Wednesday, July 6, 2022

Cavalier can’t ignore synthetics

Cavalier Corporation is well advanced with plans to compete more strongly in the New Zealand synthetic carpet market.

“We’re not walking away from wool, and we will defend that market in NZ, but you can’t walk away from a growing market, you can’t swim against the tide, ’’ managing director Colin McKenzie said.

In wool, Cavalier will focus on high-end sales growth in Australia, the United States, north Asia and Western Europe, using NZ wool carpets. The latter three areas are classed as rest of world business and Cavalier has said it believes it can triple sales in those markets.

“We’re not walking away from wool, and we will defend that market in NZ, but you can’t walk away from a growing market, you can’t swim against the tide,’’ – Colin McKenzie, Cavalier managing director

That growth, together with Australia, will offset the smaller NZ wool carpet market, McKenzie said. Half of the company’s wool carpet sales are already made outside NZ.

He spoke at Cavalier’s annual meeting in Auckland a few days earlier about the need for the company to reinvent itself in reaction to the downturn in wool and chairman Alan James told shareholders that wording meant building a strong domestic presence in synthetics.

NZ had always been a wool-rich carpet country, with the last formal figures from 2006 putting its market share at just below 80%. But this has changed and Cavalier believes that share had fallen to below 50%, particularly with what James described as a “flood of synthetic carpet imports’’ over the last year.

Cavalier was predominantly a wool carpet business, but would adapt.

Its Norman Ellison subsidiary has a significant synthetic carpet business and Cavalier would bring out a comprehensive range at the mid to upper end of the market, though it would not be marketed under the Cavalier name, McKenzie said.

Synthetic carpet growth had been fuelled in NZ by the high exchange rate against the US dollar, last year’s spike in wool prices, and through some retailers importing directly.

Cavalier is also targeting wool carpet growth in Australia despite a flat market in both the residential and commercial sectors expected to last for a year or so at least. Wool was a carpet of choice in Australia and growth would be achieved by product initiatives rather than an expanding market, McKenzie said.

At the annual meeting, the company revised down its after-tax profit forecast to between $6 million and $10m for the current June 30 year, down from initial estimates of between $10m and $12m, largely due to poor Australian sales.

Earnings recovery was expected to occur in the second half of the year, rather than during the first few months as had been expected earlier, McKenzie said.

The group’s 50%-owned wool scouring business had started the year strongly, with better than expected volumes and margins. Cavalier believed wool prices, sheep numbers, and wool production had now plateaued, providing a more stable operating environment.

Sheep numbers appear to have stabilised at about 32 million and the wool clip was expected to be about the same as last year. Just over 19% of NZ wool exports were shipped as greasy wool in the 2011-12 year.

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