AUSTRALIAN WOOL INNOVATION LIMITED ANNUAL REPORT 2015/16 2 UP FRONT ABOUT AWI WHAT AWI DOES Established in 2001, AWI is a not-for-profit company owned by more than 24,000 wool levy payers who have registered as AWI shareholders. AWI’S MISSION The company invests along the global supply chain for Australian wool – from woolgrowers through to retailers. AWI’s mission is to make AWI’s vision is for it to be a highly valued contributor to a vibrant, strategically targeted profitable and sustainable Australian wool industry. investments to: AWI’s goal is to increase the profitability, and support the 1. enhance the profitability, sustainability of the Australian wool industry through strategically international competitiveness targeted investments in research, development and marketing and sustainability of the designed to optimise return on investment. In working towards this Australian wool industry goal AWI always strives to deliver an appropriate return on woolgrowers’ and Government’s investment of levies. 2. increase demand and market access for Australian wool. AWI invests in: • Research, Development, Extension and skills training from farm to fashion • Marketing CONTENTS • Global Business Services. AWI is not a peak industry body, does not create or execute UP FRONT industry policy, and is not an advocate on issues outside its core 2 About AWI functions. 4 Highlights of 2015/16 HOW AWI IS FUNDED 5 Financial summary 6 AWI Board of Directors AWI investments are funded through a wool levy paid by 8 Chairman’s report woolgrowers (currently two per cent of the sale price received for 9 CEO’s report their shorn greasy wool) and a matching contribution from the Australian Government for eligible R&D activities, capped at 0.5 per cent of the value of gross national value of wool production. The OPERATIONAL REPORTS sale of Woolmark licences is a further source of income for AWI. 10 On-farm R&D Woolgrowers vote every three years on the percentage of wool 24 Off-farm R&D proceeds they would like to invest in industry research, 30 Marketing development and marketing activities. In WoolPoll 2015, woolgrowers voted in favour of a two per cent levy. 44 Global Business Services 50 Good business An agreement exists between AWI and the Australian Government, called the Statutory Funding Agreement, which defines the conditions under which AWI may invest levy and Government- FINANCIAL REPORT matched funds. 59 Directors’ report 62 Auditor’s independence BUSINESS MODEL declaration In both WoolPoll 2012 and Wool Poll 2015, wool levy payers voted 64 Consolidated statement of to continue the wool levy at two per cent for the three year periods comprehensive income 2013/14–2015/16 and 2016/17–2018/19 respectively. The current allocation of funds is as follows: 65 Consolidated balance sheet 66 Consolidated statement of RESEARCH & MARKETING changes in equity DEVELOPMENT 60% 67 Consolidated statement of 40% cash flows 68 Notes to the consolidated HOW AWI HAS EVOLVED financial statements 88 Directors’ declaration On 1 January 2001, Australian Wool Services (AWS) replaced the 89 Independent auditor’s report Australian Wool Research and Promotion Organisation (AWRAP), which had been operating since 1993. AWS was established with two subsidiaries: AWI and The Woolmark Company Pty Ltd. On 30 APPENDICES April 2002 AWI separated from AWS to become a fully independent public company limited by shares. 90 Report on compliance with the SFA In October 2007, AWI acquired The Woolmark Company Pty Ltd 92 Project list 2015/16 from AWS. Most notably, AWI became the owner of the Woolmark brand – the world’s best known textile fibre brand. UP FRONT 3 AWI SHAREHOLDERS AWI has more than 24,000 shareholders who are Australian woolgrowers. The shareholders of AWI contribute to the wool levy. The shareholders are able to shape the decision making process of the company via their access to information and right to vote at Annual General Meetings. AWI shareholders are entitled to one vote for every Northern Territory $100 of wool levy paid in the three financial years 1 before any vote. A share in AWI is not tradeable (-%) and is of no capital value. Paying wool levies does not make the levy payer automatically a Queensland shareholder of AWI. Levy payers who are not 672 already an AWI shareholder can contact the Western (2.8%) AWI share registry at Link Market Services on Australia 3,817 South Australia 1800 113 373 (free call) to enquire about (15.9%) 4,059 becoming a shareholder. (16.9%) Wool is produced across a range of environments NSW 9,059 in Australia. AWI shareholders are therefore located (37.7%) across a broad area of the country, from the high rainfall areas, to the wheat/sheep zone, out to the drier pastoral zone. ACT 82 AWI had 24,059 shareholders at 30 June 2016, a (0.3%) decrease of 948 shareholders over the past 12 months. Victoria AWI shareholders There were a total of 51,061 wool levy payers at 30 June 5,690 Tasmania 2016, a decrease of 665 over the past 12 months. at 30 June 2016 (23.6%) 679 (Total: 24,059) (2.8%) AWI’S NEW STRATEGIC PLAN Woolgrower Services Since 1 July 2016, AWI has been operating under a Objective: three-year Strategic Plan for the years 2016/17 through • to 2018/19. Increase woolgrower profitability • Provide cost effective services to woolgrowers The AWI 2016/17–2018/19 Strategic Plan is available in and other parties on their behalf PDF and interactive versions on the AWI website at www.wool.com/consultation Strategies: • Following extensive industry and government Training & technology uptake consultation, the strategies adopted and being • Consultation implemented in the Strategic Plan are: Processing Innovation & Education Extension Marketing Objective: Objective: • Increase the profitability and sustainability of wool • Increase demand for Australian wool processing Strategies: Strategies: • Fashion • Processing Innovation • Sportswear • Education extension • Global campaigns Business Services Sheep Production Objective: Objective: • Enable AWI to operate cost effectively through • Increase the profitability and sustainability of the efficient provision of a range of cross- woolgrowing company support services Strategies: Strategies: • Healthy productive sheep • Corporate services • Farm automation & software development • Woolmark • Feedbase & fibre advocacy • Digital services 4 UP FRONT HIGHLIGHTS OF 2015/16 ON-FARM R&D Lifetime Ewe Management (LTEM) training AWI continued funding hands-on on-farm LTEM training for producers in the management and nutrition of breeding ewes to maximise reproduction efficiency. In 2015/16, 400 producers funded by the most recent AWI contract graduated from LTEM and an additional 570 producers are still currently enrolled. See page 16. Wild dog control 28 new community wild dog control groups were established in 2015/16, with 43 currently active groups at 30 June 2016, through funding from AWI. See page 12. Flystrike R&D continued AWI continued to fast track its R&D program, including genetic research and breeding, to deliver welfare improved methods of flystrike prevention. See page 11. National Merino Challenge (NMC) educational initiative Members of the Lifetime Ewe Management The NMC this year attracted 138 participants. To date, over four group at Frankland in WA developing years, 363 students have participated in the NMC from more than their condition scoring skills. 25 schools, TAFEs, colleges and universities. See page 23. OFF-FARM R&D New range of innovative wool fabrics Collaboration between AWI and one of China’s leading textile enterprises, The Nanshan Group, has created a new innovative range of 100 per cent Merino wool fabrics. See page 26. Skin health studies benefit Merino wool The combination of skin health studies of eczema and allergy are challenging the strongly held consumer perceptions of wool as prickly to wear and a cause of allergy. See page 27. New supply chain for Australian wool A premium woven 100 per cent Merino AWI is working with more than 50 manufacturers in Vietnam to wool fabric from The Nanshan Group, help them develop wool products and establish a complete supply developed with support from AWI. chain in the SE Asia country. See page 25. MARKETING Campaign for Wool The Campaign for Wool, which educates consumers about the environmental benefits of wool, continues to be celebrated on an unprecedented scale, driving a new demand for wool across international consumer markets. See page 36. International Woolmark Prize The International Woolmark Prize continues to be AWI’s most successful marketing strategy, showcasing the versatility and quality of Merino wool to the fashion industry, and providing design talent across the globe with the opportunity to be stocked in some of the world’s most influential retailers. See page 38. The Wool Lab AWI’s The Wool Lab – the seasonal guide to the best wool fabrics and yarns in the world – continued to be a global success and an important tool for the fashion industry, including brands, retailers, manufacturers, spinners and weavers. See page 33. Digital communications enhanced AWI boosted its digital and social media communications and engagement with its three key stakeholder groups: woolgrowers, consumers and the textile trade. See page 31. Campaign for Wool: Models showcasing the very best wool apparel amongst the sheep, For further information on AWI program operations during 2015/16, the media and the public on Savile Row. refer to the reports beginning on page 10. UP FRONT 5 FINANCIAL SUMMARY REVENUE FOR 2015/16 EXPENDITURE FOR 2015/16 Total revenue for 2015/16 was $79,317,000, compared Total expenditure in 2015/16 was $76,641,000 with $74,282,000 in 2014/15. Sources of revenue are compared with $71,119,000 in 2014/15. Expenditure is shown in the table below. shown in the table below. More detailed information can be found in the Financial Report beginning on 2014/15 2015/16 page 58.