Welcome to Vin-X I founded Vin-X with a team of investment and wine specialists as a result of my own experience of investing in wine. The potential of the market is significant, particularly when compared with stocks and shares, and yet for many this is not well understood. Liv-ex has made 12.5% over the last 24 years compound, that beats virtually everything including gold and oil. For me it s a good investment. Austin Healey, England, Leicester and British Lions rugby player, July 2012 The analytical and economic treatment of fine wine as an investment class employed at Vin-X improves an investor s ability to access wines with the potential to deliver strong returns. Vin-X has proven success in outperforming the market trend by at least 10 per cent in 2011. We keep all of our clients informed about the key news and events in the industry which may affect price, update on specific performance and ultimately assist with the final sale of their wine. I hope you find the information enclosed of interest and that you are also inspired to get involved in this rewarding investment class. Yours truly Peter Shakeshaft Founder www.vin-x.co.uk 1
Why invest in wine? Fine wine consistently out-performs shares, bonds and other asset classes Historically fine wine has consistently delivered annual double digit growth Fine wine investment is less volatile than other asset classes such as equities, gold and oil The correlation between financial and fine wine markets is relatively low, providing greater resilience to recessionary conditions Tax efficient - potential exemption from Capital Gains Tax - speak to your financial advisor Fine wine is a tangible asset A finite and reducing supply as vintages are consumed versus increasing demand Why invest with Vin-X? Vin-X investment selection strategy beat the market in 2011 by 11% Vin-X operates market-leading practices designed to protect the investor and their investment. Dedicated personnel who specialise in fine wine investment Market information to maximise investment potential Client wines stored at fully insured industry-leading facility Independent audit to verify client wine by Chartered Accountants Knill James Condition reports available on client wines. Currency dynamics fine wine provides the ability to off-set currency influences Inflationary pressures may drive demand in physical commodities to hedge against devaluation. 100 [invested in 1952] could today be worth as much as 478,000 tax free www.thisismoney.co.uk, June 2012 2 www.vin-x.co.uk
Investors in fine wine see 10% annualized returns over the past 5 years compared to FTSE s 0.03% Emma Wall, The Telegraph, March 2012
My Vin-X consultant has provided excellent professional support with my fine wine investments and his strong knowledge of the market has given me a lot of confidence as a relatively new investor in fine wine. Mr Power, Ireland, April 2012
The fine wine market History Fine wine has a distinguished history with production dating back some 6,500 years; Bordeaux has been producing wine for two millennia and the famous châteaux, or brands of Bordeaux, have been around for centuries. As long as fine wine has been produced, traded and consumed, it has been invested in. Fine wine consistently delivers annual double-digit returns Performance The global fine wine market was valued in November 2011 by Liv-ex, the industry exchange, as having annual worth of US$4bn. In terms of the focus of that value, it is primarily on the top 25 châteaux in Bordeaux and the predominance of value sits with the five First Growths plus Super Seconds and premier Right Bank wines, which are thought to generate as much as 95% of the secondary market trading in fine wine. Fine wine consistently delivers annual double-digit returns and its historical performance over the medium to long term has been outstanding when compared with many traditional and alternative asset classes. Supply and demand A further dynamic of the fine wine market is the finite amount of commodity available. This supply reduces further over time as wine is consumed. Contrast this with the varying influences of demand within the market. In some circumstances volume may have declined in recent years in the traditional markets of the US and Europe, however new entrants from the growth economies of China, Brazil, Russia and India have created significant demand with reported 40% of production in some key brands now being taken up by consumers in Asia. Brand The wine investment market comprises the finest Bordeaux wines, the key brands are the First Growths and a number of the Super Seconds. Such is the value of brand within this sector that much of the market dynamic may be influenced by one particular wine. For example Château Lafite-Rothschild led the wine market s bull run post February 2008 and achieved extraordinary prices during 2009 and 2010. Lafite saw its prices decline in 2011 affecting the total market value. Vintage appeal Generally, the finest wines from the most outstanding vintages have delivered the best returns to investors. There have been some outstanding vintages over time and recently 2009 and 2010 have been critically acclaimed as very significant. The role of the critic Fundamentally the market expects the great brands to produce the best wines, but ultimately the final tick in the box is the independent critical view by a handful of industry experts from around the globe. Currently the most influential of these is Robert Parker Jnr. www.vin-x.co.uk 5
Fine wine - performance as an asset class The fine wine investment market was valued at US$4bn by the industry price indicator, Liv-ex, in November 2011. Wine investment monitored over time has outperformed FTSE, S&P, gilts and in certain periods even outstripped oil and gold. Fine wine has consistently delivered annual double-digit growth over the last thirty years with some wines delivering extraordinary gains individually. Fine wine price performance does not generally correlate with equities, but, like all commodities, wine is influenced by macroeconomic factors such as the Eurozone and previous banking crises. However, reaction tends to be slower and less extreme and accordingly wine is deemed a more stable asset class. Investing in alternative investments (SWAG) A relatively new term and acronym of the alternative investments grouping Silver, Wine, Art and Gold, SWAG is now a recognized focus for investment portfolios. These tangible investments have some similar characteristics beyond being emotional investments or passionate buys and offer attractive means to diversify from traditional investments. They offer a currency hedge as they have global appeal and are relatively inflationproof. Of them all fine wine is probably the most affordable with entry points as low as 2,000 and an active secondary market. Wine investment monitored over time has outperformed FTSE, S&P, gilts and in certain periods even outstripped oil and gold. Annualised standard deviation Swag (and equities): Risk v return in the 20 years to Sept 2011 50% 40% 30% 20% 10% 0% 0% 2% 4% 6% 8% 10% 12% 14% 16% Return Compound annual growth rate Gold Fine Wine Silver Art Equities (FTSE 100) Source: www.liv-ex.com 4th July 2012 6 www.vin-x.co.uk
Liv-ex investables index v market average 40% 35% Five Year Compound Average Returns 30% 30% 25% 15% 10% 5% 0% -5% Jan - 93 Oct - 93 Jul - 94 Apr - 95 Jan - 96 oct - 96 jul - 97 apr - 98 Jan - 99 oct - 99 jul - 00 apr - 01 Jan - 02 oct - 02 jul - 03 apr - 04 Jan - 05 oct - 05 jul - 06 apr - 07 Jan - 08 oct - 08 jul - 09 apr - 10 Jan - 11 oct - 11 JUN - 12 Liv-ex investables index - 5yr cagr long-term average Source: www.liv-ex.com July 2012 When is the right time to buy? The Liv-ex Investables Index tracks 200 wines from 24 top Bordeaux châteaux, with data going back as far as January 1988, and mirrors the performance of a typical wine investment portfolio. The chart above shows the five-year compound annual growth rate (CAGR) over the life of the Liv-ex Investables Index. Key points include: The long term average CAGR is 14.9% Over the last 24 years the CAGR has been 12.5% For 60% of the time returns have exceeded 10% For 75% of the time, returns have averaged more than 5% CAGR in July 2012 was circa 4% - the lowest it has been since 2006 Historically, when investing at a time when the previous five years had returned a CAGR of less than 5%, the average compound return achieved in the following five years was 17.6%. Vin-X performance Vin-X clients benefit from a market-leading, professional service adopting many of the practices and systems operated by a stockbroker. The team includes both investment and wine specialists and analytically appraises the market opportunities in line with economic, political and wine specific factors. The Vin-X wine selection strategy for clients has meant that the collective client portfolio beat the market average by 11% in 2011. The CAGR has only been negative once. www.vin-x.co.uk 7
The importance of Bordeaux The fine wine market is primarily focused on the best wines of Bordeaux, which represent 95% of the secondary market in fine wine. History The Bordeaux Wine Official Classification of 1855 which guides on wine quality was established during the 1855 Exposition Universelle de Paris when Emperor Napolean III requested a classification system for France s finest Bordeaux wines. The First Growths The premier investment wines come from the five greatest wine producing châteaux in the world all located on the Left Bank of the River Gironde: Château Lafite-Rothschild Château Latour Château Margaux Château Mouton-Rothschild Château Haut-Brion The Big 9 Along with the First Growths listed above the following four châteaux make up The Big 9, these represent the most valuable and frequently traded investment wines in the secondary market and are traditional investor favourites: Château Cheval Blanc Château Ausone Château Le Pin Château Petrus 1. Ch. Cos d Estournel 2. Ch. Pontet-Canet 3. Ch. Pichon Lalande 4. Ch. Léoville-Poyferré 5. Ch. Léoville Las Cases 6. Ch. Palmer 7. Ch. Malescot St-Exupéry 8. Ch. Pape-Clément 9. Ch. Haut-Bailly 10. Ch. Angélus 11. Ch. Trotanoy 12. Ch. La Conseillante 13. Ch. Pichon Baron 14. Ch. Lynch-Bages Bordeaux s fine wine locations Parker s Magical 20 Tipped by critic Robert Parker Jnr. as the hottest wine investments for the future and some Vin-X favourites: First Growths 4. Château Lafite-Rothschild 5. Château Mouton-Rothschild 6. Château Latour 10. Château Margaux 12. Château Haut-Brion Second Growths 1. Château Léoville Las Cases 2. Château Montrose 3. Château Cos d Estournel 7. Château Pichon-Baron 8. Château Pichon-Lalande 9. Château Ducru-Beaucaillou 16. Château Léoville-Poyferré 18. Château Léoville-Barton Third Growths 11. Château Palmer Fourth Growths 13. Château Duhart-Milon 17. Château Beychevelle FIFTH GROWTHS 15. Château Lynch-Bages 14. Château Pontet-Canet Premier Cru Supérieur 19. Château d Yquem 15. Ch. Smith-Haut-Lafitte 16. Ch. La Fleur-Petrus 17. Ch. Clos Fourtet 18. Ch. Rauzan-Ségla 19. Ch. Brane-Cantenac 20. Ch. Le Gay For more information on these wines, please visit the Vin-X website at www.vin-x.co.uk or speak to a Vin-X consultant on 0203 384 2262. 8 www.vin-x.co.uk
Clockwise, from above: Château La Mission Haut-Brion; Château Margaux; the cellars of Château LATOUR; Château Pontet-Canet.
Wine critics, scores and Robert Parker Jnr. The role of the professional critic within the wine industry is very significant. They provide an independent evaluation on the quality and potential value of wine and publish scores at key times within the industry calendar. A select number of critics have such an influence that they have historically moved the market in key wines. The most pre-eminent critic with global influence is American Robert Parker Jnr. Many merchants, critics and auction houses have scoring systems to rate the quality of a wine but Parker s is the most universally adopted system. Since first publishing in his newsletter, The Wine Advocate in the late 70s the Parker score has proved to be the most definitive system, rating wines out of 100 points. Vin-X s wine selection policy is geared to Parker s scoring system and most fine wines offered to clients have a score of 95 points or more. There are exceptions to this rule and investment potential does extend to some wines with lower scores. Wines of an investment grade are scored by Parker as follows: 96-100: An extraordinary wine of profound and complex character displaying all the attributes expected of a classic wine of its variety. Wines of this calibre are worth a special effort to find, purchase, and consume. 90-95: An outstanding wine of exceptional complexity and character. In short, these are terrific wines. Other notable critics including the following: Jancis Robinson OBE MW (UK) www.jancisrobinson.com Neal Martin (UK) www.erobertparker.com James Suckling (USA) www.jamessuckling.com Jeannie Cho Lee MW (HK) www.asianpalate.com Vin-X s wine selection policy is geared to Parker s scoring system and most fine wines offered to clients have a score of 95 points or more. 10 www.vin-x.co.uk
The tax treatment of fine wine Investors are often confused by sweeping statements made with reference to tax and fine wine. To address this Vin-X commissioned an independent tax specialist to review any possible implications for Income, Capital Gains and Inheritance Tax with respect to fine wine investment. The following detail points to key areas for consideration. For further information please contact a Vin-X consultant. Investors should always consult their tax or financial advisor. Value Added Tax and Duty Generally it is understood that, whilst stored in a Government Bond warehouse, wine does not incur VAT or Duty payments, these are chargeable once the wine is shipped out of Bond. VAT and Duty costs will be charged at the rates prevailing at the time of transfer from Bond. Income Tax A defining position in regards to attracting Income Tax is whether the investor is perceived to be trading in wine as an asset, i.e. acquiring wine with the intention to trade on and take profit. In this case one should refer to case law where it exists as well as having regard to what are referred to as the the badges of trade. An interesting interpretation in regards to the Income Tax treatment is the potential to view not just profit but also loss, which could potentially be tax deductible. If this stance was adopted, however, future investment would naturally be presumed to fall into the activity of trade and Income Tax would therefore be deemed to be applicable. Capital Gains Tax Investment in fine wine should normally be exempt from exposure to Capital Gains Tax (CGT) due to HMRC s treatment of Wasting Assets and Chattels. Is wine a wasting asset and tax free? A wasting asset is defined in tax law as having a predictable life at the time of acquisition not exceeding 50 years. With wine this reasonably would be the case and there is every incentive for the wine investor to demonstrate that his wine investment had a useful life of 50 years or less at acquisition. Chattels exemption This exemption is based on value, i.e. where wine is sold for proceeds of less than 6,000, no taxable gain will arise. The policy objective behind the exemption is presumably to prevent a taxpayer having to make detailed calculations every time any small asset is disposed of. However, it may assist the wine investor in making small tax effective disposals to take advantage of the exemption. Where the profits made on wine investment sales do attract CGT, the investor will normally pay the current 28% rate on any gain after taking into account the CGT annual exemption of 10,600. Inheritance Tax Upon death, Inheritance Tax ( IHT ) will sadly be charged on wine investments, however as with all IHT planning steps can be taken to manage this in a tax efficient manner with advice from your tax advisor. Companies Companies have the potential to use retained earnings to invest in wine and enjoy the potential tax benefits, appropriate advice should be sought from a tax advisor. Conclusion Wine enjoys favourable treatment compared to other tax efficient investments. One significant advantage is that it can be liquidated, one way or another, quickly and there are no penalties for early encashment. www.vin-x.co.uk 11
Vin-X service guarantee Vin-X clients benefit from market leading professional operating standards that ensure the investor is protected. Vin-X representatives are working with other members of the fine wine industry to encourage the unilateral adoption of similar measures: All telephone calls with Vin-X are recorded for training and quality purposes and to ensure an accurate record of the call Vin-X clients are entitled to a seven day cooling-off period to be certain of their decision to invest and have the opportunity to cancel the transaction within this period by notifying Vin-X administration accordingly Vin-X client wines are stored at London City Bond s Vinotheque facility and are clearly labelled with the Client s HM Revenue & Customs approved individual rotation number and are logged in the client s name, ensuring a correct record of title of ownership with the investor The provenance of the wine is protected, by storing it within our chosen bonded storage facility, at London City Bond. This ensures the perfect conditions to protect the integrity of a client s wine and is an important factor in determining the future value of it All client wines are fully insured with a limit on an individual claim to a value of up to 150million Knill James Chartered Accountants undertakes an independent audit under Financial Reporting Standards every year to determine the correct recording of investment transactions. Knill James checks that the Vin-X Client wines are stored and referenced correctly The Knill James independent review also checks wines bought en primeur that have been bottled and shipped and that these wines have been physically received into London City Bond and ownership correctly referenced to the client Clients are able to visit London City Bond to view their wine and we can also provide condition reports with digital photographs of their wine on request Vin-X employs its analytical expertise in appraising investment wines for clients and selects wines they believe offer growth potential in line with an investor s goals Vin-X provides regular performance updates to clients on their fine wine investment with a view to assisting the client achieve their investment goals Vin-X provides its clients with regular news feeds on industry issues and events, which may impact on wine values along with specific information on châteaux and individual wine details. Wine selection strategy and managing your portfolio The Vin-X team includes analysts, financial experts and wine specialists, collectively they review economic, political and financial information alongside wine industry specific data such as individual brand performance, climatic effect and supply and demand dynamics to determine the most promising opportunities for our clients. Our selection strategy has outperformed market trend to date. Our specialist brokers work with individual clients to assemble a collection of wines in line with their investment goals in terms of capital to invest, investment term and attitude to risk. Our specialist brokers work with individual clients to assemble a collection of wines in line with their investment goals 12 www.vin-x.co.uk
As a registered Charity, it is extremely important to the Victoria Foundation and its trustees that our investments are expertly and transparently managed. We have found that Vin-X offer a very professional level of service which in many ways emulates the service that one could expect from a good quality advisory stock broker. This has included timely reports both regular and ad hoc, valuations, portfolio structuring and buying advice. Graham Ball, Chairman of the Board of Trustees, The Victoria Foundation, May 2012
En primeur Dependent on the industry critics view and our own analysis we may on occasion recommend that clients invest in wines en primeur, i.e. buying wine at the earliest possible stage, in barrel. Typically wines are promoted through this Bordeaux invented system in the Spring following the previous Autumn harvest. En primeur wines are launched onto the market with scores from key critics and this is the market s first indicator of value potential. Many merchants may be obliged to take a sizeable allocation at this stage, as an independent broker Vin-X is free to guide its clients only into the best opportunities. Buying en primeur is deemed to be highly speculative as it is, in essence, buying a future in wine and is therefore seen to be a higher risk proposition. The benefits are: Price - typically wine will be bought at the lowest market price Provenance - the wine is still at châteaux and when ready will be delivered to the client s bonded storage facility Age - acquiring at the earliest stage means you have all the upside potential of the maturation process and associated growth in value Secondary market - There is a guaranteed secondary market trigger when the en primeur wine goes physical, i.e. the wine is scored again by critics and bottled and shipped. From this point they are acquired in the secondary market. Wine storage Vin-X client wines are stored with one of the industry leading specialists for the secure storage of fine wine, London City Bond at their Vinotheque facility at Burton on Trent. Storage conditions are carefully managed to ensure the optimum environment for wine to be stored, protecting the ongoing provenance of the wine and accordingly its financial value. London City Bond provide an In-Bond storage service, accordingly no VAT or Duty payments on the wine are charged until the wine is removed from bonded storage. Client wines are recorded and labelled with HM Revenue & Customs approved rotation numbers and logged to the client s name. Vin-X provides a custodial oversight to client accounts ensuring the correct general management of the service but ownership title of the wine always rests with the client. The independent review of client wines by Knill James verifies the ongoing correct storage and treatment of Vin-X client wines. This service is new to the industry and we believe is an essential measure to protect investors in fine wine. The Vin-X management fee The management fee encompasses the following for each wine acquisition: Analysis, selection and sourcing of fine wine Provision of bonded storage and insurance for three years from purchase Market information essential for investors Dedicated fine wine broker to guide and support the client through the investment process. The fee is 5% of the purchase price of the wine per year for three years fixed, i.e. 15% payable on purchase. VAT is charged on the management fee in accordance with English Law. Should the wine be held in bonded storage beyond the first three years covered in the management fee further charges would apply to cover the ongoing service detailed above. For more information, please speak to a Vin-X consultant on tel no. 0203 384 2262 or visit our website www.vin-x.co.uk. 14 www.vin-x.co.uk
Frequently asked questions How do I develop an investment portfolio of wine? Firstly we would need to understand your objectives in regards to investing in fine wine i.e. how much capital you would seek to invest over what period of time, any brand preferences in terms of specific wines and any level of weighting within a portfolio in terms of price. With this in mind our specialists will select wines and introduce them to you as portfolio options. How long do I need to hold my investment in wine? While certain wines have shown considerable short term gains in some years, we recommend that you consider your wine investment as a medium to long term investment of at least 3-5 years. Historically the longer the investment is held generally the better the returns. We recommend that you consider your wine investment as a medium to long term investment of at least 3-5 years. What are your charges? As set out on page 12, the Vin-X service includes the following: Dedicated specialist broker providing information and wine selection to meet your requirements Market information essential to understand opportunities and market trends Storage management for the first three years Insurance For this we charge a 5% annual fixed rate charge for the first 3 years, meaning a total management fee of 15% payable at the time of investment. Please see our terms and conditions at www.vin-x.co.uk. Are there any risks? All investments carry risk and prices may go down as well as up, fine wine is no exception. Fine wine investment prices vary so always check that you are paying a fair price. Vin-X is leading the way to develop a good code of practice across the industry and our operating systems and independent audit of client wines are geared to protect investor interests. How do I know that I have ownership title to the wine you have sold me? This is very important to us. Upon purchasing the wine you will receive a Certificate of Ownership stating where the wine is stored and a corresponding reference. Our storage partners, London City Bond, recognise the wine stored on behalf of Vin-X clients is owned by the individual investors. Vin-X has been the first wine investment specialist to enlist an independent firm of accountants to provide an annual audit of client wines, to verify their location and ownership reference. In the case of buying en primeur clients will receive a Certificate of Allocation which will be replaced by the Certificate of Ownership once the wine is bottled and shipped. www.vin-x.co.uk 15
What are the storage arrangements? The management fee includes 3 years storage at leading bonded warehouse London City Bond s Vinotheque facility. Your wine is held in a dedicated subaccount of the Vin-X custodial master account. Correct storage conditions are essential for protecting the good provenance of the wine and will affect the value of your investment. The payment of VAT and Duty on wine is deferred until such time that the wine is removed from bonded storage. Can I store my wine at home? Vin-X recommends that investment grade wines are stored in bonded storage for both provenance and Tax purposes. Vin-X will arrange the storage of any wine purchased from Vin-X in a referenced sub account in your name as part of the management fee. If you already have a private bonded account, Vin-X can arrange the transfer of any purchases into your own account in bond, however, there may be a handling fee for such transfers. Is there any tax payable on profits? For more information on the tax treatment of fine wine please see page 11 or contact Vin-X for a specialist tax report. In principle fine wine generally qualifies as a wasting asset or chattel in accordance with HM Revenue & Customs guidelines and any profit from sale is exempt from Capital Gains Tax. There may be implications for Income Tax if an investor is deemed to be trading in wine and advice should be sought. Wine stored and then sold on in bond is generally exempt from Duty or VAT charges. There are potential efficiencies for companies who invest in fine wine. The management fee includes 3 years storage at leading bonded warehouse London City Bond s Vinotheque facility. How do I sell my wine? Vin-X will either offer a fair market price for the wine or undertake to broker the wine into the market (a target price may be set, but Vin-X cannot be liable to guarantee the level of return). Please note that while Vin-X does not charge any additional commission for brokering client wine, a Liv-ex transaction charge will be passed on. Vin-X clients are also free to sell their investment wines at auction or through any leading wine merchant. It is recommended that the commission charges being made by the seller are checked. Can I drink my wine? Yes of course, ultimately all wine will be drunk, hence the fundamental supply and demand dynamics of wine as an investment class. But should you prefer to keep your valuable investment wine in storage for the future some great wines are available to drink from our retail wine division, Tipple at www.tipplewines.co.uk. For all Vin-X terms and conditions please go to our website - www.vin-x.co.uk 16 www.vin-x.co.uk
Our retail wines division Tipple was introduced in 2012 as a result of our growing relationship with producers of fine wines who also had superb wines which didn t have the investment value of their first wines but were extremely special wines available to drink now. We were, at that time, also receiving requests from our Vin-X clients for wines to drink rather than have stored In Bond. As a consequence Tipple was born and now offers a collection of wines that are relatively hard to find on the UK high street. We have broadened our list from our original focus on French wines to encompass New and Old World wines and we will carefully grow this collection over time. Tipple is currently an online service only, however clients of Vin-X that do not have internet access can get information on Tipple wines from their Vin-X consultant and we can arrange the delivery of wine direct to your home. For more information please visit www.tipplewines.co.uk
Forum House, 41-51 Brighton Road, Redhill, Surrey, RH1 6YS Tel: 0203 384 2262 www.vin-x.co.uk