Treasury Wine Estates : 2016 Annual Results Announcement 18 August 2016

Treasury Wine Estates will host an investor and media webcast and conference call commencing at 11:00am (AEST) on 18 August 2016 (dial-in details below). The webcast and presentation material will be available at www.tweglobal.com. A replay of the presentation will also be available on the website from approximately 1:00pm.

Treasury Wine Estates Ltd (ASX:TWE) today announced its annual 2016 financial result, with Reported Net Profit After Tax (NPAT) and Earnings Per Share (EPS) more than double the previous corresponding period (pcp) with NPAT at $179.4m and EPS at 25.1 cents per share, respectively.

TWE reported Earnings Before Interest, Tax, SGARA and material items (EBITS) of $342.0m, up 52% on a reported currency basis and slightly ahead of guidance provided on 4 July 20163.

Excluding the earnings contribution of Diageo Wine4 in 2H16 of $33.2m, TWE delivered EBITS of $308.8m in F16, up 37% on the pcp.

The Company also delivered outstanding EBITS margin accretion, up 3.2ppts to 15.3% while also reporting improved Return on Capital Employed (ROCE), up 2.8ppts to 9.6%.

The Board declared a final dividend of 12 cents per share, bringing the total dividend for F16 to 20 cents per share; representing a 6 cent per share increase (+43%) and a 67% payout ratio.

On today's result, TWE's Chief Executive Officer, Michael Clarke commented: "Our F16 result demonstrates that momentum across our business is accelerating. TWE is now delivering consistent earnings growth and margin accretion on a more balanced, sustainable and quality earnings basis."

In F16, each of TWE's regions delivered strong results, demonstrating the benefits of having repositioned the business to deliver consistent earnings growth, sustainably.

• Australia & New Zealand (ANZ) reported EBITS growth of 4% to $92.3m, driven by strong volume growth of TWE's Priority Brands, outstanding brand building execution and improved price realisation on supply constrained wines

• Asia reported 40% EBITS growth to $102.0m while also delivering EBITS margin broadly in line with the pcp. Strong volume growth was underpinned by continued optimisation of TWE's routes-to-market across the region, portfolio diversification and increasing consumer demand for imported wine brands

• Europe reported EBITS of $47.7m; more than double the pcp. Excluding the Diageo Wine acquisition ($11.3m), Europe delivered strong EBITS growth and margin accretion, despite a reduction in volume

• Americas reported a 64% uplift in EBITS to $136.3m, reflecting portfolio premiumisation, continued reshaping of TWE's portfolio, six months contribution from the Diageo Wine acquisition ($21.7m) and favourable foreign currency movements

TWE's Supply Chain Optimisation initiative delivered Cost of Goods Sold (COGS) savings of $41m in F16, driven by realisation of cost reductions and benefits from production asset optimisation.

1 Reported Net Profit After Tax and Reported Earnings Per Share

2 Unless otherwise stated, all percentage movements outlined in TWE's Media Release are stated on a reported currency basis

3 On 4 July 2016, TWE guided that EBITS for F16 was expected to be in the range of $330m - $340m

4 TWE acquired Diageo Wine on 1 January 2016

The acquisition of Diageo Wine on 1 January 2016 delivered immediate EBITS margin accretion to TWE's business. Diageo Wine reported an EBITS margin of 16.5% in 2H16 reflecting a favourable mix impact from withdrawing from unprofitable volume and some benefit from overheads already absorbed by TWE's base business. This was partially offset by significantly elevated brand building investment, notably in the Americas.

With the Diageo Wine acquisition being EPS neutral in the first six months of ownership, TWE remains well positioned to deliver on its commitment made in October 2015, that the acquisition will drive low double digit percent EPS accretion in F17.

While the re-set of Diageo Wine is expected to continue, TWE enters 1H17 with an outstanding pipeline of innovation and consumer and brand-led marketing campaigns intended to enhance brand health, price realisation and drive margin accretion in all TWE markets.

TWE targets financial metrics that are consistent with an investment grade credit profile. TWE's balance sheet continues to provide the Company with the flexibility to pursue value accretive opportunities for shareholders, with net debt / EBITDAS of 0.9x5 and interest cover of 16.5x.

Continued strong cash conversion of 123% in F16 was driven by TWE's strong operating performance across all regions and a favourable movement in working capital.

Following the accelerated delivery of Supply Chain benefits during the year, TWE now expects total COGS savings from its Supply Chain Optimisation initiative to reach a run-rate of at least $100m (up from $80m) by F20.

TWE also expects total cash synergies recognised from the acquisition of Diageo to reach a run-rate of US$35m (up from US$25m) by F20.

Therefore, TWE now expects to deliver a high-teens EBITS margin by F18; representing a two year acceleration of this target.

Strong earnings momentum and continued optimisation of TWE's Capital Employed is also expected to deliver ongoing ROCE improvement which will in turn, drive significant value for TWE and its shareholders.

Michael Clarke commented on TWE's future prospects: "I am very pleased with our performance in fiscal 2016. We have a refreshed Priority Brand portfolio6 and momentum is continuing to build across our regions and importantly, our results are being delivered sustainably."

5 Adjusted for operating leases, TWE's net debt / EBITDAS was 1.6x in F16

6 F17 Priority Brands include: Penfolds, Wolf Blass, Beringer, Lindeman's, Rawson's Retreat, Pepperjack, Wynns, Matua, Chateau St Jean, Stags' Leap, Gabbiano, 19 Crimes, Sterling Vineyards, Beaulieu Vineyard and Blossom Hill

Diageo Wine EBITS margin driven by:

• Favourable mix driven by aggressive withdrawal from unprofitable volume and unsustainable customer contracts in 2H16

• Absorption of overheads into TWE's base business via integration in 2H16, notably in Europe

• Partially offset by significantly elevated brand building investment

  Financial headlines7

• Net Sales Revenue (NSR) up 20% on a reported currency basis and by 13% on a constant currency basis8

• EBITS9,10 $342.0m, up 52% on a reported currency basis and 29% on a constant currency basis

• 3.2ppts EBITS margin accretion on the pcp on a reported currency basis

• Statutory net profit after tax $179.4m

• Reported EPS 25.1 cents per share

• EPS of 31.1 cents per share (before material items & SGARA)

• Strong cash conversion at 123%

• Net debt11 / EBITDAS: headline, 0.9x; adjusted for operating leases 1.6x12 and interest cover 16.5x13

  Business headlines

• Margin accretion delivered by base business portfolio premiumisation, acquisition of Diageo Wine, lower Cost of Doing Business margin and Supply Chain savings

• Integration of Diageo Wine largely complete; re-set period ongoing

• Deliberate action to exit unsustainable volume and customer arrangements in the US and UK in 2H16

• Significantly improved profitability of Priority Brand portfolio14; portfolio comprised more than 85% of total NSR15

• Supply Chain Optimisation initiative delivered increased COGS savings in 2H16; COGS savings now expected to a run-rate of be at least $100m by F20

• Sale of non-priority Commercial (NPC) brand portfolio16 in July 2016

  Dividend

• Annual dividend 20 cents per share, unfranked, 6 cents per share higher than the pcp (up 43%)

• Dividend payout ratio 67%; consistent with dividend policy17

  Outlook

• TWE now expects to deliver a high-teens EBITS margin by F18, supported by continued momentum across all regions and increased COGS savings

7 F15 comparatives have been restated to reflect minor reclassifications of selling and IT related costs

8 Unless otherwise stated all percentage or Dollar movements from prior periods are pre any material items and on a constant currency basis

9 Earnings before interest, tax, SGARA and material items

10 Financial information in this report is based on unaudited financial statements. Non-IFRS measures have not been subject to audit or review. The non-IFRS measures are used internally by management to assess the operational performance of the business and make decisions on the allocation of resources

11 Borrowings have been adjusted to include $12.9m fair value of interest rate derivatives designated in a fair value hedge of US Private Placement notes

12 Adjusted for TWE's long term operating lease profile, which increased following the acquisition of Diageo Wine

13 Interest cover calculated as the ratio of earnings to net interest expense, where earnings is the consolidated pre-tax profit (pre material items and SGARA) plus the sum of the amount of net interest expense adjusted for amortised interest costs, per financial covenants

14 Priority Brand NSR adversely impacted by exit from unsustainable volume and customer contracts in the US and UK in 2H16

15 Based on base business NSR in F16

16 Divested NPC brands include: Little Penguin, Stone Cellars, Cellar No 8, Colores Del Sol, Black Opal, Century Cellars, Great American Wine Company, Chateau La Paws, Once Upon A Vine, Rosenblum, Snapdragon and Orogeny

17 TWE targets a dividend payout ratio of between 55%-70% of Net Profit After Tax (pre-material items and SGARA) over a fiscal year