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Operating revenue rose by 17% to $193.2 million. Included in this figure is revenue of $28.3 million from the Ontera carpet tile operation, which was acquired in July last year. Operating surplus before interest, tax and minority interests for continuing businesses was $29.94 million, an increase of $7.54 million, or 34%, over the 2002 year. This included a maiden contribution of $2.71 million from Ontera. Thus, the relevant figure for our pre-existing, ongoing businesses for the year under review was $27.23 million, an increase of$4.83 million or 21.6%. In addition to the above, there was a contribution of $0.35 million from discontinued activities, so that total operating surplus before interest, tax and minorities for the year was $30.29 million. After allowing for the cost of interest and tax, and for minority interests, the net operating surplus attributable to shareholders of the Company was $18.26 million, compared with $13.15 million last year, an improvement of 39%. It represents earnings per share of 29.0 cents on the 62.98 million shares now on issue following the 2:1 share split of December last year. The comparable number for last year, after adjusting for the share split, was 20.9 cents.
The Companys balance sheet was further strengthened during the year. Whilst the proprietorship ratio was virtually unchanged at 54.7%, the net interest-bearing debt : equity ratio at balance date was 32:68, compared with the 36:64 for the previous year.Total assets employed increased by $9.6 million to $115.51 million, partly as a result of the Ontera acquisition. However, the creditors of the enlarged carpet businesses funded much of this increase, so that assets employed, net of non interest-bearing current liabilities, were up only slightly at $93.2 million, versus $90.3 million last year. Cash Flow
The tax-paid operating surplus of $18.26 million, or 29.0 cents per share, represents a return on average shareholders equity of 31.2%. The equivalent figure for the year before was 24.0%, and for the two years prior to that respectively 13.7% and 16.7%. Thus, shareholder return has effectively been doubled in the last few years. The driving factors behind this quantum leap in performance have been the restructuring of our wool interests and the continuing strong growth in profitability of our carpet operations. As a measure of the extent to which the Company is creating or destroying wealth, your Directors look at the ratio of earnings to total funds employed and compare this with the Companys weighted average cost of capital. In this case, the earnings measure used is NOPAT (Net Operating Profit after Tax), which is earnings before interest and tax (EBIT) less tax thereon. For the 2002/2003 year, EBIT of $30.3 million translates into a NOPAT of $20.2 million, and net funds employed at balance date were $93.2 million. By this measure, the return on total funds employed was 21.7%. The comparative numbers for last year and the year before that were 16.4% and 12.4% respectively. Each is to be compared with an estimated weighted average cost of capital of 10%. By this measure as well, earnings for the year exceeded our weighted average cost of capital by 11.7% of $93.2 million, or $10.9 million. The Carpet Operation manufactures and markets broadloom carpets under a range of brands, best known of which is the Cavalier Bremworth brand from which the carpet operating company takes it name. It also ownes 89.5% of Ontera Modular Carpets, the Sydney-based carpet tile manufacturer. The Wool Operation comprises Cavalier's 76% share in Hawkes Bay Woolscourers Ltd (increased to 92.5% effective 1st July 2003) and the private wool-buying company, Elco Direct Ltd, that Cavalier established several years ago. Cavalier Bremworth Carpet Operation Our established broadloom carpet business enjoyed a very strong year, a result of ongoing market share gains in buoyant market conditions on both sides of the Tasman. Sales revenue for the year was $120.5 million, a further increase of 11% over the record turnover of the previous year. Earnings before corporate costs, interest and tax were $25.4 million, up by 28% on the $19.9 million of last year. EBIT margin was a satisfying 21.1%, meaning that we were more than successful in recovering the margin erosion that we experienced in 2001/2002. For the entire year, we were operating at the limit of our yarn manufacturing capacity, and this acted as a constraint on our sales turnover, which could otherwise have been higher. Over recent months, we have begun a program of externally sourcing some yarn for our Knightsbridge/Kimberley ranges, and this is now allowing us to meet, more fully, market demand. Whilst we have been expecting some slowdown in economic activity, both in New Zealand and Australia, there has been little sign of it so far. In any case, our turnover has been constrained by capacity more than sales demand. This means that we should be able to weather some degree of economic downturn with little effect. Thus, the outlook for this business remains very positive. Ontera Modular Carpets Cavalier acquired the entire equity of Ontera with effect from July 1st 2002. On April 1st this year, we sold a 10.5% stake back to Ontera management under terms and conditions agreed at the time of acquisition, so that Cavalier now owns 89.5%. For its maiden year as a Cavalier subsidiary, Ontera performed satisfactorily, generating a significant positive contribution compared with a loss in the previous year. Earnings before corporate costs, interest and tax were $2.71 million on turnover of$28.3 million. Turnover was more or less in line with our initial expectations, but earnings were ahead. The improvement can be partially attributed to the recovering Australian dollar, since Ontera purchases much of its raw material in US dollars, and it has been a significant beneficiary of the decline in that currency. The declared result also includes a one-time benefit of$0.6 million pre-tax associated with the purchase. Thus, the benchmark contribution for this year, against which we will measure future performance, was $2.1 million before interest, tax and corporate costs. Ontera' performance represents a more than satisfactory return on funds employed, but a less than adequate return on the replacement cost of its assets. Our medium term goal is to raise volume and profits through expansion of the product and brand portfolio, while investing in a modernisation program to reduce manufactured costs.
Elco Direct is a private wool buyer, established several years ago to source wool for the now discontinued E. Lichtenstein and Co. wool trading operation. It has now successfully made the transition to one of industry service provider and has a broad client base amongst wool merchants and exporters. Hawkes Bay Woolscourers was established in November 2000 to acquire and operate an existing commission wool scouring business in Napier. It is one of only two specialist commission wool scours in the North Island, servicing the requirements of wool exporters. For the year under review, Cavalier had a 76% share in the venture. However, we acquired a further 16.5% from our joint-venture partner on July 1st 2003, so that our stake in the business going forward is 92.5%. It was again quite a difficult year for the wool trading and exporting industries that form the customer base for our wool operations. The major strengthening of the NZ dollar over the period saw the price of New Zealand wool increase by 15% in international currency terms, and the emergence of major differences in price expectations between buyers and sellers. This difficult trading environment saw several major and long-established merchants close down their operations during the year, leaving the business to a shrinking number of players. The volume of wool scoured on the North Island was level with the previous year, but still well down on volumes that had pertained in 2001 and earlier. In this challenging environment our wool operations contributed $3.8 million before corporate costs, interest and tax, and before allowing for the minority interest. While the improvement on the $3.7 million contribution reported last year is modest, it is a result that we are pleased with, and one that represents an excellent return on funds employed. We believe there is yet further scope for growth in these operations.
After a careful review of various potential commercialisation alternatives, we have entered into discussions with a number of potential interested parties from the veterinary medicines industry. The scope of this project appears to be worldwide, and it will benefit from the involvement of a company with a worldwide presence in the field. We will inform shareholders of the outcome of these discussions as they crystallise.
Your Directors have authorised a final dividend (fully imputed) of 13.0 cents per ordinary share for the year ended 30 June 2003. This, together with the first interim of 4.5 cents per share paid in December 2002, and the second interim of 7.5 cents per share paid in March this year, gives a total dividend (fully imputed) for the year of 25 cents per ordinary share. This is equivalent to a 50 cents per share dividend on the old capital base, and represents a 39% increase over the 36 cents per share paid last year. The 25 cents per share dividend represents 86% of the Groups 2002/2003 operating surplus. Your Directors believe this to be an appropriate quantum given the solid earnings momentum of the business and the ample cash flow in the year just gone. The share register will close at 5 p.m. on Friday, 3 October 2003 for the purpose of determining entitlement to the final dividend and will re-open at 9 a.m. on Monday, 6 October 2003. The final dividend will be paid on Friday, 10 October 2003.
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