Stuart McNab Chief Supply Officer of Global Production, Treasury Wine Estates presented on why customers should invest in Australian wine and how the Australian wine category can take advantage of the supply and demand outlook and global trends. Representing some of Australia’s most recognised luxury, premium and every day drinking brands, Stuart explored Australia’s advantages over its competitive set.

2. How is Australia Placed
to Take Advantage of
Global Trends?
Stuart McNab
H ea d of G lob a l Wine Prod uction
Trea sury Wine E sta tes

3. Australia’s advantages
• Australia’s quality credentials
• Clonal Material
• Regionality - our balanced approach
• Climate change - adaptation and regional flexibility
• Water availability
• Cost Competitiveness
 Cost of production
 Relative cost of land
 AUD$ impact on returns
• Global wine supply & demand

4. Quality credentials
• Australia’s commercial wines are very competitive
• Our luxury wines have a track record for matching it with the world’s best
Clare Valley, SA

5. Decanter: 100 Wines To Try Before You Die
Four Australian wines:
• 1962 Penfolds Bin 60A
• 1998 Henschke Hill of Grace
• 1959 Lindeman's Bin, Hunter Valley 1590
• 1982 Seppelts Riesling, Eden Valley

6. TWE Master Blend Classification events
• Events in Melbourne, Toronto & London
to “classify” some of the world’s leading
Cabernet Sauvignon based blends
• 30 leading global wine critics
• Blind tasting of 18 world class cabernet
blends
• Wolf Blass Black label 2008 excelled,
coming equal second to Chateau Lynch
Bages 2008

7. Wine Spectator Insider
AT UP TO 100 POINTS, AUSTRALIAN
ALL-STARS KNOCK IT OUT of the park in
this week’s Wine Spectator Insider.
Penfolds has seven releases here, led by the
legendary Grange Shiraz and the Bin 707
Cabernet, and Torbreck in at six, with the
latest RunRig Shiraz in the mix. Leeuwin
excels with Chardonnay, and there’s an
appearance for Two Hands as well.
– Vol. 9, No. 24 / June 12, 2013

8. 2013 Decanter World Wine Awards
• Australian wines scoop six International
Trophies at 2013 Decanter World Wine
Awards
• Australian wines won more trophies than any
other country

9. Our clonal material has a strong pedigree
1820s
•Busby and Macarthur
introduce European
planting material to
Australia
1850s
•Specimens of
American vines
imported into
Europe
1860s
•Phylloxera spreads
throughout Europe
•Discovered in
Australia in 1877
Today
•Australia remains
relatively phylloxera
free
•Our clonal material
has a strong pedigree

10. Phylloxera spread rapidly in Europe
France - 1865 France - 1890

11. Phylloxera distribution
Source: Grape phylloxera, Exotic threat to Western Australia, Botha J, Hardie D, Power G, reviewed October 2006

12. Phylloxera spread in Australia is contained
Phylloxera
spread in
Australia is
limited

13. Australian heritage vineyards
1893
Brands Laira vineyard -
the oldest remaining
single Shiraz block in
Coonawarra
1885
Penfolds Block 42
Cabernet Sauvignon
vines are thought
to be the oldest
continuously
producing Cabernet
Sauvignon vines in
the world
1843
Langmeil Freedom
Shiraz vineyard in
Barossa Valley

14. Regionality
• Our balanced approach
Coonawarra, SA

15. Australia’s multi-regional brands
• Large volumes
• Consistent quality across vintages
• Quality, volume and cost maintained regardless of weather

16. Regional / Single vineyard brands
• True expressions of their region, tied to the history & regional “terroir”
• Moderate volume, higher risk, more vintage variation

17. Premium brands with unique regional applications
• Reputation for high quality and
consistency
• Larger volumes of higher quality
wines
• Consistency of style & quality
• Not restricted to specific regions
• Some key wines within ranges are
appellated to a region or even single
vineyard

18. Climate change
• A global phenomenon
Barossa Valley, SA

19. The global picture
Source: Climate Change Impacts on Terroir, Jones (2008) Growing season average temperature 12-220C
World Viticulture Zones
1950 – 1999
Isotherms shift
towards the poles
~80 – 240km
2000 – 2049
Isotherms shift
towards the poles
~160 – 300 km

20. Climate change adaptation
Pruned in
May
Pruned in
September
Source: Treasury Wine Estates
Source: Victor O. Sadras∗, Chris J. Soar, 2009, Shiraz vines maintain yield in response to a 2–4 ◦C increase in maximum
temperature using an open-top heating system at key phenostages, South Australian Research and Development Institute

21. New premium regions emerging
Wrattonbully
Robe
Heathcote
Tasmania
1994 – 280 Ha
2013 – 11,400 Ha

22. Water availability
The dry river bed of the Murray River at Myall near Kerang, Victoria, 1914.
During the Federation Drought the Murray stopped flowing for approx. 6 months.
Source: State Library of New South Wales.

23. Water – strength or weakness?
• 2000’s “Millennium Drought” one of
the worst in Australia since the 1900’s
“Federation Drought”
• Water availability was 32% (S.A.)
• Grape prices and water prices reacted
• Despite drought the 2008 Australian
wine crush was 1.8M Tonnes
• Vineyard owners purchased temporary
water

24. Water flows to the most profitable crop
Agribusiness Water Usage Gross Value $/ML
Horticulture/Wine 11% $6342
Cropping 31% $816
Grazing 58% $902
• Grape production in Australia delivers one of the highest $ returns for the
water used, in the Murray Darling Basin
Source: ABS 2004

25. Is Australia cost competitive?
• Can Australia compete with other wine grape producing countries?
Langhorne Creek, SA

26. Cost of production – commercial wine
• Our growing costs are competitive
• Our exchange rate has a significant impact
USD Chile Australia Argentina US South Africa
2011 average USD rate 198 204 176 237 162
3-year low USD rate 142 126 171 237 112
Source: Rabobank, 2011
USD / Tonne

27. Into the US market
Cost components of bulk wine* landed in the US
Note: * Reflects grape
component of bulk wine,
excluding processing
costs
Source: Rabobank, Ciatti
Company, industry
sources, 2011
USD / Litre

28. Production costs – luxury wines
Source: Industry sources
Typical
Cost
$ per Ha
(AUD)
$0
$5,000
$10,000
$15,000
$20,000
AUSTRALIA NEW ZEALAND UNITED STATES

29. Indicative luxury vineyard cost & returns
Sources: 2011 Knight Frank Wealth Report, Nielsen Financial Services, industry sources
(AUD) Australia Australia US France
Icon Luxury Napa Bordeaux
Cost per planted hectare (A$) 75,000 59,000 296,000 642,000
Volumes
Hectares acquired per A$100m 1,333 1,695 338 156
Typical tonnes per hectare 3 6 6 1
Indicative returns
ROCE at full production 168% 61% 14% 13%
Payback period based on EBITS (years) 6 4 10 13

30. AUD$ Exchange rate starting to soften
Note: * Based on the assumption of a typical $30 COGS
Source: Bloomberg, Industry sources

31. Global supply & demand
Note: * Consumption figures include c.333m 9L cases of wine used in the production of fortifieds & industrial applications
Source: International Organisation of Vine & Wine (OIV)

32. Summary
• Australia is well-placed to supply wine to
meet global demand
• Established quality credentials
• Land and growing costs are competitive
• Water & new regions offer expansion and
flexibility
• AUD$ has been high but is trending down