Cavalier expects first-half loss as sales slide

Cavalier expects its first half loss to narrow. Photo / Whanganui Chonicle.

Carpet maker Cavalier, which earlier this year said it was in danger of breaching its banking covenants, said it expects "challenging" trading conditions to translate into a $1.1-$1.6 million first-half loss.

The company said in August that the business was at risk of breaching its banking covenants if it could not sell more carpet this year or achieve higher prices.

It said then that conditions remained "challenging" but that it believed it remained a going concern and able to meet its contractual obligations.

In a statement to the NZX today, Cavalier said challenging conditions noted earlier were continuing and that sales, particularly of low-margin synthetic carpets, continued to be affected, with total volumes down by about 10 per cent year-on-year.

Cavalier's net loss came to $10m in the previous first-half period due to the non-cash writedown in the carrying value of its 27.5 per cent stake in Cavalier Wool Holdings following its sale in September last year.

Demand for Cavalier's premium wool carpets continued to grow and while these are a small part of total sales, they provide a significant contribution to group profits, the company said in today's statement.

First-half revenue is expected to be between $61m to $64m, down from $70m in the previous first-half period.

Earnings before interest, tax, depreciation and amortisation (Ebitda) were expected to be in the range of $1.2m to $1.9m, down from $4.6m a year earlier.

Included in forecast Ebitda was a $1m benefit from the adoption of the new accounting standard for leases (IFRS 16) and transformation costs of about $0.8m associated with the transition to a design-led, wool-focused business model.

Prudent capital management remained a key focus and debt has reduced by more than 70 per cent since 2014 - from $58.8m down to $17.0m as at the end of October this year, it said.

Inventories also reduced by $21.2m over that same period.

Chairman Alan Clarke said there was "no question" that Cavalier needed to change.

"While investment, patience and time is required to effect this transformation and secure the future growth of Cavalier, we believe it will add long-term value to our company and for our shareholders," he said in a statement.

The global flooring and carpet market is worth an estimated US$380 billion ($590.9b) and is expected to grow to US$450b by 2025.

About 40 per cent of this was for soft floor coverings, providing an estimated market sector size of US$180b by 2025.

While hard flooring may have grown in popularity, carpet still represents about 40 to 50 per cent of flooring surface in homes and remains the single biggest flooring category, he said.

Synthetic carpets were the first choice for many consumers, however demand is dropping, not just in New Zealand but worldwide, he said.

Meanwhile, demand for high quality, textured woollen carpets was increasing.

"The industry continues to consolidate, as does the retailer base, however, there is growing recognition of the value of specialist manufacturers such as Cavalier," he said.

Shares in Cavalier last traded at 27c each, having dropped by 55 per cent over the last 12 months.