Treasury Wine Estates Limited (ASX:TWE)

Earnings Call: H2 2021

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Aug 19, 2021

Please be advised that this conference is being recorded today, Thursday, 19th August, 2021. I I would now like to hand the conference over to your speaker, Tim Moore, Chief Executive Officer of TWE. Thank you. Please go ahead. Good morning, everybody, and thank you for joining the Treasury Wine Estates 2021 full year results briefings. In the spirit of reconciliation, Treasury Wine Estates acknowledges the traditional custodians of country throughout Australia and their connections to land, sea and community. We pay our respects to their elders past and present and extend that respect to all Aboriginal and Torres Strait Islander peoples today. So I'm very pleased to have joining me on the call Today, the following members of the leadership team Matt Young, our CFO Tom King, the Managing Director of Penfolds Ben Dollard, the President of Treasury Americas and Peter Nielsen, the Managing Director of Treasury Premium Brands or TBB as I'm sure you'll hear us refer to it today. Given our very recent Investor Day in May, today we're going to focus the presentation and commentary on Our FY 'twenty one results and performance supplemented by some additional and new proof points to highlight the progress we are making in delivering on our Tweed 2025 game plan and financial ambitions. Firstly, I'll summarize the FY 'twenty one financial highlights, which reflects strong execution and trading performance across the globe. Reported net sales revenue declined by 3%. However, on an organic basis, which excludes the impact of currency And the U. S. Commercial brands divested in March, revenue increased by 4.4%. This top line growth was led by our $10 to $30 premium portfolio with strong performance delivered by a number of our priority brands throughout the Americas, Europe and Australia. The most pleasing aspect of this sales mix in FY 'twenty one was the 6 percentage point increase in the Luxury and premium portfolio contribution to our global NSR, which now sits at 77%. EBITS of $510,000,000 was essentially in line with FY 2020, and EBITS margin improved 0.6 percentage points to 19.9%, reflecting not only our top line performance, but also improved cost of doing business, particularly in the Americas and Asia. We are especially pleased with this result When you consider the EBITS contribution of Mainland China declined $77,000,000 in the year. Cash flow performance was once again very strong, with the 101% cash conversion outcome aided by the smaller 2020 Californian vintage intake an adjusted 2021 Australian Vintage and the shift to our regional sales mix in China. Net debt reduced by $376,000,000 assisted in part through favorable currency movement, driving the significant improvement in our leverage ratio to 1.6 times, down from 2.1 times at the end of fiscal 'twenty. The retention of our flexible and efficient capital structure throughout the year of significant disruption is testament to what has been and will continue to be a fundamental strength of Treasury Wine Estates and something that will continue to support our performance, our investment and our growth well into the future. Finally, the Board declared a fully franked dividend of $0.13 per share, An increase of 62.5 percent on the final F 2020 dividend, resulting in a full year dividend of $0.28 per share. This is a payout ratio of 65% of NPAT, which is in line with our long term dividend policy. As we look at our performance across our regions, I want to specifically highlight and recognize the continued positive trajectory of our business in the Americas, which delivered significant growth in EBITS and EBITS margin and NSR growth on an organic basis. H2 growth across our Asian markets outside of Mainland China was also extremely strong and reflects the initial success in half 2 For our Penfolds Luxury portfolio to satisfy previously unmet demand as well as the early benefits from the investment we are making in brand building and sales and marketing capability, setting a fantastic foundation to support future growth across that region. As with every business around the globe, our fiscal 2021 performance has been delivered against the backdrop of the ongoing impacts from the pandemic. Across all of our markets, key sales channels remain in varied states of impact and recovery. As you can be seen on this slide, which is an update of the snapshot we shared at the first half results. Across the board, retail and e commerce channels have demonstrated strong performance throughout the year, albeit With some recent moderation in growth as restrictions have eased across markets such as the U. K. And the U. S. A, and we started to lap the pantry loading activity at the start of the pandemic in 2020. But at the same time, we've seen more favorable trends emerging in key sales channels continues across large parts of the region with some deterioration in the second half, which also puts into context the excellent performance of our team delivering the results they did in those markets during that period. As vaccination programs gain momentum around the globe, enabling restrictions to ease, We expect to see further recovery of demand in these premium and Luxury wine sales channels and have a strong belief we are very well placed to execute our plans to deliver growth as this occurs. To summarize fiscal 'twenty one, it was a year of significant change An achievement for Treasury Wine Estates. You will recall at the full year 2020 results last August, I outlined our 20 25 strategy and the 5 priority areas for our business that would bring this game plan to life throughout the year. During the year, We added another priority, which was implementing our global response to the tariffs placed on Australian wine imports to China. In this business, we take great pride in doing what we say we're going to do. I'd like to highlight a few of the achievements we have delivered this year against these priorities. Our number one objective as we entered fiscal 2021 was managing our performance through the global pandemic. And I'm very proud to say that we achieved this through the delivery of continued premiumization and organic top line and Ebix growth. This is a significant achievement in its own right and even more so when you take into account the impact on our business in China. The shift to a consumer and experience led marketing model has been a real highlight for TWE, becoming a key driver of momentum across our brand portfolio. With foundations based on data and insights, We have brought bold innovation to our portfolio. We've utilized collaborations and partnerships with celebrities and key opinion leaders and focus on digital engagement to drive appeal across a broader and more diverse consumer base. We are also now in the advanced stages of our extensive global supply chain optimization program, Which we expect to deliver annualized benefits of at least $75,000,000 from F 'twenty three onwards. In addition to the focus on cost and efficiency, we have taken a transformational approach to this initiative that will leave our supply chain well positioned to support the future needs of our brand portfolio divisions and help us realize our company wide growth ambitions. Accelerating the separate focus across our brand portfolios was a leading priority for fiscal 2021. And on the 1st July, we transitioned to our new divisional operating model led by Penfolds, Treasury Premium Brands and Treasury Americas. Not only will this model deliver increased focus and accountability throughout our business, it will also ensure We are fully leveraging the benefits of our global scale and diversification. Whilst it's still early days, 6 weeks in, We are already seeing the benefits of this significant change program with each division focusing on their own set of strategic priorities and performance objectives and leaving us well placed to pursue previously untapped growth opportunities across the globe. Our plans to deliver a future state premium wine business in the United States have progressed significantly, which Ben will outline in more detail later. And finally, our global response plan to the trade measures that were implemented in China took a significant step forward in the second half of the fiscal year as we satisfy demand for previously supply constrained luxury product and wine. Early signs are promising, With strong growth for Penfolds bins and icons achieved in Australia and the Asian markets outside of Mainland China where NSR was up 15% 38%, respectively, versus the prior year. So with that, I'm now going to hand over to the team. And I'll firstly hand to Matt, who will run through our financial results in some more detail for you. Thanks, Tim. Good morning, everyone. Fiscal 'twenty one was a year to be proud of at TWE for many reasons, but our financial delivery was certainly one of them. Despite the challenges that presented us in the first half of this year, our teams are able to demonstrate incredible agility to develop strong response plans. But more importantly, they were able to execute those plans successfully, demonstrating the underlying strength of the business models, brands and talent here at Treasury Wines. As a result, I'm pleased to present to you our fiscal 'twenty one financial results, which are in line with or ahead of our commitments and provide a strong base to continue the execution of our TUI 2025 strategy. We returned to top line growth in fiscal 'twenty one with group net sales revenue increasing 1 point 3% on a constant currency basis and 4.4% on an organic basis. NSR per case rose in every region And was up 2.4% across the group, with momentum being led by our premium portfolio, which was the driver of mix improvement in the Americas, EMEA and ANZ. As a result, our luxury and premium portfolios contributed 77% of our global NSR, up 6 percentage points in fiscal 'twenty one. COGS per case increased 10.6% on a constant currency basis, reflecting the favorable portfolio mix shift along with the previously signaled higher COGS on the Australian sourced commercial wine. A number of one off impacts also impacted COGS in fiscal 'twenty one, including the impact of inventory damaged by the Californian wildfires, which was covered by insurance and one off costs incurred in response to the changes in China and as a result of Brexit. Cost of doing business margin improved 1.8 percentage points to 20%, reflecting the organizational changes implemented in the Americas In the last quarter of fiscal 'twenty and more recently in China, as we realigned our overall cost base to the reduction in sales volume in that market. EBITS was $510,300,000 representing growth of 3% on a constant currency basis, While on an organic basis, EBIT grew 3.5%. EBITS margin increased 0.6 percentage points to 19.9%. And finally, ROCE improved 0.6 percentage points to 10.8 percent, with lower capital employed reflecting improved cash flow, which facilitated repayment of borrowings. Total material items costs of $88,500,000 or $66,100,000 after tax will recognize in fiscal 'twenty one and all relate to the previously announced programs of work. The most significant costs relate to the divestment of U. S. Brands and assets, With the cost of $62,300,000 relating primarily to the write down of intangible brand values and inventories that were associated with the U. S. Commercial portfolio divestment. These write downs were offset by a gain on sale of a Napa based vineyard that was sold in the first half. To date, we have confirmed net cash proceeds Approximately $150,000,000 as a result of the divestments and remain on track to deliver total inflows of approximately $300,000,000 by conclusion of the program. We also recognized $18,400,000 of cost in relation to the ongoing overhead and supply chain program and an additional $7,800,000 in respect to the luxury capacity expansion in South Australia. Moving now to the balance sheet, which remains a major source of strength for Treasury and one that has enabled us to seamlessly Managed through the necessary changes to our business in fiscal 'twenty one. Net assets declined slightly versus the prior year. However, adjusting for the impact of currency, Net assets increased by $113,400,000 with the repayment of borrowings from strengthened operating cash flows a key driver. Other key factors influencing the balance sheet in the year included the U. S. Commercial portfolio divestment and ongoing plans to divest Further wineries, vineyards and brands in the Americas. Turning to inventory in more detail, which has declined by $180,000,000 to 1,900,000,000 dollars valued at cost at the end of fiscal 'twenty one. Currency was a significant driver of the decline as was the divestment of the U. S. Commercial portfolio brands, with the impact of this transaction reflected in the lower current inventory position and now seeing us hold less commercial inventory overall. Non current inventory was in line with the prior year, with a high yielding 2021 Australian vintage and the carry forward of inventory that had been allocated for sale in China, offset by the lower yielding 2020 Californian vintage. Luxury inventory declined 2% in value terms, while volume was flat and remains a key component of our future growth ambitions. Current inventory has declined, also reflecting the expected short term decrease in sales volumes as a result of luxury channel disruptions and the impact of reduced sales into China. At our Investor Day in May, I provided insights of the risks to the Australian market As a result of the effective closure of China and as a follow on the potential impact to our business. 3 months on, the macro observations we shared then Firstly, demand trends continue to be positive. In the domestic market, consumption through retail channels has been strong, As evidenced by scan data, which shows growth of just under 6% in value terms in fiscal 'twenty one. Complementing this Is the accelerated growth of Australian wine exports with export value outside of Mainland China up 12% in the 12 months to June. On the supply side, the high yielding 2021 Australian vintage helped restore the inventory position following the low yielding 2020 vintage. This was also true for Treasury Wines, where we elected to increase our holdings of Luxury Wine to address the 2020 vintage, but also support long term growth ambitions. The current market position is reflected by retail pricing trends, which remain stable across all price points. However, we will continue to monitor this, including trends in private label. So in summary, we remain in a strong position coming out of fiscal 'twenty one And we'll continue to monitor closely both the domestic and global trends. We do recognize, however, that ongoing management of vintage intakes will likely be required Across the next 1 to 2 luxury vintages. We've taken some proactive steps of our own to bring forward some long planned vineyard redevelopment programs into At the same time, we are reviewing our upcoming grower contract renewals with our expectation being that our intake from growers may need to be reduced over the medium term. While we recognize this will continue to be a period of uncertainty for the industry, we remain well placed to manage through this period, both from an inventory and cost base perspective. Turning to cash flow and net debt. Operating cash flow before interest, Tax and material items was up 4% in the year with reported cash conversion of 100.8%. The primary drivers of this was a lower 2020 vintage intake in California and adjusted 2021 Australian vintage intake and the regional shift in sales mix in Asia. Excluding the change in non current luxury and premium inventory, cash conversion was 97%, consistent with our target of 90% or higher. Moving now to CapEx. Total CapEx for fiscal 'twenty one was $121,000,000 of which growth CapEx was $66,000,000 including the investments in luxury winemaking infrastructure in South Australia and in technology. Whilst total CapEx was slightly below our fiscal 'twenty one This was primarily due to supply chain limitations. We expect fiscal 'twenty two CapEx to be up to $150,000,000 including maintenance and replacement expenditure and continued investment to support growth. We've been disciplined in our management of cash flow, but remain committed to delivering self funded growth CapEx to support our strategy. And turning finally to capital management, where I'm delighted to say We've retained our strong investment grade capital structure despite a number of significant disruptions through the course of fiscal 'twenty one. Leverage reduced to 1.6 times in the year, reflecting the $376,000,000 decline in net debt and is now well back within our target of up to 2x through the cycle, which is where we expect it to remain moving forward. Importantly, our capital structure retains its flexibility both in the short and long term, which leaves us in a great position to consider a range of opportunities as we continue to prioritize investing in future growth and incremental opportunities. Our liquidity position of over $1,200,000,000 is supported by significant undrawn committed debt facilities across a well diversified maturity profile and this strong liquidity position supports the maintenance of our long term dividend policy. And today, we declared a final fully franked dividend of $0.13 per share, representing a payout of 65%. Thank you. And I'll now hand over to Tom in Shanghai to speak to you about the Asia region. Thanks, Matt, and good morning, everyone from Shanghai. Across Asia, key channels for premium wine sales remain in a mixed state, with China fully open for business and other key markets subject to continued disruption, With ongoing restrictions throughout the region continuing to cause significant disruptions, most noticeably across the travel retail channel. Against this backdrop and the introduction of tariffs in Mainland China, the TWE portfolio has held up well, With ongoing strong appetite for our brands assisting F21 performance. For the Asia region, net sales revenue declined 8%, driven by reduced shipments to Mainland China from late November onwards when the provisional measures were announced. This decline was partly offset by a 20% increase in net sales revenue throughout the rest of Asia, driven by meeting previously unmet demand And the strengthening of demand for our brand portfolio in key markets, including Malaysia, Thailand, Singapore and Hong Kong. COGS per case increased 50.1 percent as a result of improved portfolio mix and one off costs, including additional freight costs on clearance delays through Chinese ports. Cost of doing business improved 11% driven by the realignment of brand investment and overheads in China to our future state China business model. Regional EBITS was $205,000,000 And EBIT margin was 36%. Our plans to grow demand and build distribution and availability for Penfolds, Bins and Icons Across key regional markets is progressing well, with people and brand building investment accelerating in the second half. As a result of these investments and our focus on driving distribution gains, in particular in the retail and e commerce channels, NSR for the Penfolds, Bins and ICON range grew 38% in markets outside Mainland China. We also executed a number of route to market changes in H2 across the region, enabling us to get closer to our end consumers and setting our business up for further growth. In Mainland China, we continue to invest behind our multi country of origin portfolio growth strategy, which is evolving with second half highlights, including the launch of the Penfolds California collection and the release of Rawson's Retreat sourced from South Africa, both offerings generating strong trade appetite. We've also continued to invest behind the Penfolds brand in China, where consumer demand remains strong. Moving forward, We expect to sell through some of the Penfold bins and Icons range in Mainland China at higher tariff inclusive retail prices. While we're yet to form a definitive view on what this will look like in volume terms, we do expect that EBIT contribution from China, Net of investment will be minimal in F 'twenty two. While the impacts from the pandemic are continuing, we do expect to strong growth across the region supported by greater availability and acceleration of our sales and marketing efforts. I feel very confident and excited about the growth potential of the Penfolds brand across not only Asia, but the global luxury market. And I look forward to updating you on our progress moving forward on behalf of the Pentold division. Thank you. And I'll now hand over to Ben Dolhard. Thank you, Tom, and good morning, everyone, from Napa, California. It's a pleasure to join you today. Fiscal 2021 was a milestone year with significant progress delivered against our key priorities. America's F 21 performance saw net sales revenue increase 2%, driven by strong growth in the premium portfolio across retail and e commerce. This was partly offset by the divestment of a significant portion of the U. S. Commercial brand portfolio in March. Excluding these divested brands, organic NSR increased 11%, which reflects the strong consumer demand for our focused TWE-ten brand portfolio. Lower overheads driven by the new organization structure implemented in June 2020 Reduced our cost of doing business and in combination with strong top line momentum resulted in a 54% increase in regional EBIT to AUD 168,000,000 and our EBIT margin increased 5.7 points to 17%. On an organic basis, EBIT increased by over 60 These are pleasing results despite the ongoing impacts of on premise and cellar door closures during the period. We successfully navigated COVID induced channel shifts, delivered best in class innovation and significantly transformed the business to one that is premium focused and positioned for long term sustainable growth. Our transformation is ongoing. However, I'm pleased with the progress we made throughout the year. U. S. Market dynamics shifted in the second half With retail and e commerce channels remaining strong, but moderating as we saw reopening of the on premise venues across the U. S. While the on premise and seller doors are now largely reopened, trading activity remains below pre pandemic levels. This dynamic is due to constraints on staff availability, reduced number of on premise locations and ongoing travel restrictions. COVID restrictions permitting, we expect to see continued uplift in these channels in the first half as we lead into the key holiday period And we are well positioned to accelerate our performance once fully operational. We will continue to monitor closely local and national mandates surrounding COVID and potential impacts for the trading environment. U. S. Consumer trends continue to premiumize with the above $11 price points growing in U. S. Retail by 12% for fiscal 2021 and the above $20 price points growing 20% in the same period. Our focused portfolio of premium brands continued to outperform the market, growing 23% in value for the year, led by 19 Crimes, Penfolds, Beringia Brothers, Mature and St. Hubert, the Stag. Underpinning the performance of these brands has been tremendous Retail execution along with outstanding innovation success. 19 Crimes' Cali Red strongly resonated with consumers and finish the fiscal year as the number one growth SKU in the category. 19 Crimes Cali Rose launched in March and was also very successful, finishing at the number 10 growth spews for H2. Building on our innovation success, we've just signed a second Iconic celebrity to join Snoop as we expand the 19 Crimes franchise. Our new product will launch in spring of 2022 With standout packaging and world class augmented reality, providing the perfect complement to Cali Red and Cali Rose. We will continue to innovate with new 19 Crimes partnerships, varietals and formats, all while disrupting the world of wine. The 10 fold California collection launch was a success with outstanding response from critics, retail customers and consumers. Our depletion momentum was facilitated by our newly created dedicated luxury selling team, The Vault Collective. We're seeing strong velocity and reorder rates since the launch along with healthy on premise mix. Pleasingly, We've seen increased distribution and interest on the Penfolds Australian portfolio as we have launched the California collection. Another exciting innovation is the recent release of Matura Lida launched for the U. S. Summer and tapping into the conscious consumption trend. While early days, trade response has been positive. Our restructuring activities to deliver a future state U. S. Premium line business are on track to be completed by the end of the calendar year. The divestment of a significant portion of our commercial portfolio in March was an important milestone. Our portfolio is now focused on the premium and luxury segments. We are continuing to explore further brand and asset rationalization In addition to our supply chain optimization that is currently in progress. This will be one of our top priorities in fiscal 2022. Another key highlight was the announcement of our partnership with Republic National Distributing Company. This relationship spans approximately 1 third of our business, importantly, in our key markets of California and Texas. Our transition plans are progressing well, And we are optimistic with regards to the outlook across the RMBC network. In summary, fiscal 2021 was a year of material progress and momentum. Our business continues to be all about focus, meeting the needs of consumers, retail customers and distributors. I will now hand over to Peter Nielsen in Melbourne. Thanks, Ben, and good morning, everyone. The ANZ business delivered a solid F21 performance driven by our key luxury and premium brands in the retail and e commerce channels. While there has been intermittent reopening of on premise venues in Australia, key sales channels for higher margin luxury wine including travel retail and cellar doors remains subdued and this has continued to impact our performance. For the ANZ region, NSR was 2% above the prior comparative period, driven by growth in our Luxury and Premium portfolios, partly offset by reduced contribution from the commercial portfolio. Cogs per case increased 14% due to the mix shift along with higher cogs on Australian sourced wine and some incremental costs associated with finished goods that had been intended for sale in China. Cost of doing business reduced 9% driven by lower overheads and reduced A and P during the pandemic impacted period. This led to regional EBITS of AUD143,000,000 up 3% on F 2020. Pleasingly, the premiumization trend remains strong With retail category growth driven by the above $10 price point, the premium segment $10 to $30 growing 11% and above $30 growing 26% in value terms over the year. Despite seeing some soft retail data in the second half as we cycled the loading period in F 2020. Our priority brands continue to deliver strong growth led by Pepper Jack, St. Hubert's for STAG, Wynn's, 19 Crimes and Squealing Peak. Notably, Penfolds bins and icons also delivered strong gains with NSR up 15% driven by increased availability and for some SKUs, increased price. While premium price segments drove category growth, the commercial segment continued to decline And there is no doubt that we expect this segment to remain challenging. This is a result of both consumer shifting away from the sub $10 category and retailers the leading brands in favor of their own private label strategies. We are proactively managing the commercial portfolio and the role it plays in our business. This includes working in conjunction with our retail partners to agree the role of our brands, with our financial ambitions of EBIT and margin growth firmly guiding our decisions. The step change in our innovation agenda during the year delivered some impressive results. Highlights included the expansion of Pepperjack into Chardonnay, Malbec, Grenache and Tempranillo with TWE becoming a leader in the fast growing Malbec and Grenache varietals. The launch of our Squealing Pig Ginteco was another tremendous success on the innovation front, building on the already strong momentum behind the Squealing Pig brand. In the background, we've been very busy on the innovation front, and I look forward to sharing what we are bringing to life in the first half of mid-twenty 2. While the positive momentum behind our Focus brands is pleasing, the impact of COVID and higher COGS have hurt our financial performance in the past 2 years. There is clearly work to do to return the business to a high teens margin, but there is significant opportunity here and a clear roadmap to our destination. We are working closely with supply to reduce COGS and we'll use our strong innovation focus and multi country of origin strategy to drive incremental growth. Sourcing Argentinian Malbec this year is an example of our multi country of origin strategy in action and part of the driver of the growth of both Pepper Jack and 19 Crimes this period. Beyond COGS, on the cost management front, we were very focused in F21 on how and where we were investing, making very conscious decisions on the cost lines we have control over. This will be an ongoing discipline moving forward as we optimize our cost and capital base. In summary, I'm very pleased with the F21 ANZ performance. There is work to do, but I'm confident in the significant opportunity before us as part of the broader Treasury Premium Brands division. Turning now to performance in EMEA, where strong execution and continued restrictions on people movement drove retail sales upside across the region, notably in the UK and the Nordics. Unfortunately, the strong top line performance didn't translate to bottom line with reduced contribution from the Nordics and Continental Europe due to the impact of travel restrictions and range rationalization in a key retailer. The Middle East and Africa performance was also subdued due to the lack of tourism. For the EMEA region, net sales revenue increased 15%, driven by growth in the premium and luxury portfolios Through retail channels with contribution of the luxury and premium portfolios increasing 7 percentage points to 42% of EMEA's regional NSR. Colts per case increased 7%, driven by the improved portfolio mix and higher cost of Australian and U. S. Sourced wine. Cost of doing business increased 10% with accelerated brand building investments for key portfolio brands and one off Brexit related costs, the key drivers. This led to a regional EBIT increase of 1% to $47,000,000 and EBIT margin of 11%. Our Priority brand portfolio enjoyed strong growth in retail channels. 19 Crimes continued its stellar performance with distribution gains, A strong NPD pipeline and engaging marketing campaigns driving 152 percent increase in dollar sales in the U. K, where it is now a top 15 brand and also strong growth across other key markets in the region. Lindemann's remained the number one brand in Sweden and the Netherlands with the brand sustainability focus driving increased relevance with consumers. Blossom Hill's strong brand equity saw its sales back in growth with increased demand in U. K. Grocery and impulse channels during COVID. On the luxury front, Wins and Belleau Vineyard were successfully launched on Laplace, a global distribution channel for our ICON wine and a step towards our ambition of building the awareness of our luxury portfolio In summary, a strong top line performance in the region with our brands resonating strongly with consumers. Similar to the ANZ region, there are some challenges to overcome on the COGS front, but there is also significant opportunity in a large and premiumizing market. Thank you. I'll now hand back to Tim. Thanks, Pete, to Tom, Ben and Matt. So in F 'twenty two, which we're now into, we certainly are moving into the next phase of executing the Tweed 2025 game plan, which focused on our ambition of becoming the world's most admired premium wine company. With our new divisional operating model now in place, Our F22 priorities will be led by our brand portfolio divisions and the execution of their respective strategic and growth priorities. Tom and the Penfolds team are focused on growing global demand for the brand by attracting new consumers and also expanding distribution and availability in the priority channels and markets, whilst optimizing the portfolio for long term growth with the execution of our multi country of origin strategy within the portfolio. With Treasury Americas now to fundamentally changed business, Ben and his team will be delivering more of the same in fiscal 2022. More of the same, that is driving relentless focus on premiumization across the business, delivering portfolio expansion through bold consumer led innovation and completing the brand and asset optimization program. For Pete and the TPV team, the focus is on expanding a fantastic portfolio of premium brands Across priority growth markets globally and the channels within those markets, building out the multi country of origin consumer offerings you spoke of And also establishing, and very importantly, a sustainable fit for purpose cost and capital base that will support the margin ambitions we have outlined for that division. Importantly, supporting the divisional growth objectives are 4 TWE Group wide priorities being led by our corporate and central functions to be implemented throughout the business. The first of these is to continue to elevate our culture and our talent with a real focus and investment on nurturing and developing the next generation of leaders within our business, which we began strongly in FY 2021. Our teams and our people are without doubt our greatest strategic asset and strength and are at the heart of our game plan, guided by the Tweed DNA. Embedding sustainability throughout our business is the 2nd global priority. Following the launch of our next phase, sustainability agenda at our Investor Day in May. We are now working at pace to implement initiatives and measures right across TWE focused on the delivery of key imperatives in the areas of health, safety and wellness, water stewardship, greenhouse emissions and sustainable packaging to name a few. Cultivating a brighter future is what we will do. Thirdly, investing in technology, Tools and platforms to generate data and insights will set TWE up to build capability and become digitally enabled right throughout our business. From the front end example to drive enhanced consumer engagement through the back end example to increase the efficiency of our Vineyard and Winery operations. This year, we are step changing our level of investment in technology as we look to build the TWE business of the future. And finally, We will pursue global innovation and inorganic growth opportunities that can either fill premium portfolio gaps across our brand portfolio divisions, can leverage our existing strengths or build new capabilities for the future. We are now in a fantastic position to consider a range of investment opportunities that will drive incremental growth in our business and maximize shareholder returns because we have the support of a capital structure that is in as good a shape as it's ever been. So in closing, Fiscal 2021 was a year of significant change, but more importantly, achievement for TWE, one where we delivered organic top line and EBIT growth despite major disruptions and challenges. In F 'twenty two, our focus will be on continuing The strong momentum of our premium portfolios across all markets. In addition to executing our plans to drive growth of the Penfolds Luxury portfolio across key global channels and markets. We are positive on the outlook in F22 across all of our key markets outside of Mainland China. Our belief in focusing on what we can control is critical. And in F 'twenty two, we are very clear on what our priorities are and once again doing what we say we're going to do. This is a truly exciting point in time in the history of our business as we progress deliberately and the pace towards our ambitions and goals led by our new brand portfolio divisional model. So thank you for joining us today. And I'll now hand over to the operator, who will open up the line for questions. Your first question comes from the line of Michael Simotis from Jefferies. Please ask your question. Good morning, everyone. The first one for me is just on the very strong performance in The Asia business ex China, just hoping you can give us a little bit more color around that. How much of that was reallocation of wine Away from China, how much was just sort of strong underlying growth in some of those markets anyway? And was there a temporary boost to any of those markets because China shut down? Or do you see that performance is sustainable? Michael. Thanks for the question. I'll answer broadly and then I'll hand over to Tom in Shanghai who can take you through a bit more detail. I think as we outlined our plans around the global response, if you like, to the tariffs in the China market, We did say our priorities were 2 fold in the second half of the fiscal year just gone. The first one was we had a strong belief and it's now come to life That there was unmet demand due to supply constrained wines over that period of time. So that was step 1. Everyone else likes to call it reallocation. We like to call it satisfying demand and we'll continue to do so. The second part of it was then Really reorienting our focus on resources, investments to build distribution, make sure we had the right partners to build distribution in a number of these different markets as well. So without giving you a percentage split, which I'm sure you don't expect I would do between what is those 2, clearly there was the for one of a better way to put it, the one off Building of demand, satisfying of demand. But more importantly, I think the work and Tom can go into more detail we've done in terms of really driving the agenda in some of these markets Is what we're most excited about to set us up over the future years. So Tom, do you want to build on that? Yes. Thanks, Tim. Thanks, Michael. I think it's that we don't forget we did have very strong Penfolds businesses, businesses that were growing before the impact to China. And also, we started this planning pretty much a year ago this week when the initial investigation was announced. So There's been a lot of work that's gone into identifying where we're going to be investing, where we see the opportunities. And already in H2, and particularly in Q4, We're seeing some of that upside come to fruition. In terms of the markets within Asia, outside of China, Hong Kong, Singapore, Malaysia, Indochina, Thailand and Taiwan. We've really been focusing, as Tim said, on identifying where we can recruit new consumers, Driving the distribution and availability to support the availability for those consumers and ensuring we've got the right portfolio in place too. Meet the demands of consumers from different needs states and different occasions in different channels. We've been following a Pretty similar approach to that that we've followed in China, and that's driven a lot of our success in recent years. Firstly, ensuring a really clear 1 consumer study that we invested in last year. And then working with the right partners really to ensure that we've the right partners on the ground with us who are aligned on our strategy and our ambition and with the right capability and then supporting them with actually our own people on the ground. So bringing in new capabilities to the team across a number of different disciplines, whether that's key account sales managers to support with retail and e commerce businesses where we're focused more on driving the entry level of the luxury portfolio and working with customers to add We value by growing the Premium and Luxury segments. In addition, Luxury sales managers who are focused on broadening our availability across Fine wine, but also luxury retail and into high net worth individuals as well. And above all of this, Ensuring that we've got the right representation in terms of brand ambassadors to educate trade and consumers. And I'm really pleased to see actually that whilst there was an immediate opportunity to reallocate Some of the products that was previously unable to be allocated due to excess demand. It's really a combination of the results These investments and that reallocation that started to come through in H2 and give us confidence going forward, not just on those Asia markets I've highlighted, but also across the U. S, U. K. And Australia. I'll bring it to life a little bit more. I'll give you an example of Thailand, where Working with a great partner on the ground there with a line behind a very strong plan with investment and it's led to multiple new listings and distribution with key retailers, whether that's Colonga Hill and Max's into convenience channels or Luxury Wines into premium retail, as well as expanding our broader wholesale network. Similarly, in Malaysia, strong business plan with our distributors and the end customers helping us grow Distribution into retail channels. Singapore has been a highlight from an e commerce perspective, really strong growth, particularly for Penfolds, and that's been driven by Our focus on ensuring we've got the right internal capability. We're working with the right platforms and partners to leverage the data to inform our investment And then the final piece, slightly different is where we have, and I mentioned this in my script, that We've made some route to market changes in the lives of Japan and Vietnam in the second half to ensure we're setting ourselves up with the right partners who are looking to invest and support our growth ambition. And in Indochina, where we made a pretty big transition from 1 regional distributor to work directly with more multiple local distributors to get closer to customers, closer to consumers and ultimately closer to the market. These are our priorities going forward. This is how we're going to be running the Penfolds division going forward under the new model. And it's much sharper focus in everything that we do that's already starting to we're already starting to see it come to life also in Australia, in Europe, where in In Australia, we've stood up a dedicated on premise sales team and dedicated to independent retail sales team. And in Europe, we've now got dedicated Retail account managers, and we're starting to see some really positive conversations come to life at a customer level. So I appreciate that was a bit of a long winded answer, but I really wanted Bringing to life that, yes, there was some short term reallocation, as we like to call it. But our focus now is absolutely on Recruiting consumers driving that distribution and ensuring we've got the right portfolio to meet those consumer demands. Thanks, Tom. Thanks, Tom. That's a good color. Thank you. I think, Michael, one other thing I'll just add to this, and this is probably the most exciting part of the work that Tom and the team have done, When you sort of think back to the slide that we had in the deck before around where some of the key luxury selling channels sit Within Asia at the moment in particular, and we have seen some deterioration of those over that half, the foundations That are being built by the team in some of these other key markets and cities within these key markets. It really does give us the confidence that we're setting ourselves up to So yes, they've done a terrific job. So thanks, Michael. Can I just ask a question on COGS as well? Just on the outlook commentary, you talk about elevated COGS and that's not Surprising given the spillover of B20 in Australia as well as the U. S. Vintage. How should we think about COGS in FY 2022 versus FY 2021. So should we take those comments to mean they're elevated relative And I think what you should how you should interpret that is remain elevated. So we see COGS at the moment as elevated off the back of Historical vintage challenges, vintage 2020 for commercial. The wording is intended to be remain elevated. Now the only thing I would add is, yes, we are clearly focused on addressing that. And I would as we called out in the Investor Day, we've done the bulk of the work to do that And or we have reasonable expectations that there are natural trends that will lower that over time through vintage 'twenty one in Australia And early insights in terms of long term pricing trends. So from our perspective, we haven't sat in our hands that we're looking to address that. But the benefit of those is likely to come through fiscal 'twenty three and beyond. So for fiscal 'twenty two, it's a remain Top comment, but our focus is on the longer term where we have more positivity. Okay. So Just to make it simple and be clear that the drag sounds like it will be similar in 'twenty two relative to 'twenty one, so no worse. That's a reasonable conclusion. Yes. Thank you. Thanks, Mark. Your next question comes from the line of David Errington from Bank of America. Please ask your question. Good morning, Tim, Matt and team. Tim, look, I don't want to say negative here because I'm very optimistic and I'm positive and I think you're doing a great job and I think the team is in great shape. So please, these are just 2 questions that I think that I don't understand. And I think that TWE, if you can get this right, there's a lot more upside. Your COGS, now following on from Michael's question there. To go through, you had a 10% increase in COGS this year per case. The previous year, you had a 3% increase in COGS and the previous year before that, you had 8.1% increase in COGS per case. Now given all your supply chain optimization, given all your investments that you've been making, given that you're the largest producer in Australia, I just don't understand why you still have a COGS issue. There's always a COGS issue with Treasury Wine. It's been going on since years ago. Why can't you get on top of this COGS issue given that you are the buyer of choice, you are the largest, you should have the best systems, You've got all the investment. I mean, you spend $150,000,000 a year. That's more than anyone else. Why do you still have a COGS issue? I don't understand it. Thanks, David. And I guess I'll top line my view on it and then Matt can a little bit more of the detail because it is a significant challenge for us and we don't hide from that. First thing I'll say is, As you say, with our size, scale and capability, we should be absolutely leading the charge when it comes to cost of goods. And we think And note that we are best placed to deal with some of the issues that have occurred over previous vintages. So from a cost of goods across the board, we think Where we sit as a comparator, then it is in line with what we would hope to be when you look at it from an industry point of view. However, The increases are unacceptable for us as we've seen over the last period of time. And I think as you look through, for example, the Treasury Premium Brands business, the implications that has For that business means not only do we have to understand the supply chain restructuring and go through those processes which we have and will start to flow through From fiscal 2023, but we have to take also a very critical look at how we're actually starting from the front end of the business, how we're actually looking at Yes, right from an end to end part of our business, are we developing our products, our innovation, our plans that actually deliver us a margin structure That allows us to actually have some flexibility when it does come to some variations that may occur vintage on vintage. So It's a broader issue for us than just the supply chain optimization. It's one we feel like now, particularly with this divisional structure model Where our measurement will be on those portfolios not only on a cost of goods point of view but also the asset base that supports it, That we're now better placed to focus on that in a different way to where we have been before. That's what gives us the belief in terms of we will address this issue. But Matt, do you want to add to that? Yes, sure. Thanks, Tim. Look, my and just I'll start, just David, on the scale of the numbers you've mentioned. I think it's important to back out mix. So I will use this year as a 10% increase, but we have seen a step up in the premiumization of our products. So I will just in terms of the scale of challenge you described, Mix does play a role in our COGS per case, which I'm sure you understand, not getting away from the fact that the challenges we've seen. The other The context thing to understand is we do feel like we have the best systems, processes, network. And particularly in Australia, we are we have The scale with which to manage our costs, and we are proactive in this space. The key drivers that you're hearing about in terms of but however, what I would say is the Greatest contribution to cost of goods is grapes and bulk wine. And when we do have lower yielding vintages, they do tend to be higher costs, whether it be through the network All the price of grapes, those are challenges that are industry wide and are set by the market. So for us, That is something that we look to manage through the flexibility of our supply. And as we say, we are in good shape, but there are elements of that, We just have to navigate. Now as I say, as we look to vintage 'twenty one, we see some positivity. It was a larger vintage, And it has filled our network, and we see good opportunity for cost of goods improvement for Vintage 'twenty one in Australia. But that driver of the great increases across America of lower yielding vintages in Australia is the one. And of course, the age of release takes that across a couple of years. So I still feel very confident that we are best placed and tackling particularly those costs that we can control and we are doing that. We are using our network to the best effect. And as I said before, we see the longer term outlook as more positive Off the back of more normal sized vintages and the work that we've undertaken. Okay. Okay. On the second question, Tim, and this is Probably to you and to Ben. When I look at a snapshot of your divisions, I look at like Slide 18, Asia in 2021, the EBIT is higher than 2018. When I look at ANZ, EBIT in 2021 is higher than 2018. When I look at EMEA, EMEA is not the answer to the other case. When I look at the U. S, it's EBIT is still below what it was in 2018, Despite having invested $1,000,000,000 in the Diageo acquisition, now you guys really talk up the U. S. Big time. You're really saying that this is it. And you give a lot of good reasons, whether it's portfolio expansion. It's always been the same. But when you look at that Slide 18 or Slide 19 and you look at the actual EBIT performance, FY 'twenty one is still a long, long, long way away Where FY was in 'seventeen in EBIT. And yet that's after $1,000,000,000 invested in Diageo. So can you I'm Going on a bit and probably need to, but can you tell us in a couple of points why we should be bullish on the Americas business from a terms of future EBIT performance? Because when you look at that Slide 19, you're still tracking a long way away from where you were in 'seventy, and that's after $1,000,000,000 investment in Gauja. Yes, sure. Look, I think a couple of points I'll start with is that our Americas business and I think I've been pretty consistent with this over the last particularly the last two halves and I will pass to Ben to comment as well once I've Given my responses, but there's a consistency with how we're executing in the market in the U. S. That we've seen over the last 12 months, which is, I think, yes, sticking the course in terms of a very clear strategy and plan. And I think that's number 1. We actually are sticking the course and it's working. It's playing our portfolio is more and more playing to where the consumer is going. It's more and more planned at the price points where the consumers are increasing their consumption of wine in that market. So we have the shape of the portfolio Closer to where we wanted to be from an ongoing growth point of view. We're not having to balance a half of the business that's performing well with a half of the business. It's a drag on the business, which is where we've been over that period of time. The second point I'd say is that I think the proof points of what we've delivered over the course of this year, Which have been delivered with a backdrop of circa a quarter or 25% of our channels within that market still significantly impacted By the pandemic in the U. S, when you actually build that back into historical financials and where we actually sat before the pandemic, That certainly gives me confidence as well. That's still to come. And we're in place to execute that. And we've got the right resourcing in place. We've got the right partners in place. I think the third one I'd add is that the U. S. Business and this is a this is hard to measure, But I guess this is how I feel about it and what gives me confidence. Yes, they've delivered and executed a plan. I think Ben will probably add and I'm sure he will It's one step down the path of a trajectory. But at the same time, they've managed to deliver significant change in that business whilst delivering really, really good outcomes. And Ben and the team, as we do with most of our business, spend most of our time focusing on the how we go about Are we running this 2 speed business I talk about quite often, which is deliver today and make sure we've got the right set of initiatives, strategies and plans for tomorrow? And if you think about they've adjusted their route to market to a platform which will be a growth platform for us going forward, restructured the organization some 14 months ago now, but delivered on that whilst delivering the business results as well as some of the portfolio and asset changes we've made, it gives you confidence and it gives you belief That they can actually continue to run the business that way and the decisions we're making are building blocks to continue to grow over time. So I guess that's my sense and response to it. But Ben, what would you like to add to that? Yes. Thanks, Tim. Good morning, David. Thanks for the question. And I think Tim highlighted a number of key steps that we're taking. And I just build on it with a couple in terms of How we're thinking about focus and the benefits of that. And I think The areas around portfolio and tracking where the consumer is going, I think we're really well dialed in, in that space and we will continue To exert a significant amount of effort, not only around the 2010 portfolio, but also how we think about innovation. I'd say importantly, the restructuring activities to deliver our future state premium line business are on track, but they're not completed. So that's a process that we're continuing to Exert a significant amount of effort around, be it how we could fit up our vineyards, our winery assets, our brands, Continuing to challenge cost, and that gives me confidence that we're on certainly on the right path. And the other area that is not as easy to Put some specific metrics to it around the team. Over the last 18 months, we've built I'd say best in class team. We've got continuity around our leadership team, Which I think gives us a great platform from which to tackle the business now. And so to that end, I feel that All the blocks are in place for us to continue this momentum we've got plus the relationships we have with our distributors And the retailers as well is continuing to improve day in and day out. So I think based on what Tim said and as I see it, I think it should give us confidence. Thank you. All right. Thank you very much. Actually, so there's one other thought just came to mind as Ben was answering that. I mean, I actually like the way you've asked question, David, because even with the negative tone. But the yes, the previous years It's something we focus on a lot when we're actually seeing how we're tracking against our plans because it's easy to move on from the pre pandemic period And start measuring yourself against the prior years and for our instance, it's the prior years with pandemic and China or the 2 major issues. So I think it's important that how we run the business and how we measure ourselves is not necessarily just on year on year, but how we're going to compare when we look back With those periods of time before the pandemic and what our metrics are around that, it's a really key measure for us internally. So thanks for raising Your next question comes from the line of Ross Curran from Macquarie Group. Hi, team. Ross coming from Macquarie. Just wondering if we could perhaps Talk about the new divisional structure. So this is Slide 31. And how we should think about margins by the new divisions Going forward, whether we're trading at the moment, that sort of 44% EBIT margin for Penfolds, is that the right level we should think about going forward? And then secondly on that, maybe if you can just dig into a bit of that Penfolds performance, particularly in Asia, whether we have actually found a level there with nearly $500,000,000 of sales, If that's the right base for us to use? Yes, I'll touch on the margin structure and then Matt can jump in I think hopefully we're quite clear with our Investor Day margin structure ambitions that we certainly see. Yes. Penfolds continuing to be in the range of 40% to 45% over the journey as we go forward. Now clearly, Over the course of this fiscal year, as Tom's outlined, there is some investments that we're making to build that distribution and build that capability in the markets. So our expectation is we'll still be within that range that we deliver. I think it also gives a proof point and hopefully Everyone's picked this up over the last 6 months. We're not seeing pricing reductions around the markets for the Penfolds portfolio. We are Doing a good job with our customers and doing a good job as well of maintaining the margin structure and profitability of that portfolio as we look to build that demand Yes, over the different markets around the globe. So that's Penfolds. The U. S, we remain committed to our ambition of 25% EBITS margin and not going to stop until we get there as our first And then how do we continue to grow that from there? So that's been pretty consistent now for a period of time. And we're very, very strong. That's still our ambition. On TPB, clearly TPB or Treasury Premium Brands, when you look at the results when they are recut Treasury premium bands, that's our most significant margin challenging gap to our ambition, which is the which is around the teens ambition than the high teens Mission that we outlined at the Investor Day. So that's still where we're going to get to. We believe we have the road map to get that and start to see that over the next 12 months. It's not going to be in the 1st 12 months clearly. However, over the long term of our plans, we have a real Strong roadmap of multi levers that we need to pull to achieve that. I think it's a great example of why we have a strong belief in the operating model that we've moved to. The understanding the Treasury Premium Brands P and L Financial Structure Portfolio and how we can actually Change that business is really, really important clearly for Treasury Wine Estates as we then build 3 very, very strong divisions because we have the portfolio, The demand is there. The consumer engagement with these brands is there. We now focus on how we not only grow them but improve the margin structure. And growing the top line It's still the best way to improve that margin structure. So, yes, that's broadly our ambition, how we'll continue to focus the business and talk about those 3 divisions. But Matt, do you want to build on any of that? Yes. I think just for the Penfolds in Asia, unfortunately not quite as simple as take that as the base. There's Probably three factors as you think about that going forward. First of all, those numbers do include the first half of China. So there's obviously an element there That would not be repeated going forward. Tom talked you through the distribution and brand building plans that we're doing. We're seeing some success of that in Q4 and that will be a path forward for fiscal 'twenty two. And then the third element, it's a key factor, remember, is A big driver of the performance in Asia of Penfolds comes through luxury channels and through the movement of people. So again, those are elements that you'd need to consider around what that would look like going forward. Your next question comes from the line of Richard Barwick from CLSA. Please ask your question. Thanks and good morning guys. Just to follow on a little bit on Ross' question on the Treasury Premium Brands. I guess the area of weakness stands out is Asia with a 46% step down in revenue. How much of that relates to Rawson's That would have been sold into China. Vast majority of it. Asia in general, but certainly Rawson's and other brands that we had Going into China, as you can probably imagine with the announcement in August, it was certainly a conversation with partners there around taking brands With some uncertainty. And whilst we were successful in selling Penfolds in the lead up to November, that was a tougher challenge, which we talked about at the first half And then if you look at Penfolds in the Americas, I was a bit surprised that has gone backwards given the launch of the Californian collection. I mean, is that a reflection going back to, I think Tim's answer earlier to Dave's question just around the channels that are shot. So if we think about Penfolds in the U. S, it is because of the cellular on premise? Yes. Beneath that is a strong performance of the California collection, albeit released late in Q in the year. So you essentially got 1 quarter's of performance there. But you're right, channels such as cruise, travel and on premise closures during the year did have an impact in the Americas, but still pretty comfortable how that's performing in the U. S? Right. So if we do think about Penfolds in the U. S, it's Askew to those channels that are still under pressure. And independent luxury retail, on premise independent luxury retail and travel retail. And just the last one for me. I know you talked about minimal EBIT from China in FY 'twenty two. Can we can you just clarify, confirm that by minimal, you're still meaning positive? Close to 0 or small positive. Your next question comes from the line of Sean Cousins from Your line is open. Sean, please go ahead. Thanks so much. Good morning. Just a question regarding, I guess, 19 crimes. Can you just Given you've called out it's over a 1000000 cases in EMEA, can you just quantify the size of the brand overall? And should we Envisage some of the brand extensions that have been successful in the United States. Should we expect that to be occurring in other markets? It just seems to be a brand where you've been able to take it broadly. And it's obviously been rather successful as well. So I'm just curious around the scope of it now and And maybe the plan forward for that brand, please. Yes. Sure, Sean. Nice to hear from you. And your definition of rather seems a little Harsh, but it's been very successful. I'm excited. Well, look, we've got a second global brand on our hands, Yes. Penfolds is clearly a global brand, but clearly 19 Crimes has now become that. It's broadly Within a few cases about a $5,000,000 case business for us globally now. And the point you make I think is a really, really important one to understand how we Think about 19 Crimes. So clearly the United States has been the starting point for the growth of 19 Crimes where the Core range or 19 Crohn's core as we call it has continued to have fantastic results for a number of years. The addition of innovation Around the partnerships with Snoop Dogg and Cali Red and Cali Rose and as Ben said more to come is a roadmap where we continue to innovate, we continue to engage differently to other to other wine brands with consumers and clearly it's working and clearly it's a nontraditional wine way of connecting with consumers. And we certainly feel like we've learned a hell of a lot as we've built this in the United States. You then go to the next big market for us in size, which is the U. K. Again, similar playbook. And you should expect over time, we'll continue to then take what we've done in the U. S. As an example, roll that through the U. K. And it becomes part of the expansion plan of 19 Crimes. Same in Australia, same in Asia. There's a number of markets in Asia. So those sort of 4 is the sequence. And as we continue to build the market slightly leading with America into the U. K, into Australia, into Asia, we'll then transpose the successes we've had because it is about How we actually activate that brand and connect with those consumers. So thinking about it as a global brand, thinking about it as a brand that Requires and will continue to have investment behind innovation, but also how we do it through partnerships and digitally enabled channels is really what is key to that and bringing new consumers into the wine category. So yes, it's a pretty exciting Future for the 19 Crimes franchise as we call it internally. But hopefully, I've explained how we think about the model. We're not going to try and do everything in all markets all at once. You need to build that over time. And clearly, the U. K. And Europe becomes the next port of call as we develop it. And if we think about that 5,000,000 cases, is that roughly 3 in the United States in the Americas and then the other 2, one in EMEA and then the other one down in Australia. Is that the way to think about that? Close, roughly right in terms of U. S. And UK, Australia and then Asia. So Australia or Asia is probably Australia is not $1,000,000 It's below that and then Asia picks up the rest. Great. And just a question for Matt, just on cash conversion. You highlighted the regional sales mix changes Had an impact, is that as you've gone to more distributors or different distributors, you're effectively getting paid earlier? And so should we anticipate that we've seen a step up In cash conversion and as a result of the change in the route to market? Or can you just amplify a little bit more about that regional sales mix change and the impact on cash Conversion, please. There's a slight structural shift in shifting away from China that was sort of on slightly longer credit terms to Other partners in the rest of Asia, which are on slightly shorter, which largely links to the time of shipping. So That and as a result of slightly earlier shipping times this year is the main part. So I wouldn't So it should majorly change models around cash flow, but it is a slight structural shift in that sort of shift away from China. Your next question comes from the line of Phil Kimber from Evans and Partners. First question is maybe taking a different tack on cost of goods sold. I noticed for the first time in a long time, your cigar number is actually positive. I assume that's a bit of a leading indicator for The outlook for COGS on a sort of not on a 1 year deal but on a 2, 3, 4 year deal. Is that Correct. And does that give you confidence that there's actually a decent COGS tailwind coming sort of from FY 23 beyond. Just wanted to explore that a bit further. Thanks. I've got to say, Phil, it's a glorious moment when I get to talk about Sagara on an investor Nobody ever asks me this question. That is a rate. So look, I would say, cigar includes current and the impact The prior vintages, but in fiscal 'twenty one, the current vintage impact of Australia is as a cigar is a profit, trend because it will impact by future vintages, etcetera. However, certainly for Vintage 'twenty one in Australia, that is a positive sign, yes. And that's really 'twenty three, 'twenty four that I mean commercial comes through year 1, but I mean that's also got I know you've changed your terminology now, but I can't recall it. So, Masstige and Luxury is coming through on a sort of 2, 3, 4 year. Commercial this year, call it premium next year, the year after and luxury thereafter. Yes. And then my second question was just around the signpost that we on this side of the fence Can see a very off premise market driven particularly in the U. S. And Those numbers are all turning south because of base effects now. So I just wanted to get a sense of as the On premise side of the business starts to improve. I mean, I just wanted to double check that the switching channel from on premise To off premise, did actually net net was a drag on your earnings. So therefore, as they Gradually unwind. Hopefully, it will be a tailwind on earnings. I just wanted to make sure there wasn't a risk that would be off premise On a year on year basis starting to come off just because of base effects that there was the risk around there being a little bit of a hole in case The on premise doesn't sort of pick up quite as fast? Yes. I think your premise of your question to improve and then hence the margin structure of our mix will also improve. So yes, we certainly do see that as a positive Going forward as these channels open up. And we've seen it to a degree in the U. S. So the U. S. Is a good example of the dynamics and Ben can probably talk a bit The U. S. Is probably the best example we have when I finish. So point number 1, yes, we certainly see the trajectory as the And it is it's something we've been monitoring pretty closely in ternary. As you say, you look at the Nielsen's or IRIs or whichever data set you want to look at And year on year, the retail channels are down versus the trends of what it was last year, where there was that initial real Spark in the retail channels. So that's factual broadly across the board, certainly pockets of certain premium price points. That's not right, But broadly across the board. When you go back one more year and you look at what is the market now versus what it was pre COVID, it's still elevated. So that's a really important point to have. And when we look at our numbers and how we're performing rather than looking at and talking about lapping COVID and all the stuff that everyone likes to talk about the moment, it is, are we beating the competitive set in that market today? Yes or no? And are we actually ahead of where we were On a pre COVID basis in fiscal 2019 for a better way to put it. So the dynamics in retail are still pretty good when you go back and have a look at it from that perspective. So there's sort of 2 points to that that, yes, there's that softness in retail that you referred to. But as a mix going forward, Yes, we certainly see the 1 plus 1 hopefully equaling more than 2 what it did in F 2019 is the way we think about it. But Ben, do you want to add anything color on that from a U. S. Point of view Yes. I'll add that two points. And as I mentioned earlier, Dynamics are shifting in the U. S. Market and certainly we saw it in the second half around retail off premise retail and I'd say there's 2 key areas. 1 is the emergence or the rapid expansion of e commerce And the engagement and commitment by our retail partners and the consumers' desire To shop online, that's been a it will continue to be an enormous area of focus for us and one that we're starting to see the fruits of our labor. And then the other is the cellar doors and how we've been thinking about cellar doors and the closures So we saw this time last year and as we reopen and reinvite consumers back in, obviously, that's a positive from A margin standpoint for our luxury portfolio, and that's a definite shift that we're going to see in the back half assuming the landscape continues to evolve as it is today. All right. So hopefully that gives you a fulsome answer feeling. It's always good to hear from Ben because he's got that positivity in his voice about life's like when you To get vaccination programs rolling out for us here in Australia. So it's good I'll talk to him every morning to keep myself up. Your next question comes The line of Ben Gilbert from Jarden Australia. One short term question, One longer term question. First one, I know all the language around your medium term targets and cost out, etcetera, is All pretty similar, if not the same since the strategy today. But you've obviously sort of left that caveat in there around COVID impacts or ability to hit that sort of higher single digit earnings growth for this year at least. Do you still think given the reopening and since your point just then that the U. S. Is opening on premise going pretty well. That's conceivable for this year. Was there any reason to leave that caveat in or it's just general uncertainty? It's Matt here. The general uncertainty is important, and it's important that people understand. The slide we've given In the deck around where we're at in terms of the various channels is the other important point. The way to sort of interpret is that from an outlook perspective, we are not expecting major changes to the landscape as a general statement Other than slow reopening around on premise, we're not expecting a lot in the way of increased travel, which I think Is a reasonable assumption. And so therefore, it's a relatively stable base. It's more just so that people can understand, particularly that slide, the dynamics of what it does to revenue in making assessments as they look forward. And Matt, did you get any benefit in the second half from China profit From Penfolds products you shipped in pre December, because obviously it looks like the sell through, the sales of Penfolds are still pretty strong in the Chinese market, Everything withstanding with product effectively to sell at a much higher price. Do you have any profit in the second half? Nothing meaningful that you should think about in terms of Ongoing. There was a small parcel that made its way from through the process. But now there is clearly still product market and Tom can sort of talk to that. But nothing to consider from an ongoing perspective. The focus now is What does that look like forward? And I know there's some and maybe, Tom, if you want to give an insight longer term of how we think about Australian based pinfolds for China. Yes, I can jump in there, Matt. I think the real positive for us is The buzz as a brand is still in high demand at the consumer level, even though we've seen prices continue to elevate in certain parts of the portfolio really now At a pretty significant elevation to what they were a year ago. We're planning to bring in the new Australian collection during H1 this year. That will obviously be at tariff impacted prices. So a bit too early to say whether the elasticity of the Pempholds brand can And stretch to that extent and what the actual demand will be at those elevated prices. But Positivity is the brand remains strong at the consumer level. We are losing some distribution as retailers and wholesalers do struggle to maintain supply and stock, and many of our partners are continuing to manage their own Cash flow and businesses to keep them set up for growth as we launch the Multi country of origin portfolio in F-twenty two and beyond. That's helpful. And then just second one for me, just on the strategic side. I noticed, Tim, that you put some talking around your capacity for funding. 1, did you guys have a decent crack at Saint Michel? I was surprised I thought you guys probably would have had most synergies, particularly with some of the benefits you got in your R and D sale. And secondly, seeing much out there at the moment From an M and A standpoint, particularly in the U. S, I think is that was probably the biggest opportunity? Yes. I'm not going to comment on whether we did or didn't look at certain things, but I think I'll probably couch it by saying that our acquisition targets that we do look at, we'll look at, Should look at where those opportunities do arise, we'll have to play to our premium price point of our portfolio. So if there's a center of gravity below that premium price point, then you can take from that that by and large, unless there's a Huge strategic reason outside of that is not going to be a priority for us in terms of the investment of our capital going forward. Yes, they need to be additive. Any acquisition would need to be additive to our portfolio. We need to be complementary to what we have today. I don't think we need necessarily more of exactly the same. What we need is to actually build out the portfolio that builds on the strengths we've got. U. S. Is certainly a market. I mean, we've all seen there's a fair bit of activity in that market at the moment. And I think it will continue to be the case Over the next year or 2 in particular. So yes, I mean there's opportunities that will come up. I have no doubt about that. But hopefully that gives you the color and shape of what our priorities are when we're looking at those. Yes. That's correct. Thanks guys. Cheers. Your next question comes from the line of Peter Marks from Berenjoy Capital. Please ask your question. Good morning, Tim and Matt. Just wondering if you can give us a bit more color on how much of that non HR growth was building availability versus sell through. I guess what I'm trying to understand is what's selling and what's sell out because I mean, I would have thought maybe I'm not thinking about it the right way, but isn't that wouldn't that be the best indication of demand? Yes, I'm still quite comfortable. We try to manage from an inventory perspective, we try to manage 4 days inventory cover In line with the prior year, and I'd say we're still in that space. So certainly, as we've sold and satisfied that demand that was, I guess, latent in the market. Certainly, the selling is to satisfy that demand. As you've probably seen in multiple years for Asia, Shipments are ahead of depletions, largely off the back of growing demand for the brands. And that's certainly the case with what we've done. There's no pot fill So that I would say in terms of a bump to need to worry about, I do think it is a genuine an underlying performance within those markets. Okay. That's really helpful. And then just my second one, I just wanted to clarify some of the one off costs that might have been above the line. So it looks to me like there's an $8,000,000 benefit from the wildfire insurance claim, but then there might have been like a an equivalent headwind in China, some one off costs that I could essentially net out. But then can you give us any color on the one off cost in ANZ related to that product initially destined for China? And then how big was the Brexit cost in EMEA? Sure. I'll take that. I'll start with the insurance. And for those that would sort of want to digest, particularly balance sheet P and L, note 4 to our financial statements in the annual report is a good one to look at Because there are some large movements there. You're about right. In a net P and L sense, it's about $8,000,000 impact. What that represents is the effect of the closure of our sterling tasting room as well as lost profit from the product that was damaged. So it is a, I guess, an underlying base that's Right to keep in the above the line. From an ongoing from other one off costs, a range of different things in terms of reworking products In China, in Australia that was destined for China as well as Brexit costs. We haven't broken those out separately within the accounts. We've sort of just given them as around the COGS impact. From that perspective, yes, they are one off and they won't Continue next year, but we've I think the most of those sit within COGS. And the guidance we've given around Elevated COGS for fiscal 'twenty two is the right way to think about that line. Yes. And then have you quantified the Brexit impact? No, we haven't. Not in that market. Your next question comes from the line of Bradley Beckett from Credit Suisse. Please ask your question. Hi, guys. It's Larry from Credit Suisse. Thanks for taking the call. A couple of questions. I just wanted Clarification going way back to Michael Simodis' question, Matt, you agreed with Michael saying that And that was a contradiction to the earlier part of the answer you gave, which basically said elevated was kind of similar. That's a big distinction. I just want to clarify, is FY 'twenty two going to be a similar drag or a similar absolute level of COGS? A similar absolute COGS per case on a mix adjusted basis, volume mix adjusted basis. Got you. So if FY 2021 was impacted with a drag, FY22 will not have Such a drag because we're talking about similar COGS. That's right. We'll not have an incremental drag. It will remain at those elevated levels that it was in fiscal 'twenty one, Again, on a volume mix adjusted basis, with longer term for that to decline as a result of the programs and roll through of lower cost vintages. Okay. That's an important clarification. Now on the matter of lower cost indigies, I know, MUTUWA might seem Somewhat a smaller proposition, although very important growth brand, particularly in the U. S. As you guys know, The grape supply situation there is almost to the point of desperation. No new plantings in Marlborough, pretty much can be Undertaking and we're in short supply. I think grade costs are heading up towards 50%. So given that I know you guys have done an amazing job in sourcing rate for FY 2022, but longer term, what's the plan there for Marlborough, Sauvignon Blanc, Matua for you guys. And how did that affect your overall grade costs? Thanks, Larry. Longer term, so I'm not going to necessarily reveal our plans that we're looking at the moment because There's a few options that we're in the middle of assessing for the longer term. As you say FY 2022, FY 2023, our teams have done a fabulous job To gain the access to the supply for Sauvignon Blanc, not just from a tour for the U. S, but squealing pig here in Australia and some of the other markets around And it is a growth engine for us and it will require us to gain more access to more fruit over the coming years. And we do think There is certain ways we can do that. We do have certain plans to implement across that, none of which have come to life of say V24 and beyond at this point, but it's important for us and it's a high priority for us because we see this category Continuing to grow, continuing to be a growth engine for us. And Ben touched on the launch of Matura Lyta Earlier and you sort of joined the dots on consumer trends around health and wellness. You've joined the dots on Sauvignon Blanc as a varietal, lighter style, A lighter in alcohol or even 0 alcohol proposition for New Zealand Sauvignon Blanc, yes, you could certainly see having demand in the future as well. So it is one of those where our short to medium term is covered, but we've got some work So your points in the notes you've written on, which I read with interest. I think you're right. It's a challenge for us to deal with, We feel like we've got some levers still to pull. So yes, and then clearly as the constraints occur, prices adjust in the market as well. And you've seen that with the U. S. As well, in particular across some of the other big Sauvignon Blanc brands as well, which we continue to use that as a potential for us going forward Protect the margin structure of the portfolios as well, given the rising costs of the fruit over the last vintage or 2. Okay. So maybe this is a question for Matt. Just is the Sauvignon Blanc cost A great increase enough to move the dial for your overall COGS outlook? Not at that level. The only thing I'd add and I think that's a yes, the comment around Australia is probably more relevant. The only thing I'd also add to Tim's is Clearly part of the challenge of COGS for this year for New Zealand, when I say this year, this year's vintage is also the size of the vintage, the vintage being impacted late in the process. So there is a it was a lower yielding vintage overall. A more normal sized vintage going forward would correct some of that cost base. Okay. I think we unfortunately we've run out of time. So we did have Smaller presentation time today and hopefully longer on Q and A and to provide more expansive responses. I know a couple haven't had a chance to ask the question, but we'll certainly follow those up with the 1 on 1 sessions that we're having over the next couple of weeks. So to wrap up, thank you for joining us today. Thank you for your support of TWE and your analysis of TWE. And hopefully, you share our belief In what has been a great year for our business in terms of the circumstances in particular and set ourselves up for a strong period ahead for our business and our team. So

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