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The Directors of Cavalier Corporation announce an audited operating
surplus after tax and minority interest of $13.7 million for the 12
months to 30 June 2005. This represents a decrease of $7.3 million or
35% on last year.
As already signalled to the sharemarket, the Directors have decided
this year to write-off all development costs associated with the
bio-remedy project that were previously capitalised in the company's
accounts as an asset. The after tax effect of this write-off reduced
the operating surplus after tax by $5.8 million to the $13.7 million
referred to above.
However, a more meaningful assessment of the operating activities are
the results before the bio-remedy adjustment. On that basis, the
Group's operating surplus after tax and minority interest would have
been $19.5 million, which is down 7% compared to last year of $21.0
million.
Financial Performance
|
Consolidated Financial Performance Year Ended 30 June |
2005
$000s |
2004
$000 | |
Operating revenue |
207,840 |
198,633 |
EBIT from operating activities
| 32,952
| 34,273
|
Net Interest expense
| -2,854
| -2,079
| Pre-tax surplus from operating activities
| 30,098
|
32,194
| Tax
| -10,162
| -10,761
| Tax paid surplus from oeprating activities
| 19,936
| 21,433
| Minority Interest
| -411
| -422
| Surplus from operating activities after tax and MI
| 19,525
| 21,011
| Abnormal costs after tax
| -5,826
| 0
| Net operating surplus after tax and MI
| 13,699
| 21,011
| Earnings per share (cents)
| 21.0
| 32.7
|
Group operating revenues for the year were $207.8 million, an increase of 4.6% on last year.
Operating surplus before interest, tax and minority interests for
operating activities was $33.0 million, a decrease of $1.3 million, or
4%, on the 2004 year.
After allowing for the cost of interest, tax, minority interests, but
before the abnormal costs of the bio-remedy project write-off, the net
operating surplus attributable to shareholders of the Company was $19.5
million, compared with $21.0 million last year.
After abnormal costs, the equivalent net operating surplus was reduced
to $13.7 million. It represents earnings per share of 21.0 cents
compared to 32.7 cents in 2004.
This year's normal net operating surplus after tax of $19.5 million
marks a more difficult year after three successive years of record
earnings. It was the result of a slowing down in residential carpet
sales, particularly in Australia, and by the difficult trading
environment for our wools operations.
Financial Position As at 30 June 2005, shareholders' funds, net of minority interest, were
$62.8 million, compared to $66.6 million last year. This reduction was
caused by the bio-remedy project write-off of $5.8 million.
Total assets for the Group were $147.8 million. This increased by $18
million on last year and was due to increases in working capital and
fixed assets.
As a result of the higher levels of assets employed, term liabilities
increased by $22.5 million to $59.8 million. Consequently, our net
interest-bearing debt to equity ratio stood at 49:51, compared to 37:63
last year. Interest cover remained at a respectable 8.5 times.
Cash Flows Our net cash flow from Operating Activities was $13.4 million for the
year and was affected by increases in trade debtors and stocks. In the
case of debtors, this was due to the high sales turnover in carpets in
the month of June. And with stocks, much of it was in raw materials,
which was required to support business growth in our tile operation,
Ontera.
In the year, we purchased $11.8 million of new assets, which included a
new tufting machine, yarn making plant and carpet-cutting equipment. We
also invested $4.6 million into a South Island scouring business.
In financing activities, term loans increased by $22.6 million.
Operations
Carpet Operations
Our carpet businesses produced revenues of $158.7 million, an increase
of 2.1% on last year. This was due to our tile operation increasing its
revenue 22% on last year which helped to offset a 2% decrease in
broadloom carpets.
Operating surplus (before corporate costs, interest, tax and abnormal
costs) for the carpet businesses were $32.6 million, which is an
increase of 1% on last year.
Broadloom Carpets
Our main markets for broadloom carpets are in Australia and New Zealand.
The broadloom carpet business has enjoyed several years of strong
market conditions driven by high construction activity, rising real
estate prices and high real estate turnover on both sides of the Tasman.
In year under review, some sectors of the market began to slow -
initially and most notably the residential business in Australia. By
year-end, residential business in New Zealand was also looking softer.
However, the commercial sectors remain strong on both sides of the
Tasman. There were good levels of activity around leasing and new
commercial building starts, which meant good carpet business for us.
Given the softer residential markets we were pleased to have achieved
sales down just 2% on the previous year. We were equally pleased to
have had the growth in our carpet tile business to offset that decline.
Carpet Tiles
Ontera Modular Carpets, our Sydney-based carpet tile business, had an
excellent year and increased sales revenue by 22% over the previous
year.
Ontera operates almost entirely in the commercial market. The market
conditions in this segment in both Australia and New Zealand were
favourable and similar to those enjoyed by our broadloom carpet
business.
Under Cavalier's ownership and guidance, Ontera has successfully
modernised its facility and expanded its product ranges to compete more
effectively in a wider range of market segments. It has also
substantially strengthened its market presence here in New Zealand. All
of these have contributed to the growth in its business and its
contribution to the Group's earnings.
Wool Operations
Sales revenues for the wool operations were $49 million, up 14% on last
year, but operating surplus before corporate costs, interest tax, and
abnormal costs, at $2.1 million, was significantly down on last year's
$4 million.
Elco Direct is our Cambridge-based wool procurement business. Elco
Direct sources a portion of Cavalier's wool requirements, as well as
providing a procurement service for the wool exporting industry.
In the year under review, the company shared in a very challenging
period endured by the wool exporting industry. The strong NZ dollar has
created a gap in price expectations between the NZ grower and overseas
buyers. This, and the relative lack of variability in currency and wool
prices, has squeezed exporter margins, and the margin available to Elco
Direct. Volume turnover in the business was similar to that of last
year, but margins and profits were reduced. This business situation is
unlikely to improve until the NZ dollar declines to a level closer to
its long-run average against the US dollar.
Our Napier-based wool scouring operation, Hawkes Bay Woolscourers,
enjoyed a busy year on the back of a strengthening share of a fairly
static market and achieved record volumes. However, intense price-based
competition has made it impossible to pass on substantial cost
increases that have occurred over the past 18 months, and profitability
has declined as a result. The operation has also suffered from low
prices for its important by-product, wool grease, that have been
occasioned by the strong NZ dollar. Again this situation should improve
as the NZ dollar drops against its US counterpart.
In August 2004, we took a 50% interest in a South Island scouring
business. Since then, it has consolidated the two businesses acquired
onto one of the sites, upgraded some of the existing plant, and is in
the process of commissioning a new 3 metre scour-line. The works
undertaken are a few months behind schedule, but should be fully
operational around September/October this year.
Microbial Technologies
Your Directors recently made the decision to write-off all development
expenditure on Microbial Technologies that has thus far been
capitalised. Whilst the technology still holds considerable promise, we
have concluded that in its present form, it may not be sufficiently
robust to assure commercial success and that we should therefore no
longer carry its development costs as an asset on our Balance Sheet. We
are continuing with the development program for a period whilst we
explore some important improvement potential, but will expense the
associated costs as we go.
The effect of the write-down is a reduction in this year's reported
tax-paid earnings of $5.8 million. However, we stress that this is
simply a reclassification of past expenditure. It has no impact on our
cash flow, or on our borrowings, or on the level of funds available for
the payment of dividends.
Outlook We are currently well into a tightening cycle in Australia and New
Zealand - driven by interest rate increases designed to slow the
domestic economies and reduce inflationary pressures.
This has slowed the residential carpet market in Australia and, lately,
in New Zealand. The extent to which our carpet business is affected
will depend on the length of this cycle and the extent of the economic
slow-down that results. There are some signs that we could be nearing
the end of this cycle - certainly in Australia and perhaps New Zealand
as well, but only time will tell.
But the commercial carpet business has been largely unaffected by these
interest rate increases, and we expect this to continue into the new
financial year.
Reducing interest rates will signal the end of the tightening phase and
that could be the trigger for downward adjustment of the NZ dollar
which will be beneficial to our wool operations.
For the time being, the business environment is looking tougher, and we
will do well to match the 2004/05 earnings. We will keep shareholders
informed as the year progresses.
Dividends Your Directors have authorised a final dividend (fully imputed) of 14.5
cents per ordinary share for the year ended 30 June 2005. This,
together with the first interim of 4.5 cents per share paid in December
2004 and the second interim of 8 cents per share paid in March this
year, gives a total dividend (fully imputed) for the year of 27 cents
per ordinary share. This is unchanged on the previous year.
The share register will close at 5 pm on Friday, 30 September 2005 for
the purpose of determining entitlement to the final dividend and will
re-open at 9 am on Monday, 3 October 2005. The final dividend will be
paid on Friday, 7 October 2005.
Our non-resident shareholders will also be receiving, together with
their 2005 final dividend, a supplementary dividend of 2.5588 cents per
ordinary share. The dates for the determination of entitlement to and
the payment of this supplementary dividend are the same as those for
the 2005 final dividend.
For and on behalf of the Board of Directors
W K Chung
Managing Director
19 August 2005
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