Cavalier Corp chairman Alan James has defended his two-decade tenure as head of the carpet maker's board as shareholders questioned it poor financial performance, suspension of dividends and the 62 percent drop in its share price since the start of the year.
The Auckland-based company has been forced to cut its full-year guidance three times, and today affirmed last week's announcement that it expects its 2015 full-year earnings to be between $1 million and $4 million. Last month it flagged normalised annual profit in the 2015 financial year would probably fall short of its forecast for a "modest increase" to the $5.8 million result it posted in the year ended June 30, which saw the board suspend dividends, saying its current cash flow couldn't support shareholder payments.
Cavalier has restructured its businesses and introduced a synthetic carpet range in an attempt to claw back market share from cheaper offshore rivals and synthetics, while margins are squeezed by rising wool prices and lower sheep numbers, and export earnings are crimped by a strong New Zealand dollar. The chairman today reiterated the competitive environment and currency headwinds, which have added to the consumer's rapid move to synthetic carpets.
Speaking at the annual meeting in Auckland, James, in response to shareholders' questions, said the board had asked itself frequently whether "in view of poor performance, there had not been a clean out of senior management and the board, including perhaps the chair" but found as the company reinvents itself the experience of long standing directors was needed.
"So far as my position as chair is concerned, perhaps it could be said that I have been here too long and it's about that I stepped down," James said according to speech notes lodged with NZX. "Perhaps this is so, but the chairmanship of Cavalier might well be regarded as something of a poisoned chalice at this time, and the board thinks it best that I continue in the role for the time being."
Shares of Cavalier fell 3.1 percent in morning trading, to a more than twenty year low of 63 cents and have declined some 73 percent over the last five years, underperforming the New Zealand Capital Index's 48 percent gain over the same period.
"Yes the current share price is unacceptable," James said. "The Cavalier share price is, and always has been, predicated on a steady and reliable dividend stream. Without that the share price is going to languish. To address it, we have to rebuild profitability in the business and resume dividend payments."
The wool business was also hurt by a drop in the volume of wool available for scouring as sheep numbers decline and the price of wool grease fell. In October the company agreed to water down its stake in subsidiary Cavalier Wool Holdings as part of a merger with New Zealand Wool Services International to create a national scouring monopoly, in a bid to insulate the sector from the threat of overseas scourers, particularly those in China. Today James told shareholder sheep numbers had stabilised and there had been a pick-up in the grease prices.
Managing director Colin McKenzie reiterated James's picture of a tough market, and said the reinvention of the business had taken longer than expected.
"Given the unprecedented structural changes in the market place and challenges we have had to confront, we have done a huge amount to reposition ourselves," McKenzie told shareholders. "That said, we are continually striving to improve business performance. Unfortunately, the turnaround in results and performance has been slower than we originally anticipated."