The group’s wool businesses were struggling in a difficult market and the core carpet business was being affected by an Australia market much softer than expected though NZ remained reasonably buoyant, chairwoman Sarah Haydon said.
Cavalier made an operating loss of $2.58 million but a $700,000 tax credit reduced the after-tax loss to $1.87m. On top of that were restructuring costs of $1.83m, covering the major changes to the felt production and yarn spinning operations.
Offsetting that was a $3.74m one-off gain on the merger deal, in which Cavalier ended up with a 27.5% share of the combined Cavalier Wool Holdings (CWH) and the NZ Wool Services International (WSI) scour businesses, from its previous position as 50% shareholder in CWH alone.
The exact bottom-line result was a profit of $31,000, compared with a $3.5m profit at the same time a year earlier. An operating cash outflow of $4.8m was recorded.
Cavalier had already said it expected a break-even result for the full June 30 year.
Its carpet business was affected by several factors:
# The restructuring costs in the spinning operations;
# Higher prices paid for wool used in the manufacturing and sales business in the six-month period;
# A higher United States dollar making synthetic yarn purchases more expensive and;
# Increased marketing costs for the rebranded Cavalier Bremworth World of Difference marketing campaign.
There was a lag of about six months between buying wool and the manufacture and sale of carpet, Haydon said.
Low wool prices and the improvement gains in the business would show up as benefits in the next financial year.
The wool buying business Elco Direct had to exit stocks in a falling market, with a negative impact on margins.
Many farmers were now reluctant to sell wool at the very low prices.
Elco Direct had had three very strong operating years but profits were down in the latest six months, Haydon said.
“Once demand returns and wool prices stabilise, Elco Direct will be in a better position to buy and sell at a consistent margin.”
The lower volumes of wool reaching the market had also reduced volumes through the scour operations more than was the case a year earlier.
The group was confident the wool being held back would eventually be scoured once price and demand settled at their new levels.
The consolidation of the two scour businesses – shutting the WSI operations and transferring plant to CWH sites – would take about a year to complete and there would be some inefficiencies while equipment was being moved and reconfigured.
Since balance date, Cavalier had received a dividend of $3.25m from CWH, allowing it to reduce debt, Haydon said.
