Mortels Sheepskin Factory Pty Ltd ABN 61 100 619 832 3/1 Hartley Drive, (PO BOX 3277), Thornton NSW 2322

Ph. 61 2 4966 0990 Fax. 61 2 4966 0970 Email. stephanie@mortels.com.au

11-09-2014

2013 Hunter Manufacturing Awards, Board Award, Report Mortels Sheepskin Factory was honoured to be awarded with the 2013 Hunter Manufacturing Awards, Board Award in which Helloworld Newcastle (formerly Travelworld Newcastle) and HMA generously contributed to airfares and accommodation to attend the Shanghai Leather Exhibition (Raw Materials), The China International Footwear Fair (Components and Machinery) and Moda Shanghai Fair (Finished Leather Products) being 3 trade fairs over 3 days and it is renowned to be one of the largest trade exhibitions, in the world, in our industry. We, Tony and Stephanie Mortel, as well as our employee Hanson Hu, affectionately referred to as our China Affairs Minister, attended this three day event. Throughout the three days of the fair, we found a number of new contacts to further our growth within a few areas of our business heading into the future. We were looking for ideas in three main areas;

1. Machinery to increase and improve productivity, 2. Tanneries or suppliers that are leading the field in quality, standards and safety to

ultimately funnel through to our processes, productivity and profitability, 3. Ideas for innovative new products or technologies to raise our competitiveness and

market share. We found a few new sewing machines that will allow streamlining our current productivity in our ugg boot range. We are pursuing this course of action currently. The sewing machines are not specific to our industry, so will need some modifications. The machine manufacturers are in the process of having these modifications done and we will be providing product samples from our patterns and requirements by October 2014 and in which time the machine manufacturers will show the machines capabilities and suitability for our industry. We have found a few machinery suppliers that we can buy directly from, that will allow Mortels to turn over older machinery (keeping maintenance and sewing costs lower) so that a regular fresh overhaul can be actioned at a greatly lower capital cost. We were invited to inspect the Golden Wheel sewing machine factory not thirty minutes from the fair. There we saw all manner of machines and were given quotes for a few machines that we were considering upgrading to. It wasn’t a big detour from the fair to gain knowledge of the

Mortels Sheepskin Factory Pty Ltd ABN 61 100 619 832 3/1 Hartley Drive, (PO BOX 3277), Thornton NSW 2322

Ph. 61 2 4966 0990 Fax. 61 2 4966 0970 Email. allaboutsheepskins@mortels.com.au

quality of machinery we could expect from this Chinese machine manufacturer. We historically have bought Japanese or German made sewing machines but many of the brands from the past no longer exist. On the leather and tannery side of the show, we found six potential new raw skin suppliers from Australian exhibitors. Although we already have two current suppliers for raw skins, the raw skin market is so competitive therefore it never hurts to have additional suppliers. We found two suppliers for leather and suede for which we have had continuity of supply problems in recent years. Their quality is excellent and the price is reasonable too, so we trust this is a positive step towards overcoming supply inconsistencies. Still on the manufacturing side of our business, we found a few suppliers of the small components that we consume a lot of. And by going direct now, we estimate a cost saving of 40% on approximately $150,000 worth of small components expenditure. Small components include binding, innersole boards, clips (plastic), zippers and velcro. We were “pleased” to calculate that even a modest percentage saving on a large amount of essential raw materials will add up to a significant increase in tax we’ll have to pay come years end as our profits increase! Moving on, as a part of our quality control policy, we continually test new products and batch test sheepskins from each run. We found a new testing lab from Europe with laboratories in China that will enable us to test our tanned and dyed skins before they leave China. As no commercial sheepskin tannery exists in Australia, we purchase salted raw skins from Australian abattoirs and ship to tanneries in China for tanning and dyeing. Both our tanneries adhere to European health standards with regards to chemicals and dyes but for our quality assurance and consumer safety we always select skins from each shipment to be tested for heavy metals, dyes and formaldehyde. Currently though, the testing takes place often when the skins have already arrived in Australia so this new contact will fast track our quality assurance. This new contact also holds a position with the International Standards Board for textiles, leather and fur and as such has their finger on the pulse. Through this trade event we are even more satisfied and confident in our tanneries in China as being of the best in the world for quality and finish of sheepskins, but also environmentally, socially and health standards conscionable. Whilst at the trade event, footwear, ugg boots and slippers were exhibited, from predominately Chinese manufacturers, in the finished products halls. This gave us an excellent opportunity to check out colours and styles which turned the cogs for ways to improve on old products and to develop new products .. so keep an eye out in our stores next winter for the results. Overall we would class this trip as a resounding success as we have found some very promising new contacts in a range of areas. We have been able to source raw materials and machinery direct from the factories, rather than through the middle man, giving us a significant cost savings. These cost savings will enable Mortels to sustain a competitive advantage whilst remaining a profitable and viable medium enterprise.

Mortels Sheepskin Factory Pty Ltd ABN 61 100 619 832 3/1 Hartley Drive, (PO BOX 3277), Thornton NSW 2322

Ph. 61 2 4966 0990 Fax. 61 2 4966 0970 Email. allaboutsheepskins@mortels.com.au

With our new factory being built as at the time of writing, it is assuring to know that our foundations are deeply imbedded within our supply chain. And with a few new strings to our bow, our growth will be onward and upward. Watch this space for more exciting developments within the Mortels brand in the coming years. We would like to thank Hunter Manufacturing Awards and Helloworld for the opportunity that been a winner of this Board Award has opened up for us. Tony and Stephanie Mortel

Mortels Sheepskin Factory

Director and General Manager

And Hanson Hu

Mortels Sheepskin Factory

China Affairs Minister

Entrance to the Trade Exhibition, 7 massive halls 80,500 sqm, 1500 exhibitors … 3 days only

Mortels Sheepskin Factory Pty Ltd ABN 61 100 619 832 3/1 Hartley Drive, (PO BOX 3277), Thornton NSW 2322

Ph. 61 2 4966 0990 Fax. 61 2 4966 0970 Email. allaboutsheepskins@mortels.com.au

Mortels Sheepskin Factory Pty Ltd ABN 61 100 619 832 3/1 Hartley Drive, (PO BOX 3277), Thornton NSW 2322

Ph. 61 2 4966 0990 Fax. 61 2 4966 0970 Email. allaboutsheepskins@mortels.com.au

Mortels Sheepskin Factory Pty Ltd ABN 61 100 619 832 3/1 Hartley Drive, (PO BOX 3277), Thornton NSW 2322

Ph. 61 2 4966 0990 Fax. 61 2 4966 0970 Email. allaboutsheepskins@mortels.com.au

Machine shown on the left currently being modified to suit sheepskin, its function will allow us to produce up to 4 times as many pairs of moccasins in a season. Machine shown on right will relieve a task currently performed by hand and relieve physical impact and stress on hands.

Lobby of the Jumeirah Himalayas Hotel Shanghai, this luxurious hotel was our home

for 5 nights located just across the road from the Trade Exhibition site.

Pic.2 Day of return flight, casual day spent at the extraordinary Yu Gardens Shanghai, numerous streets of historic architecture, stores, markets and restaurants.