![]() ![]() It can act as a hidden asset as inventories are at historical cost in the Balance sheet. Oak inventories and close relationship with clients As production increases, breakeven will be attained and the BU will be profitable as well as cash generative also helped by much lower capex. Margins are lower as there is a higher competition and possibly that bourbon is not as high end as top notch wine.īourbon and wine need new barrels, which implies a production site and oak inventories. ![]() What distinguishes it from the wine market is that growth was and seems to be stronger ( 5% growth in sales per year) and is less affected by weather conditions (i.e raw materials harvest are much less impacted by swings in weather). The bourbon BU requires new barrels and thus it can be compared to the wine BU in the sense that production sites are required as well as oak inventories. Investing in the bourbon sector to reduce cyclicity to the whole business Scotch market grows slowly but surely and is less affected by weather conditions. Thus, no production sites are required and working capital is lower (not required to have oak inventories). The business is essentially a maintenance and repair due to the aging time required for the scotch whiskey. It is capex light as scotch is aged in used barrels. The scotch BU is a clear world leader albeit with a lower sales growth. They can be a strong volatility in sales which are dependent on the weather conditions which impact wine havest. Churn is low as wine producers need time to be convinced but once they are they are very loyal. This has another advantage as these clients in their turn have a long term vision and oak barrels are an essential part of their product. Indeed the cost of a new barrel is high and can only be afforded by high end wine producers. The wine BU has the highest margins as the offering is completely integrated and clients are high end, these two elements explain the higher margins. Three business units: wine, scotch and bourbon with different dynamics Then it needs to be aged and then it can be worked upon by a TFF employee who will be exchanging with the wine producer to build a barrel so as to “build” and put forward the desired wine by the client. This requires sourcing, and cutting the oak in the right dimensions. To build a barrel you need good quality oak which requires adequate aging (an additional barrier to entry), quantity and secured sourcing. They are autonomous in the oak sourcing which is decisive as their sourcing is secured and there inventories are quoted at the acquisition price in the balance sheet. TFF builds barrels which is sells directly (thus it keeps the margin) to its clients. It is always interesting to study a company whose motto is “Time is on our side”. From there on, external growth takes place. Jérome François (the current CEO and Jean’s son) joins the company in 1989. ![]() Jean is at the helm of the company at the beginning of the 70’s and develops the export business. Jean (father of the current CEO) started working in the family company at the end of the 50’s. TFF’s history begins in 1910 with Joseph François, then his son Robert took over in 1917. ![]()
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