Preliminary announcement of June 2019 full year results
Template
Results announcement
(for Equity Security issuer/Equity and Debt Security issuer)
Updated as at 8 May 2019
Results for announcement to the market
Name of issuer Cavalier Corporation Limited
Reporting Period 12 months to 30 June 2019
Previous Reporting Period 12 months to 30 June 2018
Currency NZD
Amount (000s) Percentage change
Revenue from continuing
operations
$135,234 (8.7)%
Total Revenue $135,234 (8.7)%
Net profit/(loss) from
continuing operations
$(4,896) (220.0)%
Total net profit/(loss) $(16,780) (511.2)%
Interim/Final Dividend
Amount per Quoted Equity
Security
No dividends payable
Imputed amount per Quoted
Equity Security
Not applicable
Record Date Not applicable
Dividend Payment Date Not applicable
Current period Prior comparable period
Net tangible assets per
Quoted Equity Security
$0.72 $0.94
A brief explanation of any of
the figures above necessary
to enable the figures to be
understood
Net loss from continuing operations includes $6.8m non-cash
impairment of goodwill and fixed assets.
Total net loss includes $11.9m non-cash write down relating to
the sale of the Company’s 27.5% interest in Cavalier Wool
Holdings in September 2018.
Authority for this announcement
Name of person
authorised
to make this announcement
Victor Tan
Contact person for this
announcement
Victor Tan
Contact phone number +64 27 668 8963
Contact email address vtan@cavbrem.co.nz
Date of release through MAP
27 August 2019
Audited financial statements accompany this announcement.
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MARKET RELEASE
27 August 2019
Cavalier FY19 Results Announcement
• Normalised profit of $1.9m was in line with guidance.
• Net loss after tax of $(16.8)m includes non-cash impairments of goodwill and fixed assets of $6.8m
and $11.9m loss on the sale of the wool scouring business as reported at the half year.
• Recent valuations of land and buildings in excess of $30m, with net bank debt less than $18m.
• Transformational shift underway as Cavalier positions itself as design-led, wool focused company.
• Board is confident in the financial sustainability of the company and excited about its future.
$Millions FY19 FY18
Revenue 135.2 148.1
Normalised EBITDA 7.1 10.0
NPAT/NLAT (16.8) 4.1
Normalised NPAT
1
1.9 4.0
Net Debt 17.8 29.4
Cavalier Corporation Limited (NZX: CAV) has today released its results for the year ended 30 June 2019
(FY19), with normalised profit after tax of $1.9m in line with its May 2019 guidance.
The results reflect a continuing soft market and challenging trading conditions in Australia, with some
softening in the New Zealand market towards the end of 2H19. Sales of low margin synthetic carpets are
declining, while high-end wool carpet sales are increasing as consumers become more aware of the
environmental benefits and beauty of wool.
These changing market dynamics underline Cavalier’s decision to increase its focus on wool as it looks to
build on its 50 years of history, innovation and in-depth knowledge of the carpet sector. The company has
recently announced a collaboration with The New Zealand Merino Company to develop and implement a
transformative and design-led business model focused on connecting consumers with Cavalier’s wool
product.
Demand for the company’s top end Bremworth Collection wool carpets continues to grow despite the
challenging market conditions, and while volumes are small, these high quality, higher margin carpets
provide a significant contribution to group profits. New Zealand revenue came under pressure from the
decline in low margin synthetic carpets which affected volumes and margin.
The company is known for its design innovation with Cavalier’s new rug offer proving popular and a
variety of new carpets being finalised for launch. Cavalier has over 1,000 retailer partners across Australia
and New Zealand and increased investment has been put into rolling out Cavalier’s successful World of
Difference instore display stands across the trade customer network, providing a unique retail
experience.
Driving efficiencies is a focus and structural cost initiatives have been implemented in both Australia and
New Zealand, with the positive impact of the Australian change management programme earlier this year
now being seen. This resulted in a more customer focused and agile sales team with growth
opportunities identified.
1
Normalised NPAT is a non-GAAP measure and excludes the $11.9m non-cash loss on the sale of the 27.5% in Cavalier
Wool Holdings at the end of September 2018 and impairment of goodwill and fixed assets of $6.8 million after tax.
Wool prices have continued to be impacted by decreased Chinese demand for coarser carpet wool,
adversely affecting sales and margins for Cavalier’s wool buying business, Elco Direct.
Financial Results
For the FY19 year, revenue was down 9% to $135.2m and net loss after tax (NLAT) was $(16.8)m.
The result includes a $11.9m non-cash loss on the sale of Cavalier’s interest in the wool scouring business
and associated property as reported at the half year, as well as $6.8m in after tax impairments of
goodwill and fixed assets as advised last week. These write downs are non-cash and do not impact the
underlying profitability of the company.
Excluding these, Cavalier’s normalised EBITDA was $7.1m and NPAT was $1.9m.
Recent valuations assess the worth of Cavalier’s land and buildings at more than $30m and the company
has less than $18m in net bank debt. The Board is confident in Cavalier’s financial sustainability and the
company has the support of its banking partner.
The Board considers the Group to be a going concern and believes it will be able to meet its contractual
obligations. This going concern relies on future forecasts which are sensitive to sales volumes and
margins and subject to material uncertainty if these forecasts are not met. The Board is implementing a
number of initiatives to address potential uncertainty and the company has sufficient assets to settle
Group debt should the need arise.
Outlook
Cavalier is well positioned to capture the demand from consumers seeking a more natural, more
sustainable, healthier alternative without compromising quality or style, as it transforms into a wool
focused, design-led business.
Market conditions remain challenging and Cavalier’s management and Board continue to work hard to
drive efficiencies and lift sales, with a number of initiatives in place to support its wool focus. While New
Zealand and Australia remain Cavalier’s primary markets, investigations are ongoing into new
opportunities, particularly in the US.
CEO, Paul Alston, said: “This is a pivotal moment in our company’s history. We are in no doubt that
natural wool is the optimal choice for carpet design, innovation and overall performance and a better
choice for the environment. We believe this is the future for our company and will be building on our
heritage as we look to revitalise the demand for beautiful New Zealand wool carpets.”
The transformation is expected to necessitate organisational change as the business moves towards a
stronger wool manufacturing and marketing focus. While there may be some short term costs associated
with this, the Board believes it will add long term value to the company.
ENDS
For further information please contact:
Paul Alston
Chief Executive Officer
palston@cavbrem.co.nz
+64 21 918 033
+64 9 277 1135
Jackie Ellis
Media and Investor Relations
Jackie@ellisandco.co.nz
+64 27 246 2505
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ANNUAL FINANCIAL STATEMENTS - YEAR ENDED 30 JUNE 2019
CONTENTS
Directors’ Responsibility Statement 1
Independent Auditor’s Report 2
Income Statement 6
Statement of Comprehensive Income 7
Statement of Changes in Equity 8
Statement of Financial Position 10
Statement of Cash Flows 11
Notes to the Financial Statements
1. Company information 13
2. General information relating to preparation of financial statements 13
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 31
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 payables and accruals 33
7. Risks and financial instruments 34
8. Others
8a. Equity-accounted investees 45
8b. Provisions 46
8c. Employee benefits 47
8d. Operating leases 48
8e. Contingencies 48
8f. Related parties 49
8g. Group entities 50
8h. Event after balance date 51
8i. Standards, interpretations and amendments to standards 51
Trend Statement 52
Disclosure of Non-GAAP Financial Information 56
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 followed.
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 6 to 51, the Group financial statements for the year ended 30 June 2019.
These financial statements were authorised for issue by the Directors on 26 August 2019 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
T H G Adams
Chairman of the Audit Committee
© 2019 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 audit of 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 6 to 51:
i.present fairly in all material respects the
Group’s financial position as at 30 June 2019
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 2019;
— 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 i n 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.
Material uncertainty related to going concern
We draw attention to the Going concern section in Note 2 of the consolidated financial statements, which indicates
there is a material uncertainty concerning the Group's ability to achieve financial forecasts and generate sufficient
cash flows to ensure the Group will be able to comply with its financial covenants over the term of the facility
agreement and maintain the Group’s ongoing liquidity.
We evaluated management’s forecasts, projected compliance with its debt obligations and ability to maintain
liquidity by performing the following procedures:
— Reviewed terms of the Group’s revised facility agreement dated 28 June 2019.
— 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.
2
3
— 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.
— Considered other possible outcomes in relation to the key assumptions and using these performed a
sensitivity analysis of the Group’s forecast.
— Assessed the adequacy of related disclosures in the financial statements against the requirements of the
financial reporting standards.
As stated in Note 2, these events or conditions, along with other matters as set forth in Note 2, indicate that a
material uncertainty exists that may cast significant doubt on the Group’s ability to continue as a going concern.
Our opinion is not modified in respect of this matter.
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.
Key audit matters
Key audit matters are those matters that, in our professional judgement, were of most significance in our audit of
the consolidated financial statements in the current period. Except for the matter described in the material
uncertainty related to going concern, 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
Impairment of non-current assets
Refer to Notes 5a and 5c to the Financial Statements.
As at 30 June 2019, prior to any adjustment for
impairment, the carrying amount of property, plant and
equipment (‘PP&E’) and goodwill relating to the Carpets
cash generating unit (‘CGU’) was $34,630,000 and
$2,362,000, respectively.
The Group’s market capitalisation of $21,977,000 was
significantly below the carrying value of its net assets of
$61,764,000 (pre-impairment) as at 30 June 2019. This
disparity was an indicator of 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 that non-current assets allocated to the
Carpets CGU were impaired by $8,491,000. As a result,
management have fully impaired the carrying value of
goodwill, and impaired plant and equipment by
$6,129,000. Property has not been impaired as its fair
value as determined by an independent valuer exceeds
its carrying value.
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.
− We cross referenced the outcome of the DCF
impairment model against the Group’s market
capitalisation and breakup value of net assets.
− 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.
Our procedures used a variety of judgements and
assumptions which indicated a range of possible
outcomes. The impairment charged was within that range.
4
The key audit matter How the matter was addressed in our audit
As disclosed in Note 5a and 5c, in assessing whether
the non-current assets allocated to the Carpets CGU of
the Group are impaired, the Group uses a Discounted
Cash Flow (‘DCF’) model. 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 determined 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.
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. During the year
there was a deterioration in the Group’s inventory
turnover ratio.
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 ongoing 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.
− Performed a detailed inventory turnover analysis and
considered whether any excess quantities of inventory
are on hand.
− Reviewed and tested underlying sales and inventory
cost reports.
We used the information from the above procedures to
calculate our own provision for inventory obsolescence.
The provision recorded was materially consistent with our
own calculation.
Other information
T
he Directors, on behalf of the Group, are responsible for the other information included in the entity’s Annual
Financial Statements and Annual Report. Other informati
on includes the Trend Statement and Disclosure of
non-GAAP Financial Information and the other information included in the Annual Report. Our opinion on the
c
onsolidated financial statements does not cover any other information and we do not exp ress any form of
assurance conclusion thereon.
5
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 r eport
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.
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
26 August 2019
6
Cavalier Corporation Limited and subsidiary companies
Income Statement
For the year ended 30 June 2019
2019 2018
Note $000 $000
Revenue 3c 135,234 148,120
Cost of sales (102,378) (111,917)
Gross profit 32,856 36,203
Other income and gains 3d 41 77
Distribution expenses (22,486) (23,016)
Administration expenses 3e (6,814) (6,737)
Restructuring costs - 189
Impairment of fixed assets 5a (6,129) (90)
Impairment of goodwill 5c (2,362) -
Reversal of impairment of fixed assets 5a - 137
Results from operating activities (4,894) 6,763
Net finance costs 3g (1,790) (2,798)
Share of profit after tax of equity-accounted
investees 8a 644 1,291
Loss on sale of interest in, and property held
by, equity-accounted investees 8a (11,884) -
(Loss)/Profit before income tax (17,924) 5,256
Income tax benefit/(expense) 3h 1,144 (1,175)
(Loss)/Profit after tax for the year $(16,780) $4,081
Basic and diluted (loss)/earnings per
share (cents) 3b (24.4) 5.9
This statement is to be read in conjunction with the notes on pages 13 to 51.
7
Cavalier Corporation Limited and subsidiary companies
Statement of Comprehensive Income
For the year ended 30 June 2019
Note
2019
$000
2018
$000
(Loss)/Profit after tax for the year (16,780) 4,081
Other comprehensive income that may be reclassified
subsequently to profit or loss
Effective portion of changes in fair value of cash flow hedges 229 785
Net change in fair value of cash flow hedges transferred to profit
or loss (536) (300)
Income tax on changes in fair value of cash flow hedges 3h 86 (136)
Share of fair value of cash flow hedges (net of income tax) of
equity-accounted investee 8a 72 (97)
Foreign currency translation differences for foreign operations - (1)
(149) 251
Other comprehensive income not reclassified subsequently
to profit or loss - -
Other comprehensive income for the year, net of income tax (149) 251
Total comprehensive income for the year $(16,929) $4,332
This statement is to be read in conjunction with the notes on pages 13 to 51.
8
Cavalier Corporation Limited and subsidiary companies
Statement of Changes in Equity
For the year ended 30 June 2019
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 2018
$21,846
$(70)
$(1,420)
$51,866
$72,222
Change in accounting policy 2 - - - (304) (304)
Total equity at 1 July 2018 after adjusting for impact of
change in accounting policy
21,846
(70)
(1,420)
51,562
71,918
Total comprehensive income for the year
Loss after tax - - - (16,780) (16,780)
Other comprehensive income that may be reclassified
subsequently to profit or loss
Changes in fair value of cash flow hedges (net of income tax) - (221) - - (221)
Share of fair value of cash flow hedges (net of income tax) of
equity-accounted investee
8a
-
72
-
-
72
- (149) - - (149)
Other comprehensive income not reclassified subsequently
to profit or loss
-
-
-
-
-
Total other comprehensive income - (149) - - (149)
Total comprehensive income for the year - (149) - (16,780) (16,929)
Transactions with owners, recorded directly in equity - - - - -
Total equity at 30 June 2019 $21,846 $(219) $(1,420) $34,782 $54,989
This statement is to be read in conjunction with the notes on pages 13 to 51.
9
Cavalier Corporation Limited and subsidiary companies
Statement of Changes in Equity (continued)
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 year
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 income tax) - 349 - - 349
Share of fair value of cash flow hedges (net of income 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 year - 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 13 to 51.
10
Cavalier Corporation Limited and subsidiary companies
Statement of Financial Position
As at 30 June 2019
2019 2018
Note $000 $000
ASSETS
Property, plant and equipment 5a 30,164 35,142
Goodwill 5c - 2,362
Investment in equity-accounted investees 8a - 24,544
Deferred tax asset 3h 5,456 4,971
Total non-current assets 35,620 67,019
Cash and cash equivalents 6a 2,724 2,111
Trade receivables, other receivables and prepayments 6b 12,344 15,582
Inventories 6c 47,678 47,321
Derivative financial instruments 7 653 971
Income tax receivable 315 -
Total current assets 63,714 65,985
Total assets $99,334 $133,004
EQUITY
Share capital 4b 21,846 21,846
Cash flow hedging reserve 4b (219) (70)
Foreign currency translation reserve 4b (1,420) (1,420)
Retained earnings 34,782 51,866
Total equity 54,989 72,222
LIABILITIES
Loans and borrowings 4c 20,500 27,500
Employee benefits 8c 903 911
Provisions 8b 715 1,118
Total non-current liabilities 22,118 29,529
Loans and borrowings 4c - 4,000
Trade payables and accruals 6d 17,014 19,490
Provisions 8b 699 2,214
Employee entitlements 3,856 4,076
Deferred income 9 47
Derivative financial instruments 7 649 593
Income tax payable - 833
Total current liabilities 22,227 31,253
Total liabilities 44,345 60,782
Total equity and liabilities $99,334 $133,004
This statement is to be read in conjunction with the notes on pages 13 to 51.
11
Cavalier Corporation Limited and subsidiary companies
Statement of Cash Flows
For the year ended 30 June 2019
2019 2018
Note $000 $000
CASH FLOWS FROM OPERATING ACTIVITIES
Cash receipts from customers 135,700 149,448
Cash paid to suppliers and employees (130,611) (135,587)
5,089 13,861
Dividends received 2 1
Other receipts 4 4
GST refunded 14 665
Interest paid (1,918) (2,773)
Income tax (paid)/refunded (285) 385
Net cash flow from operating activities 2,906 12,143
CASH FLOWS FROM INVESTING ACTIVITIES
Proceeds from sale of property, plant and
equipment
110 161
Acquisition of property, plant and equipment 5a (4,705) (1,622)
Proceeds from sale of interest in, and property held
by, equity-accounted investees 8a 10,593 -
Dividends received from equity-accounted
investees
8a 2,783 140
Net cash flow from investing activities 8,781 (1,321)
CASH FLOWS FROM FINANCING ACTIVITIES
Movements in bank borrowings 4c (11,000) (10,000)
Net cash flow from financing activities (11,000) (10,000)
Net increase in cash and cash equivalents 687 822
Cash and cash equivalents at beginning of the year 2,111 1,255
Effect of exchange rate changes on cash (74) 34
Cash and cash equivalents at end of the year $2,724 $2,111
This statement is to be read in conjunction with the notes on pages 13 to 51.
12
Cavalier Corporation Limited and subsidiary companies
Statement of Cash Flows (continued)
For the year ended 30 June 2019
RECONCILIATION OF PROFIT/LOSS WITH NET CASH FLOW FROM OPERATING ACTIVITIES
2019 2018
$000 $000
(Loss)/Profit after tax for the year (16,780) 4,081
Add/(Deduct) non-cash items:
Depreciation 3,479 3,561
Impairment of fixed assets 6,129 90
Impairment of goodwill 2,362 -
Reversal of impairment of fixed assets - (137)
Share of profit of equity-accounted investees (644) (1,291)
Loss on sale of interest in, and property held by, equity-
accounted investees 11,884 -
Deferred tax benefit (399) 425
Employee benefits (228) 58
Deferred income (37) (38)
Provisions (1,918) (974)
Net gain on sale of property, plant and equipment (35) (72)
Net (gain)/loss on foreign currency balance 74 (34)
Changes in working capital items:
Trade and other receivables 511 1,679
Inventories 1,531 3,314
Income tax payable/receivable (1,030) 1,134
Trade payables and accruals (2,060) 635
Derivative financial instruments 67 (288)
Net cash flow from operating activities $2,906 $12,143
This statement is to be read in conjunction with the notes on pages 13 to 51.
13
Cavalier Corporation Limited and subsidiary companies
Notes to the Financial Statements
For the year ended 30 June 2019
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 2019.
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 sales and manufacturing.
All Group subsidiaries are wholly-owned.
The Group had a 27.5% interest in commission woolscourer, Cavalier Wool Holdings Limited (“CWH”). It also
has a 50% interest in property-owning entity, CWS Assets Limited (“CWSA”). The Group sold its interest in
CWH, and CWSA sold the property that it held, on 30 September 2018.
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, except for 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.
During the year ended 30 June 2019, the Group encountered challenging trading conditions and had difficulties
achieving its forecast sales and profitability targets, resulting in the Group renegotiating its EBITDA and
inventory bank covenants in December 2018 to better reflect the conditions prevailing at the time. The Group
further renegotiated its banking covenants on 28 June 2019 as part of the extension of its funding facilities to 1
September 2020.
For the year to June 2019, the Group made a loss after tax of $16,780,000 which included a non-cash loss on
the disposal of its 27.5% interest in, and property held by, equity-accounted investees of $11,884,000 and
impairment of goodwill and plant and equipment of $6,775,000 after tax. Carpet sales revenue decreased by
9%, on carpet sales volume 12% lower, during the year.
14
Basis of preparation (continued)
Going concern (continued)
The June 2019 extension of the funding facilities established covenants, with compliance dependent on the
Group achieving an increase in carpet sales volumes and margins compared with the previous year.
The Group’s ability to comply with the Bank’s financial covenants, as disclosed 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 the issuance of the Group’s financial
statements is important to determining the appropriateness of the going concern basis of accounting.
Management forecasts the Group’s financial performance, cash flows and financial position as part of its
management and monitoring of the Group’s operations, including ensuring that the Group will be able to comply
with its financial covenants and debt repayment obligations over the term of the facility. In preparing these
financial forecasts, the following assumptions have been made:
(i)an increase in carpet sales volumes and woollen carpet pricing of 9% and 4% respectively, in
comparison with the financial year ended 30 June 2019;
(ii)NZD:AUD rate of 0.9300, after considering hedged positions;
(iii)operating performance of the Group’s manufacturing plants consistent with that for the financial year
ended 30 June 2019;
(iv)wool price, scoured and delivered, of $4.08/kg;
(v)a 2% reduction in inventory.
The Board of Directors (“Board”) notes that these financial forecasts are particularly sensitive to changes in
sales volumes and margins. Keeping all other assumptions constant, the Group would likely breach its financial
covenants if the Group was unable to achieve an increase in sales volumes of 4% or, alternatively, an increase
in sales price compared with the financial year ended 30 June 2019.
A decrease in sales volumes by 7% and failing to achieve a sales price increase would likely result in the Group
ceasing to generate positive cash flows from operations.
As a consequence, the Board believes there is material uncertainty concerning the Group’s ability to achieve its
financial forecasts which may cast significant doubt on the Group’s ability to comply with the Bank’s financial
covenants and continue as a going concern.
Should the Group not achieve its financial forecasts and meet its debt obligations, the Group may not be able to
continue as a going concern and realise the value in its assets and discharge its liabilities in the normal course
of business.
The Board has implemented a number of initiatives to address this uncertainty including:
(i)plans to grow carpet sales by focusing on in-store presence, supply chain improvements and on-going
product development and range refreshment;
(ii)initiatives to reduce the cost base; and
(iii)appointment of a sub-committee of the Board to oversee the implementation of the strategy to grow
carpet sales.
Additionally, the Board notes, after taking into consideration the 7 August 2019 valuation of the Group’s
Auckland property that was carried out by CBRE, that the fair value of the property on commercial sale and
leaseback terms would be sufficient to settle the Group’s debt facility should the need arise.
The Board considers the Group to be a going concern and believes that the Group will be able to meet its
contractual obligations as further disclosed at note 4c (Loans and borrowings) and note 7 (Risks and financial
instruments and risks) to the financial statements.
15
Significant accounting policies, estimates and judgements
The preparation of financial statements requires management to make judgements, estimations 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.
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 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 2019
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 and changes in accounting policies
There have been no changes in the accounting policies adopted in the preparation of the financial statements
except as a consequence of the Group’s adoption of NZ IFRS 9 Financial Instruments (NZ IFRS 9) and NZ
IFRS 15 Revenue from Contracts with Customers (NZ IFRS 15) during the year.
Impact of the adoption of NZ IFRS 9
Effective 1 July 2018, the Group applied NZ IFRS 9 for its accounting of financial instruments, which included
the adoption of the expected loss model, as opposed to the incurred loss model under the old standard, for the
assessment of trade and other receivables for impairment. Under the new standard, the Group assesses
impairment of trade and other receivables on a forward-looking basis, taking into account not only past events
and current conditions, but also forecast of future economic conditions.
It has been determined that the impact of the new standard on the assessment of trade and other receivables
for impairment is minimal.
From 1 July 2018, the Group classifies its financial assets and financial liabilities in the following measurement
categories: those to be measured subsequently at fair value (either through other comprehensive income
(‘OCI”), or through profit or loss), and those to be measured at amortised cost.
16
New and amended accounting standards adopted and changes in accounting policies (continued)
Impact of the adoption of NZ IFRS 9 (continued)
The classification and measurement of financial instruments have resulted in trade and other receivables and
cash and cash equivalents being reclassified as amortised cost (previously loans and receivables) in note 7
(Risks and Financial Instruments) to the financial statements. Derivative financial instruments that are in cash
flow hedge relationships are measured at fair value through other comprehensive income where the hedges are
effective. Derivative financial instruments that are not in a cash flow hedge relationship or where the hedges
are ineffective are measured at fair value through profit or loss. All other financial instruments (including cash,
trade and other receivables, trade payables and bank borrowings) are measured at amortised cost.
The Group elected to apply the cumulative effect method, with no restatement of comparative period amounts,
in applying NZ IFRS 9. The cumulative effect of applying the new standard is minimal, with no adjustment to the
opening balance of retained earnings recognised in the Statement of Changes in Equity required as a
consequence.
Impact of the adoption of NZ IFRS 15
Effective 1 July 2018, the Group also applied NZ IFRS 15 for its accounting of revenue from contracts with
customers. Based on the five-step assessment performed by the Group pursuant to NZ IFRS 15, the impact of
the new standard is minimal. All of the revenue earned by the Group is derived from the satisfaction of a single
performance obligation for each contract, which can be for the sale of carpet, carpet yarn or wool. This revenue
has historically been recognised at the time there is the transfer of the risks and rewards of ownership of the
products sold to the customer. It has been determined that revenue is now recognised when the customer
obtains control of the products sold, typically on the earlier of payment or delivery.
It has also been determined that there are:
• no material changes to the accounting for rebates, discounts or any other variable consideration under NZ
IFRS 15; and
• no financing components within the Group’s sales arrangements.
The new accounting policy on revenue is disclosed in note 3c (Revenue) to the financial statements.
The Group also elected to apply the cumulative effect method, with no restatement of comparative period
amounts, in applying NZ IFRS 15. The cumulative effect of applying the new standard is dealt with as an
adjustment to the opening balance of retained earnings recognised in the Statement of Changes in Equity.
The Group’s revenue recognition policy remains largely the same with the exception that revenue is now
recognised when the customer obtains control of the products sold, typically on the earlier of payment or
delivery.
The adoption of NZ IFRS 15 has impacted the timing of when some revenue is recognised, resulting in the
following adjustments to opening retained earnings.
$000
Retained earnings as at 1 July 2018 before NZ IFRS 15 adjustments 51,866
Change in revenue (2,371)
Change in cost of sales 1,949
Change in income tax expense 118
Retained earnings as at 1 July 2018 after NZ IFRS 15 adjustments $51,562
17
New and amended accounting standards adopted and changes in accounting policies (continued)
Impact of the adoption of NZ IFRS 15 (continued)
The table below shows the effect of the adoption of NZ IFRS 15 on 1 July 2018 on the Condensed
Consolidated Statement of Financial Position:
As previously
reported
NZ IFRS 15
reclassifications
Restated
$000 $000 $000
Assets
Trade receivables, other receivables and
prepayments
15,582
(2,727)
12,855
Inventories 47,321 1,889 49,210
Total impact on assets $62,903 $(838) $62,065
Liabilities
Trade payables and accruals 19,490 (416) 19,074
Income tax payable 833 (118) 715
Total impact on liabilities $20,323 $(534) $19,789
Retained earnings
$51,866
$(304)
$51,562
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 sales and manufacturing; 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 year 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.
2019
$000
2018
$000
Revenue
New Zealand 78,316 84,482
Australia 52,640 57,878
Rest of the world 4,278 5,760
$135,234 $148,120
As at
30 June 2019
$000
As at
30 June 2018
$000
Non-current assets
New Zealand 34,955 66,522
Australia 665 497
$35,620 $67,019
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 Total
2019
$000
2018
$000
2019
$000
2018
$000
2019
$000
2018
$000
External revenue 113,059 123,724 22,175 24,396 135,234 148,120
Inter-segment revenue - - 3,277 3,069 3,277 3,069
Total revenue $113,059 $123,724 $25,452 $27,465 138,511 151,189
Elimination of inter-segment revenue (3,277) (3,069)
Consolidated revenue $135,234 $148,120
Segment result before depreciation,
restructuring related expenses and impairment
7,721
10,318
928
1,411
8,649
11,729
Depreciation (3,339) (3,445) (140) (116) (3,479) (3,561)
Segment result before restructuring and
impairment
4,382
6,873
788
1,295
5,170
8,168
Restructuring costs - 189 - - - 189
Impairment of fixed assets (6,129) (90) - - (6,129) (90)
Impairment of goodwill (2,362) - (2,362)
Reversal of impairment of fixed assets - 137 - - - 137
Segment result after restructuring and
impairment
(4,109)
7,109
788
1,295
(3,321)
8,404
Elimination of inter-segment profits (30) (66)
Unallocated corporate costs (1,543) (1,575)
Results from operating activities (4,894) 6,763
Net finance costs (1,790) (2,798)
Share of profit after tax of equity-accounted
investees
644
1,291
Loss on sale of interest in, and property held
by, equity-accounted investees
(11,884)
-
(Loss)/Profit before income tax (17,924) 5,256
Income tax benefit/(expense) 1,144 (1,175)
(Loss)/Profit after tax for the year $(16,780) $4,081
20
3a. Segment performance (continued)
Carpets Wool Total
2019
$000
2018
$000
2019
$000
2018
$000
2019
$000
2018
$000
Reportable segment assets 96,300 104,665 3,034 3,795 99,334 108,460
Investment in equity-accounted investees - 24,544
Total assets $99,334 $133,004
Capital expenditure 4,328 1,392 377 230 $4,705 $1,622
Reportable segment liabilities 21,496 26,122 2,349 3,160 23,845 29,282
Unallocated liabilities 20,500 31,500
Total liabilities $44,345 $60,782
Employee numbers
Operations 435 441 24 27 459 468
Unallocated 3 5
Total employee numbers 462 473
21
3b. Earnings per share
Basic and diluted (loss)/earnings per share (EPS)
2019 2018
(Loss)/Profit after tax attributable to shareholders of the
Company ($000)
(16,780)
4,081
Weighted average number of ordinary shares outstanding 68,679,098 68,679,098
Basic and diluted EPS (cents) (24.4) 5.9
3c. Revenue
2019 2018
$000 $000
Sales of goods
Carpet 111,412 121,682
Wool 22,175 24,396
Carpet yarn 876 1,933
134,463 148,011
Provision of installation
services
771 109
Total revenue $135,234 $148,120
Accounting policies
Sale of goods
Revenue is recognised when or as performance obligations are satisfied by transferring control of the products
sold to the customer at the transaction price specified in the contract. Control typically transfers to the customer
on the earlier of payment for, or delivery of, the product. The transaction price includes all amounts which the
Group expects to be entitled to, net of goods and services tax and other indirect taxes, expected rebates and
discounts. Where applicable, rebates and/or discounts are included within the consideration using an estimation
typically based on the most likely method and are only recognised to the extent that it is highly probable that a
significant reversal will not occur.
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
2019 2018
$000 $000
Rentals received 4 4
Dividends received 2 1
Net gain on sale of property, plant and equipment 35 72
Total other income and gains $41 $77
3e. Administration expenses
The following items of expenditure are included in administration expenses:
2019 2018
$000 $000
Donations $15 $25
Fees paid and payable to KPMG for:
Audit of financial statements 168 179
Tax services 30 23
Other services 6 5
Total fees paid and payable to KPMG $204 $207
22
3e. Administration expenses (continued)
Tax services were in respect of transfer pricing and review of income tax returns, and other services were in
respect of scrutineering work at the Annual Meeting of shareholders.
3f. Personnel expenses
2019 2018
$000 $000
Directors’ fees 395 345
Wages, salaries, bonuses and holiday pay 32,694 33,227
Employee termination benefits 552 322
Employee benefits 2,692 2,901
Decrease in liability for retiring allowances and
long service leave
(8)
(101)
Total personnel expenses $36,325 $36,694
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
2019 2018
$000 $000
Interest income 2 36
Interest expense (1,792) (2,834)
Net finance costs $(1,790) $(2,798)
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
2019 2018
$000 $000
Income tax (benefit)/expense in the income
statement
Current tax (benefit)/expense
Current year (646) 491
Adjustment for prior years (99) 259
(745) 750
Deferred tax (benefit)/expense
Origination and reversal of temporary differences (492) 681
Adjustment for prior years 93 (256)
(399) 425
Income tax (benefit)/expense $(1,144) $1,175
23
3h. Income tax (continued)
Reconciliation of effective tax rate
(Loss)/Profit after tax for the year (16,780) 4,081
Income tax (benefit)/expense (1,144) 1,175
(Loss)/Profit excluding income tax $(17,924) $5,256
Income tax using the Company’s domestic tax rate of 28%
(2018: 28%)
(5,019)
1,472
Share of profit after tax of equity-accounted investees (180) (361)
Loss on sale of interest in, and property held by, equity-
accounted investees
3,328
-
Impairment of goodwill 661
Non-deductible expenses 36 43
Effect of tax rate difference in foreign jurisdiction 35 29
Underprovided in prior years (6) 3
Other 1 (11)
Income tax (benefit)/expense $(1,144) $1,175
2019 2018
$000 $000
Income tax recognised directly in equity
Derivative financial instruments (86) 136
Income tax on income and expense
recognised directly in equity
$(86)
$136
Imputation credits
Imputation credits available to
shareholders of the Company
$9,232
$8,748
Deferred tax assets and liabilities
Deferred tax assets and liabilities are attributable to the following:
Assets Liabilities Net
2019 2018 2019 2018 2019 2018
$000 $000 $000 $000 $000 $000
Property, plant and
equipment
-
-
(1,130)
(2,744)
(1,130)
(2,744)
Derivatives - - - - - -
Inventories 644 589 - - 644 589
Employee benefits 1,124 1,232 - - 1,124 1,232
Provisions 1,193 2,092 - - 1,193 2,092
Tax loss carry-forwards 3,625 3,802 - - 3,625 3,802
Net tax assets/(liabilities) $6,586 $7,715 $(1,130) $(2,744) $5,456 $4,971
Deferred tax assets have not been recognised in respect of temporary differences arising from tax losses
totalling $24,150,000 (2018: $24,149,000) 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 2018
Recognised
in profit or
loss
Recognised
in equity
Balance
30 June 2019
$000 $000 $000 $000
Property, plant and equipment (2,744) 1,614 - (1,130)
Derivatives - (86) 86 -
Inventories 589 55 - 644
Employee benefits 1,232 (108) - 1,124
Provisions 2,092 (899) - 1,193
Tax loss carry-forwards 3,802 (177) - 3,625
Total $4,971 $399 $86 $5,456
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
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. Deferred tax assets are 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 year.
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:
2019 2018
$000 $000
Total loans and borrowings, including current portion 20,500 31,500
Less cash and cash equivalents
(2,724)
(2,111)
Net debt 17,776 29,389
Total equity 54,989 72,222
Total capital employed $72,765 $101,611
Leverage 24.4% 28.9%
26
4b. Share capital, dividends and reserves
Share capital
2019 2018
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 (2018: Nil).
The Board has not declared a final dividend in respect of the current year ended 30 June 2019 (2018: 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
year 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 $23,400,000 at balance date,
with $20,500,000 utilised at that date.
The Group also had overdraft facilities totalling $1,598,000 at balance date. These facilities are repayable on
demand and none of these were utilised at that date.
The Group had financial covenants with the Bank that required the Group to meet, amongst other things, certain
EBITDA, revenue, inventory and equity ratio targets during the year. The Group was not in breach of these
financial covenants throughout the year ended 30 June 2019 as it was able to renegotiate these with the Bank
in advance where required to better reflect operating conditions and financial performance as the year
progressed.
Details of the Group’s loans and borrowings at 30 June are as follows:
Nominal
interest
rate 2019
Face
value
2019
Carrying
amount
2019
Nominal
interest rate
2018
Face
value
2018
Carrying
amount
2018
% $000 $000 % $000 $000
Non-current 20,500 20,500 27,500 27,500
Current - - 4,000 4,000
Total secured bank loans 7.0 $20,500 $20,500 7.3 $31,500 $31,500
The Group had no other borrowings at balance date (2018: 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).
The Group extended its funding facilities with the Bank to 1 September 2020 prior to balance date.
In extending the funding facilities, the Group also renegotiated its financial covenants with the Bank, with the
equity and interest cover ratios, as well as EBITDA, revenue and inventory targets, reset to reflect the Group’s
latest financial forecasts.
28
5. ASSETS EMPLOYED
This section covers non-current assets, being property, plant and equipment, other assets 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 2018 23,734 72,603 14,601 119 111,057
Additions 434 694 2,621 956 4,705
Disposals (9) (4,511) (1,109) - (5,629)
Transfers - 62 56 (118) -
Balance at 30 June 2019 $24,159 $68,848 $16,169 $957 $110,133
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
Depreciation and impairment
losses
Balance at 1 July 2018 2,403 61,444 12,068 - 75,915
Depreciation for the year 257 2,568 654 - 3,479
Impairment losses provided - 4,369 1,760 - 6,129
Disposals (9) (4,443) (1,102) - (5,554)
Balance at 30 June 2019 $2,651 $63,938 $13,380 - $79,969
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 reversed - (137) - - (137)
Impairment losses provided - 90 - - 90
Disposals - (957) (728) (226) (1,911)
Balance at 30 June 2018 $2,403 $61,444 $12,068 - $75,915
Carrying amounts
At 30 June 2019 $21,508 $4,910 $2,789 $957 $30,164
At 30 June 2018 $21,331 $11,159 $2,533 $119 $35,142
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 loss in respect of plant and equipment and other assets of $6,129,000 was recognised for the year
(2018: $90,000).
No prior year impairment losses relating to specific items of fixed assets were reversed during the year (2018:
$137,000).
Due to identification of indicators of impairment - more particularly, the $39,787,000 shortfall in the Group’s
market capitalisation when compared with the carrying value of its net assets (before impairment of goodwill,
plant and equipment and other assets) at balance date, the deterioration in profitability and the ongoing
reduction in carpet sales volumes - the Group conducted an impairment test of the carrying value of the assets
(more particularly, goodwill, property, plant and equipment and other assets) that is allocated to the carpet sales
and manufacturing cash-generating unit (“Carpet CGU”) as at 30 June 2019.
The carrying value of these assets was tested for impairment by determining the recoverable amount of the
Carpet CGU and assessing the extent to which the carrying value of these assets exceeds the recoverable
amount, with an impairment loss recognised to the extent of that excess.
The recoverable amount of the Carpet CGU was determined by discounting Carpet CGU cash flow projections
for the next five years, taking into consideration historic data and forecast economic conditions and based on
the following significant assumptions:
• carpet sales volumes down 5% on 2019 in 2020, before increasing by 6% per annum from 2021 to 2023
and returning sales volumes to the levels achieved in 2018;
• carpet sales prices to increase by average of 2% in respect of wool products in 2020 and then remaining
unchanged thereafter;
• wool price, scoured and delivered, of $4.02/kg throughout the period;
• NZD:AUD exchange rates of around 0.9300 throughout the period;
• improvement in operating performance of the Group’s manufacturing plants and reduction in operating
costs;
• post-tax discount rate of 12.8% (2018: 11.1%);
• long term growth rate of 1.5% (2018: 2.0%).
Management believes that the key assumptions used, and estimates made, represent the most realistic
assessment of the recoverable amount of the assets, including goodwill, allocated to the Carpet CGU.
Based on this assessment – which indicated impairment losses totalling $8,491,000 (being the extent to which
the carrying value of assets allocated to the Carpet CGU exceeded its recoverable amount at balance date) -
the Board approved the $6,129,000 impairment of plant and equipment and other assets in addition to the
$2,362,000 impairment of goodwill as disclosed at note 5c (Goodwill) to the financial statements.
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
5a. Property, plant and equipment (continued)
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.
Impairment
The carrying amount of property, plant and equipment and other assets is tested for impairment whenever there
are indicators of 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 property, plant and equipment and other assets is allocated exceeds its recoverable amount.
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
post-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.
31
5a. Property, plant and equipment (continued)
Judgements, estimations and assumptions
The assessment of the recoverable amount of the Carpet CGU requires judgements, estimations and
assumptions regarding the various inputs underlying the five-year cash flow projections of the Carpet CGU as
well as the discount rate used to determine the net present values of those future cash flows.
5b. Capital commitments
The Group had outstanding commitments for the purchase of plant and equipment of $361,000 at balance date
(2018: $397,000).
5c. Goodwill
As disclosed at note 5a (Property, plant and equipment) to the financial statements, the Group conducted an
impairment test of the carrying value of the assets - including goodwill - that is allocated to the carpet sales and
manufacturing cash-generating unit (“Carpet CGU”) as at 30 June 2019.
Based on the results and management’s assessment of the recoverable amount of the assets allocated to the
Carpet CGU as disclosed at note 5a (Property, plant and equipment) to the financial statements, the Board has
approved the impairment of the $2,362,000 of goodwill at balance date, consistent with the challenging
operating conditions and the ongoing reduction in carpet sales volumes.
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
post-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.
Judgements, estimations and assumptions
Refer to note 5a (Property, plant and equipment) to the financial statements for details.
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 payables 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
2019 2018
$000 $000
Trade receivables due from trade customers 11,808 15,184
Other receivables 78 54
Prepayments 458 344
$12,344 $15,582
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 using the expected loss model, taking into account the historical
loss experienced in portfolios with a similar number of days overdue as well as current conditions and forecast
of future economic conditions.
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
2019 2018
$000 $000
Raw materials and consumables 16,653 17,896
Work in progress 1,639 1,664
Finished goods 29,386 27,761
$47,678 $47,321
Carrying amount of inventories subject to retention of title
clauses
$2,004
$2,351
In 2019, the net realisable value provision in respect of inventories increased by $269,000 (2018: decreased by
$766,000).
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 payables and accruals
2019 2018
$000 $000
Trade payables 15,102 17,671
Accruals 1,912 1,819
$17,014 $19,490
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 transactional foreign currency risk to the extent that there is a mismatch between the
currencies in which sales, purchases, receivables and payables are denominated and the Group’s functional
currency which is New Zealand dollar ($).
The Group enters into foreign currency contracts within policy parameters to manage the risk associated with
forecast sales and purchases. The Group’s policy allows management to hedge up to 12 months forecast sales
and purchases without prior approval of the Board having first been obtained.
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.
The Group applies a hedge ratio of 1:1. The method used to assess hedge effectiveness is Critical Match Terms
whereby the hedging instrument and the hedged item are matched to the key terms. In the hedge relationship,
the main cause of ineffectiveness includes a change in the critical terms, for example, the timing of the
transaction.
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:
2019 2018
$000 $000
New Zealand 6,121 8,897
Australia 5,322 5,247
Other regions 443 1,094
Trade and other receivables $11,886 $15,238
The status of trade and other receivables at the reporting date is as follows:
Current 0 – 30 days
past due
31 – 120
days past
due
More than 120
days past due
Total
2019
Expected loss rate 0% 0% 0% 9%
Gross carrying amount –
trade and other receivables
9,873
1,574
313
139
11,899
Loss allowance - - - (13) (13)
2018
Expected loss rate 0% 0% 0% 11%
Gross carrying amount –
trade and other receivables
13,875
813
203
390
15,281
Loss allowance - - - (43) (43)
In summary, trade and other receivables are determined to be impaired as follows:
2019 2018
$000 $000
Trade and other receivables - gross 11,899 15,281
Individual impairment provisions (13) (43)
Trade and other receivables - net $11,886 $15,238
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 Group adopts the expected loss model in assessing its trade and other receivables for impairment. In doing
so, it determines impairment on a forward-looking basis, taking into account not only past events and current
conditions, but also forecast of future economic conditions. Bad debts are written off when they are considered
to have become uncollectable.
The details of movements in the impairment provision are as follows:
2019 2018
$000 $000
Balance at 1 July (43) (34)
Impaired trade receivables written off - -
Changes in impairment provision 30 (9)
Balance at 30 June $(13) $(43)
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
2019
Secured bank loans 20,500 21,440 403 403 20,634 - -
Trade payables and accruals 17,014 17,014 17,014 - - - -
Total non-derivative liabilities $37,514 $38,454 $17,417 $403 $20,634 - -
Interest rate swaps $621 $575 $156 $114 $135 $154 $16
Forward exchange contracts
Inflow (22,636) (21,343) (1,293) - - -
Outflow 21,979 20,738 1,241 - - -
$(625) $(657) $(605) $(52) - - -
2018
Secured bank loans 31,500 33,280 7,119 3,045 23,116 - -
Trade payables 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) - -
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
2019
Trade receivables 5,196 178 2 28
Trade payables (2,412) (4,131) (1) (7)
Net statement of financial position exposure before
hedging activity
2,784
(3,952)
1
21
Estimated forecast sales for which hedging is in place 9,992 - - -
Estimated forecast purchases for which hedging is in
place
-
(5,804)
-
-
Net cash flow exposure before hedging activity 12,776 (9,756) 1 21
Forward exchange contracts
Notional amounts (12,776) 9,756 - -
Net unhedged exposure - - $1 $21
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
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 years2-5 yearsGreater
than 5
years
$000 $000 $000 $000 $000 $000
2019
Financial assets and liabilities
Cash and cash equivalents 2,724 2,724 - - - -
Secured bank loans (20,500) (20,500) - - - -
(17,776) (17,776) - - - -
Related derivatives
Effect of interest rate swaps - 10,000 - (5,000) (2,500) (2,500)
Total $(17,776) $(7,776) - $(5,000) $(2,500) $(2,500)
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)
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.
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 2019 and 2018 after taking into account the forward exchange contracts that the
Group had in place at balance date to hedge these exposures.
The impact of a change in interest rates on the Group’s profit or loss and OCI is set out as follows:
Increase Decrease Increase Decrease
1.0% (1.0%) 1.0% (1.0%)
P&L OCI
$000 $000 $000 $000
Interest rate impact - Net (93) 93 112 (112)
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.
The Group had no forward starting swaps as at 30 June 2019 (2018: $5,000,000, 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.
Forecast transactions
The Group classifies the forward exchange contracts taken out to hedge forecast transactions as cash flow
hedges.
41
7. RISKS AND FINANCIAL INSTRUMENTS (continued)
The following relates to items designated as hedging instruments:
Carrying amount
Notional
amount Assets Liabilities
Line item in
statement of
financial position
Changes in the
value of the
hedging
instrument
recognised in OCI
during the year
Balance in
CFHR
Hedge
ratio
Average
rate of
hedging Maturity date
$000 $000 $000
$000 $000
2019
Foreign
currency risk
Forward
exchange
contracts – sales
and receivables
AUD11,680
541
-
Derivative financial
instruments - assets
(40)
271
1:1
0.9142
100% of notional amount expiring within
12 months of balance date
Forward
exchange
contracts –
inventory
purchases
USD6,605
112
(28)
Derivative financial
instruments – assets
and liabilities
(231)
44
1:1
0.6770
100% of notional amount expiring within
12 months of balance date
Interest rate risk
$2.5 million of notional amount expiring
within 6 months of balance date. Balance
over the next six years.
Interest rate
swaps
NZD12,500
-
(621)
Derivative financial
instruments - liabilities
(36)
(621)
1:1
2.88% -
4.92%
42
7. RISKS AND FINANCIAL INSTRUMENTS (continued)
Carrying amount
Notional
amount Assets Liabilities
Line item in
statement of
financial position
Changes in the
value of the
hedging
instrument
recognised in OC
during the year
Balance in
CFHR
Hedge
ratio
Average
rate of
hedging Maturity date
$000 $000 $000
$000 $000
2018
Foreign
currency risk
Forward
exchange
contracts – sales
and receivables
AUD28,200
363
(8)
Derivative financial
instruments – assets and
liabilities
(498)
311
1:1
0.9068
93% of notional amount expiring within 12
months of balance date. 7% within 18
months of balance date.
Forward
exchange
contracts –
inventory
purchases
USD6,583
608
-
Derivative financial
instruments – assets
782
275
1:1
0.7234
100% of notional amount expiring within 12
months of balance date
Interest rate risk
$5.0 million of notional amount expiring
within 6 months of balance date. Balance
over the next seven years.
Interest rate
swaps
NZD17,500
-
(585)
Derivative financial
instruments - liabilities
200
(585)
1:1
2.88% -
4.92%
43
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
Amortised
cost
Total
carrying
amount
Fair value Fair value
hierarchy
Level 2
$000 $000 $000 $000 $000
2019
Assets
Derivatives 653 - 653 653 653
Trade and other receivables - 11,886 11,886 11,886 -
Cash and cash equivalents - 2,724 2,724 2,724 -
Total assets $653 $14,610 $15,263 $15,263
Liabilities
Loans and borrowings - 20,500 20,500 20,500 20,500
Total non-current liabilities - 20,500 20,500 20,500
Derivatives 649 - 649 649 649
Trade and other payables - 20,870 20,870 20,870 -
Total current liabilities 649 20,870 21,519 21,510
Total liabilities $649 $41,370 $42,019 $42,019
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 - - 23,566 23,566 23,566 -
Total current liabilities 593 - 27,566 28,159 28,159
Total liabilities $593 - $55,066 $55,659 $55,659
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.
44
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 2019,
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:
2019 2018
Derivative
assets
Derivative
liabilities
Derivative
assets
Derivative
liabilities
$000 $000 $000 $000
Gross amounts in the statement
of financial position
653
(649)
971
(593)
Amounts offset - - - -
Net amounts in the statement
of financial position
653
(649)
971
(593)
Related amounts that are not
offset based on ISDA
(649)
649
(593)
593
Net amounts $4 - $378 -
45
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 Group sold its interest in 27.5%-owned Cavalier Wool Holdings Limited (“CWH”) and the property held by
50%-owned CWS Assets Limited (“CWSA”) on 30 September 2018.
The details relating to the Group’s investments in CWH and CWSA are set out below:
2019 2018
$000 $000
Carrying value at 1 July 24,544 23,490
Share of comprehensive income 716 1,194
Dividends received (2,783) (140)
Proceeds of sale of interest in CWH and property
in CWSA
(10,593)
-
Loss on sale of interest in CWH and property in
CWSA
(11,884)
-
Carrying value at 30 June - $24,544
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 as at and to 30 June 2019:
2019 2018
$000 $000
CWH CWSA CWH CWSA
Cash and cash equivalents - - 4,013 50
Other current assets - - 7,617 -
Non-current assets - - 110,503 3,369
Total assets - - 122,133 3,419
Current liabilities - - 5,839 11
Non-current liabilities - - 36,122 -
Total liabilities - - 41,961 11
Net assets (100%) - - $80,172 $3,408
Revenue 13,431 72 50,786 288
Depreciation (998) (5) (3,398) (31)
Net interest expense (365) - (1,850) -
Other expenses (8,838) (1) (38,900) (1)
Profit before income tax 3,230 66 6,638 256
Income tax expense (974) (18) (2,276) (72)
Profit after tax 2,256 48 4,362 184
Changes in fair value of cash flow
hedges (net of income tax)
-
-
(354)
-
Total comprehensive income
(100%)
$2,256
$48
$4,008
$184
Percentage ownership interest 27.5% 50.0% 27.5% 50.0%
46
8a. Equity-accounted investees (continued)
2019 2018
$000 $000
CWH CWSA CWH CWSA
Share of net assets - - 22,047 1,705
Initial transaction costs - - 792 -
Carrying value of interest in equity-
accounted investees
-
-
$22,839
$1,705
Group’s share of profit after tax 620 24 1,199 92
Group’s share of changes in fair value
of cash flow hedges (net of income
tax)
72
-
(97)
-
Group’s share of total
comprehensive income
of equity-accounted investees
$692
$24
$1,102
$92
8b. Provisions
Insurances Restructuring Onerous
contracts
Warranties Total
$000 $000 $000 $000 $000
Balance at 1 July 2018 210 1,875 241 1,006 3,332
Amounts provided during the year - - 12 37 37
Amounts incurred during the year - (1,500) (239) (3) (3)
Released to profit or loss during the year - (225) - - (225)
Balance at 30 June 2019 $210 $150 $14 $1,040 $1,414
Non-current 210 - - 505 715
Current - 150 14 535 699
Balance at 30 June 2019 $210 $150 $14 $1,040 $1,414
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
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, with the provision utilised as the costs relating thereto are incurred
or adjusted to reflect current estimates of costs to be incurred. The amount incurred during the year relates to
the amount paid on the early surrender of one of the leased premises that was surplus to requirements.
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, with the provision reflecting the shortfall between sub-let income and
rental expense, discounted to net present value.
47
8b. Provisions (continued)
Warranties
The provision for warranties relates mainly to carpet sold during the years ended 30 June 2019 and 2018. 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 warranties requires judgement to be applied by considering a range of factors including the nature
and extent of historical claims data associated with similar products sold by the Group, the terms of the
warranties built into supply contracts, consumer protection laws in key markets and the corrective actions being
taken to address quality issues at production.
8c. Employee benefits
2019 2018
$000 $000
Liability for retiring allowances 96 96
Liability for long service leave 807 815
Total employee benefits $903 $911
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.
48
8d. Operating leases
2019 2018
$000 $000
Lease payments relating to non-cancellable operating leases $2,650 $3,328
Gross commitments under non-cancellable operating leases:
Less than one year 2,246 2,875
Between one and five years 3,264 4,675
Greater than five years - 63
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 5 years None
Unit 1, 165-169 Lower Gibbes Street, Sydney,
Australia
Within 1 year
None
373 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.
2019 2018
$000 $000
Sublease income relating to non-cancellable operating leases $605 $891
Gross sublease income commitments under non-cancellable
operating leases:
Less than one year 236 596
Between one year and three years - 236
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 $879,000 (2018: $2,095,000).
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 $20,500,000 (2018:
$31,500,000).
49
8f. Related parties
Transactions with directors and key management personnel
For the purposes of this note, key management personnel are those persons having authority and responsibility
for planning, directing and controlling the activities of the entity, directly or indirectly, including any director
(whether executive or otherwise) of that entity.
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 key management personnel during the year ended 30 June
2019 (2018: Nil).
Directors’ remuneration and benefits
The fees paid to the Directors for services in their capacity as directors totalled $395,000 during the year ended
30 June 2019 (2018: $345,000).
No other services were provided by the Directors during the year (2018: Nil).
The scale of fees payable to the Directors was last reviewed and approved by the Board in January 2019, with
the current scale of fees applying with effect from 1 January 2019 set out below:
Directors’ fees Per annum Explanatory notes
Non-executive Chairman of the Board $128,100 Inclusive of time spent on Board committees
and as Chairman of Nomination Committee
Non-executive directors (including
Deputy Chairman of the Board)
$61,000 Inclusive of time spent on Board committees
Chairman of the Audit Committee $10,000 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 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.
50
8f. Related parties (continued)
Key management personnel’s (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 key management personnel 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 key
management personnel (but excluding the Directors’ remuneration and benefits which are set out on the
previous page) comprised:
2019 2018
$000 $000
Salaries, bonuses and leave entitlements 2,525 2,940
Employee benefits 53 95
Termination payments 251 152
$2,829 $3,187
The Group has not provided the Chief Executive Officer and key management personnel 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 key management personnel, 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 key management personnel, 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.
8g. Group entities
Operating subsidiaries of the Group
Principal activity Country of
incorporation
Interest (%)
2019 2018
Cavalier Bremworth Limited Carpet sales and
manufacturing
New Zealand 100 100
Cavalier Bremworth Pty Limited Carpet sales Australia 100 100
Cavalier Spinners Limited Carpet yarn sales New Zealand 100 100
Elco Direct Limited Wool acquisition New Zealand 100 100
Equity-accounted investees of the Group
Principal activity Country of
incorporation
Interest (%)
2019 2018
Cavalier Wool Holdings Limited Wool scouring New Zealand - 27.5
CWS Assets Limited Property owning, with
property sold on 30
September 2018 as
part of the sale of the
Group’s 27.5%
interest in Cavalier
Wool Holdings
Limited
New Zealand 50.0 50.0
51
8h. Event after balance date
On 22 August 2019, the Group announced that it was accelerating a strategic review to develop and implement
an innovative and transformative business model focused around wool.
On 23 August 2019, the Group further announced a strategic collaboration with The New Zealand Merino
Company as the Group looked to develop and implement a transformative and design-led business model.
The carrying values of the assets of the Group as at 30 June 2019, and the underlying business models
supporting these carrying values, did not reflect the effect of a transformation. Should the Group decide to
proceed with a transformation of its business, the carrying value of the Group’s assets may be materially
impacted, and material liabilities related to any restructuring may be incurred.
8i. Standards, interpretations and amendments to standards
The following accounting standard is not yet effective and has not been early adopted by the Group:
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 Leases. 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 apply NZ IFRS 16 with effect from 1 July 2019, using the modified retrospective approach.
Certain practical expedients are expected to be applied. The cumulative effect of adopting NZ IFRS 16 will be
recognised as an adjustment to the opening balance of retained earnings at 1 July 2019, with no restatement of
comparative information. This is a non-cash adjustment and will not impact the Group's ability to comply with its
debt covenants because all changes effected by NZ IFRS 16 in relation to finance leases and operating leases
shall not be taken into account for the purpose of calculating financial covenants pursuant to the terms of the
Group’s facility agreement with the Bank.
The operating lease commitments set out in note 8d (Operating leases) to the financial statements, to the extent
that they relate to leases of identifiable assets with a term in excess of 12 months, will be brought onto the
statement of financial position on 1 July 2019.
The Group has conducted a preliminary assessment of the impact of NZ IFRS 16, and based on the information
currently available, it estimates that it will recognise ROU assets of approximately $4,700,000 million and lease
liabilities of approximately $4,700,000 on 1 July 2019, with these estimates calculated using a discount rate
derived from the incremental borrowing rate for the Group when the interest rate implicit in the lease was not
readily available.
The way expenses related to leases are recognised in profit or loss will change under NZ IFRS 16 because the
Group will be recognising a depreciation charge for ROU assets and interest expense on lease liabilities.
Previously, the Group recognised an operating lease expense over the term of the lease.
Impact on earnings
The application of NZ IFRS 16 will largely impact the Group’s cost of sales and finance costs, with lease
expenses effectively reclassified into a deprecation component and an interest component to reflect the implied
financing in leases. This will result in a decrease in cost of sales, and therefore an increase in gross profit, offset
by an increase in finance costs. All other things remaining unchanged, the Group estimates an increase in gross
profit of approximately $168,000 and an increase in finance costs of approximately $280,000 for the year ending
30 June 2020.
There are no other new standards or amendments to existing standards which have or are expected to have a
material impact on the Group.
52
Cavalier Corporation Limited and subsidiary companies
Trend Statement
2019 2018 2017 2016 2015 2014 2013
$000 $000 $000 $000 $000 $000 $000
Financial Performance
Operating revenue $135,234 $148,120 $156,120 $190,371 $215,728 $200,642 $201,739
EBITDA (normalised) 7,076 9,998 2,572 12,275 8,517 14,609 12,142
Depreciation (3,479) (3,561) (3,251) (3,352) (5,862) (5,849) (6,328)
EBIT (normalised) 3,597 6,437 (679) 8,923 2,655 8,760 5,814
Net interest expense (1,790) (2,798) (2,936) (3,374) (3,948) (3,484) (3,740)
Share of profit after tax of equity-accounted
investees (normalised)
644
1,419
797
2,670
2,034
2,044
5,013
Profit/(Loss) before income tax (normalised) 2,451 5,058 (2,818) 8,219 741 7,320 7,087
Income tax (expense)/benefit (572) (1,084) 962 (1,906) 454 (1,530) (463)
Profit/(Loss) after tax (normalised) 1,879 3,974 (1,856) 6,313 1,195 5,790 6,624
Abnormal costs (after tax) (18,659) 107 (268) (3,198) (26,910) - (3,594)
(Loss)/Profit after tax attributable to
shareholders of the Company (GAAP)
(16,780)
4,081
(2,124)
3,115
(25,715)
5,790
3,030
Ordinary dividends paid - - - - - (4,785) -
(Loss)/Profit after dividends $(16,780) $4,081 $(2,124) $3,115 $(25,715) $1,005 $3,030
Financial Position
Shareholders’ equity 54,989 72,222 67,890 69,361 66,184 92,959 93,918
Loans and borrowings 20,500 27,500 35,000 37,700 45,000 61,220 58,896
Term liabilities 1,618 2,029 3,728 4,461 4,938 6,363 6,961
Loans and borrowings – current portion - 4,000 6,500 - 11,767 - 320
Current liabilities 22,227 27,253 25,739 35,854 41,237 37,518 36,542
Shareholders’ equity and total liabilities $99,334 $133,004 $138,857 $147,376 $169,126 $198,060 $196,637
Fixed assets 30,164 35,142 37,123 36,820 47,910 63,900 68,932
Investment in equity-accounted investees - 24,544 23,490 23,175 24,937 25,900 23,856
Goodwill and other intangibles - 2,362 2,362 2,362 2,362 7,794 7,794
Deferred tax asset 5,456 4,971 5,532 3,496 1,388 3,107 2,797
Non-current assets 35,620 67,019 68,507 65,853 76,597 100,701 103,379
Cash at bank 2,724 2,111 1,255 1,200 2,834 2,375 5,932
Current assets 60,990 63,874 69,095 80,323 89,695 94,984 87,326
Total assets $99,334 $133,004 $138,857 $147,376 $169,126 $198,060 $196,637
53
Cavalier Corporation Limited and subsidiary companies
Trend Statement (continued)
2019 2018 2017 2016 2015 2014 2013
$000 $000 $000 $000 $000 $000 $000
Abnormal items (after tax)
Impairment of carpet tile business assets - - - - (9,132) - -
Impairment of fixed assets (4,413) - - (1,573) (4,344) - -
Impairment of intangible assets (2,362) - - - (5,432) - -
Derecognition of deferred tax asset - - - - (6,771) - -
Restructuring costs - 136 (4,542)
1
(3,222)
1
(711) - (4,113)
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
-
-
-
-
Loss on sale of interest in, and property held by,
equity-accounted investees
(11,884)
-
-
-
-
-
-
Total $(18,659) $107 $(268) $(3,198) $(26,910) - $(3,594)
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.
54
Cavalier Corporation Limited and subsidiary companies
Trend Statement (continued)
2019 2018 2017 2016 2015 2014 2013
Financial Ratios and Summary
Use of Funds and Return on Investment
Return on average shareholders’ equity (normalised) 3.0% 5.7% (2.7)% 9.3% 1.5% 6.2% 7.2%
Basic earnings per ordinary share (normalised) 2.7c 5.8c (2.7)c 9.2c 1.7c 8.5c 9.7c
Financial Structure
Net tangible asset backing per ordinary share $0.72 $0.94 $0.87 $0.92 $0.91 $1.19 $1.22
Equity ratio 55.4% 54.3% 48.9% 47.1% 39.1% 46.9% 47.8%
Net interest-bearing debt : equity ratio 24:76 29:71 37:63 34:66 45:55 39:61 36:64
Net interest cover (normalised) (times) 2.0 2.4 1.5 4.4 1.5 2.5 3.0
Return to Shareholders
Dividends paid per ordinary share (excluding
supplementary) - - - - - 7.0c -
Dividend imputation - - - - - 100% -
Ordinary dividend cover (normalised) (times) - - - - - 1.2 -
Supplementary dividends paid per ordinary share - - - - - 1.24c -
Share Price
30 June $0.32 $0.62 $0.35 $0.76 $0.36 $1.33 $1.70
52 week high $0.68 $0.63 $0.95 $0.77 $1.36 $2.03 $2.12
52 week low $0.31 $0.27 $0.33 $0.35 $0.31 $1.33 $1.45
Market Capitalisation ($000)
30 June $21,977 $42,581 $24,038 $52,196 $24,724 $91,343 $116,049
Capital Expenditure and Depreciation ($000)
Capital expenditure $4,705 $1,622 $2,123 $2,076 $2,564 $2,494 $1,907
Depreciation $3,479 $3,561 $3,251 $3,352 $5,862 $5,849 $6,328
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 Profit/(Loss) after tax attributable to shareholders of the Company (normalised)
(normalised) Ordinary dividends paid
56
Cav
alier Corporation Limited and subsidiary companies
Disclosure of Non-GAAP Financial Information
The Directors acknowledge that the Annual Report, including the Trend Statement from pages 52 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 July 2017.
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 restructuring costs and other gains/losses (for example,
gain/loss on sale of property and investments) that are not 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.
Non-GAAP financial information does not have standardised meaning prescribed by GAAP and therefore may not be
comparable to similar financial information prescribed by other entities.
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 non-GAAP financial information is useful to investors and how it is used internally by
management;
•identifying the source of non-GAAP financial information;
•ensuring that:
-non-GAAP financial information is not presented with undue and greater prominence, emphasis or
authority than the most directly comparable GAAP financial information;
-presentation of non-GAAP financial information does not in any way confuse or obscure presentation of
GAAP financial information;
-a reconciliation from the non-GAAP financial information to the most directly comparable GAAP financial
information, including that for the previous period, can be easily accessed (see below);
-a consistent approach is adopted from period to period with respect to the presentation of non-GAAP
financial information, including that for comparative periods;
-where there is any change in approach from the previous period, the nature of the change is explained
and the reasons and financial impact provided;
-non-GAAP financial information is unbiased; and
•taking care when describing, or referring to, items as ‘one-off’ or ‘non-recurring’.
57
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 2019 Year ended 30 June 2018
GAAP Adjustments Normalised GAAP Adjustments Normalised
$000 $000 $000 $000 $000 $000
Revenue $135,234 -$135,234$156,120 -$156,120
EBITDA (1,415) 8,491 7,076 10,324 (326)9,998
Depreciation (3,479) -(3,479)(3,561) -(3,561)
EBIT(4,894) 8,491 3,597 6,763 (326)6,437
Net interest expense (1,790) -(1,790)(2,798) -(2,798)
Share of profit after tax of
equity-accounted investees 644 - 644 1,291 128 1,419
Loss on sale of interest in,
and property held by, equity-
accounted investees (11,884) 11,884 - - - -
(Loss)/Profit before tax (17,924) 20,375 2,451 5,256 (198)5,058
Tax benefit/(expense) 1,144 (1,716) (572) (1,175) 91 (1,084)
(Loss)/Profit after tax $(16,780) 18,659 1,879 $4,081 (107)3,974
Abnormal net loss after tax (18,659) (18,659) 107 107
(Loss)/Profit after tax
(GAAP) -$(16,780)-$4,081
Analysis of abnormal
items
(Loss)/Profit
before tax
Tax effect (Loss)/Profit
after tax
Profit/(Loss)
before tax
Tax effect Profit/(Loss)
after tax
$000 $000 $000 $000 $000 $000
Restructuring costs - - - 189 (53) 136
Impairment of fixed assets (6,129) 1,716 (4,413)
Impairment of goodwill (2,362) -(2,362)
Reversal of impairment of
fixed assets - - - 137 (38) 99
Scour merger costs - - - (128) - (128)
Loss on sale of interest in,
and property held by, equity-
accounted investees (11,884) -(11,884)- - -
$(20,375) $1,716 $(18,659) $198 $(91) $107
Calculation of basic and diluted (loss)/earnings per
share under GAAP and non-GAAP measures of
profit/loss after tax
GAAP-
compliant
reported
(loss)/profit
after tax
Reverse
abnormal
items (net of
tax)
Non-GAAP-
compliant
normalised
profit/(loss)
after tax
Year ended 30 June 2019
(Loss)/Profit attributable to shareholders ($000) $(16,780) $18,659 $1,879
Weighted average number of ordinary shares 68,679,098 68,679,098
(Loss)/Earnings per share (basic and diluted) (24.4) cents 2.7 cents
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
---
FY19 RESULTS
PRESENTATION
For the 12 months to 30 June 2019
•Hard flooring continues to grow at the expense of soft
flooring.
•Sales of lower margin synthetic carpets are down across the
industry.
•Demand for top end, high quality, high margin carpets has
increased, albeit at small volumes.
•Challenging trading and economic conditions in Australia.
Softening seen in NZ market towards end of 2H19.
•Wool prices have continued to be impacted by decreased
Chinese demand for coarser carpet wool, adversely affecting
sales and margins for Cavalier’s wool buying business, Elco
Direct.
FY19 OPERATING ENVIRONMENT
2
Cavalier Corporation | FY19 Results Presentation
Cavalier Corporation | FY19 Results Presentation
•Increased focus on wool carpets vs synthetic fibres.
•Significant investment into customer relationship activity including rollout of Cavalier’s successful World of
Difference instore displays which provide a unique retail experience.
•Focus on innovative new product development with introduction of new rug offer and a number of new
products finalised for launch.
•Introduced more customer focussed organisational structure in Australia, with positive impact now being
seen.
•$13.5m sale of Cavalier’s 27.5% in its wool scouring business (Cavalier Wool Holdings, ‘CWH’) and the
associated property in September 2018. Entered into long-term scouring arrangement with CWH.
•Commenced strategic review to identify opportunities for the company, leverage Cavalier’s strengths and
unlock new value for shareholders.
•Post-period end: Announced transformational shift in business model to a design-led wool focused
company and strategic collaboration with The New Zealand Merino Company (NZM).
FY19 KEY EVENTS
3
Cavalier Corporation | FY19 Results Presentation
4
In January 2019, Cavalier exhibited for the first time at Domotexin Germany, with very positive feedback
Cavalier Corporation | FY19 Results Presentation
FY19 RESULTS SNAPSHOT
5
$millionsFY19 FY18
Results in line with May 2019 guidance. Reflects 3-month
contribution from CWS compared to 12-months in prior year.
REVENUE$135.2$148.1
Impacted by challenging market conditions in Australia
throughout the year and softening in NZ in 2H19.
EBITDA (normalised)$7.1$10.0
Stronger performance in 1H19 and lower costs, offset by
reduced carpet sales and wool buying margins.
NPAT/NLAT
(normalised)
$1.9$4.0
Company continues to trade profitably, with lower profit due to
reduced revenue.
NPAT/NLAT$(16.8)$4.1
Includes $11.9m non-cash loss on sale of interest in CWH and
property held by CWSA, as well as non-cash after tax
impairments of goodwill and fixed assets of $6.8m.
NET DEBT$17.8$29.4
Good reduction in debt with proceeds from sale of CWS used to
offset debt.
See Glossary slide for explanation of EBITDA and normalised EBITDA and normalised NPAT/NLAT
FIVE YEAR PERFORMANCE
6
0
2
4
6
8
10
12
14
FY15FY16FY17FY18FY19
NormalisedEBITDA ($m)
-4
-2
0
2
4
6
8
FY15FY16FY17FY18FY19
NormalisedNPAT/NLAT ($m)
0
50
100
150
200
250
FY15FY16FY17FY18FY19
Revenue ($m)
Cavalier Corporation | FY19 Results Presentation
FY15
FY16
FY17
FY18
FY19
Sale Of Loss-making Carpet Tile
Operation
Consolidation Of Manufacturing
Operations And Reorganised
The Business
Repositioned Cavalier
BremworthBrand
Completion Of
Organisational Review
Sale Of Australian Property
Completion Of Resturcturing:
More Costly And Time
Consuming Than Expected And
Impacted Results
Notable Drop In Wool Price
Turnaround Year With More
Efficient Structure
New Strategic Focus On
High End Carpets
Recovery From Impact Of
Restructuring
Strengthen Focus On High
Quality, Higher Margin Wool
Carpets
Sale Of Wool Scouring Business
And Restructure Of Australian
Operations
Tightening Market Conditions
Cavalier Corporation | FY19 Results Presentation
REVENUE
7
Segment RevenueRegional Revenue
•Revenue $135.2m, down 9% on prior year.
•Continuing to hold market share in both NZ
and Australia.
•Revenue reflects:
-Continuing soft market in Australia and softening
in NZ seen towards end of 2H19
-Sales of low margin synthetic carpets declining,
impacting volumes and margins particularly in NZ
-High-end wool carpets sales are increasing, albeit
volumes are small
-Wool prices continue to be impacted by decreased
Chinese demand for coarser carpet wool, affecting
ElcoDirect wool buying business.
Cavalier Corporation | FY19 Results Presentation
REVENUE BREAKDOWN
8
New Zealand
$78.3m, 58%
Australia
$52.6m,
39%
Rest of world:$4.3m, 3%
FY19 Sales by Region
Carpets
$113.1m, 82%
Wool buying
$25.5m, 18%
FY19 Sales by Segment
Cavalier Corporation | FY19 Results Presentation
BALANCE SHEET:
•Reduction in assets to $99.3m due to:
•Sale of wool scouring business in
September 2018
•Non-cash impairments and write-downs:
-Fixed assets of $6.1m
-Goodwill of $2.4m
-These are non-cash and do not impact the
underlying profitability of the company.
•Recent valuations on land and buildings in
excess of $30m.
BALANCE SHEET AND WORKING CAPITAL
9
49.8
57.7
50.6
47.3
47.7
0
10
20
30
40
50
60
70
FY15FY16FY17FY18FY19
Inventory ($m)
Inventory includes raw materials and consumables, work in
progress and finished goods
WORKING CAPITAL:
•Continued focus on disciplined working
capital management –particularly
inventory reduction in FY20.
Cavalier Corporation Investor Presentation
CAPITAL MANAGEMENT
Debt position continues to improve
10
•Net proceeds of $11.8m from sale of
CWH wool scouring business used to
pay down debt.
•240% reduction in debt since FY14.
•Renegotiated bank terms and tenure in
FY19. Company has support of banking
partner.
•Committed to re-introduction of
dividends as part of long term financial
strategy.
58.8
53.9
36.5
40.2
29.4
17.3
0
10
20
30
40
50
60
70
Jun-14Jun-15Jun-16Jun-17Jun-18Jun-19
Net Debt $m
Aggressive debt
reduction programme
Investment into brand and
consolidating
manufacturing operations
Major focus on
reducing debt
Proceeds from sale
of CWS
Cavalier Corporation | FY19 Results Presentation
•Total capital expenditure of $4.7m, ahead of
depreciation of $3.5m.
•Investment primarily into growth initiatives:
oRetail displays
oPlant and equipment
oIT and technology.
•FY20 capex expected to be in line with depreciation
and amortisation.
CAPITAL EXPENDITURE
11
5.9
3.4
3.3
3.6
3.5
2.6
2.12.1
1.6
4.7
0
1
2
3
4
5
6
FY15FY16FY17FY18FY19
Capital Expenditure and Depreciation $m
DepreciationCapital Expenditure
Cavalier Corporation | FY19 Results Presentation
•Well positioned to capture the demand from consumers seeking a
more natural, more sustainable, healthier alternative without
compromising quality or style.
•Market conditions remain challenging.
•Transformational shift into a wool focused, design-led business.
•Collaboration with NZM, leveraging its extensive sales and marketing
expertise, to connect consumers with Cavalier’s wool product.
•Shift expected to necessitate organisational change as the business
moves towards a stronger wool manufacturing and marketing focus.
•Continuing to explore opportunities to expand market presence and
range.
•Board is confident in the financial sustainability of the company and
excited about the potential of the new business model and strategy.
OUTLOOK FOR FY20
12
12
OUR FUTURE
Cavalier Corporation | FY19 Results Presentation
13
OUR FUTURE IS WITH WOOL
Sustainable and 100% renewable
Healthier alternative
Optimal carpet performance
Design innovation and craftsmanship
Increasing consumer demand for natural and
sustainable products
14
Cavalier Corporation | FY19 Results Presentation
WOOL FOCUSED, DESIGN-LED
BUSINESS
Transformational shift underway
Building on Cavalier’s 50-year heritage and expertise
in the wool flooring market
Reputation for quality, brand strength and new
product innovation
Collaboration with The New Zealand Merino
Company
15
Cavalier Corporation | FY19 Results Presentation
We are focussed on creating “A World of
Difference” in everything we do. This
means we don’t just sell carpets and rugs;
our efforts have been borne from the
desire to make a genuine difference, for
our shareholders, our customers, our
people, our suppliers, our communities and
our environment. Not only through what
we do, but how we do it.
CREATING A WORLD OF DIFFERENCE
16
Cavalier Corporation | FY19 Results Presentation
Contact: Paul Alston
Chief Executive Officer
t: 09 277 1135
e: palston@cavbrem.co.nz
17
Cavalier Corporation | FY19 Results Presentation
Experienced Board and Leadership
Team
18
G C W (Grant) Biel
T H G (George) Adams
Deputy Chair
A W (Alan) Clarke
Chairman
J M (John) Rae
D V (Dianne) Williams
Leadership Team
CEO: Paul Alston
CFO: Victor Tan
GM Marketing and International
Operations: Rochelle Flint
GM Manufacturing: Craig Wallis
Cavalier Corporation | FY19 Results 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 not purportto contain all the
information that a prospective investor may require. Any person who is considering an investment in CAV securities should obtainindependent
professional advice prior to making an investment decision, and should make any investment decision having regard 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, nothinginthis presentation is a
promise or representation as to the future or a promise or representation that a 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
19
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.
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