NBR L.E.K Shareholder Scorecard: Top performer profiles

Friday 14th December 2001

CAVALIER CORPORATION

Alan James

Carpet manufacturer Cavalier Corporation has earned a Silver Award for its performances over the past three years. It has achieved returns for shareholders this year of 77.9%, 10.1% last year and 75.1% in 1999.

Managing director Alan James said the carpet business has traditionally been the major contributor to Cavalier's earning, and an increasingly successful one. However,
the good news was being offset by a worsening performance of its wool trading operation.

"Then we embarked on a total restructuring of our wool interests, and that included the cessation of wool trading. In this way we freed up a large amount of unproductive capital, reducing total funds employed by one third without detriment to profit," he said.

Cavalier has been looking for growth opportunities but only where returns exceeded the cost of capital. Few opportunities have arisen in the carpets sector but it has made acquisitions to become the North Island's largest wool scourer.

The company also has high hopes for Microbial Technologies, a biotech venture developing a naturally occurring biological control agent for flystrike and lice infestations in sheep.

"Major investment will probably be required quite soon to begin commercialisation, and we need to be sure that we handle that in a way that provides the best opportunities and results for Cavalier shareholders," he said.

NZ REFINING

Alan Davey

The New Zealand Refining Co is the only top 50 company to produce a triple digit return for shareholders this year without having it's shareprice pushed up by a takeover bid. It delivered a 103.6% return.

General manager Alan Davey said the company's performance had been boosted by stronger regional refining margins, in
US dollar terms, a weaker New Zealand dollar, high throughputs and lower operating costs.

"Our strategy has been to maximise income by high reliability, looking for opportunistic business, maximising the yields of valuable products and seeking to operate at the lowest sustainable cost level," he said.

The company will continue to concentrate on these areas over the coming year. No major plant shutdowns are planned so refining volumes will be high.

"Regional refining margins have held up quite well during 2001 but we cannot be certain what will happen next year. We expect the New Zealand dollar to appreciate but slowly. We will continue our focus on costs."

New diesel and gasoline specifications and government policies on climate change pose challenges for the business. The government is evaluating submissions on proposed new fuel quality standards and the new specifications will be announced next August.

"NZRC is a large single-point emitter of greenhouse gases. The new product specifications will mean more energy intensive processing so our emissions will increase," he said.

CEDENCO FOODS

Dean Witters

Gisborne-based fruit and vegetable processor Cedenco Foods wins a Silver Award in this year's Shareholder Scorecard for its third successive year of outstanding returns.

It produced a return of 108.4% this year, 52.3% last year and 41.5% in 1999.

Company founder and recently retired chief executive Dean Witters said shareholder returns have coincided with strong business growth, a weak New Zealand dollar and internal efficiencies.

Expansion has come through a new freezing plant and the start of a long-term supply agreement with food company Heinz.

Mr Witter's replacement, newly appointed managing director Richard Lawrence, said he didn't expect his strategy for growth would be radically different from that of recent years. He intended to place particular emphasis on further increasing efficiencies, product line extensions and building long-term relationships with customers and suppliers.

Business challenges include fluctuating exchange rates, particularly against the US dollar, and in dealing with adverse weather conditions but these were being addressed through product and geographical diversity.

Further growth is likely to come from new product ranges, one of which is being trialled this season, and expected improved performance by its Australian joint venture.

"As this operation primarily produces a single product range and is marketed into the Australian and New Zealand domestic markets we believe there to be significant upside opportunities," Mr Lawrence said.

SKY CITY

Evan Davies

Investors in the shares of casino and leisure facilities company Sky City Entertainment Group have really hit the jackpot this year, receiving a 90.2% return. This contributes to a 45.8% return over three years and 20.9% over five years, as measured by the NBR LEK Shareholder Scorecard.

Managing director Evan Davies said one factor in the strong return to shareholders was the market recognising the value of Sky City shares, which saw their price rise substantially during the year. This recognition was driven by good revenue growth, a focus on strong margins to deliver bottom line earnings growth and an attractive dividend yield.

The company has focused on developing the appeal of its casino and entertainment facilities to encourage visitor numbers and on expanding its business. The past year has also been spent on redeveloping and rebranding recently acquired assets such as the Adelaide casino, cinema group Force Corporation and Australian-based bookmaker Canbet.

"Performance has been ahead of our expectations but we are conservative," he said.

Mr Davies sees continuing tourism growth as an opportunity for the company and believes there is considerable potential in attracting Force Corporation's Auckland-based customers to Sky City's casino, dining and theatre assets.

Expected further improvement in performance by the Adelaide casino would also bolster the company's bottom line, he said.

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