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Cavalier underlying profit rises 4% on demand in Australia

Cavalier underlying profit rises 4% on demand in Australia

Aug. 22 (BusinessDesk) - Carpet manufacturer Cavalier Corp. said normalised annual net profit and revenue rose 4%, thanks to a strong performance in Australia, while tax adjustments pushed the bottom line up 60%.

Australian sales now account for 57% of total revenue, up from 54% the previous year, and better market conditions helped offset the subdued New Zealand market, the company said.

Net profit for the year ended June 30 rose to $18.2 million from $11.4 million the previous year although the latest result was boosted by an $0.9 million positive tax adjustment while the previous result was depressed by a $5.3 million tax charge.

Before those one-off adjustments, profit after tax was $17.3 million compared with $16.6 million the previous year.

Cavalier said New Zealand carpet sales fell 10% while Australian sales were up
11%, a follow on from the momentum built up in the previous year. Carpet earnings before interest and tax (EBIT) rose 16% to $26.2 million with the profit margin improving to 12.8% from 11.3%.

The company said historically low housing starts and refurbishments contributed to the soft New Zealand results. The lingering effects of the global financial crisis (GFC) meant the stimulus one would normally expect from low mortgage interest rates didn't happen, especially when it came to big-ticket purchases such as carpet.

“At the same time, home building and renovation work in Christchurch have virtually come to a standstill as tremors following the two major quakes continue to halt any building reconstruction.”

While Australian conditions were better, the second half was softer as interest rate increases by the Reserve Bank of Australia started to take hold, Cavalier said.

Wool prices increased an unprecedented 80% to 20-year highs during the year because of a world-wide shortage of cross-bred wools and the replenishing of stocks by carpet mills which had let stocks run down during the GFC.

“The wool price increase resulted in a 10% to 20% lift in the prices of our woollen carpets and, whilst the market is slowly coming to terms with these increases, we are ever mindful of the risks posed by the now comparatively much cheaper synthetic alternatives, particularly at the value end of the market,” the company said.

Cavalier's wool acquisition business lifted EBIT 49% to $1.6 million but its 50%-owned wool scouring business saw normalised tax-paid profit fall 49% with Cavalier's share being $2 million. The company said that reflected a shortage of wool due to reducing sheep numbers and the loss of lambs in severe storms in Southland and the Wairarapa.

The company's 75%-owned Radford Yarn Technologies, purchased in April, contributed a $76,000 pre-tax loss with $55,000 being expenses relating to the transaction.

Cavalier said it doesn't see any immediate upside to the market outlook in New Zealand, although the Christchurch rebuild should eventually help, and a general shortage of housing in Australia's main cities should help underpin the residential market.

High wool prices should encourage farmers to lift stock numbers and any additional wool volume would have flow-on benefits for the scouring operations.

Cavalier will pay a fully-imputed final dividend of 11 cents per share, unchanged from last year, taking the annual payout to 18 cents, unchanged from the previous year.

Cavalier shares fell 5 cents to $3.50 in early trading. The shares have risen from $2.55 a year ago but are down from their $4 peak in May.


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