The NZ Merino Company is reviewing its core business amid an expected forecast net loss after tax for this year of between $3.2 and $4.3 million.
In a financial update released last month, it advised shareholders that trading conditions had deteriorated due to low demand and high inventory.
It is also forecasting a loss in full year earnings before interest and tax (EBIT) for the current year of between $1.5 and $2.1m.
At its half-year result to December 31 2023, NZ Merino (NZM) reported EBIT of $3.4m and a net profit after tax of $1.8m but forecast a full year EBIT of $1m-$1.6m and a net loss after tax of $400,000 to $900,000.
Chief executive Angus Street said he is confident conditions will stabilise once excess inventory works through the supply chain.
He also believes NZM’s business model is ideally placed to meet market challenges of increased compliance, greenwashing, greenhushing and reduced consumer spending.
“While I can’t promise that the way up will be as swift as the downturn we are now seeing, there are green shoots of demand and conditions are stabilising as that excess works its way through,” he said.
He said NZM’s job is to ensure grower’s wool is in a prime position in the regions and categories that are recovering quickly.
“This is already having an impact with some channels to market moving and increased inquiry from new brands, particularly out of China and Japan in the active outdoor category,” Street said.
A strategic review of the integrated sales and marketing wool company aims to stabilise the business then restore profitability.
Street told shareholders and suppliers that stabilisation requires simplification, a focus on fundamentals, reframing its integrity systems, refreshing the brand, operating efficiently and having positive operating cash flow.
Transformation means targeting new business, thinking like a consumer brand, expanding its supply base, growing margins, optimising working capital and being a leader in wool fibre innovation.
Long-term resilience and growth will come from extending its product range, reducing customer concentration, global recognition and supply chain transparency.
One aim is to improve the cost-to-earnings ratio by growing earnings per share by 5-10% and securing a minimum return on capital of 15%.
Street said as part of the review, NZM recently launched its new EpicFibre strategy.
“We have refined and restructured the business ensuring we have capabilities and resources in the right places to grow the business and insulate it from future market volatility.”
This will mean NZM investing in its integrity systems to support wool customers in the face of increased regulations and using marketing to position growers’ wool as a premium branded fibre.
Street said this will drive demand from existing customers, new categories and consumers alike.
