The strategy outlined last year, is still applicable today:
- To match the Board’s infrastructure with the size and geographical spread of the clip handled, including reducing the number of Grading Depots and increasing the number of Intermediate Depots, where we have installed compacting machines.
- To minimise costs whilst maintaining an acceptable level of
service to producers.
- To minimise costs whilst maintaining an acceptable level of service to producers.
- To add value to the product through ongoing marketing, promotion and research & development.
- To minimise the effect of changes in our pension liability and an objective to be fully funded on a self-sufficiency basis in ten years time.
We have now further refined that strategy in the light of the significant importance of the Campaign for Wool over the last two years:
- To pursue an active involvement in the Campaign for Wool, working with other international wool organisations to improve the demand for the wool fibre.
The Board has moved to its new offices within the Grading Depot site at Bradford. Having both the Head Office and Grading Depot on the same site is a considerable advantage going forward. The previous offices are now in the process of being sold and the value in the accounts has been adjusted by an impairment charge to reflect the anticipated sales value.
The year to 30 April 2012 saw the clip increase from 28.6 m kg to 30.2 m kg.
The average sales price increased from 144.5 p/kg to 174.0 p/kg, the highest level for a considerable number of years. This reflects a very buoyant market early in the season with demand high, particularly from China and good sale clearances. Sales auction prices and clearances in the latter half of the season fell and as a result, stock levels at 30 April 2012 increased from 3.5 m to 6.2 m kg leaving a stock at the end of the selling season of 4.7 m kg. The stock has been valued at the lower current average price levels.
Despite this, with the Board’s policy of rostering the sales over a 12 month period and operating a proactive reserve price policy, the actual 2011 clip value finalised at 166 p/kg, an increase of 20 p/kg over the 2010 level. The Board is committed to have no direct sales and to sell all the clip through the auction system. Due to its positive cash flow, as a result of the payment system, the Board has the ability to be more price makers than price takers.
Although current trading conditions are difficult, the Board expects prices to recover and producer returns to be at a similar level to this season.
It is essential, if we are to keep wool prices at sustainable levels, that we continue to work closely with the global textile industry to promote and to educate consumers about the unique attributes and benefit of the fibre.
The BWMB has been an integral player in the Campaign for Wool, launched by HRH The Prince of Wales in January 2010. As well as the BWMB, participants in the Campaign are the major wool producing countries (New Zealand, Australia, South Africa), as well as other countries and the International Wool Textile Organisation. The Campaign has created an increased demand for wool products and the textile industry is keen to satisfy the appetite which is being driven by the widespread media coverage and retail promotion. In the UK alone over 200 major brand retailers signed up and participated in the Campaign this year.
The Campaign last year had international launches in Japan, Germany, Holland, Australia and New Zealand and already further global expansion is planned for 2012, particularly in USA and China.
The Campaign is a generic wool campaign, highlighting the benefi ts of the fibre. However, there is strong support for the British Wool angle and this has contributed to improved demand for British Wool.
This position will be enhanced by our own marketing and promotional policies. A growing trend towards natural, sustainable fibres has placed British Wool in a favourable position to gain advantage within the current consumer market, and we continue to work with a wide range of manufacturers and retailers to explore how we can help market their products.
The Board continues its policy of replacing all sheets (approximately 800,000 in total), with stronger new polyethylene sheets, and in the year to 30 April 2012 we purchased 75,000 at a cost of £172,500. It is anticipated that all depots will have the new sheets by the 2013 season.
The Board was very pleased to note that in 2011/12 over 1,200 persons attended our shearing training courses, the highest attendance for a number of years and reflecting the quality of our courses and instructors.
The value of the 2011 clip increased from 146 p/kg to 166 p/kg. This rise of 20 p/kg together with cost savings resulted in an increase in the value of the clip to producers from 102.2 p/kg to 123.2 p/kg. This is the fourth year that clip values have increased, a very good achievement in what have been generally difficult market conditions.
For the year to 30 April 2012 the Board’s operating expenses before interest receipts decreased from £11,528,000 to £10,236,000. The major part of this £1,292,000 decrease was the £1,200,000 additional remuneration paid last year to Wool Growers (Great Britain) Limited to enable the company to pay pension deficit contributions of £496,000 last year and £670,000 this year. We also had, this year, a VAT rebate of £203,000 included in Miscellaneous Overheads and reduced Legal & Professional costs of £144,000, primarily relating to the closure of the Pension Scheme, offset by additional depot wool handling fees of £302,000.
The Board has, as explained below, paid a deficit contribution to the Group’s pension scheme this year of £1,583,000. The overall results for the Board show a surplus for the year of £263,000, which has had the impact of increasing the Board’s Reserves from £1,975,000 to £2,238,000. The Board will need to build up reserves over the next few years in order to generate sufficient funds for future requirements.
As explained last year, the Board made the decision to close the Group’s Defined Benefit pension scheme (The British Wool Marketing Board Retirement Benefits Scheme) which provided final salary pension benefits in respect of pensionable service completed before 30 April 2005 and CARE (Career Average) benefits in respect of pensionable service on and from 1 May 2005. The Scheme closed on the 31 July 2011 and was replaced by a Defined Contribution Scheme.
Although the Defined Benefit Scheme has been closed, the responsibility for the deficit remains with the Board, and the strategy of the Board is that, following the substantial level of contributions to the Scheme, it hopes to be in a position within the next few years for the deficit to be eliminated and to move to be fully funded on a self-sufficiency basis. It is important to recognise that the vast majority of the deficit relates to prior 1992, under the Guaranteed Price mechanism, together with the fact that the Board took a pension holiday in the 1990’s and not to pension entitlements of existing personnel.
The results of the Triennial Valuation of the Board’s Pension Scheme at 30 April 2009 showed an ongoing funding deficit of £7.549m. The next valuation will be 30 April 2012. With the historically low gilt yields it is likely that the deficit will be at a similar level reflecting the increase in notional liabilities as at that date. In accordance with the 2010 agreement between the Board and the Trustees of the Pension Scheme, the Group’s deficit contribution this year is £1,583,000.
On the accounting basis FRS17, as shown in these accounts, the deficit has increased from £101,000 surplus to £752,000 deficit, after accounting for deferred taxation. (Please note this deficit calculation is on an ‘accounting’ not ‘funding basis’, the funding deficit on which contributions have to be based, is likely to be considerably greater).
With the continuing difficulty in global retail markets, market conditions, both domestic and export, will be difficult to predict. Despite the market instability and with the Campaign for Wool, we believe that the new level of prices can be maintained during the next season and lead to similar producer returns. It is worth noting what we consider the main factors that will influence future prices:
- Consumption of Wool in China & USA
- Euro Debt Crisis
- Currency Movements
- Consumer Confidence
- New Zealand Wool Market
Whatever the market conditions, we must continue our strategy:
- On the basis of the assumption of clip size maintaining around the current level, we will continue to seek efficiencies within our Depot operations and look for opportunities to restructure and re-organise our Depots in order to gain operational efficiencies.
- We will continue to seek ways of reducing our transport costs through the further introduction of compacting machines, farm presses and a restructuring of our haulage arrangements.
- We will work with the international textile community, producers, merchants, processors, manufacturers and retailers to raise the profile of wool in the market place, to stimulate demand and ultimately to gain a better price for a unique product.
- We will continue to monitor the level of pension deficit with the intention to be fully funded on a self-sufficiency basis, therefore able to transfer the responsibility of the deficit to an insurance company and have no further deficit contributions charged to the income and expenditure account.
I M Hartley BA, FCA
Chief Executive Officer