Cavalier Corp, the struggling New Zealand carpet maker, expects earnings to improve this financial year and next as it reaps the benefits from restructuring its manufacturing operations, a lower wool price and reducing debt.
The Auckland-based company posted a loss of $2.1 million in the 2017 financial year from a profit of $3.1m in 2016, weighed down by a 40 per cent jump in restructuring costs to $6.3m as it shut down factories and laid off staff to consolidate operations. Stripping out one-time items such as the restructuring costs, Cavalier's normalised earnings deteriorated to a loss of $1.9m from positive earnings of $6.3m a year earlier.
"It has been a tough year for Cavalier," chief executive Paul Alston said in his address to shareholders at the annual meeting in Auckland today. "While the full-year result was well down on expectations, the business did achieve much in FY 2017 and it is my sincere belief that we are now on a strong course to recovery, based on the work we have done and also the opportunities and market conditions before us."
Cavalier's earnings were hurt by the restructuring of its operations in the past year, and while the process of getting its plants up to capacity was challenging, the company is now producing the required volumes and efficiency is improving, Alston said. The business was also hurt by the largest single drop in wool price in many years, which had an immediate effect on the company's scouring and wool buying operations while the benefits to its carpet making operations wouldn't flow through until the 2018 and 2019 years.
"All of these challenges hit us in a perfect storm," Alston said. "Now that the cost of the manufacturing consolidation is behind us we will work solidly to reduce debt. This will be an outcome of reducing inventory, having a lower cost of raw materials (especially wool) flowing through to cash flow and having a lean capital spend year. This will ultimately enable us to expand and grow the business," he said, noting that new products were performing well.