Transcript Stable Price Mechanism

Wools
New
Zealand
Wools
of of
New
Zealand
Roadshows
Roadshows
April 2014 2013
September-October
Welcome
Autumn roadshow program
6 meetings North Island
6 meetings South Island
Just Mark and Ross
Spring Roadshows
In-market presenters (like last year)
more meetings/varied locations
April 2014
Mark Shadbolt
Chairman
Wools of New Zealand
Grower Roadshow Agenda
Welcome
Introduction
Chairman’s comments
Ross Townshend, CEO
Questions/Comments
Informal discussion/drinks
April 2014
Mark Shadbolt, Chairman, Wools of New Zealand
Communicating
We’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.
April 2014
Mark Shadbolt, Chairman, Wools of New Zealand
A year old
“We got started” 25th February 2013 Capitalisation
720 shareholders
$6.05 million capital
$10 m WMDC (5 years)
14.5 million kg
Additional supporters (~300)
~5 million kg
Prospectus – Sets the Direction for five years
April 2014
Mark Shadbolt, Chairman, Wools of New Zealand
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
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 ….
April 2014
Mark Shadbolt, Chairman, Wools of New Zealand
Key Achievements
Prospectus 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
April 2014
Mark Shadbolt, Chairman, Wools of New Zealand
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
April 2014
Mark Shadbolt, Chairman, Wools of New Zealand
Financial Performance
YE30.06.2013
YE30.06.2014
Prospectus
($1107k)
$435k
Actual
($396k)
Forecast
break-even
(later start from later capitalisation impact on both years)
April 2014
Mark Shadbolt, Chairman, Wools of New Zealand
Now operating selling your wool
Direct to Scour
Contracts – Camira, Grentex, Laneve, more coming
Foreign exchange cover deal by deal
Good credit insurance
Well supported by ANZ bank with Trade Finance
facilities and FX advice
We are “picking and choosing” the best opportunities
We are being very careful and risk averse
April 2014
Mark Shadbolt, Chairman, Wools of New Zealand
Industry Co-operation
WNZ’s position is to co-operate with the wider wool
industry
We have had excellent support from:
Wool Service International (WSI)
Elders Primary Wool (EPW & PWC)
New Zealand Merino (NZM)
We will continue to build positive relationships
April 2014
Mark Shadbolt, Chairman, Wools of New Zealand
But…
We have been disappointed at some mis-information
campaigns about WNZ, its future and its viability.
This has happened in New Zealand at farm gate level
And
It has happened in the International marketplace.
We have sought assurances that it will stop!
Farmers need to be fully involved in the supply chain.
April 2014
Mark Shadbolt, Chairman, Wools of New Zealand
Trading WNZ Shares
Only a few sales so far, usually farm sales and family
reorganisation.
We have engaged CooperAitken to act as a share buying
and selling facilitator
There are shares for sale
You can access the share sale process at
http://www.cooperaitken.co.nz/Services/Wools-of-NZ-Shareholders
April 2014
Mark Shadbolt, Chairman, Wools of New Zealand
Price Volatility
Coarse Xbred Price Indicator (NZ$)
April 2014
Mark Shadbolt, Chairman, Wools of New Zealand
Price Volatility
Stable Price Mechanism
Cost of Production (Shadbolt)
Xbred Wool Indicator
April 2014
Mark Shadbolt, Chairman, Wools of New Zealand
Market Pull Strategy
April 2014
Mark Shadbolt, Chairman, Wools of New Zealand
Ross Townshend
Chief 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
April 2014
Ross Townshend, Chief Executive, Wools of New Zealand
Comparative Returns
A 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
April 2014
Ross Townshend, Chief Executive, Wools of New Zealand
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
April 2014
Ross Townshend, Chief Executive, Wools of New Zealand
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 wool
GBP3.40 to 2.90/kg
50p difference = $1/kg
re-sets buyers price expectation (lower)
mid point price effect NZ$6M on 12M kg
April 2014
Ross Townshend, Chief Executive, Wools of New Zealand
Route to Market
Dairy:
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 positions
Wool:
Auction system that allows (a very small group of)
traders to take a position with no thought for the
true market price
April 2014
Ross Townshend, Chief Executive, Wools of New Zealand
Differentiation
Dairy: NZ global reputation for quality, technology
and reliable supply
Meat: NZ Lamb well established and differentiated
some success at grass-fed appellation
plenty 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” commodity
notable step down in wool quality
April 2014
Ross Townshend, Chief Executive, Wools of New Zealand
We are developing New Ways
Direct to Scour (D2S)
Contracts
Camira
Grentex
Laneve
More to come in 2014
Other new options
Strong Bright and White
Key Tradeshow learning
Applicable for hand-tufting in China
April 2014
Ross Townshend, Chief Executive, Wools of New Zealand
WNZ Route to Market
WNZ 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
April 2014
Ross Townshend, Chief Executive, Wools of New Zealand
WNZ Points of Difference
* indicates Unique to WNZ
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April 2014
Traceability*
Product development*
Style*
Colour *
Design*
Sampling*
Technical support*
Sales strategies*
Market support programmes*
Wool Supply
Market Pull Strategy
SYD
WHITEOAK
CONSUMERS
GRENTEX
RETAIL
DYER
WNZ
WHOLESALE
SPINNER
NZWSI
MANUFCTURER
EXPORT
DIRECT
SCOUR
GROWERS
INTEGRITY AND TRACEABILITY
WNZ
PREMIER
PARTNERS
TRANSPARENT FEEDBACK LOOP
April 2014
Ross Townshend, Chief Executive, Wools of New Zealand
Camira Lambswool Contract
Camira 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
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April 2014
Co-branded as Laneve
traceable, pesticide free, low VM, EU Eco-label
400000kg for 2014, ~500000kg for 2015
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partnership that we expect to rollover in July 2014 for
2015 supply on SPM terms
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Exploring other opportunities with Camira
Ross Townshend, Chief Executive, Wools of New Zealand
Value in Camira Contracts
Current spot LW price:
Camira contract price:
$5.10/kg clean
$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/kg
Total price advantage ~$1.30/kg
But
Deferred payment terms:
20% 60 days, 60% 30 Nov, 20%, 28 Feb
Matches Camira demand with NZ farm supply
(12 + 4 = 16 mths)
April 2014
Ross Townshend, Chief Executive, Wools of New Zealand
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
April 2014
Ross Townshend, Chief Executive, Wools of New Zealand
Grentex Carpet Contract
Mumbai 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
April 2014
Ross Townshend, Chief Executive, Wools of New Zealand
Laneve Carpet Contract
Similar to Grentex contract
Direct result of Trade Show presence
trial Laneve supply
Canada
Romania
Italy
Belgium (tbc)
Turkey (tbc)
Less tight colour spec (y-z <2.5)
$4.85/kg (clean)
Uptake so far = modest.
April 2014
Ross Townshend, Chief Executive, Wools of New Zealand
Direct to Scour
Partnership 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)
April 2014
Ross Townshend, Chief Executive, Wools of New Zealand
D2S Volumes
Direct to Scour (WSI) - weight
350,000
est
300,000
294,295
300,000
Feb-14
Mar-14
Greasy Kg's
250,000
200,000
150,000
131,936
100,000
62,860
50,000
10,929
19,722
24,765
Oct-13
Nov-13
Sep-13
Dec-13
Jan-14
Date
April 2014
Ross Townshend, Chief Executive, Wools of New Zealand
Everyone Hates Volatility
700
600
500
400
c/kg
Coarse Crossbred 2011-12
300
Coarse Crossbred 2012-13
Corase Crossbred 2013-14
200
100
0
51
49
47
45
43
41
39
37
35
33
31
29
27
25
23
21
19
17
15
13
11
9
7
5
3
1
Sale week Jun-Jul
Source: NZ Wool Services International
April 2014
Ross Townshend, Chief Executive, Wools of New Zealand
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 contract
April 2014
Ross Townshend, Chief Executive, Wools of New Zealand
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
April 2014
Ross Townshend, Chief Executive, Wools of New Zealand
CCWI Market movement +ve
50% gain share +ve
Base Price
Dead Band
+ 5%
50% gain share -ve
CCWI Market movement -ve
April 2014
Ross Townshend, Chief Executive, Wools of New Zealand
Year 2
Year 3
Year 1
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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)
April 2014
Ross Townshend, Chief Executive, Wools of New Zealand
Major movement dead band
50% gain share +ve
Base Price
+ 5%
50% gain share -ve
Major movement dead band
1.
2.
3.
4.
April 2014
A ‘major movement dead band’ also needs to be created/agreed.
At the upper end, WNZ needs to be able to renegotiate to be certain that it can source wool for the
customer.
At the lower end, the customer needs to be insulated from paying an excessive price relative to open
market.
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)
Ross Townshend, Chief Executive, Wools of New Zealand
Communication
Our “Achilles Heel”
Fortnightly E-bulletin
Only ~40% of E-bulletins are opened
Many email addresses change – update please
Some 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
April 2014
Ross Townshend, Chief Executive, Wools of New Zealand
WNZ Approach to Grower
Relations
Roadshows – Autumn and Spring
E Bulletins – low penetration
New appointments
Supplier Relations Manager
3 Supplier Liaison Officers
(0.5FTE)
(0.3FTE)
Grower Advisory Panel (GAP)
15 to 20 noted growers
test panel for new ideas
Open and accessible Board and Executive
April 2014
Ross Townshend, Chief Executive, Wools of New Zealand
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)
April 2014
Ross Townshend, Chief Executive, Wools of New Zealand
Questions?
April 2014
Ross Townshend, Chief Executive, Wools of New Zealand
14th March 2014
Ross Townshend, Chief Executive, Wools of New Zealand