“They’re a marketing-led company and we’re the best wool manufacturer in the world so we think it is a good marriage of abilities,” Cavalier chief executive Paul Alston said.
NZM has a record of working with leading brand partners and being able to sell the natural, sustainable and environmental qualities of wool.
The plan is to build a transformative business model to connect consumers with Cavalier’s wool products and to have a business model fit for the next 50 years.
Cavalier doesn’t use Merino wool but NZM is active as a buyer and seller in the coarse wool market as well and Cavalier will buy some supply from it for its carpets.
The two companies are working through the collaboration plan and Alston hopes to have details for the Cavalier annual meeting later in the year.
Their association comes at a time when the carpet manufacturer is still battling to make progress in a tough market, especially in Australia but also in New Zealand and especially in synthetic carpets.
Sales of high-end premium wool carpets are increasing but there is still a lot of work to be done in that area, Alston said.
Cavalier reported a bottom-line loss of $16.8 million for the year ended June 30, compared with a $4.1m profit a year earlier.
The loss included an $11.9m loss on the sale of its 27.5% share in the Cavalier Wool Holdings scour business and $8.5m of impairments on fixed assets and goodwill, slightly offset by a $1.14m tax credit.
The NZX-listed company also detailed a normalised after-tax profit of $1.9m, down from $4m.
Group revenues fell to $135.2m from $148.1m. For carpets, the revenue decrease was 9% on a 12% fall in volumes. The group also has a smaller wool trading business.
Auditor KPMG again noted the material uncertainty as to Cavalier being a going-concern, over its ability to achieve financial forecasts and generate enough cashflow to meet its debt covenants.
The directors believe the group is a going-concern, able to meet its obligations. Bank debt arrangements were renegotiated in late June as part of the extension of funding facilities.
Latest valuations assess the group’s land and buildings at more than $30m, compared to less than $18m in net borrowings, directors said. The accounts show total assets of $99.3m including inventories of $47.6m at balance date. The full borrowings fund about 21% of assets and Cavalier’s equity ratio is 55%, marginally higher year-on-year.
Operating cashflow was positive for the year but down to $2.9m from $12.4m a year earlier.
The directors said the board is confident of the financial sustainability of the business and excited about its future. Cavalier is well-placed to capture the demand from consumers for quality wool carpets.
Lower coarse wool prices are positive for the carpet business because they reduce input costs but are a negative for the Elco Direct wool-buying business.
Reduced Chinese demand has affected sales and margins for Elco, the directors said.
Sales of high-end wool carpets are improving and though volumes are small , these higher-margin products make a significant contribution to group profits.
The NZ revenues were pressured by the decline in low-margin synthetic carpet sales.
The accounts show Elco Direct had revenues of $25.45m in the latest year, down from $27.4m previously and had earnings of $788,000, down from $1.29m. The carpet division had sales of $113m, down from $123.7m, and a loss of $4.1m after restructuring and impairments, compared with earnings previously of $7.1m.
