Cappuccino Billionaire De’Longhi Brews Fortune on Coffee; Europe’s third-largest coffee-machine manufacturer by retail volume has risen more than 250 percent since the end of 2007

Cappuccino Billionaire De’Longhi Brews Fortune on Coffee

De'Longhi

The boutiques and restaurants lining Monmouth Street in central London’s Covent Garden neighborhood stand empty on a recent Wednesday morning, except for the 11-person line that stretches out of the Monmouth Coffee Company cafe.

“In the last few years, I’ve replaced bad coffee with good coffee,” said Holly Woodford, a 35-year-old sports consultant, as she sipped a 2.60 pound ($4) cappuccino at one of the restaurant’s farmhouse-style tables.At her home in Ideford, 2 1/2 hours southwest of the city, Woodford said she brews her own gourmet cappuccinos, using $14 bags of Monmouth’s single-origin coffee beans and a $400 De’Longhi (DLG)bar-pump espresso maker.

Such enthusiasm has helped make Giuseppe De’Longhi, founder and chairman of De’Longhi SpA (DLG), a billionaire. Shares in the Treviso, Italy-based company, Europe’s third-largest coffee-machine manufacturer by retail volume, have risen more than 250 percent since the end of 2007, pushing De’Longhi’s net worth to at least $2 billion, according to the Bloomberg Billionaires Index. He owns 67 percent of the company, and has never appeared on an international wealth ranking.

Growing global demand for high-end caffeine products has created a decade-long bull market for coffee companies, and boosted sales of home machines to $6.7 billion in 2012, a 47 percent increase from 2007, according to London-based researcher Euromonitor International.

Lifestyle Choice

“Drinking good coffee has become a lifestyle choice,” said David Veal, executive director of Speciality Coffee Association of Europe, an Essex, England-based trade association. “People who enjoy a good cup of coffee want to take that experience into the home, and that’s where companies like De’Longhi come in.”

The company began selling coffee makers in 1990. It now offers more than 150 models, with prices ranging from below $200 to more than $3,000. The Primadonna Exclusive model, which sells for $3,240 on De’Longhi’s website, includes two cup warmers and a color touch-screen. Such higher-priced models, along with the Nespresso-branded pod capsule devices, have helped boost De’Longhi’s coffee-machine business to 597 million euros ($767 million), 39 percent of total revenue in 2012, up from 10 percent in 2002.

Other kitchen appliances — food processors, kettles and toasters — contributed 37 percent of De’Longhi’s revenue, according to a March 2013 company presentation, up from 34 percent in 2002. The balance came from home heating and cooling systems, as well as ironing and cleaning products.

Holding Company

De’Longhi, who is in his 70s, holds his shares in the company through Luxembourg-based De’Longhi Soparfi SA, an investment company he controls through Long E Trust, an entity based in the U.K. crown dependency of Jersey, according to the company’s 2001 initial public offering prospectus.

He has collected 250 million euros in dividends since the company was listed on the Milan stock exchange in July 2001. He sold about 12 million shares, or 8 percent of the share capital, for 114 million euros in November 2012.

Representatives for De’Longhi didn’t respond to calls and e-mails seeking comment.

The De’Longhi family opened a workshop selling wood-burning stoves in 1902 in Treviso, a town 20 miles north of Venice that is the birthplace of prosecco sparkling wine and home to fashion company Benetton Group SpA.

By the 1950s, the business had added a factory to make heating parts, where De’Longhi started working when he was in his twenties. He began selling the first De’Longhi consumer appliances in 1973, and incorporated his own company, G. de’Longhi SAS, which specialized in free-standing oil-filled electric radiators.

Family Fortune

He created De’Longhi SpA in 1978, expanding its product line in the 1980s to include home appliances such as Pinguino portable air conditioners and Friggimeglio rotating deep fryers.

De’Longhi spun off its industrial heating division into publicly traded Delclima (DLC) in January 2012, after a protracted price war with competitors in low-cost markets such as China. In the first quarter of 2013, Delclima (DLC) reported net income of $1.3 million on $94 million in revenue, a margin of less than 2 percent. De’Longhi’s (DLG) net income was $25 million on $423 million in revenue, a margin of 6 percent.

“It was a bold decision to switch from what was an increasingly crowded air treatment segment,” said Lorenza Della Santa, a senior consumer appliance analyst at Euromonitor. “They focused on an area where they could lead, as an Italian manufacturer, making Italian-style coffee machines and producing Italian-style coffee.”

Brewing Machines

The company generated 64 percent of its 2012 revenue from Europe, according to its annual report, and is looking for opportunities to expand in emerging markets. Fabio De’Longhi, Giuseppe’s son and the company’s chief executive officer, said on a May 2013 earnings call that he expects coffee machines to remain “major drivers” for growth.

“Coffee is an aspirational product, it’s something a lot of people identify with,” the Financial Times quoted him as saying in a January 2013 interview. “There are probably 50 million coffee machines sold a year now and there’s every chance this could double in the next 10 years, with De’Longhi taking a big share of the new opportunities.”

To contact the reporter on this story: Tom Metcalf in London at tmetcalf7@bloomberg.net

About bambooinnovator
Kee Koon Boon (“KB”) is the co-founder and director of HERO Investment Management which provides specialized fund management and investment advisory services to the ARCHEA Asia HERO Innovators Fund (www.heroinnovator.com), the only Asian SMID-cap tech-focused fund in the industry. KB is an internationally featured investor rooted in the principles of value investing for over a decade as a fund manager and analyst in the Asian capital markets who started his career at a boutique hedge fund in Singapore where he was with the firm since 2002 and was also part of the core investment committee in significantly outperforming the index in the 10-year-plus-old flagship Asian fund. He was also the portfolio manager for Asia-Pacific equities at Korea’s largest mutual fund company. Prior to setting up the H.E.R.O. Innovators Fund, KB was the Chief Investment Officer & CEO of a Singapore Registered Fund Management Company (RFMC) where he is responsible for listed Asian equity investments. KB had taught accounting at the Singapore Management University (SMU) as a faculty member and also pioneered the 15-week course on Accounting Fraud in Asia as an official module at SMU. KB remains grateful and honored to be invited by Singapore’s financial regulator Monetary Authority of Singapore (MAS) to present to their top management team about implementing a world’s first fact-based forward-looking fraud detection framework to bring about benefits for the capital markets in Singapore and for the public and investment community. KB also served the community in sharing his insights in writing articles about value investing and corporate governance in the media that include Business Times, Straits Times, Jakarta Post, Manual of Ideas, Investopedia, TedXWallStreet. He had also presented in top investment, banking and finance conferences in America, Italy, Sydney, Cape Town, HK, China. He has trained CEOs, entrepreneurs, CFOs, management executives in business strategy & business model innovation in Singapore, HK and China.

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