Cavalier boosts first-half profit, signals upside to full-year earnings

Cavalier Corp [NZX: CAV] boosted first-half profit and signalled its full-year earnings will probably be at the top end of expectations as it restructures its wool business and reduces debt.

Profit increased to $3.5 million in the six months ended December 31, from $32,000 in the year-earlier period, the Auckland-based company said in a statement.

Excluding $936,000 in restructuring costs and a $2 million gain from the sale of a Sydney premises, normalised first-half profit was $2.4 million, compared with $327,000 a year earlier (excluding $295,000 in restructuring costs). Given the "solid" first-half result, the company said it expects normalised annual profit to be at the upper end of its previously forecast range of $3 million to $5 million. Its shares jumped 3.5% to 60c.

Cavalier recorded its worst-ever annual loss last year of $25.7 million as it wrote down assets and restructured its business to boost future earnings. The company has changed its chief executive and chairman, sold assets, cut jobs, outsourced some operations, reduced debt and is foregoing dividend payments as part of its efforts to improve performance.

"As soon as we are in a position to confirm a sustained improvement in the underlying performance of our core business and have our debt firmly under control, we will resume dividend payments," the company's directors said in their report. "While the results in the first six months indicate we are on the right track, the board is not declaring an interim dividend payment at this stage."

Cavalier reduced its bank loans and borrowings by $21.2 million in the first half, and its total liabilities as at Dec. 31 reduced to $72.8 million from $102.9 million at June 30, according to its accounts.

Earnings at the company's carpet business, excluding asset sales, restructuring costs and depreciation, rose 12% to $5.5 million. Sales fell 12% to $78.6 million as increased sales of broadloom carpets failed to offset the impact of selling its underperforming Australian tile manufacturing business.

Cavalier increased prices in the second quarter, reflecting the higher cost of wool, synthetic yarns and other imported raw materials, partly due to an increase in the value of the US dollar.

"In addition to price increases, the restructuring that was undertaken earlier in the year has started to generate cost savings and increased profitability," the company said.

Its wool buying business Elco Direct boosted earnings 91% to $790,000 as volume and margins improved.

The company received $724,000 of tax-paid earnings from its half share in woolscourer Cavalier Wool Holdings, compared with a loss of $157,000 a year earlier. It attributed the improvement to higher volumes and better wool grease prices, even though the result was dented by costs associated with a Commerce Commission process over its plan to merge with New Zealand Wool Services International's scouring business, it said.

Meanwhile, its Radford Yarn business, which manufactures premium felted wool yarns for the carpet business and rug manufacturers in North America and Europe, boosted volume and revenue, resulting in a 40% improvement in profit to $542,000.

(BusinessDesk)