image description

Annual Reviews

AWTA Ltd ANNUAL REVIEW 2011 - 2012 ANNUAL REVIEW 2011-2012 HISTORY & OBJECTIVES MISSION, VISION & VALUES COMPANY PROFILE CORPORATE GOVERNANCE HUMAN RESOURCES CHAIRMAN'S STATEMENT MANAGING DIRECTOR'S INTRODUCTION FINANCIAL SUMMARY AWTA RAW WOOL AWTA PRODUCT TESTING JINAO TESTING COMPANY AGRIFOOD TECHNOLOGY NZWTA LTD RESEARCH & DEVELOPMENT INFORMATION SERVICES DIRECTORS' REPORT FINANCIAL STATEMENTS NOTES TO FINANCIAL STATEMENTS DIRECTORS' DECLARATION INDEPENDENT AUDIT REPORT 2 2 3 4 5 6 7 7 8 10 10 10 11 11 11 14 17 20 31 32 AWTA Ltd Annual Review 2011-2012 | CONTENTS 1 HISTORY & OBJECTIVES The Australian Wool Testing Authority was established in 1957 by the Commonwealth Government in response to requests from the Australian wool industry, and was created as a Statutory Authority reporting to the Minister for Primary Industry. The first meeting of the Authority was held on 12th December 1957. Following the formation of the Australian Wool Board in 1962, AWTA was established as a separate division within that organisation on 1st July 1963. AWTA retained the same status within the Australian Wool Corporation when it was formed by the amalgamation of the Australian Wool Board and the Australian Wool Commission on 1st January 1973. AWTA Ltd was established as a Company Limited by Guarantee on 14th May 1982 consequent to an Australian Government decision to transfer the functions of the statutory Australian Wool Testing Authority (AWTA) to the public sector. After almost 25 years of operations, the government and industry considered that there was no on-going requirement for AWTA to continue to have links with the government, particularly since it was controlled by the wool industry and funded by the commercial services it provided to the industry, not by the Government or any levies. In April 1982, the same wool industry interests that comprised AWTA as a statutory body formed a public company limited by guarantee, to acquire all assets and liabilities of the statutory body. AWTA Ltd commenced operations on 1st July 1982, when it took over all the previous functions of AWTA. The objectives for which the Company was established were and are still enshrined in its Memorandum. They include the following: 1. 2. 3. 4. 5. 6. 7. 8. 9. To promote sales of Australian wool by encouraging the growth and utilisation of objective measurement of wool, particularly by presale testing. To test wool and other fibres, whether natural or otherwise, and wool products and similar products made wholly or partly from other fibres. To provide an accurate and impartial testing service based upon internationally recognised testing standards as an aid to efficient wool marketing. To conduct wool, fibre and textile research and/or to carry out tests on other materials and products where such activities assist or promote the development of the pastoral, agricultural, manufacturing or industrial resources of Australia. To maximise the net income of the Australian wool industry by encouraging the optimum application of objective measurement of wool by wool growers, brokers, buyers and both local and overseas processors. To optimise wool industry productivity through research and the implementation of new systems and technology. To establish, equip and maintain laboratories, workshops and other places suitable for testing and research activities. To provide and encourage the provision of data processing services aimed at the more efficient marketing of wool. Generally to promote and foster the more efficient testing of wool as required by the wool and textile industry at a minimum cost. 10. To provide certificates and make reports in respect of test and research carried out by the Authority. MISSION, VISION & VALUES MISSION To assist or promote the development of the pastoral, agricultural, manufacturing and industrial resources of Australia, in particular, by providing independent objective data and information services which will facilitate the efficient production, marketing and processing of wool, other fibres, textile products and related materials. VISION To maintain a national and international reputation for technical expertise, commercial independence and professional integrity by providing accurate, impartial and efficient sampling, testing and certification services to our customers. VALUES · · · · · · · · · To maintain technical excellence, by taking maximum advantage of emerging technologies and providing staff with the knowledge, skills and equipment to improve customer service and lower costs. To ensure commercial independence in all activities. To insist on professional integrity within the Company, by remaining impartial and avoiding conflicts of interest. To be alert and responsive, by monitoring and understanding the changing needs of clients. To ensure that a reliable business continuity plan is in place, to minimise disruption to the wool marketing process in the event of a disaster. To foster sound industrial relations, based on mutual respect and recognition of the common interests which are shared with all employees and managerial staff. To aspire to provide a safe and satisfying working environment, which encourages employee participation and is supported by appropriate training and development programs. To seek to meet all legal and moral obligations of a good corporate citizen. To adopt business strategies which transfer cost saving benefits arising from the Company's income tax exemption, so as to assist or promote the development of the relevant industrial resources of Australia. 2 AWTA Ltd Annual Review 2011-2012 | HISTORY & OBJECTIVES COMPANY PROFILE MEMBERSHIP & BOARD COMPOSITION AWTA Ltd is a Company Limited by Guarantee. As described in the Company's Articles of Association, each Member Guarantor is entitled to appoint a Director to the Board. Additionally, the Member Guarantors appoint two Independent Directors and may also appoint a Director having special scientific or technological qualifications. The Chief Executive is also a Director pursuant to Article 21(d). The following organisations or their nominees are the Member Guarantors constituting the Company: · Australian Council of Wool Exporters Inc (ACWE Inc) · Australian Wool Processors Council Inc (AWPC Inc) ­ Wool Scourers & Carbonisers of Australia Group (WSCA Group) ­ Wool Textile Manufacturers of Australia Group (WTMA Group) · · · · Australian Wool Innovation Ltd (AWI Ltd) Private Treaty Wool Merchants of Australia Inc (PTWMA Inc) The National Council of Wool Selling Brokers of Australia Inc (NCWSBA Inc) WoolProducers Australia MANAGEMENT The Board delegates responsibility for the operation and administration of the Company to the Managing Director who, together with the executive team, is accountable to the Board. AWTA Ltd is organised for management and reporting purposes into four operating divisions. Management responsible for those divisions must account for their performance within a framework of strategic plans, budgets, position descriptions, targets, standards and policies. The Strategy Committee, comprising senior management from Head Office and the four divisions, co-ordinates the management activity. Strategy Committee Members are: · · · · · · · · · · · Managing Director General Manager - Raw Wool Chief Financial Officer National Information Services Manager Divisional Manager - Product Testing General Counsel Chief Executive Officer - NZWTA Ltd Divisional Manager - Agrifood Technology Regional Manager - Western Australia Sampling Manager - Eastern Australia; and Business Development Manager. Note: Australian Wool Processors Council Inc, being an amalgamation of two previously separate Member Guarantors, is entitled to appoint two Directors, one from each Group. ORGANISATION & REPORTING STRUCTURE DIRECTORS Directors holding office at the date of this Report are: Chairman D.G. McGauchie AO Deputy Chairman G.W. Dickinson M.A. Jackson M.D. Avery G.M. Power P.D. Morgan D.B. Ritchie G.W. Turner D.A. Webster C.J. Wilcox (elected Independent Director) (AWTA Ltd Managing Director) (appointed by ACWE Inc) (nominee of WoolProducers Australia) (appointed by AWPC Inc from WTMA Group) (appointed by AWPC Inc from WSCA Group) (appointed by PTWMA Inc) (appointed by AWI Ltd) (appointed by NCWSBA Inc) (elected Independent Director) Profiles on each of the Directors are provided in the Directors' Report (page 15). COMPANY SECRETARY The Company Secretary is Mr Charles Englander (General Counsel). BOARD RESPONSIBILITIES The Board is responsible for the overall corporate governance of the Company, including its strategic direction and financial objectives. It sets goals for management and monitors their attainment. The Board has specifically assumed responsibility for: · · · · · · · · · the approval of strategy and annual budgets; the provision of strategic direction and oversight of management; corporate governance; the selection and evaluation for succession planning of executive management; significant acquisitions and disposals of assets; significant expenditure decisions outside of the corporate budget; the remuneration of executive management; the approval of and monitoring of financial performance against corporate objectives and policies; and the integrity of risk management strategies and controls. The delivery of the Company's strategic direction and goals as determined by the Board is delegated to management under the leadership of the Managing Director. AWTA Ltd Annual Review 2011-2012 | COMPANY PROFILE 3 REMUNERATION & APPOINTMENTS COMMITTEE Current members of the Remuneration & Appointments Committee are: · · · Mr D.G. McGauchie AO (Committee Chairman) Mr G.W. Dickinson Mr D.A. Webster ENVIRONMENT & SAFETY COMMITTEE The Company has a policy to conduct its business activities so as, wherever practicable, to minimise any adverse impact of such activities on the community and the environment and to comply with applicable legislative requirements. The Environment & Safety Committee ensures that the Company's environment and occupational health and safety obligations are implemented and maintained. The Committee's key responsibilities are to: · · · · · · ensure that environmental management system requirements, including policies in relation to the Company's obligations with respect to environmental and health and safety issues are established, implemented and maintained; ensure compliance with all laws, regulations and regulatory obligations relating to environmental and safety matters by the Company; oversee the effective monitoring of the Company's operations in relation to environmental and occupational health and safety matters; keep the Board informed of the Company's activities in relation to its environmental and occupational health and safety obligations; ensure that the Company's environmental policy, objectives and targets are based on knowledge about the environmental impacts associated with its activities, products and services and any regulatory requirements; and review the environmental management system to ensure its continuing suitability. The Managing Director attends the Committee meeting except when his own remuneration and employment conditions are being considered. The Committee is charged with: · · · setting policies and making recommendations on remuneration policies for the Company, including those governing the Directors, the Managing Director and senior management; reviewing candidates for vacant senior executive management positions and making specific appointment recommendations to the Board; and approving the recommendations of the Managing Director on the remuneration of all non-award personnel below senior officers. Directors attendance at Committee meetings is reported in the Directors' Report. Non-executive Directors The Company's Memorandum of Association provides that, whilst its income cannot be transferred by way of dividend or bonus, it can be used for payment in good faith to any officer or servant of the Company (including Directors) for any services actually rendered to the Company. Non-executive Directors' fees are reviewed annually by the Member Guarantors having regard to performance, relevant comparative remuneration and independent advice. Non-executive Directors may receive a Sitting Fee for Committee participation and reimbursement of travel and accommodation expenses for attendance at Board and other official Company meetings. Executive Director & Senior Executives The Board determines the remuneration for the Chief Executive Officer (Managing Director), the Chief Financial Officer and the General Manager - Raw Wool, upon the recommendation of its Remuneration & Appointments Committee. Remuneration is decided following an annual review that considers performance, relevant comparative remuneration and independent advice. The Committee comprises Non-executive Directors only when it deals with the remuneration and employment conditions of the Managing Director. Current members of this Committee are Mr G. W. Turner (Committee Chairman), Mr C.J. Wilcox, Mr M. A. Jackson and Mr C. Englander. Attendance at Committee meetings is reported in the Directors' Report. CORPORATE GOVERNANCE CORPORATE GOVERNANCE CHARTER Whilst AWTA Ltd is not a listed company, where applicable to its structure, it follows the ASX's Corporate Governance Principles and Recommendations. The Board is responsible for the overall corporate governance of the Company, including its strategic direction, major policies and financial objectives. The Board has adopted a Charter that delineates its role and the role of individual Directors. The Corporate Governance Charter and Guide for Directors and Officers is publicly available on the Company's website. AUDIT & FINANCE COMMITTEE The role of the Audit & Finance Committee is to assist the Board to fulfil its corporate governance and oversight responsibilities. The principle objectives of this Committee are to: · · · · · · · · assist the Board in the discharge of its responsibilities relating to all financial matters; assess and advise the Company's Board on whether the annual financial report represents a true and fair view of the Company's financial position and complies with regulatory requirements; substantiate the existence, quality and valuation of the Company's assets; determine that management has implemented policies and procedures designed to ensure that the Company's risks are identified, assessed and appropriately addressed in a Risk Management Plan; ensure the operation of effective internal control policies and procedures; oversee the independence and appraise the quality of internal and external audits; maintain lines of communication between the Board, management and internal and external audit; and examine the accounting policies of the Company to determine appropriateness to general accepted practices. CORPORATE CONDUCT & ETHICS The Company recognises that it is vital to its continuing success that its staff maintain the highest possible reputation for technical expertise, commercial efficiency, impartiality, independence, equal opportunity and professional integrity. To ensure that they are aware of the ethical framework in which they are required to work, each staff employee is required to read and sign the Company's Corporate Conduct & Ethics Policy. This policy sets broad guidelines for conduct and reflects AWTA Ltd's corporate "conscience" by promoting the highest levels of behaviour. APPOINTMENT OF AUDITORS The Company's auditors are Pitcher Partners. The auditors' effectiveness, performance and independence is reviewed by the Audit & Finance Committee. The audit is conducted in accordance with the Corporations Act 2001 and the Australian Auditing Standards which require auditors to comply with relevant ethical requirements related to audit engagements and to plan and perform the audit so as to obtain reasonable assurance that the financial report is free from material misstatement. The auditors are obligated to comply with the independence requirements of the Corporations Act 2001. The auditors are required to form an opinion whether the financial report of Australian Wool Testing Authority Ltd and its controlling entity comply with the requirements of the Corporations Act 2001, the Regulations and the Australian Accounting Standards. The Committee comprises one Independent Director and up to two other non-executive Directors. The Chairman, the Managing Director, the Chief Financial Officer and the external auditor attend meetings by invitation. The current members of the Committee are Mr G.W. Dickinson (Committee Chairman) and Mr D.B. Richie and Mr M.D. Avery. Attendance at Committee meetings is reported in the Directors' Report. 4 AWTA Ltd Annual Review 2011-2012 | CORPORATE GOVERNANCE RISK IDENTIFICATION AND MANAGEMENT The Company continues to have in place a number of risk management controls including: · · · guidelines and limits for approval of capital expenditure and investments; an annual insurance review; defined senior management responsibilities for areas including equal opportunity, occupational health and safety, environmental compliance, legal liability, risk identification and reporting and financial controls; policies and procedures for the management of financial risk and investment operations, including exposure to foreign currencies and movements in interest rates; strategic planning process for the implementation of 3-year strategic plans; annual budgeting and monthly reporting systems enabling the monitoring of progress against performance targets and the evaluation of trends; Director's Declarations of Interests; and disaster recovery procedures for the key business units of the Company. HUMAN RESOURCES STAFF NUMBERS AWTA Ltd's staff numbers vary in response to seasonal work-flow. Variations in work-flow are managed in part by the use of casual and to a lesser extent, part-time staff. AWTA Ltd's staff numbers peaked at 412 in November 2011. Staff Training As part of the Company's due diligence program, the Legal Department, supported by regional and divisional management regularly conduct training in anti-discrimination, bullying, sexual harassment, restrictive trade practices, equal opportunity, occupational health and safety, internet and email use, and affirmative action. · · · OCCUPATIONAL HEALTH & SAFETY The Company's occupational health and safety obligation's are monitored by Executive Management, with day-to-day responsibility resting with regional management. Safety performance data consisting of lost time accidents, frequency rate and duration rate are calculated to AS/NZS 4801-2001 and reported monthly. The data is reviewed by management, the Environment & Safety Committee and the Board. During 2011/12, the Company experienced 9 lost time accidents (the same number as in the previous year), a lost time frequency rate of 17.8 (being the same rate as in previous year) and a lost time duration rate of 378.2 (up from 164.1 the previous year). Achieving a zero Lost Time Injury result is a goal of all responsible employers. Such a result can only be achieved by careful attention to systems of work, Risk Assessments, work organisation and a shared commitment by staff to safety and injury prevention. AWTA Ltd continues to work with staff to increase on-the-job awareness of safety and to maintain a culture of shared commitment to safety. · · COMPANY POLICIES In addition to the Company Policies previously referred to, the Company has and maintains a comprehensive range of policies and procedures including: · · · · · · · · · · · · · · Accounting; Payroll; Debtors; Assets; Purchasing; Occupational Health & Safety; Environmental Compliance; Restrictive Trade Practices & Consumer Law Compliance; Staff Recruitment, Training and Termination; Privacy; Anti-Harassment, Bullying and Discrimination; Records & Statistics; Equal Opportunity; and Improper Conduct Policy. SERVICE AWARDS It is noteworthy that a significant number of staff have been employed by AWTA Ltd for more than 20 years. Since the formation of the Statutory AWTA in 1957 to the completion of the year under review, 195 employees have reached 20 years service, 53 have achieved 30 years service and 5 have reached 40 years service. During 2011/12 the 30 year service roll increased by 3 and the 20 year service roll increased by 6. Service Awards 30 Years Michael Larkin John Ball Rob Hallion The Company's policies are regularly monitored and reviewed and aim to meet or exceed best practice with comparable organisations. ENVIRONMENTAL IMPACTS The group's operations are subject to particular and significant regulations under relevant legislation. Details of performance in relation to such regulations are set out below. (a) AWTA Ltd's Kensington, Victoria site is obligated to ensure that its waste water generated by the wool testing operations complies with the requirements of City West Water Ltd's Trade Waste Agreement. During the reporting period, trade waste was recorded as exceeding the Agreement's limits on three occasions involving daily flow, copper limit and total dissolved solids (the latter subsequently determined to be due to sampling irregularities, rather than Agreement exceedence). (b) The AWTA Ltd's Bibra Lake, Western Australian site discharges laboratory waste to sewer pursuant to an Industrial Waste Permit issued by the Water Corporation. During the reporting period all waste discharged to sewer complied with the Permit's stipulated limits. (c) AWTA Ltd's Agrifood Technology division located at Werribee, Victoria is required to ensure that its waste water generated through its testing activities complies with the requirements of City West Water's Trade Waste Agreement. During the reporting period, all laboratory effluent discharged to sewer complied with the stipulated limits of the Agreement. (d) AWTA Ltd's New Zealand site discharges laboratory waste to sewer pursuant to the Napier City Trade Waste By-law 2008. During the reporting period, laboratory waste discharged to sewer complied with the By-law's stipulated limits, with the exception of 2 instances occurring in February and April, 2012, when pH limits were exceeded. (51st) (52nd) (53rd) Laboratory Controller (Melbourne), commenced 10 August 1981 Maintenance Officer (Melbourne), commenced 31 August 1981 Sampling Manager (Fremantle), commenced 8 March 1982 20 Years Karen Ford Silvia Patterson Gaye Lehtinen Doreen Fernandez (190th) (191st) (192nd) (193rd) Testing Officer (Fremantle), commenced 19 August 1991 Testing Officer (Fremantle), commenced 19 August 1991 Testing Officer (Fremantle), commenced 19 August 1991 Divisional Manager - Agrifood Technology, commenced 16 September 1991 (formerly with AWB) Senior Analyst Quality Feed Laboratory, commenced 2 June 1986 (formerly with AWB) Analyst Food Safety Laboratory, commenced 27 July 1987 (formerly with AWB) Nipa Small (194th) Karen Jackson (195th) AWTA Ltd Annual Review 2011-2012 | HUMAN RESOURCES 5 CHAIRMAN'S STATEMENT AWTA Ltd has recorded a net loss of $1.230 million for 2011/12, after taking up an impairment charge of $1.347 million to reflect the lower market value of its investment portfolio. The result excluding the impairment was a modest profit of $0.117 million. When AWTA Ltd was privatised in 1982, it was structured as a Company Limited by Guarantee with the objective of providing services to its clients at minimum cost, rather than maximising profit for distribution to shareholders. There is no doubt that over many years the Company has been successful in this regard, the fee for AWTA Ltd's primary service (presale raw wool testing) is lower in dollars per test. However, in the last decade, wool production in Australia has declined by almost half and AWTA Ltd's principal market has been shrinking. AWTA Ltd responded by focussing on innovation and cost control in its raw wool testing laboratories and by reducing corporate overheads. At the same time, the Board recognised that it was essential for the Company to broaden its revenue base beyond raw wool and textile testing into other services to agriculture so that fees continue to be contained as the volume of wool produced in Australia declines. Hence, approximately 7 years ago, AWTA Ltd adopted a strategy to expand into related testing markets where independent, high quality, high integrity testing is a necessary part of the value chain. MR D.G. McGAUCHIE AO CHAIRMAN - AWTA Ltd While this approach has been successful, with a modest profit (pre-impairment), the year under review did see financial performance deteriorate from the previous year. The principle reasons for this were: · · the amount of wool presented for testing decreased on the previous year. Higher wool prices in 2010/11 had encouraged growers to release wool held on farm to the market and this did not reoccur; and investment income decreased by approximately $0.8 million on the previous year compounding the impairment charge mentioned above. AWTA Ltd, as a consolidated group, comprises 3 operating divisions in Australia (AWTA Raw Wool, AWTA Product Testing and Agrifood Technology), its wholly owned subsidiary NZWTA Ltd and its joint venture, JinAo Testing Co Ltd, which is managed through AWTA Product Testing. I am pleased to report that total operating revenue earned outside AWTA Raw Wool continues to grow and reached $11.571 million in 2011/12. It is noteworthy that this now represents over 32% of AWTA Ltd operating revenue. In comparison, a decade ago revenue from non-raw wool sources was less than $2 million and only 5% of operating income. Directors are also very pleased to note that AWTA Product Testing, Agrifood Technology and NZWTA are all producing an acceptable return on the capital that AWTA Ltd has invested in them. Total AWTA Raw Wool revenue decreased by 1.9% as the number of bales sampled fell by 2.9%. The AWI Wool Production Forecasting Committee has reported that the same amount of wool was grown in 2011/12 as the previous year. Hence, it is highly probable that the decrease in AWTA testing activity relates to wool shorn in previous seasons being released from on-farm storage in 2010/11 in response to high market prices at that time. It is positive to observe signs that wool production may have bottomed out after a long and steady period of decline. The AWI Wool Production forecasting Committee is also optimistic that wool production is turning the corner, predicting an increase of 1% for 2012/13. Improved productivity and other cost saving initiatives partially offset wages inflation resulting in operating expenditure for the Raw Wool Division being only 1.2% higher than last year. '000 Tonnes 700 Volume of Australian Wool Tested 600 500 400 300 200 100 AWTA Product Testing division continues to 0 evolve and react to changes in the demand for 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011 2012 local testing of various materials and products. Revenue increased by 9.3% and the mix of test types changed considerably, with increased testing activity in the building materials and automotive sectors more than offsetting textile testing which continues to fall reflecting the depressed retail conditions in Australia. JinAo Testing Co Ltd grew its revenue base steadily and significantly during 2011/12, to the point where it was profitable. The majority of JinAo testing was conducted for Australian customers importing Chinese products with a growing base of local processors of Australian wool looking to JinAo to provide specialist services. The operating performance of NZWTA has improved considerably in recent years. NZWTA operating revenue increased due to the maintenance of a high market share in wool testing and a full year of operation by the textile testing laboratory, purchased from AgResearch in December 2010 and incorporated into the Napier laboratory. NZWTA Ltd has again achieved a satisfactory financial result. AWTA Ltd purchased Agrifood Technology from AWB in February 2008 and 2011/12 is the fourth full year that it has operated under AWTA Ltd ownership. Agrifood Technology has now successfully established its independence within the deregulated wheat industry, securing a broad range of wheat industry clients. It has also significantly increased its activity in the processed and fresh food and the hay and fodder sectors, which now generate a significant proportion of Agrifood Technology's revenue, providing some insulation against the seasonal impacts inherent in the grain industry. During 2011/12, total operating income at Agrifood Technology increased by 2.7%. Global financial markets remained depressed during 2011/12, impacting on AWTA's non-operating revenue, through reduced investment income and precipitating the impairment I previously referred to. AWTA invests its funds in various asset classes in accordance with a balanced investment policy which is regularly reviewed by the Board. The strength of the Company's balance sheet allows it to take a long-term approach to investment and Directors accept that there is a risk of volatility and periods of short-term negative results under this policy. Mr Don Hamblin stepped down from the Board of AWTA Ltd at the end of November 2011, after 4 years service, to make way for the appointment of Mr Geoff Power. I would like to thank Don for his valued contributions as a Director and welcome Geoff to the Board. 6 AWTA Ltd Annual Review 2011-2012 | CHAIRMAN'S STATEMENT I would also like to thank Mr John Lewis who retired from AWTA Ltd in June. For the previous 7 years, John led the AWTA Product Testing Division with dedication and foresight that enabled it to not only survive, but thrive in a period where the industry environment was very difficult. Prior to joining the management of AWTA Ltd, John served as a non-executive director of the Company. I welcome Mr Craig Wales, the new Divisional Manager for AWTA Product Testing, to the executive team. I would also like to pay tribute to all the staff that have achieved 20 and 30 year service anniversaries during the past year and acknowledge their contribution to the Company. AWTA Ltd has a proud tradition of long service, a rare feat in most Australian companies. Finally I wish to express my personal thanks to the Chief Executive, Michael Jackson, all Directors and the Company's employees for their support, contribution and dedicated service during 2011/12. D.G. McGAUCHIE AO MANAGING DIRECTOR'S INTRODUCTION The AWTA Ltd Group reported an overall loss of $1.230 million for 2011/12, which is made up of a profit before impairment of $0.117 million and a $1.347 million impairment of financial assets. This result is not as strong as 2010/11 due primarily to reduced contribution from AWTA Raw Wool and lower investment returns. It is pleasing to report that the operating performance of AWTA Product Testing, Agrifood Technology and NZWTA remains strong and each division has made a positive contribution during 2011/12. In his report, the Chairman comments on the need for AWTA Ltd to have a broad revenue base and there is no doubt that financial success in these operating divisions is instrumental in minimising raw wool fees. The Company remains financial stable and is well placed to continue to provide services that add value to the wool, textile, agricultural and manufacturing industries. Following is a summary of the financial performance during 2011/12 and a brief report on each operating division with in the AWTA Ltd Group. MR M.A. JACKSON MANAGING DIRECTOR FINANCIAL SUMMARY COMPARATIVE Profit & Loss Statement 2012 $'000s Revenue Revenue from services Revenue from investments Profit on sale of surplus sample material Consulting income Rental income Other income Total revenue Expenses Operating and administrative expenses Unrealised impairment of financial assets Realised losses on sale of investments Total expenses Net Profit/(Loss) 34,600 2,230 1,055 135 300 97 38,417 2011 $'000s 33,899 3,294 1,010 241 226 670 39,340 (37,531) (1,347) (769) (39,647) (1,230) (36,763) (549) (907) (38,219) 1,121 AWTA Ltd Annual Review 2011-2012 | MANAGING DIRECTOR'S INTRODUCTION 7 AWTA RAW WOOL OVERVIEW AWTA Raw Wool is the largest division within AWTA Ltd and is comprised of: · · · · Sampling Operations, Raw Wool Laboratories, Data Processing Operations; and Technical & Quality Control. During 2011/12 AWTA Raw Wool operated two laboratories located in Melbourne (servicing clients in Victoria, New South Wales, Queensland, South Australia and Tasmania) and Perth (servicing clients in Western Australia). CAPABILITIES Each laboratory provides certified testing of Yield & Micron, Staple Length & Strength and Colour for raw wool. Certified testing of scoured wool is also conducted for a range of attributes including regain and grease content. In addition, AWTA Raw Wool offers non-certified report testing of raw wool, scoured & carbonised wool and speciality fibres such as Mohair, Alpaca and Cashmere. The number of bales core sampled for certified tests decreased by 2.9% during 2011/12 with 2.05 million bales sampled compared with 2.11 million bales during the previous season. Production increased in South Australia and Tasmania but declined in all other states, with Western Australia experiencing an 11% decline due to ongoing dry conditions. The number of sale lots tested for Yield & Micron results decreased by 1.9% to 369,106 lots during 2011/12 when compared with the previous season. The number of sale lots tested for Staple Length & Strength declined by 1.9 % to 231,960 lots over the same period. AWTA Raw Wool maintains a strong focus on the three key measures of performance: · · · Service AWTA Raw Wool is committed to providing timely testing service as required by its customers. Samples are taken at 32 locations throughout Australia and dispatched overnight to one of the AWTA Raw Wool laboratories. AWTA Ltd offers three levels of priority for service: Normal: Test Certificates are available within 5 days of a sample being taken. Fast 15% Normal 67% service delivery; improved efficiency/productivity; and sound technical performance. Fast: 95% of test Certificates are available within 3 days, and the remainder the following day. Express: 95% of test Certificates are available the following morning, with the remainder the following day. Express 18% Lots Sampled 2011/12 Qld NSW Vic Tas SA WA 0 30,000 60,000 Lots 90,000 120,000 150,000 Qld NSW Vic Tas SA WA Bales Sampled 2011/12 0 200,000 400,000 Bales 600,000 800,000 8 AWTA Ltd Annual Review 2011-2012 | AWTA RAW WOOL Test Type Yield & Micron Service Measure Average (days) % Total Tests within Service Target Normal 3.0 99.2 3.7 96.5 Fast 1.9 97.8 2.2 96.6 Express 1.5 97.0 1.6 96.6 Length & Strength Average (days) % Total Tests within Service Target During the 2011/12 season service performance was, on average, well within the service time requirements. These times are all measured from the time of sampling, not when samples are received at a laboratory. Efficiency The efficiency of AWTA Raw Wool departments is monitored by measuring departmental productivity. Any increase in productivity reduces overall labour costs. Labour forms the majority of the cost of testing wool. Sampling Productivity declined during 2011/12 due to the fragmentation of operations at wool coring locations. Testing Productivity, which reflects the efficiency of all laboratory operations, increased by 0.7% during 2011/12. This increase was largely due to improved work practices and workplace management. Technical Confidence in wool trading requires confidence in the accuracy and precision of the wool test results. AWTA Ltd Raw Wool laboratories have rigorous quality control procedures, calibration schedules and test monitoring processes in place to ensure a high level of accuracy and precision. Trial samples are exchanged between AWTA Raw Wool laboratories to ensure consistency. Blind trials are also conducted twice weekly with overseas laboratories with the results publicly reported at the annual International Wool Textile Organisation (IWTO) Conference. During 2011/12, all AWTA Laboratories reported ongoing stable and accurate performance to the IWTO Conference. External queries from clients also serve as an indicator of technical performance. During 2011/12, some 1,260 results (0.21% of all tests) were queried by customers. Of these, 327 were reissued, representing less than 0.06% of the 601,066 Yield & Micron and Staple Length & Strength tests conducted. CHALLENGES The major challenge for Raw Wool operations is maintaining high levels of service and efficiency in an environment where revenue growth has declined in recent years and costs continue to escalate. INDUSTRY SUPPORT The Company focuses its industry activities, both domestically and internationally, on promoting the use and understanding of objective measurement. This is to ensure Australian wool maintains its pre-eminent position in the world wool textile market. AWTA Ltd continues to participate in International Wool Textile Organisation (IWTO) meetings where key staff contribute to the development and understanding of wool testing standards and procedures. AWTA Ltd collates and publishes an extensive range of statistics and analytical reports which are provided free of charge to the wool industry. An example of this is the Key Test Data report - a monthly summary of the volume of wool tested and average results tested broken down by State and wool category. Other examples include a number of detailed micron split and Wool Statistical Area reports, which are crucial for the Australian Wool Production Forecasting Committee. This data, along with a range of other statistical reports, is available for download from the AWTA Ltd website. AWTA Ltd continues to provide the TOPMARK benchmarking service for wool processors free of charge. This service allows wool processors to compare their processing performance against the average of all other mills participating in the program. The objective of this program is to improve the efficiency of wool processors. The Company continues to support the Australian wool industry by sponsoring and providing testing assistance for major sheep shows, ram sales and research trials. Details of supported events are listed on the AWTA Ltd website to assist with the promotion of sponsored events. AWTA Ltd also hosts meetings with industry bodies and associations and is an active member of the Federation of Australian Wool Organisations (FAWO). Changes in Lots Sampled (2011/12 cf 2010/11) Qld NSW Vic Tas SA WA Australia -10% -5% 0% Lots 5% 10% -10% Changes in Bales Sampled (2011/12 cf 2010/11) Qld NSW Vic Tas SA WA Australia -5% 0% Bales 5% 10% AWTA Ltd Annual Review 2011-2012 | AWTA RAW WOOL 9 AWTA PRODUCT TESTING Overview The Product Testing division is an independent materials testing facility available to government instrumentalities, industry and the general public. It possesses a diverse array of specialised testing equipment operated by highly-competent technicians. Capabilities The division has internationally recognised competencies in flammability, textiles, automotive, weathering, physical, chemical and mechanical testing. Materials evaluation can be conducted against a broad range of industry-specific, Australian and international standards. NATA Accreditation encompasses the five prime areas of retroreflection, flammability, chemical, thermal and mechanical testing which, when combined, covers 34 secondary areas of testing competence. Looking Forward The division will become considerably more customer-focussed with improved communication systems and strive for reduced lead-times. The competency-base will be enhanced by cross-training and appropriate use of available personnel resources, which when coupled with the introduction of specialised equipment will improve all areas of our business. The division will continue to investigate diversification opportunities and expansion into niche areas with the express intention of increasing its revenue contribution. The division will actively promote itself by advertising in carefully selected mediums. JINAO TESTING COMPANY Overview JinAo is a joint venture laboratory located in Nanjing, China and is a 50/50 venture between AWTA and JSIC Jiangsu, a division of China Inspection and Quarantine (CIQ). Capabilities JinAo mainly focuses on textile and environmental testing of products predominantly of Chinese origin. Whilst it has a relatively small laboratory, it has a diverse and growing client base particularly in the Australian importing community as testing can be done at source with the security of the AWTA name behind it. JinAo also provides services to assist Chinese early stage processors to effeciently process Australian wool. Testing Company Looking Forward JinAo's challenge is to grow its revenue base and develop a solid and ongoing domestic client base. It will over time need to branch out into additional areas of testing and grow its expertise and diversity. AGRIFOOD TECHNOLOGY Overview Agrifood Technology has continued to be one of Australia's major provider of physical and chemical testing to the grain, horticultural, food and feed industries. Capabilities Agrifood Technology is an independent, NATA ISO 17025 accredited and ISO 9001 certified testing facility that operates in a competitive environment, it is focussed on providing accurate results and rapid response times to meet the needs of our customers. Agrifood Technology in Victoria and Western Australia are well equipped to conduct comprehensive analysis on a diverse range of food and feed products including grain quality, milling, dough rheology, end-product assessment, nutritional labelling, allergen testing, pesticide residues, mycotoxins and microbiological analysis. The laboratories are well supported by a team of 24 technical staff and 6 administrative staff who are highly experienced and committed to the accurate and timely provision of results. A significant improvement has been made in operational efficiency through automatic data capture into LIMS from laboratory instrumentation. Further investment in technology in the Food Safety laboratory has resulted in an increase in residue testing on fresh produce for two major supermarket chains which is a significant accomplishment in a very competitive environment. Revenue from the Feedtest service acquired from the Victorian Department of Primary Industries has remained constant over the last twelve months. A working group has been formed to further enhance the calibration and offer more parameters to meet industry requirements. Looking Forward Expanding both Agrifood Technology's testing capabilities and client base will remain a priority over the next twelve months. The focus will be on marketing the testing services to targeted clients and industry sectors and improving brand awareness through advertising and increased presence at field days, seminars and conferences. 10 AWTA Ltd Annual Review 2011-2012 | AWTA PRODUCT TESTING NZWTA LTD Overview NZWTA Ltd is New Zealand's leading wool and textile testing organisation, providing a comprehensive service to the whole textile industry. Capabilities The wool laboratory provides IWTO certification for Yield, Fibre Diameter, Colour and Staple Length and Strength of greasy wool. A comprehensive service is also conducted on scoured wool, which still forms over 70% of New Zealand's wool exports. The 2011/12 season began with the wool market at its highest point in over 20 years. However, within twelve months the effects of global economic conditions had left crossbred wool prices barely above the historic lows of 2009. Testing volumes of greasy wool in 2011/12 decreased from the previous season. The latest testing figures more closely reflected annual wool production, as the spike in crossbred wool prices in 2010/11 had released a quantity of wool held in stock at the time. The national sheep population is estimated to have increased by 2.6% to 31.9m, although most of this increase is through trading stock held over because of good growing conditions. Sheep farming in New Zealand continues to be threatened by other profitable agricultural activities, particularly dairy. The textile testing business acquired from AgResearch completed its first full year in the Napier laboratory. The operation has expanded its customer base and has been successfully integrated into the overall business. The acquisition has provided the company with an important revenue stream and an excellent platform for further expansion in the future. Looking Forward Continuing uncertainty in world markets gives little confidence of any significant improvement in wool prices in 2012/13. While other agricultural commodity markets have also been affected, this will place more pressure on sheep farming enterprises in the future. NZWTA Ltd will continue to use its key competencies of quality, integrity and customer focus to grow its overall business. Expansion of services and customer base is a priority throughout new and traditional textile industries as local manufacturing resists the trend towards an import-based market. RESEARCH & DEVELOPMENT During 2011/12 the Research and Development department worked on both internal and external projects in partnership with other industry organisations. Funding partners included Australian Wool Innovation (AWI) and the Sheep CRC, while research partners included CSIRO, the University of NSW, Deakin University and the University of New England. The input of commercial entities, including Country Road, The Merino Company and a range of wool topmakers and spinners into research projects is also acknowledged. During 2011/12 key highlights included: · · · · · · · more robust measurement of residual ASH by NIR; new variance and precision estimates and range checks accepted by IWTO for Classed Grower sale lots; and improved sample preparation systems for Automated DMFT testing approved by IWTO. continuing a strong focus on improving safety of machinery; continue developing long-term projects for future increases in productivity; development and installation of upgrades and improvements to the buildings and services; and developing large scale upgrades to machinery to ensure longevity. During 2011/12 the key manufacturing outcomes were: INFORMATION SERVICES The Information Services Division is located within the corporate Head Office. In its application development role the Division develops and maintains the custom software used in production support systems, for example within the wool testing laboratories. It also supports the application packages used in both business support and production support systems such as the enterprise HR3 Payroll and the LabWare Laboratory Information Management System used in Agrifood Technology. The Division is also responsible for the planning, deployment and support of the infrastructure required to support all operations across the enterprise. This infrastructure encompasses the wide area network, data centres and office systems across the country and all the hardware and software used within these installations. AWTA Ltd Annual Review 2011-2012 | NZWTA LTD 11 DIRECTORS' REPORT 2011-2012 FINANCIAL STATEMENTS AUSTRALIAN WOOL TESTING AUTHORITY LTD AND CONTROLLED ENTITY ABN: 43 006 014 106 DIRECTORS' REPORT The directors present their report, together with the financial statements of the group, being the company and its controlled entity, for the financial year ended 30 June 2012. This financial report has been prepared in accordance with Australian Accounting Standards. Principal Activities and Significant Changes in Nature of Activities The principal activities of the consolidated group during the financial year were raw wool, textiles, agricultural products and other materials testing, and computer services. There were no significant changes in the nature of the consolidated group's principal activities during the financial year. The Australian Wool Testing Authority Ltd (AWTA Ltd) is a Company Limited by Guarantee established to assist and promote the development of the pastoral, agricultural, manufacturing and industrial resources of Australia, in particular, by providing independent objective data and information services which will facilitate the efficient production, marketing and processing of wool, other fibres, textile products and related materials. Over the last 55 years, AWTA Ltd has built a highly successful business providing independent test information to its customers, primarily the wool industry in Australia. The Company has built and maintained a national and international reputation for technical expertise, commercial independence and professional integrity, while its corporate structure facilitates the minimisation of the fees that it charges for its services. During the last 2 decades wool production in Australia has fallen steadily and significantly, causing a consequent fall in testing volumes and AWTA Ltd revenue. The Company has responded to this situation with the objective of minimising fee increases for its raw wool clients by: reducing costs by improving labour productivity and significantly reducing management overheads; and · · diversification into related testing markets to improve profitability by growing revenue from non-wool sources. Operating Results The net loss of the group for the year, after taking up an impairment charge of $1.347 million, was $1.230 million (2011 net profit of $1.121 million). Review of Operations AWTA Ltd, as a consolidated group, comprises 3 operating divisions in Australia (AWTA Raw Wool, AWTA Product Testing and Agrifood Technology), its wholly owned subsidiary NZWTA Ltd and its joint venture, JinAo Testing Co Ltd, which is managed through AWTA Product Testing. The financial performance of each division is separately monitored, with the cash return as a percentage of capital invested being the key measure adopted by the Board. In addition, key performance measures relating to service and technical areas are routinely monitored by the Board. The reviews following summarise the operating performance of each section of the company. AWTA Raw Wool The operating environment in the Australian wool industry has deteriorated slightly in 2011/12 after a considerable improvement during 2010/11. Wool prices progressively deteriorated during 2011/12, giving up some of the gains made in the previous year. In addition, during 2010/11, increasing prices encouraged growers to release wool previously stored on-farm to the market, leading to an increase in testing volumes. In 2011/12, this was not repeated and, consequently, the volume of wool tested was lower than in 2010/11 leading to a decrease in AWTA Raw Wool revenue. Despite the recent fall in price, particularly for fine wool, there is continuing optimism that wool production will slowly recover with the AWI Wool Production Forecasting Committee predicting a slight increase of 1.4% in wool production for 2012/13. The majority of Raw Wool revenue comes from presale testing of greasy wool. The number of core tests conducted by AWTA Raw Wool decreased by 2.0% from last year. Staple length and strength testing activity also fell by a similar amount from the previous year with the proportion of core tests additionally measured for length and strength stable. Total revenue decreased by 1.9% from last year. Improved productivity and other cost saving initiatives partially offset inflation resulting in operating expenditure for the Raw Wool division being only 1.2% higher than 2010/11. AWTA Product Testing AWTA Product Testing division revenue increased by 9.3% from 2010/11 and the mix of test types changed considerably. Business from Australian textile manufacturers, which was once the division's largest customer group, continues to reduce as production moves off shore and as retail remains depressed. Revenue from this source is progressively being replaced by testing conducted on other products, particularly for the building materials, automotive and reflective goods industry sectors. Expenditure increased by 6.9% due to the greater workload than last year. As a consequence, operating contribution from AWTA Product Testing once again improved on the 2010/11 result. JinAo Testing Co Ltd grew its revenue base steadily in 2011/12 to the point where it was profitable. The majority of JinAo testing was conducted for Australian customers importing Chinese products with a growing base of local processors of Australian wool looking to JinAo for specialist services. NZWTA Ltd The operating performance of NZWTA has improved considerably in recent years. NZWTA operating revenue increased due to the maintenance of a high market share in wool testing and a full year of revenue from the textile testing operation that was added to its Napier laboratory in January 2011. NZWTA Ltd has again achieved a satisfactory financial result in an environment where wool production continues to decline. Agrifood Technology Agrifood Technology continued to diversify its revenue base in 2011/12. As revenue from grain testing is highly dependant on seasonal conditions and ongoing structural changes in the wheat export industry the Division has been actively extending its activities in the fresh and processed food sectors to counter this risk. This strategy has been successful, with total revenue growing by 2.7% despite a slight fall in the grain testing sector, the traditional customer base for Agrifood Technology. During 2011/12, the return on investment from Agrifood Technology remained healthy. Non-operating Income Income from investments was impacted by the ongoing deterioration in financial markets and, as a consequence, overall group revenue from sources other than testing services decreased by approximately 30%. Unrealised Impairment Charges In accordance with AASB 139 Financial Instruments: Recognition and Measurement, an impairment charge on available-for-sale investments of $1.347 million has been taken up in the financial statements. The strength of AWTA Ltd's balance sheet allows for a long-term approach to investment and Directors accept there is a risk of volatility and periods of short-term negative returns under the investment policy that it has adopted. Financial Position The net assets of the consolidated group have decreased by $1.4 million from 30 June 2011 to $71.5 million at the end of the financial year. 14 AWTA Ltd Annual Review 2011-2012 | DIRECTORS' REPORT INFORMATION ON THE DIRECTORS Mr D.G. McGauchie AO · · · · · · · Appointed as an independent director by the Members of AWTA Ltd on 29 October 1999 Appointed as Deputy Chairman on 25 January 2001 and as Chairman on 19 February 2005 Chairman of Remuneration & Appointments Committee Farmer and company director, having previously been active in national farming organisations Partner of C&E McGauchie Terrick West Chairman of Nufarm Ltd and Australian Agricultural Company Ltd Director of a number of listed and unlisted companies, including James Hardie Industries SE and Graincorp Ltd Mr G.W. Dickinson · · · · · · Appointed as an independent director by the Members of AWTA Ltd on 18 March 2005 Appointed as Deputy Chairman on 15 April 2005 Chairman of Audit & Finance Committee Member of Remuneration & Appointments Committee Chairman of Rubicon Systems Australia Ltd Director of Nareen Station Pty Ltd and Mutual Trust Pty Ltd Mr M.A. Jackson · · · · Managing Director of AWTA Ltd since 21 May 2001 Member of Environment & Safety Committee Director of New Zealand Wool Testing Authority Ltd and JinAo Testing Company Ltd Trustee of the Australian Wool Education Trust Mr M.D. Avery · Appointed as the nominee director for Australian Council of Wool Exporters Inc on 22 November 2007 Member of Audit & Finance Committee General Manager - Wool, Queensland Cotton · · Mr G.M. Power · · · · Appointed as the nominee director for WoolProducers Australia on 2 December 2011 President of WoolProducers Australia Director of Australian Wool Exchange Ltd and Sheep Industry Health and Welfare Pty Ltd Councillor of National Farmers Federation Members Council Mr D.B. Ritchie · Appointed as the nominee director for the Wool Scourers and Carbonisers of Australia Group of Australian Wool Processors Council Inc on 25 February 2011 Member of Audit & Finance Committee President of Australian Council of Wool Exporters & Processors Inc General Manager of Victoria Wool Processors · · · Dr P.D. Morgan · Appointed as the nominee director for the Wool Textile Manufacturers of Australia Group of Australian Wool Processors Council Inc on 16 October 2009 Executive Director of Australian Council of Wool Exporters & Processors Inc Executive Director of Private Treaty Wool Merchants of Australia Inc Director of International Fibre Centre Ltd Principal of Morgan Terrace Pty Ltd Mr G.W. Turner · Appointed as the nominee director for Private Treaty Wool Merchants of Australia Inc on 17 October 2008 President of Private Treaty Wool Merchants of Australia Inc Chairman of Australian Wool Industries Secretariat Inc Chairman of Environment & Safety Committee Managing Director of Reeashbro Pty Ltd Director of Wallace Investments Pty Ltd · · · · · · · · · Mr D.A. Webster · · · · · Appointed as the nominee director for Australian Wool Innovation Ltd on 25 November 2008 Director of Australian Wool Innovation Ltd Member of Remuneration & Appointments Committee Chairman of Brolga Minerals Pty Ltd Director of Pabula Pty Ltd, Nova Downs Pty Ltd, Athena Resources Ltd, Cobpen Co Investmments Pty Ltd and Organics for Rural Australia Mr C.J. Wilcox · Appointed as the nominee director for the National Council of Wool Selling Brokers of Australia Inc on 15 February 2008 Member of Environment & Safety Committee Executive Director of National Council of Wool Selling Brokers of Australia Inc Chairman of the International Wool Textile Organisation's Market Intelligence Committee Principal of Poimena Analysis and Trustee of Poimena Trust · · · · In addition to the directors in office, the following director held office during the year: · Mr D. R. Hamblin (resigned 30 November 2011). Appointed as the nominee director for the WoolProducers Australia on 19 October 2007. COMPANY SECRETARY The following person held the position of Company Secretary at the end of the financial year: Mr Charles Englander -- Bachelor of Law, Master of Laws. Mr Englander has worked for AWTA Ltd for the past 28 years, performing legal and compliance roles. Mr Englander was appointed company secretary on 1 July 2002. AWTA Ltd Annual Review 2011-2012 | INFORMATION ON THE DIRECTORS 15 Meetings of Directors During the financial year, 7 meetings of directors and 7 committee meetings (including committees of directors) were held. Attendances by each director during the year were as follows: Directors' Meetings Number eligible D.G. McGauchie AO G.W. Dickinson M.A. Jackson M.D. Avery D.R. Hamblin P.D. Morgan G.M. Power D.B. Ritchie G.W. Turner D.A. Webster C.J. Wilcox 7 7 7 7 2 7 5 7 7 7 7 Number attended 7 7 7 7 2 7 5 7 7 6 7 1 1 3 3 3 3 3 3 3 3 3 3 Audit & Finance Committee Number eligible Number attended Remuneration & Appointments Committee Number eligible 1 1 Number attended 1 1 3 3 Environment & Safety Committee Number eligible Number attended INDEMNIFYING OFFICERS OR AUDITOR During or since the end of the financial year, the Company has given an indemnity or entered into an agreement to indemnify, or paid or agreed to pay insurance premiums as follows: · The Company has paid premiums to insure directors and officers against liabilities for costs and expenses incurred by them in defending legal proceedings arising from their conduct while acting in their capacity as directors and officers of the Company, other than conduct involving a wilful breach of duty in relation to the Company. PROCEEDINGS ON BEHALF OF COMPANY No person has applied for leave of Court to bring proceedings on behalf of the Company or intervene in any proceedings to which the Company is a party for the purpose of taking responsibility on behalf of the Company for all or any part of those proceedings. The Company was not a party to any such proceedings during the year. Auditor's Independence Declaration The auditor's independence declaration for the year ended 30 June 2012 has been received and is appended to this report. Member's Liability The Company is incorporated under the Corporations Act 2001 and is a Company limited by guarantee. If the Company is wound up, the Memorandum of Association states that each member is required to contribute a maximum of $50 each towards meeting any outstanding obligations of the Company. At 30 June 2012, the amount that members of the company are liable to contribute if the company is wound up is $300 (2011: $300). After Balance Date Events In the opinion of the directors, there are no likely developments in the operations of the consolidated group known at the date of this report which have not been covered generally within the report. AUDITOR'S INDEPENDENCE DECLARATION To the directors of Australian Wool Testing Authority Ltd In relation to the independent audit for the year ended 30 June 2012, to the best of my knowledge and belief there have been: i. ii. No contraventions of the auditor independence requirements of the Corporations Act 2001; and No contraventions of any applicable code of professional conduct. Likely Developments The directors are not aware of any other future developments likely to have a significant effect on the operations of the consolidated group or on the expected results of those operations. ASIC Class Order 98/100 Rounding of Amounts The Company is an entity to which ASIC Class Order 98/100 applies and, accordingly, amounts in the financial statements and directors' report have been rounded to the nearest thousand dollars. This Report of the Directors is signed in accordance with a resolution of the Board of Directors and dated 17 August 2012 at Melbourne. Stephen Schonberg, Partner Pitcher Partners D.G. McGAUCHIE AO CHAIRMAN M.A. JACKSON MANAGING DIRECTOR Melbourne 17 August 2012 16 AWTA Ltd Annual Review 2011-2012 | DIRECTORS' REPORT AUSTRALIAN WOOL TESTING AUTHORITY LTD AND CONTROLLED ENTITY ABN: 43 006 014 106 FINANCIAL STATEMENTS INCOME STATEMENT FOR THE YEAR ENDED 30 JUNE 2012 Note Consolidated Group 2012 2011 $000 $000 36,359 1,587 (24,717) (2,363) (2,345) (1,345) (1,118) (1,017) (738) (586) (551) (450) (289) (303) (371) (253) (150) (249) (83) (479) (1,347) 51 420 (769) 3 4 (1,106) (124) (1,230) 36,409 2,147 (23,814) (2,559) (2,376) (1,310) (1,016) (975) (635) (530) (473) (459) (335) (312) (280) (236) (228) (195) (188) (10) (701) (549) 145 639 (907) 1,252 (131) 1,121 Parent Entity 2012 2011 $000 $000 33,150 1,400 (22,887) (2,219) (2,259) (1,171) (1,028) (916) (564) (455) (490) (396) (262) (268) (359) (253) (136) (210) (69) (481) (1,347) 51 420 (769) (1,518) (1,518) 33,388 1,921 (22,079) (2,420) (2,320) (1,144) (920) (870) (480) (419) (412) (401) (313) (258) (276) (236) (206) (174) (175) (10) (641) (549) 145 639 (907) 883 883 Revenue Other income Employee benefits expense Depreciation & amortisation expense Repairs & maintenance expense Energy & utilities expense Materials & supplies expense Freight expense Travel expense Property, Rates & Taxes expense Software expense Communications expense Printing & stationery expense Insurance expense Subcontract testing expense Investment management expense Consulting fees Advertising & Sponsorship expense Audit fees Share of losses of joint ventures Other expenses Impairment charge on available-for-sale
AWTA Ltd ANNUAL REVIEW 2012 - 2013 ANNUAL REVIEW 2012-13 CONTENTS HISTORY & OBJECTIVES MISSION, VISION & VALUES COMPANY PROFILE CORPORATE GOVERNANCE HUMAN RESOURCES CHAIRMAN'S STATEMENT MANAGING DIRECTOR'S INTRODUCTION FINANCIAL SUMMARY AWTA RAW WOOL AWTA PRODUCT TESTING JINAO TESTING COMPANY AGRIFOOD TECHNOLOGY NZWTA LTD RESEARCH & DEVELOPMENT INFORMATION SERVICES DIRECTORS' REPORT FINANCIAL STATEMENTS NOTES TO FINANCIAL STATEMENTS DIRECTORS' DECLARATION INDEPENDENT AUDIT REPORT 2 2 3 4 5 6 7 7 8 10 10 10 11 11 11 14 17 20 31 32 AWTA LTD ANNUAL REVIEW 2012-2013 | CONTENTS 1 HISTORY & OBJECTIVES The Australian Wool Testing Authority was established in 1957 by the Commonwealth Government in response to requests from the Australian wool industry, and was created as a Statutory Authority reporting to the Minister for Primary Industry. The first meeting of the Authority was held on 12th December 1957. Following the formation of the Australian Wool Board in 1962, AWTA was established as a separate division within that organisation on 1st July 1963. AWTA retained the same status within the Australian Wool Corporation when it was formed by the amalgamation of the Australian Wool Board and the Australian Wool Commission on 1st January 1973. AWTA Ltd was established as a Company Limited by Guarantee on 14th May 1982 consequent to an Australian Government decision to transfer the functions of the statutory Australian Wool Testing Authority (AWTA) to the public sector. After almost 25 years of operations, the government and industry considered that there was no on-going requirement for AWTA to continue to have links with the government, particularly since it was controlled by the wool industry and funded by the commercial services it provided to the industry, not by the government or any levies. In April 1982, the same wool industry interests that comprised AWTA as a statutory body formed a public company limited by guarantee, to acquire all assets and liabilities of the statutory body. AWTA Ltd commenced operations on 1st July 1982, when it took over all the previous functions of AWTA. The objectives for which the Company was established were and are still enshrined in its Memorandum. They include the following: 1. 2. 3. 4. 5. 6. 7. 8. 9. To promote sales of Australian wool by encouraging the growth and utilisation of objective measurement of wool, particularly by presale testing; To test wool and other fibres, whether natural or otherwise, and wool products and similar products made wholly or partly from other fibres; To provide an accurate and impartial testing service based upon internationally recognised testing standards as an aid to efficient wool marketing; To conduct wool, fibre and textile research and/or to carry out tests on other materials and products where such activities assist or promote the development of the pastoral, agricultural, manufacturing or industrial resources of Australia; To maximise the net income of the Australian wool industry by encouraging the optimum application of objective measurement of wool by wool growers, brokers, buyers and both local and overseas processors; To optimise wool industry productivity through research and the implementation of new systems and technology; To establish, equip and maintain laboratories, workshops and other places suitable for testing and research activities; To provide and encourage the provision of data processing services aimed at the more efficient marketing of wool; Generally to promote and foster the more efficient testing of wool as required by the wool and textile industry at a minimum cost; and 10. To provide certificates and make reports in respect of test and research carried out by the Authority. MISSION, VISION & VALUES MISSION To assist or promote the development of the pastoral, agricultural, manufacturing and industrial resources of Australia, in particular, by providing independent objective data and information services which will facilitate the efficient production, marketing and processing of wool, other fibres, textile products and related materials. VISION To maintain a national and international reputation for technical expertise, commercial independence and professional integrity by providing accurate, impartial and efficient sampling, testing and certification services to our customers. VALUES · · · · · · · · · To maintain technical excellence, by taking maximum advantage of emerging technologies and providing staff with the knowledge, skills and equipment to improve customer service and lower costs; To ensure commercial independence in all activities; To insist on professional integrity within the Company, by remaining impartial and avoiding conflicts of interest; To be alert and responsive, by monitoring and understanding the changing needs of clients; To ensure that a reliable business continuity plan is in place, to minimise disruption to the wool marketing process in the event of a disaster; To foster sound industrial relations, based on mutual respect and recognition of the common interests which are shared with all employees and managerial staff; To aspire to provide a safe and satisfying working environment, which encourages employee participation and is supported by appropriate training and development programs; To seek to meet all legal and moral obligations of a good corporate citizen; and To adopt business strategies which transfer cost saving benefits arising from the Company's income tax exemption, so as to assist or promote the development of the relevant industrial resources of Australia. 2 AWTA LTD ANNUAL REVIEW 2012-2013 | HISTORY & OBJECTIVES COMPANY PROFILE MEMBERSHIP & BOARD COMPOSITION AWTA Ltd is a Company Limited by Guarantee. As described in the Company's Articles of Association, each Member Guarantor is entitled to appoint a Director to the Board. Additionally, the Member Guarantors appoint two Independent Directors and may also appoint a Director having special scientific or technological qualifications. The Chief Executive is also a Director pursuant to Article 21(d). The following organisations or their nominees are the Member Guarantors constituting the Company: · · Australian Council of Wool Exporters Inc (ACWE Inc) Australian Wool Processors Council Inc (AWPC Inc) ­ Wool Scourers & Carbonisers of Australia Group (WSCA Group) ­ Wool Textile Manufacturers of Australia Group (WTMA Group) Australian Wool Innovation Ltd (AWI Ltd) Private Treaty Wool Merchants of Australia Inc (PTWMA Inc) The National Council of Wool Selling Brokers of Australia Inc (NCWSBA Inc) WoolProducers Australia Australian Wool Processors Council Inc, being an amalgamation of two previously separate Member Guarantors, is entitled to appoint two Directors, one from each Group. MANAGEMENT The Board delegates responsibility for the operation and administration of the Company to the Managing Director who, together with the executive team, is accountable to the Board. AWTA Ltd is organised for management and reporting purposes into four operating divisions. Management responsible for those divisions must account for their performance within a framework of strategic plans, budgets, position descriptions, targets, standards and policies. The Strategy Committee, comprising senior management from Head Office and the four divisions, co-ordinates the management activity. Strategy Committee Members are: · · · · · · · · · · Managing Director Chief Financial Officer General Counsel General Manager - Raw Wool Chief Executive Officer - NZWTA Ltd Divisional Manager - Agrifood Technology Divisional Manager - Product Testing Senior Manager - Western Australia Sampling Manager - Eastern Australia Business Development Manager · · · · Note: ORGANISATION & REPORTING STRUCTURE DIRECTORS Directors holding office at the date of this Report are: Chairman D.G. McGauchie AO Deputy Chairman G.W. Dickinson M.A. Jackson M.D. Avery G.M. Power P.D. Morgan D.B. Ritchie G.W. Turner D.A. Webster C.J. Wilcox (elected Independent Director) (AWTA Ltd Managing Director) (appointed by ACWE Inc) (nominee of WoolProducers Australia) (appointed by AWPC Inc from WTMA Group) (appointed by AWPC Inc from WSCA Group) (appointed by PTWMA Inc) (appointed by AWI Ltd) (appointed by NCWSBA Inc) (elected Independent Director) Profiles on each of the Directors are provided in the Directors' Report (page 15). COMPANY SECRETARY The Company Secretary is Mr Charles Englander (General Counsel). BOARD RESPONSIBILITIES The Board is responsible for the overall corporate governance of the Company, including its strategic direction and financial objectives. It sets goals for management and monitors their attainment. The Board has specifically assumed responsibility for: · · · · · · · · · the approval of strategy and annual budgets; the provision of strategic direction and oversight of management; corporate governance; the selection and evaluation for succession planning of executive management; significant acquisitions and disposals of assets; significant expenditure decisions outside of the corporate budget; the remuneration of executive management; the approval of and monitoring of financial performance against corporate objectives and policies; and the integrity of risk management strategies and controls. The delivery of the Company's strategic direction and goals as determined by the Board is delegated to management under the leadership of the Managing Director. AWTA LTD ANNUAL REVIEW 2012-2013 | COMPANY PROFILE 3 REMUNERATION & APPOINTMENTS COMMITTEE Current members of the Remuneration & Appointments Committee are: · · · Mr D.G. McGauchie AO (Committee Chairman) Mr G.W. Dickinson Mr D.A. Webster ENVIRONMENT & SAFETY COMMITTEE The Company has a policy to conduct its business activities so as, wherever practicable, to minimise any adverse impact of such activities on the community and the environment and to comply with applicable legislative requirements. The Environment & Safety Committee ensures that the Company's environment and occupational health and safety obligations are implemented and maintained. The Committee's key responsibilities are to: · ensure that environmental management system requirements, including policies in relation to the Company's obligations with respect to environmental and health and safety issues are established, implemented and maintained; ensure compliance with all laws, regulations and regulatory obligations relating to environmental and safety matters by the Company; oversee the effective monitoring of the Company's operations in relation to environmental and occupational health and safety matters; keep the Board informed of the Company's activities in relation to its environmental and occupational health and safety obligations; ensure that the Company's environmental policy, objectives and targets are based on knowledge about the environmental impacts associated with its activities, products and services and any regulatory requirements; and review the environmental management system to ensure its continuing suitability. The Managing Director attends the Committee meeting except when his own remuneration and employment conditions are being considered. The Committee is charged with: · setting policies and making recommendations on remuneration policies for the Company, including those governing the Directors, the Managing Director and senior management; reviewing candidates for vacant senior executive management positions and making specific appointment recommendations to the Board; and approving the recommendations of the Managing Director on the remuneration of all non-award personnel below senior officers. · · · · Directors attendance at Committee meetings is reported in the Directors' Report. Non-executive Directors The Company's Memorandum of Association provides that, whilst its income cannot be transferred by way of dividend or bonus, it can be used for payment in good faith to any officer or servant of the Company (including Directors) for any services actually rendered to the Company. Non-executive Directors' fees are reviewed annually by the Member Guarantors having regard to performance, relevant comparative remuneration and independent advice. Non-executive Directors may receive a Sitting Fee for Committee participation and reimbursement of travel and accommodation expenses for attendance at Board and other official Company meetings. Executive Director & Senior Executives The Board determines the remuneration for the Chief Executive Officer (Managing Director), the Chief Financial Officer and the General Manager - Raw Wool, upon the recommendation of its Remuneration & Appointments Committee. Remuneration is decided following an annual review that considers performance, relevant comparative remuneration and independent advice. The Committee comprises Non-executive Directors only when it deals with the remuneration and employment conditions of the Managing Director. · · · Current members of this Committee are Mr G. W. Turner (Committee Chairman), Mr C.J. Wilcox, Mr M. A. Jackson and Mr C. Englander. Attendance at Committee meetings is reported in the Directors' Report. CORPORATE GOVERNANCE CORPORATE GOVERNANCE CHARTER AWTA Ltd follows the Australian Charities and Not-for-profits Commission governance standards and, whilst not a listed company, it also adopts any applicable ASX Corporate Governance Principles and Recommendations. The Board is responsible for the overall corporate governance of the Company, including its strategic direction, major policies and financial objectives. The Board has adopted a Charter that delineates its role and the role of individual Directors. The Corporate Governance Charter and Guide for Directors and Officers is publicly available on the Company's website. AUDIT & FINANCE COMMITTEE The role of the Audit & Finance Committee is to assist the Board to fulfil its corporate governance and oversight responsibilities. The principle objectives of this Committee are to: · · assist the Board in the discharge of its responsibilities relating to all financial matters; assess and advise the Company's Board on whether the annual financial report represents a true and fair view of the Company's financial position and complies with regulatory requirements; substantiate the existence, quality and valuation of the Company's assets; determine that management has implemented policies and procedures designed to ensure that the Company's risks are identified, assessed and appropriately addressed in a Risk Management Plan; ensure the operation of effective internal control policies and procedures; oversee the independence and appraise the quality of internal and external audits; maintain lines of communication between the Board, management and internal and external audit; and examine the accounting policies of the Company to determine appropriateness to general accepted practices. CORPORATE CONDUCT & ETHICS The Company recognises that it is vital to its continuing success that its staff maintain the highest possible reputation for technical expertise, commercial efficiency, impartiality, independence, equal opportunity and professional integrity. To ensure that they are aware of the ethical framework in which they are required to work, each staff employee is required to read and sign the Company's Corporate Conduct & Ethics Policy. This policy sets broad guidelines for conduct and reflects AWTA Ltd's corporate "conscience" by promoting the highest levels of behaviour. · · APPOINTMENT OF AUDITORS The Company's auditors are Pitcher Partners. The auditor's effectiveness, performance and independence is reviewed by the Audit & Finance Committee. Audits are conducted in accordance with the Corporations Act 2001 and the Australian Auditing Standards which require auditors to comply with relevant ethical requirements related to audit engagements and to plan and perform the audit so as to obtain reasonable assurance that the financial report is free from material misstatement. The auditors are obligated to comply with the independence requirements of the Corporations Act 2001. The auditors are required to form an opinion whether the financial report of Australian Wool Testing Authority Ltd complies with the requirements of the Corporations Act 2001, the Regulations and the Australian Accounting Standards. · · · · The Committee comprises one Independent Director and up to two other non-executive Directors. The Chairman, the Managing Director, the Chief Financial Officer and the external auditor attend meetings by invitation. The current members of the Committee are Mr G.W. Dickinson (Committee Chairman) and Mr D.B. Richie and Mr M.D. Avery. Attendance at Committee meetings is reported in the Directors' Report. 4 AWTA LTD ANNUAL REVIEW 2012-2013 | CORPORATE GOVERNANCE RISK IDENTIFICATION AND MANAGEMENT The Company continues to have in place a number of risk management controls including: · · · guidelines and limits for approval of capital expenditure and investments; an annual insurance review; defined senior management responsibilities for areas including equal opportunity, occupational health and safety, environmental compliance, legal liability, risk identification and reporting and financial controls; policies and procedures for the management of financial risk and investment operations, including exposure to foreign currencies and movements in interest rates; strategic planning process for the implementation of 3-year strategic plans; annual budgeting and monthly reporting systems enabling the monitoring of progress against performance targets and the evaluation of trends; Director's Declarations of Interests; and disaster recovery procedures for the key business units of the Company. reported monthly. The data is reviewed by management, the Environment & Safety Committee and the Board. During 2012/13, the Company experienced 7 lost time accidents (2 less than in the previous year), a lost time frequency rate of 14.3 (compared to 17.8 in the previous year) and a lost time duration rate of 142.0 (down from 164.1 the previous year). Achieving a zero Lost Time Injury result is a goal of all responsible employers. Such a result can only be achieved by careful attention to systems of work, risk assessments, work organisation and a shared commitment by staff to safety and injury prevention. AWTA Ltd continues to work with staff to increase on-the-job awareness of safety and to maintain a culture of shared commitment to safety. · SERVICE AWARDS It is noteworthy that a significant number of staff have been employed by AWTA Ltd for more than 20 years. Since the formation of the Statutory AWTA in 1957 to the completion of the year under review, 200 employees have reached 20 years service, 57 have achieved 30 years service and 5 have reached 40 years service. During 2012/13 the 30 year service roll increased by 4 and the 20 year service roll increased by 5. · · · · COMPANY POLICIES In addition to the Company policies previously referred to, the Company has and maintains a comprehensive range of policies and procedures including: · · · · · · · · · · · · · · · Accounting; Payroll; Debtors; Assets; Purchasing; Occupational Health & Safety; Environmental Compliance; Restrictive Trade Practices & Consumer Law Compliance; Staff Recruitment, Training and Termination; Privacy; Anti-Harassment, Bullying and Discrimination; Records & Statistics; Equal Opportunity; Corporate Conduct and Ethics Policy; and Improper Conduct Policy. 20 Years Lidia Trimarchi Scott Balshaw (196th) (197th) Accounts Payable Clerk, commenced 20 July 1992 Systems Coordinator, commenced 4 December 1992 (formerly with AWB) Maintenance Officer (Fremantle), commenced 14 December 1992 Analyst Quality Milling Laboratory, commenced 28 January 1993 (formerly with AWB) Data Processing Controller (Fremantle), commenced 5 April 1993 Mick Alvaro (57 ) th SERVICE AWARDS 30 Years Elsie Castanos Avelyn Bisset Rod Agar (54th) (55th) (56th) Testing Officer (Melbourne), commenced 12 July 1982 Testing Officer (Melbourne), commenced 14 July 1982 Laboratory Production Manager (Melbourne), commenced 16 August 1982 Testing Officer (Fremantle), commenced 4 January 1983 The Company's policies are regularly monitored and reviewed and aim to meet or exceed best practice with comparable organisations. ENVIRONMENTAL IMPACTS The Company's operations are subject to particular and significant environmental regulations under State laws. Details of its performance in relation to such regulations are summarised in the Directors' Report (see page 14). Stan Kirk Bob Paz (198th) (199th) HUMAN RESOURCES STAFF NUMBERS AWTA Ltd's staff numbers vary in response to seasonal work-flow. Variations in work-flow are managed in part by the use of casual and to a lesser extent, part-time staff. AWTA Ltd's staff numbers peaked at 412 in November, 2012. Dino Raffaele (200th) STAFF TRAINING As part of the Company's due diligence program, the legal department, supported by regional and divisional management regularly conduct training in anti-discrimination, bullying, sexual harassment, restrictive trade practices, equal opportunity, occupational health and safety, internet and email use and affirmative action. OCCUPATIONAL HEALTH & SAFETY The Company's occupational health and safety obligation's are monitored by Executive Management, with day-to-day responsibility resting with regional management. Safety performance data consisting of lost time accidents, frequency rate and duration rate are calculated to AS/NZS 4801-2001 and AWTA LTD ANNUAL REVIEW 2012-2013 | CORPORATE GOVERNANCE 5 CHAIRMAN'S STATEMENT AWTA Ltd has recorded a net profit of $8.095 million for 2012/13, a significant increase on the net loss of $1.230 million reported in 2011/12. The primary contributing factor to the improved result is the refund of $5.500 million dollars of payroll and land tax that was paid in the 4 years prior to 2012/13. By contrast, the 2011/12 result included an impairment charge of $1.347 million to reflect the falling value of AWTA's investment portfolio. The underlying 2012/13 result, excluding the payroll and land tax refund, was $2.595 million, which was still a significant improvement on pre-impairment profit of $0.117 million the previous year. When AWTA Ltd was privatised in 1982, it was structured as a Company Limited by Guarantee with the objective of providing services to its clients at minimum cost, rather than maximising profit for distribution to shareholders. There is no doubt that over many years the Company has been successful in this regard, the fee for AWTA Ltd's primary service (presale raw wool testing) is lower today than it was in 1994. However, in the last decade, wool production in Australia has declined and AWTA Ltd's principal market has been shrinking. AWTA Ltd responded by focussing on innovation and cost control in its raw wool testing laboratories and by reducing corporate overheads. At the same time, the Board recognised that it was essential for the Company to broaden its revenue base beyond raw wool and textile testing into other services to agriculture so that fees continue to be contained as the volume of wool produced in Australia declines. Hence, approximately 8 years ago, AWTA Ltd adopted a strategy to expand into related testing markets where independent, high quality, high integrity testing is a necessary part of the value chain and this approach has clearly been successful. AWTA Ltd, as a consolidated group, now comprises 3 operating divisions in Australia (AWTA Raw Wool, AWTA Product Testing and Agrifood Technology), its wholly owned subsidiary NZWTA Ltd and its joint venture, JinAo Testing Co Ltd, which is managed through AWTA Product Testing. In 2012/13, AWTA Raw Wool revenue increased by 3.0% over the previous year. Wool production increased slightly during the year as generally better seasonal conditions contributed to improved fleece weights, resulting in an increase of 2.6% in the number of bales sampled. The average tested lot size increased during the year, which is often the case when seasonal conditions improve. Hence, the number of core tests conducted by AWTA Raw Wool decreased by 1.1% despite the increase in the number of bales. The AWI Wool Production Forecasting Committee remains optimistic that wool production has stabilised, with only a small decline of 1.4% predicted for 2013/14 despite the fact that more difficult growing conditions have been experienced. The Raw Wool Division has always sought to achieve continuous productivity improvement and Directors were pleased to see significant progress in this area in 2012/13. This, combined with other cost savings initiatives and the payroll tax exemption that was achieved, has allowed the AWTA Raw Wool Division achieve a 2.3% reduction in total expenditure this year. MR D.G. McGAUCHIE AO CHAIRMAN - AWTA Ltd Volume of Australian Wool Tested 600 500 400 `000 Tonnes 300 200 100 0 2003 2004 2005 2006 2007 2008 2009 2010 2011 2012 2013 AWTA Product Testing Division continues to operate in a difficult environment. The demand for local testing of various materials and products has been depressed in the retail, manufacturing and building industries during 2012/13 and this has had a negative impact on AWTA Product Testing revenue. Revenue decreased by approximately 20% with less testing received from most of the market segments that the Division operates in. Expenditure decreased by 8.7% as management focussed on reducing costs in response to falling revenue. This enabled the Division to achieve a positive operating contribution despite the difficult market conditions, albeit significantly lower than in 2011/12. JinAo Testing Co Ltd continued to grow its revenue base during 2012/13, and has once again recorded a profit. The majority of JinAo testing was conducted for Australian customers importing Chinese products with a growing base of local processors of Australian wool looking to JinAo to provide specialist services. Although NZWTA's operating revenue decreased in 2012/13, it continues to achieve a profit that provides a healthy return on the capital that AWTA has invested in it. NZWTA is broadening the scope of tests that it offers to the wool industry in New Zealand and its textile testing laboratory is growing its revenue base. The AWTA group is currently adapting the software systems used to run NZWTA's Napier laboratory so that they can also be utilised in Australia, improving synergies between the raw wool laboratories and reducing cost. AWTA Ltd purchased Agrifood Technology from AWB in February 2008 and 2012/13 is the fifth full year that it has operated under AWTA Ltd ownership. Agrifood Technology has now successfully established its independence within the deregulated wheat industry, securing a broad range of wheat industry clients. It has also significantly increased its activity in the processed and fresh food and the hay and fodder sectors, which now generate a significant proportion of Agrifood Technology's revenue, providing some insulation against the seasonal impacts inherent in the grain industry. In addition, Agrifood Technology has established a laboratory in Perth and is growing its client base in Western Australia. During 2012/13 total operating income at Agrifood Technology increased by approximately 10%. AWTA invests its funds in various asset classes in accordance with a balanced investment policy which is regularly reviewed by the Board. The strength of the Company's balance sheet allows it to take a long-term approach to investment and Directors accept that there is a risk of volatility as we have seen in recent years. Equity markets recovered during 2012/13, and this had a positive impact on AWTA's non-operating revenue and there were no significant impairments required this financial year. Mr Ray Duncan served as the National Information Services Manager of AWTA for 25 years before retiring in January. Ray held this role during a time of rapid change in the IT world and he led many significant changes to AWTA Ltd systems during his career. I would like to thank Ray for his dedication to the Company and congratulate him on the contribution that he has made. 6 AWTA LTD ANNUAL REVIEW 2012-2013 | CHAIRMAN'S STATEMENT I would also like to pay tribute to all the staff that have achieved 20 and 30 year service anniversaries during the past year and acknowledge their contribution to the Company. AWTA Ltd has a proud tradition of long service, a rare feat in most Australian companies. Finally I wish to express my personal thanks to the Chief Executive, Michael Jackson, all Directors and the Company's employees for their support, contribution and dedicated service during 2012/13. D.G. McGAUCHIE AO MANAGING DIRECTOR'S INTRODUCTION The AWTA Ltd Group reported an overall profit of $8.095 million for 2012/13, which is made up of an underlying profit for the year of $2.595 million and a refund of payroll and land tax paid in previous years of $5.500 million. The underlying result is an improvement on 2011/12, primarily due to significantly higher operating contributions by the AWTA Raw Wool and Agrifood Technology divisions and better investment returns. It is pleasing to report that all of the operating divisions in Australia and NZWTA have made a positive contribution during 2012/13. In his report, the Chairman comments on the need for AWTA Ltd to have a broad revenue base and there is no doubt that financial success in these operating divisions is instrumental in minimising raw wool fees. The Company remains financial stable and is well placed to continue to provide services that add value to the wool, textile, agricultural and manufacturing industries. Following is a summary of the financial performance during 2012/13 and a brief report on each operating division with the AWTA Ltd Group. MR M.A. JACKSON MANAGING DIRECTOR FINANCIAL SUMMARY COMPARATIVE PROFIT & LOSS STATEMENT 2013 $'000s Revenue Revenue from services Revenue from investments Profit on sale of surplus sample material Consulting income Rental income Other income Total revenue Expenses Operating and administrative expenses Unrealised impairment of financial assets Realised losses on sale of investments Total expenses Net Profit/(Loss) 34,785 2,936 1,014 170 348 6,071 45,324 2012 $'000s 34,600 2,230 1,055 135 300 97 38,417 (36,587) (46) (596) (37,229) 8,095 (37,531) (1,347) (769) (39,647) (1,230) AWTA LTD ANNUAL REVIEW 2012-2013 | MANAGING DIRECTOR'S INTRODUCTION 7 AWTA RAW WOOL OVERVIEW AWTA Raw Wool Australia is the largest division within AWTA Ltd and is comprised of: · · · · Sampling Operations; Raw Wool Laboratories; Data Processing Operations; and Technical & Quality Control. During 2012/13 AWTA Raw Wool Australia operated two laboratories located in Melbourne (servicing clients in Victoria, New South Wales, Queensland, South Australia and Tasmania) and Perth (servicing clients in Western Australia). CAPABILITIES Each laboratory provides certified testing of Yield & Micron, Staple Length & Strength and Colour for raw wool. Certified testing of scoured wool is also conducted for a range of attributes including regain and grease content. In addition, AWTA Raw Wool offers non-certified report testing of raw wool, scoured & carbonised wool and speciality fibres such as Mohair, Alpaca and Cashmere. The number of bales core sampled for certified tests increased by 2.7% during 2012/13 with 2.10 million bales sampled compared with 2.05 million bales during the previous season. Bales sampled increased in all states except Queensland and Victoria. Western Australia experienced a 9% increase thanks to seasonal improvements after very dry conditions in the previous season. The number of sale lots tested for Yield & Micron results decreased by 1.1% to 365,216 lots during 2012/13 when compared with the previous season. The decline in sale lots tested while bales tested increased indicates that the lot size has increased in 2012/13. The number of sale lots tested for Staple Length & Strength declined by 1.0 % to 229,578 lots over the same period. AWTA Raw Wool maintains a strong focus on the three key measures of performance: · · · Service AWTA Raw Wool is committed to providing timely testing services as required by its customers. Samples are taken at 32 locations throughout Australia and dispatched overnight to one of AWTA's Raw Wool laboratories. AWTA Ltd offers three levels of priority for service: Normal: Test Certificates are available within 5 days of a sample being taken. 95% of test Certificates are available within 3 days, and the remainder the following day. Express 18% Fast 15% Normal 67% service delivery; improved efficiency/productivity; and sound technical performance. Fast: Express: 95% of test Certificates are available the following morning, with the remainder the following day. Lots Sampled 2012/13 Qld NSW Vic Tas SA WA 0 30,000 60,000 Lots 90,000 120,000 150,000 Qld NSW Vic Tas SA WA Bales Sampled 2012/13 0 200,000 400,000 Bales 600,000 800,000 8 AWTA LTD ANNUAL REVIEW 2012-2013 | AWTA RAW WOOL Test Type Yield & Micron Service Measure Average (days) % Total Tests within Service Target Normal 3.0 99.0 3.8 95.8 Fast 1.9 98.0 2.2 96.2 Express 1.5 97.4 1.6 96.3 Length & Strength Average (days) % Total Tests within Service Target During the 2012/13 season, service performance was, on average, well within the service time requirements. These times are all measured from the time of sampling, not when samples are received at a laboratory. Efficiency The efficiency of AWTA Raw Wool departments is monitored by measuring departmental productivity. Any increase in productivity reduces overall labour costs. Labour forms the majority of the cost of testing wool. Sampling Productivity improved during 2012/13 due to improvements in the operations at wool coring locations, plus some improvements in MTS operations. Testing Productivity, which reflects the efficiency of all laboratory operations, increased by 3.8% during 2012/13. This increase was largely due to improved work practices and workplace supervision and management. Technical Confidence in wool trading requires confidence in the accuracy and precision of the wool test results. AWTA Raw Wool laboratories have rigorous quality control procedures, calibration schedules and test monitoring processes in place to ensure a high level of accuracy and precision. Trial samples are exchanged between AWTA Raw Wool laboratories to ensure consistency. Blind trials are also conducted twice weekly with overseas laboratories, with the results publicly reported at the annual International Wool Textile Organisation (IWTO) Conference. During 2012/13, all AWTA laboratories reported ongoing stable and accurate performance to the IWTO Conference. External queries from clients also serve as an indicator of technical performance. During 2012/13, some 1,229 results (0.21% of all tests) were queried by customers. Of these, 326 were reissued, representing less than 0.06% of the 594,794 Yield & Micron and Staple Length & Strength tests conducted. CHALLENGES The major challenge for Raw Wool operations is maintaining high levels of service and efficiency in an environment where revenue growth has declined in recent years and costs continue to escalate. INDUSTRY SUPPORT The Company focuses its industry activities, both domestically and internationally, on promoting the use and understanding of objective measurement. This is to ensure Australian wool maintains its pre-eminent position in the world wool textile market. AWTA Ltd continues to participate in International Wool Textile Organisation (IWTO) meetings where key staff contribute to the development and understanding of wool testing standards and procedures. AWTA Ltd collates and publishes an extensive range of statistics and analytical reports which are provided free of charge to the wool industry. An example of this is the Key Test Data report - a monthly summary of the volume of wool tested and average results tested broken down by State and wool category. Other examples include a number of detailed micron split and Wool Statistical Area reports, which are crucial for the Australian Wool Production Forecasting Committee. This data, along with a range of other statistical reports, is available for download from the AWTA Ltd website. AWTA Ltd continues to provide the TOPMARK Benchmarking service for wool processors free of charge. This service allows wool processors to compare their processing performance against the average of all other mills participating in the program. The objective of this program is to improve the efficiency of wool processors. The Company continues to support the Australian wool industry by sponsoring and providing testing assistance for major sheep shows, ram sales and research trials. Details of supported events are listed on the AWTA Ltd website to assist with the promotion of sponsored events. AWTA Ltd also hosts meetings with industry bodies and associations and is an active member of the Federation of Australian Wool Organisations (FAWO). Changes in Lots Sampled (2012/13 cf 2011/12) Qld NSW Vic Tas SA WA Australia -5% 0% Lots 5% 10% -5% Changes in Bales Sampled (2012/13 cf 2011/12) Qld NSW Vic Tas SA WA Australia 0% Bales 5% 10% AWTA LTD ANNUAL REVIEW 2012-2013 | AWTA RAW WOOL 9 AWTA PRODUCT TESTING OVERVIEW AWTA Product Testing is an independent materials testing facility available to government instrumentalities, industry and the general public. It possesses a diverse array of specialised testing equipment, available to industries within Australasia and internationally, which are operated by highly competent technicians. CAPABILITIES The division has internationally recognised competencies in flammability, textiles, automotive, weathering, physical, chemical and mechanical testing. AWTA Product Testing is able to provide extensive testing services encompassing the assessment of fibres, yarns, textiles, plastics, product flammability, automotive components, building products, glass, carpets/flooring materials, retail products, health care consumables, insulation materials, clothing and laminates. It has specialised capabilities in thermal conductivity, spectrophotometry, measurement of static electricity and retroreflective performance. LOOKING FORWARD Using the efficiency improvements introduced over the last year, the division will continue to take the initiative in providing customers with better lead times, improved responsiveness and an increased testing capability. The application of competitive pricing and value-added packages is expected to provide some impetus in a sluggish market as the product mix veers from the traditional textile testing towards building products. The division will continue to investigate diversification opportunities and expansion into niche areas with the express intention of increasing its revenue contribution. In an increasingly challenging market, the division must focus on operational flexibility and enhancing its brand awareness through targeted advertising and attendance at selected events. JINAO TESTING COMPANY OVERVIEW JinAo is a joint venture laboratory located in Nanjing, China and is a 50/50 venture between AWTA and JSIC Jiangsu, a division of China Inspection and Quarantine (CIQ). CAPABILITIES JinAo mainly focuses on textile and environmental testing of products predominantly of Chinese origin. Whilst it has a relatively small laboratory, it has a diverse and growing client base particularly in the Australian importing community as testing can be done at source with the security of the AWTA name behind it. JinAo also provides services to assist Chinese early stage processors to efficiently process Australian wool. Testing Company LOOKING FORWARD JinAo's challenge is to grow its revenue base and develop a solid and ongoing domestic client base. It will over time need to branch out into additional areas of testing and grow its expertise and diversity. AGRIFOOD TECHNOLOGY OVERVIEW Agrifood Technology has remained one of Australia's major provider of physical and chemical testing to the grain, horticultural, food and feed industries. CAPABILITIES Agrifood Technology is an independent, NATA ISO 17025 accredited and ISO 9001:2008 certified testing facility that operates in a competitive environment and is focussed on providing accurate results and rapid response times to meet the needs of our customers. The laboratories in Bibra Lake and Werribee are well equipped to conduct comprehensive analysis on a diverse range of food and feed products including grain quality, milling, dough rheology, end product assessment, nutritional labelling, allergen testing, pesticide residues, mycotoxins and microbiological analysis. Both laboratories are well supported by a team of 24 technical staff and 8 administrative staff who are highly experienced and committed to the accurate and timely provision of results. Agrifood Technology were the proud recipients of the 2012 Wyndham Business Awards in the medium service category for its contribution to the local industry and its reputation as a service provider to the agricultural and food sector. Ongoing investment in technology has enabled Agrifood Technology to increase its testing capabilities and has remained a significant provider of food safety testing for the horticultural and processed food sector. Revenue from the FeedTest service acquired from the Victorian Department of Primary Industries has remained constant over the last twelve months. More parameters are being offered through improvement in the calibration parameters to meet industry requirements. 10 AWTA LTD ANNUAL REVIEW 2012-2013 | AWTA PRODUCT TESTING LOOKING FORWARD Expanding both Agrifood Technology's testing capabilities and client base will remain a priority over the next twelve months. In particular, the focus will be on marketing the testing services in Western Australia to targeted clients and industry sectors and improving brand awareness through advertising and increased presence at field days, seminars and conferences. NZWTA LTD OVERVIEW NZWTA Ltd is New Zealand's leading wool and textile testing organisation, providing a comprehensive range of services to the wider textile industry. CAPABILITIES The wool laboratory provides IWTO certification on a variety of tests covering greasy and scoured wool. The textiles operation offers a comprehensive range of tests covering fibres, fabrics, carpets, flammability, wool grease, and products which contain high-visibility and/or retroreflective properties. NZWTA Ltd operates in a competitive environment. Where available all testing is supported by ISO 17025 accreditation to give customers utmost confidence in the accuracy of test results.The quality management system is supported by a focus on providing quality testing within service expectations to meet the needs of our wide customer base across the wool and textiles operations. NZWTA Ltd is also capable of testing wool, textiles and general materials from outside New Zealand. Where necessary, products can be imported through our permit as a Government-approved transitional facility which covers New Zealand's strict biosecurity measures. As New Zealand's leading greasy wool testing facility, NZWTA also collects a significant amount of data representing the New Zealand wool clip. Confidentiality of this data is critical to the values and integrity of NZWTA and its customers. However, many parts of the overall database can be analysed to provide useful statistics for the local and international industry without jeopardising this confidentiality. These statistics, along with other aspects of the company, can be viewed on NZWTA's website. LOOKING FORWARD Ongoing challenges in the sheep and wool sectors ensure NZWTA Ltd must adapt to industry changes. The organisation continues to use its key competencies of quality, integrity and customer focus to expand its services and customer base and support the industries in which the business operates. RESEARCH & DEVELOPMENT During 2012/13, the Research and Development department worked on both internal and external projects in partnership with other industry organisations. Funding partners included Australian Wool Innovation (AWI) and the Sheep CRC, while research partners included CSIRO, Deakin University and the University of New England. The input of commercial entities, including Country Road, The Merino Company and Colgate Palmolive and a range of topmakers and spinners into research projects is also acknowledged. During 2012/13 key research highlights included: acceptance testing of the first batch of Wool Handlemeters; working Group Drafts for Wool Handlemeters and Wool Comfortmeters; and acceptance test of NextGen Laserscan Prototype. continuing a strong focus on increasing the safety of machinery; continue developing long term projects for future increases in productivity - for example the installation and commissioning of the automated weighing stations on the greasy line; development and installation of upgrades and improvements to the buildings and services such as LED lighting upgrade; worked with external company to develop large scale upgrades to machinery to ensure product longevity; and first production NextGen Laerscan sold. During 012/13 the key manufacturing outcomes were: AWTA LTD ANNUAL REVIEW 2012-2013 | NZWTA LTD 11 DIRECTORS' REPORT 2012-2013 FINANCIAL STATEMENTS AUSTRALIAN WOOL TESTING AUTHORITY LTD AND CONTROLLED ENTITY ABN: 43 006 014 106 DIRECTORS' REPORT The Directors present their report, together with the financial statements of the group, being the Company and its controlled entity, for the financial year ended 30 June 2013. This financial report has been prepared in accordance with Australian Accounting Standards. PRINCIPAL ACTIVITIES AND SIGNIFICANT CHANGES IN NATURE OF ACTIVITIES The principal activities of the consolidated group during the financial year were raw wool, textiles, agricultural products and other materials testing, and computer services. There were no significant changes in the nature of the consolidated group's principal activities during the financial year. The Australian Wool Testing Authority Ltd (AWTA Ltd) is a Company Limited by Guarantee established to assist and promote the development of the pastoral, agricultural, manufacturing and industrial resources of Australia, in particular, by providing independent objective data and information services which will facilitate the efficient production, marketing and processing of wool, other fibres, textile products and related materials. Over the last 56 years, AWTA Ltd has built a highly successful business providing independent test information to its customers, primarily the wool industry in Australia. The Company has built and maintained a national and international reputation for technical expertise, commercial independence and professional integrity, while its corporate structure facilitates the minimisation of the fees that it charges for its services. During the last 2 decades, wool production in Australia has fallen steadily and significantly, causing a consequent fall in testing volumes and AWTA Ltd revenue. The Company has responded to this situation with the objective of minimising fee increases for its raw wool clients by: · · reducing costs by improving labour productivity and significantly reducing management overheads; and diversification into related testing markets to improve profitability by growing revenue from non-wool sources. OPERATING RESULTS The net profit after tax of the consolidated group for the year was $8.095 million (2012 had a net loss of $1.230 million). REVIEW OF OPERATIONS AWTA Ltd, as a consolidated group, comprises of 3 operating divisions in Australia (AWTA Raw Wool, AWTA Product Testing and Agrifood Technology), its wholly owned subsidiary NZWTA Ltd and its joint venture, JinAo Testing Co Ltd, which is managed through AWTA Product Testing. The financial performance of each division is separately monitored, with the cash return as a percentage of capital invested being the key measure adopted by the Board. In addition, key performance measures relating to service and technical areas are routinely monitored by the Board. The reviews following summarise the operating performance of each section of the Company. AWTA Raw Wool Wool production stabilised in 2012/13 with AWTA Raw Wool testing 369.8 million kilograms of greasy wool, an increase of 2.8% from the previous year. The industry remains optimistic that wool production has stabilised in Australia, with the AWI Wool Production Forecasting Committee predicting that the 2013/14 clip will be only 1.4% lower than this year despite the fact that more difficult growing conditions are expected to reduce fleece weights. The majority of Raw Wool revenue comes from presale testing of greasy wool. The number of core tests conducted by AWTA Raw Wool decreased by 1.1% from last year despite the increase in total weight of wool tested as mentioned above. This is due to an increase in the average lot size from 5.55 to 5.75 bales per test which inevitably occurs when there is an improved growing season and consequently higher fleece weights. AWTA Product Testing The operating environment in the retail, manufacturing and building industries continued to be depressed throughout 2012/13 and this has had a significant impact of the AWTA Product Testing division. Operating Revenue in 2012/13 was 20.6% lower than the previous year with less testing received from most of the major market segments serviced by the division. Expenditure decreased by 9.4% as management focussed on reducing costs in response to falling revenue. This enabled the division to achieve a positive operating contribution despite the difficult market conditions, albeit significantly lower than in 2011/12. JinAo Testing Co Ltd grew its revenue base steadily during 2012/13 to the point where it was profitable. The majority of JinAo testing was conducted for Australian customers importing Chinese products with a growing base of local processors of Australian wool looking to JinAo to provide specialist services. NZWTA Ltd Although NZWTA Ltd's operating revenue decreased in 2012/13, it continues to achieve a profit that provides an adequate return on the capital that AWTA Ltd has invested in it. NZWTA is broadening the scope of tests that it offers the wool industry in New Zealand and its textile testing laboratory continues to grow its revenue base. Agrifood Technology Agrifood Technology continued to grow its revenue base in 2012/13. As revenue from grain testing is highly dependant on seasonal conditions and ongoing structural changes in the wheat export industry, the division has been actively extending its activities in the fresh and processed food sectors to counter this risk. This strategy has been successful, with total revenue growing by 9.7% despite a slight fall in the grain testing sector, the traditional customer base for Agrifood Technology. During 2012/13, the return on investment from Agrifood Technology remained healthy. Non-operating Income This year's Non-operating Income includes a refund of payroll tax and land tax of $5.500 million from the State Governments of Victoria, Western Australia, South Australia, Queensland, New South Wales and Tasmania for financial years before 2012/13. Financial Position The net assets of the consolidated group have increased by $16.2 million from 30 June 2012 to $87.7 million at the end of the financial year. 14 AWTA LTD ANNUAL REVIEW 2012-2013 | DIRECTORS' REPORT INFORMATION ON THE DIRECTORS Mr D.G. MCGauchie AO · · · · · · · Appointed as an independent director by the Members of AWTA Ltd on 29 October 1999 Appointed as Deputy Chairman on 25 January 2001 and as Chairman on 19 February 2005 Chairman of Remuneration & Appointments Committee Farmer and company director, having previously been active in national farming organisations Partner of C&E McGauchie Terrick West Chairman of Nufarm Ltd & Australian Agricultural Company Ltd Director of a number of listed and unlisted companies, including James Hardie Industries SE & Graincorp Ltd Mr G.W. Dickinson · · · · · · Appointed as an independent director by the Members of AWTA Ltd on 18 March 2005 Appointed as Deputy Chairman on 15 April 2005 Chairman of Audit & Finance Committee Member of Remuneration & Appointments Committee Chairman of Rubicon Water Australia Ltd Director of Nareen Station Pty Ltd & Mutual Trust Pty Ltd Mr M.A. Jackson · · · · Managing Director of AWTA Ltd since 21 May 2001 Member of Environment & Safety Committee Director of New Zealand Wool Testing Authority Ltd and JinAo Testing Company Ltd Trustee of the Australian Wool Education Trust Mr M.D. Avery · Appointed as the nominee director for Australian Council of Wool Exporters Inc on 22 November 2007 Director of Australian Wool Exchange Ltd Member of Audit & Finance Committee General Manager - Wool, Queensland Cotton · · · Mr G.M. Power · · · · Appointed as the nominee director for WoolProducers Australia on 2 December 2011 President of WoolProducers Australia Director of Australian Wool Exchange Ltd & Sheep Industry Health and Welfare Pty Ltd Councillor of National Farmers Federation Members Council Mr D.B. Ritchie · Appointed as the nominee director for the Wool Scourers & Carbonisers of Australia Group of Australian Wool Processors Council Inc on 25 February 2011 Member of Audit & Finance Committee President of Australian Council of Wool Exporters & Processors Inc General Manager of Victoria Wool Processors · · · Dr P.D. Morgan · Appointed as the nominee director for the Wool Textile Manufacturers of Australia Group of Australian Wool Processors Council Inc on 16 October 2009 Executive Director of Australian Council of Wool Exporters & Processors Inc Executive Director of Private Treaty Wool Merchants of Australia Inc Director of International Fibre Centre Ltd Principal of Morgan Terrace Pty Ltd Mr G.W. Turner · · · · · · Appointed as the nominee director for Private Treaty Wool Merchants of Australia Inc on 17 October 2008 President of Private Treaty Wool Merchants of Australia Inc Chairman of Australian Wool Industries Secretariat Inc Chairman of Environment & Safety Committee Managing Director of Reeashbro Pty Ltd Director of Wallace Investments Pty Ltd · · · · Mr D.A. Webster · · · · · Appointed as the nominee director for Australian Wool Innovation Ltd on 25 November 2008 Director of Australian Wool Innovation Ltd Member of Remuneration & Appointments Committee Chairman of Athena Resources Ltd & Brolga Minerals Pty Ltd Director of Pabula Pty Ltd, Nova Downs Pty Ltd, Cobpen Co Investments Pty Ltd & Organics for Rural Australia Mr C.J. Wilcox · · · · · Appointed as the nominee director for the National Council of Wool Selling Brokers of Australia Inc on 15 February 2008 Member of Environment & Safety Committee Executive Director of the National Council of Wool Selling Brokers of Australia Inc Chairman of the International Wool Textile Organisation's Market Intelligence Committee Principal of Poimena Analysis & Trustee of Poimena Trust COMPANY SECRETARY The following person held the position of Company Secretary at the end of the financial year: Mr Charles Englander -- Bachelor of Law, Master of Laws. Mr Englander has worked for AWTA Ltd for the past 29 years, performing legal and compliance roles. Mr Englander was appointed Company Secretary on 1 July 2002. AWTA LTD ANNUAL REVIEW 2012-2013 | INFORMATION ON THE DIRECTORS 15 MEETINGS OF DIRECTORS During the financial year, 6 meetings of directors and 8 committee meetings (including committees of directors) were held. Attendances by each director during the year were as follows: Directors' Meetings Number eligible D.G. McGauchie AO G.W. Dickinson M.A. Jackson M.D. Avery P.D. Morgan G.M. Power D.B. Ritchie G.W. Turner D.A. Webster C.J. Wilcox 6 6 6 6 6 6 6 6 6 6 Number attended 6 5 6 6 6 6 5 6 6 6 Audit & Finance Committee Number eligible 3 3 3 Number attended 3 3 3 Remuneration & Appointments Committee Number eligible 2 2 2 Number attended 2 2 2 Environment & Safety Committee Number eligible 3 3 3 Number attended 3 3 3 INDEMNIFYING OFFICERS OR AUDITOR During or since the end of the financial year, the Company has given an indemnity or entered into an agreement to indemnify, or paid or agreed to pay insurance premiums as follows: · The Company has paid premiums to insure directors and officers against liabilities for costs and expenses incurred by them in defending legal proceedings arising from their conduct while acting in their capacity as directors and officers of the Company, other than conduct involving a wilful breach of duty in relation to the Company. PROCEEDINGS ON BEHALF OF COMPANY No person has applied for leave of Court to bring proceedings on behalf of the Company or intervene in any proceedings to which the Company is a party for the purpose of taking responsibility on behalf of the company for all or any part of those proceedings. The Company was not a party to any such proceedings during the year. AUDITOR'S INDEPENDENCE DECLARATION The auditor's independence declaration for the year ended 30 June 2013 has been received and is appended to this report. MEMBER'S LIABILITY The Company is incorporated under the Corporations Act 2001 and is a company limited by guarantee. If the company is wound up, the Memorandum of Association states that each member is required to contribute a maximum of $50 each towards meeting any outstanding obligations of the company. At 30 June 2013, the amount that members of the company are liable to contribute if the company is wound up is $300 (2012: $300). AFTER BALANCE DATE EVENTS In the opinion of the directors, there are no likely developments in the operations of the consolidated group known at the date of this report which have not been covered generally within the report. LIKELY DEVELOPMENTS The directors are not aware of any other future developments likely to have a significant effect on the operations of the consolidated group or on the expected results of those operations. AUDITOR'S INDEPENDENCE DECLARATION To the directors of Australian Wool Testing Authority Ltd In relation to the independent audit for the year ended 30 June 2013, to the best of my knowledge and belief there have been: i. ii. No contraventions of the auditor independence requirements of the Corporations Act 2001; and No contraventions of any applicable code of professional conduct. ASIC CLASS ORDER 98/100 ROUNDING OF AMOUNTS The Company is an entity to which ASIC Class Order 98/100 applies and, accordingly, amounts in the financial statements and directors' report have been rounded to the nearest thousand dollars. This Report of the Directors is signed in accordance with a resolution of the Board of Directors and dated 23 August 2013 at Melbourne. Stephen Schonberg, Partner D.G. McGAUCHIE AO CHAIRMAN M.A. JACKSON MANAGING DIRECTOR Pitcher Partners Melbourne 23 August 2013 16 AWTA LTD ANNUAL REVIEW 2012-2013 | DIRECTORS' REPORT AUSTRALIAN WOOL TESTING AUTHORITY LTD AND CONTROLLED ENTITY ABN: 43 006 014 106 FINANCIAL STATEMENTS INCOME STATEMENT FOR THE YEAR ENDED 30 JUNE 2013 Note Consolidated Group 2013 2012 $000 $000 36,395 7,603 (23,663) (2,441) (2,218) (1,531) (1,069) (1,030) (673) (496) (491) (463) (374) (373) (307) (286) (254) (252) (93) (469) (46) 416 910 (596) 3 4 8,199 (104) 8,095 36,359 1,587 (24,717) (2,363) (2,345) (1,345) (1,118) (1,017) (738) (450) (551) (371) (150) (586) (303) (289) (249) (253) (83) (479) (1,347) 51 420 (769) (1,106) (124) (1,230) Parent Entity 2013 $000 33,285 7,471 (21,893) (2,287) (2,069) (1,364) (993) (944) (500) (443) (416) (454) (356) (287) (273) (271) (244) (252) (70) (436) (46) 416 910 (596) 7,888 7,888 2012 $000 33,150 1,400 (22,887) (2,219) (2,259) (1,171) (1,028) (916) (564) (396) (490) (359) (136) (455) (268) (262) (210) (253) (69) (481) (1,347) 51 420 (769) (1,518) (1,518) Revenue Other income Employee benefits expense Depreciation & amortisation expense Repairs & maintenance expense Energy & utilities expense Materials & supplies expense Freight expense Travel expense Communications expense Software expense Subcontract testing expense Consulting fees Property, Rates & Taxes expense Insurance expense Printing & stationery expense Advertising & Sponsorship expense Investment management expense Audit fees Other expenses Impairment charge on available-for-sale financial assets Reassessment of fair value of available for sale financial assets disposed during the year Realised gains on disposal of available for sale financial assets Realised losses on disposal of available for sale financial assets Profit/(Loss) before income tax Income tax expense Profit/(Loss) for the year 2 2 3 STATEMENT OF COMPREHENSIVE INCOME FOR THE YEAR ENDED 30 JUNE 2013 Consolidated Group 2013 2012 $000 $000 Profit attributable to members of the parent entity Revaluation increment on property, plant & equipment Revaluation increment/(decrement) on available for sale financial assets Adjustments from translation of foreign controlled entity Total other comprehensive income Total comprehensive income The accompanying notes form part of these financial statements. 8,095 4,707 3,336 65 8,108 16,203 (1,230) (24) (203) 40 (187) (1,417) Parent Entity 2013 $000 7,888 4,451 3,336 7,787 15,675 2012 $000 (1,518) (203) (203) (1,721) AWTA LTD ANNUAL REVIEW 2012-2013 | FINANCIAL STATEMENTS 17 STATEMENT OF FINANCIAL POSITION AS AT 30 JUNE 2013 Note Consolidated Group 2013 2012 $000 $000 Parent Entity 2013 $000 2012 $000 ASSETS CURRENT ASSETS Cash and cash equivalents Trade and other receivables Inventories Other current assets TOTAL CURRENT ASSETS NON-CURRENT ASSETS Trade and other receivables Investments accounted for using the equity method Financial assets Property, plant and equipment Deferred tax assets Intangible assets TOTAL NON-CURRENT ASSETS TOTAL ASSETS CURRENT LIABILITIES Trade and other payables Provision for taxation Short-term provisions TOTAL CURRENT LIABILITIES NON-CURRENT LIABILITIES Other long-term provisions TOTAL NON-CURRENT LIABILITIES TOTAL LIABILITIES NET ASSETS EQUITY Reserves Retained earnings TOTAL EQUITY The accompanying notes form part of these financial statements. 7 8 9 16 5,197 7,897 857 1,140 15,091 5,381 3,175 943 1,176 10,675 4,602 7,565 857 1,062 14,086 4,918 2,812 943 1,095 9,768 8 10 12 14 18 15 210 30,663 49,218 49 128 80,268 95,359 119 23,721 44,739 49 192 68,820 79,495 1,419 210 31,996 45,919 128 79,672 93,758 1,546 119 24,961 41,854 192 68,672 78,440 17 4 19 1,829 31 5,168 7,028 2,148 27 5,127 7,302 1,552 4,950 6,502 1,839 4,949 6,788 19 639 639 7,667 87,692 704 704 8,006 71,489 600 600 7,102 86,656 671 671 7,459 70,981 20 80,292 7,400 87,692 72,184 (695) 71,489 80,304 6,352 86,656 72,517 (1,536) 70,981 18 AWTA LTD ANNUAL REVIEW 2012-2013 | FINANCIAL STATEMENTS STATEMENT OF CHANGES IN EQUITY FOR THE YEAR ENDED 30 JUNE 2013 Asset Capital Revaluation Maintenance Reserve Reserve $000 $000 22,808 (24) 22,784 4,707 27,491 50,000 50,000 50,000 Foreign Currency Translation Reserve $000 (545) 40 (505) 65 (440) Foreign Currency Translation Reserve $000 Financial Assets Reserve $000 38 (203) 70 (95) 3,336 3,241 Consolidated Group Balance at 1 July 2011 Other comprehensive income Prior year adjustment Loss for the year Balance at 30 June 2012 Other comprehensive income Profit for the year Balance at 30 June 2013 . Retained Earnings $000 605 (70) (1,230) (695) 8,095 7,400 Total $000 72,906 (187) (1,230) 71,489 8,108 8,095 87,692 Parent Entity Balance at 1 July 2011 Other comprehensive income Prior year adjustment Loss for the year Balance at 30 June 2012 Other comprehensive income Profit for the year Balance at 30 June 2013 Retained Earnings $000 52 (70) (1,518) (1,536) 7,888
AWTA LTD ANNUAL REVIEW 2013 - 2014 ANNUAL REVIEW 2013-14 CONTENTS HISTORY & OBJECTIVES MISSION, VISION & VALUES INDUSTRY GOOD COMPANY PROFILE CORPORATE GOVERNANCE HUMAN RESOURCES CHAIRMAN'S STATEMENT MANAGING DIRECTOR'S INTRODUCTION FINANCIAL SUMMARY AWTA RAW WOOL AWTA PRODUCT TESTING JINAO TESTING COMPANY AGRIFOOD TECHNOLOGY NZWTA LTD RESEARCH & DEVELOPMENT DIRECTORS' REPORT FINANCIAL STATEMENTS NOTES TO FINANCIAL STATEMENTS DIRECTORS' DECLARATION INDEPENDENT AUDIT REPORT 2 2 2 3 4 5 6 7 7 8 10 10 10 11 11 14 17 20 31 32 AWTA Ltd Annual Review 2013-2014 | CONTENTS 1 HISTORY & OBJECTIVES The Australian Wool Testing Authority was established in 1957 by the Commonwealth Government in response to requests from the Australian wool industry, and was created as a Statutory Authority reporting to the Minister for Primary Industry. The first meeting of the Authority was held on 12th December 1957. Following the formation of the Australian Wool Board in 1962, AWTA was established as a separate division within that organisation on 1st July 1963. AWTA retained the same status within the Australian Wool Corporation when it was formed by the amalgamation of the Australian Wool Board and the Australian Wool Commission on 1st January 1973. AWTA Ltd was established as a Company Limited by Guarantee on 14th May 1982 consequent to an Australian Government decision to transfer the functions of the statutory Australian Wool Testing Authority (AWTA) to the public sector. After almost 25 years of operations, the government and industry considered that there was no on-going requirement for AWTA to continue to have links with the government, particularly since it was controlled by the wool industry and funded by the commercial services it provided to the industry, not by the government or any levies. In April 1982, the same wool industry interests that comprised AWTA as a statutory body formed a public company limited by guarantee, to acquire all assets and liabilities of the statutory body. AWTA Ltd commenced operations on 1st July 1982, when it took over all the previous functions of AWTA. The objectives for which the Company was established were and are still enshrined in its Memorandum. They include the following: 1. 2. 3. 4. 5. 6. 7. 8. 9. To promote sales of Australian wool by encouraging the growth and utilisation of objective measurement of wool, particularly by presale testing; To test wool and other fibres, whether natural or otherwise, and wool products and similar products made wholly or partly from other fibres; To provide an accurate and impartial testing service based upon internationally recognised testing standards as an aid to efficient wool marketing; To conduct wool, fibre and textile research and/or to carry out tests on other materials and products where such activities assist or promote the development of the pastoral, agricultural, manufacturing or industrial resources of Australia; To maximise the net income of the Australian wool industry by encouraging the optimum application of objective measurement of wool by wool growers, brokers, buyers and both local and overseas processors; To optimise wool industry productivity through research and the implementation of new systems and technology; To establish, equip and maintain laboratories, workshops and other places suitable for testing and research activities; To provide and encourage the provision of data processing services aimed at the more efficient marketing of wool; Generally to promote and foster the more efficient testing of wool as required by the wool and textile industry at a minimum cost; and 10. To provide certificates and make reports in respect of test and research carried out by the Authority. MISSION, VISION & VALUES MISSION To assist or promote the development of the pastoral, agricultural, manufacturing and industrial resources of Australia, in particular, by providing independent objective data and information services which will facilitate the efficient production, marketing and processing of wool, other fibres, textile products and related materials. VISION To maintain a national and international reputation for technical expertise, commercial independence and professional integrity by providing accurate, impartial and efficient sampling, testing and certification services to our customers. VALUES · · · · · · · · · To maintain technical excellence, by taking maximum advantage of emerging technologies and providing staff with the knowledge, skills and equipment to improve customer service and lower costs; To ensure commercial independence in all activities; To insist on professional integrity within the Company, by remaining impartial and avoiding conflicts of interest; To be alert and responsive, by monitoring and understanding the changing needs of clients; To ensure that a reliable business continuity plan is in place, to minimise disruption to the wool marketing process in the event of a disaster; To foster sound industrial relations, based on mutual respect and recognition of the common interests which are shared with all employees and managerial staff; To aspire to provide a safe and satisfying working environment, which encourages employee participation and is supported by appropriate training and development programs; To seek to meet all legal and moral obligations of a good corporate citizen; and To adopt business strategies which transfer cost saving benefits arising from the Company's income tax exemption, so as to assist or promote the development of the relevant industrial resources of Australia. INDUSTRY GOOD ACTIVITIES · · · · · · Whilst having to operate in a commercial environment, AWTA Ltd is committed to its industry good purpose underpinned by its not-for-profit status. Since its inception, the Company's key goal has been to keep the fees it charges for wool testing to a minimum and predominantly under the rate of inflation. The Company's major business strategies continue to be developed around this goal; The Company sponsors agricultural events and plays a key role within the International Wool Textile Organisation, whose mission is to promote wool as a sustainable and accessible premium fibre; AWTA Ltd collates and freely makes available to the public, a significant amount of information to aid all facets of the wool industry, including promotion, production and productivity; The Company invests significant resources in research and development activities which have advanced the objective measurement of wool, reduced costs for the industry and led to more efficient testing methodologies; AWTA Ltd maintains two full-function raw wool testing laboratories in Australia (Kensington, Victoria and Bibra Lake, WA) and one in Napier, New Zealand, to comfortably meet peak demand loads and to provide disaster recovery or back-up facilities in the event that one or more laboratory is taken out of service for whatever reason; AWTA Ltd provides educational scholarships and university cadetship program placements. It provides administrative and accounting support to the Australian Wool Education Trust. The Trust, which AWTA Ltd established, endeavours to advance education in wool and textile science · 2 AWTA Ltd Annual Review 2013-2014 | HISTORY & OBJECTIVES and technology. It funds educational resources, programs, institutions, students and colleges, as well as scientific research undertaken for the advancement of education; · The Agrifood Technology division provides value-adding services to Australia's grain, horticultural, food and feed industries. It assists various industry associations with technical assistance and helps to calibrate and standardise analytical methods, at no cost. The division is a member of the Imported Food Consultative Committee, which assists the food and beverage importing industry and the Department of Agriculture, Fisheries and Forestry with a forum to ensure that effective food safety and compliance outcomes are delivered without unnecessary impediments to trade; and The Company's Product Testing division's staff serve on a number of Australian Standards Committees. The division participates in Interlaboratory Comparison Trials for NATA Accreditation and for both local and international laboratories. · · the selection and evaluation for succession planning of executive management; significant acquisitions and disposals of assets; · significant expenditure decisions outside of the corporate budget; · · · the remuneration of executive management; the approval of and monitoring of financial performance against corporate objectives and policies; and the integrity of risk management strategies and controls. · The delivery of the Company's strategic direction and goals as determined by the Board is delegated to management under the leadership of the Managing Director. · MANAGEMENT The Board delegates responsibility for the operation and administration of the Company to the Managing Director who, together with the executive team, is accountable to the Board. AWTA Ltd is organised for management and reporting purposes into four operating divisions. Management responsible for those divisions must account for their performance within a framework of strategic plans, budgets, position descriptions, targets, standards and policies. The Strategy Committee, comprising senior management from Head Office and the four divisions, co-ordinates the management activity. Strategy Committee Members are: · · · · · · · · · · Managing Director Chief Financial Officer General Counsel General Manager - Raw Wool Chief Executive Officer - NZWTA Ltd Divisional Manager - Agrifood Technology Divisional Manager - Product Testing Senior Manager - Western Australia Sampling Manager - Eastern Australia Business Development Manager COMPANY PROFILE MEMBERSHIP & BOARD COMPOSITION AWTA Ltd is a Company Limited by Guarantee. As described in the Company's Articles of Association, each Member Guarantor is entitled to appoint a Director to the Board. Additionally, the Member Guarantors appoint two Independent Directors and may also appoint a Director having special scientific or technological qualifications. The Chief Executive is also a Director pursuant to Article 21(d). The following organisations or their nominees are the Member Guarantors constituting the Company: · Australian Council of Wool Exporters Inc (ACWE Inc) · Australian Wool Processors Council Inc (AWPC Inc) ­ Wool Scourers & Carbonisers of Australia Group (WSCA Group) ­ Wool Textile Manufacturers of Australia Group (WTMA Group) · · · · Australian Wool Innovation Ltd (AWI Ltd) Private Treaty Wool Merchants of Australia Inc (PTWMA Inc) The National Council of Wool Selling Brokers of Australia Inc (NCWSBA Inc) WoolProducers Australia ORGANISATION & REPORTING STRUCTURE Note: Australian Wool Processors Council Inc, being an amalgamation of two previously separate Member Guarantors, is entitled to appoint two Directors, one from each Group. DIRECTORS Directors holding office at the date of this Report are: Chairman D.G. McGauchie AO Deputy Chairman G.W. Dickinson M.A. Jackson M.D. Avery G.C. Fisken P.D. Morgan D.B. Ritchie G.W. Turner D.A. Webster C.J. Wilcox (elected Independent Director) (AWTA Ltd Managing Director) (appointed by ACWE Inc) (nominee of WoolProducers Australia) (appointed by AWPC Inc from WTMA Group) (appointed by AWPC Inc from WSCA Group) (appointed by PTWMA Inc) (appointed by AWI Ltd) (appointed by NCWSBA Inc) (elected Independent Director) Profiles on each of the Directors are provided in the Directors' Report (page 15). COMPANY SECRETARY The Company Secretary is Mr Charles Englander (General Counsel). BOARD RESPONSIBILITIES The Board is responsible for the overall corporate governance of the Company, including its strategic direction and financial objectives. It sets goals for management and monitors their attainment. The Board has specifically assumed responsibility for: · the approval of strategy and annual budgets; · the provision of strategic direction and oversight of management; · corporate governance; AWTA Ltd Annual Review 2013-2014 | COMPANY PROFILE 3 REMUNERATION & APPOINTMENTS COMMITTEE Current members of the Remuneration & Appointments Committee are: · · · Mr D.G. McGauchie AO (Committee Chairman) Mr G.W. Dickinson Mr D.A. Webster ENVIRONMENT & SAFETY COMMITTEE The Company has a policy to conduct its business activities so as, wherever practicable, to minimise any adverse impact of such activities on the community and the environment and to comply with applicable legislative requirements. The Environment & Safety Committee ensures that the Company's environment and occupational health and safety obligations are implemented and maintained. The Committee's key responsibilities are to: · ensure that environmental management system requirements, including policies in relation to the Company's obligations with respect to environmental and health and safety issues are established, implemented and maintained; The Managing Director attends the Committee meeting except when his own remuneration and employment conditions are being considered. The Committee is charged with: · · · setting policies and making recommendations on remuneration policies for the Company, including those governing the Directors, the Managing Director and senior management; reviewing candidates for vacant senior executive management positions and making specific appointment recommendations to the Board; and approving the recommendations of the Managing Director on the remuneration of all non-award personnel below senior officers. · ensure compliance with all laws, regulations and regulatory obligations relating to environmental and safety matters by the Company; · oversee the effective monitoring of the Company's operations in relation to environmental and occupational health and safety matters; · keep the Board informed of the Company's activities in relation to its environmental and occupational health and safety obligations; · · ensure that the Company's environmental policy, objectives and targets are based on knowledge about the environmental impacts associated with its activities, products and services and any regulatory requirements; and review the environmental management system to ensure its continuing suitability. Directors attendance at Committee meetings is reported in the Directors' Report. Non-executive Directors The Company's Memorandum of Association provides that, whilst its income cannot be transferred by way of dividend or bonus, it can be used for payment in good faith to any officer or servant of the Company (including Directors) for any services actually rendered to the Company. Non-executive Directors' fees are reviewed annually by the Member Guarantors having regard to performance, relevant comparative remuneration and independent advice. Non-executive Directors may receive a Sitting Fee for Committee participation and reimbursement of travel and accommodation expenses for attendance at Board and other official Company meetings. Executive Director & Senior Executives The Board determines the remuneration for the Chief Executive Officer (Managing Director), the Chief Financial Officer and the General Manager - Raw Wool, upon the recommendation of its Remuneration & Appointments Committee. Remuneration is decided following an annual review that considers performance, relevant comparative remuneration and independent advice. The Committee comprises Non-executive Directors only when it deals with the remuneration and employment conditions of the Managing Director. Current members of this Committee are Mr G. W. Turner (Committee Chairman), Mr C.J. Wilcox, Mr M. A. Jackson and Mr C. Englander. Attendance at Committee meetings is reported in the Directors' Report. CORPORATE GOVERNANCE CORPORATE GOVERNANCE CHARTER AWTA Ltd follows the Australian Charities and Not-for-profits Commission governance standards and, whilst not a listed company, it also adopts any applicable ASX Corporate Governance Principles and Recommendations. The Board is responsible for the overall corporate governance of the Company, including its strategic direction, major policies and financial objectives. The Board has adopted a Charter that delineates its role and the role of individual Directors. The Corporate Governance Charter and Guide for Directors and Officers is publicly available on the Company's website. AUDIT & FINANCE COMMITTEE The role of the Audit & Finance Committee is to assist the Board to fulfil its corporate governance and oversight responsibilities. The principle objectives of this Committee are to: · assist the Board in the discharge of its responsibilities relating to all financial matters; CORPORATE CONDUCT & ETHICS The Company recognises that it is vital to its continuing success that its staff maintain the highest possible reputation for technical expertise, commercial efficiency, impartiality, independence, equal opportunity and professional integrity. To ensure that they are aware of the ethical framework in which they are required to work, each staff employee is required to read and sign the Company's Corporate Conduct & Ethics Policy. This policy sets broad guidelines for conduct and reflects AWTA Ltd's corporate "conscience" by promoting the highest levels of behaviour. · assess and advise the Company's Board on whether the annual financial report represents a true and fair view of the Company's financial position and complies with regulatory requirements; · · substantiate the existence, quality and valuation of the Company's assets; determine that management has implemented policies and procedures designed to ensure that the Company's risks are identified, assessed and appropriately addressed in a Risk Management Plan; APPOINTMENT OF AUDITORS The Company's auditors are Pitcher Partners. The auditors' effectiveness, performance and independence is reviewed by the Audit & Finance Committee. Audits are conducted in accordance with the Corporations Act 2001 and the Australian Auditing Standards, which require auditors to comply with relevant ethical requirements related to audit engagements and to plan and perform the audit so as to obtain reasonable assurance that the financial report is free from material misstatement. The auditors are obligated to comply with the independence requirements of the Corporations Act 2001. The auditors are required to form an opinion whether the financial report of Australian Wool Testing Authority Ltd complies with the requirements of the Corporations Act 2001, the Regulations and the Australian Accounting Standards. · ensure the operation of effective internal control policies and procedures; · · · oversee the independence and appraise the quality of internal and external audits; maintain lines of communication between the Board, management and internal and external audit; and examine the accounting policies of the Company to determine appropriateness to general accepted practices. The Committee comprises one Independent Director and up to two other non-executive Directors. The Chairman, the Managing Director, the Chief Financial Officer and the external auditor attend meetings by invitation. The current members of the Committee are Mr G.W. Dickinson (Committee Chairman) and Mr M.D. Avery. Attendance at Committee meetings is reported in the Directors' Report. 4 AWTA Ltd Annual Review 2013-2014 | CORPORATE GOVERNANCE RISK IDENTIFICATION AND MANAGEMENT The Company continues to have in place a number of risk management controls including: · · · guidelines and limits for approval of capital expenditure and investments; an annual insurance review; defined senior management responsibilities for areas including equal opportunity, occupational health and safety, environmental compliance, legal liability, risk identification and reporting and financial controls; During 2013/14, the Company experienced 1 lost time accidents (7 less than in the previous year), a lost time frequency rate of 2.1 (compared to 16.3 in the previous year) and a lost time duration rate of 220.0 (up from 210.5 the previous year). Achieving a zero Lost Time Injury result is a goal of all responsible employers. Such a result can only be achieved by careful attention to systems of work, risk assessments, work organisation and a shared commitment by staff to safety and injury prevention. AWTA Ltd continues to work with staff to increase on-the-job awareness of safety and to maintain a culture of shared commitment to safety. · policies and procedures for the management of financial risk and investment operations, including exposure to foreign currencies and movements in interest rates; strategic planning process for the implementation of 3-year strategic plans; annual budgeting and monthly reporting systems enabling the monitoring of progress against performance targets and the evaluation of trends; Director's Declarations of Interests; and disaster recovery procedures for the key business units of the Company. SERVICE AWARDS It is noteworthy that a significant number of staff have been employed by AWTA Ltd for more than 20 years. Since the formation of the Statutory AWTA in 1957 to the completion of the year under review, 202 employees have reached 20 years service, 58 have achieved 30 years service and 7 have reached 40 years service. During 2013/14, the 40 year service roll increased by 2, the 30 year service roll increased by 1 and the 20 year service roll increased by 2. · · · · Service Awards 40 Years Ivan Jurisic Pat Ryan COMPANY POLICIES In addition to the Company policies previously referred to, the Company has and maintains a comprehensive range of policies and procedures including: · · · · · · · · · · · · · · · Accounting; Payroll; Debtors; Assets; Purchasing; Occupational Health & Safety; Environmental Compliance; Restrictive Trade Practices & Consumer Law Compliance; Staff Recruitment, Training and Termination; Privacy; Anti-Harassment, Bullying and Discrimination; Records & Statistics; Equal Opportunity; Corporate Conduct and Ethics Policy; and Improper Conduct Policy. Anita Schwarz (202nd) 20 Years Bev Dirkx 30 Years Charles Englander (58th) General Counsel, commenced 13 February 1984 (6th) (7th) Laboratory Controller (Melbourne), commenced 14 June 1974 Sampling Controller (Brisbane), commenced 24 June 1974 (201st) Analyst Quality Milling Laboratory, commenced 13 December 1993 (formerly with AWB) Analyst Quality Milling Laboratory, commenced 24 December 1993 (formerly with AWB) The Company's policies are regularly monitored and reviewed and aim to meet or exceed best practice with comparable organisations. ENVIRONMENTAL IMPACTS The Company's operations are subject to particular and significant environmental regulations under State laws. HUMAN RESOURCES STAFF NUMBERS AWTA Ltd's staff numbers vary in response to seasonal work-flow. Variations in work-flow are managed in part by the use of casual and to a lesser extent, part-time staff. AWTA Ltd's staff numbers peaked at 398 in September, 2013. Staff Training As part of the Company's due diligence program, the legal department, supported by regional and divisional management regularly conduct training in anti-discrimination, bullying, sexual harassment, restrictive trade practices, equal opportunity, occupational health and safety, internet and email use and affirmative action. During this reporting period, training focused on discrimination, harassment, bullying, Occupational Health and Safety and use of social media. OCCUPATIONAL HEALTH & SAFETY The Company's occupational health and safety obligations are monitored by Executive Management, with day-to-day responsibility resting with regional management. Safety performance data consisting of lost time accidents, frequency rate and duration rate are calculated to AS/NZS 4801-2001 and reported monthly. The data is reviewed by management, the Environment & Safety Committee and the Board. AWTA Ltd Annual Review 2013-2014 | CORPORATE GOVERNANCE 5 CHAIRMAN'S STATEMENT AWTA Ltd has recorded a net profit of $2.924 million for 2013/14. While this is a significant decline from the profit of $8.095 million reported last year, it is important to consider that the 2012/13 result included a refund of $5.500 million dollars of payroll tax paid over the 4 prior years. The 2013/14 profit is actually an improvement on underlying 2012/13 result, excluding the payroll tax refund, of $2.595 million. When AWTA Ltd was privatised in 1982 it was structured as a Company Limited by Guarantee with the objective of providing services to its clients at minimum cost, rather than maximising profit for distribution to shareholders. There is no doubt that over many years the Company has been successful in this regard; the fee for AWTA Ltd's primary service (presale raw wool testing) is approximately the same today as it was 20 years ago. However, in the last two decades, wool production in Australia has declined and AWTA Ltd's principal market has been shrinking. AWTA Ltd responded by focussing on innovation and cost control in its raw wool testing laboratories MR D.G. McGAUCHIE AO and by reducing corporate overheads. At the same time, the Board recognised that it was essential for the Company CHAIRMAN - AWTA Ltd to broaden its revenue base beyond raw wool and textile testing into other services to agriculture so that fees continue to be contained as the volume of wool produced in Australia declines. Hence, approximately 9 years ago, AWTA Ltd adopted a strategy to expand into related testing markets where independent, high quality, high integrity testing is a necessary part of the value chain and this approach has clearly been successful. AWTA Ltd, as a consolidated group, now comprises 3 operating divisions in Australia (AWTA Raw Wool, AWTA Product Testing and Agrifood Technology), its wholly owned subsidiary NZWTA Ltd and its joint venture, JinAo Testing Co Ltd, which is managed through AWTA Product Testing. In 2013/14, AWTA Raw Wool revenue decreased by 2.3% over the previous year. Wool production decreased during the year as poor seasonal conditions in many areas, combined with high sheep meat prices, led to higher sheep slaughter rates. Consequently, the weight of wool sampled by AWTA Raw Wool fell by 4.4%. The number of core tests conducted by AWTA Raw Wool decreased by 5.0%, broadly in line with the fall in wool production. `000 Tonnes Volume of Australian Wool Tested 500 400 The industry expects wool production to fall again next year, with the AWI Wool Production Forecasting Committee predicting the 2014/15 clip will be 2.9% lower than this year. The Raw Wool Division has always sought to achieve cost savings that offset wages inflation to allow it to minimise the fees that it charges for testing services. This strategy is particularly important in an environment where testing volumes and revenue are declining. In 2013/14, this was successful to the extent that fees for 2014/15 were increased by 2%, which was less than the wage inflation rate. 300 200 100 0 2004 2005 2006 2007 2008 2009 2010 2011 2012 2013 2014 AWTA Ltd purchased Agrifood Technology in 2008 and 2013/14 is the sixth full year that it has operated under AWTA Ltd ownership. Agrifood Technology has now successfully established its independence within the deregulated wheat industry, securing a broad range of wheat industry clients. It has also significantly grown its business in the processed and fresh food and the hay and fodder sectors, which now generate a significant proportion of Agrifood Technology's revenue, providing some insulation against the seasonal impacts inherent in the grain industry. In addition, Agrifood Technology has established a laboratory in Perth and is growing its client base in Western Australia. During 2013/14, total operating income at Agrifood Technology increased by approximately 5%. Agrifood Technology further expanded its testing scope late in 2013/14 when it commenced operating a microbiological testing laboratory in Melbourne which will provide the basis for further revenue growth in 2014/15 and later years. The market that AWTA Product Testing serves has been depressed for a number of years. While this continued to be the case in the retail, manufacturing and particularly the automotive industries throughout 2013/14, the Division has seen a recovery in the revenue it earns from the building materials sector. Total Revenue for AWTA Product Testing increased by approximately 3% in the year under review. This enabled the Division to again achieve a positive operating contribution despite the difficult market conditions. JinAo Testing Co Ltd maintained its revenue base during 2013/14, and continues to operate profitably. The majority of JinAo testing was conducted for Australian customers importing Chinese products with a growing base of local processors of Australian wool looking to JinAo to provide specialist services. NZWTA achieved a significant increase in operating revenue in 2013/14, despite the ongoing fall in wool production in New Zealand as farmers convert to dairy. The NZWTA strategy of broadening the scope of tests that it offers the wool industry and growing its textile testing income has been successful, providing AWTA with a healthy return on the capital that it has invested in NZWTA. The AWTA group is currently adapting the software systems used to run NZWTA's Napier laboratory so that they can also be utilised in Australia, improving synergies between the raw wool laboratories and reducing cost. AWTA invests its funds in various asset classes in accordance with a balanced investment policy which is regularly reviewed by the Board. The strength of the Company's balance sheet allows it to take a long-term approach to investment and Directors accept that there is a risk of volatility as we have seen in recent years. Equity markets performed strongly during 2013/14, and this had a positive impact on AWTA's non-operating revenue. Mr Geoff Power served as a Director of AWTA Ltd for 2 years before standing down in December 2013 to make way for the appointment of Mr Geoff Fisken. I would like to thank Mr Power for his valued contribution to the Company. I would also like to pay tribute to all the staff that have achieved 20, 30 and 40 year service anniversaries during the past year and acknowledge their contribution to the Company. AWTA Ltd has a proud tradition of long service, a rare feat in most Australian companies. Finally, I wish to express my personal thanks to the Chief Executive, Michael Jackson, all Directors and the Company's employees for their support, contribution and dedicated service during 2013/14. D.G. McGAUCHIE AO 6 AWTA Ltd Annual Review 2013-2014 | CHAIRMAN'S STATEMENT MANAGING DIRECTOR'S INTRODUCTION The AWTA Ltd Group reported an overall profit of $2.924 million for 2013/14. This is an improvement on the underlying profit achieved in 2012/13, primarily due to strong non-operating income. It is pleasing to report that all of the operating divisions in Australia and NZWTA have made a positive contribution during 2013/14. In his report, the Chairman comments on the need for AWTA Ltd to have a broad revenue base and there is no doubt that financial success in these operating divisions is instrumental in minimising raw wool fees. The Company remains financial stable and is well placed to continue to provide services that add value to the wool, textile, agricultural and manufacturing industries. Following is a summary of the financial performance during 2013/14 and a brief report on each operating division with the AWTA Ltd Group. MR M.A. JACKSON MANAGING DIRECTOR FINANCIAL SUMMARY COMPARATIVE Profit & Loss Statement 2014 $'000s Revenue Revenue from services Revenue from investments Profit on sale of surplus sample material Consulting income Rental income Other income Total revenue Expenses Operating and administrative expenses Unrealised impairment of financial assets Realised losses on sale of investments Total expenses Net Profit/(Loss) 35,144 4,140 1,310 211 443 606 41,854 2013 $'000s 34,785 2,936 1,014 170 348 6,071 45,324 (38,601) 0 (329) (38,930) 2,924 (36,587) (46) (596) (37,229) 8,095 AWTA Ltd Annual Review 2013-2014 | MANAGING DIRECTOR'S INTRODUCTION 7 AWTA RAW WOOL OVERVIEW AWTA Raw Wool Australia is the largest division within AWTA Ltd and is comprised of: · · · · Sampling Operations; Raw Wool Laboratories; Data Processing Operations; and Technical & Quality Control. During 2013/14, AWTA Raw Wool Australia operated two laboratories located in Melbourne (servicing clients in Victoria, New South Wales, Queensland, South Australia and Tasmania) and Perth (servicing clients in Western Australia). CAPABILITIES Each laboratory provides certified testing of Yield & Micron, Staple Length & Strength and Colour for raw wool. Certified testing of scoured wool is also conducted for a range of attributes including regain and grease content. In addition, AWTA Raw Wool offers non-certified report testing of raw wool, scoured & carbonised wool and speciality fibres such as Mohair, Alpaca and Cashmere. The number of bales core sampled for certified tests decreased by 4.6% during 2013/14 with 2.01 million bales sampled compared with 2.10 million bales during the previous season. Bales sampled decreased in all states except Western Australia which experienced a 2% increase thanks to good seasonal conditions. The number of sale lots tested for Yield & Micron results decreased by 5.0% to 347,062 lots during 2013/14 when compared with the previous season. The decline in sale lots tested was larger than the decline in bales tested indicating that the lot size has increased slightly in 2013/14. The number of sale lots tested for Staple Length & Strength declined by 5.4 % to 217,222 lots over the same period. AWTA Raw Wool maintains a strong focus on the three key measures of performance: · · · Service AWTA Raw Wool is committed to providing timely testing services as required by its customers. Samples are taken at 32 locations throughout Australia and dispatched overnight to one of AWTA's Raw Wool laboratories. AWTA Ltd offers three levels of priority for service: Normal: Test Certificates are available within 5 days of a sample being taken. Fast 16% Normal 66% service delivery; improved efficiency/productivity; and sound technical performance. Fast: 95% of test Certificates are available within 3 days, and the remainder the following day. Express: 95% of test Certificates are available the following morning, with the remainder the following day. Express 18% Lots Sampled 2013/14 Qld NSW Vic Tas SA WA 0 25,000 50,000 Lots 75,000 100,000 125,000 Qld NSW Vic Tas SA WA Bales Sampled 2013/14 0 250,000 Bales 500,000 750,000 8 AWTA Ltd Annual Review 2013-2014 | AWTA RAW WOOL Test Type Yield & Micron Length & Strength Service Measure Average (days) % Total Tests within Service Target Average (days) % Total Tests within Service Target Normal 3.2 98.5 3.9 95.1 Fast 2.0 97.3 2.2 95.4 Express 1.5 96.7 1.6 95.4 During the 2013/14 season, service performance was, on average, well within the service time requirements. These times are all measured from the time of sampling, not when samples are received at a laboratory. Efficiency The efficiency of AWTA Raw Wool departments is monitored by measuring departmental productivity. Any increase in productivity reduces overall labour costs. Labour forms the majority of the cost of testing wool. Sampling Productivity improved during 2013/14 due to improvements in the operations at wool coring locations, plus some improvements in MTS operations. Testing Productivity, which reflects the efficiency of all laboratory operations, decreased by 1.8% during 2013/14. This decrease was largely due to the continuing decline in workload leading to more fragmented work patterns. Technical Confidence in wool trading requires confidence in the accuracy and precision of the wool test results. AWTA Raw Wool laboratories have rigorous quality control procedures, calibration schedules and test monitoring processes in place to ensure a high level of accuracy and precision. Trial samples are exchanged between AWTA Raw Wool laboratories to ensure consistency. Blind trials are also conducted twice weekly with overseas laboratories, with the results publicly reported at the annual International Wool Textile Organisation (IWTO) Conference. During 2013/14, all AWTA laboratories reported ongoing stable and accurate performance to the IWTO Conference. External queries from clients also serve as an indicator of technical performance. During 2013/14, some 1,413 results (0.25% of all tests) were queried by customers. Of these, 344 were reissued, representing less than 0.06% of the 564,284 Yield & Micron and Staple Length & Strength tests conducted. CHALLENGES The major challenge for Raw Wool operations is maintaining high levels of service and efficiency in an environment where revenue growth has declined in recent years and costs continue to escalate. INDUSTRY SUPPORT The Company focuses its industry activities, both domestically and internationally, on promoting the use and understanding of objective measurement. This is to ensure Australian wool maintains its pre-eminent position in the world wool textile market. AWTA Ltd continues to participate in International Wool Textile Organisation (IWTO) meetings where key staff contribute to the development and understanding of wool testing standards and procedures. AWTA Ltd collates and publishes an extensive range of statistics and analytical reports which are provided free of charge to the wool industry. An example of this is the Key Test Data report - a monthly summary of the volume of wool tested and average results tested broken down by State and wool category. Other examples include a number of detailed micron split and Wool Statistical Area reports, which are crucial for the Australian Wool Production Forecasting Committee. This data, along with a range of other statistical reports, is available for download from the AWTA Ltd website. AWTA Ltd continues to provide the TOPMARK Benchmarking service for wool processors free of charge. This service allows wool processors to compare their processing performance against the average of all other mills participating in the program. The objective of this program is to improve the efficiency of wool processors. The Company continues to support the Australian wool industry by sponsoring and providing testing assistance for major sheep shows, ram sales and research trials. Details of supported events are listed on the AWTA Ltd website to assist with the promotion of sponsored events. AWTA Ltd also hosts meetings with industry bodies and associations and is an active member of the Federation of Australian Wool Organisations (FAWO) Changes in Lots Sampled (2013/14 cf 2012/13) Qld NSW Vic Tas SA WA Australia -25% -20% -15% Lots -10% -5% 0 5% -30% Changes in Bales Sampled (2013/14 cf 2012/13) Qld NSW Vic Tas SA WA Australia -25% -20% -15% -10% Bales -5% 0 5% AWTA Ltd Annual Review 2013-2014 | AWTA RAW WOOL 9 AWTA PRODUCT TESTING Overview AWTA Product Testing is an independent materials testing facility available to government instrumentalities, industry and the general public. It possesses a diverse array of specialised testing equipment, available to industries within Australasia and internationally, which are operated by highly competent technicians. Capabilities The division has internationally recognised competencies in flammability, textiles, automotive, weathering, physical, chemical and mechanical testing. AWTA Product Testing is able to provide extensive testing services encompassing the assessment of fibres, yarns, textiles, plastics, product flammability, automotive components, building products, glass, carpets/flooring materials, retail products, health care consumables, insulation materials, clothing and laminates. It has specialised capabilities in thermal conductivity, spectrophotometry, measurement of static electricity and retro-reflective performance. Looking Forward Using the efficiency improvements introduced over the last year, the division will continue to take the initiative in providing customers with better lead times, improved responsiveness and an increased testing capability. The application of competitive pricing and value-added packages is expected to provide some impetus in a sluggish market as the product mix veers from the traditional textile testing towards building products. The division will continue to investigate diversification opportunities and expansion into niche areas with the express intention of increasing its revenue contribution. JINAO TESTING COMPANY Overview JinAo is a joint venture laboratory located in Nanjing, China and is a 50/50 venture between AWTA and JSIC Jiangsu, a division of China Inspection and Quarantine (CIQ). Capabilities JinAo mainly focuses on textile and environmental testing of products predominantly of Chinese origin. Whilst it has a relatively small laboratory, it has a diverse and growing client base particularly in the Australian importing community as testing can be done at source with the security of the AWTA name behind it. JinAo also provides services to assist Chinese early stage processors to efficiently process Australian wool. Testing Company Looking Forward JinAo's challenge is to grow its revenue base and develop a solid and ongoing domestic client base. It will over time need to branch out into additional areas of testing and grow its expertise and diversity. AGRIFOOD TECHNOLOGY Overview Agrifood Technology has remained one of Australia's major provider of physical and chemical testing to the grain, horticultural, food and feed industries. Capabilities Agrifood Technology is an independent, NATA ISO 17025 accredited and ISO 9001:2008 certified testing facility that operates in a competitive environment and is focussed on providing accurate results and rapid response times to meet the needs of our customers. Effective 1st May 2014 Agrifood Technology commenced the exciting new phase of managing the on-site Microbiological Laboratory testing for H.J. Langdon Ingredients, a leading supplier of food ingredients to the local industry, located in Derrimut, Victoria. A team of three microbiologists has been employed; all procedures and processes are being documented as it works towards gaining NATA accreditation. This will then allow Agrifood Technology to broaden its scope of testing and provide microbiological testing as an additional testing service which will improve its capability to service a wider range of clients. The laboratories in Derrimut, Bibra Lake and Werribee are well equipped to conduct comprehensive analysis on a diverse range of food and feed products including grain quality, milling, dough rheology, end product assessment, nutritional labelling, allergen testing, pesticide residues, mycotoxins and microbiological analysis. All laboratories are well supported by a team of 28 technical staff and 9 administrative staff who are highly experienced and committed to the accurate and timely provision of results. Ongoing investment in technology has enabled Agrifood Technology to increase its testing capabilities and remain a significant provider of food safety testing for the horticultural and processed food sector. Revenue from the FeedTest service acquired from the Victorian Department of Primary Industries has increased over the last twelve months. FeedTest has successfully secured an agreement with USA based Dairy Land Laboratories (an `'A" grade National Forage Testing Association lab) to provide testing of carbohydrate and protein parameters to the Australian market. The 12 month agreement provides FeedTest with an opportunity to increase market share in a complimentary dairy sector. Looking Forward Expanding both Agrifood Technology's testing capabilities and client base will remain a priority over the next twelve months. In particular, the focus will be on marketing the newly acquired microbiological testing services in Derrimut to targeted clients and industry sectors and improving brand awareness through advertising and increased presence at field days, seminars and conferences. 10 AWTA Ltd Annual Review 2013-2014 | AWTA PRODUCT TESTING NZWTA LTD Overview NZWTA Ltd is New Zealand's leading wool and textile testing organisation, providing a comprehensive range of services to the wider textile industry. Capabilities The wool laboratory provides IWTO certification on a variety of tests covering greasy and scoured wool. The textiles operation offers a comprehensive range of tests covering fibres, fabrics, carpets, flammability, wool grease, and high-visibility products. NZWTA Ltd is capable of testing wool and textiles materials from around the world. Where necessary, products can be imported through its permit as a Government-approved transitional facility which covers New Zealand's biosecurity measures. NZWTA Ltd operates in a competitive environment. Where available, all testing is supported by ISO 17025 accreditation to give customers confidence in the accuracy of test results. The quality management system is supported by a focus on providing quality testing within service expectations to meet the needs of a wide customer base. Looking Forward NZWTA Ltd's Mission Statement is to provide leadership to industry through measurement, innovation, technology and service. A key part of exceeding customer expectations is the expansion of testing capabilities and introducing new innovative testing and service technologies that position NZWTA as a key partner in business. This is particularly relevant with the current challenges in the local sheep and textile manufacturing sectors. RESEARCH & DEVELOPMENT During 2013/14, the Research and Development department worked on both internal and external projects in partnership with other industry organisations. Funding partners included Australian Wool Innovation (AWI), the Sheep CRC, Deakin University and the University of New England. The input of commercial entities, including Country Road, The Merino Company and Foss into research projects is also acknowledged. During 2013/14, key research highlights included: · · · · · · · completion of Round Trails for the Wool HandleMeter and the Wool ComfortMeter; IWTO Draft Test Methods for both the Wool Handlemeter and Wool Comfortmeter; and acceptance testing of prototype NIR systems developed by Foss. completed development design of NextGen Laserscan for internal and external use; gained rights to manufacture Wool HandleMeter and Wool ComfortMeter from Sheep CRC; commenced a number of projects on electricity reduction; and started redevelopment of other key machinery to increase life. During 2013/14, the key manufacturing outcomes were: AWTA Ltd Annual Review 2013-2014 | NZWTA LTD 11 DIRECTORS' REPORT Testing Company 2013-2014 FINANCIAL STATEMENTS AUSTRALIAN WOOL TESTING AUTHORITY LTD AND CONTROLLED ENTITY ABN: 43 006 014 106 DIRECTORS' REPORT The directors present their report, together with the financial statements of Australian Wool Testing Authority Ltd (the company) and the group, being the company and its controlled entity, for the year ended 30 June 2014 and Auditor's report thereon. This financial report has been prepared in accordance with Australian Accounting Standards. Principal Activities and Significant Changes in Nature of Activities The principal activities of the consolidated group during the financial year were raw wool, textiles, agricultural products and other materials testing, and computer services. There were no significant changes in the nature of the consolidated group's principal activities during the financial year. The Australian Wool Testing Authority Ltd (AWTA Ltd) is a Company Limited by Guarantee established to assist and promote the development of the pastoral, agricultural, manufacturing and industrial resources of Australia, in particular, by providing independent objective data and information services which will facilitate the efficient production, marketing and processing of wool, other fibres, textile products and related materials. Over the last 57 years, AWTA Ltd has built a highly successful business providing independent test information to its customers, primarily the wool industry in Australia. The company has built and maintained a national and international reputation for technical expertise, commercial independence and professional integrity, while its corporate structure facilitates the minimisation of the fees that it charges for its services. During the last 2 decades, wool production in Australia has fallen steadily and significantly, causing a consequent fall in testing volumes and AWTA Ltd revenue. The Company has responded to this situation with the objective of minimising fee increases for its raw wool clients by: · · reducing costs by improving labour productivity and significantly reducing management overheads; and diversification into related testing markets to improve profitability by growing revenue from non-wool sources. Operating Results The net profit after tax of the consolidated group for the year was $2.92 million (2013 net profit of $8.10 million). Review of Operations AWTA Ltd, as a consolidated group, comprises of 3 operating divisions in Australia (AWTA Raw Wool, AWTA Product Testing and Agrifood Technology), its wholly owned subsidiary NZWTA Ltd and its joint venture, JinAo Testing Co Ltd, which is managed through AWTA Product Testing. The financial performance of each division is separately monitored, with the cash return as a percentage of capital invested being the key measure adopted by the Board. In addition, key performance measures relating to service and technical areas are routinely monitored by the Board. The reviews following summarise the operating performance of each section of the Company. AWTA Raw Wool Wool production declined in 2013/14 with AWTA Raw Wool testing 353.7 million kilograms of greasy wool, a decrease of 4.4% from the previous year. The industry expects wool production to fall again next year with the AWI Wool Production Forecasting Committee predicting that the 2014/15 clip will be 2.9% lower than this year, primarily as a result of recent high sheep slaughter rates. The majority of Raw Wool revenue comes from presale testing of greasy wool. The number of core tests conducted by AWTA Raw Wool decreased by 5.0% from last year, broadly in line with the fall in wool production. In this situation, the AWTA Raw Wool Division is focussed on productivity gains to contain the cost of processing each test and thereby minimise the fee impact of diminishing volumes. This was successful to the extent that fees for 2014/15 were increased by 2%, which was less than the wage inflation rate. AWTA Product Testing The market that AWTA Product Testing services has been depressed for a number of years. While this continued to be the case in the retail, manufacturing and automotive industries throughout 2013/14, the Division has seen a recovery in the revenue it earns from the building materials sector. Overall, Operating Revenue for AWTA Product Testing increased by 3.3% in 2013/14. Expenditure increased by a similar amount and the Division achieved a positive operating contribution, which was marginally higher than 2012/13, despite the prolonged difficult market conditions. JinAo Testing Co Ltd maintained its revenue base during 2013/14 and continues to operate profitably. The majority of JinAo testing was conducted for Australian customers importing Chinese products with a growing base of local processors of Australian wool looking to JinAo to provide specialist services. NZWTA Ltd NZWTA Ltd has achieved a significant increase in operating revenue in 2013/14, despite the ongoing fall in wool production in New Zealand as farmers convert to dairy. The NZWTA strategy of broadening the scope of tests that it offers the wool industry and growing its textile testing income has been successful. NZWTA continues to achieve a profit that provides an adequate return on the capital that AWTA Ltd has invested in it. Agrifood Technology Agrifood Technology continued to grow its revenue base in 2013/14. As revenue from grain testing is highly dependent on seasonal conditions and ongoing structural changes in the wheat export industry, the Division has been actively extending its activities in the fresh and processed food sectors to counter this risk. This strategy has been successful, with total revenue growing by 4.8% despite a slight fall in the grain testing sector, the traditional customer base of Agrifood Technology. The Division further expanded its testing scope late in 2013/14 when it commenced operating a microbiological testing laboratory which will provide the basis for further revenue growth in 2014/15 and later years. During 2013/14, the return on investment from Agrifood Technology remained healthy. Non-operating Income Although Non Operating Income was strong in 2013/14, reflecting the returns on funds invested in the financial markets, it was significantly lower than last year due to a one-off refund of payroll tax and land tax of $5.50 million from state governments that was received in 2012/13. Financial Position The net assets of the consolidated group have increased by $3.97 million from 30 June 2013 to $91.66 million at the end of the financial year. 14 AWTA Ltd Annual Review 2013-2014 | DIRECTORS' REPORT INFORMATION ON THE DIRECTORS Mr D.G. McGauchie AO · · · · · · · Appointed as an independent director by the Members of AWTA Ltd on 29 October 1999 Appointed as Deputy Chairman on 25 January 2001 and as Chairman on 19 February 2005 Chairman of Remuneration & Appointments Committee Farmer and company director, having previously been active in national farming organisations Partner of C&E McGauchie Terrick West Chairman of Nufarm Ltd and Australian Agricultural Company Ltd Director of a number of listed and unlisted companies, including James Hardie Industries plc & GrainCorp Ltd Mr G.W. Dickinson · · · · · · Appointed as an independent director by the Members of AWTA Ltd on 18 March 2005 Appointed as Deputy Chairman on 15 April 2005 Chairman of Audit & Finance Committee Member of Remuneration & Appointments Committee Chairman of Rubicon Water Ltd and Mutual Trust Pty Ltd Director of Nareen Station Pty Ltd Mr M.A. Jackson · · · · Managing Director of AWTA Ltd since 21 May 2001 Member of Environment & Safety Committee Director of New Zealand Wool Testing Authority Ltd and JinAo Testing Company Ltd Trustee of the Australian Wool Education Trust Mr M.D. Avery · Appointed as the nominee director for Australian Council of Wool Exporters Inc on 22 November 2007 Director of Australian Wool Exchange Ltd & MA Consulting Pty Ltd Member of Audit & Finance Committee General Manager - Wool, Queensland Cotton Corporation Appointed as the nominee director for the Wool Scourers & Carbonisers of Australia Group of Australian Wool Processors Council Inc on 25 February 2011 Member of Audit & Finance Committee President of Australian Council of Wool Exporters & Processors Inc General Manager of Victoria Wool Processors and Nikke Port Phillip Scouring · · · Mr G.C. Fisken · · · Appointed as the nominee director for WoolProducers Australia on 3 December 2013 President of WoolProducers Australia Director of Australian Wool Exchange Ltd, Sheep Industry Health & Welfare Pty Ltd, Livestock Biosecurity Network Pty Ltd and Black Creek Farming Pty Ltd Trustee of the Australian Wool Education Trust Chairman of Victorian Sheep & Goat Compensation Advisory Committee Mr D.B. Ritchie · · · · · · Dr P.D. Morgan · Appointed as the nominee director for the Wool Textile Manufacturers of Australia Group of Australian Wool Processors Council Inc on 16 October 2009 Executive Director of Australian Council of Wool Exporters & Processors Inc Executive Director of Private Treaty Wool Merchants of Australia Inc Director of International Fibre Centre Ltd Principal of Morgan Terrace Pty Ltd Mr G.W. Turner · · · · · · Appointed as the nominee director for Private Treaty Wool Merchants of Australia Inc on 17 October 2008 President of Private Treaty Wool Merchants of Australia Inc Chairman of Australian Wool Industries Secretariat Inc Chairman of Environment & Safety Committee Managing Director of Reeashbro Pty Ltd Director of Wallace Investments Pty Ltd · · · · Mr D.A. Webster · · · · · Appointed as the nominee director for Australian Wool Innovation Ltd on 25 November 2008 Director of Australian Wool Innovation Ltd Member of Remuneration & Appointments Committee Chairman of Athena Resources Ltd Director of Brolga Minerals Pty Ltd & Cobpen Co Investments Pty Ltd Mr C.J. Wilcox · · · · · Appointed as the nominee director for the National Council of Wool Selling Brokers of Australia Inc on 15 February 2008 Member of Environment & Safety Committee Executive Director of the National Council of Wool Selling Brokers of Australia Inc Chairman of the International Wool Textile Organisation's Market Intelligence Committee Principal of Poimena Analysis & Trustee of Poimena Trust In addition to the directors in office, the following director held office during the year: Mr G. M. Power (resigned 2 December 2013). Appointed as the nominee director for WoolProducers Australia on 2 December 2011. COMPANY SECRETARY The following person held the position of Company Secretary at the end of the financial year: Mr Charles Englander -- Bachelor of Law, Master of Laws. Mr Englander has worked for AWTA Ltd for the past 30 years, performing legal and compliance roles. Mr Englander was appointed Company Secretary on 1 July 2002. AWTA Ltd Annual Review 2013-2014 | INFORMATION ON THE DIRECTORS 15 Meetings of Directors During the financial year, 6 meetings of directors and 7 committee meetings (including committees of directors) were held. Attendances by each director during the year were as follows: Directors' Meetings Number eligible D.G. McGauchie AO G.W. Dickinson M.A. Jackson M.D. Avery G.C. Fisken P.D. Morgan G.M. Power D.B. Ritchie G.W. Turner D.A. Webster C.J. Wilcox 6 6 6 6 4 6 2 6 6 6 6 Number attended 6 5 6 5 3 6 2 6 6 6 6 Audit & Finance Committee Number eligible 2 2 2 Number attended 2 2 2 Remuneration & Appointments Committee Number eligible 3 3 3 Number attended 3 3 3 Environment & Safety Committee Number eligible 2 2 2 Number attended 2 2 2 INDEMNIFYING OFFICERS During or since the end of the financial year, the Company has given an indemnity or entered into an agreement to indemnify, or paid or agreed to pay insurance premiums as follows: · The Company has paid premiums to insure directors and officers against liabilities for costs and expenses incurred by them in defending legal proceedings arising from their conduct while acting in their capacity as directors and officers of the Company, other than conduct involving a wilful breach of duty in relation to the Company. PROCEEDINGS ON BEHALF OF COMPANY No person has applied for leave of Court to bring proceedings on behalf of the Company or intervene in any proceedings to which the Company is a party for the purpose of taking responsibility on behalf of the company for all or any part of those proceedings. The Company was not a party to any such proceedings during the year. Auditor's Independence Declaration A copy of the auditor's independence declaration under section 307C of the Corporations Act 2001 in relation to the audit for the financial year is provided with this report. Member's Liability The group is incorporated under the Corporations Act 2001 and is a group limited by guarantee. If the group is wound up, the Memorandum of Association states that each member is required to contribute to a maximum of $50 each towards meeting any outstanding obligations of the group. At 30 June 2014, the amount that members of the group are liable to contribute if the group is wound up is $300 (2013: $300). After Balance Date Events No matters or circumstances have arisen since the end of the financial year which significantly affected or may significantly affect the operations of the company, the results of those operations, or the state of affairs of the company in future financial years. AUDITOR'S INDEPENDENCE DECLARATION To the directors of Australian Wool Testing Authority Ltd In relation to the independent audit for the year ended 30 June 2014, to the best of my knowledge and belief there have been: i. ii. No contraventions of the auditor independence requirements of the Corporations Act 2001; and No contraventions of any applicable code of professional conduct. Likely Developments The directors are not aware of any other future developments likely to have a significant effect on the operations of the consolidated group or on the expected results of those operations. ASIC Class Order 98/100 Rounding of Amounts The company is an entity to which ASIC Class Order 98/100 applies and, accordingly, amounts in the financial statements and directors' report have been rounded to the nearest thousand dollars. This Report of the Directors is signed in accordance with a resolution of the Board of Directors and dated 25 August 2014 at Melbourne. Stephen Schonberg, Partner Pitcher Partners Melbourne D.G. McGAUCHIE AO CHAIRMAN M.A. JACKSON MANAGING DIRECTOR 25 August 2014 16 AWTA Ltd Annual Review 2013-2014 | DIRECTORS' REPORT AUSTRALIAN WOOL TESTING AUTHORITY LTD AND CONTROLLED ENTITY ABN: 43 006 014 106 FINANCIAL STATEMENTS INCOME STATEMENT FOR THE YEAR ENDED 30 JUNE 2014 Note Consolidated Group 2014 2013 $000 $000 37,198 2,570 (24,763) (2,573) (2,331) (1,510) (1,253) (1,058) (746) (546) (542) (530) (394) (343) (337) (232) (294) (276) (109) (613) 317 1,769 (329) 3 4 3,075 (151) 2,924 36,395 7,603 (23,663) (2,441) (2,218) (1,531) (1,069) (1,030) (673) (496) (463) (491) (373) (307) (252) (374) (254) (286) (93) (469) (46) 416 910 (596) 8,199 (104) 8,095 Parent Entity 2014 $000 33,505 2,297 (22,743) (2,387) (2,161) (1,334) (1,155) (959) (554) (483) (532) (424) (282) (307) (337) (180) (264) (248) (93) (527) 317 1,769 (329) 2,589 2,589 2013 $000 33,285 7,471 (21,893) (2,287) (2,069) (1,364) (993) (944) (500) (443) (454) (416) (287) (273) (252) (356) (244) (271) (70) (436) (46) 416 910 (596) 7,888 7,888 Revenue Other income Employee benefits expense Depreciation & amortisation expense Repairs & maintenance expense Energy & utilities expense Materials & supplies expense Freight expense Travel expense Communications expense Subcontract testing expense Software expense Property, Rates & Taxes expense Insurance expense Investment management expense Consulting fees Advertising & Sponsorship expense Printing & stationery expense Audit fees Other expenses Impairment charge on available-for-sale financial assets Reassessment of fair value of available for sale financial assets disposed during the year Realised gains on disposal of available for sale financial assets Realised losses on disposal of available for sale financial assets Profit/(Loss) before income tax Income tax expense Profit/(Loss) for the year 2 2 3 STATEMENT OF COMPREHENSIVE INCOME FOR THE YEAR ENDED 30 JUNE 2014 Consolidated Group 2014 2013 $000 $000 Profit attributable to members of the parent entity Revaluation increment on property, plant & equipment Revaluation increment/(decrement) on available for sale financial assets Adjustments from translation of foreign controlled entity Total other comprehensive income Total comprehensive income The accompanying notes form part of thes