Cavalier Corp shareholder questions $470,000 termination payment to former CEO

Tuesday 24th November 2015

A shareholder in carpet manufacturer Cavalier Corp has questioned the large termination payment made to former chief executive and managing director Colin McKenzie after the company reported its worst loss in history, stopped paying dividends, and sold assets, to try to turn around the company.

McKenzie resigned from his role in May this year, replaced by former chief financial officer Paul Alston, initially as interim chief executive, and now confirmed this month in the role.

The company’s annual report shows an agreement made by the board with McKenzie included a termination payment of $470,000, equivalent to one year’s salary, in addition to other payments and benefits due to him during the six-month notice period. He had been in the role for three years after earlier serving on the board for a number of years.

Chairman Sarah Haydon said at the company’s annual meeting in Auckland that she understood why shareholders may potentially be angry about what was a “large payment in anyone’s terms,” but McKenzie had an employment contract that included a restraint of trade.

“The board made the right decision to support prompt change when we had the new strategy in place,” she said.

Haydon also told shareholders the company’s restructure is likely to see annual earnings rise this year with normalised profit expected to be in the range of $3 million-to-$5 million in the year ending June 30, 2016, compared to normalised earnings of $1.1 million last year. Unusually high abnormal items such as asset writedowns and restructuring costs meant the company reported its worst-ever loss of $25.7 million in 2015.

The company’s shares jumped 35 percent to 55 cents on the guidance. One shareholder said investors had seen their investment in Cavalier drop 85 percent in the past three years and that the previous board had been “asleep at the wheel”.

Cavalier said the profit forecast for this year didn't include a one-time after-tax gain of $2 million from the sale of its Sydney facility which became available after the sale of its loss-making Australian tile manufacturing company, Ontera Modular Carpets, during the year.

The company also said it expects to "return to acceptable levels of profitability" in the 2017 financial year.

Cavalier appointed a new chairman and rejuvenated its board in July with three new independent directors as part of a restructure to return the business back to black. Grant Biel, one of the two company founders and a major shareholder, stood for re-election today and told shareholders he had confidence in the new board and management to take forward the business.

“A number of you shareholders have been with the company since listing in 1984 and clearly we’d all like to see Cavalier return to an acceptable level of profitability,” he said.

Following shareholders expressing their concern over the company’s high indebtedness, Alston said debt had been substantially reduced from $58.8 million 18 months ago to $35 million as at the end of October. He said the company had a few other initiatives that would help further reduce debt but it also wanted headroom to invest in new product development in its core carpet business.

Staff numbers have been reduced by 20 during the year and Alston said his key priority now was boosting productivity and efficiency in order to make manufacturing costs more globally competitive as the company finalises a marketing revamp and plan to lift sales outside of New Zealand and Australia, with help from New Zealand Trade & Enterprise funding.

Cavalier was one of the last major carpet makers to introduce synthetic carpets and they now comprise 40 percent of sales after just two years. It plans to import a range of high quality tiles for sale in New Zealand and Australia.

The company is expecting an appeal after receiving Commerce Commission approval last month - the fifth time consolidation of the industry has been approved by the regulator since 2011 - for the proposed merger between Cavalier Wool Holdings, in which it's a shareholder, and the scouring subsidiaries of New Zealand Wool Services International. The move has been opposed by Australian carpet manufacturer Godfrey Hirst and Haydon said an outcome should finally be known next year.

BusinessDesk.co.nz

Comments from our readers

No comments yet