High reserves behind AWI’s spending plans

High reserves behind AWI’s spending plans

AWI chief executive Stuart McCullough.

AWI chief executive Stuart McCullough.


Despite losing nearly 1000 shareholders last year, the Eastern Market Indicator’s (EMI) year-on-year climb of 150 cents a kilogram helped return an extra $2 million to Australian Wool Innovation’s coffers.


Despite losing nearly 1000 shareholders last year, the Eastern Market Indicator’s (EMI) year-on-year climb of 150 cents a kilogram helped return an extra $2 million to Australian Wool Innovation’s coffers. 

During last week’s annual general meeting in Sydney, NSW, AWI chairman Wal Merriman claimed the industry group was responsible for the improved demand for Australian wool due to the targeted marketing portfolio in 2015-16.

Higher levy income last financial year, courtesy of increased wool prices, meant AWI reported total revenue of $79.3m against expenditure of $76.6m. This contributed $2.7m to AWI’s $89.2m reserves.

The EMI average rose to 1254c/kg and remained stable above 1200c/kg for the 12 months, resulting in $50.3m received in wool levies.

“The company’s marketing is successfully positioning wool as a premium fibre for luxury apparel and sportswear,” Mr Merriman said. 

The eight board members were paid $648,491 in directors’ base fees, committee fees and superannuation, of which $157,826 was paid to the top gig held by Mr Merriman.

Mr Merriman said AWI would continue to operate for the benefit of its shareholders and help build the profitability, competitiveness and sustainability of the Australian wool industry.

AWI forecasts to receive $73.4m this financial year and is budgeted to draw down reserves by $5m to $84.9m at the end of 2016-17. 

In his speech to shareholders, AWI chief executive Stuart McCullough said the industry group had $47m in untouchable reserves, assigned to animal disease response and the cost of potentially closing down the company.

“Which leaves us with usable reserves at $32m – we recognise that is a little high,” he said.

Domestic staff cuts are expected to continue this year with Mr McCullough reporting an expected reduction in the 73 staff located at the Sydney headquarters.

“What we will do is start moving our human resources into the market where they can effect change which is in the northern hemisphere,” he said.

He rebutted claims by made by the Australian Wool Growers Association that AWI’s new office in Sydney’s The Rocks was an “ivory tower”, saying the 25 per cent reduction in office space reduced costs by 33pc per month.​

For the 2015-16 financial year AWI committed 60pc of funds - $28.3m - to marketing, with key expenditure spent on Campaign for Wool, $2.6m, International Woolmark Prize, $3.2m and The Wool Lab, $1.9m.

Mr McCullough dubbed the Woolmark Prize the company’s “model project”, returning $13.36 on investment for the year.

“… (It is) a project we would like to emulate in other fields and steer away from other incremental projects,” he said.

“This was a quantum leap with quantum gains, and many of the other things we do are good, but don’t deliver like this one does.”

In the on-farm R and D area, AWI invested $15.3m in wild dogs control, flystrike protection, shearer and woolhandler training, lifetime ewe management training and educational initiative, National Merino Challenge.

Off-farm R and D received $10m in funding, which chiefly went to developing new wool fabrics, skin health studies benefiting from merino wool and developing the supply chain in Vietnam.

While majority of funding was allocated toward marketing, Mr McCullough said on and off farm R and D was “at a decent level”, increasing 169 per cent in the past six years.

“There is a lot of talk about the 40/60 (research and development verse marketing) ratio verses 50/50 and ‘why did you move it?’ Because we could move it and we continue to grow marketing and continue to grow R and D,” he said.

“What really matters is not the percentage but the dollars that goes towards those endeavours.”  

The story High reserves behind AWI’s spending plans first appeared on Farm Online.


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