It has two major scour plants, and one “overflow” scour.
With the size of the North Island wool clip, the group needs more than one scour and is working on options, Cavalier Corp chief executive Paul Alston said.
“We’re working on options – it could be a mix of plants or we could do everything at one plant and extend that. We need to make a decision soon.”
The change follows the merger of the Cavalier Wool and New Zealand Wool Services International (WSI) scour businesses. The consolidation of the South Island plants has already been completed, with some of WSI’s Kaputone plant near Christchurch installed at the Cavalier site in Timaru. The Kaputone site has been sold.
The Hawke’s Bay business is likely to be based on the large Cavalier site at Awatoto. Cavalier also had the overflow plant at Clyde, while WSI operated a scour at Whakatu.
The Hawke’s Bay decision will be based on the size of the wool clip, and there’s an issue with that now because the collapse in wool prices means many farmers are storing their wool rather than putting it forward for sale, so scour volumes are also well-down.
Up to the start of this year, the scours had been operating around the clock, seven days a week, but the collapse in volumes mean they’re just operating five days a week, Alston said.
The low volumes are hurting the scour division profitability, as well as making trading very difficult for the group’s Elco Direct wool-buying business.
These negatives have added to the tough trading conditions in Australia for the Cavalier Bremworth carpet manufacturing and distribution business, compounded by the high NZ-Australia foreign exchange rate.
About half of group sales are in Australia. The NZ carpet market is still performing reasonably, though off earlier highs.
Longer term, the fall in the wool price should help the carpet business by reducing the group’s raw material costs. There is typically a nine to 12-month lag time between buying wool and getting carpet into the market, and the business is getting close to that tick-over point, Alston said.
He’s expecting improved profitability for Cavalier Bremworth in the financial year, which started on July 1.
Cavalier Corporation told [ITAL]Farmers Weekly[END] that it expects a loss of $2 million (on a normalised trading basis) for the latest June 30 year. That downgrade on June 1 replaced a forecast in February of a break-even result.
The group also had heavy restructuring costs from major changes in its yarn-spinning operations. Lower operating costs because of those moves is also expected to help current-year earnings.
Cavalier Corp owns 27.5% of the merged scour business, so is suffering from the low volumes affecting earnings there.
The Cavalier share price has fallen heavily this year. This fall was putting extra pressure on the group, Alston said, but his message remained the same.
“We’ve had a year of investment and a lot of time and effort in consolidation to reduce costs and increase profitability in the new year.”
Cavalier shares have fallen 59% this year, to 32c at time of writing from 78c at the start of January. The fall in July alone has been about 8%, from a starting point of 35c.
In earlier years, the carpet manufacturer was one of the best performers and most consistent dividend-payers on the NZ Stock Exchange. Ten years ago, the shares were worth $2.28 each, according to NZX data.
The founding families remain the biggest shareholders: the Timpsons with 13.99% through their Marama Trading Ltd, and Grant Biel with 12.33% through his Rural Aviation (1963) Ltd.
ACC owns 5.69% of Cavalier Corp. It is also a minority shareholder directly in the Cavalier Wool Holdings scour business, in which Chinese-owned Australian company Lempriere is the biggest investor.
