Wool sales fell away with the industry downturn and the two major operating businesses, half-owned Carrfields Primary Wool (CP Wool) and its manufacturing subsidiary NZ Yarn, both made losses.
The recovery was expected to come from the joint-venture business CP Wool, which projected operating earnings (Ebitda) of $1.4 million for the June 2018 year. It planned to pay a dividend to its owners, PWC and the Carrfields Group in Ashburton.
NZ Yarn had been restructured at significant cost but was now operating profitably.
Achieving the budget would require a recovery in the wool market and an increase in sales, PWC chairman Bay de Lautour said in the latest annual report.
PWC made a loss of $2.37m in the year ended June 30, made up of a direct operating loss of $722,700 and a $1.64m loss as its half-share of the total CP Wool loss.
Included in the direct operating loss was a $200,000 impairment on a loan made to Bruce Woollen Mills (in liquidation). The loan had been guaranteed by Bruce director and shareholder John Stevens but PWC was unsuccessful in legal efforts to get it repaid.
PWC forecast a lower operating loss of $218,000 this year, which it said should be covered by a dividend from CP Wool.
De Lautour was the co-operative’s major shareholder as well as lending $1.65m to the group. It was a long-standing loan and the annual report said he had indicated he would not expect payment until CP Wool could release enough money to cover the amount.
The report also said the annual accounts were prepared on a going-concern basis because de Lautour had agreed to provide further support if necessary.
As well as the major loan, de Lautour and the other directors, Hamish de Lautour and Howie Gardner, each lent the co-operative $100,000 during the 2017 year. The loans were for an undefined term but expected to be repaid within 12 months.
Operating cashflow was an outflow of $418,000, up from an outflow of $178,000 a year earlier.
PWC and Carrfields each owned 50% of CP Wool, which owned 67% of NZ Yarn.
CP Wool’s main income was from auction services to growers. The 15% of wool passed in at auction through the year, a lot more on hold in store and a lower wool clip from a dry season meant a big reduction in income, de Lautour said.
Testing and storage costs could not be recovered till wool was sold.
More positively, since the start of the new financial year, volumes sold had been up on most years and the wool clips were heavier.
Wool had always been a volatile commodity, he said.
Demand had always recovered from past falls over time. Low prices should enable wool to become more competitive at the commodity end while more innovation took place at the top end of the market.
NZ Yarn in Christchurch had been restructured since Colin McKenzie took over as general manager at the start of the 2017 financial year. New yarn types had also been developed and there were a large number of new clients, largely in the United States.
CP Wool also relaunched the Just Shorn carpet range in the US, through Carlisle Wide Plank Flooring, with an agreement for a share of the retail profit at the top end of the market to be returned to the group. The very top end did not compete with synthetic products, de Lautour said.
The new arrangement was expected to return many times the value of the farmers’ wool.
At balance date PWC had total equity of $473,000, down from $2.45m a year earlier because of the year’s loss. Total assets were $2.5m, down from $4.48m.
Included in assets were $335,000 of plant and equipment from the Bruce Woollen Mill for which the group was in sale negotiations.
The accounts showed PWC had an advance of $1.99m to CP Wool, at a 10% interest rate, payable on demand.
