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Cavalier's normalised first-half net profit reaches upper end of guidance

Friday 22nd February 2019

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Carpet maker Cavalier reported a $10 million first-half net loss but its normalised profit rose 68 percent to near the top of its earlier guidance.

That was despite sales falling 7 percent to $70 million for the six months ended December amid softer market conditions, particularly for lower-margin synthetic carpets.

The loss for the six months compares with a $1 million net profit in the same six months a year earlier but normalised net profit, excluding the $12 million write-down of Cavalier’s now sold 27.5 percent stake in Cavalier Wool Holdings, was $1.9 million, up from $1.1 million in the year-earlier period.

In December, the company said normalised profit for the six months was expected to come in between $1.6-2 million.

“Cavalier is in good shape and well positioned to take advantage of the global resurgence in demand for high-end woollen flooring,” says chief executive Paul Alston in a statement announcing the results.

Earnings from Cavalier’s wool buying business, Elco Direct were down amid low wool prices due to decreased Chinese demand, although the lower prices are benefiting the carpet business’ cost of sales.

The carpet maker has changed its strategy and is now focused on marketing its high-end woollen carpets and Alston says it had one of its highest ever sales months for high-end felted carpets in November.

“However, market conditions on both sides of the Tasman are becoming increasingly difficult with reduced consumer confidence and lower flooring sales,” Alston says.

“Confidence in Australia is particularly low and sales are softening. These conditions are expected to continue and will make for a challenging second half of the year,” he says.

On top of that, Cavalier will no longer have the earnings for the wool holdings business which contributed $1 million to net profit in the previous second half.

“We are building on the success of our Cavalier Bremworth World of Difference positioning and have a number of exciting initiatives underway to build our market share in our home markets of Australia and New Zealand, as well as new opportunities offshore,” Alston says.

“We will also be releasing a new television campaign in the coming months, further establishing ourselves as marketers of premium wool carpet.”

Cavalier will continue to focus on business fundamentals in the second half, including investing in its core operations, particularly a new IT system, customer relationships, expanding its global presence, innovative new product development and on exploring investment opportunities, he says.

“While our second half will present some challenges, our direction and our opportunity are clear.”

The company will provide full-year guidance once trading patterns results have been established.

The wool holdings sale in September yielded proceeds of $11.8 million and that and other initiatives reduced net debt to $17.3 million at Dec. 31, down 48 percent from the previous December.

The company isn’t paying a first-half dividend.

Cavalier shares ended at 51 cents on Thursday and are about 2 percent higher than a year ago.


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