Carpet maker struggles to meet demand

Carpet maker Cavalier says a repeat of the past year’s poor performance raised the risk it might breach banking covenants.

Chief executive Paul Alston said that over the next 12 months the company will keep a tighter rein on spending, and will reduce stock and debt.

Cavalier was hit by a ‘‘dramatic drop’’ in wool prices, caused by reduced demand from China.

It affected wool-buying subsidiary Elco Direct as farmers and traders held onto wool in the hope prices would rise.

The performance was reflected in the company’s share price, which has fallen from 90 cents a share a year ago to 30c.

Australian sales were also down, the profitability of scouring was ‘‘hit hard’’, and bank debt rose, Alston said.

But Alston said the after-tax loss of $1.86 million partly reflected the amount of restructuring over the past 12 months in the Christchurch, Wanganui and Napier factories.

The effect of falling sales was evident in the fall in revenue from $190m in 2016 to $156m for the year ending June 2017.

Cavalier’s woollen felted production, initially manufactured in Christchurch, was struggling to meet increasing demand, particularly from the Australian market. The felted yarn facility was relocated from Christchurch to Wanganui.

‘‘While the decision to consolidate was necessary, it proved to be more costly than estimated and took longer,’’ Alson said. ‘‘Redundancy and plant relocation expenses were in line with expectations, but the inefficiencies and disruption inherent in a major rationalisation took longer to be eliminated, affecting sales.

‘‘The rationalisation regrettably affected production of woollen ranges and therefore the company’s ability to meet our customers’ demand and our sales targets.

‘‘This was particularly apparent in the Australian market where we sell a higher proportion of woollen carpets.’’

Alston said restructuring was largely completed and he forecast operational improvements.