Thursday, November 30, 2023

Chairs address delay in Wools of NZ annual report

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Merger complexities and nationwide dearth of auditors blamed.
Wools of New Zealand chair James Parsons acknowledges it is appropriate to explain to shareholders why the annual report is overdue.
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A delay in publishing Wools of New Zealand’s annual report is raising concern, with directors at wits’ end. They cite a nationwide shortage of auditing capacity as a key hurdle.

Wools of NZ Holdings (WNZ Holdings) shareholders deserve explanation as to why there has been such a delay in issuing the annual report for the period ending August 31 2022, WNZ chair James Parsons said in a report to shareholders.

“We fully understand the uncertainty that extended delays cause, consequently it’s appropriate to expand on why,” Parsons said.      

The board was hoping to have delivered a completed and audited set of the overdue accounts and confirmation of an annual general meeting date by May 31 this year. 

“Unfortunately, and frustratingly, we were unable to meet that deadline and hence further communication to explain the extended delay.

“Primarily this is due to the very complex accounting treatment of the operational merger between WNZ Holdings and Primary Wool Co-operative [PWC] in December 2021, compounded by a nationwide shortage of auditing capacity. 

“It would be fair to say this would be the most complex set of accounts and audit any of the board or management has encountered in their extensive combined careers,” Parsons said.

The exact same update report was sent to PWC shareholders, signed by PWC chair Richard Young.   
With effect from December 1 2021, the operational businesses of PWC (formerly CP Wool business) and Wools of NZ Limited  were merged into a new entity, Wools of NZ Limited Partnership (LP), with WNZ then becoming WNZ Holdings Limited. 

The transactions to effect the merger were executed via formal written legal agreements, on a commercial basis, after the necessary approvals were strongly endorsed and secured from shareholders. 

With effect from December 1 2021, all the trading divisions, primarily CPW and the WNZ procurement, carpet and flooring businesses, were purchased by and operated through the new jointly owned LP.
PWC and WNZ Holdings, as Financial Market Conduct Act entities for accounting purposes, need to comply with the applicable NZ accounting standards.  

Compliance with the prescribed accounting standards has involved significant judgment and extensive consultation, especially in recognising the transactions and assessing the carrying value of each entity’s investment in the LP. 

The transaction for PWC particularly became complex to account for and to audit because of its stepped nature.

The August 31 2022 financial statements will include a number of non-cash accounting entries to reflect the merger and to recognise the investment nature of the “new” PWC and WNZ Holdings.
 Whilst PWC and WNZ Holdings remain two separate entities, it was deemed important and more efficient to undertake the audit in parallel, because each entity is jointly invested in the LP, the two chairs said.

PWC and WNZ effectively ceased their previous business operations from December 1 2021, leaving each to be investment entities. At this point WNZ became WNZ Holdings.

“Because of this step acquisition process, there have been some very complex accounting requirements. Consequently, we had to seek external expert advice.” 

Providing some advance indication of performance, Parsons and Young said the LP, jointly owned 50% each by WNZ Holdings and PWC, delivered a total unaudited $321,000 loss for the period from inception to August 31 2022.

Contributing factors include establishment costs that occurred over the first nine months with a number of additional expenses contributing to higher than expected costs, specifically higher interest costs and legal fees, which resulted in the budget for these expenses being exceeded by $410,000.

“Now we are in a position to make the necessary adjustments to ensure the future profitability of the business,” Parsons said.

“The start-up carpet business was included in the merger and while it has had a positive impact on consumer demand for wool carpet, as is common with start-ups it has experienced some technical issues with some of the products.

“This has slowed the speed of growth in the NZ market, which has not been helpful given we had an ambitious growth plan.” 

The strategy is working in that the total wool carpet market has been seeing growth at 25%. 

“Retailers and building companies are reporting increased inquiries for wool carpet, which confirms the strategy is working.

“You can be assured that we are actively working with our advisers and auditor to finalise the August 31 2022 annual report, which will be tabled at the upcoming AGM,” Parsons and Young advised shareholders.

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