MGP Ingredients, Inc. · NASDAQ:MGPI
MGP Ingredients — Investor Day (April 2017)
77 slides from MGP Ingredients's investor day presentation, Apr 6, 2017
Slide 1: Investing for Growth in Premium Spirits and Specialty Food Ingredients
INVESTING FOR GROWTH IN PREMIUM SPIRITS AND SPECIALTY FOOD INGREDIENTS - - - - - - - ------------- - - - - - - - - - Analyst day 2017 Lawrenceburg, INdiana April 6, 2017
Slide 2: MGP participants and schedule
- - - - - - - - - - - - - - - - - - - - - MGP participants: • Gus Griffin, President and CEO; Tom Pigott, Vice President of Finance and CFO; Steve Glaser, Vice President of Production and Engineering; Andy Mansinne, Vice President of Brands; David Whitmer, Corporate Director of Quality and Alcohol R
Slide 3: Forward-looking statements
- - - - - - - - - - - - - - - - - - - - - Certain of the comments made in this presentation and in the question and answer session that follows may contain forward-looking statements in relation to operations, financial condition and operating results of MGP Ingredients, Inc. and such statements inv
Slide 4: Investing for Growth in Premium Spirits and Specialty Food Ingredients
INVESTING FOR GROWTH IN PREMIUM SPIRITS AND SPECIALTY FOOD INGREDIENTS - - - - - - - ------------- - - - - - - - - - INVESTING FOR GROWTH IN PREMIUM SPIRITS AND SPECIALTY FOOD INGREDIENTS April, 2017
Slide 5: Atchison, KS Protein & Starch
5 - - - - - - - - - - - - - - - - - - - - - ATCHISON, KS PROTEIN & STARCH • 17% of Net Sales • 13% of Gross Profit • Gross Profit +7%
Slide 6: Atchison, KS Distillery
6 - - - - - - - - - - - - - - - - - - - - - ATCHISON, KS DISTILLERY • Vodka • Gin • Industrial Alcohol
Slide 7: Lawrenceburg, IN Distillery
7 - - - - - - - - - - - - - - - - - - - - - LAWRENCEBURG, IN DISTILLERY • Whiskey • Vodka • Gin
Slide 8: Food grade alcohol net sales mix 2014-2016
- - - - - - - - - - - - - - - - - - - - - 8 2014 2015 2016 Premium Beverage Alcohol Industrial Alcohol 51% 49% 57% 43% 66% 34% % of Total Food Grade Alcohol Net Sales
Slide 9: 2016 net sales of $150M premium beverage alcohol
9 51% Whiskey 60% Gin & Vodka 40% 66% 2016 NET SALES = $150M - --- - - - - - -
Slide 10: Spirits gaining share, premiumization, American whiskey growth
- - - - - - - - - - - - - - - - - - - - - 10 • Spirits gaining share Distilled spirits have gained share of total beverage alcohol for 7 straight years, now reaching 35.9%. • Premiumization Consumers are trading up across all categories, with high end and super premium brands outperforming their cat
Slide 11: 5-year CAGR is accelerating
- - - - - - - - - - - - - - - - - - - - - 11 • 5-Year CAGR is accelerating 2012 2013 2014 2015 2016 2.5% 3.7% 5.1% 5.7% 6.3% Note: Data sourced from Distilled Spirits Council
Slide 12: Historical length of trends in the U.S.
- - - - - - - - - - - - - - - - - - - - - 12 • 5-Year CAGR is accelerating • Historical Length of Trends in the U.S. 9 LTR Case Volume (000s) 1970 2010 2016 American Whiskey 35.6 15.3 21.8 Vodka 18.8 62.1 69.8 Tequila 0.4 11.6 15.9 Note: Data sourced from Distilled Spirits Council
Slide 13: Headroom for American whiskey
- - - - - - - - - - - - - - - - - - - - - 13 • 5-Year CAGR is accelerating • Historical Length of Trends in the U.S. • Headroom Note: Data is sourced from Distilled Spirits Council 1970 2010 2016 Volume 35.6 15.3 21.8 Per Capita Consumption 0.69 0.16 0.22 LDA Pop 122m 221m 233m Share of TDS 22.8% 8.
Slide 14: Geographical expansion potential
- - - - - - - - - - - - - - - - - - - - - 14 • 5-Year CAGR is accelerating • Historical Length of Trends in the U.S. • Headroom • Geographical Expansion Potential • American Whiskey SOM of Total Whiskey • In US 35% • ROW 11% • Export volume +10.2% in 2016 Note: Data is sourced from Distilled Spirits
Slide 15: Industry adding capacity; strengthening our position
- - - - - - - - - - - - - - - - - - - - - 15 • Industry is Adding Capacity • Existing producers to support growth of existing brands • New producers to support growth of new brands • Customers Building Capacity • To expand their product offerings • To expand their marketing efforts • Understand and
Slide 16: Our mission
- --- - - - - - - Secure our future by consistently delivering superior financial results by more fully participating in all levels of the alcohol and food ingredients segments for the betterment of our shareholders, employees, partners, consumers, and communities. 16
Slide 17: Our strategic plan
ve MGP OUR STRATEGIC PLAN Build MGP Brand Maximize Value Capture Value Share Invest for Growth Risk Management Profitability Leadership a Ingredients
Slide 18: Strategy and 2016 accomplishments
- - - - - - - - - - - - - - - - - - - - - 18 Strategy 2016 Accomplishments Maximize Value • Continued to improve mix – Premium Beverage Alcohol Capture Value Share • Launched Till American Wheat Vodka • Acquired George Remus Brand Invest for Growth • Progressed $29MM warehouse expansion • Added $22.
Slide 19: Creating Excellence
INVESTING FOR GROWTH IN PREMIUM SPIRITS AND SPECIALTY FOOD INGREDIENTS CREATING EXCELLENCE April, 2017 - - - - - - - ------------- - - - - - - - - -
Slide 20: Two world-class facilities
20 Two world-class facilities 20
Slide 21: Atchison, KS
21 ATCHISON, KS 21 In 1941, Cloud L. Cray, Sr., founded Midwest Solvents Company to meet the wartime demands for industrial alcohol. Today, MGP’s integrated plant in Atchison, Kansas produces vodka, gin, and industrial grade alcohol, as well as specialty starch and protein food ingredients products.
Slide 22: Lawrenceburg, IN
22 LAWRENCEBURG, IN 22 MGP’s distillery in Lawrenceburg, Indiana has a rich history starting in 1847 when it opened as the Rossville Union Distillery. It was purchased by MGP in 2011 for $13.3MM. Today, MGP uses the facility to produce world-class bourbon, whiskeys, gin, and vodka.
Slide 23: Production flexibility and capacity
23 - - - - - - - - - • Flexibility to produce in small or large quantities • Work with high-rye mash bills. Rye is difficult to process • Significant production, barreling and storage capacity and capability • Decades of experience in product innovation/R&D, quality, engineering, production and supp
Slide 24: Broad array of spirits
24 - - - - - - - - - • Production of broad array of spirits • Vodkas and gins from corn, wheat, high/low proof gin, non-GMO • Twelve listed whiskey mash bills • Develop wide variety of custom mash bills to meet customer needs
Slide 25: Grain sourcing and processing
25 - - - - - - - - - 25 • MGP sources the highest quality grains available in the market • MGP’s know-how in sourcing and grain processing goes back to its origins • MGP handles multiple grains, including corn, barley, rye, wheat, and milo/sorghum
Slide 26: Fermentation and distillation expertise
26 - - - - - - - - - • Deep fermentation and distillation knowledge with microbiologists and master distillers on staff • Expertise in hard-to-handle high rye mash bills • Highest quality water from Greater Miami aquifer
Slide 27: Flexible manufacturing
27 - - - - - - - - - • Flexible manufacturing • Lawrenceburg distillery state-of- the-art feed dryer installed 2015 • Efficient and consistent • Well-trained and dedicated staff
Slide 28: Customizable whiskeys, gins, vodkas
28 - - - - - - - - - • Highly customizable whiskeys, gins, vodkas • Small and/or large runs • Short lead-time
Slide 29: RD&I team and master blenders
29 - - - - - - - - - - - - - - - - - • Strong RD&I team • Expert master blenders • Expertise in vodka, gin, whiskey, bourbons • Specialized in mash bill and blend development • State-of-the-art labs
Slide 30: BRC certification
30 - - - - - - - - - • MGP has been BRC Certified every year since 2011 • For both sites, MGP has received an AA rating. The highest possible score • BRC is part of the Global Food Safety Initiative (GFSI) to assure safe food around the world
Slide 31: Aging expertise and inventory management
31 - - - - - - - - - • Highly-regarded, experienced staff • Heavy R&D on aging process: • Wood types/characteristics • Charring • Building types and storage • Environmental conditions • Chemistry • Best-in-class controls and inventory management (SAP)
Slide 32: $29 million warehouse expansion
32 - - - - - - - - - • As part of MGP’s invest-to-grow strategy, we launched a $29 million investment in a 20-acre campus adjoining the company's current facility to refurbish existing warehouse buildings and construct new warehouses • More than doubling barrel storage capacity • Warehouse expansion
Slide 33: People
33 - - - - - - - - - - - - - - - - - • MGP’s deep bench of experienced and talented people • We continue to attract the best new talent • Ours is a culture of collaboration and excellence • People are the key to “Building our Legacy”
Slide 34: MGP University
34 • Launched MGP University in 2015, with a dedicated university director • MGPU impacts all areas and levels of the organization • Provides knowledge and wisdom vs. discrete training • Among MGPU’s offerings are the Master Distiller and Master Blender programs - - - - - - - - -
Slide 35: Awards and recognition
35 - - - - - - - - - 35 • Whiskey Advocate’s 2015 Distiller of the Year • 2015/2016 San Francisco World Spirits Competition: • Seven Double Gold • Ten Gold • 22 Silver • Eight Bronze
Slide 36: Quality of spirits
36 - - - - - - - - - 36 • The sum total of MGP’s capabilities and expertise combine with the best quality materials and facilities to produce spirits of the highest quality
Slide 37: Capturing Value Share Through Beverage Brands
CAPTURING VALUE SHARE THROUGH Beverage brands April, 2017 - - - - - - - ------------- - - - - - - - - -
Slide 38: Our mission
- --- - - - - - - 38 Secure our future by consistently delivering superior financial results by more fully participating in all levels of the alcohol and food ingredients segments for the betterment of our shareholders, employees, partners, consumers, and communities.
Slide 39: Top distilled spirits companies by cases sold
- - - - - - - - - - - 39 Note: data is sourced from 2015 Impact Databank Top Distilled Spirits Companies, 2014: (millions of nine-liter cases sold) Sazerac Co. 23.2 Beam Suntory, Inc. 21.5 Bacardi USA 14.8 Pernod Ricard USA 14.5 Brown- Forman Worldwide 11.0 Constellation Brands 8.0 MGP Brands Circa
Slide 40: Vodka and gin market outlook
40 Vodka Gin • Total Vodka CAGR 0% • 71.1M 9L cs • Ultra- and Super-Premium priced Vodka projected CAGR 11% and 3%, respectively • Growth to 5.0M 9L cs • Total Gin CAGR -1% • 9.3M 9L cs • Super-Premium priced Gin projected 13% CAGR • Growth to 3.9M 9L cs • Data Source: IWSR Forecast Report; US Spiri
Slide 41: Bourbon and rye market outlook
41 Bourbon Rye - - - - - - - - - - - •Total U.S. Whiskey CAGR 3% •31.3M 9L cs •Ultra- and Super-Premium priced U.S. Whiskey projected CAGR 12% and 10%, respectively •Growth to 1.9M 9L cs • Leverage market share leadership through MGP-owned brand(s) • Data Source: IWSR Forecast Report; US Spirits Ind
Slide 42: Product, provenance, authenticity, pricing, distribution
42 - - - - - - - - - - - Product Provenance Authenticity Pricing Distribution
Slide 43: MGP as influencer; distributor partnership
- - - - - - - - - - - - - - - - - - - - - 43 • MGP is an influencer • MGP Brands provide above average margin contribution • Distributor open to planning and managing the business the “MGP Way”: o Transparent planning and account selection o Account sold tracking o Granular performance analysis
Slide 44: Till American Wheat Vodka
; TILL AMERICAN WHEAT VODKA
Slide 45: Video
45 Video (will not play in PDF)
Slide 46: Market focus
MGP > MARKET FOCUS
Slide 47: Till accolades and awards
MGP TILL ACCOLADES & AWARDS: DELIVERING ON TASTE & QUALITY EXPECTATIONS
Slide 48: Till packaging and bottle design
48 Bottle shape similar to other high- end vodkas; communicates quality and premium price. Frosted bottle similar to Ultra Premium Imports conveys upscale and refreshing image. Stylized wheat field is attractive and communicates ingredients as well as farm/local, while being modern. Black and white
Slide 49: Till positioning map from focus groups
49 Source: 1/17 Vodka Exploratory and Till Focus Groups - - - - - - - - - - - Sophisticated Casual For Me/ Few People Flavored Import Vodka Popular Price Import Vodka Super Premium Import Vodka Flavored Domestic Vodka Ultra Premium Import Vodka New Craft Vodka For Parties/ More People
Slide 50: Till retail price spectrum
50 - - - - - - - - - - - Popular Price Import Vodka Super Premium Import Vodka Ultra Premium Import Vodka Domestic Craft Vodka Retail Price Spectrum Source: 1/17 Vodka Exploratory and Till Focus Groups
Slide 51: George Remus Bourbon
> GEORGE REMUS BOURBON
Slide 52: Video
52 Video (will not play in PDF)
Slide 53: George Remus uniqueness versus craft bourbons
53 - - - - - - - - - - - 0% 10% 20% 30% 40% 50% 60% 70% Craft Bourbon #2 Craft Bourbon #1 G. Remus Top 2 Box Uniqueness – Total Sample Craft Bourbon #2 Craft Bourbon #1 G. Remus Source: 2/17 Bourbon/Rye Exploratory Focus Groups George Remus is seen as more unique compared to leading craft bourbon br
Slide 54: Price comparison among competition
54 - - - - - - - - - - - Price comparison among competition Super Premium Premium Value High End Source: 2/17 Bourbon/Rye Exploratory Focus Groups Price Index = 100 Price Index = 111 Price Index = 112 Craft Bourbon #2 Craft Bourbon #1 G. Remus
Slide 55: Proprietary blend of bourbons
55 Proprietary Blend of Bourbons - - - - - - - - - - - Prohibition-style tax stamp Custom bottle Unique paper stock Enhanced artwork
Slide 56: A peek into the future
> APEEK INTO THE FUTURE
Slide 57: Expand distribution for Till and George Remus
57 - - - - - - - - - - - • Steadily expand distribution platform for Till and George Remus • Add key resources (people, A&P, distribution relationships) • Engage in brand marketing and activations
Slide 58: Brand criteria, line extensions and new concepts
58 - - - - - - - - - - - • Identify and/or create well-positioned brands that fit MGP criteria: • MGP makes the product [vodka, gin, corn, bourbon and rye whiskey] • Super to Ultra premium positioning and price point • Regional business with growth opportunities • Brand positioning does not conflict
Slide 59: 2016 Results & Outlook
59 2016 Results & Outlook April, 2017 - - - - - - - ------------- - - - - - - - - -
Slide 60: Net sales year ended 12/31/2016
- - - - - - - - - - - - - - - - - - - - - Fav / (Unfav) vs Prior Year $MM $MM % Distillery Products $265.2 $(5.0) (1.8)% Ingredient Solutions 53.0 (4.4) (7.6)% MGP Ingredients $318.3 $(9.3) (2.9)% NET SALES YEAR ENDED 12/31/2016 • Distillery products decline primarily driven by reduced sales of lowe
Slide 61: Distillery products net sales
- - - - - - - - - - - - - - - - - - - - - Fav / (Unfav) vs Prior Year $MM $MM % Premium Beverage Alcohol $150.4 $19.0 14.5% Industrial Alcohol 77.3 (21.6) (21.9) Food Grade Alcohol $227.7 $(2.6) (1.1) Fuel Grade Alcohol 7.4 - 0.1 Distillers Feed 21.8 (4.4) (16.8) Warehouse Services 8.4 2.0 31.6 Tota
Slide 62: Food grade alcohol products and margins
- - - - - - - - - - - - - - - - - - - - - 62 Food Grade Alcohol Products MGP Branded Product Whiskey: Aged Whiskey: New Distillate White Goods: Gin White Goods: Vodka Industrial Alcohol M a r g i n s Premium Beverage Alcohol
Slide 63: Gross profit margins, distillery products
- - - - - - - - - - - - - - - - - - - - - GROSS PROFIT MARGINS DISTILLERY PRODUCTS 8.7% 18.7% 21.4% 2014 2015 2016 63
Slide 64: Stages of margin expansion
- - - - - - - - - - - - - - - - - - - - - 64 PLANT EFFICIENCIES AND EFFECTIVE RISK MANAGEMENT PRODUCT MIX OPTIMIZATION: NEW CUSTOMERS / EXISTING CUSTOMER GROWTH LEVERAGING AGED SALES BRANDED PLATFORM STAGE 1 STAGE 2 STAGE 3 STAGES OF MARGIN EXPANSION DISTILLERY PRODUCTS
Slide 65: Operating income drivers 2015 to 2016
- - - - - - - - - - - - - - - - - - - - - 2015 Distillery Gross Profit Ingredients Gross Profit SG&A Other Operating Income* 2016 OPERATING INCOME DRIVERS 2015 TO 2016 – $MM $32.9 $6.2 $0.6 $(1.0) $3.4 $42.0 65 * Other operating income includes legal settlement and sale of corporate asset. Note: Tot
Slide 66: Earnings per share drivers 2015 to 2016
EARNINGS PER SHARE DRIVERS 2015 TO 2016 66 2015 Actual Operations Other Operating Income* ICP** Interest Wtd. Avg. Shares Tax Rate Changes, Net 2016 Actual $(0.03) $0.05 $0.06 $0.13 $1.48 $0.21 $1.82 * Other Operating Income includes legal settlement and sale of corporate asset. ** See appendix for
Slide 67: Cash flow drivers year ended 2016
- - - - - - - - - - - - - - - - - - - - - Net Income Depreciation and Amortization Investment in Barreled Distillate Other Operating Cash Drivers* Cash Provided by Operations CASH FLOW DRIVERS YEAR ENDED 2016 – $MM INVESTING ACTIVITIES Source / (Use) Amount PP&E additions $(17.9) Acquisition of Geor
Slide 68: Debt to EBITDA
- - - - - - - - - - - - - - - - - - - - - 2014 2015 2016 DEBT TO EBITDA – $MM Debt EBITDA • 2016 YE Debt to EBITDA Ratio of .63 • $51.6MM Available on Credit Facility at 12/31/16 $9.9 $33.5 $39.1 $51.3 Note: See Appendix for GAAP to Non GAAP Reconciliation 68 $36.0 $57.3
Slide 69: Uses of cash
69 • Working capital • Continue to build whiskey inventory • Capital expenditures • Complete $29MM warehouse expansion • Invest in capabilities • Acquisitions • May be used to accelerate expansion into brands • Key criteria established • Super premium brands • Product MGP can produce • Strong financ
Slide 70: Reconfirming guidance for 2017 and beyond
70 - --- - - - - - - MGP is reconfirming the following guidance for fiscal 2017 and beyond: • Operating income is expected to grow between 10% and 15% annually from 2016 through 2018. This guidance excludes a favorable litigation settlement and asset sale gain recorded in the third quarter of 2016.
Slide 71: Summary
71 • Long term strategy in place • Well positioned against macro trends • Great capabilities • Making necessary investments to deliver long term shareholder return • Strong results - --- - - - - - -
Slide 72: Appendix
• U.S. spirits market volume trends • Industrial alcohol market dynamics background information • ICP background information • GAAP to Non GAAP reconciliations • Cash flow details - --- - - - - - - 72
Slide 73: U.S. Spirits Market 9-Liter Cases
73 U.S. Spirits Market 9-Liter Cases (000s) - --- - - - - - - 2016 Volume % Change Total Distilled Spirits (TDS) 220,349 +2.4% Total Whiskey 61,816 +4.1% American Whiskey (Bourbon/Rye/Tennessee) 21,753 +6.8% • Super Premium 2,061 +11.8% • Rye 775 +15.5% • < 2.5m Cases* 11,540 +8.0% Vodka 69,782 +2.4
Slide 74: Industrial alcohol market dynamics: the fuel ethanol effect
74 - --- - - - - - - Fuel Ethanol 14.3 Billion ?? ?? Industrial 313 Million Beverage 74 Million Market Leaders Poet ADM Green Plains Market Leaders GPC ADM Equistar MGP Market Leaders GPC MGP ADM 2016 MGP Internal Estimates. Volumes in wine gallons Volume flows between markets when ethanol margins a
Slide 75: Illinois Corn Processing, LLC background
• Illinois Corn Processing, LLC (“ICP”) produces high quality food grade alcohol, chemical intermediates and fuel • ICP’s production facility is located in Pekin, Illinois • MGP owns 30% of ICP, and the income from the joint venture is reported in Equity method investment earnings, and ICP’s summary
Slide 76: Reconciliation of GAAP to Non-GAAP Measures
- - - - - - - - - - - - - - - - - - - - - 76 Reconciliation of GAAP to Non GAAP Measures EBITDA (Dollars in Thousands) 2016 2015 2014 Net Income 31,184$ 26,191$ 23,675$ Interest 1,294 534 816 Taxes 13,533 12,227 2,265 Depreciation / Amortization 11,253 12,382 12,325 EBITDA 57,264$ 51,334$ 39,081$ To
Slide 77: Other operating cash drivers and investing activities detail
77 Year to Date Ended December 31, 2016 Other operating cash drivers Dollars in Thousands Gain on property insurance recoveries (230)$ Loss (gain) on sale of assets (872) Share-based compensation 2,402 Excess tax benefits - Equity method investment earnings (4,036) Distribution received from equity