📈 Corticeira $COR - The World's ONLY Cork Manufacturer
A comprehensive financial walkthrough of the market leader in cork production, Corticeira Amorim $ELI:COR
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About Investment Thesis
Investment Thesis is a series of posts dedicated to providing a foundational understanding of listed microcaps. Additional corollary posts will expand the knowledge base for each investment case. The series aims to achieve a timeless understanding of how a business operates, rather than focusing on specific items related to current events (a separate series covers those). Every month, content on an investment case will be posted in either article or podcast form, or both.
This content is intended for informational purposes only and should not be taken as investment advice. The author does not represent any third-party interest, and he may be a shareholder in the companies described in this series. Please do your own research or consult with a professional advisor before making any financial decision. You will find a full disclaimer at the end of the post.
👨👩👧👦 Origin Story and the Amorim Family
Corticeira Amorim, a company now recognized as a world leader in cork processing, was founded in 1870. The company’s origins are deeply rooted in the entrepreneurial spirit and vision of the Amorim family, who recognized the vast potential of cork, a 100% natural raw material. From its inception, the family business emphasized the versatility and sustainability of cork, establishing its foundational philosophy of:
not just one market, not just one customer, not just one currency, not just one product
Under the leadership of the Amorim family, the company rapidly expanded its portfolio and entered new markets, developing innovative products that positioned cork as a material of choice in various industries. This expansion was driven by a commitment to sustainability and innovation, which included significant investments in research and development. By the 1960s, the company had diversified its offerings and established itself as a major player in the cork industry.
In the post-World War II era, the third generation of the Amorim family identified new business opportunities amid the global economic recovery. This period marked a significant shift for the company, as it began to focus on adding value to cork by utilizing the 70% of waste generated during cork stopper production. This led to the creation of granulates and cork agglomerates for multiple sectors, thereby reducing waste and increasing the utility of cork. This strategy of vertical integration and diversification culminated in the formation of Corticeira Amorim, which later evolved into Amorim Cork Composites.
The 1980s saw Corticeira Amorim significantly increasing its production of cork agglomerates, expanding their application to advanced technological sectors. Cork’s properties, such as thermal and acoustic insulation, fire resistance, and compressibility, made it suitable for use in construction, automotive, and aerospace industries. The growing demand, especially in North America, led to the establishment of a subsidiary in Canada in 1981, laying the groundwork for further expansion into the US market.
In 2007, Amorim Cork Composites was formally established following the merger of various business units. This restructuring enabled the company to consolidate its market position and enhance operational efficiency. In 2018, the company launched the i.cork factory, an innovative pilot plant dedicated to research, design, and development of new cork products and applications. This facility symbolizes the company’s ongoing commitment to innovation and sustainability, continually exploring new processes and technologies to enhance the technical performance of cork.
Throughout its history, the Amorim family has maintained a strong commitment to sustainability. The company’s operations are guided by principles that promote the circular economy, minimize waste, and support good forest management practices. These efforts not only enhance the quality of cork but also contribute to the preservation of cork oak forests and their ecosystems.
Today, Corticeira Amorim remains under the leadership of the fourth generation of the Amorim family, who continue to uphold the values of pride, ambition, initiative, and sobriety. The company’s global footprint extends to over 100 countries, with a diverse product portfolio that serves industries ranging from aerospace to wine and spirits. The enduring legacy of the Amorim family is one of innovation, sustainability, and an unwavering commitment to excellence in the cork industry.
🏭 The Industry
The Natural Cork Council reports that cork is primarily produced in the Mediterranean region, with Portugal leading at 34% of the world's forest area and 50% of production. In 2023, ~200 tons of cork were produced globally. Global cork production is highly concentrated in the Iberian Peninsula. By country, the main cork producers in the world include:
The cork industry supports 30,000 workers and produces about 13 billion wine stoppers annually. Worlwide, wine stoppers account for 72% of all cork revenue.
In recent years, cork production has decreased in major producing countries, but this has been partially offset by increases in countries like Russia and Latin America, which have smaller market shares.
In the US, natural cork usage is growing steadily, with a 7% annual increase and estimated usage of natural corks exceeding 1,200 million in 2023. Cork-finished wines command higher prices and exhibit greater sales growth compared to those with alternative closures.
In the US, the wine bottle market, the largest segment serviced by cork, clearly illustrates cork's value. Consumers are willing to pay up to a 66% premium for cork closures over alternatives. This preference is driven by cork's inherent properties and the cultural perception of cork as a mark of quality.
Despite a general decline in wine demand, influenced by a slowdown in China since 2018 and the impact of COVID-19, the market for cork continues to grow. This is driven by consumers migrating towards more expensive wines, which typically use cork stoppers, and the growth of other beverages such as spirits.
Cork prices are generally stable, but can spike during supply shortages or periods of inflation. These price increases affect Corticeira Amorim's margins, as the cork business does not have the same pricing power as glass and barrels. For instance, Corticeira only managed to offset 50% of the cork cost increase in 2018. Additionally, cork purchased in one year impacts the cost of goods sold (COGS) in the following year when it is used to produce and sell stoppers. Thus, the price increase in 2018 significantly affected margins in 2019 and beyond rather than in 2018.
From 2000 to 2008, cork lost market share, but this trend began to reverse in 2010, with cork gaining market share annually.
Demand and Supply: e.g. Catalonia 2023
The cork harvest season in Catalonia ended with significant contrasts due to drought and a 30% increase in cork prices. On the positive side, rising demand and market prices have boosted interest in cork extraction. However, adverse weather conditions shortened the season, which started late and ended early due to lack of rain and high temperatures. The drought has weakened many cork trees, resulting in fewer leaves and lower overall health.
In 2023, 55-65% of the cork harvested was waste, 2-3% was burnt, 5-10% was pilgrim cork, and only 25% was of suitable quality for making corks or discs. The total production was around 1,800 tons, significantly lower than the 4,500 tons in 2018 and far below the potential 11,000 tons per year, highlighting a gap between supply and demand.
🍾 The Product: Cork
The cork harvesting process, known as descortiçamento in Portuguese, occurs from mid-May to late August during the peak of vegetative activity. This highly specialized process ensures that the cork oak trees are not damaged.
Cork oaks are slow-growing trees that can live up to 200 years, allowing for approximately 16 harvests over their lifespan. The first harvest, known as virgin cork (low quality), occurs when the tree is 25 years old with a trunk perimeter of 70 cm. Nine years later, the secondary cork (good quality) is harvested. Subsequent harvests, called amadia cork (excellent quality), take place every nine years and provide the high-quality cork used for stoppers. It takes 43 years from planting to obtain the first amadia cork.
🏰 Talk about barriers to entry!
