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Announcement

HALFYR: CAV: Preliminary announcement of December 2012 half year results

15 Feb 2013 15:30NZX
Directors'' Review
For the six months ended 31 December 2012

Your directors present their report, including financial statements, for
Cavalier Corporation for the financial period ended six months to 31 December
2012.

FINANCIAL PERFORMANCE

Consolidated Income Statement
Unaudited
(figures in $000''s for six months ended 31 Dec 2012 & previous six mths ended
Dec 2011, % change)

Operating revenue $100,973; $107,992; -6%

EBIT (before restructuring costs) 496: 6,341; -92%
Net interest expense -1,940; -1,956; -1%
Share of profit of associate (net of tax) 2,116; 1,178; 80%
Profit before tax (normalised) 672; 5,563; -88%
Tax 340; -1,284
Profit after tax (normalised) 1,012; 4,279; -76%
Restructuring costs (after tax) 427; -732
Profit after tax (reported) 1,439; 3,547; -59%

Earnings per share (cents) (normalised) 1.5; 6.3; -76%

Unaudited profit after tax of $1.4 million for the period is a decrease of
59% on the $3.5 million reported in 2011.

The result includes, net of tax, $149,000 of redundancy costs and a $576,000
write back of over accrued restructuring costs from the 2012 financial year.

The first six months of 2012/13 was challenging, with the run out of high
cost stocks due to unusually high wool prices from the preceding year and
soft trading conditions in both New Zealand and Australia.

Group revenue for the six months was $101 million, a decrease of 6% on the
$108 million in the previous year, with sluggish New Zealand and Australian
based revenue.

Return on average shareholders'' equity for the six months was 2.2% and
earnings per share was 3.0 cents (both normalised and annualised) - compared
with 8.8% and 12.5 cents respectively the previous year. It was a
disappointing but not unexpected trading result for the first half of the
year.

FINANCIAL POSITION

Shareholders'' equity at 31 December 2012 of $92.1 million was down 4.3% on
the $96.2 million reported a year ago.

In December 2011, the company''s net interest-bearing debt was in excess of
$78 million and the immediate trading outlook was not encouraging.  At the
time, the company decided it needed to strengthen its balance sheet by
reducing debt. Since then, management have embarked on a programme to reduce
the levels of inventory held, restrict capital spend to essential items only
and cut overhead costs and discretionary spending where possible.  Also
included in the debt reduction plans was the suspension of the shareholder
dividend.  As a result, the company''s net interest-bearing debt has dropped
by $21.3 million or 27% since December 2011.

Net interest-bearing debt at balance date stood at $56.8 million and net
interest-bearing debt to equity ratio was 38:62. The previous year''s figures
were $78.1 million and 45:55 respectively.

Total assets employed stood at $188.4 million, down $28.6 million on the
$217.0 million reported in 2011. Inventories reduced by $25.6 million and
debtors by $2.8 million, reflecting the efforts made by management to reduce
stock levels and debtor days outstanding.

As a result, shareholders'' equity accounted for 49% of total assets employed
at balance date, compared with 44% a year ago and 45% in 30 June 2012.

CASH FLOWS

Net cash flows from operating activities were $8.9 million, an improvement of
$13.0 million on the same period last year.  This reflects the cash generated
from the reduction in inventories and reduced debtor balances.

Since June 2012, net cash inflows from investing activities were $0.8 million
with a modest amount of capital spend of $0.7 million offset by a $2.0
million dividend received from our 50% associate, Cavalier Wool Holdings.

In the six months since year-end, there has been a cash outflow of $9.3
million from financing activities which is the result of the debt repayment
programme.

SEGMENT REVIEWS

Carpet Business
Our carpet business comprises broadloom carpets and carpet tiles which
predominantly services the New Zealand and Australian markets, but with an
increasing focus on the rest of the world.

In the six months to 31 December 2012, our carpet business produced a segment
result before restructuring costs of $1.0 million on revenue of $88.0
million, compared with $6.7 million on revenue of $92.0 million the previous
year - a decrease of 85% and 4% respectively.

It has been a difficult first six months for the carpet business. As a result
of soft demand, we were unable to pass on the high carrying value of brought
forward finished goods stocks and had to therefore absorb this through lower
margins.  The retailing landscape also continues to change, with increased
consolidation and direct importing helped by the ever increasing strength of
the New Zealand Dollar.

There are signs that the economy is picking up in New Zealand with increased
building consents being issued and the Christchurch rebuild underway.
However, the sentiment in Australia is more worrying and the economy across
the Tasman appears to be slowing down.

We expect to launch Cavalier''s new high-end synthetic products before
year-end, and with the high valued finished goods stock now fully run out of
the system, margins going forward should be closer to long term averages.

In the last six months, there has been a major reorganisation of the
manufacturing business, with consolidation of the spinning and warehousing
activities that we commenced in June. The cost benefits of this restructuring
will flow through into future years.

Wool Business
The wool business comprises our wool buying business Elco Direct and the 50%
interest in the commission wool scourer, Cavalier Wool Holdings Limited
(CWH).

Elco Direct''s revenue of $13.9 million was down 22% due to reduced wool
prices in the second half of 2011/12. However, EBIT at $353,000 was on par
with the $359,000 achieved in December 2011 and the business is currently
tracking above expectations.

Cavalier''s share of the tax-paid earnings of CWH for the six months to 31
December 2012 is $2.1 million compared with $1.2 million the previous year.
CWH has had an excellent start to the year and the outlook remains positive
for the remaining six months.

There were plans to rationalise the scouring industry by consolidating the
New Zealand Wool Services International (NZWSI) scouring business with CWH.
An extensive process was undertaken in an attempt to make this happen.
However, the rationalisation did not occur.  NZWSI is currently being taken
over by Lempriere Holdings, an Australian wool trader, and we will watch this
development with interest.

The directors will continue to inform shareholders of any significant
developments as they unfold.

Yarn Business
The Radford Yarn Technologies operation is a supplier of premium felted
woolen yarns to the Cavalier Bremworth broadloom carpet operation and to
up-market broadloom carpet and rug manufacturers in North America and Europe.
Sales were down on last year and as a result, it made a small loss for the
first six months.

In December, Cavalier purchased the remaining 25% of the business.

BUSINESS IMPROVEMENT PLANS

Last year, we embarked on a business improvement plan aimed at optimising
capacity utilisation.

It involved:

- The closure of one of our three carpet yarn spinning plants; and
- The consolidation of our New Zealand based warehousing and distribution
operations

The cost of this program was recognised in the 2011/12 financial results with
an $8.2 million (pre-tax) or $5.9 million (post-tax) cost incurred or
provided.

We indicated at the November Annual Meeting of shareholders that we had
further business improvement initiatives scheduled for implementation during
the 2012/13 year in order to continue to improve the level of efficiencies in
our businesses. We are continuing to work on these and will update
shareholders as they unfold.

EARNINGS OUTLOOK

The results for the first six months were disappointing and reflected soft
demand in both New Zealand and Australia and the high cost of stocks being
sold with associated reduced margins.

The directors expect an improvement in the next six months and the latest
normalised after tax earnings outlook remains in the $6 to $10 million range
as indicated at the Annual Meeting of shareholders in November.

In arriving at this earnings outlook, we anticipate the demand for carpet to
lift in New Zealand alongside increased building activity helped by the
Christchurch rebuild and a general uplift in real estate turnover, while we
expect Australia to remain relatively flat.  Now that the high stock value
has run its course, we will benefit from increased margins over the next six
months. The feedback on our new synthetic carpet range is encouraging and we
expect sales of the product before year-end.

There has been significant reduction in headcount in the previous 12 months
and the business has been reorganised to operate more efficiently. The
reduced costs as a consequence of these will flow through into future
earnings.

DIVIDENDS

The first half trading results do not support the payment of a dividend at
this stage, and the directors are therefore not recommending an interim
dividend payment.

Whilst the company is in a much better financial position with considerably
less interest-bearing debt, there needs to be a lift in earnings to justify a
payment of a dividend.

If earnings improve as forecast and the outlook remains positive, directors
expect to be able to declare a dividend with the announcement of the full
year results in August, subject to capital requirements and the cost of any
further restructuring.

A M James
Chairman

C A McKenzie
Managing Director

15 February 2013

For more information regarding this announcement, please contact Colin
McKenzie on 09 277 1138 or 027 292 4080.
End CA:00233012 For:CAV    Type:HALFYR     Time:2013-02-15 15:30:30
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