It is with pleasure that I am reporting to you on behalf of the directors, of the Wool Research Organisation of New Zealand Incorporated (Wool Research). The year ending 30 June 2005 has been another eventful and constructive year in securing the position of Wool Research as a relevant research funding organisation acting in the best interests of the wool industry.
For many members there may still be some confusion over the roles of various organisations following the restructuring of the New Zealand Wool Board in 2003. In summary, the restructuring in 2003 separated the funding from the provision of wool research, which is now the responsibility of Canesis Network Ltd. The primary objective of Wool Research remains the same, which is to fund and promote scientific and industrial research relating to the post harvest wool industry.
In the past year Wool Research has operated as a research funder only, while also managing its portfolio of assets which included at the beginning of the year a majority shareholding in Canesis, and the buildings occupied by Canesis at Ilkley and Lincoln.
There are four significant areas of interest that I would like to highlight to you in reporting on the 2004/2005 financial year on behalf of your directors.
During the year as part of a comprehensive review of Wool Research investments, the board came to the conclusion that it was not prudent to continue to have nearly all of the income derived from Canesis by way of property rentals and dividends. The board also concluded that it was difficult to be a research funder while owning a majority shareholding in a research organisation. As a result of this the board entered into discussions with Wool Equities Ltd, as the other shareholder in Canesis about reducing our ownership in Canesis to that of a minority shareholder.
On the 22 December 2004, the directors of Wool Research sold 41.4% of its shareholding in Canesis to Wool Equities Ltd, reducing Wool Research shareholding in Canesis to 25.1%. Wool Research remains committed to Canesis, as a shareholder in a governance role, and as a funder of research to benefit the wider wool industry. The reduction in direct ownership will enable us to provide a more prudent and stable income base to deliver on these objectives.
Wool Research is now a minority shareholder in Canesis, and as a result of that you will note that the Financial Statements for the 2005 year only incorporate consolidated accounts for Canesis, for the 2004 year. The shareholding in Canesis is now treated as an investment. After discussions with the Wool Research auditors, the board has resolved that this is now the correct method of accounting given the ownership structure that now exists.
The sale of the majority shareholding in Canesis also brought about a change in the level of director representation for Wool Research on the board of Canesis. The previous appointees, Mr Lochie MacGillivray, Mr Tony Brennan, and Mr Kingi Smiler stood down, and we thank them for their considerable input into both WRONZ and then Canesis over many years. Wool Research is entitled to appoint two directors under the new shareholders agreement, and we have exercised that right this year with the appointment of Mr Rick Hill and Mr Keith Sutton.
Wool Research has been in discussionswith the trustees of the New Zealand Wool Industry Charitable Trust (NZWICT) regarding the future of the trust, following the sale of its subsidiary the New Zealand Wool Testing Authority in Napier. Following these discussions, the trustees concluded that there was a need for collaboration with other like-minded organisations, and efficiencies could be gained from the rationalisation of administration with Wool Research. As a result of this the nominators of the trustees agreed that Wool Research should assume the responsibility for the trustee appointment process, and the management of the investments of the New Zealand Wool Industry Charitable Trust.
The purpose of the NZWICT is for the provision, endowment or enhancement of educational facilities of public educational institutions engaged in the general furthering of the understanding, development and fundamental research in respect to the growth or usage of wool. The trust deed also specifically refers to Massey and Lincoln Universities, and the enhancement of those two organisations.
Wool Research and the NZWICT have recently announced the provision of funding for scholarships to provide for annual Undergraduate, Post Doctorate, PhD and an international exchange programme in an initiative costing $280,000 per annum. The area of education, and the availability of skilled labour remains a significant issue facing the wool industry, and we believe this programme will help promote the industry in these key areas.
The operating philosophy of Wool Research has been to keep overheads to a minimum, and contract in where management resources are required, to enable more money to be directed to research and educational activities.
Earlier this year, Wool Research entered into an agreement with Meat and Wool New Zealand (M&WNZ) to provide management services for both the Research and Development and Educational portfolios. M&WNZ staff are contracted to consult with a number of advisory groups in developing the funding priorities, and then make funding recommendations to the Wool Research board for the funding year. M&WNZ will also be responsible for the ongoing reporting on milestones, and ensuring there is greater collaboration with other funders to ensure greater returns for Wool Research investments.
Following the sale of 41.4% of the shareholding in Canesis, and the transfer of the management of the NZWICT, Wool Research Directors have a significant cash sum available for investment. This is in line with our overall strategy of a diversified investment portfolio, with a mix of property, cash and equities, and an investment in Canesis.
Wool Research directors believe that the responsible management of these investments is crucial to ensure the ongoing availability of research and educational funding. The board has engaged independent financial advisors to assist in the investment strategy process, and to play an ongoing role in the annual review of investments to ensure that continuity of funding is available.
Your directors are pleased to report that the financial position of Wool Research remains strong. On 30 June 2005 Wool Research Inc had total assets of $35.8 million represented by $10.1 million in cash and short term interest bearing investments, a 25.1% shareholding in Canesis, and the two buildings occupied by Canesis at Lincoln and Ilkley in the United Kingdom.
Operating Revenue for the 2004/2005 year was $1.67 million with a net operating profit of $562,000 after funding research at Canesis to the value of $600,000 for the year. Wool Research Inc is in a very sound financial position and the board are working hard to ensure that the assets are employed in the best interests of the wool industry.
Finally, as Chairman over the past 12 months I would like to thank the directors for their commitment and the constructive input they have contributed during that time. The board has spent a considerable amount of time in addressing the issues I have highlighted in this report, as well as many other issues of governance, in an enthusiastic and unified manner.
We are now at a stage where Wool Research can be a long-term strategic funder of research and education in collaboration with the New Zealand Wool Industry Charitable Trust. The wool industry continues to challenge participants at all ends of the value chain, and it is important that we address the issues facing members and offer some solutions to improve the viability of the industry.
Wool Research Inc directors have decided not to establish a full time office structure, but to contract staff as required. Alistair Boa has acted as our administrative manager and board secretary over the past 12 months, and we thank him for his considerable time and effort over this period.
The directors wish you all the best for the year ahead.
Mike Petersen
Chairman