It has halved the price of wool grease, which is the main raw ingredient in making the cholesterol used widely in shrimp farms, from their previous high levels.
Lower wool volume, especially in the South Island, was also having an impact on scour operations, Cavalier Corporation managing director Colin McKenzie said.
Cavalier is a 50% shareholder in scourer Cavalier Wool Holdings (CWH) and had its share of half-year earnings fell to $792,000 from $2.1 million a year earlier.
CWH had come off a record trading year last year.
Lower wool volume, especially in the South Island, is also having an impact on scour operations, Cavalier Corporation managing director Colin McKenzie says.
A partial recovery in carpet markets, particularly the higher-value broadloom category in NZ and Australia, offset the scour pull-back to a certain extent.
Cavalier’s after-tax profit for the six months ended December 31 was $3.44m, more than double the $1.44m profit at the same time a year earlier, and also higher than the latest June 30 full-year earnings of $3m. Group sales were $102m up from $101m previously.
Australia is Cavalier’s biggest market, providing more than half of revenue, and the lower to middle part of the residential market and parts of the commercial market in that country provided a headwind for the group.
The high NZ dollar against the Australian currency was also an issue, McKenzie said.
These problems, plus the more challenging scour operations, have led to a significantly reduced annual profit forecast for the group, to $6m-$9m after tax, from the previous figure of $8m-$10m.
Wool grease prices were expected to recover when the shrimp farm disease was resolved, but large quantities of shrimp had been wiped out in a number of areas and the issue was being watched closely for its impact on the business, he said.
Last summer’s severe drought reduced sheep numbers as more were sent for processing, and late shearing had meant delays in getting volumes into the CWH Timaru scour plant.
Cavalier still believed rationalisation of the NZ scour industry was needed, he said.
Cavalier’s directors were confident that if there was an opportunity for rationalisation within acceptable parameters, it would be in the company’s best interests, as well as having benefits for wool suppliers.
CWH operates two scour plants, as does its only domestic competitor, NZ Wool Services International, owned now by Melbourne-based Lempriere.
Though the carpet market overall was still slower than hoped, there were encouraging signs, especially for the broadloom part of the NZ market, McKenzie said.
The world market outside Australasia was also showing promise for premium woollen carpets, with new customers in China, increased interest from continental Europe, and talks with potential North American customers.
Cavalier had put a lot of restructuring into the carpet business over the past two years and the group expected to see the benefits later in the financial year and into the 2015 year, he said.
The Radford yarn business in Christchurch, supplying premium felted yarn to premium carpet makers, had an excellent start to the year, with profit up on the previous year and also on forecasts.
Cavalier’s other wool business is the wholly owned buying group Elco Direct.
Despite the tough market, it had lifted half-year revenue nearly 27% to $17.6m and profits 58% to $558,000, McKenzie said.
Cavalier will pay a 3c a share interim dividend on March 28.
