Just the Answer – AXA Millesimes
Persuading shareholders to back investment in the wine business can be a tricky challenge but AXA Millesimes has shown that if the business model is right, shareholders will embrace the idea. In this month's Just the Answer interview, Christian Seely, AXA Millesimes' managing director, spoke with Olly Wehring about the company's strategy, which involves concentrating on high-end, estate wines and taking a long-term view towards its investment.
just-drinks: What was the thinking behind AXA entering the drinks, and more specifically, the wine and Port industries?
Seely: The principal aim of AXA Millesimes, in financial terms, is to create long-term capital growth in vineyard sites. If you look at the profile of almost all of the properties we've acquired, they have tended to be great, historic vineyard sites with a history for making great wine in the past but which, in the period before our acquisition, have not been exploited to the maximum of their potential. So the logic of the thing is to take a great vineyard that's a little run down, put into it the necessary investment, which can be quite considerable at the beginning, put in the necessary people - and that's at least as important as the investment - and then do the work and give the vineyards the love and attention they need to bring them back up to former glory. If you look at pretty much any of our properties, that's basically what's happened.
j-d: It seems a curious step for a financial publicly-limited company to take, though. How do AXA's shareholders feel about AXA's drinks investments?
Seely: It's a most unusual combination of circumstances where the will of our shareholder coincides exactly with what we want to do. If you are a winemaker, you want to make the greatest wine that your vineyard can make every year. And that's exactly what our shareholder asks us to do - we're just aiming at the absolute top quality of wine every year, no matter what sacrifices may be necessary in the short term to achieve that.
You sometimes have a situation where there's a conflict between the winemaker's aim and the shareholder's short-term demands. We do not have that conflict. AXA Millesimes has quite a visionary, long-term view of the management of its properties. Having been doing this for 15 years now, I believe that this long-term view is the only approach possible to run a world-class vineyard properly.
j-d: So AXA's shareholders are aware, and accepting of, the boom/bust nature of the global wine industry?
Seely: What we do is a very specific thing: we focus entirely on investing in vineyards and producing great wines. There are very many parts of the wine business that we wouldn't be interested in, such as mass-production of a branded wine that is not vineyard-based. Our company approach is centred around the vineyard. We're not really in that part of the wine business where we try to build a brand in the middle or lower end of the market - we're focused on the top end.
The way the fine wine market is going is that you can see a globalisation of demand for the top wines, while production is fixed and place-orientated. The trend of the last 25 years is that demand is growing, so the only thing that can happen is that the price of wine goes up, meaning the value of the property goes up to. That's the entire logic behind what we're doing.
j-d: How does this differ to a private equity approach? What's the approach to building the investment and then selling it on at a profit?
Seely: I hope the approach is a long-term one. I feel there's a very interesting upside in the situation that exists at the moment, and one that can go on for a long time. They (AXA) are very comfortable with the idea of sitting on an added value that's been provided, so long as there's perspective for that process to continue. The way the market is going is extremely favourable to our business model. There's no question that the whole thing depends on making the greatest wines possible, and it doesn't work if you don't. The people who pay large amounts of money for special wine don't do it because you've marketed it to them, they do it because the wine is great.
j-d: AXA Millesimes operates in mature traditionalist wine regions around the world. How have the winemakers in these regions taken to your arrival?
Seely: When we arrived in Portugal - first of all we're a big company, second of all we're French - people looked at us warily to see what we were going to do. Once people realised our approach was vineyard- and wine-based, people accepted that. Once they understand what you're planning to do, then you're very well accepted. People judge you by the results of what you do more than anything else, and that's how it works.
j-d: What's the difference between the AXA approach and that of the larger drinks companies that also have shareholders to answer to?
Seely: If your principal activity is extracting profitability from vineyards this year, you are probably going to take decisions that are different from the decisions you take if that's not your principal activity. If you need short-term profitability, you may not run that vineyard in a way that's consistent with a long-term quality approach. You can always postpone the necessary investments, thereby making more out of the vineyard. If you have a desperate need to report better results from that vineyard next year, then it's going to be difficult for you to take a long-term approach.
This company is run on a long-term basis, and quite suddenly, long-term becomes today. At Quinto do Noval, for example, we replanted over 100 hectares of vines, most of which in the first five years we were here. At the time, that was an enormous investment that gave no short-term return at all. Now, ten to 15 years later, I'm in the fantastic situation where I have large amounts of high-quality grapes - now we're reaping the harvest of what we sowed. That's beneficial for the company, the vineyards and shareholders.
j-d: Looking to the future, would AXA consider any other areas of the wine-producing world?
Seely: We always have an open mind about that and we're always on the look-out. The central point that has to exist is that there is a great vineyard terroir capable of making a great wine. If that isn't there, you can make all the investments you like, but you'll only ever make something that's very good and not something that's great.
It wouldn't have to be only in Europe, though. Personally, I'm very interested in New Zealand - I think it'd be a fascinating project to develop a Pinot Noir property in New Zealand. There's also a lot of untapped potential in north-west America, in Washington state. These are not places that have had great historic vineyards, but they have exciting vineyard terroir capable of producing great wines.
j-d: Are you tempted to look at any other sectors of the drinks world? Does the history of Scotch whisky appeal, for example?
Seely: That would be enormous fun. Our skills and experience in Port could quite easily be applicable to something like Scotch. Our model, however, is very clear - we're focusing on the property investment in vineyards. Scotch is not about that, it's more about the product and the name, so, alas, it's a little far away from our model.
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