Ann: TWE 2020 Fact Book, page-6

I thought this was a very good presentation. It doesn't really illuminate any new data on their financial position or business performance, but it does provide great insight into management's thinking of how they are going to mitigate the China trade issue.

In terms of China, the situation remains unchanged: while China is only 50% of Asia's revenue, and Asia is only 10% of total revenue, that's not the real story. Asia represents 42% of the earnings, and China is more than half of that. Moreover, while Asia is growing fast, China is over 10% CAGR while North/South East are around half of that. So the point remains: China has been the earnings growth engine for TWE until recently. And now with coal added to the list, you can presume this aint going away.

The report provided some great insights in to the flexible management tools TWE have at their disposal. For example, their ability to use inventories to ramp up/down when they need to (significantly improved management on that since 2015) - one of few businesses where the cost of warehousing stock is far below the value accretion as vintages just get more valuable with age. Also, it was interesting to see how they can buy additional bulk wine for up to one year after a vintage has been harvested to keep adding if there is demand for it. Presumably vice versa, they can cut costs and not buy that bulk wine if their markets are drying up.

Unfortunately they didn't go into details about how they will target other Asian / Global markets to maintain their throughput. They also failed to address how they will maintain their margins in light of Aussie wines flooding the markets.

Finally, this business is throwing off heaps of cash. Their payout ratio is relatively high for dividends (60s%), and they have been investing a fair bit into capital. I reckon to improve total shareholder return, now may be a good time to use some of that free cash flow for share buybacks. The share price is so depressed, and the ROIC on new capital investments presumably is getting pretty low and possibly even <10%, surely now is the time to push EPS and DPS up via share buybacks? It'd be good to see this discussed in their capital allocation considerations next time.