ANNUAL REPORT 2017
ABOUT TWE
Treasury Wine Estates (TWE) is one of the world’s largest
publicly listed wine companies, with a rich heritage and diverse
portfolio of outstanding wine brands and viticultural assets.
The Company’s commitment to delivering shareholder value
is underpinned by its passion for crafting, marketing and selling
quality wine for consumers, and building sustainable, long-term
partnerships with customers, globally. TWE employs approximately
3,400 winemakers and viticulturists, as well as marketing,
sales, distribution and support staff across four key regions,
with wine sold in more than 100 countries around the world.
CONTENTS
1 Our Locations
2 Chairman and Chief Executive Officer’s Report
4 Brand Highlights
6 Operating and Financial Review
26 Corporate Responsibility
33 Diversity and Inclusion
35 Board of Directors
37 Corporate Governance
40 Directors’ Report
43 Auditor’s Independence Declaration
44 F17 Remuneration Report (Audited)
63 Consolidated Statement of Profit or Loss
and Other Comprehensive Income
64 Consolidated Statement of Financial Position
65 Consolidated Statement of Changes in Equity
66 Consolidated Statement of Cash Flows
67 Notes to the Consolidated Financial Statements
112 Directors’ Declaration
113 Independent Auditor’s Report
119 Details of Shareholders, Shareholdings
and Top 20 Shareholders
120 Shareholder Information
Forward looking statement disclaimer
This Report contains certain forward looking statements. Words such as ‘expects’, ‘targets’, ‘likely’, ‘should’, ‘could’, ‘intend’ and other similar expressions
are intended to identify forward looking statements. Indicators of and guidance on future earnings and financial position are also forward looking
statements. Such forward looking statements are not guarantees of future performance and involve known and unknown risks, uncertainties and
other factors many of which are beyond the control of the Company or the TWE Group which may cause actual results to differ materially from those
expressed or implied in such statements. Further information on important factors that could cause actual results to differ materially from those
projected in such statements is included in the ‘Material Business Risks’ section of the Operating and Financial Review.
All currency referred to in this Annual Report is in Australian dollars, unless otherwise stated.
OUR LOCATIONS1
TWE AMERICAS
NAPA VALLEY,
CALIFORNIA
TWE EUROPE
TWICKENHAM,
UK
TWE EUROPE
TUSCANY,
ITALY
TWE ASIA
SINGAPORE
TWE ASIA
SHANGHAI,
CHINA
TWE ANZ
AUCKLAND
MAGILL,
SOUTH
AUSTRALIA
TWE ANZ
MELBOURNE,
VICTORIA
AUSTRALIA & NEW ZEALAND
AMERICAS
AUSTRALIA
Corporate head office: Melbourne, Victoria2
US
Regional head office: Napa Valley, California
75
vineyards
8,828
planted hectares
8
wineries
46
vineyards
3,758
planted hectares
7
wineries
NEW ZEALAND
Country head office: Auckland
528
planted hectares
1
winery
9
vineyards
EUROPE3
ASIA
UK
Regional head office: Twickenham, Middlesex
SOUTH EAST ASIA
Regional head office: Singapore
ITALY
Country head office: Gabbiano, Tuscany
NORTH ASIA
Regional head office: Shanghai, China
2
vineyards
152
planted hectares
1
winery
1. Information is current as at 30 June 2017.
2. TWE also has significant other operations across Australia.
3. Includes TWE’s Latin American operations.
TREASURY WINE ESTATES ANNUAL REPORT 2017 — 1
CHAIRMAN AND CHIEF EXECUTIVE OFFICER’S REPORT
In F17, TWE delivered EBITS of $455.1 million,
representing growth of 36.2%. Our EBITS margin
expanded 4.0 percentage points to 19.0% which saw us
deliver our EBITS margin target of ‘high-teens’ three
years ahead of our initial plan of F20.
From a regional perspective, we are delighted to report
that, on a constant currency basis, all regions delivered
double digit EBITS growth and EBITS margin accretion
as we continued to execute the strategies outlined to all
shareholders in detail at TWE’s Inaugural Investor Day
in March 2017.
Reported Earnings per Share was up 50.2% with both
TWE’s base business and the acquisition of Diageo Wine
contributing to this growth.
TWE’s focus on EBITS margin expansion underpinned
solid ROCE accretion, up 2.32 percentage points to 11.6%;
the highest return in TWE’s history.
These outstanding results have been delivered despite
the Company still selling through the short vintages
dating back to 2014 and 2015. As a company, TWE
is committed to delivering both absolute EBITS growth
as well as margin accretion year on year, regardless
of vintage variation.
TWE’s Supply Chain Optimisation initiative has
continued to deliver profitability improvements.
To ensure TWE is well positioned to satisfy growing
global demand for its brand portfolios, the Company
remains focused on investing in the supply of Luxury
and Masstige fruit.
At the Company’s Inaugural Investor Day, TWE
announced Project Uplift II. This project will support
margin accretion objectives by uplifting the supply
of high-end wine produced under comparatively lower
cost structures.
In F17, the Company completed the integration of
the Diageo Wine business and commenced resetting
the acquired brands for growth, involving:
• Withdrawal from unsustainable volume and
customer arrangements;
• Integration of people and systems whilst removing
excess cost;
• Integrating and consolidating Diageo Wine’s supply
network into TWE’s supply model, realising the
US$35 million run-rate cash synergies target,
well ahead of TWE’s initial plan of F20;
• Scaling-up marketing investment to drive depletions
and clear the channel of old pack inventory; and
• Refreshing the look and feel of the acquired brand
portfolio to stimulate customer and consumer
reconnections; driving increased demand and
improved price realisation.
TWE is now focused on rebuilding availability of the
refreshed US brands with improved pricing and margin
structures and is confident the acquisition will continue
to deliver upside to both profitability and asset returns.
The introduction of TWE’s new French portfolio, with the
launch of Maison de Grand Esprit, represented a significant
step forward for the Company and its ‘portfolio approach’
to growing brands, globally. Maison de Grand Esprit
Dear Shareholders,
INTRODUCTION
Welcome to the 2017 Annual Report for Treasury
Wine Estates Limited (TWE).
Fiscal 2017 (F17) was another year of strong
financial performance as we continue to transition
from an agricultural company to a brand-led,
high-performance organisation.
Underpinning this transition was our continued
investment in our brand portfolios, our regional
business models and our people, across all our regions.
Critical to our journey is the team we have in place.
In F17, we significantly up-weighted the calibre of
our Management team. We now have a strong blend
of highly skilled and experienced fast moving consumer
goods (FMCG) executives and wine experts.
This balance of skillsets is driving TWE into the next
phase of growth and is building on our ability to deliver
continued financial outperformance and value creation
for shareholders.
STRATEGY
TWE’s Vision and Strategy has remained consistent over
the last three years. Over this time, the Company has
been focused on:
• Consistently and sustainably building a high-performing
organisation, upgrading the talent and raising the bar
every single year;
• Building brands within portfolios and investing to
continually strengthen those portfolios, one portfolio
at a time;
• Prioritising regions and markets to strengthen our
four regional business models and leverage this global
network to optimise the allocation of wine across regions,
drive apparent scarcity and therefore margin accretion;
• Building strategic customer and distributor
partnerships in all our markets in order to embed
long-term and sustainable relationships; and
• Simplifying our operating models, driving efficiencies
and reducing costs.
OVERVIEW OF RESULTS AND F17
The F17 results are a testament to the disciplined and
sustainable way in which the Company operates.
This way of working enables us to continually grow our
EBITS1, our EBITS margin and our Return on Capital
Employed (ROCE).
1. Earnings before interest, tax, SGARA and material items (EBITS).
2. F16 ROCE restated from 9.6% to 9.3%, reflecting a change in accounting standards relating to Agricultural Assets.
2 — TREASURY WINE ESTATES ANNUAL REPORT 2017
includes three tiers of Luxury wines, created to disrupt
the traditional French category through a new-world
approach with multi-region sourcing showcasing the very
best of France’s wine regions – Bordeaux, Burgundy,
Rhône and Provence – all under the one brand.
Having launched Maison de Grand Esprit in Paris in
June 2017, TWE is delighted to announce that this brand
will be on shelf in North Asia from November.
To complement TWE’s own French brand, the Company
also announced that it will exclusively distribute in
China, Baron Philippe de Rothschild’s portfolio of wines,
led by Mouton Cadet from France and Escudo Rojo from
Chile, effective January 2018.
TWE’s wine portfolios span some of the world’s leading
old-world and new-world wine producing regions, including
Australia, New Zealand, the US, Italy and France.
Shareholders should expect to see TWE continue to
launch new virtual wine brands that are multi-regionally
sourced from new countries-of-origin, as we continue to
broaden our portfolios and position our Company as a truly
global wine category manager.
BALANCE SHEET STRENGTH AND DIVIDEND
In F17, TWE demonstrated its commitment to act with
financial discipline; maintaining Balance Sheet metrics
consistent with an investment grade credit profile and
paying shareholder dividends within its payout range
of between 55–70% of Net Profit After Tax (pre-SGARA
and material items) over a fiscal year.
In F17, TWE completed a restructure and refinance
of its debt facilities, including the issue of US$150 million
in US Private Placement (USPP) notes, improving the
mix, spread, tenure and cost of the Company’s committed
debt facilities.
A further testament to the strength of the business and
the Board and Management’s confidence in TWE’s future,
is the announcement of an on-market share buy-back
of up to $300 million in F18.
The buy-back program will complement the Company’s
capital management framework. The Board and
Management consider it important to optimise TWE’s
cash and debt position to constantly deliver shareholder
value. TWE’s decision to buy back shares will not come
at the expense of future potential inorganic and value
accretive opportunities.
Given the Company’s strong F17 result, TWE is
pleased to declare a final dividend of 13 cents per share,
50% franked, bringing the total dividend for F17 to
26 cents per share, up 6 cents per share on prior year.
CORPORATE RESPONSIBILITY
TWE continues to focus its Corporate Responsibility
(CR) program on three strategic priorities: Responsible
Consumption, Sustainable Sourcing and Volunteering
and Community.
The CR program’s progress and strategic direction is
overseen by the Company’s Global CR Council, which
is chaired by the Chief Executive Officer (CEO) and
includes senior members of the Company from across
all regions and functions.
In F17, TWE took steps to ensure that the Company
builds on and retains its commitment to the United
Nations Global Compact (UNGC) principles relating
to human rights, labour, the environment and
anti-corruption.
These activities also extend to TWE’s suppliers.
TWE’s Responsible Procurement Code is a prerequisite
for all new suppliers and is being rolled out to existing
suppliers globally. In F18, an Environmental, Social
and Governance (ESG) risk framework will be applied
to ensure a closer review of suppliers from higher ESG
risk countries and industries.
TWE will continue to actively participate in public policy
discussions related to CR and the UNGC principles
to which it is committed.
THANKS AND CONCLUSION
TWE will continue to execute on its strategy to become
a truly brand-led, high-performance organisation.
In F18, we will continue to strengthen our regional
business models, our brands and our teams whilst
targeting the delivery of robust growth in every region.
Every action we take in F18 will be to ensure that our
four regions are set up to truly accelerate growth in
F19 and beyond as the increased supply of high-end
wine, which is already on our Balance Sheet, becomes
available for sale.
Delivering revenue growth and margin accretion over time
remains a priority, supported by our investments in
building closer, more efficient and strategic partnerships
with customers and by positioning TWE as the wine
supplier of choice across multiple brand portfolios and
countries-of-origin.
Our transformation to date would not be possible without
the capability and commitment of the TWE team to deliver
meaningful change and consistent financial performance.
We would like to thank our people for their ongoing focus,
belief, trust and collaboration.
Finally, two of our non-executive directors, Lyndsey
Cattermole and Peter Hearl, will be retiring from the
Board during F18. Mrs Cattermole has been a member
of the Board since the Company’s demerger from Foster’s
Group Limited in May 2011, where she had been a director
since 1999, bringing a depth of knowledge of the business
as well as information technology experience enabling
her to be an important and active member of the Board
and Board Committees during her six and a half years
as a director of TWE. Mr Hearl has been a member of
the Board since February 2012, and has played a valuable
role, including as Chairman of the Human Resources
Committee for a period and as a member of the Audit
and Risk Committee, bringing strong international
perspectives to the Board. We would like to thank both
directors for their significant contribution to TWE’s
growth during their tenure on the Board.
As always, we wish to thank you, our shareholders,
for your ongoing investment, support and belief in this
great Company.
Kind regards,
Paul Rayner
Chairman
Michael Clarke
Chief Executive Officer
TREASURY WINE ESTATES ANNUAL REPORT 2017 — 3
BRAND HIGHLIGHTS
A collaboration
with respected
French glassmaker,
Saint-Louis
100
POINTS
PENFOLDS
Handcrafted, diamond-cut
crystal decanters were
designed exclusively for
the 2012 Penfolds Grange,
which was awarded 100 points
by Andrew Caillard MW,
reinforcing the continued,
outstanding quality of this
Australian icon.
TWE’s distinctive collection
of 90+ wines launched globally
Harnessing the power
of storytelling through new
brand Samuel Wynn & Co
90+ CLUB
SAMUEL WYNN & CO
TWE’s 90+ Club showcases
collections of TWE wines
that have received 90+
scores from influential wine
publications. This versatile,
global program drives
greater awareness and
purchase of TWE’s Luxury
wine portfolio.
Samuel Wynn & Co is a
major innovation launched
to strengthen engagement
with millennials and drive
category growth. Part of
TWE’s Masstige portfolio,
the new brand builds on
momentum gained through
innovations that challenge
wine category tradition.
Innovative
temperature
sensitive chill
check labels
MATUA
In the US, Matua
launched innovative,
thermographic labels
that change colour
as the bottle is chilled
to indicate optimal
drinking temperature
– a unique expression
of Matua’s ‘Ingeniously
Fresh’ campaign.
4 — TREASURY WINE ESTATES ANNUAL REPORT 2017
TWE’S
FASTEST
GROWING
BRAND
19 Crimes
reaches
1 million
cases
19 CRIMES
19 Crimes became one
of TWE’s fastest growing
brands, reaching
1 million cases* globally,
as a result of continued
innovation and focus
in the US, along with
successful expansion
across new markets.
* 9LE
Introducing a
unique French
portfolio, Maison
de Grand Esprit
MAISON DE GRAND ESPRIT
Maison de Grand Esprit combines
old-world winemaking techniques
with a new-world sourcing model.
Challenging conventions of
the French wine category, this
consumer-led approach brings
simplicity and accessibility to the
sought-after French wine category.
Sterling Vineyards
now polished
with premium
appeal
Beringer Founders’
Estate brings
it home to the
ball game
STERLING VINEYARDS
BERINGER
Sterling Vineyards has been
reinvented with striking new
packaging and a new creative
campaign – Always Polished,
Never Dull – reflecting
the premium status of this
iconic brand.
Beringer Founders’
Estate joined forces with
a number of Major League
Baseball teams to launch
the ‘Bring it Home’ campaign,
one of the largest marketing
partnerships in the US.
New Wolf Blass
partnership
strengthens global
sporting platform
WOLF BLASS
Wolf Blass became the Official Wine
Partner of English Premier League’s
Manchester City Football Club.
This new partnership, which has
been leveraged across multiple regions,
complements successful, ongoing
Wolf Blass sponsorships, including
the Australian Football League.
Enter for a chance to
WIN SEASON TICKETS TO YOUR HOME TEAM.
Visit beringer.com/baseball or text “homerun” to 55155.
© 2016 Beringer Vineyards, Napa, CA 22170321
*NO PURCHASE NECESSARY. Sweepstakes
starts at 12:00 PM PT on 5/13/16 and ends at
11:59:59 PM PT on 8/31/16. Open only to legal
residents of the 50 U.S./DC who are 21 years of
age or older. For Official Rules, including how to
enter, free method of entry instructions, prize
details and restrictions, visit greatsteakchal-
lenge.com. Void where prohibited. Msg&data
rates may apply. Text HELP GRILL to 87963 for
help. Text STOP GRILL to 87963 to cease messag-
es. Sponsor: Treasury Wine Estates Americas
Company, Napa, CA 94558.
FPO
16-TWE-0399 BFE Baseball Mini Case Card 22170321
PRODUCTION NOTES
11"W x 22"H BLEED SIZE: 11.5"W X 22.5"H
4cp + O/A Satin AQ, 1S
SIZE:
INK:
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FINISH: Mount 100# to each side of 45 pt white board
OTHER:
Any questions regarding this file please contact:
ART:
PRODUCTION:
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p. 843.837.0239
Robin Wade p. 843.837.0234
mhefner@bfgcom.com
rwade@bfgcom.com
graphic designer
assoc. creative dir.
creative director
art director
copy editor
production designer project manager
legal counsel
account executive
account manager
TREASURY WINE ESTATES ANNUAL REPORT 2017 — 5
OPERATING AND
FINANCIAL REVIEW
Treasury Wine Estates
(TWE) is one of the
world’s largest publicly
listed wine companies,
listed on the Australian
Securities Exchange (ASX).
The Company is focused
on delivering shareholder
value through the
production of quality
wine, and marketing
and selling quality wine
brands to consumers
around the world.
The following Operating and Financial Review
contains details of the significant changes in TWE’s
state of affairs that occurred during the year ended
30 June 2017.
TWE’s organisational structure and
significant changes in the state of affairs
TWE continues to be focused on four
regional segments:
TWE’s business activities
TWE is a vertically integrated wine business focused
on portfolio premiumisation supported by innovation,
brand building investment and global sales and
marketing execution.
• Australia and New Zealand (ANZ)
• Europe
• Asia
• Americas
TWE’s strategy is to transition from a regionally
focused, agricultural company to a brand-led,
high-performance organisation.
TWE’s brand portfolio is represented across the
Luxury, Masstige and Commercial1 price segments
and sold in more than 100 countries around the
world. Furthermore, TWE operates a balanced
and sustainable sourcing model by diversifying
its sourcing regions across Australia, the US,
New Zealand, Italy and France.
TWE employs approximately 3,400 winemakers,
viticulturists, and marketing, sales, distribution
and support staff across the globe.
Effective 12 September 2016, the Company appointed
Linnsey Caya as Chief Legal Officer and Global
General Counsel, based in Napa. Separately,
Fiona Last was appointed Company Secretary,
based in Southbank, effective 1 September 2016.
On 14 February 2017, Gunther Burghardt was
appointed as TWE’s Chief Financial Officer (CFO),
based in Napa.
On 9 May 2017, the Company announced meaningful
changes to a number of roles and responsibilities
within its Executive Leadership Team to continue
to drive the positive transformation of TWE into
its growth phase, globally.
1. TWE participates in three price segments; Luxury (A$20+), Masstige (A$10–A$20) and Commercial (A$5–A$10).
Segment price points are retail shelf price.
6 — TREASURY WINE ESTATES ANNUAL REPORT 2017
Robert Foye, formerly President and Managing
Director Asia and Europe, was appointed Chief
Operating Officer, overseeing all major operating
units across TWE’s global business, and, from
1 January 2018 will assume the role of President
North America and Latin America.
Following the successful completion of his two-year
assignment in the US, TWE’s current President
Americas, Bob Spooner, will assume the role
of General Manager Global Strategic Initiatives,
Systems and Processes, effective 1 January 2018.
With the successful optimisation and regionalisation
of TWE’s Supply Function, the Company’s Director,
Global Supply Chain and Industry Affairs, Tim Ford,
added oversight of Europe, South East Asia, Middle
East and Africa to his responsibilities, effective
9 May 2017.
These appointments demonstrate the flexibility and
depth of TWE’s global talent pool at the executive
leadership level, strengthening the Company’s ability
to deliver continued financial outperformance and
value creation for shareholders.
Effective 1 July 2017, the management and financial
reporting of TWE’s Latin American operations was
transitioned from TWE’s European segment into the
Company’s Americas region. Given TWE’s Americas
region is now positioned for growth after an 18-month
reset period, Management considers the retransition
of Latin America to the Americas region as appropriate.
Other than the above matters and those matters
referred to in both the ‘TWE Vision and Strategy’
section of the Operating and Financial Review and
the Financial Statements in this Annual Report,
there have been no other significant changes in the
state of affairs of the Group during the financial year.
TWE’s business model
TWE is a vertically integrated wine business
with three principal activities:
• Grape growing and sourcing
• Wine production
• Wine marketing, sales and distribution
Grape growing and sourcing
TWE secures access to grapes and wine from a range
of sources, including company-owned and leased
vineyards, grower vineyards and the third party
produced wine market. The Company’s sourcing mix
varies by region as shown in Figure 1.
Figure 1: TWE’s regional sourcing model
Australia
27%
50%
23%
California
17%
16%
New Zealand
35%
Italy
16% 7%
France
TWE owned/leased vineyards
Grower contracts
Third party produced wine
67%
62% 3%
77%
100%
TWE continues to take proactive steps to de-risk its
global sourcing model by embedding flexibility and
diversification across geographic regions, varietals
and price segments.
By embedding a diversified sourcing model,
TWE is more adaptable to grape and wine pricing
fluctuations through periods of grape shortages
and surpluses as well as changes in consumer and
customer preferences.
TWE owns and leases 9,356 planted hectares
of vineyards in Australia and New Zealand and
is the custodian of some of the most sought-after
viticultural assets in renowned winemaking regions,
including the Barossa Valley and Coonawarra
in Australia, and Marlborough in New Zealand.
The Company also owns and/or operates 3,758 planted
hectares in key viticultural regions in California,
including Napa Valley, Sonoma County, Lake County
and Central Coast.
As part of TWE’s ongoing strategy to optimise its
inventory holdings and reduce production overhead
costs per unit across Luxury, Masstige and
Commercial segments, the Company continues
to pursue opportunities to consolidate, rationalise
and/or divest production assets that are surplus
to the Company’s production requirements.
At the same time, TWE continues to focus on securing
increased access to Luxury and Masstige fruit and
wine across all its sourcing regions via vineyard
acquisitions, vineyard leasing, entering into supply
contracts with third parties, as well as increasing
its sourcing of Commercial grade wine from the third
party produced wine market.
TWE also supplements annual intakes and manages
input costs through additional sourcing from other
wine producing nations such as South Africa,
Chile and Argentina.
TREASURY WINE ESTATES ANNUAL REPORT 2017 — 7
OPERATING AND FINANCIAL REVIEW (CONTINUED)
Wine production
TWE owns world-class wine production and packaging facilities:
• In Australia, TWE owns and operates eight wineries and two packaging facilities. TWE’s wines are primarily
produced in South Australia and Victoria;
• In New Zealand, TWE owns one winery located in the Marlborough; and
• In the US, TWE has seven wineries and two packaging facilities located in the North Coast and Central Coast
regions of California.
Marketing, selling and distribution of TWE wine
TWE markets, sells and distributes its branded wine to a range of customers in more than 100 countries
around the world, tailoring and optimising its route-to-market model by country to capitalise on regional
insights and opportunities.
TWE generates its revenues and profits from the production, marketing and sale of its portfolios of branded wine.
The Company has taken deliberate action to embed greater balance across its regional earnings mix, sourcing
models and quarterly earnings delivery.
Consequently, TWE’s improving profitability is increasingly being driven by high-growth Luxury and
Masstige segments.
Figure 2 shows the volume, net sales revenue (NSR) and earnings before interest, tax, SGARA and material
items (EBITS) contribution by region in F17.
Figure 2: TWE’s business performance by region in F17
Volume (9LE million cases)
Net sales revenue ($M)
EBITS contribution2 ($M)
ANZ 21%
Americas 43%
Europe 26%
Asia 10%
ANZ 25%
Americas 44%
Europe 15%
Asia 16%
ANZ 22%
Americas 38%
Europe 10%
Asia 30%
Global industry overview
Global wine production and consumption
With long-term global wine supply and demand largely in balance and with a stabilisation of global area under
vine, wine industry fundamentals continue to remain highly attractive.
Led by growth in wine consumption in emerging and large alcohol consuming regions, notably China and the
US, global wine consumption is forecast to have exceeded global wine production in 2016.
Figure 3: Global wine production and consumption3
11.0
10.0
9.0
8.0
7.0
a
h
m
Global vineyard area
Global wine production (RHS)
Global wine consumption* (RHS)
6.0
1979
1980
1995
1994
* Consumption figures include ˜330m 9LE cases of wine used in the production of fortifieds and industrial applications.
2000
2006
2009
2004
2005
2003
2008
2002
2007
1990
2001
1996
1999
1984
1986
1998
1988
1983
1989
1985
1992
1993
1997
1982
2012
1987
1991
1981
2013
2011
2010
2014
2015
2016 E
4,500
4,000
3,500
3,000
2,500
2,000
s
e
s
a
c
E
L
9
m
2. Excludes corporate costs of $43.1 million.
3. International Organisation of Vine and Wine (OIV).
8 — TREASURY WINE ESTATES ANNUAL REPORT 2017
Figure 4: Forecast five-year compound annual growth rate (CAGR) in wine consumption in key
growth areas and markets4
COUNTRY
China
New Zealand
Canada
Italy
Australia
Japan
US
UK
CAGR (2015 – 2020F)
11.1%
3.5%
3.0%
2.9%
2.0%
1.7%
1.4%
(0.9)%
Growth in consumer demand continues to remain strong at the Luxury and Masstige price point segments
in TWE’s key markets.
Figure 5: Value growth by price point
United States of America5
United Kingdom6
>$20
$10–$20
11%
9%
6%
8%
£8+
0%
£6–£8
2%
12%
14%
$4–$10
-2%
-1%
<£6
-5%
-3%
Mkt MAT to June 17
Mkt MAT to June 16
Mkt MAT to June 17
Mkt MAT to June 16
Australia7
Value growth of Australian bottled wine
exports (freight on board) to China8
7%
6%
>$20
$10–$20
2%
<$10
-0.3%
1%
11%
>$20
47%
114%
$10–$20
32%
32%
>$10
46%
39%
Mkt MAT to June 17
Mkt MAT to June 16
Mkt MAT to June 17
Mkt MAT to June 16
4. Euromonitor International 2016, still light grape wine only.
5. IRI Market Advantage, Total Wine Category $4+ Table excluding premium box, Total US – Multi Outlet + Liquor, 52 weeks ending
2 July 2017.
6. Nielsen, Total Coverage, Total Still Light Wine exc British, 52 weeks ending 15 July 2017 (750mL bottled still wine only).
7. Aztec Sales Data | Off-premise Channel Only | Bottled wine only excluding fortified wine | Unweighted MAT to June 2017.
Adjusting for TWE’s route to market change, TWE estimates the following value growth rates <$10: -1%, $10–$20: +5% and >$20 +6%.
8. Wine Australia MAT to June 2017.
TREASURY WINE ESTATES ANNUAL REPORT 2017 — 9
OPERATING AND FINANCIAL REVIEW (CONTINUED)
TWE VISION AND STRATEGY
TWE’s Vision and Strategy has remained consistent over the last three years and is set out in Figure 6 below:
Figure 6: TWE’s Vision and Strategy
VISION
JOURNEY
STRATEGIC
IMPERATIVES
ACTIONS
To be the world’s
most celebrated wine company
To move from an order-taking agricultural business to a brand-led organisation
PEOPLE
BRANDS
MARKETS
PARTNERS
MODEL
Build a high-
performing
organisation
Transform
our portfolio
Win in priority
markets
Develop
long-term
relationships
Optimise our
capital base
• Drive an
inclusive,
supportive and
collaborative
culture
• Grow Priority
Brands, one
portfolio at
a time
• Support our
• Grow share in
Asia through
RTM and
portfolio
expansion
• Grow capability
Regional Brands
• Grow in
now and for
the future
• Operate an
effi cient and
sustainable
structure
• Premiumise
our portfolio
• Invest to drive
consumer pull
• Deliver bigger,
better campaigns
US through
premiumisation
• Strengthen
no.1 position
in Australia
through category
leadership
• Protect
profi tability
in other key
markets
• Connect and
engage with
consumers
• Partner with
key customers
to grow wine
category
• Drive
performance
for all
stakeholders
• Operate
sustainably,
safely and
responsibly
• Create supply
chain cost
and quality
advantage
• Address high
cost structures
in mature
markets
• Simplify
processes
BEHAVIOURS
Focus on
top priorities
and deliver
against them
Instil belief
in our wines,
our company
and our people
Build trust
by acting with
integrity and
holding ourselves
to account
Collaborate
with all
stakeholders
to achieve
shared goals
10 — TREASURY WINE ESTATES ANNUAL REPORT 2017
STRATEGIC IMPERATIVE
PROGRESS AGAINST INITIATIVE IN F17
PEOPLE
Build a high-
performing
organisation
• Drive an inclusive,
supportive and
collaborative culture
• Grow capability now and
for the future
• Operate an efficient and
sustainable structure
In F17, TWE achieved the following:
• Expanded TWE’s Leadership Framework with the launch of TWE’s Inclusive
Leadership program across functions and regions;
• Supported the diversity agenda with the launch of a global female development
program, TWEforShe;
• Significantly invested in growing capability and development of TWE’s high
performers with more leaders across the Company participating in an extensive,
nine-month personal development program, Veraison, bringing the total number
of participants to date to 65;
• Strengthened functional capability with the launch of the Global Sales Academy
and Global Marketing Academy; and
• Continued to focus on reducing cost and complexity within TWE’s regional business
models to support sustainable future growth.
BRANDS
Transform
our portfolio
• Grow Priority Brands,
one portfolio at a time
• Support our Regional Brands
• Premiumise our portfolio
• Invest to drive consumer pull
• Deliver bigger, better
campaigns
In F17, TWE achieved the following:
• Continued to pursue a ‘portfolio strategy’ to grow brands globally, one portfolio
at a time;
• Successfully launched TWE’s French portfolio under the brand Maison de Grand
Esprit in June 2017;
• Secured exclusive rights to import and distribute in China, Baron Philippe de
Rothschild’s portfolio of wines, led by Mouton Cadet and Escudo Rojo from Chile,
effective January 2018;
• Expanded distribution and availability of TWE’s Australian Regional Gems portfolio,
supported by insight-led innovation across a number of Gem brands, including
T’Gallant, Seppelt and St. Huberts;
• Premiumised TWE’s global portfolio mix with the sale of TWE’s Non-Priority
Commercial (NPC) brand portfolio in the US in July 2016;
• Continued to enhance TWE’s premiumisation strategy with Luxury and Masstige
NSR per case growing ahead of Commercial in F17; and
• Continued to prioritise the allocation of consumer marketing investment on a portfolio
by portfolio basis, notably TWE’s US and French portfolios.
MARKETS
Win in priority
markets
• Grow share in Asia through
RTM and portfolio expansion
• Grow in US through
premiumisation
• Strengthen no.1 position
in Australia through
category leadership
• Protect profitability
in other key markets
In F17, TWE achieved the following:
• Prioritised regions and markets to strengthen TWE’s four regional business models
and leverage this global network to optimise the allocation of wine across regions,
drive apparent scarcity and therefore margin accretion;
• Enhanced routes-to-market in TWE’s key markets to drive greater focus and more
direct customer partnerships, notably in Australia, Japan and China;
• Leveraged third party distributors to facilitate increased market coverage whilst
delivering cost efficiencies in New Zealand and Canada;
• Integration of the acquired Diageo Wine business supporting EBITS margin uplift
in F17, largely driven by premiumised portfolio;
• Launched two of the top five new product developments (NPD) in Australia,
supporting TWE’s increased value market share from 21% to 22%1; the region
continues to target market share of 25%; and
• Europe delivered on its double digit EBITS margin target.
1. Aztec Sales Data | Bottled Wine Only | Australian Liquor Weighted | Scan MAT to 16 July 2017.
TREASURY WINE ESTATES ANNUAL REPORT 2017 — 11
OPERATING AND FINANCIAL REVIEW (CONTINUED)
STRATEGIC IMPERATIVE
PROGRESS AGAINST INITIATIVE IN F17
PARTNERS
Develop
long-term
relationships
• Connect and engage
with consumers
• Partner with key customers
to grow wine category
• Drive performance for
all stakeholders
In F17, TWE achieved the following:
• Increased consumer connections with brands via localised global marketing
campaigns, e.g. Wolf Blass ‘Year of the Rooster’ (North Asia) and Wolf Blass
‘Here’s to the Chase’ (Australia) campaigns;
• Investment in TWE’s cellar door assets in Napa and Sonoma County; driving
outstanding consumer experiences on-site and creating brand lovers across
the world;
• Strengthened partnerships with wholesale and retail customers in all regions
supported by joint business plans and programs to unlock and create mutual
value and margin growth for customers and TWE;
• Increased TWE’s relevance and influence with fewer, bigger distributor
partners in the US, driving performance and value creation for both TWE
and distributor partners;
• Leveraged TWE’s global sales capability to build closer and stronger partnerships
with national retail accounts in the US; and
• Partnered with grape growers across TWE’s principal growing regions to share
best practice viticultural insights and expertise to uplift vineyard yields.
MODEL
Optimise our
capital base
• Operate sustainably,
safely and responsibly
• Create supply chain cost
and quality advantage
• Address high cost structures
in mature markets
• Simplify processes
In F17, TWE achieved the following:
• Launched Destination Zero Harm, a behavioural-led safety culture program with
the objective of zero harm across the Company;
• Realised US$35 million run-rate cash synergies target from Diageo Wine acquisition,
well ahead of initial plan of F20;
• Delivered an incremental $39 million of cost of goods sold (COGS) savings from
its Supply Chain Optimisation initiative in F17, bringing total cumulative savings
to $80 million;
• Invested in building sustainable supply of high-end wine produced under
comparatively lower cost structures with the launch of Project Uplift II across
TWE’s sourcing regions;
• Completed rollout of harmonised upgrades to TWE’s global Enterprise Resource
Planning (ERP) systems, enhancing controls processes to support the delivery of
long-term sustainable results; incremental amortisation cost of $10 million expected
in F18 and beyond;
• Completed a restructure and refinance of TWE’s debt facilities, including the
issue of US$150 million in US Private Placement (USPP) notes; and
• Announced an on-market share buy-back of up to $300 million in F18 to optimise
TWE’s cash and debt position to deliver shareholder value.
12 — TREASURY WINE ESTATES ANNUAL REPORT 2017
FUTURE PROSPECTS
TWE remains focused on leveraging its organisational,
strategic and physical assets across the world to
drive continued value accretion for its shareholders.
Areas of current and ongoing business focus that will
likely impact TWE’s future operational and financial
prospects include the following:
• Continuing to transition the business from
an agricultural company to a brand-led,
high-performance organisation;
• Acquisition of Diageo Wine business expected
to continue to enhance both ROCE and EBITS
margin as improved financial results and
synergies are delivered;
• TWE targets financial metrics that are consistent
with an investment grade credit profile. TWE’s
Balance Sheet provides the Company with the
flexibility to pursue value accretive opportunities
for shareholders;
• Ongoing focus on premiumising TWE’s portfolio,
• TWE will execute an on-market share buy-back
supported by TWE’s non-current inventory of Luxury
and Masstige wine;
• Continuing to launch new, virtual wine brands
that are multi-regionally sourced from new
countries-of-origin, as the Company positions
itself as a truly global wine category manager;
• Leveraging global expertise to invest in sales
and marketing capability in TWE’s key growth
regions – North Asia and the US;
• TWE is on track to deliver at least $100 million
of run-rate COGS savings from its Supply Chain
Optimisation initiative before F20;
of up to $300 million in F18;
• In F18, Maintenance and Replacement capital
expenditure is not expected to exceed $120 million;
and remaining planned capital expenditure
for Diageo Wine integration of circa $32 million
is expected to be deployed;
• Continued EBITS growth and EBITS margin
accretion targeted in F18, ahead of acceleration
in F19 and beyond, underpinned by increased
supply of premium wine and continued execution
momentum; and
• TWE remains committed to a journey of margin
accretion that over time delivers an EBITS
margin of 25%.
TREASURY WINE ESTATES ANNUAL REPORT 2017 — 13
OPERATING AND FINANCIAL REVIEW (CONTINUED)
Material business risks
There are various risks that could have a material impact on the achievement of TWE’s strategies and
future prospects.
Below are those risks that TWE considers of greatest materiality to the business, and existing mitigations
against these risks.
RISK
DESCRIPTION
MITIGATION
Constrained
grape supply
TWE’s ability to fulfil demand, in particular
growing demand for Luxury wine, is restricted
by the availability of grapes. Climate change,
agricultural and other factors, such as disease,
pests, extreme weather conditions, water scarcity,
biodiversity loss and competing land use,
create increased risk that TWE will be unable
to fulfil demand.
To the extent that any of the foregoing impact the
quality and quantity of grapes available to TWE
for the production of wine, the financial prospects
of operations could be adversely affected, both in
the year of harvest and in future periods.
Loss of key
leadership/talent
Brand
reputation/
damage
TWE’s ability to deliver on strategic targets is
reliant on attracting and retaining experienced,
skilled and motivated talent in core functions
such as winemaking, sales and marketing.
It also requires strong, resilient and effective
leaders as the business grows at pace.
Inability to retain key leaders and talent can
impact relationships with TWE’s key partners,
result in lost business knowledge, increase risk
of employee burnout and hamper the business’
ability to deliver on key initiatives.
The strength of TWE’s portfolios of brands is key
to the success of the business. As a brand-led
organisation, managing the reputation of brands,
and mitigating the potential for events that could
damage brands (e.g. social and environmental
risks, counterfeited product, black market trade,
inaccurate media coverage, unsatisfactory
supplier performance, supplier environmental
or social incidents, product quality issues, etc.)
is critical to TWE’s ongoing success.
Failure to protect and effectively manage
TWE’s portfolio of brands could have significant
reputational and financial repercussions.
Partner
performance
and market
concentration
TWE relies on a number of key partners
(suppliers, distributors, retailers) to support
delivery of key strategic initiatives. The
suboptimal performance of these partners,
and/or their market concentration and power,
could have a significant impact on TWE’s
ability to deliver these initiatives.
• Long-term vintage planning and ongoing
integrated business planning processes;
• Strategic climate change remediation investment
plan and vineyard capital investment plan;
• Defined program to progressively reduce cost
of goods sold over the next five years;
• Balanced grape intake between owned/leased
vineyards and third party suppliers;
• Multi-regional growing and sourcing;
• Strong grower relationships and defined service
level agreements;
• Collaboration with research institutes on climate
change adaption and water efficiency research,
development and extension projects; and
• Environment Policy, monitoring and
reporting systems.
• Strategically aligned and targeted learning and
development programs;
• Talent review and succession planning processes;
• Employee safety (including health and
wellbeing) program;
• Incentive and reward programs aligned to
TWE’s Vision and growth behaviours; and
• Employee retention agreements.
• Brand portfolio and product strategy, including
portfolio rationalisation, prioritisation and
targeted investment in consumer marketing;
• Consumer insights and innovation team
supporting the monitoring and awareness
of brand health and consumer trends;
• Product pricing strategy and global
pricing alignment;
• Code of Conduct, Responsible Marketing
Guidelines, Responsible Consumption program,
Responsible Procurement Code, Environment
Policy, Media Policy and Social Media Policy
and incident management procedures; and
• Brand and intellectual property
protection strategies.
• Multi-regional and diversified supplier,
distributor and retailer base;
• Defined and pre-approved terms of engagement;
• Investment in strong and multifaceted key
partner relationships;
• Joint business planning processes to support
and align internal and partner incentives; and
• Quarterly performance reviews.
14 — TREASURY WINE ESTATES ANNUAL REPORT 2017
RISK
DESCRIPTION
MITIGATION
Changing laws
and regulations
TWE operates in a highly regulated industry in
many of the markets in which it makes and sells
wine, and is rapidly expanding into new and
emerging markets. Each of these markets have
differing regulations that govern many aspects
of TWE’s operations, including taxation,
manufacturing, marketing, advertising,
distribution and sales of wine.
Remaining compliant with and abreast of changes
to such regulations requires diligent and ongoing
monitoring by the business. Additionally, changes
and additional regulations can significantly
impact the nature of operations in these markets.
• Company-wide policies, standards and procedures;
• TWE Compliance and New Market Entry Policies
and supporting frameworks;
• Specialised and experienced resources and teams;
• Executive Leadership Team oversight via the
Risk, Compliance and Governance Committee;
• TWE assurance framework, including targeted
reviews from external and internal audit and
other specialist providers; and
• Relationships and engagement (where relevant)
with key government, industry advocacy and
regulatory bodies.
Significant
business
disruption
and/or
catastrophic
damage or loss
TWE’s scope of operations exposes it to a number
of business disruption risks, such as environmental
catastrophes, natural and man-made hazards and
incidents, or politically motivated violence.
Significant business disruption could result
in TWE sites or employees being harmed or
threatened, loss of key infrastructure, inventory
shortages or loss, customer dissatisfaction,
or financial and reputation loss.
• Crisis and Business Continuity Plans,
training and resources;
• Dedicated health and safety team oversight,
audit programs and training;
• Preventative repair and maintenance program;
• Multi-regional and global sourcing and
production capability; and
• Comprehensive insurance program.
Foreign exchange
rate impacts
TWE is exposed to foreign exchange risk from
a number of sources, namely from the export of
Australian produced wine to key offshore markets
in North America and Europe. Foreign exchange
rate movements impact TWE’s earnings on
a transactional and translational basis.
• Active foreign exchange hedging strategy;
• Partial natural hedges (purchases and sales
within the same currency) where possible; and
• Matched debt funding of assets by currency,
where possible.
Information
security/cyber
threat
Data/information security is essential to protect
business critical intellectual property and privacy
of data. Continuing advances in technology,
systems and communication channels mean
increasing amounts of private and confidential
data are now stored electronically. This, together
with increasing cyber-crime, heightens the need
for robust data security measures.
• Information Security Policy, supporting
framework and specialised resources;
• Restricted and segregated management
of sensitive business/supplier/customer data;
• Periodic employee training and alerts to ensure
secure handling of sensitive data;
• Crisis management and IT Disaster Recovery
Infrastructure
supporting
growth
The business relies on IT infrastructure,
systems and processes to support ongoing
business growth. Where such infrastructure
cannot efficiently support the changing needs
of the business, there is risk of process inefficiency
and/or error increasing costs, processing time
and damaging business reputation.
Changing
consumer
preferences/
market trends
The business’ ability to effectively manage
current and non-current inventory is intrinsically
linked to actual and forecast consumer demand
– particularly given the long product lead-time
and agricultural nature of the business.
Unanticipated changes in consumer demand
or preferences can have adverse effects on
the business’ ability to either capture growth
opportunities or manage supply.
Plans; and
• Periodic user access and general system
penetration testing.
• Defined and Board/Executive Leadership Team
approved IT roadmap and strategy;
• Implementation of global ERP system and
reporting capability;
• IT policies and supporting procedures (security,
change management, project management, etc.);
• System/process gap analysis and project
prioritisation by Executive Leadership Team;
• Documentation and mapping of key processes
and controls across the business; and
• Semi-annual key control self-assessment process.
• Dedicated consumer insights and innovation
teams tracking consumer trends and researching
new opportunities;
• Brand portfolio and product strategy, including
portfolio rationalisation, prioritisation and
targeted investment in consumer marketing;
• Integrated business planning processes,
including portfolio reviews and global volume
alignment processes; and
• Strategic focus on premium (high demand)
categories.
TREASURY WINE ESTATES ANNUAL REPORT 2017 — 15
OPERATING AND FINANCIAL REVIEW (CONTINUED)
PROFIT REPORT
Financial Performance
A$M (UNLESS OTHERWISE STATED)
F17
F16
CHANGE
F16
CHANGE
REPORTED CURRENCY
CONSTANT CURRENCY
Volume (m 9LE cases)
Net sales revenue
NSR per case ($)
Other Revenue
Cost of goods sold
Cost of goods sold per case ($)
Gross profit
Gross profit margin (% of NSR)
Cost of doing business
Cost of doing business margin (% of NSR)
EBITS
EBITS margin (%)
SGARA
EBIT
Net finance costs
Tax expense
Net profit after tax (before material items)
Material items (after tax)
Non-controlling interests
Net profit after tax
Reported EPS (A¢)
Net profit after tax (before material items
and SGARA)
EPS (before material items and SGARA) (A¢)
Average no. of shares (m)
Dividend (A¢)
* Not meaningful.
36.4
2,401.7
65.96
132.5
(1,568.3)
43.07
965.9
40.2%
(510.8)
21.3%
455.1
19.0%
(5.7)
449.4
(27.1)
(130.4)
291.9
(22.0)
(0.8)
269.1
36.5
293.4
39.8
736.8
26.0
33.6
2,232.6
66.50
110.7
(1,516.1)
45.16
827.2
37.1%
(493.0)
22.1%
334.2
15.0%
(11.0)
323.2
(21.2)
(90.5)
211.5
(38.1)
(0.1)
173.3
24.3
217.4
30.5
713.7
20.0
8.5%
7.6%
(0.8)%
19.7%
(3.4)%
4.6%
16.8%
8.4%
(3.6)%
0.8ppts
36.2%
4.0ppts
48.2%
39.0%
(27.8)%
(44.1)%
38.0%
42.3%
NM*
55.3%
50.2%
35.0%
30.5%
33.6
2,158.5
64.29
110.0
(1,472.3)
43.85
796.2
36.9%
(478.4)
22.2%
317.8
14.7%
(10.5)
307.3
(21.2)
(89.6)
196.5
(36.3)
(0.1)
160.1
22.4
201.9
28.3
713.7
8.5%
11.3%
2.6%
20.5%
(6.5)%
1.8%
21.3%
8.9%
(6.8)%
0.9ppts
43.2%
4.3ppts
45.7%
46.2%
(27.8)%
(45.5)%
48.5%
39.4%
NM*
68.1%
62.9%
45.3%
40.6%
Financial headlines1,2,3
• Net Sales Revenue (NSR) up 8% on a reported
currency basis and up 11% on a constant
currency basis
Business headlines
• Double digit EBITS growth and EBITS margin
accretion delivered by all regions on a constant
currency basis
• EBITS of $455.1 million, up 36% on a reported
• High-teens EBITS margin target delivered;
currency basis and 43% on a constant currency basis
three years ahead of initial plan of F20
• 4.0ppts EBITS margin accretion on a reported
currency basis to 19%
• Strong uplift in NPAT, Reported EPS and
EPS (before material items and SGARA)
• Robust cash conversion at 84%; within
guidance range
• Net debt4/EBITDAS, adjusted for operating
leases of 1.5x and interest cover 17.9x5
• Margin accretion driven by portfolio premiumisation,
acquisition of Diageo Wine, Supply Chain savings,
accelerated growth in Asia and lower Cost Of Doing
Business margin
• Run-rate cash synergies target from Diageo Wine
acquisition of US$35 million realised in F17,
well ahead of initial plan of F20
1. Financial information in this report is based on audited financial statements. Non-IFRS measures have not been subject to audit
or review. The non-IFRS measures are used internally by Management to assess the operational performance of the business and make
decisions on the allocation of resources.
2. Comparative balances have been restated to reflect the final purchase price accounting for the Diageo Wine acquisition and a change
in accounting standards relating to Agricultural Assets. Refer to note 33 to the financial statements for details.
3. Unless otherwise stated, all percentage or dollar movements from prior periods are pre any material items and on a constant currency basis.
4. Borrowings have been adjusted by $4.1 million (F16: $12.9 million) to reflect a fair value hedge of a portion of US Private Placement notes.
5. Interest cover is calculated as the ratio of earnings to net interest expense, where earnings is the consolidated pre-tax profit (pre material
items and SGARA) plus the sum of the amount of net interest expense adjusted for amortised interest costs, per financial covenants.
16 — TREASURY WINE ESTATES ANNUAL REPORT 2017
• Route-to-market optimisation in key markets;
establishment of warehouse facilities in Japan
and new distributor partnerships in Canada
and New Zealand
• Investment in strategic partnerships with wholesale
and retail customers in all regions supported by
joint business planning, insight-led category growth
initiatives and outstanding execution
• Distribution and consumer-led brand building
investment with strategic customers drove increased
availability of US brand portfolio in the US and Asia
• TWE recognised cumulative Supply Chain
savings of $80 million, of which $39 million was
incrementally delivered in F17
Dividend and share buy-back
• Final dividend of 13 cents per share, 50% franked,
bringing F17 annual dividend to 26 cents per share,
a 30% increase
• Dividend pay-out ratio of 65%; consistent with
dividend policy6
• On-market share buy-back of up to $300 million
in F18
Outlook
• Total COGS savings from TWE’s Supply Chain
Optimisation Initiative to reach a run-rate of at least
$100 million before F20
• EBITS growth and EBITS margin accretion targeted
in F18, ahead of acceleration in F19 and beyond,
underpinned by increased supply of premium wine
and continued execution and momentum
• Commitment to journey of margin accretion,
that over time delivers an EBITS margin of 25%
Revenue by region
REPORTED
CURRENCY
CONSTANT
CURRENCY
A$M
F17
F16
%
F16
%
Net Sales Revenue
ANZ
Asia
Americas
Europe
Total sales
revenue
Other revenue
Total Revenue
591.3
394.3
1,062.0
354.1
590.7
293.2
991.0
357.7
0.1%
34.5%
7.2%
(1.0)%
592.3 (0.2)%
35.1%
291.9
10.4%
962.2
13.5%
312.1
2,401.7 2,232.6
110.7
2,534.2 2,343.3
132.5
7.6% 2,158.5
19.7%
110.0
8.1% 2,268.5
11.3%
20.5%
11.7%
Volume
• Volume up 2.8 million 9LE cases (+9%)
to 36.4 million 9LE
• Volume growth reported in all regions7 driven
by in-market execution, strategic customer
partnerships, focused brand investment and
optimised routes-to-market. Volume in first half
of F17 in Americas and Europe benefited from
Diageo Wine acquisition
• Volume growth partially offset by divestment
of Non-Priority Commercial (NPC) brand portfolio
in the US in July 2016 (comprising approximately
1 million cases sold on an annual basis) and exit
from underbond trading in the UK in the second
half of F17
Revenue
• Net Sales Revenue up 11% driven by volume growth,
with NSR per case up 3%, supported by portfolio
premiumisation and price increases across key
brands, partially offset by a reallocation of brand
building investment from A&P to D&R to drive
portfolio availability in the US in the second half
of 2017
• Other revenue up 21%, principally reflecting revenue
recognised on sale of bulk wine associated with the
divestment of the NPC brand portfolio in July 2016
Cost of Goods Sold (COGS)
• Lower COGS per case driven by Supply Chain
Optimisation savings and realisation of acquisition
synergies, partially offset by portfolio premiumisation
and higher underlying COGS as TWE cycled higher
cost vintages in F17
• Total, cumulative COGS savings delivered by the
Supply Chain Optimisation initiative now $80 million;
with an incremental $39 million delivered in F17
Cost of Doing Business (CODB)
• CODB up $32.4 million (+7%) to $510.8 million,
principally driven by the integration of Diageo Wine
and investment in TWE’s brand portfolios and
organisational capability and presence in key
markets, particularly Asia and US
• CODB margin below previous corresponding period
(pcp) with incremental increase in CODB more than
offset by strong NSR growth
6. TWE targets a dividend payout ratio of between 55%-70% of Net Profit After Tax (pre-material items and SGARA) over a fiscal year.
7. Adjusting for customers reallocated from ANZ to Asia in F17, ANZ reported volume growth.
TREASURY WINE ESTATES ANNUAL REPORT 2017 — 17
OPERATING AND FINANCIAL REVIEW (CONTINUED)
EBITS by region
REPORTED
CURRENCY
CONSTANT
CURRENCY
A$M
F17
F16
%
F16
%
ANZ
Asia
Americas
Europe
Corporate
TWE EBITS
111.1
150.1
189.0
48.0
(43.1)
455.1
89.3
102.0
131.5
47.7
(36.3)
334.2
24.4%
47.2%
43.7%
0.6%
(18.7)%
36.2%
20.9%
91.9
44.2%
104.1
50.8%
125.3
32.8
46.3%
(36.3) (18.7)%
43.2%
317.8
Corporate costs
• Corporate costs up $6.8 million to $43.1 million
reflecting investment in TWE’s new global
IT system and the integration of Diageo Wine
EBITS
• EBITS up 43% to $455.1 million driven by volume
growth, portfolio premiumisation, Supply Chain
savings, lower CODB as a percentage of NSR and
the acquisition of Diageo Wine. EBITS margin
up 4.3ppts to 19.0%
• Also included in F17 EBITS are one-off items,
netting to a $8 million gain; principally relating
to profit on asset sales in the US
SGARA
• SGARA loss of $5.7 million ($4.8 million lower
than pcp) driven by higher costs associated with
the 2016 Californian vintage, partially offset by
a strong 2017 vintage in Australia and the unwind
of prior vintage losses, notably the lower yielding
2015 Australian vintage
Net finance costs
• Higher net finance costs driven by increased average
borrowings and assumption of finance leases post
acquisition of Diageo Wine
• Net finance costs in pcp included interest income
on funds held on deposit in the first half of F16
prior to settlement of acquisition of Diageo Wine
Tax expense
• Higher tax expense due to increased earnings,
including the acquisition of Diageo Wine.
Effective tax rate of 30.8%8, slightly higher
than pcp (30.0%9), as an increased proportion
of earnings was generated in the US
Material items
• Post-tax material items expense of $22.0 million
reflected integration costs associated with the
acquisition of Diageo Wine and implementation
of Supply Chain Optimisation
Net profit after tax (NPAT)
• NPAT before material items up to $291.9 million
(+49%) driven by higher EBITS and lower SGARA
loss, partially offset by higher net finance costs
and tax expense
Earnings per Share (EPS)
• EPS (before SGARA and material items)
increased 41% to 39.8cps (+31% on a reported basis).
EPS attributable to shareholders up 63% to 36.5cps
(+50% on a reported basis)
Balance Sheet (condensed)10,11
A$M
F17
F16
Cash and cash equivalents
Receivables
Current inventories
Non-current inventories
Property, plant and equipment
Agricultural assets
Intangibles
Tax assets
Assets held for sale
Other assets
Total assets
Payables
Borrowings
Tax liabilities
Provisions
Other liabilities
Total liabilities
Net assets
240.8
607.9
947.9
763.9
1,328.5
37.7
1,095.8
208.0
36.0
12.8
5,279.3
719.9
600.5
285.0
64.8
0.6
1,670.8
3,608.5
256.1
611.4
895.7
678.4
1,347.8
35.8
1,101.5
270.0
68.2
21.6
5,286.5
726.3
631.1
263.5
83.1
13.3
1,717.3
3,569.2
Balance sheet movements as at 30 June 2017
Net assets up $39.3 million to $3,608.5 million,
principally driven by uplift in non-current inventory,
lower borrowings and utilisation of provisions.
Adjusting for movements in foreign currency,
net assets increased by $90.3 million
Cash and cash equivalents
Marginally lower cash balance principally driven
by net investment in capital expenditure, increased
dividends paid and higher working capital, partially
offset by continued profit growth across all regions
Working Capital12
Higher working capital relative to 30 June 2016,
driven by:
• Increased inventory, reflecting the high yielding,
high quality 2017 vintage in Australia and strong
2016 vintage in California
8. On a pre material items basis.
9. F16 effective tax rate restated to reflect accounting standard changes for vine depreciation.
10. Unless otherwise stated, balance sheet percentage or dollar movements from the previous period are on a reported currency basis and
in respect of pcp.
11. Comparative balances have been restated to reflect the final purchase price accounting for the Diageo Wine acquisition and a change
in accounting standards relating to Agricultural Assets. Refer to note 33 to the financial statements for details.
12. F16 Balance Sheet payables includes the final settlement paid to Diageo Wine. This item is reflected within investing cash flows.
18 — TREASURY WINE ESTATES ANNUAL REPORT 2017
• Lower payables, reflecting final settlement of the
Diageo Wine acquisition in the first half of F17
and foreign currency movements, partially offset
by TWE’s step-up in distribution and consumer-led
brand building investment to drive availability
of TWE’s brand portfolios globally
• Lower receivables, principally driven by improved
collection terms with customers and alignment of
Diageo Wine customers with TWE terms, partially
offset by delays in shipments to Asia and Australia
in the second half of F17 following the implementation
of TWE’s new global IT system in April/May 2017
Inventory
Total inventory increased $137.7 million
to $1,711.8 million:
• High yielding, high quality 2017 vintage in
Australia and strong 2016 vintage in California
• Uplift in current inventory reflects growing demand
for TWE’s Luxury and Masstige wine portfolios
• F18 Penfolds allocations in line with F17;
with adverse mix
• Continued focus on optimising TWE’s inventory
mix, reducing the proportion of Commercial and
lower-end Masstige inventory, notably via divestment
of TWE’s NPC brand portfolio in July 2016
Property, Plant and Equipment
Property, Plant and Equipment decreased $19.3 million
to $1,328.5 million largely reflecting optimisation
of TWE’s Supply Chain asset base in Australia,
the US and New Zealand
Agricultural assets
Agricultural assets reflect the market value
of unharvested grapes prior to the 2017
Californian vintage
Intangibles
Adjusting for foreign currency, intangible assets
increased, principally reflecting TWE’s investment
in a new global IT system
Provisions
Lower provisions relative to the pcp driven by
utilisation of restructuring-related provisions in respect
of the integration of Diageo Wine, TWE’s Supply
Chain Optimisation initiative, and route-to-market
changes in Canada, Japan and New Zealand
Tax and other assets
Movements in tax assets/liabilities principally reflects
the unwind of DTAs recognised on Diageo Wine
acquisition and increase in current tax payable in line
with underlying earnings and timing of tax paid
13. Borrowings have been adjusted by $4.1 million
(F16: $12.9 million) to reflect a fair value hedge
of a portion of US Private Placement notes.
Assets held for sale
Assets held for sale as at June 2017 largely reflect
oak barrels transitioning to sale and leaseback
arrangement and assets identified for sale as part
of TWE’s Supply Chain Optimisation Initiative
Borrowings13
Borrowings decreased $30.6 million to $600.5 million
largely reflecting foreign currency movements on
translation of USD denominated Private Placement
(USPP) notes
Balance sheet leverage
Net debt/EBITDAS of 1.5x (adjusted for operating
leases) and interest cover of 17.9x
Funding structure
At 30 June 2017, TWE had committed debt facilities
totalling approximately $1.2 billion, comprising:
• Drawn US Private Placement notes of
$520.8 million, with US$150 million of notes issued
in June 2017 with funds used to repay outstanding
drawn bilateral facilities of US$140 million
• Undrawn committed, syndicated debt facilities
totalling $658.0 million. Weighted average term
to maturity of committed facilities 5.3 years
Cash flow – reconciliation of net debt
A$M (UNLESS OTHERWISE STATED)
F17
F16
EBITDAS
Change in working capital
Other items
Net operating cash flows
before financing costs,
tax and material items
Cash conversion
Capital expenditure
Net investment expenditure/other
Cash flows after net capital
expenditure, before financing
costs, tax and material items
Net interest paid
Tax paid
Cash flows before dividends
and material items
Dividends/distributions paid
Cash flows after dividends
before material items
Material item cash flows
Issue of shares, less transaction costs
Share purchases
Total cash flows from activities
Opening net debt as at 1 July 2016
Total cash flows from activities (above)
Proceeds from settlement of derivatives
Net debt acquired
Debt revaluation and foreign exchange
movements
Decrease/(Increase) in net debt
563.4
(67.4)
(23.5)
441.0
87.1
16.3
472.5
83.9%
(210.4)
50.9
544.4
123.4%
(133.8)
(798.3)
313.0
(24.5)
(32.0)
(387.7)
(21.7)
(10.8)
256.5
(184.6)
(420.2)
(111.2)
71.9
(3.9)
–
(65.9)
2.1
(365.0)
2.1
0.6
–
7.5
10.2
(531.4)
(13.7)
475.4
(4.5)
(74.2)
(213.9)
(74.2)
10.3
(85.1)
(2.1)
(151.1)
Closing net debt as at 30 June 2017
(354.8)
(365.0)
TREASURY WINE ESTATES ANNUAL REPORT 2017 — 19
OPERATING AND FINANCIAL REVIEW (CONTINUED)
Movement in net debt
Net debt decreased $10.2 million to $354.8 million.
Drivers of the movement in net debt included:
EBITDAS
EBITDAS increased $122.4 million on a reported
currency basis driven by continued momentum across
all regions, the acquisition of Diageo Wine, enhanced
execution and ongoing optimisation of TWE’s cost base
Movement in working capital14
Net working capital outflow driven by:
• Increased inventory reflecting the high yielding,
high quality 2017 vintage in Australia and strong
2016 vintage in California, partially offset by:
• Lower receivables driven by improved collection
terms with customers and alignment of Diageo
Wine customers with TWE trading terms, partially
offset by the impact of shipment delays to Asia
and Australia in the second half of F17 following
implementation of TWE’s new IT system
in April/May 2017; and
• Higher operating payables as TWE uplifted both
distribution and consumer-led brand building
investment to drive availability of TWE’s brand
portfolio globally
Other items
• Other items principally reflects profit on the
disposal of assets and the impact of acquisition
accounting, partially offset by asset write-downs
Capital expenditure
Capital expenditure (capex) up $76.6 million
to $210.4 million comprising:
• Maintenance and Replacement capex of $109.8 million,
per guidance
• Capex of $48.4 million to deliver integration synergies
• Capex of $37.9 million on vineyard acquisitions to
drive incremental access to Luxury/Masstige supply
• Capex of $14.3 million to deliver Supply Chain
Optimisation activities
In F18, Maintenance and Replacement capex not
expected to exceed $120 million; and remaining
planned capex for Diageo Wine integration of circa
$32 million expected to be deployed
Net investment expenditure/Other
Net investment expenditure reflects proceeds received
on sale of surplus Supply Chain assets, notably
St. Clement Cellar Door in the first half of F17 and
BV-5 vineyard and the Paicines winery in the second
half of F17
Net interest paid
Increased net interest paid driven by higher average
drawn debt, including acquired finance leases from
Diageo Wine
Dividends paid
Increase in dividends paid commensurate with uplift
in F17 interim dividend of 13 cents per share and
F16 final dividend of 12 cents per share; representing
a total uplift of 9 cents per share vs. pcp
Tax paid
Increase in line with earnings growth and timing
of tax payments
Material items
Material items outflow driven by:
• Restructuring and redundancy outflows and costs
due to the acquisition and integration of Diageo
Wine; partially offset by:
• Proceeds from the sale of surplus assets across
Australia, New Zealand and the US as part
of TWE’s Supply Chain Optimisation initiative
Proceeds from issue of shares, net of transaction costs
Proceeds from issue of shares, net of transaction
costs of $475.4 million in F16 related to the cash inflow
from the equity funding component of the Diageo
Wine acquisition
On-market share purchases
Increased on-market share purchases reflects upfront
purchase of shares in connection with vesting of
TWE’s Long-term Incentive Plans and underlying
appreciation in TWE’s share price
Exchange rate impact
Higher period-end exchange rates used to revalue
foreign currency borrowings and cash flows as
at 30 June 2017 decreased net debt by $7.5 million
Cash conversion
Cash conversion was 84%; within guidance range
14. Change in working capital reflects operating cash flow movements.
20 — TREASURY WINE ESTATES ANNUAL REPORT 2017
REGIONAL SUMMARIES
AUSTRALIA & NEW ZEALAND (ANZ)
REPORTED
CURRENCY
CONSTANT
CURRENCY
Historical EBITS and EBITS margin*
A$M
A$M
F17
F16
%
F16
%
0.2%
7.8
Volume (m 9LE)
0.1% 592.3
NSR (A$m)
(0.1)% 76.09
NSR per case (A$)
91.9
24.4%
EBITS (A$m)
EBITS margin (%) 18.8% 15.1% 3.7ppts
0.2%
(0.2)%
(0.3)%
20.9%
15.5% 3.3ppts
7.8
591.3
75.84
111.1
7.8
590.7
75.88
89.3
120.0
100.0
80.0
60.0
40.0
20.0
0
F14
F15
F16
F17
20.0%
18.0%
16.0%
14.0%
12.0%
10.0%
8.0%
6.0%
4.0%
2.0%
0.0%
1H EBITS
2H EBITS
FY EBITS Margin
*Chart presented
on a reported
currency basis.
Business performance
• Volume flat at 7,797k 9LE cases. Australia volume
up 32k 9LE cases (+0.4%); in line with c.0-1.0% wine
category volume growth in Australia15
ANZ regional perspectives
• Australian wine market volume remains steady,
growing at c.0-1.0% per annum15 with ongoing
premiumisation
• Strengthened strategic customer partnerships
in Australia underpinned by category-leading
insights and strong in-market execution
• Route-to-market change in New Zealand
(Independent Liquor New Zealand appointed as
exclusive distributor) expected to enhance focus
on core Australian operations, whilst increasing
portfolio scale and reach in New Zealand
• Investment in portfolio growth and innovation
within the Masstige segment expected to support
TWE’s aspirational market share target of 25%
volume and value share in Australia; currently
22% value share16
• Masstige-led portfolio premiumisation and
innovation, category-leading sales execution and
ongoing tight cost management expected to drive
further margin accretion in F18 and beyond
• Adjusting for TWE’s deliberate decision to reallocate
Australian customers who service Asia to the Asia
region, Australia delivered 2% volume growth;
outpacing the category15
• NSR per case in line with pcp; improved price
realisation on key Luxury and Masstige brands,
notably Penfolds, Pepperjack and Annie’s Lane and
focus on Masstige portfolio expansion (Regional
Gems portfolio volume up 15%), offset portfolio mix
impact from the reallocation of Luxury wine to
optimise global margins
• COGS per case driven by realisation of Supply
Chain savings and portfolio skew to Commercial
wine in the second half of F17, partially offset by
higher underlying vintage costs
• Lower overall A&P per case in F17, driven by
reallocation of spend to other regions, partially
offset by acceleration of brand building investment
in the second half of F17 to support Masstige
portfolio growth strategy in F18
• Favourable movement in CODB margin driven
by lower Overheads and optimised brand
building investment
• Optimised portfolio mix and Supply Chain savings
drove EBITS growth in New Zealand
• EBITS up 21% to $111.1 million with margin
accretion of 3.3ppts to 18.8%
15. Due to TWE’s route-to-market changes impacting market data, this is a Management estimate.
16. Aztec Sales Data | Bottled Wine Only | Australian Liquor Weighted | Scan MAT to 16 July 2017.
TREASURY WINE ESTATES ANNUAL REPORT 2017 — 21
OPERATING AND FINANCIAL REVIEW (CONTINUED)
REGIONAL SUMMARIES
EUROPE 17
REPORTED
CURRENCY
CONSTANT
CURRENCY
Historical EBITS and EBITS margin*
A$M
A$M
F17
F16
%
F16
%
14.4%
8.4
8.4
Volume (m 9LE)
357.7
(1.0)% 312.1
NSR (A$m)
42.46 (13.4)% 37.05
NSR per case (A$)
32.8
0.6%
EBITS (A$m)
EBITS margin (%) 13.6% 13.3% 0.3ppts
14.4%
13.5%
(0.8)%
46.3%
10.5% 3.1ppts
9.6
354.1
36.76
48.0
47.7
50.0
45.0
40.0
35.0
30.0
25.0
20.0
15.0
10.0
5.0
0
F14
F15
F16
F17
14.0%
12.0%
10.0%
8.0%
6.0%
4.0%
2.0%
0.0%
1H EBITS
2H EBITS
FY EBITS Margin
*Chart presented
on a reported
currency basis.
Business performance
• Volume up 14% to 9,634k 9LE cases reflecting
integration of Diageo Wine in the first half of F17,
partially offset by the exit from underbond trading
in the second half of F17
Europe regional perspectives
• Greater focus on, and prioritisation of, key markets
in Europe (UK, Sweden and Netherlands) and
priority brands (Wolf Blass, Lindeman’s, Blossom
Hill and 19 Crimes)
• UK wine market conditions remain challenging,
with a declining wine category and continued
uncertainty from Brexit
• UK wine category continues to premiumise with
Masstige and Luxury segments in growth but
Commercial segment in decline
• Despite continuation of range rationalisation by
UK grocery customers in F17, TWE maintained
listings and gained distribution on priority brands
• Focus continues to be on building sustainable
partnerships with strategic customers, underpinned
by outstanding sales execution
• LATAM to transition to Americas region effective
1 July 2017
• Slightly lower NSR per case reflects acquired Diageo
Wine Commercial volume in the first half of F17,
partially offset by price increases on select brands
and strong Masstige portfolio growth; volume up
17% led by Wolf Blass, Rosemount and 19 Crimes
• Favourable COGS per case reflected integration
of Diageo Wine and Supply Chain savings
• Delivered improved brand health for key brands
in core markets, despite lower A&P per case
driven by continued optimisation of brand building
investment in the second half of F17
• Favourable CODB margin versus pcp; marginally
higher Overheads from the integration of Diageo
Wine more than offset by NSR growth
• LATAM EBITS up 23% to $7.0 million
• EBITS up $15.2 million to $48.0 million; adverse
foreign exchange rate movements (principally
driven by devaluation of Great British Pound)
offset by strong underlying profit growth
• EBITS margin accretion delivered, up 3.1ppts
to 13.6%
17. Includes TWE’s Latin American (LATAM) operations.
22 — TREASURY WINE ESTATES ANNUAL REPORT 2017
REGIONAL SUMMARIES
AMERICAS
REPORTED
CURRENCY
CONSTANT
CURRENCY
Historical EBITS and EBITS margin*
A$M
A$M
F17
F16
%
F16
%
Volume (m 9LE)
NSR (A$m)
NSR per case (A$)
EBITS (A$m)
EBITS margin (%) 17.8% 13.3% 4.5ppts
15.5
1,062.0
68.72
189.0
15.0
991.0
66.10
131.5
3.1%
15.0
7.2% 962.2
4.0% 64.18
43.7% 125.3
3.1%
10.4%
7.1%
50.8%
13.0% 4.8ppts
Business performance
• Robust headline volume growth, up 3% to 15,454k
9LE cases driven by the acquisition of Diageo Wine
and underlying portfolio growth, partially offset by
divestment of the Non-Priority Commercial (NPC)
brand portfolio in July 2016 (comprising c.1 million
cases sold annually)
• Adjusting for the divestment of the NPC brand
portfolio, Americas delivered 2% growth in the second
half of F17 relative to the pcp, with the US growing
ahead of the category18
• Depletions growth ahead of shipments by circa
100k 9LE cases, primarily due to destocking of
Lindeman’s old label product in preparation for
packaging relaunch
• NSR up 10%, with NSR per case up 7%. Lower
NSR per case in the second half of F17 reflects
reallocation of brand building investment from A&P
to D&R (above NSR line) to drive brand availability
in-store, partially offset by portfolio premiumisation
and price increases in the period
• Marginally lower COGS per case principally reflected
Supply Chain savings and some synergies from the
Diageo Wine integration, notably in the second half
of F17, partially offset by portfolio premiumisation
• Re-set and relaunch of TWE’s US brand portfolio
underpinned higher A&P per case in F17,
particularly in the first half of F17
• Higher CODB margin versus pcp due to Diageo
Wine integration and increased investment in brand
building and organisational capability, particularly
driven by investment in National Accounts team
200.0
175.0
150.0
125.0
100.0
75.0
50.0
25.0
0
F14
F15
F16
F17
20.0%
18.0%
16.0%
14.0%
12.0%
10.0%
8.0%
6.0%
4.0%
2.0%
0.0%
1H EBITS
2H EBITS
FY EBITS Margin
*Chart presented
on a reported
currency basis.
• Despite lower EBITS in Canada in F17, profitability
improved in the second half of F17 vs the first
half of F17, reflecting the new, more efficient RTM
structure with exclusive distributor partner,
Mark Anthony Wine & Spirits
• EBITS up 51% to $189.0 million, reflecting organic
and inorganic volume growth, portfolio
premiumisation and Supply Chain savings
• One-off items netting to $8 million included in
EBITS, principally relating to profit on asset sales
• Strong EBITS margin accretion delivered,
up 4.8ppts to 17.8%
Americas regional perspectives
• Fundamentals of US bottled wine market
remain attractive
• Despite a moderation of bottled wine category
volume and value growth in the second half of F17
to 0.2% and 1.6%18, respectively, premiumisation
continues, with Luxury and Masstige volume and
value growing and Commercial in decline
• Enhanced sales capability a key focus for F18,
coupled with ongoing optimisation of distribution
and consumer-led brand building investment
• EBITS margin accretion expected in F18 and
beyond, supported by portfolio growth and
premiumisation, and continued strengthening
of customer partnerships and execution
18. Category volume growth as per IRI Market Advantage: Table $4+ excluding Premium Box, 26 weeks ending 02/07/17,
Total US Multi Outlet + Liquor.
TREASURY WINE ESTATES ANNUAL REPORT 2017 — 23
OPERATING AND FINANCIAL REVIEW (CONTINUED)
REGIONAL SUMMARIES
ASIA
REPORTED
CURRENCY
CONSTANT
CURRENCY
Historical EBITS and EBITS margin*
A$M
A$M
F17
F16
%
F16
%
3.5
394.3
2.4
Volume (m 9LE)
NSR (A$m)
293.2
NSR per case (A$) 111.70 123.48
102.0
EBITS (A$m)
EBITS margin (%) 38.1% 34.8% 3.3ppts
48.7%
2.4
34.5% 291.9
(9.5)% 122.93
47.2% 104.1
48.7%
35.1%
(9.1)%
44.2%
35.7% 2.4ppts
150.1
Business performance
• Strong volume growth, up 49% to 3,530k 9LE cases,
driven by both North Asia, up 43% and South East
Asia, Middle East and Africa (SEAMEA), up 58%
• Forward days of inventory cover has remained
broadly constant vs. F16
• Volume growth driven by both Australian brand
portfolio and US brand portfolio (up c.700k 9LE
cases and c.420k, respectively)
• Lower NSR per case reflects broadened brand
portfolio largely in the second half of F17,
partially offset by price increases across key
Australian brands
• Favourable movement in COGS per case reflects
Supply Chain savings, notably in SEAMEA given
portfolio weighting to Commercial and Masstige wine
• Elevated A&P in F17, with higher A&P per case
in the second half of F17 driven by investment
in pipeline of demand for US brand portfolio
• Investment in sales and marketing capabilities
to support expanded routes-to-market, particularly
in China and Japan, underpinned increased
Overheads in F17
• Despite elevated brand building investment and
higher Overheads driving increased CODB in the
second half of F17, 35% NSR growth in F17 more
than offset brand and organisational investment
over the full year
• EBITS up $46.0 million to $150.1 million
• EBITS margin accretion of 2.4ppts to 38.1%,
higher than previously communicated guidance
range of 30–35% due to optimisation of
brand building investment across Australian
brand portfolio in the second half of F17
24 — TREASURY WINE ESTATES ANNUAL REPORT 2017
160.0
140.0
120.0
100.0
80.0
60.0
40.0
20.0
0
F14
F15
F16
F17
40.0%
35.0%
30.0%
25.0%
20.0%
15.0%
10.0%
1H EBITS
2H EBITS
FY EBITS Margin
*Chart presented
on a reported
currency basis.
Asian regional perspectives
• Continued focus on deepening customer partnerships
through insight-led joint business planning and more
efficient routes-to-market, particularly in China
and Japan
• TWE established its French portfolio in June 2017,
introducing its own Luxury brand, Maison De Grand
Esprit, which will be on shelf in November 2017
• TWE entered into exclusive agreement to import
and distribute Baron Philippe de Rothschild’s
branded wine portfolio, led by Mouton Cadet and
Escudo Rojo, validating TWE’s route-to-market
model in China and strengthening the Company’s
portfolio offering
• TWE will introduce warehouse facilities in China
in the first half of F18, expected to reduce lead times
for customer orders and provide opportunities for
customers to stock a broader range of TWE brands.
TWE to work closely with customer partners and
expects some re-phasing of shipments between the
first half of F18 and the second half of F18
• Focus on driving a balanced brand and
country-of-origin portfolio mix in Asia supported
by efficient routes-to-market and strong
in-market execution
• TWE reiterates F18 margin guidance of 30–35%,
however is seeking opportunities for improvement
in the range of 1–2%, driven by enhanced mix from
new brand portfolios and a strengthened regional
business model, whilst at the same time transitioning
to its new warehouse facility and continuing
to diversify within brand portfolios
New Zealand
Despite challenging weather conditions across key
wine growing regions, the 2017 New Zealand vintage
was characterised by a good quality harvest across
key varietals. Growing conditions favoured pinot noir
varietals, with a strong harvest recorded for Central
Otago Pinot Noir. 2017 vintage yields were slightly
lower than the high-yielding 2016 vintage, but in line
with long-term averages.
VINTAGE UPDATE
California
Growing conditions for the 2017 Californian vintage
benefited from substantial winter rainfall and
a cool spring, providing relief from the last few years
of drought conditions. Winter provided a reset for
California with the state no longer considered in
drought and no apparent carry over effects on yield,
quality or vine health. V17 is on track for another
high quality vintage, with investments in vineyard
re-plantings expanding TWE’s access to higher
quality fruit and in-demand varietals. TWE expects
a slightly later harvest that is in line with long-term
averages, with yields expected to be slightly above
average across the board.
Australia
The 2017 Australian harvest was characterised by
strong quality and high yields. Intake was stronger
than the outstanding 2016 vintage, especially for
Luxury and Masstige fruit. Favourable conditions
persisted for the remainder of the 2017 season,
albeit with some late season rains in the Limestone
Coast region. TWE’s premium intake across its
regions and varietals was particularly pleasing,
notably for Barossa Valley and McLaren Vale Shiraz
and Cabernet, which were excellent.
TREASURY WINE ESTATES ANNUAL REPORT 2017 — 25
CORPORATE
RESPONSIBILITY
Treasury Wine Estates
is committed to making
a positive contribution
to the local communities
in which it operates.
The Company’s Corporate
Responsibility program
identifies ways it can
improve this contribution,
manage environmental
and social risks, and
drive sustainability.
In F17, TWE continued to focus its Corporate
Responsibility (CR) program on three
strategic priorities:
• Responsible Consumption
• Sustainable Sourcing
• Volunteering and Community
The CR program’s progress and strategic direction
is overseen by the Company’s Global CR Council,
which is chaired by the Chief Executive Officer (CEO)
and includes senior members of the Company from
across all regions and functions. The Council meets
a minimum of three times per year.
In F17, TWE retained its ongoing commitment to the
United Nations Global Compact (UNGC) principles
relating to human rights, labour, the environment and
anti-corruption, and commenced annual reporting
under the Modern Slavery Act 2015 (UK).
TWE considers that its CR program is aligned with
the Sustainable Development Goals (SDGs) most
material to the Company. The SDGs will be further
considered in TWE’s F18 CR materiality assessment.
Throughout F17, TWE participated in public policy
discussions relating to CR globally, including modern
slavery regulation and reporting, packaging and waste
reduction, water policy, climate change, and energy
labelling of alcoholic beverages.
In F18, a CR materiality assessment will assist
the Company to pulse-check the program’s focus,
including the key pillars and guiding principles.
TWE will continue to actively participate in public
policy discussions related to CR and the UNGC
principles to which it is committed.
26 — TREASURY WINE ESTATES ANNUAL REPORT 2017
RESPONSIBLE CONSUMPTION
TWE is committed to promoting
the responsible consumption of its
products, and supports employees
to act as advocates for responsible
consumption at all times.
Internal resources create the foundation of the
Company’s commitment to responsible consumption.
In F17, more than 97% of TWE’s employees completed
training on the Company’s Alcohol Policy. During
F17, responsible marketing and sales materials
were updated and additional resources to guide
the appropriate use of social media were created.
Responsible consumption was also a key theme
of TWE’s safety program, Destination Zero Harm.
In F17, TWE sites coordinated their focus on
responsible consumption through an inaugural
Responsible Consumption Week. During the week,
employees in regional head offices participated
in a range of activities and received additional
resources to aid them in understanding and
promoting responsible consumption.
External facing responsible consumption activities
undertaken in F17 included commencing the provision
of calorie information of TWE’s wines online; and
collaborations promoting responsible consumption,
including the ‘Always Polished Never Dull’ campaign
between Sterling Vineyards and Uber (US), and the
Wolf Blass, Yellowglen and DrinkWise collaboration
during the Spring Racing Carnival (Australia).
In F18, TWE will continue to build on its internal
responsible consumption program resources and
training, and will focus on expanding the engagement
and participation in Responsible Consumption Week.
TREASURY WINE ESTATES ANNUAL REPORT 2017 — 27
CORPORATE RESPONSIBILITY (CONTINUED)
SUSTAINABLE SOURCING
TWE is committed to adopting
sustainable practices within
its supply chain and throughout
its sourcing initiatives. Key to this
commitment is managing resource
use and reducing waste, identifying
and implementing innovation
to help achieve this goal, and
working with suppliers to manage
environmental performance.
Fundamental to ensuring the Company’s own
production is sustainable is TWE’s independent
third party sustainability certification of owned
and operated vineyards. These are supported
by the Company’s Environment Policy and site
Environmental Management Plans. TWE also
looks to continuously innovate and undertakes
collaborative Research and Development aimed
at improving water and energy efficiency and waste
to recycling rates. In F17, an improved online
resource consumption tracking tool was introduced
and embedded at all TWE sites globally.
Specific F17 highlights include:
• The implementation of a centrifuge project at the
Paso Robles winery, saving an estimated 2 million
litres of water annually;
• Installation of air-cooled cooling towers at the
Paso Robles winery to allow the existing evaporative
cooling towers to be taken off-line for 8–9 months
of the year;
• Use of additional pipeline pigs to move wine with
air as opposed to pushing wine with water;
• Experimenting with more efficient wine cooling
techniques such as pulse pumping of refrigerant,
rather than the current industry standard
continuous circulation methods;
• Undertaking ‘waste walks’ at major production sites
and offices in Australia, allowing teams to engage
in identifying opportunities to reduce energy and
water use and improve waste management;
• Undertaking Level 2 energy audits at key facilities
in Australia and New Zealand (ANZ); and
• Installing sub-metering at key facilities in ANZ
to identify future resource efficiency improvements.
28 — TREASURY WINE ESTATES ANNUAL REPORT 2017
Environmental considerations extend to product
packaging, and in F17 TWE continued to embed glass
weighting considerations in new product development
decisions globally. TWE remains a member of the
Australian Packaging Covenant (APC) and has been
an active participant in discussions on how to improve
the APC framework.
With regard to suppliers’ performance, TWE’s
Responsible Procurement Code was rolled out to ANZ
and US suppliers. It continues to be a prerequisite
for all new suppliers, whose commitment to the Code
is required during the onboarding process.
Finally, in F17 TWE’s robust environmental
management and process control systems continued
to ensure that the Company had no environmental
incidents that required containment plans to
be activated.
In F18, TWE will build on the Sustainable Sourcing
pillar of the CR program by introducing its own
Environmental Standard and a Best Management
Practice framework, ensuring each site has a clear
path to continuously improve its resource use,
efficiencies and waste management. The Responsible
Procurement Code will continue to be rolled out
globally to existing suppliers and an Environmental,
Social and Governance (ESG) risk framework
will be applied to review suppliers from higher risk
countries and industries.
VOLUNTEERING AND COMMUNITY
TWE is committed to being
a positive force in the communities
in which it operates. A key part
of that commitment is giving
back to those communities
through volunteering and other
supporting initiatives.
In F17, TWE continued to build and improve on its
annual Global Volunteering Week, expanding it to
include an increased number of employees and parts
of the business, and encompassing other opportunities
for employee giving, including fundraising and
donations. As a result, the total value of volunteering
and fundraising undertaken over the year was
approximately $700,000.
The Company’s gifting program continued to expand,
and was rebranded ‘Fundraising Boost’ to increase
uptake and relevance to all of the regions in which
TWE operates. The program matches employee
fundraising efforts up to a capped amount.
TWE’s brands also participated in major community
and not-for-profit collaborations, including the
Gentleman’s Collection Movember collaboration,
raising over $40,000 for the Movember Foundation
(Australia) and BV Coastal’s Oceana collaboration,
valued at over US$50,000 for the year (US). Other
valuable contributions to the community included
Wolf Blass’s foundational sponsorship of the women’s
Australian Football League (AFLW), employee blood
donations and wine donations to partner charities
for fundraising events.
In F18, TWE will build on its volunteering efforts
through the execution of Global Volunteering Week,
broadening out employee opportunities to give
back to their communities. The Company will
continue partnerships with key charitable partners
in its communities and work to expand uptake
of the Company’s gifting program.
TREASURY WINE ESTATES ANNUAL REPORT 2017 — 29
CORPORATE RESPONSIBILITY (CONTINUED)
KEY PERFORMANCE INDICATORS FOR CORPORATE RESPONSIBILITY
METRIC
UNIT OF MEASURE
F17
F16
F15
F14
Environment1 Total energy consumed2
Energy efficiency3
Total water consumed2
Water efficiency3
Total CO2-e emissions4
Total solid waste generated
% solid waste to recycling
GJ
MJ/9LE
ML
L/9LE
Tonnes CO2-e
Tonnes
%
489,179
9.17
24,534
20.62
52,896
63,348
97.04
488,658
9.28
27,072
22.36
57,755
55,076
96.02
498,526
10.41
26,975
25.18
58,635
62,987
96.26
495,414
12.65
24,296
36.76
59,435
63,457
95.83
Safety
LTIFR5
Lost time injuries per
million hours worked
2.4
4.16
4.2
5.0
1. Every year, due to timing requirements of reporting and billing latency from third party suppliers, the majority of the June environmental
performance data for energy, water, waste and carbon emissions is estimated. Prior to annual publication, the June figures of the previous
year are replaced with actual values. Similarly, any other discrepancies in the previous year’s data are amended.
2. Absolute figures include all wineries, packaging centres and company-owned and leased vineyards. They do not include data from offices
or all cellar doors.
3. Energy and water efficiency for TWE’s wineries and packaging centres include non-TWE Australian volumes packaged at our facilities
under contract. Efficiencies do not include energy and water used at company-owned vineyards, offices and cellar doors.
4. Includes all wineries, packaging centres and company-owned vineyards. Does not include emissions from offices, all cellar doors,
wastewater treatment plants, refrigerants or Scope 3 emissions.
5. Lost Time Injury Frequency Rate (LTIFR).
6. The Company’s F16 Annual Report noted a LTIFR of 3.6. In line with TWE reporting procedures, a number of first aid and medical
treatment injuries that had occurred but were not lost time injuries at the date of the F16 Annual Report were subsequently reclassified
to lost time injures as a result of ongoing medical treatment and rehabilitation programs. These injuries have now been reflected in the
F16 LTIFR, which has had the effect of restating the F16 LTIFR from 3.6 to 4.1.
During F17, TWE continued to optimise its supply
chain footprint, cementing changes in Australia, and
continuing improvements in the US where TWE has
undertaken a winery network optimisation project
during F16 and F17. A key aspect of the US winery
network optimisation project was to consolidate bottling
and packaging operations, and embed the previously
acquired Diageo sites, which are now included in the
company-wide key performance indicators.
In F17, TWE has continued to improve its energy
and water efficiency, reduced CO2-e emissions and
improved solid waste to recycling rates.
While an extended vintage in Australia, an increased
crush, and construction at US and Australian sites
put upward pressure on TWE’s energy usage, supply
chain changes and implementation of efficiency
measures at key production sites have resulted
in only a slight overall increase in total energy use,
and an improvement in TWE’s energy efficiency.
With regard to energy, TWE notes that the indicators
above do not take into account the energy generated
from renewable energy sources. In the US, more than
80% of TWE’s wineries and packaging sites utilise
Community Choice Aggregation electric service
providers who provide a 50% renewable energy mix.
TWE has improved its waste to recycling rates
in F17, despite an overall increase in waste generated.
The increase in waste generated is in part due to
extensive construction and site upgrades, as well
as an increased crush, resulting in increased
marc/pomace waste. TWE trains contractors on
recycling and waste management when they commence
work on sites, and recycles the significant majority
of its organic waste.
TWE’s water usage per 9LE produced has continued
to decline for the fourth consecutive year. This is
attributable to supply footprint optimisation programs
and a clear company focus on reducing water usage,
with a high importance placed on water use for clean
winery practices. While not reported in the key
performance indicators, water usage at vineyards
also reduced due to beneficial climatic conditions and
a continued focus on improving viticultural practices
in both hemispheres.
During F17, TWE implemented a new data reporting
tool, and undertook complementary activities with
site teams to ensure data captured is accurate, and
key metrics are defined in a manner consistent with
the Company’s other reporting requirements. As a
result, some key indicators, such as CO2-e emission
reporting, have changed. Prior year data has been
updated to reflect the changed calculation method.
With the F16 Diageo acquisition now embedded
and reflected in company-wide data, and the
implementation of TWE’s new data reporting tool,
the F17 figures are considered to be a more accurate
benchmark for TWE’s future performance than
a comparison to previous years.
30 — TREASURY WINE ESTATES ANNUAL REPORT 2017
HEALTH, SAFETY AND ENVIRONMENT
TWE’s Health, Safety and
Environment (HSE) program
continued to deliver strong
results in F17.
The Company’s HSE Guiding Principles were
consolidated from five to three, and further embedded
within management frameworks and ways of working.
To deliver the Company’s HSE Guiding Principles, the
Board approved a Global HSE Strategic Framework,
establishing key programs and focus areas.
These key focus areas include:
• Establishing the HSE Vision of Destination Zero
Harm (DZH) – ‘We care because everyone’s life
is important’;
• Reviewing and updating the Workplace Health
and Safety Policy. The Policy was updated
to include three Guiding Principles, DZH and
employee wellbeing; and was renamed the
Workplace Health, Safety and Wellbeing Policy;
• Developing and delivering DZH. The Company
launched the multi-lingual DZH program – a business
owned, people led and behaviour focused program
aimed at educating, engaging and empowering all
employees, contractors and visitors to demonstrate
safe behaviours at work and at home. TWE’s objective
is to train all employees on the program by the end
of calendar year 2017. At the end of F17, this objective
was on track;
• Delivering a HSE leadership development program.
In F17, TWE’s two-day HSE leadership development
program for managers and supervisors continued
to be implemented. Over 400 of TWE’s front line
leaders have attended courses over the three years
the program has been running. The leadership
development program gives course participants the
knowledge and skills to understand and demonstrate
safety leadership; and
• Implementing the Company’s HSE audit program.
The audit program continued to be implemented
throughout the global supply operations. A range
of audits, including self-audits and second and third
party audits, were conducted. The program
continues to be supplemented by the use of an
external audit provider who conducts three
audits per year. The audit program will continue
through F18.
TWE’s primary lag indicator – lost time injury
frequency rate (LTIFR) – continued to demonstrate
improvement. TWE’s F17 target was to achieve
a 5% or more reduction on the F16 end of year result.
This target was achieved, with a LTIFR of 2.4 at the
time of reporting. This is a significant improvement
on a LTIFR of 4.1 in F16 and 4.2 in F15, and
demonstrates long-term systematic improvement
in employee engagement and empowerment rates.
TREASURY WINE ESTATES ANNUAL REPORT 2017 — 31
CORPORATE RESPONSIBILITY (CONTINUED)
PRODUCT SAFETY AND QUALITY
TWE is committed to ensuring
a safe, sustainable and timely
supply of quality products
to its customers.
The Company’s policy on product safety and quality
confirms this commitment by ensuring regular
reviews of the Quality Management System are
undertaken in order to achieve best practice and
implement process improvements. The Company’s
product safety and quality objectives are to:
• Continuously improve existing processes
by benchmarking against other leading
beverage companies;
• Ensure compliance with quality standards for
internal and third party produced product;
• Engage employees to be quality focused;
• Strive to exceed customers’ and consumers’
expectations; and
• Meet full compliance with all statutory obligations.
A consistent risk management strategy has been
developed across the Company to manage product
safety and quality. This has resulted in the
implementation of internationally recognised quality
standards at production sites, including Hazard
Analysis and Critical Control Points (HACCP)
system, British Retail Consortium Global Standard
for Food Safety (BRC), International Featured
Standards (IFS), Food and International Organisation
for Standardisation of Quality and Food Safety
management systems (ISO 9001 and FSSC 22000).
TWE’s quality systems have a robust raw material
approval process to ensure that finished product
adheres to relevant regulatory requirements and
product quality is continually improved. This also
identifies the presence of any allergens that are
traced throughout the production process to ensure
that wines containing these materials are
appropriately labelled.
32 — TREASURY WINE ESTATES ANNUAL REPORT 2017
DIVERSITY
AND INCLUSION
TWE is committed to
creating a high-performance
culture, attracting and
retaining the best possible
talent, as well as creating
an inclusive environment
where people from diverse
backgrounds can fulfil
their potential.
This commitment also serves to broaden the Company’s
collective knowledge and give TWE a competitive edge.
It helps the Company to understand and connect
more effectively with its customers, communities
and consumers.
The Board has committed to reviewing and assessing
progress against TWE’s diversity and inclusion
objectives annually. To that end, the Company
is pleased to report progress made in F17, together
with its F18 measurable objectives.
The Company’s Diversity and Inclusion Policy can
be found at the Company’s website: w w w.tweglobal.com.
F17 objectives and initiatives
The following diversity objectives were set by the Board
for F17. Recommendation 1.5 of the ASX Corporate
Governance Principles and Recommendations states
that a company’s board or board committee is to set the
measurable objectives for achieving gender diversity.
Increase gender diversity in leadership
• Continue the journey towards achieving an
increase in females in leadership roles to 38%
within three years;
• At least one qualified woman on shortlists1
for 80% of leadership roles; and
• Launch a Women in Wine hub in Asia.
Embrace our commitment to sustainable
flexible work practices
• Ensure senior and mid-level leaders complete
flexible work practices and inclusion training.
Develop inclusive leaders
• A total of 75% of senior leaders meet or exceed
expectations on Inclusive Leadership.
Executive Leadership Team diversity objectives
The Chief Executive Officer (CEO) and all Executive
Leadership Team (ELT) members had a diversity
Key Performance Objective (KPO) to deliver the above
objectives in F17.
In an effort to achieve the objectives, various actions
were undertaken throughout F17:
• Launch of the TWEforShe global program to
support women across our business in unlocking
their potential, and creating a truly balanced and
high-performing culture at TWE;
• The third global Mary Penfold Leadership Award
for Outstanding Female Leadership was awarded;
• Gender pay equity review recommendations were
implemented through the annual remuneration
review process; and
• The Leading Inclusively program was launched
to drive a more inclusive, supportive and
collaborative culture.
1. Shortlists for externally placed roles.
TREASURY WINE ESTATES ANNUAL REPORT 2017 — 33
DIVERSITY AND INCLUSION (CONTINUED)
F17 progress
The following outcomes were recorded against the
objectives for the reporting period:
• Increased female representation in leadership roles,
up from 35.9% to 37.3%;
• In externally placed leadership roles, 78.3% included
a suitably qualified female candidate at shortlist;
• TWEforShe, replacing Women in Wine,
was launched globally;
• Flexible work practices and inclusion training
was rolled out to all America’s senior and mid-level
leaders to ensure completion by our global senior
and mid-level leader population; and
• 99% of employees agreed that senior leaders met
or exceeded expectations on Inclusive Leadership.
The ELT continued to operate as the Diversity
Council in F17 to focus their efforts on setting
appropriate goals and targets, monitoring
progress and driving action.
Progress with the Company’s diversity and inclusion
agenda has improved across all three focus areas
of gender diversity in leadership, flexibility and
inclusive leadership. The following initiatives have
been identified to maintain momentum in diversity
and inclusion in F18:
• Drive the momentum in TWEforShe, including the
rollout of the ‘She Leads’ program and TWEforShe
‘On the Job’ program;
• Launch of global Employee Value Proposition that
promotes inclusion and gender diversity;
• Implementation of a toolkit to support employees
who take parental leave;
• Continuation of the Mary Penfold Award for
outstanding female leadership;
• Further Inclusive Leadership training
and reinforcement; and
• Run another annual 360 degree survey to again
measure senior leaders’ inclusive leadership.
34 — TREASURY WINE ESTATES ANNUAL REPORT 2017
F18 objectives
As is the case in nurturing TWE’s premium wines,
investment and time yield great results. F17 has
continued momentum and in F18 the Company will
continue to invest in core areas of diversity and
inclusive leadership through the following objectives
to deliver sustainable improvement:
Increase diversity in leadership
• Continue the journey towards achieving an increase
in females in leadership roles to 38% by 2020; and
• Continued rollout of TWEforShe program globally.
Develop inclusive leaders
• 75% of senior leaders meet or exceed expectations
on Inclusive Leadership.
Executive Leadership Team diversity objectives
The CEO and all ELT members have a diversity
KPO to deliver the above objectives in F18.
Organisational gender profile
The Company makes the following diversity
disclosures in relation to Recommendation 1.5
of the ASX Corporate Governance Principles
and Recommendations:
RECOMMENDATION 1.5 REQUIREMENT
Proportion of
women in the
whole organisation
Proportion of
women in senior
executive1 positions
within the Group
Proportion of
women on the Board
of the Company
As at 30 June 2017, 39.1% of the
Group’s employees were women.
As at 30 June 2017, 22% of the
senior executive positions within
the Group were held by women.
As at 30 June 2017, 22% of the
Company’s Board of Directors
(including executive directors)
were women.
The Board is committed to
ensuring that it is comprised
of individuals with appropriate
skills, experience and diversity
to develop and support the
Company’s strategic aims.
The Board has also set an
aspirational target to achieve
30% female representation
by 2018 as vacancies and
circumstances allow.
Further details are set out
in the Corporate Governance
section of the Annual Report.
1. For the purposes of this disclosure, the Company has defined
‘senior executive’ as the Chief Executive Officer and his/her
direct reports. To note, using the TWE definition of leader,
37.3% of roles were held by women as at 30 June 2017.
BOARD OF DIRECTORS
Left to right: Paul Rayner, Michael Clarke, Lyndsey Cattermole, Ed Chan, Michael Cheek
Paul Rayner BEc, MAdmin, FAICD
Chairman
Member of the Board since May 2011
and Chairman of the Board and the
Nominations Committee since
1 September 2012.
Mr Rayner is an independent Director
and an Australian resident.
He brings to the Board extensive
international experience in markets
relevant to Treasury Wine Estates
including Europe, North America,
Asia, as well as Australia. He has
worked in the fields of finance, corporate
transactions and general management
in the consumer goods, manufacturing
and resource industries. His last role
as an executive was as Finance Director
of British American Tobacco plc, based
in London, from January 2002 to 2008.
Mr Rayner is also a director of Qantas
Airways Limited (since July 2008,
where he also serves as Chairman
of the Remuneration Committee),
Boral Limited (since September 2008,
where he also serves as Chairman
of the Audit Committee) and Murdoch
Childrens Research Institute (since
December 2014, where he also serves
as Chairman of the Audit, Finance
and Risk Committee).
Mr Rayner was a director of Centrica
Plc, a UK listed company, from
September 2004 until December 2014.
Michael Clarke CA, B.Com
Managing Director and
Chief Executive Officer
Member of the Board since March 2014.
Ed Chan BA/Ec, MS
Non-executive Director
Member of the Board since
September 2012.
Mr Clarke has dual Irish/South African
citizenship and is an Australian resident.
Mr Chan is an independent
Director and a Hong Kong resident.
He has held senior executive roles at
Kraft Foods, where he was President
of the Company’s European business
and sat on the global operating board,
The Coca-Cola Company and Reebok
International. He was Chief Executive
Officer of the UK publicly listed company
Premier Foods Plc, where he led a
significant turnaround of the business.
Mr Clarke was a director of Quiksilver
Inc. from April 2013 to February 2016
and a director of Wolseley plc from
March 2011 until March 2014.
Lyndsey Cattermole AM, B.Sc., FACS
Non-executive Director
Member of the Board since February
2011 and a member of the Audit and
Risk Committee.
Mrs Cattermole is an independent
Director and an Australian resident.
She has extensive information
technology and telecommunications
experience. She is a former executive
director of Aspect Computing Pty Ltd,
Kaz Group Limited, and a former
director of PaperlinX Limited (from
December 2010 to September 2012).
She has also held a number of significant
appointments to government, hospital
and research boards and committees.
Mrs Cattermole is a director of
Tatts Group Limited (since May 2005),
Pact Group Holdings Limited (since
November 2013), The Florey Institute
of Neuroscience & Mental Health
(since May 2016) and Hexigo Pty Ltd.
Mrs Cattermole was a director of Foster’s
Group Limited from October 1999 until
May 2011.
He is currently Vice Chairman of
Charoen Pokphand Group (since January
2012) and a director of Hong Kong-listed
CP Lotus (since April 2012), Hong
Kong-listed LINK REIT (since February
2016) and Yum China Holdings, Inc
(since October 2016). From 2006 to 2011,
Mr Chan was the President and Chief
Executive Officer of Wal-Mart China.
He has also held senior positions with
Dairy Farm including his last position
as North Asia Regional Director, as well
as leading the Bertelsmann Music Group
business in Greater China. Mr Chan
began his career as a consultant with
McKinsey & Co working in both
Hong Kong and the US.
Michael Cheek B.BA (Hons)
Non-executive Director
Member of the Board since September
2012 and a member of the Human
Resources Committee.
Mr Cheek is an independent Director
and an American resident.
He has more than 25 years of experience
in the alcohol beverages industry in
senior executive positions, including
14 years of leadership in the US
wine industry.
He has held prior roles as Chairman
of Finlandia Vodka Worldwide for
the Brown-Forman Corporation and
also as a non-executive director for
Glenmorangie. His career spans over
10 years with Brown-Forman in
executive roles including President,
Global Spirits Group and President,
North American Spirits. Mr Cheek
also spent over nine years with The
Coca-Cola Company in senior positions
in both The Wine Spectrum and
in Coca-Cola USA.
Mr Cheek is the Chairman of Nelson’s
Green Brier Distillery, a non-executive
director of Jose Cuervo and a member
of the Board of Advisers of privately
owned Conecuh Investors, LLC.
TREASURY WINE ESTATES ANNUAL REPORT 2017 — 35
BOARD OF DIRECTORS (CONTINUED)
Left to right: Warwick Every-Burns, Peter Hearl, Garry Hounsell, Lauri Shanahan
Warwick Every-Burns AMP,
Harvard University (Advanced
Management Program)
Non-executive Director
Member of the Board since May 2011,
Chairman of the Human Resources
Committee and a member of the
Nominations Committee.
Mr Every-Burns is an independent
Director and an Australian resident.
He was Chief Executive Officer of
Treasury Wine Estates on an interim
basis from 23 September 2013 until
30 March 2014.
Mr Every-Burns previously worked
for more than 30 years in the consumer
packaged goods sector. Most recently,
he was President of International
Business and a member of the Worldwide
Executive Committee of The Clorox
Company, a NYSE-listed, S&P 500
business with a market capitalisation
of circa US$17 billion. He was based
at The Clorox Company’s headquarters
in the US for more than five years.
Mr Every-Burns began his career at
Unilever; is a former Managing Director
of Glad Products of Australia and
New Zealand and was formerly on
the Advisory Council of the Frontier
Strategy Group.
Mr Every-Burns is a director of
The a2 Milk Company Limited
(since August 2016).
Peter Hearl B Com (with merit),
MAIM, FAICD, Member – AMA
Non-executive Director
Member of the Board since February
2012 and a member of the Audit and
Risk Committee.
Lauri Shanahan JD Business Law,
BS Finance
Non-executive Director
Member of the Board since November
2016 and a member of the Human
Resources Committee.
Mr Hearl is an independent Director
and an Australian resident.
Ms Shanahan is an independent
Director and an American resident.
Ms Shanahan has extensive retail,
consumer brand, e-commerce and
governance experience. Ms Shanahan
has held senior executive positions,
including as Chief Administrative
Officer, Chief Legal Officer and
Corporate Secretary with The Gap Inc,
where she was involved in leading the
company’s domestic and international
expansion. Ms Shanahan also founded
the consulting practice Maroon Peak
Advisors of which she is a Principal.
Ms Shanahan is currently Chair
of fashion retailer Charlotte Russe
Holding Inc and a director of Cedar
Fair Entertainment Company and
Deckers Outdoor Corporation.
He is the former global Chief Operating
and Development Officer for YUM
Brands, the world’s largest restaurant
company, and he oversaw much of the
growth in the KFC, Taco Bell and Pizza
Hut businesses around the world.
He is currently a director of Telstra
Corporation Limited (since August 2014,
where he also serves as Chairman of the
Remuneration Committee). He is also a
director of Santos Ltd (since May 2016).
Mr Hearl was a director of Goodman
Fielder Limited from 2010 until
March 2015.
Garry Hounsell BBus (Acc),
FCA, FAICD
Non-executive Director
Member of the Board since September
2012, Chairman of the Audit and
Risk Committee and a member of the
Nominations Committee.
Mr Hounsell is an independent Director
and an Australian resident.
He is currently Chairman of Helloworld
Limited (since October 2016) and
Spotless Group Limited (since February
2017 and a director since March 2014,
retiring effective 31 August 2017).
Mr Hounsell is also a director of
Dulux Group Limited (since July 2010,
where he also serves as Chairman
of the Audit and Risk Committee)
and a director of the Commonwealth
Superannuation Corporation Limited
(since July 2016).
Mr Hounsell is a former Chairman
of PanAust Limited (from July 2008
to August 2015) and former director
of both Qantas Airways Limited
(from January 2005 to February 2015)
and Integral Diagnostics Limited
(from October 2015 to March 2017),
and has held senior positions at
Ernst & Young and Arthur Andersen.
36 — TREASURY WINE ESTATES ANNUAL REPORT 2017
CORPORATE GOVERNANCE
The Board believes good corporate governance
and transparency in corporate reporting is
a fundamental part of the Group’s culture and
business practices.
During the year, the Board continued to govern
the Company through the execution of its strategy
of transitioning from an agricultural to a brand-led,
high-performance organisation. Key governance
focuses of the Board for the year included:
• Continued commitment to the governance of workplace
health and safety performance and developing a
culture of leadership on safety across the business,
with the introduction and roll-out of a new safety
framework, Destination Zero Harm, and related
programs designed to empower the Company’s leaders
to engage their teams and lead safety performance;
• Overseeing and supporting changes to the Executive
Leadership Team announced during the year, including
leveraging the Company’s global talent pool in order
to drive the next phase of growth for the Company as
well as deliver further value creation for shareholders;
• Oversight of management’s commitment to a culture
of high-performance and ethical conduct to lead
the global business and setting remuneration policy
to attract and retain the best possible talent and
reward high performance;
• A comprehensive review of the Group’s Risk Profile
and Risk Management Framework to further enhance
the assessment and management of current and
emerging material business risks facing the Group;
• Overseeing management’s integration of the Diageo
Wine business and the reset of the US brand portfolio,
including Diageo Wine brands;
• Maintaining effective governance to facilitate high
quality processes and internal controls as the business
continues to grow;
• Input into and approval of management’s development
of corporate strategy, including setting performance
objectives and approving the annual financial budget;
and monitoring corporate performance and the
implementation of strategy and policy; and
• Overseeing the induction of new independent
non-executive director, Lauri Shanahan,
who joined the Board on 1 November 2016.
INTRODUCTION
The Board is committed to conducting the Company’s
business ethically and in accordance with high
standards of corporate governance. This is essential
for the long-term performance and sustainability of the
Company, and to protect the interests of its stakeholders.
To this end, the Board regularly reviews the charters
and key policies that underpin the Company’s corporate
governance practices to ensure they remain appropriate,
reflect high standards of governance and meet regulatory
requirements. The Company’s governance practices
complied with the third edition of the ASX Corporate
Governance Principles and Recommendations for the
financial year.
This Corporate Governance section provides an overview
of the Board’s operations, details on the governance
framework and the key governance focuses of the Board
for the financial year.
The full Corporate Governance Statement, which
outlines the key aspects of the Company’s corporate
governance framework and practices for the year
ended 30 June 2017, together with the Appendix 4G
Key to Disclosures – Corporate Governance Council
Principles and Recommendations and key governance
documents, including the constitution, charters
and policies, are available on our website at
w w w.tweglobal.com/investors/corporate-governance
BOARD OF DIRECTORS
Members of the Board
The Board continues to comprise a majority of
independent directors with all directors, other than
the Chief Executive Officer (CEO), being independent
non-executive directors.
There was one change to the Board during the year,
with Lauri Shanahan being appointed as an additional
non-executive director with effect from 1 November 2016.
Ms Shanahan is a US citizen with extensive retail,
consumer brand, e-commerce and governance experience.
The Board considers that its members during the year
collectively possessed the appropriate competencies
and attributes that enable the Board to discharge its
responsibilities effectively, contribute to the Company’s
strategic direction and oversee the delivery of its
corporate objectives.
Areas of competence and skills of the Board of directors
are summarised in Table 1 overleaf.
In August 2017, the Company announced two further
changes to the Board, with the retirement of Peter Hearl
with effect from 31 August 2017 and the retirement of
Lyndsey Cattermole with effect from the end of the 2017
Annual General Meeting on 18 October 2017.
TREASURY WINE ESTATES ANNUAL REPORT 2017 — 37
CORPORATE GOVERNANCE (CONTINUED)
In light of these changes, the Board is engaged in active succession planning. The Board is committed to ensuring
it is comprised of individuals with appropriate skills, experience and diversity to develop and support the Company’s
strategic aims, having regard to its five strategic imperatives. The Board utilises a skills matrix to assist in assessing
the mix of skills, experience and diversity on the Board, and to identify areas of focus to supplement the mix of skills
and experience as part of Board succession planning.
The Board recognises the importance of cultural, geographic and gender diversity amongst its members which is
reflected in the current representation on the Board. The Board has set an aspirational target to achieve 30% female
representation on the Board by 2018 as vacancies and circumstances allow.
Table 1 – Areas of Competence and Skills – Board of Directors
Strategic Imperatives
PEOPLE
BRANDS
MARKETS
PARTNERS
MODEL
Build a high-
performing
organisation
Directors’ Skills
AREA
Industry
Leadership
and Strategy
Finance and
Business
Transform
our portfolio
Win in priority
markets
Develop
long-term
relationships
Optimise our
capital base
COMPETENCE/EXPERIENCE
Wine, alcohol beverages, consumer and brand marketing, supply chain, distribution, route-to-market.
Listed company experience, business strategy development, business and executive leadership,
CEO experience, mergers and acquisitions.
Financial acumen, financial accounting, audit, corporate finance, capital management, e-commerce
and technology.
Governance
and Regulatory
Corporate governance, legal, regulatory, health, safety and environment, government relations,
risk management, human resources and remuneration.
International
International business experience, international industry experience.
The Board is committed to ensuring its performance
is enhanced through its director induction and ongoing
education program. The Board’s ongoing education
calendar incorporated site visits throughout the financial
year to a number of the Company’s operational facilities.
Presentations were given by management and external
experts concerning developments impacting, or likely
to impact, the business.
Independence
The Board, having reviewed the position and associations
of all non-executive directors currently in office, considers
that all non-executive directors are independent.
During the year, non-executive directors met
periodically without the presence of management
to have the opportunity to discuss key matters
amongst the non-executive directors.
Role of the Board
The responsibilities of the Board as set out in the
Board Charter include:
Strategic guidance and effective oversight of management
• Providing input and approval of the Group’s corporate
strategy, performance objectives and business plans
as developed by management;
• Appointing the CEO and managing succession
planning, as well as overseeing changes to the Executive
Leadership Team, with a view to ensuring senior
management has the appropriate resources to enable
implementation of the Company’s strategic initiatives;
• Directing, monitoring and assessing the Group’s
performance against strategic and business
plans; and
• Approving and monitoring capital management,
including major capital expenditure, acquisitions
and divestments.
Risk assessment and management
• Reviewing and evaluating the integrity of the
Group’s systems of risk management, legal
compliance, and internal compliance and control.
Obligations to stakeholders
• Monitoring and reviewing processes aimed
at ensuring integrity of financial and other
reporting; and
• Monitoring compliance with adopted strategies,
procedures and standards, including corporate
governance standards.
38 — TREASURY WINE ESTATES ANNUAL REPORT 2017
Board Committees
Three standing Board Committees have been established to assist the Board in fulfilling its responsibilities.
Board of Directors
Audit and Risk Committee
Nominations Committee
Human Resources Committee
Oversees: Financial reporting,
risk management and internal
controls, external and internal
audit, capital management
and compliance.
Key focuses for F17 included:
• Updating the Group’s Risk
Profile and Risk Management
Framework, including revisions
to risk assessments and the
inclusion of new emerging risks
• Reviewing the scope of the
annual internal and external
audit programs and overseeing
the conduct and coordination
of those programs as well
as the performance and
independence of the internal
and external auditors
• Reviewing significant
accounting, financial reporting
related matters raised by
management and the auditors
• Reviewing workplace health,
safety and environmental
matters across the Group
• Monitoring the Group’s
insurance renewal program
• Reviewing and recommending
to the Board the approval of
the F17 full-year and interim
financial reports
Oversees: Board composition,
performance of the Board,
Board Committees and
individual directors, as well
as succession planning.
Key focuses for F17 included:
• Assessing the competencies
of the directors to ensure
the appropriate range of
skills and expertise amongst
Board members
• Board succession planning
• Reviewing and recommending
changes to the membership
of Board Committees
• Overseeing, and receiving
reports from the Chairman
of the Board concerning,
the reviews of performance
of individual directors,
the Board as a whole
and the operation of the
Board Committees
• Assessing the independence
of directors and suitability
of director candidates
for re-election
Oversees: Training, development
and succession planning for senior
management, Company’s diversity
policy, evaluation of senior executive
performance and remuneration
and non-executive directors’ fees.
Key focuses for F17 included:
• Reviewing the level of
annual fixed remuneration
and incentive compensation
arrangements for the
CEO and senior executives,
including reviewing
remuneration arrangements
for senior executive changes
during the year
• Reviewing the attainment
of STI and LTI performance
conditions by the CEO and
senior executives
• Overseeing the implementation
of initiatives to facilitate
the Group’s diversity and
inclusion objectives
• Reviewing the base fee and
committee fees payable
to non-executive directors
• Reviewing the Company’s F17
Remuneration Report, including
the design and implementation
of a streamlined format
Governance policies
The Company has a number of governance policies
which guide how it does business, including:
• Code of Conduct, which recognises that the Company’s
reputation is one of its most valuable assets, founded
on the ethical behaviour of the people who represent
the Company;
• Whistleblower Policy to promote and support the
Company’s culture of honest and ethical behaviour;
• Potential Conflicts of Interest Policy, guiding the
disclosure and management of potential conflicts
of interest;
• Share Trading Policy, which states that all directors
and employees are prohibited from trading in the
Company’s shares if they are in possession of ‘inside
information’ and provides for windows and blackout
periods in which employees can or cannot trade in the
Company’s shares; and
• Risk Management Policy, as well as a Risk
Management Framework, which provide guidance
and direction on the management of risk in the
Company and states the Company’s commitment
to the effective management of risk to reduce
uncertainty in the Company’s business outcomes.
TREASURY WINE ESTATES ANNUAL REPORT 2017 — 39
DIRECTORS’ REPORT
The directors of Treasury Wine Estates Limited
(the Company) present their report together with the
financial report for the Company and its controlled
entities (the Group) for the financial year ended
30 June 2017 and the auditor’s report.
The sections referred to below form part of, and are
to be read in conjunction with, this Directors’ Report:
• Operating and Financial Review (OFR)
• Board of Directors
• Remuneration Report
PRINCIPAL ACTIVITIES
The principal activities of the Group during the financial
year were viticulture and winemaking, and the marketing,
sale and distribution of wine.
STATUTORY INFORMATION
The Group’s consolidated financial statements have been
presented for the financial year ended 30 June 2017 and
appear on pages 63 to 111.
DIRECTORS
The directors of the Company during the financial year
and up to the date of this report are:
DATE OF APPOINTMENT
Lyndsey Cattermole AM
Warwick Every-Burns
Paul Rayner
Peter Hearl
Garry Hounsell
Ed Chan
Michael Cheek
Michael Clarke
(Chief Executive Officer)
Lauri Shanahan
10 February 2011
9 May 2011
9 May 2011
17 February 2012
1 September 2012
1 September 2012
1 September 2012
31 March 2014
1 November 2016
Particulars of the current directors’ qualifications,
experience and Board Committee responsibilities
are detailed in the Board of Directors section of this
Annual Report.
DIRECTORS’ MEETINGS
The number of Board and Board Committee meetings and the number of meetings attended by each of the directors
of the Company during the financial year are listed below:
Meetings held during 2017 financial year
BOARD MEETINGS1
AUDIT AND RISK
COMMITTEE1
HUMAN
RESOURCES
COMMITTEE1
NOMINATIONS
COMMITTEE1
ADDITIONAL
MEETINGS2
HELD ATTENDED HELD ATTENDED HELD ATTENDED HELD ATTENDED
ATTENDED
Paul Rayner
Lyndsey Cattermole3
Warwick Every-Burns
Peter Hearl
Garry Hounsell
Ed Chan
Michael Cheek
Michael Clarke
Lauri Shanahan4
10
10
10
10
10
10
10
10
7
10
10
10
95
96
96
10
10
7
–
5
–
5
5
–
–
–
–
–
5
–
45
5
–
–
–
–
–
2
4
–
–
–
4
–
2
–
2
4
–
–
–
4
–
2
2
–
2
–
2
–
–
–
–
2
–
2
–
2
–
–
–
–
7
1
1
–
6
–
–
5
–
1. Shows the number of meetings held and attended by each director during the period that the director was a member of the Board or
Committee. Directors who are not members of Board Committees do attend Committee meetings from time to time. The above table
reflects the meeting attendance of directors who are members of the relevant Committee(s).
2. Reflects the number of additional formal meetings attended during the financial year by each director, including Committee meetings
(other than Audit and Risk Committee, Human Resources Committee or Nominations Committee) where any two directors are required
to form a quorum.
3. Mrs Cattermole retired from the Human Resources Committee with effect from 1 January 2017.
4. Ms Shanahan was appointed as a director with effect from 1 November 2016 and joined the Human Resources Committee on 1 January 2017.
5. Mr Hearl was unable to attend these meetings due to an unexpected health event.
6. Mr Hounsell and Mr Chan attended all scheduled Board meetings. This number reflects their absence from one unscheduled Board meeting,
which was due to prior commitments.
40 — TREASURY WINE ESTATES ANNUAL REPORT 2017
Directors’ interests in share capital
The relevant interest of each director in the share
capital of the Company as at the date of this report
is disclosed in the Remuneration Report.
DIVIDENDS
Interim dividend: The Company paid an interim
dividend of 13 cents per ordinary share on 5 April 2017.
The dividend was unfranked.
Final dividend: Since the end of the financial year,
the directors have declared a final dividend of 13 cents
per share, 50% franked and payable on 6 October 2017.
The record date for entitlement to this dividend
is 1 September 2017.
In summary:
Interim dividend paid
on 5 April 2017
Final dividend payable
on 6 October 2017
Total
DIVIDEND PER SHARE
$M
13 cents per share
$96.0
13 cents per share
$96.0
26 cents per share
$192.0
The Company paid shareholders a final dividend
in respect of the 2016 financial year of $88.6 million.
EVENTS SUBSEQUENT TO BALANCE DATE
On 17 August 2017, the Company announced an on-market
share buy-back of up to $300 million, which is expected
to commence in early September 2017.
On 28 August 2017, the Company announced that it
reached an agreement to settle the previously announced
shareholder class action commenced by Brian Jones
(represented by Maurice Blackburn) on 2 July 2014
relating to historical market disclosures that occurred
in 2013. The settlement of the claim, which is subject
to Court approval, was announced to Justice Foster
in Federal Court on 28 August 2017. It is expected that
the Court will consider approval of the settlement
in September or early October 2017. The settlement is
fully insured and will have no impact on the Company’s
financial results, and is without admission of liability.
On 30 August 2017, the Company announced that
non-executive director, Peter Hearl, will retire from the
Board with effect from 31 August 2017 and non-executive
director, Lyndsey Cattermole, will retire from the Board
with effect from the end of the 2017 Annual General
Meeting, which will be held on 18 October 2017.
Other than as disclosed in the financial statements,
the directors are not aware of any other matters or
circumstances that have arisen since the end of the
financial year which have significantly affected
or may significantly affect the operations of the Group,
the results of those operations or the state of affairs
of the Group in subsequent financial years.
CORPORATE RESPONSIBILITY
Matters of environmental and social significance to the
Group are primarily addressed within the Corporate
Responsibility (CR) program. This program is governed
by the Global CR Council, chaired by the Chief Executive
Officer, and comprising senior representatives from
regional and functional areas of the business.
Further detail on the Group’s CR program, strategy,
initiatives and achievements to date are detailed in the
Corporate Responsibility section of this Annual Report.
ENVIRONMENTAL REGULATION
Management of environmental issues is a core
element of the CR program detailed in the Corporate
Responsibility section of this Annual Report, with the
Group subject to a range of licences, permits and internal
policies and procedures governing its operations.
Additionally, the Group’s operations are subject to a
number of regulatory frameworks governing energy and
water consumption, waste generation and greenhouse
gas reporting.
The Group recognises the direct link between effective
management of its environmental impacts and its
business success. To this end, the Group’s environment
policies, procedures and practices are designed to ensure
that the Group maintains focus on resource efficiency
and continuous improvement, and that environmental
laws and permit conditions are complied with. Compliance
with these regulatory and operational programs has
been incorporated into relevant business practices and
processes. The Company monitors its operations through
a Health, Safety and Environment (HSE) Management
System, overlaid with a risk management and
compliance system overseen by the Audit and Risk
Committee. The Global CR Council provides executive
oversight of the Company’s strategic approach to
managing the environmental challenges it faces.
Although the Company’s various operations involve
relatively low inherent environmental risks, matters
of non-compliance are identified from time to time
and are corrected. Where required, the appropriate
regulatory authority is notified.
During the financial year, the Group was not found
to be in breach of any environmental regulations.
Under the compliance system, the Audit and Risk
Committee and the Board receive six-monthly reports
detailing matters involving non-compliance and
potential non-compliance. These reports also detail
the corrective action that has been taken.
TREASURY WINE ESTATES ANNUAL REPORT 2017 — 41
DIRECTORS’ REPORT (CONTINUED)
PROCEEDINGS ON BEHALF OF THE COMPANY
INDEMNITIES AND INSURANCE
There are no proceedings brought or intervened in,
or applications to bring or intervene in proceedings,
on behalf of the Company by a member or other person
entitled to do so under section 237 of the Corporations
Act 2001 (Cth).
NON-AUDIT SERVICES AND AUDITOR
INDEPENDENCE
KPMG is the Company’s auditor, appointed with effect
from 23 October 2013.
The Group may decide to engage the auditor, KPMG,
on assignments additional to their statutory audit duties
where such services are not in conflict with their role
as auditor and their expertise and/or detailed experience
with the Company may allow cost efficiencies for
the work.
The Board has considered the position and, in accordance
with advice received from the Audit and Risk Committee,
is satisfied that the provision of non-audit services
by KPMG is compatible with the general standard of
independence for auditors imposed by the Corporations
Act 2001 (Cth). The Board also notes that:
• All non-audit services have been reviewed by the
Audit and Risk Committee to ensure they do not impact
the actual or perceived impartiality and objectivity of
KPMG and are consistent with the Committee’s rules
of engagement contained in its Charter; and
• None of the services provided by KPMG undermine
the general principles relating to auditor independence
as set out in APES 110 Code of Ethics for
Professional Accountants.
During the financial year, the fees paid or payable
for non-audit services provided by KPMG as the
auditor of the Company and its related practices
totalled $156,887. Amounts paid or payable for audit
and non-audit services are disclosed in note 32
of the Financial Statements.
Rule 40 of the Company’s Constitution provides that the
Company will, to the extent permitted by law, indemnify
directors and officers of Group companies in respect
of any liability, loss, damage, cost or expense incurred
or suffered in or arising out of the conduct of the business
of the Group or in or arising out of the proper performance
of any duty of that director or officer.
Each director of Treasury Wine Estates Limited has
entered into a Deed of Indemnity, Insurance and Access
(Deed) with the Company. Several members of the senior
executive team have also entered into a Deed. No director
or officer of the Company has received a benefit under
an indemnity from the Company during the period ended
30 June 2017 or to the date of this report.
In accordance with the Company’s Constitution and
the Deed, the Company has paid a premium in respect
of an insurance contract that covers directors and
officers of the Group companies against any liability
arising in or out of the conduct of the business of the
Group and the proper performance of any duty of that
director or officer. Due to confidentiality undertakings
of the policy, no further details in respect of the premium
or the policy can be disclosed.
ROUNDING
Treasury Wine Estates Limited is a company of the
kind referred to in ASIC Corporations (Rounding in
Financial/Directors’ Reports) Instrument 2016/19 and,
except where otherwise stated, amounts in the statutory
financial statements forming part of this report have
been rounded off to the nearest one hundred thousand
dollars or to zero where the amount is $50,000 or less.
Dated at Melbourne 30 August 2017.
A copy of the auditor’s independence declaration is set
out on page 43 and forms part of this report.
Paul Rayner
Chairman
Michael Clarke
Chief Executive Officer
42 — TREASURY WINE ESTATES ANNUAL REPORT 2017
AUDITOR’S INDEPENDENCE DECLARATION
Lead Auditor’s Independence Declaration under
Section 307C of the Corporations Act 2001
To the Directors of Treasury Wine Estates Limited
I declare that, to the best of my knowledge and belief, in relation to the audit of Treasury Wine Estates
Limited for the financial year ended 30 June 2017 there have been:
i.
ii.
no contraventions of the auditor independence requirements as set out in the Corporations
Act 2001 in relation to the audit; and
no contraventions of any applicable code of professional conduct in relation to the
audit/review.
KPM_INI_01
KPMG
Paul J McDonald
Partner
Melbourne
30 August 2017
KPMG, an Australian partnership and a member firm of the KPMG
network of independent member firms affiliated with KPMG
International Cooperative (“KPMG International”), a Swiss entity.
Liability limited by a scheme approved under
Professional Standards Legislation.
TREASURY WINE ESTATES ANNUAL REPORT 2017 — 43
F17 REMUNERATION REPORT (AUDITED)
CONTENTS
Executive
remuneration
Non-executive director
remuneration
Other remuneration
information
44 Introduction and key messages
58 Framework and outcomes
59 Remuneration governance
47 Framework
51 Performance and
remuneration outcomes
60 Further information
on remuneration
EXECUTIVE REMUNERATION
Introduction from the Chairman of the Human Resources Committee
Dear Shareholders,
F17 marked the third year of our strategy to transition from an order-taking, agricultural company to a brand-led,
high-performance organisation. Our strong F17 results were delivered sustainably and demonstrate the Company’s
commitment to generating enhanced shareholder value for the long term.
Our F17 results demonstrate continued outstanding execution across all regions and functions. The leadership of
the CEO, the team he has built, the high performance standards, strategic vision and operational transformation
of the Company has delivered three years of outstanding company results and returns to shareholders. Over the last
three years, EBITS has almost tripled, Earnings per Share has increased by 129% and dividends have almost doubled.
In addition, the Company’s Total Shareholder Return performance over the period from July 2014 to June 2017
was at the 98th percentile relative to its peer group. Momentum in our business is accelerating with the Company
delivering its high-teens EBITS margin target in F17; three years ahead of the initial plan of F20.
The Treasury Wine Estates Limited Board is committed to aligning remuneration and executive reward with
organisational structure, company objectives and performance, market practice and shareholder value creation.
The Group’s remuneration practices are designed to attract, motivate and retain the high-calibre talent that
will continue to consistently deliver sustainable results that out-perform the market. In this report you will see
rewards to executives reflect their outstanding contribution to the outperformance of the Company and reflect the
Board’s commitment to retaining the talented management team that is delivering this outstanding performance.
We have worked to streamline and improve our remuneration report this year and I encourage you to read it.
We trust that you will find it relevant and useful in understanding the remuneration policies and practices of the
Group and in better informing your investment decisions.
Yours sincerely,
Warwick Every-Burns
Human Resources Committee Chairman
44 — TREASURY WINE ESTATES ANNUAL REPORT 2017
1. KEY MESSAGES
This report details the F17 remuneration framework and outcomes for the Key Management Personnel (KMP) of
the Group which includes non-executive directors. In this report, ‘executives’ refers to executives identified as KMP
excluding the non-executive directors. It is prepared in accordance with the requirements of the Corporations Act 2001
and all references are to Australian dollars (A$) unless otherwise specified.
(a) Financial highlights for F17
In F17, Treasury Wine Estates Limited (TWE) delivered EBITS of $455.1 million, up 43% on a constant currency
basis and adjusted Earnings per Share (EPS) of 39.8 cents (before material items and SGARA). The Company
also delivered outstanding EBITS margin accretion and reported improved return on capital employed (ROCE),
up 2.3 percentage points to 11.6%.
Our strong financial results reflect our focus on portfolio premiumisation, investment in brand building and in-region
execution, strategic customer and distributor partnerships, enhanced and more efficient routes-to-market and
optimisation of our cost base.
(b) Change to KMP
In May 2017, the Company announced changes to a number of roles and responsibilities within the Company’s Executive
Leadership Team to drive the next phase of growth. The most significant of these was the appointment of Mr Foye
to the role of Chief Operating Officer (COO). In this role, Mr Foye has taken responsibility for all major operating
units across the business, including leading the global sales organisation, delivering on the Company’s key brand and
new product development plans, managing global operations and leveraging strong collaboration between all operating
regions. As a result, the composition of KMP (in addition to non-executive directors) was changed to the following
with a date of effect of 9 May 2017:
• CEO: Michael Clarke;
• CFO: Gunther Burghardt (from 14 February 2017); and
• COO: Robert Foye.
(c) Fixed remuneration
The last two years has seen TWE become a truly global company with significant growth increasing the responsibility
and complexity of executive roles. The executive team has been crucial to the successful turnaround of the Company and
the reward, retention and development of this team has been a key consideration of the Board in F17. This is reflected
in fixed remuneration outcomes for executives.
As a result of this significant growth and increased responsibility, and to improve relativity to market, three executives,
Mr Foye, Mr McPherson and Mr Spooner, received an increase in fixed remuneration effective 1 September 2016.
The average rate of increase was 7.8%. In addition, Mr Foye received an increase in fixed remuneration and benefits
(combined) of 2.9% effective 1 March 2017 reflecting his significant role in Asia and substantial contribution to our
growth as a company, and his expanded Chief Operating Officer responsibilities.
Two executives did not receive an increase: the CEO, Mr Clarke, whose remuneration increased effective 1 March 2016;
and the former CFO, Mr Meehan, who was contractually ineligible for any review of fixed remuneration until
1 September 2017.
(d) Short-term incentives in the year
The Board believes the Group’s successful focus on sustainable earnings growth, cost management and operational
effectiveness significantly enhanced shareholder value in F17. All metrics on the balanced scorecard were over-achieved
by executive KMP. As a result, the Board has determined that the F17 short-term incentive plan (STIP) outcomes are at
maximum for executives. The CEO was paid out at 150% of fixed remuneration due to achievement of stretch performance.
(e) Long-term incentives in the year
The Group’s Total Shareholder Return (TSR) performance was at the 98th percentile relative to its peer group.
This achievement, along with strong growth in EPS, has driven vesting of 100% of the F15 long-term incentive plan
(LTIP) for eligible executives. This vesting outcome for executives mirrors the strong returns delivered to investors
over the plan period. The share price appreciated from $4.923 on 1 July 2014 to $13.160 on 30 June 2017. Over the
three-year plan period investors have enjoyed an increase in the Company’s share price of 167% and Earnings per
Share compound annual growth rate of 31.8% (before material items and SGARA).
TREASURY WINE ESTATES ANNUAL REPORT 2017 — 45
F17 REMUNERATION REPORT (AUDITED) (CONTINUED)
(f) General employee share plan
Two purchases for executives under the Company’s 2016 Share Cellar plan were completed in F17. The 2017
Share Cellar plan was successfully launched in the last quarter of F17 and all executive KMP as at 30 June 2017
are enrolled as participants.
(g) Changes for F18
The Board is committed to rewarding and retaining Mr Clarke as CEO as he continues to deliver outstanding company
results. Mr Clarke has proven to be a talented CEO who can deliver sustained outperformance. He has not only
transformed the Company as evidenced by key financial metrics over the last three years, he has also up-weighted the
depth and quality of management. He has continued to build momentum to drive the Company into the next phase
of growth, to deliver continued financial outperformance and value creation for shareholders.
For F18, the Board, with the assistance of the Human Resources Committee, reviewed and benchmarked the CEO’s
remuneration at the 75th percentile of the ASX50. This is in line with the Company’s remuneration policy to pay above
market for top talent and outperformance. From 1 September 2017, Mr Clarke’s fixed remuneration will be revised
for only the second time since he joined the Company in March 2014 and will increase from $2,200,000 to $2,500,000
per annum.
F18 LTIP
The following targets for the F18 LTIP have been set.
ROCE growth will be measured against the F17 ROCE base of 11.6% and vest according to the following schedule.
ROCE baseline
11.6% (F17)
% ROCE growth
ROCE result
Less than 2.1%
2.1% to 2.8%
At or above 2.8%
Less than 13.7%
13.7% to 14.4%
At or above 14.4%
% of Performance Rights
subject to ROCE measure
which vest
0%
35–100%
100%
As we continuously review our remuneration framework, the Company’s success means retention and reward of our
leaders is more critical than ever. Strongly performing organisations starting from a ‘higher base’ than the peer group find
it challenging to continually achieve relative Total Shareholder Return (TSR). The Company’s outperformance in recent
times makes relative TSR an increasingly tough hurdle. In an era where executives are driving significant company
growth, the Board is concerned the unintended consequence is their incentive to stay may be diluted. As a consequence
the vesting schedule has been slightly modified for the F18 LTIP design. To reflect the steeper hurdle relative TSR
achievement represents, the straight-line vesting of previous plans has been modified to accelerated vesting between
the 50th and 60th percentile and a flatter vesting between the 60th and 75th percentile.
Relative TSR
Vesting Schedule
Relative TSR Ranking
Below 50th percentile
50th to 60th percentile
60th to 75th percentile
At or above 75th percentile
% of Performance Rights
subject to relative TSR
measure which vest
0%
35–70%
70–100%
100%
The peer group for relative TSR comprises companies within the S&P/ASX 200 Index, excluding companies from the
energy, metal and mining, real estate and finance sectors.
Offers of performance rights under the F18 LTIP are subject to the satisfaction of performance conditions, as outlined
above, over the performance period from 1 July 2017 to 30 June 2020. The F18 LTIP offers of performance rights to KMP
are as follows:
• Mr Clarke: opportunity of 300% of fixed remuneration at maximum, 105% at threshold, 0% below threshold.
• Mr Burghardt: opportunity of 150% of fixed remuneration at maximum, 52.5% at threshold, 0% below threshold.
• Mr Foye: opportunity of 162% of fixed remuneration at maximum, 56.7% at threshold, 0% below threshold.
The Company will seek shareholder approval at the 2017 Annual General Meeting for the F18 LTIP offer to the CEO.
46 — TREASURY WINE ESTATES ANNUAL REPORT 2017
2. FRAMEWORK
(a) Detail on executives
The following executives were KMP in F17.
EXECUTIVES (AS AT 30 JUNE 2017)
Current KMP
MA Clarke
GG Burghardt
RB Foye
Former KMP
AGJ McPherson
RJC Spooner
NA Meehan
Chief Executive Officer
Chief Financial Officer
Chief Operations Officer
Full Year
From 14 February 20171
Full Year
Managing Director ANZ
President North America
Chief Financial Officer
Until 8 May 20172
Until 8 May 20173
Until 13 February 20171
1. Mr Burghardt was appointed as Chief Financial Officer on 14 February 2017. Mr Meehan ceased to be Chief Financial Officer,
and KMP, on 14 February 2017 and remained with the Group to undertake a transition to Mr Burghardt. He subsequently left the
Group on 14 March 2017. Remuneration outcomes have been provided for the period Mr Meehan was KMP, as well as the transition
period through to 14 March 2017.
2. Mr McPherson ceased to be KMP on 9 May 2017 as a result of the organisation restructure announced on that date.
3. Mr Spooner ceased to be KMP on 9 May 2017 as a result of the organisation restructure announced on that date.
(b) Total remuneration
Executive total remuneration (TR) comprises fixed remuneration (FR) and variable (‘at-risk’) remuneration in the
form of STIP and LTIP. The remuneration structure in F17 for current executives as at 30 June 2017 is as follows:
CEO
Executives
Percentage of TR
FR 37%
STIP (at target) 37%
LTIP (at threshold) 26%
Percentage of TR
FR 46%
STIP (at target) 30%
LTIP (at threshold) 24%
CEO
Executives
Percentage of TR
FR 22%
STIP (at maximum) 33%
LTIP (at maximum) 45%
Percentage of TR
FR 27%
STIP (at maximum) 32%
LTIP (at maximum) 41%
(c) Fixed remuneration
For Australian-based executives this is total fixed remuneration inclusive of superannuation and other benefits.
For executives based outside Australia references to fixed remuneration refer to base salary.
Fixed remuneration is reviewed annually and set at a market competitive level reflective of the executive’s skills,
experience, responsibilities, complexity of role, location and performance. The Group looks at industry and general
market peer groups, with key criteria applied such as market capitalisation and revenue. Both Australian and global
peers are considered, reflecting the complexity of roles in a global business and the Group’s international lens on talent.
Peer groups are reviewed regularly for accuracy and alignment with the nature of the business.
TREASURY WINE ESTATES ANNUAL REPORT 2017 — 47
F17 REMUNERATION REPORT (AUDITED) (CONTINUED)
(d) Short-term incentive plan (STIP)
The STIP drives an annual at-risk component of remuneration and links business results for the fiscal year, executive
performance and reward using a balanced scorecard approach.
The STIP performance measures are consistent across the Company. They are designed to support the financial health
of the organisation and shareholder return in terms of dividends and share price – this year and over time. The metrics
are aimed at reinforcing Company culture as their achievement requires focus, belief, trust and collaboration. Hurdles
and stretch targets are set for each metric and the sustainability of growth and returns is non-negotiable.
STIP MEASURES
REMUNERATION AND PERFORMANCE LINK
Global/Regional
EBITS
The EBITS metric focuses and rewards executives for the overall health and profit-producing ability
of the Company/Region. It is designed to reward executives for levels of earnings that will benefit
shareholders and provide capital that can be further invested by the Company for future growth.
Cost optimisation
The cost optimisation metric aims to reward executives for the efficient deployment of overheads.
It encourages executives to innovate, and where warranted to invest, to remove waste, achieve
economies of scale and simplify.
Diageo benefits
The acquisition of the Diageo wine division in January 2016 was underpinned by an attractive
business case that will deliver commercial and strategic benefits to the Group. This metric rewards
executives for delivering on that business case and working together to realise the full value of
this acquisition.
Forecast accuracy
The forecast accuracy metric aims to reward executives for optimising efficiency across the company,
from supply in our vineyards to demand from our customers. Delivery of this metric drives executives
to collaborate to achieve balance in the supply chain over time, managing investment, product
quality and inventory levels.
Working capital
The working capital metric focuses and rewards executives on cash conversion i.e. their efficiency
in turning the Company’s products into cash.
ROCE
The return on capital employed metric (ROCE) rewards executives for the efficient deployment
of capital across the business. Focusing investment only where return hurdles will be met and the
prioritising of investment to initiatives with higher yields ensures financial returns for investors
are maximised.
The table below provides further detail including the weighting of metrics and size of opportunity.
STIP PERFORMANCE MEASURES
STIP OPPORTUNITY
STIP DETAIL
The annual STIP opportunity
is at the absolute discretion of the
Board. In F17, the following STIP
opportunities applied:
Target:
Executives 66.5% of FR
CEO 100% of FR
Maximum:
Executives 120% of FR
CEO 150% of FR
The individual performance
multiplier is derived from the
level of achievement of individual
KPOs and demonstration of the
Company’s growth behaviours.
This multiplier can drive a result
of 0 to 1.5 as per the diagram
below (except for the CEO for
whom the individual multiplier
on STIP is capped at 1.25).
An annual award of cash and/or equity
may be received based on Group, team
and individual financial, strategic and
operational performance, measured by
way of a Balanced Scorecard and agreed
individual key performance objectives
(including company behaviours).
One-third of the STIP award for executives
is deferred into Restricted Equity in
the Company. Of this Restricted Equity,
one-half (i.e. one-sixth of the overall
STIP award) will vest after one year,
and one-half (i.e. one-sixth of the overall
STIP award) will vest after two years.
The remaining two-thirds of the STIP
award is delivered in cash at the end
of the one-year performance period.
Balanced Scorecard
CEO & Group Executives:
50% global EBITS
10% cost optimisation
10% Diageo benefits
10% forecast accuracy
10% working capital
10% ROCE
Regional Executives:
30% global EBITS
30% regional EBITS
10% Diageo benefits
10% forecast accuracy
10% working capital
10% ROCE
Each measure is assessed after
the financial year-end against
the full-year audited financial
report on a constant currency
basis to determine the overall
level of performance achieved.
The balanced scorecard can
drive a multiplier outcome
between 0 and 1.2 as per the
diagram below.
48 — TREASURY WINE ESTATES ANNUAL REPORT 2017
The overall structure of the F17 STIP is provided below.
STIP Award $
Fixed
remuneration $
STIP
opportunity %
Balanced
Scorecard
multiplier
(0 to 1.2)
Individual
multiplier
(0 to 1.5)*
Fixed – based on
level of skill and
responsibility.
Fixed – based on
role and level of role
within the Company.
Variable – based on
Balanced Scorecard
performance.
Variable – based
on individual
performance.
* 0 to 1.25 for the CEO
Restricted Equity
Cash
1/3
2/3
(e) Long-term incentive plan (LTIP)
The LTIP is designed to reward executives for long-term performance and value creation for shareholders. Offers are
made to select executives and senior leaders as nominated by the CEO and approved by the Board. The performance
period for the F17 LTIP is 1 July 2016 to 30 June 2019 and this plan has the following features.
LTIP PERFORMANCE MEASURES
LTIP OPPORTUNITY
LTIP DETAIL
Relative Total Shareholder Return (TSR)
(50% weighting)
Relative to S&P/ASX 200 Index, excluding
companies from the energy, metal and mining,
real estate and finance sectors.
Return on Capital Employed (ROCE)
Growth (50% weighting)
Calculated as EBITS divided by average
capital employed (at constant currency).
Capital employed is the sum of average
net assets (excluding SGARA) and average
net debt.
LTIP awards are at the
absolute discretion of the
Board. In F17, the following
awards applied:
Award:
Executives 150% of FR
CEO 200% of FR
LTIP awards are delivered in
the form of performance rights.
The number of rights allocated
is based on face value using the
90-day VWAP preceding 1 July
at the start of the performance
period. If the performance
conditions are met at the end
of the three-year performance
period, rights vest and executives
receive a share for each vested
performance right.
No amount is payable on the
vesting of the performance rights
or on their conversion into shares.
Any rights that do not vest lapse.
F17 LTIP Vesting schedule
Relative TSR
Vesting Schedule
Relative TSR Ranking
Below 50th percentile
50th to 75th percentile
At or above 75th percentile
% of Performance Rights
subject to relative TSR
measure which vest
0%
35–100%
100%
ROCE Vesting
Schedule
Baseline 9.3%
(F16)
% ROCE growth
ROCE result
Less than 1.8%
1.8% to 2.4%
At or above 2.4%
Less than 11.1%
11.1% to 11.7%
At or above 11.7%
% of Performance Rights
subject to ROCE measure
which vest
0%
35–100%
100%
TREASURY WINE ESTATES ANNUAL REPORT 2017 — 49
F17 REMUNERATION REPORT (AUDITED) (CONTINUED)
(f) General employee share plan (Share Cellar)
The Group has a broad-based employee share plan, Share Cellar, which operates by way of after-tax employee payroll
contributions (minimum $500 to maximum $3,000) to acquire shares in the Company. For every two purchased
shares that a participant holds at the vesting date (approximately two years) the Company delivers one matched share.
An equivalent cash plan operates in countries where, due to local laws, it is not practicable to offer shares to employees.
Shares were acquired in F17 under the 2016 Share Cellar offer, and a subsequent offer to participate in the 2017
Share Cellar plan was made during the year. The first share purchases in the 2017 Share Cellar plan will occur
in September 2017 (F18).
In the 2017 Share Cellar plan employees are able to make after-tax payroll contributions up to a new of maximum
$5,000 to acquire shares in the Company.
(g) Restricted equity plan (REP)
In addition to the LTIP, the Group operates the REP which allows the Board to make offers of Restricted Shares
or Deferred Share Rights for the purpose of attracting, retaining and motivating key employees within the Group.
There were no awards granted to, or vested for, executives under the REP in F17.
(h) Other key information
Board discretion and clawback
The Board will exercise discretion to ensure any cash or equity outcomes are appropriately aligned to the Company’s
underlying performance and the interests of shareholders. The Board maintains the discretion to clawback any
unvested equity should a clawback event arise, such as (but not limited to) material misstatement, which was not
apparent at the time the equity was awarded.
Leavers
The Board has absolute discretion as to whether participants retain their unvested equity upon ceasing employment,
taking into account the circumstances of their departure. In general if an executive ceases employment with the
Group they forfeit their entitlement to cash or equity under the Company’s incentive plans.
In exceptional circumstances (such as redundancy, death or disability), the Board, in its discretion, may determine
that a portion of the award is retained having regard to performance and time lapsed to date of cessation (or that
an equivalent cash payment be made). Retained awards will generally be subject to post-employment vesting,
where the participant must continue to hold the relevant Performance Rights until the end of the performance period,
and be subject to the performance conditions under the plan.
Dividends and voting rights
Plan participants granted restricted shares are entitled to dividends and voting rights. Participants holding
time-restricted rights or performance rights are entitled to neither dividends nor voting rights.
Change of control
In the event of a change of control, unless the Board determines otherwise, the transfer restrictions imposed on
the shares will be lifted, but only in so far as to permit the executive to participate in the change of control event.
Any shares that do not participate in the change of control event will continue to be subject to restrictions until
the end of the applicable restriction period.
Hedging
To ensure the variable components of the Group’s remuneration structure remain ‘at-risk’, employees may not hedge
against the risk inherent in arrangements such as the LTIP or any other equity-based incentive plans. Awards will
be forfeited if the policy is breached.
50 — TREASURY WINE ESTATES ANNUAL REPORT 2017
3. PERFORMANCE AND REMUNERATION OUTCOMES
(a) Overview of company performance
EBITS growth and EBITS margin accretion, together with improved asset returns are underpinned by the Company’s
focus on portfolio premiumisation, brand building investment, strategic customer and distributor partnerships, more
efficient routes-to-market and a cost conscious culture. F17 results demonstrate the benefits of this strategy delivering
EBITS of $455.1 million, up 43% year on year on a constant currency basis and improved profitability with strong
EBITS margin accretion and significantly enhanced ROCE.
The table below summarises the Company’s financial performance over the last five financial years.
Table 3.1: Overview of Company performance
FINANCIAL YEAR ENDED 30 JUNE
EBITS performance (A$ million)
Earnings per share (cents)2
Dividends paid per share (cents)
Franked (%)
Closing share price ($ at 30 June)
Return on capital employed (%)
2013
216.2
21.9
13
50
5.72
6.8
2014
184.6
17.4
13
0
4.92
5.9
2015
225.1
21.9
13
0
4.90
6.8
20161
334.2
30.5
16
0
9.23
9.3
2017
455.1
39.8
253
0
13.16
11.6
1. F16 ROCE, EPS and EBITS has been restated in accordance with revised accounting standards. See Note 33 of the Financial Statements.
2. Before material items, SGARA and tax consolidation benefit.
3. The 2017 dividend of 25 cents is comprised of the final dividend in F16 of 12 cents paid on 7 October 2016 and the interim F17 dividend
of 13 cents paid on 5 April 2017. For the final F17 dividend see Note 6 of the Financial Statements.
The following graph shows movement in the Company share price against movement in the ASX200 over the last
five years.
350%
300%
250%
300%
150%
100%
50%
0%
Ju n –2012
TWE
ASX200
D ec–2012
Ju n –2013
D ec–2013
Ju n –2014
D ec–2014
Ju n –2015
D ec–2015
Ju ne–2016
D ec–2016
Ju n –2017
(b) Fixed remuneration outcomes
Market benchmarking and a merit review are conducted annually with any changes effective from 1 September.
In F17:
• Mr Burghardt was appointed CFO on 14 February 2017. His fixed remuneration was US$475,000 effective from
this date.
• Three executives, Mr Foye, Mr McPherson and Mr Spooner, received an increase in fixed remuneration effective
1 September 2016. The average rate of increase was 7.8%.
• In addition, Mr Foye received an increase in fixed remuneration and benefits (combined) of 2.9% effective 1 March 2017
reflecting his significant role in Asia and substantial contribution to our growth as a company, and his expanded Chief
Operating Officer responsibilities. His fixed remuneration increased by 13.6% and his benefits decreased by 11.9%.
Two executives did not receive an increase:
• The CEO, Mr Clarke, whose remuneration increased effective 1 March 2016; and
• The former CFO, Mr Meehan, who was contractually ineligible for any review of fixed remuneration until
1 September 2017.
TREASURY WINE ESTATES ANNUAL REPORT 2017 — 51
F17 REMUNERATION REPORT (AUDITED) (CONTINUED)
(c) Short-term incentive outcomes
Short-term incentives are assessed by achievement against each executive’s Balanced Scorecard and specific personal
objectives. Actual results for the Balanced Scorecard are provided below.
The F17 STIP scorecard is heavily weighted to financial metrics and the primary driver is EBITS. STIP outcomes for
executives reflects the financial outperformance of the Company with particularly strong results in Asia, Australia and
New Zealand. EBITS results were more variable in the Americas region but this was countered by the over-achievement
achieved in all other regions. The Company’s strong focus on cost, operational efficiency and ROCE resulted in stretch
achievement on the related metrics in the STIP scorecards. This high level of performance is reflected in the STIP
results and the level of payout.
F17 STIP
SCORECARD
RESULT
CEO
CFO
COO
THRESHOLD
TARGET
STRETCH WEIGHT PAYMENT WEIGHT PAYMENT WEIGHT PAYMENT
Payment multiplier
0.5
1
1.2
Financial goals
Global EBITS
Regional EBITS
Cost optimisation
Diageo benefits
Strategic goals
Forecast accuracy
Working capital
ROCE
Total
= result achieved
50%
60%
50%
60%
10%
10%
12%
12%
10%
10%
12%
12%
30%
30%
36%
36%
10%
12%
10%
10%
10%
100%
12%
12%
12%
120%
10%
10%
10%
100%
12%
12%
12%
120%
10%
10%
10%
100%
12%
12%
12%
120%
The table below sets out short-term incentive outcomes for each executive. The cash component of F17 STIP awards
will be paid in September 2017. The Restricted Equity will also be allocated during September 2017.
Table 3.2: F17 STIP outcomes1
FR2 FOR STIP
OPPORTUNITY
($)
STIP
OPPORTUNITY
AT TARGET
(% OF FR)
(%)
STIP
OPPORTUNITY
AT TARGET
($)
STIP
AWARDED
($)
TOTAL STIP
AWARDED
(% OF FR)
(%)
CASH
($)
RESTRICTED
EQUITY
($)
TOTAL STIP
OPPORTUNITY
FORFEITED
(% OF FR)
(%)
2,200,000
762,488
236,393
100
66.5
66.5
2,200,000 3,300,000
912,698
235,802
507,055
157,201
150.0 2,200,000
608,465
119.7
157,201
99.8
1,100,000
304,233
78,601
0
0
0
EXECUTIVE
MA Clarke
RB Foye
GG Burghardt3
1. Reports only executives who were KMP at 30 June 2017.
2. FR is salary as of 1 September 2016. Where changes have occurred after 1 September, FR is pro-rated based on calendar days in the
financial year.
3. Mr Burghardt’s FR for STIP opportunity and actual payment is pro-rated reflecting the period he was KMP from 14 February 2017.
52 — TREASURY WINE ESTATES ANNUAL REPORT 2017
d) Long-term incentive awards and outcomes
LTIP awarded during the year
Performance rights were allocated to executives under the F17 LTIP after the 2016 Annual General Meeting and are
subject to a three-year performance period. Any vesting is subject to two hurdles (detailed on page 49). The performance
rights have no exercise price and the minimum total value of the grant is zero. The maximum value is the number
of awards granted multiplied by the share price at vesting.
Table 3.3: F17 LTIP Performance Rights
EXECUTIVE
GRANT DATE
VESTING DATE
Current
(as at 30 June 2017)
MA Clarke
GG Burghardt3
RB Foye
Former
AGJ McPherson
NA Meehan4
RJC Spooner
5 December 2016
5 December 2016
5 December 2016
30 June 2019
30 June 2019
30 June 2019
5 December 2016
5 December 2016
5 December 2016
30 June 2019
30 June 2019
30 June 2019
NUMBER OF
AWARDS
GRANTED
FACE VALUE
AT GRANT
DATE ($)1
FAIR VALUE
AT GRANT
DATE ($)2
452,205
54,398
103,478
69,372
123,329
113,825
4,400,000
529,298
1,006,851
3,676,427
442,256
841,276
674,996
1,200,004
1,107,529
563,994
1,002,665
925,397
1. The value of LTIP awards granted to executives was the face value of the volume weighted average price (VWAP) of Company shares sold
on the Australian Securities Exchange over the 90-day period up to and including 30 June 2016 ($9.7301 per share).
2. The fair value ($) in the table above is calculated using the valuation method detailed in note 21 of the Financial Statements.
3. The number of awards shown for Mr Burghardt represent the full F17 LTIP grant which were granted prior to him becoming KMP.
4. The number of awards shown for Mr Meehan represents the full F17 LTIP grant. However, upon ceasing employment with the Company,
Mr Meehan was only entitled to retain a pro-rata portion of his F17 LTIP award (28,859 units), reflecting the expired portion of the
performance period, and subject to post-employment vesting.
LTIP vesting
The F15 LTIP vested at the end of the year. The vesting schedule for the F15 LTIP is provided below.
Relative TSR
vesting schedule
Relative TSR ranking
EPS growth
vesting schedule
Below 50th percentile
50th to 75th percentile
At or above 75th percentile
% EPS CAGR
Less than 7.5%
7.5% to 15%
15% or more
% of Performance Rights subject
to relative TSR measure which vest
0%
35–100%
100%
% of Performance Rights subject
to EPS measure which vest
0%
35–100%
100%
Performance over the three-year period ended 30 June 2017. The Group’s relative TSR performance was at the
98th percentile of the peer group and so 100% vesting for this metric was achieved. The Earnings per Share compound
annual growth rate (EPS CAGR) for the performance period was 31.8% resulting in 100% vesting. The combined vesting
outcome for the F15 LTIP plan was 100%.
TREASURY WINE ESTATES ANNUAL REPORT 2017 — 53
F17 REMUNERATION REPORT (AUDITED) (CONTINUED)
The F15 LTIP vesting outcome by executive is provided below.
Table 3.4: Vesting/lapse of F15 LTIP1
NUMBER OF
PERFORMANCE
RIGHTS
GRANTED1
REVISED
NUMBER OF
AWARDS2
VALUE AT
GRANT3
($)
NUMBER OF
ORDINARY
SHARES
ISSUED ON
VESTING OF
RIGHTS
VALUE
VESTED4
($)
NUMBER OF
RIGHTS
WHICH
LAPSED5
VALUE
LAPSED4
($)
764,216
64,059
194,585
788,418
66,087
200,747
3,507,672
294,021
893,123
788,418
66,087
200,747
10,761,906
902,088
2,740,197
118,678
73,050
122,436
75,363
544,718
335,290
122,436
75,363
1,671,251
1,028,705
–
–
–
–
–
–
–
–
–
–
EXECUTIVE
Current
(as at 30 June 2017)
MA Clarke
GG Burghardt
RB Foye
Former
AGJ McPherson
RJC Spooner
1. Represents the original number of Performance Rights granted under the F15 LTIP. Mr Burghardt’s F15 LTIP was awarded before
he became KMP.
2. The revised number of awards reflects the updated number of Performance Rights allocated to employed executives to keep them whole
after the renouncable rights issue announced by the Company on 14 October 2015. The additional number of units granted was determined
in accordance with the methodology provided to the Company by an independent third-party advisory firm.
3. ‘Value at grant’ is calculated based on $4.449 which was the volume weighted average price of Company shares sold on the ASX over
the 90-day period up to and including 30 June 2014. This was the price used to calculate the number of performance rights granted
under the F15 LTIP as previously disclosed by the Company.
4. The ‘value vested’ and ‘value lapsed’ are calculated based on the closing share price on the vesting date of 21 August 2017, being $13.65.
The value for each executive largely reflects the $9.201 share price differential between the unit value at grant, being $4.449, and the
share price on vesting date of $13.65.
5. The number of rights which lapsed as they did not vest.
(e) General employee share plan (Share Cellar)
All executives are participants of the 2016 Share Cellar plan, except for Mr Foye. Mr Foye is based in China, and
therefore is a participant in the Cash Plan. Share purchases occurred in November 2016 and March 2017 with the
relevant matching rights allocated to executives in F17. Subject to the executive continuing to meet the plan rules,
these matching rights will convert to matching shares when the plan vests.
Table 3.5: Acquisitions in F17 for the 2016 Share Cellar Plan
ACQUISITION
DATE
ACQUISITION
PRICE
($)
NUMBER
OF SHARES
ACQUIRED
NUMBER
OF RIGHTS
ALLOCATED
VALUE
OF RIGHTS
ALLOCATED
($)1
EXECUTIVE
MECHANISM
Current
(as at 30 June 2017)
MA Clarke
Shares
15 November 2016
9 March 2017
10 March 2017
GG Burghardt
RB Foye
Shares
Phantom Shares 15 November 2016
Former
AGJ McPherson
NA Meehan
RJC Spooner
Shares
Shares
Shares
9 March 2017
15 November 2016
9 March 2017
15 November 2016
15 November 2016
9 March 2017
10.49
12.08
12.51
10.49
12.08
10.49
12.08
10.49
10.49
12.08
166
104
55
162
98
166
104
166
155
92
83
52
27
81
49
83
52
83
77
46
871
628
338
850
592
871
628
871
808
556
1. The value of rights allocated at grant date is calculated based on the acquisition price.
During F17, the 2017 Share Cellar plan was launched with deductions commencing in April 2017. Actual share
acquisitions under the plan will be completed in F18, commencing September 2017.
Enrolment rates for the third year of Share Cellar were at an all-time high and the Company now has a third of all
eligible employees participating in the Share Cellar Plan and investing their post-tax pay to become shareholders.
All executives as at 30 June 2017 are enrolled in the 2017 Share Cellar plan.
54 — TREASURY WINE ESTATES ANNUAL REPORT 2017
(f) Summary of awards held by executives
The table below sets out the number and movement of awards held by executives. Restricted Shares are generally issued
under the REP and STIP (Restricted Equity). Performance Rights are issued under the LTIP. Deferred Share Rights
are issued under the REP or represent the right to matching shares under the 2015 and 2016 Share Cellar Plans.
Table 3.6: Sum of awards held by executives
NAME
Current
(as at 30 June 2017)
MA Clarke
GG Burghardt1
RB Foye
Former
AGJ McPherson2
NA Meehan3
RJC Spooner4
Grand Total
HELD AT
THE START
OF THE
REPORTING
PERIOD
GRANTED/
ACQUIRED
DURING
REPORTING
PERIOD
RECEIVED
UPON
VESTING/
EXERCISING
HELD
AT THE
END OF THE
REPORTING
PERIOD
OTHER
CHANGE5
Restricted Shares
Performance Rights
Deferred Share Rights
Restricted Shares
Performance Rights
Deferred Share Rights
Restricted Shares
Performance Rights
Deferred Share Rights
Restricted Shares
Performance Rights
Deferred Share Rights
Restricted Shares
Performance Rights
Deferred Share Rights
Restricted Shares
Performance Rights
Deferred Share Rights
124,906
1,448,177
182
–
164,727
35,107
27,111
386,052
–
14,694
231,586
49,018
–
135,832
–
12,393
264,557
31,564
2,925,906
77,050
452,205
–
–
–
–
13,958
103,478
–
11,887
69,372
–
11,274
123,329
–
16,044
113,825
–
992,422
–
(788,418)
–
–
(66,087)
–
–
(200,747)
–
–
(122,436)
–
–
–
–
–
(75,363)
–
(1,253,051)
–
–
135
–
–
27
–
–
–
(26,581)
(178,522)
(49,018)
(11,274)
(259,161)
–
(28,437)
(303,019)
(31,564)
(887,414)
201,956
1,111,964
317
–
98,640
35,134
41,069
288,783
–
–
–
–
–
–
–
–
–
–
1,777,863
1. Mr Burghardt’s holding at the start of the period reflects his holding on 14 February 2017 when he became KMP.
2. Ceased as KMP on 9 May 2017.
3. Ceased as KMP on 14 February 2017.
4. Ceased as KMP on 9 May 2017.
5. Represents balance adjustments for executives joining or leaving KMP, grants made in relation to Share Cellar and any units forfeited in F17.
TREASURY WINE ESTATES ANNUAL REPORT 2017 — 55
F17 REMUNERATION REPORT (AUDITED) (CONTINUED)
(g) Remuneration of executives
The table overleaf (Table 3.7) provides details of remuneration for the CEO and executives for F17, calculated in
accordance with statutory accounting requirements. All amounts are in Australian dollars and relate only to the
portion of the year in which the person occupied the KMP role.
Table 3.7: Remuneration of executives
EXECUTIVE
YEAR
SALARY/
FEES1
($)
LEAVE
ACCRUAL2
($)
NON-MONETARY
BENEFITS3
($)
TOTAL CASH
INCENTIVE4
($)
OTHER
PAYMENTS5
($)
SUPERANNUATION/
TOTAL AMORTISATION
PENSION
($)
VALUE OF LTIP6
($)
OTHER
EQUITY7
($)
TOTAL
($)
PERFORMANCE
RELATED8
TERMINATION
BENEFITS9
(%)
($)
SHORT-TERM BENEFITS
SHARE-BASED PAYMENTS
19,616
19,308
7,438
–
14,377
12,441
16,773
19,308
13,788
11,263
16,773
26,665
88,765
88,985
3,358,940
1,631,316
111,059
–
900,546
508,251
472,316
244,768
691,787
79,855
633,809
334,973
6,168,457
2,799,163
753,439
255,000
15,433
–
173,747
51,509
139,770
88,257
123,782
31,615
8,853,451
5,897,546
563,984
–
3,240,396
2,403,754
1,334,457
1,063,078
1,478,278
857,469
178,079
2,238,824
98,659
1,747,369
1,384,250
17,709,390
525,040
11,969,216
71
60
50
52
40
67
56
63
42
57
57
–
–
–
–
–
–
–
–
–
–
–
–
400,000
400,000
Current
(as at 30 June 2017)
MA Clarke
KMP full year
GG Burghardt10
From 14 February 2017
RB Foye10,11,12
KMP full year
Former
AGJ McPherson13
Until 8 May 2017
NA Meehan9,14,15
Until 13 February 2017
RJC Spooner10,13
Until 8 May 2017
Total
F17
F16
F17
F16
F17
F16
F17
F16
F17
F16
F17
F16
F17
F16
2,180,384
1,847,359
209,013
–
746,858
538,341
395,498
418,192
548,533
455,404
653,085
563,086
4,733,371
3,822,382
154,944
56,520
16,003
–
(12,000)
5,835
18,009
11,658
(17,676)
29,142
17,481
10,074
176,761
113,229
116,595
158,043
16,066
–
808,403
814,556
13,556
21,695
6,125
4,367
226,200
116,353
1,186,945
1,115,014
2,200,000
1,680,000
157,201
–
608,465
408,583
278,535
259,200
111,939
245,823
462,517
569,625
3,818,657
3,163,231
69,533
250,000
31,771
–
–
64,238
–
–
–
–
50,880
27,934
152,184
342,172
1. Represents cash salary, including any salary sacrificed items such as superannuation and novated motor vehicles.
2. Includes any net changes in the balance of annual leave and long service leave (i.e. leave entitlements that accrued during the year
but were not used), and any leave paid out upon termination of employment.
3. Includes the provision of car parking, insurances, product allocations, executive medical checks, the value of entertainment, taxation
expenses, international relocation and expatriate costs and Fringe Benefits Tax on all benefits, where applicable.
4. Represents cash payments made under the F17 STIP, excluding the Restricted Equity portion which will be allocated in September 2017.
Mr Spooner was eligible for and received an extra incentive of A$85,479 gross linked to the achievement of cost-out savings in the Supply
Chain Network P&L from the date of his commencement in the company on 2 February 2015 to end of F17. The cost-out saving in the P&L
was achieved and the incentive was paid. The extra incentive amount reported for Mr Spooner represents time served as KMP from 1 July
2016 to 8 May 2017.
5. Includes allowances such as, but not limited to, relocation, car and repatriation.
6. Includes a proportion of the fair value of all outstanding LTIP offers at the start of the year, or which were offered during the year.
Under Australian Accounting Standards, the fair value is determined as at the offer date and is apportioned on a straight-line basis across
the expected vesting period after adjusting at each reporting date for an estimation of the number of shares that will ultimately vest.
7. Includes a proportion of the fair value of all Restricted Shares and Deferred Share Rights held under outstanding Restricted Equity Plans at
the start of the year. F15 and F16 STIP Restricted Equity were outstanding at the end of F17. Restricted Equity granted under the F17 STIP
is expected to be allocated in September 2017, and the estimated fair value has been included for reporting purposes. Under Australian
Accounting Standards, the fair value is determined as at the offer date and is apportioned on a straight-line basis across the expected vesting
period after adjusting at each reporting date for an estimation of the number of shares that will ultimately vest.
56 — TREASURY WINE ESTATES ANNUAL REPORT 2017
(g) Remuneration of executives
The table overleaf (Table 3.7) provides details of remuneration for the CEO and executives for F17, calculated in
accordance with statutory accounting requirements. All amounts are in Australian dollars and relate only to the
portion of the year in which the person occupied the KMP role.
Table 3.7: Remuneration of executives
Current
(as at 30 June 2017)
MA Clarke
KMP full year
GG Burghardt10
From 14 February 2017
RB Foye10,11,12
KMP full year
Former
AGJ McPherson13
Until 8 May 2017
NA Meehan9,14,15
Until 13 February 2017
RJC Spooner10,13
Until 8 May 2017
Total
F17
F16
F17
F16
F17
F16
F17
F16
F17
F16
F17
F16
F17
F16
2,180,384
1,847,359
209,013
–
746,858
538,341
395,498
418,192
548,533
455,404
653,085
563,086
4,733,371
3,822,382
154,944
56,520
16,003
–
(12,000)
5,835
18,009
11,658
(17,676)
29,142
17,481
10,074
176,761
113,229
116,595
158,043
16,066
–
808,403
814,556
13,556
21,695
6,125
4,367
226,200
116,353
1,186,945
1,115,014
2,200,000
1,680,000
157,201
–
608,465
408,583
278,535
259,200
111,939
245,823
462,517
569,625
3,818,657
3,163,231
69,533
250,000
31,771
64,238
–
–
–
–
–
–
50,880
27,934
152,184
342,172
EXECUTIVE
YEAR
SALARY/
FEES1
($)
LEAVE
ACCRUAL2
NON-MONETARY
BENEFITS3
TOTAL CASH
INCENTIVE4
OTHER
PAYMENTS5
($)
($)
($)
($)
SUPERANNUATION/
PENSION
($)
TOTAL AMORTISATION
VALUE OF LTIP6
($)
OTHER
EQUITY7
($)
TOTAL
($)
PERFORMANCE
RELATED8
(%)
TERMINATION
BENEFITS9
($)
SHORT-TERM BENEFITS
SHARE-BASED PAYMENTS
19,616
19,308
7,438
–
14,377
12,441
16,773
19,308
13,788
11,263
16,773
26,665
88,765
88,985
3,358,940
1,631,316
111,059
–
900,546
508,251
472,316
244,768
691,787
79,855
633,809
334,973
6,168,457
2,799,163
753,439
255,000
15,433
–
173,747
51,509
139,770
88,257
123,782
31,615
178,079
98,659
1,384,250
525,040
8,853,451
5,897,546
563,984
–
3,240,396
2,403,754
1,334,457
1,063,078
1,478,278
857,469
2,238,824
1,747,369
17,709,390
11,969,216
71
60
50
52
40
67
56
63
42
57
57
–
–
–
–
–
–
–
–
400,000
–
–
–
400,000
–
1. Represents cash salary, including any salary sacrificed items such as superannuation and novated motor vehicles.
8. Represents the sum of incentive and Performance Rights/Restricted Equity as a percentage of total remuneration, excluding
2. Includes any net changes in the balance of annual leave and long service leave (i.e. leave entitlements that accrued during the year
termination payments.
but were not used), and any leave paid out upon termination of employment.
3. Includes the provision of car parking, insurances, product allocations, executive medical checks, the value of entertainment, taxation
expenses, international relocation and expatriate costs and Fringe Benefits Tax on all benefits, where applicable.
9. Termination payments made to Mr Meehan were in accordance with his contract terms.
10. Mr Burghardt, Mr Foye and Mr Spooner are remunerated in US dollars. Amounts reported are converted to Australian dollars
at average A$:US$ exchange rate for F17 of 0.7542.
4. Represents cash payments made under the F17 STIP, excluding the Restricted Equity portion which will be allocated in September 2017.
11. Mr Foye’s remuneration mix was adjusted on 1 March 2017 from Fixed Remuneration of US$550,000 and long-term assignment
Mr Spooner was eligible for and received an extra incentive of A$85,479 gross linked to the achievement of cost-out savings in the Supply
Chain Network P&L from the date of his commencement in the company on 2 February 2015 to end of F17. The cost-out saving in the P&L
was achieved and the incentive was paid. The extra incentive amount reported for Mr Spooner represents time served as KMP from 1 July
2016 to 8 May 2017.
5. Includes allowances such as, but not limited to, relocation, car and repatriation.
6. Includes a proportion of the fair value of all outstanding LTIP offers at the start of the year, or which were offered during the year.
Under Australian Accounting Standards, the fair value is determined as at the offer date and is apportioned on a straight-line basis across
the expected vesting period after adjusting at each reporting date for an estimation of the number of shares that will ultimately vest.
7. Includes a proportion of the fair value of all Restricted Shares and Deferred Share Rights held under outstanding Restricted Equity Plans at
the start of the year. F15 and F16 STIP Restricted Equity were outstanding at the end of F17. Restricted Equity granted under the F17 STIP
is expected to be allocated in September 2017, and the estimated fair value has been included for reporting purposes. Under Australian
Accounting Standards, the fair value is determined as at the offer date and is apportioned on a straight-line basis across the expected vesting
period after adjusting at each reporting date for an estimation of the number of shares that will ultimately vest.
benefits of US$397,100 to Fixed Remuneration of US$625,000 and long-term assignment benefits of US$350,000.
12. Mr Foye’s tax equalisation benefits represents the difference between the hypothetical taxes deducted from Mr Foye’s US salary
and the tax actually paid in China which is borne by TWE. Mr Foye’s F16 non-monetary benefits has been updated to reflect this
calculation approach.
13. Amounts reported for Mr McPherson and Mr Spooner for KMP period, from 1 July 2016 to 8 May 2017.
14. Amounts reported for Mr Meehan for KMP period, to 13 February 2017, and post-KMP transition period, through to 14 March 2017.
15. Mr Meehan exited the business on 14 March 2017 and forfeited a portion of his F17 LTIP award. The remaining portion of his F17
LTIP award, along with his full F17 STIP REP award, are subject to post-employment vesting. Under Australian Accounting Standards,
the accumulated reserve is reversed upon cessation of employment to the extent forfeited.
TREASURY WINE ESTATES ANNUAL REPORT 2017 — 57
F17 REMUNERATION REPORT (AUDITED) (CONTINUED)
NON-EXECUTIVE DIRECTOR REMUNERATION
4. FRAMEWORK AND OUTCOMES
This section of the report refers to the following non-executive directors.
NAME
POSITION
DATES
Non-executive directors
Current
PA Rayner
ML Cattermole
EYC Chan
MV Cheek
WL Every-Burns
PR Hearl
GA Hounsell
LM Shanahan
Chairman
Non-executive director
Non-executive director
Non-executive director
Non-executive director
Non-executive director
Non-executive director
Non-executive director
Full year
Full year
Full year
Full year
Full year
Full year
Full year
From 1 November 2016
(a) Fee pool
The current maximum aggregate fee pool of $2,500,000 per annum (inclusive of superannuation) was approved
by shareholders at the 2016 Annual General Meeting.
(b) Non-executive director fees
The level of non-executive directors’ fees takes into account the risks and responsibilities of the role, the global reach
and complexity of the business; director skills and experience; and market benchmark data (provided by independent
external consultants).
Chairman and non-executive director base fees increased during F17, effective 1 April 2017, for the second time since
May 2011. Committee fees remain unchanged. The increases were informed by input from the Committee’s independent
remuneration adviser and awarded to remain competitive in the market, noting the increasing global operations,
scale and complexity of the Group.
Table 4.1: F17 Non-executive director fees
BOARD/COMMITTEE
Board base fee
Audit and Risk Committee
Human Resources Committee
Nominations Committee
CHAIRMAN
FEE ($)
MEMBER
FEE ($)
495,0001
40,000
40,000
10,0003
180,0002
20,000
20,000
5,000
The above fees were effective from 1 April 2017 and are inclusive of superannuation.
1. The Chairman fee was increased from $440,000 per annum to $495,000 per annum, effective 1 April 2017.
2. The non-executive director base fee was increased from $160,000 per annum to $180,000 per annum, effective 1 April 2017.
3. Currently, the Chairman of the Board is also the Chairman of the Nominations Committee, thereby not receiving any additional
fees for this role.
In addition to the above fees, non-executive directors receive a wine allowance. In order to maintain independence,
non-executive directors do not participate in the Company’s incentive plans and they do not receive retirement benefits
other than the superannuation contributions disclosed in this report.
Currently, overseas-based directors are also entitled to a travel allowance to compensate for travel undertaken in their
duties. This is in addition to any business-related expenses that may be incurred in carrying out their duties. It has
previously been agreed that the travel allowance will cease at the end of F18. Travel costs are not included in base fees
but are paid to non-executive directors as appropriate so that it is a targeted spend for the business to compensate for
actual travel taken during the year.
Table 4.2: F17 Non-executive director travel allowances
TRAVEL TIME
TRAVEL ALLOWANCE
Between 4–12 hours
More than 12 hours
$1,250 each trip
(i.e. generally $2,500 per meeting)
$2,500 each trip
(i.e. generally $5,000 per meeting)
The above allowances are inclusive of superannuation, if applicable.
58 — TREASURY WINE ESTATES ANNUAL REPORT 2017
(c) Non-executive director outcomes
Details of non-executive director remuneration for F17 and F16 are provided below.
Table 4.3: F17 Non-executive director remuneration
NON-EXECUTIVE
DIRECTOR
PA Rayner
ML Cattermole
EYC Chan
MV Cheek
WL Every-Burns
PR Hearl
GA Hounsell
LM Shanahan2
Total
YEAR
FY17
FY16
FY17
FY16
FY17
FY16
FY17
FY16
FY17
FY16
FY17
FY16
FY17
FY16
FY17
FY16
FY17
FY16
FEES
($)
NON-MONETARY
BENEFITS1
($)
TRAVEL
ALLOWANCE
($)
SUPER-
ANNUATION
($)
434,134
383,192
178,082
160,959
159,419
134,815
185,000
153,750
191,781
145,000
168,950
150,685
191,781
166,667
122,077
–
1,631,224
1,295,068
12,856
14,837
6,888
6,888
4,000
4,000
4,000
4,000
6,188
–
6,888
6,888
9,463
6,888
2,000
–
52,283
43,501
–
–
–
–
10,000
10,000
20,000
10,000
–
–
–
–
–
–
15,000
–
45,000
20,000
19,615
19,308
16,918
15,291
5,581
2,685
–
–
18,219
35,000
16,050
14,315
18,219
15,833
–
–
94,602
102,432
TOTAL
($)
466,605
417,337
201,888
183,138
179,000
151,500
209,000
167,750
216,188
180,000
191,888
171,888
219,463
189,388
139,077
–
1,823,109
1,461,001
1. Includes car parking, product allocations, entertainment and Fringe Benefits Tax, where applicable. The amounts for Mr Rayner include
car parking.
2. Ms Shanahan commenced as non-executive director from 1 November 2016.
OTHER REMUNERATION INFORMATION
5. GOVERNANCE
(a) Role of the Human Resources Committee (HRC)
The HRC provides assistance to the Board in relation to such matters as monitoring remuneration principles and
frameworks, providing advice on remuneration matters, making remuneration recommendations for executives,
approving incentive plans, and reviewing and governing remuneration policies. In addition to its remuneration
responsibilities and together with the Board, the HRC’s duties include overseeing talent management, diversity
and leadership development.
The Committee ensures that the Company’s policies and frameworks aid the achievement of the Group’s strategic
objectives, are aligned with market best practice, and fulfil the Board’s responsibility to shareholders.
As outlined in Section 3 of the Corporate Governance Statement disclosed on the Company’s website w w w.tweglobal.com,
the Group has procedures in place for the reporting of any matter that may give rise to a conflict between the interests
of a director and those of the Group. In addition, the Group has adopted a general policy for employees in relation to
the disclosure and management of potential conflicts of interest (see Section 4 of the Corporate Governance Statement
on w w w.tweglobal.com).
(b) Engagement of remuneration advisors
In F17, the Board and HRC engaged 3 degrees consulting as an independent adviser to the HRC. In the financial year,
3 degrees consulting did not provide any remuneration recommendations as defined in the Corporations Act.
TREASURY WINE ESTATES ANNUAL REPORT 2017 — 59
F17 REMUNERATION REPORT (AUDITED) (CONTINUED)
(c) Executive and non-executive director share ownership
Each executive and non-executive director is encouraged to have control over ordinary shares in the Company that
are worth at least the equivalent of one year’s fixed remuneration or base fees. This guideline is expected to be met over
a reasonable period of time (approximately five years). The Group’s variable incentive programs contribute towards
executives meeting this guideline. The Director Share Acquisition Plan (DSAP) allows directors to apply after-tax fees
to the acquisition of the Company’s shares on a periodic basis at the prevailing market rate. The table below sets out
KMP shareholdings.
Table 5.1: KMP shareholdings
F17
Non-executive directors
PA Rayner
ML Cattermole
EYC Chan
MV Cheek
WL Every-Burns
PR Hearl
GA Hounsell
LM Shanahan3
Non-executive director total
F17
Executive
Current (as at 30 June 2017)
MA Clarke
RB Foye
GG Burghardt
Former
AGJ McPherson
NA Meehan
RJC Spooner
Executive total
Grand total
BALANCE
AT START OF
THE YEAR
ACQUIRED
DURING THE
YEAR AS PART
OF DSAP1
OTHER
CHANGES
DURING
THE YEAR2
BALANCE
AT END
OF YEAR
203,068
171,539
39,732
40,998
90,000
45,000
45,334
2,324
637,995
–
2,675
3,568
1,783
–
–
–
–
8,026
25,000
–
–
12,343
–
–
9,166
2,455
48,964
228,068
174,214
43,300
55,124
90,000
45,000
54,500
4,779
694,985
BALANCE
AT START OF
THE YEAR
RECEIVED
UPON VESTING/
EXERCISE4
OTHER
CHANGES
DURING
THE YEAR5
BALANCE
AT END
OF YEAR
17,020
54,000
625
136,528
–
2,018
210,191
848,186
788,418
200,747
66,087
122,436
–
75,363
1,253,051
1,261,077
270
–
55
(258,964)
–
(77,381)
(336,020)
(287,056)
805,708
254,747
66,767
–
–
–
1,127,222
1,822,207
1. Shares acquired by directors using post-tax fees in TWE’s Director Share Acquisition Plan (DSAP).
2. Includes the purchase/sale of ordinary shares during F17.
3. Ms Shanahan’s holding at the start of the period reflects her holding on 1 November 2016 when she became a non-executive director.
4. Includes shares acquired upon vesting of F15 LTIP awards.
5. Includes the purchase/sale of ordinary shares during F17 and balance adjustments for executives joining or leaving KMP.
6. FURTHER INFORMATION
(a) Executive contracts
There is no fixed term for executive contracts. The Company may terminate service agreements immediately for cause,
in which case the executive is not entitled to any payment other than the value of fixed remuneration and accrued leave
entitlements up to the termination date. On resignation all executives are required to give six months’ notice. If the
termination is Company initiated, all executives have termination provisions of six months’ notice by the Company plus
six months’ severance pay.
(b) Other transactions with KMP and their personally related entities
The Group entered into transactions which are insignificant in amount with KMP and their related parties within
normal employee, customer or supplier relationships on terms and conditions no more favourable than those available
in similar arm’s length dealings which include payments of salaries and benefits and purchase of Group products.
Some directors of the Company are also directors of public companies which have transactions with the Group.
The relevant directors do not believe they have the individual capacity to control or significantly influence the financial
policies of those companies. The companies are therefore not considered to be related parties for the purpose of the
disclosure requirements of the Corporations Act 2001.
60 — TREASURY WINE ESTATES ANNUAL REPORT 2017
(c) Prior years’ equity arrangements
This section summarises all outstanding equity arrangements for executives, as reported in previous
Remuneration Reports.
The below equity plans have no exercise price and the minimum total value of the grant is zero. The maximum value
is the number of awards granted multiplied by the share price at vesting.
Table 6.1: Prior years’ restricted equity1
EXECUTIVE
PLAN
MA Clarke
F15 STIP
RB Foye
F16 STIP
(tranche 1)
F16 STIP
(tranche 2)
F16 LTIP
2015 Share
Cellar
2015 Share
Cellar
F15 STIP
F16 STIP
(tranche 1)
F16 STIP
(tranche 2)
F16 LTIP
2015 Share
Cellar
2015 Share
Cellar
GG Burghardt F14 REP
F16 LTIP
2015 Share
Cellar
2015 Share
Cellar
2015 Share
Cellar
2015 Share
Cellar
INSTRUMENT
TYPE
ALLOCATION
DATE
NUMBER
FACE
VALUE AT
ALLOCATION
DATE2,3,4,5
($)
FAIR
VALUE AT
ALLOCATION
DATE6
($)
VESTING
DATE
Restricted
Shares
Restricted
Shares
Restricted
Shares
Performance
Rights
Matched
Rights
Matched
Rights
Restricted
Shares
Restricted
Shares
Restricted
Shares
Performance
Rights
Phantom
Shares
Phantom
Shares
Time
Restricted
Rights
Performance
Rights
Matched
Rights
Matched
Rights
Matched
Rights
Matched
Rights
15 September 2015 124,906
765,000
765,000 14 September 2017
15 September 2016
38,525
419,996
419,996 14 September 2017
15 September 2016
38,525
419,996
419,996 14 September 2018
4 December 2015
659,759
3,507,675
4,591,923
30 June 2018
30 November 2015
4 March 2016
115
67
869
625
869
21 August 2017
625
21 August 2017
23 September 20157
27,111
166,050
166,050 14 September 2017
15 September 2016
6,979
76,084
76,084 14 September 2017
15 September 2016
6,979
76,084
76,084 14 September 2018
4 December 2015
185,305
985,193
1,289,723
30 June 2018
30 November 2015
4 March 2016
115
67
869
625
869
21 August 2017
625
21 August 2017
16 May 2014
34,795
129,368
129,368
21 August 2017
4 December 2015
44,242
235,217
307,924
30 June 2018
15 July 2015
19 October 2015
15 January 2016
29 March 2016
70
50
49
39
375
369
381
372
375
21 August 2017
369
21 August 2017
381
21 August 2017
372
21 August 2017
1. Reports only executives who were KMP at 30 June 2017.
2. The value of STIP Deferral at allocation date is calculated based on the five-day VWAP up to and including the allocation date.
The F15 STIP allocation price was $6.1250 and the F16 STIP allocation price was $10.9019.
3. The value of F16 LTIP awards at allocation date is calculated based on the ninety-day VWAP up to and including 30 June 2015
($5.3166 per share). The vesting schedule is provided in Table 6.2.
4. The value of F14 REP award at allocation date is calculated based on the five-day VWAP up to and including 17 April 2014
($3.7180 per share).
5. The value of matched rights is calculated based on the purchase price of the 2015 Share Cellar shares at each purchase date.
6. This value is calculated using the valuation method detailed in Note 21 of the Financial Statements.
7. Due to regulatory filings required in China prior to the allocation of Restricted Shares, Mr Foye’s allocation under the F15 STIP
REP was delayed.
TREASURY WINE ESTATES ANNUAL REPORT 2017 — 61
F17 REMUNERATION REPORT (AUDITED) (CONTINUED)
Table 6.2: F16 LTIP vesting schedules
Relative TSR
vesting schedule
Relative TSR ranking
Below 50th percentile
50th to 75th percentile
At or above 75th percentile
ROCE growth
vesting schedule
% ROCE growth
ROCE result
Less than 0.6%
0.6% to 1.2%
Greater than 1.2%
Less than 7.4%
7.4% to 8.0%
Greater than 8.0%
(d) Definitions
TERM
DEFINITION
% of Performance Rights
subject to relative TSR
measure which vest
0%
35–100%
100%
% of Performance Rights
subject to ROCE measure
which vest
0%
35–100%
100%
Constant currency An exchange rate that eliminates the effects of exchange rate fluctuations year-on-year.
Earnings per
Share (EPS)
NPAT excluding SGARA and material items, divided by the weighted average number of shares.
Adjusted EPS is used to calculate performance outcomes, meaning that the Board retains the
discretion to adjust EPS to ensure that participants are not penalised or provided with a windfall
gain arising from matters outside of management’s control.
EBITS
Earnings before interest, tax, SGARA and material items.
Key management
personnel (KMP)
Those persons having authority and responsibility for planning, directing and controlling the
major activities of the Company and the Group, directly or indirectly, including any director
(whether executive or otherwise), as listed in the introduction to the Remuneration Report.
Phantom Shares
Units which provide the participant with a right to a receive a cash payment at the vesting date,
whereby the payment is tied to the market value of an equivalent number of TWE shares.
The amount of the payout will increase as the share price rises, and decrease if the share price falls,
but without the participant actually receiving any TWE shares.
Relative Total
Shareholder
Return (TSR)
Restricted Equity
The return on investment of a company relative to a peer group of companies.
Rights or shares granted by TWE that vest upon the satisfaction of certain conditions, such as
continued employment for a period of time or the achievement of particular performance milestones.
The plan participant cannot deal in the equity until it vests and the restriction is lifted.
Return on Capital
Employed (ROCE)
EBITS divided by Capital Employed (at constant currency). Capital Employed is the sum of average
net assets (adjusted for SGARA impact) and average net debt.
SGARA
Self-generating and regenerating assets.
The adjustment to self-generating and regenerating assets (SGARA) is excluded to reflect the fair
value adjustment each financial year which is largely due to environmental conditions not within
the Group’s control.
Total Shareholder
Return (TSR)
Total return on investment of a security, taking into account both capital appreciation and
distributed income that was reinvested.
62 — TREASURY WINE ESTATES ANNUAL REPORT 2017
CONSOLIDATED STATEMENT OF PROFIT OR LOSS
AND OTHER COMPREHENSIVE INCOME
FOR THE YEAR ENDED 30 JUNE 2017
Revenue
Cost of sales
Gross profit
Selling expenses
Marketing expenses
Administration expenses
Other expenses
Profit before tax and finance costs
Finance income
Finance costs
Net finance costs
Profit before tax
Income tax expense
Net profit
Net profit attributable to non-controlling interests
Net profit attributable to members of Treasury Wine Estates Limited
22
Other comprehensive income
Items that may subsequently be reclassified to profit or loss
Cash flow hedges
Tax on cash flow hedges
Exchange difference on translation of foreign operations
Other comprehensive income for the year, net of tax
Total comprehensive income for the year attributable
to members of Treasury Wine Estates Limited
Non-controlling interests
Total comprehensive income for the year
Earnings per share for profit attributable to
the ordinary equity holders of the Company
Basic
Diluted
NOTE
3
2017
$M
2,534.2
(1,568.3)
965.9
20161
$M
2,343.3
(1,517.3)
826.0
(273.6)
(113.9)
(128.8)
(35.3)
414.3
19.9
(47.0)
(27.1)
387.2
(117.3)
269.9
(0.8)
269.1
7.6
(3.1)
(50.8)
(46.3)
222.8
0.8
223.6
(264.8)
(111.3)
(148.4)
(31.1)
270.4
13.6
(34.8)
(21.2)
249.2
(75.8)
173.4
(0.1)
173.3
2.4
(0.8)
28.4
30.0
203.3
0.1
203.4
CENTS
PER SHARE
CENTS1
PER SHARE
7
7
36.5
36.1
24.3
24.0
1. Comparative balances have been restated to reflect the final purchase price accounting for the Diageo acquisition and a change
in accounting standards relating to Agricultural Assets. Refer to note 33 for details.
The consolidated statement of profit or loss and other comprehensive income should be read in conjunction with
the accompanying notes.
TREASURY WINE ESTATES ANNUAL REPORT 2017 — 63
CONSOLIDATED STATEMENT OF FINANCIAL POSITION
AS AT 30 JUNE 2017
Current assets
Cash and cash equivalents
Receivables
Inventories
Assets held for sale
Other current assets
Total current assets
Non-current assets
Inventories
Property, plant and equipment
Agricultural assets
Intangible assets
Deferred tax assets
Other non-current assets
Total non-current assets
Total assets
Current liabilities
Bank overdraft
Trade and other payables
Current tax liabilities
Provisions
Other current liabilities
Total current liabilities
Non-current liabilities
Trade and other payables
Borrowings
Deferred tax liabilities
Other non-current liabilities
Total non-current liabilities
Total liabilities
Net assets
Equity
Contributed equity
Reserves
Retained earnings
Total parent entity interest
Non-controlling interest
Total equity
NOTE
2017
$M
20161
$M
9
9
9
13
9
10
11
12
22
9
9
15
9
17
22
18
20
240.8
606.5
947.9
36.0
4.0
1,835.2
763.9
1,328.5
37.7
1,095.8
208.0
10.2
3,444.1
5,279.3
–
662.5
51.1
61.3
4.4
779.3
57.4
596.4
233.9
3.8
891.5
1,670.8
3,608.5
3,528.6
(23.9)
99.6
3,604.3
4.2
3,608.5
256.1
603.4
895.7
68.2
4.2
1,827.6
678.4
1,347.8
35.8
1,101.5
270.0
25.4
3,458.9
5,286.5
4.0
654.0
18.4
80.1
5.0
761.5
72.3
626.8
245.1
11.6
955.8
1,717.3
3,569.2
3,533.6
17.1
15.1
3,565.8
3.4
3,569.2
1. Comparative balances have been restated to reflect the final purchase price accounting for the Diageo acquisition and a change
in accounting standards relating to Agricultural Assets. Refer to note 33 for details.
The consolidated statement of financial position should be read in conjunction with the accompanying notes.
64 — TREASURY WINE ESTATES ANNUAL REPORT 2017
CONSOLIDATED STATEMENT OF CHANGES IN EQUITY
FOR THE YEAR ENDED 30 JUNE 2017
CONTRIBUTED
EQUITY
$M
RETAINED
EARNINGS
$M
FOREIGN
CURRENCY
TRANSLATION
RESERVE
$M
OTHER
RESERVES
$M
TOTAL
$M
NON-
CONTROLLING
INTERESTS
$M
TOTAL
EQUITY
$M
Balance at 30 June 20151
3,061.3
(47.0)
(29.4)
3.4
2,988.3
3.3
2,991.6
–
28.4
28.4
–
–
–
–
–
–
(1.0)
–
(50.8)
–
1.6
173.3
30.0
0.1
–
173.4
30.0
1.6
203.3
0.1
203.4
14.5
–
14.5
486.5
–
–
(11.1)
(4.5)
(1.4)
–
–
18.1
(111.2)
3,565.8
–
4.5
269.1
(46.3)
–
–
–
–
–
14.5
486.5
(11.1)
(4.5)
–
–
3.4
0.8
–
(111.2)
3,569.2
269.9
(46.3)
(50.8)
4.5
222.8
0.8
223.6
Profit for the year
Total other comprehensive income
Total comprehensive income
for the year
–
–
–
173.3
–
173.3
–
486.5
(11.1)
(4.5)
1.4
–
3,533.6
–
–
–
–
–
–
–
–
(111.2)
15.1
269.1
–
269.1
Transactions with owners
in their capacity as owners
directly in equity
Share based payment expense
Issue of ordinary shares
Transaction costs on issue
of ordinary shares
Purchase of own shares
Vested deferred shares and
share rights
Dividends to owners of the
Company
Balance at 30 June 20161
Profit for the year
Total other comprehensive income
Total comprehensive
income for the year
Transactions with owners
in their capacity as owners
directly in equity
Share based payment expense
Purchase of own shares
Vested deferred shares
and share rights
Dividends to owners
of the Company
Balance at 30 June 2017
–
(18.3)
13.3
–
–
–
–
–
–
18.6
–
18.6
(18.3)
(13.3)
–
–
3,528.6
(184.6)
99.6
–
(51.8)
–
27.9
(184.6)
3,604.3
–
–
–
18.6
(18.3)
–
–
4.2
(184.6)
3,608.5
1. Comparative balances have been restated to reflect the final purchase price accounting for the Diageo acquisition and a change
in accounting standards relating to Agricultural Assets. Refer to note 33 for details.
The consolidated statement of changes in equity should be read in conjunction with the accompanying notes.
TREASURY WINE ESTATES ANNUAL REPORT 2017 — 65
CONSOLIDATED STATEMENT OF CASH FLOWS
FOR THE YEAR ENDED 30 JUNE 2017
Cash flows from operating activities
Receipts from customers
Payments to suppliers, governments and employees
Borrowing costs paid
Income taxes paid
Interest paid
Net cash flows from operating activities
Cash flows from investing activities
Payments for property, plant, and equipment
Payments for intangible assets
Payments for subsidiaries, investments and other assets
Proceeds from sale of property, plant and equipment
Net cash flows from investing activities
Cash flows from financing activities
Proceeds from issue of shares net of transaction costs
Dividend payments
Proceeds from borrowings
Repayment of borrowings
Proceeds from settlement of derivatives
Purchase of shares
Net cash flows from financing activities
Total cash flows from activities
Cash and cash equivalents at the beginning of the year
Effects of exchange rate changes on foreign currency cash flows and cash balances
Cash and cash equivalents at end of the year1
2017
$M
INFLOWS/
(OUTFLOWS)
2016
$M
INFLOWS/
(OUTFLOWS)
NOTE
3,237.3
(2,798.3)
(2.8)
(32.0)
(21.7)
382.5
2,991.5
(2,542.2)
(2.6)
(10.8)
(19.1)
416.8
(187.8)
(22.6)
(26.4)
106.9
(129.9)
–
(184.6)
384.5
(387.3)
0.6
(65.9)
(252.7)
(0.1)
252.1
(11.2)
240.8
(114.9)
(18.9)
(803.7)
86.8
(850.7)
475.4
(111.2)
470.7
(258.7)
10.3
(4.5)
582.0
148.1
109.1
(5.1)
252.1
8
9
1. Represented by cash at bank of $240.8 million and bank overdraft of $(nil) million (F16: cash at bank of $256.1 million and bank overdraft
of $(4.0) million).
The consolidated statement of cash flows should be read in conjunction with the accompanying notes.
66 — TREASURY WINE ESTATES ANNUAL REPORT 2017
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS:
ABOUT THIS REPORT
FOR THE YEAR ENDED 30 JUNE 2017
NOTE 1 – ABOUT THIS REPORT
The notes are organised into the following sections:
Treasury Wine Estates Limited (‘the Company’) is a for
profit company incorporated in Australia and limited
by shares which are publicly traded on the Australian
Securities Exchange (ASX). The consolidated financial
statements comprise the Company and its controlled
entities (collectively, ‘the Group’). The financial report
was authorised for issue by the Board of Directors
on 30 August 2017.
The accounting policies that are critical to understanding
the financial statements as a whole are set out in this
section. Where an accounting policy is specific to one note,
the policy is described in the note to which it relates.
Further policies, including the impact of upcoming
changes to accounting standards, are set out in note 34.
Basis of preparation
The financial report is a general purpose financial
report which:
• Has been prepared in accordance with the requirements
of the Corporations Act 2001 (Cth), Australian Accounting
Standards and other authoritative pronouncements of the
Australian Accounting Standards Board (AASB);
• Has been prepared on a historical cost basis, except for
derivative financial instruments, agricultural produce
and assets and liabilities acquired in a business
combination which have been measured at fair value;
• Contains comparative information that has been
adjusted to align with the presentation of the current
period where necessary, and to reflect the initial
application of AASB 2014-6 Amendments to Australian
Accounting Standards – Agriculture: Bearer Plants, and
the finalisation of the acquisition accounting for Diageo
Chateau & Estates as disclosed in note 33. Other than
as disclosed above, the accounting policies are consistent
with those applied in the previous financial year; and
• Is presented in Australian dollars with all values
rounded to the nearest tenth of one million dollars
unless otherwise stated, in accordance with ASIC
Corporations (Rounding in Financial/Directors’
Reports) Instrument 2016/191.
Statement of compliance
This financial report complies with Australian
Accounting Standards and International Financial
Reporting Standards (IFRS) as issued by the
International Accounting Standards Board.
Line items labelled ‘other’ on the face of the consolidated
statements comprise miscellaneous income, expenses,
receivables, payables or cash flows which individually
or in aggregate are not considered material to warrant
additional disclosures.
The notes to the financial statements
The notes include additional information required
to understand the financial statements that is material
and relevant to the operations, financial position and
performance of the Group.
Information is considered material and relevant if the
amount in question is significant because of its size,
nature or incidence or it helps to explain the impact
of significant changes in the business, for example,
acquisitions and asset write-downs.
Earnings: focuses on the financial results and performance
of the Group. It provides disclosures relating to income,
expenses, segment information, material items and
Earnings per Share.
Working capital: shows the current assets and current
liabilities generated through trading activity. It provides
information regarding working capital management and
analysis of the elements of working capital.
Operating assets and liabilities: provides information
regarding the physical assets and non-physical assets used
by the Group to generate revenues and profits (including
associated liabilities). This section also explains the
accounting policies applied and specific judgements and
estimates made by management in arriving at the value
of these assets and operating liabilities.
Capital structure: provides information about the capital
management practices adopted by the Group – particularly
how much capital is raised from shareholders (equity) and
how much is borrowed from financial institutions (debt)
in order to finance the activities of the Group both now
and in the future.
Taxation: sets out the Group’s tax accounting policies,
the current and deferred tax charges, a reconciliation
of profit or loss before tax to the tax charge or credit and
the movements in deferred tax assets and liabilities.
Risk: discusses the Group’s exposure to various financial
risks, explains how these affect the financial position
of the Group and what is done to manage these risks.
Group composition: explains aspects of the Group’s
structure and business acquisitions.
Other: other required disclosures under Australian
Accounting Standards and IFRS.
Key estimates and judgements:
In preparing this financial report, the Group is required
to make estimates, judgements and assumptions that
affect the reported amounts in the financial statements.
These estimates, judgements and assumptions are
continually evaluated, and are often based on historical
experience and assessed to be reasonable under the
circumstances at the relevant time. Actual results may
differ from these estimates under different assumptions
and conditions. The areas involving a higher degree of
judgement or complexity, or areas where assumptions
and estimates are significant to the financial statements:
Note 3:
Note 9:
Note 11:
Note 12:
Note 14:
Note 22:
Note 27:
Revenue
Working capital
Agricultural assets
Intangible assets
Impairment of non-financial assets
Income tax
Business acquisitions
Principles of consolidation
The consolidated financial statements include the assets
and liabilities of Treasury Wine Estates Limited and
its controlled entities as a whole at year-end and the
consolidated results and cash flows for the year. A list
of controlled entities (subsidiaries) is provided in note 28.
TREASURY WINE ESTATES ANNUAL REPORT 2017 — 67
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS:
ABOUT THIS REPORT
FOR THE YEAR ENDED 30 JUNE 2017
NOTE 1 – ABOUT THIS REPORT (CONTINUED)
An entity is regarded as a controlled entity when the
Company is exposed to, or has rights to, variable returns
from its involvement with the entity and has the ability
to affect those returns through power over the entity.
The rights of other investors to the results and equity
of the subsidiaries (called non-controlling interests) are
shown separately in the consolidated statement of profit or
loss and other comprehensive income, statement of changes
in equity and statement of financial position respectively.
The financial information of the subsidiaries is prepared for
the same reporting period as the parent, using consistent
accounting policies. Intra-group balances and transactions
arising from intra-group transactions are eliminated.
A change in the ownership interest of a subsidiary, without
a loss of control, is accounted for as an equity transaction.
Functional and presentation currency
The consolidated financial statements are presented in
Australian dollars. Each entity in the Group determines
its own functional currency and items included in the
financial statements of each entity are measured using
that functional currency. The major functional currencies
used throughout the Group include Australian Dollar
(AUD), United States Dollar (USD) and Great British
Pound (GBP). Other currencies used include the Canadian
Dollar, Euro, New Zealand Dollar, Singapore Dollar,
Swedish Krona, Norwegian Krone and South African Rand.
Foreign group companies
As at the reporting date, the assets and liabilities of
overseas subsidiaries are translated into Australian
dollars at the rate of exchange ruling at the balance sheet
date and the income statement is translated at the average
exchange rates for the period. The exchange differences
arising on the translation are recognised in the foreign
currency translation reserve within equity.
When a foreign operation is sold, the cumulative exchange
difference in equity for this operation is recognised in the
statement of profit or loss and other comprehensive income
as part of the gain and loss on sale.
Transactions and balances
Transactions in foreign currencies are initially recorded
in the functional currency of the relevant entity at the
exchange rates ruling at the date of the transaction.
Monetary assets and liabilities denominated in foreign
currencies are subsequently translated at the rate of
exchange ruling at the balance sheet date.
Exchange differences arising are recognised in the
consolidated statement of profit and loss and other
comprehensive income, except for gains or losses arising
on assets or liabilities that qualify for hedge accounting,
discussed further in note 23. Tax charges and credits
attributable to these exchange differences are also
recognised in equity.
Average exchange rates used in translating profit and
loss items in F17 are:
A$1 = US$0.754 (F16: US$0.728)
A$1 = GB£0.595 (F16: GB£0.492)
Year-end exchange rates used in translating financial
position items in F17 are:
A$1 = US$0.768 (F16: US$0.745)
A$1 = GB£0.590 (F16: GB£0.554)
68 — TREASURY WINE ESTATES ANNUAL REPORT 2017
Fair value measurement
The Group measures certain financial instruments,
including derivatives, and certain non-financial assets
such as agricultural assets, at fair value at each balance
sheet date.
Fair value is the price that would be received to sell
an asset or paid to transfer a liability in an orderly
transaction between market participants in its principal
or most advantageous market at the measurement date.
It is measured using the assumptions that market
participants would use when pricing the asset or liability,
assuming that market participants act in their economic
best interest. A fair value measurement of a non-financial
item assumes it is put to its highest and best use.
The Group uses valuation techniques that are
appropriate in the circumstances and for which sufficient
data is available to measure fair value, maximising
the use of relevant observable inputs and minimising
the use of unobservable inputs.
Accounting standards prescribe a fair value hierarchy,
described as follows, based on the lowest level input that
is significant to the fair value measurement as a whole:
Level 1 – Quoted (unadjusted) market prices in active
markets for identical assets or liabilities.
Level 2 – Valuation techniques for which the lowest level
input that is significant to the fair value measurement
is directly (i.e. as prices) or indirectly (i.e. derived by
prices) observable.
Level 3 – Valuation techniques for which the lowest level
input that is significant to the fair value measurement
is unobservable.
Subsequent events
On 17 August 2017, the Company announced an on-market
share buy-back of up to $300 million which is expected
to commence in early September 2017.
On 28 August 2017, the Company announced that it
reached an agreement to settle the previously announced
shareholder class action commenced by Brian Jones
(represented by Maurice Blackburn) on 2 July 2014
relating to historical market disclosures that occurred
in 2013. The settlement of the claim, which is subject
to Court approval, was announced to Justice Foster
in Federal Court on 28 August 2017. It is expected that
the Court will consider approval of the settlement in
September or early October 2017. The settlement is fully
insured and will have no impact on the Company’s
financial results, and is without admission of liability.
On 30 August 2017, the Company announced that
non-executive director, Peter Hearl, will retire from the
Board with effect from 31 August 2017 and non-executive
director, Lyndsey Cattermole, will retire from the Board
with effect from the end of the 2017 Annual General
Meeting, which will be held on 18 October 2017.
Since the end of the financial year, the Directors declared
a final 50% franked dividend of 13.0 cents per share.
This dividend has not been recognised as a liability in the
financial statements at 30 June 2017.
The Directors are not aware of any other matters or
circumstances that have arisen since the end of the
financial year which have significantly affected or may
significantly affect the operations of the Group, the results
of those operations or the state of affairs of the Group
in subsequent financial years.
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS:
EARNINGS
FOR THE YEAR ENDED 30 JUNE 2017
NOTE 2 – SEGMENT INFORMATION
Segment accounting policies
Segment assets and liabilities
Segment assets and liabilities represent those working
capital and non-current assets and liabilities which are
located in the respective segments. Cash is not considered
to be a segment asset as it is managed by the Group’s
centralised treasury function. Consistent with the use
of EBITS for measuring profit, tax assets and liabilities,
which do not contribute towards EBITS, are not allocated
to operating segments.
Intersegment transactions
The price of an intersegment transaction is set at
an arm’s length basis. Whilst these transactions are
eliminated on consolidation, they are shown within
the segment revenue and EBITS to properly reflect the
segment of origin performance, including production.
Corporate charges
Unallocated corporate charges are reported in the
Corporate/unallocated segment. Net finance costs are
not allocated to segments as the Group’s financing
function is centralised through its treasury function.
Segment loans payable and loans receivable
Segment loans are initially recognised at the amount
transferred. Intersegment loans receivable and payable
that earn or incur non-market interest are not adjusted
to fair value based on market interest rates.
Other
If items of revenue and expense are not allocated to
operating segments, then any associated assets and
liabilities are not allocated to segments either.
The Group’s segments
The Group reports segment information on the same
basis as its internal management reporting structure
and consistent with the information used to organise and
manage the Group.
The reportable segments are based on the aggregation
of operating segments determined by the similarity
of the nature of products, the production process, the
types of customers and the methods used to distribute
the products.
The identified reportable segments in the Group
are below:
(i) Australia and New Zealand (ANZ)
This segment is responsible for the manufacture,
sale and marketing of wine within Australia and
New Zealand. The segment also distributes beer
and cider under licence in New Zealand.
(ii) Americas
This segment is responsible for the manufacture,
sale and marketing of wine within North America.
(iii) Asia
This segment is responsible for the sale and
marketing of wine within Asia (including the
Middle East and Africa).
(iv) Europe
This segment is responsible for the manufacture,
sale and marketing of wine within Europe and
Latin America.
Presentation of segment results
Management EBITS
The principal profit metric for internal management
reporting is Management earnings before interest,
tax, SGARA and material items (EBITS). Management
EBITS is profit from continuing operations excluding the
effect of net finance costs, tax, material items and the net
profit effects of fair valuing agricultural assets (SGARA).
Corporate charges are allocated to each segment on
a proportionate basis linked to segment revenue or head
count depending on the nature of the charge.
TREASURY WINE ESTATES ANNUAL REPORT 2017 — 69
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS:
EARNINGS
FOR THE YEAR ENDED 30 JUNE 2017
NOTE 2 – SEGMENT INFORMATION (CONTINUED)
ANZ
$M
AMERICAS
$M
ASIA
$M
EUROPE
$M
INTERSEGMENT
ELIMINATION
$M
TOTAL
SEGMENT
$M
UNALLOCATED/
CORPORATE
$M
CONSOLIDATED
$M
2017
Total revenue
comprises:
Net sales revenue
Other revenue
Intersegment
revenue
Total segment
revenue (excl other
income/interest)
591.3
87.9
271.3
1,062.0 394.3
–
38.4
354.1
1.4
–
–
2,401.7
127.7
51.6
0.1
37.4
(360.4)
–
950.5
1,152.0 394.4
392.9
(360.4)
2,529.4
–
4.8
–
4.8
(43.1)
–
–
(43.1)
2.4
7.0
–
19.4
2,401.7
132.5
–
2,534.2
455.1
(5.7)
(35.1)
414.3
(27.1)
387.2
99.4
8.9
36.0
210.4
498.2
(5.7)
(35.1)
457.4
97.0
1.9
36.0
191.0
4,729.5
549.8
5,279.3
798.5
872.3
1,670.8
Management EBITS 111.1
16.8
SGARA gain/(loss)
4.3
Material items
189.0 150.1
–
(22.5)
–
(36.6)
48.0
–
(2.8)
Management EBIT 132.2
Net finance costs
Consolidated
profit before tax
129.9 150.1
45.2
Depreciation of
property, plant
and equipment
Amortisation of
intangible assets
Assets held for sale
Capital expenditure
Segment assets
(excl intersegment
assets)
Segment liabilities
(excl intersegment
liabilities)
43.6
1.4
23.0
85.1
51.4
0.4
0.4
13.0
104.2
–
–
0.3
1.6
0.1
–
1.4
2,173.1
2,127.6 77.9
350.9
271.1
417.5 28.4
81.5
–
–
–
–
–
–
–
–
–
–
70 — TREASURY WINE ESTATES ANNUAL REPORT 2017
NOTE 2 – SEGMENT INFORMATION (CONTINUED)
ANZ
$M
AMERICAS
$M
ASIA
$M
EUROPE
$M
INTERSEGMENT
ELIMINATION
$M
TOTAL
SEGMENT
$M
UNALLOCATED/
CORPORATE
$M
CONSOLIDATED
$M
20161
Total revenue
comprises:
Net sales revenue
Other revenue
Intersegment
revenue
Total segment
revenue (excl other
income/interest)
590.7
93.8
991.0 293.2
(0.3)
11.2
357.7
1.6
–
–
2,232.6
106.3
426.0
28.5
0.1
29.6
(484.2)
–
1,110.5
1,030.7 293.0
388.9
(484.2)
2,338.9
Management EBITS 89.3
14.9
SGARA gain/(loss)
(6.0)
Material items
131.5 102.0
–
(25.9)
0.4
(32.5)
47.7
–
(8.3)
Management EBIT
Net finance costs
Consolidated
profit before tax
Depreciation of
property, plant
and equipment
Amortisation of
intangible assets
Assets held for sale
Capital expenditure
Segment assets
(excl intersegment
assets)
Segment liabilities
(excl intersegment
liabilities)
98.2
73.1 102.4
39.4
49.8
1.0
39.7
62.1
41.5
0.4
2.0
28.5
51.8
–
–
0.4
2.1
–
–
2.2
2,074.9
2,211.5
51.5
367.1
278.9
458.7
19.7
104.0
–
–
–
–
–
–
–
–
–
–
370.5
(11.0)
(46.4)
313.1
93.8
3.0
68.2
116.5
–
4.4
–
4.4
(36.3)
–
(6.4)
(42.7)
2.6
7.4
–
17.3
2,232.6
110.7
–
2,343.3
334.2
(11.0)
(52.8)
270.4
(21.2)
249.2
96.4
10.4
68.2
133.8
4,705.0
581.5
5,286.5
861.3
856.0
1,717.3
1. Comparative balances have been restated to reflect the final purchase price accounting for the Diageo acquisition and a change
in accounting standards relating to Agricultural Assets. Refer to note 33 for details.
NOTE 3 – REVENUE
Revenue
Net sales revenue1
Other revenue
Total revenue
2017
$M
2016
$M
2,401.7
132.5
2,534.2
2,232.6
110.7
2,343.3
1. Net sales revenue is net of trade discounts and volume rebates.
Types of products and services
The Group generates revenue through the sale of branded wines, principally as a finished, bottled product. The Group’s
wine portfolio includes some of the world’s leading Commercial, Masstige and Luxury wine brands such as Penfolds,
Beringer, Lindeman’s, Wolf Blass, 19 Crimes, Chateau St Jean, Beaulieu Vineyard and Sterling Vineyards.
During the year the Group also distributed beer and cider under licence in New Zealand and provides contract bottling
services to third parties.
TREASURY WINE ESTATES ANNUAL REPORT 2017 — 71
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS:
EARNINGS
FOR THE YEAR ENDED 30 JUNE 2017
NOTE 3 – REVENUE (CONTINUED)
Sales approach
The Group distributes wine to a range of customers across the world, with routes-to-market tailored by country. In some
geographies, wine is sold principally to large distributors. In others, the majority of sales are direct to national retail
chains, independent retailers and on premise outlets. The Group also has some sales direct to the consumer.
The Group has two major customers whose revenues represent 22.8% (F16: 15.4%) and 9.0% (F16: 9.0%) of reported
revenues. The customers are in the Americas and ANZ segments respectively.
Accounting policies
Revenue is measured at the fair value of the consideration received or receivable. As the Group does not generally
provide extended credit terms, this is typically the amount shown on the invoice. Revenue is recorded net of sales
discounts and rebates, duties and taxes. Revenue is recorded only if it is probable that the economic benefits will
flow to the Group, such as when product is sold to a credit approved purchaser. The following specific criteria are
also applied:
Wine
Revenue is recognised when the risk and rewards of ownership have passed to the buyer. Sales to national retail
chains, domestic distributors, independent retailers and on premise outlets are usually recognised when goods are
delivered. Sales to international distributors are recognised based on the international commercial terms the goods
are shipped under, but typically when goods are despatched. This is also the case for some national retail chains
that manage their own distribution networks.
Bottling services
Revenue is recognised when the relevant service has been completed.
Key estimate and judgement:
Trade discounts and volume rebates
Products are often sold with volume discounts and other rebates. Sales are recorded based on the price specified in the
sales contracts, net of the estimated discount or rebate at the time of sale. Accumulated experience is used to estimate
and provide for the discounts based on anticipated annual purchases.
NOTE 4 – OTHER EARNINGS DISCLOSURES
Rental expense relating to operating leases
Net foreign exchange gains/(losses)
Salaries and wages expense
Share based payments expense
Restructuring and redundancy expense1
Net gain relating to property, plant and equipment and intangible assets
(Write-down)/reversal of write-down of assets1
Insurance and other income
Net profit on disposal of assets
1. Includes items classified as material items (refer note 5).
2017
$M
(84.7)
5.6
(372.4)
(18.6)
2016
$M
(63.6)
(5.0)
(369.0)
(14.5)
(25.6)
(30.0)
(30.1)
12.5
19.0
1.4
1.7
–
4.0
5.7
72 — TREASURY WINE ESTATES ANNUAL REPORT 2017
NOTE 4 – OTHER EARNINGS DISCLOSURES (CONTINUED)
Accounting policies
Agricultural valuation movement
The change in fair value of picked grapes and olives is recognised in the statement of profit or loss and other
comprehensive income in the year of harvest.
Finance income
Finance income is recognised as the interest accrues (using the effective interest method, which applies a rate that
discounts estimated future cash receipts through the expected life of the financial instrument) to the net carrying
amount of the financial asset.
Finance costs
Finance costs are recognised as an expense when they are incurred, except for interest charges attributable to major
projects with substantial development and construction phases, which are capitalised as part of the cost of the asset.
Operating leases
Operating lease payments are recognised as an expense in the statement of profit or loss and other comprehensive
income on a straight-line basis over the lease term. The Group’s policy on how to determine the nature of a lease
is set out in note 19.
Employee benefits
Employee benefits include wages, salaries, annual leave, bonuses, non-monetary benefits and share based payment
expenses. Further details of Group policy on measuring employee benefits are set out in note 15.
Superannuation
Employees are members of defined contribution superannuation schemes. Superannuation contributions are
recognised as an expense when they are due and payable.
Property, plant and equipment income
Revenue from the sale of property, plant and equipment is recognised when an executed contract becomes unconditional.
Other income
Revenue is recognised on an accruals basis in accordance with the substance of the relevant agreements.
Insurance income
Revenue is recognised when recovery is virtually certain.
NOTE 5 – MATERIAL ITEMS
The following individually material items are included within the consolidated statement of profit or loss and other
comprehensive income.
Individually material items included in profit before income tax:
Business acquisition transaction costs1
Restructuring and redundancy costs2
(Write-down)/reversal of write-down of assets3
Total material items (before tax)
Tax effect of material items
Total material items (after tax)
2017
$M
–
(16.3)
(18.8)
(35.1)
13.1
(22.0)
2016
$M
(24.5)
(30.0)
1.7
(52.8)
14.7
(38.1)
1. Represents transaction costs in relation to business acquisitions (refer notes 27 and 33).
2. Comprises costs in relation to executing supply chain optimisation programs, implementing overhead reductions arising from changes
to the Group’s supply chain network and costs associated with integrating businesses acquired.
3. Includes write-down of various assets following the commencement of integration activities, offset by the gain on sale of non-core assets
during the year.
Material items
Material items are defined as those items of income or expense which have been determined as being sufficiently
significant by their size, nature or incidence and are disclosed separately to assist in understanding the Group’s
financial performance.
TREASURY WINE ESTATES ANNUAL REPORT 2017 — 73
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS:
EARNINGS
FOR THE YEAR ENDED 30 JUNE 2017
NOTE 6 – DIVIDENDS
Dividends declared and paid on ordinary shares
Final dividend for F16 of 12.0 cents per share (F15: 8.0 cents per share)
Interim dividend for F17 of 13.0 cents per share (F16: 8.0 cents per share)
Dividends declared after balance date
Since the end of the financial year, the Directors declared a final dividend
of 13.0 cents per share (F16: 12.0 cents) 50% franked (F16: unfranked).
This dividend has not been recognised as a liability in the financial
statements at year end
Details in relation to franking credits are included in note 22.
NOTE 7 – EARNINGS PER SHARE
Basic EPS
Basic EPS (cents) based on net profit attributable to members of Treasury Wine Estates Limited
Diluted EPS
Diluted EPS (cents) based on net profit attributable to members of Treasury Wine Estates Limited
Weighted average number of shares
Weighted average number of ordinary shares on issue used in the calculation
of basic EPS (in thousands)
Effect of potentially dilutive securities
Deferred shares (in thousands)
Weighted average number of ordinary shares on issue used in the calculation
of diluted EPS (in thousands)
Earnings reconciliation
Basic and diluted EPS
Net profit
Net profit attributable to non-controlling interests
Net profit attributable to members of Treasury Wine Estates Limited
used in calculating basic and diluted EPS
2017
$M
88.6
96.0
184.6
2016
$M
52.1
59.1
111.2
96.0
88.6
2017
CENTS PER
SHARE
20161
CENTS PER
SHARE
36.5
36.1
24.3
24.0
NUMBER
NUMBER
736,766
713,696
7,732
7,220
744,498
720,916
$M
$M
269.9
(0.8)
173.4
(0.1)
269.1
173.3
1. Comparative balances have been restated to reflect the final purchase price accounting for the Diageo acquisition and a change
in accounting standards relating to Agricultural Assets. Refer to note 33 for details.
Calculation of Earnings per Share
Earnings per Share (EPS) is the amount of post-tax profit attributable to each share.
Basic EPS is calculated by dividing the net profit after income tax attributable to ordinary shareholders by the
weighted average number of ordinary shares outstanding during the year.
Diluted EPS is determined by dividing the profit attributable to ordinary shareholders after tax by the weighted
average number of ordinary shares outstanding during the period (adjusted for the effects of dilutive potential
ordinary shares in the employee Long-term Incentive Plan and Restricted Equity Plan (see note 21)).
74 — TREASURY WINE ESTATES ANNUAL REPORT 2017
NOTE 8 – NET CASH FLOWS FROM OPERATING ACTIVITIES
Reconciliation of net cash flows from operating activities to profit after income tax
Profit for the year
Depreciation and amortisation
Valuation decrement on agricultural assets
Asset write-downs/(reversal of asset write-downs)
(Profit) on disposal of non-current assets
Share based payments expense
Other
Net cash provided by operating activities before change in assets and liabilities
Change in working capital and tax balances, net of effects
from acquisition/disposal of controlled entities
Receivables
Inventories
Derivative financial assets/liabilities
Payables
Net tax balances
Provisions
Net cash flows from operating activities
2017
$M
269.9
108.3
5.7
30.1
(19.0)
18.6
0.7
414.3
42.9
(169.6)
0.5
25.8
85.3
(16.7)
382.5
20161
$M
173.4
106.8
11.0
(1.7)
(4.0)
14.5
7.1
307.1
0.2
(1.0)
(3.1)
72.2
65.0
(23.6)
416.8
1. Comparative balances have been restated to reflect the final purchase price accounting for the Diageo acquisition and a change
in accounting standards relating to Agricultural Assets. Refer to note 33 for details.
TREASURY WINE ESTATES ANNUAL REPORT 2017 — 75
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS:
WORKING CAPITAL
FOR THE YEAR ENDED 30 JUNE 2017
NOTE 9 – WORKING CAPITAL
Current
Cash and cash equivalents
Receivables (a)
Inventories (b)
Bank overdraft
Trade and other payables
Total current
Non-current
Inventories (b)
Trade and other payables
Total non-current
(a) Receivables
Current
Trade receivables
Allowance for doubtful debts
Other receivables
Prepayments
Total current receivables
(b) Inventories
Current
Raw materials and stores
Work in progress
Finished goods
Total current inventories
Non-current
Work in progress
Finished goods
Total non-current inventories
Total inventories
2017
$M
20161
$M
240.8
606.5
947.9
–
(662.5)
1,132.7
256.1
603.4
895.7
(4.0)
(654.0)
1,097.2
763.9
(57.4)
706.5
2017
$M
476.0
(1.5)
103.8
28.2
606.5
2017
$M
35.3
442.6
470.0
947.9
637.1
126.8
763.9
678.4
(72.3)
606.1
20161
$M
554.0
(5.0)
20.6
33.8
603.4
20161
$M
27.5
414.8
453.4
895.7
566.6
111.8
678.4
1,711.8
1,574.1
1. Comparative balances have been restated to reflect the final purchase price accounting for the Diageo acquisition and a change
in accounting standards relating to Agricultural Assets. Refer to note 33 for details.
Inventories of wine stocks are classified between current and non-current based on sales projections for the ensuing
year. Inventories recognised as an expense during the year and included in cost of sales amounted to $1,506.4 million
(F16: $1,417.1 million). In F17, the write-down of inventories to net realisable value amounted to $22.4 million
(F16: $23.4 million). The reversal of write-downs amounted to $1.5 million (F16: $7.3 million). These amounts are
included in cost of sales.
76 — TREASURY WINE ESTATES ANNUAL REPORT 2017
NOTE 9 – WORKING CAPITAL (CONTINUED)
Accounting policies
Cash and cash equivalents
Cash and cash equivalents consist of cash on hand, deposits held at call with banks, cash in transit, short-term
deposits and investments with maturities of three months or less.
Cash assets and cash liabilities are offset and presented as a net amount in the statement of financial position
when the Group has a legally enforceable right to offset or intent to settle on a net basis.
For the purposes of the consolidated statement of cash flows, cash and cash equivalents are disclosed net
of outstanding bank overdrafts.
Receivables
Trade receivables are initially recognised at invoice value (fair value) and subsequently measured at amortised cost,
less allowance for doubtful debts.
Credit terms are generally between 30–120 days depending on the nature of the transaction. An allowance for
doubtful debts is raised to reduce the carrying amount of trade receivables based on a review of outstanding amounts
at reporting date where there is potential credit risk.
Inventories
Inventories are valued at the lower of their cost (using average or FIFO basis) or estimated net realisable value.
The cost of raw materials is their purchase price or, in the case of grapes sourced from Group owned vineyards,
fair value (see note 11 for further details). The cost of manufactured goods is determined on a consistent basis
and is made up of the raw materials and direct labour used in manufacture. It also includes other direct costs and
related production overheads based on normal operating capacity.
Net realisable value represents the estimated selling price in the ordinary course of business less estimated costs
of completion and estimated costs to be incurred in marketing, selling and distribution.
Trade and other payables
Trade and other payables including accruals are recorded when the Group is required to make future payments
as a result of purchases of goods or services. Trade and other payables are carried at amortised cost.
Key estimates and judgements:
Trade discounts and volume rebates
Key estimates relate to the amount accrued for discounts and rebates. Products are often sold with trade discounts
and volume rebates. Sales are recorded based on the price specified in the sales contracts, net of the estimated
discount or rebate at the time of sale. Accumulated experience is used to estimate and provide for the discounts
and rebates based on anticipated annual purchases and depletions.
Net realisable value of inventory
The period over which some wine inventories are converted from raw materials to finished goods can be a significant
length of time. Failure to forecast demand effectively may result in excess inventories or missed revenue opportunities.
Forecast demand and market prices can vary significantly over the holding period up to the likely date of sale.
Estimating the most likely conditions at the expected point of sale is therefore more challenging over the longer term.
Non-current inventory is $763.9 million (F16: $678.4 million) and its estimated selling price is therefore a key estimate.
TREASURY WINE ESTATES ANNUAL REPORT 2017 — 77
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS:
OPERATING ASSETS AND LIABILITIES
FOR THE YEAR ENDED 30 JUNE 2017
NOTE 10 – PROPERTY, PLANT AND EQUIPMENT
LAND
2016
$M
378.7
–
2017
$M
372.2
–
FREEHOLD
BUILDINGS
LEASEHOLD
BUILDINGS
PLANT AND
EQUIPMENT
TOTAL
2017
$M
432.3
–
2016
$M
423.8
–
2017
$M
81.1
–
2016
$M
2017
$M
20161
$M
2017
$M
20161
$M
81.2 1,710.5
137.7
–
1,612.4 2,596.1 2,496.1
104.2
137.7
104.2
(42.4)
(42.0)
(218.0)
(210.0)
(35.7)
(32.8) (1,109.2)
(967.7) (1,405.3) (1,252.5)
329.8
336.7
214.3
213.8
45.4
48.4
739.0
748.9 1,328.5
1,347.8
336.7
16.2
299.7
–
213.8
22.9
185.3
25.4
48.4
2.8
–
(5.5)
(10.0)
(0.3)
–
(1.1)
(6.2)
62.5
(26.5)
(3.0)
–
–
–
4.0
–
(3.3)
(1.7)
(4.1)
(7.9)
–
(5.4)
25.5
(21.2)
(1.1)
0.3
(7.6)
4.5
2.7
–
–
–
(0.2)
(4.4)
–
(1.2)
16.3
0.9
39.8
(0.3)
(0.1)
(0.2)
(3.0)
(4.9)
(0.1)
748.9
145.9
577.6 1,347.8
88.6
187.8
1,078.9
114.9
–
(25.4)
(9.1)
(23.3)
(87.1)
–
(10.9)
172.9
(4.3)
(1.5)
1.6
(85.8)
0.4
(0.6)
–
(34.2)
(20.8)
(27.9)
(99.4)
(1.1)
(23.7)
300.7
(52.3)
(5.7)
1.7
(96.4)
–
6.0
329.8
336.7
214.3
213.8
45.4
48.4
739.0
748.9 1,328.5
1,347.8
Cost
Projects in progress at cost
Accumulated depreciation
and impairment
Carrying amount
at end of year
Reconciliations
Carrying amount
at start of year
Additions
Business acquisitions
(note 27)
Assets held for sale
Disposals
(Write-downs)/reversals
Depreciation expense
Transfers
Foreign currency translation
Carrying amount
at end of year
1. Comparative balances have been restated to reflect the final purchase price accounting for the Diageo acquisition and a change
in accounting standards relating to Agricultural Assets. Refer to note 33 for details.
Included within plant and equipment are ‘Projects in progress’ of $137.7 million (F16: $104.2 million), which are
assets under construction and therefore not yet depreciated. The cost of construction includes the cost of materials
used in construction, direct labour on the project, and an allocation of overheads. Vines transferred from Agriculture
Assets to Property, Plant and Equipment as a result of the change in accounting standards are included within
Plant and Equipment.
The Group recognised $27.9 million of write-downs for property, plant and equipment primarily in relation to non-core
assets that were disposed of during the year.
78 — TREASURY WINE ESTATES ANNUAL REPORT 2017
NOTE 10 – PROPERTY, PLANT AND EQUIPMENT (CONTINUED)
Accounting policies
Property, plant and equipment is initially recorded at cost and then reduced by accumulated depreciation and any
impairment losses.
Plant and equipment is depreciated so that the assets are written down to their residual value over their useful lives,
using a reducing balance or straight-line method depending on the nature of the asset. Assets that relate to leases
are written-off over the period of the lease or useful life, whichever is the shorter. Residual values, useful lives and
amortisation methods are reviewed annually and adjusted when required. No changes to depreciation rates were
made this year.
Depreciation expense is included in ‘costs of sales’, ‘selling expenses’ and ‘administration expenses’ in the statement
of profit or loss and other comprehensive income.
The depreciation rates used for each class of asset are as follows:
Freehold buildings
Leasehold buildings
Plant and equipment
1.5% – 10.0%
10.0% – 20.0%
3.3% – 40.0%
Costs incurred in maintaining agricultural assets are recognised as an expense as incurred.
Derecognition and disposal
When an asset is sold, scrapped or is no longer of use to the business it is derecognised. Any gain or loss arising on
derecognition of the asset (calculated as the difference between the net proceeds and the carrying amount of the asset)
is recorded in the period the asset is derecognised in the statement of profit or loss and other comprehensive income.
Vineyard resources
Australia
New Zealand
United States
Italy
2017
HECTARES
2016
HECTARES
8,828
528
3,758
152
13,266
8,939
339
4,002
145
13,425
The area under vine shown above:
• Includes 3,630 hectares (F16: 3,657 hectares) under lease arrangements and seven hectares (F16: seven hectares)
of olive groves in Tuscany, a region of Italy.
• Yielded 112,982 tonnes of grapes (F16: 100,737 tonnes).
Harvests generally occur in September–October in the Northern Hemisphere and February–May in the
Southern Hemisphere.
TREASURY WINE ESTATES ANNUAL REPORT 2017 — 79
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS:
OPERATING ASSETS AND LIABILITIES
FOR THE YEAR ENDED 30 JUNE 2017
NOTE 11 – AGRICULTURAL ASSETS
Agricultural assets
Total agricultural assets
Reconciliations
Carrying amount at start of year
Fair value increase
Transfers to inventory
Foreign currency translation
Carrying amount at end of year
2017
$M
37.7
37.7
35.8
37.7
(35.7)
(0.1)
37.7
20161
$M
35.8
35.8
18.9
35.8
(19.8)
0.9
35.8
1. Comparative balances have been restated to reflect the final purchase price accounting for the Diageo acquisition and a change
in accounting standards relating to Agricultural Assets. Refer to note 33 for details.
Grape growing and sourcing
The Group has a variety of sources of fruit including owned and leased vineyards, contracted growers and the bulk
wine market.
This approach provides flexibility through the economic cycle and assists with managing the risks arising from
agricultural factors beyond the Group’s control such as pests, disease and extreme weather conditions.
The Group owned vineyards ensure access to super premium fruit from key viticultural regions including the Barossa
Valley and Coonawarra in Australia, Marlborough in New Zealand and the Napa and Sonoma Valleys in California.
These vineyards contribute to some of the Group’s most prestigious wines.
Accounting policies
The agricultural assets of the Group (i.e. grapes) are measured at their fair value, less estimated point of sale costs.
The fair value adjustment during the year is recognised within ‘Other expenses’ in the statement of profit or loss
and other comprehensive income.
Harvested grapes are transferred to inventory initially at fair value and are then subsequently accounted for
in the cost of inventory (see note 9).
Fair value determination
The valuations of agricultural assets are Level 2 fair value measurements under the Group’s accounting policy
(see note 1), with the principal inputs being:
Grapes prior to harvest
Estimated based on the expected yields per hectare, forecasted harvest costs and the anticipated market price
of grapes.
Harvested grapes
Determined by reference to the weighted district average of grape prices for each region for the current vintage.
Prices vary with the grade quality of grapes produced in each particular region.
Key estimate and judgement:
Fair value of grapes
Key to estimating the value of grapes is the following:
• Yield estimates were higher/(lower);
• The estimated harvest costs were lower/(higher);
• Market prices for grapes were higher/(lower); or
• The quality of grapes was higher/(lower).
80 — TREASURY WINE ESTATES ANNUAL REPORT 2017
NOTE 12 – INTANGIBLE ASSETS
Cost
Projects in progress at cost
Accumulated amortisation
and impairment
Carrying amount at end of year
Reconciliations
Carrying amount at start of year
Additions
Business acquisitions (note 27)
Impairment
Amortisation expense
Transfer from other asset classes
Foreign currency translation
Carrying amount at end of year
BRAND NAMES
AND LICENCES
2017
$M
2016
$M
1,383.2
–
1,407.3
–
IT
DEVELOPMENT
COSTS
GOODWILL
TOTAL
2017
$M
70.3
13.0
2016
$M
45.4
23.4
2017
$M
747.0
–
20161
$M
2017
$M
20161
$M
750.5 2,200.5 2,203.2
23.4
13.0
–
(465.0)
918.2
(473.3)
934.0
(32.1)
51.2
(31.2)
37.6
(620.6)
126.4
(620.6) (1,117.7) (1,125.1)
1,101.5
129.9 1,095.8
934.0
–
–
(2.2)
–
–
(13.6)
918.2
731.7
–
198.8
–
–
–
3.5
934.0
37.6
22.6
–
–
(8.9)
–
(0.1)
51.2
24.7
18.9
0.3
–
(10.4)
4.2
(0.1)
37.6
129.9
–
–
–
–
–
(3.5)
126.4
34.7 1,101.5
22.6
–
(2.2)
(8.9)
–
(17.2)
129.9 1,095.8
–
94.0
–
–
–
1.2
791.1
18.9
293.1
–
(10.4)
4.2
4.6
1,101.5
Goodwill is allocated to the Cash Generating Units (CGUs) or group of CGUs (see note 14 for further details)
that are expected to benefit from the synergies of the combination. The allocation of intangible assets (other than
IT development costs) is as follows:
Goodwill
Carrying amount at start of year
Business acquisitions (note 27)
Foreign currency translation
Carrying amount at end of year
Brand names and licences
Carrying amount at start of year
Business acquisitions (note 27)
Impairment
Foreign currency translation
Carrying amount at end of year
ANZ
2016
$M
34.7
–
2.5
37.2
2017
$M
37.2
–
(0.2)
37.0
AMERICAS
EUROPE
TOTAL
2017
$M
20161
$M
2017
$M
20161
$M
2017
$M
20161
$M
72.7
–
(2.0)
70.7
–
72.8
(0.1)
72.7
20.0
–
(1.3)
18.7
–
21.2
(1.2)
20.0
129.9
–
(3.5)
126.4
481.2
–
–
–
481.2
480.9
–
–
0.3
481.2
449.8
–
(2.2)
(13.6)
434.0
247.9
198.8
–
3.1
449.8
3.0
–
–
–
3.0
2.9
–
–
0.1
3.0
934.0
–
(2.2)
(13.6)
918.2
34.7
94.0
1.2
129.9
731.7
198.8
–
3.5
934.0
1. Comparative balances have been restated to reflect the final purchase price accounting for the Diageo acquisition and a change
in accounting standards relating to Agricultural Assets. Refer to note 33 for details.
Indefinite life brands
Brand names with a carrying value of $918.2 million (F16: $934.0 million) are assessed as having an indefinite useful life.
The indefinite useful life reflects the Group’s intention to continue to manufacture or distribute these brands to generate
net cash inflows into the foreseeable future.
Key estimate and judgement:
Useful life of brand names
In assessing whether a brand has a finite or indefinite useful life, the Group makes use of information on the long-term
strategy for the brand, the level of growth or decline of the markets that the brand operates in, the history of the market
and the brand’s position within that market.
If a brand is assessed to have a finite life, the Group will use judgement in determining the useful life of the brand
and will consider the period over which expected cash flows will continue to be derived in making that decision.
TREASURY WINE ESTATES ANNUAL REPORT 2017 — 81
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS:
OPERATING ASSETS AND LIABILITIES
FOR THE YEAR ENDED 30 JUNE 2017
NOTE 12 – INTANGIBLE ASSETS (CONTINUED)
Accounting policies
Brand names and licences
Brand names are recognised as assets when purchased individually and (primarily) as part of the allocation of the
purchase price when the Group acquires other businesses. Internally generated brand names are not capitalised
and expenditure incurred in developing, maintaining or enhancing brand names is charged to profit or loss in the
year incurred.
Brand names are initially recognised at cost when purchased individually and at fair value when acquired with
a business. This fair value is determined by reference to independent valuations.
Following initial recognition, intangible assets are carried at cost less any accumulated amortisation and any
accumulated impairment losses.
The useful lives of brand names have been assessed to be indefinite and therefore are not amortised.
Goodwill
Goodwill arises on the acquisition of businesses and represents the difference between the purchase price and share
of the net assets of the acquired business, recorded at fair value.
Following initial recognition, goodwill is measured at cost less any accumulated impairment losses. Goodwill is not
amortised but is tested for impairment at least annually (see note 14).
IT development and software
Costs incurred in developing information technology (IT) products or systems and costs incurred in acquiring software
and multi-year licenses are capitalised as intangible IT assets. They include the cost of purchased software and internal
labour and contractors used in the development of software.
IT assets are carried at cost less any accumulated amortisation and are amortised over their expected useful life
(2–10 years) on a straight line basis. Amortisation is included in ‘Other expenses’ in the statement of profit or loss
and other comprehensive income.
NOTE 13 – ASSETS HELD FOR SALE
Disposal groups held for sale
Total assets classified as held for sale
2017
$M
36.0
36.0
20161
$M
68.2
68.2
1. Comparative balances have been restated to reflect the final purchase price accounting for the Diageo acquisition and a change
in accounting standards relating to Agricultural Assets. Refer to note 33 for details.
Assets held for sale comprise property, plant and equipment identified by the Group to be recovered through sale and
includes Rutherford House in the Americas, Australian Oak Barrels (2017 Vintage) and other assets within Australia
and New Zealand that are surplus to requirements.
Accounting policies
Non-current assets are classified as held for sale if their value will be recovered principally through their sale, rather
than through ongoing use within the business.
Assets are not depreciated or amortised while they are classified as held for sale. They are valued at the lower of
their carrying amount and fair value less costs to sell with an impairment loss recognised for any difference. A gain
is recognised for any subsequent increase in value, but not in excess of any cumulative impairment loss previously
recognised. Any gain or loss not previously recognised by the date of the sale of the non-current asset is recognised
at that point. The fair values of the assets based on independent market appraisals exceed the assets’ carrying values.
82 — TREASURY WINE ESTATES ANNUAL REPORT 2017
NOTE 14 – IMPAIRMENT OF NON-FINANCIAL ASSETS
In F17 the recoverable amounts of cash generating units (CGUs) exceed their carrying values and as a result no
impairment has been recognised (F16: Nil). There were no indications that previously recognised impairment losses
should be reversed (F16: Nil). The recoverable amount was determined through a value in use calculation.
The Group’s CGUs are consistent with the prior period and are:
• Americas;
• Europe; and
• Australia and New Zealand (ANZ).
Accounting policies
Timing of impairment testing
The Group tests property, plant and equipment and intangible assets for impairment:
• At least annually for goodwill and indefinite life brands; and
• Where there are indications that an asset may be impaired; or
• Where there is an indication that previously recognised impairments may have changed.
Impairment losses are recognised in the statement of profit or loss and other comprehensive income.
Approach to impairment testing
If the asset does not generate independent cash inflows and its value in use cannot be estimated to be close to its fair
value, the asset is tested for impairment as part of the CGU to which it belongs.
When an asset’s (or CGU’s) carrying value exceeds its recoverable amount, it is impaired. Recoverable amount is the
higher of the asset’s (or CGU’s) fair value less costs of disposal or value in use.
Fair value is determined in accordance with the accounting policy set out in note 1.
In assessing value in use, the estimated future cash flows are discounted to their present value using a discount rate
that reflects current market assessments of the time value of money and the risks specific to the asset or CGU.
Reversals of impairment
If there is an indicator that a previously recognised impairment loss no longer exists or has decreased, recoverable
amount is estimated. If there has been a change in the estimates used to determine an asset’s recoverable amount
since an impairment loss was recognised, the carrying value of the asset is increased to its recoverable amount
(limited to the amount that would have been determined, net of depreciation, had no impairment loss been recognised
for the asset in prior years).
Any reversal is recognised in profit or loss with an adjustment to depreciation in future periods to allocate the asset’s
revised carrying value, less any residual value, on a systematic basis over its remaining useful life. The Group does
not reverse impairments recognised for goodwill.
TREASURY WINE ESTATES ANNUAL REPORT 2017 — 83
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS:
OPERATING ASSETS AND LIABILITIES
FOR THE YEAR ENDED 30 JUNE 2017
NOTE 14 – IMPAIRMENT OF NON-FINANCIAL ASSETS (CONTINUED)
Key estimate and judgement:
Impairment testing key assumptions
The Group has estimated recoverable amount based on value in use at 30 June 2017. Key estimates and
judgements include:
Cash flow forecasts
Cash flow forecasts are based on the Group’s most recent five-year financial plans approved by the Board.
Key assumptions in the cash flow forecasts include sales volume growth, cost of sales and cost of doing business.
The Group’s assumptions regarding sales volume growth and costs of doing business are based on expectations
of the market demand and past experience. The assumption on cost of sales is based on expectation about future
vintage costs.
This approach is consistent with the prior period.
Long-term growth rates
Cash flow forecasts beyond a five-year period are extrapolated using a growth rate range of 2.0% to 3.0% (F16: 2.5%).
Growth rates are specific to individual CGUs and reflect expected future market and economic conditions.
Discount rate
The Group applies a post-tax discount rate to post-tax cash flows as the valuation calculated using this method
closely approximates applying pre-tax discount rates to pre-tax cash flows. The post-tax discount rates incorporate
a risk-adjustment relative to the risks associated with the net post-tax cash flows being achieved. The Group used
the following pre-tax discount rates:
Americas
Europe
ANZ
2017
10.9%
10.0%
11.3%
2016
11.4%
10.5%
12.8%
Exchange rates
Cash flow forecasts in foreign currency are forecast in that currency and discounted using the applicable regional
discount rates (predominantly USD and GBP).
Sensitivity analysis
Increases in discount rates or changes in other key assumptions, such as operating conditions or financial
performance, may cause the recoverable amount to fall below carrying values.
Based on current economic conditions and CGU performances, there are no reasonably possible changes to key
assumptions used in the determination of CGU recoverable amounts that would result in a material impairment
to the Group.
84 — TREASURY WINE ESTATES ANNUAL REPORT 2017
NOTE 15 – PROVISIONS
Current
Employee entitlements
Other
Total current provisions
Other provisions
2017
Carrying amount at start of year
Charged/(credited) to profit or loss
Payments
Foreign currency translation
Carrying amount at end of year
20161
Carrying amount at start of year
Business acquisitions (note 27)
Charged/(credited) to profit or loss
Payments
Foreign currency translation
Carrying amount at end of year
2017
$M
34.9
26.4
61.3
20161
$M
38.8
41.3
80.1
ONEROUS
CONTRACTS
$M
RESTRUCTURING
$M
OTHER
$M
TOTAL
$M
12.6
(4.2)
(4.5)
(0.1)
3.8
8.7
10.9
(4.2)
(2.9)
0.1
12.6
27.4
11.8
(20.4)
(0.4)
18.4
41.1
0.1
16.1
(30.2)
0.3
27.4
1.3
3.0
(0.2)
0.1
4.2
3.6
–
–
(3.1)
0.8
1.3
41.3
10.6
(25.1)
(0.4)
26.4
53.4
11.0
11.9
(36.2)
1.2
41.3
1. Comparative balances have been restated to reflect the final purchase price accounting for the Diageo acquisition and a change
in accounting standards relating to Agricultural Assets. Refer to note 33 for details.
Onerous contract provisions are held for non-cancellable leases, IT infrastructure service contracts and wine grape
supply contracts that have been identified as being surplus to the Group’s needs. The restructuring provision comprises
costs in relation to the Group’s supply chain optimisation program and group rationalisation and restructure program.
Accounting policies
Provisions are recognised for present obligations (legal, equitable or constructive) to make future payments
(or other transfer of value) to other entities due to past transactions or events. They are recognised only when
it is probable the liability will arise and when a reliable estimate can be made of the amount.
If the effect of time value of money is material, provisions are determined by discounting the expected future cash
flows at a pre-tax risk free rate plus, where appropriate, the risks specific to the liability. Where discounting is used,
the increase in the provision due to the passage of time is recognised as a finance cost.
Employee entitlements
Liabilities for employees’ entitlements to wages and salaries, annual leave and other current employee entitlements
(that are expected to be paid within 12 months) are measured at amounts expected to be paid as at the reporting date.
Liabilities for other employee entitlements, which are not expected to be paid or settled within 12 months of reporting
date, are accrued in respect of all employees at the present value of future amounts expected to be paid.
Restructuring
Restructuring provisions are recognised at the point when a detailed plan for the restructure has been developed and
implementation has commenced. The cost of restructuring provided is the estimated future cash flows, discounted
at the appropriate rate which reflects the risks of the cash flow.
Termination benefits are payable when employment is terminated before the normal retirement date or whenever
an employee accepts voluntary redundancy in exchange for these benefits. The Group recognises termination benefits
when it is demonstrably committed to either terminating the employment of a current employee according to a detailed
formal plan without possibility of withdrawal or upon the provision of an offer to encourage voluntary redundancy.
Onerous contracts
Onerous contracts are measured at the lower of the expected cost of terminating the contract and the expected net cost
of continuing with the contract (discounted to present value if material).
TREASURY WINE ESTATES ANNUAL REPORT 2017 — 85
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS:
CAPITAL STRUCTURE
FOR THE YEAR ENDED 30 JUNE 2017
NOTE 16 – CAPITAL MANAGEMENT
The Group considers capital to be the combination of shareholders’ equity, reserves and net debt. The key objectives
of the Group’s approach to capital management include:
• Safeguard the Company’s ability to continue as a going concern;
• Maintaining a credit profile and the requisite financial metrics that secures access to funding with a spread
of maturity dates and sufficient undrawn committed facility capacity;
• Optimising over the long term, and to the extent practicable, the weighted average cost of capital to reduce the
Group’s cost of capital while maintaining financial flexibility; and
• To provide returns to shareholders and benefits to other stakeholders.
In order to optimise the Group’s capital structure and in line with the Group’s strategic objectives and operating plans,
the Company may:
• Alter the amount of dividends paid to shareholders;
• Return capital to shareholders;
• Issue new shares;
• Vary discretionary capital expenditure;
• Draw-down additional debt; or
• Sell assets to reduce debt.
Various financial ratios and internal targets are assessed and reported to the Board on a regular basis
by management to monitor and support the key objectives set out above. These ratios and targets include:
• An earnings to net interest expense ratio;
• A total net indebtedness to earnings before interest, tax, depreciation, amortisation and self-generating and
regenerating assets ratio; and
• Group debt maturity profile.
NOTE 17 – BORROWINGS
Total borrowings consist of:
Current
Non-current
Total borrowings
2017
$M
4.1
596.4
600.5
20161
$M
4.3
626.8
631.1
1. Comparative balances have been restated to reflect the final purchase price accounting for the Diageo acquisition and a change
in accounting standards relating to Agricultural Assets. Refer to note 33 for details.
Details of major arrangements
US Private Placement Notes and Debt Facilities
US Private Placement (USPP) notes of US$150.0 million were issued during the year bringing the total issued
amount to US$400.0 million (unsecured) with maturities ranging from December 2020 to June 2029. The carrying
value of USPP notes at 30 June 2017 is $520.8 million (F16: $348.5 million).
The Group’s bank debt facilities were refinanced during the year, with maturity extensions actioned on a portion
of existing commitments. As at 30 June 2017 no bank facilities were drawn therefore the carrying value is nil
(F16: $201.4 million).
USPP notes bear interest at fixed and floating interest rates. In accordance with the Group’s risk management strategy,
the Group has entered into a combination of fixed to floating and floating to fixed interest rate swaps to obtain the
desired fixed/floating interest ratio, with interest rate caps also used to manage interest rate risk. Refer to note 23 for
further details.
The Group is party to a number of finance lease arrangements which have a carrying value of $77.9 million
at 30 June 2017 (F16: $85.0 million). The Group’s finance lease arrangements have durations up to 14 years.
Financial guarantees
The Group has issued financial guarantees to other persons of $23.7 million (F16: $23.2 million) that could be called upon
at any time in the event of a breach of the Group’s financial obligations. No payments are expected to eventuate under
these financial guarantees as the Group expects to meet its respective obligations to the beneficiaries of these guarantees.
86 — TREASURY WINE ESTATES ANNUAL REPORT 2017
NOTE 17 – BORROWINGS (CONTINUED)
Receivables purchasing agreement
The Group has entered into an uncommitted non-recourse receivable purchasing agreement to sell certain domestic
and international receivables, from time to time, to an unrelated entity in exchange for cash. For the year ended
30 June 2017, no amounts had been sold under this arrangement (F16: nil).
Accounting policies
Borrowings are initially recorded at fair value of the consideration received, net of directly attributable costs.
After initial recognition, borrowings are measured at amortised cost, using the effective interest rate method. Amortised
cost is calculated by taking into account any issue costs, and any discount or premium on issuance. Gains and losses are
recognised in the statement of profit or loss and other comprehensive income if borrowings are derecognised.
NOTE 18 – CONTRIBUTED EQUITY
Issued and paid-up capital
738,135,033 (F16: 738,135,033) ordinary shares, fully paid
Own shares held
Contributed equity at the beginning of the period
Shares issued:
Nil (F16: 86,873,630 shares pursuant to the two for 15 rights issue)
Net movement in own shares held
Contributed equity at the end of the period
Securities purchased on market
The following securities were purchased on market by TWE during
the financial year for the purpose of the employee incentive scheme:
Ordinary Shares
Ordinary Shares
Ordinary Shares
Ordinary Shares
Ordinary Shares
Ordinary Shares
Ordinary Shares
Ordinary Shares
2017
$M
2016
$M
3,540.5
(11.9)
3,528.6
3,540.5
(6.9)
3,533.6
3,533.6
3,061.3
-
(5.0)
3,528.6
475.4
(3.1)
3,533.6
NUMBER
OF SHARES
PURCHASED
AVERAGE
PRICE PAID
PER SHARE
204,300
204,300
204,300
204,300
204,300
204,300
204,300
200,255
$11.21
$11.28
$11.21
$11.19
$11.24
$11.21
$11.35
$11.34
The shares have no par value.
Ordinary shares
Ordinary shares entitle the holder to participate in dividends and the proceeds on winding up of the Company in
proportion to the number of and amounts paid on the shares held. Ordinary shares entitle their holder to one vote,
either in person or by proxy, at a meeting of the Company. Incremental costs directly attributable to the issue of new
shares or options are shown in equity as a deduction, net of tax from the proceeds.
Treasury shares
Effective from 13 February 2017, the Group engaged a third party to purchase shares in the Company to be used
to satisfy share based payment obligations upon vesting under the Group’s Employee Equity Plans. Historically,
such commitments were satisfied by way of treasury share purchases (i.e. the Group acquiring shares on market
directly). Treasury shares that had previously been purchased remain available to satisfy any future vesting under
the Group’s Employee Equity Plans. A total of 4.9 million (F16: 1.3 million) shares are available at 30 June 2017.
During the year the Group purchased 1.6 million ($18.3 million) treasury shares and 3.9 million ($47.6 million)
shares under the third party arrangement.
When the Company reacquires its equity instruments (treasury shares) their cost is deducted from equity. No gain
or loss is recognised in profit or loss on the purchase, sale, issue or cancellation of treasury shares. Any difference
between the cost of acquisition and the consideration when reissued is recognised in share based payments reserve.
TREASURY WINE ESTATES ANNUAL REPORT 2017 — 87
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS:
CAPITAL STRUCTURE
FOR THE YEAR ENDED 30 JUNE 2017
NOTE 19 – COMMITMENTS
Leases
Non-cancellable leases
Commitments in relation to leases contracted for at the reporting date
but not recognised as liabilities, payable:
under one year
between one year and five years
over five years
Total lease commitments
Capital expenditure and other commitments
The following expenditure has been contracted but not provided for in the financial statements:
Capital expenditure
2017
$M
2016
$M
84.6
269.7
555.3
909.6
98.7
272.8
539.4
910.9
58.6
38.6
The Group’s leases of property expire between one and 25 years. Leases generally provide the Group with a right
of renewal at which time the requirement to renew the lease is considered and all terms are renegotiated.
Accounting policies
Leases
The determination of which of the Group’s arrangements are leases can be complex; for example determining
whether long-term contracts are for the supply of grapes or a lease of the vineyard. The assessment is made based
on the substance of the arrangement, whether it is dependent on the use of a specific asset or assets and if it conveys
a right of use.
When an arrangement is a lease, it is accounted for in one of two ways. Where the lessor retains substantially
all the risks and benefits of ownership of an asset it is classified as operating leases. Operating lease payments are
recognised as an expense on a straight-line basis over the lease term in the statement of profit or loss and other
comprehensive income.
Where the Group takes on substantially all the risks and benefits of ownership of the leased item it is classified
as a finance lease. An asset is recognised at the inception of the lease at the fair value of the leased asset or, if lower,
at the present value of the minimum lease payments. Lease payments are split between a finance expense and
a reduction of the lease liability so as to record a constant rate of interest on the remaining balance of the liability.
The asset is depreciated over the shorter of the estimated useful life of the asset or the lease term.
Refer to note 34 outlining the expected impact on the Group from the initial adoption of AASB 16 Leases.
NOTE 20 – RESERVES
Cash flow hedge reserve
Share based payments reserve
Foreign currency translation reserve
Total reserves
2017
$M
2.2
25.7
(51.8)
(23.9)
20161
$M
(2.3)
20.4
(1.0)
17.1
1. Comparative balances have been restated to reflect the final purchase price accounting for the Diageo acquisition and a change
in accounting standards relating to Agricultural Assets. Refer to note 33 for details.
Cash flow hedge reserve
This reserve records the effective portion of gains or losses from open cash flow hedges.
Share based payment reserve
This reserve records amounts offered to employees under Long-term Incentive Plan (LTIP), Restricted Equity Plan
(REP), deferred Short-term Incentive Plan (STIP) and Share Cellar plan.
Foreign currency translation reserve
This reserve holds exchange differences arising on translation of foreign subsidiaries, as described in note 1.
88 — TREASURY WINE ESTATES ANNUAL REPORT 2017
NOTE 21 – EMPLOYEE EQUITY PLANS
Outstanding at the beginning
of the year
Granted during the year
Vested during the year
Forfeited during the year
Outstanding at the end
of the year
Exercisable at the end of the year
STIP
(RESTRICTED
SHARES)
LTIP
(PERFORMANCE
RIGHTS)
REP
(RESTRICTED
SHARES/DEFERRED
SHARE RIGHTS)
SHARE CELLAR
(BROAD-BASED
EMPLOYEE
SHARE PLAN)
292,482
164,392
–
–
456,874
–
5,787,663
1,886,007
(2,842,019)
(581,659)
4,249,992
–
1,924,856
168,850
(543,205)
(138,752)
1,411,749
–
86,966
59,060
(15,951)
(8,487)
121,588
–
The Group operates equity plans as outlined below:
F15 Short-term Incentive Plan (STIP) Restricted Equity
One-third of earned STIP is delivered in the form of deferred equity (Restricted Shares). The key terms of this award are:
• Subject to a mandatory two-year disposal restriction period and continued employment;
• Holders of Restricted Shares are entitled to dividends and to exercise their voting rights during the restriction;
• Will generally be forfeited if the executive is dismissed for cause or resigns. Clawback mechanisms also exist.
F16 STIP Restricted Equity and F17 STIP Restricted Equity
One-third of earned STIP is delivered in the form of deferred equity (Restricted Shares). The key terms of this award are:
• Subject to a mandatory restriction period and continued employment. Half of the award is restricted for one year
and the remaining half for two years from grant date;
• Holders of Restricted Shares are entitled to dividends and to exercise their voting rights during the restriction;
• Will generally be forfeited if the executive is dismissed for cause or resigns. Clawback mechanisms apply.
LTIP
Under the LTIP certain employees receive Performance Rights which entitle participants to receive the Company’s
shares at no cost subject to the achievement of performance conditions and continued employment. No dividends are
payable to participants prior to vesting.
For the F15 award (vested at 30 June 2017), Performance Rights are subject to dual performance measures with equal
weighting over a performance period of three years.
• Relative Total Shareholder Return (TSR)
• Earnings per Share (EPS) compound annual growth rate (CAGR)
• Will generally be forfeited if the executive is dismissed for cause or resigns. Clawback mechanisms apply.
For the F16 and F17 awards, Performance Rights are subject to dual performance measures with equal weighting over
a performance period of three years.
• Relative Total Shareholder Return (TSR)
• Return on Capital Employed (ROCE) growth
• Will generally be forfeited if the executive is dismissed for cause or resigns. Clawback mechanisms apply.
Restricted Equity Plan (REP)
Under the REP, certain employees receive a grant of restricted equity awards in the form of Restricted Shares.
If Restricted Shares cannot be awarded (e.g. due to country specific regulation) Deferred Share Rights are granted.
The award is at no cost to the employee and is subject to a restriction period. Restricted equity awards require continued
employment with the Group through the restriction period. Other terms are similar to the STIP terms above.
Restricted equity awards may be granted to compensate employees for foregoing equity compensation in their previous
organisation as a sign-on award and/or as a retention incentive.
Share Cellar (broad-based Employee Share Plan)
Share Cellar is the Group’s broad-based Employee Share Plan and plan participation is offered annually. The plan
was first launched early in 2015. Participation is voluntary and employees in select countries are eligible to join the
Plan. Share Cellar operates as a matching plan whereby employees contribute funds to the Plan from their after-tax
pay and shares are acquired by the Group on their behalf. If the individual continues to hold their shares, and
remains an employee of the Group at the vesting date (approximately two years), the Group will grant one matched
share for every two purchased shares they hold.
Participants are entitled to dividends and to exercise voting rights attached to the shares purchased under the plan,
and matched shares once they have been allocated.
TREASURY WINE ESTATES ANNUAL REPORT 2017 — 89
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS:
CAPITAL STRUCTURE
FOR THE YEAR ENDED 30 JUNE 2017
NOTE 21 – EMPLOYEE EQUITY PLANS (CONTINUED)
Accounting policies
Employee equity plans are accounted for as share based payments, whereby employees render services in exchange for
the awards. The fair value of the shares and performance rights that are expected to vest is progressively recognised
as an employee benefits expense over the relevant vesting period with a corresponding increase in equity.
The fair value of shares granted is determined by reference to observed market values. The fair value of the TSR
component of performance rights is independently determined at grant date by an external valuer using a Monte-Carlo
simulation. For the non-market components (EPS CAGR and ROCE), the fair value is independently determined based
on the share price less the present value of dividends.
Non-market performance conditions do not impact the value of shares and performance rights, but rather the estimate
of the number of shares to vest.
At each reporting date the Company revises the estimate of the number of shares and the non-market component
of performance rights that are expected to vest and the employee benefits expense recognised each period incorporates
this change in estimate.
An expense is recognised for the TSR component of performance rights whether or not the TSR hurdle is met.
No expense is recognised if these rights do not vest due to cessation of employment. No expense is recognised for
shares and non-market components of performance rights that do not ultimately vest.
Active share based payment plans:
Long-term Incentive Plans
The below table outlines the F16 and F17 LTIP plans which have a vesting date post 30 June 2017:
GRANT DATE
Grant date share price
Expected share price volatility (%)
Expected dividend yield (%)
Risk-free interest rate (%)
Fair value estimate at grant date – TSR
Fair value estimate at grant date – ROCE
Restricted Equity Plans
GRANT DATE
F14
18-Dec-13
30-Apr-14
16-May-14
F15
29-Aug-14
24-Sep-14
17-Nov-14
6-Mar-15
F16
4-Sep-15
4-Dec-15
F17
5-Dec-16
90 — TREASURY WINE ESTATES ANNUAL REPORT 2017
04-DEC-15
05-DEC-16
$7.97
34.0
2.8
2.2
$6.50
$7.42
$10.42
35.0
2.3
1.9
$6.44
$9.82
GRANT DATE
SHARE PRICE
$4.57
$3.81
$4.08
$5.11
$4.93
$4.52
$5.29
$5.98
$7.97
$10.42
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS:
TAXATION
FOR THE YEAR ENDED 30 JUNE 2017
NOTE 22 – INCOME TAX
The major components of income tax expense are:
Statement of profit or loss
Current income tax
Deferred income tax
Total tax expense
Deferred income tax expense included in the income tax expense comprises:
Decrease in deferred tax assets
(Decrease) in deferred tax liabilities
Deferred income tax
Tax reconciliation
The amount of income tax expense as shown in the statement of profit or loss and other
comprehensive income differs from the prima facie income tax expense attributable to earnings.
The differences are reconciled as follows:
Profit before tax excluding material items
Material items before tax
Profit before tax
Prima facie income tax expense attributable to profit from operations
calculated at the rate of 30% (F16: 30%)
Tax effect of:
Non-taxable income and profits, net of non-deductible expenditure
Other deductible items
Tax losses recognised
Change in tax rate
Foreign tax rate differential
Other
Under/(over) provisions in previous years
Total tax expense
Income tax expense on operations
Income tax benefit attributable to material items
Income tax expense
Deferred income tax relates to the following:
Deferred tax assets
The balance comprises temporary differences attributable to:
Inventory
Property, plant and equipment (including vines)
Accruals
Provisions
Foreign exchange
Tax losses
Other
Total deferred tax assets
Deferred tax liabilities
The balance comprises temporary differences attributable to:
Inventory
Property, plant and equipment (including vines)
Intangibles
Foreign exchange
Other
Total deferred tax liabilities
2017
$M
20161
$M
75.7
41.6
117.3
42.9
(1.3)
41.6
422.3
(35.1)
387.2
116.2
2.7
(1.7)
(6.0)
0.4
4.4
(0.2)
1.5
117.3
130.4
(13.1)
117.3
25.2
0.5
34.5
27.9
–
89.4
30.5
208.0
11.4
71.6
143.6
2.6
4.7
233.9
38.3
37.5
75.8
44.4
(6.9)
37.5
302.0
(52.8)
249.2
74.8
3.9
(0.9)
(5.7)
0.8
0.9
2.7
(0.7)
75.8
90.5
(14.7)
75.8
52.2
18.4
36.5
32.6
2.1
89.8
38.4
270.0
2.2
86.4
151.6
–
4.9
245.1
1. Comparative balances have been restated to reflect the final purchase price accounting for the Diageo acquisition and a change
in accounting standards relating to Agricultural Assets. Refer to note 33 for details.
TREASURY WINE ESTATES ANNUAL REPORT 2017 — 91
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS:
TAXATION
FOR THE YEAR ENDED 30 JUNE 2017
NOTE 22 – INCOME TAX (CONTINUED)
Movements in deferred income tax relate to the following:
Movement in deferred tax assets:
Opening balance
(Charged) to the profit or loss
Business acquisitions (note 27)
Foreign currency translation
Balance sheet reclassification
Other
Closing balance
Movement in deferred tax liabilities:
Opening balance
(Charged) to the profit or loss
Business acquisitions (note 27)
Foreign currency translation
Balance sheet reclassification
Other
Closing balance
2017
$M
20161
$M
270.0
(42.9)
–
(6.3)
(12.4)
(0.4)
208.0
245.1
(1.3)
–
(6.9)
(3.6)
0.6
233.9
193.3
(44.4)
135.7
5.6
(22.0)
1.8
270.0
169.0
(6.9)
96.0
5.0
(18.7)
0.7
245.1
Amounts recognised directly in equity
Aggregate current and deferred tax arising in the reporting period
and not recognised in net profit or loss but directly debited to equity
3.1
0.8
1. Comparative balances have been restated to reflect the final purchase price accounting for the Diageo acquisition and a change
in accounting standards relating to Agricultural Assets. Refer to note 33 for details.
Unrecognised tax assets
There are potential future income tax benefits relating to accumulated losses in non-Australian group companies,
which have not been brought to account. These possible benefits amount to $43.8 million (F16: $66.6 million).
The Group has carry forward capital tax losses in Australia and the UK respectively. These losses may be used
to offset any future capital gains derived by activities in these countries. The Group will assess the conditions for
deductibility imposed by the tax laws of Australia and the UK prior to any utilisation of the capital losses.
Ongoing tax audits
The Group is subject to ongoing tax audits by taxation authorities in several jurisdictions covering a variety of taxes.
The Group fully cooperates with these enquiries as and when they arise.
Franking credits
The Australian Tax Consolidation Group has $36.7 million (F16: $9.5 million) franking credits available for
subsequent reporting periods.
Key estimate and judgement:
Taxation
The Group is subject to income taxes in Australia and jurisdictions where it has foreign operations. Significant
judgement is required in determining the worldwide provision for income taxes. There are many transactions and
calculations undertaken during the ordinary course of business for which the ultimate tax determination is uncertain.
Where the final tax outcome of these matters is different from the amounts that were initially recorded, such
differences will impact the current and deferred tax provisions in the period in which such determination is made.
92 — TREASURY WINE ESTATES ANNUAL REPORT 2017
NOTE 22 – INCOME TAX (CONTINUED)
Accounting policies
Current taxes
Current tax assets and liabilities are measured at the amount expected to be recovered from, or paid to, taxation
authorities at the tax rates and tax laws enacted or substantively enacted by the reporting date.
Deferred taxes
Deferred income tax liabilities are recognised for all taxable temporary differences. Deferred income tax assets
are recognised for all deductible temporary differences, carried forward unused tax assets and unused tax losses,
to the extent it is probable that they will be utilised.
Unrecognised deferred income tax assets are reassessed at each reporting date and are recognised to the extent that
it will become possible that future taxable profit will allow the deferred tax asset to be recovered.
The carrying amount of deferred income tax assets is reviewed at balance sheet date and reduced to the extent that
it is no longer probable that sufficient taxable profit will be available to utilise them.
Deferred income tax assets and liabilities are measured at the tax rates that are expected to apply to the year when
the asset is realised or the liability is settled, based on tax rates and tax laws that have been enacted or substantively
enacted at the balance sheet date.
Deferred income tax is provided on temporary differences at balance sheet date between accounting carrying amounts
and the tax bases of assets and liabilities, other than for:
• The initial recognition of an asset or liability in a transaction that is not a business combination and at the time
of the transaction, affects neither the accounting profit nor taxable profit or loss or on the recognition of goodwill.
• Foreign taxes which may arise in the event of retained profits of foreign controlled entities being remitted to
Australia as there is no present intention to make any such remittances.
Deferred tax assets and deferred tax liabilities associated with indefinite life intangibles such as brand names are
measured based on the tax consequences that would follow from the use and sale of that asset.
Income taxes relating to items recognised directly in equity are recognised in equity and not in profit or loss.
Offsetting deferred tax balances
Deferred tax assets and deferred tax liabilities are offset only if a legally enforceable right exists to set off current
tax assets against current tax liabilities and the deferred tax assets and liabilities relate to the same taxable entity
and the same taxation authority.
TREASURY WINE ESTATES ANNUAL REPORT 2017 — 93
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS:
RISK
FOR THE YEAR ENDED 30 JUNE 2017
NOTE 23 – FINANCIAL RISK MANAGEMENT
Financial risk management framework
The Group’s financial risk management policies (‘Group Treasury Policies’) cover risk tolerance, internal controls
(including segregation of duties), delegated authority levels, management of foreign currency, interest rate and
counterparty credit exposures, and the reporting of exposures. These policies are reviewed at least annually
and approved by the Board of Directors.
The centralised Group Treasury function has been delegated operational responsibility for the identification and
management of financial risks.
The Group holds financial instruments from financing (principally borrowings), transactions (trade receivables and
payables) and risk management (derivatives) which result in exposure to the following financial risks, covered by the
Group Treasury Policies:
• Liquidity risk;
• Interest rate risk;
• Foreign exchange risk; and
• Counterparty credit risk.
The following table outlines how these risks impact Group financial assets and liabilities:
Net borrowings
Receivables
Other financial assets
Payables
Derivative financial assets and liabilities
(a) Liquidity risk
LIQUIDITY
RISK
(a)
INTEREST
RATE RISK
(b)
FOREIGN
EXCHANGE
RISK
(c)
CREDIT
RISK
(d)
✕
✕
✕
✕
✕
✕
✕
✕
✕
✕
✕
✕
✕
✕
NOTE
17
9
9
9
24, 34
Nature of the risk
The Group is exposed to liquidity risk primarily from its core operating activities. The Group’s focus is to ensure it is able
to meet financial obligations as and when they fall due.
Risk management
The Group ensures the maintenance, at all times, of an appropriate minimum level of liquidity, comprising committed,
unutilised debt facilities and cash resources. To facilitate this, the Group monitors forecast and actual cash flows,
performs sensitivity analysis as well as monitoring the availability and cost of debt and equity funding.
The Group’s objective is to balance continuity of funding and flexibility by maintaining an appropriately structured
debt maturity profile with a mix of bank and capital (bond) market debt, whilst also monitoring compliance with the
Group’s key financial covenants and undertakings.
At reporting date, the standby arrangements and unused credit facilities are as follows:
Committed facilities
Available facilities
Amounts utilised
Amount unutilised
The Group is in compliance with all undertakings under its various financing arrangements.
2017
$M
2016
$M
1,178.8
(520.8)
658.0
1,004.8
(537.0)
467.8
94 — TREASURY WINE ESTATES ANNUAL REPORT 2017
NOTE 23 – FINANCIAL RISK MANAGEMENT (CONTINUED)
(a) Liquidity risk (continued)
Level of exposure at balance date
The following tables analyse the maturities of the Group’s contractual undiscounted cash flows arising from its material
financial liabilities, net and gross settled derivative financial instruments.
6 MONTHS
OR LESS
$M
6 MONTHS
TO 1 YEAR
$M
1 TO 2
YEARS
$M
2 TO 5
YEARS
$M
OVER
5 YEARS
$M
CONTRACTUAL
TOTAL
$M
CARRYING
AMOUNT
$M
MATURING IN:
2017
Non-derivative
financial liabilities
Bank loans1
Finance leases
Other loans
US Private Placement Notes
Trade payables
Other payables
(financial liabilities)
Derivative
financial liabilities
Foreign exchange contracts
Interest rate swaps
Total financial liabilities
20162
Non-derivative
financial liabilities
Bank loans1
Bank overdraft
Finance leases
Other loans
US Private Placement Notes
Trade payables
Other payables
(financial liabilities)
Derivative
financial liabilities
Foreign exchange contracts
Interest rate swaps
Total financial liabilities
–
4.4
–
10.4
279.5
383.0
0.1
0.9
678.3
2.9
4.0
4.2
–
6.2
289.1
364.9
0.6
0.8
672.7
–
4.1
–
9.3
–
–
0.2
1.3
14.9
2.9
–
4.2
–
5.8
–
–
0.7
0.6
14.2
–
8.2
0.8
18.7
–
–
0.2
2.6
30.5
139.6
–
8.6
0.8
11.6
–
–
24.5
–
152.0
–
–
63.5
–
486.4
–
–
104.7
0.8
676.8
279.5
(3.0)
77.9
0.8
520.8
279.5
–
–
383.0
383.0
–
7.8
184.3
–
3.9
553.8
0.5
16.5
1,461.8
0.5
4.2
1,263.7
72.6
–
25.3
–
135.0
–
–
–
73.9
–
267.0
–
–
–
–
218.0
4.0
116.2
0.8
425.6
289.1
364.9
196.6
4.0
85.0
0.8
348.5
289.1
364.9
–
1.0
161.6
–
2.2
235.1
–
0.8
341.7
1.3
5.4
1,425.3
1.3
0.1
1,290.3
1. Loans are stated net of capitalised facility finance costs. At reporting date, the balance of bank loans is US$nil million (F16: US$150 million)
against capitalised facility finance costs of $3.0 million (F16: $4.8 million) to be amortised over the facility period.
2. Comparative balances have been restated to reflect the final purchase price accounting for the Diageo acquisition and a change in accounting
standards relating to Agricultural Assets. Refer to note 33 for details.
TREASURY WINE ESTATES ANNUAL REPORT 2017 — 95
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS:
RISK
FOR THE YEAR ENDED 30 JUNE 2017
NOTE 23 – FINANCIAL RISK MANAGEMENT (CONTINUED)
(b) Interest rate risk
Nature of the risk
The Group is exposed to interest rate risk principally from floating rate borrowings, including bank borrowings
and US Private Placement Notes. Other sources of interest rate risk include receivable purchasing agreements,
interest-bearing investments, creditors’ accounts offering a discount and debtors’ accounts on which discounts
are offered.
Risk management
We manage interest rate risk by ensuring that the sensitivity of forecast future earnings to changes in interest rates
is within acceptable limits. This involves longer term forecasting of both expected earnings and expected borrowing
to determine the tolerable exposure.
A combination of interest rate swaps were exchanged to obtain the desired ratio of fixed and floating interest rates.
At 30 June 2017, interest rate swap contracts were in use to exchange fixed interest rates on $260.4 million
(US$200.0 million) of US Private Placement notes to floating rates. The swaps mature in December 2023, June 2027
and June 2029. Please refer note 23(a) for the profile and timing of cash flows over the next five years.
Level of exposure at balance date
The Group’s exposure to variable interest rate risk results from the following financial instruments at balance sheet date:
Financial assets
Cash and cash equivalents
Total assets
Financial liabilities
Bank overdraft
US Private Placement Notes1
Bank loans
Total liabilities
1. Net of hedged amounts.
2017
$M
240.8
240.8
–
195.3
–
195.3
2016
$M
256.1
256.1
4.0
67.1
67.1
138.2
Sensitivity analysis
The table below shows the impact by currency denomination if the Group’s weighted average floating interest rates
change from the year-end rates of 0.67% (F16: 1.10%) with all other variables held constant.
CURRENCY
USD
AUD
GBP
SENSITIVITY
2017
2016
+ / – 25bp
+ / – 25bp
+ / – 25bp
+ / – 25bp
+ / – 25bp
+ / – 25bp
PRE-TAX IMPACT ON PROFIT
+
$M
(0.1)
0.0
0.1
2017
–
$M
0.1
0.0
(0.1)
+
$M
(0.2)
0.2
0.1
2016
–
$M
0.2
(0.2)
(0.1)
The movements in profit on a consolidated level are primarily a result of interest costs from borrowings.
There would have been no significant impact on equity.
96 — TREASURY WINE ESTATES ANNUAL REPORT 2017
NOTE 23 – FINANCIAL RISK MANAGEMENT (CONTINUED)
(c) Foreign exchange risk
Nature of the risk
The Group is exposed to foreign exchange risk through:
• Transaction exposures including sales of wine into export markets and the purchase of production inputs,
denominated in foreign currencies other than the respective functional currency of the specific Group entity;
• Exposures arising from borrowings denominated in foreign currencies; and
• Translation exposures including earnings of foreign subsidiaries and revaluation of monetary assets and liabilities,
including borrowings.
The currencies in which these transactions are primarily denominated are the Australian Dollar (AUD), United States
Dollar (USD) and Great British Pound (GBP). Other currencies used include the Canadian Dollar, Euro, New Zealand
Dollar, Singapore Dollar, Swedish Krona, Norwegian Krone and South African Rand.
Risk management
The focus of the Group’s foreign exchange risk management activities is on the transactional exposures arising from
the sourcing and sale of wine.
A proportion of expenses are hedged over time up to a period of three years. The timing, nominal amount and average
price of the instruments in place at 30 June 2017 are disclosed in the table below.
In determining the amount of hedging required, the Group also considers the ‘natural hedges’ arising from the
underlying net cash flows in the relevant currency, comprising operating, investing and financing cash flows.
Details of the Group’s open hedges at balance sheet date are shown below.
Open foreign currency hedges at 30 June 2017
CURRENCY
HEDGE TYPE
HEDGE VALUE
(NOTIONAL AUD)
AVERAGE
HEDGE
RATE
AUD/USD
AUD/GBP
EUR/GBP
USD/GBP
ZAR/GBP
Forward
Option Collar
Total
Forward
Option Collar
Total
Option Collar
Total
Forward
Option Collar
Total
Forward
Option Collar
Total
18.0
100.2
118.2
15.0
85.4
100.4
5.4
5.4
13.3
13.3
26.6
3.7
3.2
6.9
0.74
0.81
0.58
0.62
0.87
1.29
1.24
18.75
17.32
TREASURY WINE ESTATES ANNUAL REPORT 2017 — 97
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS:
RISK
FOR THE YEAR ENDED 30 JUNE 2017
NOTE 23 – FINANCIAL RISK MANAGEMENT (CONTINUED)
(c) Foreign exchange risk (continued)
Level of exposure at balance date
At the reporting date, the Group’s financial assets and liabilities were denominated across the following currencies:
ALL BALANCES TRANSLATED TO AUD
2017
Net debt
Cash and cash equivalents
Loan receivable
Bank loans1
US Private Placement Notes (net of fair value hedge)
Lease liabilities
Other loan payable
Net debt
Other financial assets/(liabilities)
Trade receivables (net of the allowance for doubtful debts)
Other receivables
Trade and other payables
Net other assets/(liabilities)
20162
Net debt
Cash and cash equivalents
Bank overdraft
Loan receivable
Bank loans1
US Private Placement Notes (net of fair value hedge)
Lease liabilities
Other loan payable
Net debt
Other financial assets/(liabilities)
Trade receivables (net of the allowance for doubtful debts)
Other receivables
Trade and other payables
Net other assets/(liabilities)
AUD
$M
USD
$M
GBP
$M
OTHER
$M
TOTAL
$M
18.3
0.9
1.5
–
(0.3)
(0.8)
19.6
211.0
55.6
(282.3)
(15.7)
61.8
–
0.9
4.8
–
(0.5)
(0.8)
66.2
238.9
5.9
(262.4)
(17.6)
108.3
–
1.5
(520.8)
(77.6)
–
(488.6)
122.9
31.6
(330.8)
(176.3)
53.8
–
–
(201.4)
(335.6)
(84.5)
–
(567.7)
178.3
11.0
(351.3)
(162.0)
56.8
–
–
–
–
–
56.8
83.2
1.0
(63.0)
21.2
84.4
–
–
–
–
–
84.4
60.8
2.4
(79.9)
(16.7)
57.4
–
–
–
–
–
57.4
57.4
15.6
(43.8)
29.2
56.1
(4.0)
–
–
–
–
52.1
71.0
2.0
(32.7)
40.3
240.8
0.9
3.0
(520.8)
(77.9)
(0.8)
(354.8)
474.5
103.8
(719.9)
(141.6)
256.1
(4.0)
0.9
(196.6)
(335.6)
(85.0)
(0.8)
(365.0)
549.0
21.3
(726.3)
(156.0)
1. Includes capitalised borrowing costs of $3.0 million (F16: $4.8 million).
2. Comparative balances have been restated to reflect the final purchase price accounting for the Diageo acquisition and a change
in accounting standards relating to Agricultural Assets. Refer to note 33 for details.
Sensitivity analysis
The following table illustrates the impact of potential foreign exchange movements on profit before tax and the
statement of financial position at 30 June:
CURRENCY
United States Dollar
Great British Pound2
Euro
Canadian Dollar
New Zealand Dollar2
SENSITIVITY
ASSUMPTION1
2017
2016
9.3% 12.3%
13.1%
9.8%
11.1%
9.3%
9.1%
7.9%
8.8%
7.0%
PRE-TAX IMPACT ON PROFIT
($M)
IMPACT ON EQUITY
($M)
2017
–
1.0
0.4
0.4
1.8
–
+
(0.9)
(0.3)
(0.3)
(1.6)
–
2016
–
0.2
(0.1)
4.7
2.2
–
+
(130.4)
(24.1)
(3.3)
0.8
(9.1)
2017
–
162.2
30.0
4.1
(0.9)
10.4
+
(178.0)
(25.3)
(5.3)
(0.9)
(9.6)
2016
–
230.2
37.1
6.0
1.1
11.4
+
(0.2)
–
(3.8)
(1.8)
–
1. Australian dollar versus individual currencies. Implied one year currency volatility at reporting date (Source: Bloomberg).
2. The ‘ – ’ denotes a balance that is less than $100,000.
98 — TREASURY WINE ESTATES ANNUAL REPORT 2017
NOTE 23 – FINANCIAL RISK MANAGEMENT (CONTINUED)
(d) Credit risk
Nature of the risk
Counterparty credit risk arises primarily from the following assets:
• Cash and cash equivalents;
• Trade and other receivables; and
• Derivative instruments
Risk management
The Group’s counterparty credit risk management philosophy is to limit the Group’s loss from default by any one
counterparty by dealing only with financial institution counterparties of good credit standing, setting maximum
exposure limits for each counterparty, and taking a conservative approach to the calculation of counterparty
credit limit usage. Where available, credit opinions on counterparties from two credit rating agencies are used
to determine credit limits.
The Group assesses the credit quality of individual customers prior to offering credit terms and continues to monitor
on a regular basis. Each customer is assigned a risk profile based upon the measurable risk indicators for dishonoured
payments, adverse information and average days late along with the securities and guarantees held. All prospective
accounts are required to complete a credit application and generally a director’s guarantee is required with minimal
exceptions. Failure to provide a director’s guarantee results in either no credit or a limited level of credit offered.
Credit terms may be reduced or extended for individual customers on the basis of risk.
Past due accounts are subject to a number of collection activities which range from telephone contact, suspension
of orders through to legal action. Past due accounts are reviewed monthly with specific focus on accounts that are
greater than 90 days overdue. Where debt cannot be recovered, it is escalated from the credit representative to the
credit manager to initiate recovery action.
For derivatives, the Group transacts under an International Swaps and Derivatives Association (ISDA) master
netting agreement. If a credit event such as a default occurs, all outstanding transactions under an ISDA agreement
are terminated, the termination value is assessed and only a single net amount is payable in settlement of all
transactions.
Level of exposure at balance date
The maximum counterparty credit risk exposure at 30 June 2017 in respect of derivative financial instruments was
$4.1 million (F16: $5.1 million) and in respect of cash and cash equivalents was $67.4 million (F16: $53.7 million).
The Group’s authorised counterparties are restricted to banks and financial institutions whose long term credit rating
is at or above a Standard and Poor’s rating of A- (or Moody’s equivalent rating of A3), with any exceptions requiring
approval from the Board. Commercial paper investments are restricted to counterparties whose short term credit
rating is at or above a Standard and Poor’s rating of A-1 (or Moody’s equivalent rating of P-2). The magnitude of credit
risk in relation to receivables is generally the carrying amount, net of any provisions for doubtful debts. The ageing
of the consolidated Group trade receivables (net of provisions) is outlined below:
Not past due
Past due 1–30 days
Past due 31–60 days
Past due 61 days+
Total
2017
$M
455.1
13.4
2.3
3.7
474.5
2016
$M
521.4
16.8
6.0
4.8
549.0
Trade receivables have been aged according to their original due date. Terms may be extended on a temporary basis
with the approval of management. The past due receivables shown above relate to customers who have a good debt
history and are considered recoverable. There is no collateral held as security against the receivables above and there
are no other receivables past due.
TREASURY WINE ESTATES ANNUAL REPORT 2017 — 99
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS:
RISK
FOR THE YEAR ENDED 30 JUNE 2017
NOTE 24 – DERIVATIVE FINANCIAL INSTRUMENTS
At reporting date there were $312.2 million (Australian dollar equivalent) net face value of outstanding foreign
exchange contracts at contract rates (F16: $192.0 million) and interest rate swaps of $390.6 million (F16: $402.8 million).
These instruments are regarded as being Level 2 under AASB’s Fair Value measurement hierarchy.
NOTE 25 – FAIR VALUES
The fair values of cash and cash equivalents, financial assets and most financial liabilities approximate their carrying
value. The fair value of the US Private Placement Notes is $590.1 million (F16: $401.6 million). There have been no
reclassifications of financial assets from fair value to cost, or from cost or amortised cost to fair value during the year.
The fair values of derivative financial instruments are based upon market prices, or models using inputs observed
from the market, where markets exist or have been determined by discounting the expected future cash flows by the
current interest rate for financial assets and financial liabilities with similar risk profiles (a Level 2 valuation).
The valuation of derivative financial assets and liabilities reflects the estimated amounts which the Group would be
required to pay or receive to terminate the contracts (net of transaction costs) or replace the contracts at their current
market rates at reporting date. This is based on internal valuations using standard valuation techniques.
As the purpose of these derivative financial instruments is to hedge the Group’s underlying assets and liabilities
denominated in foreign currencies and to hedge against risk of interest rate fluctuations, it is unlikely in the absence
of abnormal circumstances that these contracts would be terminated prior to maturity.
For all other recognised financial assets and financial liabilities, based on the facts and circumstances existing
at reporting date and the nature of the Group’s financial assets and financial liabilities including hedge positions,
the Group has no reason to believe that the financial assets could not be exchanged, or the financial liabilities could
not be settled, in an arm’s length transaction at an amount approximating its carrying amount.
NOTE 26 – CLASS ACTION
On 28 August 2017, the Company reached an agreement to settle the previously announced shareholder class action
commenced by Brian Jones (represented by Maurice Blackburn) on 2 July 2014 relating to historical market disclosures
that occurred in 2013. The settlement of the claim, which is subject to Court approval, was announced to Justice Foster
in the Federal Court on 28 August 2017. It is expected that the Court will consider approval of the settlement in
September or early October 2017. The settlement is fully insured and will have no impact on the Company’s financial
results, and is without admission of liability.
A second class action was commenced in the Supreme Court of Victoria on 22 December 2014 by Melbourne City
Investments Pty Ltd (MCI) on behalf of shareholders who acquired the Company’s shares on or after 17 August 2012
and who held those shares on 15 July 2013. This proceeding was commenced following an earlier proceeding
commenced by MCI having been permanently stayed by order of the Supreme Court of Victoria as being an abuse
of process, and the High Court having refused MCI special leave to appeal this decision. On 5 July 2016 Justice
Foster of the Federal Court ordered the second MCI proceeding also be permanently stayed as an abuse of process.
100 — TREASURY WINE ESTATES ANNUAL REPORT 2017
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS:
GROUP COMPOSITION
FOR THE YEAR ENDED 30 JUNE 2017
NOTE 27 – BUSINESS ACQUISITIONS
There have been no business acquisitions for the year ended 30 June 2017.
Diageo Chateau & Estates
On 1 January 2016 the Company acquired 100% of the ordinary shares of Diageo Chateau & Estates, a company
incorporated in the US. This included the acquisition of related assets in the UK. The acquisition accounting for this
transaction has now been finalised.
The final acquisition accounting resulted in a $41.3 million increase to the goodwill recognised on acquisition,
predominately attributable to non-current assets. There was no impact to the Group’s profit/loss as a result
of these changes. Refer to note 33(a) for further details in relation to the finalisation of the acquisition accounting.
Acquisition of assets
The acquisition method of accounting is used for all asset acquisitions regardless of whether equity instruments
or other assets are acquired.
Cost is measured as the fair value of cash, shares issued or liabilities undertaken at the date of acquisition. Costs directly
attributable to the acquisition are generally included in the asset’s carrying amount. Transaction costs arising on the
issue of equity instruments are recognised directly in equity.
Where settlement of any part of cash consideration is deferred, the amount payable in the future is discounted
to its present value.
Key estimate and judgement:
Business combinations
Business combinations (acquisitions of subsidiaries) are accounted for using the acquisition method. The consideration
transferred in a business combination is measured at fair value, which is calculated as the sum of the acquisition
date fair values of the assets transferred by the acquirer, the liabilities incurred by the acquirer to former owners
of the acquiree and the equity issued by the acquirer. Acquisition-related costs are expensed as incurred, and included
in administration expenses.
Identifiable assets acquired and liabilities and contingent liabilities assumed in a business combination are, with
limited exceptions, measured initially at their fair values at the acquisition date. When the Group acquires a business,
it assesses the financial assets and liabilities assumed for appropriate classification and designation in accordance with
the contractual terms, economic conditions, the Group’s operating or accounting policies and other pertinent conditions
as at the acquisition date. The excess of the consideration transferred over the fair value of the net identifiable assets
acquired is recorded as goodwill. Under the acquisition method, the Group has up to 12 months post the acquisition
date to finalise the fair value of identifiable assets and liabilities.
TREASURY WINE ESTATES ANNUAL REPORT 2017 — 101
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS:
GROUP COMPOSITION
FOR THE YEAR ENDED 30 JUNE 2017
NOTE 28 – SUBSIDIARIES
The consolidated financial statements incorporate the assets, liabilities and results of the following subsidiaries:
ENTITY NAME
Equity holding of 100% (F16: 100%)
Aldershot Nominees Pty. Ltd.*
B Seppelt & Sons Limited*
Beringer Blass Distribution S.R.L.
Beringer Blass Italia S.R.L.
Beringer Blass Wine Estates Chile Limitada
Beringer Blass Wine Estates Limited
Beringer Blass Wines Pty. Ltd.*
Bilyara Vineyards Pty. Ltd.*
Cellarmaster Wines (UK) Limited
Cellarmaster Wines Holdings (UK) Limited
Coldstream Australasia Limited*
Cuppa Cup Vineyards Pty. Ltd.
Devil’s Lair Pty. Ltd.
Ewines Pty. Ltd.
FBL Holdings Limited
Il Cavaliere del Castello di Gabbiano S.r.l.
Interbev Pty. Ltd.*
Island Cooler Pty. Ltd.(a)
James Herrick Wines Limited
Leo Buring Pty. Ltd.
Lindeman (Holdings) Limited*
Lindemans Wines Pty. Ltd.
Mag Wines Pty. Ltd
Majorca Pty. Ltd.*
MBL Packaging Pty. Ltd.(b)
Mildara Holdings Pty. Ltd.*
North America Packaging (Pacific Rim) Corporation
Penfolds Wines Pty Ltd
Piat Pere et Fils B.V.
Premium Land, Inc.
Robertsons Well Pty. Ltd.
Robertsons Well Unit Trust
Rosemount Estates Pty. Ltd.
Rothbury Wines Pty. Ltd.*
SCW905 Limited*
Seaview Wynn Pty. Ltd.*
Southcorp Australia Pty. Ltd.*
Southcorp Brands Pty. Ltd.*
Southcorp International Investments Pty. Ltd.*
Southcorp Limited*
Southcorp NZ Pty. Ltd.*
Southcorp Whitegoods Pty. Ltd.
Southcorp Wines Asia Pty. Ltd.
Southcorp Wines Europe Limited
Southcorp Wines Pty. Ltd.*
Southcorp XUK Limited
T’Gallant Winemakers Pty. Ltd.
The New Zealand Wine Club Limited
102 — TREASURY WINE ESTATES ANNUAL REPORT 2017
COUNTRY OF
INCORPORATION
Australia
Australia
Italy
Italy
Chile
UK
Australia
Australia
UK
UK
Australia
Australia
Australia
Australia
UK
Italy
Australia
Australia
UK
Australia
Australia
Australia
Australia
Australia
Australia
Australia
USA
Australia
Netherlands
USA
Australia
Australia
Australia
Australia
Australia
Australia
Australia
Australia
Australia
Australia
Australia
Australia
Australia
UK
Australia
UK
Australia
UK
NOTE 28 – SUBSIDIARIES (CONTINUED)
ENTITY NAME
The Rothbury Estate Pty. Ltd.*
Tolley Scott & Tolley Limited*
Treasury Americas Inc
Treasury Chateau & Estates LLC(c)
Treasury Logistics Pty Ltd*
Treasury Wine Estates (China) Holding Co Pty Ltd*
Treasury Wine Estates (Matua) Limited
Treasury Wine Estates (NZ) Holding Co Pty Ltd*
Treasury Wine Estates (Shanghai) Trading Co., Ltd
Treasury Wine Estates (UK) Holding Co Pty Ltd*
Treasury Wine Estates Americas Company
Treasury Wine Estates Asia (SEA) Pte Ltd.
Treasury Wine Estates Asia Pty. Ltd.
Treasury Wine Estates Australia Limited*
Treasury Wine Estates Barossa Vineyards Pty. Ltd.
Treasury Wine Estates Canada, Inc.
Treasury Wine Estates Denmark ApS
Treasury Wine Estates EMEA Limited
Treasury Wine Estates Finland Oy(d)
Treasury Wine Estates HK Limited
Treasury Wine Estates Holdings Inc.
Treasury Wine Estates Japan KK
Treasury Wines Estates Limited*
Treasury Wine Estates Netherlands B.V
Treasury Wine Estates Norway AS
Treasury Wine Estates Sweden AB
Treasury Wine Estates UK Brands Limited
Treasury Wine Estates Vintners Limited*
TWE Finance (Aust) Limited*
TWE Finance (UK) Limited
TWE Insurance Company Pte. Ltd.
TWE Lima Pty Ltd*
TWE Share Plans Pty Ltd
TWE US Finance Co.
TWE USA Partnership
VEA Pty. Ltd.(a)
Wolf Blass Wines Pty. Ltd.*
Woodley Wines Pty. Ltd.
Wynn Winegrowers Pty. Ltd.
Wynns Coonawarra Estate Pty. Ltd
COUNTRY OF
INCORPORATION
Australia
Australia
USA
USA
Australia
Australia
New Zealand
Australia
China
Australia
USA
Singapore
Australia
Australia
Australia
Canada
Denmark
UK
Finland
Hong Kong
USA
Japan
Australia
Netherlands
Norway
Sweden
UK
Australia
Australia
UK
Singapore
Australia
Australia
USA
USA
Australia
Australia
Australia
Australia
Australia
* Entity is a member of the Closed Group under the Deed of Cross Guarantee (refer to note 30) and relieved from the requirement
to prepare audited financial statements by ASIC Corporations (Wholly owned Companies) Instrument 2016/785.
(a) These entities were deregistered on 3 July 2016.
(b) This entity was deregistered on 13 July 2016.
(c) This entity was formerly Diageo Chateau & Estates.
(d) This entity was deregistered on 28 November 2016.
TREASURY WINE ESTATES ANNUAL REPORT 2017 — 103
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS:
GROUP COMPOSITION
FOR THE YEAR ENDED 30 JUNE 2017
NOTE 28 – SUBSIDIARIES (CONTINUED)
Equity holding of less than 100%
ENTITY NAME
Fiddlesticks LLC
Graymoor Estate Joint Venture
Graymoor Estate Pty. Ltd.
Graymoor Estate Unit Trust
North Para Environment Control Pty. Ltd.
COUNTRY OF
INCORPORATION
% OF HOLDING
USA
Australia
Australia
Australia
Australia
2017
50.0
48.8
48.8
48.8
69.9
2016
50.0
48.8
48.8
48.8
69.9
NOTE 29 – PARENT ENTITY FINANCIAL INFORMATION
(a) Summary financial information
The individual financial statements for the parent entity show the following aggregate amounts:
Balance sheet
Current assets
Total assets
Current liabilities
Total liabilities
Net assets
Shareholders’ equity
Issued capital
Share based payments reserve
Retained earnings
Total equity
Profit for the year
Total comprehensive income
2017
$M
2016
$M
6,398.9
8,749.9
4,863.9
4,863.9
3,886.0
3,540.5
25.8
319.7
3,886.0
9.1
9.1
6,837.7
9,187.4
5,131.3
5,131.3
4,056.1
3,540.5
20.4
495.2
4,056.1
500.1
500.1
(b) Financial guarantees
Refer note 17 for financial guarantees to banks, financiers and other persons.
(c) Class action
Refer note 26 for class actions pending.
(d) Tax consolidation legislation
The Company formed a consolidated group for income tax purposes with each of its Australian resident subsidiaries on
21 May 2011. The Company and the controlled entities in the tax consolidation group continue to account for current and
deferred tax amounts separately. These tax amounts are measured on a ‘group allocation’ approach, under which the
current and deferred tax amounts for the tax-consolidated group are allocated among each reporting entity in the Group.
NOTE 30 – DEED OF CROSS GUARANTEE
Under the terms of ASIC Corporations (Wholly owned Companies) Instrument 2016/785, certain wholly owned controlled
entities have been granted relief from the requirement to prepare audited financial reports. It is a condition of the class
order that the Company and each of the relevant subsidiaries enter into a Deed of Cross Guarantee whereby each
company guarantees the debts of the companies party to the Deed. The member companies of the Deed of Cross
Guarantee are regarded as the ‘Closed Group’ and identified in note 28.
A summarised consolidated statement of profit or loss and other comprehensive income, retained earnings reconciliation
and a consolidated statement of financial position, comprising the Company and those controlled entities which are a
party to the Deed of Cross Guarantee, after eliminating all transactions between parties to the Deed, at 30 June 2017
are set out below.
104 — TREASURY WINE ESTATES ANNUAL REPORT 2017
NOTE 30 – DEED OF CROSS GUARANTEE (CONTINUED)
Extract of the statement of profit or loss and other comprehensive income
Profit before tax
Income tax expense
Net profit after tax
Retained earnings at beginning of the year
External dividends
Retained earnings at end of the year
Statement of financial position
Current assets
Cash and cash equivalents
Receivables
Inventories
Investments
Assets held for sale
Other current assets
Total current assets
Non-current assets
Inventories
Investments
Property, plant and equipment
Agricultural assets
Intangible assets
Deferred tax assets
Other non-current assets
Total non-current assets
Total assets
Current liabilities
Trade and other payables
Borrowings
Current tax liabilities
Provisions
Other current liabilities
Total current liabilities
Non-current liabilities
Deferred tax liabilities
Other non-current liabilities
Total non-current liabilities
Total liabilities
Net assets
Equity
Contributed equity
Reserves
Retained earnings
Total equity
2017
$M
267.1
(75.2)
191.9
500.3
(184.6)
507.6
14.2
1,618.4
391.5
1.8
20.2
4.0
2,050.1
473.0
3,182.6
498.3
–
408.1
45.2
1.5
4,608.7
6,658.8
281.4
2,190.3
49.8
33.7
4.1
2,559.3
21.6
4.1
25.7
2,585.0
4,073.8
3,540.5
25.7
507.6
4,073.8
20161
$M
760.2
(64.1)
696.1
(84.6)
(111.2)
500.3
66.7
1,557.8
332.8
–
21.5
5.3
1,984.1
400.2
3,183.7
489.9
–
397.9
38.8
2.6
4,513.1
6,497.2
250.3
2,117.2
14.8
40.7
5.0
2,428.0
3.1
5.0
8.1
2,436.1
4,061.1
3,540.5
20.3
500.3
4,061.1
1. Comparative balances have been restated to reflect the final purchase price accounting for the Diageo acquisition and a change
in accounting standards relating to Agricultural Assets. Refer to note 33 for details.
Current borrowings comprise balances with other entities within the Group. These balances will not be called within
the next 12 months.
TREASURY WINE ESTATES ANNUAL REPORT 2017 — 105
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS:
OTHER
FOR THE YEAR ENDED 30 JUNE 2017
NOTE 31 – RELATED PARTY DISCLOSURES
Ownership interests in related parties
All material ownership interests in related parties are disclosed in note 28 to the financial statements.
Parent entity
The ultimate parent entity is Treasury Wine Estates Limited, which is domiciled and incorporated in Australia.
Transactions with entities in the wholly-owned Group
Transactions between companies within the Group during the current and prior year included:
• Purchases and sales of goods and services; and
• Provision of accounting and administrative assistance.
Transactions with controlled entities are made on normal commercial terms and conditions.
Transactions with other related parties
The Group entered into transactions which are insignificant in amount with executives, non-executive Directors and
their related parties within normal employee, customer or supplier relationships on terms and conditions no more
favourable than those available in similar arm’s length dealings.
There were no other transactions with related parties during the current year.
Key management personnel compensation:
The following table shows the compensation paid or payable to the key management personnel (‘executives’) of the Group.
Short-term employee benefits
Post-employment benefits
Share based payments
Termination benefits
Total
2017
$
2016
$
10,067,918
88,765
7,552,707
400,000
18,109,390
10,082,195
110,954
4,349,147
1,143,607
15,685,903
Additionally, compensation paid to non-executive directors was $1,823,109 (F16: $1,461,001).
NOTE 32 – REMUNERATION OF AUDITORS
The Audit and Risk Committee has completed an evaluation of the overall effectiveness and independence of the external
auditor, KPMG. As part of this process, the external auditor has provided a written statement that no professional
engagement with the Group has been carried out which would impair their independence as auditor. The Chairman of the
Audit and Risk Committee has advised the Board that the Committee’s assessment is that the auditor is independent.
During the year the following fees were paid or payable for services provided by the auditor of the Group, and its
related practices:
Audit and review of financial statements and other
audit work under the Corporations Act 2001
Associate firms of Auditor
Audit and review services
Other non-audit services
Total
2017
$
2016
$
1,542,780
381,680
1,924,460
156,887
2,081,347
1,744,205
468,924
2,213,129
367,447
2,580,576
The Group engages KPMG to provide other non-audit services where their expertise and experience best qualifies them
to provide the appropriate service and as long as stringent independence requirements are satisfied. In the year ended
30 June 2017, KPMG earned fees in respect to the provision of advisory and taxation services.
106 — TREASURY WINE ESTATES ANNUAL REPORT 2017
NOTE 33 – COMPARATIVE BALANCES
In these financial statements, comparative balances have been restated to reflect the finalisation of the acquisition
accounting for Diageo Chateau & Estates and the impact of the initial application of AASB 2014-6 Amendments
to Australian Accounting Standards – Agriculture: Bearer Plants, and the consequential amendments to AASB 116
Property, Plant and Equipment and AASB 141 Agriculture. The following sections explain the changes which have
been reflected in the restated comparative balances. Each restatement is presented independently; a consolidated
presentation of the impact is presented in the Australian Securities Exchange announcement dated 17 August 2017.
(a) Acquisition of Diageo Chateau & Estates
On 1 January 2016 the Company acquired 100% of the ordinary shares of Diageo Chateau & Estates, a company
incorporated in the US. This included the acquisition of related assets in the UK. The acquisition accounting for
this transaction has now been finalised.
The final acquisition accounting resulted in a $41.3 million increase to the goodwill recognised on acquisition,
predominately attributable to non-current assets. There was no impact to the Group’s profit/loss as a result
of these changes.
Comparative financial information has been restated to reflect the finalisation of the acquisition accounting.
The following table summarises the changes made to the provisional acquisition accounting, prior to the impact
of the adoption of AASB 2014-6 Amendments to Australian Accounting Standards – Agriculture: Bearer Plants,
and the consequential amendments to AASB 116 Property, Plant and Equipment and AASB 141 Agriculture,
as discussed in note 33(b).
FAIR VALUE
RECOGNISED ON
ACQUISITION
(FINAL)
$M
FAIR VALUE
RECOGNISED ON
ACQUISITION
(PROVISIONAL)
$M
Assets
Trade and other receivables
Inventories
Property, plant and equipment
Agricultural assets
Intangible assets
Deferred tax assets
Liabilities
Cash overdraft
Trade and other payables
Onerous contract provisions
Employee entitlement provisions
Borrowings
Deferred tax liabilities
Total identifiable net assets at fair value
Hedge loss recognised against purchase price
Goodwill arising on acquisition
Purchase consideration1
109.5
377.7
220.8
79.9
198.8
135.7
1,122.4
1.7
185.5
10.9
1.1
85.3
96.0
380.5
741.9
(5.9)
94.0
830.0
109.5
386.0
264.5
82.1
198.8
117.9
1,158.8
1.7
184.6
8.2
1.1
85.1
94.9
375.6
783.2
(5.9)
52.7
830.0
1. Total purchase consideration of $830.0 million was paid in two instalments in F16 ($803.6 million) and F17 ($26.4 million).
TREASURY WINE ESTATES ANNUAL REPORT 2017 — 107
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS:
OTHER
FOR THE YEAR ENDED 30 JUNE 2017
NOTE 33 – COMPARATIVE BALANCES (CONTINUED)
(b) Initial application of AASB 2014-6 Amendments to Australian Accounting Standards –
Agriculture: Bearer Plants
Effective from 1 July 2016, the Group has adopted AASB 2014-6 Amendments to Australian Accounting Standards –
Agriculture: Bearer Plants, and the consequential amendments to AASB 116 Property, Plant and Equipment and AASB
141 Agriculture. These amendments distinguish bearer plants (i.e. grape vines), from other biological assets (i.e. grapes).
The updated standards consider bearer plants, which are solely used to grow produce over their productive lives, as
similar to an item of machinery. Bearer plants are now accounted for under AASB 116. Agricultural produce growing
on bearer plants remains within the scope of AASB 141 and continues to be measured at fair value less costs to sell.
Comparative financial information has been restated to reflect the above in accordance with relevant transitional
requirements and AASB 108 Accounting Policies, Changes in Accounting Estimates and Errors. The changes reflect:
• Reclassification of the value of bearer plants from Agricultural assets to Property, plant and equipment;
• Depreciation expense in connection with bearer plants; and
• The consequential tax impact of the above.
The following tables summarise the impact of the adjustments on the comparative financial information.
CONSOLIDATED STATEMENT OF PROFIT OR LOSS
AND OTHER COMPREHENSIVE INCOME (EXTRACT)
Cost of sales
Other expenses
Profit before tax
Income tax (expense)
Net profit attributed to members of Treasury Wine Estates Limited
Earnings per share for profit attributable to the ordinary equity
holders of the Company
– Basic
– Diluted
CONSOLIDATED STATEMENT OF FINANCIAL POSITION (EXTRACT)
Property, plant and equipment
Agricultural assets
Deferred tax liabilities
Reserves
Retained earnings
Non-controlling interest
30 JUNE 2016
$M
INCREASE/
(DECREASE)
$M
30 JUNE 2016
$M
(RESTATED)
(1,509.5)
(28.6)
259.5
(80.0)
179.4
(7.8)
(2.5)
(10.3)
4.2
(6.1)
(1,517.3)
(31.1)
249.2
(75.8)
173.3
25.1 cents
per share
24.9 cents
per share
(0.8) cents
per share
(0.9) cents
per share
24.3 cents
per share
24.0 cents
per share
30 JUNE 2016
$M
INCREASE/
(DECREASE)
$M
30 JUNE 2016
$M
(RESTATED)
1,154.5
340.0
273.7
20.5
78.3
2.7
206.4
(302.0)
(29.7)
(3.4)
(64.1)
0.7
1,360.9
38.0
244.0
17.1
14.2
3.4
108 — TREASURY WINE ESTATES ANNUAL REPORT 2017
NOTE 34 – OTHER ACCOUNTING POLICIES
New Accounting Standards and Interpretations
Since 30 June 2016 the Group has adopted the following new and amended accounting standards:
REFERENCE
TITLE
AASB 1057
AASB 2014-3
AASB 2014-4
AASB 2014-6
AASB 2015-1
AASB 2015-2
AASB 2015-9
Application of Australian Accounting Standards
Amendments to Australian Accounting Standards – Accounting for Acquisitions
of Interests in Joint Operations
Amendments to Australian Accounting Standards – Clarification of Acceptable
Methods of Depreciation and Amortisation
Amendments to Australian Accounting Standards – Agriculture: Bearer Plants
Amendments to Australian Accounting Standards – Annual Improvements
to Australian Accounting Standards 2012-2014 Cycle
Amendments to Australian Accounting Standards – Disclosure Initiative:
Amendments to AASB 101
Amendments to Australian Accounting Standards – Scope and
Application Paragraphs
APPLICATION
1 January 2016
1 January 2016
1 January 2016
1 January 2016
1 January 2016
1 January 2016
1 January 2016
Other than AASB 2014-6 Amendments to Australian Accounting Standards – Agriculture: Bearer Plants, the adoption
of these standards did not have a significant impact on the consolidated financial statements. Refer to note 33 for
disclosures of the impact of AASB 2014-6.
Issued but not yet effective accounting standards
The following Australian Accounting Standards and Interpretations have been issued or amended but are not yet
effective and the Group has not yet adopted them at 30 June 2017:
REFERENCE
TITLE
AASB 2016-1
AASB 2016-2
AASB 15
AASB 9
AASB 2014-5
AASB 2014-7
AASB 2015-8
AASB 2016-3
AASB 2016-5
Interpretation 22
AASB 16
Amendments to Australian Accounting Standards – Recognition of Deferred
Tax Assets for Unrealised Losses
Amendments to Australian Accounting Standards – Disclosure Initiative:
Amendments to AASB 107
Revenue from Contracts with Customers
Financial Instruments (December 2014)
Amendments to Australian Accounting Standards arising from AASB 15
Amendments to Australian Accounting Standards arising from AASB 9
(December 2014)
Amendments to Australian Accounting Standards – Effective Date of AASB 15
Amendments to Australian Accounting Standards – Clarifications to AASB 15
Amendments to Australian Accounting Standards – Classification and
Measurement of Share-based Payment Transactions
Foreign Currency Transactions and Advance Consideration
Leases
APPLICATION
1 January 2017
1 January 2017
1 January 2018
1 January 2018
1 January 2018
1 January 2018
1 January 2018
1 January 2018
1 January 2018
1 January 2018
1 January 2019
Other than the impact of AASB 16 Leases outlined below, these standards are not expected to have a material impact
on the Group’s financial position or its performance.
TREASURY WINE ESTATES ANNUAL REPORT 2017 — 109
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS:
OTHER
FOR THE YEAR ENDED 30 JUNE 2017
NOTE 34 – OTHER ACCOUNTING POLICIES (CONTINUED)
Issued but not yet effective accounting
standards (continued)
AASB 16 Leases
AASB 16 Leases was released in February 2016 by the
Australian Accounting Standards Board. This standard
removes the lease classification test for lessees and
requires the Group to bring all material leases with lease
terms greater than one year on to the balance sheet.
There is also new guidance on when an arrangement
would meet the definition of a lease.
The new standard is mandatory for annual reporting
periods beginning after 1 January 2019, but is available
to be early adopted. The Group is in the process of
performing an initial assessment of the potential impact
on its consolidated financial statements. The Group
will be required to recognise new assets and liabilities
for its operating leases including vineyards, buildings,
equipment and motor vehicles, and the nature
of the expenses related to those leases will change
as AASB 16 replaces the straight-line operating lease
expense with a depreciation charge for the right-of-use
assets and interest expense on the lease liabilities.
The Group intends to apply the full retrospective
transition option.
The Group is in the process of performing an initial
assessment based on the existing operating leases
and expects to disclose a more detailed assessment
during 2018.
Other accounting policies
Financial assets
A financial asset is classified as at fair value through
profit or loss or fair value through other comprehensive
income unless it meets the definition of amortised cost.
This is determined on initial recognition.
Financial assets classified as at amortised cost are
measured initially at fair value and adjusted in respect
of any incremental and directly attributable transaction
costs. All other financial assets are measured at fair
value on initial recognition.
Reclassification occurs only if there are fundamental
changes to the Group’s business model for managing
financial assets.
Amortised cost
A financial asset is classified as at amortised cost only if
the asset is held to collect contractual cash flows and the
contractual terms of the financial asset give rise to cash
flows that are solely payments of principal and interest.
A financial asset is measured at amortised cost using
the effective interest rate method. Any gains and losses
are recognised through the amortisation process or
when the financial asset is derecognised or impaired.
Impairment of financial assets
If there is objective evidence that an impairment loss
on loans and receivables carried at amortised cost has
been incurred, the amount of the loss is measured
as the difference between the asset’s carrying amount
and the present value of estimated future cash flows
(excluding future credit losses that have not been
incurred) discounted at the financial asset’s original
effective interest rate (i.e. the effective interest rate
computed at initial recognition).
The carrying amount of the asset is reduced either
directly or through the use of an allowance account.
The amount of the loss is recognised in the statement
of profit or loss and other comprehensive income.
The Group first assesses whether objective evidence
of impairment exists individually for significant
financial assets, and individually or collectively for
other financial assets.
Assets that are individually assessed for impairment
and for which an impairment loss is, or continues to be,
recognised are not included in a collective assessment
of impairment. Otherwise the asset is included in
a group of financial assets with similar credit risk
characteristics to be assessed for impairment.
If, in a subsequent period, the amount of the
impairment loss decreases due to an event occurring
after the impairment was recognised, the loss
is revised. The reversal of an impairment loss is
recognised in the statement of profit or loss and
other comprehensive income.
Derecognition of financial assets
The derecognition of a financial asset takes place
when the Group no longer controls the contractual
rights that comprise the financial instrument.
This is normally the case when the instrument is sold
or all the cash flows attributable to the instrument
are passed through to an independent third party.
Derivatives
The Group uses derivative financial instruments such
as foreign currency contracts, interest rate swaps
and options to hedge its risks associated with interest
rate and foreign currency fluctuations. Such derivative
financial instruments are carried at fair value and
are financial assets when the fair value is positive
and financial liabilities when the fair value is negative.
For derivatives that do not qualify for hedge accounting,
any gains or losses arising from changes in fair value
are taken directly to profit or loss for the year.
110 — TREASURY WINE ESTATES ANNUAL REPORT 2017
NOTE 34 – OTHER ACCOUNTING POLICIES (CONTINUED)
Fair value hedges
For fair value hedges (for example, interest rate swaps),
any gain or loss from remeasuring the hedging instrument
is recognised immediately in the statement of profit or loss
and other comprehensive income. Where the adjustment
is to the carrying amount of a hedged interest-bearing
financial instrument, the adjustment is amortised to the
statement of profit or loss and other comprehensive income
such that it is fully amortised by maturity.
Cash flow hedges
In relation to cash flow hedges (forward foreign currency
contracts) to hedge firm commitments, the portion of the
gain or loss on the hedging instrument that is determined
to be an effective hedge is recognised directly in equity
and the ineffective portion is recognised in the statement
of profit or loss and other comprehensive income.
When the hedged item gives rise to the recognition
of an asset or a liability, the associated deferred gains
or losses are included in the initial measurement
of the asset or liability.
For all other cash flow hedges, the gains or losses that
are recognised in equity are transferred to the statement
of profit or loss and other comprehensive income in the
same period in which the hedged firm commitment
affects the profit and loss, for example when the future
sale actually occurs.
Other accounting policies (continued)
Hedge accounting
For the purposes of hedge accounting, hedges are
classified as either fair value hedges when they hedge
the exposure to changes in the fair value of a recognised
asset or liability; cash flow hedges where they hedge
exposure to variability in cash flows that is either
attributable to a particular risk associated with a
recognised asset or liability or a forecasted transaction;
or hedges of a net investment in a foreign operation.
Initial recognition
At the beginning of a hedge relationship, the Group
designates and documents the hedge relationship and
the related risk management objective and strategy.
The documentation identifies the hedging instrument
and the hedged item as well as describing the economic
relationship, the hedge ratio between them and
potential sources of ineffectiveness. The documentation
also includes the nature of the risk being hedged
and the method of assessing the hedging instrument’s
effectiveness. To achieve hedge accounting, the
relationship must be expected to be highly effective
and are assessed on an ongoing basis to determine that
they continue to meet the risk management objective.
Re-balancing
If the hedge ratio for risk management purposes is no
longer met but the risk management objective remains
unchanged and the hedge continues to qualify for hedge
accounting, the Group will rebalance the relationship
by adjusting either the volume of the hedged item or the
volume of the hedging instrument.
Discontinuation
Hedge accounting is discontinued when the hedge
instrument expires or is sold, terminated or exercised,
or no longer qualifies for hedge accounting. At that
point in time, any cumulative gain or loss on the hedging
instrument recognised in equity is kept in equity until
the forecasted transaction occurs. If a hedged transaction
is no longer expected to occur, the net cumulative gain
or loss recognised in equity is transferred to profit or loss
for the year.
Gains or losses recognised directly in equity are
reclassified into profit and loss in the same period or
periods the foreign currency risk affects consolidated
profit and loss.
TREASURY WINE ESTATES ANNUAL REPORT 2017 — 111
DIRECTORS’ DECLARATION
FOR THE YEAR ENDED 30 JUNE 2017
In the Directors’ opinion:
(a) The financial statements and notes 1 to 34 are in accordance with the Corporations Act 2001, including:
(i) complying with Accounting Standards, the Corporations Regulations 2001 and other mandatory professional
reporting requirements; and
(ii) giving a true and fair view of the consolidated entity’s financial position as at 30 June 2017 and of its
performance for the financial year ended on that date;
(b) there are reasonable grounds to believe that Treasury Wine Estates Limited will be able to pay its debts as and
when they become due and payable; and
(c) there are reasonable grounds to believe that members of the Closed Group identified in note 28 will be able to meet
any obligations or liabilities to which they are or may become subject to, by virtue of the Deed of Cross Guarantee
described in note 30.
Note 1 confirms that the financial statements also comply with International Financial Reporting Standards as
issued by the International Accounting Standards Board.
The Directors have been given the declarations by the Chief Executive Officer and Chief Financial Officer as required
by section 295A of the Corporations Act 2001.
This declaration is made in accordance with a resolution of the Directors.
Paul Rayner
Chairman
30 August 2017
Michael Clarke
Chief Executive Officer
112 — TREASURY WINE ESTATES ANNUAL REPORT 2017
INDEPENDENT AUDITOR’S REPORT
Independent Auditor’s Report
To the shareholders of Treasury Wine Estates Limited
Report on the audit of the Financial Report
Opinion
In our opinion, the accompanying Financial
Report of Treasury Wine Estates Limited
is in accordance with the Corporations Act
2001, including:
(cid:120)
(cid:120)
giving a true and fair view of the
Group’s financial position as at 30
June 2017 and of
financial
performance for the year ended on
that date; and
its
complying with Australian Accounting
Standards
the Corporations
Regulations 2001.
and
We have audited the Financial Report of the Group.
The Financial Report comprises the:
(cid:120) Consolidated statement of financial position as at 30
June 2017;
(cid:120) Consolidated statement of profit or loss, consolidated
statement of changes in equity, and consolidated
statement of cash flows for the year then ended;
(cid:120) Notes including a summary of significant accounting
policies; and
(cid:120) Directors’ Declaration.
The Group consists of Treasury Wine Estates Limited
(the Company) and the entities it controlled at the year
end and from time to time during the financial year.
Basis for opinion
We conducted our audit in accordance with Australian Auditing Standards. We believe that the audit
evidence we have obtained is sufficient and appropriate to provide a basis for our opinion.
Our responsibilities under those standards are further described in the Auditor’s responsibilities for the
audit of the Financial Report section of our report.
We are independent of the Company and Group in accordance with the Corporations Act 2001 and the
ethical requirements of the Accounting Professional and Ethical Standards Board’s APES 110 Code of
Ethics for Professional Accountants (the Code) that are relevant to our audit of the Financial Report in
Australia. We have fulfilled our other ethical responsibilities in accordance with the Code.
KPMG, an Australian partnership and a member firm of the KPMG
network of independent member firms affiliated with KPMG
International Cooperative (“KPMG International”), a Swiss entity.
Liability limited by a scheme approved under
Profession Standards Legislation.
TREASURY WINE ESTATES ANNUAL REPORT 2017 — 113
INDEPENDENT AUDITOR’S REPORT (CONTINUED)
Key Audit Matters
The Key Audit Matters we identified are:
(cid:120)
(cid:120)
valuation of inventory;
recognition of discounts and rebates;
and
(cid:120) Global Enterprise Resource Planning
(“ERP”) implementation.
Key Audit Matters are those matters that, in our
professional judgment, were of most significance in our
audit of the Financial Report of the current period.
These matters were addressed in the context of our audit
of the Financial Report as a whole, and in forming our
opinion thereon, and we do not provide a separate opinion
on these matters.
Valuation of inventory (total finished goods and work in progress inventory was $1,676.5 million)
Refer to Note 9 Working Capital of the Financial Report.
The key audit matter
How the matter was addressed in our audit
Our audit procedures included:
(cid:120)
(cid:120)
(cid:120)
(cid:120)
(cid:120)
testing key controls designed by the Group to identify
slow moving and obsolete inventories (including wine
held by third party distributors and retailers), which if
existing, may indicate valuation issues with bulk wine
and finished goods;
inventory valuation models,
the costs may potentially exceed
testing year-end
in
particular the identification and valuation of bulk wine
and finished goods considered to be ‘at risk’ (i.e.
where
the
estimated net realisable value at the time of sale).
We used our knowledge
the Group’s
identification of slow moving and obsolete
inventories and underlying documentation such as
forecast sales plans,
inventory holding reports
(including wine held by third party distributors and
retailers), and committed future supply contracts. For
a sample of ‘at risk’ inventory, we evaluated the
proposed inventory value against the trends from the
underlying documentation for consistency;
from
comparing, by product grade, inventory volumes in
significant markets to both recent and forecasted
sales data to identify slow moving and potentially ‘at
risk’ inventories, and assessing the computation of
write-downs of inventory to net realisable value;
attending cycle counts and / or year-end stock takes
in significant locations which included observing the
process of identifying slow moving and potentially
obsolete inventory;
comparing the estimated net realisable value of slow
moving inventories identified in prior periods to actual
sales outcomes subsequently achieved, to assess
the historical accuracy of the Group’s forecasting
The valuation of inventories of finished
goods and work in progress, including bulk
wine, is a key audit matter as we need to
consider estimates and judgements made
by the Group. These include inherently
subjective
forecast
judgements about
future demand and estimated market sales
prices at the time the wine is expected to
be sold. We focus our work on assessing
the judgments contained in the valuation
models for:
(cid:120)
(cid:120)
the period of time over which some
harvested grapes are converted from
bulk wine to bottled wine ready for sale
(the holding period) which can be a
number of years depending on the
varietal and type of wine; and
industry
forecast demand and market sales
prices, which can fluctuate significantly
the holding period and are
over
influenced by the fundamentals of the
global wine
including
fluctuations in demand and supply and
other factors that impact agricultural
outputs. These factors influence the
Group’s determination of the most
likely market conditions at
the
estimated date of sale. A key indicator
for at-risk inventory values, including
finished goods and bulk wine in the
holding period, is the identification of
current slow moving inventory. These
can signal changes
in consumer
demand patterns or potential over-
impact
issues which may
supply
114 — TREASURY WINE ESTATES ANNUAL REPORT 2017
forecast future prices.
process; and
(cid:120)
the Group’s
assessing
methodologies and the Group’s disclosures
respect of
against
requirements of relevant accounting standards.
valuation
in
the
inventory
inventory
valuation
Recognition of discounts and rebates (Net sales revenue, which is net of trade discounts and
volume rebates, was $2,401.7 million)
Refer to Note 3 Revenue of the Financial Report.
The key audit matter
How the matter was addressed in our audit
in
the price specified
Net sales revenue is recorded at the time
that goods are shipped to customers based
on
the sales
agreement, net of any estimated discount
or rebate. In some cases, the discount or
rebate will not be finally determined or paid
until the inventory is depleted from the
customer’s warehouse, which may be
some time after the sale date. Sales
agreement terms and historical trends are
used to estimate the discounts.
At year end, amounts for discounts and
rebates that have been incurred and not yet
paid are estimated and accrued. Estimating
these costs at the year-end is considered a
key audit matter due to the judgements
the number of unique
required and
customer arrangements they relate to. For
example,
to
estimate the accrual where discounts and
rebates are dependent on distributors or
retailers achieving annual sales targets and
the performance year does not align to the
Group’s financial year.
judgement
required
is
Our audit procedures included:
(cid:120)
(cid:120)
(cid:120)
(cid:120)
(cid:120)
for
considering the appropriateness of the Group’s
accounting policy
and
measurement of net sales revenue, including the
policy for recording discounts and rebates, by
assessing compliance with applicable accounting
standards;
recognition
the
testing the estimation of discounts and rebates
accruals. We used underlying documentation such as
customer agreements, shipment and depletion data,
claims for discounts and rebates along with cash
payments made. We evaluated the estimate, for a
sample of customers, by:
(cid:120)
(cid:120)
(cid:120)
checking amounts to the agreements,
analysing sales and depletion to date and
depletion programs that will take place in
future periods against sales budgets, depletion
plans and actual claims, to validate the
estimate of discounts and rebates incurred but
not yet paid; and
checking claims and/or cash payments since
year end for discounts and rebates recorded
as incurred but not yet paid at year end.
testing key controls in significant jurisdictions for
calculating, reviewing and approving discounts and
rebates;
challenging the nature and quantum of the amounts
recorded by reference to historical sales, rebates paid
and discounts paid. We also tested, on a sample
basis, the nature and level of such costs back to
agreed terms;
assessing the accuracy of the accrual in previous
years in order to challenge the Group’s current year
TREASURY WINE ESTATES ANNUAL REPORT 2017 — 115
INDEPENDENT AUDITOR’S REPORT (CONTINUED)
estimation processes; and
(cid:120)
considering the Group’s disclosures in respect to
revenue, discounts and rebates accruals against
accounting standard requirements.
Global Enterprise Resource Planning (“ERP”) implementation
The key audit matter
How the matter was addressed in our audit
The Group continues to rationalise and
simplify its finance processes through the
global roll-out of an enterprise resources
planning system (ERP), which includes the
financial reporting general ledger. The roll
introduced heightened audit and
out
financial reporting risk as controls and
processes that had been established and
embedded over a number of years are
updated and migrated into the new IT
environment.
There was a risk of breakdown in controls
within the new IT system (automated
controls) during the roll-out transitioned
during the year and an increased risk of
inaccurate or incomplete migration of
financial data. This in turn created the
possibility of errors in the preparation and
fair presentation of the Group’s financial
statements, which is why this is a key
audit matter.
Our audit procedures included:
(cid:120)
(cid:120)
(cid:120)
understanding the Group’s project governance and
data migration plan specific to the ERP roll-out,
through reading underlying documentation such as
business process mapping documents and speaking
to key operational and IT management;
testing key automated and manual controls around
financial reporting risks within the new ERP. Of
particular focus were general IT controls, such as who
can access the system, and the process over changes
to the system; and
independently re-assessing the accuracy of financial
data migrated to the new system on a sample basis,
for regions where the new ERP was rolled out to
during the year, with the involvement of KPMG’s
Information Technology specialists.
116 — TREASURY WINE ESTATES ANNUAL REPORT 2017
Other Information
Other Information is financial and non-financial information in Treasury Wine Estates Limited’s annual
reporting which is provided in addition to the Financial Report and the Auditor's Report. The Directors are
responsible for the Other Information.
Our opinion on the Financial Report does not cover the Other Information and, accordingly, we do not
express an audit opinion or any form of assurance conclusion thereon, with the exception of the
Remuneration Report and our related assurance opinion.
In connection with our audit of the Financial Report, our responsibility is to read the Other Information. In
doing so, we consider whether the Other Information is materially inconsistent with the Financial Report
or our knowledge obtained in the audit, or otherwise appears to be materially misstated.
We are required to report if we conclude that there is a material misstatement of this Other Information,
and based on the work we have performed on the Other Information that we obtained prior to the date of
this Auditor’s Report we have nothing to report.
Responsibilities of the Directors for the Financial Report
The Directors are responsible for:
(cid:120) preparing the Financial Report that gives a true and fair view in accordance with Australian Accounting
Standards and the Corporations Act 2001
(cid:120)
(cid:120)
implementing necessary internal control to enable the preparation of a Financial Report that gives a
true and fair view and is free from material misstatement, whether due to fraud or error
assessing the Group’s ability to continue as a going concern. This includes disclosing, as applicable,
matters related to going concern and using the going concern basis of accounting unless they either
intend to liquidate the Group or to cease operations, or have no realistic alternative but to do so.
Auditor’s responsibilities for the audit of the Financial Report
Our objective is:
(cid:120)
(cid:120)
to obtain reasonable assurance about whether the Financial Report as a whole is free from material
misstatement, whether due to fraud or error; and
to issue an Auditor’s Report that includes our opinion.
Reasonable assurance is a high level of assurance, but is not a guarantee that an audit conducted in
accordance with Australian Auditing Standards will always detect a material misstatement when it exists.
Misstatements can arise from fraud or error. They are considered material if, individually or in the
aggregate, they could reasonably be expected to influence the economic decisions of users taken on the
basis of this Financial Report.
A further description of our responsibilities for the Audit of the Financial Report is located at the Auditing
and Assurance Standards Board website at: http://www.auasb.gov.au/auditors_files/ar2.pdf. This
description forms part of our Auditor’s Report.
TREASURY WINE ESTATES ANNUAL REPORT 2017 — 117
INDEPENDENT AUDITOR’S REPORT (CONTINUED)
Report on the Remuneration Report
Opinion
Directors’ responsibilities
In our opinion, the Remuneration Report of
Treasury Wine Estates Limited for the year
ended 30 June 2017, complies with
Section 300A of the Corporations Act 2001.
The Directors of the Company are responsible for the
preparation and presentation of the Remuneration Report in
accordance with Section 300A of the Corporations Act 2001.
Our responsibilities
We have audited the Remuneration Report included in the
Directors’ report for the year ended 30 June 2017.
is to express an opinion on the
Our responsibility
Remuneration Report, based on our Audit conducted in
accordance with Australian Auditing Standards.
KPMG
Paul J McDonald
Partner
Melbourne
30 August 2017
118 — TREASURY WINE ESTATES ANNUAL REPORT 2017
DETAILS OF SHAREHOLDERS, SHAREHOLDINGS
AND TOP 20 SHAREHOLDERS
DETAILS OF SHAREHOLDERS AND SHAREHOLDINGS
Holding of securities
LISTED SECURITIES 9 AUGUST 2017
Fully paid ordinary shares
SIZE OF HOLDING NUMBER
1 – 1,000
1,001 – 5,000
5,001 – 10,000
10,001 – 100,000
100,001 and over
Total
NO. OF
HOLDERS
NO. OF
SHARES
% HELD BY
TOP 20
60,526
738,135,033
88.63
NUMBER
42,003
16,244
1,500
713
66
60,526
As at 9 August 2017, the number of shareholders holding less than a marketable parcel of $500 worth of shares,
based on the closing market price on that date of $12.69 per share, is 562.
TWENTY LARGEST SHAREHOLDERS – 9 AUGUST 2017
RANK
SHAREHOLDER
NO. OF FULLY PAID
ORDINARY SHARES
% OF FULLY PAID
ORDINARY SHARES
HSBC Custody Nominees
J P Morgan Nominees Australia
Citicorp Nominees Pty Limited
National Nominees Limited
BNP Paribas Nominees Pty Ltd
Australian Foundation Investment Company Limited
CPU Share Plans Pty Ltd
AMP Life Limited
National Nominees Limited
UBS Nominees Pty Ltd
Milton Corporation Limited
Avanteos Investments Limited
Avanteos Investments Limited <2477966 DNR A/C>
RBC Investor Services Australia Nominees Pty Ltd
BNP Paribas Nominees Pty Ltd Hub24 Custodial Serv Ltd Drp
Djerriwarrh Investments Limited
Mirrabooka Investments Limited
Amcil Limited
Bond Street Custodians Limited
Australian Pioneer Pty Ltd
1.
2.
3.
4.
5.
6.
7.
8.
9.
10.
11.
12.
13.
14.
15.
16.
17.
18.
19.
20.
Total
311,843,125
181,760,602
75,383,643
32,729,164
31,035,483
6,573,334
3,633,323
2,101,952
1,391,000
1,305,853
1,194,085
972,302
836,908
698,595
582,064
531,584
450,000
425,000
401,940
387,663
654,237,620
42.25
24.62
10.21
4.43
4.20
0.89
0.49
0.28
0.19
0.18
0.16
0.13
0.11
0.09
0.08
0.07
0.06
0.06
0.05
0.05
88.63
SUBSTANTIAL SHAREHOLDERS – 9 AUGUST 2017
The following shareholders have declared a relevant interest in the number of voting shares at the date of giving the
notice under Part 6C.1 of the Corporations Act.
INSTITUTION
The Capital Group Companies
Artisan Partners
Blackrock Group
INTEREST (% OF ISC)
7.82
5.77
5.15
TREASURY WINE ESTATES ANNUAL REPORT 2017 — 119
SHAREHOLDER INFORMATION
ANNUAL GENERAL MEETING
The Annual General Meeting of the Company will be held on
Wednesday 18 October 2017 at 11.00am (Adelaide time) at the
National Wine Centre of Australia, Adelaide, South Australia,
with a live webcast available via the Company’s website.
Full details are contained in the Company’s Notice of Meeting
provided to shareholders and available on the Company’s
website prior to the meeting.
ADR Depositary and Transfer Agent:
The Bank of New York Mellon
462 South 4th Street, Suite 1600
Louisville KY 40202
United States
Postal address: PO Box 505000
Louisville KY 40233 – 5000
United States
Telephone: +1 (201) 680 6825 (888 269 2377 – toll free)
VOTING RIGHTS
Shareholders are encouraged to attend the Annual General
Meeting; however, when this is not possible, they can use the
proxy form by which they can express their views.
Shareholders may also lodge a proxy electronically either
via w w w.investorvote.com.au using the details printed
on their personalised proxy form or w w w.tweglobal.com
(in the AGM section under the Investors menu) or
w w w.intermediaryonline.com for custodian voting
(subscribers only).
Every shareholder present personally or by proxy, attorney
or representative has, on a poll, one vote for each fully paid
share held.
SECURITIES EXCHANGE LISTING
Treasury Wine Estates Limited shares are listed on the
Australian Securities Exchange under the code ‘TWE’.
Treasury Wine Estates Limited ordinary shares are traded
in the US in the form of American Depositary Receipts (ADR)
issued by The Bank of New York Mellon as Depositary.
SHARE BUY-BACK
On 17 August 2017, TWE announced an on-market share
buy-back of up to $300 million which is expected to commence
in early September 2017.
SHARE REGISTER AND OTHER ENQUIRIES
If you have any questions in relation to your shareholding,
share transfers or dividends, please contact our share registry:
Computershare Investor Services Pty Limited
Yarra Falls
452 Johnston Street
Abbotsford Victoria 3067
Australia
Telephone: 1800 158 360
International: +61 3 9415 4208
Facsimile: +61 3 9473 2500
For faxing Proxy Forms only: +61 3 9473 2555
(outside Australia) or 1800 783 447 (within Australia)
Website: w w w.investorcentre.com/contact
Please include your securityholder reference number (SRN)
or holder identification number (HIN) in all correspondence
to the share registry. For enquiries relating to the operations
of the Company, please contact the Investor Relations team on:
Telephone: +61 3 8533 3000
Facsimile: +61 3 9690 5196
Email: investors @ tweglobal.com
Website: w w w.tweglobal.com
Address: 58–82 Queensbridge Street
Southbank Victoria 3006
Australia
120 — TREASURY WINE ESTATES ANNUAL REPORT 2017
ELECTRONIC COMMUNICATIONS
The Company has an online share registry facility
where shareholders can:
• check their current and previous holding balances;
• update their address details;
• update their bank details;
• review their dividend history;
• confirm whether they have lodged a TFN/ABN exemption;
• elect to receive communications and Company information
electronically and change their Annual Report election;
• download commonly used forms; and
• elect to receive email notification when dividend statements
and issuer sponsored holding statements are available
to view online.
To access the online share registry, log on to w w w.tweglobal.
com, go to the Shareholder Information section located under
the Investors menu and click the ‘online share registry’ icon.
For security and privacy reasons, shareholders will be required
to verify their identity before they can view their records.
TAX FILE NUMBERS, AUSTRALIAN BUSINESS
NUMBERS OR EXEMPTIONS
Australian taxpayers who do not provide details of their tax
file number will have dividends subjected to the top marginal
personal tax rate plus Medicare levy (if applicable). It may be
in the interests of shareholders to ensure that tax file numbers
have been supplied to the share registry. Shareholders may
request a form from the share registry or submit their details
via the online share registry.
CHANGE OF ADDRESS
It is important for shareholders to notify the share registry of
any change of address. As a security measure, the old address
should also be quoted as well as your securityholder reference
number (SRN). Shareholders may access the online share
registry to submit their details or download a personalised
change of address form.
SHAREHOLDER WINE OFFER –
CELLARDOOR.CO
Shareholders have the opportunity to purchase the Company’s
wines through Cellardoor.co.
Cellardoor.co is an exclusive members-only wine community
for shareholders, friends and family of Treasury Wine Estates.
The virtual cellar door offers a range of wines across the
Treasury Wine Estates portfolio. Members of Cellardoor.co
have access to award winning wines, exclusive pricing and
member-only events.
Shareholders can register for Cellardoor.co by calling 1300 846
863 or by visiting h ttp s: //cellardoor.co/shareholders2017.
Information about Cellardoor.co is also included in the welcome
letter provided to new shareholders.
TREASURY WINE ESTATES LIMITED
ABN 24 004 373 862
COMPANY SECRETARY
Fiona Last
LLB (Hons), B.Com, FGIA
REGISTERED OFFICE
58–82 Queensbridge Street
Southbank Victoria 3006
Australia
Telephone: +61 3 8533 3000
W W W.TWEGLOBAL.COM