Treasury Wine Estates Limited · ASX:TWE
Treasury Wine Estates — Investor Presentation (November 2012)
70 slides from Treasury Wine Estates's investor presentation, Nov 26, 2012
Slide 1: TWE Analyst Workshop "Supply 101"
For personal use only TWE ANALYST WORKSHOP “SUPPLY 101” 26 November 1
Slide 2: Peter Kopanidis, Global Director, Corporate Finance
For personal use only Peter Kopanidis Global Director, Corporate Finance
Slide 3: Today's agenda
Today’s agenda For personal use only • TWE’s investor relations engagement approach for FY13 • Session 1: Global supply & demand trends – Presenter: Stuart McNab, Chief Supply Officer • Session 2: TWE’s supply model – Presenter: Stuart McNab, Chief Supply Officer • Session 3: Australian wine overvie
Slide 4: TWE's investor relations engagement approach
TWE’s investor relations engagement approach For personal use only • Analyst and investor meetings will be limited to CEO, CFO, Investor Relations and on occasion, CSO • Occasional Wine Leadership Team participation in investor meetings when CEO and CFO are “in-market” • Periodical analyst workshops
Slide 5: Session 1: Global supply and demand trends
For personal use only Session 1: Global supply and demand trends
Slide 6: Stuart McNab, Chief Supply Officer
For personal use only Stuart McNab Chief Supply Officer
Slide 7: Wine category overview
Wine category overview For personal use only • Fundamentals of the wine category remain strong • Consumer demand continues to grow in key markets, particularly at higher price points • Global supply heading towards balance • Vintage 2011 in Australia and California negatively impacted by weather, re
Slide 8: Global wine industry snapshot
Global wine industry snapshot For personal use only Wine producers 1 million? Annual production c. 2.8 billion cases (2012E) Annual c. 2.7-2.8 billion cases (2012E) consumption Classic agricultural business – therefore displays cyclical characteristics Supply / demand cycle • Oversupply: 6-8 years •
Slide 9: Wine industry returns are cyclical
Wine industry returns are cyclical Industry CONCEPTUAL For personal use only Typically ~7 – 10 year cycle Returns 2 • Supply starts to USA exceed demand AUST and grape pricing peaks + NZ • Profitability increases as supply returns to balance 1 3 5 • Demand exceed • Oversupply supply and drives worse
Slide 10: Global wine supply and demand
Global wine supply and demand For personal use only m ha m 9L cases 10.5 4,200 Wine production (RHS) Wine Consumption (RHS) Area under vine 4,000 10.0 3,800 Global wine 9.5 supply / demand tightening 3,600 9.0 3,400 8.5 3,200 8.0 3,000 2,800 7.5 2,600 7.0 2,400 6.5 2,200 6.0 2,000 1979 1982 1985 198
Slide 11: Global wine cycle is turning – V12 has highlighted this
Global wine cycle is turning – V12 has highlighted this "Global wine production will slump to the lowest in 37 years after weather damage For personal use only to grapes from France to Argentina, forcing a draw down of stocks, the International Organisation of Vine and Wine said.” Source: Bloomberg
Slide 12: Global consumption trends
Global consumption trends For personal use only Per capita wine consumption litres per person 80 70 Italy 60 France 50 40 30 Australia 20 10 US China 0 2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011 Note: Total wine consumption excludes non-grape wine; Australia and US per capita consum
Slide 13: Wine production – Old World
Wine production – Old World Wine production (RHS) Area under vine For personal use only France Italy 000 ha m 9L cases 000 ha m 9L cases 1,000 700 1,000 650 898 888 889 895 888 867 858 872 862 837 819 849 842 843 838 825 812 807 795 776 600 800 638 600 800 579 579 562 578 550 559 553 555 600 450 500
Slide 14: Wine production – New World
Wine production – New World Wine production (RHS) Area under vine For personal use only Argentina Chile 000 ha m 9L cases 000 ha m 9L cases 250 226 226 228 228 200 140 140 219 223 218* 120 122 123 123 208 211 213 114 117 118 120 109 110 112 200 180 120 181 100 121 116 172 169 171 172 112 150 167 163
Slide 15: Wine production – Australia
Wine production – Australia For personal use only Vineyard area & wine production Winegrape crush & average price Wine production (RHS) Non-bearing area Bearing area Average winegrape price (RHS) Winegrape crush 000 ha m 9L cases m tonnes A$ / tonne 156 158 157 200 160 2.0 1.92 1.93 1.90 1,000 1.83
Slide 16: Wine production – California
Wine production – California For personal use only Vineyard area & wine production Winegrape crush & average price Wine production (RHS) Non-bearing area Bearing area Average winegrape price (RHS) Winegrape crush 000 ha m 9L cases m tons US$ / ton 250 300 4 3.76 3.70 3.59 3.70 700 273 266 3.35 255 3
Slide 17: Wine production – New Zealand
Wine production – New Zealand For personal use only Vineyard area & wine production Winegrape crush & average price Wine production (RHS) Bearing area Average winegrape price (RHS) Winegrape crush 000 ha m 9L cases 000 tonnes NZ$ / tonne 35 33 33 33 30 400 2,500 32 29 328 30 25 25 26 285 285 2,000 2
Slide 18: Summary of top wine producers
Summary of top wine producers For personal use only Production Current Area under vine Area CAGR Wine production Rank Country CAGR rank (2011) (2001-11) (2012E) (2002) (2002-12E) 1 Italy 776,000 ha -1.4% 454m cases -0.4% 2 2 France 807,000 ha -1.1% 450m cases -2.2% 1 3 Spain 1,032,000 ha -1.6% 350m
Slide 19: Summary
Summary For personal use only • The wine industry is close to supply / demand balance globally • Grape and bulk wine prices are increasing globally • At a global level, regions are at different points in the supply / demand cycle • Global consumption is increasing • The wine industry is cyclical, pa
Slide 20: Session 2: TWE's supply model
For personal use only Session 2: TWE’s supply model
Slide 21: Agenda
Agenda For personal use only • TWE’s current global supply and production asset footprint • TWE’s current and ideal sourcing model • Agricultural variability by region • Agricultural variability by vineyard • Agricultural variability by yield • Impact of vintage variability on cost of goods sold by
Slide 22: Global picture of TWE's production footprint
Global picture of TWE’s production footprint For personal use only 22
Slide 23: Global supply footprint – Australia
Global supply footprint For personal use only Australia Own Vineyards (operating HA): 8,200 Own Vineyards (Tonnes): 27% Grower Intake (Tonnes): 44% Bulk Wine (Tonnes): 29% TWE Wineries 10 - Crush Capacity (Tonnes) 210,000 Third Party Crushing - - Crush Capacity (Tonnes) 5,000 Internal Packaging Faci
Slide 24: Global supply footprint – New Zealand
Global supply footprint For personal use only New Zealand Own Vineyards (operating HA): 320 Own Vineyards (Tonnes): 15% Grower Intake (Tonnes): 70% Bulk Wine (Tonnes): 15% TWE Wineries 2 - Crush Capacity (Tonnes) 23,500 Third Party Crushing - - Crush Capacity (Tonnes) 1,600 Internal Packaging Facili
Slide 25: Global supply footprint – United States
Global supply footprint For personal use only United States Own Vineyards (operating HA): 2,200 Own Vineyards (Tonnes): 11% Grower Intake (Tonnes): 35% Bulk Wine (Tonnes): 54% TWE Wineries 7 - Crush Capacity (Tonnes) 88,362 Third Party Crushing - - Crush Capacity (Tonnes) - Internal Packaging Facili
Slide 26: Global supply footprint – Italy
Global supply footprint For personal use only Italy Own Vineyards (operating HA): 140 Own Vineyards (Tonnes): 11% Grower Intake (Tonnes): 2% Bulk Wine (Tonnes): 87% TWE Wineries 1 - Crush Capacity (Tonnes) 800 Third Party Crushing - - Crush Capacity (Tonnes) - Internal Packaging Facilities 1 Capacit
Slide 27: TWE's supply and production footprint – quality
TWE’s supply and production footprint – quality For personal use only Treasury Wine Estates has production Darwin facilities in internationally recognised wine regions in Australia, the United States, New Zealand and Italy North Coast Flexible and efficient production model Sonoma County Brisb
Slide 28: Grape sourcing – TWE's ideal supply profile
Grape sourcing – TWE’s ideal supply profile • Sourcing strategy is dependent on grape quality, Australia as an example For personal use only General Segment Source Australian Supply Ideal Supply Profile Intake Ratio Profile Company Vineyards 40% 50%++ Luxury & 10% upper Growers 50% 40% Masstige Bulk
Slide 29: Key success factors in luxury, masstige and commercial
Key success factors in luxury, masstige and commercial TWE ability Segment Success factors Financial profile Capital intensity Examples For personal use only to compete Luxury • Long term supply Lower volume and high High investment in land Penfolds security margins and inventory but delivers • Ph
Slide 30: Flexible sourcing model
Flexible sourcing model • With a flexible sourcing model, TWE is able to manage agricultural variance by region, and For personal use only source grapes for a luxury Penfolds product from multiple regions in different years Blend Barossa Limestone Coona- Langhorne McLaren Limestone Limestone Limesto
Slide 31: Agricultural variability by vineyard
Agricultural variability by vineyard • Barossa vineyard grades – 8 vintages For personal use only V1 V2 V3 V4 Average V5 V6 V7 V8 31
Slide 32: Agricultural variability by yield
Agricultural variability by yield Average yields – Murray region = Commercial For personal use only tonnes per ha 20 15 +/-25% 10 5 0 2002 2004 2006 2008 2010 2012 Average yields – Coonawarra = Luxury tonnes per ha 10 8 6 +/-50% 4 2 0 2002 2004 2006 2008 2010 2012 Source: Company analysis 32
Slide 33: Vintage sell-through patterns
Vintage sell-through patterns • Impact of vintage variability of average cost of goods sold by financial year For personal use only V3 V4 V7 V8 Commercial V5 V6 Commercial Commercial Commercial Commercial Average cost per case Commercial Commercial Commercial Commercial Commercial Commercial V3 V2 V
Slide 34: Relative pricing, quality and availability
Relative pricing, quality and availability • How the regional supply/demand affects relative pricing, quality and availability For personal use only • Owned vineyards are an advantage $2,000 • Grapes cost less than bulk wine • Bulk wine is expensive, poor quality and there is limited availability Re
Slide 35: TWE's flexible sourcing, Australian production & packaging model
TWE’s flexible sourcing, Australian production & packaging model For personal use only • TWE’s Australian sourcing, winemaking and packaging model provides flexibility and efficiencies for a cyclical, agricultural business External Bulk Wine & Optimal Mix Grape Outsource Additional Shifts Demand Bul
Slide 36: TWE flexible sourcing, America's production & packaging model
TWE flexible sourcing, America’s production & packaging model For personal use only • TWE’s Americas multinational sourcing, winemaking and packaging model provides flexibility and efficiencies for an agricultural business External Optimal Mix Bulk Wine Demand (Foreign sourced) Additional Shifts Bul
Slide 37: TWE's flexible sourcing, New Zealand production & packaging model
TWE’s flexible sourcing, New Zealand production & packaging model For personal use only • TWE’s New Zealand sourcing, winemaking and packaging model provides the flexibility and efficiencies to enable Supply to adapt to the rapid growth in global demand for our brands Additional Shifts Demand Extern
Slide 38: TWE's Australian winery operating model
TWE’s Australian winery operating model • Individual winemaking and style, but utilising a common packaging network For personal use only Wolf Blass Winery Karadoc Winery Luxury and Masstige winery Commercial winery Outsourced Wine Contract Crush Ryecroft Outsourced Wine Wynns Contract Crush WA 45,0
Slide 39: Benefits of increasing ownership of luxury vineyards
Benefits of increasing ownership of luxury vineyards For personal use only • Luxury grapes command a significantly higher average price than masstige grapes, highlighting the benefits of increasing ownership of luxury vineyards • Luxury grape prices have held while masstige respond to supply demand
Slide 40: Grower contracts – tenure and pricing basis by region
Grower contracts – tenure and pricing basis by region • Security related to scarcity For personal use only • Need to balance security and flexibility Luxury Masstige Commercial Bulk Wine Australia Tenure (years) 5 – 10 3–5 0–3 0–5 Pricing basis Grade Grade Grade / Fixed Grade New Zealand Tenure (yea
Slide 41: Summary
Summary For personal use only • Grape and wine supply is subject to agricultural risk • Wine is a cyclical industry • TWE operates a flexible sourcing and production model through cycles • TWE has the facilities for luxury, masstige and commercial wines • Flexible sourcing model, grape and bulk wine
Slide 42: Session 3: Australian wine overview
For personal use only Session 3: Australian wine overview
Slide 43: Peter Taylor, Director – Wine Production Australia
For personal use only Peter Taylor Director – Wine Production Australia
Slide 44: Wine varietal by Australian region and climate
Wine varietal by Australian region and climate • Different wine varietals suit different climates and growing conditions For personal use only • Cool climate varietals tend to be coastal, with the climate warming as it moves inland Shiraz; Cabernet Sauvignon; Hot Chardonnay Shiraz, Cabernet Sauvigno
Slide 45: Wine making process – Red
Wine making process – Red For personal use only Harvest Crush Ferment Press Oak Tank Bottling 45
Slide 46: Wine making process – White
Wine making process – White For personal use only Harvest Crush Press Tank Oak Ferment Bottling 46
Slide 47: Oak maturation is a critical process for luxury wines
Oak maturation is a critical process for luxury wines • Whether a wine is sent to oak is determined by the ideal recipes for each varietal and style For personal use only • TWE uses a mix of American and French oak • Ultra premium red wines are sent to new oak; existing oak is then cascaded down the
Slide 48: Utilisation of oak products
Utilisation of oak products For personal use only Dust Chips Staves Barrels Lower Upper Masstige Luxury Upper Commercial Commercial 50% Re-use Lower Luxury 50% New Upper 100% New 48
Slide 49: Age of release by wine segment
Age of release by wine segment • Time required for wine maturation and age of release increases by segment, with commercial For personal use only wines - typically white varietals - released earlier than luxury red wines Months from bottling to market release 0 3m 6m 12 m 18 m 2 yrs 3 yrs 4 yrs 5 yr
Slide 50: TWE's Australian wine performance at wine shows
TWE’s Australian wine performance at wine shows • TWE’s focus on quality and consistency underpins dominance in national and international wine For personal use only shows TWE performance in Australian wine shows TWE performance in international wine shows 18 Trophies Hong Kong - 9 brands Wolf Blass
Slide 51: Planting to wine release cycle
Planting to wine release cycle • Luxury supply requires long term forward planning as it can take up to 14 years from planting to For personal use only wine release Year Grape 0 1 2 3 4 5 6 7 8 9 10 11 12 13 14 Prepare Plant Train Some High land vines along crop at crop at wire target target Commerc
Slide 52: Summary
Summary For personal use only • Region is important depending on variety and quality level targeted • Winemaking complexity is related to price point • Oak is a significant cost - a highly refined process to optimise impact according to price point • Age of release varies considerably • New planting
Slide 53: Session 4: Managing demand and supply
For personal use only Session 4: Managing demand and supply
Slide 54: Demand continues to grow at the higher price points
Demand continues to grow at the higher price points • Value growth at the higher price points underpins TWE’s strategy to increase the production of For personal use only masstige and luxury wines, via Project Uplift Australia – Value growth* by price point US – Value growth by price point 4.8% 11.1
Slide 55: Project Uplift - snapshot
Project Uplift - snapshot Project Uplift is a TWE initiative that will drive TWE’s ability to meet growing For personal use only What is Project Uplift? demand for masstige and luxury wines; locally and internationally Why have Project Uplift? Current and future consumption trends indicate continued
Slide 56: Project Uplift – options for increasing supply
Project Uplift – options for increasing supply • TWE can pursue a range of options for increasingly the supply of masstige and luxury grapes, For personal use only each with variable return on investment time horizons % contribution to Short Term Medium Term Long Term uplift Purchase existing luxury
Slide 57: Project Uplift – refocus on variable TWE vineyards
Project Uplift – refocus on variable TWE vineyards For personal use only • Vineyards with intermittent quality performance • Younger vineyards – push into higher quality • Increase inputs – detailed pruning, shoot thinning and canopy management to increase quality • Manage / split inputs such as irr
Slide 58: Harvesting variability
Harvesting variability For personal use only • Late 1990’s TWE (SRP) initiated a project into precision viticulture with CSIRO • Vineyards have consistent patterns in yield and quality across multiple seasons • This hidden quality can be ‘harvested’ and not lost by dilution with heavy cropping areas
Slide 59: Project Uplift - selective harvesting
Project Uplift - selective harvesting For personal use only Icon Luxury Vineyard variability drives wine quality Masstige Precision Viticulture exploits vineyard variability 59
Slide 60: Precision viticulture and picking plans
Precision viticulture and picking plans For personal use only 60
Slide 61: Harvester operator view
Harvester operator view For personal use only GPS Computer Control Indicator 61
Slide 62: Luxury Fermenters – Wynns Coonawarra
Luxury Fermenters – Wynns Coonawarra For personal use only 62
Slide 63: Project Uplift – re-work / graft non-key varietals
Project Uplift – re-work / graft non-key varietals For personal use only • Grafting is a technique to rapidly change varieties or clones • Keep ‘good’ old vine traits but change variety quickly • Careful testing of vine health for disease - virus • 2-3 years quality production vs 5-10 years with new
Slide 64: Project Uplift – replant existing vineyards
Project Uplift – replant existing vineyards For personal use only • Non-required varieties on prime Terra Rosa soil • Old vines removed – vine, wire and posts recycled • New vines planted • 5-10 years for quality grapes to come on stream • 213 ha unplanted (greenfield) vineyards in capital program •
Slide 65: Vineyard example of fruit quality by year
Vineyard example of fruit quality by year For personal use only Scholz Vineyard • Top locality, Barossa Luxury • High quality clonal material 10 years Low early old crop • Young block – needs ‘pushing’ into higher quality Quality Bad • Shoot thinning, irrigation vines unbalanced vintage management t
Slide 66: Project Uplift – South Australian vineyard acquisitions
Project Uplift – South Australian vineyard acquisitions For personal use only Vineyard Location Description Vineyard Criteria Shiller Barossa Valley • 32 ha, 17 ha planted • Premium Region • Incremental supply of 5,615 9le Craigie Barossa Valley • 32 ha, 9 ha planted - Barossa, McLaren Vale, • TWE i
Slide 67: Project Uplift - attract new growers / grower uplift
Project Uplift - attract new growers / grower uplift For personal use only • Targeting out of contract or new growers • Working with growers, using TWE technical expertise to improve quality outcomes • Realistically, supply of luxury growers is limited. Often long associations with other brands. 67
Slide 68: Penfolds luxury fermentation capacity
Penfolds luxury fermentation capacity For personal use only • Many large unsuitable Base Tonnage Extra Tonnage fermenters need to be Current Capacity Required Capacity F13 Planned Capacity replaced with smaller fermenters to improve conversion from fruit to wine Tonnes • Install 48 x 25 T SWAP ferme
Slide 69: Summary
Summary For personal use only • Luxury demand is increasing • Project Uplift is a multi-dimensional long term program to increase luxury supply • Technology and expertise is important to improving luxury supply and vineyard returns • Winery upgrades are required and planned using advanced technology
Slide 70: Conclusion
For personal use only Conclusion
Treasury Wine Estates — Investor Presentation (November 2012) on 6ix