Cavalier turns to FY loss on cost to restructure unprofitable business

Monday 20th August 2012

Cavalier Corp, New Zealand's only listed carpet marker, turned to a full-year loss on costs to restructure its business in response to deteriorating trading conditions in New Zealand and Australia.

The loss was $1.6 million in the 12 months ended June 30, from a profit of $18.2 million a year earlier, the Auckland-based company said in a statement. Sales fell 5 percent to $217 million.

That's within the earnings guidance the company gave in April, when it said underlying earnings would turn a loss of in the range of $1 million to $3 million. Sales beat Forsyth Barr analyst John Cairns forecast of $199 million.

"Operating conditions for 2011-12 were certainly the worst the group has ever experienced," managing director Colin McKenzie said in a statement. "Virtually every variable within our businesses worked against us."

That included a 80 percent spike in wool prices preceding the 2010-11 season, depressed residential and contract building activity on both sides of the Tasman, high New Zealand and Australian dollars and delays in the Christchurch rebuild after last year's earthquakes.

In April, the carpet marker said restructuring its business should pay off by 2013, when it anticipates a return to profit of $10 million to $12 million, based on a modest improvement in market conditions, cost cutting and lower prices for wool.

"We are now not expecting to see any real improvement in operating conditions until the second half of the 2012-13 year," McKenzie said. In New Zealand "we were expecting to see market conditions improve in the second half but if anything they deteriorated further."

In Australia the "nervousness emanating from the European sovereign debt crisis, coupled with the slowdown in China and general low consumer confidence meant that we fared no better," he said. "We view the situation in Australia as short term, and we are forecasting market conditions to gradually improve throughout 2012-13."

The company advised in April that it would not be paying a final dividend this year.

Its shares are down 0.5 percent trading at $1.74. The stock has shed about 15 percent this year and is rated as 'outperform' based on the consensus of two recommendations compiled by Reuters.

BusinessDesk.co.nz

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