Wool downturn affects Cavalier

The downturn in the wool sector in general is also affecting carpet manufacturer Cavalier, which has downgraded its immediate financial outlook. Photo / Stephen Jaquiery

Carpet manufacturer Cavalier has downgraded its profit guidance for 2016-17 to ''break-even'', in the face of the faltering Australian economy, currency conversion and the increasingly depressed wool market.

Cavalier's chief executive Paul Alston said normalised profit after tax for the 2016-17 year was now reforecast to be ''close to break-even'', below the $3 millionto $5 million guidance announced in November last year.

''Market conditions in Australia appear to be weakening, with very soft trading in December and January resulting in a revision of Australian sales volumes for the next six months,'' he said in the market update.

Cavalier shares plunged on the news, down more than 16%, or 13c, to 67c.

While delivering the downgrade, Mr Alston said 2016-17 year had been a year of investment, consolidation and restructuring and he expected 2017-18 would show improved returns from merged scouring operations as synergies were progressively realised from operation consolidations.

Separately last week, but giving a snapshot of the domestic wool sector in general, there were unprecedented levels of wool withdrawn or passed in from the smallest offering made by South Island wool brokers.

On the day, wool sellers withdrew 2100 bales from a total 13,900 bales on offer and 64% of the 11,800 bales was sold and the rest passed in.

Lambs wool particularly bore the brunt of the declining prices, down 5%-7% on the day, because of substantial stock levels in New Zealand and overseas.

Lambs wool was trading at a record high last season, but has slumped more than 50% at recent auctions, amid the weak demand during the peak production period, BusinessDesk reported.

Mr Alston said yesterday the recent significant drop in the wool price was good for Cavalier in the longer term.

However, the depressed wool market impacted volumes through the newly-merged scouring operation and the profitability of Cavalier's wool-buying business in the short term.

''The duration of China's reduced demand for wool is uncertain,'' he said.

He said Australia's weaker economic conditions had also pushed up the New Zealand-Australian dollar cross rate, another factor adversely impacting on the forecast revision.

However, Mr Alston said it remained Cavalier's belief Australia was a key market, where opportunities for growth were ''significant''.

During the year, Cavalier had invested heavily in consolidating its manufacturing operations, introduced new products, begun modernising both its store presence and marketing material.

''These investments will deliver improved results in the '17-18 year,'' Mr Alston said.