Colin McKenzie steps down as Cavalier CEO ahead of writedowns that will lead to FY loss

Wednesday 20th May 2015

Colin McKenzie has stepped down as managing director and chief executive of Cavalier Corp ahead of asset write downs that will result in a full-year loss for the carpet maker.

The Auckland-based company named chief financial officer Paul Alston as interim chief executive with immediate effect, and said McKenzie will work out his notice doing certain projects for the board.

The departure comes six months after chairman Alan James defended his board and management from shareholder criticism about the company’s poor financial performance, suspension of dividends and slumping share price. The shares have fallen 76 percent in the past 12 months to trade recently at 37 cents, with a sell rating from two analysts polled by Reuters.

Since the November annual meeting the board has completed an updated strategy and business plan with advice from Deloitte, that it projects will result in improved profitability and a “substantial” reduction in bank debt in 2015/16 and “a return to adequate levels of profitability” in 2016/17 by focusing on its core business.

As a result of the review, the carrying value of certain assets will be written down, resulting in a net loss this year. Further charges may be necessary, as the company said the exercise is ongoing.

“Our bankers are fully appraised of this plan,” chairman James said in a statement today.

The company’s first-half results, published in February, showed a 99 percent drop in profit for the six months ended Dec. 31, reflecting a strong New Zealand dollar, higher wool prices and low wool grease prices. At the time it projected a second-half improvement.

However, today it said normalised net earnings for the current year would be “at, or slightly below, the lower end of its guidance of $1 million to $4 million.”

Earnings from broadloom carpets in Australia had been hurt by the strength of the kiwi dollar against its Australian counterpart since the beginning of 2015.

At the same time, its plan to increase the amount of imported tile to supplement the synthetic carpet tiles made by its Sydney-based Ontera Modular Carpets unit, “has been slow to materialise and is only now starting to gain traction.”

BusinessDesk.co.nz

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