Thursday, April 25, 2024

Farmers urged cast wool merger vote

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Fifteen months of talks will be put to the test for Wools of New Zealand (WNZ) and Primary Wool Co-operative (PWC) in a vote this week proposed to help transform NZ’s strong wool sector.
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The goal driving the merger is to increase the demand for wool by creating viable commercial business models that will endure over time.

Fifteen months of talks will be put to the test for Wools of New Zealand (WNZ) and Primary Wool Co-operative (PWC) in a vote this week proposed to help transform NZ’s strong wool sector.

WNZ chair James Parsons and PWC chair Richard Young urged farmers to have their say in the proposed operations merger vote of the two major wool entities through an online special information meeting on Wednesday.

Under the proposed merger, the grower-owned export and marketing company WNZ and PWC will remain the shareholding vehicles, while a new single entity will jointly own the combined trading business of the two.

Revealed in the meeting, the financial performance forecast is expected to be a key aspect as shareholders weigh up their vote. 

The combined entity forecasts annual carpet revenue to lift threefold from $6.6 million in 2022 to $20.5m in 2025.

In the same three years, wool broking and trading will see little movement, budgeted at $27.3m (2022); $26.7m (2023); $27.2m (2024); to $27.4m in 2025.

This reflects a value capture strategy, rather than a value creation strategy, that invests deeper in marketing and sales to deliver NZ-branded natural strong wool products that meet consumer demand.

Both Parsons and Young made one final push for the proposed merger ahead of the PWC annual meeting on Thursday and the WNZ special meeting on Friday.

They say a partnership must have an impact for growers or it shouldn’t proceed.

The boards of both WNZ and PWC agree the vision is to shift from wool as a raw commodity to converting the wool to branded wool products for export and at a scale that captures more value for growers.

“We have been in talks for 15 months and it’s clear we needed to be stronger together than apart,” Young said.

“We need two income streams to keep pine trees off the hills.”

“As one entity we can change the game and improve things for farmers,” Parsons said.

The goal driving the merger is to increase the demand for wool by creating viable commercial business models that will endure over time.

PWC with 1400 grower-shareholders, and now the 100% owner of farm gate services company CP Wool, is a big procurement business transacting 170,000 bales annually with revenue of $21.3 million.

WNZ, a supply, sales and export marketing company with 730 grower-shareholders, transacts 33,000 bales of strong wool annually, generating $8.6m in revenue.

“Together we can move the fortunes of growers to a better space by owning the brand and getting no more than one step removed from the customer to capture the value gained at the consumer end of the market,” Parsons said.

“This means owning the distribution channels to market and selling the products, not the ingredients, to capture the value gained at the consumer end of the market.”

The complex commodity wool supply chain is old and dysfunctional. 

“We don’t need to own the manufacturing nor the means to production, what we do need to do is shorten the supply chain and take ownership closer to the consumer,” he said.

This is a value capture strategy not a value creation strategy.”

Young says the goal is clear.

“For a viable industry we need to bring the operation of the two businesses together to change the dial faster,” Young said.

“It is pleasing to note over the past three months the way in which the two teams have come together and you as growers want to work to get a better industry.

“The combined partnership will link the supply chain from the grower through to the consumer, creating the scale, focus and shared vision to deliver better outcomes for growers and all participants in the value chain.”

The single entity will be a stronger grower voice with government and industry and reduce duplication in the industry.

Young stressed it is not a proposal to merge shareholder groups.

“We become equal partners in the operational company,” he said.

The intention is to bring the two shareholder groups together into one entity in time, if there is support from shareholders.

The result of the votes will be announced on November 8.

If successful, expected completion of transactions is November 30, with the new entity up and running on December 1.

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