess the all of the things that underpin that depletions momentum to the half and the expectation that it's going to continue.
Operator: The next question comes from Phil Kimber from E&P Capital.
Phillip Kimber: I was going to follow up on that question on the depletion slide. I mean you quote outside of China, you've got some specific data points, whether it's Quantium or Nielsen or whatever, but it doesn't seem to have one for China. So where is that depletions data coming from? Is that, I guess, you asking our distributors about their depletions? Or is it actually sort of measured consumer data? I just wanted to understand that a little bit better just because 78.2% a very strong number, and it's no doubt the brand is strong, but it does seem a lot higher than the sort of feedback you're getting over the overall wine market in China?
Stuart Boxer: Yes, Phil, it's the depletions from our distributors out. That's the data we get directly from them. And it's for us sort of the cleaner set of data. As you know, the market data is a little patchy in China. So we think that's just the best and cleanest number to use. And it tends to be its depletions from our Tier 1 distributors. And certainly, historically, we have found that the Tier 2 is are not holding a lot of stock. So therefore, those depletions are a pretty good guide. We do also compare and cross check with data points like e-commerce data in Nielsen as well, which tend to also be pretty supportive of those outcomes. But e-com is a smaller part of the market and Nielsen is not necessarily 100% reliable. So we think that depletions number is the best to share.
Samuel Andrew Fischer: I would only add that it's -- the brand up in China is it doesn't really act like you would expect a brand from a wine category to act. It's a genuine status symbol that plays a key role in gifting. And as we go into this CNY period, it's countering all of the trends of wine. In fact, all of the trends of spirits, and it's really behaving like one of the status gifts that are given during the CNY period. So outside of just comparing it to the category, it's really leading the whole industry.
Phillip Kimber: Yes. And then I guess my second question is -- and I don't expect obviously a hard number, but your second half EBITS flat Penfolds, but growing in the other two divisions. But then we've still got this sort of 2-year process of resizing shipments to depletion. So I think it's sort of along the line of David Errington's question. Just -- to the extent can earnings effectively drop down again in FY '27? Obviously, it depends a bit on the underlying growth rate, but just -- the underlying growth of the business. But just in terms of rightsizing depletions and shipments. I mean, is a big chunk of that still yet to happen and will happen in FY '27. So we should sort of have that in our thinking.
Samuel Andrew Fischer: Yes, Phil, I understand what you're trying to do, and I know it's a difficult one, and you've sort of outlined some of the components of the challenge there. So I mean, the components and the building blocks of this, obviously, to your starting point is the underlying depletion performance, and you've heard a lot about what we're trying to do to drive that. So this half, and this year, you're aware that we've already dealt with a reduction of customer in Treasury Collective by about 200,000 cases. We've made good progress on the parallel piece in China in particular, only a modest impact on the inventory in Treasury Americas in the half. But obviously, in this half, we're now buying back that California piece, which is an important part of the overall equation. So we certainly feel like we're making good progress this year. But to your point, in terms of how it's spread between the 2 years and the impact on the year-to-year number, it depends ultimately on the depletion growth and how that is all balanced. And what we're trying to do is to sort of end up with a sort of pretty good landing, but there's a lot of variables.
Operator: The next question comes from Michael Toner from RBC.
Michael Toner: Look, I wanted to drill in a bit more in the U.S. And I just want to understand to what extent your Americas outlook might reflect the possibility of further disruption caused by some of the issues RNDC seems to be experiencing nationally even outside of California and the markets sold to Reyes because some of those issues seem to extend well beyond California. Apparently, they've lost a couple more suppliers. There's news reports of some layoffs kind of planned for Feb. And that seems on the face of things that's something that could cause quite a bit of disruption. And I know that Reyes -- sorry, RNDC still accounts for about 20% of your NSR ex California in Reyes accurate?
Samuel Andrew Fischer: Yes. No, it's about 18% of the business once the Reyes transaction completes. And it's useful to note that actually outside of California, RNDC grew in the half for us by 2.7%. So that just gives us a bit of an indication of their operating health. I do think that the work they've done on the balance sheet by the refinancing has made a material difference. And the Reyes transaction, again, the sale will make a material difference. So this is still a really substantial business, particularly in Texas. And from what we can see through our intelligence on the ground, still operating really, really well. So they're doing some concrete things to shore up their own balance sheet. And I guess through the conversations I've had with their CEO, which have been multiple, we've got confidence they're going to continue to be a great operator for us in the remaining states once the RNDC deal is done. So I will continue to have close dialogue with them. We'll continue to work on all of the plans to continue to drive our business forward. And I think we've got confidence that they'll be a partner with us for the longer term.
Michael Toner: Great. And just quickly on Reyes. I know it's a small proportion of your NSR, but my understanding is they don't have a huge amount of experience selling luxury wine. So I'm sort of wondering what you think needs to happen for them to scale up that capability? And sort of do you anticipate that being a hurdle for you guys because I sort of -- I don't imagine they can sort of just instantaneously pivot their sales force to sell luxury inventory, if it's not something they've had a lot of experience doing historically?
Samuel Andrew Fischer: Yes. No, I mean I think they've predominantly been a beer distributor. And in California, obviously, that's extended into spirits. And I think they are more and more moving into being a multi-category distributor in the U.S., certainly in relation to the market, all of the channels, all of the accounts, they know them. And they've got reach that's probably beyond any other distributor because of that. So that actually creates a bit of an opportunity for us to look at potentially some new channels. . But very importantly, they are acquiring the RNDC business, which has got all of that capability and long history of distributing wine and spirits. So they see that as being one of the key benefits of the transaction is that they're bringing that capability into their organization and ultimately, that can be infused across their organization. So in some ways, that migration is giving us great comfort.
Operator: The next question comes from Mark Southwell-Keely from Select Equities.
Mark Southwell-Keely: We're seeing with respect to some Baijiu distributors and even including Moutai. We're seeing the -- some of the Baijiu brands adopting strategies to help with the distributors working capital. So the working capital of some of these distributors is still under significant stress. And we're seeing some of these brands, including even Moutai, adopt various strategies to assist, for example, selling on consignment and also adopting some pretty aggressive SKU rationalization and not overburden distributors with SKUs that are unpopular with consumers. I'm just wondering what your thoughts are around what you're seeing happening with the -- in the Baijiu sector and with the distributors and perhaps whether you might or to the extent that you guys might adopt similar strategies to assist the distributors?
Samuel Andrew Fischer: Yes. Thanks, Mark. Obviously, we are watching the Baijiu category. There's been -- we got lots of noise and lots of challenge, including some innovation with lower [ ABV ] as they try and address some of the structural challenges in the market. But I think some of that announcement that came out from Moutai had a positive impact, actually brought confidence back in where they very proactively addressed some of the concerns of their distributors. And some of that's flowed on to confidence at a category level. And they've obviously shored up their pricing, which has also helped. We're not -- we have a very, very long history with our distributors. They've really been partners with us in growing our business in China. And I would say we're privileged to have their strength behind us. Where it comes to their working capital, I guess, the inventory reduction program that we're driving our depletions through is going to be material for them in relation to realizing some working capital but we haven't looked at any other support nor have they asked, and we're certainly not looking at consignment or anything like that. I met them in December. I would say it was a really terrific meeting. We took concrete actions on parallel. I think they've been really delighted by that. We're still working all of that volume through, but they're seeing some real positives in the market through that reduction. So I feel like the confidence that our distributors have in us is really strong, and we'll continue to leverage that as we build the brand going forward.
Mark Southwell-Keely: What about in terms of secure rationalization, perhaps?
Samuel Andrew Fischer: I think that through the Ascent program, when we talk about simplification and having clarity of roles, across the portfolio. That is in scope and where we can drive simplification, bring more focus to the portfolio to drive kind of that real upside potential. We will look at it and Penfolds will be one of them that we look at, but no decisions made as yet.
Operator: The next question comes from Jason Palmer from Taylor Collison.
Jason Palmer: Just in respect of the Cali and non-Cali redistribution of inventory, so the $100 million and the $125 million. How much of that occurred in 1H '26? And what's your assumptions around 2H '26 in your outlook?
Samuel Andrew Fischer: Yes. So I sort of touched on it a little bit earlier. So in terms of the first half, it was a very modest reduction of inventory within the Treasury Americas portfolio. And whilst it's not relevant to the $100 million and $125 million numbers you just referred to, we did take 200,000 cases out in relation to treasury collective in the first. Half. In the second half, we are obviously completing the RNDC settlement transaction, including acquiring all that inventory. So that deals with the inside California component as part of that RNDC transaction, so that will occur during the half. In terms of what happens in relation to the rest, we remain committed to that 2-year program where we are working through that over the course of that period of time. But in terms of the specifics beyond that, ultimately, will be dependent on depletion growth as well. So we can't give you any further guidance on that at this time.
Jason Palmer: Okay. Just to be clear, the hundreds in California is cleared with the RNDC transaction in the second half, is it?
Samuel Andrew Fischer: Yes, it is. Sorry, I dropped out. Yes, it is.
Operator: The next question comes from Bryan Raymond from JPMorgan.
Bryan Raymond: One is just on the dividend and the balance sheet. Just interested if there's any sort of threshold you'd be looking out for when you reinstate the dividend? Is there a -- do you need to see that gearing level back in the target range or below a certain threshold to begin bring that dividend back?
Samuel Andrew Fischer: So we haven't been as specific as that, Bryan. We've talked to this program of getting that gearing down over a 2-year period and the decision to reinstate will really be dependent on the progress we're making and that trajectory we've talked about down towards that 2x. Now the factors that will feed into that will be where we are at in terms of things like Project Ascent, the timing of the cash flow benefits that come out of that, both in terms of the cost benefits, net of any sort of cost to achieve those and any proceeds from the portfolio reduction. But it's too early to call at this stage the timing of those. But obviously, as we get closer to the end of the financial year, past the June Investor Day, we go through that, we'll have some greater clarity on the timing, which will help us to have a greater sense of the timetable. But ultimately, it will be a decision for the Board that they'll make on when the dividends are resumed.
Operator: The next question comes from Shaun Cousins from UBS.
Shaun Cousins: Just a question regarding the transaction you did with RNDC -- or one regarding the RNDC inventory in California. Can you discuss what the other options that were available for this inventory as it seems to have been a transaction where the Treasury -- TWE gearing has gone up? And can you I guess, discuss the risk around your broader EBIT, if these volumes crowd out higher-margin volumes and maybe further to Mike's sort of question, what's the risk that you actually need to invest more A&P that these become not just neutral gross margin or gross profit transactions, but you actually need to invest more in A&P. I just keen for you to sort of amplify the alternatives you looked at and then just sort of a little bit more why it was the right thing for TWE shareholders for you to add gearing and then the risk that these are actually crowd out higher-margin sales or are actually EBITS loss-making to sales, please?
Samuel Andrew Fischer: I think the way that we've thought about that, and it really relates back to when we disclose sort of the $100 million and $125 million that we need to do with its excess stock. The distributors are holding that we need to get down over a period of time. And the impact of working that excess stock through the system, if you like, is that it replaces us sort of selling stock out of our own inventory to work through that. Now whether, in fact, that was achieved by virtue of RNDC transitioning or transferring that inventory from California into their other markets across America or whether we came to the position that we came to, which is where we bought that inventory back is effectively a timing difference anyway, Shaun, in terms of how that flows through. But our perspective there was that a sort of clean outcome for California, where we've got that inventory back in our control, and then we can control how it gets distributed and redistributed across the market. and doing that in a way that was beneficial for RNDC from a cash flow perspective was linked up with that settlement was actually well -- definitely the best decision for the company from a whole lot of perspective.
Shaun Cousins: And the risk that you sell these actually these are negative EBITS loss-making sales, like you have to put more A&P behind these sort of sales to try and move it along?
Samuel Andrew Fischer: I think it will be the same in that we're ultimately driving depletions in the marketplace. And the A&P that we put behind the brands is to drive depletions. And that focus on depletion growth, again, you've heard about today doesn't really change. Now clearly, the faster we can drive depletions growth across the business, the faster we can work through this inventory and that's the broader objective that we are focused on anyway. So it doesn't actually change our execution focus at all, Shaun, because we are definitely focused on just driving depletions growth.
Operator: There are no further questions at this time. I'll hand the conference back to Sam Fischer for any closing remarks.
Samuel Andrew Fischer: Thank you very much for your time this morning. We look forward to updating you at our Investor Conference on the 4th of June and through our full year results. Thank you very much. Have a very nice day.