Investor presentation – FY18 H1 results

Investor Presentation
23 February 2017

Cavalier Corporation Investor Presentation
2
AGENDAOur CompanyResetting Our BusinessHalf Year ResultsOur FutureSPEAKERSPaul Alston, CEOAlan Clarke, Deputy Chair

Cavalier Corporation is a vertically integrated group of companies which operate across the entire spectrum of the soft flooring market.We buy and scour wool, produce yarn, and design and make broadloom carpet.
OUR COMPANY
Cavalier Corporation
Carpets
Wool
Procurement
Felted Yarns
Wool Scouring
(27.5%)

Auckland•
Head office
•
Tufting factory
•
Sales office
Cambridge•
Wool store
Taumaruni/Raetihi/Taihape•
Wool stores
Wanganui•
Felting plant
•
Wool store
Napier
•
Spinning factory
•
2 wool scouring sites
Wellington•
Sales office
Christchurch•
Sales office
Timaru•
Scouring site
Cavalier Corporation Investor PresentationOUR OPERATIONSOperations are based in New Zealand and Australia w
ith exports around the world
4
Brisbane•
Sales office
Sydney•
AU head office
•
Administration
•
Sales office
Melbourne•
Sales office
Adelaide•
Sales office
Perth•
Sales office

Cavalier Corporation Investor Presentation
•
Cavalier Bremworth is the most recognised and trusted carpet brand in the New Zealand market (winner of the Reader’s Digest most trusted brand award four years running - since its inauguration)
•
Very highly regarded brand in the Australian market, particularly with the retail trade
•
Cavalier Bremworth has a strong heritage and a great story - from its establishment and transformation into a company that is renowned for quality and innovation
•
A fully integrated company from sourcing of wool at farm gate to yarn production and the manufacture of carpet
•
Ownership of a wool acquisition business, and a meaningful shareholder in New Zealand’s only wool scourer
•
Strong supplier relationships built up from decades of dealing with key stakeholders in the industry
•
Felted yarn technology that is difficult to replica
te
and demands premium pricing
OUR STRENGTHS
5

Cavalier Corporation Investor Presentation
SARAH HAYDONINDEPENDENT DIRECTOR
REFRESHED BOARD AND EXPERIENCED LEADERSHIP From 1 April 2018
6
GRANT BEILNON-INDEPENDENT DIRECTOR
DIANNE MCATEERINDEPENDENT DIRECTOR
JOHN RAEINDEPENDENT DIRECTOR
ALAN CLARKEINDEPENDENT CHAIR
LEADERSHIP TEAMCEO: Paul AlstonCFO: Victor TanGM Australia: Michael RichardsonNational Sales Manager NZ: Dean ChandlerGM Product Development/ Marketing: Rochelle FlintGM Manufacturing: Craig WallaceGM Comms/Culture: Lenska PapichGM Rest of World: Cathy Howitt

Cavalier Corporation Investor Presentation
7
RESETTING OUR BUSINESS

Cavalier Corporation Investor Presentation•
Wool price increase from 2011 (circa $5m - $8m impa
ct)
•
Strengthening NZD against AUD from 2012 – 80c to mid

90c’s (circa $5m - $8m impact)
•
Significant move from wool to synthetics. Cavalier’
s
infrastructure geared towards wool
•
Consolidation of retailers into groups (pressure on

margins) – power shift to retailers
•
Flood of imported product (synthetics) helped by a
strong
NZD:USD
•
Increasing competition from low cost imported tiles
•
Unprecedented drop in wool demand from 2016 – wool business (scour and wool acquisition businesses suf
fered)
CHANGING MARKET
8
0
100200300400500600700
Dec-99
Oct-00
Aug-01
Jun-02
Apr-03
Feb-04
Dec-04
Oct-05
Aug-06
Jun-07
Apr-08
Feb-09
Dec-09
Oct-10
Aug-11
Jun-12
Apr-13
Feb-14
Dec-14
Oct-15
Aug-16
Jun-17
Cents per Kilogram
Wool Price c/kg
0.7
0.75
0.8
0.85
0.9
0.95
1
28/06/1996
28/06/1997
28/06/1998
28/06/1999
28/06/2000
28/06/2001
28/06/2002
28/06/2003
28/06/2004
28/06/2005
28/06/2006
28/06/2007
28/06/2008
28/06/2009
28/06/2010
28/06/2011
28/06/2012
28/06/2013
28/06/2014
28/06/2015
28/06/2016
28/06/2017
NZD
NZD:AUD

Cavalier Corporation Investor Presentation
•
Restructuring in response to market challenges and
changes within the
industry:
•
Reduction in warehousing and distribution centres in
NZ from two to
one
•
Consolidating carpet tufting operations from two to
one
•
Consolidating carpet yarn spinning operations from
four to two
•
A 29% reduction in broadloom carpet employees
•
Closing two distribution centres in Australia and ou
tsourcing these
functions.
•
Introduction of synthetic carpets sold under the Ca
valier Bremworth Brand
to meet market trends
•
Exit out of the loss making Australian tile manufac
turing business
•
Restructure of New Zealand administrative functions
•
Launching new and innovative carpets with exclusive
yarns
•
Development and expansion of felted yarn capability
•
Selling surplus property in Australia to reduce deb
t
The significant manufacturing costs associated with
the restructuring have been
accounted for in previous years.
RESETTING OUR BUSINESS
9

Cavalier Corporation Investor Presentation
10
HY18 INTERIM RESULTS
For the six months ended 31 December
2017

Cavalier Corporation Investor Presentation
HY18 HY17 YOY % Change
REVENUE
$75.3m $84.3m
-11%
Decrease due to reduced wool price impacting wool sa
les,
supply issues and a softer market for carpet
EBITD
$4.4m -$2.0m
+320%
Improved operating profit reflecting better margins
and
reduced costs. 2017 includes large restructuring cos
ts
NPAT
$1.0m
NIL
-
Improved NPAT as benefits start to flow from initia
tives to
re-set the business and favourable macro-economic fa
ctors
OPERATING CASH FLOWS
$7.5m -$4.8m
+256%
Improved cash flow reflecting increased profits, car
eful cash
management and reduced working capital
NET DEBT
$33.3m $40.2m
-17%
Reduced debt from improved cash flow and lower inven
tory
INVENTORY
$45.9m $50.6m
-9%
Lower inventory due to efficient inventory manageme
nt and
decrease in wool prices
HALF YEAR RESULT SNAPSHOT
11

Cavalier Corporation Investor
Presentation
KEY METRICSImprovement on most key ratios HY17: HY18. Further impr
ovements expected for 2H18
12
HY18
HY17
Return on equity
1.7%
-2.7%
Basic earnings/share
1.7c
-2.7c
Market Cap as at 31 Dec
$28.2m
$53.6m
Debt/Equity
33:67
38:62
Tangible assets/share
$0.97
$0.98

Cavalier Corporation Investor PresentationCAPITAL MANAGEMENTDebt position improving following year of investment
13
•
Debt progressively dropped up until 2016, following an aggressive debt reduction programme
•
This enabled the business to invest in the future by reinvigorating the Cavalier Bremworth brand and consolidating manufacturing operations -debt climbed as a result
•
Now the consolidation is complete, focus is on reducing debt again
•
Making good progress and further reductions expected in the short term.
0
10,00020,00030,00040,00050,00060,00070,000
Jun-14 Dec-14 Jun-15 Dec-15 Jun-16 Dec-16 Jun-17 Dec-17
Net Debt $000

Cavalier Corporation Investor Presentation
14
LOOKING TO OUR FUTURE

Cavalier Corporation Investor PresentationCURRENT MARKET TRENDSMovement away from soft flooring
15
Soft
Flooring,
45%
Tiles, 25%
Hard
Flooring,
30%
ESTIMATED FLOORING %
NOW
Soft
Flooring
75%
Tiles
10%
Hard
Flooring
15%
ESTIMATED FLOORING %
10 YEARS AGO
•
Soft Flooring (carpets) has declined at the expense of hard flooring and tiles
•
Opportunities for diversification

Cavalier Corporation Investor Presentation
Wool rich % of
total carpet
market
Estimated
wool
market
size blm
(000)
New Zealand
12% - 15%
400
Australia
13% - 16%
2,500
USA
1% - 2%
3,000
Europe
1% - 2%
1,800
UK
25% - 30%
3,500
Asia
1% - 2%
?
OPPORTUNITY IN THE WOOL MARKET
16
•
Wool products are our heritage
•
Market share leader in New Zealand
•
Opportunities for growth in wool products where we do not have a meaningful presence.

2%
42%
55%
0.5%
0.5%
Percentage of sales
Cavalier Corporation Investor Presentation
•
Majority of current sales into Australia and New Zealand
•
Growth opportunities in other world markets –particularly North America, Europe and Asia.
•
Currently have insignificant sales in these locations
OPPORTUNITY IN THE GLOBAL MARKET
17

Cavalier Corporation Investor Presentation•
Wool price more favourable with increased margins a
s a result. Full benefit will be realised in 2019
year
•
NZD/AUD more favourable. Coming off high 90’s (eve
ry 1c movement results in $500k - $600k impact)
•
Demand for wool improved – wool starting to flow thr
ough wool scour and wool trading volumes improved
•
High NZD/USD still assisting imported raw materials
•
Manufacturing consolidation complete (no more facto
ries to merge) and producing the required volume
•
Efficiency improving in manufacturing operations an
d further gains to be realised
•
Continued close cost controls
OUTLOOK FOR 2H18 AND BEYONDProfitability expected to improve in the short term due t
o:
18

THE FUTURE
•
Increased focus on high-end, higher margin products
•
Growth opportunities in woollenproducts outside of New Zealand
•
Increased R&D and marketing spend - Innovation is key
•
Opportunities for growth in Australia (we are a small player) with various initiatives.
•
Growth in rest of world markets (outside of Australasia) in woollenproducts.
•
Focussed diversification / investment where appropriate
•
Consumer touch points (World of Difference) investment.
Cavalier Corporation Investor Presentation
19

Cavalier Corporation Investor Presentation
20
CONTACT:
Paul AlstonChief Executive OfficerTel: 09 277 1135Email: palston@cavbrem.co.nz

Cavalier Corporation Investor Presentation
CAVALIER CORPORATION LIMITED
NZX: CAV
Number of shares on issue
68,679,098
New Zealand holdings
67,418,358
Offshore holdings
1,260,740
Market Cap as at 22 February 2018
$34,339,549
CORPORATE INFORMATION
21
1 . MARAMA TRADING LIMITED
9,61 0,7 1 8
1 3.99
2. RURAL AVIATION (1 963 ) LIMITED
8,5 67 ,642
1 2.47
3. ACCIDENT COMPENSATION CORPORATION - NZCSD <ACCI40
>
3 ,5 92,046
5 .23
4. BNP PARIBAS NOMINEES (NZ) LIMITED - NZCSD <BPSS40
>
2,605 ,483
3.7 9
5 . FNZ CUSTODIANS LIMITED
1 ,7 38,25 2
2.5 3
6. FORSYTH BARR CUSTODIANS LIMITED <1 -CUSTODY>
1 ,037 ,03 2
1 .5 1
7 . J & D SANDS LIMITED
1 ,000,000
1 .46
8. MASFEN SECURITIES LIMITED
7 87 ,5 00
1 .1 5
9. JPMORGAN CHASE BANK NA NZ BRANCH-SEGREGATED CLIEN
TS ACCT - NZCSD <CHAM24>
7 7 0,008
1 .1 2
1 0. PERCY KEITH MCFADZEAN
7 1 5 ,000
1 .04
1 1 . IAN DAVID MCILRAITH
65 0,000
0.95
1 2. GRAHAM JAMES MUNRO + ZITA LILLIAN MUNRO
5 7 0,000
0.83
1 3 . MICHAEL LOOKMAN + 1 87 BRIDGE TRUSTEES 5 3 LIMITED
<LOOKMAN FAMILY A/C>
5 00,000
0.7 3
Units
% of
Units
Top Shareholders (over 500,000 shares)
Rank Name

Cavalier Corporation Investor PresentationThis presentation has been prepared by Cavalier Cor
poration Limited (“CAV”). The information in this pr
esentation is of a general nature
only. It is not a complete description of CAV.This presentation is not a recommendation or offer
of financial products for subscription, purchase or
sale, or an invitation or solicitation for
such offers.This presentation is not intended as investment, fi
nancial or other advice and must not be relied on b
y any prospective investor. It does not
take into account any particular prospective invest
or’s objectives, financial situation, circumstances
or needs, and does not purport to
contain all the information that a prospective inve
stor may require. Any person who is considering an
investment in CAV securities should
obtain independent professional advice prior to mak
ing an investment decision, and should make any inv
estment decision having regard to
that person’s own objectives, financial situation,
circumstances and needs.
Past performance information contained in this pres
entation should not be relied upon (and is not) an
indication of future
performance. This presentation may also contain forw
ard looking statements with respect to the financia
l condition, results of operations
and business, and business strategy of CAV. Informa
tion about the future, by its nature, involves inhe
rent risks and uncertainties.
Accordingly, nothing in this presentation is a prom
ise or representation as to the future or a promise
or representation that a transaction or
outcome referred to in this presentation will proce
ed or occur on the basis described in this presenta
tion. Statements or assumptions in this
presentation as to future matters may prove to be i
ncorrect.
A number of financial measures are used in this pre
sentation and should not be considered in isolation
from, or as a substitute for, the
information provided in CAV’s financial statements
available at www.cavcorp.co.nz.
CAV and its related companies and their respective
directors, employees and representatives make no re
presentation or warranty of any
nature (including as to accuracy or completeness) i
n respect of this presentation and will have no lia
bility (including for negligence) for any
errors in or omissions from, or for any loss (wheth
er foreseeable or not) arising in connection with t
he use of or reliance on, information in
this presentation.
DISCLAIMER
22