The Merino Company turns to an annual loss after closing mill

The Merino Company turned to a loss last financial year after undergoing a major restructuring that saw it exit textile manufacturing in New Zealand to focus on growing its innovative wool spinning and colour technology businesses.

The company, which counts Australian William Lempriere as a director, posted a loss of $6.6 million in the year ended June 30, from a profit of $1.6 million a year earlier, according to its 2017 annual financial report filed with the Companies Office. It had an underlying trading loss of $2.9 million excluding restructuring costs, as it repositioned sales activity away from its traditional customers.

The Merino Company has undergone huge change during the year, closing historic Levana fabric manufacturing plant in Levin and consolidating that part of the business at its existing outsourced operation in Vietnam, where a lower cost base enables it to better compete with its Asian rivals and shortening manufacturing lead times by up to 11 weeks.

The restructuring allowed management to focus on higher value future growth engines, including its twist-free NuYarn spinning technology and its unique colour technology to whiten wool which enables it to be dyed rich, clean colours. It retained its wool spinning and dyeing operations in New Zealand as well as its technical innovation centre.

While the transition had been painful, having to let staff go and incur writedowns on its legacy assets, chief executive Andy Wynne said it was the right move for the business, which is growing under its new business model and starting to employ more staff.

"We are now in a very healthy position with a lot of upside," Wynne said. "We had been an historic textile producer selling fabric into Australasia but over the past number of years we have seen a steady decline in customers and a steady decline in revenues in those markets caused by either companies moving offshore to seek a lower manufacturing cost base or people actually going out of business."

He said it became increasingly apparent running the historic fabric manufacturing business from Levin wasn't going to be part of the company's future and that it would be better to focus on its unique higher-value products where it had a competitive advantage.

"I embarked on a strategy to move us away from cheaper commodity items to get us into value-add items and innovative items and the whole demographic of our customer changed from an historic Australasian customer to a high-tech international customer," he said.

"We have spent a lot of time and money and effort, but we have got some remarkable technologies in our business and we can now take the opportunity to commercialise those and yes we have had to take some pain."

This financial year, the company is "really in a hugely different space" with about 93 percent of its sales related to innovation and technology compared with about 54 percent last year, and it is attracting new global customers and growing its gross margin.

Wynne said the company's refocus stoked activity in the spinning business, which is now handling almost three times its prior year volumes.

Following its restructuring, The Merino Company is forecast to return to positive earnings before interest, tax, depreciation and amortisation in the current 2018 financial year, it said in its report. The company is owned by Australia's Benwill Pty, trustee of the MRL Family Trust.

(BusinessDesk)