whyte & mackay acquisition : leveraging opportunities in india … meet/132432_20070531.pdf ·...
TRANSCRIPT
Whyte & Mackay Whyte & Mackay
Acquisition : Leveraging
opportunities in India and
emerging markets
Investor Presentation
May, 2007
Key growth opportunity consistent with existing strategy
Acquisition of a leading Scotch Whisky Asset which provides control of
heritage brands, scotch whisky inventory and manufacturing base
Provides strong brands to tap other high growth emerging markets; esp.
China and Russia
Provides strong platform to fully exploit the rapidly growing India
opportunity for Scotch Whisky, esp. at the premium end
2
Significant incremental value under USL ownership – India advantage; Brand
building; rub-off on rest of USL portfolio
Consistent with existing strategy to create value in India and other markets
Secures long term critical Raw Material requirements for USL’s Premium
brands
Agenda
� Scotch Whisky Industry Background
� Whyte & Mackay
� Acquisition Rationale
3
� Transaction summary
� Conclusions
Global scotch whisky industry is expected to be extremely buoyant in coming years
� Strong growth expected on the back of rapid demand growth in China, India and other developing markets
� Strong upswing in pricing as production considerably lags demand growth
140%
Scotch market growth rates in developing countries (2005/2004)
% Increase in prices of bulk whisky since Aug 2006
10% overall
4
115%
30%
17%26%
12%
0%
20%
40%
60%
80%
100%
120%
China East
Europe
APAC Latin
America
India
%
Source: Scotch Whisky Notebook, 2006
0%
20%
40%
60%
80%
100%
120%
140%
Grain Malt
4 yrs 12 yrs
4 yrs12 yrs
10% overall volume growth in
12 months ending
February’07
Buoyancy is evident from the recent results of major scotch whisky players
Extracts from recent investor presentations of ….
Diageo (Six month ended Dec 31, 2006)
Pernod Ricard(Nine month ended Mar 31, 2007)
Volume Growth
%
Net sales growth
%
Scotch 7 11
Vol.
growth
%
Net
sales
growth
%
Premium 36 17
Chivas Regal : Volume +6% Sales +7%
Q3 growth : 22%
5
Scotch 7 11
Vodka 5 6
Gin 1 2
Liqueurs 3 6
Rum 4 8
Tequila 7 8
NA Whiskey
2 5
Total Spirits
4 8
25% growth in India
70% growth in China
Standard 4 4
Value (8) (5)
Total 7 11
Ballantine’s : Volume +23% Sales +28%
Q3 growth : 25%
The Glenlivet : Volume +13% Sales +15%
Strong growth in China and
Asia
In the Indian market, Scotch whisky has a significant latent demand
�Consumers are trading-up to premium products due to rapidly changing demographics
�In the past, scotch segment has not achieved a critical mass because of lack of distribution and
infrastructural support to incumbent scotch brands
�Latent demand for Scotch whisky can be captured through comprehensive distribution of the
scotch whisky across the country
Indian Market growth in 06-07
Widespread availability of the Widespread availability of the
6
50-60%
25-30%
25-30%
10-15%
Medium & Cheap
Regular
Prestige
Premium
Super-premium
Medium & Cheap
Regular
Prestige
Premium
Super-premium
Current Future
Widespread availability of the product can significantly increase product demand
Medium & Cheap
Regular
Prestige
Premium
Super-premium
Medium & Cheap
Regular
Prestige
Premium
Super-premium
Current Future
Medium & Cheap
Regular
Prestige
Premium
Super-premium
Medium & Cheap
Regular
Prestige
Premium
Super-premium
Current Future
Widespread availability of the product can significantly increase product demand
Medium & Cheap
Regular
Prestige
Premium
Super-premium
Medium & Cheap
Regular
Prestige
Premium
Super-premium
Current Future
Agenda
� Scotch Whisky Industry Background
� Whyte & Mackay
� Acquisition Rationale
7
� Transaction summary
� Conclusions
30
Whyte &Mackay is a strategic asset in the scotch whisky industry
� Founded in 1844, Whyte & Mackay possesses rich heritage in Scotch Whisky business
� 4th largest scotch whisky player in the world
� Worldwide presence in all key markets; Strong pan-European presence
Million case and
case
equivalents
World’s largest Scotch Whisky Companies
8
0
10
20
Diageo Pernod Ricard William Grant Whyte & Mackay John Dewar & Sons Edrington Group
equivalents
Whyte & Mackay has distilleries in all key scotch whisky regions which provide unique heritage to its products
Tamnavulin
Scotch Whisky Regions
Dalmore
Invergordon
� Amongst the largest independent distillers of Scotch Whisky
� Controls significant proportion of non-captive grain whisky supply : 20%+ of non-captive supply
In a supply shortage situation, W&M
owns strategic manufacturing assets
9
Tamnavulin
Fettercairn
Jura
20%+ of non-captive supply
� Controls strategic inventory of aged malt and grain whisky : 115m ola
� Inventory at current broking prices is valued at £ 380m
Control over strategic scotch whisky stocks and production facilities provides ability to source material at competitive rates
Whyte & Mackay has strong heritage brands across the entire spectrum
Ultra luxury
Luxury
30 to 60
year old
Malts
The Dalmore
Whyte & Mackay
(13 yrs and above)
• Whyte & Mackay
Original 40 years old
• The Isle of Jura 40
• Dalmore 1973
10
Mainstream
Value
Isle of Jura Glayva
Fettercairn
Whyte & Mackay Special
Vladivar Mackinlay
Stewarts Tamnavulin
Gleniffer Claymore John Barr Cluny
Findlaters Crawfords 3 star The Real Mackenzie Highland Pride
Blended Scotch – Whyte and Mackay
� Whyte & Mackay is a leading scotch brand in Scotland, the home of Scotch
� 5th largest scotch whisky brand in UK
� Whyte & Mackay is a stylishly masculine brand with a real Glasgow based heritage
� Unique double marriage process
� Renewed marketing thrust and repackaging has put the brand on a strong growth path
11
has put the brand on a strong growth path
� Recent Nielsen retail audit studies show a strong upward trajectory
Whyte & Mackay Value % Change
20
59
15
58EW Grocers
GB Grocers
Total EW
Total GB 58
17
4 -110
20
40
60
W&M Grants Teachers Bells
Key Blends Growth - Value Performance
EW Off Trade
Nielsen MAT to FEB 07Nielsen MAT to FEB 07
Single Malts - Isle of Jura
� The brand comes from the only distillery in Jura which
provides it a unique heritage
� Jura is steeped in history, a magical island with
palm trees, not wet hills, off the coast of Scotland
formerly the playground of the aristocracy
� Jura is a lifestyle luxury brand
12
� Targeted at people looking for genuine, down-to-
earth luxury – giving them ‘a taste of island’
� Isle of Jura has been the fastest growing top Malt in
GB On trade over the last 2 year
� Similarly, in off-trade brand grew by 15%
27.2
21.417
15.1
-11.3
-26.8
JURA
HIGHLAND
PARK
TALISKER
LAPHROAIG
MACALLAN
GLENMORANGIE
Nielsen MAT JAN 07
On-Trade growth in Great Britain
Single Malts – The Dalmore
� A true luxury goods brand built on
connoisseurship and understated
elegance
� A bottle of The Dalmore 64 yr aged
product was sold for £50,000 making it
the most expensive single malt in the
world
13
� Distributed by Jim Beam in USA
� The range includes a 12yo, The Cigar
Malt, The Finesse, 15yo, 18yo, 21yo,
25yo, 30yo, 40yo, 50yo, 60yo and 65yo
Vodka - Vladivar
� Amongst top 5 vodka brands in UK
� 100% pure grain vodka distilled in Scotland and
belonging to ‘high quality vodka’ category.
14
� Won ‘Best consumer campaign award’ by Drinks
Business
� Brand re-launched to target the ‘young & hip’
What is being acquired?
Strong international
heritage brands
Control over strategic scotch
whisky assets
� Blended Whiskies – Whyte & Mackay, Mackinlays, Claymore, John Barr
� Single Malts – Isle of Jura, Dalmore, Fettercairn, Tamnavulin
� Others – Vladivar, Glayva
� 4th largest scotch whisky player
� Owns Invergordon distillery in addition to four Malt distilleries
� Capacity of 40 million litres (Grain) and 12 million litres (Malt)
15
‘Scarce’ aged scotch
whisky stock
Strong Distribution
set-up
Business with
reasonable scale
� Inventory at current broking prices is valued at ~ £380million
� Provides control over scotch whisky stocks equivalent to 30-35 million
cases
� Presence in large number of western countries across UK, Europe,
USA
� Annual sales of £ 160 million
Agenda
� Scotch Whisky Industry Background
� Whyte & Mackay
� Acquisition Rationale
16
� Transaction summary
� Conclusions
Critical success factors Global
Competitors in India
USL USL
W & M
Ownership of premium scotch whisky brands
� � �
Access to scotch assets � � �
� � �
� Favorable
○ Unfavorable
USL + W & M are best positioned to exploit the opportunity in Indian market
17
Distribution strength � � �
Manufacturing set up � � �
Portfolio strength � � �
Understanding of Indian consumers
� � �
Latent demand for premium spirits in India can be realized by combining strengths of two companies
Significant opportunity to expand international business in emerging markets
Global Buoyancy
� Strong increase in
demand on back of
growth in China and
other developing
markets
W&M/USL strengths
� International heritage brands; Brands
have been recently repositioned/
repackaged and have demonstrated
strong growth potential
� In a supply shortage situation, W&M
+
18
� Strong upswing in
pricing as production
considerably lags
demand growth
� In a supply shortage situation, W&M
owns strategic manufacturing assets
� USL has strategic relationships with
leading companies in several emerging
markets (e.g. Russia, China)
Significant potential to increase sales of W&M brands in international markets
Sales pre and post acquisition EBIDTA pre and post acquisition
Acquisition would significantly alter USL size, increase its profitability and position it as a global player
� Increases scale by 33%
� Increases EBITDA by 80%
� International market would account for 25% of sales
� Margin expansion of 5%
£ million
750 125
19
million
Note : Based on USL’s imputed value of sales; USL financials are 06-07 actuals
0
150
300
450
600
Pre Post
0
25
50
75
100
Pre Post
Agenda
� Scotch Whisky Industry Background
� Whyte & Mackay
� Acquisition Rationale
20
� Transaction summary
� Conclusions
Transaction is EPS accretive in Year-1
Transaction:
Offer Price:
• 100% acquisition of Whyte & Mackay Group Ltd by USL
• Enterprise Value ~ £ 595 mn
21
Funding:
AccretionAnalysis
• £ 325 m of debt on strength of target assets with no recourse to USL
• Balance debt in overseas SPV of USL
• EBIDTA% increase in Year 1
• EPS accretive in Year 1*
Divestment of minority stake in target and sale of treasury stocks of USL would help
revert to current debt/equity in year 3 while retaining management control
* Pre one-time costs of acquisition and restructuring
16
24
32
Transaction compares favourably with other precedent scotch whisky transactions
EV/EBIDTA
Comparable Scotch Whisky transactions
11.5
22
0
8
Edringto
n
Gro
up/W
illia
m
Gra
nt/
Hig
hla
nd D
istille
r
CL F
inancia
l/B
urn
Ste
wart
plc
Moet
Hennessy/G
lem
ora
ngie
Dia
geo/B
ushm
ills
US
L/W
&M
* Multiple is EV/CAAP as
opposed to EV/EBIDTA
*
Agenda
� Scotch Whisky Industry Background
� Whyte & Mackay
� Acquisition Rationale
23
� Transaction summary
� Conclusions
Summary
Strong business
rationale
Transaction compares
favourably as
compared to global
transactions
24
Transforms
USL size,
scale &
profitability
Significant
value upside
Questions