Cavalier 1H profit drops 59% as weak market means higher wool prices

Cavalier posted a 59 percent decline in first-half profit as weak demand forced it to absorb high wool prices from the previous year while competing with imported product benefiting from a high kiwi dollar.

The maker of Bremworth carpets said profit fell to $1.4 million in the six months ended December 31, from $3.5 million a year earlier. Sales declined 6 percent to about $101 million.

Profit and sales missed Forsyth Barr analyst John Cairns' forecasts of $2.6 million and $109 million, respectively.

Cavalier says it expects an improvement in trading in the second half of the year and reiterated it is the guidance it gave shareholders at their annual meeting in November of $6 million to $10 million in normalised full-year profit.

"We anticipate the demand for carpet to lift in New Zealand alongside increased building activity, helped by the Christchurch rebuild and a general uplift in real estate turnover, while we expect Australia to remain relatively flat," the company says.

"Now that the high stock value has run its course, we will benefit from increased margins over the next six months."

The shares fell 1.1 percent to $1.80 and are up about 8.3 percent this year. The company is not paying dividends.

Cavalier has long had to contend with cheaper, more durable synthetic carpets in world markets and a retailing landscape marked by consolidation "and direct importing helped by the ever increasing strength of the New Zealand dollar".

Earnings at Cavalier's wool buying business Elco Direct were little changed at $353,000, even as revenue fell 22 percent to $13.9 million.

Its half share of commission wool scourer Cavalier Wool Holdings yielded earnings of $2.1 million in the first half, up from $1.2 million a year earlier.

Cavalier Wool Holdings missed out on acquiring the wool scouring assets of rival Wool Services International, which has since been acquired by Australia's Lempriere Holdings.

Cavalier had wanted to halve the number of wool scours in New Zealand to make the industry more competitive with operations in China.

The Radford Yarn technologies business, which supplies felted woollen yarns for carpet making, posted a small loss in the first half.

(BusinessDesk)