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Cavalier sees benefit in consumer shift from plastics

Article – BusinessDesk

Cavalier Corp says it is well-placed to take advantage of a growing consumer shift away from plastics.Cavalier Corp says it is well-placed to take advantage of a growing consumer shift away from plastics.

That trend fits well with the carpet maker’s renewed focus on its high-quality wool products, particularly higher-margin, niche opportunities and the potential of major markets like the US and UK, chief executive Paul Alston said.

“Investment in research and development and creating ranges that command a premium is a priority and critical for our success,” he said in notes for the company’s annual meeting in Auckland.

“The awareness around plastics and its impact on the environment is becoming much more prominent,” he said.

“This ‘anti-plastic’ sentiment is building strongly and we are experiencing a shift back to natural woollen textured products, something which we are well placed to take advantage of.”

The company’s shares rose 1.7 percent to 60 cents. They are up 46 percent this year.

Cavalier, which has sales offices throughout New Zealand and Australia, undertook a major consolidation of its manufacturing plants in 2016 to reduce over-capacity and improve profitability.

It has halved its debt in the past four years and last month agreed to sell its stake in the country’s sole remaining wool scourer in order to free up capital to reinvest in carpet manufacturing and marketing.

While the costs of the restructuring are behind the company, efficiency will remain a focus this year, Alston said. A lot of resource will go into the firm’s Napier site, where a new management team is in place, and the company will also invest in a new IT system this year.

Alston said new products developed by the firm’s Cavalier Bremworth arm during the past two years will be rolled out progressively during the coming year.

Some of those will shortly be presented to potential customers in the US and UK – where the company currently gets less than 3 percent of its sales but where the markets for wool carpet are estimated at US$513 million and US$498 million respectively.

The firm will also attend Domotex in Hanover – the world’s largest flooring trade show – for the first time in January.

Cavalier’s operating earnings climbed to $10.3 million in the June year, from a $2.2 million loss the year before when the firm incurred $6.3 million of restructuring costs. Debt last month – post the scour stake sale – was down to $18 million from $40.2 million in June 2017.

Alston reiterated that the company expects another year of improving financial performance and is committed to resuming dividends as part of a long-term strategy.

While the market had been “quiet” in the September quarter, low wool prices and a favourable NZ-Australia exchange rate had continued.

Improved free cashflow would continue to strengthen the firm’s balance despite a “big” year for operational investments, he said.

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