TWE ANALYST WORKSHOP “SUPPLY 101” 26 November
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TWE ANALYST WORKSHOP “SUPPLY 101” 26 November 1 Peter Kopanidis Global Director, Corporate Finance Today’s agenda • 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 overview (over lunch) – Presenter: Peter Taylor, Director, Wine Production Australia • Session 4: Managing supply & demand, including Project Uplift – Presenter: Peter Taylor, Director, Wine Production Australia • Tour of Magill Winery & Penfolds wine tasting masterclass – Host: Stephanie Dutton, Penfolds Winemaker 3 TWE’s investor relations engagement approach • 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 focussing on topical areas of TWE’s business and operating environment; events webcast and materials lodged with ASX • Two “windows” per year for broker-hosted site tours of TWE assets – Late March / early April: Australia – Barossa, Coonawarra, Yarra Valley – September: United States – Napa Valley – Site tours will be managed by investor relations – First in, first served with a view to balancing access across broking houses 4 Session 1: Global supply and demand trends Stuart McNab Chief Supply Officer Wine category overview • 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, resulting in reduced availability of Luxury and Masstige wines and higher costs • Vintage 2012 in Australia favourably influenced by weather and TWE’s actions, driving strong uplift in Luxury and Masstige volume from FY14 and beyond • Vintage 2012 in United States, up 10% • Vintage 2012 in Europe, down 15%-20% 7 Global wine industry snapshot 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 • Balance: 2-4 years • Undersupply: 6-8 years Industry Top five companies control c.8% of global volumes consolidation • E&J Gallo • The Wine Group • Constellation Brands • Accolade Wines • Treasury Wine Estates Source: International Organisation of Vine and Wine (OIV), Euromonitor 8 Wine industry returns are cyclical Industry CONCEPTUAL Returns Typically ~7 – 10 year cycle 2 USA • Supply starts to exceed demand AUST and grape pricing peaks + NZ • Profitability increases as supply returns to balance 1 3 5 • Demand exceed • Oversupply supply and drives worsens as higher retail producers are • Small producers pricing slow to adapt exit and land is directed to alternate uses 4 Time Source: TWE analysis 9 Global wine supply and demand m ha m 9L cases 10.5 4,200 Wine production (RHS) Wine Consumption (RHS) Area under vine 4,000 10.0 3,800 9.5 Global wine 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 1988 1991 1994 1997 2000 2003 2006 2009 2012E Note: Provisional 2011 data, 2012 estimates; Area under vine covers all grapes * Consumption figures include c.333m 9L cases of wine used in the production of fortifieds & industrial applications Source: International Organisation of Vine and Wine (OIV) 10 Global wine cycle is turning – V12 has highlighted this "Global wine production will slump to the lowest in 37 years after weather damage to grapes from France to Argentina, forcing a draw down of stocks, the International Organisation of Vine and Wine said.” Source: Bloomberg news: World Wine Output to Fall to 37-Year Low, Depleting Stocks Estimated winegrape crush m tonnes -17% -13% 7.0 6.7 -15% 5.8 5.8 5.3 4.5 -2% 1.7 1.7 10 year 2012 10 year 2012 10 year 2012 10 year 2012 average average average average France Italy Spain Australia Note: Assumes conversion rate of 700 litres of wine produced from 1 tonne of grapes crushed Source: International Organisation of Vine and Wine (OIV), Australian Bureau of Statistics (ABS), Winemakers’ Federation of Australia (WFA), TWE estimates 11 Global consumption trends 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 consumption based on legal drinking age population; China, France and Italy per capita consumption based on population 16 years and over Source: Euromonitor, The IWSR 12 Wine production – Old World Wine production (RHS) Area under vine France Italy 000 ha m 9L cases 000 ha m 9L cases 1,000 700 1,000 650 898 888 889 895 888 867 858 872 862 837 849 842 843 838 825 819 807 812 795 776 600 800 638 600 800 578 550 579 579 555 562 600 559 553 500 600 539 515 514 450 522 526 500 507 494 511 454 474 400 400 400 472 465 470 450 -19% on 400 2011 -3% on 200 300 200 2011 350 0 200 0 300 2002 2004 2006 2008 2010 2012E 2002 2004 2006 2008 2010 2012E Spain Germany 000 ha m 9L cases 000 ha m 9L cases 1,400 550 120 140 1,202 1,207 1,200 1,180 1,174 1,169 1,165 102 102 102 102 102 102 102 102 102 102 1,200 1,113 1,082 1,032 500 100 120 1,000 478 450 80 114 99 465 110 111 111 100 800 102 103 101 420 424 400 60 99 600 399 401 350 91 386 393 80 372 371 350 40 -3% on 400 77 2011 -6% on 300 20 60 200 2011 0 250 0 40 2002 2004 2006 2008 2010 2012E 2002 2004 2006 2008 2010 2012E Note: Provisional 2011 data, 2012 estimates Source: International Organisation of Vine and Wine (OIV) 13 Wine production – New World Wine production (RHS) Area under vine Argentina Chile 000 ha m 9L cases 000 ha m 9L cases 250 228 228 200 140 140 219 223 226 226 218* 123 123 208 211 213 117 118 120 122 120 110 112 114 200 180 109 120 181 121 100 116 172 171 172 112 150 169 167 160 100 163 80 +4% on 96 98 94 91 2011 100 147 131 140 60 88 80 141 135 40 74 50 120 70 60 -24% on 20 62 2011 0 100 0 40 2002 2004 2006 2008 2010 2012E 2002 2004 2006 2008 2010 2012E South Africa 000 ha m 9L cases 120 120 99 100 102 102 102 101 101 101 101 100 96 113 110 111 111 80 109 107 103 104 104 100 60 98 +4% on 2011 93 90 40 20 80 80 0 70 2002 2004 2006 2008 2010 2012E Note: Provisional 2011 data, 2012 estimates; Chilean and South African area under vine based on winegrapes only *2011 decline in area under vine due to change in calculation methodology Source: OIV, Instituto Nacional de Vitivinicultura, ODEPA Chilean Ministry of Agriculture, SA Wine Industry Information & Systems (SAWIS) 14 Wine production – Australia 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 158 157 156 1.92 1.93 200 160 2.0 1.90 1.83 1,000 137 1.73 1.66 130 130 129* 140 1.61 1.60 1.60 125 124 800 150 115 1.5 1.40 1.40 106 120 600 100 100 1.0 153 158 164 166 157 152 155 143 143 151 145 80 400 50 0.5 Average price 60 +11% on 2011 200 0 40 0.0 0 2002 2004 2006 2008 2010 2012 2002 2004 2006 2008 2010 2012E Average bulk wine prices Average export prices US$ / litre A$ / litre 1.20 Cab Sauv 6.00 Shiraz 1.00 5.00 Avg bottled Chardonnay export price 4.00 -2.0% CAGR 0.80 3.00 0.60 2.00 Avg bulk 0.40 1.00 export price -3.5% CAGR 0.20 0.00 Jul 10 Jan 11 Jul 11 Jan 12 Jul 12 2002 2004 2006 2008 2010 2012 Note: All data (except bulk wine pricing) is for the 12 month period ending 30 June *2012 wine production estimate based on conversion rate of 700 litres of wine produced from 1 tonne of grapes crushed Source: ABS, OIV, Wine Australia, Winemakers’ Federation of Australia, Ciatti Company 15 Wine production – California 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 3.76 700 3.70 3.59 3.70 273 266 3.35 255 3.11 3.14 3.25 600 200 234 238 3.02 220 230 230 250 3 2.86 2.78 221 207 500 150 400 200 2 100 194 197 194 191 193 194 194 195 198 201 205 300 150 200 50 1 100 0 100 0 0 2001 2003 2005 2007 2009 2011 2002 2004 2006 2008 2010 2012E Average bulk wine prices Average export prices (Total US wine exports) US$ / litre US$ / litre 3.50 Zinfandel 3.50 Average 3.00 Cab Sauv export price 3.00 +5.8% CAGR 2.50 Chardonnay 2.00 2.50 White 1.50 Zinfandel 2.00 1.00 1.50 0.50 0.00 1.00 Jul 10 Jan 11 Jul 11 Jan 12 Jul 12 2001 2003 2005 2007 2009 2011 Note: 1 ton = 0.907 metric tonnes Source: California Department of Food & Agriculture, Wine Institute, Ciatti Company 16 Wine production – New Zealand 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 33 35 32 33 33 30 400 2,500 29 328 30 25 25 26 285 285 2,000 25 300 266 269 21 23 23 23 21 22 20 20 18 205 1,500 16 15 185 14 16 200 166 15 15 142 1,000 13 10 119 10 11 10 100 76 5 500 5 6 0 0 0 0 2002 2004 2006 2008 2010 2012 2002 2004 2006 2008 2010 2012 Average bulk wine prices Average export prices US$ / litre NZ$ / litre 3.50 Marl.