You are using an older browser version. Please use a supported version for the best MSN experience.

Cavalier warns of tough wool market

NZ Newswire logoNZ Newswire 6/02/2017 Jonathan Underhill

Cavalier Corp has cut its 2017 guidance and is now projecting no earnings growth because of difficult trading conditions in Australia and "an increasingly depressed" wool market.

Normalised earnings in the year ending June 30 are expected to be "close to break-even", the Auckland-based company said on Tuesday.

In November the carpet maker and wool scourer forecast normalised profit of $3 million to $5m, a decline of as much as 52 per cent compared with 2016, to reflect one-time costs to consolidate its manufacturing operations.

"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," the company said.

"Weaker Australian economic conditions have also pushed up the NZD/AUD cross rate, another factor adversely impacting on the forecast revision.

"However, the company's belief in Australia as a key market, where opportunities for growth are significant, remains unchanged."

Australia accounted for about 40 per cent of Cavalier's revenue in 2016.

The company said that while the recent significant drop in wool prices in the face of reduced Chinese demand was good for Cavalier in the longer term, the depressed wool market hurt the profitability of the wool buying business in the short term.

The duration of China's reduced demand for wool was uncertain, it said.

Cavalier said it would deliver improved results in the 2017/18 year and the company would also benefit from lower wool prices and a stronger kiwi dollar against the US dollar.

Cavalier shares last traded at 80 cents and have gained 36 per cent in the past 12 months, while the S&P/NZX 50 Index has gained 15 per cent.

image beaconimage beaconimage beacon