Hard times hit wool industry

Photo / Hawkes Bay Today

Wool Services International has posted a loss of $4.38 million after tax, compared to last year's profit of $2.39 million.

This was partly because tax authorities declined a 2007 deduction, which cost it $1.6m and because it took a $3.2m hit on rationalising wool scours, the company said.

Managing director Michael Dwyer said that despite the world credit crisis - slowed markets, collapsed wool prices, foreign exchange fluctuations, and difficult trading conditions for customers - WSI managed a tax-paid "operating profit" of $514,000 for the year to June 30.

"While operating performance in the first six months was good, the second half of the financial year was adversely affected by the world credit crisis," he said today. Export turnover fell 16 per cent.

"Trading conditions have continued to be the most difficult we have experienced."

The company planned to challenge the tax decision, but needed to make provision for the debt in the meantime.

Dwyer said WSI wrote off over $3m to help rationalise the scouring industry, and expected this to provide the company with improved future profitability.

Its scouring plants, at Whakatu in the Hawke's Bay and Kaputone in Canterbury performed well, and it expanded storage at both scours, improving flows to supply each and increasing ability to process wool promptly.

WSI had contributed money to enable another player in the sector to buy up significant assets of a third party.

"This rationalisation is good news for WSI in the longer term as the closure of Clifton wool scour in Invercargill and most of the productive capacity of Clive wool scour in Hawke's Bay removes facilities and shrinks the country's scouring capacity closer to actual wool production," he said.

But though rationalisation of wool scours was a positive step much more needed to be done to rejuvenate the industry.

"Reform must occur in the marketing and distribution of New Zealand wool," he said.

"We are working with like-minded organisations to accelerate the process."

In the current financial year, the residual effects of the global downturn persisted.

"We believe most of our difficulties are bedding down and under control but we do not anticipate a profitable first half," Dwyer said.

But if signs of a recovery underway in the wool industry continued, then the company should make a profit in the full year.

- NZPA