Federico Paternina S.A. Business Information, Profile, and History

Company Perspectives:

Paternina has always strived to obtain the highest quality, and one of its main objectives is respecting the environment by integrating Quality and Environment in its daily management.

Thanks to this philosophy, Paternina maintains, year after year, its leadership in the highly competitive wine industry.

At Paternina we have managed to combine two apparently opposite ideas: the respect for traditional wine production and state of the art technology, always making use of those most respectful with the environment.

History of Federico Paternina S.A.

Federico Paternina S.A. is one of Spain's leading Rioja-region wine producers. The Haro La Rioja-based company produces Rioja wines, including the Banda Oro, Reserva, and Gran Reserva labels and the flagship brandy, Conde de los Andes Solera Gran Reserva. Paternina is also present in Spain's two other principal wine appellations, producing Ribera del Duero wines and Jerez (sherry) brandy, including its flagship brandy. The company also produces and markets a range of spirits and liqueurs, including the Otaola brand line. Paternina operates several wineries, the oldest of which is the Conde de los Andes located at Ollauri, which features four 16th-century wine cellars with a total capacity of four million bottles. Paternina operates more modern facilities at Haro, where the company has built one of Europe's largest wine and brandy production and aging facilities, covering an area of 87,000 square meters; the El Cuadro bodega (winery) in Jerez, producing wines and brandies; and the company's most recent winery, Marques de Valparaiso, producing Ribera del Duero wines. While sourcing grapes from the region's farmers, Paternina also has acquired its own vineyards, including 41 hectares in Pesquera de Duero. The company expects to expand its holdings to more than 100 hectares, in order to become self-sufficient and ensure the quality of its wines. Paternina is one of the only Spanish wine producers listed on the stock market; 80 percent of the company remains controlled by the Eguizábal family, which acquired Paternina in the early 1980s and is credited with reviving the reputation of not only the winery, but also the Rioja appellation itself. In 2003, Paternina's revenues reached EUR 40 million ($45 million).

16th-Century Cellars

The cellars at Ollauri, on the top of the hill overlooking the town itself, were built in the late 16th century. Cut into some 40 meters of rock, the cellars, each about 150 meters long, provided constant temperatures for the maturing of the region's well-known wines and brandies. The site remained a winemaking center for the next centuries.

In 1896, Federico Paternina bought the three bodegas (Spanish for wineries) in Ollauri, and merged them to form the company that took on his name. Paternina started out with three cellars, and some 1,000 oak casks, with a total storage capacity of about 500,000 liters.

Paternina set about boosting production, but also developing the quality of his wines, soon earning a reputation as one of the region's leading Rioja producers. In 1920, the Paternina company expanded, buying up the Catholic Farmers' Union Co-operative in nearby Haro. This purchase permitted the company to greatly expand its production, while retaining its commitment to developing quality wines. By the 1940s, the Paternina name was respected not only throughout Spain, but also had begun to gain international renown. The company began exporting its wines to other European markets and to the American market. Attesting to Paternina's renown were the frequent visits from well-known visitors, such as Ernest Hemingway, into the 1950s.

The period proved something of a peak for Paternina. By the 1960s, the company, and Spanish wines in general, faced growing competition from a new breed of "new world" winemakers, such as in the United States, Australia, South Africa, and Chile. Consumer tastes began to shift away from the relatively heavy, oak-aged Rioja wines to new lighter, sweeter, and fruitier wine types.

Adapting to the new market proved difficult for Paternina. Part of the reason for this was the adoption of regulations governing the Rioja appellation varieties. The top Gran Reserva required at least five years of cellar time, including at least two years of aging in oak casks for red wines, and four and a half years for white wines. The next level, Reserva, required three years in the cellar, with at least one year in the cask for red wines, and two and a half for white wines. Even the entry-grade Crianza required at least two years in the cellar with at least one year in the cask. Although these methods helped ensure the quality and character of the Rioja appellation, it made it more difficult for the company to adapt its wines to the new market preferences.

Its fortunes slipping, Federico Paternina was acquired in 1974 by fast-growing Spanish conglomerate Rumasa, owned by Jose Marea Ruiz Mateos. Yet Rumasa's financial foundations proved fragile, and, as the conglomerate slipped toward collapse at the beginning of the 1980s, Rumasa, including Paternina, was taken over by the Spanish government. In the meantime, Paternina had seen little investment under Rumasa, and the winery, once one of the region's most important brands, had sunk into disrepute.

The winery might have faded altogether, if not for Marcos Eguizábal Ramirez. A native of Rioja, and already owner of another winery, Bodega Franco-Espanolas, Eguizábal agreed to purchase the Paternina company from the government for just one peseta. Eguizábal quickly developed plans to restore Paternina to its former glory.

Equizábal had to fight against Paternina's poor reputation among restaurant owners and other former Paternina customers. Throughout the 1980s, Equizábal worked to restore Paternina's image, including offering to replace much of the stock the company had sold. In all, Equizábal threw away some 40,000 cases of wine.

At the same time, Equizábal led Paternina in developing a new generation of wines more suited to the modern wine-drinking tastes. In the early 1990s, Paternina began a modernization effort, renovating its existing winery. Paternina also

Revitalized for the New Century

Paternina's investment program went still further. In the early 1990s, the company built a state-of-the-art facility at Haro, installing modern winemaking and bottling equipment. The company installed a new bottling line capable of processing 12,000 bottles per hour. The new line also was equipped to detect defects in the bottles, and to reject bottles that had not been completely filled. The new facility, at 87,000 square meters, became one of the largest and most modern winemaking facilities in Europe.

By the mid-1990s, Paternina had succeeded in restoring both the high quality of its wines as well as its brand image. The company, now joined by Eguizábal's son Carlos, began to diversify its portfolio. In 1994, the company acquired Bodegas Internacionales, based in Jerez, which included a number of traditional sherry brands, such as Marqués de Mérito, Díez Hermanos, Bertola, and José Pemartín y Cía. These were merged, creating Paternina's Sherry Division. The company began producing fortified wines under the Jerez-Xerès-Sherry y Manzanilla de Sanlúcar de Barrameda appellation.

Throughout this period, Paternina and the Eguizábals faced an ongoing challenge from Jose Marea Ruiz Mateos, who attempted to regain control of the winery. In 1997, however, the Spanish Supreme Court at last came down on the side of the Eguizábals. Freed from concerns for the company's ownership and eager to continue investing in Paternina's growing operations, the Eguizábals turned to the stock market, launching Paternina as a public company on the Bolsa de Madrid in 1998.

In 1999, Paternina extended its winemaking operations into the Pesquera de Duero region, buying up its first vineyards there and establishing a new wine label, Marquess de Valparaiso. The company then began construction of a ESP 630 million winery complex in Quintana del Pidio, completed in 2001. At the same time, Paternina bought more vineyards in the Duero appellation region.

By 2004, the company had acquired some 40 hectares of vineyards. Yet the company had become determined to achieve self-sufficiency in order to gain tighter control over the quality of its wines, with plans to increase its vineyard holdings to at least 100 hectares in the new century. The year 2004 saw the release of the company's acclaimed 1994 vintage. The wine sported a new label as Federico Paternina turned with fresh confidence into its second century.

Principal Subsidiaries: Conde de los Andes; El Cuadro; Ribero del Duero.

Principal Competitors: Larios Pernod Ricard S.A.; Bacardi Espana S.A.; Osborne Compania S.A.; Freixenet S.A. Grupo; J Garcia Carrion S.A.; Grupo Codorniu; Bodegas y Bebidas S.A.; Gonzalez Byass S.A.; Miguel Torres S.A.

Chronology

• Key Dates:
• 1896: Federico Paternina establishes a winery on a site featuring cellars dug in the 16th century.
• 1920: Paternina acquires the Catholic Farmers' Union Cooperative.
• 1940s:Paternina begins exporting wines to Europe and the Americas.
• 1974: Paternina is acquired by the Spanish conglomerate Rumasa.
• 1984: After Rumasa is taken over by the Spanish government, Paternina is sold to Marcos Eguizábal for one peseta.
• 1990: Paternina launches an investment program, building a new state-of-the-art winery in Haro.
• 1994: Paternina acquires Bodegas Internacionales and diversifies into sherry production.
• 1998: A public offering is launched on the Bolsa de Madrid.
• 1999: Paternina acquires vineyards in Pesquero de Duero.
• 2001: Construction is completed on a new 87,000-square-meter winery in Quintana del Pidio.
• 2004: Paternina releases a well-received 1994 vintage with a new label.