Restructure for Schaffer

DIFFICULT trading conditions in the leather industry have contributed to a 13.8 per cent decline in annual profit for West Perth-based industrial company Schaffer Corporation Ltd, which has completely restructured its globally focused leather business. Schaffer will be winding up its Gosh furniture leather business later this quarter, having been scaled back for the past three years, while it has markedly changed the focus of its Howe automotive leather business. In a statement, the company said rising competition from imported furniture had all but eliminated its Australian furniture business. Schaffer’s $8.1 million headline profit figure includes a $600,000 post-tax charge relating to the winding up of the Gosh business and a further $300,000 (after tax) in closure costs is anticipated for the current half. Schaffer’s automotive leather business, Howe, has recently moved its cutting operations to facilities in Europe and Asia with lower labour costs. Chairman John Schaffer said in an announcement that the company expected Howe’s trading conditions would be challenging, with volume increases in Europe and China to largely offset reduced demand from its customer base. The company said several factors had affected Howe’s performance. •A reduction in demand from Howe’s US customers, where General Motors and Ford lost market share to Japanese and Korean original equipment manufacturers. •The loss of BMW as a customer as a result of a South African industry support scheme, which provides rebates of approximately 23 per cent for South African automotive leather suppliers. •Increased competition due to production overcapacity within the industry. •Significant and widespread cost cutting programs at original equipment manufacturer level. Howe’s response, according to Schaffer statements, to the shifts in the industry has been to substantially reposition itself. Howe brought new lower cost cutting operations on-line in Slovakia and China, both close to major clients, with the full relocation to these plants to be completed this half. Schaffer has announced a net profit for the 2005-06 financial year of $8.1 million, down from $9.4 million in the previous year, albeit including a $700,000 profit from a property sale.