Friday, March 29, 2024

Property sales to finance wool

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Plans to sell and lease back its portfolio of properties are part of a range of ways Cavalier is financing its natural fibre strategy, chief executive Paul Alston says.
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Alston said listing the firm’s three industrial sites in Auckland, Napier and Whanganui is about transforming the company into a high-end, premium flooring brand rather than strengthening the balance sheet.

“We are comfortable with current debt levels,” he said, referring to the sale and lease back plans and noted the firm can access more bank funding to cope with any covid-related impacts.

The carpet maker has seen sales recover strongly following the covid lockdown and through June though that was after claiming more than $2.8 million in wage subsidies and having its 380 staff accept a 20% wage cut across the board.

“It could have been a disaster but trading has been solid. 

“We initially thought it might be from pre-lockdown orders but retailers are reporting that this is new business so we think people want to upgrade their homes and furnishings after spending so much time in them during lockdown.”

Last month the firm put its South Auckland manufacturing site and spinning plants in Napier and Whanganui on the market as a long-term sale and lease back option.

Marketer Bayleys said the offering features more than seven hectares of land with a weighted average lease term of 8.6 years – returning an indicative net annual rent of $3.1m.

The company’s main manufacturing site, in Papatoetoe’s industrial precinct, offers more than two hectares and about 15,375 square metres of lettable building and yard area while both the Napier and Whanganui sites are about 2.4 hectares with lettable areas of 16,833 square metres and 11,420 sqare metres respectively.

Sale and lease back specialist James Valintine said the portfolio can be bought either individually or together by deadline sale closing on Thursday.

Alston said shareholders still need to approve the sales and, ultimately, that will depend on what’s offered.

At the heart of the firm’s shift in strategy is a move away from low-margin synthetic carpets, which continue to face increased competition in a tight global market, and into higher-value woollen flooring, reflected in growth in demand for its Bremworth Collection wool carpets.

Alston said Cavalier is working closely with NZ Merino and other advisers to finalise its design-led strategy.

“We think things are changing and that consumers are much more aware of the negative impacts of plastic-based products.”

Record low prices for strong wool, which are approaching negative territory including shearing costs for growers, will also not have a positive effect for anyone in the industry.

“We buy a mix of strong wools but prices, where they are going isn’t good news, affecting quality as farmers see little reason to look after it.”

Alston said the company will be finalising and rolling out its new strategy in a matter of weeks. – BusinessDesk

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