Wools of New Zealand Roadshows September-October 2013

Wools of New ZealandRoadshows September-October 2013

Wools of New ZealandRoadshows April 2014

WelcomeAutumn roadshow program

6 meetings North Island6 meetings South IslandJust Mark and Ross

Spring RoadshowsIn-market presenters (like last year)more meetings/varied locations

April 2014

Mark ShadboltChairman

Wools of New Zealand

Grower Roadshow Agenda

Welcome Introduction Chairman’s commentsRoss Townshend, CEOQuestions/CommentsInformal discussion/drinks

April 2014 Mark Shadbolt, Chairman, Wools of New Zealand

CommunicatingWe’re doing our best to communicate with you

Several new initiatives in Ross’s presentation

Encouraged with growing uptake of D2S and contracts.

We’re finding that quite a few shareholders still don’t know that we are operating and that we can take all of their wool

We would like you to work on WNZ’s behalf to connect with your friends and neighbours.

Mark Shadbolt, Chairman, Wools of New ZealandApril 2014

A year old

“We got started” 25th February 2013 Capitalisation

Prospectus – Sets the Direction for five years

720 shareholders $6.05 million capital

$10 m WMDC (5 years) 14.5 million kg

Additional supporters (~300) ~5 million kg


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 Step one 2013 ….

Develop the market-pull strategy by increasing branded contracts and relationships with the supply chain Step two 2013/14 ….

Evolving within five years to be a fully commercial Grower-owned sales and marketing business Step three 2013-2018 ….

Mission: To progressively improve the profitability of our Grower Shareholders


Key AchievementsProspectus Development – Repaid Loans

WNZ Brands / WNZ Ltd merger – protection

End of Year result – Cash result 40% of Prospectus forecast loss

On target for cash neutral position 2013/14

CEO appointed

Strategic Plan refined

Financial Management — Appointment of CFO


Key Achievements cont’d

WMDC/WMDF: – transacting growers wool - Thank you

In-market activity: US, China, Europe – build on what’s started

Direct to market stable price contract

Camira Lambs wool contract – volume increase

Relationships: Collaboration – scours

Future shareholding: Willing buyer, willing seller

Communications – e bulletins, roadshows, media


Financial PerformanceYE30.06.2013 YE30.06.2014

Prospectus ($1107k) $435k

Actual ($396k)

Forecast break-even

(later start from later capitalisation impact on both years)


Now operating selling your wool

Direct to Scour

Contracts – Camira, Grentex, Laneve, more coming

Foreign exchange cover deal by deal

Good credit insurance

Well supported by ANZ bank with Trade Finance facilities and FX advice

We are “picking and choosing” the best opportunities

We are being very careful and risk averse


Industry Co-operation

WNZ’s position is to co-operate with the wider wool industry

We have had excellent support from:

Wool Service International (WSI)

Elders Primary Wool (EPW & PWC)

New Zealand Merino (NZM)

We will continue to build positive relationships


But…We have been disappointed at some mis-information campaigns about WNZ, its future and its viability.

This has happened in New Zealand at farm gate level

And

It has happened in the International marketplace.

We have sought assurances that it will stop!

Farmers need to be fully involved in the supply chain.


Trading WNZ Shares

Only a few sales so far, usually farm sales and family reorganisation.

We have engaged CooperAitken to act as a share buying and selling facilitator

There are shares for sale

You can access the share sale process at

http://www.cooperaitken.co.nz/Services/Wools-of-NZ-Shareholders


http://www.cooperaitken.co.nz/Services/Wools-of-NZ-Shareholders

Price Volatility


Coarse Xbred Price Indicator (NZ$)

Price Volatility


Stable Price MechanismCost of Production (Shadbolt)Xbred Wool Indicator

Market Pull Strategy

April 2014 Mark Shadbolt, Chairman, Wools of New Zealand

Ross TownshendChief Executive

Wools of New Zealand

The Problem?60 years ago, 85% of a sheep farmer’s revenue was from wool and 15% from meat

Now the complete inverse is true

We want to bring up wool returns to >30% in a 5 year timeframe

We’ve lost some wool growing skills, wool harvesting skills and wool genetics = Loss of confidence

We’ve lost stock numbers – and they’re not coming back

Ross Townshend, Chief Executive, Wools of New ZealandApril 2014

Comparative ReturnsA dairy farmer gets ~80% of the wholesale returns for their product

A red-meat farmer gets ~50% of wholesale returns

A wool grower gets ~20% of wholesale returns

Yet

Dairy is the most capital/energy/environment intense

Wool is the least capital/energy/environment intense

But wool has the most convoluted value chain


Market Price Variability

Whole milk powder sells for USD5000/MT and is rarely offered outside a $50/MT band = 1%

Manufacturing beef rarely sells outside a band of +/-2USc/lb = 1% on USD2.00/lb

Wool is often offered by a range of NZ exporters in a +/-15% range


The Problem?The Wool industry destroys value at the sales end with multiple offerings of undifferentiated wools in a “race to the bottom”

Example: 7 bids, UK customer, basic slipe woolGBP3.40 to 2.90/kg50p difference = $1/kgre-sets buyers price expectation (lower)mid point price effect NZ$6M on 12M kg


Route to MarketDairy: Well established customer base + GDT, now with

~1000 bidders- Leads to “Price Discovery”

Beef/Lamb: Established disciplined commodity markets, integrated procurement, slaughter, by-products and sales

Some good established consumer positionsWool: Auction system that allows (a very small group of)

traders to take a position with no thought for the true market price


DifferentiationDairy: NZ global reputation for quality, technology

and reliable supplyMeat: NZ Lamb well established and differentiated

some success at grass-fed appellationplenty of lean (bull) grinding beef

Wool: Only 3 brands of significance- Wools of New Zealand [Fern brand]- Laneve [fully traceable - WNZ

owned]- Just Shorn [Elders Primary Wool]

Rest is “white and fluffy” commoditynotable step down in wool quality


We are developing New Ways

Direct to Scour (D2S)Contracts Camira

GrentexLaneveMore to come in 2014

Other new optionsStrong Bright and White

Key Tradeshow learningApplicable for hand-tufting in China


WNZ Route to MarketWNZ has brands, in-market presence and ~100 Premier Partners unique

WNZ co-brands with many “big name” carpet and textiles makers in UK, Europe and USA unique

Partners network include spinners, dyers, weavers, carpet makers right through to wholesalers and retailers unique

WNZ brands are not well known at home in NZ, but very well respected unique

- Laneve is the only traceable wool brand globally- huge uptake in UK, some in Europe, just launched in USA in Jan 2014

- generates real value- price discovery


WNZ Points of Difference* indicates Unique to WNZ

• Traceability*• Product development*• Style*• Colour *• Design*• Sampling*• Technical support*• Sales strategies*• Market support programmes*• Wool Supply

April 2014

April 2014

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EXPO

RT

SPIN

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MAN

UFC

TURE

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WHO

LESA

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CON

SUM

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DYERDIRECT

INTEGRITY AND TRACEABILITY

NZWSI GRENTEX SYD WHITEOAKWNZ

PREMIER PARTNERS

TRANSPARENT FEEDBACK LOOP

WNZ

Market Pull Strategy

Ross Townshend, Chief Executive, Wools of New Zealand

Camira Lambswool ContractCamira Fabrics is a Huddersfield MBO textiles business of competence, focussed on transport and office fabrics

Vertically integrated with spinning, dying, knitting, weaving, piece-work etc.Blazer is an office fabric that is a runaway success

- Co-branded as Laneve- traceable, pesticide free, low VM, EU Eco-label- 400000kg for 2014, ~500000kg for 2015 - partnership that we expect to rollover in July 2014 for

2015 supply on SPM terms- Exploring other opportunities with Camira


Value in Camira ContractsCurrent spot LW price: $5.10/kg cleanCamira contract price: $6.25/kg for 0.0% VM

$6.10/kg for 0.1% VM (limited)$6.00/kg for 0.2% VM (some)

D2S logistic model saves >13c/kgTotal price advantage ~$1.30/kg ButDeferred payment terms:

20% 60 days, 60% 30 Nov, 20%, 28 Feb

Matches Camira demand with NZ farm supply (12 + 4 = 16 mths)


Why Deferred Terms?Most wool harvested January 2014 to April 2014

Supply from April 2014 to March 2015

Camira pays on 30th Month following delivery (Last 03.04.2015)

400,000kg wool @ $6.25/kg = $2.5M (+costs ~$600k)

Trade off: better market returns = slower/later payments

Full market transparency

Good but new relationship with ANZ Bank


Grentex Carpet ContractMumbai based, family owned, wool spinner

WNZ Premier Partner, supplying Laneve yarn to:

Southern Yarn Dyers (Atlanta, GA – WNZ Premium Partner) who dye yarn for:White Oak Carpet (Wichita, KS – WNZ Premium Partner) who make the USA launch Laneve carpet

First step in a multi-step value chain – glued together by Laneve brand

Grower uptake low

Colour spec (y-z = 0) too tight for many growers

Colour flexibility from Grentex from visit in March


Laneve Carpet Contract

Similar to Grentex contractDirect result of Trade Show presence

trial Laneve supply CanadaRomaniaItalyBelgium (tbc)Turkey (tbc)

Less tight colour spec (y-z <2.5)$4.85/kg (clean)Uptake so far = modest.


Direct to ScourPartnership with Wool Services International – learning curve

Uses Wool Logistics as a freight broker – some issues

Conventional broker model costs 26c to 30c/kg

D2S all inclusive cost 13c/kg

Net saving >13c/kg – not huge but worth having : $2730 for average supplier (21,000kg)Almost equates WMDC deduction, 26% return on initial capital

“Top End” wool collected for WNZ contracts

All “other” wool priced by WSI against objective tests

Grower’s decision to accept the WSI price

Payment in 7-10 days

Doubled every month since October (290T in Feb 14)


D2S Volumes


Sep-13 Oct-13 Nov-13 Dec-13 Jan-14 Feb-14 Mar-14 -

50,000

100,000

150,000

200,000

250,000

300,000

350,000

10,929 19,722 24,765

62,860

131,936

294,295 300,000

Direct to Scour (WSI) - weight

Date

Grea

sy K

g's

est

Everyone Hates Volatility

1 3 5 7 9 11 13 15 17 19 21 23 25 27 29 31 33 35 37 39 41 43 45 47 49 51

0

100

200

300

400

500

600

700

Coarse Crossbred 2011-12Coarse Crossbred 2012-13Corase Crossbred 2013-14

Sale week Jun-JulSource: NZ Wool Services International

c/kg


WNZ Approach to Longer Term Pricing

Everyone in the wool value chain seeks less price volatility

Price upside volatility risks swap to synthetics – never comes back

Most people are prepared to trade some price for less volatility

WNZ seeks to build enduring roll-over type relationships

Development of the Stable Pricing Mechanism (SPM)

Our customers like this and we have it running off-shore

WNZ seeks to build back-to-back supply on the SPM – by contractRoss Townshend, Chief Executive, Wools of New ZealandApril 2014

Stable Price Mechanism• Operating for 2½ years, 4 periods with 5th committed

• Being rolled out for Camira 2015 supply contract

• Nice and simple

• Relies only on 2 independent indices CCWI and PPI

• Allows two way equal gain-share

• Widely road-tested with customers – acclaim

• Now seeking Growers support at April Roadshows


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


+ 5%Base Price

Major movement dead band

50% gain share +ve

Major movement dead band

50% gain share -ve

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)


CommunicationOur “Achilles Heel”

Fortnightly E-bulletinOnly ~40% of E-bulletins are openedMany email addresses change – update pleaseSome carriers drop off attachments

Mail out to non-E mail people

Feedback on communications would be good

Opening would be great

Reading would be better still

Acting on contracts and options would be superb


WNZ Approach to Grower Relations

Roadshows – Autumn and SpringE Bulletins – low penetrationNew appointments

Supplier Relations Manager (0.5FTE)

3 Supplier Liaison Officers (0.3FTE)

Grower Advisory Panel (GAP)15 to 20 noted growerstest panel for new ideas

Open and accessible Board and Executive


Trial with Hazlett Rural

Canterbury roll-out trial with “new generation” farm support company

“Clip on” to other farm services

Potential roll-out in other areas

Don’t want our own field force(duplication and cost)


Questions?


14th March 2014 Ross Townshend, Chief Executive, Wools of New Zealand

Wools of New Zealand Roadshows September-October 2013

Documents

Transcript of Wools of New Zealand Roadshows September-October 2013