Cavalier turns to profit in 2018, sees continuing improvements in future years

Wednesday 22nd August 2018

Carpet-maker Cavalier Corp turned to an annual profit and improved its debt and cash balances as it benefits from the previous year's restructuring.

The Papatoetoe-based company posted a net profit of $4.1 million in the year ended June 30, from a loss of $2.1 million a year earlier. That's above the top end of its forecast range of $3.7 million to $4 million.

Cavalier, whose heritage is steeped in woollen carpets, has had to restructure its business to cope with increased rivalry from cheaper synthetics. To better compete, it began manufacturing its own synthetic range, sold uncompetitive assets like its carpet tile business in Australia, and consolidated its woollen felting and yarn spinning operations. In the past year, those changes have helped it turn around its operating cash flow to a positive $12.1 million from negative $5.4 million and reduce its net debt by $10.8 million to $29.4 million.

“We are very focused on returning Cavalier to sustainable and profitable growth," said chief executive Paul Alston. "Our internal transformation, including the consolidation of our manufacturing operations in FY17, and focus on cost management have enabled us to reduce debt and improve profitability. We are back on the right track and expect to see continuing improvements being delivered in future years."

Alston said lifting volumes and revenue will be a focus for the business in the 2019 financial year and beyond, after sales in the latest year fell 5.1 percent to $148.1 million.

“While FY18 sales were affected by softer market conditions in both New Zealand and Australia and a short-term impact on supply to Australian customers as a result of Cavalier’s consolidation programme, an uplift in sales is expected in FY19 as we implement our new strategy," Alston said.

Cavalier said it's working closely with its trade customers to support their sales efforts, with a new sales strategy being rolled out in New Zealand and Australia.

The company said manufacturing and operating efficiencies have already improved significantly and planning is under way for a new IT platform to further help operational efficiency. It noted wool prices were at historic lows, while a stronger US dollar was making imports more expensive and the US market more attractive while a stronger Australian dollar was boosting its Australian returns.

Cavalier is increasing its focus on its higher end, high-margin products and is seeking to benefit from rising demand for environmentally sustainable products, which is helping boost the fortunes of companies such as shoe brand Allbirds and outdoor clothing company Icebreaker.

While its home markets of New Zealand and Australia remain a priority, Cavalier is eyeing expansion into other markets with large populations of high socio-economic consumers such as the US, where the wool carpet market is worth an estimated US$513 million, and the UK, where it's worth about US$498 million.

Still, the improvements to date haven't prompted the company to resume paying dividends. A dividend was last paid to shareholders for the first half of the 2014 financial year and Cavalier has previously signalled it needs to see consistency in earnings before resuming the payments.

"Whilst FY18 delivered a strong improvement in results, dividend payments will remain suspended as the company establishes sustainable earnings growth and performance," the company said today.

Cavalier shares opened this morning on the NZX at 60 cents, unchanged from yesterday's close, having risen 98.4 percent over the last year.

(BusinessDesk)

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