Cavalier moves ahead with woolly strategy, signals no profitable growth for up to two years

Cavalier says there has been interest in its Auckland, Napier and Whanganui industrial sites. Photo / Bevan Conley

Cavalier Corp said a positive trading period in June and cost controls helped it reduce bank debt to historical lows of $14.5 million as the company shifts to an all-natural fibres strategy.

However, the financial benefits of the new strategy are not expected to flow through until at least 2023.

In a market update, the wool and carpet company said stock levels had decreased "significantly" to about $35 million, on the back of trading through June that was "stronger than anticipated," particularly in wool sales.

That bounce followed a year-on-year reduction in volumes through the prior three months as a result of covid-19 trading impacts.

Chief executive Paul Alston said sales in New Zealand had rebounded strongly and there had been less impact in the Australian market - which accounts for about 40 per cent of volumes - than expected, although sales for July were now being impacted by the recent renewal of lockdown in the state of Victoria.

Alston said the sale process for its industrial properties remained on track and that there had been interest in its Auckland, Napier and Whanganui industrial sites.

The carpet manufacturer, which trades under the Cavalier Bremworth brand, listed its manufacturing site in South Auckland and spinning plants in Napier and Whanganui with Bayleys Commercial last month, aiming to generate capital for its 'wool and natural fibre only' strategy.

Alston said offers for each property would be considered separately by the board, rather than as one portfolio, and shareholder approval will be needed for any sale process.

George Adams, who yesterday took over as chair from Alan Clarke who stepped down, also formally unveiled the firm's transformation strategy today, which will see it transition completely away from synthetic products and into wool and natural fibres.

He said the financial benefits of the change are expected to be seen with a return to profitable growth from 2023 onwards, "following an initial 12-to-24 months of investment as the business is reset and the new strategy is executed."

Alston said the company still had "considerable" synthetic products and will now start discussions with retailers as to the changeover.

The company's transformation strategy indicates that while the focus will initially be on woollen carpets and rugs, the firm will also be seeking out "partnerships where it can leverage its design and manufacturing capabilities and the value of the Cavalier Bremworth brand to create new product categories."

To that end it has been working with NZ Merino and other advisers and industry experts.

Cavalier shares were recently up 5 cents, or 11.4 per cent, at 27 cents today, although are still down 25 per cent over the past year.

(BusinessDesk)