WSI posts disappointing result

Media release

Thursday 3rd February 2005

New Zealand Wool Services International has achieved a "disappointing" tax paid operating surplus of $127,000 for the six months to 31 December 2004.

This compares to a surplus of $1.076 million for the corresponding period during 2003.

This performance can be attributed to the following factors.

Since the commencement of our current financial year on July 1 the NZ Dollar has risen 13% against the US Dollar. This had a negative impact on our stocks;

The delay in commissioning the new Whakatu wool scour has had a disruptive effect on our organisation including trading, and the additional costs incurred in financing the new plant in advance of its commissioning have been a drain on the financial performance. Additionally the movement of wool between Islands because of this delay has been a costly exercise.

Whakatu Upgrade
As has been reported previously, in conjunction with its scouring partner Dalewool Holdings Limited, New Zealand Wool Services International has embarked on a comprehensive upgrade of the jointly owned plant at Whakatu. The object is to bring this plant into line with its sister plant at Kaputone, which is currently regarded as one of the most efficient of its type in the world. While this upgrade has largely been completed, commissioning has been delayed due to the late delivery of the high density press from Italy. Commissioning the Whakatu plant is now expected in March. This will disrupt the production capacity of the company over the next few months and the benefits from the new plant will not be felt until late in the 2004/05 financial year.

Share Buy-back
During the course of 2004, the company has taken steps to consolidate its shareholder register. In October this exercise was successfully completed with the acquisition of shares owned by all who held less than 1,000 shares. Whereas the company had in excess of 13,000 shareholders at the beginning of 2004, it now has some 4,000 shareholders. This has considerably reduced the administrative costs associated with servicing shareholders.

Outlook
Acknowledging the disappointing performance for the first half of the year and providing no other unforeseen problems are experienced, the directors look forward to a considerable improvement in the second half of the 2004/05 reporting year compared to the first six months. This is consistent with previous years trading, where the results achieved in the second half of the financial year has generally surpassed that of the first half.

When the new Whakatu plant is commissioned in March we foresee a number of benefits accruing to WSI that will enhance it's position and return it to at least the level of profitability achieved in the previous three years, but not in this financial year. Added to this would be a further benefit should we see a more stable lower valued NZ Dollar which would greatly alleviate pressure on trading.

Longer term we are optimistic on the future for WSI and particularly on our objective to provide shareholders with a return to the level of profitability achieved in recent years.

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