Friday, March 29, 2024

Cavalier transition not without ‘teething problems’

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Restructuring the company to all-wool products and covid-19-related sales disruption have impacted the financial results of Cavalier Corporation in 2020, with more to come.
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It made a reported loss of $21.5 million in the year ended June 30 and a normalised loss of $3.5m, excluding non-trading adjustments.

Revenue was down 13% to $118m and the normalised earnings before interest, tax, depreciation and amortisation (Ebitda) was $2.3m.

Non-trading adjustments of minus $11.2m were made related to the strategic change and the company reset.

In July, Cavalier said it was quitting the manufacture and sale of synthetic carpets and rugs to concentrate on higher-value, sustainable wool and natural fibres.

The transition would take 12 months and the new strategy required rapid debt reduction.

Net debt fell to $14.5m at the end of June and has halved since, as the Auckland property was sold and leased back.

Cavalier says the new financial year had started well with New Zealand sales revenue up 10% to the end of August and September sales in NZ and Australia up on the same month last year.

Increases in woollen carpet sales, especially in Australia, had been encouraging.

However, as previously advised, total sales in FY21 were expected to fall as Cavalier ceased synthetic carpet manufacturing and because of covid-19.

“As we move to a new normal, covid-19 reinforces our belief that our transformation to a purpose-led, sustainable business model is the right decision for our company and our long-term future,” chair George Adams said.

“Consumers are increasingly moving away from plastics and demanding products that are natural and sustainable. 

“We are ideally placed to respond to this demand, by building on our heritage as a global leader in the manufacture of beautiful woollen flooring to deliver desirable, sustainable, safe and high-performing interior products.”

Shareholders have responded by approving the premises sale and lease back and bidding up the shares from 21c (pre-announcement) to 36c (currently).

Adams says impairments were indicated by a market capitalisation considerably less than the net asset value of the company.

“Directors agreed to take the conservative position of writing down assets as the transformation changes the risk profile and return to acceptable profitability is a few years away,” he said.

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