Carpet manufacturer Cavalier's' share price got a 34% boost yesterday, following management predictions the ailing company would turn last year's $25.7million loss into a $3million-$5million profit.
Cavalier has had a major shake-up with top management and board changes, restructuring and huge asset write-offs behind it, and new wool and synthetic products in the pipeline for expansion into its major market, Australia.
Chief executive Paul Alston said Cavalier indicated in May it was ''expecting improved profits in the 2015-16'' and yesterday forecast its normalised after-tax profit would be in a range of $3 million to $5 million, for the year ending June 2016, plus there is an additional $2million after-tax gain from the sale of a facility in Sydney.
Had it not been for the abnormal $26.9million costs last financial year, Cavalier could have booked a profit of $1.2million, Mr Alston said at the annual shareholders meeting in Auckland yesterday.
Cavalier shares had their high in November 2003, of $5.70 per share.
For the year rolling, their high was 70c and low 31c, but were about 33% down, then gained 34% yesterday on the trading update, maintaining 55c.
Craigs Investment Partners broker Peter McIntyre said Cavalier was now ''a recovery story in development, following several years of hard times'', noting its market capitalisation yesterday rose from $28million to $37million.
''It's strategic plan was to rely less on wool, while taking a larger share in synthetics,'' he said.
Mr Alston said Cavalier had first introduced synthetic carpets two years ago and volumes had grown fast, with more than 40% of broadloom carpet sold now synthetic.
''We accepted some time ago that wool was in a declining market and in order to regain market share, expansion of our non-wool range was essential,'' he said yesterday. He hinted at announcements in the new year, including ''new things'' in wool.
Aside from the abnormals booked last financial year, Mr Alston outlines other headwinds, such as the exchange rate with Australia, albeit ''significant'' foreign exchange cover limited exposure.
Uncovered sales were ''adversely impacted'', and for every 1c movement in the cross rate, that represented about $600,000 impact on annual profit.
''At high cross rates, it is difficult to make good [profit] margins in Australia, but Australia remains our most important market for sales growth,'' Mr Alston said of the more than 50% of all sales there.
More than half broadloom carpet sales were wool-based, so wool prices affected profitability, with every $1 price movement worth $3million to $4million a year.
During Cavalier's ''best years'' the wool price was $3.50/kg, but the long-run wool price was $5.50.
The saga of the proposed merger between Cavalier Wool Holdings and New Zealand Wool Services International had been ''unnecessarily costly'', costs topping $1million.
The proposal had once again been recently approved by the Commerce Commission; the fifth approval given Mr Alston said, but an appeal was expected.
