Change tipped for wine

Wednesday, 28 July, 2004
The Herald Sun,
About one-fifth of Australia's $10 billion in wine assets are tipped to be shifted into sale/leaseback agreements in the next five years as they accelerate towards becoming virtual businesses.

That's the prediction of Phil Ruthven, chairman of business analysis group IBIS. He outlined his argument yesterday while addressing the Australian Wine Industry Technical Conference in Melbourne.

'I think sale/leaseback will accelerate at a furious pace in the next decade,' Mr Ruthven told the conference.'I'd like to see the figure closer to $4 billion but I don't think that will happen.' But he believes the industry, which had until now been reluctant to divorce itself of hard assets, would not hesitate as it entered its next life-cycle which he expects to begin in about 2010. He argues that in the long term, major companies will not own any wineries or vineyards.

'They'll be operating-leasing all those to free up cash,' he said. 'I think you're going to get what I call much lighter corporations in terms of having assets lying around, dragging them down.'

Mr Ruthven told the conference the creation of virtual companies was one of 10 practices identified as common to the best enterprises by IBIS during its 20 years of empirical and historical analysis of 30,000 companies. Based on the analysis, the wine industry was in its fourth era, having progressed from cottage industry, to a table wine area, to a fortified wine era and then to the current table wine era which had begun in the 1960s and would end in about 2009.

He said the top of the current life cycle stage had been reached rapidly and the industry was now in a 'horror zone' with a mature period lasting about 2009 or 20010 'after which the industry should begin an exciting fifth era.' During that era, lasting another 40 or 50 years, he expects exports, (581 million litres worth $2.55 billion in 2003-04) will increase to about 75 per cent or 80 per cent of total production compared with the current figure of about 50 per cent. Australia's share of world production would increase from about 4.5 per cent now to about 10 per cent.

He also predicts a profound shift in customers with the Asia Pacific region becoming the major market, ahead of current leaders Britain and the US.

Commenting on Mr Ruthven's remarks, Chris Atkins, managing director of sales/leaseback specialist and ASX-listed Beston Wine Industry Trust, said he expects that between $300 million and $400 million of wine industry assets to be shifted into sale-leaseback agreements during the next two years. Beston, in which Challenger Financial Services has a 15 per cent stake, currently has about $250 million of wine industry assets, with McGuigan Simeon being the major lessee.

Mr Atkins said that of three broad areas - vineyards, infrastructure and marketing - the wine industry was currently only succeeding in marketing. 'So it's very important to service the wineries and the infrastructure sector,' he said. 'It's so much better to have that capital off with someone like ourselves which means that the investor is only looking for nine to nine and a half per cent yield and therefore we can charge a lower rental rate.' That should see rental costs become lower than the weighted average cost of capital.

'Why pour capital into that when they can do the same thing with us and increase their returns,' Mr Atkins said.



Winery assets like tanks and barrels tipped to be shifted into sale/leaseback agreements in future
Winery assets like tanks and barrels tipped to be shifted into sale/leaseback agreements in future