Issue #111, April 2020

 

Wine Investment:
Past, Present and the Future

Written by Stuart McCloskey


I cut my wine investment teeth with the 2000 Bordeaux vintage, which was a terrific vintage to start with. Pricing, then, was eye wateringly spectacular and offered enthusiastic collectors the opportunity to purchase some of the world’s greatest wines at prices which were respectable. I have an email file for each En-Primeur campaign which serves as an invaluable, historical reference point to opening prices and my costs! I’ll let you into a few secrets – I was purchasing the following ’02 Bordeaux (All prices are in Euros): 23.50 for Château Lynch Bages, 72.00 for Lafite, Mouton and Margaux, 80.00 for Château Latour and 16.45 for Château Beychevelle. Incredible prices as I believe we were buying at an FX rate of circa 1.60. The sterling rate for the ’02 Château Latour was £600 per case of 12. Today, the case would fetch £4,650, some 675% increase since its release in 2003. Of course, one must factor in a few costs; storage and insurance for example, but they are negligible…

 

I could happily write a book based on Bordeaux past, present and the future – the highs, the lows and the epic failings with many originating from recent En-Primeur campaigns which have profoundly damaged Bordeaux’s reputation and the reason why the 2017 was and will be my last campaign. I wonder how the Bordelaise will handle today’s global health pandemic. Being insensitive (which they are master at) and releasing the 2019s at the incorrect time will, for sure, kill off any hopes of healing some wide-open wounds. I will leave this to my epilogue…

 

We, and despite a wealth of experience and the correct buying channels, have made a conscious decision not to advertise our wine investment services. The market has changed and has attracted many unqualified and unsavoury scoundrels who have operated a number of boiler room scams resulting in many tens of millions being defrauded from the general public. I acted, for several years, as an expert in a twenty-five-millionpound wine fraud. An investigation by the Insolvency Service found that the company made baseless claims that misled investors. They further made a string of patently false claims as to the soundness both of the potential investment returns and of how wine sales would be handled. Sadly, these actions continue and will continue to do so as this is the world in which we live.

Founded in 2000, Liv-ex is regarded as the benchmark for fine wine statistics and they operate with some 500 merchants from 40+ countries. Last year, we were approached by Liv-ex to list our Aussie portfolio, we obliged however, and after a short period we found their platform to be problematic and the bid pricing waswasteful of our time. Nonetheless, they have a compelling reputation and are used by many as the yardstick for performance.

 

Their Liv-ex 1000, the broadest measure of the fine wine market closed Q1 (2020) down at -2.7% and the one-year mark at -4.38%. Their Bordeaux 500 is a similar story, Burgundy 150 losing more traction with Q1 losses reported at -4.00% and the one-year marker -7.15%. The only index to finish Q1 in the positive is their Italian 150 which finished at +0.59% and +3.88 for the year. Despite the losses, Liv-ex state “prices for fine wine were relatively stable when viewed against mainstream financial assets, with the Liv-ex 100 index registering the same monthly fall (1.1%) as Gold, affirming its “safe haven” status.”

 

I must add there are several, reputable wine investment funds who take an honest approach and declare their annual figures for all to see. One, The Wine Investment Fund demonstrate their performance from 2004. As I have already touched upon, early performance was good to exceptional. However, and by their own figures, they show annual losses from 2011 to 2019 with 2017 (+16.56%) and 2018 (+0.88%) being the only positive years.  

 

Others have produced their own in-house index, which and if I were to play devil’s advocate, is an easy way to influence one’s own performance. Having a third-party judicator is the least blemished way of providing more accurate figures, but it’s horses for courses in the world of fine wine. Fees must also be considered with some specialists taking a subscription fee, an annual management fee (circa 1.5 to 2%) and a performance fee ranging from 10 to 20%... Some also include bonded fees and ongoing storage costs. All-in-all, fees can often overtake profits, particularly in lean years. 

Last year, we launched an unusual adaption to wine investment in the form of our Profit Share scheme. I am the first person to stand-up and declare that any ‘guaranteed’ wine investment should be treated with absolute caution and avoided at all costs… 

In April 2019 we offered a ‘guaranteed’ 10% return on a fixed eighteen-month investment term, which and regardless of economic climates is a tall ask and everyone should question the validity of such a claim. We were careful as to the size of tranche one which quickly reached its ceiling and was closed soon after the launch date.

 

Lots of questions were asked, answered and published for all to see, as transparency was key. I will announce that many asked if shares in The Vinorium were available or were soon to be. I understand the question, as taking a financial position in our company is a savvy, financial move. We have also received three requests to sell the company to outside investors.

Our Profit Share scheme differs from all other wine investments as, and by the very nature of its title, we are sharing company profits rather than relying on Bordeaux or Burgundy sales which have been the standard (but not wholly exclusive) for many years. These have been subject to the peaks and troughs of market forces, which have been super-tough since 2011. Today, we are faced with an uncertain economic outlook, low interest rates and low returns from traditional financial assets, which is why many look to wine as a place of safety, as prices remain relatively stable and perform well over a 5-10 year period. Fine wine does offer good investment longevity and can provide a handsome return on the five and ten year mark, but opening prices are becoming more and more expensive benefiting the producers and négociants rather than the investor. There have been recent years when the ‘physical’ arrivals are cheaper than their En-Primeur release which is disastrous. Moreover, many investors are reluctant to invest in the distant future and prefer to see some form of financial return within two to three years.

 

Clearly, we are challenging our very own position as to avoid any assurances, but then again, we are offering a share of our profits which we can control, and very prudently. Despite our team size, The Vinorium is an importer of considerable weight and our global reputation is excellent. We are agents for many of Australia’s best producers which continues to grow by the month. We are incredibly agile and operate a business which normally requires four-times the volume of staff, placing an enormous burden on working capital and end of year profits. My team are not worked like slaves with 37.5 hours per week being their maximum hours. Magda and I being the exceptions, but we balance work and homelife with ease. It is well recorded that we do not operate with an overdraft, loans (save for our new HQ mortgage which is a great investment for our company), we have no debt, and do not operate any credit facility eliminating the risk of debt.

 

Sales for the years 2017, 2018 & 2019 are controlled and rise annually. Total sales of £12,128 million with net profits after tax amounting to £3 million proves that our way of working is highly successful against the industry standard which still operates within a broken model. You can read my recent article which highlights this issue here.

In the face of challenges arising from the Covid-19 the world is responding to this awful crisis, including our own industry. Unless we return to normality quickly, which is highly unlikely, I believe the fallout will be severe for those who sell to the pubs, clubs, restaurants and those which have lucrative contracts to supply alcohol to all the major events. I fear that many good sales representatives will not be returning to their jobs unless the government continues to fund 80% of their salary for the remainder of the year.

Inevitably, The Vinorium will see some fallout from international sales nevertheless, our Q1 performance is encouraging as we are up +8% compared to Q1 2019 and our profit position remains incredibly strong. In fact, we are better placed than 2019 as the GBP versus the Aussie Dollar is in much better shape, which provides more profit or, and as much as we can, we pass the saving on to you through our various offers.

 

The past weeks have highlighted that many investments are fundamentally linked to risk and when market instability increases, a diversified portfolio can be of benefit. It is also a great opportunity for investors to take a hard look at their portfolios and the companies which offer them. Now is not the time to discuss separating the wheat from the chaff but I am convinced many investors are taking a serious look at companies which are run on fragile foundations.

Today, we unveil the opportunity for customers to share our success and to also enjoy a share of our profits.

 
How the Profit Share Plan Works:

•  You invest a minimum of £5,000 to a maximum of £100,000.

•  The Investment Return: We offer 10% against your original capital outlay.

•  Investment Period: Eighteen Months. You will automatically receive
your original capital outlay along with the 10% return.

•  There are no management, storage or any other charges levied against your investment  

There are questions which understandably require answers. How will your money be invested and how can The Vinorium guarantee such an attractive return given our market conditions?

Your investment will be used wisely, to increase our portfolio of exclusivities along with a substantial increase in our stock holding, which currently stands at £2.5 million and is completely funded by The Vinorium with no borrowings, debts, loans or the use of an overdraft facility. In short, your investment will be allocated to purchasing wine and nothing else. In return for your investment, we will simply share the profits (in this case 10%) of our sales. It’s an attractive proposition for investors but and for a point of reassurance, a figure we are more than comfortable with. As per last year, we have a low ceiling on Tranche II which will not be exceeded.

Q&A

Q: How do I apply to join The Vinorium Profit Share?

A: Simply, email the team directly and they will liaise and send the application

Contact the team

Q: Are you offering the Seed Enterprise Investment Scheme (SEIS) or Enterprise Investment Scheme (EIS)?

A: No, as and after much research, we have decided that both schemes (although with benefits for the investor and the business) are either a little convoluted or restrictive.

 

Q: What are the risks of The Vinorium becoming insolvent?

A: A perfectly acceptable question during these difficult times. However, and in short, there is no identifiable risk of The Vinorium entering insolvency as our financials are incredibly strong which I have highlighted throughout my article.

Q. Is my money seen as a loan agreement or am I physically purchasing wines?

A: Funds will be used to enhance our overall stock position with existing and new, exclusive wine producers. As such, this is not a loan agreement as we are physically off-setting client investments with stock.

Q. Where would investors rank against other creditors (if there are any)?

A: Save for the Wine Society, we believe The Vinorium is unique in the way in which we operate. We operate with a zero-debt policy, no overdraft, no loans and pay all our wine makers 100% in advance of shipping. Our bank, HSBC has a charge over our land purchase (see our new HQ), but and following full planning consent for our development, the land value has trebled.

Q. Will you be offering any special incentives to investors?

Investors will receive special offers, first refusal on short-term investment opportunities and complimentary passes to some tastings. The real benefit lies with a 10% gain in 18 months, which for us, is attractive enough.

Q: I have more questions. Who can I contact?

A: Please contact Stuart directly either by email or telephone

E: stuart@thevinorium.co.uk

T: +44 (0) 1622 859 161

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