Assessment | Wine Valuation Process ABM Partners Ltd T/A

Transcription

Assessment | Wine Valuation Process
ABM Partners Ltd T/A Bordeaux Cellars, London
ABM Partners Ltd T/A Bordeaux Cellars
Mr Stephen Burton, CEO
52 Berkeley Square, Mayfair
W1J 5BT
London, UK
Warehouse
Big Yellow Self Storage Fulham
71 Townmead Rd
SW6 4Q7
London, UK
Description of the Mission
The task of this assessment is to describe and check the wine valuation process of ABM Partners Ltd T/A
Bordeaux Cellars (hereafter referred to as BC), which is managed by Mr Stephen Burton, CEO of BC. To
assess this process I will firstly review how BC determines the provenance, quality requirements, storage
conditions and price valuation of the accepted wine and secondly check the quality of BC’s management.
After outlining the status quo, I will give my opinion about the quality of the current valuation process.
Assessors in charge:
Otto Geisel, CEO
Institute for Food Culture
Munich, Germany
Gregory T. Emmel, Assistant Otto Geisel
Institute for Food Culture
Munich, Germany
Onsite-appointment - at Big Yellow Self Storage Fulham - 18th of February 2014
1
Institut für Lebensmittelkultur Otto Geisel GmbH
Lachner-Straße 18 | 80639 München
T 0049 (0)89 139 26026 | [email protected] | www.ottogeisel.de
FOR INTERAL USE ONLY
Table of Contents
1) Current Status | Cellar System
a. Security | Access General Cellar
04
b. Security | Access
04
c. Security | Cellar Storage Boxes
04
d. Security | Packaging
05
e. Cellar Conditions
05
2) Current Status | Oversight & Documentation
a. Cellar Organisation
05
b. Inventory Documentation
05
c. Delivery of Goods
06
3) Current Status | BC Selection Process
a. Selection Process & Provenance
06
b. Wine Quality Assessment
07
c. Documentation
08
d. Quality Requirements
08
4) Assessment | Management Bordeaux Partners
a. Bordeaux Cellars | Company Portrait
09
b. Stephen Burton | Background & Experience
09
5) Assessment of the Valuation Methodology | Bordeaux Partners
a. Valuation | Introduction
10
b. Price | Teasing Offer & Auction Prices
11
c. Process | Case of Credit Default
12
2
6) Assessment by the Otto Geisel GmbH
a. Preface
12
b. Status Quo | Assessment BC
12
c. Status Quo | Cellar Conditions
12
d. Status Quo | Selection Process
13
e. Status Quo | BC Management
13
f.
13
Status Quo | Valuation Methodology Liv-ex Ltd.
g. Assessment | Conclusion
14
h. Suggested Enhancement
14
List of References
15
List of Abbreviations
BC
Bordeaux Cellars
BIS
Bond-In-Stock
CEO
Chief Executive Officer
DMG
Double Magnum
DP
Duty Paid
MG
Magnum
OFT
Office of Fair Trading
OWC
Original Wooden Case
3
1) Current Status | Cellar System
a) Security | Access General Cellar
For the duration of the loan the wine will be stored under the lenders name either in IB (in
bond) at the “Octavian Vaults”1 (Corsham Cellars, Eastlays, Gastard Corsham, Wiltshire
SN13 9PP)2 or if they are DP (duty paid) stock in the cellar of “Big Yellow Self Storage”
(Fulham, 71 Townmead Rd, London SW6 4Q7). A multi-level security system (11 digit
alarm code secured doors) protects the main cellar. New clients need to register
themselves with a photo ID and utility bills, less than 3 months old, as a proof of address.
Each visitor will be identified by his personal 11-digit pass code and visits will be
documented (time in and time out) by the security system. A CCTV camera monitors
physical movement at the cellar entrance. Out of opening-hours (8 a.m. – 6 p.m.), a
security person guards the warehouse.
b) Security | Access
Mr Stephen Burton is the only person, who has access to the keys and codes, which are
kept in a safe deposit box in Knightsbridge3. Mr Burton will personally deposit the keys
and codes in an envelope and puts these into the deposit box until the loan is redeemed.
c) Security | Cellar Storage Boxes
Each wine collection accepted by BC, is stored in its own, separately secured, locker
facility (fig.1) and further secured by a combination lock. BC never pools wines from
different borrowers within one facility.
1
BC uses Octavian Vaults for SIB (stock in bond), which is a highly secured wine storage facility in the UK with over 10,000 private
clients and well in excess of GBP 1 billion of wine under storage (for further information www.octavian.co.uk).
2
BC receives photo documentation of the wine collection and a certificate of Pristine Storage from Octavian Vaults. The Certificate of
Pristine Storage is a proof of properly stored fine wines. It authenticates that the wine has been laid down in correct conditions whilst
in care of Octavian (certificate protected against fraud by security features (hologram, numismatic security design, watermarked paper,
audit numbering) and will be allocated to every case or bottle leaving the cellar.
3
See www.metrosafe.co.uk
4
d) Security | Packaging
BC only accepts wines packed in their OWC unless the wines are exceptionally rare and
4
sought after . If wooden cases are not available then the wines will be packed in specific
styrofoam boxes (especially MGs & DMGs). Once the wines have been checked, BC
straps the cases (fig.2) for added security. Further, each OWC has its individual numbered
security seal (fig.3) to guarantee a clear identification5. In addition, all cases have a label,
which documents the beginning date and termination date as well as the name of the
lender (fig. 6).
e) Cellar Conditions
Temperature and humidity are regulated professionally by multiple air conditioning
systems. Temperature is kept stable at about 12°C, humidity at a level of 66 % (figure 4).
There is no mould in the cellar. The air exchange between the storage boxes and the main
cellar is ensured through perforated metal roofs (fig.5).
2) Current Status | Oversight & Documentation
a) Cellar Organization
Each wine collection is stored within its own cellar storage box. The inventory list is
documented in the registration of the loan (app.1). During the on-site cross checks, all
wines were in the storage boxes as documented.
b) Inventory Documentation
Mr S. Burton checks the inventory list, bottle-by-bottle and case-by-case. He is always
supported by a colleague to help lifting and packing the wines. When the cellar is taken to
BC, each case will be checked against the inventory manifest6.
4
Insurance questionnaire, 2014, p.1
5
In case that there are several OWCs of the exact same wine, its individual security label can identify each box.
6
Statement by Mr S. Burton (Email to G. Emmel on 26th of February 2014)
5
c) Delivery of Goods
There are always at least two people present when the wine is being delivered from private
cellars. BC owns four holding lockers in which the wine is placed before being transferred
to a dedicated locker. Once the wine is checked and verified in the borrower’s presence it
7
is securely strapped and placed into its own locker .
3) Current Status | BC Selection Process
a) Selection Process & Provenance
BC sets up a three level selection process, which is operated by Mr S. Burton, CEO of BC,
and must be passed by each client. On average BC rejects 25% of all loans due to
mitigating facts, notably inferior wines, poor condition, and unproven provenance8. In the
first stage, the potential client sends an inventory list to BC. Mr S. Burton will then do a
first assessment and decide if the potential collection is appropriate for a loan from BC.
If BC confirms that the wines are theoretically appropriate, the second selection level is an
on-site inspection of the potential collection by Mr S. Burton. He is the only one in charge
of physical inspections. First of all, the inspection allows BC to have a close look at the
potential client’s background, which further helps to identify whether the general setting
fits with the value of the potential wine investment. In case of uncertainty BC also checks
the ownership of the storage location9. Secondly, it gives the opportunity to detect the
level of wine knowledge of the potential borrower. Furthermore, it enables BC to inspect
the current storage conditions. The underlying question is whether there is a fit between
the statements and the actual situation of the borrower, which than sums up to a big
picture or “gut feeling” as Mr S. Burton stated10.
In case the potential borrower passes this selection level, BC goes deeper into the
provenance check by requesting purchase documentation (receipts, bills of delivery,
import documentation) to make sure the potential client is in fact the owner. In case there
7
Statement by Mr S. Burton (Email to G. Emmel 26th of February 2014)
8
9
Office of Land and Public Registration
10
Stated by Mr S. Burton during inspection of the storage conditions in London on 18th of February 2014.
6
is no documentation available (f. e. case of inheritance) but the picture of the potential
client is positive, BC uses its network within the wine trading and auction business to
investigate the origin of the wines.
If the potential client passes all three levels, BC sends the inventory list to Liv-Ex Ltd,
which will then assess the value of the potential wine using the lowest price a purchaser
could expect to pay for in-bond stock in good condition at the month of valuation. The
exact process of valuation and its selection logic will be described in detail in section
(Valuation | Introduction).
BC then uses this assessment and offers the potential lender a loan with a volume of max
35% of the estimated wine value. The loan is designed as a chattel mortgage11 with an
interest rate up to 15% p.a. for a time period between 12 to 18 months.
If the client accepts the conditions, a member of BC will take the wine to BC’s cellar or to
a third party storage facility (“custodian”), which is approved by BC. The wines are fully
covered by insurance starting from the pickup by BC12. There are three people responsible
for logistics - Mr Stephen Burton, Mr Dominic Shelly and Mr Mario Bimaji. Mr S. Burton will
usually transport high-end value cases (GBP 10.000 +) in his car. Other wines are
transported by BC’s van.
b) Wine Quality Assessment
After BC receives the wines, they are reviewed again by doing crosschecks and
unwrapping single bottles. If the wine is IB (in bond) then BC sees no need for a physical
inspection, although it then asks for random photos from the bonded warehouse13.
In case of DP (duty paid) wine or uncertainty, Mr S. Burton checks receipts, contacts
producers (especially in case of old vintages), or if it is possible he checks the bottles by
their RFID scan. DP wines are only accepted if they are in unopened, banded cases and if
11
A chattel mortgage is a loan contract in which the lender extends a loan to a borrower to purchase assets that are not considered
fixed properties (wine in the case of BC). In return, the purchased items are held as collateral for the duration of the loan.
12
All wines are fully insured against flood, fire, earthquake, accidents and any other disaster through the current insurers Northern
Marine Underwriters. Each loan has its own insurance policy to the amount of full replacement value. The wines are also insured for
the transit to and from private cellars.
13
Insurance Questionnaire, p.1
7
there are receipts from a known wine broker / négociant. BC will open all banded cases, if
the potential borrower has no receipts.
c) Documentation
BC does not do credit checks of the potential borrower, as they have the wines as a
collateral and the volume of the given credit is maximum 35% of the potential value of the
wines. Every loan is structured as a chattel mortgage under the ‘Bill of Sale Act’ and
registered at the Royal Courts of Justice, The Strand, London. BC takes copies of the
borrowers’ passport and all available purchase bills to have a proper documentation14.
After signing the appointment as ‘Loan Broker Agreement’, the lender receives a complete
inventory of the wines, which includes photos, insurance documentation, a copy of the
chattel mortgage, a copy of the signed facility letter and a receipt of the registration from
the Royal Courts of Justice
d) Quality Requirements
Mr S. Burton describes his wine selection strategy by stating that BC is focusing on First
Growths of Bordeaux, Burgundy and selected wines from overseas (Penfolds Grange,
Screaming Eagle), which are at his point of view value stable, long lasting and tradable at
short notice. All accepted wines must be in a good condition in terms of label & cork
condition (with respect to individual age) and fill level (not below neck level). US stock (USstriped labels) or Far Eastern stock is generally excluded from BC.
Accepted wines, which were shown to us as representative samples, are the ‘First
Growths of Bordeaux’ (Château Lafite Rothschild, Château Mouton Rothschild, Château
Latour, Château Margaux, Château Haut Brion). On some occasions BC accepts “Super
Seconds” and others if the value warrants it. For example: Château Pichon Lalande 1982,
Château Montrose 1990, Château Lynch Bages 1982 & 1990, Château Clinet 1989
&199015. Further, shown examples were the Grand Crus from the Domaine de la Romanée
Conti and rare wines such as Château Pétrus, Château Le Pin and Château d’Yquem.16
14
„We will obtain copies of invoices where possible“ Insurance Questionnaire 2014, p.1.
15
Statement by Mr S. Burton (Email to Mr G. Emmel 26th of February 2014)
16
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4) Assessment | Management Bordeaux Partners
a) Bordeaux Cellars | Company Portrait
BC was founded in 2009 by Mr Stephen Burton, Mr James Anderson and Mr Paul Miller
and was originally built up as a trading company. BC acts as a broker for wine loans since
September 2011. The current collateralized volume is worth approximately GBP
40.000.000. There has not been any default event up to the date of the assessment.
Mr S. Burton is the CEO of the company. He is the only one responsible for the accepted
wines. Another partner, Mr Dominick Shelly, is primarily dealing with BC’s corporate bond
section, oversees logistics and runs BC when Mr S. Burton is abroad. Mrs Petra Churchill
is the personal assistant of Mr S. Burton and responsible for the administration of BC.
Further, BC has two part-time consultants, Mr David Sodey and Mr Robert Richards, as
well as two part-time logistics employees who support the team during transportation and
packing17.
BC is licensed by the OFT under the ‘Consumer Credit Act’ for certain ancillary credit
businesses under the ‘Consumer Credit Act 1974’. The loans are structured as chattel
mortgages under the ‘Bill of Sale Act’ and registered at the Royal Courts of Justice, The
Strand, London. The registration number of BC is “0652349”. BC is not a registered wine
merchant on Liv-Ex, but the valuation is operated by Liv-Ex, London. Liv-Ex builts up a
pricing model to extrapolate the current market price. The exact mechanism will be
described in the assessment of the valuation methodology.
b) Stephen Burton | Background & Experience
Mr Stephen Burton 18 is the CEO and one of the founders of BC 19 . Mr S. Burton is
experienced in wine and its industries for over 30 years. He has been working as a private
wine trader for about 20 years and collects wine for about 30 years. He has built up a
network within the international wine trading, especially focusing on Bordeaux. Before
founding BC, Mr S. Burton owned a property investment business until 2007.
17
18
Please find further information about Mr Stephen Burton on www.bordeauxcellars.com/en/about/
19
Founder of Bordeaux Cellars
9
5) Assessment of the Valuation Methodology | Bordeaux Partners
a) Valuation | Introduction
Liv-Ex Ltd. 20 (Battersea Studios 2, 82 Silverthorne Road, London SW8 3HE) is in charge of
the valuation of the wines accepted for a wine mortgage by BC. The contact persons of
Liv-ex Ltd. for BC are Mr Neil Taylor, Head of Data at Liv-ex and Mr Andreas Neder, Data
Product Manager 21 . The wines in BC’s stock will be revalued by Liv-ex every three
months22. Liv-Ex will value the wines under the pre-condition that all wines, unless stated
otherwise, are in good condition (fill levels to base neck or better, original and undamaged
capsules, clean and undamaged labels) and stored in their OWC23. “No wine stock reimported or carrying strip labels from Asia, USA or non-European regions as well as
merchant labels. All prices are in GBP, excluding duty and sales tax”24.
Liv-ex describes its pricing method as follows25: “The Liv-ex Market Price26 is the lowest price
the wine has been offered for on a leading European merchant’s, or where appropriate United
States merchant’s price list in the past 14-days. It is designed to show the lowest price a
professional trader could expect to pay for in-bond stock in good condition that month from a trade
supplier. If no price has been received during the 14-day period then the previous Market Price will
be used and the date of the price will be displayed.”
Market price is defined by Liv-Ex as follows: “Liv-ex collects price data from its membership
base of 430 merchants worldwide; these merchants account for the vast majority of global fine wine
turnover. The data is cleaned and sorted by merchant region, merchant type, and how regularly lists
are updated. We then cross checklists to ensure accuracy. From this we create a top tier of
merchants whose lists are used to find the Market Price. We regularly review this Tier 1 group to
ensure that we have as full a data set as possible. Market Prices are updated every time a new price
20
Liv-ex (established in 1999) is a global marketplace for professional buyers and sellers of fine wine. Liv-ex runs a web and phonebased trading and settlement platform for fine wine merchants and professionals. It is used by several investment founds and
wholesalers all over the world (Statement of Mr Andreas Neder, Data Product Manager, Liv-Ex Ltd.). Liv-Ex Internet Source I
21
22
Statement by Mr S. Burton during the on-site appointment (18th of February 2014).
23
Liv-Ex Internet Source II
24
Letter from Mr N. Taylor, Head of Data Liv-Ex to Mr S. Burton, 25th od February 2014
25
Letter from Mr N. Taylor, Head of Data Liv-Ex to Mr S. Burton, 14th of February 2014
26
“It should be noted that it may not be possible for a consumer to purchase at the Market Price as the merchant offering that price
may not publicly advertise it.” (Letter from Mr N. Taylor, Head of Data Liv-Ex to Mr S. Burton, 25th of February 2014).
10
is received, ensuring that our data is not only the most comprehensive but also the most current. If
no new prices are found, the calculation stays the same.” 27
Liv-ex further explained the meaning of “leading European merchant’s” and
“appropriate United States merchant’s”. Neil Taylor (Head of Data, Liv-Ex) confirmed
the following description:
“Leading European merchants”: “Liv-ex collects price lists from a significant proportion
of our 430 global members. We categorize 80 to 90 of these members as Tier 1, meaning
they physically hold the stock they are listing and it is Standard-in-Bond (SIB) compliant.28
“Appropriate United States merchants”: “Where a wine is predominantly available only
in the United States, we may selectively use a list price from a reputable United States
merchant, but these will always be identified to account for the price disparity between the
United States and wider global market.”29
The considered prices are collected from Tier-1 merchants, which Liv-ex defines as:
“Tier-1 merchants are merchants that Liv-ex has identified as the major stockholders of
wine. Liv-ex collects prices from Tier-1 merchants on a more regular basis (fortnightly or
weekly) and therefore their prices are more current.”30 Further, Mr. Andreas Neder of LivEx, stated that these merchants do have the wine physically in their stock.
b) Price | Teasing Offer & Auction Prices
Teasing prices can be a problem for an accurate valuation, especially in the high-end
market segment of fine wines. Liv-ex stated that if there is an offer with a spread above X%
of their market price, they will personally contact the merchant and first check, whether he
has the wine in stock physically. They also exclude prices from brokers who may be
“fishing” for customers, or from suppliers with poor delivery records 31. Liv-ex explicitly does
not use auction prices in the creation of the Market Price.
27
Liv-Ex Internet Source III
28
29
30
Liv-Ex Internet Source IV
31
11
c) Process | Case of Credit Default
According to the mortgage of chattels agreement the security becomes enforceable and a
receiver appointed. If security becomes enforceable the chattel mortgage describes the
process and the legal footing on which enforceability will take place. In case enforceability
takes place, the lender will appoint BC in order to dispose of the wine. The proceeds of
this disposal will be used to pay off the lender32.
6) Assessment by the Otto Geisel GmbH
a) Preface
In general, it must be made clear, that there is not one objective and proper way of
evaluating a bottle of wine. But there are general understandings in the wine assessment
industry, on what basis the value can be measured. With the pre-condition that the wine is
in a perfect condition with respect to age (fill level, cork conditions and label quality) it is
commonly accepted to work with an international average of merchant prices. The
following assessment expresses the opinion of Mr Otto Geisel about the status quo (04th of
March 2014). The assessment was built upon the information given to the Otto Geisel
GmbH by Bordeaux Cellars, Liv-Ex. Ltd. and Mr Henrik Takkenberg.
b) Status Quo | Assessment BC
Generally speaking, BC’s process quality can be regarded as high. The whole process is
very well thought through. The strategy to highly focus on top producers, top vintages and
rare wine in perfect condition support the idea of high quality, which is already ensured in
the selection process.
c) Status Quo | Cellar Conditions
The cellar conditions of BC at the “Big Yellow Self Storage” for their duty paid stock can
be assessed to be absolutely perfect. The safety system is sufficient to ensure a safe
storage for the wine. The climate conditions are professionally controlled and appropriate.
32
Insurance Questionnaire, p.3
12
I did not assess the quality of the cellar conditions of Octavian Vaults (in-bond-stock). As
Octavian Vaults is one of the international renowned cellarage services with a trustworthy
documentation system (certificate of pristine storage), it can be assumed that the storage
conditions are adequate.
d) Status Quo | Selection Process
The multi-level selection process set up by BC to proof the required conditions of the
wines, as well as their provenance can be assessed as accountable, plausible and can
therefore be accepted. The risk of fraud is limited to the business model due to the fact
that the borrower will always get 35% of the wines value.
e) Status Quo | BC Management
Mr S. Burton’s knowledge about wine is what I expect by a wine expert. Mr S. Burton is
due to his background as a private trader for over 20 years and his distinguished
knowledge about wine as well as his industry contacts highly qualifies his role within the
assessment process.
f)
Status Quo | Valuation Methodology Liv-ex Ltd.
The valuation methodology, which was explained to me by Mr S. Burton and Mr S. Neder
from Liv-ex33 can be stated as compelling under the condition that the wines stick to the
standards which were developed to be appropriate able to value the wines. It can further
be stated that the valuation method of Liv-ex approximates itself to a quite objective
consideration of fair market prices for fine wine.
g) Assessment | Conclusion
Although the valuation methodology and the business model of BC can be stated as clear,
stringent and reasonable, it is important to make some further acknowledgements. There
is no single methodology, which will give an exact value of the wine, as there are external
factors, which are not ex ante assessable, but which can be highly important. For
33
Written correspondence between Mr S. Burton and Mr N. Taylor, Head of Data Liv-ex Ltd., and a telephone interview (20th of
February 2014) between Mr A. Neder, Data Product Manager, Liv-ex Ltd. and Mr G. Emmel, Otto Geisel GmbH.
13
example, I can see strong price correction caused by external factors like a correction of a
critique’s rating. These factors are determined by the opinion of individuals. As this risk
must be incorporated into the equation of the wine value – loan ratio, it is always important
to have a security margin. The margin of 65% between the loan amount and the actual
value can be appraised as conservative.
h) Suggested Enhancement
The following aspect should be taken into consideration for the future process on
provenance as in my opinion, I would generally suppose that all OWCs should be opened
cautiously, to detect whether the box is complete, with the right wine in the right condition.
This checking should be done solely in presence of the client. The completeness of the
wines can only be checked upon arrival. I recommend this precaution, as BC operates in
the very high-end sector of wine business and therefore missing bottles or / and
counterfeits can be detected right away.
Thus, I finally can state that the process of wine purchasing and valuation, which was
presented to me can be stated to be designed in an accurate manner.
14
List of References
Liv-Ex Internet Source I
www.liv-ex.com/staticPageContent.do?pageKey=About_Liv-ex
Liv-Ex Internet Source II
www.blog.liv-ex.com/2013/07/standard-setters.html
Liv-Ex Internet Source III
www.blog.liv-ex.com/2013/06/the-liv-ex-market-price.html
Liv-Ex Internet Source IV
www.liv-ex.com/lx_docs/Liv-ex_Mid_Price_Logic.pdf
Corporate Website Bordeaux Cellars
www.bordeauxcellars.com
Corporate Website Metrosafe
www.metrosafe.co.uk
Corporate Website Octavian Vaults
www.octavian.co.uk
Appendix
Cover Letter from Neil Taylor, Head of Data Liv-Ex to Mr S. Burton, Bordeaux Cellars, 25th of
February 2014
Cover Letter from Neil Taylor, Head of Data Liv-ex to Mr S. Burton, Bordeaux Cellars, 18th of
February 2014
Photo Documentation File
Insurance Questionnaire
Legal Disclaimer
The assessment is exclusively created for internal use within the mandate. It solely
represents the quality of the process and the valuation as to the status quo of 04th of March
2014 under the assumption that the process is executed in an appropriate way. This
assessment was conducted to the best of my knowledge and belief.
15
Appendix
Assessment | Wine Valuation Process!
ABM Partners Ltd T/A Bordeaux Cellars, London!
!
Figure 1 - Locker Facilities
FOR INTERNAL USE ONLY
1
Appendix
!
Figure 2 – BC Strapped Cases
2
Appendix
!
Figure 3 – Security Seal
3
Appendix
!
Figure 4 - Temperature & Humidity Measurements
4
Appendix
!
Figure 5 - Perforated Metal Roofs
5
Appendix
!
Figure 6 – Lender Label
6

Assessment | Wine Valuation Process ABM Partners Ltd T/A

Transcription

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