Wools of New Zealand
Wools of New Zealand 2nd Annual General Meeting
Masterton 24 November 2014
Wools of New Zealand
The Agenda 1. Welcome and Introduction of Directors
2. Apologies
3. Minutes
4. Presentation of annual report and accounts – Chairman’s report – Mark Shadbolt
– Chief Executive’s report – Ross Townshend
– Questions and answers
5. Appointment of Auditors
6. Election of directors
7. General business
8. Close of meeting
9. Lunch
Wools of New Zealand
Chairman’s Report
Mark Shadbolt
Wools of New Zealand
Wools of New Zealand
My pleasure to present second annual report Year one – focus on Capital raising and gaining farmer support Year two - focus on building the company as per mission and vision statements and meeting the objectives Start up company – second year always going to be hardest year
Recognise Grower, industry, customer and supply chain support Board and Management commitment and energy
Wools of New Zealand
Wools of New Zealand - Drivers
Vision To be the leading innovative sales and marketing company for New Zealand Strong Wool
Mission To progressively improve the profitability of our grower shareholders
Commitment to Prospectus
Wools of New Zealand
2013-14 Financial Result 2014 2013
$M $M
Revenue 11.780 3.114
Cost of Sales (8.7420) (0.782)
WNZ Trust Distribution 0 0.522
Gross Profit 3.038 2.854
Total Expenses 3.480 3.139
Loss from Operations (0.443) (0.284)
Finance income and expense 0.158 (0.067)
Foreign exchange impact (0.005) (0.011)
Profit (Loss) before tax (0.288) (0.363)
Tax benefit 0.020 0.012
Nett Profit (Loss) After Tax (0.268) (0.351)
Wools of New Zealand
How Did We Do vs Prospectus
Pro Forma Information in the Prospectus was 2 years to 30th June 2014 Recapitalisation was four months later and small than anticipated – raising $6 million, our goal $10 million, but we got started
Prospectus forecast loss for first two years ($671,706) Actual forecast loss for the two years ($619,686)
Nett Book Value cents per share 30th June 2013 71.6 Nett Book Value cents per share 30th June 2014 68.0 Volume related shares versus bonus shares
Wools of New Zealand
Highlights Governance
Appointment of Chief Executive - Ross Townshend appointed on 1 August 2013
- Quickly up to speed with business and strategy - The board appreciates his efforts and results to date
Board review Engagement of Sir Henry van der Hayden to review the board
Key Conclusions – The board is committed to the future of the company A broader mix of skill sets would be an advantage A succession plan would be desirable Greater focus on the Vision Strong two way relationship with CEO
Wools of New Zealand
Highlights Camira Lamb’s Wool Contract
Now in its fourth year Volumes continue to grow annually Rewards growers for providing fit for purpose wool – Provides a return on investment Market investment – branded strategy – Dolphin programme More of these contracts required
Wools of New Zealand
Highlights Direct-to-Scour
A success story though not without some teething issues Encouraged by repeated support of growers Costs savings compared to conventional sales methods Endorses our objective of an efficient route to market and providing options to growers Appreciate Lempriere and WSI cooperation
Give it a go
Wools of New Zealand
Coarse Crossbred Wool Indicator 2013-14
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650
01/2013 07/2013 01/2014 07/2014
Cen
ts p
er c
lean
kg
Xbred Wool Indicator
Wools of New Zealand
Highlights Stable Price Mechanism(SPM)
Volatility is the bogey for growers and the supply chain
Two year pilot scheme, now promoting the SPM to in market customers
We encourage partners and growers to test the system
Only works if growers are committed.
Wools of New Zealand
CCWI v “SPM” 2013-14
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01/2013 07/2013 01/2014 07/2014
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Xbred Wool Indicator SPM Contract Price
Wools of New Zealand
Highlights Shareholder Communications
Grower Advisory Panel established Regionally appointed grower shareholders have been a great sounding board for the board and management “Road testing” of tactics and initiatives such as STAPLE
Direct communications Email and electronic communications only partially effective Appointment of four part time Supplier Liaison Officers (SLOs) Working relationship with Hazlett Rural field force (Canterbury)
Wools of New Zealand
Collaboration Considerable Progress: Wool Services International partnership “Media Release” – Conditional – CWS
Ongoing discussions with: Primary Wools Cooperative Elders Primary Wools New Zealand Merino
Our objective – Increase collaboration for mutual commercial benefit
Wools of New Zealand
Trading in WNZ Shares
Some of you have expressed interest in buying WNZ shares
WNZ have set up a share trading process with CooperAitken, where growers can list shares for sale, or buy shares
A modest number of shares are for sale, generally from exiting farmers
To date, no shares have been traded on the platform
If you are keen to become a shareholder, there is a clear opportunity to buy shares, or for many of you, to top up your shareholding to match your wool clip
Wools of New Zealand
Vision: To be the leading innovative sales and marketing company for New Zealand strong wool
Objectives
• Protect and build the value of the Wools of New Zealand Brands — Done
• Provide the opportunity for all Strong Wool Growers — Done
• Provide transparent feedback to Shareholders rewarding them for delivering fit-for-purpose product to our customers —Ongoing ….More and wider
• Develop the market-pull strategy by increasing branded contracts and relationships with the supply chain —Ongoing
• Evolving within five years to be a fully commercial Grower-owned sales and marketing business — Step three 2013-2018 ….Stand on own feet
• To achieve these objectives need greater grower wool commitment
Mission: To progressively improve the profitability of our Grower Shareholders
Wools of New Zealand
Acknowledgements
• Industry – cooperative spirit – respect
• Customers – Trust – long term relationships
• Staff - commitment – energetic
• Advisors
• Directors – fully focused and committed
• Shareholders and supporters
• Family
Wools of New Zealand
Some Facts Renowned for producing strong white bright fibre
Wool is approximately 2% of all flooring
New Zealand produces approximately 30% of crossbred fibre
Our competitors are lower priced synthetics
Poor grower returns linked to the current selling system:
Dairy farmers, 80% of wholesale price
Red meat farmers, 50% of wholesale price
Wool growers, typically 20% of wholesale price
To influence change and improve our position -
• Growers need to support a branded strategy connecting with the supply chain right to the consumer Commitment and Investment
• Targeted focus on high end opportunities. Adding value
Wools of New Zealand
The Hard Work Continues
We said it would take time
We stand by our strategy – consistent and transparent
We appreciate the level of support that we get but it needs to continue to grow
WMDC – June 2018
Volume = 15million + Kgs by year five , 30million by 20????
You’ve invested – Get involved with YOUR company
Commitment of wool = Return on Investment
Team effort
Wools of New Zealand
Chief Executive’s Report
Ross Townshend
Wools of New Zealand
2013/14 Financial Result
Compliant with the Prospectus 2 year actual loss $620k cf $672k forecast loss (92%) NBV backing per share 68.0c/share (cf 71.6c/share LY) Delayed recapitalisation (and CEO appointment) meant later start recap +4 months, CEO +2 months = 6 month delay Trading on our own terms only from December 2013 – HALF YEAR ONLY considerable business architecture to put in place setting up WSI partnership arrangements At 30th September (1st Qtr), 2014/15 result is on track for >$500k NOPAT
Wools of New Zealand
People Small team of very creative, very productive, very impressive people
This time last year, the global team was 15
Total Headcount is now 20 (17FTE)
New clerical accounting role (0.8FTE)
Supplier Relations Manager (0.6FTE)
Supplier Liaison Officers (3*0.3FTE)
2 retirements/replacements in Ilkley
2 restructures/replacements in Ilkley
1 retirement/replacement at Hornby
Right balance of skills in the right places
Wools of New Zealand
Communications (NZ) Reliance on E Bulletins proved to be not enough.
Opened by: 43%, read by: ????, acted upon: ????
Committed to spring and autumn roadshows – with adequate coverage
Quite expensive in cost ($160k) and time (4 weeks) but worthwhile
Plan to include customer and market information via guests
Grower Advisory Panel
18 regional appointments
Initially hand-picked
Building structure and focus
Useful road test for new plans and concepts.
Appointment of Shareholder Relations Manager and Supplier Liaison Officers
Wools of New Zealand
Communications (World) Big Investment in Trade Shows ($250k) Domotex (Hanover, Germany) Surfaces (Las Vegas, USA) Domotex (Shanghai, China) Extensive Travel CEO travel ~40% offshore No real alternative to face to face Social Media Facebook, Pinterest, Twitter, Woolblog Continuous Professional Development Programs Corporate Social Responsibility Programs
Wools of New Zealand
Wool Services Partnership
WNZ needed a partner to provide a range of services and functions
No sense in duplication of costs and effort
Saved about $500k in duplicate systems, and >6 months of time
WSI was the clear choice with the widest range of capability
Significant industry comment and resistance
Like all partnerships, they need R&M and TLC
Sometimes too slow to react and respond – especially logistics
D2S is a huge success – expect 5,000T this year – good repeat business
Credible, objective and reliable – very high first time price acceptance
WSI were absolutely the right partner for WNZ
Wools of New Zealand
Direct to Scour (D2S)
10,929 19,722 24,765
62,860
131,936
294,295 286,520
242,277
268,113
114,008
265,131
391,457
212,721
272,567
-
50,000
100,000
150,000
200,000
250,000
300,000
350,000
400,000
450,000
Sep-13 Oct-13 Nov-13 Dec-13 Jan-14 Feb-14 Mar-14 Apr-14 May-14 Jun-14 Jul-14 Aug-14 Sep-14 Oct-14
Gre
asy
Kg'
s
Date
Direct to Scour (WSI) - weight
Wools of New Zealand
D2S Benefits to Growers
Takes all grades of wool (whole bales)
One phone call and one form to complete
Farm to depot freight to growers account
Mainline freight costs covered in base fee
Lots over 4 bales cored and tested (small lots sampled)
Objective pricing on Fridays benchmarked off prior day auction
Price acceptance TOTALLY in growers hands (6 weeks “free” option)
Full payment within 10 days
Our WNZ Weekly Commodity Wool Market Indicator adds credibility
Wools of New Zealand
Camira Laneve Lamb’s Wool 2014 400,000kg program all sourced, scoured and mostly delivered
Contract filled – only just, with some positive industry collaboration
Significant procurement pressure – beyond commercially sensible
Deferred payment terms were unpopular with many growers
we didn’t sell the message well enough
we were late to the market (setting up banking etc)
only required because of unique supply to delivery profile
first wool supplied November 2013, last wool paid for May 2015
Growers wary of ability to meet tight specs – largely unfounded
Put >$0.80/kg in growers pockets – after all costs including OD finance
Wools of New Zealand
Camira Laneve Lamb’s Wool 2015
WNZ has secured a 2015 supply contract for an increased volume
Specifications are the same as for 2014
Pricing is as for 2014, except:
10c/kg sign on incentive by 31st October 2014
First payment of 40% in 30 days (was 20% in 60 days)
Then 40% at 30.11.2015 and 20% at 28.02.2016
Uptake for 2015 is much better and you should act now before the contracts fill
We continue to explore other similar opportunities with Camira
Wools of New Zealand
Laneve Carpet Contracts
Over the last few months, we have sold wool directly to 6 spinners and we are engaged with another 3 spinners
Premiums for this wool are harder to achieve, in a market that has no shortage of bidders keen to join a “race to the bottom”
This is especially prevalent in China, where price prevails in the market
Our approach is slow, steady, reasoned and focused on quality and provenance
We are still learning how to operate best in this market
We fully understand growers wish for a wider range of contracts for longer fleece types and hogget wool
Wools of New Zealand
Wools of New Zealand
Stable Price Mechanism
Wools of New Zealand
SPM relies on … Willing buyers, seeking price stability and longer term committed supply
And
Willing suppliers, keen to lock in pricing, with reduced price volatility, also for extended supply periods – to match the buyer expectations.
Relies on 50% gain (or loss) sharing over time
Builds enduring year on year supply and sale relationships
Requires a commitment programme, introducing “STAPLE”
Wools of New Zealand
Dead Band
+ 5% Base Price
CCWI Market movement +ve
50% gain share +ve
CCWI Market movement -ve
50% gain share -ve
Wools of New Zealand
• Price increase during Year 1
• 50% +ve gain share sets base price for Year 2 (+ PPI)
• Price decreases during Year 2
• 50% -ve gain share sets base price for Year 3 (+ PPI)
Year 1
Year 2
Year 3
Wools of New Zealand
1. A ‘major movement dead band’ also needs to be created/agreed. 2. At the upper end, WNZ needs to be able to renegotiate to be certain that it
can source wool for the customer. 3. At the lower end, the customer needs to be insulated from paying an
excessive price relative to open market. 4. The MMDB is set at two levels
a) +/- 20% when the impacted party is entitled to initiate discussion (Yellow card)
b) +/- 25% when the SPM is suspended (Red card)
+ 5%
Base Price
Major movement dead band
50% gain share +ve
Major movement dead band
50% gain share -ve
Wools of New Zealand
“STAPLE” Supply Commitment
STAPLE is a programme for you to
Commit some/all your wool
Gain priority access to contracts
Be paid a 5c/kg loyalty fee
Help WNZ build new ways to market
Wools of New Zealand
STAPLE®
Applies to all wool types/styles
Applies to Contract and Direct-to-Scour
We need you to commit to back our programmes like SPM – to close out our “unmatched position”
We want very strong commitments
“Grower of the Year” Programme
Wools of New Zealand
Wools of New Zealand
Market Pull Strategy
Wools of New Zealand
Conclusion
Questions Please
Wools of New Zealand
The Agenda 1. Welcome and Introduction of Directors
2. Apologies
3. Minutes
4. Presentation of annual report and accounts – Chairman’s report – Mark Shadbolt
– Chief Executive’s report – Ross Townshend
– Questions and answers
5. Appointment of Auditors
6. Election of directors
7. General business
8. Close of meeting
9. Lunch
Wools of New Zealand
The Hard Work Continues
We said it would take time
We stand by our strategy – consistent and transparent
We appreciate the level of support that we get but it needs to continue to grow
Relationships – your bottom line , WNZ bottom line or someone elses ?
You’ve invested – Get involved with YOUR company
Commitment of wool = Return on Investment
Team effort