High kiwi dollar piles pressure on Cavalier's earnings

Cavalier said earnings from its Australian broadloom carpet business had been adversely affected by the kiwi's strong run against the Australian dollar since the start of the year. Photo / Thinkstock

Talk of a "parity party" may have died down but the New Zealand dollar's strength against its Aussie counterpart has been squeezing Cavalier Corporation's earnings and adding to the carpet maker's woes.

In a market update yesterday, the Auckland-based firm said normalised net earnings for the current financial year were likely to be at, or slightly below, the lower end of a previously advised guidance range of $1 million to $4 million.

However, the impact of asset write-downs would result in a full-year loss for the company, which had net debt of $59.1 million at the end of last year.

Cavalier said earnings from its Australian broadloom carpet business had been adversely affected by the kiwi's strong run against the Australian dollar since the start of the year.

The exchange rate nudged parity last month but the New Zealand dollar has since lost ground. It was trading at A92.95c at 5pm last night - still well above the historical average of about A84c.

Harbour Asset Management analyst Shane Solly said that in addition to the currency impact, Australia's "economic transition" was creating challenges for some New Zealand businesses operating there.

Cavalier said an additional challenge was slow progress in a transition plan for its Ontera tile business, which involved supplementing manufacturing with importing.

The company also announced that its chief executive, Colin McKenzie, had stepped down and chief financial officer Paul Alston had been made interim CEO.

McKenzie would continue to work with the board on "certain projects" for the duration of his notice period, the firm said.

Cavalier's board copped a grilling from investors at the company's annual meeting last year, including complaints about a lack of communication around the firm's turnaround strategy.

The company, which has also been impacted by wool price volatility, has seen a 90 per cent slump in its share price since May 2011.

Shares in Cavalier closed steady at 36c last night, giving the once NZX 50 company a market capitalisation of $24.7 million.

The company said its updated strategy and business plan was projected to result in a return to "adequate levels of profitability" by the 2016/2017 financial year through a focus on Cavalier's core businesses.

Richard Stubbs, of fund manager Castle Point, said Cavalier had turned its business around before and it could do it again with the right leadership.

"It will be a long journey to recovery, probably," he said.

Stubbs said the firm's high level of debt needed to be addressed.