Chilean Wine Industry Analysis -...
Transcript of Chilean Wine Industry Analysis -...
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Chilean Wine Industry Analysis
Presentation to stakeholdersSantiago, November 2008Internet Business Solutions Group
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Chilean Wine Industry Analysis
This document contains a summary of the Chilean Wine Industry Analysis done and commissioned by Cisco Systems during the months of September and October 2008.The field work included information gathering from many different sources, interviews with 38 industry experts and extensive analysis.This work is currently being used to define opportunities around Information and Communications Technology (ICT) applications and the impact that these solution could make in the wine industry.
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International wine market1Chilean macroeconomic wine impact2Chilean wine market3Chilean ICT context4
Content
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International wine market
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254273 266 262
281 280 268 261 266300
282 287 271
'95 '96 '97 '98 '99 '00 '01 '02 '03 '04 '05 '06 '07
In million of hectoliters (hl)
Source: FAO, OIV; Hermes’ analysis
Evolution of the World Wine Production
The world wine production grew at an annual average rate of 0.5% in the last 12 yearsThe world wine production reached its maximum level in 2004 and has decreased at an average rate of 3.3% per annum in the last 3 years, reaching similar production levels to that of 1996
CAGR: -3.3%
CAGR: 0.5%
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19% 17% 19% 18% 18% 18%
1718 19 19 18
13 1614 13 13 13
8 7 7 8 7 7
5 5 5 5 5 6
4 4 4 4 4 44 3 3 3 3 43 3 3 3 3 45 4 5 5 5 42 3 2 3 3 3
20 21 20 18 19 20
18
261 266 300 282 287In million of hectoliters (hl)
100% =
Evolution of the World Wine Production per Country
‘02 ‘03 ‘04 ‘05 ‘06
Others
Chile
Italy
271
‘07
CAGR '02-'07 (%)
Source: FAO, OIV; Hermes’ analysis
Chile, South Africa and Argentina show the highest growth rates among the most important producers
France
Spain
USA
ArgentinaChina
South AfricaAustralia
Germany
0.8%
1.2%
7.9%-4.6%
6.5%0.7%
1.4%3.5%
-0.3%
0.7%
0.8%
-0.8%
60%
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1,110
867
681
341
248
228
222
177
174
123
3,458
Breakdown of Cultivated Area for Wine Production by CountryIn thousand of hectares, 2007, top 10 countries
Source: OIV, Servicio Agrícola y Ganadero; Hermes' analysis
Spain
France
Italy
USA
Portugal
Argentina
Turkey
China
Australia
Chile
Spain, France and Italy account for the largest cultivated area for wine production, although their world share has decreased in the last yearsChile, ranked 10th in cultivated area, is gaining share with an annual growth rate of 2.4%
Others
CAGR ‘00-’07-0.7%
-0.6%
-1.6%
-1.2%
-0.1%
1.8%
-6.5%
3.8%
3.2%
2.4%
0.7%
-0.1%Total 7,871
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228 222 225 228 225 225 227 229 236 237 238 241 241
'95 '96 '97 '98 '99 '00 '01 '02 '03 '04 '05 '06 '07
In million of hectoliters (hl)
Source: FAO, OIV; Hermes’ analysis
Evolution of the World Wine Consumption
The world wine consumption slightly increased in the last few yearsThe gap between production and consumption can not be consideredas a surplus because the difference is used to supply the market for industrial purposes: brandies, vinegars, vermouth, among others
Annual change (%) -3% 1% 1% -1% 0% 1% 1% 3% 1% 0% 1% 0%
Gap with production (MM hl)
26 51 41 34 56 55 41 32 30 63 45 46 30
CAGR: 1.0%
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15% 14% 14% 14% 14% 13%
12 12 11 11 11
10 10 10 11 11 11
9 8 8 8 8 8
5 5 6 6 6 6
6 6 6 6 6 6
4 5 5 5 5 55 5 5 5 5 53 4 4 4 4 42 2 2 1 2 2
28 28 28 29 28 29
12
229 236 237 238 241In million of hectoliters (hl)
100% =
Evolution of the World Wine Consumption per Country
‘02 ‘03 ‘04 ‘05 ‘06
Others
Romania
Italy
241
‘07
(%)CAGR '02-'07
Source: FAO; Hermes’ analysis
Russia is the country with the highest growth rate followed by UK, China and USA
France
USA
Germany
ChinaSpain
ArgentinaRussia
UK
1.0%
1.3%
2.2%10.4%
-1.4%4.1%
-1.0%3.5%
-0.1%
3.3%
-0.6%
-1.6%
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55.9 53.246.3 44.8 44.8 40.8
34.5 34.7 30.8 30.5 29.7 29.4 28.8
15.58.7
Luxe
mbo
urg
Fran
ce
Italy
Por
tuga
l
Slo
veni
a
Cro
atia
Sw
itzer
land
Hun
gary
Spa
in
Aus
tria
Gre
ece
Den
mar
k
Arg
entin
a
Chi
le
US
A
2007, liters per capita per year
* Based on 2005 figuresSource: Wine Institute, OIV; Hermes’ analysis
Per Capita Wine Consumption per Country
Luxembourg and France have the highest per capita wine consumptionUSA, although shows a low per capita consumption, has a great potential while its consumption has grown over the last years
*
**
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23% 18% 18% 20% 21% 21%
21 18 18 17 17
1417 18 18 17 17
77 8 9 9 9
56 6 5 6 7
45 5 4 4 5
3 4 4 3 3 43 4 4 4 4 43 3 3 4 3 32 3 2 3 3 4
12 12 12 13 11 11
23
68 73 77 80 84In million of hectoliters (hl)
100% =
Evolution of the World Wine Exports per Country
‘02 ‘03 ‘04 ‘05 ‘06
Others
Germany
France
91
‘07
Source: FAO; Hermes’ analysis
Smaller producing countries, increased their exports share from 27% to 36%In particular, Chile has one of the highest exports growth rates: 11.4% per annum, second only to Argentina (23.9% growth rate per annum)
Italy
Spain
AustraliaChileUSA
ArgentinaPortugal
South Africa
(%)CAGR '02-'07
6.1%
4.9%
7.6%7.7%
10.2%23.9%
9.7%11.4%
10.7%
-0.5%
9.8%
3.5%
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Top wine export countries2007
Source: FAO, OIV; Hermes’ analysis
18.8
15.3
15.2
7.9
6.1
4.2
3.6
3.5
3.4
3.1
Italy
Australia
France
Spain
Chile
(Million of hl)
Exports
(Million of hl)
Production
(%)
Exports/production=
USA
÷
Argentina
Australia and Chile are strongly focused on exports (82% and 74% of total production), becoming the 4th and 5th worldwide wine exporters
Portugal
Germany
South Africa
48
34.7
48.4
9.6
8.2
20
15
1.7
10.3
9.8
39%
44%
31%
82%
74%
21%
24%
48%
34%
32%
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21% 18%
34
17
99
107
45343434
3 3
11 11
17
1
2007
Breakdown of Wine Exports per Country
Billion of US$Million of hl
Average FOB price (US$/lt)
Source: FAO; Hermes' analysis
France and Australia, show the highest average exports prices (4.6 US$/lt and 2.7 US$/lt)Chile’s average export price (1.6 US$/lt) is similar to that of USA, but lower than the world average
91.4 28.0100% =
Italy
Spain
France
Australia
ChileUSA
Argentina
PortugalGermany
South Africa
Others
3.1
2.7
2.5
2.52.5
1.1
2.22.1
3.6
6.1
1.6
2.7
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Breakdown of Wine Exports by TypeIn million of hl, 2007
* bottle equivalentSource: SAG, INV, USDA, Australian Bureau of Statistics, OIV, FAO, industry reports; Hermes’ analysis
89
73
70
63
60
65
51
53
11
27
30
37
40
35
49
47
15.5
100% =Average FOB export price(US$/bottle*)
France’s exports are mainly focused on bottled wine; therefore, they have the highest average export priceChile exports 65% bottled wine, a mix similar to that of South Africa
7.8
18.8
3.1
4.2
6.1
15.2
3.6
Bottled Bulk
6.1
3.6
2.7
2.5
2.2
2.1
1.6
1.1
France
Australia
Italy
South Africa
USA
Chile
Spain
Argentina
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44%
17%
45
9
38
47
4.0 5.7
In million of hl, bottled wine, 2007
Source: Compendio Vitivinícola de Chile, Australia at a Glance Sales; Hermes’ analysis
100% =
Comparison of Wine Exports by Category
Chile Australia
Premium wine (More than 3.5 US$/bottle)
Table wine(2.0-3.5 US$/bottle)
Common wine(less than 2.0 US$/bottle)
Australian wine exports, in comparison with Chilean, are more focused on premium wines, thus rendering a higher average export price
2.8 4.6Average FOB export price (US$/bottle)
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18% 17% 18% 17% 18% 18%
16 16 15 14 14
8 9 9 9 10 10
5 6 7 8 8 87 7 7 7 7 76 4 4 5 4 44 4 4 4 4 44 4 4 4 4 43 3 2 2 2 23 3 3 2 2 2
25 27 26 26 27 27
17
65 69 74 77 78In million of hectoliters (hl)
100% =
Evolution of the World Wine Imports per Country
‘02 ‘03 ‘04 ‘05 ‘06
Others
Switzerland
UK
81
‘07
Source: FAO; Hermes’ analysis
The imports market is more fragmented than the exports marketRussia and USA increased their imports due to high consumption growth rates that were not compensated by domestic production
Germany
USA
Denmark
RussiaFrance
BelgiumCanada
Netherlands
(%)CAGR '02-'07
4.6%
5.9%
-1.8% 0.2%5.1%
2.5%-1.4%
3.2%
16.6%
8.9%
1.0%
3.9%
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10
60
110
160
210
260
90 95 100
Wine Positioning per Country
US$/lt
Source: Wine Spectator; Hermes’ analysisQuality
2007, the best rated wine of each country was considered from the top 100 ranking
France
USA
Italy
AustraliaArgentina
New ZealandChile
Spain
GermanyAustriaSouth Africa
Portugal
Chile has the opportunity to improve the quality of the wines, thus increasing the price per liter
Number of wines in top 100Wine Spectator’s ranking
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6,443
6,402
4,760
2,806
Key Financials of International Wineries
Source: Annual Reports 2007; Hermes’ analysis
Revenues
Pernod Ricard
EBITDA Net incomeMMUS$ % of revenues % of revenues
22.8
11.0
25.5
21.4
13.3
5.2
20.4
13.9
2007
Constellation Brands
Fosters Group
Brown Forman
19.2 12.3Average
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International Wine Market-Conclusions and Trends
Source: Hermes’ analysis
The wine industry is a mature market as it has grown at an average rate of 0.5% per year in the last 12 years
5 countries: France, Italy, Spain, USA and Argentina consolidate 60% of total wine production. Chile and South Africa show the highest growth rates among the most important producers with average growth rates of 7.9% and 6.5% respectively, since 2004
The world wine consumption slightly increased in the last few years and Russia is the country with the highest growth rate, 10.4%, followed by UK, China and USA
Italy, Spain and France account for 55% of total wine exports (it was about 60% in 2002), while Smaller producing countries (such as Australia, Argentina and Chile) increased their exports share from 27% to 36% between 2002 and 2007
France and Australia, pricing their wine US$6.1 and US$3.6 per liter, place their product above the world average. In turn, USA and Switzerland purchase wine at the highest average price per liter, 4.4US$ and 4.1US$ each
Chile exports 65% bottled wine, a mix similar to that of South Africa, with an average export price of US$ 2.1 per liter, lower compared to that of other top export countries with similar mix
The imports market is more fragmented than the exports market
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Chilean macroeconomic wine impact
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16% 16% 15% 13% 13%
14 14 13 13
13 12 11 11 11
12 11 109 9
109 9
8 9
8 13 16 22 22
7 7 6 6 55 4 4 4 4
14 14 15 14 14
15
74.0
In billion of US$
* Health, education and otherSource: BCC; Hermes’ analysis
100% =
Evolution of GDP Breakdown by Sector
Industry
Financial services
Real estate
Personal services*
Retail stores, restaurants and hotels
MiningTransport
Agriculture and fishery
Other
95.7 118.3 146.4 164.0(%)CAGR '03-'07
22%
20%17%
14%
55%
19%
15%
18%
18%
15%
4.5% 3.5% 3.5% 3.8% 3.8%Wine industry share of GDP (w/o Mining)
4.1% 3.0% 2.9% 2.2% 2.2%Wine industry share of GDP
2003 2004 2005 2006 2007
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GDP Evolution
0
40
80
120
160
1997 1998 1999 2000 2001 2002 2003 2004 2005 2006 200701020304050607080GDP
In billion of US$
Exports Annual Growth Rate
4%
-8%
3%
-8%-3%
10%
30%24% 22%
13%
-20%
-10%
0%
10%
20%
30%
40%
1998 1999 2000 2001 2002 2003 2004 2005 2006 2007Source: IMF, BCC; Hermes’ analysis
GDP has grown at an annual average rate of 16% since 2003 driven by increasing exports
Exports
GDP
Exports
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43% 42% 43%54% 59% 66%
47 48 4638 35 29 29
10 10 11 10 8 6 5 5
45%66%
45
In billion of US$ (FOB)
Source: BCC; Hermes’ analysis
100% =
Evolution of Exports Breakdown by Sector
Agriculture, fruits and
fishery
Industrial
Mining
Total exports have grown at an average annual rate of 21%, driven by the increase in mining exports (27% per annum)Agriculture, fruits and fishery exports have grown at an annual rate of 10%, decreasing their share in the last 7 years
17.7 17.0 17.1 56.2 65.120.3 31.1 39.5(%)CAGR '00-'07
20.5%9.5%
13.0%
27.2%
7.3 6.5 6.3 7.8 14.7 19.0 32.7 37.6Copper exports
2003 2004 2005 2006 2007200220012000
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Chilean wine market
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Chilean Wine Market Structure
Source: Corporación de Fomento de la Producción de Chile, JP Morgan, interviews, Industry experts; Hermes’ analysis
Demand (domestic and international)
Vineyards Wineries Distribution Retail sales
Providers
Associations, governmental organizations, others
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Main players
2008
Source: Hermes’ analysis
Brief Summary of the Wine Industry in Chile
Description
Concha y ToroSanta RitaSan PedroTarapacáSanta CarolinaErrazuriz
Total of number players
More than 13,000
Involves the cultivation of the vine The quality of the grape is fundamental for premium wine production
Involves the grape harvest, production of grape must, fermentation, ageing and bottling
Involves the product sale to final consumers
Involves marketing, product placement, brand recognition and distribution of final product
Concentration level
HighLow
451More than 500
VínicasManufacturasSantiago
Concha y ToroSanta RitaSan PedroTarapacáSanta CarolinaErrazuriz
JumboUnimarcMundo del VinoLiquor storesHotelsRestaurantsBars
More than 60 distributors
More than 28,000
Providers WineriesVineyards Retail salesDistribution
Involves the provision of raw materials, such as barrels and staves, corks, labels, capsules and chemical additives
Concha y ToroSanta RitaSan PedroTarapacáSanta CarolinaCavas ReunidasLa Vinoteca
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2008
Source: Hermes’ analysis
Brief Summary of the Wine Industry in Chile (Cont.)
Profitability
The return on assets is relatively low (this is the most intensive capital stage)
The return in this stage is more volatile and it strongly depends on the vine quality and the grapes produced
Wine production is also intensive in capital causing a low return on assets
The business margin is strongly dependent on the exports market and the exchange rate
The return during this stage is less volatile but lower in comparison with other stages
Trading of wine to final consumer has relatively low margins on mass products, but higher on premium wines
The return on assets is very high
Many providers are only importers
The return on assets is high
Providers WineriesVineyards Retail salesDistribution
Margin10% - 12% 15% - 30% 10% - 20% 3% - 15% 5% - 10% on
mass products, 20% - 25% on premium products
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64%65%64%64%64%63%63%
31303131313131
5555566
In thousand of hectares
Evolution of the Cultivated Area Breakdown by End Product
´01 ´02 ´03 ´04 ´05 ´06
100% = 165 168 171 173 175 179182
* Fresh consumption includes: Juices, fruits, etc.Source: Servicio Agrícola y Ganadero; Hermes' analysis
Cultivated area for wine production accounts for 64% of total cultivated area, with an annual growth rate of 2%
CAGR ‘00 - ’06
Pisco
Fresh consumption*
Wine
1.7%-0.4%
1.3%
2.0%
´00
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6475
85
104 107 109 110 112 114 117 123
In thousand of hectares
Source: OIV, Ministerio de Agricultura de Chile, Servicio Agrícola y Ganadero; Hermes' analysis
Evolution of the Cultivated Area for Wine Production
´00 ´01 ´02 ´03 ´04 ´05 ´06 ´07World share 1.3% 1.4% 1.4% 1.4% 1.4% 1.5% 1.5% 1.6%
CAGR ’97-’07:
7.0%
Total cultivated area for wine production in Chile has grown at an annual rate of 7% in the last 10 years, accounting for 1.6% of total world cultivated area in 2007
´99´98´97
1.2%1.1%0.9%
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Breakdown of Cultivated Area by RegionIn thousand hectares, 2006
Mavle
Bio Bio(VIII Region)
29
12
97
43%
100% = 117
Other Maule(VII Region)
G. Bernardo O’Higgins(VI Region)
BalduzziBotalcuraCalinaCasa DonosoValle FríoCorral VictoriaChilean Wines CompanyEl AromoGillmore EstateHugo CasanovaJ. BouchonTerranobleCasas PatronalesVia WinesCaliboro
Main vineyards
Santa RitaConcha y ToroSanta CarolinaCanepaTerra VidCasa SilvaSanta HelenaCanteraMontes
Main vineyards
Source: Servicio Agrícola y Ganadero; Hermes' analysis
G.B. O’Higgins(VI Region)
Metropolitan Region
Maule(VII Region)
Bio Bio(VIII Region)
Maule and O’Higgins (VII and VI Regions) account for 72% of total cultivated area
Metropolitan Region
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25.4
20.3
17.1
10.9
10.5
4.1
3.5
2.7
1.6
0.6
0.5
0.3
Main Vineyard Valleys in Chile (Cont.)
Source: Wines of Chile, CCV, interviews, industry experts; Hermes' analysis
2006 Valley Ha/vineyard QualityHectares
(‘000)
7.3
20.7
13.6
24.9
2.1
42.9
2.5
41.5
17.0
11.1
18.1
9.1
High
Low
Elqui
Limari
AconcaguaCasablanca
San AntonioMaipo
CachapoalColchagua
Curicó
Maule
Itata
Bio Bio
Maule
Colchagua
Curicó
Cachapoal
Itata
Casablanca
Bio Bio
Maipo
Limari
Aconcagua
Elqui
San Antonio
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47% 46% 45% 43% 42% 41% 41% 41% 40% 40%
34 34 33 32 32 32 32 32 32 32
8 8 9 10 10 10 11 11 11 11
11 12 13 15 16 16 16 17 17 17
In thousand of vineyards
Evolution of the Number of Vineyards by Size
‘97
5-10 ha
1-5 ha
0-1 ha
+10 ha
‘98 ‘99 ‘00 ‘01 ‘02 ‘03 ‘04 ‘05 ‘06
CAGR ‘97 – ‘06
2.4%
7.6%
5.7%
1.8%
0.6%
11.3 11.7 12.4 13.4 13.6100% = 13.5 13.6 13.7 13.8 13.9
Source: Servicio Agrícola y Ganadero; Hermes' analysis
Vineyards have consolidated in the last 10 years, although they are still very fragmented, where small vineyards (smaller than 5 hectares) account for 72% of total vineyards
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Breakdown of Vineyards by Region and Size In number of vineyards, 2006
Source: Servicio Agrícola y Ganadero; Hermes' analysis
60%
30%
7%
11%
40%
33
34
23
21
32
4
15
21
21
11
3
22
49
47
17
Bio Bio(VIII Region)
Maule(VII Region)
G. B. O'Higgins (VI Region)
Other
Total
6,418
5,372
1,483
680
13,953
In the Bio Bio region vineyards are more fragmented (93% of vineyards are smaller than 5 hectares) while in the O’Higgins region vineyards are more consolidated
0-1 ha 1-5 ha
5-10 ha + 10ha
100=
2
9
23
17
8
(hectares)
Average vineyard
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Breakdown of Cultivated Area by Region and VarietyIn thousand of hectares, 2006
Source: Servicio Agrícola y Ganadero; Hermes' analysis
76%
88%
50%
85%
38%
87%
76%
24
12
50
15
62
13
24
Bio Bio Region
Maule Region
G. B. O'Higgins Region
Other
Total
50
34
14
11
6
Vineyards in Maule, O’Higgins and Metropolitan regions are mainly for red wine productionVineyards in Valparaíso are mostly for white wine production
Red wine White wine
Metropolitan Region
Valparaíso Region
2
117
100% =
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25% 28% 31% 35% 36% 36% 36% 36% 35% 35%
20 1815 14 14 14 13 13 13
10 9 8 7 6 6 7 7 7 7
9 9 8 7 6 6 7 7 7 7
9 11 12 7 7 7 7 7 7 71 2 3 5 5 5 5 6 6 6
23 21 20 19 20 20 19 19 21 21
24
In thousand of hectares
Evolution of Cultivated Area by Variety100% =
´97 ´98 ´99 ´00 ´01 ´02 ´03 ´04 ´05 ´06
64 76 86 104 107 109 110 112 115 117
Source: Servicio Agrícola y Ganadero; Hermes' analysis
Total cultivated area has grown at an annual rate of 7% in the last 10 years, mainly driven by Cabernet Sauvignon’s plantations (11% per annum)Carmenère has grown at an annual rate of 40% driven by the growth of exports
Cabernet Sauvignon
Pais
Sauvignon Blanc
Chardonnay
MerlotCarmenère
Others
7.0%
5.4%
40.0%10.6%4.9%3.2%
-0.2%
11%
CAGR ´97-´06
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VINEYARD’S BUSINESS MODEL2008
Source: Interviews, industry experts; Hermes’ analysis
DescriptionEstimatedShare
Own
Rented
Contract
Spot
Wineries have their own vineyards to produce grapes for their premium wines
When wineries do not have their own vineyard, or when grapes produced in their own vineyard are insufficient, they take in long term contracts with selected vineyardsWineries operate and manage the vineyard entirely The contract does not depend on the volume of the production
Production of
Premium wines
Premium wines
Premium/ table wines
Table wines
Another option for the wineries is to take in long term contracts to monitor the grapes production and harvest, although the vineyard is operated by their ownersThe price depends on the grapes quality characteristics
Wineries usually buy the grapes for the table wine production on the spot market (in general through brokers)Quality of the grape is not guaranteed
30%
15%
15%
40%
IBSG - 37Copyright © 2007 Cisco Systems, Inc. All rights reserved.Cisco Confidential IBSG - 37
314
1,496
797
2,293
694
115
873
1,995
4,288
Cost Structure for A VineyardIn US$/hectare-year, Maule Valley, 27 hectares example, 2007
Source: CCV; Hermes’ analysis
Labor
Total cost
Labor and raw materials are the main costs, accounting for 54% of total cost
Raw materials
Operational cost
Administrative staff
Irrigation
Structural cost
35%
54%
16%
36%
7%
20%
100%
19%
Equipment
3%
Other
IBSG - 38Copyright © 2007 Cisco Systems, Inc. All rights reserved.Cisco Confidential IBSG - 38
84%82%79%83%80%80%73%70%63%65%68%
1314161417142121
272323
44633669101296.4
Million of hl
100% =
Evolution of the Must Production by End Product
Pisco production
Fresh consumption
Wine production
´97 ´98 ´99 ´00 ´01 ´02 ´03 ´04 ´05 ´06 ´07
Source: Servicio Agrícola y Ganadero; Hermes' analysis
9.9
CAGR ´97-´072.0%
-9.6%
-5.3%
4.7%
Must for wine production has increased at an annual rate of 5% in the last 10 years, while the production for fresh consumption and of pisco has decreased
8.2 6.8 9.2 7.5 7.0 8.4 7.6 10.0 10.3
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80%85%85%80%
87%82%79%82%
58%56%57%58%
151110
13
914
151130
3127
31
545
7
44
6712
13
16
11
In million of hl
Evolution of the Wine Production Breakdown by Category
100% =
´97 ´98 ´99 ´00 ´01 ´02 ´03 ´04 ´05 ´06
4.3
5.3
4.3
6.4
5.4 5.6
6.76.3
7.98.5
Source: Servicio Agrícola y Ganadero; Hermes' analysis
The total production of wine in Chile has grown in the last 10 years (7% per annum) driven by guarantee of origin wines (10% per annum)
´07 ´08(E)
8.38.7
Table wine
Guarantee of origin
No guarantee
of origin
6.6%-1.1%
-0.1%
9.8%
CAGR ‘97-’08
IBSG - 40Copyright © 2007 Cisco Systems, Inc. All rights reserved.Cisco Confidential IBSG - 40
Breakdown of Wine Production by Region2007
Source: Servicio Agrícola y Ganadero, CCV; Hermes' analysis
G.B. O’Higgins(VI Region)
Metropolitan Region
Maule(VII Region)
Bio Bio(VIII Region)
43 4938
32
26
124
4
9 11
19
7 413
29
123 8,279 451100% =
Cultivated area (‘000 hectares)
Production (‘000 hl)
Wineries (#)
Metropolitan RegionBio Bio
G.B. O’Higgins
Maule
Other
('000 liters/year)
Average production per winery
1,925
655
1,055
1,900
2,400
2,482
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Breakdown of Wine Production by VarietyIn million of hl, 2007
Source: Servicio Agrícola y Ganadero; Hermes' analysis
Mavle
Merlot
Carmènere
14
13
9
9
59
41%
100% = 8.3
Others
Cabernet Sauvignon
Sauvignon Blanc
Chardonnay
Syrah
Cabernet Sauvignon accounts for 41% of total Chilean wine production
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26
19
322
18
29%
Market Share by WineryIn million of hl, 2007
Source: Wines of Chile, Concha y Toro, Nielsen; Hermes' analysis
100% = 2.2
Others
Concha y Toro
Santa Rita
San Pedro
Local market Exports
11
764
44
3629%
Santa Carolina
TarapacáCanepa
Concha y Toro
San Pedro
Santa RitaCono Sur
MontesSanta Carolina
Errázuriz
Others
100% = 6.1
Local market for wineries is more concentrated than the exports marketConcha y Toro is the main Chilean winery, accounting for 29% of both local and exports market
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Key Financials of the Main Wineries in Chile2007
Source: Annual reports, SVS; Hermes’ analysis
Revenues(Million US$)
Production(‘000 hl)
EBITDA(%)
547
174
167
67
Concha y Toro
Santa Rita
San Pedro
Tarapacá
21%
7%
7%
11%
43%
23%
63%
57
77
37 210
88
92
N/A
Concha y Toro is the largest winery in Chile focused on the exports market (63% of total production) and shows the highest EBITDA margin Santa Rita and San Pedro, are focused on the local market and show lower EBITDA margins
Exports Local consumption
11.5
19.2
Chilean averageInternational average
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21%18% 16%
21%
8% 9%11%11%
5%3%
7%6%3%
1%
7%
13%
EBITDA (%)
Source: Annual reports, SVS; Hermes’ analysis
Evolution of the Profitability of the Main Wineries in Chile
2004 2005 2006 2007
Concha y ToroTarapacáSanta RitaSan Pedro
Profitability for wineries in Chile decreased during 2005 and 2006 (12% and 11% average EBITDA margin) due to local currency revaluation but recovered in 2007 (15% average EBITDA margin)
15%11%12%16%Average EBITDA margin (%)
522530560609Exchange rate (CH$/US$)
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17.0
4.0
1.0
1.0
2.0
7.0
0.5
0.5
5.0
13.0
Cost Structure for A WineryIn US$/12 bottle case, Maule Valley, 1,000,000 liters example
Source: Corfo; Hermes’ analysis
Raw materials
Total cost
Raw materials (either grapes or bulk wine) and dry cost are the main costs
Transportation
Vinification
Dry cost
Operational cost
Permanent staff
Administrative staff
Equipment and well repair
Structural cost
29%
41%
3%
76%
24%
12%
6%
6%
100%
3%
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Wine Sales and Distribution in Chile – Domestic Consumption
Source: Pontificia Universidad Católica de Chile, interviews, industry experts; Hermes’ analysis
2007
(): % of total volume (hl)
Wineries
Special direct sales Internet and Telemarketing
Restaurants, Pubs, Hotels
Distributor
Catalogues
Liquor StoresSupermarketsSpecialized Stores
Wholesaler
(3%) (1%) (1%)
(15%)(80%)
(75%)
(5%)
(20%)
(15%)(36%) (42%)(2%)
Exclusive Distributor
Consumer
Preferred distribution channel for large wineriesPreferred distribution channel for small and medium wineries
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Breakdown of Domestic Retail Sales by Channel2007
Liquor stores and Supermarkets account for 82% of domestic retail sales of wine in Chile
Source: Industry experts, interviews, Nielsen; Hermes’ analysis
70%
44%
16
38
1 2
27
2
2,17928,700100% =
Volume (‘000 hl)
Number of players
Specialized stores
Restaurants, pubs, hotels
Supermarkets
Liquor stores
IBSG - 48Copyright © 2007 Cisco Systems, Inc. All rights reserved.Cisco Confidential IBSG - 48
Wine Sales and Distribution in Chile – Exports
Source: Interviews, industry experts; Hermes’ analisis
Wineries
Broker
Freight forwarder
2007
(): % of total volume (hl)
Distributor
(25%)
(25%)
(55%)(20%)
Freight forwarderFreight forwarder
Consumer
Preferred distribution channel for large wineriesPreferred distribution channel for small and medium wineries
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78%
22
451
2007, multiple answers allowed
100% =
Breakdown of Exports Distribution by Channel
Number of wineries
No export
Export
Source: Servicio Agrícola y Ganadero, CCV, Industry experts; Hermes' analysis
78% of wineries export their production and 50% export directly
50%
20%
38%
Direct
Indirect
Direct + indirect
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18.3 19.016.8
14.6 15.2 16.215.0 15.5 15.4 15.4
1998 1999 2000 2001 2002 2003 2004 2005 2006 2007
In liters per capita
Evolution of the Wine Consumption per Capita in Chile
Wine consumption per capita in Chile has decreased at an annual rate of 2% during the last 9 years, reaching a steady value of 15 liters per year
Source: Servicio Agrícola y Ganadero; Hermes' analysis
CAGR ’98-’07: -1.9%
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43
6
51%
Breakdown of Wine Domestic Consumption by ProductIn million of hl, 2007
100% = 2.2
BottleTetra-pak
Tetra-pak wines account for 51% of domestic consumption in Chile
Source: AC Nielsen; Hermes’ analysis
Plastic
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57% 62% 59% 69% 53% 56%74%
43 3841 31
4744
26
In million of hl
Evolution of Chilean Wine Exports and Consumption
´01 ´02 ´03 ´04 ´05 ´06
100% = 5.5 5.6
6.76.3
7.98.5 8.3
Source: Servicio Agrícola y Ganadero; Hermes' analysis
Wine exports have grown at an average rate of 12% during the last 5 years, increasing its share of Chilean production
´07
Local consumption
Exports
CAGR ’01-’07
7.2%
-1.2%
11.9%
IBSG - 53Copyright © 2007 Cisco Systems, Inc. All rights reserved.Cisco Confidential IBSG - 53
78%
22
451
July 2007 – June 2008
100% =
Breakdown of Exports by Winery Size
Number of wineries
No export
Export
Source: Wines of Chile, Industry experts; Hermes' analysis
39% of exporting wineries (136) are “boutique”, with annual export volumes lower than 50,000 liters per year
39% 27 22
18
12
781%
3
Number of wineries
Export volume (million of hl)
< 50 50 - 500 500 – 3,000 + 3,000
351
5.8
Thousand of export liters per year
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Breakdown of Exports by Winery Size and Product
82
57
64
65
65
18
43
36
35
35
1,870
18,832
106,560
452,004
100% =
Source: Wines of Chile, Industry experts; Hermes' analysis
In thousand of export liters per year, July 2007 – June 2008
Smaller wineries (“boutique”) are more focused on exporting bottled wine, with an average price per bottle higher than that of larger wineries
< 50
50 - 500
500 – 3,000
+ 3,000
Total 579,268
Bottled wine
Bulk wine
(US$/bottle)
Average bottled export price (FOB)
4.4
4.7
3.4
3.1
3.2
‘000 liters/year
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74%83%
1726
8.3 15.2
2007
100% =
Average Export and Local Wine Price
Million US$
Million of hl
Local consumption
Exports
Average price
(US$/lt)
Source: Servicio Agrícola y Ganadero, AC Nielsen, Industry experts; Hermes' analysis
Export wines, driven by higher quality of wines, sell at a higher price than wines for domestic consumption
1.83
1.20
2.06
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593 602670
835 877963
1,257
65%65%70%62%62%63%67%
35
35303838
3733
In million of hl
Evolution of Wine Exports by Product
´01 ´02 ´03 ´04 ´05 ´06
Source: Servicio Agrícola y Ganadero; Hermes' analysis
Wine exports have increased during the last 6 years at an annual rate of 13.4%, driven by a volume increase and a slight price increase
´07
CARG ‘01 – ‘07
11.9%
11.2%
13.2%
100% = 3.1 3.54.0
4.74.2
4.7
6.1
Bulk wine
Bottled wine
Average price (US$/lt) 1.91 1.73 1.70 1.79 2.10 2.03 2.06
CAGR ’01-’07:
13.4%
100% =
Export value (US$ million)
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23% 20%
17
46
5 55 55 53 43 43 32 3
29 30
17
1,08139
2007, bottled wine
100% =
Breakdown of Wine Exports by Country of Destination
Million US$
Million of bottles
UK
USA
Average price (US$/case*)
* 12 bottles of 750 ml caseSource: Wines of Chile; Hermes' analysis
UK and USA are the main importers for Chilean wines, accounting for 40% of total volumeAverage export price of Chilean wines is 28 US$ per case, achieving the highest price in Canada (37 US$/case)
CanadaGermany
BrazilNetherlands
IrelandDenmark
JapanBelgium
Other
28
29
3127 333327
2427
37
28
2440%
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65%
89%
11
35
1,2576.1
2007
100% =
Average Export Wine Price by Product
Million US$
Million of hl
Bulk wine
Bottled wine
Average price (US$/lt)
Source: Servicio Agrícola y Ganadero; Hermes' analysis
2.06
0.65
2.82
Bottled wine is sold at a much higher price than bulk wine
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228
5
11
26 72
Economics of Wine Exports – USA Market750 ml/12 bottle case imported, US$72 retail case price, New York Wine Merchant’s example
* Include alcohol taxes in destination countrySource: MHW; Hermes’ analysis
Supplier FOB
Freight and taxes*
Importer Distributor Retailer Retail price
The retail price is three times the supplier price, mainly due to the retailer margin
3.3x
() : Margin %
37%Mark-up 18% 30% 56%
IBSG - 60Copyright © 2007 Cisco Systems, Inc. All rights reserved.Cisco Confidential IBSG - 60
Chilean Wine Market- Conclusions and Trends
Source: Hermes’ analysis
Vineyards
Cultivated area for wine production accounts for 64% of total grape cultivated area. It has grown at an annual rate of 7% in the last 10 years, accounting for 1.6% of world total cultivated area in 2007
Maule and O’Higgins are the largest wine production Regions in Chile
Vineyards are very fragmented in Chile, with small vineyards (smaller than 5 hectares) accounting for 72% of total cultivated area. Nevertheless, vineyards have consolidated in the last years, mainly as a result of the main wineries buying smaller vineyards as part of their expansion plans
Cabernet Sauvignon and Carmenère are the varieties with higher annual growth in cultivated area, driving total cultivated area up
Vineyards in Maule and O’Higgins regions and the Metropolitan region (the main cultivated areas) are mainly for red wine production
Labor, raw materials and permanent staff are the main cost for a vineyard, accounting for 87% of total cost
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Chilean Wine Market-conclusions and Trends (Cont.)
Source: Hermes’ analysis
Wineries
Wine production has increased at an annual rate of 5% in the last 10 years, mainly driven by guarantee of origin wines, while the production for fresh consumption and pisco has decreased
Geographically, wine production is concentrated in Maule and O’Higgins regions, accounting for 82% of Chilean production
Cabernet Sauvignon accounts for 41% of total Chilean wine production
Local market for wineries is more concentrated than the exports market
Concha y Toro is the main Chilean winery, accounting for 29% of local and exports market (63% of total production) and shows the highest EBITDA margin (21%) of the main wineries. Santa Rita and San Pedro, the following wineries in Chile, are more focused on the local market and show lower EBITDA margins
Profitability for wineries in Chile decreased during 2005 and 2006 (12% and 11% on average of EBITDA margin) due to revaluation of the local currency, recovering in 2007 (15% on average)
IBSG - 62Copyright © 2007 Cisco Systems, Inc. All rights reserved.Cisco Confidential IBSG - 62
Chilean Wine Market Conclusions and Trends (Cont.)
Source: Hermes’ analysis
Wineries (Cont.)
Wineries use their own grapes to produce wines of guaranteed origin and purchase grapes from smaller vineyards for table wine production Raw materials (either the grapes or bulk wine) and dry cost are the main costs
Distribution and retail sales
In the domestic market, the main wineries have their own distribution system, while smaller wineries distribute their product through specialized distributors (e.g.: CavasReunidas, La Vinoteca) to hotels, restaurants, bars, and even supermarketsThe main wineries are using their distribution system to expand to new businesses, such as beer and imported liquor brandsLiquor stores (“botillerías”) are the main trading channel for wine in Chile, accounting for 53% of total domestic market, followed by supermarkets (29%)Specialized stores only account for 5% of total domestic market. Their core business is the distribution system
Domestic consumption
Wine consumption per capita in Chile has decreased at an annual rate of 2% during the last 9 years, reaching a steady value of 15 liters per capita per yearDomestic consumption in Chile is dominated by low quality wines, with tetra-pak wines accounting for 51% total market
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Chilean Wine Market-conclusions and Trends (Cont.)
Source: Hermes’ analysis
Exports
Wine exports have grown at an average rate of 12% during the last 5 years, driven both by a price and, mostly, a volume increase, increasing its share of Chilean production
39% of exporting wineries are “boutique”, with annual export volumes lower than 50,000 liters per year
Smaller wineries (“boutique”) are more focused on exporting bottled wine, with an average price per bottle higher than bigger wineries
Export wines, driven by higher quality of wines, sell at a higher price than wines for domestic consumption
Bottled wine sell a much higher price than bulk wine
UK and USA are the main importers of Chilean wine, accounting for 40% of total volume
Average export price of Chilean wines is of 28 US$ per case
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Chilean ICT context
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International Broadband Penetration
Source: IDC, Conatel; Hermes’ analysis
Broadband connections per 100 inhabitants, 2007
27.4%
24.1%
19.5% 19.0% 17.8% 17.0%
8.0%6.6%
4.0% 3.1% 2.9%
Developed countries (Canada, UK, USA and Spain) and those highly populated (Korea and Hong Kong) show high broadband penetration Chile shows the highest broadband penetration among Latin American countries
Korea Hong Kong
Canada USA UK Spain Chile Argentina Venezuela ColombiaBrazil
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Broadband connections per 100 inhabitants, 2007
Broadband Penetration by Region
Source: INE; Hermes’ analysis
I. Tarapacá
II. Antofagasta
III. Atacama
IV. Coquimbo
V. ValparaísoVI. G. B. O’Higgins
IX. AraucaníaVIII. Bio Bio
X. Los Lagos
XII. Magallanes
VII. Maule
XI. Aisen
MetropolitanRegion
XIV. De Los Ríos
XV. Arica
8.0%Total Chile
Broadband penetration above average
6.4%
14.1%
12.8%
7.8%
5.1%
8.2%
11.4%
4.1%
3.2%
5.9%
5.2%
7.1%
6.1%
5.0%
3.8%
Arica
Tarapacá
Antofagasta
Atacama
Coquimbo
Valparaíso
Metropolitan Region
G.B. O'Higgins
Maule
Bio Bio
Araucanía
De Los Ríos
Los Lagos
Aisen
Magallanes
Main wine producers regions
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Mobile Penetration
Source: ITU, SubTel; Hermes’ analysis
Mobile subscribers per 100 inhabitants, 2007
177%
150% 146%
119%110% 102%
84% 83%74%
64% 64%
Chile shows a mobile penetration similar to that of the USAArgentina shows the highest mobile penetration among Latin American countries
United Arab Emirates
Qatar Hong Kong
UK Spain Argentina USA Chile Mexico BrazilColombia
IBSG - 68Copyright © 2007 Cisco Systems, Inc. All rights reserved.Cisco Confidential IBSG - 68
Total Chile
Mobile subscribers per 100 inhabitants
Mobile Penetration by Region
Source: SubTel; Hermes’ analysis
I. Tarapacá
II. Antofagasta
III. Atacama
IV. Coquimbo
V. ValparaísoVI. G. B. O’Higgins
IX. AraucaníaVIII. Bio Bio
X. Los Lagos
XII. Magallanes
VII. Maule
XI. Aisen
MetropolitanRegion
XIV. De Los Ríos
XV. Arica
83%
Mobile penetration above average
Arica
Tarapacá
Antofagasta
Atacama
Coquimbo
Valparaíso
Metropolitan Region
G.B. O'Higgins
Maule
Bio Bio
Araucanía
De Los Ríos
Los Lagos
Aisen
Magallanes
ESTIMATED
141%
146%
83%
109%
105%
79%
66%
84%
32%
136%
99%
126%
83%
78%
102%
Main wine producers regions
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Evolution of Mobile Penetration in Chile
Source: SubTel; Hermes’ analysis
Mobile subscribers per 100 inhabitants
22%
33%39%
45%
57%65%
75%83%
2000 2001 2002 2003 2004 2005 2006 2007
Mobile penetration has increased at an average annual rate of 21%, although it is expected to slow down
BACK-UP
CAGR ’00-’07:
21%
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2008
Source: FIA, interviews, Industry experts; Hermes’ analysis
Technology Utilization by Vineyard Size
Large vineyards(more than 10 hectares)
ERP manage their production In most cases have Internet connection, either by broadband or satellite connections
Description
IT adoption depends on the size of the vineyards, where the main barriers for small and medium vineyards to adopt IT tools are:
Lack of broadband or Internet connectionsFinancingTrainingAge/profile of small vineyard owners
Medium vineyards (between 1 and 10 hectares)
Small vineyards(less than 1 hectare)
IT adoption
High
Low
Basic PC adoptionIn many cases are managed by elder people, with very low or no knowledge on IT
Internet adoption varies among regions, depending on broadband penetration Basic knowledge on IT
Number
~2,400
~6,000
~5,600
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