Carpet maker Cavalier has raised eyebrows after its directors took the step of being paid 20 per cent of their fees in shares in response to the Covid-19 crisis rather than a straightforward pay cut.
The company, which has collected $2.8 million in wage subsidies from the Government, announced the move last week saying it was designed to assist with cash flows and "to better align [director] interests with those of shareholders".
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The board decision comes less than two years after the company gained shareholder approval to increase the total directors' fee pool by $100,000 per year to $450,000 excluding GST.
One Cavalier shareholder, who asked not to be named, described the move a joke.
"This is a Clayton's pay cut at a time when everyone is making genuine sacrifices," he said.
Shareholders Association chief executive Michael Midgley said the organisation was monitoring company announcements and each individual company circumstances were different.
"I'd hate to see people not taking a pay cut when the business is collecting a wage subsidy," Midgley told the Herald.
"This is analogous perhaps to the situation in the US where companies have used all of their free cash to buy shares which sweetens the pool for executive bonuses. Of course, these are unusual circumstances."
The Herald has approached Cavalier for further comment on the move.
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Last week the company said it was also considering government support in Australia and was in constructive discussions with its bank with indications of support to increase its current bank facilities.
The company hinted at a potential capital raising, saying it was "investigating a range of opportunities to realise additional funds to support the business" in light of the impact of Covid-19.
Cavalier shares hit an all-time low of 16 cents on March 23. They last traded at 18.5c.
Before the Covid-19 outbreak and subsequent lockdown the Auckland-based carpet maker was in early stages of developing a new strategic direction into a design-led, wool-focused company, including a collaboration with the New Zealand Merino Company.
In recent years Cavalier has incurred significant restructuring costs as it closed factories and reduced staff numbers to consolidate operations in the face of tough trading conditions.
Sales of low-margin synthetic carpets had continued to decline, affecting the firm's volumes and margins.
In November the company forecast a first-half loss of between $1.1 million and $1.6m. It has, since August, been in danger of breaching its banking covenants.
Cavalier's net loss came to $10m in the previous first-half period due to a non-cash writedown in the carrying value of its 27.5 per cent stake in Cavalier Wool Holdings after its sale in last September.
Since the lockdown in New Zealand on March 26, retail sales in New Zealand had ceased but the company will reopen manufacturing operations in Auckland, Napier and Whanganui and restart deliveries when the lockdown eases today.
"Trading activity has continued in Australia and sales volumes for the first three months of the year were above the prior year, though these have declined in April with the fall off in consumer demand."
In late 2018 Cavalier gained shareholder approval to increase the total director fee pool to $450,000, up from $350,000.
Chairman Alan Clarke's remuneration was increased 15 per cent from $112,000 to $128,100 while fellow directors' base fees were boosted 9 per cent, from $56,000 to $61,000.