VINCOR INTERNATIONAL INC.: Good For You Too

Shareowner, Sep/Oct 2004

Vincor's revenues and earnings have been growing at a high rate, consistently, for a long time. With such stocks, there is always the risk of a sharp decline in the multiple - and share price - resulting from a surprising decline in EPS growth or in the general stock market.

To recognize and minimize such risk, prudent investors who might consider purchasing the stock should also consider the merits of using a series of modest purchases spread out over several months, quarters and even years - rather than a single large purchase.

Currently, some 6,000 subscribers use ShareOwner's Low Cost Investing Program to make such risk-reducing purchases. Commissions start at under $2 per trade. - Editor

Established in 1993, Vincor has become Canada's largest producer and marketer of New World wines, wine kits, coolers and ciders. The company sells a complete selection of popular-priced (under $8), premium ($8 to $10) and super-premium wines ($10 to $18). New World wines generally originate from North America, Australia, the U.K. and New Zealand. Well-known premium and super-premium brand names from these regions include: Inniskillin, Jackson-Triggs, R.H. Phillips, Goundrey, and Kim Crawford.

Following its recent purchase of the U.K.'s Western Wines, Vincor is now the 13th largest wine producer in the world. The company's objective is to become one of the top ten producers within the next five years by promoting its premium and super-premium brands.

Historical & Future Growth Prospects

Over the longer term, a stock's price only goes up 'a lot' if the company's revenues and earnings go up 'a lot'. So let's start our study of potential appreciation in Vincor's share price by understanding the reasons for its historical revenue growth and imagining its growth prospects over the next five years.

Revenues

As indicated by the accompanying Stock Study Guide, revenues have grown quite consistently at about 17% since 1995. For the fiscal year ending March, 2004 revenues grew by 10% to almost $500 million. An estimated 50% of this historical growth is attributed to acquisitions.

Important Products

Vincor sells wine products made in: Canada (Niagara in Ontario and the Okanagan Valley in British Columbia), the U.S. (California and Washington), Australia, New Zealand, South Africa, Italy and Chile.

Canada

(67% of revenues in 2004; 98% in 2000) During its early years, Vincor sold mostly (80%) popular-priced wines. Since then production has migrated to the more profitable premium wines which now represent about 78% of sales.

The company owns approximately 119 acres of vineyard in the Niagara Peninsula which supply some of the grapes used by Vincor's local wineries like lnniskillin and Jackson Triggs. In total, Vincor grows or buys more than a third of the entire Niagara wine-grape crop. Following the award of France's Grand Prix D'Honneur at the Vinexpo in 1991, Inniskillin's Icewine has become one of the best-known icewine brands in the world; today, it is sold in over 50 countries.

In British Columbia, Vincor farms over one thousand acres of vineyard and also purchases grapes through long-term supply agreements with 21 growers. In total, Vincor processes about 25% of the Okanagan Valley's wine crop.

U.S.A. (26%)

Vincor operates two of the largest estate wineries in the United States; namely, R.H. Phillips and Hogue wineries.

R.H. Phillips is a leading California estate winery that produces a range of super-premium wines. The company owns 1,557 acres of vineyards and leases 509.

Hogue is the second largest wine producer in Washington State with 9 owned acres and 31 contracts with local growers. Hogue is a well-known, prize-winning producer of super-premium wines.

Together R.H. Phillips and Hogue rank as the 17th largest shipper of bottled wine in the United States.

Australia (5%)

Vincor operates two of the largest wineries in Western Australia; namely, Goundrey Wines (acquired in 2002, 750 acres) and Amberley Wines (2004, 82 acres). Western Australia represents only 4% of Australian wine production but produces approximately 26% of the country's super-premium wines.

New Zealand (

In 2003, Vincor acquired Kim Crawford Wines, the 9th largest winery in New Zealand. The company leases 39 acres and purchases additional grapes from 25 growers. Some 50% of the signature Kim Crawford brand is exported.

Important Markets

In Canada, Vincor's brands are sold through provincially regulated outlets as well as through its Ontario chain of 165 Wine Rack retail boutiques. The chain carries the full line of the company's Ontario brands. The company has the largest sales and marketing organization in the industry with 149 professionals - more than twice the size of any competitor.

In the U.S., local production, along with a selection of Vincor wines from Canada, Australia, and New Zealand, are sold to wholesalers for resale to retail outlets and restaurants. The Australian sales force operates in Western Australia to increase penetration of Vincor's Australian and New Zealand brands. Also, annual exports from this region exceed 500 million litres a year.