Treasury Wine Estates : 2017 Interim Results Announcement 14 February 2017

Treasury Wine Estates will host an investor and media webcast and conference call commencing at 11:00am (AEDT) on 14 February 2017 (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 interim 2017 financial result, with Reported Net Profit After Tax (NPAT) and Earnings Per Share (EPS) more than double the previous corresponding period2 (pcp) with NPAT at $136.2m and EPS at 18.5 cents per share.

TWE reported Earnings Before Interest, Tax, SGARA and material items (EBITS) of $226.8m, up 58.8% on a reported currency basis.

The Company also delivered outstanding EBITS margin accretion, up 4.3ppts to 17.5% in 1H17 and up 2.5ppts relative to TWE's F163 EBITS margin of 15.0%, which included 6 months of the Diageo Wine contribution.

The Board declared an interim dividend of 13.0 cents per share; representing a 5 cent per share increase (+63%) and a 64% payout ratio.

On today's result, TWE's Chief Executive Officer, Michael Clarke commented: "I am delighted to report a strong interim 2017 financial result highlighted by further margin accretion, excellent cash conversion and outstanding EPS growth, despite the higher share base. All regions delivered double digit EBITS growth and importantly, growth was delivered sustainably".

• Australia & New Zealand (ANZ) reported 13.2% EBITS growth to $53.1m and an EBITS margin of 16.4%, driven by above-category volume growth in Australia (despite reallocating Luxury Australian wine to Asia), outstanding marketing and in-store activation, strengthened customer partnerships and a low cost culture

• Europe reported 34.3% EBITS growth to $23.1m and an EBITS margin of 12.3%, driven by strong customer partnerships, focused brand building investment on core Commercial brand tiers and the acquisition of Diageo Wine

• Asia reported 75.6% EBITS growth to $79.0m and an EBITS margin of 36.2%. Reflecting continued investment in TWE's business models, customer partnerships and brand portfolio, volume increased strongly and price increases across key brands delivered positive NSR per case growth

• Americas reported 75.4% EBITS growth to $90.7m and an EBITS margin of 16.0% reflecting the acquisition of Diageo Wine and portfolio premiumisation. During the period, TWE front-ended a 30% increase in Advertising & Promotion (A&P) per case to re-set and refresh its US brand portfolio to position it for growth in both the US and in Asia in 2H17. Also included in 1H17 EBITS was a net, one- off $5m benefit, principally reflecting profit on asset sales

  TWE's Supply Chain Optimisation initiative delivered Cost of Goods Sold (COGS) savings of $15m in 1H17 bringing the total cumulative savings to $56m, driven by realisation of cost reductions and benefits from production asset optimisation. This was partially offset by higher vintage costs from the 2014 and 2015 vintages in Australia and the 2015 vintage in the US.

  The acquisition of the Diageo Wine business on 1 January 2016 has already delivered positive upside to TWE, despite the significant investment in re-setting the brands as well as addressing unsustainable volume

  1 Statutory Net Profit After Tax and Reported EPS (including material items)

  2 Unless otherwise stated, all Dollar and percentage movements are pre material items and stated on a reported currency basis

  3 To reflect the change in accounting standards with respect to Agricultural Assets, F16 EBITS have been restated to $334m (from $342m) on a reported currency basis

  and customer contracts in F16. As stated at the time of acquisition, the rationale for acquiring Diageo Wine was to secure increased access to Luxury and Masstige fruit which would in turn, deliver immediate portfolio mix benefits to TWE's US business. The immediate portfolio mix benefit of the acquisition is evident in the America's 1H17 result.

  Having commenced a number of Supply Chain integration initiatives, TWE is well positioned to deliver run- rate, cash synergies of US$35m by F20.

  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 (adjusted for operating leases) of 1.5x and interest cover of 16.0x.

  Continued strong cash conversion of 104% in 1H17 was driven by TWE's strong operating performance across all regions and favourable movements in working capital.

  In addition to TWE's interim 2017 result, TWE also advised today the appointment of Gunther Burghardt, as the Company's Chief Financial Officer (CFO), based in Napa. In addition, Matt Young, TWE's current Financial Controller has been promoted to Deputy CFO, based in Southbank.

  Michael Clarke will be co-locating between Australia and the US over the next 12 months. On Mr Clarke's co-location, TWE's Chairman, Paul Rayner commented: "With a global and highly collaborative Management team, I am pleased our Chief Executive Officer is able to spend more time in the US; one of TWE's regions with the most potential."

  Future perspectives

  The outlook for TWE remains positive, with the Company continuing to deliver against its strategy of transitioning from an agricultural to a brand-led, high performance organisation.

  Absent significant fluctuations in foreign exchange rates, TWE expects 2H17 EBITS to be broadly in line with 1H17.

  Beyond F17, TWE is on track to deliver total, run-rate cash synergies recognised from the acquisition of Diageo Wine of US$35m by F20 as well as at least $100m of run-rate COGS savings by F20 driven by the Company's Supply Chain Optimisation initiative.

  Furthermore, TWE is also on track to deliver a high-teens EBITS margin by F18 and at the same time, deliver enhanced value to shareholders via improved Return On Capital Employed.

  Michael Clarke commented on TWE's future prospects: "Today's result announcement demonstrates that we are executing on all the initiatives we have communicated to the market and importantly, that TWE is continuing to deliver sustainable value to its shareholders".

  Contacts / further information: Media Investors

  Carolyn Coon Jane Betts

  Tel: +61 3 8533 3923 Tel: +61 3 8533 3493

  Mob: +61 405 183 628 Mob: +61 437 965 620

  Profit Report

  Financial Performance Financialheadlines4,5

  Reported Currency		Constant Currency
  $Am (unless otherwise stated)	1H17	1H16	Change	1H16	Change
  Volume (m 9L cases) Net sales revenue NSR per case ($) Other Revenue Cost of goods sold Cost of goods sold per case ($) Gross profit Gross profit margin (% of NSR) Cost of doing business Cost of doing business margin (% of NSR) EBITS EBITS margin (%) SGARA EBIT	18.7 1,294.7 69.08 73.7 (867.8) 46.31 500.6 38.7% (273.8) 21.1% 226.8 17.5% (10.5) 216.3	15.8 1,079.4 68.38 58.6 (739.7) 46.86 398.3 36.9% (255.5) 23.7% 142.8 13.2% (14.5) 128.3	18.7 % 19.9 % 1.0 % 25.8 % (17.3)% 1.2 % 25.7 % 4.9 % (7.2)% 2.6ppts 58.8 % 4.3ppts 27.6 % 68.6 %	15.8 1,041.9 66.01 58.9 (718.6) 45.52 382.2 36.7% (248.1) 23.8% 134.1 12.9% (14.3) 119.8	18.7 % 24.3 % 4.7 % 25.1 % (20.8)% (1.7)% 31.0 % 5.4 % (10.4)% 2.7ppts 69.1 % 4.6ppts 26.6 % 80.6 %
  Net finance costs Tax expense Net profit after tax (before material items) Material items (after tax) Non-controlling interests Net profit after tax Reported EPS (A¢) Net profit after tax (before material items and SGARA) EPS (before material items and SGARA) (A¢) Average no. of shares (m) Dividend (A¢)	(13.1) (60.4) 142.8 (6.1) (0.5) 136.2 18.5 148.6 20.2 736.6 13.0	(7.5) (35.2) 85.6 (26.9) (0.1) 58.6 8.5 94.3 13.7 690.7 8.0	(74.7)% (71.6)% 66.8 % 77.3 % NM 132.4 % 117.6 % 57.6 % 47.4 %	(7.7) (34.6) 77.5 (26.7) (0.1) 50.7 87.3	(70.1)% (74.6)% 84.3 % 77.2 % NM NM 70.2 %

  • Net Sales Revenue (NSR) up 20% on a reported currency basis and by 24% on a constant currency basis6

  • EBITS $226.8m, up 59% on a reported currency basis and 69% on a constant currency basis

  • 4.3ppts EBITS margin accretion to 17.5% on a reported currency basis

  • Strong uplift in Net Profit after Tax, Reported EPS and EPS (before material items & SGARA)

  • Strong cash conversion at 104%

  • Net debt7 / EBITDAS, adjusted for operating leases 1.5x and interest cover 16.0x8

    Business headlines

  • Margin accretion delivered by acquired business and strong portfolio premiumisation (notably in the US), enhanced price realisation, accelerated growth in Asia, Supply Chain savings and lower Cost Of Doing Business margin

  • All four regions delivered double digit EBITS growth

  • Re-set of US brand portfolio supported by 30% higher A&P per case, front-ended in 1H17; portfolio positioned for growth in US and Asia in 2H17

  • Strengthened partnerships with wholesale and retail customers in all regions supported by outstanding global marketing campaigns and in-region sales execution

  • Sale of non-priority Commercial (NPC) brand portfolio9 in July 2016; comprising approximately 1m cases sold annually

  • TWE recognised a cumulative run rate supply chain savings of

    $56m; of which $15m was recognised in 1H17

    Dividend

  • Interim dividend 13.0 cents per share, unfranked, 5 cents per share higher than the pcp (up 63%)

  • Dividend pay-out ratio 64%; consistent with dividend policy10

    Outlook

  • Absent significant fluctuations in foreign exchange rates, TWE expects 2H17 EBITS to be broadly in line with 1H17

  • Total cash synergies recognised from the acquisition of Diageo Wine to reach a run-rate of US$35m by F20

  • Total COGS savings from TWE's Supply Chain Optimisation initiative to reach a run-rate of at least $100m by F20

  • High-teens EBITS margin by F18

4 Financial information in this report is based on reviewed 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

5 Comparative balances have been restated to reflect the final purchase price allocation for the Diageo acquisition, reallocation of inter-regional corporate and IT costs, and a change in accounting standards relating to Agricultural Assets. Refer to Appendix 1

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

7 Borrowings increased by $3.6m (1H16: $5.3m, F16: $12.7m) to reflect a fair value hedge of a portion of US Private Placement notes

8 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

9 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

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