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Cavalier cuts 2017 earnings guidance citing tough Australian trading, depressed wool market

Tuesday 7th February 2017

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Cavalier Corp cut its 2017 guidance, and is now projecting no earnings growth, because of difficult trading conditions in Australia and "an increasingly depressed" wool market.

Normalised earnings in the year ending June 30 are expected to be "close to breakeven", the Auckland-based company said in a statement. In November the carpet maker and wool scourer forecast normalised profit of $3 million to $5 million, a decline of as much as 52 percent compared with 2016, to reflect one-time costs to consolidate its manufacturing operations.

"Market conditions in Australia appear to be weakening, with very soft trading in December and January resulting in a revision of Australian sales volumes for the next six months," the company said. "Weaker Australian economic conditions have also pushed up the NZD/AUD cross rate, another factor adversely impacting on the forecast revision. However, the company’s belief in Australia as a key market, where opportunities for growth are significant, remains unchanged."

The kiwi dollar recently traded at 95.50 Australian cents from 93.43 cents a year ago. Australia accounted for about 40 percent of Cavalier's revenue in 2016.

The company said that while the recent "significant drop" in wool prices in the face of reduced Chinese demand is good for Cavalier in the longer term, "the depressed wool market impacts volumes through the newly-merged scouring operation and the profitability of our wool buying business in the short term. The duration of China’s reduced demand for wool is uncertain," it said.

Cavalier said its investment in consolidating its operations and spending more to promote its brands "will deliver improved results" in the 2017/18 year and the company would also benefit from lower wool prices and a stronger kiwi dollar against the US dollar.

Cavalier shares last traded at 80 cents and have gained 36 percent in the past 12 months, while the S&P/NZX 50 Index has gained 15 percent.

BusinessDesk.co.nz

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