Cavalier selling property to finance wool strategy

Cavalier chief executive Paul Alston. Photo / Stuart Munro

Plans to sell and lease back its portfolio of properties are part of a range of opportunities to raise funds for Cavalier Corp's natural fibre strategy, said chief executive Paul Alston.

Alston told BusinessDesk that listing the firm's three industrial sites, located 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 additional bank funding to cope with any Covid-related impacts.

The carpet manufacturer has seen sales recover strongly following the Covid lockdown period and through June, although that was after claiming more than $2.8 million in wage subsidies and having its 380 staff accept a 20 per cent 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."

For sale

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 rental 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 sqm and 11,420 sqm respectively.

Sale and lease back specialist James Valintine said the portfolio can be bought either individually or together, by way of a deadline sale which closes on Thursday.

Alston said shareholders still need to approve whether the company sells its properties of keeps them, and ultimately, it 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 continues 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."

He said record low prices for strong wool, which were 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 wool 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."