MGW mcguigan simeon wines limited

Full Steam ahead

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    SHAW Analyst Comments: Simeon and McGuigan get nod of approval
    June 17, 2002

    Simeon Wines (SWS) shareholders have overwhelmingly (by over 99%) voted in favor of merging with McGuigan Wines (MGW). An application to ratify the vote in the courts is scheduled for June 21st. The merged company is expected to trade on the ASX in the week of Monday 24th June.

    Vote as expected

    This vote was as expected, and confirms the advantages expected from the merged enterprise.

    Wine industry

    In the current globalisation environment, we believe the Australian wine industry will largely segregate into the major international companies (FGL, BRL, SRP and others such as MGW), and the smaller regional and boutique wineries mainly supplying the local market. There will be limited space for mid sized wine companies attempting to survive on low volumes to international clients.

    MGW remains cheap

    The comparative table below shows that MGW remains relatively cheap, compared to the other major wine companies. The PE and Yield for MGW assumes the merger is successful, and the issued capital rises to 96.5M shares post merger.

    McGuigan on top after merger
    Emma Alberici

    EMMA ALBERICI: Also on Friday -- an even bigger marriage was consummated in
    the wine industry.

    Shareholders in SA's Simeon Wines voting unanimously to approve a merger
    with Brian McGuigan Wines.

    The new entity, worth around $440 million, will be the fourth largest listed
    wine company.

    Under the deal, Simeon shareholders receive 10 McGuigan shares for each 16
    Simeon shares they hold.

    Brian McGuigan emerges as the largest shareholder, with 10 per cent of the
    new group and the new chief executive.

    He joins me now in the studio.

    Thank you very much for your time and good morning.

    You're number four but still well behind the three big players of BRL,
    Hardy, Southcorp and Fosters, with just 2 per cent of the local market.

    How do you intend to catch up?

    BRIAN McGUIGAN, McGUIGAN WINES: Well, we need to be very dedicated to the
    development of our brands.

    Both companies are fairly young -- Simeon is just eight years of age and
    we're just ten years of age.

    So whilst we've been working in the domestic market for some time now, it is
    only of recent times that we've been able to extend our distribution across

    And it takes time, Emma, to build up wine exposure through the whole market
    and it was only last year that we became national.

    And so we need to expand our operations in Australia and we're going to do
    that fairly aggressively by ensuring that we build the brands that we've

    And also by the introduction of new ones and also new containers -- a bit of
    imagination, a bit more sizzle -- into the way in which we market our
    products in order to make an impact.

    Of course, we're a long way behind the majors and it will be a long time
    before we're significant but we'll be trying very hard to build on the
    bridge head that we have established.

    EMMA ALBERICI: In the meantime, are you vulnerable to the wave of
    consolidation still?

    BRIAN McGUIGAN: I think a lot less now than we were maybe six months ago,
    when we were a much smaller company.

    But of course, people probably are still looking across the fence at
    Australia because Australian wine, as you know, is going gang busters around
    the world.

    It has just been a fantastic success story and I'm very positive about the
    future of Australian wine abroad and also in this country.

    We see exports still increasing at the rate of 20 per cent compound, getting
    up to $2 billion this year.

    EMMA ALBERICI: Since you listed in 1992 as Bryan McGuigan Wines, you have
    achieved a phenomenal growth of 20 per cent return on average every year --
    can you keep that up?

    BRIAN McGUIGAN: I think we can.

    Whilst we're still a small player, as we become larger it is more and more
    difficult, of course.

    But I have got a great deal of confidence of how much wine can be sold to
    the Australian consumer and the international consumer.

    I just saw the figures the other day -- we're seeing an increase in
    Australia still running at around 7 per cent.

    So in that environment and also with the other consolidations that are
    occurring, I think that we can be very impactful.

    EMMA ALBERICI: Before this deal was announced, there was talk of McGuigan
    teaming up with a foreign distributor -- Canada was one area that was
    mentioned -- is that still something you're pursuing?

    BRIAN McGUIGAN: Oh, yes.

    The reason there is to gain more and more distribution in the North American
    market -- a market that is very difficult to get distribution.

    The North American market is very receptive to Australian wine but the
    distribution issues in America are difficult.

    And so we are trying to expand our vistas there, by involving ourselves with larger and larger distributors, in order to be impactful there as well.

    EMMA ALBERICI: Will that involve an acquisition of a local distributor over there?

    BRIAN McGUIGAN: What we try and do in all our international markets, and I think it has been the key to our success Emma, and that is to actually enter into a business arrangement with our distributor.

    So that we're married and so that therefore we are important to him and he's important to us and we can develop our business in harmony.

    We do that in New Zealand, we do that in the UK and in Ireland and to a lesser degree in America, but that is what I hope we can put in place to ensure that we create a bigger impact in the US and the Canadian market.

    EMMA ALBERICI: Simeon sells house brands to supermarkets in the UK.

    Will you continue that strategy and if so, is there a risk that those unbranded products will actually devalue the other brands in your stable?

    BRIAN McGUIGAN: No, because the market in the UK is a unique one.

    There are two streams of business there, one is through the independent retailer, the mum and dad's store, the corner pub and what have you.

    And the other stream of the business is actually through the larger wholesalers and also retailers, supermarkets if you like, and so the Simeon product currently is going to the supermarkets, whilst the McGuigan product is going to the independents.

    It's our plan to leave the branded McGuigan products there because that's quite a lucrative market, whilst the supermarket section of the market is far more competitive and price sensitive.

    And so we'll develop those brands independently.

    EMMA ALBERICI: And just finally, you've had some problems in the past with your hedging policies, is that something you're addressing at the moment.

    BRIAN McGUIGAN: Well, that came about as a result of a period of time when in fact the mechanism to follow the dollar down to such degree, was not in place.

    We rectified that.

    In fact, we've taken on the chin some losses in that area but now we have mechanisms in place to protect us for the future, whether the dollar goes up or down.

    The mechanism there, is to ensure that the shelf price we have in our international markets remains the same and we remain competitive.

    EMMA ALBERICI: Alright, we'll leave it there.

    Thank you very much for joining us this morning.

    Aspect Financial

    Value 2 - Above avg
    Risk 2 - Lower risk
    Growth 2 - Above avg
    Income 3 - Average

    Business Description
    The core activities of Brian McGuigan Wines Limited (MGW) are winemaking, wine marketing, and vineyard management and development. As at 30/06/01, MGW was managing a total of 6,381 acres of vineyards. During 2000/01 year, MGW's total intake from vineyards increased by 30% to 14,072 tonnes.

    Company Strategy and Prospects
    (Last Update: 15 May, 2002)
    MGW entered into a merger deal with Simeon Wines Ltd (SWS) in February 2002. Under the deal SWS shareholders will receive 10 MGW shares for every 16 SWS shares. The merged company intends to change its name to McGuigan Simeon Wines Ltd. Management has advised that net profit in 2002/03 for the merged entity is expected to be about $34 million.

    MGW posted record results for the six months to December 2001. Sales revenue increased by 56%, on the back of an 82% rise in domestic revenue. This improvement was attributable to the move to a national distribution platform and the successful marketing of new premium brands. Export revenue increased by 21% despite competitive conditions.

    MGW continues to focus on organic growth, targeting increases in efficiency and capacity. The company is undertaking a vineyard expansion program to ensure that demand does not outstrip supply of appropriate grapes. In recent years the company has increased its focus on export markets, with the UK and US markets accounting for the majority of these sales. The company has looked to take marketing activities in-house locally and abroad so as to consolidate their sales impact.

    Analysts are projecting the strong earnings growth to continue with forecasts of 23% annual EPS growth in both short and medium term. The valuation is further boosted by a low beta. The market has factored similar growth into the share price, which is trading on a PE multiple of over 19.
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Currently unlisted public company.

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