Treasury Wine Estates Limited (TWE) Earnings Call Transcript

Thank you for standing by, and welcome to the Treasury Wine Estates FY '26 Full Year Results. [Operator Instructions] I would now like to hand the conference over to Mr. Sam Fischer, Managing Director and Chief Executive Officer. Please go ahead.

Good morning, and thank you for joining Treasury Wine Estates' 2026 Full Year Results Briefing. Joining me on the call today is Justin Pipito, our Interim Chief Financial Officer. As Justin and I and other members of our team shared with you in some detail at our recent Investor Day, in F '26, we took decisive action to ensure the health of our brands and channels and commenced our comprehensive Ascent transformation program focused on reshaping TWE for future success. While this decisive action has impacted financial performance in the short term, I am confident we'll emerge a more focused and financially strong company capable of sustained attractive returns. And you can see the story of these actions reflected throughout today's announcement, including our key messages, which I'll turn to now. F '26 EBITS of $492 million was ahead of our guidance, driven by Penfolds performance in the fourth quarter. Statutory NPAT was a loss of $1.1 million, driven by the noncash impairment of U.S. assets. This includes the additional $558 million impairment relating to U.S. supply chain rebalancing initiatives that we announced on Monday, which has been recognized in the second half. And we are reiterating our guidance for F '27 EBITS, which are expected to be at least equivalent to F '26. Importantly, the underlying performance of our key brands remains strong with depletions growth continuing for Penfolds, led by China and our Asia markets. And in the U.S., depletions returned to growth nationally for the year despite the impact of California distributor transition in the first half. We progressed our previously announced initiatives to ensure brand and channel health, including action to significantly reduce parallel imports into China. We also progressed with the planned reduction of customer inventory, and we're on track to complete this effort in both China and the U.S. within the 2-year time frame that I communicated last December. Retaining the strength of our capital structure remains a key priority. We reported leverage at 2.8x, and we expect this to be the peak ahead of our return to our target of below 2x by the end of F '28. We have also made substantial progress with Ascent. As we shared at our Investor Day in June, we have a clear vision, and we're taking deliberate actions to focus where we will win, transform our operating model and shape a future-fit supply chain to make it happen. We are currently finalizing our organizational structure ahead of our transition to a regional operating model on the 1st of October. And we are on track to realize our cost savings of $100 million per annum in full by F '29, with approximately $40 million to be realized in F '27. Our global supply chain transformation has commenced and processes to divest a number of nonpriority brands and assets are underway with a pleasing response to date. As announced in June, we are also undertaking a strategic and operational review of our U.S. business. This process is also underway with advisers appointed to review all available options. The decision to reduce U.S. vintage makes from 2026 reflects the type of clear and decisive actions we will be taking to ensure that we improve shareholder returns from the Americas. So that's a high-level summary of the result and our transformation agenda. While I am acutely aware that there is still a lot of work to do, I am pleased with the progress we've made since I joined the business last October and both transformational -- transformation and operational momentum has gathered pace throughout the year. Turning now in more detail to our financial performance, which was impacted by a number of factors, including the moderation of category trends, our deliberate initiatives to protect brand and channel health and the cycling of elevated shipments in the prior period. NSR per case fell 3%, reflecting portfolio mix and in particular, the impact of our actions to reduce parallel activity and inventory in China. EBITS margin decreased to 19%, driven by the decline in NSR and accompanied by higher costs of doing business. ROCE declined to 7.9%, driven by a decline in EBIT. Pre material items, net profit after tax was $275 million and EPS was $0.34 per share. And our dividend program remains suspended. This is a temporary yet important measure as we reprioritize our focus on returning leverage to target. Turning now to divisional performance, where pleasingly, momentum has improved in the second half. Penfolds delivered EBITS of $404 million, supported by continued depletions growth in China, in Asia ex China and Australia. However, earnings were moderated by the deliberate reductions we've made in inventory cover and restrictions of shipments contributing to parallel import activity into China. It is terrific to see the continued progress Penfolds is making across its key markets with first-class brand building and execution continuing to translate into increased consumer awareness and demand for the Penfolds brand. More on this shortly, but I am extremely pleased with how the team is showing up in market to consistently drive this growth. Treasury Americas delivered EBITS of $90 million. The result reflected softer market conditions, disruption arising from the Californian distribution transition in the first half and cycling the excess of shipments to depletions in the prior period. Despite these challenges, we were pleased to see depletions returning to growth in California in the second half, which supported the return to depletions growth nationally. And underlying brand for our key brands in the U.S. remains strong and ahead of category. Having finalized the transition of distribution away from RNDC in several markets, we now turn our attention to reducing customer inventory levels through F '27, targeting completion in the first half of F '28. Treasury Collective delivered EBITS of $68 million, which was in line with expectations in Australia and EMEA with positive momentum behind focus brands and continuing declines in the commercial portfolio. In the U.S., performance was again impacted by declines in the premium portfolio, led by 19 Crimes. Turning now in more detail to depletions, which are the clearest view of underlying consumer demand across our portfolio and markets. Importantly, we saw improved momentum for Penfolds and Treasury Americas in the second half. Penfolds continues to achieve strong depletions in China. This is a result of the strength of our brand and encouraging trends in consumer demand, performance in the fourth quarter relative to prior year and the benefit of transitioning volumes previously parallel imported into our authorized distribution channels, which contributed approximately half of the depletions growth. Outside of China, depletions remained strong in several markets, including Thailand, Malaysia and Indonesia. Penfolds is well known among Chinese communities in these countries, and the wine category continues to develop. So we believe there's a substantial long-term growth opportunities for the Penfolds brand in these markets. In Australia, strong execution through Chinese New Year and other key activations drove momentum in independent retail channels. Within Treasury Americas, total U.S. depletions were positive, driven by growth from DAOU, Frank Family Vineyards and Stags' Leap. While California was impacted by the distribution transition during the first half, the business returned to growth in the second half with strong momentum demonstrating improving execution. The depletions growth was driven by ongoing distribution gains with Frank Family Vineyards, in particular, expanding its reach in the on-premise. In Treasury Collective, Squealing Pig, Pepperjack and Wynns led the Australian depletions performance, supported by strong execution with key partners and innovation. In the U.K., pricing actions taken to offset higher alcohol duties impacted volumes, while in the U.S., 19 Crimes continued its above-category declines. Declines in the commercial portfolio were also driven by the U.K. Overall, the key takeaway is that depletion trends are strengthening across many of our priority brands and markets, giving us confidence in our core strategy and the underlying health of the business. And this makes us well positioned to return to NSR growth from F '28 once we have completed inventory rebalancing. Penfolds continues to strengthen its position as one of the world's most recognized luxury wine brands. Over the course of the year, we increased investment behind activations designed to enhance brand awareness, luxury credentials and deepen consumer engagement. These initiatives continue to drive demand power growth across our key markets. Our Global Grange campaign is a great example. This has created a halo for the brand as a whole, reinforcing Penfolds' luxury positioning with consumers around the world. At the same time, market-specific activations such as From Penfolds to the World in Bangkok demonstrates how we are creating culturally relevant experiences that bring the brand to life. And I really want to get across that these initiatives are not simply marketing investments. They not only underpin the sustained strong depletions growth Penfolds is delivering, but they are also building long-term brand equity. As outlined at Investor Day, our portfolio is focused on 3 pillars, and these represent the most attractive market segments where we have conviction in our right to win. During the year, we continued to strengthen our leadership in our first pillar of luxury red wine. And while Penfolds remains central to that ambition, DAOU delivered another year of strong category depletions growth in the U.S. Second, with an elevated focus, we saw encouraging growth in luxury white wine with depletions accelerating in the Penfolds white wine portfolio led by Yattarna, Bin 51 and Bin 311. And this gives us confidence that there will be a very promising future for Penfolds in luxury white wine. And third, we're building an excellent position in modern refreshment. Matua is a clear example of this strategy in action, delivering yet another year of growth in the U.S., both in the core range and the continued success of Matua Lighter. So you can already see some of the benefits of us focusing our attention behind our best opportunities, and there will be more to come as we accelerate our investment behind our power brands and regional heroes in the future. During the year, we also made significant progress against our previously announced brand and channel health initiatives. In China, customer inventory cover reduced by approximately 200,000 cases, approximately halfway towards our previously communicated target with the rebalancing expected to be completed in F '27. Strong depletions in China through the fourth quarter allowed us to finish ahead of expectations on this front, which is very pleasing. We also continued our efforts to minimize parallel import activity in China. Availability of unauthorized product reduced materially during the second half with recapture into authorized channels on track and reflected in the China depletions, as I mentioned earlier. While they have significantly reduced, we have identified some further sources of unauthorized shipments in recent months and taken corrective action. As I have said previously, managing this will require continued vigilance to ensure it remains under tight control, and we are absolutely committed to staying on top of it. Importantly, our action to date has helped stabilize online pricing, and we're seeing pleasing signs of pricing improvement for key Bins in July. In the U.S., customer inventory cover remained stable. We repurchased inventory from RNDC in California and have sold approximately 40% of that back into the market at 0 margin. The RNDC transition is now largely complete with our residual exposure now immaterial at less than 3% of America's NSR and our new distribution partners are performing to expectations in the transitioned markets. We now shift our attention to completing the planned 300,000 case inventory reduction ex California progressively over the next 18 months. We are continuing to make meaningful progress against our 4 Ascent priority areas, focused on the bright future we are seeing for TWE as a more focused, market-centered, simpler and financially strong wine company. I'm really pleased with the progress we are making, and I've already touched on a number of these key highlights in today's presentation. We look forward to continuing to provide our investors with regular updates as we progress this journey. I will now hand over to Justin, who will cover the financial results in more detail.

Thanks, Sam, and good morning, everyone. Starting first with material items. A post-tax material charge of $1.3 billion was recognized for the full year, which includes $458 million recognized in the second half relating to initiatives to accelerate the rebalancing of the U.S. supply chain and a further $100 million impairment of U.S. brands, predominantly DAOU, Frank Family and Beaulieu Vineyard, recognized as a result of the year-end impairment review process. We are taking proactive steps to address the structural misalignment in the U.S., including, among other things, a reduction in North Coast vintage make sizes from Vintage 2026 to rebalance our supply chain. The material item recognized reflects asset impairments from lower future utilization across the network, the write-off of capitalized costs already incurred in Vintage '26 and a write-down of predominantly bulk wine inventory, which will help accelerate sales in the open market. These actions are intended to accelerate an improvement in the Americas region profitability over the medium term. Additional material items include Ascent-related restructuring and redundancy costs and the RNDC settlement to compensate TWE for the impact of RNDC's closure in California. This amount is net of amounts incurred by TWE to execute the buyback. And note, the cash portion shown includes the buyback of inventory at original sales value, net of the cash realized on resale of the inventory in the second half, which is included in ordinary cash flows in the statement of cash flows. Other items include the sale of supply chain assets in Australia, write-down of assets held for sale outside of the Ascent program and the noncash half 1 accounting associated with the contingent DAOU earn-out. Turning to an update on Ascent one-off costs following the additional U.S. initiatives announced earlier this week. Ascent will give rise to a number of one-off material items with the majority of P&L and cash impacts expected to be recognized by F '28. Our expected onetime costs remain consistent with what we shared at the Investor Day. To these costs, we have added the costs associated with the U.S. strategic review announced earlier this week to reflect a revised updated total expectation for the Ascent program. On a cash basis, we continue to expect Ascent to be cash positive on a post-divestment basis. Moving now to the balance sheet. Net assets decreased $1.3 billion on a reported currency basis with $187 million of this decrease due to foreign currency movements and $1.3 billion due to write-downs associated with the U.S. Excluding these, the key balance sheet movements overall were a decline in payables with reduced vintage intake, a key driver of the reduction and a reduction in inventory, which I'll talk about more shortly. Net borrowings were broadly unchanged with reduction of interest-bearing debt from cash in the first half. Turning to inventory in more detail. Against the prior corresponding period, total inventory decreased in value by 7% with the major drivers being the U.S. inventory write-downs and foreign currency movements. On a current and noncurrent basis, current inventory decreased $182 million, reflecting the moderated sales expectations in Treasury Americas and Treasury Collective. Noncurrent inventory increased $7 million, driven by the transfer of inventory from current and partly offset by inventory write-downs. In Australia, we made good progress towards our focus on rebalancing supply and demand. In the U.S., as mentioned earlier, we are taking action to rebalance our inventory position, starting with Vintage 2026, where we will follow a number of North Coast vineyards to reduce grape intake. Turning now to cash flow and net debt. Net operating cash flow before interest, tax and material items was $535.3 million for the period, a decrease of 34.7% on the prior comparative period, driven by the lower top line, while cash conversion was 81.4%, reflecting cash costs associated with intake and production from the F '26 vintages. Capital expenditure was $113.4 million and included maintenance and replacement CapEx of $70.7 million and growth CapEx of $42.7 million. This growth CapEx related to the redevelopment of the BV cellar door in Napa with that project now complete and the new site opening in July. F '27 CapEx will be reduced to approximately $75 million, reflecting the elevated focus on cash preservation to support deleveraging. And finally, turning to capital management. Leverage was 2.8x, slightly ahead of the 2.9x we communicated at the Investor Day, and this is expected to be the peak ahead of a return to target below 2x by the end of F '28. We have a deliberate and disciplined approach to deleveraging, including an elevated focus on near-term cost control and working capital initiatives to support free cash flow generation, including accelerating TWE Ascent benefits where possible, expected proceeds from asset rationalization, namely brand and supply assets, where several sale processes are currently underway, the ongoing rightsizing of CapEx with this reduction supported by a well-invested asset base and reduced asset footprint and continued suspension of dividends with the Board to consider resumption as leverage trends towards our target level. Our liquidity position remains healthy with available funds of $1.3 billion at June and a well-diversified debt maturity profile. As previously communicated, $300 million in additional commitments was established in March with strong ongoing support from our lending group. Thank you, and I'll now hand back to Sam to talk about the F '27 outlook.

Thanks, Justin. As we transition to the regional operating model, the performance of our power brands and regional heroes gives us great confidence in the future of our portfolio. Currently, these represent around 70% of global NSR and 80% of gross profit. And pleasingly, each of the portfolios delivered depletions growth in F '26. From F '28, we will be increasing our investment behind the portfolio in line with the overall uplift to group brand investment focused on unlocking the full potential of these brands. Also, as you can see on the slide, our nonpriority portfolio declined 14%, most of which was driven by commercial brands decline, showing the divergent trends within the portfolio. We will continue to carefully manage the contribution of these brands to meet customer commitments and maintain production scale in line with our Ascent strategy. Turning now to our group and regional outlooks. In F '27, strong depletions-led momentum for our power brands and regional heroes will be offset by the continued progression of channel health initiatives. As I've mentioned at the start, we reiterate our expectation for group EBITS to be at least equivalent to F '26 with top line growth for Penfolds and the benefits of Project Ascent to be offset by declines for nonpriority brands, distributor inventory rebalancing and the sell-through of remaining 0-margin RNDC inventory. While EBITS appear flat due to progression of customer inventory rebalancing, underlying performance shows substantial improvement year-on-year. For Greater China, F '27 EBITS is expected to be in the range of $280 million to $310 million with continued depletions strength for Penfolds to drive growth as customer inventory rebalancing is completed. EBITS will be second half-weighted, primarily due to the phasing of shipments for Bin 407. For emerging markets, EBITS is expected to be in the range of $95 million to $115 million, with Penfolds continuing to be the driver of regional performance. As noted on the slide, our ongoing vigilance may see some further transition of shipments from emerging markets to Greater China, which we have accounted for in the outlook ranges. In the Americas, EBITS is expected to be approximately $50 million, reflecting the impact of customer inventory rebalancing, sell-through of remaining RNDC inventory at 0 margin and further premium portfolio declines. EBITS will also be second half-weighted, driven by the phasing of customer inventory rebalancing and the sell-through of RNDC inventory. In ANZ and Europe, F '27 EBITS is expected to be in the range of $100 million to $120 million with top line growth for Penfolds and Ascent savings driving EBITS growth. Our Ascent initiatives are intended to progressively improve the quality and sustainability of earnings over time while strengthening our balance sheet and enhancing returns. We thought it would be worth recapping the time line we shared at our Investor Day. From F '28, with customer inventory having been rebalanced, we expect to return to depletions-led revenue growth driven by our power brands and regional heroes as we continue to manage declines in nonpriority brands. Over time, we see a strong pathway to improving profitability with EBITS margin progressing to our long-term target of 25% plus, driven by the top line growth and supported by Ascent cost savings hitting full run rate by F '29. Additionally, the work we are doing across our supply chain in both Australia and the U.S. will support margin delivery over that time horizon. We also have an elevated focus on ensuring our ROCE returns to an appropriate level with earnings growth supported by a more disciplined capital allocation focus. In summary, F '26 was a year of decisive action and significant change. We enter F '27 with improved momentum and clear priorities, which include: continuing above-category depletions growth for our power brands and regional heroes through a disciplined focus on execution in market; advancing customer inventory rebalancing for completion in F '28; reducing leverage with an elevated focus on cash and working capital; progressing the TWE Ascent transformation; and completing the Americas strategic review. Thank you again for joining us today. I'll now hand over to the operator to take your questions.

[Operator Instructions] Your first question today comes from Michael Simotas with Jefferies.

Well done on all the work you've done so far. First question from me is on the FY '27 outlook. And I just want to understand your confidence in delivering group EBITS at least equivalent to FY '26. And the reason I ask is you've given ranges for each of the divisions. If we look at the bottom end of those ranges, it would imply something quite a bit below the group level. How should we think about what it would take to land within the ranges for the divisions?

Thanks, Michael. And I might just start this myself and then pass over to Justin just to give you some confidence around the numbers. But I mean what really gives me confidence in relation to our outlook is the strength of our underlying business and the depletion momentum that I talked through in the presentation. When we look at the execution focus we've got on these power brands and regional heroes and what we did in H2 in relation to building momentum behind that, I think that confidence comes from the strength of those brands and the work our teams have done around the world to support execution. So really, that's what's underpinning everything. When we look at the ranges, we have talked a little bit about some nuances in relation to the transfer of parallel out of markets and into China, and we've seen a little bit of that this year and really, really strong China depletions growth. We're getting strong feedback from China that they're feeling that transition. It's giving them real confidence in the work that we're doing to strengthen that distribution network through controlling that parallel. But we recognize that this is a bit imperfect. We're still finding areas of concern, and we're taking strong action in relation to that. And some of that range allows us to move volume from one market to another as we take that proactive action. So really, that's what underpins my confidence. I might pass to Justin just to give a sense of kind of the numbers.

Yes. Thanks, Sam. Look, I think it's important we anchor to the expectation that group EBITS will be at least equivalent to F '26. That's the guidance, and that's what we are very confident to deliver. And on top of the execution momentum that Sam has talked to and the market-phasing momentum, the result will be underpinned by the coming through of Ascent-related benefits of at least $40 million. So we've got good confidence on that being delivered. The ranges we provided are just to help with the new look of the world under the regional model, more so than being definitive. So as I say, start with the group guidance, and that's exactly where we expect to be at the end of the year.

Yes. That makes a lot of sense. And then my second question is relating to the Americas. You're assuming in your outlook a significant decline in the Americas, down another about $60 million on the new way of looking at things. I mean the reasons for that are obvious as you work through the inventory. How should we think about more of a mid-cycle earnings number for that Americas business? I mean if I infer from your written-down carrying value, it would suggest an earnings number probably something around the FY '26 number or even higher. Is that the right way to think about a base that you can then hopefully grow from once you've cleaned up all of the inventory?

Yes. Again, I might start, Michael, and then I'll pass to Justin. I think that we've been clear that we're fixing some structural imbalances in the market. We're really taking proactive action as it relates to supply chain initiatives, operating model inventory and trade inventory. So these things are really proactively being addressed right now, and that's clearly having an impact on that comparable earnings number that you referenced. We expect, and we'll continue to update the market as we develop these initiatives, that to improve over time. But right now, there's still a whole lot of work in progress. We're addressing those core issues, and that's what's driving the number that you see.

Yes, Michael, again, just to build. So I think you're right. On F '27, we expect the headwind from the sell-through of the remaining RNDC stock, the ongoing taking of inventory out of the trade and then ongoing declines across the premium portfolio led by 19 Crimes. I think from a mid- to long term, that will come back. However, what we talked about a lot at the Investor Day, that COGS imbalance or that COGS drag that comes through because of the structural imbalance -- structural misalignment does weigh on the result in the medium term. So just be careful in terms of how quickly that bounce back happens.

Your next question comes from Michael Toner with RBC.

I have a question on the Asia ex-China depletions data, 18.1% growth. I can see that it's adjusted to exclude the estimated value of depletions contributing to parallel activity from the region. I'd be curious to know what that adjustment number is and like sort of how you estimate it, like what the methodology is.

Thanks, Michael. It's Justin here. It's approximately 10 percentage points of growth. I think the -- both -- there's a comment around the China depletions growth being approximately half contributed to the parallel capture and an adjustment for Southeast Asia. I think the way the teams looked at that, particularly from a China point of view, where we can cross-reference it to anecdotal feedback from customers, analysis of the e-commerce data and what we can see coming through cross-border e-commerce, there's been a bit of triangulation work to try to quantify that on the China side, and that has then been applied back to the Southeast Asia side. That's essentially how we've done it.

Okay. And I thought I might ask Michael's question earlier, just a slightly different way. I'm curious how big the margin headwind from the RNDC inventory that you repurchased in California was to half '26, just to help us inform that margin drag into FY '27 from the remaining sort of 60%, and then we can get an understanding of what the sort of true underlying margin might be in F '28.

Yes. Sorry, I think the -- at a total Americas level, the impact is about 4 percentage points of margin. I think we went -- we've communicated previously that, that buyback of inventory for luxury was approximately AUD 100 million at full sales value. We've noted today that 40% approximately has come through in F '26 with the remaining 60% in F '27. And I think if you just apply a standard sort of luxury margin to that, you'll work down the EBITS impact.

Your next question comes from Shaun Cousins with UBS.

Maybe just my first question is just around Penfolds and the halting of Bin 407 shipments. Just keen to understand sort of why now? What does it reflect about, I guess, the level of gray market supply of that product and maybe current pricing trends and the risk that you might have to do this with other product ranges?

Sure. Shaun, thanks. Yes, look, we have taken, again, some decisive action as it relates to 407. We saw some trade practices in China with 407 that it was being used as a kind of a commercial lever to help migrate some of that cross-border trade into that domestic distributor market. It was having an impact on pricing. We weren't getting the pricing that we wanted. So again, in order to bring that back into control to preserve the strength of the brand and make sure that, that positioning stays intact that we would take a strong action and reduce shipments, again, to show everyone in the trade across the region how serious we are in relation to taking control of our route to market in China and in those parallel flows. So it's been well received. I would say that pricing of 407 has stabilized. We're starting to see some price rises back to where we would like it to be in July. That's really what we're doing, and it's really the strength of conviction we have around taking control of our brand in our critical market of China.

Great. My second question is just around the Americas and depletion sort of growth. Can you just talk a bit about the fourth quarter '26 depletion trends in the U.S.? It seems to have improved. And really, how much of that is TWE benefiting from an improving luxury market over there? Or is TWE out executing the market and hence, regaining some of the market share that's been lost and some of that improvement in the back end of fiscal '26, please?

Yes. No. Look -- thanks, Shaun. I think that pleasingly, we have seen the market return to flat to slight growth in Q4, particularly the above-$20 segment that we so proactively participate in. So there's no doubt some of that momentum is starting to be felt. But I've started to talk about execution really since I began and focusing on really strong brand plans, really strong in-market execution, depletions being our core measure, brand health being our core measure. So all of those things have really changed the focus of our business on to that in-store in-market, in-channel execution. And no doubt, that is having an impact. So I think it's a bit of both, but really pleasing second half performance. And our goal is to take that all the way through '27 and beyond based on the strength of brands that we all know we've always had.

Your next question comes from Craig Woolford with MST Marquee.

I think we're all trying to just wrestle with the implications of the destocking on earnings, particularly for the Americas. But just trying to understand, when you go through the destocking of both Penfolds and the Americas, are there any other costs -- other than the cost of goods sold, are there any costs that are avoided? I'm trying to think through the loss to EBITS because of destocking? Is it just the gross profit? Or is there any other cost items that would be impacted by the process of the destocking?

Yes, Craig, it's Justin here. I think the answer is no. It's really just the lost shipments. A&P is there to sort of -- that's there to drive depletions in the market. And so you might get a little bit of tidy up here and there. But by and large, the cost just comes through the shipments line.

And I'd add, Craig, we've always had 2 areas of focus here to drive, if you like, the correction of our inventory. And one of those is reducing shipments. But going back to the previous comment, the second is that focus on driving faster depletions because, again, that eats away at that inventory and normalizes it faster. So we've got 2 areas of focus in doing that, principally driving depletions on the back of brand health and then reducing shipments in a very controlled way so we can bring us back to the levels that we've articulated in the presentation.

Okay. That makes sense. Just a question about Bin 407 issue that you've raised. Just more broadly, is the phasing of releases going to be much different to what it has been historically? The Bin 407 seems more of a transitory issue. And the reason I'm asking this, just trying to understand what the typical skew of earnings is going to be between the first half and the second half, which will largely depend on how you choose to release the premium wines, if you want.

No, I think -- look, I don't think we plan on any change. The release dates, we're right in the middle of it at the moment, are working well for us. It's a date in everyone's diary. We've got huge activation behind it. I use this as an opportunity just to say how excited I am about this year, our 75th year of Penfolds and some of the ratings that we got for the wines, particularly white wines, were extraordinary. So we're excited. The trade waits for this date. We know consumers and customers all around the world are lined up to it. So no change as far as I'm concerned going forward.

So Bin 407 will shift back once you've sort of recalibrated things?

Yes.

Your next question comes from Tom Kierath with Barrenjoey.

Just on the 200,000 cases of destocking you did with Penfolds. Can you give us a bit of a guide on how much revenue that -- the impact on the revenues, and which region that destocking occurred in, so we can kind of, I guess, get a bit of an underlying base for the second half?

Look, Tom, I think in relation to which region, that's kind of universal, across China is where that's been reduced. It's kind of also a bit linear across the whole portfolio. We're really focused on making sure that the whole portfolio was reduced in line with where we thought that we had too much stock or too much in the market. So no nuance really there from an NSR perspective, it's not something that we would share. We've shared that there was 400,000 cases of stock that we needed to take out of the market to get back to our, what we would consider, optimal levels. We're halfway through that. The second half will be done in this fiscal year.

Okay. Cool. And then secondly, how long will this strategic review take in Americas? Like the business kind of, I think a few years ago, was saying it's going to make $400 million, now it's going to make $50 million. I assume while there's a strategic review going on, it's hard to motivate the troop. So can you give us a bit of a time line as to when you expect to have some decisions on that on the future of that business?

Yes. No, look, I think it's fast as possible. We've started the review. I've been pleased actually with how much progress we've made. We've really understood what we need to do in the supply chain and those initiatives we've outlined here. Again, we've taken some significant inventory provisions. We shared those on Monday. Again, they help us rightsize that mismatch that we've got across our supply and demand organizations. And we've appointed some advisers to look at further options as they relate to brands and assets across the market. We commit to come back to you as they progress. There's nothing more to update you in relation to that at the moment, except to say that we've been pleased with the response, and we expect to give some material updates in the near term. What keeps everyone excited, just picking up on one of your points, is the momentum that we're building in the market around brands and execution and innovation. I mean that's exciting. And we look at what we're doing with DAOU and Frank Family and some of the innovations that we put into the market in the second half that helps support that depletion growth, really, really promising. We're starting to see share gains on the back of that execution, and that's what excites our teams in those markets. And again, we've got great plans for '27 that give us great confidence that we can continue that momentum.

Your next question comes from Peter Marks with GS.

I just wanted to talk about China again. Can I just clarify with the depletions number? I think it's about 35%. And you're saying about half of that is driven by diversion of parallel imports. So can we call it like 17% underlying? And I guess where I'm going with that, do you think you can sort of sustain that level of depletion growth into FY '27? Because then once you get to FY '28, if you can do that level of depletions, it implies like a massive year for Penfolds in FY '28 if your sales catches up to where your depletions are. Does that make sense?

Yes. I mean I think I've talked very, very positively about Penfolds almost since I began and the strength of the brand and it transcends wine really. It's a luxury brand. When we -- during our Investor Day, we kind of outlined areas of opportunity for Penfolds as it relates to baijiu, recruiting into meal occasion, what we've got for white wine, innovation, gifting. There's still, in my view, huge runway in China, in the rest of emerging Asia, in Australia and in Europe, the U.S. So the runway for Penfolds is long and the portfolio opportunities we've got are also long. So I'm not about to give guidance in relation to depletions, but we've got great confidence in the growth areas, the growth opportunities for Penfolds and the organization is aligned behind all of them, whether that's the distribution expansion opportunities in China, whether it's innovation, whether it's white wine, the brand has still got huge opportunity.

Okay. That's great. And then my second one, just on the Americas drivers into FY '28, just so I can get my thinking clear. it sounds like RNDC should be done in FY '27, so that margin impact should roll out. You still have some inventory rebalancing, depressing sales. So that will roll out in FY '28. But then FY '28 has the COGS per case headwind. So I'm just trying to like get my head around the moving parts there. Like is FY '28 a year of earnings growth for the Americas business? Or is the COGS per case headwind going to offset those sort of tailwinds coming out from RNDC and destocking in '27?

Yes. We've been quite transparent on all of those things, with 0 margin coming back in from the return goods. And look, the great news for us is that we've navigated a pretty tricky situation with RNDC really, really well. We've managed to transition into a new distributor pretty seamlessly, those businesses and those partners doing really well for us. We've taken stock back and offset that, got settlement for various disputes, and now we've got really very, very small exposure. So that's great news. I did talk about some of those structural mismatches, the imbalance that we've got. We're working on those things now. And the best guidance I can give is that we do expect our earnings profile to improve over the medium term, but we will come back with much more material updates as we develop those strategic options as we've got further into understanding what value they might bring to us so that we can reliably inform you. JP, have you got anything to add?

Yes, Peter, I think, yes, while we're not giving long-term guidance today, I think you're thinking about it the right way in terms of the progressive rundown of the 300,000 [ 9s ]. Most of that will be -- the bulk of that will be done this year with some carryover into half 1 next year. RNDC is a onetime item this year. So we do see those things being corrected, and we'll eventually get that business into a depletions-led top line growth position, which should give us revenue growth going forward through '28, and that should translate to better earnings.

Your next question comes from Bryan Raymond with JPMorgan.

My first one is just actually on the Ascent benefits. I just want to make sure we have them allocated properly, the $40 million in '27. I think it was called out in the ANZ and Europe division. Is that where most of it is flowing? Or is there a bit of a mix across the 4 new divisions?

Yes. Bryan, it's Justin here. The benefits flow across all divisions, maybe with the exception of China -- Greater China, where we'll be investing in the ongoing growth in that region. The -- so as I said, the $40 million is going to come from all divisions, all regions. It probably weights more to where the teams are bigger at the moment, so Australia and the U.S.

Right. Okay. And then just maybe on inventory. Obviously, the write-down in the U.S., you called out earlier this week, is contributing to that coming down a bit year-on-year. But just wanted to understand sort of, let's call it, volume or underlying inventory and that path from 2.8 to 2x leverage. Just interested as to whether we think underlying inventory has peaked and it's now just a matter of that coming down? Or do you have some more, let's call it, historical vintages flowing through that's going to add to that, that we need to just be mindful of in that path down to 2x leverage?

Yes. I think we touched on this a little bit at the Investor Day and certainly from where we're sitting at the moment, F '27 will still be another modest increase in working capital, and that's really talking to the speed at which the supply transformations, both in Australia and the U.S., can take hold. So whilst not significant, we do expect to see another slight build in inventory, and that's why that pathway to leveraging, yes, we're confident we're at the peak at 2.8 and we'll go down from here. That will accelerate in terms of F '27 to F '28.

Just as a follow-up to that, should we just assume a sort of linear profile? Or would it be a bit more of a reduction in inventory in '28 year-on-year versus '27 year-on-year?

Probably more the latter. Yes.

Your next question comes from Benjamin Gilbert with Jarden.

Just the first one for me. Just in terms of all the work you're doing around inventory realignment, I appreciate it's sort of [indiscernible] away, but do you think it's going to give you scope to take some price on next year's release, particularly in Penfolds? And in that light, do you think you can grow revenue into fiscal '27?

Yes. Ben, look, I think we've been disciplined in relation to pricing in the past and usually as a result of kind of how we're trying to position the brand and kind of the elasticity in market, clearly, some of the cost of living pressures of recent have made that more difficult. I think very pleasingly, in China, we've seen Moutai and Wuliangye, the sort of #1 and #2 baijiu players take price. That's kind of decompressed the market a little bit in China. And as we come into future releases, we'll certainly be looking at the role price can play in those releases and how we can position our brands in those markets in relation to any price movements that have been received during the year. So it's certainly part of our thinking. We certainly think that pricing is important to maintain the positioning of our brand, and it will be considered in future years as it normally would.