WSI Managing Director s Annual Report to AGM (Slide #1 - Operational overview) As noted by the Chairman, WSI had a record year in 2010/11.

Transcription

1 1 WSI Managing Director s Annual Report to AGM (Slide #1 - Operational overview) As noted by the Chairman, WSI had a record year in 2010/11.

2 2 (Slide #2 Wool marketing and exporting) Our marketing and trading operation essentially drives WSI. This function has been highly effective over a number of years. Achieving a successful performance this year greatly assisted our financial result. World stocks of wool, especially carpet wool, were never more than minimal as wool production reduced, both in New Zealand and world-wide. Despite a dwindling wool clip, WSI managed to maintain market volumes overall. For most of the year the world economy improved, although more recently that has been in doubt. Therefore, while the supply chain was nearly empty, the international market was vigorous, particularly in China, also in India and Europe. This is a combination we have not seen for some time, leading to greatly enhanced stock turn and just in time deliveries. However, this situation has now reversed because of the European crisis, but we continue to navigate through all this. Wool prices in the United Kingdom rose rapidly, although this took some time to impact on New Zealand.

3 3 Between July 2010 and July 2011 the coarse wool indicator moved from 337NZc/kg to 648NZc/kg: an increase of 92 per cent. Partially off-setting these favourable factors, currency exchange rates posed a problem, with the New Zealand dollar substantially appreciating in value. However, WSI treasury proficiently managed this aspect of our business.

4 4 (Slide #3 Processing) Our two scours, at Kaputone in Christchurch and Whakatu in Hawkes Bay, are, of course, an absolutely vital component in what we do. Between them they process about 1,500 bales of greasy wool every 24 hours, and a major part of our market strength lies in the fact that we are the only NZ wool exporter that owns our own scouring plants. Both our scouring factories had good results, performing up to expectation. In common with most processing plants, however, there is always room for improvement. Performance can be enhanced by focusing on throughput and wool grease recovery. Both plants are concentrating on improving grease extraction, water usage and effluent disposal. To this end we have a number of projects at the experimental stage that, if successful, will make a significant contribution to the bottom line. Kaputone, under the able management of Don Caradus, has made major progress on effluent disposal and grease extraction. Whakatu, which took a few years to bring to optimum operation, is excellently led by Adrian Donnelly. This plant is now performing much closer to expectation and is

5 5 established as a reliable processor of New Zealand scoured wool.

6 6 (Slide #4 & 5 Photos of Whakatu and Kaputone) (Slide #6 Domotex Asia, Shanghai) Hiring a full stand at the Domotex Asia Chinafloor trade fair in Shanghai in March 2011 was WSI s major marketing initiative during the year, and was the first ever exhibitor at this event by a raw materials supplier. Domotex was an outstanding success for us, reaching over 400 clients during the three-day event, and in the process lifting the profile of WSI and New Zealand wool to many more potential clients. Almost 40,000 trade visitors from all over the world attended the event. We intend repeating the exercise in the present financial year. As well as displaying New Zealand scoured wool, we also profiled our Red Band, Glacial and Purelana brands, which are now well known throughout China. WSI also promoted its worldwide image as the quality supplier of New Zealand scoured wool. We place great emphasis on our business model, where ownership of our processing plants guarantees quality and client satisfaction, as well as ensuring our commission clients can share in the same synergy, should they wish.

7 7 (Slide #7 to 11 Photos of Domotex activity) (Slide #12 Campaign for Wool) In order to raise the profile of wool among potential consumers, HRH the Prince of Wales, Prince Charles initiated the Campaign for Wool in the United Kingdom. This campaign was launched internationally this year to Commonwealth countries, along with Norway, South Korea and the USA, using targeted promotion via retailers and manufacturers to stimulate renewed consumer interest in wool as a luxury, environmentally sustainable product. WSI has strongly supported the Campaign for Wool and we are delighted to be associated with the initiative. As a trade member, WSI is the largest single contributor to this campaign.

8 8 (Slide #13 to 15 Campaign for Wool visuals) (Slide #16 - Brands) As a marketing vehicle, Purelana continues to expand its scope, becoming WSI s flagship promotional brand. As noted above, Purelana gained significant profile at the Domotex exhibition. Along with our Red Band brand, the Purelana strategy is working well to lift the company s product into the higher quality segment of the global market. Purelana is an ideal vehicle to deliver research and development projects to the market, and we intend to exploit this link more proactively in the future. This will require funding and, after consultation, may become part of the Purelana direct supply initiative.

9 9 (Slide #17 Rural operations) Operating out of Te Kuiti, Rural Wool Link, which is 50 per cent owned by WSI, is an important source of supply for our North Island procurement. It reported a satisfactory year to the end of June As well as playing an integral part in our branded marketing approach, the Purelana direct supply initiative continues to contribute significantly as a source of wool for WSI s scouring and export activities. We are considering further developing and expanding this system in order to extract even greater advantage for WSI and our grower partners. Canterbury Romney, which first became a partner of WSI ten years ago, and with which we have jointly operated a successful procurement scheme since, continues to provide significant value to our operations. WSI and principals from Canterbury Romney held a conference earlier this year to commemorate our first ten years of working together and consider how both companies will continue to build this mutually beneficial relationship. Both the Purelana direct supply initiative and WSI s partnership with Canterbury Romney foster closer links

10 10 with farmer-suppliers and are integral to the company s branded marketing strategy.

11 11 (Slide #18 Photo of Farmer to buyer links) (Slide #19 Forecast) As noted previously, this has been a year of extremes for your company. Great success has been tempered by disruption and disquiet, with the Canterbury earthquakes and the attempted acquisition of the company by Cavalier Wool Holdings in the latter category. While WSI faces a number of challenges and uncertainty relating to our majority shareholding, your company s board is confident these will be resolved. A number of options are under consideration, including a possible capital raising exercise. Decisions will be made on this in the coming weeks. We are also active with a number of exciting new research projects, the success of which would significantly improve our bottom line. Although our new financial year has started slowly, and at present it seems we will find it difficult to replicate the excellent year under review, we are confident this situation will improve, particularly in our prime markets in Asia. Additionally, with new strategic steps under way, and some structural changes to our business, we are confident of producing a satisfactory result in the coming year.

12 12 I can say that at this stage we are on track with our current year s forecast, and while this is down on last year, we nonetheless anticipate a very satisfactory year overall. Sales volumes to the end of November are on a par with last year. Scouring profits are similar to last year. On the latest published statistics market share is up on last year overall. Scoured wool sales to China are up on last year, along with market share. Sales to Europe are on a par with last year. This is a pleasing trend given that more wool is being shipped in a greasy state. This confirms our belief that WSI has the correct business model to contest competition from offshore wool scours. It furthermore confirms to us that we have the right business model full stop.

13 13 What WSI needs to do now is consolidate its position by ensuring the seamless line from wool grower to manufacturer is firmly implanted. This will ensure the farmer has active participation in the pipeline a position he has never had before. To achieve this he needs to invest in WSI during any capital raise and support that investment with his supply of wool, along with promotional assistance for his product. By volume, WSI is NZ s largest exporter of wool. We account for 30% of the total wool clip, and we sell 40% of coarse wools to over 30 countries. Our annual turnover this year is expected to be about $250 million. Our marketing team has a wealth of experience that is unrivaled, and they maintain a network of customer relationships through constant travel. WSI holds a pivotal role in the New Zealand wool industry. It is by far the most successful company in its sphere of operation. It has a proven track record.

14 14 It is the largest scoured wool exporter. It makes the greatest contribution to the promotion of New Zealand wool. It has the leading brand. Without qualification, it holds the best reputation of any wool exporter for the high standard of its product and reliability. It is the most proactive presence in the New Zealand wool industry. WSI is not like any other supplier of New Zealand wool. It operates a totally integrated model from farm gate to manufacturer and plays a role like no other in the New Zealand wool industry. With our strong activity at so many points of the chain, there simply is no comparison with any other organisation to the part played and the unique position that the company holds in the wool sector.