Consolidated Annual Report · Wools of New Zealand - Annual Report 2014 3 3. Operational - while the CEO’s report will go into these in more detail there are several major outcomes

Consolidated Annual ReportFOR THE YEAR ENDED 30 JUNE 2014

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.

OBJECTIVES –

The Board of Wools of New Zealand has the following clear objectives:

• To retain, protect and build the value of the Wools of New Zealand brands and market relationships

• To provide the opportunity for all strong wool growers to own Wools of New Zealand and benefit from the

brands, sales and marketing initiatives

• To build Wools of New Zealand, evolving within five years to be a fully commercial grower-owned sales and

marketing business

• To develop the market-pull strategy by increasing branded contracts and relationships with the supply chain

• To provide transparent feedback to shareholders rewarding them for delivering fit-for-purpose product to

our customers.

Wools of New Zealand

1Wools of New Zealand - Annual Report 2014

CONTENTS

2 Chairman’s Report

5 Chief Executive’s Report

8 Statements of Comprehensive Income

9 Statements of Financial Position

10 Statements of Changes in Equity

11 Statements of Cash Flows

12 Notes to and Forming Part of the Consolidated Financial Statements

32 Statutory Information

34 Independent Auditors Report

36 Directory

CHAIRMAN’S REPORT

The WNZ Board and management are committed to our objective

of creating a fully commercial sales and marketing business within

five years as outlined in the original prospectus.

On the basis of this objective the second year was always going to

be challenging and although the financial result, a loss of $268,664

for this year is disappointing, the numbers are consistent with the

prospectus and are on target for the plan over five years. We must

remember that the prospectus projections were based on a $10

million capital raise so starting with a smaller sum of just over $6

million will create variations to stated expectations.

Over the two years forecast in the prospectus, our losses are

$619,686 compared to forecast losses of $671,706. Net book

value at 30 June 2014 of 68.0 cents per share was also in line

with expectations.

It is with pleasure that I present the second Annual Report for Wools of New Zealand (WNZ).

The first year’s report focused on the Capital raise and gaining farmer support to establish WNZ as a commercial entity. That was a huge effort and achievement. The focus since then has been on building the company into the leading innovative sales and marketing company for New Zealand strong wool; in line with our stated vision within the prospectus.

Highlights for the year

1. Appointment of CEO – Ross Townshend officially commenced with WNZ on 1 August 2013 following his involvement at our board and management strategy session at the end of June 2013. He has led the management team well and has become very conversant with the needs of the business and its strategy. Ross has spent considerable time in-market which has allowed him to build on the well-established relationships created by the WNZ team globally over a number of years. Equally he has continued to build on the efforts within New Zealand to ensure a collaborative approach where possible. The board is appreciative of his efforts and results to date.

2. Board review - the board engaged Sir Henry van der Hayden to conduct a review of our board and its approach to the future of the business. Highlights of the review included:

• affirmation that all individual board members were committed to the future of the company

• that a broader mix of skill sets at the board table would be an advantage

• greater focus was needed on the company’s vision which requires broader and deeper thinking

• A succession plan would be desirable.

2 Wools of New Zealand - Annual Report 2014


3. Operational - while the CEO’s report will go into these in more detail there are several major outcomes operationally that I wish to highlight:

a) Camira lamb’s wool contract – Now into its fourth year of supply, volumes continue to grow year on year for the supply of Laneve-compliant wool into the Blazer range of fabric, Camira’s flagship range. This is a powerful demonstration of the value of the Laneve brand, the traceability and sustainability story, but most importantly rewarding growers who provide fit for purpose wool based on transparent feedback from the market, again one of our key objectives. The focus for WNZ is to have a range of similar contracts covering the key wool types allowing growers to supply directly into a market pull contract.

b) Direct to Scour (D2S) – although not without some teething issues the option provided to growers of sending their wool direct to scour at WSI has been a success story for WNZ this season. We are encouraged by the repeated support of growers and the growth in volume month on month. The system has allowed for savings compared to conventional sales methods and allows WNZ to identify wools for specific markets. In this respect I acknowledge the buy in and patience of our shareholders for making the model work as well as the support of William Lempriere and the WSI team for their commitment to the programme and the manner in which they have adapted to allow an open transparent outcome for growers. I encourage shareholders and supporters who haven’t yet tried the system to give it a go.

c) Stable price mechanism (SPM) – volatility is the bogey for growers and equally for the supply chain and it is an issue we have grappled with on a daily basis for the last few years. Now that we have had the benefit of over two years of a pilot scheme and learned from the issues and benefits we are promoting the SPM to as many of our in market customers as possible. We encourage our partners and growers to test the system with some of their volumes.

d) Grower advisor panel (GAP) - this advisory group of regionally appointed grower shareholders has been a great sounding board for both the WNZ board and management, allowing us to road test and refine operational tactics and strategies. I thank each of our GAP members for their commitment and insights to date.

e) Communications – We stand by our commitment not to have a field force on the road. We have, however, identified a weakness in our communications to growers based on the fact that only about 40% of email recipients open their emails and we can only assume that a lesser number actually read the e-bulletins that Ross and his team send out. Accordingly we have employed four part-time supplier liaison officers (SLOs), energetic people representing various regions to communicate directly with growers and form an important link between growers and the company. This team are proving their worth and I thank our SLOs for their efforts.

We have a trial working relationship with the Hazlett Rural field force, who cover most of Canterbury. They have introduced new growers to WNZ and should the model continue to work well we will look to build relationships with other similar organisations throughout New Zealand.

f) In-market visibility – a strong presence with our business partners and license fee contributors is essential as we seek to get closer to our end consumers. For that reason we will continue to attend the key flooring trade shows of Domotex Europe, Surfaces USA and Domotex Shanghai and visit our key international clients and prospects regularly. During our strategy session we identified a need to integrate our four regions of Europe, USA, Asia (mainly China) and New Zealand, allowing us to take full advantage of our people’s skills and relationships across the world. Strengthened regional ties allows us to ship wool to China to be produced into products created by our Centre of Wool Excellence in Ilkley or WNZ partners destined for the US or European market for partners. Our in-market presence facilitates these and other opportunities that otherwise might not be accessible

g) Collaboration – we continue to work with a variety of industry players in New Zealand. WNZ acknowledges the cooperative spirit of many in the New Zealand industry and looks forward to strengthening the various relationships which will provide mutual commercial benefit.

4. Shareholding – During the year WNZ established an independent trading platform facilitated by Cooper Aitken of Morrinsville who have experience in managing similar platforms in the primary sector. Shares in WNZ can be traded on this platform which can be accessed via the internet at www.cooperaitken.co.nz/Services/ Wools-of-NZ-Shareholders.

5. Shareholders and Supporters – I thank all of our shareholders

and supporters for their support over the last two financial years.

The Wool Market Development Commitment (WMDC) and

Wool Market Development Fee (WMDF) are vital to our ongoing

efforts, therefore the support towards this by our shareholders

and suppliers is greatly appreciated. D2S allows collection at the

point of sale which is the ideal model. However in our transition

direct invoicing to growers is necessary and prompt payment

is appreciated which has been the case by the vast majority.

Disappointingly there are a handful of shareholders who,

although they signed the same prospectus application form as

every other shareholder, look for ways to “bend the rules”. The

Board will take a very firm line with non-payers who thankfully are

a very small number.

6. Wool Price and volatility – it is pleasing that the wool market in

general has lifted by about $1 per kilo in the last year. This gain

must be managed and built upon recognising that our business

partners throughout the supply chain need to be able to manage

these rises, reducing inherent volatility in their businesses.

WNZ will continue to develop options to manage volatility and

has had some success to date albeit in a small way. The reducing

volume of wool has been an issue for some time however with

milk price volatility and sheep and beef returns improving one

would expect that the decline will reduce and that those of us

that are focused on producing quality wool fit for purpose will be

rewarded financially. That is one of our primary responsibilities in

endeavouring to build shareholder value.

While we have a long way to go to provide full benefit to

shareholders, it is our firm belief that only a commercially focused

grower owned sales and marketing company can provide benefits

to the bottom lines of your farming businesses. The more support

we have from each of you the faster we will grow.

I express my thanks, to my fellow directors for their commitment

and support of me as chairman, and to all of our staff located in

various parts of the world. You do an amazing job, are dedicated to

the WNZ brand and the relationships you have built over the years

represent a strong platform for future growth. A final thanks to our

in-market partners who, like our shareholders and staff, see value in

the WNZ and Laneve brands.

The hard work continues. Thank you.

Yours sincerely

Mark ShadboltChairman Wools of New Zealand Limited



CHIEF EXECUTIVE’S REPORT

Key Milestones:

Our People

Wools of New Zealand global staff have consolidated under

the new ownership structure and are operating with a more

commercial focus. The team stayed intact except for three

retirements, all replaced with keen, capable young people. One of

my objectives was to unite the team around a single global purpose

and I can report good progress. We remain a small organisation with

a headcount of just 20 globally.

Communications

Wools of New Zealand identified shareholder, supporter and

grower relations as our “Achilles heel” partway through the

year. We appointed a Shareholder Relations Manager and three

regional Supplier Liaison Officers (SLO’s) to further strengthen

our communications and relationships with shareholders. There

is clear evidence that these outreach teams are producing real

benefits with increasing uptake of wool contracts and increasing

Direct-to-Scour (D2S) volumes.

Roadshows are an important part of our total communications

plan and the Chairman and I both enjoy the chance to meet a great

many of you. We spend four weeks “on the road” from Northland to

Southland in the autumn and the spring. I encourage you to attend

these roadshow meetings as our single most important opportunity

to share our intentions with you. We endeavour to provide direct

market feedback and information too, often with international

customer guest presenters.

Wools of New Zealand is an international business and we spend a

great deal of time and money travelling – for me personally about

40% of my time is spent “in market”. Part of that is at trade shows

such as Domotex Hanover, Surfaces in Las Vegas and Domotex

Shanghai. These shows are a major cost to the company and our

brand partners, but we get great exposure and strong inquiries at

every show.

Operations within New Zealand

Wools of New Zealand needed to work with a market participant

to provide systems and services without duplication. To ‘go it

alone’ would have been a poor use of our own and the industry’s

resources, setting us back more than a year with unnecessary

start-up costs estimated at more than $500,000. NZ Wool

Services International (WSI) were the obvious choice from the

outset and the engagement has prospered through the year, to the

benefit of both companies. Like every relationship it has required

“work” from time to time and I record my appreciation for the

efforts of the WSI team, adding to our own efforts.

As a new company, Wools of New Zealand needed considerable

new business architecture, which all took time to get established.

For example, we needed commercial banking arrangements,

including foreign exchange management protocols, trade finance,

credit insurance and the like. It took until mid-December to get

these systems in place, to allow us to trade on our own terms.

Shareholders should view our year in review as only trading for 50%

of the year.

A common wish of shareholders is that Wools of New Zealand

collaborates and cooperates with other players in the wool

industry. I can report considerable progress with other parties in

the industry, collaboration historically not thought achievable.

There is still much more that we could do as an industry to boost

all wool returns. We should not forget that the competition is not

here in New Zealand. We continue to explore ways of extending

collaboration.

Wool Trading on our Own Account

During the year we handled approximately 16% of shareholders’

wool, being effectively closer to 30% of their wool in the period of

the year where we were undertaking wool handling. The improved

grower connectedness with the Grower Advisory Panel (GAP)

and Supplier Liaison Officers (SLO’s) saw a significant step up

in volumes over the last quarter and I look forward to reporting

a much higher proportion of grower’s wool transacted over the

coming year.

2013 – 14 was the year that Wools of New Zealand really got underway commercially. While we have only just begun the journey to success, I can report that we have made considerable progress in this last year.


We are committed to trying to find contracts where we can add real

value to your wool, linking your farms directly with other parts of

the value chain, in a way that differentiates Wools of New Zealand.

While we have found several useful contract channels for Laneve

fleece wool for carpets, there are still opportunities to be found for

longer fleece types, and hogget wool for example.

The most notable contract was the Camira Laneve Lamb’s Wool

contract, which put real dollars in growers’ pockets. This is exactly

the sort of contract that Wools of New Zealand needs to go after,

linking up the highest global quality, strongest provenance lamb’s

wool with a hugely successful textiles company, maximising value at

every step. Net of all costs, this contract provided returns of at least

80c/kg over the spot auction price. We were delighted to secure an

even bigger 2015 supply contract after year end.

As an example of our “market pull” approach, during the year, we

signed a Memorandum of Understanding with a major Chinese

carpet company. This agreement will see our Laneve wool being

supplied to this very smart new plant, equipped with large scale

hi-tech European equipment, where we can be assured that our

Laneve protocols will be respected and we can have faith in the

product quality out-turn. The plant will be producing to styles and

designs emanating from our Ilkley people and the product will be

exported for sale through our partner network in western markets.

We get to “touch” every part of the value chain – rather than just

being a price taker for commodity wool.

New Opportunities

WNZ has committed to acquire a one-third share of Noble Bond

Ltd, a fledgling company that has developed the technology for

bonding noble metals onto wool – permanently. The application

of silver on to wool, known under the trade name NgaPure, imparts

bacteriostatic properties to wool that allows for its use on a wide

range of new and sensitive applications, such as healthcare,

aged care, sporting apparel and transport fabrics. We expect

commercial application to start early in 2015 and to provide

wool sale opportunities and royalties from the application of the

technology. Application of gold, known under the trade name

Aulana, is more of a vanity application, but at the very highest ends

of the market. Aulana produces a range of unique colours. We are

working with top-end London designers on an application that will

capture the highest value possible.

We also invested in some new scouring technology research that

indicates the new technology still has some way to go before

successful commercial application.

New Ways to Market

We continue to explore new ways to market, especially around

price discovery systems. We have not made as much progress as

we would like during the year in review, but we remain committed to

this concept as the most meaningful opportunity for wool growers’

spot or commodity returns.

Wools of New Zealand has also launched Stable Price Mechanisms

(SPM) in several markets, where we de-risk both growers and

customers from price volatility, by gain-sharing upside and

downside. That’s relatively easy to sell to customers, but requires

supply commitment from growers, and we will shortly be rolling out

a supply commitment programme known as Staple for our growers.

Financial Performance

Our 2013 – 14 full year result needs to be viewed in the context of

less capital raised and the four month delay to start, compared to

our original prospectus projections.

Relative to the two years outlined in the prospectus, WNZ has

recorded total losses of $619,686 compared to combined losses of

$671,706 forecast in the prospectus.

Net book value of 68.0 cents per share as at 30 June 2014 was

accordingly within the range of expectations.

We are on track to announce our maiden profit in the 2014 –15

financial year.

Yours sincerely

Ross TownshendChief Executive Wools of New Zealand Limited

The Directors present the following accounts for the year ended 30 June 2014


GROUP PARENT

$NZD Note 2014 2013 2014 2013

Revenue 6 11,780,055 3,114,015 10,980,617 2,386,304

Cost of Sales (8,742,421) (781,819) (9,249,989) (1,368,469)

WNZ Trust Distribution - 522,299 - 522,299

Gross Profit 3,037,634 2,854,495 1,730,628 1,540,134

Expenses

Audit Fees 11 42,662 45,646 26,376 31,355

Bad Debts 34,737 3,842 34,737 4,000

Amortisation of Intangible Assets 22 9,800 9,800 9,800 9,800

Depreciation Charges 21 74,648 77,031 3,571 4,498

Directors’ Fees 12 230,000 231,867 230,000 231,867

Employee Expenses 10 2,018,368 1,659,571 1,120,931 736,150

Loss on Sale of Property, Plant & Equipment 638 - 638 -

Prospectus Costs - 312,954 - 312,954

Operating Expenses & Corporate Charges 9 1,069,638 798,454 814,624 565,486

Total Expenses 3,480,491 3,139,165 2,240,677 1,896,110

PROFIT/(LOSS) FROM OPERATIONS (442,857) (284,670) (510,049) (355,976)

Finance Income and Expenses

Finance Income 13 166,741 45,331 166,654 45,305

Finance Expense 13 (7,771) (113,313) (7,607) (112,886)

158,970 (67,982) 159,047 (67,581)

PROFIT/(LOSS) BEFORE TAX (283,887) (352,652) (351,002) (423,557)

Income Tax Expense/ (Benefit) 14 (19,727) (12,215) (11,081) (27,380)

PROFIT/(LOSS) FOR THE YEARATTRIBUTABLE TO COMPANY SHAREHOLDERS

(264,160) (340,437) (339,921) (396,177)

Other Comprehensive Income/(Expenses):Will be reclassified subsequently to profit or loss

(264,160) (339,921)

Translation of Foreign Operations (4,504) (10,585) -- -

TOTAL COMPREHENSIVE INCOMEATTRIBUTABLE TO COMPANY SHAREHOLDERS

(268,664) (351,022) (339,921) (396,177)

WOOLS OF NEW ZEALAND LIMITED

Statements of Comprehensive IncomeFOR THE YEAR ENDED 30 JUNE 2014



GROUP PARENT

$NZD Note 2014 2013 2014 2013

Current Assets

Cash or Cash Equivalents 16 1,052,741 423,792 585,662 320,002

Trade and Other Receivables 17 2,339,504 1,046,878 2,207,479 834,622

Inventory 18 2,297,049 53,073 2,262,386 20,116

Taxation Refund Due 14 29,021 12,622 29,021 12,622

Prepayments 19 382,487 445,008 16,962 4,053

Short Term Deposits 20 1,012,714 3,110,313 1,012,714 3,110,313

Unrealised Foreign Exchange Account 5 62,591 - 62,591 -

Total Current Assets 7,176,107 5,091,686 6,176,815 4,301,728

Non Current Assets

Property, Plant & Equipment 21 110,988 174,022 12,040 10,118

Intangible Assets 22 679,842 689,642 679,842 689,642

Investment in Subsidiary 23 - - 454,603 454,603

Advance to Subsidiary 29 - - 336,717 614,090

Deferred Tax Asset 14 18,546 - 18,546 7,465

Total Non Current Assets 809,376 863,664 1,501,748 1,775,918

Total Assets 7,985,483 5,955,350 7,678,563 6,077,646

Current Liabilities

Trade Creditors and Accruals 24 2,686,730 355,916 2,248,722 260,136

Revenue in Advance 86,498 97,100 72,226 84,859

Goods and Services Tax 24,039 138,832 19,998 134,839

Employee Entitlements 25 199,599 105,040 105,991 26,265

Total Current Liabilities 2,996,866 696,888 2,446,937 506,099

Non Current Liabilities

Deferred Tax Liability/(Asset) 14 - 1,181 - -

Total Liabilities 2,996,866 698,069 2,446,937 506,099

Net Assets 4,988,617 5,257,281 5,231,626 5,571,547

Represented by: 4,988,617Equity

Share Capital 32 7,997,021 7,997,021 7,997,021 7,997,021

Accumulated Losses (3,087,984) (2,823,824) (2,765,395) (2,425,474)

Foreign Currency Translation Reserve 30 79,580 84,084 - -

Total Equity 4,988,617 5,257,281 5,231,626 5,571,547

For and on behalf of the Board

MP Shadbolt KG SuttonDirector Director

17 October 2014 17 October 2014


Statements of Financial PositionFOR THE YEAR ENDED 30 JUNE 2014


GROUP

$NZD

Note Share Capital

Foreign Currency

Translation Reserve

Accumulated Losses

Total Attributable to Equity Holders

of Parent

30 June 2013 7,997,021 84,084 (2,823,824) 5,257,281

Loss for the year - - (264,160) (264,160)

Other Comprehensive Income

Translation of Foreign Operations - (4,504) - (4,504)

30 June 2014 7,997,021 79,580 (3,087,984) 4,988,617

30 June 2012 1,915,965 94,669 (2,483,387) (472,753)

Loss for the year - - (340,437) (340,437)


Translation of Foreign Operations - (10,585) - (10,585)

Transactions with Owners in their Capacity as Owners

Issued Capital 32 6,081,056 - 6,081,056

30 June 2013 7,997,021 84,084 (2,823,824) 5,257,281

PARENT

$NZD

Note Share Capital

Foreign Currency

Translation Reserve

Retained Earnings

Total Attributable to Equity Holders

of Parent

30 June 2013 7,997,021 - (2,425,474) 5,571,547

Loss for the year - - (339,921) (339,921)


Translation of Foreign Operations - - - -

30 June 2014 7,997,021 - (2,765,395) 5,231,626

30 June 2012 1,915,965 - (2,029,297) (113,332)

Loss for the year - - (396,177) (396,177)


Transactions with Owners in their Capacity as Owners

Issued Capital 32 6,081,056 - 6,081,056

30 June 2013 7,997,021 - (2,425,474) 5,571,547


Statements of Changes in EquityFOR THE YEAR ENDED 30 JUNE 2014


GROUP PARENT

$NZD Note 2014 2013 2014 2013

Cash Flows from Operating Activities

Cash was provided from:

Receipts from Customers 10,388,439 2,996,818 9,508,770 2,362,458

Interest Received 166,741 45,331 166,654 45,305

10,555,180 3,042,149 9,675,424 2,407,763

Cash was disbursed to:

Payments to Suppliers and Employees (11,986,541) (3,629,785) (11,750,159) (3,070,597)

Interest Paid (7,771) (122,275) (7,607) (118,810)

(11,994,312) (3,752,060) (11,757,766) (3,189,407)

Net Cash Flows From Operating Activities 31 (1,439,132) (709,911) (2,082,342) (781,644)

Cash Flows from Investing Activities


Short Term Deposits 2,097,599 - 2,097,599 -

2,097,599 - 2,097,599 -


Purchase of Property, Plant & Equipment (12,252) (6,913) (6,131) (2,600)

Purchase of Intangible Assets including Acquisition Costs - (637,612) - (637,612)

Short Term Deposits - (3,110,313) - (3,110,313)

(12,252) (3,754,838) (6,131) (3,750,525)

Net Cash Flows From Investing Activities 2,085,347 (3,754,838) 2,091,468 (3,750,525)

Cash Flows from Financing Activities 2,085,347


Other Financing Arrangements - 7,432 - 7,432

Shareholder Advance - - 277,373 -

Issued Capital - 6,081,056 - 6,081,056

- 6,088,488 277,373 6,088,488


Other Financing Arrangements (7,432) - (7,432) -

Shareholder Advance - (1,604,183) - (1,541,659)

(7,432) (1,604,183) (7,432) (1,541,659)

Net Cash Flows from Financing Activities (7,432) 4,484,305 269,941 4,546,829

Net increase in cash and cash equivalents 638,783 19,556 279,067 14,660

Net foreign exchange movements (9,834) (21,698) (13,407) (28,239)

Cash and Cash Equivalents at the Beginning of Year 423,792 425,934 320,002 333,581

Cash and Cash Equivalents at the End of the Year 1,052,741 423,792 585,662 320,002

All cash balances are available to the group without restriction except where balances are needed to act as guarantees for offsetting credit card facilities.


Statements of Cash FlowsFOR THE YEAR ENDED 30 JUNE 2014


Notes to and Forming Part of the Consolidated Financial StatementsFOR THE YEAR ENDED 30 JUNE 2014

1. SIGNIFICANT ACCOUNTING POLICIES

Reporting EntityWools of New Zealand Limited (‘the Company’) is a profit-oriented company incorporated and domiciled in Christchurch New Zealand under the Companies Act 1993 and is an issuer for the purposes of the Financial Reporting Act 1993.

The financial statements of the Company as at and for the year ended 30 June 2014 comprise the separate financial statements of the Company being the ‘Parent’, and the consolidated financial statements of the Parent and its subsidiary (together referred to as the ‘Group’). The financial statements have been prepared in accordance with the Financial Reporting Act 1993.

The Group’s principal activity is the provision of international marketing of New Zealand Strong Wool on behalf of New Zealand Strong Wool Growers.

The financial statements were authorised for issue by the directors on 17 October 2014.

Statement of ComplianceThe consolidated and separate financial statements have been prepared in accordance with New Zealand generally accepted accounting practice (NZ GAAP) as represented by the New Zealand Equivalents to the International Financial Reporting Standards (NZ IFRS) and other financial reporting standards as appropriate for profit-oriented entities. The financial statements comply with the International Financial Reporting Standards (IFRS) issued by the International Accounting Standards Board.

Measurement BaseThe accounting principles recognised as appropriate for the measurement and reporting of financial performance and financial position on a historical cost basis are followed by Wools of New Zealand Limited Group, with the exception that certain assets as specified below have been revalued.

The information is presented in New Zealand dollars, rounded to the nearest dollar, which is the Company’s functional currency.

Use of Estimates and JudgementsThe preparation of financial statements in conformity with NZ IFRS requires management to make judgements, estimates and assumptions that affect the application of accounting policies and the reported amounts of assets, liabilities, income and expenses. Where material, information on significant assumptions and estimates is provided in the relevant accounting policy or will be provided in the relevant note.

The estimates and associated assumptions are based on historical experience and various other factors that are believed to be reasonable under the circumstances. Subsequent actual results may differ from these estimates.

The estimates and underlying assumptions are reviewed on an ongoing basis. Revisions to accounting estimates are recognised in the year in which the estimates are revised and in any future periods affected. Refer to Note 4 for details of critical accounting estimates and judgements.

Changes in Accounting PoliciesThe same accounting policies, presentation and methods of computation have been applied consistently to all periods presented in these consolidated financial statements except for the additional relevant new Standards as listed below. The additional new Standards are as follows:

Standard / Interpretation Effective for Annual Reporting Periods Beginning On or After

NZ IAS 1: Presentation of Financial Statements 1 April 2014

NZ IAS 19: Employee Benefits 1 January 2013

NZ IFRS 10: Consolidated Financial Statements 1 January 2013

NZ IFRS 11: Joint Arrangements 1 January 2013

NZ IFRS 12: Disclosure of Interest in Other Entities 1 January 2013

NZ IFRS 13: Fair Value Measurement 1 January 2013


2. SPECIFIC ACCOUNTING POLICIESThe following specific accounting policies which materially affect the measurement of profit and the financial position have been applied consistently to all periods presented in these financial statements.

Basis of consolidationThe Group Financial Statements consolidate the Financial Statements of the Parent and all entities over which the Parent has control. The Group controls an entity when the Group is exposed to, or has rights to, variable returns from its involvement with the entity and has the ability to affect those returns through its power over the entity.

The subsidiary has a 30 June reporting date and consistent accounting policies are applied.

The acquisition method is used to prepare the consolidated financial statements, which involves adding together like terms of assets, liabilities, income and expenses on a line-by-line basis. All inter-group balances are eliminated on consolidation of group results, position and cash flows.

In the parent Company’s separate financial statements the investment in the subsidiary is stated at cost less any impairment losses.

RevenueRevenue is recognised on the following basis:

Revenue from Wool Sales comprises the fair value of consideration received or receivable from the sale of wool. Revenue is shown net of sales tax, discounts and rebates and after eliminating sales within the Group. Revenue is recognised when the risks and rewards of ownership of the wool being sold are transferred to the buyer as dictated by the applicable contract.

Shareholders contribute the annual Wool Market Development Commitment (WMDC). The WMDC is presently set at $0.15 per kilogram of assessed annual wool production produced by each shareholder. The WMDC is invoiced twice a year and recognised at the point the invoice is issued. Where the Company purchases wool from a Shareholder, the WMDC payable on this wool is deducted and recognised in the profit or loss at the time of the purchase of wool.

The Group also recognises revenue via the invoicing of ‘Partner Fees’ to its licensees in the United Kingdom, Asia and the United States of America and other revenue streams. These Partner Fees are invoiced throughout the year and in the most appropriate currency for the region the fee is issued in. The Group recognises the revenue over the period for which the arrangement exists. Any arrangements covering a period outside of the reporting period is apportioned and the unexpired income shown as revenue in advance.

Royalty-earning programmes and Wool Sales Commissions are also generated in the subsidiary accounts. Royalties are earned in the United Kingdom on sales by manufacturing licences of branded carpet ranges. These are recognised when the royalty has been earned. They are invoiced to the licensees at intervals of between one and three months. Commissions on sales of wool fibre are recognised when the fibre supplier has completed its obligations to the end customer and its liability to pay the commission has therefore been crystallised.

Provided the amount of revenue can be measured reliably and it is probable that the Group will receive any consideration, revenue for services is recognised in the period in which they are rendered.

Impairment of non-financial assets (excluding inventories and deferred tax assets)Non-financial assets are subject to impairment tests whenever events or changes in circumstances indicate that their carrying amount may not be recoverable. Where the carrying value of an asset exceeds its recoverable amount (the higher of value in use and fair value less costs to sell), the asset is written down accordingly.

Where it is not possible to estimate the recoverable amount of an individual asset, the impairment test is carried out on the smallest group of assets to which it belongs for which there are separately identifiable cash flows; its cash generating unit (‘CGU’s).

Impairment charges are included in profit or loss, except to the extent they reverse gains previously recognised in other comprehensive income.

Impairment of financial assets Financial assets are subject to impairment tests whenever events or changes in circumstances indicate that their carrying amount may not be recoverable. Where the carrying value of an asset exceeds its recoverable amount (the higher of value in use and fair value less costs to sell), the asset is written down accordingly.

Impairment charges are included in profit or loss, except to the extent they reverse gains previously recognised in other comprehensive income. Any reversals of impairment losses are included in the profit or loss for the year within the Statements of Comprehensive Income.

Foreign currencyTransactions entered into by Group entities in a currency other than the currency of the primary economic environment in which they operate (their “functional currency”) are recorded at the rates ruling when the transactions occur. Foreign Currency monetary assets and liabilities are translated at the rates ruling at the reporting date. Exchange differences arising on the retranslation of unsettled monetary assets and liabilities are recognised immediately in profit or loss.

On consolidation, the results of overseas operations are translated into New Zealand dollars at rates approximating those ruling when the transaction took place. All assets and liabilities of overseas operations are translated at the rate ruling at the reporting date. Exchange differences arising on translating the opening net assets at opening rate and the results of overseas operations at average rate are recognised in other comprehensive income and accumulated in the foreign currency translation reserve.

Foreign Currency Translation ReserveWhen a foreign operation is disposed of, such that control, significant influence or joint control is lost, the cumulative amount in the translation reserve related to that foreign operation is reclassified to profit or loss as part of the gain or loss on disposal.


Financial assetsThe Group classifies its financial assets into one of the categories discussed below, depending on the purpose for which the asset was acquired. The Group has not classified any of its financial assets as held to maturity.

The Group’s accounting policy for each category is as follows:

Fair value through profit or loss

Foreign Exchange DerivativesThe Group enters into various derivative financial instruments for the purpose of reducing its exposure to fluctuations in foreign exchange rates. These are classified as financial instruments at fair value through profit or loss.

Cash and Cash EquivalentsCash and cash equivalents includes cash in hand, deposits held at call with banks, other short term highly liquid investments with original maturities of three months or less, and – for the purpose of cash flows – bank overdrafts.

Loans and ReceivablesLoans and receivables comprise trade and other receivables and advances to subsidiaries.

These assets are non-derivative financial assets with fixed or determinable payments that are not quoted in an active market. They arise principally through the provision of goods and services to customers.

They are initially recognised at fair value plus transaction costs that are directly attributable to their acquisition or issue, and are subsequently carried at amortised cost using the effective interest rate method, less allowance for impairment.

Impairment allowances are recognised when there is objective evidence (such as significant financial difficulties on the part of the counterparty or default or significant delay in payment) that the Group will be unable to collect all of the amounts due under the terms receivable, the amount of such an allowance being the difference between the net carrying amount and the present value of the future expected cash flows associated with the impaired receivable discounted at the original effective interest rate of the instrument. For trade receivables, which are reported net, such allowances are recorded in a separate allowance account with the loss being recognised within administrative expenses in the Statements of Comprehensive Income. On confirmation that the trade receivable will not be collectable, the gross carrying value of the asset is written off against the associated allowance.

From time to time, the Group elects to renegotiate the terms of trade receivables due from customers with which it has previously had a good trading history. Such renegotiations will lead to changes in the timing of payments rather than changes to the amounts owed and, in consequence, the new expected cash flows are discounted at the original effective interest rate and any resulting difference to the carrying value is recognised in profit or loss.

Liabilities at Amortised CostThe Group initially recognises debt securities issued on the date that they are originated. All other financial liabilities are recognised initially on the trade date, which is the date that the Group becomes a party to the contractual provisions of the instrument. The Group derecognises a financial liability when its contractual obligations are discharged, cancelled or expire.

The Group classifies non-derivative financial liabilities into other financial liabilities category. Such financial liabilities are recognised initially at fair value plus any directly attributable transaction costs. Subsequent to initial recognition, these financial liabilities are measured at amortised cost using the effective interest method.

Other financial liabilities comprise loans and borrowings, bank overdrafts and trade and other payables.

Share CapitalFinancial instruments issued by the Group are classified as equity only to the extent that they do not meet the definition of a financial liability or financial asset. The Group’s ordinary shares are classified as equity instruments. Any costs associated with raising of capital are offset against share capital.

TaxTax expense comprises current and deferred tax. Current tax and deferred tax is recognised in profit or loss except to the extent that it relates to a business combination, or items recognised directly in equity or in other comprehensive income.

Current tax is the expected tax payable or receivable on the taxable income or loss for the year, using tax rates enacted or substantively enacted at the reporting date, and any adjustment to tax payable in respect of previous years. Current tax also includes any tax liability arising from the declaration of dividends.

Deferred taxationDeferred tax assets and liabilities are recognised where the carrying amount of an assets or liabilities in the Statements of Financial Position differs from its tax base, except for differences arising on:

• The initial recognition of goodwill;

• The initial recognition of an asset or liability in a transaction which is not a business combination and at the time of the transaction affects neither accounting or taxable profit; and

• Investments in subsidiaries where the Group is able to control the timing of the reversal of the difference and it is probable that the difference will not reverse in the foreseeable future.


Recognition of deferred tax assets is restricted to those instances where it is probable that taxable profit will be available against which the difference can be utilised. Deferred tax assets are reviewed at each reporting date and are reduced to the extent that it is no longer probable that the related tax benefit will be realised. The amount of the asset or liability is determined using tax rates that have been enacted or substantively enacted by the reporting date and are expected to apply when the deferred tax liabilities/ (assets) are settled/ (recovered).

Deferred tax assets and liabilities are offset when the Group has a legally enforceable right to offset current tax assets and liabilities and the deferred tax assets and liabilities relate to taxes levied by the same tax authority on either:

• The same taxable group company; or

• Different group entities which intend either to settle current tax assets and liabilities on a net basis, or to realise the assets and liabilities simultaneously, in each future period in which significant amounts of deferred tax assets or liabilities are expected to be settled or recovered.

Property, Plant and EquipmentItems of property, plant and equipment are recognised initially at cost. As well as the purchase price, cost includes directly attributable costs. Depreciation is provided on all items of property, plant and equipment so as to write off their carrying value over their expected useful economic lives to their residual values. Property, plant and equipment is measured at cost less accumulated depreciation and impairment losses.

It is provided at the following rates for the current and prior years:

PROPERTY, PLANT & EQUIPMENT PARENT SUBSIDIARY

Leasehold N/A Over the minimum lease period of the UK premises – 6 years

Plant and Equipment N/A 12.5 – 20% SL

Fixtures and Fittings 10 – 13% DV 10% SL

IT and Communications 30 – 80% DV 10 - 30% SL

Office Equipment 30 – 100% DV 10 – 33.3% SL

An item of property, plant and equipment and any significant part initially recognised is derecognised upon disposal or when no future economic benefits are expected from its use or disposal. Any gain or loss arising on derecognition of the asset (calculated as the difference between the net disposal proceeds and the carrying amount of the asset) is included in profit or loss when the asset is derecognised.

Intangible AssetsIntangible assets acquired separately are measured on initial recognition at cost. Following initial recognition, intangible assets are carried at cost less any accumulated amortisation and accumulated impairment losses. The useful lives of intangible assets are assessed as either finite or indefinite. Intangible assets with finite lives are amortised over the useful economic life and assessed for impairment whenever there is an indication that the intangible asset may be impaired. The amortisation expense on intangible assets with finite lives is recognised in profit or loss.

Intangible assets with indefinite useful lives are not amortised, but are tested for impairment annually. The assessment of indefinite life is reviewed annually to determine whether the indefinite life continues to be supportable. Gains or losses arising from derecognition of an intangible asset are measured as the difference between the net disposal proceeds and the carrying amount of the asset and are recognised in profit or loss when the asset is derecognised.

InventoriesInventories are initially recognised at purchase cost on a first in, first out basis, and subsequently at the lower of cost and net realisable value. Cost comprises all costs of purchase, costs of conversion and other costs incurred in bringing the inventories to their present location and condition.

Short-term Employee BenefitsShort-term employee benefit obligations are measured on an undiscounted basis and are expensed as the related service is provided. A liability is recognised for the amount expected to be paid under short-term cash bonus or profit-sharing plans if the Group has a present legal or constructive obligation to pay this amount as a result of past service provided by the employee, and the obligation can be estimated reliably.

Finance Income and Finance CostsFinance income comprises interest income on funds invested. Interest income is recognised as it accrues in profit or loss using the effective interest method.

Finance costs comprise interest on borrowings. Borrowing costs that are not directly attributable to the acquisition or production of a qualifying asset are recognised in profit or loss using the effective interest method. Foreign currency gains and losses are reported on a net basis either as finance income or finance cost depending on whether the foreign currency movements are in a net gain or net loss position.

3. ADOPTION OF NEW AND REVISED STANDARDS AND INTERPRETATIONSIn the current year, the Group adopted all mandatory new and amended Standards and Interpretations. The accounting policies adopted in the preparation of these Group Financial Statements include the adoption of new standards and interpretations effective as at 1 July 2013 which the Group applies for the first time. As required by NZ IAS 1, the nature and the effect of these changes have analysed and have been found not to materially impact the financial statements except for NZ IFRS 13: Fair Value Measurement.


The nature and the impact of each new standard / amendment that impacts the Group is described below:

NZ IFRS 13: Fair Value Measurement – establishes a single source of guidance under IFRS for all fair value measurements. NZ IFRS 13 does not change when an entity is required to use fair value measurements, but rather provides guidance on how to determine fair value. The application of NZ IFRS 13 has impacted the fair value measurements carried out by the Group as it is now required to incorporate counterparty credit risk within these measurements. NZ IFRS 13 also requires specific disclosures on fair values, some of which replace existing disclosure requirements in other standards, including NZ IFRS 7: Financial Instruments – Disclosures.

Wools of New Zealand Limited has elected not to early adopt the following standards that have been issued but are not yet effective for application:

STANDARD / INTERPRETATION EFFECTIVE FOR ANNUAL REPORTING PERIODS BEGINNING ON OR AFTER

REQUIRED TO BE INITIALLY APPLIED IN THE FINANCIAL YEAR ENDING

NZ IFRS 9: Financial Instruments September 2014 1 January 2018

NZ IFRS 15: Revenue July 2014 1 January 2017

NZ IFRS 9 will be adopted by Wools of New Zealand Limited for the first time for its financial reporting period ended 30 June 2018. NZ IFRS 9 is the first of a three phase approach to replace NZ IAS 39: Financial Instruments – Recognition and Measurement. NZ IFRS 9 deals with the classification and measurement of financial assets. NZ IFRS 9 reduces the number of categories of financial assets from four down to two categories. All financial assets will now either be measured at amortised cost or at fair value. The prior categories of held-to-maturity, loans and receivables and available-for-sale under NZ IAS 39 are eliminated.

NZ IFRS 15 will be adopted by Wools of New Zealand Limited for the first time for its financial reporting period ended 30 June 2018. The adoption of NZ IFRS 15 will result in certain revenue streams being brought forward, and others being delayed, depending on contractual terms and analysis of the five step approach to revenue recognition. The new standard replaces NZ IAS 18, NZ IAS 11 as well as associated NZ IFRICs. NZ IFRS 15 clarifies the principles of revenue recognition and establishes a single framework for revenue recognition. The core principle is that an entity should recognise revenue to depict the transfer of promised goods or services to customers in an amount that reflects the consideration to which the entity expects to be entitled in exchange for those goods or services.

All standards and interpretations will be adopted at their effective date.

4. CRITICAL ACCOUNTING ESTIMATES AND JUDGEMENTSThe Group makes certain estimates and assumptions regarding the future. Estimates and judgements are continually evaluated on historical experience and other factors, including expectations of future events that are believed to be reasonable under the circumstances. In the future, actual experience may differ from these estimates and assumptions. The estimates and assumptions that have a significant risk of causing a material adjustment to the carrying amounts of assets and liabilities within the next financial year are discussed below.

Fair value of financial instrumentsThe Group determines the fair value of financial instruments that are not quoted, using valuation techniques. Those techniques are significantly affected by the assumptions used, including discount rates and estimates of future cash flows. In that regard, the derived fair value estimates cannot always be substantiated by comparison with independent markets and, in many cases, may not be capable of being realised immediately.

Income taxesThe Group is subject to income tax in both the United Kingdom and New Zealand jurisdictions and significant judgement is required in determining the accrual for income taxes. During the ordinary course of business, there are transactions and calculations for which the ultimate tax determination is uncertain. As a result, the company recognises tax liabilities based on estimates of whether additional taxes and interest will be due. These tax liabilities are recognised when, despite the company’s belief that its tax return positions are supportable, the company believes that certain positions are likely to be challenged and may not be fully sustained upon review by tax authorities. The company believes that its accruals for tax liabilities are adequate for all open to potential audit years based on its assessment of many factors including past experience and interpretations of tax law. This assessment relies on estimates and assumptions and may involve a series of complex judgements about future events.

To the extent that the final tax outcome of these matters is different than the amounts recorded, such differences will impact income tax expense in the period in which such determination is made. Recognition of deferred tax assets is restricted to those instances where it is probable that taxable profit will be available against which the difference can be utilised. Deferred tax assets are reviewed at each reporting date and are reduced to the extent that it is no longer probable that the related tax benefit will be realised.

5. FINANCIAL INSTRUMENTS - RISK MANAGEMENT

The Group is exposed through its operations to the following financial risks:

• Credit risk;

• Foreign exchange risk;

• Other market price risk; and

• Liquidity risk.

In common with all other businesses, the Group is exposed to risks that arise from its use of financial instruments. This note describes the Group’s objectives, policies and processes for managing those risks and the methods used to measure them. Further quantitative information is respect of these risks is presented throughout these financial statements.


There have been no substantive changes to the Group’s exposure to financial instrument risks, its objectives, policies and processes for managing these risks or the methods used to measure them from previous periods unless otherwise stated in this note.

Principal financial instruments

The principal financial instruments used by the Group, from which financial instrument risk arises are as follows:

• Loans and Receivables

• Payables at Amortised Cost, due within 12 months

A summary of the financial instruments held by category:

GROUP PARENT

$NZD 2014 2013 2014 2013

Financial Assets

Loans and Receivables 3,352,218 4,157,191 3,220,193 3,944,935

Total Financial Assets 3,352,218 4,157,191 3,220,193 3,944,935

Financial Liabilities

Payables at Amortised Cost, due within 12 months 2,686,730 355,916 2,248,722 260,136

Total Financial Liabilities 2,686,730 355,916 2,248,722 260,136 General objectives, policies and processes The Board has overall responsibility for the determination of the Group’s risk management objectives and policies and for designing operating processes that ensure the effective implementation of the objectives and policies to the Group’s finance function. The Board receives monthly management reports that cover the operating activities of the Parent and its subsidiary through which it reviews the effectiveness and appropriateness of the objectives and policies it sets. The overall objective of the Board is to set policies that seek to reduce risk as far as possible without unduly affecting the Group’s competitiveness and flexibility. Further details regarding these policies are set out below:

Credit RiskCredit risk is the risk of financial loss to the Group if a customer or counterparty to a financial instrument fails to meet its contractual obligations. The Group is mainly exposed to credit risk from credit sales and from collections of Wool Marketing Development Commitment (WMDC). It is Group policy to assess the credit risk of new customers before entering contracts. The Board reviews all trade and other receivables as part of the monthly management process. As part of the agreement to purchase shares in the Company, each Shareholder agreed to contribute a Wool Market Development Commitment (WMDC) based on each shareholders’ production volumes between 1 January 2013 and 30 June 2018. The Group is exposed to credit risk on these commitments. The Group does not enter into derivative contracts to manage credit risk.

Quantitative disclosures of the credit risk exposure in relation to financial assets are as follows:

GROUP 2014 GROUP 2013

$NZD

Carry Value

Maximum Exposure

Carry Value

Maximum Exposure

Financial assets – Group

Cash and cash equivalents 1,052,741 1,052,741 423,792 423,792

Loans and receivables 2,339,504 2,339,504 1,046,878 1,046,878

Short Term Deposits 1,012,714 1,012,714 3,110,313 3,110,313


PARENT 2014 PARENT 2013

$NZD

Carry Value

Maximum Exposure

Carry Value

Maximum Exposure

Financial assets – Parent

Cash and cash equivalents 585,662 585,662 320,002 320,002

Advance to Subsidiary 336,717 336,717 614,090 614,090

Loans and Receivables 2,207,479 2,207,479 834,622 834,622

Short Term Deposits 1,012,714 1,012,714 3,110,313 3,110,313


Wools of New Zealand Limited places cash and short term deposits with good credit quality counterparties (ANZ Banking Group Limited). All such investments are held with counterparties having a minimum Standard and Poors credit rating of A. There are no concentrations of credit risk in relation to Loans and Receivables.


Foreign exchange risk Foreign exchange risk arises when individual Group entities enter into transactions denominated in a currency other than the functional currency. The Group’s policy is, where possible, to allow group entities to settle liabilities denominated in their functional currency (Sterling, Euro, US dollar and China RMB) with cash generated from their own operations in that currency.

The Group has exposure to the following types of transactions:

1. The New Zealand parent has advanced funds to its UK subsidiary as required. The balance of this advance is calculated on a monthly basis with any variation being charged to profit or loss.

2. Partner fees issued to Asian Premium Partners invoiced in US dollars. The currency variation in these is calculated on a monthly basis with any variation being charged to profit or loss.

3. The parent Company transfers funds periodically to the UK, US and China operations as required. The transfers are completed at monthly rates – there are no forward contracts in place for these transfers.

The Group operates in China, United States, UK and New Zealand. Bank accounts are held in all of these currency denominations. The Group also records trade receivables and payables in these currencies. These financial instruments are converted into NZ dollars at the closing reporting date rates. Any variations (currency gains or losses) are charged to profit or loss. The following outlines the valuation impact of changes to assumptions, keeping all other valuation inputs constant, that the valuation is most sensitive to: Foreign exchange risk arises from future commercial transactions (including the sale of wool and funding of foreign operations) which are undertaken in currencies other than the functional currency.

During the course of the 2014 financial year the Group began wool trading and entered into a number of foreign currency forward contracts. All foreign currency forward contracts have settlement dates within nine months after reporting date.

At reporting date the amount of foreign currency forward exchange contracts are:

GROUP PARENT

$NZD 2014 2013 2014 2013

Foreign Currency Forward Exchange Contracts 3,324,735 - 3,324,735 -

These contracts are not designated as hedged contracts. Therefore these transactions are revalued at reporting date and any change in value reflected in the profit or loss. The fair value of Foreign Currency Forward Exchange Contracts is valued in accordance with IFRS 13: Fair Value Measurement. This standard identifies different levels for Fair Value Measurement. The fair value of all Foreign Currency Forward Exchange Contracts is estimated in accordance with the methods identified in Level 2 of the standard. Level 2 means that the fair value is estimated using inputs other than quoted prices included in Level 1 that are observable for the asset or liability, either directly (as prices) or indirectly (derived from prices).

The operations of the Group conducted in foreign currencies are described below. The sensitivity analysis is based on an assessment of the reasonably possible movements in foreign exchange rates over a one year period based on the average actual movements experienced over the prior 10 years, with all other variables held constant.

China RMBThe Group operates a China RMB bank account. A 10% movement in the exchange rate has an immaterial effect on the pre-tax profit due to the minimal cash held in that account. Debtors as at reporting date in relation to the partner fees outstanding was US$40,759. The effect of a 10% strengthening of the US against NZ at the reporting date on these receivables with all other variables held constant would result in a decrease in pre-tax profit for the year and equity of NZ$4,451. A weakening of 10% on the same basis would have the effect of an increase to pre-tax profit and equity of a similar amount.

UK SterlingTrade payables and receivables are recorded by the UK subsidiary. A movement in the foreign currency rate at any point in time has a material effect on the Group. For the following sensitivity analysis, the Board has determined that a 10% movement either way in the foreign exchange rates represents the upper limits of movement in the foreign currency rates that the Group is subject to as part of its operations and capital requirements in the overseas jurisdictions.

Trade Receivables: A strengthening in 10% of Sterling against the NZ dollar would result in a decrease in pre-tax profits and equity of NZ$12,573. A weakening of 10% on the same basis would have the effect of an increase to pre-tax profit and equity of a similar amount.

Trade Payables: A strengthening in 10% of Sterling against the NZ dollar would result in an increase in pre-tax profits and equity of NZ$5,967. A weakening of 10% on the same basis would have the effect of a decrease to pre-tax profit and equity of a similar amount.

Parent Advance: A strengthening in 10% of Sterling against the NZ dollar would result in an increase in pre-tax profits and equity of NZ$63,873. A weakening of 10% on the same basis would have the effect of an increase to pre-tax profits and equity of a similar amount.


US DollarThe Group operates a US Dollar bank account. A 10% movement in the exchange rate has an immaterial effect on the pre-tax profit for the year and equity due to the minimal cash held in that account.

Euro

The UK subsidiary transacts through its Euro bank account. The Domotex Europe trade show costs and various UK partner fees are all denominated in Euro. A 10% movement either way in the Euro would have a $22,533 effect on the pre-tax profits and equity of the Group.

Where there are no forward contracts in place to manage the effect on currency fluctuations, the Group will be subject to the effects of the currency rate at either reporting dates or the date of any transaction. Where deemed appropriate, forward contracts are entered in to for certain wool trading transactions.

Market Price RiskThe Group generates its income from the New Zealand Strong Wool Growers by way of the Wool Market Development Commitment (WMDC). This commitment is presently set at $0.15 per kilogram of assessed annual wool production produced by each shareholder. As detailed in the Prospectus, the WMDC may be increased to $0.20 if the price of Strong Wool reaches $4.50 per kilogram (clean) and maintains that level for three consecutive months.

The Group has specific contracts to supply wool of varying quality and quantity of wool at set prices. Therefore subject to not being able to meet all obligations, the Group will be subject to movements in the market price of Wool. Wool is purchased to meet individual contracts and wool is sourced from a number of sources including shareholders in the group and wool traders. Therefore the group is exposed to the fluctuations in the market price of wool.

Non derivative financial liabilitiesThe following liquidity risk disclosures reflect all contractually fixed payments and repayments from recognised financial liabilities as at 30 June. The timing of cash flows for liabilities is based on the contractual terms of the underlying contract. However, where the counterparty has a choice of when the amount is paid, the liability is allocated to the earliest period in which the Group can be required to pay. Liquid non-derivative assets comprising cash and receivables are considered in the Group’s overall liquidity risk. The Group ensures that liquid assets are available to meet all the required short term cash payments. As at the reporting date all non-derivative financial liabilities are due to be paid within six months.

Liquidity RiskLiquidity Risk arises from the Group’s management of its working capital. Management reviews the cash requirements of the Group on a regular basis. The policy is to ensure that there is sufficient cash available to meet its obligations to not only suppliers but also its obligations to provide funds to Group operations overseas.

Capital DisclosuresThe Board monitors all components of Equity. The Group’s objectives when maintaining capital are:1. To safeguard the entity’s ability to continue as a going concern, and

2. To provide an adequate return to its Shareholders (NZ Strong Wool Growers) by pricing products and services commensurately with the level of risk.

Comparative InformationWhere necessary certain comparative information has been reclassified in order to provide a more appropriate basis for comparison. These changes are not significant.

6 REVENUE

GROUP PARENT

$NZD 2014 2013 2014 2013

Wool Sales 8,135,468 - 8,135,468 -

Wool Market Development Commitment 2,254,771 1,110,193 2,254,771 1,110,193

Partner Fees 334,686 232,003 271,745 183,738

Royalties 193,949 191,420 4,155 21,027

Wool Market Development Fee 94,673 92,479 12,310 10,750

Trade Show Income 81,127 997,169 81,127 1,001,563

Other Commercial and Commission Income 685,381 490,751 221,041 59,033

Total Revenue 11,780,055 3,114,015 10,980,617 2,386,304


7 TRADE SHOWS

GROUP PARENT

$NZD 2014 2013 2014 2013

Trade Show Income 94,673 92,479 12,310 10,750

Less Related Expenses 342,851 322,872 93,424 80,876

Net Trade Show Expenses (248,178) (230,393) (81,114) (70,126)

Costs associated with trade shows are included in the Cost of Sales in the Statements of Comprehensive Income.

8 OPERATING PROFIT BEFORE TAX INCLUDES:

GROUP PARENT

$NZD 2014 2013 2014 2013

Foreign currency exchange losses (gain) 5,330 11,113 13,407 28,239

9 OPERATING EXPENSES & CORPORATE CHARGES

GROUP PARENT

$NZD 2014 2013 2014 2013

Travel Costs 182,998 175,423 130,699 131,485

Consulting and Accounting Fees 181,874 119,744 179,313 117,266

Rental and operating lease costs 167,586 162,131 69,803 67,454

Marketing 39,927 27,441 39,927 27,441

Corporate Charges 12,988 20,413 12,988 20,413

Other Operating Costs 484,265 293,302 381,894 200,427

Total Operating Costs & Corporate Charges 1,069,638 798,454 814,624 564,486

10 EMPLOYEE EXPENSES

GROUP PARENT

$NZD 2014 2013 2014 2013

Wages and Salaries 1,575,764 1,267,078 823,859 508,108

Staff Pensions & Kiwisaver 85,756 95,841 17,956 18,452

Social Security Costs 73,211 87,062 - -

Other Employee Expenses 283,637 209,590 279,116 209,590

Total Employee Expenses 2,018,368 1,659,571 1,120,931 736,150

11 AUDITORS’ REMUNERATION

GROUP PARENT

$NZD 2014 2013 2014 2013

Amounts paid or due and payable to the independent auditor:

For auditing the financial statements:

Parent Company Auditor – BDO Christchurch 26,376 31,355 26,376 31,355

UK Subsidiary Auditor – Clough & Co 16,286 14,291 - -

Total Auditors’ Remuneration 42,662 45,646 26,376 31,355

Auditors also received the following fees in relation to the raising of share capital during the 2013 financial year. This remuneration is included in Share Capital in the Statements of Financial Positions:

GROUP PARENT

$NZD 2014 2013 2014 2013

Parent Company Auditor – Prospectus - 30,650 - 30,650

No further fees were paid to the UK Subsidiary auditor.


12 PAYMENTS TO DIRECTORSThe following Directors Fees were paid during the year. The 2013 Directors Fees relate to services rendered during 2012 and 2013 (see Related Party Transactions note 29):

GROUP PARENT

$NZD 2014 2013 2014 2013

M Shadbolt1 90,000 120,000 90,000 120,000

K Sutton 50,000 37,169 50,000 37,169

P Guscott 30,000 30,000 30,000 30,000

C Hickson 30,000 22,198 30,000 22,198

J Tuuta 30,000 22,500 30,000 22,500

Total Directors’ Fees 230,000 231,867 230,000 231,867

During the 2013 financial year, the Directors also received the following fees paid to cover the Company’s activities and the development of the capital raising proposal, payment of which was conditional upon the capital raising proceeding. This remuneration is included under Prospectus Costs in the Statements of Comprehensive Income, and included in Share Capital in the Statements of Financial Position:

GROUP PROSPECTUS COSTS SHARE CAPITAL

$NZD 2014 2013 2014 2013

M Shadbolt - 60,000 - 30,000

K Sutton - 21,039 - 21,038

P Guscott - 13,667 - 6,333

C Hickson - 12,500 - 12,892

Total Other Payments to Directors - 107,206 - 70,263

PARENT PROSPECTUS COSTS SHARE CAPITAL

$NZD 2014 2013 2014 2013

M Shadbolt - 60,000 - 30,000

K Sutton - 21,039 - 21,038

P Guscott - 13,667 - 6,333

C Hickson - 12,500 - 12,892


13 FINANCE INCOME AND EXPENSES

GROUP PARENT

$NZD 2014 2013 2014 2013

Interest was received from:

Trading Banks 104,150 45,331 104,063 45,305

Unrealised Foreign Exchange Gain 62,591 - 62,591 -

166,741 45,331 166,654 45,305

Interest was paid to:

Trading Banks 7,771 706 7,607 279

Wools of New Zealand Trust - 112,607 - 112,607

7,771 113,313 7,607 112,886

Following the capital raising in the 2013 financial year, the advance from the Wools of New Zealand Trust was repaid.

1 Mark Peter Shadbolt continued in his role as Executive Chairman until 31 December 2013. From 1 January 2014, his role reverted to a non-executive chairman.


14 INCOME TAX EXPENSE

GROUP PARENT

$NZD 2014 2013 2014 2013

Operating surplus (deficit) before tax (283,887) (352,652) (351,002) (423,557)

Add (subtract) permanent differences

Losses Brought Forward (913,334) (1,164,598) - (182,586)

Losses Lost on Change of Shareholder - 301,523 - 301,523

Movement in Foreign Currency Translation Reserve (4,504) (10,585) - -

Non-deductible expenses 47,015 328,381 1,462 327,834

Total Permanent Differences (870,823) (545,279) 1,462 446,771

Add (subtract) timing differences

Movement in holiday pay 4,746 (9,331) 17,365 (17,142)

Movement in bonus provision - (20,552) - (20,552)

Movement in ACC accrual (1,400) 680 (1,400) 680

Movement in doubtful debts provision 20,000 4,000 20,000 4,000

Add Amortisation of Intangibles 9,800 9,800 9,800 9,800

Total timing differences 33,146 (15,403) 45,765 (23,214)

Operating deficit for taxation purposes (1,121,564) (913,334) (303,775) -

Current taxation @ 28% - - - -

Less prepaid tax - 768 - 768

Resident withholding tax 29,021 11,854 29,021 11,854

Taxation credit/(debit) as per Consolidated Statements of Financial Position

(29,021) (12,622) (29,021) (12,622)

Current Taxation - - (11,081) -

Movement in deferred tax account (19,727) (12,215) (11,081) (27,380)

Income tax expense/(benefit) as per Consolidated Statements of Comprehensive Income

(19,727) (12,215) (11,081) (27,380)

Deferred Taxation

Deferred tax at beginning of period 1,181 13,396 (7,465) 19,915

Transferred to/from Statements of Comprehensive Income (19,727) (12,215) (11,081) (27,380)

Transferred to/from reserve account - - - -

Deferred tax liability/(asset) as per Consolidated Statements of Financial Position

(18,546) 1,181 (18,546) (7,465)

Non recognised deferred tax losses 1,121,564 913,334 303,775 -

15 IMPUTATION CREDIT ACCOUNT

GROUP PARENT

$NZD 2014 2013 2014 2013

Balance at beginning of year 11,854 711 11,854 711

Imputation Credits

Resident withholding tax paid during the year 29,021 11,854 29,021 11,854

29,021 11,854 29,021 11,854

Imputation debits - -

Taxation refunds 11,854 - 11,854 -

Credits lost on shareholder change - 711 - 711

Total Debits 11,854 711 11,854 711

Balance at end of year available to the shareholders of the company

29,021 11,854 29,021 11,854


14 INCOME TAX EXPENSE

GROUP PARENT

$NZD 2014 2013 2014 2013

Operating surplus (deficit) before tax (283,887) (352,652) (351,002) (423,557)

Add (subtract) permanent differences

Losses Brought Forward (913,334) (1,164,598) - (182,586)

Losses Lost on Change of Shareholder - 301,523 - 301,523

Movement in Foreign Currency Translation Reserve (4,504) (10,585) - -

Non-deductible expenses 47,015 328,381 1,462 327,834

Total Permanent Differences (870,823) (545,279) 1,462 446,771

Add (subtract) timing differences

Movement in holiday pay 4,746 (9,331) 17,365 (17,142)

Movement in bonus provision - (20,552) - (20,552)

Movement in ACC accrual (1,400) 680 (1,400) 680

Movement in doubtful debts provision 20,000 4,000 20,000 4,000

Add Amortisation of Intangibles 9,800 9,800 9,800 9,800

Total timing differences 33,146 (15,403) 45,765 (23,214)

Operating deficit for taxation purposes (1,121,564) (913,334) (303,775) -

Current taxation @ 28% - - - -

Less prepaid tax - 768 - 768

Resident withholding tax 29,021 11,854 29,021 11,854

Taxation credit/(debit) as per Consolidated Statements of Financial Position

(29,021) (12,622) (29,021) (12,622)

Current Taxation - - (11,081) -

Movement in deferred tax account (19,727) (12,215) (11,081) (27,380)

Income tax expense/(benefit) as per Consolidated Statements of Comprehensive Income

(19,727) (12,215) (11,081) (27,380)

Deferred Taxation

Deferred tax at beginning of period 1,181 13,396 (7,465) 19,915

Transferred to/from Statements of Comprehensive Income (19,727) (12,215) (11,081) (27,380)

Transferred to/from reserve account - - - -

Deferred tax liability/(asset) as per Consolidated Statements of Financial Position

(18,546) 1,181 (18,546) (7,465)

Non recognised deferred tax losses 1,121,564 913,334 303,775 -

15 IMPUTATION CREDIT ACCOUNT

GROUP PARENT

$NZD 2014 2013 2014 2013

Balance at beginning of year 11,854 711 11,854 711

Imputation Credits

Resident withholding tax paid during the year 29,021 11,854 29,021 11,854

29,021 11,854 29,021 11,854

Imputation debits - -

Taxation refunds 11,854 - 11,854 -

Credits lost on shareholder change - 711 - 711

Total Debits 11,854 711 11,854 711

Balance at end of year available to the shareholders of the company

29,021 11,854 29,021 11,854

16 CASH OR CASH EQUIVALENT

GROUP PARENT

$NZD 2014 2013 2014 2013

New Zealand Dollar Accounts 514,465 255,451 514,465 255,451

United States Dollar Accounts 25,805 21,389 25,805 21,389

China RMB Accounts 34,674 26,035 34,674 26,035

UK Sterling Accounts 467,146 103,790 67 -

Cash in Hand 10,651 17,127 10,651 17,127

1,052,741 423,792 585,662 320,002

The New Zealand Dollar accounts are general purpose accounts. Interest is received at various rates between 3.25% and 4.0%, calculated on a daily basis on the closing funds held. There are no special terms and conditions around these accounts.

The UK Sterling accounts include four bank accounts with NatWest in the UK. The UK bank balances are currently subject to conditions which mean that a minimum balance will be maintained in the account to offset exposure on the credit card facilities.

17 TRADE AND OTHER RECEIVABLES

GROUP PARENT

$NZD 2014 2013 2014 2013

Trade Receivables – Wool Trading 1,551,824 - 1,551,824 -

Trade Receivables – Other 792,488 983,521 660,775 788,230

Total Trade Receivables 2,344,312 983,521 2,212,599 788,230

Other Receivables 19,192 67,357 18,880 50,392

Allowance for Doubtful Debts (24,000) (4,000) (24,000) (4,000)

Total Trade and Other Receivables 2,339,504 1,046,878 2,207,479 834,622

Trade receivables are non-interest bearing and are generally 30 day terms.

AGED RECEIVABLES GROUP PARENT

$NZD 2014 2013 2014 2013

Current or not yet due 2,140,844 529,735 2,049,701 378,524

Overdue 30 days 42,221 360,488 13,465 336,168

Overdue 60 days 6,268 26,520 - 23,755

Older 154,979 66,778 149,433 49,783

Trade Receivables 2,344,312 983,521 2,212,599 788,230

18 INVENTORIES

GROUP PARENT

$NZD 2014 2013 2014 2013

Wool on Hand 2,297,049 53,073 2,262,386 20,116

Total Inventories 2,297,049 53,073 2,262,386 20,116

19 PREPAYMENTS

GROUP PARENT

$NZD 2014 2013 2014 2013

Retail Programmes 289,316 396,563 - -

Other Prepayments 93,171 48,445 16,962 4,053

Trade Prepayments 382,487 445,008 16,962 4,053

Wools of New Zealand (UK) Limited operates retail programmes with a number of retailers. These prepaid costs reflect funding towards these programmes which are later recovered from royalties.


20 SHORT TERM DEPOSITS

GROUP PARENT

$NZD 2014 2013 2014 2013

Fixed Term Interest Deposits 1,012,714 3,110,313 1,012,714 3,110,313

Total Short Term Deposits 1,012,714 3,110,313 1,012,714 3,110,313

The company holds fixed interest bank deposits with a maturity ranging from 61 days to 183 days. Interest rates for such deposits range from 3.25-4.00%. This investment reflects the cash requirements of the Group and is therefore short term in nature. The carrying amount of the investment represents the fair value. There are no special terms and conditions around the deposits apart from one deposit of $10,000 being required to act as a guarantee for the credit cards owned and operated by Wools of New Zealand Limited.

21 PROPERTY PLANT & EQUIPMENT

$NZD Furniture & Fittings

Information Technology

Plant Leasehold Office Equipment

Total $

GROUP 2014

Cost

Balance at 1 July 2013 191,334 83,903 317,144 35,973 7,159 600,760

Additions 7,128 32,486 - - 1,266 17,419

Disposals at cost - (9,734) (975) - (4,158) (10,305)

Foreign Exchange Rate Movements (1,348) - (2,326) (263) - (3,937)

Balance at 30 June 2014 197,114 (407) 313,843 35,710 4,267 603,937

Accumulated Depreciation

Balance at 1 July 2013 106,248 42,167 249,305 22,743 6,275 426,738

Current year depreciation 31,864 3,251 32,182 7,300 52 74,649

Accumulated Depreciation of disposals - (2,157) (975) - (2,374) (5,506)

Foreign Exchange Rate Movements (935) - (1,829) (168) - (2,932)

Balance at 30 June 2014 137,177 43,261 278,683 29,875 3,953 492,949

Carrying Amount 59,937 9,742 35,160 5,835 314 110,988

GROUP 2013

Cost

Balance at 1 July 2012 196,575 46,549 318,497 36,127 7,159 604,907

Additions 7,085 2,601 - - - 9,686

Disposals at cost (11,523) - - - - (11,523)

Foreign Exchange Rate Movements (803) - (1,353) (154) - (2,310)

Balance at 30 June 2013 191,334 49,150 317,144 35,973 7,159 600,760


Balance at 1 July 2012 83,903 38,118 236,714 (4,097) 6,130 360,768

Current year depreciation 32,486 4,049 32,997 7,354 145 77,031

Accumulated Depreciation of disposals (9,734) - - - - (9,734)

Reclassification of assets - - (23,434) 23,434 - -

Foreign Exchange Rate Movements (407) - 3,028 (3,948) - (1,327)

Balance at 30 June 2013 106,248 42,167 249,305 22,743 6,275 426,738

Carrying Amount 85,086 6,983 67,839 13,230 884 174,022


$NZD Furniture & Fittings

Information Technology

Plant Leasehold Office Equipment

Total $

PARENT 2014

Cost

Balance at 1 July 2013 7,535 49,150 - - 7,159 63,844

Additions - 9,025 - - 1,266 10,291

Disposals at cost - (5,172) - - (4,158) (9,330)

Balance at 30 June 2014 7,535 53,003 - - 4,267 64,805


Balance at 1 July 2013 5,283 42,168 - - 6,275 53,726

Current year depreciation 268 3,251 - - 52 3,571

Accumulated Depreciation of disposals - (2,157) - - (2,375) (4,532)

Balance at 30 June 2014 5,551 43,262 - - 3,952 52,765

Carrying Amount 1,984 9,741 - - 315 12,040

PARENT 2013

Cost

Balance at 1 July 2012 7,535 46,549 - - 7,159 61,243

Additions - 2,601 - - - 2,601

Disposals at cost - - - - - -

Balance at 30 June 2013 7,535 49,150 - - 7,159 63,844


Balance at 1 July 2012 4,979 38,119 - - 6,130 49,228

Current year depreciation 304 4,049 - - 145 4,498

Accumulated Depreciation of disposals - - - - - -

Balance at 30 June 2013 5,283 42,168 - - 6,275 53,726

Carrying Amount 2,252 6,982 - - 884 10,118

22 INTANGIBLE ASSETSThe Board has reviewed the useful life of the Intangible Assets held. Having considered the useful life of the Wools of New Zealand websites, associated software and brands the following determinations have been made:

Websites These websites have an indefinite useful life while Wools of New Zealand Limited operate as an international sales and marketing company. The Board does not envisage any major change (in the architecture) of these sites, within 5 years, however some on-going maintenance and enhancement is anticipated to ensure these sites remain consistent with the Company’s brand strategy as it unfolds.

GROUP PARENT

$NZD 2014 2013 2014 2013

Opening Balance 42,230 42,230 42,230 42,230

Additions - - - -

Disposals - - - -

Amortisation of Intangible Assets - - - -

Impairment - - - -

Closing Balance 42,230 42,230 42,230 42,230

SoftwareThis consists of Laneve on-line traceability for end consumers of Laneve branded products and ‘Trade’ (a section of the WNZ website dedicated to trade partners – including password access to exclusive information). The Board anticipates these Information Technology tools will undergo more regular enhancements to ensure they remain compelling market tools. It is not envisaged they would require any substantial change or update to the basic architecture inside of 3 years. The software recorded in the financial statements is deemed to have a finite life of 3 years, and has been amortised over the 3 years on a straight line basis. At reporting date, the software has been fully amortised.

GROUP PARENT

$NZD 2014 2013 2014 2013

Opening Balance 9,800 19,600 9,800 19,600

Additions - - - -

Disposals - - - -

Amortisation of Intangible Assets 9,800 9,800 9,800 9,800

Impairment - - - -

Closing Balance - 9,800 - 9,800


BrandsThe brands have an indefinite useful life which can be renewed in perpetuity and support the principal activity of the Group being the provision of international marketing of New Zealand Strong Wool. On-going enhancement is anticipated to these brands over time as the Group’s strategy unfolds.

GROUP PARENT

$NZD 2014 2013 2014 2013

Opening Balance 637,612 - 637,612 -

Additions - 637,612 - 637,612

Disposals - - - -

Amortisation of Intangible Assets - - - -

Impairment - - - -

Closing Balance 637,612 637,612 637,612 637,612

These brands were acquired by the amalgamation of Wools of New Zealand Brands Limited and are shown at acquired cost. At reporting date, the Group reviewed the carrying amount to determine whether there is any indication that those assets have suffered an impairment loss. If any such indication exists, the recoverable amount of the asset is estimated in order to determine the extent of the impairment loss (if any). In assessing value in use, the estimated future cash flows from brands are discounted to their present value using a discount rate that reflects current market assessment.

23 INVESTMENT IN SUBSIDIARYThe Board discloses the following investment in its subsidiary:

INCORPORATED IN

BALANCE DATE

PERCENT HELD

INVESTMENT HELD

2014 2013 2014 2013

Wools of New Zealand (UK) Limited

Shares UK 30 June 100% 100% 454,603 454,603

Advance 336,717 614,090

Total Investment in Subsidiary 791,320 1,068,693

Wools of New Zealand (UK) Limited is a direct subsidiary of Wools of New Zealand Limited. The principal activity of the company is to promote the sale and marketing on behalf of the Group.

Wools of New Zealand (UK) Limited is not currently in a financial position to allow it to pay dividends. However, there are no legal restrictions on the ability of the company to pay dividends, repay loans or otherwise transfer funds to the parent company should it be in the financial position to enable it to do so in the future.

24 TRADE CREDITORS AND ACCRUALS

GROUP PARENT

$NZD 2014 2013 2014 2013

Trade payables – Wool Trading 1,796,762 - 1,464,333 -

Trade payables – Other 703,155 217,150 640,640 167,278

Sundry payables and accruals 186,813 138,766 143,749 92,858

Total Trade Creditors and Accruals 2,686,730 355,916 2,248,722 260,136

Trade payables are generally non-interest bearing and are normally settled on 60-day terms. Payments for wool trading are settled in accordance with individual contracts. All contracts are settled within 12 months.

25 EMPLOYEE ENTITLEMENTS

GROUP PARENT

$NZD 2014 2013 2014 2013

Compensation Accrued 104,071 18,500 80,840 18,500

Holiday Pay 69,193 64,448 24,365 7,000

Taxes and Other Benefits Owing 26,335 22,092 786 765

Total Employee Entitlements 199,599 105,040 105,991 26,265


26 OPERATING LEASE COMMITMENTSAs at 30 June 2014, the Group had the following lease commitments:

GROUP PARENT

$NZD 2014 2013 2014 2013

Property Rental : The Group leases premises in UK, China, USA & NZ

Within 1 Year 109,531 23,314 59,826 23,314

Within 1 to 5 Years - 66,763 - -

109,531 90,077 59,826 23,314

Lease of Plant & Equipment

Within 1 Year 1,684 2,653 1,620 780

Within 1 to 5 Years 5,976 3,082 3,645 455

7,660 5,735 5,265 1,235

27 CAPITAL COMMITMENTS AND SUBSEQUENT EVENTS On 27 May 2014, the Board agreed in principle to an equity investment of $100,000 in a small innovative textile company. As at reporting date, the investment has not been completed.

28 CONTINGENT LIABILITIES At reporting date there were no contingent liabilities (2013 nil).

29 RELATED PARTY TRANSACTIONS During the year the Company entered into the following transactions:

Wools of New Zealand Limited purchased services from its subsidiary Wools of New Zealand (UK) Limited. These services for the year to 30 June 2014 totalled $1,139,407 (2013 $1,170,472). The Parent company also advanced funds to its subsidiary. The advance is interest free and repayable on demand. At 30 June 2014 the balance of the advance was $336,717 (2013 $614,090). Management fees are made in arm’s length transactions at normal market prices and on normal commercial terms.

Mark Peter Shadbolt, Philip John Guscott, Keith Graham Sutton and Craig Richard Noel Hickson are directors of the Company and own shares in the Company either in their own names or via entities controlled by them. Ross Edwin Townshend is the Chief Executive Officer of the Company and owns shares in the Company either in his own name or via entities controlled by him. All Shareholders contribute to the income of the Company via the Wool Market Development Commitment.

Directors and employees of the Group may deal with Wools of New Zealand as Strong Wool Growers on normal terms and conditions within the ordinary course of trading activities.

The Directors of Wools of New Zealand Limited also perform other roles within the Strong Wool Industry. The details of transactions between the Wools of New Zealand Limited and other entities that are classed as related entities are set out in the table below.

Director Related Entity Role in Related Entity

Nature of Transaction

VALUE BALANCE OWING

2014 2013 2014 2013

$NZD $NZD $NZD $NZD

M P Shadbolt Banks Peninsula Wool Growers Limited

Director / Shareholder

Levies, Wool Trading, Commission

245,297 81,307 5,310 -

Mark Peter Shadbolt Owner Levies, Wool Trading 1,972 - - -

Mendip Hills Station Advisor Levies 11,919 - - -

Wairewa Partnership Advisor Levies 1,210 - 1,632 -

P J Guscott Kahuiti Farms Limited Director / Trus-tee Shareholder

Levies, Wool Trading 49,335 1,671 - -

White Rock Station (1990) Limited Director Levies, Wool Trading 14,269 6,154 - -

C Hickson Progressive Leathers Limited Director Levies,Commission

13,429 6,311 -

7,258

Anawai Partnership Partner Levies, Wool Trading 46,334 1,485 - -

K Sutton Run 351 Limited Director / Shareholder

Levies 60 30 - -

Moanui Farm Limited Director Levies 2,642 1,188 - 1,366

Te Hau Station Limited Director Levies 5,579 2,970 3,000 3,416

Maori Soldiers Trust (Hereheretau Station)

Advisory Boardmember

Levies 7,500 3,713 - 4,269

J Tuuta Maori Soldiers Trust (Hereheretau Station)

Statutory Trustee

Levies 7,500 3,713 - 4,269


The following Directors Fees were paid during the year. The 2013 Directors Fees relate to services rendered during 2012 and 2013:

GROUP PARENT

$NZD 2014 2013 2014 2013

M Shadbolt 90,000 120,000 90,000 120,000

K Sutton 50,000 37,169 50,000 37,169

P Guscott 30,000 30,000 30,000 30,000

C Hickson 30,000 22,198 30,000 22,198

J Tuuta 30,000 22,500 30,000 22,500


During the 2013 financial year, the Directors also received the following fees in respect of the Company’s earlier activities and the development of the capital raising proposal, payment of which was conditional upon the capital raising proceeding. Mark Peter Shadbolt continued in his role as Executive Chairman until 31 December 2013. From 1 January 2014, his role reverted to a non-executive chairman. This remuneration is included under Prospectus Costs in the Statements of Comprehensive Income, and included in Share Capital in the Statements of Financial Position:

GROUP PROSPECTUS COSTS SHARE CAPITAL

$NZD 2014 2013 2014 2013

M Shadbolt - 60,000 - 30,000

K Sutton - 21,039 - 21,038

P Guscott - 13,667 - 6,333

C Hickson - 12,500 - 12,892


As at reporting date no amounts were owed by key management personnel. All remuneration of key management personnel are classified as short-term employee benefits.

30 FOREIGN CURRENCY TRANSLATION RESERVEExchange differences relating to the translation from the functional currencies of an associate company’s foreign subsidiary into New Zealand dollars are brought to account by entries to the foreign currency translation reserve. When a foreign operation is disposed of, such that control, significant influence or joint control is lost, the cumulative amount in the translation reserve related to that foreign operation is reclassified to profit or loss as part of the gain or loss on disposal.

31 RECONCILIATION OF PROFIT FOR THE YEAR TO NET CASH FLOWS FROM OPERATIONS

GROUP PARENT

$NZD 2014 2013 2014 2013

Profit/(Loss) for the Year (264,160) (340,437) (339,921) (396,177)

Adjustments for:

Depreciation of Property, Plant & Equipment 74,648 77,031 3,571 4,498

Amortisation of Intangible Fixed Assets 9,800 9,800 9,800 9,800

Allowance for Doubtful Debts 20,000 4,000 20,000 4,000

Loss on sale of Property, Plant & Equipment 638 - 638 -

Net foreign exchange loss/(gain) 5,330 11,113 13,407 28,239

Movement in Deferred Tax (19,727) (12,215) (11,081) (27,380)

(173,471) (250,708) (303,586) (377,020)

(Increase)/Decrease in trade and other receivables (1,329,095) (561,552) (1,484,756) (480,123)

(Increase)/Decrease in inventories (2,243,976) (7,234) (2,242,270) (3,488)

(Increase)/Decrease in trade and other payables 2,307,410 109,583 1,948,270 78,987

(Increase)/Decrease in taxes payable - - - -

Net Cash Flows from Operating Activities (1,439,132) (709,911) (2,082,342) (781,644)


32 CAPITAL RAISED During the 2013 year, the Company issued a prospectus inviting all New Zealand Strong Wool Growers to apply for shares in the Company. The total amount of capital raised was $6,068,385. Total Costs associated with the capital raising amount to $800,283, of which $312,954 is included in the Statements of Comprehensive Income on page 4. The remaining $487,329 reduces the share capital as shown in the Statements of Financial Position on page 5.

Under the terms of Prospectus the Company allotted 7,339,941 ordinary shares. Of these shares, 6,068,385 were issued at a $1 per share and 1,271,556 shares were issued as Additional Shares in respect of which no payment was required.

GROUP PARENT

$NZD 2014 2013 2014 2013

Shares at Beginning of Period 7,339,941 2,017 7,997,021 1,915,965

Ordinary Shares issued via prospectus @ $1 - 6,068,385 - 6,068,385

Ordinary Additional Shares issued via prospectus - 1,271,556 - -

Cancellation of Ordinary Shares (previously held by Wools of New Zealand Trust)

- (2,017) - -

Amalgamation of Wools of New Zealand Brands Limited - - - 500,000

Costs of Share Issue Deductible from Issue Proceeds - - - (487,329)

Shares at End of Period 7,339,941 7,339,941 7,997,021 7,997,021

All shares have equal voting rights and share equally in dividends and any surplus on winding up.

Net Assets Per ShareAs at reporting date, the Group recorded net assets per share of 68.0 cents per share (2013: 71.6).

33 COMPARISON TO PROSPECTIVE FINANCIAL INFORMATION (PFI)

Consolidated Statements of Comprehensive Income

GROUP

$NZD 2014 Actual 2014 Forecast

Revenue 2,254,771 3,000,000

Wool Market Development Fee 9,525,284 3,949,005

Commercial Trading Income 11,780,055 6,949,005

Total Revenue (8,742,421) (2,055,823)

Cost of Sales 3,037,634 4,893,182

Gross Profit 3,037,634 4,893,182

Expenses

Audit Fees 42,662 63,876

Bad Debts 34,737 30,560

Amortisation of Intangible Assets 9,800 9,796

Depreciation Charges 74,648 108,697

Directors’ Fees 230,000 200,000

Employment Expenses 2,018,368 2,658,992

Loss on Sale of Property, Plant & Equipment 638 -

Operating Expenses & Corporate Charges 1,069,638 1,578,210

Total Expenses 3,480,491 4,650,131

Profit/(Loss) from Operations (442,857) 243,051

Finance Income & Expenses 158,970 192,508

Profit/(Loss) before Tax (283,887) 435,559

Income Tax Expense/(Benefit) (19,727) -

Profit/(Loss) for the Year Attributable to Company Shareholders (264,160) 435,559

Other Comprehensive Income/(Expenses)

Translation of Foreign Operations (4,504) -

Total Comprehensive Income/(Loss) Attributable to Company Shareholders (268,664) 435,559


Consolidated Statements of Financial Position

GROUP


Current Assets

Cash or Cash Equivalents 1,052,741 7,111,933

Short Term Deposits 1,012,714 -

Total Cash Reserves 2,065,455 7,111,933

Trade & Other Receivables 2,402,095 1,945,756

Inventory 2,297,049 34,672

Taxation Refund Due 29,021 8,418

Prepayments 382,487 248,948

Total Current Assets 7,176,107 9,349,727

Non Current Assets

Property, Plant & Equipment 110,988 301,324

Intangible Assets 679,842 867,244

Deferred Tax Asset 18,546 -

Total Non Current Assets 809,376 1,168,568

Total Assets 7,985,483 10,518,295

Current Liabilities

Trade Creditors & Accruals 2,686,730 182,050

Revenue in Advance 86,498 194,961

Goods & Services Tax 24,039 74,089

Employee Entitlements 199,599 188,658

Grower Direct to Market Costs - 759,600

Total Current Liabilities 2,996,866 1,399,358

Non Current Liabilities

Deferred Tax Liability - 13,396

Total Liabilities 2,996,866 1,412,754

Net Assets 4,988,617 9,105,541

Represented by:

Equity

Share Capital 7,997,021 12,165,965

Retained Earnings Attributable to Parent (3,087,984) (3,154,590)

Foreign Currency Translation Reserve 79,580 94,166

Total Equity 4,988,617 9,105,541

Consolidated Statements of Changes in Equity

GROUP


Balance as at 1 July 2013 5,257,281 8,669,982

Profit/(Loss) for the year (264,160) 435,559

Other Comprehensive Income (4,504) -

Total Comprehensive Income (268,664) 435,559

Balance as at 30 June 2014 4,988,617 9,105,541


Consolidated Statements of Cash Flows

GROUP


Net Cash Flows from Operating Activities (1,439,132) 510,244

Net Cash Flows from Investing Activities 2,085,347 (270,145)

Net Cash Flows from Financing Activities (7,432) -

Total Increase/(Decrease) in Cash Held 638,783 240,099

Net foreign exchange movements (9,834) -

Cash at Beginning of Period 423,792 6,871,834

Cash at end of Period shown as:

Cash & Cash Equivalents 1,052,741 7,111,933

Short Term Deposits 1,012,714 -

Total Cash Reserves 2,065,455 7,111,933

The financial data in the PFI was based on the assumption that the Company would raise $10,000,000 through the share offer. The Prospectus set the minimum amount of capital to be raised at $5,000,000.

As stated in the Prospectus, “if the Company raises less than $10,000,000 but more than the minimum amount of $5,000,000, the ability of the Company to undertake the activities described under the heading “Prospects and Forecasts” on pages 44 to 45 [of the prospectus] will be limited due to less capital being available and will also be further constrained by reduced WMDC income. In such a scenario, the Directors consider that the Company would still be a viable commercial proposition and that the objectives of the company as outlined in this Offer Document would still be achievable. However some or all of the proposed activities of the Company would need to be scaled-back or deferred.”

The total amount of Capital Raised was $6,068,385 compared to $10,000,000 assumed in the PFI. Therefore there is a significant difference in both Equity and Cash balances at reporting date compared to the PFI.

The Prospectus also provided for the issuance of additional Bonus Shares. Therefore following the capital raising, a total of 7,339,941 shares were issued, of which 1,271,556 were bonus shares. The net assets per share as at 30 June 2012, if these 7,399,941 shares had been issued at that date, would have been 76.2 cents per share.

Net Assets Per ShareThe table below sets out the net assets per share , calculated from PFI and actual results

ACTUAL FORECAST

$NZD 2014 2013 2014 2013

Net Assets Per Share 68.0 71.6 60.7 - 91.1 57.8 - 86.7

The lower capital raised has resulted in proposed activities being scaled back and deferred however, the underlying asset backing of the shareholders investments remains within the range anticipated at the time the Prospectus was issued.

The capital raising period was also extended resulting in activity commencing later than anticipated in the Prospectus. A comparison of Total Comprehensive Income in 2013 and 2014 is provided below. The combined losses sustained since in the 2013 and 2014 financial years are lower than anticipated in the PFI.

ACTUAL FORECAST

$NZD 2014 2013 2014 2013

Total Comprehensive Income (268,664) (351,022) 435,559 (1,107,265)

The 2014 result is lower than anticipated in the PFI. Due to the lower amount of shares issued, the WMDC collected is lower than forecast in the Prospectus. Commercial trading activity has been at a higher level than anticipated in the PFI however, due to the differing mix of activities these have resulted in a lower than anticipated margin.

During the 2013 year, the Company received a distribution of $522,229 from Wools of New Zealand Trust following the winding up of the Wools of New Zealand Trust. This distribution was not included in the PFI information.

2 Shareholders entitlement to bonus shares was dependent on previous Wool Marketing Development Fee contributions and subscribing for one or more

Shares for every two kilograms of their Annual Strong Wool Production. If entitled, the Shareholder would receive, at no additional cost, one additional Share

for every two Shares subscribed for. The Prospectus did not contain guidance on the expected number of bonus shares to be issued during the Capital Raising.

Therefore a range is provided in the table above.



Statutory InformationFOR THE YEAR ENDED 30 JUNE 2014

The directors present the Group Annual Report for the year ended 30 June 2014.

PRINCIPAL ACTIVITY AND CHANGES IN NATURE OF BUSINESSThe principal activity of the Group is the provision of international marketing of New Zealand Strong Wool on behalf of New Zealand Strong Wool Growers.

DIVIDENDS

No dividends have been paid for the current year (2013 nil).

DIRECTORS

Directors holding office during the year were:

PARENT SUBSIDIARY

Mark Peter Shadbolt (Chairman) Mark Peter Shadbolt (Chairman)

Philip John Guscott Philip John Guscott

Craig Richard Noel Hickson

Keith Graham Sutton

Jamie Grant Daniel Tuuta

REMUNERATION OF EMPLOYEES

The numbers of employees, who are not directors, whose remuneration and benefits exceeded $100,000 in the financial year, were:

GROUP PARENT

2014 2013 2014 2013

$110,001 – 120,000 1 - - -

$120,001 – 130,000 1 2 - -

$130,001 – 140,000 - 1 - 1

$150,001 – 160,000 1 - 1 -

$170,001 – 180,000 - 1 - 1

$180,001 – 190,000 1 1 - -

$380,001 – 390,000 1 - 1 -

REMUNERATION OF DIRECTORSThe following Directors Fees were paid during the year. The 2013 Directors Fees relate to services rendered during 2012 and 2013 (see Related Party Transactions note 29):

GROUP PARENT

2014 2013 2014 2013

M Shadbolt3 90,000 120,000 90,000 120,000

K Sutton 50,000 37,169 50,000 37,169

P Guscott 30,000 30,000 30,000 30,000

C Hickson 30,000 22,198 30,000 22,500

J Tuuta 30,000 22,500 30,000 22,198


3 Mark Peter Shadbolt continued in his role as Executive Chairman until 31 December 2013. From 1 January 2014, his role reverted to a non-executive chairman.


During the 2013 financial year, the Directors received the following fees paid to cover the Company’s activities and the development of the capital raising proposal, payment of which was conditional upon the capital raising proceeding. This remuneration is included under Prospectus Costs in the Statements of Comprehensive Income, and included in Share Capital in the Statements of Financial Position:

GROUP PARENT

2014 2013 2014 2013

M Shadbolt - 60,000 - 30,000

K Sutton - 21,039 - 21,038

P Guscott - 13,667 - 6,333

C Hickson - 12,500 - 12,892

J Tuuta - - - -


DEEDS OF INDEMNITYPursuant to section 162 of the Companies Act 1993 and the Constitution, Wools of New Zealand has entered into insurance and indemnity agreements with the directors of the Group to indemnify them to the maximum extent permitted by law, against all liabilities which they may incur in the performance of their duties as directors of any company within the Group. Insurance cover extends to directors and officers for the costs and expenses of successfully defending legal proceedings. Specifically excluded are penalties and fines which may be imposed for breaches of law and criminal actions. In accordance with commercial practice, the insurance contract prohibits further disclosure of the terms of the policy.

AUDITORS’ REMUNERATION

GROUP PARENT

$NZD 2014 2013 2014 2013

Amounts paid or due and payable to the auditor:

For auditing the financial statements:

Parent Company Auditor 26,376 31,355 26,376 31,355

UK Subsidiary Auditor 16,286 14,291 - -

Total for the Audit of the Financial Statements 42,662 45,646 26,376 31,355

For other services:

Parent Company Auditor – Prospectus - 30,650 - 30,650

Total Auditors’ Remuneration 42,662 76,296 26,376 62,005

FINANCIAL STATEMENTSThe financial statements for the year ending 30 June 2014 are attached to this report.

For and on behalf of the Board

Mark P Shadbolt Keith G Sutton Director Director

17 October 2014 17 October 2014

AUDITOR’S REPORT




DIRECTORY

MARK SHADBOLT

Chairman

JAMIE TUUTAKEITH SUTTON PHILIP GUSCOTT CRAIG HICKSON

REGISTERED OFFICE

c/- Buddle Findlay83 Victoria StreetChristchurch

ACCOUNTANTS

Marriotts LimitedLevel 2137 Victoria StreetChristchurch

AUDITOR

BDO Christchurch30 Sir William Pickering DriveBurnsideChristchurch

BANK

ANZ Banking Corporation Limited203 Queen StreetAuckland

SOLICITORS

Buddle Findlay83 Victoria StreetChristchurch

The Board of Directors


NEW ZEALANDRoss Townshend Chief Executive

Jason EversonOperations Manager

CHINAStephen Tan China Manager

USAHallie Cobb Marketing Director North America

UKDavid Hammond Europe & North America Market Manager

Joanna RamsdenCreative Manager

Steven ParsonsMarket Development & Innovation Manager

John BenthamProduction Manager

Management

Wools of New Zealand Limited493 Shands Road

RD 6 Christchurch 7676

PO Box 16819 Hornby

Christchurch 8441 New Zealand

tel. +64 3 974 1805freephone. 0800 687 9665

fax. +64 3 344 0595email. [email protected]

www.woolsnz.comwww.ourwool.co.nz

Consolidated Annual Report · Wools of New Zealand - Annual Report 2014 3 3. Operational - while the CEO’s report will go into these in more detail there are several major outcomes

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