AGSM @ UNSW Business School

Australian Industry: Competitive Dynamics Case No: AGSM-16-001

Authors: Johann Peter Murmann & Salih Ozdemir This case has been constructed from public sources solely for educational purposes and aims to promote discussion of issues that surround the formulation strategies rather than to illustrate either effective or ineffective handling of a managerial situation. It is stylized representation of the actual business problems faced by firms in the industry.

Copyright: AGSM prohibits any form of reproduction, storage or transmittal without its written permission. This material is not covered under authorization from AGSM or any reproduction rights organization. To order copies or request permission to reproduce materials contact AGSM MBA Programs, UNSW, Sydney, Australia, 2052, Email: coursematerials@agsm. edu.au.

Part B: Evans & Tate’s Initial Public Offering in 1999 We are presenting you here with an excerpt from the Initial Public Offering Prospectus Evans & Tate filed with the Australia Stock Exchange in 1999. In these IPO documents firms are required to lay out their strategy and articulate the reasons why an investement in the company is likely to yield economic returns for shareholders.

The purpose of the case is to furnish raw material for learning how to identify whether a firm has the required resources and capabilities to operate in an industry successfully and to evaluate whether the value of these resources and capabilities are sustainable over time (Reading 7).

Developing these analytical skills is not only handy for evaluating whether to invest in or buy a company but also helps us to have a deeper understanding whether we should join the company as an employee. Companies with valuable, rare, inimitable resources and capabilities are more likely to sustain their success than companies that do not.

Before the IPO document, we provide a guide for analysing the competitive value of Evans & Tate’s capabilities in 1999.

Australian Wine Industry: Competitive Dynamics 1 AGSM @ UNSW Business School

Guide to Resources & Capabilities Analysis

1

Resources & Capabilities: What are they?

Cash Production capacity TANGIBLE / DIRECT Staff Customers Cost efficiency Staff skills Customer perceived quality Supplier relationships INTANGIBLE / INDIRECT Staff morale Reputation

2

1

2 AGSM @ UNSW Business School Auditing Resources & Capabilities: Start with the Value Chain to identify activities. . .

3

Sustainability implies resources and capabilities that are: VRIO

Valuable Rare Inimitable or difficult to Imitate or Substitute Organization is ready and able to exploit

4

2

Australian Wine Industry: Competitive Dynamics 3 VRIO: Appraising the strategic value of a Resource or Capability.

• Valuable? Does the resource or capability create something that customers want or need? (e.g., does it contribute to differentiation or cost advantage) • Rare? Is the resource or capability scarce to make it ‘best in class’ among the competition? • Imitable? Is the resource or capability at risk of imitation by rivals (can the requisite resource or capability be acquired, imitated or substituted for by others)? • Organization? Is the firm organized, ready, and able to exploit the resource/capability?

Source: J. Barney, 2007 – Reading 7

5

… Then inventory key Resources & Capabilities and look for VRIO opportunities

Valuable? Rare? Imitable? Organization? Resource / Capability (Enhance (Enhance (Enhance (Enhance Creation) Capture) Sustainability) Capture)

Tangible (physical, financial, administrative, legal) 1. 2.

Intangible (IP, reputation, technology, culture) 1. 2. Human (staff, customers, skills, know-how) 1. 2. Firm Capabilities (recruitment, design, marketing, etc.) 1. 2.

6

3

4 AGSM @ UNSW Business School ETWI0, Evans & Tate Limited

ACN 064 820 408

Lodgement Date 8 November 1999

Company Directors Franklin Joel Tate Executive Chairman Ross Chappell Deputy Chairman (non-executive) Michael James Calneggia Operations Director Fiona Elizabeth Harris Director (non-executive) Heather Mary Jephson Tate Alternate Director for Franklin Joel Tate

Founders’ Foreword After more than two decades of commitment, we look back with pleasure at the significant growth of Evans & Tate. Concurrently, the Western Australian wine industry emerged from its infancy to fullbodied maturity, bringing excitement and a good measure of success to those involved.

The 1960’s was a time of relative obscurity for the Western Australian wine industry from which it developed worldwide recognition and fame. Since that time we believe that no Western Australian region has received greater recognition than the Margaret River Region. Evans & Tate’s involvement there since 1974, has been continuous up to its present significance where the best of the from this district are receiving regular international recognition.

We are greatly indebted to Jan and John Evans, our partners during the period from 1968 to 1983, for the considerable assistance and wise counsel they generously contributed.

We believe, due to our love of wine and the great table wines of the world in particular, we were able to approach the production of fine wine with a clear image in mind and a vision which included the eventual production of wine of the highest possible quality.

In the early years insufficient consideration to site selection inhibited some developments. Clonal selection and quality planting material were Simply unavailable. Happily these matters have been addressed in recent years. The industry’s current challenges have included additional capacity and highly trained personnel. Greater reliance on advanced branding and marketing will be among the issues to confront the wine industry of tomorrow.

We have strongly supported the ‘show system’ for wines throughout our time in the industry and continue to do so. Not only has it helped to raise the quality of Australian wines overall, but it is a great comparison against one’s peers.

We must confess that we would never have envisaged a wine business of the magnitude presented in this Prospectus, but this is testimony to the quality of the people that have made such growth possible.

We believe their enthusiasm and drive has continued to expand the activities of Evans & Tate at a dramatic rate.

The decision by our son Franklin and daughter-in-law, Heather to float Evans & Tate and share their success with friends and supporters alike, is to be commended.

We will certainly be there!

JOHN AND TONI TATE

Australian Wine Industry: Competitive Dynamics 5 Letter From Franklin Tate - Executive Chairman Dear Investor

Welcome to Evans & Tate. Heather and I are excited at the opportunity to make this offer to you.

Since my childhood when my parents, John and Toni Tate, planted Evans & Tate’s first vines, I have been privileged to have witnessed enormous change within the Australian wine sector. This is clearly evidenced by the fact that Australia’s wine exports exceeded $1 billion in the year ending 30 June 1999.

Australia occupies an enviable position in major world wine markets. I believe that this has been achieved through persistence, attention to detail, commitment, expertise in both the vineyard and and, most importantly, energy and focus.

Over the course of the past 25 years, Evans & Tate has produced a range of wines that is well regarded both in Australia and overseas.

Evans & Tate’s core business strategy is to become the pre-eminent wine producer and marketer from the world-renowned Margaret River Region.

Over the past five years we have made significant steps towards this goal with the planting of two new and the construction of a new winery in the Margaret River Region. In addition, in 1999 we acquired Selwyn Wines.

The acquisition gives Evans & Tate the financial, technical and marketing power to move towards completion of the next phase in the future growth of Evans & Tate .

It is with pleasure that I offer to you, as potential investors in Evans & Tate, the opportunity to own a stake in that future.

I sincerely believe that the future for Evans & Tate will be an exciting one, and it is with great pleasure that I invite you to take part in this “journey in wine.”

Yours sincerely

FRANKLIN TATE EXECUTIVE CHAIRMAN

6 AGSM @ UNSW Business School Investment Summary OFFER STATISTICS

SECURITY PARCEL DETAILS 400 ORDINARY SHARES AND 200 CONVERTING PREFERENCE SHARES

ORDINARY SHARES OFFERED 17,245,222

CONVERTING PREFERENCE SHARES OFFERED 8,622,611

NUMBER OF SECURITY PARCELS OFFERED 43,113

OFFER PRICE - ORDINARY SHARES $1.00

OFFER PRICE - CONVERTING PREFERENCE SHARES $1.00

TOTAL AMOUNT RAISED $25,867,833

TOTAL ORDINARY SHARES ON ISSUE ON COMPLETION OF OFFER 41,685,333

MARKET CAPITALISATION AT OFFER PRICE (ORDINARY SHARES) $41,685,333

TOTAL ISSUED ORDINARY SHARES AFTER CONVERSION OF 49,370,842 CONVERTING PREFERENCE SHARES

MARKET CAPITALISATION AFTER CONVERSION $49,370,842

CONVERTING PREFERENCE SHARE STATISTICS

CONVERTING PREFERENCE SHARES OFFERED 8,622,611

OFFER PRICE $1.00

TOTAL AMOUNT RAISED $8,622,611

CONVERSION DATE 5 YEARS AFTER ALLOTMENT

ANNUAL FULLY FRANKED DIVIDEND 7%

SEMI ANNUALLY COMMENCING PAYMENT DATES ON 1 AUGUST 2000

CONVERSION DETAILS LOWER OF $2.00 OR A 10% DISCOUNT TO AVERAGE ORDINARY SHARE PRICE, SUBJECT TO A FLOOR PRICE OF $1.20.

1 FOR FURTHER CONVERSION DETAILS REFER TO SECTION 103 OF THIS PROSPECTUS.

2 ASSUMES $1.20 CONVERSION PRICE. INCLUDES 600,000 CONVERTING PREFERENCE SHARES TO BE SUBSCRIBED FOR By EXPECTATIONS.

THE ORDINARY SHARES AND CONVERTING PREFERENCE SHARES ARE BEING OFFERED AS A “SECURITY PARCEL”. EACH SECURITY PARCEL CONTAINS 400 ORDINARY SHARES AND 200 CONVERTING PREFERENCE SHARES. EACH APPLICATION UNDER THIS PROSPECTUS MUST BE FOR AT LEAST 5 SECURITY PARCELS. (IE 2,000 ORDINARY SHARES ($2,000) AND 1,000 CONVERTING PREFERENCE SHARES ($1,000)) AND THEREAFTER IN INDIVIDUAL SECURITY PARCELS AS SET OUT ON THE APPLICATION FORM. THE ORDINARY SHARES AND CONVERTING PREFERENCE SHARES WILL TRADE AS SEPARATE SECURITIES ON ASX.

Australian Wine Industry: Competitive Dynamics 7 FORECAST PRICING - YEAR ENDING 30 JUNE

2000 2001 4

P/E MULTIPLE 15.66 13.64 -BEFORE AMORTISATION OF INTANGIBLES 1

-AFTER AMORTISATION Of INTANGIBLES 1, 2 18.22 15.55

ANNUAL DIVIDEND YIELD (%) ORDINARY SHARES 3 3.2% 3.8%

ANNUAL DIVIDEND YIELD (%) - CONVERTING PREFERENCE SHARES - 7.0%

PRIOR TO THE OFFER ON COMPLETION OF THE OFFER

NO. NO. NO. OF NO. OF CONVERTING NO. OF CONVERTING NO. OF ORDINARY % ORDINARY % PREFERENCE OPTIONS PREFERENCE OPTIONS SHARES SHARES SHARES SHARES

GRAPE EXPECTATIONS 33,175,107 100 NIL NIL 19,592,107 47.0 600,000 300,000

G.S. LEE 5 NIL NIL NIL NIL 4,848,004 11.6 NIL 750,000

NEW INVESTORS NIL NIL NIL NIL 17,245,222 41.4 8,622,611 NIL

NON EXECUTIVE DIRECTORS AND NIL NIL NIL NIL NIL NIL NIL 500,000 SENIOR EMPLOYEES

TOTAL 33,175,107 100 41,685,333 100 9,222,611 1,550,000

1 THE P/E MULTIPLES ARE CALCULATED BY DIVIDING MARKET CAPITALISATION OF THE ORDINARY SHARE CAPITAL AT THE OFFER PRICE BY PROFIT AFTER TAX AND AFTER CONVERTING PREFERENCE SHARES DIVIDEND. NOTE THAT NO CONVERTING PREFERENCE SHARES DIVIDEND IS PAYABLE IN THE YEAR TO 30 JUNE 2000.

2 FOLLOWING SELWYN WINES ACQUISITION, THERE WILL BE A TOTAL AMORTISATION OF INTANGIBLES OF $375,000 PER ANNUM.

3 INTERIM DIVIDEND TO BE PAID IN APRIL 2000.

4 ASSUMES INCOME TAX RATE FOR 2001 IS 34%.

5 THE G. S. LEE ORDINARY SHARES AND OPTIONS, RELATE TO THE SELWYN WINES ACQUISITION AS REFERRED TO IN THE MATERIAL CONTRACTS SUMMARY IN SECTION 11.

8 AGSM @ UNSW Business School Section 1 – Welcome To Evans & Tate - Brief Overview Over the past decade, Evans & Tate has enjoyed a period of strong growth on a number of fronts. Impressive domestic sales and, more recently, a focus on increasing its presence in key international markets have been matched by strong performances in both national and international wine competitions.

INDUSTRY FUNDAMENTALS The fundamentals of the world wine industry are strong. This is evidenced by the following:

• The worldwide demand for quality wines is increasing. • Australia is currently enjoying a growth phase in export markets in both volume and dollar value terms. • Consumption of wine per capita in Australia is increasing.

STRATEGY To achieve its aims, Evans & Tate proposes to:

• Increase its vineyard planting within the Margaret River Region. • Expand its winemaking facilities to cater for the increased supply of quality fruit. • Invest further funds in its sales and marketing programme to ensure its wines are supported and promoted efficiently and effectively. • Pursue internal growth, greenfield developments and, as opportunities arise, strategic acquisitions.

Evans & Tate Group produces both branded and non-branded wine. Branded wines are defined as those wines which are labelled with the “Evans & Tate” logo. The non-branded wine business includes the supply of bulk wine as well as bottled wine made to buyer specifications.

BRANDED WINE BUSINESS STRATEGY The branded wine business strategy is:

• To continue to build sales of existing brands as well as introducing niche brands that capture defined market segments. • To focus on the following key market segments: - Domestic - International - Visitors Centre/Wine Tourism • To increase the margin for branded wine in all markets. • To produce branded wines for 3 separate, defined price point markets which are:

Redbrook Range ($30 - $50)

Evans & Tate Margaret River Range ($15 - $30)

Gnangara Range ($10 - $15)

Each brand is structured around distinct pricing, promotional, packaging and sales strategies.

Australian Wine Industry: Competitive Dynamics 9 NON BRANDED WINE BUSINESS STRATEGY Selwyn Wines, which was established in 1992, has a customer base which includes a number of Australian wine companies such as Southcorp Wines, Orlando Wyndham, Goundrey Wines, and and is estimated to be the largest contract wine making facility in .

Evans & Tate intends to expand its operations in the non branded sector. The acquisition of Selwyn Wines is a major factor of this strategy. Selwyn Wines enables access to premium quality fruit and management expertise which will strengthen the Evans & Tate Group’s competitive position and enable the achievement of further growth through:

• The maintenance of existing critical price points and taking advantage of economies of scale. • Increased volumes of branded wines which allow Evans & Tate to improve existing market penetration and open up new markets. • The ability to produce wines in other price categories. • Providing larger choice of fruit supply for its core range of wines. • Maintaining and developing the existing business of Selwyn Wines.

COMPETITIVE POSITION • Evans & Tate is well placed to take advantage of its strong financial position and established reputation. The Margaret River Region is highly regarded as a significant wine growing region. Evans & Tate Group controls a large percentage of the region’s grape . • Evans & Tate has demonstrated strong sales growth in the Australian market. • Evans & Tate’s strategy is to further expand its penetration into the key wine markets of theworld. • Evans & Tate Group has access to approximately 266 hectares (or approximately 659 acres) of fruit from within the Margaret River Region. • Evans & Tate has a combined crush of over 30% of the total Margaret River Region harvest, with a total processing capacity of 5,000 tonnes (equivalent to over 4 million bottles). • Evans & Tate’s non branded wine business holds sales contracts for over 1 million litres of bulk wine (equivalent to 1.3 million bottles). • Evans & Tate Group has 2 located within a kilometre of each other in the Margaret River Region.

DEMONSTRATED FINANCIAL TRACK RECORD Evans & Tate has a financial track record that indicates a trend of increasing revenue and profit growth:

• Evans & Tate’s sales have grown on an average compound basis by approximately 25% since 1988 - from approximately $900,000 in 1988 to approximately $10,500,000 in 1998. • Evans & Tate Group’s revenue is expected to be approximately $19,600,000 in the financial year ending 30 June 2000 and approximately $23,500,000 in the financial year ending 30 June 2001.

EXPERIENCED MANAGEMENT TEAM Evans & Tate has an experienced and successful management team with a long history of involvement in the wine industry.

A UNIQUE INVESTMENT OPPORTUNITY This capital raising is an opportunity to invest in the first publicly listed Margaret River Region wine producer with an established brand and a track record of profitability.

10 AGSM @ UNSW Business School THE THREE RANGES OF EVANS & TATE WINES MARGARET RIVER REDBROOK GNANGARA

MARGARET RIVER REGION The first Margaret River vineyards were planted in the late 1960’s. Throughout the 1970’s and 1980’s a number of additional plantings were completed in the Margaret River Region. Examples of the praise the Margaret River Region has received from the world’s press include the following:

In his Wine Atlas of Australia and New Zealand, first published in 1991, James Halliday writes:

“When the first Margaret River reds came onto the market in the eastern states in the mid-70’s, they made a huge impression. There was a clarity and a delicacy to their red fruit flavours and an elegance in their structure which immediately set them apart.”

English wine writer Hugh Johnson is also impressed by the wines of the Margaret River Region, noting in his 1997 pocket wine book that Margaret River is a ...“temperate coastal area with superbly elegant wines.”

MARGARET RIVER STATISTICS: TOTAL HECTARES UNDER VINE 1594

TOTAL TONNES HARVESTED 6809

TOTAL NUMBER OF GROWERS 128

TOTAL NUMBER OF WINERIES 34

(Source - Wine Industry Strategic Plan 2025)

Section 4 – Welcome To Evans & Tate - In Detail

HISTORY Like many family tales, that of Evans & Tate does not begin in Australia. Franklin Tate’s grandfather, Lionel, migrated to Australia in the early 1900’s from the Ukraine.

His energy and enthusiasm translated into a successful family and business life which provided a solid foundation for the future Tate generations. Lionel saw that his son John enjoyed the benefits of education before embarking on his own business career.

Franklin Tate has led Evans & Tate since his appointment as Chief Executive in 1992. Since then Evans & Tate has enjoyed a period of annual growth with impressive market penetration through structured investment in its winery and vineyards and, perhaps most importantly, empowering Evans & Tate’s personnel.

Franklin and Heather have overseen the transformation of Evans & Tate into a producer of world renown. Encouraging a commitment to excellence, innovation and quality from all facets of the winery, they have created a company with vision, professionalism, drive and considerable reputation.

THE EVANS & TATE GROUP - OVERVIEW Evans & Tate Group engages in the following:

VINEYARDS The ownership and operation of vineyards in the Margaret River Region.

Australian Wine Industry: Competitive Dynamics 11 WINERIES The operation of 2 wineries in the Margaret River Region -Evans & Tate winery (at Lionel’s Vineyard) where wine is produced and bottled, and the nearby Selwyn Wines winery which produces wines in various stages (either as bulk, part processed or finished wines), in accordance with its clients’ requirements.

BULK WINE AND TRADING The sale of bulk, part processed, finished bulk or finished bottled wine to clients both in Australia and overseas.

BOTTLED WINE SALES The sale of bottled wines to licensed premises, retail and wholesale under three distinct proprietary labels - Evans & Tate Margaret River, Evans & Tate Redbrook and Evans & Tate Gnangara.

WINE TOURISM At the Redbrook Vineyard is a Visitors Centre which offers the retail sale of both bottled wine and selected items of merchandise.

VINEYARD RESOURCES AND GRAPE SUPPLY Evans & Tate has been involved in grape growing and wine production in the Margaret River Region since 1974.

The vineyards listed below are significant in that they are owned, managed or contracted by the Evans & Tate Group.

Each vineyard has unique characteristics which provides the winemakers with a cross section of styles and flavour profiles. This, in turn, ensures that the resultant wines show balance, complexity and elegance and remain relevant to consumer demands.

A summary of the key vineyards, including comments on each by Evans & Tate’s Chief Winemaker, Brian Fletcher, is detailed below:

• REDBROOK VINEYARD “A challenging, traditional low yielding site with stellar potential in the great years.”

Owned by Evans & Tate Vineyards Pty Ltd Size: 26 hectares Area under vine: 19 hectares Region: Margaret River Aspect: North east facing slope perched on top of the Willyabrup Valley Soil: Forest grove soil, gravelly loam over clay Annual rainfall: - 900-1000mm Varieties: , Shiraz, , , Semillon, .

• LIONEL’S VINEYARD “An inland, more continental site with higher sunshine hours enabling consistent production of premium quality fruit.”

Owned by Evans & Tate Limited Size: 107 hectares Area under vine: 43 hectares Region: Margaret River Aspect: In the north-east of the region, gently sloping to the north and well protected from the strong Southern ocean gales

Soil: Sandy loam over ironstone Annual rainfall: - 750-800mm Varieties: Chardonnay, Semillon, Sauvignon Blanc.

12 AGSM @ UNSW Business School • ALEXANDER’S VINEYARD “The diversity of soil types, northerly aspect and good shelter from prevailing winds at Alexander’s will offer us excellent potential to produce some truly powerful red wines.”

Owned by Evans & Tate Holdings Pty Ltd Size: 127 hectares Area available for planting: 55 hectares (3 year development) Region: Margaret River Aspect: South of Jindong, similar latitude to Redbrook Vineyard but further inland. The site slopes gently to the north and is situated at the foot of the Whicher Ranges

Soil: Gravel and sandy loam over ironstone Annual rainfall: -750-800mm Suitable Varieties: Shiraz, Cabernet Sauvignon, Merlot, , Nebbiolo, Zinfandell .

• YUNGARRA “A superb site consistently producing early and even ripening in both red and white with excellent flavour profiles.”

Leased by Selwyn Wines Pty Ltd Size: 20 hectares Area under vine: 8 hectares Region: Margaret River Aspect: North facing slope overlooking Dunsborough. Excellent elevation Soil: Gravelly loam Annual rainfall: - 750mm Varieties: Cabernet Sauvignon, Merlot, Semillon, Sauvignon Blanc, , , .

• OAKFIELD “An inland, more continental site with excellent sunshine and warmth during the growing season enabling even and early ripening of premium red varieties.”

Key Contract Grower Size: 63 hectares Area under vine: 55 hectares Region: Margaret River Aspect: Located in the north-east Jindong area of the Margaret River Region, gently sloping to the north, well protected from the strong Southern and Indian ocean winds.

Soil: Sandy loam over ironstone Annual rainfall: - 750mm - 800mm Varieties: Semillon, Sauvignon Blanc, Shiraz, Merlot, Cabernet Sauvignon.

• JINDONG ESTATES “A large vineyard with diverse areas providing optimum growing conditions for the varieties planted. Ample groundwater supplies and a north eastern locality enables even and early ripening.”

Key Contract Grower Size: 105 hectares Area under vine: 86 hectares Region: Margaret River Aspect: Located in the north east Jindong area of the Margaret River Region, gently sloping to the north, well protected from the strong Southern and Indian ocean winds.

Soil: Sandy loam over ironstone Annual rainfall: - 750mm - 800mm

Australian Wine Industry: Competitive Dynamics 13 Varieties: Semillon, Sauvignon Blanc, Chardonnay, Shiraz, Merlot, Cabernet Sauvignon

Evans & Tate also sources premium quality fruit from a number of other growers in the premium grape growing regions of Western Australia.

Evans & Tate values the relationships with its growers and works hand in hand with them to ensure that only the very best quality grapes are produced.

WINEMAKING & The winemaking philosophy of the Evans & Tate Group is to be market focussed and to provide the Australian and International sectors with wines that exceed customers’ expectations. Critical parameters include value, quality, cellaring potential and regional origin.

The winemaking techniques developed by the Chief Winemaker, Brian Fletcher, are designed to provide the Evans & Tate Group with maximum control over the winemaking process.

Evans & Tate uses the following means to assess product performance:

• Third party endorsement through National, International and Major Regional Wine shows for its bottled products. • Peer group assessment through local tastings. • Market focussed tasting groups with members of the retail and wholesale trade.

EVANS & TATE WINERY Evans & Tate completed construction of a new winery on its Lionel’s Vineyard in the Margaret River Region in February 1999, just prior to the commencement of the 1999 . The site is central to the Evans & Tate Group’s various vineyards and has been constructed in modular units to allow for expansion over time.

The facility was constructed utilising modern building materials and design, and modern winemaking equipment has been installed. Equipment includes both static and rotary red fermenters, high capacity fruit receival and crushing equipment, a Willmes air bag press, rotary drum vacuum filter, high capacity freon chilled brine circulation system and substantial insulated stainless steel storage vessels.

The facilities include a modern laboratory containing up to date equipment to ensure that the analysis and quality assurance programs are amongst the best in Australia. Bottling is undertaken on site utilising a modern high speed line provided by a third party contractor.

The modular design of the winery will enable the efficient and cost effective expansion of storage capacity. Additional crushing capacity has been designed into the site along with future services capacity.

Approximately 1500 barrels are stored in an insulated barrel hall to ensure the wines contained within them are maintained at a stable temperature during the long maturation phase. The oak requirement of Evans & Tate continues to expand significantly each year in order to accommodate the growth of premium wine sales. A mixture of both French and American oak is utilised and each year an exhaustive selection process is undertaken to ensure that optimum oak balance is achieved.

SELWYN WINERY Selwyn Wines operates a purpose built winery within 1 kilometre of the Evans & Tate winery. Available equipment includes rotary and static fermenters, high capacity Bucher air bag press, freon chilled brine refrigeration circulation system, earth filtration and temperature controlled stainless steel storage tanks with capacity for 1.5 million litres of wine. Substantial cool room facilities are also utilised to provide a diverse range of services including whole bunch processing for production.

14 AGSM @ UNSW Business School WAREHOUSING The storage system utilised by Evans & Tate is a critical factor in the safe delivery of wine to the marketplace as well as the efficient repackaging of wine destined for the export markets.

Construction of a 1200 square metre insulated warehouse is due for completion by 31 December 1999. The warehouse is designed to hold 1600 pallets of finished wine.

EVANS & TATE PRODUCT RANGE

MARGARET RIVER - MARGARET RIVER BARRIQUE 61 CABERNET MERLOT “Winemaker Brian Fletcher describes Barrique 61 as “a thoroughly modern, dry red made to drink and be enjoyed immediately”. He’s spot on...... the fruit aromas and flavours are forward and fresh, the palate relatively soft and supple. It’s a delight to drink... “

Paddy Kendler, Herald Sun, 1998.

- MARGARET RIVER CABERNET SAUVIGNON “Evans & Tate’s 1996 Margaret River Cabernet Sauvignon is, in my view, the best to come out under this label At $40 it isn’t cheap, but the quality is there to justify the price. Scented, aromatic, dark cassis and plum aromas and flavours are supported by excellent structure, with well balanced oak and tannins. A gold- plated certainty to cellar well.”

James Halliday, Hallidays Choice, The Weekend Australian, January 1999.

- MARGARET RIVER CLASSIC “...A mouth-watering young wine - clean and fruity. Tropical aromas and flavours meet herbaceous touches...“

Ralph Kyte-Powell, Uncorked, The Age, August 1998.

GNANGARA GNANGARA (PRONOUNCED NANGARA) RANGE OF WINES IS TARGETED AT THE PREMIUM MARKET AND INCLUDES THE FOLLOWING WINES:

- GNANGARA SHIRAZ “Evans & Tate is one of Western Australia’s go-ahead wine producers, but there is a welcoming traditional feel to this red. It has berry jam, earth and plum on the nose. The palate it savoury, earthy and dry, with full berrylike flavours offset by balanced tannins “.

Ralph Kyte-Powell, Uncorked, The Age, May 1998.

- GNANGARA CHARDONNAY “Evans & Tate’s progressive relocation to the Margaret River in recent years has given a boost to wine quality. Gnangara Chardonnay is a competitively priced, succulent, unoaked wine of good characters - it smells of tropical fruit with a grassy edge, and tastes Clean and melony.”

Ralph Kyte-Powell, Uncorked, The Age, November 1998.

Australian Wine Industry: Competitive Dynamics 15 REDBROOK EVANS & TATE REDBROOK WINES HAVE BEEN MADE IN RECOGNITION OF THE VINEYARD THAT HAS BEEN ITS’ MARGARET RIVER REGION BASE FOR OVER 25 YEARS. THE RANGE IS AIMED AT THE ULTRA PREMIUM MARKET AND INCLUDES THE FOLLOWING WINES

- REDBROOK CHARDONNAY Region Margaret River Colour Pale green gold Bouquet Rich and scented crime caramel chardonnay fruit Palate Elegant fruit flavours and complex secondary fermentation characters

- REDBROOK SEMILLON Region Margaret River Colour Green gold Bouquet Rich and scented stone fruits Palate Balanced, full and rich with spice note

- REDBROOK MERLOT, CABERNET SAUVIGNON, SHIRAZ Region Margaret River Colour Deep ruby red Bouquet Plum and raspberry with cigar box traces Palate Rich and ripe plum flavours with structured tannins

MARKETING Evans & Tate aims to be one of the most professional, pro-active, financially successful and innovative producers in the world wine market. Evans & Tate will continue to produce and market high quality wines to distinct, definable market segments both in Australia and overseas.

Evans & Tate will focus on marketing and market forces with speedy responses to challenges. It will be outward thinking, prepared to reassess, react, rejuvenate with energy and focus on quality. It will also emphasise the advantages of the Margaret River Region and keep abreast of its competitors’ movements whilst remaining independent of them.

Other core elements of the marketing strategy include:

BRANDING Evans & Tate focuses on the development of distinct, definable brand strategies for each of the wines it produces. This approach impacts directly on all marketing issues - pricing policy, packaging, promotion and distribution.

ADVERTISING & MEDIA MANAGEMENT Evans & Tate is continually monitoring the needs of its brands and although not having undertaken significant advertising campaigns in the past, the brand is seen in various trade related publications. Evans & Tate continues to assess its advertising needs and it is expected that, in light of increased competition, the need to increase advertising will eventuate.

Evans & Tate has engaged a professional media management company to handle the new vintage sample/ press release process with a targeted group of key journalists. This ensures that its wines are regularly reviewed and assessed by the key opinion drivers in the marketplace.

16 AGSM @ UNSW Business School RESEARCH Core market research in terms of consumer awareness, product positioning and competitive trends is seen as vital in assisting Evans & Tate achieve its targeted sales forecasts. Evans & Tate is currently evaluating an expansion of its market research activities.

TRAINING & MARKET DEVELOPMENT Evans & Tate recognises that all employees benefit from continuous training which in turn ensures that Evans & Tate remains at the forefront of industry developments. Staff training is undertaken regularly throughout the year utilising outside courses as well as in house training by the information technology division.

Evans & Tate actively promotes its wines and personnel in all key markets through a systematic travel schedule. This ensures that it is able to control the sales agenda as well as keeping abreast of consumer trends and industry developments.

PACKAGING Packaging is a critical element of the sales process. It

• Assists the creation of definable, differentiated brands. • Assists the creation and expression of a clear corporate image. • Influences the consumers’ ultimate purchasing decision.

SALES STRATEGY - BRANDED WINE BUSINESS Evans & Tate Group’s sales strategies for its branded wine business are as follows:

• To continue to build sales of existing brands as well as introduce “niche” brands that capture defined market segments. • To focus on the following key market segments: - Domestic - International - Visitors Centre/Wine Tourism • To maintain and improve its average selling prices in all markets.

SALES TEAMS/DISTRIBUTION - INTERNATIONAL Evans & Tate has concentrated over the past 2 years on creating a framework for its export business through the establishment of a number of trading relationships with importers established in the key target markets for Australian wine. Presently Evans & Tate is actively trading in the following markets - the United Kingdom, Europe (Switzerland, Germany, Denmark, Belgium, Poland), Canada, Japan, Hong Kong, Singapore, Malaysia and New Zealand.

Increased production levels will enable Evans & Tate to further penetrate these markets as well as target new regions for development.

United Kingdom The cornerstone of Evans & Tate’s export strategy is the United Kingdom market. Evans & Tate has entered into an exclusive distribution agreement with Geoffrey Roberts Agencies and Matthew Clark plc to sell and distribute its wines in the United Kingdom (except Ireland). This agreement provides Evans & Tate with access to the largest current export market for Australian table wines. The Mathew Clark Group, to which Geoffrey Roberts Agencies belongs, is one of the largest distributors of alcoholic beverages in the United Kingdom.

United States of America

Australian Wine Industry: Competitive Dynamics 17 The United States of America represents the key new market for Evans & Tate. To that end, Evans & Tate has appointed the San Francisco based industry consultants, International Wine Associates, to source, assess and appoint a US importer on its behalf. This process of sourcing and appointing such a US importer is expected to be finalised by March of 2000.

SALES TEAMS/DISTRIBUTION - AUSTRALIA Western Australia Evans & Tate operates its own sales force in Western Australia. Headed by a State Manager, the sales team consists of three area representatives with responsibility for both restaurant and other licensed outlets as well as retail accounts.

Queensland, New South Wales and Victoria Evans & Tate entered into an exclusive distribution and marketing agreement with Skilton Round Pty Ltd trading as Winesource in September 1997, covering the markets of Queensland, New South Wales and Victoria. Those markets have been extended to include ACT and Tasmania. Results since the commencement of that agreement have been extremely encouraging with growth in each of those States.

Northern Territory Evans & Tate has had a long standing association in the Northern Territory with distributors, Tucker Seabrook Seats Pty Ltd.

South Australia Evans & Tate enjoys a long standing association in South Australia with distributors, Options Wine Merchants.

NEWSLETTER / INTERNET Evans & Tate has a mailing list through which it actively communicates by way of quarterly newsletters.

In addition, given the expanding internet activity occurring worldwide, Evans & Tate will actively market its web site and use the site to educate the end consumer about its product range. The new internet site for Evans & Tate (www.evansandtate.com.au) won a Bronze Award at the 1999 Perth Art Directors Club Awards held in July 1999.

VISITORS CENTRE /TOURISM Evans & Tate’s Visitors Centre is located at Redbrook Vineyard, Margaret River.

The Margaret River Region is generally known as a popular tourist destination. The lure of the beaches, national parks, wilderness, cultural events, arts and crafts and vineyards proves strong to intrastate, interstate and overseas visitors. In the year to 30 June 1999, Evans & Tate had approximately 35,000 visitors to the Visitors Centre. The opportunities to maximise the experience of visitors are many - wine and merchandise sales, education and the chance to commence a long term dialogue through the capture of the visitor’s contact details for newsletters, functions and special vintage offers.

The Redbrook Vineyard is well located to capture a significant proportion of travellers along the Caves Road, Margaret River tourist drive. Main Roads Western Australia Statistics estimate that approximately 400,000 vehicles travel the tourist drive each year.

SALES STRATEGY - NON-BRANDED WINE BUSINESS Evans & Tate Group’s sales strategies for its nonbranded business are as follows:

CONTRACT WINE PROCESSING AND STORAGE

Selwyn Wines owns and operates a purpose built contract winery in the premium wine region of Margaret River in Western Australia using the latest production techniques. The winery is able to produce most wine styles and deliver to customer specification, as juice, must, or bottle-ready wine.

18 AGSM @ UNSW Business School Contract in the stainless steel tanks installed at the winery is carried out on a year round basis with a number of clients utilising the facilities to supplement their own resources. The Selwyn Wines winery has capacity of 1.5 million litres of storage. The winery also provides insulated oak barrel storage for up to 500 barrels.

CONTRACT WINE SUPPLY

As a primary phase winemaker, the Selwyn Wines business sells wine at various stages of production to other wineries, which in turn undertake additional blending and maturing before packaging, marketing, selling and distributing to both Australian and international markets.

Customers of Selwyn Wines are increasingly turning their attention to the use of third party suppliers to supplement their own production facilities, which enables those customers to focus capital and resources on other processes, such as vineyard improvements, oak maturation programs or essential marketing activity.

EXPORT

Selwyn Wines intends establishing itself as a consistent and reliable exporter of non-branded wines to a number of markets. The United Kingdom with its large retail groups and penchant for “Private Labels” offers a number of opportunities.

WINE TRADING

The wine trading division handles wine from all over Australia, specialising in the premium end of the market. Clients list wines that are excess to their requirements or request wines to supplement existing stocks or to increase volumes due to additional sales. The wine trading division negotiates between both the supplier and the buyer and arranges for all relevant documentation, independent analysis and sometimes transport to the buyer.

Selwyn Wines produces and distributes (via e-mail and facsimile) a monthly listing of all available wines to over 90% of Australian and New Zealand wineries, wine clubs and international buyers. A general market commentary is provided with each monthly broadcast.

An internet based trading system is currently being developed, which, when completed, will enable clients to search for available wines, view tasting notes and analyses of individual wines, request samples and place orders. It is also intended to provide opportunities for industry suppliers to advertise on the site.

Trading clients include some of Australia’s largest wine producers along with various smaller wineries who use the wine trading services to purchase additional wines or dispose of surplus requirements.

CORPORATE HEAD OFFICE Evans & Tate’s administration (senior executives, sales and marketing, Finance and information technology) departments are located at the corporate head office on the ground floor, 6 Kings Park Road, West Perth, Western Australia. This site also houses Evans & Tate’s boardroom which is used for staff tastings and training as well as catered functions.

Evans & Tate has made a significant investment in Information Technology. Evans & Tate operates on a Microsoft NT network and uses industry specific business software supplied by Total Systems for Management. A program of continual hardware upgrade ensures reliability. Evans & Tate utilises business tools such as MS Exchange for e-mail, Rightfax for electronic faxing and Cognos for sales and marketing analysis.

Australian Wine Industry: Competitive Dynamics 19 Section 5 – Board Of Directors And Senior Management

BOARD OF DIRECTORS FRANKLIN JOEL TATE, B.BUS EXECUTIVE CHAIRMAN AGE 39 Franklin graduated with a Bachelor of Business degree from the Western Australian Institute of Technology (now known as Curtin University) in 1983, and then spent time working in the retail sector as a graduate trainee with Myer Stores Ltd. He then entered the wine industry and joined Evans & Tate as Sales and Marketing Manager in 1987.

In 1992 Franklin was appointed Chief Executive of Evans & Tate. Sales since then have grown some 600%. Since 1996, Evans & Tate has extended its vineyard holdings and completed a new winery in the Margaret River Region, aggressively sought export markets and significantly repackaged its range of wines.

Franklin is the prime motivator behind a team of highly experienced and dedicated employees.

OFFICES HELD Australian Wine Export Council Council Member (since 1997)

Winemakers’ Federation of Australia Executive Councillor (1996-1998)

Australian Regional Winemakers’ Forum Incorporated Management Committee (1996 - 1998) Vice President (1997 - 1998)

Margaret River Wine Industry Association Executive Committee Member (since February 1999)

Wine & Food Society of Western Australia Assistant Wine Master (1991-1993) Wine Master (1993- 1995)

Western Australian Opera Company Inc Member of the Board of Directors (1991 - 1993)

ROSS CHAPPELL, LL.B DEPUTY CHAIRMAN (NON-EXECUTIVE) AGE 62 Ross joined the Board of Evans & Tate in 1995 as a non-executive director and was Chairman of the Board from 1997 to 16 September 1999.

Ross gained his Bachelor of Laws degree in 1959 from the University of Western Australia. He was admitted as a Barrister and Solicitor to the Supreme Court of Western Australia in 1960 and later to the High Court of Australia and the Supreme Court of New South Wales. Ross was a Partner of Perth law firm Parker & Parker from 1962 to 1993 and a Consultant to that law firm from 1993 to 1995.

Ross was a Member of the Law Society of Western Australia from 1961 to 1995, a Member of the Barristers Board from 1984 to 1994, Inaugural Chairman Legal Practice Board from 1993 to 1994, Inaugural Member Business Council of the Board of the Confederation of WA Industry 1984 to 1991 and an Associate Member Institute of Arbitrators Australia from 1983 to 1993.

20 AGSM @ UNSW Business School MICHAEL JAMES CALNEGGIA OPERATIONS DIRECTOR AGE 39 Mike entered the wine industry in 1986 after a brief career in a family contracting business. His initial wine industry experience was in the area of distribution and marketing. However, experience working in wine production companies soon demonstrated to Mike where his future lay. After holding senior management positions in the wine production and soft drink industries, Mike, along with his wife Sally, established Selwyn Wines in 1992.

Mike also has interests in grape growing enterprises in the Margaret River Region. He has served on the executive of’ the Australian Regional Winemakers’ Forum and has been a director of Evans & Tate since 1997.

With a strong personal interest in rural issues, Mike brings to Evans & Tate strategic planning and management expertise focussing on viticulture and wine production.

FIONA ELIZABETH HARRIS B.COM., FOA, MAICD, MAIST DIRECTOR (NON-EXECUTIVE) AGE 39 Fiona joined the Board of Evans & Tate in September 1999 as a non-executive director. She is an Executive Director of Barrington Consulting Group Pty Ltd, a company set up 5 years ago to specialise in strategic organisational planning. Prior to this she spent 14 years with chartered accountants KPMG in Perth, San Francisco and Sydney focussing on financial services and superannuation. At KPMG she was audit partner for a number of listed companies involved in a range of industries including financial services, resources and entertainment. She was also involved in capital raisings, due diligence, flotations, capital structuring of transactions and litigation support.

Fiona is a Board Member of each of the Government Employees Superannuation Board, HBF of WA (Inc), Alinta Gas, Precedent Financial Services (WA) Ltd and is a State Councillor of the Australian Institute of Company Directors.

HEATHER MARY JEPHSON TATE B.APP.SC. GRAD.DIP.ED. ASSOCIATE DIRECTOR PUBLIC AFFAIRS AGE 38 Heather joined the Board of Evans & Tate as an Executive Director in 1997 and resigned in September 1999. Her background and formal qualifications are in the field of Home Economics and prior to her joining Evans & Tate she taught Home Economics for a period of 12 years, the last 4 of which were as Head of Department for a public school.

Heather’s role within Evans & Tate includes chairing the Aesthetics Committee, with responsibility for the aesthetics and the environmental image of Evans & Tate. She has been Evans & Tate’s representative on various industry association committees including The West Australian Wine Industry Association Marketing Committee. She has also been a representative of and associated with a number of regional, festival and tourism bodies. Heather has also played a significant supportive role alongside Franklin Tate since he took over as Chief Executive in 1992.

Heather is appointed as an Alternate Director for Franklin Tate.

Australian Wine Industry: Competitive Dynamics 21 PETER JAMES KONZEWITSCH, B.EC, CPA CHIEF FINANCIAL OFFICER & COMPANY SECRETARY AGE 43 Peter graduated from the University of Adelaide with a Bachelor of Economics in 1977 and is a member of the Australian Society of Certified Practicing Accountants.

He joined Evans & Tate in July 1996 with 17 years previous experience in the wine industry. He was formerly employed in financial roles with Australian Bottling Company Pry Limited, Samuel Smith & Son Pty Limited, Walter Reynell & Sons Wines Pty Limited and the Australian Taxation Office.

Peter has played a significant role in the development and implementation of strong financial systems within Evans & Tate along with management in the areas of strategic planning, asset control, information technology, staff management and shareholder interests/profit sharing program. His expertise in the financial arena has been a key contributor to the continuing financial success of Evans & Tate .

SENIOR MANAGEMENT TEAM BRIAN FLETCHER B.APP.SC. (WINE SCIENCE) CHIEF WINEMAKER AGE 47 When Brian Fletcher joined Evans & Tate, just in time to oversee the 1993 vintage, he was already one of Australia’s most highly regarded winemakers, with 25 trophies and numerous gold medals to his credit. Since making the move, Brian has enhanced the reputation he brought with him and has certainly achieved his goal of making a mark in the Western Australia wine industry.

In 1981, after a year in the United States, Brian took up a position as an assistant winemaker at Seppelt’s Great Western winery in Victoria. By the time he left Great Western in 1987 to join St Hubert’s in Victoria’s Yarra Valley, Brian had been promoted to group senior white winemaker.

As well as being a talented winemaker, Brian also has a fine palate and he has judged at the National Wine Show, the Victorian Wine Show and the Perth Royal Wine Show.

VIRGINIA WILLCOCK SENIOR WINEMAKER - SELWYN WINERY AGE 31 Virginia Willcock is the Selwyn Wines senior winemaker and is responsible for the total winemaking requirements of Selwyn Wines. This includes responsibility for contract wine supply, contract processing and the production of bottled wines.

Virginia was one of the early Australian ‘flying winemakers’ prior to joining Selwyn Wines, having made wine in Albania, Italy and New Zealand after earlier positions at Redgate and Cape Mentelle in Margaret River.

MURRAY EDMONDS ASS.DIP.APP.SC. (VITICULTURE) CHIEF VITICULTURIST AGE 39 Murray Edmonds completed a viticulture course at Charles Sturt University in New South Wales in 1992 and then headed to Oregon, in the United States of America to gain experience.

Upon his return to Australia Murray looked for a wine company that would match his enthusiasm and standards. Evans & Tate matched both and he started work in 1993.

Murray has been pivitol in the development of the Evans & Tate vineyards in the new Jindong area of the Margaret River Region. He is responsible for the overall viticultural management of all owned vineyards and constantly interacts with independent grape growers.

22 AGSM @ UNSW Business School MARION MCKENZIE GENERAL MANAGER SALES & MARKETING AGE 47 Marion joined Evans & Tate in 1993 and became Group Sales and Marketing Manager in 1994 with over 20 years experience in the wine industry (including 6 years with Mildara Blass). During her time with Evans & Tate she has been responsible for, and has successfully achieved, national sales targets in each financial year.

Marion’s extensive knowledge and experience in the Australian market has proven essential to Evans & Tate’s introduction of a number of new wine styles. She has also directed the revision of Evans & Tate’s marketing strategies, to focus on brand development and niche marketing.

HANS RUSHWORTH NATIONAL KEY ACCOUNT MANAGER AGE 57 Hans joined Evans & Tate in the role of State Manager heading the Sales Division in 1995. Prior to this he had held a number of senior management positions within the retail sector including a leading United Kingdom supermarket chain and the food division of Myer in Perth, Western Australia. He has been responsible for the management of key sales accounts and the direction Of Operational sales teams. His expertise in wine brand development and marketing is extensive and he has initiated the establishment of a number of key brands within Western Australia.

He is currently Vice President of the Wine Press Club of Western Australia.

JAMES CLARKE B.COMM ASSISTANT GENERAL MANAGER SALES AND MARKETING AGE 34 James joined Evans & Tate in January 1997 as Manager of International Business. A Commerce graduate from the University of Western Australia, James began his career in the wine industry in 1990 when he joined a London based importer. During his time in London he completed both the Certificate and Higher Certificate courses of the Wine and Spirit Education Trust of the United Kingdom.

Whilst at Evans & Tate, James has overseen the expansion of Evans & Tate’s international business. Sales have increased twofold since 1997 and the 1998 signing of a comprehensive distribution agreement with Mathew Clark plc in the United Kingdom underpins the aggressive export sales plans Evans & Tate has for the next five years. Together with the General Manager Sales and Marketing, Marion McKenzie, James has also managed the marketing of Evans & Tate since July 1998.

CHRISTOPHER KUEK ACA MANAGEMENT ACCOUNTANT AGE 34 Chris joined the team at Evans & Tate in February 1998 as Company Accountant reporting directly to the Chief Financial Officer, Peter Konzewitsch, He qualified as a Chartered Accountant in the United Kingdom and has six years experience in public practice in London. He was formerly Management Accountant/ Company Secretary with a property Management company in Melbourne. He is directly responsible for financial management reporting and oversees the financial operations of Evans & Tate.

He is a member of the Institute of Chartered Accountants in England and Wales.

Australian Wine Industry: Competitive Dynamics 23 ANDREW NORRIS MCP INFORMATION TECHNOLOGY MANAGER AGE 29 Andrew joined Evans & Tate in January 1999 having previously worked as Systems Administrator with the Western Australian Treasury Corporation. He is a Microsoft Certified Professional and is currently studying a BSc Computer Science at Edith Cowan University, Western Australia.

During his time at Evans & Tate, Andrew has been responsible for the development and implementation of the Corporate Information Technology Plan encompassing messaging strategy, secure internet integration, web site, Year 2000 strategy and data communications between the West Perth office of Evans & Tate, Lionel’s Vineyard and the Redbrook Vineyard.

Section 6 – Risk Factors

1. GENERAL COMMENT There are a number of risk factors which may impact on the operating and financial performance of Evans & Tate and the achievement of the Directors’ Financial Forecasts set out in Section 7.

Some of these risks can be mitigated by the use of safeguards and appropriate systems and actions but many are outside the control of Evans & Tate and cannot be mitigated.

There are also general risks associated with any investment in shares. Investors should therefore carefully consider all associated risks before deciding to invest in Evans & Tate and should consider their personal circumstances (including financial and taxation issues) and seek professional advice from their accountant, stockbroker, lawyer or other professional adviser before deciding whether to invest.

A number of material risk factors are set out in this Section. They are not exhaustive and potential investors should read the contents of this Prospectus in full before deciding whether to make an Application.

2. AGRICULTURAL RISKS Investors should be aware that the production of wine by the Evans & Tate Group is contingent on the level of availability of fruit both grown by the Evans & Tate Group at its own vineyards, or sourced from third parties.

As in any rural enterprise, agricultural risks such as hail, storm, fire, frost, flood, drought, water availability, water salinity, pests, bird damage and diseases in vineyards, may have a material and significant impact on the availability of fruit and grape juice.

3. MARKET Some of the critical business risks which may affect the operations and financial performance of Evans & Tate are:

• International competition • The value of the Australian dollar against overseas currencies • Competitive pressures forcing market prices lower • Fluctuations in grape prices • Changes in fashion, tastes and habits towards the consumption of alcohol (including wine) • Variation in quality of any individual vintage

4. MATERIAL CONTRACT RELIANCE Evans & Tate has a material reliance on a number of contracts relating to the supply of fruit, juice and wine. In the event that the supplier under that contract does not comply with its obligations, Evans & Tate’s supply of that fruit, juice or wine could be affected.

24 AGSM @ UNSW Business School 5. FINANCIAL The financial prospects for Evans & Tate will be affected by general economic factors, economic and fiscal policies, business confidence, interest rates, share and capital market factors and industrial disputes, particularly as they affect the wine industry.

Other risks which may have a financial impact on Evans & Tate are the following:

• Failure to obtain third party grape produce at assumed prices. • Failure to achieve anticipated bottled wine prices because of adverse movements in the price for wine. • Changes in Government policy relating to taxes and charges which are imposed on the wine industry and on the sale of wine • Trade protection policies of foreign governments resulting in trade barriers to foreign import of Australian wines.

6. QUALITY CONTROL Evans & Tate maintains stringent product quality and testing procedures in accordance with HACCP. To date Evans & Tate has not had to recall any of its products.

7. LABOUR DISPUTES Evans & Tate’s products bound for the overseas market are generally transported by sea freight. Any waterfront dispute may adversely affect the ability of Evans & Tate to export its products on favourable or cost effective terms.

8. RELIANCE ON KEY MANAGEMENT The responsibility of overseeing day to day operations and the strategic management of Evans & Tate is concentrated amongst a small number of key employees. There can be no assurance that there will be no detrimental impact on Evans & Tate if one or a number of those key employees were to cease employment with Evans & Tate.

The risks associated with reliance on key employees have been mitigated to a certain extent, through entering into service agreements and by Evans & Tate taking out key-man insurance cover in respect to its senior management.

9. REGULATORY ENVIRONMENT New legislation or changes to existing legislation in a range of general areas, for example superannuation guarantee levy and taxation rates, could impact on the future earnings of Evans & Tate.

10. TAX REFORM - CORPORATE TAX The Federal Government is currently considering significant changes to the Australian Income Tax System. Any changes to the Income Tax legislation arising from that review or otherwise, may impact on the income tax liability of the Evans & Tate Group.

11. WINE EQUALISATION TAX (WET) AND GOODS AND SERVICES TAX (EST) It is difficult to predict the implications that the combined introduction of a WET and GST will have on the wine industry.

GST is levied on most business inputs at a value of 10% which will be creditable against GST collected from wine sales. The WET will be levied on domestic sales at 29%, based generally upon the last wholesale price. The current wholesale sales tax is 41%.

The overall impact on the wine market and various pricing points within the market is uncertain.

Australian Wine Industry: Competitive Dynamics 25 12. YEAR 2000 COMPUTER ISSUES Evans & Tate has reviewed its operations and implemented risk and management strategies to minimise the risk of any adverse consequences from computer and information technology problems arising from the Year 2000 date change.

Despite undertaking such checks and ensuring compliance of Evans & Tate’s own equipment and software and a policy of planning for potential Year 2000 computer programming problems, Evans & Tate cannot guarantee that the planning it has undertaken will be adequate or that the transition to the Year 2000 will be without some business interruptions. However, due to the nature of the business of Evans & Tate, the Directors are satisfied that the impact of any such consequences is unlikely to be material.

Evans & Tate’s operations are also dependent to a significant extent on third party supply of goods and services. It is not possible to determine the impact of Year 2000 non-compliance by third party suppliers of goods and services to the Evans & Tate Group.

13. NATIVE TITLE The law of Australia recognises and will protect the native title rights of aboriginal Australians in cases where those rights have not been lawfully extinguished. The issue of native title is complex.

Evans & Tate is aware of three Native Title claims which have been lodged with the National Native Title Tribunal in respect to the land in the Margaret River Region.

It is unclear what impact a successful claim would have on the business operations of Evans & Tate.

Generally, Native Title rights are extinguished if the land the subject of the claim, is freehold land. The land registered in, or leased to, the Evans & Tate Group is freehold land.

14. NO PRIOR MARKET FOR SHARES Prior to the Offer there has been no public market for the Shares in Evans & Tate. There can be no assurance that an active trading market would develop in the Shares or that the Shares will trade subsequent to the Offer at or above the price at which those Shares were issued or transferred.

15. SHARE INVESTMENT RISKS The quoted price of a listed company’s shares and dividends paid by a listed company may rise or fall according to a number of factors. These include Australian and world wide political stability and the performance of the Australian Stockmarket as a whole. In this regard, an investment in Evans & Tate carries the same risk as an investment in other listed shares. The price of shares can go down as well as up.

26 AGSM @ UNSW Business School Section 7 – Financial Information

RESULTS The table below summarises the audited profit and loss statements of Evans & Tate for the three years ended 30 June 1999 together with the Directors’ forecast for the consolidated Evans & Tate (including Selwyn Wines) for the period 1 July 1999 to 30 June 2001.

1997 1998 1999 2000 2001 ($’000’S) ACTUAL ACTUAL ACTUAL FORECAST FORECAST

OPERATING REVENUE EVAN’S & TATE 9,921 10,510 12,226 13,697 16,177 SELWYN 5,871 7,279

TOTAL 9,921 10,510 12,226 19,568 23,456

EARNINGS BEFORE INTEREST, TAX, 2,307 3,237 3,611 5,900 7,440 DEPRECIATION, AND AMORTISATION

DEPRECIATION 420 556 850 993 1036

EARNINGS BEFORE INTEREST, TAX, 1,887 2,681 2,761 4,907 6,404 DEPRECIATION, AND AMORTISATION OF INTANGIBLES

AMORTISATION OF INTANGIBLES - - 182 375 375

ABNORMALS 1 - - 699 - -

EARNINGS BEFORE 4,532 6,029 INTEREST AND TAX

INTEREST–BANK AND LEASED ASSETS 747 796

OPERATING PROFIT BEFORE TAX 3,785 5,233

TAXATION 2 1,498 1,907

OPERATING PROFIT AFTER TAX 2,289 3,326

1 THE ABNORMAL CHARGE REPRESENTS A SIGNIFICANT WINE PURCHASE IN PRIOR YEARS WHICH HAS BEEN WRITTEN DOWN TO THE LOWER OF COST AND NET REALISABLE VALUE.

2 INCOME TAX CALCULATION ALLOWS FOR NON DEDUCTIBLE AMORTISATION OF INTANGIBLES IN 2000 AND 2001. INCOME TAX RATE FOR 2001 IS 34%.

Australian Wine Industry: Competitive Dynamics 27 OPERATING REVENUE Over the two years to 30 June 2001, the Directors have assumed expansion of existing operations. Only those projects currently committed to and which will be operational over the forecast period, have been included in the Directors’ forecasts.

Growth in revenue from Evans & Tate will increase with the acquisition of Selwyn Wines by approximately 60% in 2000 and approximately 20% for 2001 due to the potential to:

• expand sales to other wine markets. • expand the range of products. • develop private label business.

EXPENSES Upon consolidation of Selwyn Wines certain synergistic savings will be made. These savings have been factored into the forecast results.

The acquisition of Selwyn Wines is expected to lead to an improvement in the costs of production.

Section 11 – Additional Information

1. INCORPORATION Evans & Tate was incorporated in Australian Capital Territory on 30 April 1994. Selwyn Wines Pty Ltd was incorporated in Western Australia on 13 February 1992.

6. INTELLECTUAL PROPERTY Evans & Tate is the registered holder of the following Trademarks:

(a) “GNANGARA Shiraz” - Trademark Number 533356 (b) “Evans & Tate” - Trademark Number 579828 (c) “Lionel’s Vineyard” - Trademark Number 702909

Selwyn Wines is the registered holder of the following Trademarks:

(a) “Selwyn” - Trademark Number 580654 (b) “Yungarra” - Trademark Number 755101

28 AGSM @ UNSW Business School