Australia-based company Schaffer Corporation Limited, which is involved in the leather and construction industries, has reported lower profits of $8.1 million for the 2006 financial year compared with $9.4 million in 2005, which was said to be the result of lower demand for leather products.
Chairman John Schaffer said that continued difficult trading conditions at the Howe automotive leather business were responsible for the decrease. “Howe was affected by lower US demand and the loss of the BMW programme. The business was also impacted by the overcapacity in the industry and cost cutting by original equipment manufacturers.” He added, “Howe has repositioned itself and secured its competitive position by moving its cutting operations to low-labour-cost facilities closer to key markets in Europe and Asia. The Gosh (furniture leather) business has been operating in a fiercely competitive market and has been struggling to provide an acceptable return. Over the last three years, the business has been scaled back. With the virtual elimination of Australia’s furniture business (due to competition from finished imported furniture), Gosh will cease all operations later this quarter.”
The company’s $8.1 million profit figure includes a $0.6 million (after tax) charge relating to the winding up of the Gosh business. A further $0.3 million (after tax) in closure costs is anticipated for this half.
Mr Schaffer said that, during the 2007 financial year, the company expects Howe’s trading conditions to continue to be challenging, with volume increases in Europe and China to largely offset reduced demand from its US customer base.
“Increasing hide prices, supplier overcapacity, foreign government support schemes and aggressive pricing across the global automotive market will place further pressure on margins,” he noted.
