Annual result to 30 June 14

The Directors of Cavalier Corporation have announced an audited after tax profit for the year to 30 June 2014 of $5.8 million, compared with a $3.0 million after tax profit in 2013.  As a result of the recent earnings downgrade and the weaker-than-expected earnings, and after careful consideration of cash flow and capital requirements, the Board has decided that no final dividend will be payable for the 2014 financial year.

While the annual profit result represents a 91% increase in tax-paid profit on the previous year, the Directors believe that it is more appropriate to be comparing the current year’s profit with the previous year’s normalised result (that is, reported profit excluding restructuring costs).

The Group has not made the distinction between reported profit and normalised profit in the current year because it did not incur any restructuring costs during the year. This is to be contrasted with 2013, when it incurred $3.6 million of net restructuring costs after tax, relating mainly to the consolidation of tufting at its main tufting site in Papatoetoe.

As a consequence and on a like-for-like basis, excluding the $3.6 million of net restructuring costs from the 2013 tax-paid result, the current year’s $5.8m profit can be compared with a normalised 2013 profit of $6.6 million, a 13% decrease.

The 13% decrease in normalised tax-paid result is disappointing and is due largely to the extent to which the Group’s share of profit of 50%-owned Cavalier Wool Holdings (CWH) had dropped. Despite the challenging operating conditions, particularly for the carpet business in Australia, and the strong NZD, the Group managed to record improved earnings for the carpet and felted yarn operations, while achieving a profit in line with the previous year for its wool acquisition business.

The Directors note that the $5.8 million tax-paid profit is at the upper end of the revised earnings guidance range of between $5 million and $6 million after tax given to the market in June 2014.

The Group’s assets as at 30 June 2014 totalled $198.1 million, an increase of $1.4 million on the previous year. This increase can be attributed to inventories to support Cavalier’s continuing expansion into synthetic and felted carpets, partly offset by reductions in cash reserves and fixed assets, the latter as a result of reduced capital spends and the impact of the strong NZD on translation of Australian fixed assets.

Group net interest-bearing debt at year-end was $58.8 million, $5.6 million up on the previous year’s $53.2 million. As a result, net interest-bearing debt to equity has increased from 36:64 the previous year to 39:61 at balance date.

Shareholders’ equity as at 30 June 2014 of $93 million is $1 million down on 2013, with the reduction due to tax-paid profit just falling short of the movement in the foreign currency translation reserve and the dividend paid during the year.

Cash inflows from operating activities were $615,000 for the year. These can be compared with $11.7 million for the previous comparable period, with the marked turnaround attributable mainly to the increase in inventories referred to earlier and restructuring costs spent, offset by improved profits.

A net $2.2 million was spent on capital projects and $4.1 million was paid out as dividends during the year.

As a result, net interest-bearing debt for the year was up $5.6 million, with $2.6 million coming from increased borrowings and $3 million from a reduction in cash reserves.

While no final dividend will be payable for the 2014 financial year, the Board will keep the dividend policy under active review and provide shareholders with an update at the Annual Meeting.

The Directors of Cavalier Corporation have announced an audited after tax profit for the year to 30 June 2014 of $5.8 million, compared with a $3.0 million after tax profit in 2013.  As a result of the recent earnings downgrade and the weaker-than-expected earnings, and after careful consideration of cash flow and capital requirements, the Board has decided that no final dividend will be payable for the 2014 financial year.

While the annual profit result represents a 91% increase in tax-paid profit on the previous year, the Directors believe that it is more appropriate to be comparing the current year’s profit with the previous year’s normalised result (that is, reported profit excluding restructuring costs).

The Group has not made the distinction between reported profit and normalised profit in the current year because it did not incur any restructuring costs during the year. This is to be contrasted with 2013, when it incurred $3.6 million of net restructuring costs after tax, relating mainly to the consolidation of tufting at its main tufting site in Papatoetoe.

As a consequence and on a like-for-like basis, excluding the $3.6 million of net restructuring costs from the 2013 tax-paid result, the current year’s $5.8m profit can be compared with a normalised 2013 profit of $6.6 million, a 13% decrease.

The 13% decrease in normalised tax-paid result is disappointing and is due largely to the extent to which the Group’s share of profit of 50%-owned Cavalier Wool Holdings (CWH) had dropped. Despite the challenging operating conditions, particularly for the carpet business in Australia, and the strong NZD, the Group managed to record improved earnings for the carpet and felted yarn operations, while achieving a profit in line with the previous year for its wool acquisition business.

The Directors note that the $5.8 million tax-paid profit is at the upper end of the revised earnings guidance range of between $5 million and $6 million after tax given to the market in June 2014.

FINANCIAL POSITION

The Group’s assets as at 30 June 2014 totalled $198.1 million, an increase of $1.4 million on the previous year. This increase can be attributed to inventories to support Cavalier’s continuing expansion into synthetic and felted carpets, partly offset by reductions in cash reserves and fixed assets, the latter as a result of reduced capital spends and the impact of the strong NZD on translation of Australian fixed assets.

Group net interest-bearing debt at year-end was $58.8 million, $5.6 million up on the previous year’s $53.2 million. As a result, net interest-bearing debt to equity has increased from 36:64 the previous year to 39:61 at balance date.

Shareholders’ equity as at 30 June 2014 of $93 million is $1 million down on 2013, with the reduction due to tax-paid profit just falling short of the movement in the foreign currency translation reserve and the dividend paid during the year.

CASH FLOWS

Cash inflows from operating activities were $615,000 for the year. These can be compared with $11.7 million for the previous comparable period, with the marked turnaround attributable mainly to the increase in inventories referred to earlier and restructuring costs spent, offset by improved profits.

A net $2.2 million was spent on capital projects and $4.1 million was paid out as dividends during the year.

As a result, net interest-bearing debt for the year was up $5.6 million, with $2.6 million coming from increased borrowings and $3 million from a reduction in cash reserves.

DIVIDENDS

While no final dividend will be payable for the 2014 financial year, the Board will keep the dividend policy under active review and provide shareholders with an update at the Annual Meeting.

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