Gale Pacific faces profit wipeout from inflation and shipping costs

Shade cloth maker Gale Pacific is the latest victim of rampant inflation and rocketing shipping costs, warning its entire profits for the December half could be erased.

John Savelio at work at Gale Pacific. The manufacturer is facing the twin challenges of inflation and higher shipping costs which is threatening to completely wipeout its December half profit.

A well-known manufacturer of shade cloths has emerged as one of the biggest victims of rampant inflation and bloated shipping costs running through the global economy, with it warning its December half profit could be entirely wiped out by the twin forces.

And Gale Pacific, which makes shadecloths for homes and playgrounds, fears these conditions could continue well into 2022.

Shares in the company slumped more than 22 per cent to at 33 cents after the earnings warning to trade on Tuesday morning.

In an update to the market, Gale Pacific said it now anticipates profit before tax for the half year ending December to be in the range of a $1.5 million loss to a barely profitable $500,000 as compared to the $8.8m profit booked in the first half of 2021.

Gale Pacific, which started its corporate life as a knitting mill before becoming a global shade cloth maker for items such as blinds, beach umbrellas and canopies over playgrounds, said the poorer earnings guidance reflected higher than forecast overall input cost inflation, particularly in logistics and distribution.

It said some of these higher input costs are expected to be transitory and have been partially offset by price increases, but the pain will be felt by shareholders as in a worse case scenario all the company’s profits will be dusted for the first half and it sinking to a loss.

In the last few months companies have begun warning the market of higher costs, particularly raw materials and the costs involved in shipping, freight and logistics, but the admission from Gale Pacific that it could force it from healthy profits to a loss mark it as one of the most bruising impacts of the current economic environment.

“While it was previously announced that the company’s first half profit would be below the prior corresponding period, significant cost inflation, capacity constraints, and overall volatility in international shipping and transportation are having a more significant impact than anticipated,” the company said in an ASX statement.

“It is difficult to predict when this market volatility will temper, however the company expects these conditions to continue into calendar 2022.”

Though first half of 2022 revenue is anticipated to be more moderate as compared to the first half of 2021, Gale Pacific expects revenue to be materially above that achieved in the first half of 2020.

“The company remains committed to its stated strategy of investing in future growth strategies, in particular, in the America’s region given its scale and long-term market potential.

“In Australia/New Zealand, the company is currently launching a number of new products across its core consumer shade categories into the retail channel, including those endorsed exclusively by Cancer Council Australia.”

It said that pleasingly, strength across the Australian agricultural sector had continued with high demand for the company’s coated fabrics used in grain handling applications. In the Americas, the company is endeavouring to expand and consolidate its business foundations for the coming Northern Hemisphere summer selling season, with new products, promotions, and expanded assortments in its core consumer categories underway.

“In line with its strategy to build a more significant business in the region over the coming years, the company is investing in additional marketing and selling capacity and capabilities.”