Cavalier regroups in weak market

By Phil Boeyen, ShareChat Business News Editor

Monday 27th August 2001

A weak carpet market and restructuring costs have bitten into Cavalier's (NZSE: CAV) full-year profit.

The carpet and wool company has reported a 22% drop in tax-paid profit for the year ended June at $10.25 million, down from $13.1 million last year.

Sales were $187.8 million compared with $218 million last year and net operating profit before tax fell $3.1 million to $16.3 million.

The company has allowed $2.8 million for operating losses and restructuring costs associated with its discontinued wool trading operation, E Lichtenstein, in the accounts.

The carpet business reported a 3% decline in sales for the year to $96.7 million as a result of a significant turndown in the second half, particularly in Australia. Asian sales have also been much slower than the previous year.

"The decline in sales volume was sharpest in Australia and Asia, whilst volume in New Zealand rose on the back of continuing strong growth in sales of the Knightsbridge brand," the company reports.

"Market share trends were positive for us on both sides of the Tasman, whilst gross margins in all markets were generally similar to those of the previous year. Thus, the earnings decline was a direct result of a market downturn."

Cavalier is describing the year as a transitional one and says is necessary to look beyond the group's reported earnings and to focus on the earnings from continuing businesses and on the large and positive cash flows from the funds released from the closure of the wool trading business.

Following restructuring the company's ongoing businesses are the Cavalier Bremworth carpet operation, the Elco Direct wool procurement business and Hawkes Bay Woolscourers, in which it has a 76% share.

Both the wool businesses are a service provider for the wool trade, and each has Cavalier's carpet operation as a major customer.

The businesses contributed $3.8 million to the annual result before interest and tax and before allowing for minority interest.

"This number represents an excellent return on funds employed and should be further enhanced next year when we have the benefit of a full year's contribution from the wool scour," says Cavalier.

Although the company reports its carpet business is strong, it says at present the market is weak.

"We are expecting to see some market recovery in the current financial year, but timing and quantum are difficult to predict. We are anticipating some improvement in our carpet earnings, but the improvement may not be all that large."

On balance date the company cancelled one in every eight shares to return $25.2 million of surplus capital to shareholders.

A final dividend of 16 cent per share, 2 cents higher than last year due to the reduced number of shares now on issue. The year's total dividend is 30 cents with the total payout at $10.8 million, the same as last year.

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