Preliminary announcement of June 2018 full year results
MARKET RELEASE
22 August 2018
Cavalier Result at the Top End of Guidance
Significant financial turnaround for Cavalier in FY18, with results at top end of guidance
Profit after tax of $4.1 million with the company now better positioned to benefit from more
favourable operating conditions and realise operating efficiencies
Development of future strategy with increased focus on wool flooring, expanding global
presence and stronger customer relationships
Innovation and operational efficiencies remain key
Outlook for FY19 is for a further year of improving financial performance and growth
$ millions FY18 FY17
Sales revenue 148.1 156.1
EBITDA (Normalised) 10.0 2.6
Net Profit/Loss After Tax 4.1 (2.1)
Net debt as at 30 June 29.4 40.2
Operating cash flow 12.1 (5.4)
Cavalier Corporation Limited (NZX: CAV) has today reported a significant financial turnaround with
an increase in earnings and profit, with strong cash flows resulting in an improved debt position.
For the year ended 30 June 2018, sales were $148.1 million, EBITDA (Normalised) was $10.0 million
and Net Profit After Tax (NPAT) was $4.1 million.
Operating cashflow was $12.1 million, a significant turnaround on FY17. Cavalier’s debt position
improved by $10.8 million to $29.4 million, and inventory levels improved with yarn and carpet
inventory reduced by $3.3 million.
Whilst FY18 delivered a strong improvement in results, dividend payments will remain suspended as
the company establishes sustainable earnings growth and performance.
Cavalier CEO Paul Alston says.
“We are very focused on returning Cavalier to sustainable and profitable growth. Our internal
transformation, including the consolidation of our manufacturing operations in FY17, and focus on
cost management have enabled us to reduce debt and improve profitability. We are back on the
right track and expect to see continuing improvements being delivered in future years.
Paul says lifting volumes and revenue will be a focus for the business in FY19 and beyond.
“While FY18 sales were affected by softer market conditions in both New Zealand and Australia and
a short term impact on supply to Australian customers as a result of Cavalier’s consolidation
programme, an uplift in sales is expected in FY19 as we implement our new strategy.
“We are increasing our focus on our higher end, high margin products. Our home markets of New
Zealand and Australia remain a priority and we will also carefully consider opportunities in other
markets which meet strict criteria, such as a large population of high socio-economic consumers
wanting the best of the best in their homes.
“Wool is nature’s miracle fibre and wool will increasingly be a focus for Cavalier. The virtues of wool
are becoming more widely known and Cavalier is very well placed to be part of the growing
environmental conversation.
As a significant employer in regional New Zealand, where we add value to the New Zealand Wool
clip, we applaud the Government’s recent Wool Summit initiatives to prioritise value creation in New
Zealand wool.”
Cavalier is considered a leader in innovation in wool flooring and is committed to a contemporary
product to match consumer trends.
The company will be working closely with its trade customers to support their sales efforts, with a
new sales strategy being rolled out in New Zealand and Australia.
Manufacturing and operating efficiencies have already improved significantly and planning is
underway for a new IT platform which will further help operational efficiency.
Cavalier Chairman, Alan Clarke, says the company will continue to assess new business and market
opportunities and focus investment, where appropriate, to benefit the company and add
shareholder value.
“This is an exciting time for Cavalier as we move forward with a strong operational platform, a new
strategy, and rising demand for our high end products. There is huge passion within the company for
Cavalier’s products and brands. The Board and management are focused on making Cavalier a
preeminent provider of wool flooring in the world.”
ENDS
For further information please contact:
Paul Alston
Chief Executive Officer
palston@cavbrem.co.nz
+64 21 918 033
+64 9 277 1135
---
Full Year Results Presentation
for the year ended 30 June 2018
22 August 2018
Cavalier Corporation Investor Presentation2
CONTENTS
Our Company
Year in Review
Operating Environment
Making Cavalier Great
Our Opportunity
Our Future and Outlook
We source and buy wool at the farm gate, produce yarn, and design and
manufacture a range of beautiful broadloom carpets.
Cavalier Bremworthis the most recognised and trusted carpet brand in the New
Zealand market and very highly regarded in Australia.
We are renowned for quality and innovation.
We own a wool acquisition business, and are a major shareholder in New
Zealand’s only wool scourer.
We have strong supplier relationships built up from decades of dealing with key
stakeholders in the industry.
We have felted yarn technology that is difficult to replicate and commands
premium pricing.
OUR COMPANY AND STRENGTHS
Cavalier Corporation is a leader in the soft flooring market in Australasia
Cavalier Corporation Investor Presentation
Strong improvement in performance with results
at top end of guidance.
Significant uplift in earnings and profitability.
Company now better positioned following
completion of restructuring and consolidation
programme in FY17.
Focus on cost efficiencies, debt reduction and
inventory management driving improvements.
New product development remains a major
focus.
Completion of strategic review.
Experienced Board and leadership team.
YEAR IN REVIEW
4
Cavalier Corporation Investor Presentation
Wool prices now at historic lows.
NZ dollar weakening against the USD -imports
more expensive and US export markets more
attractive.
AUD strengthening against the NZD, increasing
Australian returns.
Softer market conditions in New Zealand and
Australia.
Increasing demand for environmentally sustainable
products.
OPERATING
ENVIRONMENT
5
Cavalier Corporation Investor Presentation
FY18 FY17
REVENUE
$148.1m$156.1m
X
Impacted by softer market conditions and short term supply
issues to Australia as result of consolidation programme
EBITDA (normalised)
$10.0m$2.6m
Improved operating profit reflecting better marginsand
reduced costs
NPAT/NLAT
$4.1m$(2.1)m
Improved NPAT as benefits start to flow from initiatives to
re-set the business and favourableeconomic factors
OPCASH FLOWS
$12.1m$(5.4)m
Significant turn around in cash flow reflecting increased
profits, careful cash management and reduced working
capital
NET DEBT
$29.4m$40.2m
Reduced debt from improved cash flow, lower inventory and
focus on cost management
INVENTORY
$47.3m$50.6m
Lower inventory due to focused inventory management and
decrease in wool prices.
FULL YEAR RESULT SNAPSHOT
Significant turnaround in earnings and profitability
6
See Glossary slide for explanation of EBITDA and normalised EBITDA
Cavalier Corporation Investor Presentation
KEY METRICS
Improvement on all key ratios FY17: FY18. Further improvements expected in FY19
7
FY18FY17
Return on equity5.7%-2.7%
Basic earnings/share 5.8c-2.7c
Market Cap as at 30 June$42.6m$24.0m
Debt/Equity29:7137:63
Tangible assets/share$1.02$0.95
Cavalier Corporation Investor Presentation
-4.0%
-2.0%
0.0%
2.0%
4.0%
6.0%
8.0%
10.0%
FY14FY15FY16FY17FY18
Return on Shareholder Funds %
FIVE YEAR PERFORMANCE
8
0
2
4
6
8
10
12
14
16
FY14FY15FY16FY17FY18
NormalisedEBITDA ($m)
0
10
20
30
40
50
60
70
80
FY14FY15FY16FY17FY18
Inventory ($m)
0
20
40
60
80
100
FY14FY15FY16FY17FY18
Market Cap ($m)
Cavalier Corporation Investor Presentation
CAPITAL MANAGEMENT
Debt position continues to improve
9
•Major focus on debt reduction
over the past twelve months,
following completion of
manufacturing consolidation
programme.
•Making good progress and
further reductions expected in
the short term.
•Fifty percent reduction in debt
since FY14.
58.8
59.0
53.9
32.7
36.5
42.3
40.2
33.3
29.4
0
10
20
30
40
50
60
70
Jun-14Dec-14Jun-15Dec-15Jun-16Dec-16Jun-17Dec-17Jun-18
Net Debt $m
Aggressive debt
reduction programme
Investment into brand
and consolidating
manufacturing operations
Major focus on
reducing debt
Cavalier Corporation Investor Presentation10
MAKING CAVALIER GREAT
Cavalier Corporation Investor Presentation
GEORGE ADAMS
INDEPENDENT DIRECTOR
EXPERIENCED BOARD AND
LEADERSHIP TEAM
From 1 June 2018
11
GRANT BIEL
NON-INDEPENDENT DIRECTOR
DIANNE WILLIAMS
INDEPENDENT DIRECTOR
JOHN RAE
INDEPENDENT DIRECTOR
ALAN CLARKE
INDEPENDENT CHAIR
LEADERSHIP TEAM
CEO: Paul Alston
CFO: Victor Tan
GM Australia: Michael Richardson
National Sales Manager NZ: Dean
Chandler
GM Product Development/
Marketing: Rochelle Flint
GM Manufacturing: Craig Wallace
GM Comms/Culture: Lenska Papich
SARAH HAYDON
INDEPENDENT DIRECTOR
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 Presentation
OUR OPERATIONS
Operations are based in New Zealand and Australia with exports around the world
12
Brisbane
•Sales office
Sydney
•AU head office
•Administration
•Sales office
Melbourne
•Sales office
Adelaide
•Sales office
Perth
•Sales office
Significant restructure and consolidation
programme completed in FY17
Cavalier Corporation Investor Presentation
•Wool price increase from 2011 and subsequent drop from
2016 to historic lows (every $1 movement circa $3.0m).
•Strengthening NZD against AUD from 2012 –80c to mid
90c’s currently settling at low 90c level (every 1c
movement circa $500k profit impact).
•Move from wool to synthetics and from soft to hard
flooring.
•Flood of imported product helped by a strong NZD:USD.
Recent strengthening of the USD making imports more
costly.
•Environmental issues becoming more prominent.
THE MARKET
13
0
100
200
300
400
500
600
700
Dec-99
Nov-00
Oct-01
Sep-02
Aug-03
Jul-04
Jun-05
May-06
Apr-07
Mar-08
Feb-09
Jan-10
Dec-10
Nov-11
Oct-12
Sep-13
Aug-14
Jul-15
Jun-16
May-17
Apr-18
Cents per Kilogram
Wool Price c/kg
0.7
0.75
0.8
0.85
0.9
0.95
1
28/06/199628/06/199728/06/199828/06/199928/06/200028/06/200128/06/200228/06/200328/06/200428/06/200528/06/200628/06/200728/06/200828/06/200928/06/201028/06/201128/06/201228/06/201328/06/201428/06/201528/06/201628/06/201728/06/2018
NZD
NZD:AUD
2%
42%
55%
0.5%
0.5%
Percentage of sales
Cavalier Corporation Investor Presentation
•Wool carpets are our heritage.
•Majority of current sales into
Australia and New Zealand.
•Growth opportunities in other world
markets with wool carpets –
particularly North America & UK.
•US wool carpet market estimated at
USD513m.
•UK wool carpet market estimated at
USD498m.
OPPORTUNITY IN THE GLOBAL WOOL MARKET
14
THE FUTURE
•Cavalier’s leadership position in wool.
•Increased focus on high-end, higher
margin products.
•Growth opportunities in woollen
products outside of New Zealand.
•Increased R&D and marketing spend
–innovation and product
development.
•Opportunities for growth in Australia.
•Invest in and promote the
environmental benefits of our
woollenproducts.
•Consumer touch points (World of
Difference) investment.
•Increased investment in our people.
Cavalier Corporation Investor Presentation15
Cavalier Corporation Investor Presentation
•Favourable wool prices.
•Balance sheet continues to strengthen –further debt reduction.
•NZD/AUD more favourable.
•Demand for wool continues to grow –positive effect on wool trading volumes and scour volumes.
•Continued cost management.
•Efficiency improving in manufacturing operations and further gains to be realised.
•Uplift in sales expected across all markets as new strategy implemented.
•Investment into new IT system, customer relationships, expanding global presence and innovation.
•Continue to assess new business and market opportunities in line with strategy.
OUTLOOK FOR FY19
Another year of improving financial performance and growth
16
Cavalier Corporation Investor Presentation17
CONTACT:
Paul Alston
Chief Executive Officer
Tel: 09 277 1135
Email: palston@cavbrem.co.nz
EBITDAEarnings Before Interest, Tax, Depreciation and Amortisation. EBITDA excludes profit/losses generated by the
wool scouring business, in which Cavalier has a 27.5% shareholding. The results for this business are equity
accounted on a separateline in the annual accounts and therefore not included in the consolidated EBITDA.
Normalised EBITDAEBITDA excluding abnormal items and non-trading adjustments. A reconciliation of EBITDA to normalised
EBITDA is below.
NPATNet Profit After Tax
GLOSSARY AND RECONCILIATION
$000’sFY18FY17
EBITDA10,324(2,232)
Restructuring costs(189)6,309
Reversal of impairment of fixed assets(137)(1,505)
Normalised EBITDA9,9982,572
Cavalier Corporation Investor Presentation
CAVALIER CORPORATION LIMITEDNZX: CAV
Number of shares on issue 68,679,098
New Zealand holdings 67,367,209
Offshore holdings 1,311,889
Market Cap as at 18 August 2018$39,147,085
CORPORATE INFORMATION
19
Top Shareholders (over 500,000 shares)
RankName17-Aug-18%
1
MARAMA TRADI NG LI MI TED9,610,718
14.0
2
RURAL AVI ATI ON (1963) LI MI TED8,567,642
12.5
3
ACCI DENT COMPENSATI ON CORPORATI ON - NZCSD <ACCI 40>4,150,000
6.0
4
FNZ CUSTODI ANS LI MI TED1,460,605
2.1
5
FORSYTH BARR CUSTODI ANS LI MI TED <1-CUSTODY>1,278,440
1.9
6
J & D SANDS LI MI TED1,000,000
1.5
7
MASFEN SECURI TI ES LI MI TED787,500
1.2
8
JPMORGAN CHASE BANK NA NZ BRANCH-SEGREGATED CLI ENTS ACCT - NZCSD <CHAM24>735,008
1.1
9
PERCY KEI TH MCFADZEAN715,000
1.0
10
I AN DAVI D MCI LRAI TH650,000
1.0
11
GRAHAM JAMES MUNRO + ZI TA LI LLI AN MUNRO570,000
0.8
12
MI CHAEL LOOKMAN + 187 BRI DGE TRUSTEES 53 LI MI TED <LOOKMAN FAMI LY A/C>500,000
0.7
13
WAI RAHI HOLDI NGS LI MI TED500,000
0.7
Cavalier Corporation Investor Presentation
This presentation has been prepared by Cavalier Corporation Limited (“CAV”).The information in this presentation 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 invitationorsolicitation for
such offers.
This presentation is not intended as investment, financial or other advice and must not be relied on by any prospective investor.It does not
take into account any particular prospective investor’s objectives, financial situation, circumstances or needs, and does notpurport to
contain all the information that a prospective investor may require. Any person who is considering an investment in CAV securities should
obtain independent professional advice prior to making an investment decision, and should make any investment decision havingregard to
that person’s own objectives, financial situation, circumstances and needs.
Past performance information contained in this presentation should not be relied upon (and is not) an indication of future
performance.This presentation may also contain forward looking statements with respect to the financial condition, results of operations
and business, and business strategy of CAV. Information about the future, by its nature, involves inherent risks and uncertainties.
Accordingly, nothing in this presentation is a promise or representation as to the future or a promise or representation thata transaction or
outcome referred to in this presentation will proceed or occur on the basis described in this presentation. Statements or assumptions in this
presentation as to future matters may prove to be incorrect.
A number of financial measures are used in this presentation and should not be considered in isolation from, or as a substitutefor, 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 representation or warranty of any
nature (including as to accuracy or completeness) in respect of this presentation and will have no liability (including for negligence) for any
errors in or omissions from, or for any loss (whether foreseeable or not) arising in connection with the use of or reliance on, information in
this presentation.
DISCLAIMER
20
---
ANNUAL FINANCIAL STATEMENTS - YEAR ENDED 30 JUNE 2018
CONTENTS
Directors’ Responsibility Statement 1
Independent Auditor’s Report 2
Income Statement 8
Statement of Comprehensive Income 9
Statement of Changes in Equity 10
Statement of Financial Position 12
Statement of Cash Flows 13
Notes to the Financial Statements
1. Company information 15
2. General information relating to preparation of financial statements 15
3. Financial performance
3a. Segment performance 18
3b. Earnings per share 21
3c. Revenue 21
3d. Other income and gains 21
3e. Administration expenses 21
3f. Personnel expenses 22
3g. Net finance costs 22
3h. Income tax 22
4. Funding
4a. Capital management 25
4b. Share capital, dividends and reserves 26
4c. Loans and borrowings 27
5. Assets employed
5a. Property, plant and equipment 28
5b. Capital commitments 30
5c. Goodwill 31
6. Working capital
6a. Cash and cash equivalents 32
6b. Trade receivables, other receivables and prepayments 32
6c. Inventories 32
6d. Trade creditors and accruals 33
7. Risks and financial instruments 34
8. Others
8a. Equity-accounted investees 43
8b. Provisions 46
8c. Employee benefits 48
8d. Operating leases 48
8e. Contingencies 49
8f. Related parties 49
8g. Group entities 51
8h. Event after balance date 51
8i. Standards, interpretations and amendments to standards 52
Trend Statement 54
Disclosure of Non-GAAP Financial Information 58
1
Cavalier Corporation Limited and subsidiary companies
Directors’ Responsibility Statement
DIRECTORS' RESPONSIBILITIES
The Directors are responsible for the preparation of the Group financial statements. The Directors discharge this
responsibility by ensuring that the financial statements comply with Generally Accepted Accounting Practice and give
a true and fair view of the financial position of the Group as at balance date and of its operations and cash flows for
the year ended on that date.
ACCOUNTING POLICIES
The Directors consider that the accounting policies used in the preparation of the Group financial statements are
appropriate, consistently applied, and supported by reasonable judgements and estimates. All relevant financial
reporting and accounting standards have also been complied with.
ACCOUNTING RECORDS
The Directors believe that proper accounting records, which enable, with reasonable accuracy, the determination of
the financial position of the Group and facilitate the compliance of the financial statements with the Financial Markets
Conduct Act 2013, have been kept.
SAFEGUARDING OF ASSETS AND INTERNAL CONTROLS
The Directors consider that they have taken adequate steps to safeguard the assets of the Group and to prevent and
detect fraud and other irregularities. Internal control procedures are also considered to be sufficient to provide a
reasonable assurance as to the integrity and reliability of the financial statements.
FINANCIAL STATEMENTS
The Directors present, on pages 8 to 53, the Group financial statements for the year ended 30 June 2018.
These financial statements were authorised for issue by the Directors on 21 August 2018 and, as required by section
461(1)(b) of the Financial Markets Conduct Act 2013, are dated and signed as at that date.
For and on behalf of Cavalier Corporation Limited
A W Clarke
Chairman of the Board of Directors
S E F Haydon
Chairman of the Audit Committee
© 2018 KPMG, a New Zealand partnership and a member firm of the KPMG network of independent
member firms affiliated with KPMG International Cooperative (“KPMG International”), a Swiss entity.
Independent Auditor’s Report
To the shareholders of Cavalier Corporation Limited
Report on the consolidated financial statements
Opinion
In our opinion, the accompanying consolidated
financial statements of Cavalier Corporation Limited
(‘the Company’) and its subsidiaries (‘the Group’) on
pages 8 to 53:
i.present fairly in all material respects the Group’s
financial position as at 30 June 2018 and its
financial performance and cash flows for the
year ended on that date; and
ii.comply with New Zealand Equivalents to
International Financial Reporting Standards and
International Financial Reporting Standards.
We have audited the accompanying consolidated
financial statements which comprise:
— the consolidated statement of financial position
as at 30 June 2018;
— the consolidated income statement,
statements of comprehensive income, changes
in equity and cash flows for the year then
ended; and
— notes, including a summary of significant
accounting policies and other explanatory
information.
Basis for opinion
We conducted our audit in accordance with International Standards on Auditing (New Zealand) (‘ISAs (NZ)’). We
believe that the audit evidence we have obtained is sufficient and appropriate to provide a basis for our opinion.
We are independent of the Group in accordance with Professional and Ethical Standard 1 (Revised) Code of
Ethics for Assurance Practitioners issued by the New Zealand Auditing and Assurance Standards Board and the
International Ethics Standards Board for Accountants’ Code of Ethics for Professional Accountants (IESBA
Code), and we have fulfilled our other ethical responsibilities in accordance with these requirements and the
IESBA Code.
Our responsibilities under ISAs (NZ) are further described in the auditor’s responsibilities for the audit of the
consolidated financial statements section of our report.
Our firm has also provided other services to the Group in relation to transfer pricing and income tax return
review, and scrutineering at the Company’s Annual Meeting of shareholders. Subject to certain restrictions,
partners and employees of our firm may also deal with the Group on normal terms within the ordinary course of
trading activities of the business of the Group. These matters have not impaired our independence as auditor of
the Group. The
firm has no other relationship with, or interest in, the Group.
Materiality
The scope of our audit was influenced by our application of materiality. Materiality helped us to determine the
nature, timing and extent of our audit procedures and to evaluate the effect of misstatements, both individually
and on the consolidated financial statements as a whole. The materiality for the consolidated financial
statements as a whole was set at $350,000.
2
3
Key audit matters
Key audit matters are those matters that, in our professional judgement, were of most significance in our audit
of t he consolidated financial statements in the current period. We summarise below those matters and our key
audit procedures to address those matters in order that the shareholders as a body may better understand the
process by which we arrived at our audit opinion. Our procedures were undertaken in the context of and solely
for the purpose of our statutory audit opinion on the consolidated financial statements as a whole and we do not
express discrete opinions on separate elements of the consolidated financial statements.
The key audit matter How the matter was addressed in our audit
Forecasting liquidity and covenant compliance
Refer to Notes 2 and 4c to the Financial Statements.
On 29 June 2018 the Group extended the term of
its loan facility, and modified loan repayment terms
and financial covenants requirements that are
measured on a quarterly basis over the term of the
facility. The Group complied with the terms of its
loan facility during the financial year.
Management have forecast the Group’s financial
performance, cash flows and financial position to
support the Directors’ assessment and conclusion
that the Group will be able to comply with its loan
covenants and loan repayment obligations for a
period of at least one year from the issuance of
these financial statements. In performing this
assessment, assumptions are made in respect of
future economic and market conditions, such as
forecast sales volumes, expected sales price
fluctuations, production efficiencies, forecast USD
and AUD exchange rate movements, and forecast
wool prices, with consideration of the Group’s
hedged positions.
In the event that management’s forecasts are not
achieved and loan covenants are not complied
with, the Group may be required to renegotiate its
loan facility to enable it to continue its operations.
We have focused on this area because there is
judgment about the future performance of the
Group and its ability to meet its loan repayment
obligations and loan covenant requirements.
We evaluated management’s forecasts and the Group’s
ability to comply with its loan facility terms by performing
the following procedures:
- Reviewed terms of the Group’s revised facility
agreement dated 29 June 2018.
- Evaluated the Group’s forecasting processes and
the accuracy of previous forecasts by comparing
actual performance against forecasts in prior
periods.
- Reviewed the Group’s forecast financial
performance, cash flows and financial position,
challenged key assumptions against historical
production and market data, reviewed hedging
agreements and wool contracts, and considered
internal and external factors impacting the business.
- Reviewed key inputs and assessed their
consistency with Director-approved forecasts.
- Obtained and reviewed management’s projected
loan covenant calculations
at relevant measurement
dates taking into account definitions in the facility
agreement.
- Performed a sensitivity analysis of the Group’s
forecasts.
- Read an independent review of the Group’s FY2019
cash flow budget and its underlying assumptions.
- Assessed the adequacy of related disclosures in the
financial statements against the requirements of the
accounting standards.
Based on our analysis of management’s forecasting
models and the underlying assumptions, the forecasts
are particularly dependent on the Group’s ability to
achieve sales volumes and planned production
efficiencies.
We did not identify material matters that were
inconsistent with the Directors’ conclusion that the
financial statements should be prepared on a going
concern basis.
4
Impairment of non-current assets
Refer to Notes 5a and 5c to the financial
statements.
As at 30 June 2018 the carrying amount of
property, plant and equipment (‘PP&E’) and
goodwill relating to the Carpets cash generating
unit (‘CGU’) was $33,712,000 and $2,362,000,
respectively.
The Group’s market capitalisation of $42,581,000 is
significantly below the carrying value of its net
assets of $72,222,000 as at 30 June 2018. This
disparity is an indicator of potential impairment of
PP&E and goodwill allocated to the Carpets CGU.
Management performs an impairment assessment
of PP&E where there are indicators of impairment,
and annually performs an impairment test of
goodwill. Based on this assessment, management
determined there is no impairment of goodwill or
PP&E as at the balance date.
As disclosed in Notes 5a and 5c, the Group uses a
Discounted Cash Flow (DCF) model to
determine
the recoverable amount of the Carpets CGU to
which the goodwill and PP&E have been
allocated. In performing this assessment,
assumptions are made in respect of future
economic and market
conditions, such as forecast
sales volumes, expected sales fluctuations,
budgeted production efficiencies, forecast USD
and AUD exchange rate
movements, and forecast
wool prices, with consideration of the Group’s
hedged positions. Additionally, management
d
etermined a terminal growth rate and discount
rate which reflect an assessment of the time value
of money and the risks specific to the business.
We focused on the impairment of goodwill and
PP&E allocated to the Carpets CGU, due to the
magnitude of these balances and judgement
involved in assessing their recoverability.
Our testing of impairment of goodwill and PP&E included
the following procedures:
- Evaluated management’s identification of CGU’s
and the corresponding allocation of goodwill and
PP&E.
- Evaluated the methodologies, data and assumptions
used in the discounted cash flow model and in
doing this, we involved our valuation specialists.
- Challenged management’s cash flow assumptions,
including projected sales volumes, sales margin,
wool price and foreign exchange rates against
historical performance and forecast market
information.
- Performed sensitivity analyses on the key
assumptions used in the impairment model.
- Evaluated disclosure of impairment and related key
assumptions in the financial statements of the
Group.
We did not identify material exceptions from procedures
performed, and found the judgements and assumptions
used in the assessment of impairment of non-current
assets to be balanced.
5
Impairment of equity-accounted investees
Refer to Note 8a to the financial statements.
The Group holds a 27.5% investment in Cavalier
Wool Holdings Limited (‘CWH’), a national wool
scouring operation.
Continued uncertainty around the industry’s future
market structure and market conditions indicate a
risk of impairment, and the Group has used a DCF
value-in-use model to determine the recoverable
amount of the Group’s equity-accounted
investment in CWH as at 30 June 2018. In
performing this assessment, the Group has made
assumptions around the expected future structure
of the industry, projected processing volumes,
future scouring tariff rates and lanolin prices.
Additionally, a terminal growth rate and discount
rate were applied reflecting an assessment of the
time value of money and the risks specific to the
business.
We focused on the impairment of CWH due to the
magnitude of the Group’s investment, and the
judgement involved in assessing its recoverability.
Our testing of the valuation of the Group’s investment in
CWH included the following procedures:
- Evaluated the impairment testing performed by the
Group, assessing methodologies, data and
assumptions used in the discounted cash flow
model. We involved our valuation specialists in this
evaluation process.
- Challenged management’s cash flow assumptions
in the impairment model, including projected
processing volumes, scouring tariff rates and lanolin
prices against historical actuals and forecast market
information.
- Performed sensitivity analyses on the key
assumptions used in the impairment model.
We did not identify material exceptions from procedures
performed, and found the judgements and assumptions
used in the assessment of impairment of the Group’s
investment in CWH to be balanced.
Valuation of inventory
Refer to Note 6c to the financial statements.
The Group has significant inventory balances
consisting of both raw materials and finished
goods relating primarily to the production of
carpets. The inventory is valued at the lower of
cost and net realisable value. Assessing the net
realisable value of inventory is complex and
requires judgement in regard to the identification
and categorisation of inventory as obsolete, slow
moving and at risk of being sold below cost.
Estimates are then involved in determining the
amount of provision required against the cost of
such inventory items. Consequently, we focused
on the valuation of inventory as part of our audit.
We evaluated the valuation of inventory by performing
the following audit procedures:
- Observed the condition of inventory as part of our
physical inventory count procedures.
- Assessed the Group’s methodology for identifying
slow moving and obsolete inventories, taking into
consideration the nature of the inventory and the
Group’s inventory rationalisation plans.
- Obtained management’s calculation of net realisable
value for slow moving and obsolete inventories and
compared it to historical sales and margin reports.
We also assessed and challenged key assumptions
for reasonableness and corroborated with
explanations provided by sales and inventory
managers.
- Reviewed and tested underlying sales and inventory
cost reports.
We did not identify material exceptions from procedures
performed, and found the judgements and assumptions
to be balanced and consistent with our understanding of
the nature and intended use of the inventory.
6
Other information
The Directors, on behalf of the Group, are responsible for the other information included in the entity’s Annual
Financial Statements and Annual Report. Other information includes Trend Statement and Disclosure of non-
GAAP Financial Information and the other information included in the Annual Report. Our opinion on the
consolidated financial statements does not cover any other information and we do not express any form of
assurance conclusion thereon.
In connection with our audit of the consolidated financial statements our responsibility is to read the other
information and, in doing so, consider whether the other information is materially inconsistent with the
consolidated financial statements or our knowledge obtained in the audit or otherwise appears materially
misstated. If, based on the work we have performed, we conclude that there is a material misstatement of this
other information, we are required to report that fact. We have received the Trend Statement and Disclosure of
non-GAAP Financial Information and have nothing to report in regards to it. The Annual Report is expected to be
made available to us after the date of this Independent Auditor's Report and we will report the matters
identified, if any, to the Directors.
Use of this independent Auditor’s Report
This independent Auditor’s Report is made solely to the shareholders as a body. Our audit work has been
undertaken so that we might state to the shareholders those matters we are required to state to them in the
independent Auditor’s Report and for no other purpose. To the fullest extent permitted by law, we do not accept
or assume responsibility to anyone other than the shareholders as a body for our audit work, this independent
auditor’s report, or any of the opinions we have formed.
Responsibilities of the Directors for the consolidated financial statements
The Directors, on behalf of the Company, are responsible for:
— the preparation and fair presentation of the consolidated financial statements in accordance with generally
accepted accounting practice in New Zealand (being New Zealand Equivalents to International Financial
Reporting Standards) and International Financial Reporting Standards;
— implementing necessary internal control to enable the preparation of a consolidated set of financial
statements that is fairly presented and free from material misstatement, whether due to fraud or error; and
— assessing the ability to continue as a going concern. This includes disclosing, as applicable, matters related
to going concern and using the going concern basis of accounting unless they either intend to liquidate or to
cease operations, or have no realistic alternative but to do so.
Auditor’s responsibilities for the audit of the consolidated financial statements
Our objective is:
— to obtain reasonable assurance about whether the consolidated financial statements as a whole are free
from material misstatement, whether due to fraud or error; and
— to issue an independent auditor’s report that includes our opinion.
Reasonable assurance is a high level of assurance, but is not a guarantee that an audit conducted in accordance
with ISAs NZ will always detect a material misstatement when it exists.
Misstatements can arise from fraud or error. They are considered material if, individually or in the aggregate,
they could reasonably be expected to influence the economic decisions of users taken on the basis of these
consolidated financial statements.
7
A further description of our responsibilities for the audit of these consolidated financial statements is located at
the External Reporting Board (XRB) website at:
http://www.xrb.govt.nz/standards-for-assurance-practitioners/auditors-responsibilities/audit-report-1/
This description forms part of our independent auditor’s report.
The engagement partner on the audit resulting in this independent auditor's report is Aaron Woolsey.
For and on behalf of
KPMG
Auckland
21 August 2018
8
Cavalier Corporation Limited and subsidiary companies
Income Statement
For the year ended 30 June 2018
2018 2017
Notes $000 $000
Revenue 3c 148,120 156,120
Cost of sales (111,917) (126,243)
Gross profit 36,203 29,877
Other income and gains 3d 77 21
Distribution expenses (23,016) (24,656)
Administration expenses 3e (6,737) (5,921)
Restructuring costs 189 (6,309)
Impairment of fixed assets 5a (90) -
Reversal of impairment of fixed assets 5a 137 1,505
Results from operating activities 6,763 (5,483)
Net finance costs 3g (2,798) (2,936)
Share of profit of equity-accounted investees
(net of income tax)
8a
1,291
59
Gain on merger and dilution of equity-
accounted investee
-
3,929
Profit/(Loss) before income tax 5,256 (4,431)
Income tax (expense)/benefit 3h (1,175) 2,307
Profit/(Loss) after tax for the period $4,081 $(2,124)
Basic and diluted earnings per share
(cents)
3b
5.9
(3.1)
This statement is to be read in conjunction with the notes on pages 8 to 53.
9
Cavalier Corporation Limited and subsidiary companies
Statement of Comprehensive Income
For the year ended 30 June 2018
Note
2018
$000
2017
$000
Profit/(Loss) after tax for the period
4,081
(2,124)
Other comprehensive income that may be reclassified
subsequently to profit or loss
Effective portion of changes in fair value of cash flow hedges 785 799
Net change in fair value of cash flow hedges transferred to profit
or loss
(300)
104
Income tax on changes in fair value of cash flow hedges 3h (136) (253)
Share of fair value of cash flow hedges (net of tax) of equity-
accounted investee
8a
(97)
(3)
Foreign currency translation differences for foreign operations (1) 6
251 653
Other comprehensive income not reclassified subsequently
to profit or loss
-
-
Other comprehensive income for the period, net of income
tax
251
653
Total comprehensive income for the period $4,332 $(1,471)
This statement is to be read in conjunction with the notes on pages 8 to 53.
10
Cavalier Corporation Limited and subsidiary companies
Statement of Changes in Equity
For the year ended 30 June 2018
Share
Capital
Cash Flow
Hedging
Reserve
Foreign Currency
Translation
Reserve
Retained
Earnings
Total Equity
Note $000 $000 $000 $000 $000
Total equity at 1 July 2017
$21,846
$(322)
$(1,419)
$47,785
$67,890
Total comprehensive income for the period
Profit after tax - - - 4,081 4,081
Other comprehensive income that may be reclassified
subsequently to profit or loss
Changes in fair value of cash flow hedges (net of tax) - 349 - - 349
Share of fair value of cash flow hedges (net of tax) of equity-
accounted investee
8a
-
(97)
-
-
(97)
Foreign currency translation differences for foreign operations - - (1) - (1)
- 252 (1) - 251
Other comprehensive income not reclassified subsequently
to profit or loss
-
-
-
-
-
Total other comprehensive income - 252 (1) - 251
Total comprehensive income for the period - 252 (1) 4,081 4,332
Transactions with owners, recorded directly in equity - - - - -
Total equity at 30 June 2018 $21,846 $(70) $(1,420) $51,866 $72,222
This statement is to be read in conjunction with the notes on pages 8 to 53.
11
Cavalier Corporation Limited and subsidiary companies
Statement of Changes in Equity (continued)
For the year ended 30 June 2017
Share
Capital
Cash Flow
Hedging
Reserve
Foreign Currency
Translation
Reserve
Retained
Earnings
Total Equity
Note $000 $000 $000 $000 $000
Total equity at 1 July 2016
$21,846
$(969)
$(1,425)
$49,909
$69,361
Total comprehensive income for the period
Loss after tax - - - (2,124) (2,124)
Other comprehensive income that may be reclassified
subsequently to profit or loss
Changes in fair value of cash flow hedges (net of tax) - 650 - - 650
Share of fair value of cash flow hedges (net of tax) of equity-
accounted investee
8a
-
(3)
-
-
(3)
Foreign currency translation differences for foreign operations - - 6 - 6
- 647 6 - 653
Other comprehensive income not reclassified subsequently
to profit or loss
-
-
-
-
-
Total other comprehensive income - 647 6 - 653
Total comprehensive income for the period - 647 6 (2,124) (1,471)
Transactions with owners, recorded directly in equity - - - - -
Total equity at 30 June 2017 $21,846 $(322) $(1,419) $47,785 $67,890
This statement is to be read in conjunction with the notes on pages 8 to 53.
12
Cavalier Corporation Limited and subsidiary companies
Statement of Financial Position
As at 30 June 2018
2018 2017
Note $000 $000
ASSETS
Property, plant and equipment 5a 35,142 37,123
Goodwill 5c 2,362 2,362
Investment in equity-accounted investees 8a 24,544 23,490
Deferred tax asset 3h 4,971 5,532
Total non-current assets 67,019 68,507
Cash and cash equivalents 6a 2,111 1,255
Trade receivables, other receivables and prepayments 6b 15,582 17,261
Inventories 6c 47,321 50,635
Derivative financial instruments 7 971 898
Income tax receivable - 301
Total current assets 65,985 70,350
Total assets $133,004 $138,857
EQUITY
Share capital 4b 21,846 21,846
Cash flow hedging reserve 4b (70) (322)
Foreign currency translation reserve 4b (1,420) (1,419)
Retained earnings 51,866 47,785
Total equity 72,222 67,890
LIABILITIES
Loans and borrowings 4c 27,500 35,000
Employee benefits 8c 911 1,097
Deferred income - 18
Provisions 8b 1,118 2,613
Total non-current liabilities 29,529 38,728
Loans and borrowings 4c 4,000 6,500
Trade creditors and accruals 6d 19,490 18,855
Provisions 8b 2,214 1,693
Employee entitlements 4,076 3,832
Deferred income 47 67
Derivative financial instruments 7 593 1,292
Income tax payable 833 -
Total current liabilities 31,253 32,239
Total liabilities 60,782 70,967
Total equity and liabilities $133,004 $138,857
This statement is to be read in conjunction with the notes on pages 8 to 53.
13
Cavalier Corporation Limited and subsidiary companies
Statement of Cash Flows
For the year ended 30 June 2018
2018 2017
Note $000 $000
CASH FLOWS FROM OPERATING ACTIVITIES
Cash receipts from customers 149,448 159,855
Cash paid to suppliers and employees (135,587) (159,518)
13,861 337
Dividends received 1 1
Other receipts 4 4
GST (paid)/refunded 665 (73)
Interest paid (2,773) (2,912)
Income tax (paid)/refunded 385 (2,730)
Net cash flow from operating activities 12,143 (5,373)
CASH FLOWS FROM INVESTING ACTIVITIES
Proceeds from sale of property, plant and equipment 161 90
Acquisition of property, plant and equipment 5a (1,622) (2,123)
Dividends received from equity-accounted investee 8a 140 3,670
Net cash flow from investing activities (1,321) 1,637
CASH FLOWS FROM FINANCING ACTIVITIES
Movements in bank borrowings 4c (10,000) 3,800
Net cash flow from financing activities (10,000) 3,800
Net increase in cash and cash equivalents
822 64
Cash and cash equivalents at beginning of the period 1,255 1,200
Effect of exchange rate changes on cash 34 (9)
Cash and cash equivalents at end of the period $2,111 $1,255
This statement is to be read in conjunction with the notes on pages 8 to 53.
14
Cavalier Corporation Limited and subsidiary companies
Statement of Cash Flows (continued)
For the year ended 30 June 2018
RECONCILIATION OF PROFIT/LOSS WITH NET CASH FLOW FROM OPERATING ACTIVITIES
2018
2017
$000
$000
Profit/(Loss) after tax for the period 4,081
(2,124)
Add/(Deduct) non-cash items:
Depreciation
3,561
3,251
Impairment of fixed assets
90
-
Reversal of impairment of fixed assets
(137)
(1,505)
Share of profit of equity-accounted investees
(1,291)
(3,988)
Deferred tax benefit
425
(2,289)
Employee benefits
58
(140)
Deferred income
(38)
(66)
Provisions
(974)
(2,894)
Net gain on sale of property, plant and equipment
(72)
(16)
Net (gain)/loss on foreign currency balance
(34)
12
Changes in working capital items:
Trade and other receivables
1,679
4,466
Inventories
3,314
7,099
Income tax payable/receivable
1,134
(2,747)
Trade creditors and accruals
635
(4,465)
Derivative financial instruments
(288)
33
Net cash flow from operating activities $12,143
$(5,373)
This statement is to be read in conjunction with the notes on pages 8 to 53.
15
Cavalier Corporation Limited and subsidiary companies
Notes to the Financial Statements
For the year ended 30 June 2018
1. COMPANY INFORMATION
Cavalier Corporation Limited (“Cavalier” or “Company”) is a limited liability company that is domiciled and
incorporated in New Zealand.
The financial statements presented are for Cavalier and its subsidiaries (“Group”) and the Group’s investment in
equity-accounted investees as at, and for the year ended, 30 June 2018.
The Company is registered under the Companies Act 1993 and is an FMC reporting entity for the purposes of
the Financial Reporting Act 2013 and the Financial Markets Conduct Act 2013. The financial statements have
been prepared in accordance with these Acts.
The principal activities of the Group comprise wool acquisition, and carpet manufacturing and sales.
All Group subsidiaries are wholly-owned.
The Group also has a 27.5% interest in commission woolscourer, Cavalier Wool Holdings Limited, and a 50%
interest in property-owning entity, CWS Assets Limited.
2. GENERAL INFORMATION RELATING TO PREPARATION OF FINANCIAL STATEMENTS
Statement of compliance
The financial statements comply with New Zealand equivalents to International Financial Reporting Standards
(NZ IFRS), other applicable New Zealand accounting standards and authoritative notices as appropriate for Tier
1 For-Profit entities. The financial statements also comply with International Financial Reporting Standards
(IFRS).
Basis of preparation
The financial statements have been prepared in accordance with New Zealand Generally Accepted Accounting
Practice (NZ GAAP) as appropriate for Tier 1 For-Profit entities.
They have been prepared on the historical cost basis, except for derivative financial instruments which are
measured at fair value as disclosed at note 7 (Risks and financial instruments) to the financial statements.
The financial statements are presented in New Zealand dollars ($), which is the Company’s functional currency.
All entities in the Group have New Zealand dollars as its functional currency. Unless otherwise indicated, all
financial information presented in New Zealand dollars has been rounded to the nearest thousand.
The income statement and statements of comprehensive income, changes in equity and cash flows are stated
exclusive of GST. All items in the statement of financial position are stated exclusive of GST, with the exception
of trade receivables and trade payables, which include GST invoiced.
Going concern
The Group prepares its financial statements on a going concern basis and expects to be able to realise its
assets and meet its financial obligations in the normal course of business.
The Group’s ability to comply with the Bank’s financial covenants, as discussed at note 4c (Loans and
borrowings) to the financial statements, and generate sufficient cash flows from operations to satisfy its funding
and other financial obligations for a period of at least 12 months following balance date is important to
determining the appropriateness of the going concern basis of accounting.
16
Going concern (continued)
In this regard, reliance is placed on the forecasts of the Group’s financial performance, cash flows and financial
position that are prepared by management as part of its monitoring of the Group’s operations and the Group’s
ability to comply with, among other things, the Bank’s financial covenants and debt repayment obligations over
the term of its Bank facility.
In preparing these financial forecasts, assumptions are made in respect of:
(i) future economic and market conditions, competitor activity and, as a consequence, sales volumes and
margins;
(ii) the performance of the Group’s manufacturing plants;
(iii) its inventory rationalisation and debt reduction programmes;
(iv) the NZD:AUD and NZD:USD exchange rates, after taking into account hedged positions;
(v) wool prices and other raw material costs; and
(vi) other cost-reduction initiatives.
The Board of Directors (“Board”) notes that these financial forecasts are sensitive to changes in some of the
assumptions underlying the forecasts – including sales volumes and margins, manufacturing performances and
a number of external factors over which the Group has limited control over, such as exchange rates and raw
material input costs.
However, the Board notes the progress that has been made since August 2017 when it authorised the issue of
the Group’s annual financial statements for the year ended 30 June 2017.
For the year ended 30 June 2018, the Group generated a profit after tax of $4.1 million and positive cash flow
from operations of $12.1 million. Additionally, the Group has reduced inventory and net bank loans and
borrowings by $3.3 million and $10.8 million respectively. As a consequence, the Group is now in a stronger
financial position.
The Board also notes the actions that have been taken to manage the Group’s exposure to foreign currency
movements and wool price fluctuations by using hedging instruments and entering into wool contracts.
A number of other initiatives and disciplines have also been put in place to further reduce costs, inventory and
bank loans and borrowings, thereby further strengthening the Group’s financial position and providing it with
additional protection against erosion in forecast earnings and cash flows should economic and market
conditions not turn out as expected.
The Board considers the Group to be a going concern and believes that the Group will generate sufficient
operating cash flows to be able to meet its contractual obligations as these become due.
Significant accounting policies, estimates and judgements
There have been no changes to accounting policies.
The preparation of financial statements requires management to make judgements, estimates and assumptions
(based on historical experience and other factors management believes to be reasonable) that affect the
application of accounting policies and the reported amounts of assets, liabilities, income and expenses. Actual
results may differ from these estimates.
17
Estimates and underlying assumptions are reviewed on an ongoing basis. Revisions to accounting estimates
are recognised in the period in which the estimate is revised and in any future periods affected.
Accounting policies are identified throughout the notes to the financial statements.
Information about judgements, estimations and assumptions that have a significant effect on the amounts
recognised in the financial statements are disclosed in the following notes:
Note 2 – going concern
Note 3h – measurement and recoverability of tax losses
Note 5a – recoverability of property, plant and equipment
Note 5c – recoverability of goodwill
Note 6c – inventory provisioning
Note 8a – recoverability of equity-accounted investees
Note 8b – measurement of provisions
Note 8c – measurement of employee benefits
Accounting policies and judgements, estimations and assumptions are identified using the following coloured
boxes:
Accounting policies Judgements, estimations and assumptions
Basis of consolidation
The financial statements incorporate the assets and liabilities of all subsidiaries of the Group as at 30 June 2018
and the results of all subsidiaries for the year then ended. Subsidiaries are all entities over which the Company
has control. The Company controls an entity when the Company is exposed to, or has rights to, variable returns
from its involvement with the entity and has the ability to affect those returns through its power over the entity.
Intra-group balances and transactions, and any unrealised gains arising from intra-group transactions, are
eliminated in preparing the financial statements. Unrealised losses are also eliminated unless the underlying
intra-group transaction provides evidence that the asset transferred is impaired.
Unrealised gains arising from transactions with equity-accounted investees are eliminated against the
investment to the extent of the Group’s interest in the investee. Unrealised losses are eliminated in the same
way as unrealised gains, but only to the extent that there is no evidence of impairment.
New and amended accounting standards adopted
No new accounting standards and amendments to existing standards were adopted by the Group during the
year.
18
3. FINANCIAL PERFORMANCE
This section deals with the financial performance of the Group and addresses, among other things, the financial
performance of the Group’s reportable segments and the key areas that impact on the Group’s profitability,
including operating revenue, other income, gains/losses on sale of property, plant and equipment, expenses and
taxation.
3a. Segment performance
Reportable segments
The Group’s reportable and operating segments are:
carpet manufacturing and sales; and
wool acquisition.
An operating segment is a component of the Group:
that engages in business activities from which it may earn revenues and incur expenses, including revenues
and expenses that relate to transactions with any of the Group’s other components;
whose operating results are regularly reviewed by the Group’s chief operating decision maker - in this case,
the Chief Executive Officer - to make decisions about the resources to be allocated to the segment and to
assess its performance; and
for which discrete financial information is available.
Inter-segment transactions
All inter-segmental transactions included in revenue and operating expenses for each segment are on an arm’s-
length basis. Inter-segmental sales during the period and intercompany profits on stocks at balance date are
eliminated on consolidation.
Geographical areas
In presenting information on the basis of geographical areas, revenue is based on the geographical location of
customers and non-current assets are based on the geographical location of those assets.
2018
$000
2017
$000
Revenue
New Zealand
84,482
88,759
Australia
57,878
60,224
Rest of the world
5,760
7,137
$148,120
$156,120
As at
30 June 2018
$000
As at
30 June 2017
$000
Non-current assets
New Zealand
66,522
65,946
Australia
497
2,561
$67,019
$68,507
Major customers
None of the Group’s external customers contributed revenues in excess of 10% of the Group’s total revenues.
19
3a. Segment performance (continued)
Carpets Wool Acquisition Total
2018
$000
2017
$000
2018
$000
2017
$000
2018
$000
2017
$000
External revenue 123,724 131,600 24,396 24,520 148,120 156,120
Inter-segment revenue - - 3,069 4,501 3,069 4,501
Total revenue $123,724 $131,600 $27,465 $29,021 151,189 160,621
Elimination of inter-segment revenue (3,069) (4,501)
Consolidated revenue $148,120 $156,120
Segment result before depreciation and
restructuring related expenses and gains
10,554
3,476
1,411
535
11,965
4,011
Depreciation (3,445) (3,146) (116) (105) (3,561) (3,251)
Segment result before restructuring 7,109 330 1,295 430 8,404 760
Restructuring costs - (6,309) - - - (6,309)
Reversal of impairment of fixed assets - 1,505 - - - 1,505
Segment result after restructuring 7,109 (4,474) 1,295 430 8,404 (4,044)
Elimination of inter-segment profits (66) 61
Unallocated corporate costs (1,575) (1,500)
Results from operating activities 6,763 (5,483)
Net finance costs (2,798) (2,936)
Share of profit of equity-accounted investees
(net of income tax)
1,291
59
Gain on merger and dilution of equity-
accounted investee
-
3,929
Profit/(Loss) before income tax 5,256 (4,431)
Income tax (expense)/benefit (1,175) 2,307
Profit/(Loss) after tax for the period $4,081 $(2,124)
20
3a. Segment performance (continued)
Carpets Wool Acquisition Total
2018
$000
2017
$000
2018
$000
2017
$000
2018
$000
2017
$000
Reportable segment assets 104,665 113,134 3,795 2,233 108,460 115,367
Investment in equity-accounted investees 24,544 23,490
Total assets $133,004 $138,857
Capital expenditure 1,392 1,970 230 153 $1,622 $2,123
Reportable segment liabilities 26,122 28,149 3,160 1,318 29,282 29,467
Unallocated liabilities 31,500 41,500
Total liabilities $60,782 $70,967
Employee numbers
Operations 441 455 27 24 468 479
Unallocated 5 4
Total employee numbers 473 483
21
3b. Earnings per share
Basic and diluted earnings per share (EPS)
2018
2017
Profit/(Loss) after tax attributable to shareholders of the Company
($000)
4,081
(2,124)
Weighted average number of ordinary shares outstanding
68,679,098
68,679,098
Basic and diluted EPS (cents) 5.9
(3.1)
3c. Revenue
2018
2017
$000
$000
Sales of goods
Carpet
121,682
129,001
Wool
24,396
24,520
Yarn
1,933
2,127
148,011
155,648
Provision of installation services
109
472
Total revenue
$148,120
$156,120
Accounting policies
Sale of goods
Revenue from the sale of goods is measured at the fair value of the consideration received or receivable, net of
returns, trade discounts and volume rebates. Revenue is recognised when the significant risks and rewards of
ownership have been transferred to the buyer, recovery of consideration is probable, the associated costs and
possible return of goods can be estimated reliably, and there is no continuing management involvement with the
goods.
Provision of services
Revenue from services rendered is recognised in profit or loss in proportion to the stage of completion of the
transaction at the reporting date. The stage of completion is determined by reference to the physical quantities
of materials processed.
3d. Other income and gains
2018
2017
$000
$000
Rentals received
4
4
Dividends received
1
1
Net gain on sale of property, plant and equipment
72
16
Total other income and gains
$77
$21
3e. Administration expenses
The following items of expenditure are included in administration expenses:
2018
2017
$000 $000
Donations $25
$3
Fees paid and payable to KPMG for:
Audit and review of financial statements
179
285
Tax services
23
17
Other services
5
5
Total fees paid and payable to KPMG $207
$307
22
3e. Administration expenses (continued)
The fees for audit and review of financial statements include the annual audit of the financial statements and,
where relevant, review of the interim financial statements.
Tax services were in respect of transfer pricing and tax assignments and other services were in respect of
scrutineering work at the Annual Meeting of shareholders.
3f. Personnel expenses
2018
2017
$000
$000
Directors’ fees
345
331
Wages, salaries, bonuses and holiday pay
33,227
37,819
Employee termination benefits
322
-
Employee benefits
2,901
3,009
Increase/(Decrease) in liability for retiring
allowances and long service leave
(101)
(99)
Total personnel expenses
$36,694
$41,060
Personnel costs are included in cost of sales, distribution expenses and administration expenses in the income
statement (except for employee termination benefits relating to restructuring of the Group’s operations which are
classified under restructuring costs).
3g. Net finance costs
2018
2017
$000
$000
Interest income
36
28
Interest expense
(2,834)
(2,964)
Net finance costs $(2,798)
$(2,936)
Accounting policies
Net finance costs include interest expense on borrowings and interest income on funds invested. All interest
expense and income are recognised in profit or loss using the effective interest method.
3h. Income tax
2018
2017
$000
$000
Income tax expense/(benefit) in the income
statement
Current tax expense/(benefit)
Current period
491
372
Adjustment for prior periods
259
(390)
750
(18)
Deferred tax expense/(benefit)
Origination and reversal of temporary differences
681
(2,679)
Adjustment for prior periods
(256)
390
425
(2,289)
Income tax expense/(benefit)
$1,175
$(2,307)
23
3h. Income tax (continued)
Reconciliation of effective tax rate
Profit/(Loss) after tax for the period
4,081
(2,124)
Income tax expense/(benefit)
1,175
(2,307)
Profit/(Loss) excluding income tax
$5,256
$(4,431)
Income tax using the Company’s domestic tax rate of 28%
(2017: 28%)
1,472
(1,241)
Share of profit after tax of equity-accounted investees
(361)
(17)
Gain on merger and dilution of equity-accounted investee
-
(1,100)
Non-deductible expenses
43
26
Effect of tax rate difference in foreign jurisdiction
29
26
Underprovided in prior periods
3
-
Other
(11)
(1)
Income tax expense/(benefit)
$1,175
$(2,307)
2018
2017
$000
$000
Income tax recognised directly in equity
Derivative financial instruments
136
253
Income tax on income and expense
recognised directly in equity
$136
$253
Imputation credits
Imputation credits available to
shareholders of the Company
$8,748
$9,391
Deferred tax assets and liabilities
Deferred tax assets and liabilities are attributable to the following:
Assets Liabilities Net
2018
2017
2018
2017
2018
2017
$000
$000
$000
$000
$000
$000
Property, plant and
equipment
-
-
(2,744)
(3,004)
(2,744)
(3,004)
Derivatives
-
-
-
-
-
-
Inventories
589
778
-
-
589
778
Employee benefits
1,232
1,224
-
-
1,232
1,224
Provisions
2,092
2,042
-
-
2,092
2,042
Tax loss carry-forwards
3,802
4,492
-
-
3,802
4,492
Net tax assets/(liabilities) $7,715
$8,536
$(2,744)
$(3,004)
$4,971
$5,532
Deferred tax assets have not been recognised in respect of temporary differences arising from tax losses
totalling $24,149,000 (2017: $24,178,000) relating to an Australian subsidiary that currently does not have
trading activity. It is not probable that future taxable profit will be available against which the Group can use the
benefits therefrom.
24
3h. Income tax (continued)
Deferred tax assets and liabilities (continued)
Movement in temporary differences during the year:
Balance
30 June 2017
Recognised
in profit or
loss
Recognised
in equity
Balance
30 June 2018
$000 $000 $000 $000
Property, plant and
equipment
(3,004)
260
-
(2,744)
Derivatives
- 136 (136) -
Inventories
778 (189) - 589
Employee benefits
1,224 8 - 1,232
Provisions
2,042 50 - 2,092
Tax loss carry-forwards
4,492 (690) - 3,802
Total $5,532 $(425) $(136) $4,971
Balance
30 June 2016
Recognised
in profit or
loss
Recognised
in equity
Balance
30 June 2017
$000 $000 $000 $000
Property, plant and
equipment
(2,323)
(681)
-
(3,004)
Derivatives (2) 255 (253) -
Inventories 1,148 (370) - 778
Employee benefits 1,431 (207) - 1,224
Provisions 3,242 (1,200) - 2,042
Tax loss carry-forwards - 4,492 - 4,492
Total
$3,496 $2,289 $(253) $5,532
Accounting policies
Income tax expense comprises current and deferred tax. Income tax expense is recognised in profit or loss except to
the extent that it relates to items recognised directly in other comprehensive income, in which case it is recognised in
other comprehensive income.
Current tax is the expected tax payable on the taxable income for the year, using tax rates enacted at the reporting
date, and any adjustment to tax payable in respect of previous years.
Deferred tax is recognised in respect of temporary differences between the carrying amounts of assets and liabilities
for financial reporting purposes and the amounts used for taxation purposes and is measured at the tax rates that
are expected to be applied to the temporary differences when they reverse, based on the laws that have been
enacted or substantively enacted by the reporting date.
Judgements, estimations and assumptions
Deferred tax assets are recognised for unused tax losses and deductible temporary differences to the extent that it is
probable that future taxable profits will be available against which they can be used. Future taxable profits are
determined based on business plans for individual subsidiaries in the Group. This is reviewed at each balance date
and adjusted to the extent that it is no longer probable that sufficient taxable profits will be available in the future to
utilise the deferred tax asset.
25
4. FUNDING
This section looks at the Group’s two key sources of funding, how it manages its funding and other related
matters.
4a. Capital management
The Group’s capital includes share capital, reserves and retained earnings.
The Group’s capital management policy is aimed at maintaining a strong capital base so as to maintain investor,
creditor and market confidence in the Group and to enable it to continue to fund the ongoing needs of the
business and to sustain its future development.
The impact of the level of capital on shareholders’ return is also recognised, as is the return to shareholders in
the form of dividends paid and growth in share price, and the Group works to maintain a balance between the
higher returns that might be possible with greater gearing and the advantages and security afforded by a sound
capital base.
The Group is not subject to any externally imposed capital requirements, except that one of the covenants with
its bank requires total equity, after deducting intangibles, to be maintained at a pre-determined percentage of
total tangible assets. There is satisfactory headroom in this covenant at balance date.
The allocation of capital between the Group’s specific business segment operations and activities is, to a large
extent, driven by the opportunities that exist within each of these segments and the optimisation of the return
achieved on the capital allocated. The process of allocating capital to specific business segment operations and
activities is determined by the Chief Executive Officer in consultation with the Board and is therefore undertaken
independently of those responsible for the operation.
The Group’s policies in respect of capital management and allocation are reviewed regularly by the Board.
There have been no material changes in the Group’s management of capital during the period.
Consistent with best practice, the Group monitors capital on the basis of the leverage. Leverage is calculated as
net debt divided by total capital employed. Net debt is determined as total loans and borrowings (including both
non-current and current as shown in the consolidated statement of financial position) plus bank overdraft less
cash and cash equivalents. Total capital employed is calculated as equity as shown in the consolidated
statement of financial position plus net debt financing assets in operation.
The Group’s leverage at balance date was as follows:
2018
2017
$000
$000
Total loans and borrowings, including current portion
31,500
41,500
Less cash and cash equivalents
(2,111)
(1,255)
Net debt 29,389
40,245
Total equity
72,222
67,890
Total capital employed $101,611
$108,135
Leverage 28.9%
37.2%
26
4b. Share capital, dividends and reserves
Share capital
2018
2017
Number of ordinary shares issued 68,679,098
68,679,098
All issued shares are fully paid up and have no par value.
The holders of ordinary shares are entitled to receive dividends as declared from time to time and one vote per
share at meetings of the Company. All shares rank equally with regard to the Company’s residual assets.
Dividends
No dividends were paid during the year (2017: Nil).
The Board has not declared a final dividend in respect of the current year ended 30 June 2018 (2017: Nil).
Cash flow hedging reserve
The Group uses derivative financial instruments to hedge its exposure to foreign exchange and interest rate
risks arising from operational, financing and investing activities. In accordance with its treasury policy, the Group
does not hold or issue derivative financial instruments for trading purposes. However, derivatives that do not
qualify for hedge accounting are accounted for as trading instruments.
Derivative financial instruments are recognised initially at fair value and transaction costs are expensed
immediately. Subsequent to initial recognition, derivative financial instruments are stated at fair value. The gain
or loss on re-measurement to fair value is recognised immediately in profit or loss.
Where derivatives qualify for hedge accounting, changes in the fair value of the derivative hedging instrument
designated as a cash flow hedge are recognised in other comprehensive income to the extent that the hedge is
effective. To the extent that the hedge is ineffective, changes in fair value are recognised in profit or loss.
If the hedging instrument no longer meets the criteria for hedge accounting, expires or is sold, terminated or
exercised, then hedge accounting is discontinued prospectively. The cumulative gain or loss previously
recognised in other comprehensive income remains there until the forecast transaction occurs at which time the
gain or loss is transferred to profit or loss. When the hedge item is a non-financial asset, the amount recognised
in the cash flow hedging reserve is transferred to the carrying amount of the asset when it is recognised. In
other cases, the amount recognised in the cash flow hedging reserve is transferred to profit or loss in the same
period that the hedged item affects profit or loss.
The cash flow hedging reserve represents the effective portion of the cumulative net change in the fair value of
cash flow hedging instruments related to hedged transactions that have not yet occurred.
Foreign currency translation reserve
The assets and liabilities of foreign operations, including goodwill and fair value adjustments arising on
acquisition, are translated to New Zealand dollars at exchange rates at the reporting date. The income and
expenses of foreign operations are translated to New Zealand dollars at exchange rates at the dates of the
transactions.
The foreign currency translation reserve comprises all exchange rate differences arising from the translation of
the financial statements of foreign operations and the translation of liabilities designated as hedges against the
Company’s net investment in a foreign operation.
27
4c. Loans and borrowings
This note provides information about the contractual terms of the Group’s interest-bearing loans and
borrowings. For more information about the Group’s exposure to interest rate risks, see note 7 (Risks and
financial instruments) to the financial statements.
The Group’s funding facilities are provided by Bank of New Zealand and National Australia Bank Limited
(together, “the Bank”).
The Group had total New Zealand dollar-denominated bank funding facilities of $36,400,000 at balance date,
with $31,500,000 utilised at that date.
The Group also had overdraft facilities totalling $1,619,100 at balance date. These facilities are repayable on
demand and none of these were utilised at that date.
During the year, the Group had financial covenants with the Bank that required the Group to meet, amongst
other matters, certain equity ratio, EBITDA, revenue and inventory targets. The Group complied with these
financial covenants throughout the year ended 30 June 2018.
Details of the Group’s loans and borrowings at 30 June are as follows:
Nominal
interest rate
2018
Face
value
2018
Carrying
amount
2018
Nominal
interest rate
2017
Face
value
2017
Carrying
amount
2017
% $000 $000
% $000 $000
Non-current
27,500 27,500
35,000 35,000
Current
4,000 4,000
6,500 6,500
Total secured bank loans 7.3 $31,500 $31,500
6.0 $41,500 $41,500
The Group had no other borrowings at balance date (2017: Nil).
Certain companies in the Group have granted in favour of Bank of New Zealand, as security agent for the Bank,
a first-ranking composite general security deed and cross guarantee securing all obligations of the Group to the
Bank, including obligations for the payment and repayment of moneys due, owing or payable by the Group to
the Bank. The property-owning companies in the Group have also granted in favour of Bank of New Zealand
first-ranking mortgages in respect of land and buildings as security for all obligations of the Group to the Bank,
including obligations for the payment and repayment of moneys due, owing or payable by the Group to the Bank
(see note 5a (Property, plant and equipment) to the financial statements).
28
4c. Loans and borrowings (continued)
The Group extended its funding facilities with the Bank to 1 January 2020 prior to balance date. The extended
funding arrangement provides for a staged reduction of the $36,400,000 total funding facilities (excluding
overdraft facilities), with the first reduction taking place on 1 January 2019 and each quarter thereafter up until 1
July 2019. This staged reduction is consistent with the forecast reduction in bank debt under the Group’s debt
reduction programme, while continuing to provide the Group with appropriate headroom within its funding
facilities.
In extending the funding facilities, the Group also renegotiated its financial covenants with the Bank, with the
equity ratio, EBITDA, revenue and inventory targets reset to reflect the Group’s latest financial forecasts.
As explained at note 2 (under Going concern) to the financial statements, the Board considers the Group to be a
going concern and believes that it will be able to meet its contractual obligations under its funding facilities.
5. ASSETS EMPLOYED
This section covers non-current assets, being property, plant and equipment and goodwill, that the Group
employs in the production and sale of carpet, and the acquisition and sale of wool, to generate revenues and
profits.
5a. Property, plant and equipment
Land and
buildings
Plant and
equipment
Other
assets
Under
construction
Total
$000 $000 $000 $000 $000
Cost or deemed cost
Balance at 1 July 2017
23,548 73,096 14,377 414 111,435
Additions
162 438 905 117 1,622
Disposals
- (977) (797) (226) (2,000)
Transfers
24 46 116 (186) -
Balance at 30 June 2018
$23,734 $72,603 $14,601 $119 $111,057
Balance at 1 July 2016 23,219 73,122 14,925 829 112,095
Additions 209 741 1,004 169 2,123
Disposals - (1,075) (1,696) (12) (2,783)
Transfers 120 308 144 (572) -
Balance at 30 June 2017
$23,548 $73,096 $14,377 $414 $111,435
Depreciation and impairment
losses
Balance at 1 July 2017
2,175 59,803 12,108 226 74,312
Depreciation for the year
228 2,645 688 - 3,561
Impairment losses
provided/(reversed)
-
(47)
-
-
(47)
Disposals
- (957) (728) (226) (1,911)
Balance at 30 June 2018
$2,403 $61,444 $12,068 - $75,915
Balance at 1 July 2016 1,969 59,835 13,182 289 75,275
Depreciation for the year 206 2,438 607 - 3,251
Impairment losses reversed - (1,442) - (63) (1,505)
Disposals - (1,028) (1,681) - (2,709)
Balance at 30 June 2017
$2,175 $59,803 $12,108 $226 $74,312
Carrying amounts
At 30 June 2018
$21,331 $11,159 $2,533 $119 $35,142
At 30 June 2017 $21,373 $13,293 $2,269 $188 $37,123
29
5a. Property, plant and equipment (continued)
Other assets comprise fixtures and fittings (including leasehold improvements and display stands), computer
equipment, motor vehicles and office equipment.
Impairment loss
Impairment losses in respect of plant and equipment of $90,000 were recognised during the year (2017: Nil).
Prior year impairment losses relating to specific items of fixed assets of $137,000 were reversed during the year
(2017: $1,505,000).
Due to identification of indicators of impairment - more particularly, the $29,641,000 shortfall in the Group’s
market capitalisation when compared with the carrying value of its net asset - the Group conducted an
impairment test of the carrying value of property, plant and equipment that is allocated to the carpet sales and
manufacturing cash generating unit (CGU) as at 30 June 2018. The recoverable amount of these assets were
tested for impairment by determining their value-in-use by discounting cash flow projections for the next five
years, taking into consideration historic data and forecast economic conditions.
The recoverable amount of these assets was determined based on the following significant assumptions:
• Carpet sales volume to remain unchanged on 2018 in 2019 and to increase by 5% in 2020 and in 2021;
• Carpet sales prices to remain largely unchanged over the five year period;
• Wool price of $4.00/kg clean in 2019 increasing to $4.74/kg clean in 2020 and $4.94/kg clean thereafter;
• NZD:AUD exchange rates ranging from 0.9240 to 0.8905 between 2019 and 2022 and 0.8968 thereafter;
• Post-tax discount rate of 11.1% (2017: 12.6%);
• Long term growth rate of 2% (2017: 2%).
Management believes that the key assumptions used and estimates made represent the most realistic
assessment of the recoverable amount of property, plant and equipment.
Based on this assessment, the recoverable amount of these assets exceeds their carrying amount at the
reporting date and management has concluded that no impairment is required to be recognised.
Given the headroom that existed between the recoverable and carrying amounts of property, plant and
equipment, the recoverability of these assets is not considered to be particularly sensitive to changes in the
underlying assumptions in the discounted cash flow model.
Security
At balance date, the Group’s property, plant and equipment were subject to various registered charges in favour
of the Group’s bankers as security for the Group’s banking facilities and arrangements (see note 4c (Loans and
borrowings) to the financial statements).
30
Accounting policies
Recognition and measurement
Cost includes expenditures that are directly attributable to the acquisition of the asset. The cost of self-
constructed assets includes the cost of materials and direct labour, any other costs directly attributable to
bringing the asset to a working condition for its intended use, and the cost of dismantling and removing the
items and restoring the site on which they are located. Purchased software that is integral to the functionality of
the related equipment is capitalised as part of that equipment.
When parts of an item of property, plant and equipment have different useful lives, they are accounted for as
separate items (major components) of property, plant and equipment.
Under construction
Items being constructed for future use are held as part of property, plant and equipment under construction. The
carrying amounts of these represent the costs incurred at balance date and will be transferred to the appropriate
classification of property, plant and equipment on completion. Initial cost includes the purchase consideration
and those costs directly attributable in bringing the asset to the location and condition necessary for its intended
use. These costs include site preparation costs, installation costs, borrowing costs, unrecovered operating costs
incurred during planned commissioning and the costs of obtaining consents.
Costs cease to be capitalised when all the activities necessary to bring the asset to its location and condition for
its intended use are complete.
Depreciation
Depreciation is recognised in the income statement over the estimated useful lives of each part of an item of
property, plant and equipment. Land is not depreciated.
The principal rates used for the current and comparative periods are as follows:
buildings 1.0 - 2.5% straight line
plant and equipment 6.7 – 10.0% straight line
other assets
o fixtures and fittings 10.0% straight line
o computer equipment 20.0 – 25.0% straight line
o motor vehicles and office equipment 20.0% diminishing value
Depreciation methods, useful lives and residual values are reassessed at each reporting date.
5b. Capital commitments
The Group had outstanding commitments for the purchase of plant and equipment of $397,000 at balance date
(2017: $188,000).
31
5c. Goodwill
Goodwill of $2,362,000 (2017: $2,362,000) which arose from the acquisition of Radford Yarn Technologies
Limited has been allocated to the carpet sales and manufacturing cash generating unit (CGU).
Management assessed this CGU for impairment of goodwill as at 30 June 2018 as discussed at note 5a
(Property, plant and equipment) to the financial statements.
Based on this assessment, management has concluded that no impairment is required to be recognised.
Accounting policies
The carrying amount of goodwill is tested annually for impairment. An impairment loss is recognised if the
carrying amount of the cash-generating unit (being the smallest identifiable asset group that generates cash
flows that are largely independent from other assets and groups) to which the goodwill is allocated exceeds its
recoverable amount. Impairment loss of goodwill cannot be reversed in future periods.
The recoverable amount of a cash-generating unit is the greater of its value in use and its fair value less costs to
sell. In assessing value in use, the estimated future cash flows are discounted to their present value using a pre-
tax discount rate that reflects current market assessments of the time value of money and the risks specific to
the cash generating unit.
Impairment losses recognised in respect of cash-generating units are allocated first to reduce the carrying
amount of any goodwill allocated to the units and then to reduce the carrying amount of the other assets in the
unit (group of units) on a pro rata basis.
32
6. WORKING CAPITAL
This section reviews the level of working capital the Group generates and utilises in its normal day-to-day
operating activities. The Group’s working capital includes short-terms assets (cash and cash equivalents, trade
receivables, other receivables and prepayments and inventories) and liabilities (trade creditors and accruals).
6a. Cash and cash equivalents
Cash and cash equivalents at balance date comprise cash on hand.
Accounting policy
Cash and cash equivalents comprise cash on hand, deposits held at call with financial institutions and bank
overdrafts used for cash management purposes.
6b. Trade receivables, other receivables and prepayments
2018
2017
$000
$000
Trade receivables due from trade customers
15,184
16,580
Other receivables
54
169
Prepayments
344
512
$15,582
$17,261
The Group’s exposure to credit risk in respect of trade receivables and other receivables is minimal as none of
the Group’s external customers contributed revenues in excess of 10% of the Group’s total revenues and none
of the Group’s trade receivables and other receivables are significant individually.
Impairments losses on trade receivables and other receivables are assessed collectively and on a portfolio
basis based on the number of days overdue after taking into account the historical loss experienced in portfolios
with a similar number of days overdue.
Further management commentary on, and quantitative disclosure of, credit risk can be found in note 7 (Risks
and financial instruments) to the financial statements.
Accounting policy
Trade receivables and other receivables are recognised initially at fair value and subsequently adjusted for
impairment losses.
6c. Inventories
2018
2017
$000
$000
Raw materials and consumables
17,896
19,648
Work in progress
1,664
2,403
Finished goods
27,761
28,584
$47,321
$50,635
Carrying amount of inventories subject to retention of title
clauses
$2,351
$530
In 2018, the net realisable value provision in respect of inventories decreased by $766,000 (2017: decreased by
$1,790,000).
33
6c. Inventories (continued)
Accounting policies
Inventories are measured at the lower of cost and net realisable value. The cost of inventories is based on the
first-in first-out principle, and includes expenditure incurred in acquiring the inventories and bringing them to
their existing location and condition. In the case of manufactured inventories and work in progress, cost includes
an appropriate share of production overheads based on normal operating capacity. Net realisable value is the
estimated selling price in the ordinary course of business, less the estimated costs of completion and selling
expenses.
Judgement, estimations and assumptions
Inventory provisions are recognised for oddments and obsolete, aged and discontinued inventories to arrive at
their likely net realisable value. In recognising the provision for inventories, judgement is applied by considering
a range of factors including inventory rationalisation plans, consumer demand and current trends, available
distribution channels and historical sales and margin data for obsolete, aged and discontinued inventory.
6d. Trade creditors and accruals
2018
2017
$000
$000
Trade payables due to external parties
17,671
16,583
Accrued expenses
1,819
2,272
$19,490
$18,855
34
7. RISKS AND FINANCIAL INSTRUMENTS
This section identifies the risks faced by the Group, explains the impact of these risks on its financial position,
performance and cash flows, outlines the Group’s approach to financial risk management and highlights the
financial instruments used to manage risks.
Management commentary
Exposure to credit, liquidity, foreign currency and interest rate risks arises in the normal course of the Group’s
businesses.
The Group enters into derivative financial instruments in the ordinary course of business to manage foreign
currency and interest rate risks in accordance with the treasury policy approved by the Board. A financial risk
management committee, composed of senior management and operating under the Board-approved treasury
policy, ensures that procedures for derivative instrument utilisation, control and valuation, risk analysis,
counterparty credit approval, and ongoing monitoring and reporting are adhered to.
The Group manages commodity price risks through negotiated supply contracts and forward physical contracts.
However, because these contracts are, generally, in respect of raw material and utility purchases for own use,
they are not accounted for as financial instruments.
Credit risk
Management has a credit policy in place under which each new customer is individually analysed for credit
worthiness and assigned a purchase limit before the standard payment and delivery terms and conditions are
offered. Because of the Group’s customer base, there is no need for the Group to rely on external ratings. In
most cases, bankers’ references, trade credit insurance approvals and/or credit references from other suppliers
are considered adequate. Purchase limits are reviewed on a regular basis.
In order to determine which customers are classified as having payment difficulties, the Group applies a mix of
duration and frequency of default. The Group does not generally require collateral in respect of trade and other
receivables.
The Group’s exposure to credit risk is mainly influenced by its customer base. As such, it is concentrated to the
default risk of its industry. However, geographically, there is no credit risk concentration, with the Group’s
customers spread throughout New Zealand and Australia. Credit risk exposure with respect to debtors is limited
by stringent credit controls, by the utilisation of irrevocable letters of credit and trade credit insurances wherever
required, and by the large number of customers within the Group's customer base.
The Group does not invest in securities, but accepts that surplus cash and cash equivalents may arise from time
to time during the course of its management of cash. In these instances, it requires these surplus cash and cash
equivalents to be deposited on call and only with counterparties approved by the Board as having the required
credit ratings.
Foreign currency forward exchange contracts and interest rate swaps have been entered into with
counterparties approved by the Board as having the required credit ratings. The Group's exposure to credit risk
from these financial instruments is limited because it does not expect the non-performances of the obligations
contained therein due to the high credit ratings of the financial institutions concerned. The Group does not
require any collateral or security to support these financial instruments.
35
7. RISKS AND FINANCIAL INSTRUMENTS (continued)
Management commentary (continued)
Liquidity risk
Liquidity risk represents the Group’s ability to meet its contractual obligations. The Group evaluates its liquidity
requirements on an ongoing basis. In general, the Group generates sufficient cash flows from its operating
activities to meet its obligations arising from its financial liabilities and has credit lines in place to cover potential
shortfalls. It also seeks to ensure that there is sufficient capacity within its overall funding facilities to enable it to
draw on for one-off capital projects.
The Group’s contractual cash flows and liquidity risk profile are set out in detail on page 37, with the Group’s
ability to meet its contractual obligations, particularly with respect to the repayment of bank loans, being
conditional upon the Group’s ability to meet its financial forecasts as disclosed at note 2 (under Going concern)
to the financial statements.
Foreign currency risk
The Group is exposed to foreign currency risk on sales and purchases that are denominated in a currency other
than the Company’s functional currency, which is the New Zealand dollar ($). The New Zealand dollar is also
the presentation currency of the Group.
Foreign currency-denominated transactions are primarily in Australian dollars (“AUD”), U.S. dollars (“USD”) and
the Euro (“EUR”). It is the Group’s policy to hedge foreign currency risks on material trade-related transactions
as they arise. At any point in time, the Group also hedges a certain proportion of its estimated foreign currency
exposure in respect of forecasted sales and purchases.
The Group’s policy allows management to hedge up to 12 months forecast sales and purchases without the
prior approval of the Board having first been obtained.
The Group uses forward exchange contracts to hedge its foreign currency risk. All of the forward exchange
contracts have maturities of less than one year at balance date.
The Group does not engage in speculative transactions or hold derivative financial instruments for trading
purposes and requires that exposures to foreign currency risks, and details of all outstanding derivative
instruments, are reported to and reviewed by the Board on a monthly basis.
Interest rate risk
Interest rate risks are continually monitored having regard to the circumstances at any given time.
Interest rate swaps have been entered into to hedge a proportion of the Group’s exposure to interest rate
fluctuations by ensuring that there is an appropriate mix, after having regard to the circumstances prevailing at
the time, of fixed and floating rate exposure within the Group’s total loans and borrowings.
The Group’s policy allows management to hedge up to between 25% and 75% of the Group’s core loans and
borrowings without the prior approval of the Board having first been obtained.
36
7. RISKS AND FINANCIAL INSTRUMENTS (continued)
Quantitative disclosures
Credit risk
The carrying amount of financial assets represents the Group’s maximum credit exposure.
The Group has not renegotiated the terms of any financial assets which would result in the carrying amount no
longer being past due or avoid a possible past due status.
The Group’s maximum exposure to credit risk for trade and other receivables by geographic regions is as
follows:
2018
2017
$000
$000
New Zealand
8,897
8,679
Australia
5,247
6,568
Other regions
1,094
1,502
Trade and other receivables $15,238
$16,749
The status of trade and other receivables at the reporting date is as follows:
Gross
receivable
Impairment
provisions
Gross
receivable
Impairment
provisions
2018 2018
2017 2017
$000 $000
$000 $000
Not past due
13,875 -
14,293 -
Past due 0 - 30 days
813 -
1,779 -
Past due 31 - 120 days
203 -
228 -
Past due > 120 days
390 (43)
483 (34)
Total $15,281 $(43)
$16,783 $(34)
In summary, trade and other receivables are determined to be impaired as follows:
2018
2017
$000
$000
Trade and other receivables - gross
15,281
16,783
Individual impairment provisions
(43)
(34)
Trade and other receivables - net $15,238
$16,749
Individually impaired trade receivables relate to a small number of customers where the amounts involved are
immaterial. In the case of insolvency, the Group generally writes off the receivable in full unless there is clear
evidence that a receipt, whether directly or by way of a claim under the Group’s trade credit insurance policy, is
highly probable.
The details of movements in the impairment provision are as follows:
2018
2017
$000
$000
Balance at 1 July
(34)
(176)
Impaired trade receivables written off
-
61
Changes in impairment provision
(9)
81
Balance at 30 June $(43)
$(34)
Changes in the impairment provision are included in distribution expenses in the income statement.
37
7. RISKS AND FINANCIAL INSTRUMENTS (continued)
Quantitative disclosures (continued)
Liquidity risk
The following table sets out the contractual cash flows for all material financial liabilities (including projected interest costs).
Timing of contractual cash flows
Statement of financial
position
Total contractual cash
flows
6 months or less 6-12 months 1-2 years 2-5 years Greater than 5
years
$000 $000 $000 $000 $000 $000 $000
2018
Secured bank loans
31,500 33,280 7,119 3,045 23,116 - -
Trade creditors and accruals
19,490 19,490 19,490 - - - -
Total non-derivative liabilities $50,990 $52,770 $26,609 $3,045 $23,116 - -
Interest rate swaps $585 $761 $169 $131 $227 $195 $39
Forward exchange contracts
Inflow
(40,815) (27,920) (10,669) (2,226) - -
Outflow
39,856 27,187 10,493 2,176 - -
$(963) $(959) $(733) $(176) $(50) - -
2017
Secured bank loans 41,500 43,913 851 7,351 35,711 - -
Trade creditors and accruals 18,855 18,855 18,855 - - - -
Total non-derivative liabilities
$60,355 $62,768 $19,706 $7,351 $35,711 - -
Interest rate swaps
$785 $923 $230 $178 $277 $238 -
Forward exchange contracts
Inflow (57,623) (38,596) (19,027) - - -
Outflow 57,267 38,510 18,757 - - -
$(391) $(356) $(86) $(270) - - -
38
7. RISKS AND FINANCIAL INSTRUMENTS (continued)
Quantitative disclosures (continued)
Foreign currency risk
The Group’s exposure to foreign currency risk can be summarised as follows:
NZD equivalent of these foreign currencies: AUD USD EUR Others
$000 $000 $000 $000
2018
Trade receivables
5,190 767 24 45
Trade payables
(2,466) (4,455) (1) (7)
Net statement of financial position exposure before
hedging activity
2,724
(3,688)
23
38
Estimated forecast sales for which hedging is in place
28,374 - - -
Estimated forecast purchases for which hedging is in
place
-
(5,412)
-
-
Net cash flow exposure before hedging activity
31,098 (9,100) 23 38
Forward exchange contracts
Notional amounts
(31,098) 9,100 - -
Net unhedged exposure - - $23 $38
2017
Trade receivables 6,216 593 65 258
Trade payables (2,239) (5,843) (13) (24)
Net statement of financial position exposure before
hedging activity
3,977
(5,250)
52
234
Estimated forecast sales for which hedging is in place 27,362 - 63 -
Estimated forecast purchases for which hedging is in
place
-
(12,179)
-
-
Net cash flow exposure before hedging activity 31,339 (17,429) 115 234
Forward exchange contracts
Notional amounts (31,339) 17,429 - -
Net unhedged exposure
- - $115 $234
39
7. RISKS AND FINANCIAL INSTRUMENTS (continued)
Quantitative disclosures (continued)
Interest rate risk – re-pricing analysis
At balance date, the interest rate profile of the Group’s interest-bearing financial instruments was as
follows:
Total 6
months
or less
6-12
months
1-2 years 2-5 years Greater
than 5
years
$000 $000 $000 $000 $000 $000
2018
Financial assets and liabilities
Cash and cash equivalents
2,111 2,111 - - - -
Secured bank loans
(31,500) (31,500) - - - -
(29,389) (29,389) - - - -
Related derivatives
Effect of interest rate swaps
- 12,500 - (2,500) (7,500) (2,500)
Total $(29,389) $(16,889) - $(2,500) $(7,500) $(2,500)
2017
Financial assets and liabilities
Cash and cash equivalents 1,255 1,255 - - - -
Secured bank loans (41,500) (41,500) - - - -
(40,245) (40,245) - - - -
Related derivatives
Effect of interest rate swaps - 12,500 - (5,000) (7,500) -
Total
$(40,245) $(27,745) - $(5,000) $(7,500) -
40
7. RISKS AND FINANCIAL INSTRUMENTS (continued)
Sensitivity analysis
In managing interest rate and currency risks, the Group aims to reduce the impact of short-term fluctuations on
the Group’s earnings. Over the longer-term, however, changes in foreign exchange and interest rates will have
an impact on profit.
At 30 June 2018, it is estimated that a general increase of one percentage point in interest rates would decrease
the Group’s profit before income tax by approximately $152,000 per annum (2017: increase loss by $269,000).
Interest rate swaps have been included in this calculation.
It is estimated that a general increase of ten percentage points in the value of the New Zealand dollar against
other foreign currencies at balance date would have no impact on the Group’s profit or loss before income tax
for the years ended 30 June 2018 and 2017 after taking into account the forward exchange contracts that the
Group had in place at balance date to hedge these exposures.
Hedging
Interest rate hedges
The Group has a policy of ensuring that between 25% and 75% of its exposure to changes in interest rates on
borrowings is on a fixed rate basis. Interest rate swaps, denominated in New Zealand dollars, have been
entered into to achieve an appropriate mix of fixed and floating rate exposure within the Group’s policy.
At 30 June 2018, the Group had active interest rate swaps with a notional contract amount of $12,500,000
(2017: $17,500,000). $5,000,000 of these will mature within six months of balance date (2017: $5,000,000), with
the balance maturing over the next three years (2017: four years). The Group also had forward starting swaps
as at 30 June 2018 of $5,000,000 (2017: Nil), effectively extending the swaps maturing within six months of
balance date out for a further four years, in respect of $2,500,000, and six years, in respect of the balance.
The Group has designated its interest rate swaps as cash flow hedges. These swaps have fixed swap rates
ranging from 2.88% to 4.92% (2017: 4.47% to 4.92%).
The net fair value of swaps at 30 June 2018 was a loss of $585,000 (2017: loss of $785,000).
Forecast transactions
The Group classifies the forward exchange contracts taken out to hedge forecast transactions as cash flow
hedges. These forecast transactions are expected to occur within 18 months of balance date (2017: 12 months).
The net fair value of forward exchange contracts used as hedges of forecast transactions at 30 June 2018 was
a gain of $919,000 (2017: gain of $301,000).
Recognised assets and liabilities
The fair value of forward exchange contracts used as economic hedges of monetary assets and liabilities in
foreign currencies at 30 June 2018 was a gain of $44,000 (2017: gain of $90,000) recognised in fair value
derivatives.
41
7. RISKS AND FINANCIAL INSTRUMENTS (continued)
Classification and fair values
The following tables show the carrying amounts and fair values of financial assets and financial liabilities,
including their levels in the fair value hierarchy.
Hedging
instruments
Loans and
receivables
Other
amortised
cost
Total
carrying
amount
Fair value Fair value
hierarchy
Level 2
$000 $000 $000 $000 $000 $000
2018
Assets
Derivatives
971 - - 971 971 971
Trade and other receivables
- 15,238 - 15,238 15,238 -
Cash and cash equivalents
- 2,111 - 2,111 2,111 -
Total assets
$971 $17,349 - $18,320 $18,320
Liabilities
Loans and borrowings
- - 27,500 27,500 27,500 27,500
Total non-current liabilities
- - 27,500 27,500 27,500
Loans and borrowings
- - 4,000 4,000 4,000 4,000
Derivatives
593 - - 593 593 593
Trade and other payables
- - 23,232 23,232 23,232 -
Total current liabilities
593 - 27,232 27,825 27,825
Total liabilities
$593 - $54,732 $55,325 $55,325
2017
Assets
Derivatives 898 - - 898 898 898
Trade and other receivables - 16,750 - 16,750 16,750 -
Cash and cash equivalents - 1,255 - 1,255 1,255 -
Total assets
$898 $18,005 - $18,903 $18,903
Liabilities
Loans and borrowings - - 35,000 35,000 35,000 35,000
Total non-current liabilities
- - 35,000 35,000 35,000
Loans and borrowings - - 6,500 6,500 6,500 6,500
Derivatives 1,292 - - 1,292 1,292 1,292
Trade and other payables - - 22,687 22,687 22,687 -
Total current liabilities
1,292 - 29,187 30,479 30,479
Total liabilities
$1,292 - $64,187 $65,479 $65,479
There were no financial assets or liabilities with fair values classified as Level 1 or Level 3 in the fair value
hierarchy.
A financial instrument is recognised if the Group becomes a party to the contractual provisions of the
instrument. Financial assets are derecognised if the Group’s contractual rights to the cash flows from the
financial assets expire or if the Group transfers the rights to receive the contractual cash flows in a transaction in
which substantially all the risks and rewards of ownership of the financial assets are transferred. Financial
liabilities are derecognised if the Group’s obligations specified in the contract expire or are discharged or
cancelled.
Derivatives, being forward exchange contracts and interest rate swaps, have been measured at fair value using
relevant valuation techniques which include net present value and discounted cash flow models and comparison
with similar instruments for which observable market prices exist. Assumptions and inputs used in valuation
techniques include risk-free and benchmark interest rates, credit spreads and other information used in
estimating discount rates and foreign currency exchange rates.
42
7. RISKS AND FINANCIAL INSTRUMENTS (continued)
Classification and fair values (continued)
Non-derivative financial instruments comprise trade and other receivables, cash and cash equivalents, loans
and borrowings and trade and other payables. Non-derivative financial instruments are recognised initially at fair
value, inclusive of transaction costs, and are subsequently measured at amortised cost using the effective
interest rate method less any impairment losses.
The underlying interest rate margins of loans and borrowings, which were renegotiated in June 2018,
approximate current margins, and fair value approximates the present value of future principal and interest cash
flows.
Determination of fair values
When measuring the fair value of an asset or a liability, the Group uses market observable data as far as
possible. Fair values are categorised into different levels in a fair value hierarchy based on the inputs used in
the valuation techniques as follows:
Level 1: quoted prices (unadjusted) in active markets for identical assets or liabilities
Level 2: inputs other than quoted prices included in Level 1 that are observable for the asset or liability, either
directly (that is, as prices) or indirectly (that is, derived from prices)
Level 3: inputs for the asset or liability that are not based on observable market data (unobservable inputs)
If the inputs used to measure the fair value of an asset or liability might be categorised in different levels of the
fair value hierarchy, then the fair value measurement is categorised in its entirety in the same level of the fair
value hierarchy as the lowest level input that is significant to the entire measurement.
The Group recognises transfers between levels of the fair value hierarchy at the end of the reporting period
during which the change occurred.
Master netting or similar agreements
The Group enters into derivative transactions under International Swaps and Derivatives Association (ISDA)
master netting agreements. In general, under such agreements the amounts owed by each counterparty on a
single day in respect of all transactions outstanding are aggregated into a single net amount that is payable by
one party to the other. In certain circumstances – for example, when a credit event such as a default occurs, all
outstanding transactions under the agreement are terminated, the termination value is assessed and only a
single net amount is payable in settlement of all transactions.
The ISDA agreements do not meet the criteria for offsetting in the statement of financial position. This is
because the Group does not have any currently legally enforceable right to offset recognised amounts, because
the right to offset is enforceable only on the occurrences of future events such as a default on the bank loans or
other credit events.
The following table sets out the carrying amounts of recognised derivatives that are subject to master netting
agreements:
2018
2017
Derivative
assets
Derivative
liabilities
Derivative
assets
Derivative
liabilities
$000 $000
$000 $000
Gross amounts in the statement
of financial position
971
(593)
898
(1,292)
Amounts offset
- -
- -
Net amounts in the statement
of financial position
971
(593)
898
(1,292)
Related amounts that are not
offset based on ISDA
(593)
593
(898)
898
Net amounts $378 -
- $(394)
43
8. OTHERS
This section includes the remaining information relating to the Group financial statements which is required to
be disclosed to comply with financial reporting standards.
8a. Equity-accounted investees
The details relating to the Group’s 27.5% interest in Cavalier Wool Holdings Limited (CWH) and 50% interest in
CWS Assets Limited (CWSA) are set out below.
CWH is a commission woolscourer and provides the Group’s carpet operation with wool scouring services,
whether directly or through the wool exporters from whom the Group purchases most of its wool.
CWSA is a property-owning company.
CWH acquired Whakatu Wool Scour Limited and Kaputone Wool Scour (1994) Limited from New Zealand Wool
Services International Limited (NZWSI) effective 31 December 2016 as part of the merger of CWH and the
woolscouring operations of NZWSI. Part of the consideration for the purchase of the two entities involved the
issue of new shares by CWH to NZWSI, diluting the Group’s interest in CWH from 50% to 27.5% as at that date.
In accounting for the dilution of the Group’s interest in CWH as at 31 December 2016, the Group recognised a
gain of $3,929,000, being the difference between the carrying amount of the investment in CWH immediately
before and after the merger transaction that led to the dilution of its interest in CWH.
CWH declared as part of the merger, cash dividends totalling $7.3 million, with $6.5 million paid in January 2017
and the balance in April 2017.
CWH also declared, prior to the merger, a distribution in specie of shares with a fair value of $3.4 million in
CWSA to the CWH shareholders, effectively reducing the carrying value of the Group’s investment in CWH by
$1.7 million while increasing the carrying value of the Group’s investment in CWSA by the same amount.
The details relating to the Group’s interest in equity-accounted investees are set out below:
2018
2017
$000
$000
Carrying value at 1 July
23,490
23,175
Share of comprehensive income
1,194
56
Dividends received
(140)
(3,670)
Dividends in specie received
-
(1,700)
Carrying value of CWSA
-
1,700
Gain on dilution
-
3,929
Carrying value at 30 June
$24,544
$23,490
The following tables summarise the financial information of CWH and CWSA as included in their own financial
statements (unadjusted for the percentage ownership interest held) and the Group’s share of net assets, profit
and other comprehensive income of CWH and CWSA:
44
8a. Equity-accounted investees (continued)
2018
2017
$000
$000
CWH CWSA
CWH CWSA
Cash and cash equivalents
4,013 50
70 166
Other current assets
7,617 -
7,412 -
Non-current assets
110,503 3,369
112,403 3,400
Total assets
122,133 3,419
119,885 3,566
Current liabilities
5,839 11
5,409 62
Non-current liabilities
36,122 -
38,313 -
Total liabilities
41,961 11
43,722 62
Net assets (100%)
$80,172 $3,408
$76,163 $3,504
Revenue
50,786 288
35,254 144
Depreciation
(3,398) (31)
(3,287) -
Net interest expense
(1,850) -
(1,743) -
Other expenses
(38,900) (1)
(26,852) -
Merger costs
- -
(3,906) -
Profit/(Loss) before tax
6,638 256
(534) 144
Income tax (expense)/benefit
(2,276) (72)
453 (40)
Profit/(Loss) after tax
4,362 184
(81) 104
Changes in fair value of cash flow
hedges (net of tax)
(354)
-
35
-
Total comprehensive income
(100%)
$4,008
$184
$(46)
$104
Percentage ownership interest
27.5% 50.0%
27.5% 50.0%
Share of net assets
22,047 1,705
20,945 1,753
Initial transaction costs
792 -
792 -
Carrying value of interest in equity-
accounted investees
$22,839
$1,705
$21,737
$1,753
Group’s share of profit after tax
1,199 92
7 52
Group’s share of changes in fair value
of cash flow hedges (net of tax)
(97)
-
(3)
-
Group’s share of total
comprehensive income
of equity-accounted investees
$1,102
$92
$4
$52
45
8a. Equity-accounted investees (continued)
Due to potential indicators of impairment, in particular the continued uncertainty of future market conditions in
the New Zealand wool scouring industry and the impact on profitability, the Group also assessed the
recoverable amount of its equity-accounted investment in CWH as at 30 June 2018 for impairment.
Impairment testing was based on cash flow projection for the next five years and performed using a discounted
cash flow model to determine the recoverable amount of the asset. As a result of the testing performed, no
impairment was required to be recognised.
The following key assumptions were used in the model, taking into account historic data and forecast economic
conditions:
• Processing volumes in 2019 up 4% on 2018 and to remain unchanged thereafter;
• Scouring tariff rates based on 2019, with no changes going forward;
• Wool grease price of USD3.40/kg in 2019 increasing to USD3.88/kg in 2020 and USD4.01/kg thereafter;
• NZD:USD exchange rates ranging from 0.6950 to 0.7063 between 2019 and 2022 and 0.7006 thereafter;
• No new entrant into the New Zealand wool scouring industry and existing structure of the industry
remaining substantially unchanged;
• Post-tax discount rate of 10.3% (2017: 11.0%);
• Long term growth rate of 2.0% (2017: 2%)
Given the headroom that existed between the recoverable and carrying amount of the Group’s investment in
CWH, the recoverability of this asset is not considered to be particularly sensitive to changes in the underlying
assumptions in the discounted cash flow model.
Accounting policies
The Group’s interest in equity-accounted investees comprise interests in associates and joint ventures.
Associates are those entities in which the Group has significant influence, but not control or joint control, over
the financial and operating policies. Joint ventures are arrangements in which the Group has joint control,
whereby the Group has rights to the net assets of the arrangement, rather than rights to its assets and
obligations for its liabilities.
Interests in associates and joint ventures are accounted for using the equity method (equity-accounted
investees).
Equity-accounted investees are recognised initially at cost, which includes transaction costs. Subsequent to
initial recognition, the consolidated financial statements include the Group’s share of the profit or loss and other
comprehensive income of equity-accounted investees, until the date on which significant influence or joint
control ceases.
Judgments, estimations and assumptions
Management has assessed the recoverability of the Group’s investment in CWH. While the Board has received
unsolicited expressions of interest for the purchase of various Group assets, including CWH, the Board is not
currently considering any offers. The Board also reaffirms management’s assessment that the risk of a new
entrant into the scouring industry is remote.
46
8b. Provisions
Insurances Restructuring Onerous
contracts
Warranties Total
$000 $000 $000 $000 $000
Balance at 1 July 2017
210 1,277 1,839 980 4,306
Amounts provided during the year
- 712 - 179 891
Amounts incurred during the year
- (114) (697) (153) (964)
Released to profit or loss during the year
- - (901) - (901)
Balance at 30 June 2018 $210 $1,875 $241 $1,006 $3,332
Non-current
210 375 28 505 1,118
Current
- 1,500 213 501 2,214
Balance at 30 June 2018 $210 $1,875 $241 $1,006 $3,332
Balance at 1 July 2016 210 3,783 2,397 810 7,200
Amounts provided during the year - - - 202 202
Amounts incurred during the year - (2,356) (558) (32) (2,946)
Released to profit or loss during the year - (150) - - (150)
Balance at 30 June 2017
$210 $1,277 $1,839 $980 $4,306
Non-current 210 910 1,080 413 2,613
Current - 367 759 567 1,693
Balance at 30 June 2017
$210 $1,277 $1,839 $980 $4,306
Insurances
Certain companies within the Group are parties to the ACC Partnership Programme under which these
companies assume the costs normally assumed by ACC (Accident Compensation Corporation of New Zealand)
for accidents in the workplace. The Group has recognised the liability for claims that are expected to be paid out
to employees covered under the programme as if it were an insurer and has applied NZ IFRS 4 Insurance
Contracts.
Restructuring
Provision for restructuring relates to the costs to be incurred in relation to the various initiatives previously
undertaken to reduce the Group’s cost base.
47
8b. Provisions (continued)
Restructuring (continued)
These initiatives included:
• consolidation of woollen yarn spinning operations (previously in Napier and Wanganui) to a single hub at
the Napier plant;
• down-scaling of the semi-worsted yarn spinning operation in Wanganui;
• relocation of the felted yarn operation from Christchurch to Wanganui;
• closure of the Christchurch plant;
• outsourcing of Australian warehousing and distribution function to a third party logistics provider; and
• consolidation of the Cavalier Bremworth and Norman Ellison Carpets broadloom carpet businesses.
Onerous contracts
The provision for onerous contracts relates to operating leases in respect of premises that were surplus to
requirements following the consolidation of the Cavalier Bremworth and Norman Ellison Carpets broadloom
carpet businesses in 2012 and 2013. These premises have been sub-let for varying lease terms, but changes in
market conditions have meant that the rental income is lower than the rental expense. The obligation for the
discounted future payments, net of expected rental income, has been provided for.
During the year, the Group negotiated the early surrender of one of the leased premises that was surplus to
requirement following the restructuring of the broadloom carpet business. As a consequence of this early
surrender, adjustments were made to both the provision for restructuring and the provision for onerous contracts
to reflect the agreement that was reached and the impact of that agreement on both provisions.
Warranties
The provision for warranties relates mainly to carpet sold during the years ended 30 June 2018 and 2017. The
provision is based on estimates made from historical warranty data associated with similar products sold by the
Group.
Accounting policies
A provision is recognised if, as a result of a past event, the Group has a present legal or constructive obligation
that can be estimated reliably, and it is probable that an outflow of economic benefits will be required to settle
the obligation. Provisions are determined by discounting the expected future cash flows at a pre-tax rate that
reflects current market assessments of the time value of money and the risks specific to the liability.
Judgements, estimations and assumptions
Provision for restructuring requires judgement to be applied by considering a range of factors including the
termination and support cost of affected employees and cost to make good leased property. Ongoing cost of
onerous contracts and the income that could be expected from the sub-leasing of surplus property are
considered in determining the provision for onerous contracts.
48
8c. Employee benefits
2018
2017
$000
$000
Liability for retiring allowances
96
96
Liability for long service leave
815
1,001
Total employee benefits $911
$1,097
Accounting policies
Short-term employee benefits are expensed as the related service is provided.
A liability is recognised for the amount expected to be paid if the Group has a present legal or constructive
obligation to pay this amount as a result of past service provided by the employee and the obligation can be
estimated reliably. The Group’s net obligation in respect of long-term employee benefits is the amount of future
benefit that employees have earned in return for their service in the current and prior periods adjusted for the
probability of the benefits vesting and discounted at the appropriate rate to determine its present value.
Judgements, estimations and assumptions
In assessing the Group’s liabilities for long-term employee benefits, regard was given to the age of employees,
the likelihood of their reaching the various qualifying dates for retiring allowances and long service leave and
their length of service at those dates.
8d. Operating leases
2018
2017
$000
$000
Lease payments relating to non-cancellable operating leases $3,328
$3,758
Gross commitments under non-cancellable operating leases:
Less than one year
2,875
4,016
Between one and five years
4,675
9,204
Greater than five years
63
780
The Group’s non-cancellable operating leases relate mainly to leases of buildings, with lease terms, and right of
renewal, of the major sites as follows:
Expiry date Rights of renewal
6 Hautu Drive, Auckland, New Zealand Within 6 years None
373 Neilson Street, Auckland, New Zealand Within 2 years None
273 Neilson Street, Auckland, New Zealand Within 1 year None
These leases provide for regular reviews of rentals to reflect market rates. In some cases, they provide for rent
reviews that are based on changes in the relevant consumer price index.
Two of these leases are surplus to requirements following the consolidation of the Cavalier Bremworth and
Norman Ellison Carpets broadloom carpet businesses in 2012 and 2013. More information on these two leased
properties can be found under provision for onerous contracts in note 8b (Provisions) to the financial
statements.
49
8d. Operating leases (continued)
2018
2017
$000
$000
Sublease income relating to non-cancellable operating leases $891
$885
Gross sublease income commitments under non-cancellable
operating leases:
Less than one year
596
486
Between one year and three years
236
707
Accounting policies
Leases in which a significant portion of the risks and rewards of ownership are retained by the lessor are dealt
with as operating leases. Payments made under operating leases are recognised in the income statement on a
straight-line basis over the term of the lease. Lease incentives received are also recognised over the term of the
lease by netting these off against the related operating lease payments.
8e. Contingencies
The Group has granted indemnities in favour of Bank of New Zealand and National Australia Bank Limited
(together, “the Bank”) at balance date in respect of Bank guarantees relating to operating leases and other
commitments totalling $2,095,000 (2017: $1,347,000).
Some subsidiaries in the Group are parties to a cross guarantee in favour of the Bank securing each other’s
obligations.
The Group’s indebtedness under the cross guarantee at balance date amounted to $31,500,000 (2017:
$41,500,000).
8f. Related parties
Transactions with directors and senior managers
For the purposes of this note, a senior manager means a person who is not a director but occupies a position
that allows that person to exercise significant influence over the management or administration of the Group, as
defined in section 6 of the Financial Markets Conduct Act 2013.
As shareholders
Some of the Directors are shareholders in the Company.
Their shares rank pari passu with all the other ordinary shares in the capital of the Company and do not
therefore confer additional rights to dividends paid or to attend or vote at any meetings of the shareholders of
the Company.
As lenders or borrowers
There were no loans to, or from, the Directors and senior managers during the year ended 30 June 2018 (2017:
Nil).
Directors’ remuneration and benefits
The fees paid to the Directors for services in their capacity as directors totalled $345,000 during the year ended
30 June 2018 (2017: $331,000).
No other services were provided by the Directors during the year (2017: Nil).
50
8f. Related parties (continued)
Directors’ remuneration and benefits (continued)
The scale of fees payable to the Directors was last reviewed and approved by the Board in January 2018, with
the current scale of fees applying with effect from 1 January 2018 set out below:
Directors’ fees Per annum Explanatory notes
Non-executive Chairman of the Board $112,000 Inclusive of time spent on Board committees
and as Chairman of Nomination Committee
Non-executive directors (including
Deputy Chairman of the Board)
$56,000 Inclusive of time spent on Board committees
Chairman of the Audit Committee $9,000 In recognition of additional time and
responsibilities as Chairman of Audit
Committee
Chairman of the Remuneration
Committee
$5,000 In recognition of additional time and
responsibilities as Chairman of Remuneration
Committee
G C W Biel, a long-serving Director, is entitled to a lump sum retiring allowance pursuant to an arrangement that
is contained in the Company’s constitution. The amount of this retiring allowance, which was set in November
2007, is $96,000. The Company decided at that time that retiring allowances would no longer be offered in
respect of new Directors appointed to the Board.
The Group notes that the Directors are precluded by the NZX Main Board Listing Rules from voting at general
meetings of shareholders on certain matters prescribed by the New Zealand Exchange. These matters include,
in the case of the Directors who are also shareholders, shareholders’ approval of directors’ fees.
Senior managers’ (including the Chief Executive Officer’s) remuneration and benefits
In addition to salaries and performance-based payments, the Group also provides non-cash benefits to the
Chief Executive Officer of the Company and senior managers of the Group.
These non-cash benefits may include the provision of motor vehicles, income protection and life insurances and
medical insurances.
The remuneration paid and payable, and the benefits provided, to the Chief Executive Officer and senior
managers in their capacities as employees comprised:
2018
2017
$000
$000
Salaries, bonuses and leave entitlements
2,940
2,924
Employee benefits
95
117
Termination payments
152
75
$3,187
$3,116
The Group has not provided the Chief Executive Officer and senior managers with any post-employment
benefits.
Other transactions
The Group deals with many entities and organisations in the normal course of business. The Group is not aware
of any of the Directors, the Chief Executive Officer or senior managers, or their related parties, holding positions
in any of these entities or organisations that result in them having control or significant influence over the
financial or operating policies of these entities or organisations.
The Group does not transact with the Directors, the Chief Executive Officer or senior managers, and their
related parties, other than in their capacity as directors and employees, except that they may purchase goods
from the Group for their own domestic use. These purchases are on the same terms and conditions as those
applying to all employees of the Group and are immaterial and personal in nature.
51
8f. Related parties (continued)
Transactions with equity-accounted investees, Cavalier Wool Holdings Limited (CWH) and CWS Assets
Limited (CWSA)
The Group did not receive any dividends from CWH during the year (2017: $3,670,000).
The value of wool scouring services contracted directly with CWH during the year was $473,000 (2017:
$524,000).
The Group owed CWH $65,063 (inclusive of GST) (2017: $42,509) in respect of invoices for wool scouring
services provided in June 2018, but which were not due for payment at balance date. At the same time, CWH
owed the Group $48,349 (inclusive of GST) (2017: $59,706) being rebates in respect of scouring services and
wool storage provided prior to balance date. All these amounts were paid in full after balance date.
The Group received a dividend of $140,000 from CWSA during the year (2017: Nil).
8g. Group entities
Operating subsidiaries of the Group
Principal activity Country of
incorporation
Interest (%)
2018
2017
Cavalier Bremworth Limited Carpet manufacturing
and distribution
New Zealand
100
100
Cavalier Bremworth Pty Limited Carpet distribution Australia
100
100
Cavalier Spinners Limited Carpet yarn spinning New Zealand
100
100
Elco Direct Limited Wool acquisition New Zealand
100
100
Norman Ellison Carpets Limited Carpet distribution New Zealand
100
100
Norman Ellison Carpets Pty Limited Carpet distribution Australia
100
100
Radford Yarn Technologies Limited Carpet yarn spinning New Zealand
100
100
Cavalier Commercial Pty Limited Carpet tile distribution Australia
100
100
Cavalier Commercial Limited Carpet tile distribution New Zealand
100
100
Equity-accounted investees of the Group
Principal activity Country of
incorporation
Interest (%)
2018
2017
Cavalier Wool Holdings Limited Wool scouring New Zealand
27.5
27.5
CWS Assets Limited Property owning New Zealand
50.0
50.0
8h. Event after balance date
There were no events after balance date.
52
8i. Standards, interpretations and amendments to standards
The following accounting standards and amendments to existing standards are not yet effective and have not
been early adopted by the Group:
NZ IFRS 9 Financial Instruments (effective for annual periods beginning on or after 1 January 2018)
NZ IFRS 9 addresses the classification, measurement and recognition of financial assets and financial liabilities.
The complete version of NZ IFRS 9 was issued in September 2014 and replaces the guidance in NZ IAS 39 that
relates to the classification and measurement of financial instruments.
NZ IFRS 9 retains but simplifies the mixed measurement model and establishes three primary measurement
categories for financial assets:
- amortised cost;
- fair value through other comprehensive income; and
- fair value through profit or loss.
The basis of classification depends on the entity’s business model and the contracted cash flow characteristics
of the financial asset. Investments in equity instruments are required to be measured at fair value through profit
or loss with the irrevocable option at inception to present changes in fair value in other comprehensive income
not recycling.
There is now a new expected credit losses model that replaces the incurred loss impairment model used in NZ
IAS 39. For financial liabilities there were no changes to classification and measurement except for the
recognition of changes in own credit risk in other comprehensive income, for liabilities designated at fair value
through profit or loss.
NZ IFRS 9 relaxes the requirements for hedge effectiveness by replacing the bright line hedge effectiveness
tests. It requires an economic relationship between the hedged item and hedging instrument and for the ‘hedged
ratio’ to be the same as the one management actually uses for risk management purposes. Contemporaneous
documentation is still required but is different to that currently prepared under NZ IAS 39.
The Group will adopt NZ IFRS 9 for its financial year ending 30 June 2019.
Management has considered the impact of the new financial asset classification categories and credit
impairment based on an expected credit loss model. Due to the nature of material financial instruments and
controlled debtor balances, management’s review has determined that this new standard is not expected to
have a significant financial impact on the Group’s financial statements.
NZ IFRS 15 Revenue from Contracts with Customers (effective for annual periods beginning on or after
1 January 2018)
NZ IFRS 15 deals with revenue recognition and establishes principles for reporting useful information to users of
financial statements about the nature, amount, timing and uncertainty of revenue and cash flows arising from an
entity’s contracts with customers.
Revenue is recognised when a customer obtains control of a good or service and thus has the ability to direct
the use and obtain the benefits from the good or service.
The standard replaces NZ IAS 18 Revenue and NZ IAS 11 Construction Contracts and related interpretations.
The Group will adopt NZ IFRS 15 for its financial year ending 30 June 2019.
Management has assessed the accounting implications of NZ IFRS 15 and notes that due to the nature of sale
arrangements with customers and the absence of bundled products or services, this new standard is not
expected to have a material impact on the Group’s operations in New Zealand and Australia.
53
8i. Standards, interpretations and amendments to standards (continued)
NZ IFRS 16 Leases (effective for accounting periods beginning on or after 1 January 2019)
NZ IFRS 16 which was published by the International Accounting Standards Board (“IASB”) in January 2016 will
replace the current guidance in NZ IAS 17. Under NZ IFRS 16, a contract is, or contains, a lease if the contract
conveys the right to control the use of an identified asset for a period of time in exchange for consideration.
Under NZ IAS 17, a lessee is required to make a distinction between a finance lease (on balance sheet) and an
operating lease (off balance sheet).
NZ IFRS 16 eliminates the lessee’s classification of leases as either finance leases or operating leases and
introduces a single lessee accounting model. Applying the new model, a lessee is required to recognise right-of-
use (ROU) assets and lease liabilities (reflecting future lease payments) for all leases with a term of more than
12 months, unless the underlying asset is of low value.
The Group will adopt NZ IFRS 16 for its financial year ending 30 June 2020.
The Group has performed an analysis of the new standard on its existing operating lease arrangements as a
lessee. Based on this analysis, the Group expects the operating leases identified at note 8d (Operating leases)
to the financial statements to be recognised as ROU assets with corresponding lease liabilities under the new
standard.
The operating lease commitments on an undiscounted basis amount to approximately 6% of the Group’s total
assets and 13% of total liabilities. Assuming no additional new operating leases in future years until the effective
date, the Group expects the amount of ROU asset and lease liability to be lower due to discounting and as the
lease terms run down.
54
Cavalier Corporation Limited and subsidiary companies
Trend Statement
2018
2017 2016 2015 2014 2013 2012
$000
$000 $000 $000 $000 $000 $000
Financial Performance
Operating revenue $148,120
$156,120 $190,371 $215,728 $200,642 $201,739 $217,198
EBITDA (normalised) 9,998
2,572 12,275 8,517 14,609 12,142 12,278
Depreciation
(3,561)
(3,251) (3,352) (5,862) (5,849) (6,328) (6,738)
EBIT (normalised) 6,437
(679) 8,923 2,655 8,760 5,814 5,540
Net interest expense
(2,798)
(2,936) (3,374) (3,948) (3,484) (3,740) (4,049)
Share of after tax profit of equity-accounted
investees (normalised)
1,419
797
2,670
2,034
2,044
5,013
3,302
Profit/(Loss) before income tax (normalised) 5,058
(2,818) 8,219 741 7,320 7,087 4,793
Income tax (expense)/benefit
(1,084)
962 (1,906) 454 (1,530) (463) (510)
Profit/(Loss) after tax (normalised) 3,974
(1,856) 6,313 1,195 5,790 6,624 4,283
Abnormal costs (after tax)
107
(268) (3,198) (26,910) - (3,594) (5,916)
Profit/(Loss) after tax attributable to shareholders
of the Company (GAAP)
4,081
(2,124)
3,115
(25,715)
5,790
3,030
(1,633)
Ordinary dividends paid
-
- - - (4,785) - (7,509)
Profit/(Loss) after dividends $4,081
$(2,124) $3,115 $(25,715) $1,005 $3,030 $(9,142)
Financial Position
Shareholders’ equity
72,222
67,890 69,361 66,184 92,959 93,918 90,855
Loans and borrowings
27,500
35,000 37,700 45,000 61,220 58,896 68,503
Term liabilities
2,029
3,315 4,461 4,938 6,363 6,961 5,591
Loans and borrowings – current portion
4,000
6,500 - 11,767 - 320 172
Current liabilities
27,253
26,152 35,854 41,237 37,518 36,542 36,313
Shareholders’ equity and total liabilities $133,004
$138,857 $147,376 $169,126 $198,060 $196,637 $201,434
Fixed assets
35,142
37,123 36,820 47,910 63,900 68,932 75,080
Investment in equity-accounted investees
24,544
23,490 23,175 24,937 25,900 23,856 22,593
Goodwill and other intangibles
2,362
2,362 2,362 2,362 7,794 7,794 7,502
Deferred tax asset
4,971
5,532 3,496 1,388 3,107 2,797 1,998
Non-current assets 67,019
68,507 65,853 76,597 100,701 103,379 107,173
Cash at bank
2,111
1,255 1,200 2,834 2,375 5,932 2,029
Current assets
63,874
69,095 80,323 89,695 94,984 87,326 92,232
Total assets $133,004
$138,857 $147,376 $169,126 $198,060 $196,637 $201,434
55
Cavalier Corporation Limited and subsidiary companies
Trend Statement (continued)
2018
2017 2016 2015 2014 2013 2012
$000
$000 $000 $000 $000 $000 $000
Abnormal items (after tax)
Impairment of carpet tile business assets
-
- - (9,132) - - -
Impairment of fixed assets
-
- (1,573) (4,344) - - -
Impairment of intangible assets
-
- - (5,432) - - -
Derecognition of deferred tax asset
-
- - (6,771) - - -
Restructuring costs
136
(4,542)
1
(3,222)
1
(711)
- (4,113)
2
(5,916)
2
Releases of provisions made previously
-
- - - - 519 -
Reversal of impairment of fixed assets
99
1,083 - - - - -
Gain on sale of property
-
- 2,035 - - - -
Scour merger costs
(128)
(738) (438) (520) - - -
Gain on merger and dilution of equity-accounted
investee
-
3,929
-
-
-
-
-
Total $107
$(268) $(3,198) $(26,910) - $(3,594) $(5,916)
1
Incurred as part of the Group’s strategic plan to address its cost base, with the consolidation of its yarn spinning operations in Napier, Wanganui and
Christchurch. The costs included employee termination benefits, employee support costs, costs to relocate plant and equipment and abnormal manufacturing
costs and inefficiencies during the consolidation process, which included:
• consolidation of woollen yarn spinning operations (previously in Napier and Wanganui) to a single hub at the Napier plant;
• down-scaling of the semi-worsted yarn spinning operation in Wanganui;
• relocation of the felted yarn operation from Christchurch to Wanganui; and
• closure of the Christchurch plant.
2
Incurred as a consequence of various business improvement plans initiated, with costs made up of employee termination benefits, employee support costs,
costs to relocate plant and equipment and contract termination costs.
56
Cavalier Corporation Limited and subsidiary companies
Trend Statement (continued)
2018
2017 2016 2015 2014 2013 2012
Financial Ratios and Summary
Use of Funds and Return on Investment
Return on average shareholders’ equity (normalised)
5.7%
(2.7)% 9.3% 1.5% 6.2% 7.2% 4.5%
Basic earnings per ordinary share (normalised)
5.8c
(2.7)c 9.2c 1.7c 8.5c 9.7c 6.3c
Financial Structure
Net tangible asset backing per ordinary share
$1.02
$0.95 $0.98 $0.93 $1.24 $1.26 $1.22
Equity ratio
54.3%
48.9% 47.1% 39.1% 46.9% 47.8% 45.1%
Net interest-bearing debt : equity ratio
29:71
37:63 34:66 45:55 39:61 36:64 42:58
Net interest cover (normalised) (times)
2.4
1.5 4.4 1.5 2.5 3.0 2.4
Return to Shareholders
Dividends paid per ordinary share (excluding
supplementary)
-
-
-
-
7.0c
-
11.0c
Dividend imputation
-
- - - 100% - 100%
Ordinary dividend cover (normalised) (times)
-
- - - 1.2 - 0.6
Supplementary dividends paid per ordinary share
-
- - - 1.24c - 1.94c
Share Price
30 June
$0.62
$0.35 $0.76 $0.36 $1.33 $1.70 $1.52
52 week high
$0.63
$0.95 $0.77 $1.36 $2.03 $2.12 $3.83
52 week low
$0.27
$0.33 $0.35 $0.31 $1.33 $1.45 $1.41
Market Capitalisation ($000)
30 June
$42,581
$24,038 $52,196 $24,724 $91,343 $116,049 $103,761
Capital Expenditure and Depreciation ($000)
Capital expenditure
$1,622
$2,123 $2,076 $2,564 $2,494 $1,907 $2,457
Depreciation
$3,561
$3,251 $3,352 $5,862 $5,849 $6,328 $6,738
Cavalier Corporation Limited and subsidiary companies
Trend Statement (continued)
Glossary of financial terms
EBITDA Earnings before interest, tax, depreciation and amortisation
EBIT Earnings before interest and tax
EBITDA (normalised) Earnings before abnormal costs, interest, tax, depreciation and amortisation
EBIT (normalised) Earnings before abnormal costs, interest and tax
Net assets Total assets less total liabilities
Use of funds and Return on investment
Return on average shareholders’
equity (normalised) Profit/(Loss) after tax (normalised)
Average shareholders’ equity
Basic earnings per ordinary share
(normalised) Profit/(Loss) after tax (normalised)
Weighted average number of ordinary shares on issue during the year
Financial structure
Net tangible asset backing per
ordinary share Net assets less goodwill and other intangibles
Number of ordinary shares on issue at balance date
Equity ratio Shareholders’ equity
Shareholders’ equity and total liabilities
Net interest-bearing debt : equity
ratio Interest-bearing debt less cash at bank : Shareholders’ equity
Net interest cover (normalised) EBIT (normalised) plus dividends received from equity-accounted investees
grossed up for imputation
Net interest expense
Return to shareholders
Ordinary dividend cover
(normalised) Profit/(Loss) after tax attributable to shareholders of the Company (normalised)
Ordinary dividends paid
58
Cavalier Corporation Limited and subsidiary companies
Disclosure of Non-GAAP Financial Information
The Directors acknowledge that the Annual Report, including the Trend Statement from pages 54 to 57, contains
financial information that is non-GAAP (Generally Accepted Accounting Practice) and therefore falls within the
Financial Markets Authority’s guidance note on “Disclosing non-GAAP financial information” issued in September
2012.
The Trend Statement has been prepared using the audited GAAP-compliant financial statements of the Group.
The Directors believe that the non-GAAP financial information contained within the Trend Statement (more particularly,
the non-GAAP measures of financial performance such as “EBITDA (normalised)”, “EBIT (normalised)”, “Profit before
income tax (normalised)” and “Profit after tax (normalised)” as well as the various other financial ratios that are based
on normalised results – for example, earnings per share) provide useful information to investors regarding the
performance of the Group because the calculations exclude items that are not normally expected to occur on a regular
basis either by virtue of quantum or nature.
In arriving at this view, the Directors have also taken cognisance of the regular requests by users of the Group
financial statements, including analysts and shareholders, regarding the nature and quantum of abnormal items within
the GAAP-compliant results and the way analysts distinguish between GAAP and non-GAAP measures of profit.
The disclosure of the non-GAAP financial information is also consistent with how the financial information for the
Group is reported internally, and reviewed by the Chief Executive Officer as its chief operating decision maker, and
provides what the Directors and management believe gives a more meaningful insight into the underlying financial
performance of the Group and a better understanding of how the Group is tracking after taking into account items of
an abnormal nature, including items that are unlikely to recur or otherwise unusual in nature.
The Directors also note that because these items may include non-cash provisions or provisions that are uncertain
both as to quantum and timing of cash flows, it would usually be more appropriate to be using alternative, yet
consistent, non-GAAP measures of profit when determining dividends.
In collating the Trend Statement, the Directors have taken into account all of the requirements within the guidance
note. More specifically, these include:
outlining why the non-GAAP financial information is useful;
ensuring that:
- no undue prominence, emphasis or authority is given to any non-GAAP financial information;
- non-GAAP financial information is appropriately labelled;
- the calculation of non-GAAP financial information is clearly explained; and
- a reconciliation between non-GAAP and GAAP financial information is provided (see below);
applying a consistent approach from period to period and ensuring that comparatives are similarly adjusted for
consistency;
ensuring that non-GAAP financial information is unbiased and taking care when describing, or referring to,
items as ‘abnormal’; and
identifying the source of non-GAAP financial information.
59
Cavalier Corporation Limited and subsidiary companies
Disclosure of Non-GAAP Financial Information (continued)
Reconciliation of GAAP-compliant to non GAAP-compliant measures of profit/loss after tax
Year ended 30 June 2018 Year ended 30 June 2017
GAAP Adjustments Normalised GAAP Adjustments Normalised
$000 $000 $000 $000 $000 $000
Revenue $148,120 - $148,120 $156,120 - $156,120
EBITDA 10,324 (326) 9,998 (2,232) 4,804 2,572
Depreciation (3,561) - (3,561) (3,251) - (3,251)
EBIT
6,763 (326) 6,437 (5,483) 4,804 (679)
Net interest expense (2,798) - (2,798) (2,936) - (2,936)
Share of profit after tax of
equity-accounted investees
1,291
128
1,419
59
738
797
Gain on dilution of equity-
accounted investee
-
-
-
3,929
(3,929)
-
Profit/(Loss) before tax 5,256 (198) 5,058 (4,431) 1,613 (2,818)
Tax (expense)/benefit (1,175) 91 (1,084) 2,307 (1,345) 962
Profit/(Loss) after tax $4,081 (107) 3,974 $(2,124) 268 (1,856)
Abnormal net loss after tax 107 107 (268) (268)
Profit/(Loss) after tax
(GAAP)
-
$4,081
-
$(2,124)
Analysis of abnormal
items
Profit/(Loss)
before tax
Tax effect Profit/(Loss)
after tax
Profit/(Loss)
before tax
Tax effect Profit/(Loss)
after tax
$000 $000 $000 $000 $000 $000
Restructuring costs 189 (53) 136 (6,309) 1,767 (4,542)
Reversal of impairment of
fixed assets
137
(38)
99
1,505
(422)
1,083
Scour merger costs (128) - (128) (738) - (738)
Gain on merger and dilution
of equity-accounted investee
-
-
-
3,929
-
3,929
$198 $(91) $107 $(1,613) $1,345 $(268)
Calculation of basic and diluted earnings per share
under GAAP and non GAAP measures of profit/loss
after tax
GAAP-
compliant
reported
profit/(loss)
after tax
Reverse
abnormal
items (net of
tax)
Non GAAP-
compliant
normalised
profit/(loss)
after tax
Year ended 30 June 2018
Profit attributable to shareholders ($000)
$4,081 $(107) $3,974
Weighted average number of ordinary shares
68,679,098 68,679,098
Earnings per share (basic and diluted)
5.9 cents 5.8 cents
Year ended 30 June 2017
Loss attributable to shareholders ($000) $(2,124) $268 $(1,856)
Weighted average number of ordinary shares 68,679,098 68,679,098
Earnings per share (basic and diluted) (3.1) cents (2.7) cents
---
Cavalier Corporation Limited and subsidiary companies
Disclosure of Non-GAAP Financial Information
The Directors acknowledge that the Annual Report, including the Trend Statement from pages 54 to 57, contains
financial information that is non-GAAP (Generally Accepted Accounting Practice) and therefore falls within the
Financial Markets Authority’s guidance note on “Disclosing non-GAAP financial information” issued in September
2012.
The Trend Statement has been prepared using the audited GAAP-compliant financial statements of the Group.
The Directors believe that the non-GAAP financial information contained within the Trend Statement (more particularly,
the non-GAAP measures of financial performance such as “EBITDA (normalised)”, “EBIT (normalised)”, “Profit before
income tax (normalised)” and “Profit after tax (normalised)” as well as the various other financial ratios that are based
on normalised results – for example, earnings per share) provide useful information to investors regarding the
performance of the Group because the calculations exclude items that are not normally expected to occur on a regular
basis either by virtue of quantum or nature.
In arriving at this view, the Directors have also taken cognisance of the regular requests by users of the Group
financial statements, including analysts and shareholders, regarding the nature and quantum of abnormal items within
the GAAP-compliant results and the way analysts distinguish between GAAP and non-GAAP measures of profit.
The disclosure of the non-GAAP financial information is also consistent with how the financial information for the
Group is reported internally, and reviewed by the Chief Executive Officer as its chief operating decision maker, and
provides what the Directors and management believe gives a more meaningful insight into the underlying financial
performance of the Group and a better understanding of how the Group is tracking after taking into account items of
an abnormal nature, including items that are unlikely to recur or otherwise unusual in nature.
The Directors also note that because these items may include non-cash provisions or provisions that are uncertain
both as to quantum and timing of cash flows, it would usually be more appropriate to be using alternative, yet
consistent, non-GAAP measures of profit when determining dividends.
In collating the Trend Statement, the Directors have taken into account all of the requirements within the guidance
note. More specifically, these include:
outlining why the non-GAAP financial information is useful;
ensuring that:
- no undue prominence, emphasis or authority is given to any non-GAAP financial information;
- non-GAAP financial information is appropriately labelled;
- the calculation of non-GAAP financial information is clearly explained; and
- a reconciliation between non-GAAP and GAAP financial information is provided (see below);
applying a consistent approach from period to period and ensuring that comparatives are similarly adjusted for
consistency;
ensuring that non-GAAP financial information is unbiased and taking care when describing, or referring to,
items as ‘abnormal’; and
identifying the source of non-GAAP financial information.
2
Cavalier Corporation Limited and subsidiary companies
Disclosure of Non-GAAP Financial Information (continued)
Reconciliation of GAAP-compliant to non GAAP-compliant measures of profit/loss after tax
Year ended 30 June 2018 Year ended 30 June 2017
GAAP Adjustments Normalised GAAP Adjustments Normalised
$000 $000 $000 $000 $000 $000
Revenue $148,120 - $148,120 $156,120 - $156,120
EBITDA 10,324 (326) 9,998 (2,232) 4,804 2,572
Depreciation (3,561) - (3,561) (3,251) - (3,251)
EBIT
6,763 (326) 6,437 (5,483) 4,804 (679)
Net interest expense (2,798) - (2,798) (2,936) - (2,936)
Share of profit after tax of
equity-accounted investees
1,291
128
1,419
59
738
797
Gain on dilution of equity-
accounted investee
-
-
-
3,929
(3,929)
-
Profit/(Loss) before tax 5,256 (198) 5,058 (4,431) 1,613 (2,818)
Tax (expense)/benefit (1,175) 91 (1,084) 2,307 (1,345) 962
Profit/(Loss) after tax $4,081 (107) 3,974 $(2,124) 268 (1,856)
Abnormal net loss after tax 107 107 (268) (268)
Profit/(Loss) after tax
(GAAP)
-
$4,081
-
$(2,124)
Analysis of abnormal
items
Profit/(Loss)
before tax
Tax effect Profit/(Loss)
after tax
Profit/(Loss)
before tax
Tax effect Profit/(Loss)
after tax
$000 $000 $000 $000 $000 $000
Restructuring costs 189 (53) 136 (6,309) 1,767 (4,542)
Reversal of impairment of
fixed assets
137
(38)
99
1,505
(422)
1,083
Scour merger costs (128) - (128) (738) - (738)
Gain on merger and dilution
of equity-accounted investee
-
-
-
3,929
-
3,929
$198 $(91) $107 $(1,613) $1,345 $(268)
Calculation of basic and diluted earnings per share
under GAAP and non GAAP measures of profit/loss
after tax
GAAP-
compliant
reported
profit/(loss)
after tax
Reverse
abnormal
items (net of
tax)
Non GAAP-
compliant
normalised
profit/(loss)
after tax
Year ended 30 June 2018
Profit attributable to shareholders ($000)
$4,081 $(107) $3,974
Weighted average number of ordinary shares
68,679,098 68,679,098
Earnings per share (basic and diluted)
5.9 cents 5.8 cents
Year ended 30 June 2017
Loss attributable to shareholders ($000) $(2,124) $268 $(1,856)
Weighted average number of ordinary shares 68,679,098 68,679,098
Earnings per share (basic and diluted) (3.1) cents (2.7) cents
Data sourced from publicly available filings. Our datasets may not be complete. Automated analysis can produce errors. If you believe any data on this page is incorrect, please contact us at hello@nzxplorer.co.nz. For informational purposes only. Not investment advice.
Other issuers discussed similar conditions around this time
Matched by meaning across NZX announcement text, not keywords — based on our semantic index of announcement bodies.
- FBU — Fletcher Building: Annual Shareholders’ Meeting documents and FY2019 guidance2018-11-19
“4 | Page Statutory earnings impacted by B+I losses Moving to the next slide the statutory earnings reflect the results as reported in our Profit and Loss statements. Here both EBIT and NPAT are reported after the impact of the B+I losses and other significant…”
- FWL — Foley Wines Limited: Foley Family Wines Reports a Year of Significant Progress2018-08-23
“23 August 2018 Foley Family Wines Reports a Year of Significant Progress Foley Family Wines Limited (FFW) announces a Profit for the period after income tax of $1,805,000 on sales revenue of $38,084,000 for the Group for the year ended 30 June 2018. Hig…”
- FBU — Fletcher Building: Fletcher Building announces 2018 annual results2018-08-21
“Page | 1 Fletcher Building announces 2018 annual results Auckland, 22 August 2018: Fletcher Building today announced a net earnings loss of $190 million for the 12 months ended 30 June 2018. This compares to a profit of $94 million in FY17. Operating earnings before si…”