Cavalier was back in profit in the six months ended December 31 with a $1 million after-tax margin compared to nil earnings a year earlier.
Chief executive Paul Alston expects further improvement in the second half.
The company closed plants and concentrated yarn activity in Napier and Whanganui but getting the operations up to speed took longer than hoped and had affected carpet orders.
Alston couldn’t give a time when optimum efficiency would be reached but said progress is being made.
“We are now working on initiatives with our retail partners to regain their confidence in our ability to supply them with the carpet they specify, on time.”
The supply issue plus fairly subdued markets meant lower carpet sales revenue in the first half and sales weren’t taking off yet. However, there was good demand and a sustained lift in high-end, high-margin Cavalier Bremworth woollen carpets.
Australia and New Zealand are the core markets and further expansion into high-value overseas markets further afield were delayed while the supply issues were sorted but can start to be followed-up again now, Alston said.
Cavalier has significantly reduced its costs as a benefit of the restructuring and the carpet business is benefiting from the lower wool price through last year, which reduces raw material costs and improves manufacturing margins.
Along with strong cashflow management, that led to a $7m reduction in group borrowings and inventory levels had also been reduced by $5m.
The lower wool price and higher carpet margins have a bigger impact on group results than the negative impact of the wool price fall on earnings in the Elco Direct wool trading business, where higher wool prices mean higher margins.
Elco Direct is relatively small when compared to the carpet division.
Group revenues were $75.3m, down from $84.3m. Carpets slipped to $66m from $71.2m and the Elco business to $10.8m from $15.57m.
Ebit operating earnings (before interest and tax) for the December half-year were $4.4m, compared with a $2m loss previously. The bottom-line result previously also included a valuation gain on the group’s shareholding in scour operator Cavalier Wool Holdings.
The latest result included some residual costs from the changes in the manufacturing business but they do not carry through to the second half. Overall costs of the changes were higher than expected and the gains took longer to be realised but early benefits were starting to be seen.
Cavalier isn’t yet resuming dividend payments.
