Cavalier consolidates wool manufacturing plants to boost profits

Cavalier Corp [NZX: CAV] will consolidate its manufacturing operations to Napier and Whanganui and close its Christchurch plant in a restructuring move to boost profitability.

The move is expected to cut a net 65 jobs, and cost between $4-4.5 million in the 2015/16 financial year for employment payments, and the relocation of equipment, the company says.

Cavalier has changed its chief executive and chairman and rejuvenated its board in an attempt to restructure the business and return it to profit. It is also looking at asset sales, job cuts and outsourcing to reduce debt and bolster profits.

The company's shares have gained 60% over the past six months, outpacing a 17% gain in the broad S&P/NZX All Capital Index.

In the latest restructure, Cavalier will consolidate its woollen yarn spinning operations in Napier and Whanganui to a single hub in Napier, and scale back its semi-worsted yarn spinning operation in Whanganui. It will also relocate its felted yarn operation from Christchurch to Whanganui and close the Christchurch plant.

"The consolidation of the group's yarn spinning operations will significantly reduce the cost base of all yarns produced allowing the business to be more efficient and competitive," chief executive Paul Alston said. "This aligns with the overall strategic plan and will aid in returning the business to acceptable levels of profitability."

Mr Alston said "significant" benefits will flow through in the 2016/17 and 2017/18 years, with a payback from the restructuring of its yarn spinning operation expected in slightly over one year.

He didn't detail the benefits expected. The company has previously said normalised profit is expected to be in the range of $3-5 million in the year ending June 30, ahead last year's normalised earnings of $1.1 million. It has said it expects to "return to acceptable levels of profitability" in the 2017 financial year.

Southern secretary of the First Union, Paul Watson, said the move could result in a total of 104 redundancies, and comes just a week after Fisher & Paykel Appliances announced the closure of its Auckland plant, showing the government needed to do more to support the manufacturing industry in New Zealand.

"This restructure is going to leave workers and their families reeling and the impacts will be felt across the community," Mr Watson said.

The NZX yesterday asked Cavalier for an explanation for a 27% jump in its share price in under a week, after its shares rose from 59c at the market close on the April 6 to 75c at 11am yesterday, an increase of 16c.

In its response, Cavalier said it continued to meet its obligations, and the only thing it was aware of was a report published by Vulcan Capital on April 7 which advised investors to buy the shares at 57c.

Today, the stock slipped 1.5% to 68c.

(BusinessDesk)