Ann: Appendix 4E and 2024 Annual Report, page-9

Reflections on the Status of Good Drinks Australia

Was a long-term shareholder of Good Drinks Australia - GDA, I have observed significant changes and developments within the company over the years. Since 2007, the company has made substantial progress in increasing its total sales. Originally known as Gage Roads, the company partnered with Woolworths, producing private-label products. During this partnership, Gage Roads experienced sales growth with its own brand, but this period was marked by minimal to no profit due to capacity challenges, high debt, and limited distribution opportunities with other independent retailers, stemming from its partial ownership by Woolworths.

In August/September 2013, the company's share price reached a peak of 23 cents ($2.30 after adjustment) and later 26 cents ($2.60). However, the following years brought significant challenges, including a dispute with a large shareholder, banking issues, and Woolworths divesting its stake, leading to the share price plummeting to as low as 2.3 cents. The company subsequently initiated a massive capital raise to fund the buy-back of shares and reduce debt.

This marked the beginning of the "return to craft" strategy, where the focus shifted to growing its own brands, repurchasing Matso’s, securing a deal with Optus Stadium, and expanding the distribution of Gage Roads' brands. During this period, the share price hovered around the 10-cent mark and saw multiple capital raises. The company then spun off the Atomic beer brand into its own separate entity, opened its own venues funded by debt, rebranded as Good Drinks Australia, and completed a 10-to-1 share consolidation in December 2021.

Since December 2021, the share price has steadily declined from 95 cents to its current level. Despite this, the Gage Roads venue in Fremantle has been a significant success, suggesting that if the company can replicate this success across 5-6 venues nationwide without increasing debt, they could achieve their goals.

However, opening new venues is a capital-intensive activity, with substantial risks of cost overruns in construction. Labour costs are expected to continue rising, and there will be an ongoing need to reinvest in these venues to remain relevant. There is no guarantee of success, as evidenced by the Atomic project, which launched about three years ago but failed to meet company objectives, costing millions and resulting in a significant write-down.

Before the spin-off, Gage Roads' Atomic beer was a successful part of the product lineup and was sold in liquor retail outlets across the country. Now, the shelf space it once occupied is lost, and the marketing dollars spent on building awareness have been wasted.

The failure of the Atomic project has significant implications for Good Drinks Australia, as it failed to establish a brand presence in the Sydney market and build brand awareness on a large scale on the East Coast.

Good Drinks Australia now faces considerable external challenges beyond its control, including:

• Increased taxes on alcohol
• Government pressure
• High interest rates
• High inflation
• Cost of living pressures
• Declining hospitality market size (Australia)
• Changing community views, such as fewer Friday night drinks and more dry workplaces
• Shifting preferences, with younger generations consuming significantly less alcohol
• Changing investor expectations

I would have preferred for Good Drinks Australia to diversify and develop a non-alcoholic product line earlier. The Western Australian market is distinct from the East Coast and differs again from Victoria.

As a previous long-standing shareholder, I feel that time is running out for Good Drinks Australia to achieve its ambitions and deliver a return on investment. In my opinion, the company needs to:

• Bring its cost base under control, or better yet, actively reduce costs.
• Use profits to reduce debt.
• Secure more partnerships.
• Consider a future capital raise to manage debt levels.

At this stage, I am willing to take a risk on an investment if I can see a clear path forward and the company is profitable and growing or a real takeover target. I need more than what is currently offered to get excited about this space.