Cavalier weathers "worst ever" trading conditions

Friday 21st August 2009

Cavalier Corporation Ltd, the Australasian carpet-maker and wool processor, reported a 17% decline in net profitability for the year to June 30, but gained market share in tough economic conditions and outperformed its own market guidance, lifting its share price 8.3%.

The $14.9 million tax-paid profit included a one-off gain of $1.8 million from the proceeds of restructuring its wool scouring business, masking a normalised earnings drop of 24% to $13.7 million. The shares rose to $2.60 on the NZX today, and have climbed some 37% this year.

Better than expected performance in the company's Australian carpet operations allowed Cavalier to do better than the $11 million to $13 million earnings range announced last November, and the company is forecasting a net profit of between $13.5 million and $15.5 million for the current financial year.

The last year's result represents earnings per share of 22.2 cents, compared with 27.1 cents a year earlier. The company pays three dividends annually and cut its third and final payment by 2 cents per share to 5 cents, making total distributions for the year of 15 cents, a 5 cent drop from the previous year.

Dividends will be paid on 16 October, with shares going ex dividend on October 2. A dividend reinvestment plan is about to be launched and will apply to the final dividend.

"As a result of worldwide economic turmoil, trading conditions over the last three quarters of the year were extremely subdued," said managing director Wayne Chung. "Whilst it gives directors no pleasure to report a substantial earnings downturn, we consider the results more than reasonable in the circumstances."

The result was earned on revenue of $247 million, just 1% lower than a year earlier, although 12% down on a like-for-like basis, given the impact of the Norman Ellison Carpets acquisition in February 2008 on a full year's trading data, and only 9.5 months of consolidated wool scouring revenue.

Cavalier rationalised its wool scouring operations during the year with others, a process which had gone "extremely well", in which "all the synergistic benefits identified at the outset" were captured, greatly increasing the value of Cavalier's investment in the operation, while reducing liabilities because the 50%-owned wool scouring business is now funded off-balance sheet.

The company's carpet tiles business performed "admirably", said Chung, although intense pricing competition and reduced ability to recover the cost of imported materials squeezed margins.

On the broadloom carpet front, trading conditions were "the worst ever in the history of the company". Australian sales fared much better than New Zealand, and the company gained market share despite suffering reduced margins.

Looking ahead, Cavalier says subdued housing starts will dampen sales, but that the company is more exposed to the renovation market than new dwellings, "which in today's difficult climate works in our favour".

Businesswire.co.nz

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