If it was unable to meet debt obligations, the group might not be able to continue as a going-concern, the directors said in the annual financial statements.
In its report, auditor KPMG referred to that as “material uncertainty” that could “cast significant doubt” on the going-concern assumption.
However, the directors said the business was a going-concern.
The group had a $2.1 million after-tax loss for the year ended June 30 and a $5.37m operating cash outflow. Revenues fell $34m to $156m for the year and operating earnings fell sharply.
The results included a $6.3m charge for a restructuring programme involving consolidating wool spinning operations in Napier, which was expected to provide efficiency gains, and relocating felted yarn manufacturing to Wanganui, allowing for greater growth.
During the process, which was costlier and took longer to complete than expected, there were major operational and production challenges that adversely affected sales and expenditure. There was a big impact on woollen carpet sales into Australia, where 60% of sales were for wool carpets.
Despite that, there were good indications the benefits of the moves would be realised in the years ahead, the directors said.
Cavalier now had a reduced cost base and an improving productive capacity with gains expected in coming months.
The increasing capacity of the felting operation would mean the carpet business could meet the growing demand for innovative product ranges.
The sharp fall in the price of wool would reduce supply costs and improve manufacturing margins, especially on Australian sales.
Although the high NZ dollar was a negative impact on export receipts, it did help with importing synthetic yarns, a growing part of the carpet production business, especially in the New Zealand market.
Cavalier had also made a significant marketing investment in “successfully’’ refreshing the Cavalier Bremworth brand.
The falling wool price had made business more difficult for its Elco Direct wool-buying business as farmers and traders held onto supplies, waiting for prices to lift rather than selling at low prices and incurring the cost of scouring.
The associated collapse in the wool market had hit the profitability of the group’s wool scouring business hard, with its share of profits falling by $2.2m.
At balance date, Cavalier had a ratio of debt to total debt plus equity of 51%, marginally lower than a year earlier but the ratio of interest-bearing debt alone was up to 30% from 25%.
The banking facility was renegotiated after balance date for an 18-month period. Banking covenants were in place, based on the earnings forecasts but there was a “degree of headroom” should market conditions soften.
Cavalier shares were trading steady on the NZX at 30.5c though there were initial sales at 32c after the result.
