NWE CONSULTING Consultants: Javier, Colin, Will, Cary, Kene

NWE CONSULTING

RECOMMENDATION

Proceed with the planned acquisition of Goundrey Wines PTY. Ltd.

Expand production of Icewine brand, Inniskillin

RECOMMENDATION

EXTERNAL ANALYSIS

SITUATION

WINE MARKET ANALYSIS

VALUE CHAIN ANALYSIS

FINANCIAL ANALYSIS

INVESTMENT RISKS

RECOMMENDATION

CONTINGENCIES

IMPLEMENTATION

NWE CONSULTING

SITUATIONRECOMMENDATION

EXTERNAL ANALYSIS

SITUATION

WINE MARKET ANALYSIS

VALUE CHAIN ANALYSIS

FINANCIAL ANALYSIS

INVESTMENT RISKS

RECOMMENDATION

CONTINGENCIES

IMPLEMENTATION

• Donald Triggs, CEO of Vincor, believes that in

order to be a major player Vincor must

expand internationally

• Focused on New World Regions

• Possible acquisition of Goundrey Wines in

Australia

• Is it a good idea?

NWE CONSULTING

EXTERNAL ENVIRONMENT

High Rivalry

High Buyer Power

Low Supplier Power

Multiple Substitutes

Medium Threat of

New Entrants

RECOMMENDATION

EXTERNAL ANALYSIS

SITUATION

WINE MARKET ANALYSIS

VALUE CHAIN ANALYSIS

FINANCIAL ANALYSIS

INVESTMENT RISKS

RECOMMENDATION

CONTINGENCIES

IMPLEMENTATION

NWE CONSULTING

EXTERNAL ENVIRONMENT

• High Rivalry

• Fragmented market

• Medium Threat of New Entrants

• High barriers to entry domestically

• Low barriers to entry internationally

• High Threat of Substitutes

• Beer and spirits

RECOMMENDATION

EXTERNAL ANALYSIS

SITUATION

WINE MARKET ANALYSIS

VALUE CHAIN ANALYSIS

FINANCIAL ANALYSIS

INVESTMENT RISKS

RECOMMENDATION

CONTINGENCIES

IMPLEMENTATION

NWE CONSULTING

EXTERNAL ENVIRONMENT

Low Supplier Power

Wholly owned companies

Independent product development

High Buyer Power

Low to no switching costs for customers

U.S Mandatory three-tier distribution

RECOMMENDATION

EXTERNAL ANALYSIS

SITUATION

WINE MARKET ANALYSIS

VALUE CHAIN ANALYSIS

FINANCIAL ANALYSIS

INVESTMENT RISKS

RECOMMENDATION

CONTINGENCIES

IMPLEMENTATION

NWE CONSULTING

SITUATION- GOUNDREY WINES

Acquisition Target: Goundrey Wines• Located in 350km south of Perth

• Reputation for quality• Largest Winery in Western Australia• Region responsible for 25% of Australian super premium

production• Super Premium segment responsible for 85% of Goundrey sales• Domestic consumption of Goundrey brands grew 26% • High bargaining power over distributor• Established sales force

Product• Product differentiation

by grape type and region

• Established Super Premium Brands • Goundrey• Fox River

Price•$15-$30 per bottle

Place•On-Premise (44% of sales)

•Private Retail •Distributor•Premium Restaurants

Promotion•Key Events•Direct marketing

RECOMMENDATION

EXTERNAL ANALYSIS

SITUATION

WINE MARKET ANALYSIS

VALUE CHAIN ANALYSIS

FINANCIAL ANALYSIS

INVESTMENT RISKS

RECOMMENDATION

CONTINGENCIES

IMPLEMENTATION

NWE CONSULTING

WINE MARKET

Jug Premium Super Premium

Ultra Premium

-20%

-10%

0%

10%

20%

30%

40%

-4% -2%

8%3%

36% 36%

18%

10%

Trend Volume

US Wine Industry

US Wine Market - $10 Billion• Imports represent 25% share of

market• Wine imports grew 18% in 2001

UK Wine Market - $3.7 Billion • Little domestic wine production• Responsible for 19% of total global

wine imports• Australia number one wine exporter

to UK

RECOMMENDATION

EXTERNAL ANALYSIS

SITUATION

WINE MARKET ANALYSIS

VALUE CHAIN ANALYSIS

FINANCIAL ANALYSIS

INVESTMENT RISKS

RECOMMENDATION

CONTINGENCIES

IMPLEMENTATION

NWE CONSULTING

VALUE CHAIN ANALYSIS

• Consolidation of major firms

RECOMMENDATION

EXTERNAL ANALYSIS

SITUATION

WINE MARKET ANALYSIS

VALUE CHAIN ANALYSIS

FINANCIAL ANALYSIS

INVESTMENT RISKS

RECOMMENDATION

CONTINGENCIES

IMPLEMENTATION

• Focus on Marketing and distribution

• Emphasis on profitability of premium market

NWE CONSULTING

VALUE CHAIN ANALYSIS - SYNERGIES

• Access to Australian as well as United Kingdom market

• Established Distribution Channels

• Strategically important grape appellation

RECOMMENDATION

EXTERNAL ANALYSIS

SITUATION

WINE MARKET ANALYSIS

VALUE CHAIN ANALYSIS

FINANCIAL ANALYSIS

INVESTMENT RISKS

RECOMMENDATION

CONTINGENCIES

IMPLEMENTATION

NWE CONSULTING

FINANCIAL ANALYSIS

Sales (m) Purchase Price (m) PP/Sales (x)

Berringer 800 2600 3.25

R.H Phillips 25 56.7 2.27

Goundrey 20.9 64.5 3.08

Vincor’s Financial Strengths• Growing EBITDA Margins

(18.7%)• Low D/E Ratio• Strong Revenue Growth• 2002 Equity Issue

Valuation

1998 1999 2000 2001 200212%

14%

16%

0

50

100

150

200

250

300

350

400

450

500

145.5191.6

222.1

310.4

468.2

Avg. Capital Empl'd ROCE (EBIT)

Vincor’s Avg. Capital Employed vs. ROCE

1998 1999 2000 2001 200210%

11%

12%

13%

14%

15%

16%

17%

18%

19%

20%

0

50

100

150

200

250

300

350

400

206.4

253.2 268.2294.9

376.6

Revenue ($m) EBITDA Margin (%)

Vincor’s Revenue and EBITDA Margins

CAGR: 17.7%RECOMMENDATION

EXTERNAL ANALYSIS

SITUATION

WINE MARKET ANALYSIS

VALUE CHAIN ANALYSIS

FINANCIAL ANALYSIS

INVESTMENT RISKS

RECOMMENDATION

CONTINGENCIES

IMPLEMENTATION

Vincor’s Financial Weaknesses• Decreasing ROCE• Working Capital

Management• Decreasing Inventory

Turnover Ratio

NWE CONSULTING

PR

OB

AB

ILIT

Ylo

wm

od

era

tehig

h

insignificant severemoderate

IMPACT

INVESTMENT RISKS

Economic Risk:Foreign exchange rates and changing material

costs

Regulatory Risk: Import/Export Regulations

Operational Risk:Weather

Operational RiskCannibalizing Own

Sales 

RECOMMENDATION

EXTERNAL ANALYSIS

SITUATION

WINE MARKET ANALYSIS

VALUE CHAIN ANALYSIS

FINANCIAL ANALYSIS

INVESTMENT RISKS

RECOMMENDATION

CONTINGENCIES

IMPLEMENTATION

NWE CONSULTING

RECOMMENDATION

• Proceed with the planned acquisition of Goundrey Wines PTY. Ltd.• Expand production for immediate export to

North America• Leverage existing sales forces for cross

selling• Create team to build international sales

• Expand production of Icewine brand, Inniskillin• Focus on international branding

RECOMMENDATION

EXTERNAL ANALYSIS

SITUATION

WINE MARKET ANALYSIS

VALUE CHAIN ANALYSIS

FINANCIAL ANALYSIS

INVESTMENT RISKS

RECOMMENDATION

CONTINGENCIES

IMPLEMENTATION

NWE CONSULTING

CONTINGENCIES

Alternative Strategies

Focus on Expansion Within

North America

Low barriers to entry for foreign competitors

Small margins

In conflict with Vincor’s stated strategy

Enter into a strategic alliance with an Australian

firm

Leaves Vincor with lower margins

Removes possibility of growing sales of

international lines

Acquire Substitute products

Beer is highly concentrated and fiercely

competitive

Vincor’s expertise would not be transferrable

1.

2.

3.

RECOMMENDATION

EXTERNAL ANALYSIS

SITUATION

WINE MARKET ANALYSIS

VALUE CHAIN ANALYSIS

FINANCIAL ANALYSIS

INVESTMENT RISKS

RECOMMENDATION

CONTINGENCIES

IMPLEMENTATION

NWE CONSULTING

IMPLEMENTATION

1. Purchase Goundrey Wines PTY. Ltd.Use funds from 2002 equity issue,

borrow the difference required Implement plan to expand

production capacity

Immediately 6-12 Months 2-3 Years

RECOMMENDATION

EXTERNAL ANALYSIS

SITUATION

WINE MARKET ANALYSIS

VALUE CHAIN ANALYSIS

FINANCIAL ANALYSIS

INVESTMENT RISKS

RECOMMENDATION

CONTINGENCIES

IMPLEMENTATION

NWE CONSULTING

IMPLEMENTATION2. Begin Exporting Goundrey brands to the

North American Market Focus on Synergies between international

operating groups Leverage current sales forces in the US

and Canada to achieve rapid penetration of the Goundrey brands in NA

3. Increase Production and Sales of Inniskillin Increase international marketing budget and

sales force Use Goundrey’s sales team to push Icewine

in Australia

Immediately 6-12 Months 2-3 Years

RECOMMENDATION

EXTERNAL ANALYSIS

SITUATION

WINE MARKET ANALYSIS

VALUE CHAIN ANALYSIS

FINANCIAL ANALYSIS

INVESTMENT RISKS

RECOMMENDATION

CONTINGENCIES

IMPLEMENTATION

NWE CONSULTING

IMPLEMENTATION

4. Build sales force to export Goundrey brands to the UK and Japan Take advantage of Australia’s position as

UK’s number one exporter Leverage current sales forces in the US

and Canada to achieve rapid penetration of the Goundrey brands in NA

5. Merge international sales teams to reduce costs and effectively market all current brands and future acquisitions

Immediately 6-12 Months 2-3 Years

RECOMMENDATION

EXTERNAL ANALYSIS

SITUATION

WINE MARKET ANALYSIS

VALUE CHAIN ANALYSIS

FINANCIAL ANALYSIS

INVESTMENT RISKS

RECOMMENDATION

CONTINGENCIES

IMPLEMENTATION

NWE CONSULTING

QUESTIONS?