Wools of New Zealand...Wools of New Zealand Highlights Governance Appointment of Chief Executive - Ross Townshend appointed on 1 August 2013 -Quickly up to speed with business and

Wools of New Zealand

Wools of New Zealand 2nd Annual General Meeting

Masterton 24 November 2014


The Agenda 1. Welcome and Introduction of Directors

2. Apologies

3. Minutes

4. Presentation of annual report and accounts – Chairman’s report – Mark Shadbolt

– Chief Executive’s report – Ross Townshend

– Questions and answers

5. Appointment of Auditors

6. Election of directors

7. General business

8. Close of meeting

9. Lunch


Chairman’s Report

Mark Shadbolt



My pleasure to present second annual report Year one – focus on Capital raising and gaining farmer support Year two - focus on building the company as per mission and vision statements and meeting the objectives Start up company – second year always going to be hardest year

Recognise Grower, industry, customer and supply chain support Board and Management commitment and energy


Wools of New Zealand - Drivers

Vision To be the leading innovative sales and marketing company for New Zealand Strong Wool

Mission To progressively improve the profitability of our grower shareholders

Commitment to Prospectus


2013-14 Financial Result 2014 2013

$M $M

Revenue 11.780 3.114

Cost of Sales (8.7420) (0.782)

WNZ Trust Distribution 0 0.522

Gross Profit 3.038 2.854

Total Expenses 3.480 3.139

Loss from Operations (0.443) (0.284)

Finance income and expense 0.158 (0.067)

Foreign exchange impact (0.005) (0.011)

Profit (Loss) before tax (0.288) (0.363)

Tax benefit 0.020 0.012

Nett Profit (Loss) After Tax (0.268) (0.351)


How Did We Do vs Prospectus

Pro Forma Information in the Prospectus was 2 years to 30th June 2014 Recapitalisation was four months later and small than anticipated – raising $6 million, our goal $10 million, but we got started

Prospectus forecast loss for first two years ($671,706) Actual forecast loss for the two years ($619,686)

Nett Book Value cents per share 30th June 2013 71.6 Nett Book Value cents per share 30th June 2014 68.0 Volume related shares versus bonus shares


Highlights Governance

Appointment of Chief Executive - Ross Townshend appointed on 1 August 2013

- Quickly up to speed with business and strategy - The board appreciates his efforts and results to date

Board review Engagement of Sir Henry van der Hayden to review the board

Key Conclusions – The board is committed to the future of the company A broader mix of skill sets would be an advantage A succession plan would be desirable Greater focus on the Vision Strong two way relationship with CEO


Highlights Camira Lamb’s Wool Contract

Now in its fourth year Volumes continue to grow annually Rewards growers for providing fit for purpose wool – Provides a return on investment Market investment – branded strategy – Dolphin programme More of these contracts required


Highlights Direct-to-Scour

A success story though not without some teething issues Encouraged by repeated support of growers Costs savings compared to conventional sales methods Endorses our objective of an efficient route to market and providing options to growers Appreciate Lempriere and WSI cooperation

Give it a go


Coarse Crossbred Wool Indicator 2013-14

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Xbred Wool Indicator


Highlights Stable Price Mechanism(SPM)

Volatility is the bogey for growers and the supply chain

Two year pilot scheme, now promoting the SPM to in market customers

We encourage partners and growers to test the system

Only works if growers are committed.


CCWI v “SPM” 2013-14

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Xbred Wool Indicator SPM Contract Price


Highlights Shareholder Communications

Grower Advisory Panel established Regionally appointed grower shareholders have been a great sounding board for the board and management “Road testing” of tactics and initiatives such as STAPLE

Direct communications Email and electronic communications only partially effective Appointment of four part time Supplier Liaison Officers (SLOs) Working relationship with Hazlett Rural field force (Canterbury)


Collaboration Considerable Progress: Wool Services International partnership “Media Release” – Conditional – CWS

Ongoing discussions with: Primary Wools Cooperative Elders Primary Wools New Zealand Merino

Our objective – Increase collaboration for mutual commercial benefit


Trading in WNZ Shares

Some of you have expressed interest in buying WNZ shares

WNZ have set up a share trading process with CooperAitken, where growers can list shares for sale, or buy shares

A modest number of shares are for sale, generally from exiting farmers

To date, no shares have been traded on the platform

If you are keen to become a shareholder, there is a clear opportunity to buy shares, or for many of you, to top up your shareholding to match your wool clip


Vision: To be the leading innovative sales and marketing company for New Zealand strong wool

Objectives

• Protect and build the value of the Wools of New Zealand Brands — Done

• Provide the opportunity for all Strong Wool Growers — Done

• Provide transparent feedback to Shareholders rewarding them for delivering fit-for-purpose product to our customers —Ongoing ….More and wider

• Develop the market-pull strategy by increasing branded contracts and relationships with the supply chain —Ongoing

• Evolving within five years to be a fully commercial Grower-owned sales and marketing business — Step three 2013-2018 ….Stand on own feet

• To achieve these objectives need greater grower wool commitment

Mission: To progressively improve the profitability of our Grower Shareholders


Acknowledgements

• Industry – cooperative spirit – respect

• Customers – Trust – long term relationships

• Staff - commitment – energetic

• Advisors

• Directors – fully focused and committed

• Shareholders and supporters

• Family


Some Facts Renowned for producing strong white bright fibre

Wool is approximately 2% of all flooring

New Zealand produces approximately 30% of crossbred fibre

Our competitors are lower priced synthetics

Poor grower returns linked to the current selling system:

Dairy farmers, 80% of wholesale price

Red meat farmers, 50% of wholesale price

Wool growers, typically 20% of wholesale price

To influence change and improve our position -

• Growers need to support a branded strategy connecting with the supply chain right to the consumer Commitment and Investment

• Targeted focus on high end opportunities. Adding value


The Hard Work Continues

We said it would take time

We stand by our strategy – consistent and transparent

We appreciate the level of support that we get but it needs to continue to grow

WMDC – June 2018

Volume = 15million + Kgs by year five , 30million by 20????

You’ve invested – Get involved with YOUR company

Commitment of wool = Return on Investment

Team effort


Chief Executive’s Report

Ross Townshend


2013/14 Financial Result

Compliant with the Prospectus 2 year actual loss $620k cf $672k forecast loss (92%) NBV backing per share 68.0c/share (cf 71.6c/share LY) Delayed recapitalisation (and CEO appointment) meant later start recap +4 months, CEO +2 months = 6 month delay Trading on our own terms only from December 2013 – HALF YEAR ONLY considerable business architecture to put in place setting up WSI partnership arrangements At 30th September (1st Qtr), 2014/15 result is on track for >$500k NOPAT


People Small team of very creative, very productive, very impressive people

This time last year, the global team was 15

Total Headcount is now 20 (17FTE)

New clerical accounting role (0.8FTE)

Supplier Relations Manager (0.6FTE)

Supplier Liaison Officers (3*0.3FTE)

2 retirements/replacements in Ilkley

2 restructures/replacements in Ilkley

1 retirement/replacement at Hornby

Right balance of skills in the right places


Communications (NZ) Reliance on E Bulletins proved to be not enough.

Opened by: 43%, read by: ????, acted upon: ????

Committed to spring and autumn roadshows – with adequate coverage

Quite expensive in cost ($160k) and time (4 weeks) but worthwhile

Plan to include customer and market information via guests

Grower Advisory Panel

18 regional appointments

Initially hand-picked

Building structure and focus

Useful road test for new plans and concepts.

Appointment of Shareholder Relations Manager and Supplier Liaison Officers


Communications (World) Big Investment in Trade Shows ($250k) Domotex (Hanover, Germany) Surfaces (Las Vegas, USA) Domotex (Shanghai, China) Extensive Travel CEO travel ~40% offshore No real alternative to face to face Social Media Facebook, Pinterest, Twitter, Woolblog Continuous Professional Development Programs Corporate Social Responsibility Programs


Wool Services Partnership

WNZ needed a partner to provide a range of services and functions

No sense in duplication of costs and effort

Saved about $500k in duplicate systems, and >6 months of time

WSI was the clear choice with the widest range of capability

Significant industry comment and resistance

Like all partnerships, they need R&M and TLC

Sometimes too slow to react and respond – especially logistics

D2S is a huge success – expect 5,000T this year – good repeat business

Credible, objective and reliable – very high first time price acceptance

WSI were absolutely the right partner for WNZ


Direct to Scour (D2S)

10,929 19,722 24,765

62,860

131,936

294,295 286,520

242,277

268,113

114,008

265,131

391,457

212,721

272,567

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50,000

100,000

150,000

200,000

250,000

300,000

350,000

400,000

450,000

Sep-13 Oct-13 Nov-13 Dec-13 Jan-14 Feb-14 Mar-14 Apr-14 May-14 Jun-14 Jul-14 Aug-14 Sep-14 Oct-14

Gre

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Direct to Scour (WSI) - weight


D2S Benefits to Growers

Takes all grades of wool (whole bales)

One phone call and one form to complete

Farm to depot freight to growers account

Mainline freight costs covered in base fee

Lots over 4 bales cored and tested (small lots sampled)

Objective pricing on Fridays benchmarked off prior day auction

Price acceptance TOTALLY in growers hands (6 weeks “free” option)

Full payment within 10 days

Our WNZ Weekly Commodity Wool Market Indicator adds credibility


Camira Laneve Lamb’s Wool 2014 400,000kg program all sourced, scoured and mostly delivered

Contract filled – only just, with some positive industry collaboration

Significant procurement pressure – beyond commercially sensible

Deferred payment terms were unpopular with many growers

we didn’t sell the message well enough

we were late to the market (setting up banking etc)

only required because of unique supply to delivery profile

first wool supplied November 2013, last wool paid for May 2015

Growers wary of ability to meet tight specs – largely unfounded

Put >$0.80/kg in growers pockets – after all costs including OD finance


Camira Laneve Lamb’s Wool 2015

WNZ has secured a 2015 supply contract for an increased volume

Specifications are the same as for 2014

Pricing is as for 2014, except:

10c/kg sign on incentive by 31st October 2014

First payment of 40% in 30 days (was 20% in 60 days)

Then 40% at 30.11.2015 and 20% at 28.02.2016

Uptake for 2015 is much better and you should act now before the contracts fill

We continue to explore other similar opportunities with Camira


Laneve Carpet Contracts

Over the last few months, we have sold wool directly to 6 spinners and we are engaged with another 3 spinners

Premiums for this wool are harder to achieve, in a market that has no shortage of bidders keen to join a “race to the bottom”

This is especially prevalent in China, where price prevails in the market

Our approach is slow, steady, reasoned and focused on quality and provenance

We are still learning how to operate best in this market

We fully understand growers wish for a wider range of contracts for longer fleece types and hogget wool



Stable Price Mechanism


SPM relies on … Willing buyers, seeking price stability and longer term committed supply

And

Willing suppliers, keen to lock in pricing, with reduced price volatility, also for extended supply periods – to match the buyer expectations.

Relies on 50% gain (or loss) sharing over time

Builds enduring year on year supply and sale relationships

Requires a commitment programme, introducing “STAPLE”


Dead Band

+ 5% Base Price

CCWI Market movement +ve

50% gain share +ve

CCWI Market movement -ve

50% gain share -ve


• Price increase during Year 1

• 50% +ve gain share sets base price for Year 2 (+ PPI)

• Price decreases during Year 2

• 50% -ve gain share sets base price for Year 3 (+ PPI)

Year 1

Year 2

Year 3


1. A ‘major movement dead band’ also needs to be created/agreed. 2. At the upper end, WNZ needs to be able to renegotiate to be certain that it

can source wool for the customer. 3. At the lower end, the customer needs to be insulated from paying an

excessive price relative to open market. 4. The MMDB is set at two levels

a) +/- 20% when the impacted party is entitled to initiate discussion (Yellow card)

b) +/- 25% when the SPM is suspended (Red card)

+ 5%

Base Price

Major movement dead band

50% gain share +ve

Major movement dead band

50% gain share -ve


“STAPLE” Supply Commitment

STAPLE is a programme for you to

Commit some/all your wool

Gain priority access to contracts

Be paid a 5c/kg loyalty fee

Help WNZ build new ways to market


STAPLE®

Applies to all wool types/styles

Applies to Contract and Direct-to-Scour

We need you to commit to back our programmes like SPM – to close out our “unmatched position”

We want very strong commitments

“Grower of the Year” Programme



Market Pull Strategy


Conclusion

Questions Please


The Agenda 1. Welcome and Introduction of Directors

2. Apologies

3. Minutes

4. Presentation of annual report and accounts – Chairman’s report – Mark Shadbolt

– Chief Executive’s report – Ross Townshend

– Questions and answers

5. Appointment of Auditors

6. Election of directors

7. General business

8. Close of meeting

9. Lunch


The Hard Work Continues

We said it would take time

We stand by our strategy – consistent and transparent

We appreciate the level of support that we get but it needs to continue to grow

Relationships – your bottom line , WNZ bottom line or someone elses ?

You’ve invested – Get involved with YOUR company

Commitment of wool = Return on Investment

Team effort

Wools of New Zealand...Wools of New Zealand Highlights Governance Appointment of Chief Executive - Ross Townshend appointed on 1 August 2013 -Quickly up to speed with business and

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