AWI RESPONSE TO THE RECOMMENDATIONS OF THE ARCHE REPORT

Recommendation 1: AWI work with its industry stakeholders to clearly define the company’s position and role in the industry. These should then be clearly communicated to AWI’s stakeholders. The recommendations of this 3 year performance review should then be considered in light of this defined role.

AWI considers that its role is to invest in R&D and marketing to protect and enhance the profitability of Australia’s woolgrower shareholders. This role is clearly defined, and AWI is promoting this message to its shareholders through a range of communication channels.

AWI acknowledges that the Australian wool industry has a history of being fragmented and that confusion may exist over role clarity, and who ‘speaks for the industry’ on matters of significance.

AWI acknowledges the need for an improved system of communication and strategic planning for the industry as a whole, and will look to play a facilitator role to assist the wider industry achieve these aims.

AWI sees this process as being vital to support and protect the profitability of woolgrowers so that they can speak with one voice on matters of significance, and to optimise the focus and direction of AWI’s R&D and marketing activities.

AWI began this process by organising shareholder and key stakeholder workshops to provide input into the current 2009/10 strategic and operational plan, which resulted in a significant change of direction and focus for the company.

AWI looks to consolidate and extend this process in the coming year.

The recommendations are considered in the above context.

Recommendation 2: Following WoolPoll 2009, AWI embark on an appropriately designed strategy setting process to provide a clear and detailed plan for the company.

The board and senior management of AWI have committed to a comprehensive strategic planning process following WoolPoll and the company’s annual general meeting in November 2009.

This will involve the board, senior management, and independent external advisers and provide the opportunity for input from shareholders and key stakeholder groups in relevant areas.

Recommendation 3: AWI consider establishing internal structures to support the development and consistent implementation of a planning and evaluation process that allows rigorous exploration and assessment of value to levy payers.

AWI is committed to establishing an internal structure that delivers these objectives and this work is well underway.

AWI is currently implementing a much improved research and marketing governance framework, that is designed to deliver strategically focused and targeted programs, with improved project selection, more rigorous performance criteria and much clearer processes of evaluation to deliver transparent and rigorous assessment of value to levy payers.

Recommendation 4: AWI take steps to constructively engage shareholders and key stakeholders. AWI should work with stakeholders to establish a common understanding and shared expectations for involving the wider industry in strategy setting.

AWI is committed to developing improved communication with shareholders and stakeholders that allows for feedback and input into the key platforms of AWI’s activities. Again these changes are well advanced.

AWI has been holding a series of workshops and has formed workshop-style groups for the purpose of obtaining stakeholder input into key objectives. These include strategic planning, sheep welfare, dog predation, greenhouse gas emissions, business development and marketing strategy. In addition to this, AWI has held 19 roadshows and attended approximately 50 industry events. AWI has recently launched a new website (www.wool.com) and is also consolidating on-line communication opportunities for shareholders and stakeholders.

In many cases, these workshops or workshop-style groups have been the first of such activities and are now planned on a regular basis based on positive feedback from participants, and through which AWI will be able to meet the recommendation.

Recommendation 5: AWI, as part of its strategy setting process, establish a comprehensive framework to enable the clear measurement and reporting of performance and the value it delivers to levy payers.

AWI is already implementing improved methods of measuring and reporting performance through the comprehensive improvements to business, research and marketing governance under the company’s new 2009/10 operating plan.

As recommended, AWI will examine where further improvements can be made through the comprehensive strategic planning process that is planned after WoolPoll and the company’s 2009 annual general meeting.

Recommendation 6: AWI review the structures and processes that operate in similar industry-owned companies, as one means of considering improvements in its value creation to levy payers.

This process is already underway. To assist in developing new and improved governance mechanisms for research, business development and marketing, AWI has examined strategic planning governance and performance measurement in similar organizations such as Meat and Livestock Australia, related industries such as wine and cotton, and organisations such as the National Heart Foundation and the National Health and Medical Research Council.

AWI will look to continue this process to ensure that it is delivering best practice value creation for levy payers.

Recommendation 7: The AWI Board comprehensively review its corporate governance practice and take steps to ensure that it meets modern expectations of good practice.

AWI acknowledges that, in the past, factionalisation of the board has resulted in suboptimal governance of the company. Since this time, however, there have been major changes on the board and the appointment of a new chairman. A new CEO has also been appointed. The current board has already adopted new and transparent policies for management of conflict of interest, and is undertaking a review to implement improved operational protocols. The current board is united in its understanding of its role to undertake strategic planning and provide effective oversight of the management of the company to ensure that it is meeting its statutory obligations and strategic objectives.

Recommendation 8: AWI, in collaboration with shareholders and industry stakeholders, conduct a review of the architecture for the appointment of directors in the Constitution, to ensure the election of a skills based Board.

AWI’s Constitution allows for board members to be elected through an open and democratic process. There is the provision to allow directors to be appointed, if the skill base of the board is inadequate. These appointed directors must then stand for election at the next annual general meeting to ensure their position is endorsed by shareholders. AWI considers that this provision more than adequately ensures AWI has access to a full skills-based board at all times.

Changing the Constitution requires 75 per cent majority.

The issue regarding whether shareholders would like to change the Constitution to provide a skills-based appointment process to the board, rather than a direct election process was canvassed at the recent industry/shareholder stakeholder workshop prior to finalising the 2009/10 strategic and operational plan.

This did not have majority support, with many growers expressing satisfaction with the current system, and concern about the potential for political manipulation of a skills-based appointment system.

Recommendation 9: AWI comprehensively review its risk, fraud and IP plans and management processes. The company should ensure that there is a common understanding of, and responsibility for, the plans, and that they are embedded in company operations.

AWI is currently in the process of reviewing its risk, fraud and IP plans and management processes. This review is being undertaken by independent experts and is expected to be completed within weeks, following which AWI will be ensuring that they are embedded in company operations in fulfilment of this recommendation.

Recommendation 10: AWI comprehensively document and communicate the actions the company is currently taking to improve business processes.

AWI has already begun to document and communicate the actions that are underway to improve the company’s business processes, and will continue to expand this reporting over the coming 12 months as the new, comprehensive strategic planning process, objective setting and governance frameworks are consolidated and implemented.

Recommendation 11: A formal review be conducted in 12 months time to assess AWI’s progress in addressing the recommendations of this review.

This will enable AWI to make appropriate changes well in advance of the levy poll in 2012.

AWI will consider a review in 12 months’ time to assess progress.