FREIXENET

Introduction to Freixenet

In 1861 Francesc Sala Ferrés founded Casa Sala, the first wine-exporting company in Sant Sadurní d’Anoia and later the company entered the cava business. The business grew and the first labels for Freixenet Casa Sala cava appeared. From the beginning it was decided to concentrate exclusively on the production of cava, a natural sparkling wine, following the method used in the Champagne region (France) since the XVIIIth century. They built their cellars in the town of Sant Sadurní d’Anoia in Catalonia, Spain.

In the 1920s and 1930s the company gained recognition thanks to the drive of its founders and the guaranteed quality of its products. It was at this time that the company started to export its products and it opened its first United States office in New Jersey in 1935.

Unfortunately, the development of the company was held back first by the Spanish Civil War and then by the Second World War. Nevertheless, in 1941 the company launched what would in time become one of its star products—Freixenet Carta Nevada cava. In 1974 its leading export brand, Freixenet Cordón Negro cava, was launched, being present in more than 140 countries.

By the beginning of the 1970s Freixenet was well established in the Spanish market as a strong brand with a clear vocation to expand on the international stage. The constant efforts made by the company since then have led to continuous expansion in world markets and made the Freixenet Group in the mid 80’s the world leader in sparkling wines produced by the traditional method.

Nowadays, the company is building cellars abroad; such Gloria Ferrer in California, Wingara in Australia and many more, and also in Spain, in other wine areas of great reputation such as Rioja, Ribera del Duero, Priorat, Montsant...

Freixenet Group has 21 strategy businesses that are the following ones: 

Source: Freixenet Group. http://www.freixenetgroup.com/

Mission, vision and values

Pedro Ferrer Bosch defined the mission of the company:

"To create wealth, provide the goods that I have been endowed in order to promote the growth of the country generating prosperity and creating jobs. It’s a duty to the society. Who have this spirit and morale will be successful for sure”.

Today this concept has gone further and the company defines it as:

"To help to improve the quality of people’s life promoting the responsible consumption of wine and distributing high quality products. It is a known fact that the responsible consumption of wine, extends life expectancy, is healthy, encourages communication and harmony between people and improves the quality of life. In addition, we want to reach our objectives giving the maximum satisfaction to customers, employees, suppliers and shareholders, paying close attention to the care of the environment."

The vision is “to become the leading company globally in the wine industry in 2015 thanks to the successful management of a portfolio that contains leading sparkling and no sparkling wine brands of international markets”.

In order to achieve this, Freixenet should also have a policy of quality and food safety as defined by 7 points describing the values:

-To provide customers and consumers products which meet their requirements and expectations.

-Take steps to ensure that the products supplied are safe and comply regulations, quality standards and food safety.

-Promote the principles of quality and food safety among its suppliers.

-Always act ethically and respectfully to their customers, employees and suppliers, basing their relationships on mutual trust.

-Establish training programs and establish channels of communication to promote the participation of all staff to improve the management of food safety and quality of products.

-Measure, analyze and systematically monitor their processes to ensure continuous improvement of the effectiveness of the management system.

-Promoting innovation in all areas of its business.

Financial analysis of Freixenet

Regarding the assets of the company, the non-current assets in the year 2011 represented a 55.3% of total assets and were 1.2 times greater than current assets. This trend was similar in 2008 and 2009, being the current assets not greater than non-current. Among the assets, the most important items of non-current assets are investments in group companies firstly, and grounds and facilities in second place. And in the current assets, the most important item has been the stocks.

As for liabilities, the equity has always been smaller than the required liability and in 2011 represented 45% of total liabilities. In addition, the current liabilities in the year 2011 were greater than the non-current, but in all previous years, at least since 2008 the opposite happened. This indicates that the company traditionally had more debt in the short term, but 2011 the long-term debt was bigger.

Since 2004 until today the company has always had positive benefits. However, the profits were reduced almost a half in 2011. It is important to say that in 2010 gross margin was reduced, but it rose again the following year. Also, most of the benefits that Freixenet has made were from the extraordinary activities (known by the old Spanish accounting standards as financial results), only slightly exceeding the result from ordinary activities. This suggests that much of the profits were not made by the normal activity of the company.

Regarding the net sales, since the year 2001 they have never dropped to 194 million Euros. From this year started an increasing tendency that ended in 2005 with 256 million Euros approximately. Then, in the first moment sales shrank due to the competence and in 2008 we have to add the Spanish economic crisis that made sales decreased more. A year later, sales increased another time in the year 2009 especially because of the exports. But, in year 2010 sales dropped and in 2011 the company redirected the situation. As is shown in the next graph, therefore, since 2004 the tendency of net sales was not very stable and changed a lot.

Source: Sabi.

Observing a more detailed financial analysis of financial ratios profitability of the company, in the year 2011 ROE (return on equity) was equal to 3.17% being eroded to almost a half compared to the year 2010 caused by a drastic reduction in benefits. It is important to mention that ROE is below the optimum value that is considered superior to 6%. In addition, ROA (return on assets) last year 2011 was equal to 0.72% and is considered to be too low because it is similar to the cost of debt of the company. In this sense, Freixenet has bad financial health. However, due to the fact that the company has a positive working capital, there is no danger of bankruptcy.

Cheers!

Authors of the original report:

Xavier Bardají Serra

Eloi Domingo Castells

Sílvia Feliu Soler

Elisenda Oriol Escudé

Josué Ponce Ferrera