Cavalier loss in line with forecast

02:33, Aug 20 2012

Carpetmaker Cavalier has reported a post-tax loss of $1.6 million for the year ending June, thanks to weak market conditions and restructuring costs.

That was a significant plunge from the $18.2m profit reported the previous year. The result was in line with guidance.

Cavalier said once the $5.9m in post-tax restructuring costs were excluded, its "normalised" net operating profit was $4.3m.

Revenue was $217.2m, down 5 per cent year-on-year, while normalised earnings before interest, tax, depreciation and amortisation fell 78 per cent to $5.5m.

The company was also hit by the strong New Zealand dollar and an 80 per cent increase in wool prices during the 2010-11 season, which it was not able to fully recover through pricing due to weak conditions both sides of the Tasman. That meant the margins of its woollen broadloom carpet business were under severe pressure.

"Operating conditions for 2011-12 were certainly the worst the Group has ever experienced. Virtually every variable within our businesses worked against us, with many of these totally outside our control.

"As a result, we embarked upon a major programme of restructuring in order to realign production capacity with sales demand while continuing to exercise the same restraint on costs. At the same time, we also initiated a stock reduction programme aimed at reducing funds employed and debt."

The company said in June it would close its yarn-spinning plant - part of its Norman Ellison Carpet business - in Auckland's Onehunga, cutting 85 jobs.

Managing director Colin McKenzie said at the time the plant closure and other initiatives should deliver a turnaround with the aim of achieving a $10m-$12m after-tax profit in the next financial year.

"Looking forward to the new financial year, we see the first half remaining tough in New Zealand. However, we can see some upside in the second half as demand from new home building and real estate related refurbishment work improves.

"As for Australia, we believe that the market has suffered a temporary setback, and we are predicting gradually improving conditions there. Both our residential and commercial carpet businesses are well positioned to take advantage of that market uplift.

"We have previously indicated a turnaround in earnings to $10 to $12 million profit after tax for the 2012-13 year. This is based on the benefits generated from the implementation of our business improvement plans, gains from lower wool prices and a modest improvement in market conditions."

The company is not paying a dividend for the year. Its shares were trading up 1 cent at $1.76 on the NZX this morning.