cavalier corporation is proud of its people
TRANSCRIPT
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Young — Phillip Young
CAVALIER CORPORATION IS PROUD OF ITS PEOPLE
AND THANKS THEM FOR THEIR CONTRIBUTION
CA
VALIER
CO
RP
OR
ATION
LIMITED
— A
NN
UA
L REP
OR
T 20
04
ANNUAL REPORTFOR THE YEAR ENDED 30 JUNE 2004
C A V A L I E R C O R P O R A T I O N L I M I T E D
CAVALIER CORPORATION KNOWS CONSISTENT
FINANCIAL RESULTS ARE NOT ACHIEVED IN ISOLATION.
THEY ARE PART OF A WHOLE — THE RESULT OF MANY
EVENTS AND DECISIONS, MANY CONNECTIONS
CONNECTED WITH SUCCESSINTRODUCTIONANNUAL REPORT 2004
Cavalier’s ongoing success is no accident. It is the result of many connected events and
decisions, all of which contribute to a company with a solid performance history and a bright
future. The members of Cavalier’s management team have a strong working relationship. They
know the challenges and potential in their industries because these are industries they have
helped shape. The most important connection is the one that happens out in the marketplace.
Our customers connect with our brands, and they connect these brands with success.
THE 2004 ANNUAL REPORT OF CAVALIER CORPORATION LIMITED is presented in a single document
containing both the Annual Review and the Financial Statements and Other Disclosures. As
required by section 211(1)(k) of the Companies Act 1993, this document is signed on behalf of the
Board on 17 September 2004 by :
A M JAMES — CHAIRMAN W K CHUNG — MANAGING DIRECTOR
MANAGING DIRECTOR’S
REVIEWPg.4 CAVALIER
AND THE ENVIRONMENT
Pg.8 HEALTH & SAFETY
AT CAVALIERPg.10
CORPORATE:
Managing Director W K Chung
Finance Director and Company Secretary V T S Tan
Information Services Manager M N McElroy
CARPET OPERATIONS:
CAVALIER BREMWORTH:
Australian General Manager D M Cotton
Australian National Sales Manager K R Battiste
Australian Finance and Administration Manager M O Hintze
New Zealand General Manager Sales S J Duncan
Market Planning Manager C Anderson
Group Marketing Manager D W Philippe
General Manager Manufacturing C A McKenzie
Tufting Plant Manager G J M Voskamp
Wanganui Spinning Plant Manager D J Blakemore
Napier Spinning Plant Manager P N Shuker
Product Development Manager P A Leyland
New Zealand Financial Controller J C Johnson
KNIGHTSBRIDGE CARPETS:
Manager B R Smith
KIMBERLEY CARPETS:
Manager M A Bryant
ONTERA MODULAR CARPETS:
General Manager E Allemano
Commercial Manager G A McFadzean
WOOL OPERATIONS:
HAWKES BAY WOOLSCOURERS:
General Manager N R Hales
CANTERBURY WOOLSCOURERS:
General Manager S J Harrison
ELCO DIRECT:
General Manager R P Cooper
C A V A L I E R C O R P O R A T I O N L I M I T E D & S U B S I D I A R Y C O M P A N I E S
1##FOOTER##
C A V A L I E R C O R P O R A T I O N L I M I T E D
TABLE OF CONTENTSANNUAL REVIEW FINANCIAL STATEMENTS AND OTHER DISCLOSURES
PERFORMANCE HIGHLIGHTS 2
MANAGING DIRECTOR’S REVIEW 4
MANAGING DIRECTOR’S QUESTION AND ANSWER 13
DIRECTORS’ REPORT 16
BOARD OF DIRECTORS 20
CORPORATE GOVERNANCE 21
SHAREHOLDER INFORMATION 24
CONTENTS 27
AUDIT REPORT 28
DIRECTORS’ RESPONSIBILITY STATEMENT 29
STATEMENT OF ACCOUNTING POLICIES 30
STATEMENTS OF FINANCIAL PERFORMANCE 32
STATEMENTS OF MOVEMENTS IN EQUITY 33
STATEMENTS OF FINANCIAL POSITION 34
STATEMENTS OF CASH FLOWS 35
NOTES TO THE FINANCIAL STATEMENTS 36
TREND STATEMENT 49
GLOSSARY OF FINANCIAL TERMS 51
OTHER DISCLOSURES 52
CORPORATE DIRECTORY 60
MANAGING DIRECTOR’S
Q&APg.13 DIRECTORS’
REPORTPg.16
134.5
8
SHAREHOLDER INFORMATION
Pg.24
C A V A L I E R C O R P O R A T I O N L I M I T E D
2
Record operating surplus after tax
and minority interest of $21 million
— 15% up on the previous year’s
$18.3 million — on operating revenue
of $198.6 million
RECORD OPERATING
SURPLUS
$21MILLION
S T R A T E G I C V I S I O N S H A R E H O L D E R V A L U E
PERFORMANCEHIGHLIGHTS
Acquisition, just after balance date,
by 92.5%-owned subsidiary, Hawkes
Bay Woolscourers, of 50% interest in
Canterbury Woolscourers, a company
formed to acquire and consolidate two
South Island scours based in Winchester
and Washdyke
WOOLSCOURINGPURCHASE
%50OF CANTERBURYWOOLSCOURERS
Earnings per share of 32.7 cents,
compared with 29.0 cents a year ago
IMPROVEDEARNINGS
PER SHARE ¢3.7INCREASE
Return on funds employed of 21.4%,
compared with 21.6% a year ago and
16.4% and 12.4% for the two years
preceding that year — with each to
be compared against the Group’s
estimated weighted average cost of
capital of 10%
RETURN ON FUNDSEMPLOYED 21.4
PERCENT
Record contribution to Group’s pre-tax
operating surplus by the Cavalier
Bremworth broadloom carpet business
and the Ontera modular carpet
operation of $28.7 million and
$3.5 million respectively
RECORD CARPET
RESULTS32.2MILLIONCOMBINED
Capital spends of $15.2 million,
including the semi-worsted yarn plant
at Wanganui, the new carpet tufting
equipment at Cavalier Bremworth’s
Auckland site and the state-of-the-art
dye-injection machinery at Ontera’s
Sydney plant
STRATEGICCAPITALSPENDS
Record fully imputed dividends
authorised for the year of 27 cents
per share, an increase of 8% on
the 25 cents per share for the
previous year
INCREASE INDIVIDENDSPER SHARE
$23.6 million net cash inflow from
operating activities, up from $22.9
million the previous year
OPERATINGNET CASH
INFLOWReturn on average shareholders’ equity
of 32.8%, compared with 31.2% and
24.0% for the immediately preceding
two years
RETURN ONSHAREHOLDERS’
EQUITY 32.8PERCENT
8PERCENT
$23.6MILLION
$ $15.2MILLION
PERFORMANCE HIGHLIGHTS
3
C A V A L I E R C O R P O R A T I O N L I M I T E D
1999
15.9
10.6
5.3
2001
15.2
10.2
5.0
2002
19.9
13.2
6.7
2003
27.4
18.3
9.1
2004
31.6
21.0
10.6
2000
19.4
13.1
6.3
1999
13.9
9.4
2001
13.7
12.4
2002
24.0
16.4
2003
31.2
21.6
2004
32.8
21.4
2000
16.7
13.3
FINANCIAL RESULTS (NET OF MINORITY INTEREST) ($ MILLIONS)RETURN ON AVERAGE SHAREHOLDERS’ EQUITY AND NOPAT :
TOTAL FUNDS EMPLOYED (%)
1999 2001 2002 2003 20042000
NET TANGIBLE ASSET BACKING PER ORDINARY SHARE ($)
1999
14.7
13.0
2001
14.2
15.0
2002
20.9
17.2
5
2003
29.0
20.7
5
2004
32.7
25.5
2000
18.2
14.0
EARNINGS AND DIVIDENDS PAID PER ORDINARY SHARE (CENTS)
1.05
0.78 0.
80 0.88
0.89
1.08
1999
148.
9
77.1
2001
110.
3
55.2
2002
105.
9
57.7
2003
115.
5
63.2
2004
129.
7
67.4
2000
126.
9
80.1
TOTAL ASSETS EMPLOYED AND SHAREHOLDERS’ EQUITY ($ MILLION)
1999 2001 2002 2003 20042000
PROPRIETORSHIP RATIO (%)
51.8
50.0 54
.5
54.7
51.9
63.1
Operating surplus before tax Income tax expenseOperating surplus after tax Return on average shareholders’ equity NOPAT : Total funds employed
Earnings per ordinary share Dividends paid per ordinary share
Total assets employed Shareholders’ equity
PERFORMANCE HIGHLIGHTS
C A V A L I E R C O R P O R A T I O N L I M I T E D
4
A product might be the finest
available, but unless it connects
with the customer’s needs and
expectations, it will never fully
realise its potential.
E X P E R I E N C E S U C C E S S
MANAGING DIRECTOR’S REVIEWF O R T H E Y E A R E N D E D 3 0 J U N E 2 0 0 4
IT GIVES ME GREAT PLEASURE TO PRESENT TO YOU MY FIRST REVIEW
AS MANAGING DIRECTOR.
2003/04 was an eventful year, not just in
terms of the record earnings achieved,
but also in respect of the significant
investments made to increase capacity
in our carpet operations as we position
ourselves for further growth.
FINANCIAL PERFORMANCE
Table 1 shows, in summary form, our
financial performance for the 2003/04
year, compared with the previous year.
Operating revenue rose by 3% during the
year to $198.6 million.
The net operating surplus attributable to
shareholders of the Company was $21.0
million, compared with $18.3 million
the previous year, an improvement of
15%. This marks another record year for
the Company and makes this year the
third consecutive year of record earnings.
It represents earnings per share of 32.7
cents, compared with 29.0 cents in
2002/03.
The net operating surplus is largely the
result of continuing growth in the carpet
operations. It is also ahead of the $20.0
million earnings prediction we made to
shareholders at the time we announced
our interim results in February.
MANAGING DIRECTOR’S REVIEW
2004 2003 $000 $000
OPERATING REVENUE
Continuing activities 198,633 193,199
Discontinued activities - 23
$198,633 $193,222
EBIT
Continuing activities 34,097 29,942
Discontinued activities 176 353
34,273 30,295
NET INTEREST EXPENSE (2,079) (1,979)
OPERATING SURPLUS BEFORE TAX 32,194 28,316
TAX EXPENSE (10,761) (9,460)
OPERATING SURPLUS AFTER TAX 21,433 18,856
MINORITY INTEREST (422) (593)OPERATING SURPLUS AFTER TAX AND MINORITY INTEREST $21,011 $18,263
EARNINGS PER SHARE (CENTS) 32.7 29.0
RETURN ON AVERAGE SHAREHOLDERS’ EQUITY 32.8% 31.2%
TABLE 1 > CONSOLIDATED FINANCIAL PERFORMANCE YEAR ENDED 30 JUNE
“
WAYNE CHUNG, MANAGING DIRECTOR
”
5##FOOTER##
C A V A L I E R C O R P O R A T I O N L I M I T E D
I N V E S T M E N T
G R O W T H
STRATEGIC CAPITAL EXPENDITURE
OF $15 MILLION IN CAPACITY AND
TECHNOLOGY
POSITIONS THE CARPET OPERATIONS
FOR COST-EFFICIENCIES AND
FURTHER GROWTH IN MARKET SHARE
C A V A L I E R C O R P O R A T I O N L I M I T E D
6
FINANCIAL POSITION
Table 2 illustrates the progressive change
to the Company’s financial position
and the level of funds employed in
our businesses since the 1999/00 year
— the year before we embarked on the
restructuring of our wool operations
and the return of $25 million of surplus
capital to shareholders.
The Group’s financial position was
further strengthened during the year
by the addition of $4.2 million to
shareholders’ equity.
Total assets employed were $129.7
million, an increase of $14.2 million on
the previous year. The increase reflects,
in the main, our plant expansion and
upgrade programmes.
Term borrowings increased by $8.7
million over the year because we debt-
funded these programmes. However, our
level of borrowings remains extremely
modest. Our net interest-bearing debt to
equity ratio is 37:63, and our net interest
costs are covered 16.5 times by earnings.
Working capital remained virtually
unchanged at $41.9 million despite
increased trading levels over the year.
RETURN ON SHAREHOLDERS’ EQUITY AND FUNDS EMPLOYED
The after-tax return on shareholders’
equity for this year increased to 32.8%,
up from 31.2% and 24.0% for the two
immediately preceding years.
In contrast, the after-tax return on total
funds employed for this year was virtually
unchanged at 21.4% despite the growth
in earnings. The reason for this lies in
MANAGING DIRECTOR’S REVIEW
MANAGING DIRECTOR’SREVIEW(cont inued)
TABLE 2 > CONSOLIDATED FINANCIAL POSITION AND RETURN ON FUNDS EMPLOYED AS AT 30 JUNE
2004 2003 2002 2001 2000 $000 $000 $000 $000 $000
FINANCIAL POSITION
Shareholders’ equity 67,397 63,226 57,699 55,198 80,095
Term liabilities 37,288 28,566 26,467 13,595 28,409
Current liabilities 25,054 23,718 21,776 41,508 18,412
Shareholders’ equity and total liabilities $129,739 $115,510 $105,942 $110,301 $126,916
Fixed assets 52,373 41,259 40,395 39,250 36,788
Other non-current assets 10,405 8,267 7,912 9,225 4,300
Non-current assets 62,778 49,526 48,307 48,475 41,088
Current assets 66,961 65,984 57,635 61,826 85,828
Total assets $129,739 $115,510 $105,942 $110,301 $126,916
TOTAL FUNDS EMPLOYED
Non-current assets 62,778 49,526 48,307 48,475 41,088
Stocks and other current assets 65,545 63,761 54,778 58,992 84,523
Less current liabilities (21,560) (20,052) (12,772) (13,283) (15,083)
$106,763 $93,235 $90,313 $94,184 $110,528
PROPRIETORSHIP RATIO 51.9% 54.7% 54.5% 50.0% 63.1%
NET INTEREST-BEARING DEBT:EQUITY RATIO 37:63 32:68 36:64 20:80 28:72
NET INTEREST COVER (TIMES) 16.5 15.3 11.9 17.7 9.1
EBIT 34,273 30,295 22,408 17,266 21,795
TAX (11,447) (10,113) (7,609) (5,619) (7,094)
NOPAT $22,826 $20,182 $14,799 $11,647 $14,701
NOPAT:TOTAL FUNDS EMPLOYED 21.4% 21.6% 16.4% 12.4% 13.3%
7
C A V A L I E R C O R P O R A T I O N L I M I T E D
the $8 million worth of debt-funded, but
as yet incomplete, capital expenditure
programmes that are yet to yield a return.
CASH FLOWS
Net cash flows from operating, investing,
and financing activities were a positive
$23.6 million, a negative $16.7 million,
and a negative $7.5 million respectively.
The net cash outflow from investing
activities was much higher than in
previous years due to some large one-off
capital spends which were required to
increase manufacturing capacity. These
included the following:
¬ $7.0 million on providing more yarn
capacity for carpet manufacturing
¬ $1.5 million on upgrading the carpet
tile dye-injection equipment
¬ $1.7 million on increasing facilities at
Hawkes Bay Woolscourers
On top of that, there was the $1.9 million
we spent on increasing our stake in
Hawkes Bay Woolscourers from 76% to
92.5%.
OPERATIONS
Cavalier reports in terms of two industry
segments — carpets and wool.
Within carpets, there are two distinct
areas of operations, broadloom carpets
and carpet tiles. The New Zealand-based
broadloom carpet operation is Cavalier’s
main core business. It manufactures
and markets 100% New Zealand wool
carpets under the Bremworth, Cavalier
Bremworth, Knightsbridge, Kimberley,
and Tramore brands. The carpet tile
business, Ontera Modular Carpets, is
based in Sydney and markets its carpet
tiles to the commercial sector under
the Ontera brand. It is 89.5% owned
by Cavalier, with the balance owned by
Ontera management.
The wool segment comprises the wool
scouring and wool acquisition businesses.
The wool scouring business operates
through 92.5%-owned subsidiary, Hawkes
Bay Woolscourers. Its scour is based in
Napier, and it is one of two independent
commission woolscourers in the North
Island. The wool acquisition business,
which operates through Elco Direct,
acquires wool direct at the farm-gate.
Both of these businesses have Cavalier
as a customer, but the majority of their
business is with external customers.
CARPET OPERATIONS
Broadloom Carpet Operation
The broadloom carpet operation enjoyed
very favourable market conditions in
its main markets of New Zealand and
Australia in the year under review. The
housing sectors in these markets, fuelled
by the low interest rates prevailing in the
last few years, were extremely buoyant.
New houses were built at unprecedented
levels, as were real estate resales, and both
of these factors had a favourable impact
on our broadloom carpet operation.
Sales for the year were $127.9 million,
up $7.4 million or 6% on the previous
year. We would have achieved much
higher sales had it not been for our yarn
manufacturing constraints. However,
we believe that we more than held our
share in those market segments in which
we operate — after having achieved
significant market share increases over
previous years.
WOOL (22%) $43.1 MILLION
CARPET (78%) $155.5 MILLION
FIGURE 1 > CONTRIBUTION TO GROUP OPERATING REVENUE
WOOL (11%) $4.0 MILLION
CARPET (88%) $32.2 MILLION
OTHER (1%)$0.2 MILLION
FIGURE 2 > CONTRIBUTION TO GROUP OPERATING SURPLUS
BEFORE CORPORATE COSTS, INTEREST, AND INCOME TAX
New houses were built at unprecedented levels, as were real estate resales, and
both of these factors had a favourable impact on our broadloom carpet operation.
“
”WAYNE CHUNG, MANAGING DIRECTOR
MANAGING DIRECTOR’S REVIEW
C A V A L I E R C O R P O R A T I O N L I M I T E D
8
Earnings before corporate costs, interest,
and tax were $28.7 million, a 13% increase
on the previous year’s $25.4 million. This
is most pleasing.
We have embarked on a programme to
further increase our yarn manufacturing
capacity by some 25%. This will allow
us to capture important synergistic
benefits within our two carpet operations.
There will be yarn for Ontera, which
currently purchases some $5 million
of spun yarn from external sources. It
will also allow our broadloom carpet
operation to bridge the current gap
between supply and demand for its
products in the market place.
We have also purchased a new tufting
machine at a cost of $2.5 million. This
machine incorporates all the latest
technology available and will enable us
to produce carpets to another dimension.
We plan to have carpet from this machine
sampled and ready for sale later this year.
We have been experiencing some growing
pains at our carpet-manufacturing
site at Auckland. As a result of record
production levels, space has been at a
premium. To alleviate the situation, we
are planning to relocate the distribution
centre to a 5,300 square metre purpose-
built warehouse close by.
Carpet Tile Operation
We acquired the carpet tile operation,
Ontera Modular Carpets, on 1 July
2002, so this year marks the completion
of Ontera’s second year under our
management.
Last year, Ontera achieved a very good
maiden result. This year, we are pleased
to again report that the momentum
has continued, even though sales, at
$27.6 million, were 3% down on the
MANAGING DIRECTOR’S REVIEW
The Group has always been conscious of
its obligations to protect the environment
and, in this regard, works to ensure that
all relevant regulatory requirements are
complied with at all times. Where such
requirements do not exist, best industry
practices are adhered to.
The Group is also committed to
continuous improvement, and this
year saw both the Cavalier Bremworth
broadloom carpet operation and the
Ontera modular carpet tile operation
— both of which account for 78% of
the Group’s operating revenue — gain
ISO 14001 environmental management
system accreditation.
ISO 14001 is based on a set of
standards published by the International
Standards Organisation and will fur ther
enhance the Group’s environmental
commitment.
More and more, purchasing decisions
made by organisations in both the public
and the private sectors are based not
only on the product and its quality and
price, but also on the environmental
per formance of the manufacturer,
and the accreditation of both Cavalier
Bremworth and Ontera should put us in
good stead for the future.
ENVIRONMENTAL CASE STUDY
For many years, Ontera has recognised
the social and economic importance
of environmental consciousness.
Recently, it introduced a programme
called “Commitment to Environmental
Excellence” which will spearhead its
ongoing drive towards sustainability.
A key aspect of this initiative, which
is unique to the flooring industry, calls
for all Ontera modular carpet to be
engineered to withstand the rigours of
a renewal process called EarthPlus®
— a three-step recovery process where
used carpet modules are super-cleaned,
re-textured and re-styled — to give the
product a new appearance and a
new life.
This Ontera EarthPlus® initiative
fitted per fectly with the ANZ Bank’s
environmental best practices
requirements in its recent fit-out of
its premises at 530 Collins Street,
Melbourne. This was a project where
product recovered from the 1989
installation of the QV1 Building, St
Georges Terrace, Perth went through the
EarthPlus® renewal process to provide
the ANZ Bank with 1,053 m2 of fully
re-used EarthPlus® product — the first
significant installation of this type in
Australia.
What is perhaps relevant and significant
from the environmental perspective
is the diversion of approximately 5.4
tonnes of used product from landfill or
incineration — a win-win solution that
both the ANZ Bank and Ontera can
justifiably feel proud of.
CAVALIER CORPORATION
THE ENVIRONMENT
MANAGING DIRECTOR’SREVIEW(cont inued)
9##FOOTER##
C A V A L I E R C O R P O R A T I O N L I M I T E D
E N V I R O N M E N T
S U S T A I N A B I L I T Y
‘ISO 14001 ENVIRONMENTAL
MANAGEMENT SYSTEM’ ACCREDITATION
FOR OUR CARPET OPERATIONS
INCREASES AWARENESS OF NEED
TO ‘REDUCE, REUSE AND RECYCLE’
AND REINFORCES THE GROUP’S
ENVIRONMENTAL COMMITMENT
C A V A L I E R C O R P O R A T I O N L I M I T E D
10
previous year. The year began slowly.
Many commercial refurbishments were
put on hold because of uncertainties
arising from the SARS outbreak in
Asia. However, as the year progressed,
confidence returned, and Ontera finished
the year very strongly.
Earnings before corporate costs, interest,
and tax were $3.5 million, up 29% on the
previous year’s $2.7 million despite the
inclusion in the previous year’s results of
a one-off gain of $0.6 million associated
with the purchase of the business. Thus,
the like-for-like comparison with the
previous year indicates an improvement
of 67%, from $2.1 million to $3.5 million.
This year, we spent considerable sums
of money to provide Ontera with a solid
platform for future growth.
We successfully upgraded the Milliken
dye-injection equipment to incorporate
the latest technology available at a
considerable spend of $1.5 million. This
should provide Ontera with much better
productivity as well as new product
capabilities and should significantly
enhance its competitiveness.
We have also successfully implemented
new information systems that will
strengthen Ontera’s management
controls and customer service capabilities.
The current outlook for Ontera’s business
is very positive. It is enjoying the buoyant
market conditions that are currently
prevailing in the commercial building
markets in Australasia, and we expect to
see this continue into the 2004/05 year.
WOOL OPERATIONS
Our wool scouring operation, Hawkes Bay
Woolscourers, enjoyed a very successful
year. Our earlier decision to upgrade
equipment there produced enormous
benefits, both in terms of output and
quality. It achieved a significant growth in
market share and, in the process, scoured
what we believe to be the highest volume
ever by a commission wool scourer in any
one year. This has come about from its
well-earned reputation for quality and
service — one that is unmatched in the
industry. This is what Cavalier stands for
across all of its businesses and is the very
reason for its success today.
Acquiring wool privately at the farm-gate
is a very competitive and unpredictable
business where sellers and buyers
generally have little regard to anything
else but price.
Even though sales and earnings for
Elco Direct for the year were down
slightly on the previous year, mainly
as a result of lower wool prices, Elco
Direct continues to successfully operate
in this market by providing its customers
with excellent service.
The number of people employed by
the Group now stands in excess of
800 (760 in 2003).
We strive to be an employer of choice,
and in this regard, we will continue to:
¬ maintain and build on the good
industrial relations we currently
have with the unions that represent
our people
¬ invest in on-the-job training, not only
to better equip our people to do their
jobs, but also to help them in their
personal development
¬ place utmost importance on their
health and safety in the workplace
¬ improve on their working environment
Our commitment to health and safety in
the workplace led to a full review of the
occupational health and safety systems
of the Cavalier Bremworth broadloom
carpet operation, which employs 79%
of the Group’s employees. This review
culminated in the operation being
awarded “primary status” under the
Accident Compensation Commission’s
Accredited Employer Programme
— a three-way partnership between
employer, employees, and the ACC
— which enables Cavalier to take direct
responsibility for managing hazards in
the workplace.
We have quantifiable per formance
targets in the area of health and
safety in the workplace as part of our
commitment to continuous improvement,
and we will strive to do better.
CAVALIER CORPORATION
HEALTH & SAFETY
MANAGING DIRECTOR’S REVIEW
MANAGING DIRECTOR’SREVIEW(cont inued)
11##FOOTER##
C A V A L I E R C O R P O R A T I O N L I M I T E D
H E A L T H & S A F E T Y
P R O D U C T I V I T Y
FULL REVIEW OF OCCUPATIONAL
HEALTH AND SAFETY SYSTEMS OF THE
CAVALIER BREMWORTH BROADLOOM
CARPET OPERATION
ENHANCES EMPLOYEE PERFORMANCE
AND CONFIDENCE IN A SAFE AND
SECURE WORKING ENVIRONMENT
C A V A L I E R C O R P O R A T I O N L I M I T E D
12
Sales for the wool operation overall for
this year were $43.1 million, down $1.2
million or 3% on the previous year. The
lower sales reflect, in the main, lower wool
prices in our wool-acquisition operation
and are not an indicator of reduced
operating activity.
The more important indicator is
earnings. In the year, our wool operation
contributed $4.0 million of earnings
before corporate costs, interest, and tax,
which is 4% up on the previous year’s $3.8
million. This is a credible performance
in a highly competitive business
environment where there is no pricing
premium.
The outlook for the wool operation
is positive. It expects to hold on to its
earnings in the coming year which would
represent an outstanding return on funds
employed.
2004/05 OUTLOOK
The Group’s performance in the 2004/05
year will hinge upon the performance of
our carpet operations.
Some slowdown in building activity and
consumer spending has been widely
predicted on both sides of the Tasman
for sometime now. The extent to which
the slowdown might affect our own
businesses will depend largely on whether
the respective Reserve Banks can engineer
a “soft landing” as against a more radical
slowdown.
In preparing our budgets for the 2004/05
year, we have allowed for some downturn
in the carpet market, but with offsetting
gains in market share associated with our
increased capacity and our new tufting
technology. We are also anticipating cost
reduction associated with our expanded
yarn-manufacturing capacity. Budget is
for tax-paid earnings of $22.5 million, an
increase of 7% on the 2003/04 year.
We will keep shareholders informed as
the year progresses.
MICROBIAL TECHNOLOGIES
Development work on our bio-product
continues.
A busy programme of product
development and field trial work
has produced mixed results — some
outstanding and some less so — and has
signalled the need for further formulation
refinements.
Commercial interest in the product
is very high, but the extraction of
commercial value is dependent upon
our ability to demonstrate consistent,
repeatable field performance.
We have made a lot of progress, and we
are tantalisingly close, but we are not
there yet. Commercialisation is taking far
longer than we originally envisaged, and
we are disappointed about that.
Nevertheless, we retain confidence in the
market potential of this technology, and
we are continuing to invest in it.
We will update shareholders as we move
forward.
W K CHUNG MANAGING DIRECTOR
20 August 2004
1999 2001 2002 2003 2004
34.3
2.1
16.5
30.3
2.0
15.3
22.4
1.9
11.9
17.3
1.0
17.7
18.9
3.1
2000
21.8
2.4
9.1
6.1
EARNINGS BEFORE INTEREST AND TAX, NET INTEREST EXPENSE, AND NET INTEREST COVER
Earnings before interest and tax ($ millions) Net interest cover (times)Net interest expense ($ millions)
MANAGING DIRECTOR’S REVIEW
MANAGING DIRECTOR’SREVIEW(cont inued)
13
C A V A L I E R C O R P O R A T I O N L I M I T E D
Q U E S T I O N A N S W E R
MANAGING DIRECTOR’SQ&A
A N I N T E R V I E W W I T H W AY N E C H U N G
THE FOLLOWING INTERVIEW WITH CAVALIER’S MANAGING DIRECTOR,
WAYNE CHUNG, TOOK PLACE ON 17 SEPTEMBER 2004.
You have previously indicated that the
bulk of the Group’s overseas earnings are
denominated in AUD, so is the current
strength of the NZD:AUD a concern?
Not right now because we have some
five months of the 2004/05 year’s AUD
receivables covered at around .86.
Obviously, it would become a concern
if the NZD:AUD remains at, or goes
above, the current .94 into next year. We
believe that the current strength of the
NZD is driven by the current interest rate
differentials between NZ and Australia
and that we should see a reversal once
the Reserve Bank gets to the end of
its tightening cycle. And going by past
experience, there may be opportunities
to increase prices when the Australian
manufacturers we compete against try to
pass on higher import costs flowing on
from the weak AUD.
The earnings growth of Ontera of 67% on
a like-for-like basis is impressive. Where
to from here for Ontera?
I am confident about the potential for
further earnings growth in Ontera. At
the time of our acquisition, Ontera
was grossly undercapitalised and had
never really been given the chance to
demonstrate just what it was capable of.
The first thing we did back in 2002 was to
put it on a sound financial footing.
Going forward, there are also synergies
between Ontera and our broadloom
carpet operation, principally in the
sharing of the semi-worsted yarn capacity
coming onstream.
So, yes, I am very excited about the
prospects at Ontera, especially in the
current buoyant market for commercial
installations on both sides of the Tasman.
A lot of progress seems to have been
made in your commitment to the
environment and in the area of workplace
health and safety. Can you expand on
these?
We have always had an environmental
policy, and the health and safety of our
people have always been paramount.
Continuous improvement is very much
a part of our organisational culture, and
the developments you see in these areas
are really just continuous improvement
at work. And I must say that I am
thrilled with the results — the ISO 14001
accreditation at both carpet operations
and Cavalier Bremworth’s entry into the
ACC Accredited Employer Programme.
You have made significant investments
in capital projects in the last 12 months.
What are some of the major ones and
how do you see them affecting the
business going forward?
Capital expenditure for the 2003/04
year totalled $15 million which is about
three to four times the amount we would
normally spend in a year. I’ve already
covered some of the more significant
spends in my review.
MANAGING DIRECTOR’S Q&A
C A V A L I E R C O R P O R A T I O N L I M I T E D
14
The bulk of this year’s expenditure is for
increasing our capacity and capability and
should see us well placed to capitalise on
growth opportunities going forward.
For instance, the $7 million expansion at
our Wanganui yarn spinning plant is to
provide much-needed yarn for our carpet
operations. When fully operational, it will
increase our yarn manufacturing capacity
by 25%. Approximately 30% of this will go
towards replacing the yarn which Ontera
currently purchases externally, and the
balance has been ear-marked for growth
in our broadloom carpet business. This
project — which started in December
2003, but will not be fully operational
until December this year — is a major
project for us, and it will take some time
before all the expected benefits can be
realised. We expect some of the benefits to
start coming through in the second half
of the 2004/05 financial year.
Shareholders should note that the
majority of our capital expenditure
programmes (other than those for
compliance and for occupational health
and safety) have been benchmarked
against our internal rate of return of
15% per annum tax-paid, which, when
compared against the Company’s
estimated tax-paid cost of capital of 10%,
should be shareholder value positive.
The Company’s balance sheet remains
very conservatively geared and, with a
debt to equity ratio of 37:63 and net
interest expense covered 16.5 times by
EBIT, we have been able to accommodate
these capital expenditures through
increased borrowing.
Finding projects that match or exceed
our hurdle rate has never been easy
and, in many ways, I feel excited for the
Company and for our shareholders that
we have been able to identify so many
opportunities to grow shareholder wealth.
Where does wool scouring fit into the
Group’s overall strategy?
Scouring is one of the key processes wool
from the sheep’s back has to go through
in its journey from the farm gate to our
range of woollen carpets, and our direct
involvement allows us to retain control of
the consistency of quality so crucial to the
end product.
We have, quite naturally, also been
able to provide that same standard of
quality to the wool industry at large and
that, coupled with our commitment to
outstanding customer service, has made
Hawkes Bay Woolscourers (“HBWS”) the
commission woolscourer of choice in the
North Island.
So, in a lot of ways, it is now core business
for us.
And hence the decision to expand into
the South Island through Hawkes Bay
Woolscourers’ 50% interest in Canterbury
Woolscourers?
Most definitely.
This is a strategic acquisition that will
see the consolidation of two separate
scouring operations currently based
at Winchester and Washdyke in the
Canterbury region. At the same time, we
will also be increasing and upgrading the
existing facilities at Washdyke, where we
will ultimately end up, to make
the scour amongst the most modern and
sophisticated in the country. This project
will take nine months. When completed,
Canterbury Woolscourers (“CWS”) will
have total assets employed of around $13
million and projected EBIT of around
$4.5 million.
HBWS will take a direct management role
in CWS to ensure that all key objectives
are met and to see that CWS is modelled
on the very same HBWS platform and
strategies.
What is the Microbial project and how
long has the Company been involved?
The Microbial project involves bringing
to market a natural remedy for the
prevention of flystrike and the control
of lice infestation in sheep. This remedy
(which we have named Biovine) involves
a natural biological insecticide, bacillus
thuringiensis (Bt), and is potentially of
great significance to the wool industry
world-wide. Existing remedies are toxic,
eco-toxic or both, and chemical pesticide
residues in wool have become a major
issue. The emergence of resistant strains
of blowfly and lice, rendering existing
remedies ineffective, is also a major
issue. The remedy under development is
effective and yet completely non-toxic,
safe, and environmentally benign. It is
what the industry is desperately waiting
for at the moment.
We have been involved in the project
for eight years now and have spent $5.8
million on development and $1.7 million
on a pilot plant.
MANAGING DIRECTOR’SQ&A
MANAGING DIRECTOR’S Q&A
(cont inued)
15
C A V A L I E R C O R P O R A T I O N L I M I T E D
Eights years is a long time, isn’t it?
Commercialisation is definitely taking far
longer than we had originally thought,
and that is disappointing. But when
one looks at that in the context of the
product that we are attempting to bring
to market, maybe the eight years is not
that long a time.
Over that time we have made a great deal
of progress in all the key areas of product
development, regulatory clearance, and
commercial-scale manufacture. We have
also demonstrated that the product has
the potential to control scab mite, and
that has greatly enhanced its potential
commercial value.
Commercial interest in the product has
also been very high, but the extraction of
commercial value is obviously dependent
upon our ability to demonstrate
consistent, repeatable field performance.
We are tantalisingly close, but we are not
yet there, and that is frustrating.
A busy programme of product
development and field trial work over
the last 12 months has produced mixed
results — some outstanding and some
less so — and has signalled the need for
further formulation refinements. We
now believe we know what is required to
produce the necessary level of consistency
and repeatability, but further trial work is
going to be required to prove that.
Where to from here for the project?
We still need more time and work before
we are able to bring Biovine to market.
We are now at a very critical stage of the
development work, and if we pull it off,
the potential post-commercialisation
returns will be significant. However,
there is still the risk — difficult to
quantify, but nevertheless material — that
commercialisation may never occur.
The project is a developmental project
where the risks are high, but the potential
rewards are just as high. The Directors
remain committed to the project, but
are ever conscious of the amount of
development expenditure that has been
accumulating in the Company’ balance
sheet. The true value of this project is
extremely difficult to ascertain because
there is, on the one hand, still the
possibility that the project may come
to nothing. On the other hand, there
are significant potential rewards if it
comes off.
The Directors note that the $5.8 million
of development work and $1.7 million
of pilot plant spends thus far represent
approximately 8% (after tax) of the
equity attributable to shareholders
of the Company, and whilst any
write-offs would obviously affect our
reported results, there would be no
impact whatsoever on our cash flows,
our borrowings, or our ability to pay
dividends.
What are some of the challenges you see
facing the various business units at the
present time and what is your outlook for
these units?
The Cavalier Bremworth broadloom
carpet business is our main core business,
and we are looking to it to continue
to deliver improved earnings in an
increasingly difficult environment.
Some of the potential negatives are
the strength of the NZD on our AUD
denominated receivables, the more
subdued business environment in
Australia, and the impact higher interest
rates in New Zealand may have on
consumer confidence and consumer
demand. But there are positives. The
business has never been in better shape.
We have worked hard on positioning
ourselves for the future. And we believe
we have the strategies to continue to grow
our business.
The Ontera carpet tile business is
well positioned, as is Hawkes Bay
Woolscourers, to make the most of
the opportunities available to them.
And we are also looking forward to the
contribution, in time, of Canterbury
Woolscourers.
As I indicated at the time of the release of
the 2003/04 results, we are budgeting for
a $22.5 million operating surplus after
tax and minority interest for 2004/05
which would be 7.5% up on the record of
2003/04.
MANAGING DIRECTOR’S Q&A
C A V A L I E R C O R P O R A T I O N L I M I T E D
16
GROUP ACTIVITIES
The Group’s principal activities comprise
the Cavalier Bremworth broadloom carpet
business, the Ontera Modular carpet tile
operation, commission wool scouring,
and a wool procurement business.
The Cavalier Bremworth broadloom
carpet business — which markets
carpet under the Bremworth, Cavalier
Bremworth, Knightsbridge, Kimberley,
and Tramore brands — operates two
woollen yarn spinning plants and a carpet
plant in New Zealand and has major
distribution centres in Auckland and
Sydney and sales offices throughout New
Zealand and Australia. It is represented
in the USA, Canada, the UK, the Middle
East, and throughout Asia by agents or
distributors.
The Ontera Modular carpet tile
operation is based in Sydney and is
one of Australasia’s leading carpet tile
manufacturers.
Hawkes Bay Woolscourers, the
commission wool scouring business,
provides a commission wool scouring
service for the wool exporting industry
and scours all of the Group’s carpet wool
requirements. The Group acquired, on
31 August 2004 through 92.5%-owned
Hawkes Bay Woolscourers, a 50% interest
in Canterbury Woolscourers, a company
formed to acquire and consolidate two
South Island scours based in Winchester
and Washdyke.
Elco Direct, the wool procurement
business, is also a service provider to
both the wool industry and the Group’s
carpet business.
The Group is also engaged in a
developmental venture through its
subsidiary, Microbial Technologies
Limited. The venture involves the
utilisation of a natural biological agent
for the control of flystrike and lice
infestations in sheep.
ACCOUNTING POLICIES
Your Directors confirm that there have
been no changes in accounting policies
during the year.
FINANCIAL PERFORMANCE
The Group achieved an operating surplus
after tax and minority interest for the
year of $21,011,000 — 15% up on the
$18,263,000 achieved in the previous year.
This operating surplus is the third record
result in as many years.
2004 2003 $000 $000
Operating revenue $198,633 $193,222
Operating surplus before tax 32,194 28,316
Income tax expense (10,761) (9,460)
Operating surplus after tax 21,433 18,856
Minority interest (422) (593)
Operating surplus after tax and minority interest $21,011 $18,263
REPORTDIRECTORS’DEAR SHAREHOLDERS,
ON BEHALF OF YOUR DIRECTORS, I HAVE PLEASURE IN PRESENTING OUR 2004
ANNUAL REPORT, WHICH INCORPORATES THE AUDITED FINANCIAL STATEMENTS
OF THE COMPANY AND ITS SUBSIDIARIES FOR THE YEAR ENDED 30 JUNE 2004.
L E A D E R S H I P R E S U L T S
FOR THE YEAR ENDED 30 JUNE 2004
ALAN JAMES, CHAIRMAN
The strength of Cavalier comes
not just from the quality of its
core broadloom carpet business,
but also from the synergies
that exist between it and
our other operations.
They connect well together.
DIRECTORS’ REPORT
“
”
17##FOOTER##
C A V A L I E R C O R P O R A T I O N L I M I T E D
E X P A N S I O N
P O T E N T I A L
PURCHASE OF 50% INTEREST IN
CANTERBURY WOOLSCOURERS, A COMPANY
FORMED TO ACQUIRE AND CONSOLIDATE
TWO SOUTH ISLAND WOOL SCOURS
TO PROVIDE THE BASE FOR A NATIONWIDE
WOOL SCOURING OPERATION AND TO
FURTHER ENHANCE SHAREHOLDER VALUEREPORT
C A V A L I E R C O R P O R A T I O N L I M I T E D
18
Return on average shareholders’ equity
improved to 32.8%, compared with 31.2%
in the previous year, and earnings per
ordinary share to 32.7 cents, up from
29 cents in the previous year.
An in-depth analysis of the year’s
performance can be found in the Managing
Director’s Review and Question and
Answer on pages 4 to 15.
FINANCIAL POSITION
The equity attributable to shareholders
of the Company increased by $4,615,000
during the year to $66,596,000 as follows:
$000
Shareholders’ equity at 30 June 2003 was 61,981
to which was added:
Operating surplus after tax and minority interest 21,011
Movement in the share rights reserve 100
from which was deducted:
Movement in the foreign currency translation reserve (194)
Ordinary dividends paid (16,302)
leaving shareholders’ equity at 30 June 2004 of $66,596
The Group’s shareholders’ equity
accounted for 51.9% of the total assets
employed at balance date, compared with
54.7% a year ago.
Net interest-bearing debt:equity ratio
stood at 37:63, compared with 32:68
a year ago.
DIVIDENDS
Your Directors have authorised a final
dividend (fully imputed) of 14.5 cents per
ordinary share for the year ended 30 June
2004. This, together with the first interim
of 4.5 cents per share paid in December
2003 and the second interim of 8 cents
per share paid in March this year, gives a
total dividend (fully imputed) for the year
of 27 cents per ordinary share.
The total dividend authorised for the
year of 27 cents per share represents an
8% increase on last year’s total of 25 cents
per share.
The share register will close at 5 p.m.
on Friday, 1 October 2004 for the
purpose of determining entitlement to
the final dividend and will re-open at
9 a.m. on Monday, 4 October 2004. The
final dividend will be paid on Friday,
8 October 2004.
Our non-resident shareholders will
also be receiving, together with their
2004 final dividend, a supplementary
dividend of 2.5588 cents per ordinary
share. The dates for the determination of
entitlement to and the payment of this
supplementary dividend are the same as
those for the 2004 final dividend.
DIRECTORS’REPORT
1998 2000
28
72
44
56
2003
32
68
2002
36
64
1999 2004
37
63
42
58
2001
20
80
NET INTEREST-BEARING DEBT : EQUITY RATIO
EquityNet interest-bearing debt
DIRECTORS’ REPORT
(cont inued)
PROPRIETORSHIP RATIO (%)
199951
.82001 2002
54.5
2003
54.7
2004
51.9
20001998
50.7
50.0
63.1
19
C A V A L I E R C O R P O R A T I O N L I M I T E D
DIRECTORS
Mr Keith Thorpe was appointed a non-
executive Director of the Company with
effect from 23 February 2004. Mr Thorpe
was a long-term senior executive with
Lion Nathan and is a former chief
executive officer and a former chairman
of New Zealand Wines and Spirits
Limited. He is currently chairman of Swift
and Moore Pty Limited and a director of
Zespri Group Limited. Mr Thorpe has
a strong marketing and international
business background, and his experience,
qualifications, and skills will complement
those of the existing Directors.
Long-time Finance Director, Mr Wayne
Chung, was appointed to the position
of Managing Director on my retirement
from that executive role on 13 April
2004. Shareholders would be aware that
this change was to enable me to succeed
Mr Anthony Timpson as Chairman. At the
same time, the Directors also appointed
Mr Victor Tan, Company Secretary, to the
position of Finance Director.
Your Directors advise that Mr Chung
was selected from a short-list of
candidates put forward by the
Nominations Committee of the Board
after an Australasian-wide search
designed to ensure that all internal
candidates were benchmarked against
the best available externally.
Pursuant to the Constitution of the
Company, Mr Anthony Timpson and
I retire by rotation at the next Annual
Meeting scheduled for 4 November 2004
and, being eligible, offer ourselves for
re-election.
Mr Timpson was last re-elected to the
Board in November 2001, whereas I was
elected to the Board in October 1993.
Mr Keith Thorpe and Mr Victor Tan,
being Directors appointed by the Board
in between Annual Meetings, hold office
until the next Annual Meeting and, being
eligible, offer themselves for election.
There have been no other nominations.
AUDITORS
KPMG have indicated their willingness
to continue in office in accordance with
section 200 of the Companies Act 1993
(“the Act”). A resolution authorising your
Directors to fix the remuneration of the
auditors will be put to shareholders at the
Annual Meeting.
NON-AUDIT SERVICES AND AUDITOR INDEPENDENCE
Your Directors confirm that KPMG
also provided the Group with taxation
compliance services during the year.
The fees charged for these services
were $26,000.
Your Directors note that the provision
of taxation services by the external
auditors is permitted by the International
Federation of Accountants guidelines
and are satisfied that the independence
of the external auditors has not been
compromised.
KPMG did not provide the Group with
any other non-audit services during the
year.
DIRECTORS’ DISCLOSURES
The various disclosures required of your
Directors under the Act are set out on
pages 52 to 54.
OTHER STATUTORY DISCLOSURES
The other statutory disclosures required
of the Company under the Act are set out
on pages 55 and 56.
MANAGEMENT AND STAFF
On behalf of your Directors, I take
this opportunity to acknowledge
the contributions of Mr Chung, his
management team, and all our staff over
the past year.
A M JAMES CHAIRMAN
17 September 2004
The equity attributable to shareholders of the Company
increased by $4,615,000 during the year to $66,596,000.
“
”ALAN JAMES, CHAIRMAN
DIRECTORS’ REPORT
C A V A L I E R C O R P O R A T I O N L I M I T E D
20
I N D I V I D U A L S T R E N G T H T E A M F O C U S E D
TOTAL YEARS INDUSTRY
EXPERIENCE
*INDEPENDENT DIRECTORSON BOARD
CURRENT & EX-MDS
ON BOARD3 3 181
BOARD OF DIRECTORS1 2 3 4
5 6 7 8
BOARD OF DIRECTORS
1 A M (Alan) James B.Tech. (Hons.), Dip.Bus.Admin.Non-executive Director since April 2004
Chairman of the Board of Directors
Managing Director from August 1993 to April 2004
2 W K (Wayne) Chung B.Com., CA, CMAManaging Director since April 2004
Finance Director from July 1984 to April 2004
3 A C (Anthony) TimpsonNon-executive Director since August 1993
Chairman of the Board’s Remuneration Committee and member of the Board’s Audit Committee
Chairman of the Board of Directors from August 1993 to April 2004
Managing Director from July 1984 to August 1993
Co-founder of Cavalier’s broadloom carpet operation
Other directorships — Astrograss Allweather Surfaces Limited, Chippendale Holdings Limited, Marama Trading Limited, Pauanui Publishing Limited, and Radford Yarn Technology Limited
4 R G (Richard) Ebbett* B.Com., ACA, FinstDNon-executive Director since July 1984
Chairman of the Board’s Audit Committee and member of the Board’s Remuneration Committee
Other directorships — Acma Capital (N.Z.) Limited, Anglesea Properties Limited, Ebbett Waikato Group Limited, Horticom Limited, Renaissance Corporation Limited, and TBS Corporation Limited
5 G C W (Grant) Biel B.E. (Mech.)Non-executive Director since October 1995
Deputy Chairman of the Board of Directors
Member of the Board’s Audit Committee and Remuneration Committee
Executive Director from July 1984 to September 1995
Co-founder of Cavalier’s broadloom carpet operation
Other directorships — Auckland Air Charter Limited, Heli Harvest Limited, and Rural Aviation (1963) Limited
6 G S (Graeme) Hawkins* B.Sc., B.Com., ACANon-executive Director since October 1998
Member of the Board’s Audit Committee and Remuneration Committee
Other directorships — Ballance Agri-Nutrients Co-operative Limited, Fonterra Co-operative Group Limited, Hawkins Consulting Services Limited, Horizon Energy Distribution Limited, Stableburn Farms Limited, and Watercare Services Limited
7 V T S (Victor) Tan CA, ACISFinance Director since April 2004 and Company Secretary since November 1984
8 K L (Keith) Thorpe* M.A.Non-executive Director since February 2004
Member of the Board’s Audit Committee and Remuneration Committee
Other directorships — Aragorn Limited, Custom Consulting Limited, Super Liquor Holdings Limited, Swift and Moore Pty Limited, and Zespri Group Limited
21
C A V A L I E R C O R P O R A T I O N L I M I T E D
Cavalier Corporation’s systems
ensure that:
¬ business strategies, plans, and budgets
are reviewed and approved
¬ performances against business
objectives are monitored
¬ significant business risks are identified,
monitored, and mitigated
¬ the multitude of laws that affect the
Company and its business activities are
complied with
¬ such matters as significant acquisitions
and disposals, delegated authority
limits, and executive remuneration are
reviewed and approved
¬ all matters of importance are brought
to its attention through a system of
prompt and comprehensive reporting.
In discharging its responsibility, the
Board exercises, on behalf of the
shareholders who appointed it, all the
powers of the Company not otherwise
required by law or the Constitution to be
exercised by shareholders.
Responsibility for the day-to-day
operation and administration of the
Company is delegated to the Managing
Director, who is accountable to the Board.
COMPOSITION OF THE BOARD
The Board currently comprises six
non-executive Directors (including the
Chairman and the Deputy Chairman) and
two executive Directors (the Managing
Director and the Finance Director).
The Board comprises Directors with a
broad range of experience and expertise
and whose core competencies include
accounting and finance, business
judgement, management, industry
knowledge, strategic vision, and
information technology.
The profile of the Directors can be found
on page 20.
One-third, or the number nearest to
one-third, of the Directors (excluding
any Director appointed by the Board
in between Annual Meetings) retire by
rotation at each Annual Meeting. The
Directors to retire are those who have
been longest in office since their last
election. Directors retiring by rotation are
eligible for re-election at that meeting.
A Director appointed by the Board in
between Annual Meetings holds office
only until the next meeting, but is eligible
for election at that meeting.
CORPORATE GOVERNANCETHE BOARD OF DIRECTORS IS RESPONSIBLE FOR THE MANAGEMENT AND
SUPERVISION OF THE BUSINESS AND AFFAIRS OF THE COMPANY. THE BOARD
DISCHARGES THIS RESPONSIBILITY BY ENSURING THAT ADEQUATE SYSTEMS
ARE IN PLACE. THESE SYSTEMS ARE BUILT AROUND SOUND AND PROVEN
PROCEDURES, POLICIES, AND GUIDELINES.
CORPORATE GOVERNANCE
C O N F I D E N C ET R A N S P A R E N C Y
WITHIN THE FRAMEWORK OUTLINED HERE, THE BOARD IS COMMITTED TO:
> Maximising returns to
shareholders by achieving
superior profit performance in
our businesses and by investing
at returns in excess of the cost
of capital
> Maintaining market leadership
by focusing on brand values,
superior product quality and
innovation, and outstanding
customer service
> Fostering an organisational
culture dedicated to continuous
improvement and cost efficiency
and being the most preferred
supplier in all markets and
market segments in which we
operate
> Conducting business with
consistency and absolute
integrity at all times
C A V A L I E R C O R P O R A T I O N L I M I T E D
22
Shareholders may nominate persons
for election to the Board at an Annual
Meeting by giving notice in writing to the
Company within the time notified by the
Company each year accompanied by the
consent in writing of that person to the
nomination.
BOARD MEETINGS
The Board has nine scheduled meetings
a year, but will also meet as and when
required to deal with any specific matters
that may arise between scheduled
meetings.
Details of attendances at the nine Board
meetings held during the year ended 30
June 2004 were:
G C W Biel . . . . . . . . . . . . . . . . . . . . . . 9/9
W K Chung . . . . . . . . . . . . . . . . . . . . . . 9/9
R G Ebbett . . . . . . . . . . . . . . . . . . . . . . 9/9
G S Hawkins. . . . . . . . . . . . . . . . . . . . . 8/9
A M James . . . . . . . . . . . . . . . . . . . . . . . 9/9
V T S Tan 1. . . . . . . . . . . . . . . . . . . . . . . 2/2
K L Thorpe 2 . . . . . . . . . . . . . . . . . . . . . 2/3
A C Timpson . . . . . . . . . . . . . . . . . . . . 9/9
1 Appointed on 13 April 20042 Appointed on 23 February 2004
REMUNERATION OF DIRECTORS
Unless specifically provided for in the
Constitution, the Board may not exercise
the power conferred by section 161 of
the Companies Act 1993 to authorise any
payment of remuneration to the Directors
in their capacity as such without the prior
approval of shareholders having first been
obtained.
Shareholders have previously resolved
that the total remuneration to be paid to
the non-executive Directors be fixed at a
sum not exceeding $250,000 per annum,
such sum to be divided amongst them
in such proportions and in such manner
as they may determine. The Directors
advise that the total remuneration paid to
the non-executive Directors for the year
ended 30 June 2004 was $160,115.
The remuneration packages of the
executive Directors, who are not entitled
to any remuneration in their capacity
as Directors, are fixed by the Board’s
Remuneration Committee, which is
composed entirely of the non-executive
Directors. The executive Directors do not
participate in decisions affecting their
own remuneration packages.
The remuneration of the Directors can be
found on page 54.
COMMITTEES OF THE BOARD
The Board has two standing committees
— one for audit and the other for
executive remuneration.
Audit Committee
The Board’s Audit Committee is
charged with, amongst other things, the
responsibility of reviewing the financial
statements. It is also responsible for
ensuring that adequate internal control
systems are in place to provide the
Board with reasonable assurance that
the Company’s assets are safeguarded,
transactions are recorded and reported
appropriately, and policies are followed.
This Committee meets as and when
required, but at least twice a year, with
management, the independent auditors,
and other internal auditors appointed
from time to time. These meetings are to
enable the Committee to review the work
of each of these groups and to satisfy
itself that they are discharging their
respective responsibilities adequately.
It is a policy of the Board that the
independent auditors have unrestricted
access to the Audit Committee, and it is
standard practice for the Committee to
meet twice a year with the independent
auditors in the absence of executives.
Details of attendances at the two Audit
Committee meetings held during the year
ended 30 June 2004 were:
G C W Biel . . . . . . . . . . . . . . . . . . . . . . 2/2
R G Ebbett . . . . . . . . . . . . . . . . . . . . . . 2/2
G S Hawkins. . . . . . . . . . . . . . . . . . . . . 2/2
A C Timpson . . . . . . . . . . . . . . . . . . . . 2/2
Executive Directors are not members
of the Audit Committee, and their
attendances at Audit Committee
meetings are by invitation and then only
in their capacity as executives.
The members of the Audit Committee
as at 30 June 2004 were Messrs
R G Ebbett (Chairman), G C W Biel,
G S Hawkins, A M James, K L Thorpe,
and A C Timpson. Messrs R G Ebbett
and G S Hawkins have accounting
backgrounds and are members of the
Institute of Chartered Accountants of
New Zealand. Messrs A M James and
K L Thorpe were not members of the
Audit Committee at the time the two
Audit Committee meetings were held
during the year ended 30 June 2004.
CORPORATEGOVERNANCE
CORPORATE GOVERNANCE
(cont inued)
23
C A V A L I E R C O R P O R A T I O N L I M I T E D
Remuneration Committee
The Remuneration Committee meets
as and when required, but at least once
a year, to consider and recommend to
the Board the remuneration packages of
the executive Directors and to approve
those of other senior executives of the
Company. In considering or approving
the remuneration packages of the
executive Directors and other senior
executives, the Committee relies on advice
from appropriately qualified professionals
where required and has regard to best
practice in the area of senior executive
remuneration.
In these ways, the Company is not only
able to attract or retain suitably qualified
executives, but also to align their interests
with those of shareholders in a way that
enables the attainment of shorter-term
goals without compromising longer-term
objectives.
Details of attendances at the two
Remuneration Committee meetings held
during the year ended 30 June 2004 were:
G C W Biel . . . . . . . . . . . . . . . . . . . . . . 2/2
R G Ebbett . . . . . . . . . . . . . . . . . . . . . . 2/2
G S Hawkins. . . . . . . . . . . . . . . . . . . . . 2/2
A C Timpson . . . . . . . . . . . . . . . . . . . . 2/2
Executive Directors are not members
of the Remuneration Committee, and
their attendances at the Remuneration
Committee meetings are by invitation and
then only in their capacity as executives.
The members of the Remuneration
Committee as at 30 June 2004 were
Messrs A C Timpson (Chairman),
G C W Biel, R G Ebbett, G S Hawkins,
A M James, and K L Thorpe. Messrs
A M James and K L Thorpe were
not members of the Remuneration
Committee at the time the two
Remuneration Committee meetings were
held during the year ended 30 June 2004.
Nominations Committee
The Board does not have a standing
committee for nominations because
vacancies on the Board arise infrequently.
However, a Nominations Committee
made up of the non-executive Directors,
Messrs G C W Biel, R G Ebbett,
G S Hawkins, and A C Timpson,
was established during the year to
identify and recommend to the Board
a replacement for Mr A M James, who
announced back in May 2003 that he
would be retiring from his executive
role in April 2004 to take over the
chairmanship of the Company from
Mr A C Timpson.
In identifying a replacement for
Mr A M James, the Nominations
Committee took into account the
strong management team at Cavalier
and the outstanding internal candidates
that were available for the role. It then
embarked on an Australasian-wide search
to ensure that the internal candidates
were benchmarked against the best
available externally before coming up
with a short-list of suitable candidates for
Board consideration.
At the same time, the Committee
was also charged with identifying
and recommending to the Board the
appointment of another non-executive
Director to strengthen the level of
independent representation on the
Board and to ensure that the Board
continues to comprise Directors with
the appropriate mix of experience,
qualifications, and skills.
INSIDER TRADING POLICY
The Company adopts the procedure
approved under the Securities Markets Act
1988 and the Insider Trading (Approved
Procedure for Company Officers) Notice
1996 for regulating share trading by
Directors, officers, and employees who
possess inside information.
Under the procedure, Directors,
officers, and employees who possess
inside information are not allowed to
buy or sell shares at any time other than
during the periods commencing with the
announcements of the half year and full
year results and ending on the following
30 April and 30 November respectively.
Within these “windows”, prior consents
of share transactions must be granted by
a sub-committee of the Board, comprising
the Chairman and the Company Secretary
and all such consents must also be
notified to the Board.
Similar restrictions are also in place
to regulate the issue of share rights to
the executive Directors and selected
senior executives of the Group and the
subsequent exercise of share rights by
the executive Directors and selected
senior executives.
CORPORATE GOVERNANCE
C A V A L I E R C O R P O R A T I O N L I M I T E D
24
ANNUAL MEETING
Time and date 11 a.m., Thursday, 4 November 2004
Venue Ellerslie Convention Centre, 80 — 100 Ascot Avenue, Ellerslie, Auckland
CORPORATE CALENDAR
8 October 2004 Payment of 2004 final dividend
4 November 2004 2004 Annual Meeting Announcement of 2005 first interim dividend
Early December 2004 Payment of 2005 first interim dividend
31 December 2004 End of 2005 half year
Mid-February 2005 Announcement of 2005 half year result Announcement of 2005 second interim dividend
End of February 2005 Release of 2005 half year report
Early March 2005 Payment of 2005 second interim dividend
30 June 2005 End of 2005 financial year
Late August 2005 Announcement of 2005 annual result Announcement of 2005 final dividend
End of September 2005 Release of 2005 Annual Report
Early October 2005 Payment of 2005 final dividend
DIVIDENDS
The Company pays three dividends every financial year. These are as follows:¬ the previous financial year’s final dividend, announced together with the annual result in late August and payable
in early October¬ that financial year’s first interim dividend, announced at the Annual Meeting in early November and payable in
early December¬ that financial year’s second interim dividend, announced together with the half year result in mid-February and payable
in early March
The Directors do not expect the Company’s ability to pay fully imputed dividends to change in the foreseeable future.
The Directors are permitted by the Constitution of the Company to exercise the right conferred by the Companies Act 1993 to issue shares to shareholders who have agreed to accept shares, either wholly or in part, in lieu of proposed dividends or proposed future dividends. The Directors have decided not to exercise this right at the present time, and shareholders will be advised should this change.
Shareholders can elect to have their dividends paid by cheque or by direct credit to their nominated bank accounts in New Zealand, and the Directors strongly encourage shareholders to avail themselves of the latter option.
SHAREHOLDER ENQUIRIES
Enquiries regarding such matters as dividend payments, shareholdings, FASTER transaction statements and Identification Numbers, and changes of addresses should be directed to the Company’s share registrar, Computershare Investor Services Limited, details of which can be found in the Corporate Directory (refer to page 60 of the Annual Report).
SHAREHOLDER INFORMATION
SHAREHOLDERINFORMATIONS H A R E H O L D E R R E T U R NP E R F O R M A N C E
25
C A V A L I E R C O R P O R A T I O N L I M I T E D
SHARE PRICE — LAST FIVE YEARS
SHARE PRICE AND KEY EVENTS — LAST THREE YEARS
8
3.55.75 8.75
4.5 7.5
134.5
8
JUN
01
AUG
01
OC
T 01
DEC
01
FEB
02
APR
02
JUN
02
AUG
02
OC
T 02
DEC
02
FEB
03
APR
03
JUN
03
AUG
03
OC
T 03
DEC
03
FEB
04
APR
04
JUN
04
AUG
04
(27A
UG
04)
1
2
3
4
5
6
EX 2:1 SHARE SPLIT
DENOTES EX DATE AND AMOUNT (CENTS PER SHARE) OF DIVIDEND
8KEY:
EX 1:8 SHARE CANCELLATION AND PAYMENT OF $2.80 PER
SHARE CANCELLED
$ PE
R SH
ARE
$ PE
R SH
ARE
SEP
99
(27A
UG
04)
6
5
4
3
2
1
AUG
00
AUG
01
AUG
02
AUG
03
AUG
04
SHAREHOLDER INFORMATION
C A V A L I E R C O R P O R A T I O N L I M I T E D
26 ##FOOTER##
O U R C O M M I T M E N T
¬ MAXIMISING RETURNS TO SHAREHOLDERS BY
ACHIEVING SUPERIOR PROFIT PERFORMANCE IN OUR
BUSINESSES AND BY INVESTING AT RETURNS IN
EXCESS OF THE COST OF CAPITAL
¬ MAINTAINING MARKET LEADERSHIP BY FOCUSING ON
BRAND VALUES, SUPERIOR PRODUCT QUALITY AND
INNOVATION, AND OUTSTANDING CUSTOMER SERVICE
¬ FOSTERING AN ORGANISATIONAL CULTURE
DEDICATED TO CONTINUOUS IMPROVEMENT AND
COST EFFICIENCY AND BEING THE MOST PREFERRED
SUPPLIER IN ALL MARKETS AND MARKET SEGMENTS
IN WHICH WE OPERATE
¬ CONDUCTING BUSINESS WITH CONSISTENCY AND
ABSOLUTE INTEGRITY AT ALL TIMES
27##FOOTER##
C A V A L I E R C O R P O R A T I O N L I M I T E DC A V A L I E R C O R P O R A T I O N L I M I T E D & S U B S I D I A R Y C O M P A N I E S
FINANCIAL STATEMENTS
Audit Report 28
Directors’ Responsibility Statement 29
Statement of Accounting Policies 30
Statements of Financial Performance 32
Statements of Movements in Equity 33
Statements of Financial Position 34
Statements of Cash Flows 35
Notes to the Financial Statements 36
TREND STATEMENT 49
GLOSSARY OF FINANCIAL TERMS 51
OTHER DISCLOSURES
Disclosures under the Companies Act 1993 52
Disclosures under the New Zealand Exchange Listing Rules 57
Disclosures under the Securities Markets Act 1988 59
CORPORATE DIRECTORY 60
“
WAYNE CHUNG, MANAGING DIRECTOR
”
Consistent financial results are not achieved in
isolation. They are part of a whole — the result of
many events and decisions, many connnetions.
FINANCIALSTATEMENTSA N D O T H E R D I S C L O S U R E S
C A V A L I E R C O R P O R A T I O N L I M I T E D
28 ##FOOTER##
C A V A L I E R C O R P O R A T I O N L I M I T E D & S U B S I D I A R Y C O M P A N I E S
28
TO THE SHAREHOLDERS OF CAVALIER CORPORATION LIMITED
We have audited the financial statements on pages 30 to 48. The financial statements provide information about the past
financial performance and financial position of the Company and Group as at 30 June 2004. This information is stated in
accordance with the accounting policies set out on pages 30 and 31.
DIRECTORS’ RESPONSIBILITIES
The Directors are responsible for the preparation of financial statements which give a true and fair view of the financial
position of the Company and Group as at 30 June 2004 and the results of their operations and cash flows for the year ended
on that date.
AUDITORS’ RESPONSIBILITIES
It is our responsibility to express an independent opinion on the financial statements presented by the Directors and report
our opinion to you.
BASIS OF OPINION
An audit includes examining, on a test basis, evidence relevant to the amounts and disclosures in the financial statements. It
also includes assessing:
– the significant estimates and judgements made by the Directors in the preparation of the financial statements;
– whether the accounting policies are appropriate to the Company’s and Group’s circumstances, consistently applied and
adequately disclosed.
We conducted our audit in accordance with New Zealand Auditing Standards issued by the Institute of Chartered
Accountants of New Zealand. We planned and performed our audit so as to obtain all the information and explanations
which we considered necessary in order to provide us with sufficient evidence to obtain reasonable assurance that the financial
statements are free from material misstatements, whether caused by fraud or error. In forming our opinion, we also evaluated
the overall adequacy of the presentation of information in the financial statements.
Our firm has also provided other services to the Company and certain of its subsidiaries in relation to taxation services. These
matters have not impaired our independence as auditors of the Company and Group. The firm has no other relationship with,
or interest in, the Company or any of its subsidiaries.
UNQUALIFIED OPINION
We have obtained all the information and explanations we have required.
In our opinion:
– proper accounting records have been kept by the Company as far as appears from our examination of those records;
– the financial statements on pages 30 to 48:
– comply with New Zealand generally accepted accounting practice;
– give a true and fair view of the financial position of the Company and Group as at 30 June 2004 and the results of
their operations and cash flows for the year ended on that date.
Our audit was completed on 20 August 2004 and our unqualified opinion is expressed as at that date.
Auckland
AUDIT REPORT
AUDIT REPORT
29
C A V A L I E R C O R P O R A T I O N L I M I T E D & S U B S I D I A R Y C O M P A N I E S
DIRECTORS’ RESPONSIBILITY STATEMENT
DIRECTORS’ RESPONSIBILITIES
The Directors are responsible for the preparation of the 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 Company and Group as at balance date and of their financial performance 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 financial statements of the Company and
Group 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 Company and Group and facilitate the compliance of the financial statements with the Financial
Reporting Act 1993, have been kept.
SAFEGUARDING OF ASSETS AND INTERNAL CONTROLS
The Directors consider that they have taken adequate steps to safeguard the assets of the Company and 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 are pleased to present, on pages 30 to 48, the financial statements of the Company and Group for the year ended
30 June 2004.
These financial statements were authorised for issue by the Directors on 20 August 2004 and, as required by section 211(1)(b)
of the Companies Act 1993 and sections 10 and 13 of the Financial Reporting Act 1993, are signed and dated as at that date.
For and on behalf of the Directors:
A M JAMES W K CHUNG
Chairman Managing Director
DIRECTORS’ RESPONSIBILITY STATEMENT
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STATEMENT OF ACCOUNTING POLICIES
REPORTING ENTITY
Cavalier Corporation Limited is a company registered under the New Zealand Companies Act 1993 and is listed on the New Zealand Exchange. The Group consists of Cavalier Corporation Limited and its subsidiaries. Cavalier Corporation Limited is an issuer for the purposes of the New Zealand Financial Reporting Act 1993 and is, accordingly, a reporting entity that is required to comply with the provisions of that Act and with generally accepted accounting practice.
MEASUREMENT BASE
The accounting principles recognised as appropriate for the measurement and reporting of financial performance and financial position under the historical cost method have been adopted in the preparation of these financial statements, except where modified by the revaluation of certain assets. Reliance is placed on the fact that the Group is a going concern.
ACCOUNTING POLICIES
The following specific accounting policies which significantly affect the measurement of financial performance and financial position have been applied:
1 Principles of Consolidation. The consolidated financial statements are prepared from the audited financial statements of the Company and its subsidiary companies.
The results of any subsidiaries acquired or disposed of during the year are included in the consolidated Statement of Financial Performance from the date of acquisition or up to the date of disposal. All significant transactions between group companies are eliminated on consolidation.
2 Operating Revenue. Operating revenue shown in the Statement of Financial Performance includes the amounts received and receivable by the Group for goods and services supplied to customers in the ordinary course of business. Operating revenue is stated exclusive of Goods and Services Tax charged to customers.
3 Fixed Assets. Fixed assets are stated in the financial statements at their gross carrying amount less depreciation.
Gross carrying amount of a fixed asset is either the initial cost or the revalued amount, adjusted for additions, improvements, and disposals and is the recoverable amount where this is lower than the initial cost or the revalued amount.
4 Depreciation. Depreciation is charged so as to write off the initial cost or revalued amount of fixed assets to their estimated residual value over their expected economic lives.
The principal rates used are as follows: Land Nil Buildings 1.0-2.5% straight line Plant and equipment 6.7-10.0% straight line Other assets – computer equipment 20.0-25.0% straight line – motor vehicles and office equipment 20.0% diminishing value – fixtures and fittings 10.0% straight line
5 Goodwill Arising on Acquisition. The excess of the cost of acquisition over the fair value of the identifiable net assets acquired is capitalised as goodwill and is amortised to the Statement of Financial Performance over 10 years, the period over which the benefits associated with the acquisition are expected to be derived.
6 Discount on Acquisition. A discount arising on the acquisition of a subsidiary represents the excess of the fair value of the identifiable net assets acquired over the purchase consideration. The discount is first applied in reducing the fair values of the non-monetary assets acquired, and any amount remaining is recognised in the Statement of Financial Performance.
7 Debtors. Trade debtors are stated at estimated realisable value after providing against debts where collection is doubtful. Hire purchase debtors are stated at net of provisions for unearned finance income and doubtful debts.
8 Unearned Finance Income. Unearned finance income in respect of hire purchase debtors is recognised in the Statement of Financial Performance using the “rule of 78” on the net hire purchase debtors outstanding.
9 Research and Development Expenditure. Research and development expenditure is charged to the Statement of Financial Performance as it is incurred, except that development costs, for clearly defined products, are capitalised to the extent that related future economic benefits, net of further costs to final commercialisation, are expected, with reasonable certainty, to exceed these costs. Capitalised development costs will, upon the commencement of commercial production, be progressively amortised to the Statement of Financial Performance over the period of expected benefit.
STATEMENT OF ACCOUNTING POLICIES
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10 Stocks. Stocks of the carpet business are stated at the lower of cost and net realisable value. Cost is determined on a first-in first-out basis, and in the case of carpet stocks, includes direct materials, labour, and production overheads. Carpet work-in-progress includes direct materials and a portion of direct labour and production overheads appropriate to the stage of completion attained.
Stocks of the wool business are stated at the lower of cost and net realisable value. Cost of wool stocks is determined using the weighted average cost formula, and in the case of scoured wool stocks, includes direct materials, labour, and production overheads. Wool work-in-progress includes direct materials and a portion of direct labour and production overheads appropriate to the stage of completion attained. Cost of all other stocks is determined on a first-in first-out basis.
11 Shareholders’ Equity. When shares recognised within shareholders’ equity are repurchased or cancelled, the amount of consideration paid, including directly attributable costs, is recognised as a distribution in the Statement of Movements in Equity.
12 Share Rights. The estimated fair value of rights issued to senior executives under the Cavalier Corporation Limited 2000 Executive Share Rights Plan is recognised as an expense over the minimum three-year period between the issue date of the rights and the earliest exercise date of the rights. At the same time, a corresponding amount is recognised as a credit to equity in the Statement of Movements in Equity. The estimated fair value of the rights issued is determined using the Black-Scholes option pricing model.
Where rights lapse before they can be exercised, the amounts previously recognised as expenses are reversed and a corresponding debit against equity is recognised in the Statement of Movements in Equity.
The market value of shares issued to the senior executives upon the exercise of the rights will be accounted for within shareholders’ equity.
13 Income Tax. The income tax expense for the year comprises income tax payable, calculated at current rates, on assessable income for the year, adjusted for income taxes deferred or prepaid in respect of all timing differences reversing or originating in the year.
The liability method of tax effect accounting is applied on a comprehensive basis to all timing differences. Under this method, the income tax effects of all currently outstanding timing differences are determined and reported, either as liabilities for income tax payable in the future or as assets representing future income tax benefits. The income tax effect of cumulative timing differences is adjusted for any changes in income tax rates.
Future income tax benefits are not recognised unless realisation of the asset is virtually certain.
14 Foreign Currencies. Foreign currency transactions, including those of foreign operations, are recorded at the exchange rates in effect at the dates of the transactions, except where foreign currency forward exchange contracts have been taken out to cover forward currency commitments. Where foreign currency forward exchange contracts have been taken out, the transactions are translated at the rates contained in the contracts.
Unhedged foreign currency monetary assets and liabilities, including those of foreign operations, are translated to New Zealand dollars at the rates of exchange ruling at balance date. Profits and losses due to currency fluctuations on these items are recognised by way of a credit or charge in the Statement of Financial Performance.
Foreign currency non-monetary assets, including those of foreign operations, are converted to New Zealand dollars at the rates of exchange in effect when the amounts of these assets were determined.
Where foreign currency monetary liabilities are designated as hedges against foreign currency non-monetary assets, the assets are translated at the rates of exchange ruling at balance date, and the gains or losses due to currency fluctuations on both the foreign currency liabilities and assets are transferred to the foreign currency translation reserve.
15 Financial Instruments. Off balance sheet financial instruments, entered into as hedges of an underlying position, are accounted for on the same basis as the underlying position with all profits and losses dealt with in the same manner as the corresponding profits and losses on the related underlying position.
Off balance sheet financial instruments, entered into with no corresponding underlying position, are accounted for on a mark-to-market basis and the profits or losses recognised by way of a credit or charge in the Statement of Financial Performance.
CHANGES IN ACCOUNTING POLICIES
There have been no changes in accounting policies.
STATEMENT OF ACCOUNTING POLICIES
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GROUP PARENT 2004 2003 2004 2003 NOTES $000 $000 $000 $000
OPERATING REVENUE
From continuing activities 2 198,633 193,199 19,225 18,475
From discontinued activities 2 - 23 - -
$198,633 $193,222 $19,225 $18,475
OPERATING SURPLUS BEFORE INTEREST AND INCOME TAX
From continuing activities 3 34,097 29,942 14,046 14,204
From discontinued activities 3 176 353 - -
34,273 30,295 14,046 14,204
Net Interest Expense (2,079) (1,979) - -
OPERATING SURPLUS BEFORE INCOME TAX 32,194 28,316 14,046 14,204
Income Tax Expense 4 (10,761) (9,460) (61) (104)
OPERATING SURPLUS AFTER INCOME TAX $21,433 $18,856 $13,985 $14,100
OPERATING SURPLUS AFTER INCOME TAX:
Attributable to shareholders of the Company 21,011 18,263 13,985 14,100
Attributable to minority shareholders of subsidiaries 422 593 - -
$21,433 $18,856 $13,985 $14,100
OPERATING SURPLUS AFTER INCOME TAX:
From continuing activities 21,315 18,619 13,985 14,100
From discontinued activities 118 237 - -
$21,433 $18,856 $13,985 $14,100
These statements are to be read in conjunction with the Statement of Accounting Policies on pages 30 and 31,
the Notes on pages 36 to 48, and the Audit Report on page 28.
STATEMENTS OF FINANCIAL PERFORMANCEF O R T H E Y E A R E N D E D 3 0 J U N E 2 0 0 4
STATEMENTS OF FINANCIAL PERFORMANCE
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GROUP PARENT 2004 2003 2004 2003 NOTES $000 $000 $000 $000
RECOGNISED REVENUES AND EXPENSES FOR THE YEAR
Operating surplus after income tax –
of shareholders of the Company 21,011 18,263 13,985 14,100
of minority shareholders of subsidiaries 422 593 - -
Foreign currency translation reserve 6 (194) (17) - -
Share rights reserve 6 100 113 100 113
21,339 18,952 14,085 14,213
CONTRIBUTIONS FROM OWNERS DURING THE YEAR
Minority shareholders of subsidiary - 244 - -
- 244 - -
DISTRIBUTIONS TO OWNERS DURING THE YEAR
Minority shareholders of subsidiary -
purchase of shares in subsidiary 1 (639) - - -
dividends paid by subsidiary (227) (600) - -
Shareholders of the Company -
previous year’s final dividend (8,188) (5,511) (8,188) (5,511)
current year’s 1st interim dividend (2,921) (2,834) (2,921) (2,834)
current year’s 2nd interim dividend (5,193) (4,724) (5,193) (4,724)
(17,168) (13,669) (16,302) (13,069)
MOVEMENTS IN EQUITY FOR THE YEAR $4,171 $5,527 $(2,217) $1,144
EQUITY AT BEGINNING OF THE YEAR:
Attributable to shareholders of the Company 61,981 56,691 25,794 24,650
Attributable to minority shareholders of subsidiary 1,245 1,008 - -
$63,226 $57,699 $25,794 $24,650
EQUITY AT END OF THE YEAR:
Attributable to shareholders of the Company 66,596 61,981 23,577 25,794
Attributable to minority shareholders of subsidiaries 801 1,245 - -
$67,397 $63,226 $23,577 $25,794
These statements are to be read in conjunction with the Statement of Accounting Policies on pages 30 and 31,
the Notes on pages 36 to 48, and the Audit Report on page 28.
STATEMENTS OF MOVEMENTS IN EQUITYF O R T H E Y E A R E N D E D 3 0 J U N E 2 0 0 4
STATEMENTS OF MOVEMENTS IN EQUITY
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GROUP PARENT 2004 2003 2004 2003 NOTES $000 $000 $000 $000
Shareholders’ equity 5, 6, 7
Attributable to shareholders of the Company 66,596 61,981 23,577 25,794
Attributable to minority shareholders of subsidiaries 801 1,245 - -
SHAREHOLDERS’ EQUITY 67,397 63,226 23,577 25,794
Term liabilities 8 37,288 28,566 - -
Current liabilities 9 25,054 23,718 19,713 16,225
SHAREHOLDERS’ EQUITY AND TOTAL LIABILITIES $129,739 $115,510 $43,290 $42,019
Fixed assets 10 52,373 41,259 - -
Investments 11 - - 24,590 24,590
Goodwill 12 2,866 2,080 - -
Development expenditure 13 5,825 4,716 - -
Term receivables 14 126 139 - -
Deferred tax asset 15 1,588 1,332 23 22
NON-CURRENT ASSETS 62,778 49,526 24,613 24,612
Current assets 16 66,961 65,984 18,677 17,407
TOTAL ASSETS $129,739 $115,510 $43,290 $42,019
These statements are to be read in conjunction with the Statement of Accounting Policies on pages 30 and 31,
the Notes on pages 36 to 48, and the Audit Report on page 28.
STATEMENTS OF FINANCIAL POSITIONA S AT 3 0 J U N E 2 0 0 4
STATEMENTS OF FINANCIAL POSITION
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GROUP PARENT 2004 2003 2004 2003 NOTES $000 $000 $000 $000
CASH FLOWS FROM OPERATING ACTIVITIES
CASH WAS PROVIDED FROM:
Receipts from sales of goods and services 196,786 194,770 - -
Other receipts 39 48 5,225 4,475
Dividends received 2 1 14,000 14,000
Interest received 148 113 - -
GST refunded - 1,136 - -
CASH WAS APPLIED TO:
Payments to suppliers and employees
and rebates and discounts to customers (162,008) (163,423) (5,067) (4,144)
Income tax paid/refunded (8,850) (7,516) (234) (301)
Interest paid (2,217) (2,196) - -
GST paid (267) - - -
NET CASH INFLOW FROM OPERATING ACTIVITIES 17 23,633 22,933 13,924 14,030
CASH FLOWS FROM INVESTING ACTIVITIES
CASH WAS PROVIDED FROM:
Fixed assets sold 276 81 - -
CASH WAS APPLIED TO:
Acquisition of shares in subsidiary 1 (1,855) (704) - (2,050)
Fixed assets purchased (15,160) (3,515) - -
NET CASH OUTFLOW FROM INVESTING ACTIVITIES (16,739) (4,138) - (2,050)
CASH FLOWS FROM FINANCING ACTIVITIES
CASH WAS PROVIDED FROM:
Minority shareholders of subsidiary - 244 - -
Term loans raised 8,981 - - -
Advances from subsidiaries - - 3,533 3,759
CASH WAS APPLIED TO:
Advances to subsidiaries - - (1,155) (2,670)
Term loans settled - (2,641) - -
Dividends paid –
to shareholders of the Company (16,302) (13,069) (16,302) (13,069)
to minority shareholders of subsidiary (227) (600) - -
NET CASH OUTFLOW FROM FINANCING ACTIVITIES (7,548) (16,066) (13,924) (11,980)
NET INCREASE/(DECREASE) IN CASH HELD (654) 2,729 - -
Cash at beginning of the year (1,443) (4,147) 2 2
Effect of exchange rate changes on cash 19 (25) - -
CASH AT END OF THE YEAR 17 $(2,078) $(1,443) $2 $2
These statements are to be read in conjunction with the Statement of Accounting Policies on pages 30 and 31,
the Notes on pages 36 to 48, and the Audit Report on page 28.
STATEMENTS OF CASH FLOWSF O R T H E Y E A R E N D E D 3 0 J U N E 2 0 0 4
STATEMENTS OF CASH FLOWS
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1 PRINCIPAL SUBSIDIARIES AND ACTIVITIES
The principal subsidiaries of the Company and their activities are: Cavalier Bremworth Limited – broadloom carpet manufacturing and distribution Cavalier Bremworth Proprietary Limited – broadloom carpet distribution Knightsbridge Carpets Limited – broadloom carpet distribution Kimberley Carpets Proprietary Limited – broadloom carpet distribution Cavalier Spinners Limited – carpet yarn manufacturing Ontera Modular Carpets Proprietary Limited – carpet tile manufacturing and distribution Hawkes Bay Woolscourers Limited – commission wool scouring Elco Direct Limited – wool procurement Microbial Technologies Limited – bio-pesticides development
All subsidiaries have 30 June balance dates. Apart from Ontera Modular Carpets Proprietary Limited, which is 89.5% owned, and Hawkes Bay Woolscourers Limited, which is 92.5% owned, all other subsidiaries are wholly owned. Voting interests in the two non-wholly owned subsidiaries are the same as the ownership interests.
The Group’s principal activities comprise a broadloom carpet business, a carpet tile business, a commission wool scouring business, and a wool procurement business.
Cavalier Bremworth, the broadloom carpet business, operates two woollen yarn spinning plants and a carpet plant - all New Zealand-based - and has major distribution centres in Auckland and Sydney and sales offices throughout New Zealand and Australia and in Hong Kong. It has agents or distributors in the USA, Canada, the UK, the Middle East, and throughout Asia. The business markets carpet under the Bremworth, Cavalier Bremworth, Knightsbridge, Kimberley, and Tramore brands. Sydney-based Ontera Modular Carpets is Australasia’s manufacturer and marketer of carpet tiles and has sales operations in both New Zealand and Australia.
Hawkes Bay Woolscourers, the commission wool scouring business, provides a commission wool scouring service for the wool exporting industry and scours all of the Group’s carpet wool requirements. Likewise, Elco Direct, the wool procurement business, is a service provider to both the wool industry and the Group’s carpet business.
The Group is also engaged in a developmental venture through its subsidiary, Microbial Technologies Limited. The venture involves the utilisation of a natural biological agent for the control of flystrike and lice infestations in sheep.
The Group increased its ownership and voting interest in Hawkes Bay Woolscourers Limited from 76% to 92.5% with effect from 1 July 2003 for a cash consideration of $1,855,000. The effect of this acquisition can be summarised as follows:
$000
Non-current assets 1,126
Current assets 374
Term liabilities (710)
Current liabilities (151)
Net assets acquired 639
Goodwill on acquisition 1,216
Consideration paid $1,855
NOTES TO THE FINANCIAL STATEMENTS
NOTES TO THE FINANCIAL STATEMENTS
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GROUP PARENT 2004 2003 2004 2003 $000 $000 $000 $000
2 OPERATING REVENUE
Operating revenue as per the Statement
of Financial Performance comprises:
CONTINUING ACTIVITIES
Sales of goods and services 198,444 193,037 - -
Rentals received 39 48 - -
Dividends received 2 1 14,000 14,000
Interest received 148 113 - -
Management fee received - - 5,225 4,475
$198,633 $193,199 $19,225 $18,475
DISCONTINUED ACTIVITIES
Sales of goods - $23 - -
3 OPERATING SURPLUS BEFORE INTEREST AND INCOME TAX
The operating surplus before interest and income tax as
per the Statement of Financial Performance is stated:
CONTINUING ACTIVITIES
AFTER CHARGING -
Fees paid to the auditors:
for audit of financial statements 56 48 6 6
for tax compliance services 26 30 - -
Fees paid to auditors of subsidiaries 51 52 - -
Amortisation of goodwill 430 308 - -
Bad debts written off 19 - - -
Changes in doubtful debt provision - 3 - -
Depreciation
Buildings 277 246
Plant and equipment 2,131 2,449
Other fixed assets 1,102 865
Total depreciation charge 3,510 3,560 - -
Directors’ fees 160 143 160 143
Donations 1 4 - -
Loss on sale of fixed assets 71 95 - -
Operating lease and rental costs 2,430 2,356 - -
AFTER CREDITING -
Changes in doubtful debt provision 179 - - -
Foreign currency gains 40 13 - -
Gain on sale of fixed assets 53 7 - -
DISCONTINUED ACTIVITIES
AFTER CREDITING -
Bad debts recovered 136 - - -
Changes in doubtful debt provision - 371 - -
NOTES TO THE FINANCIAL STATEMENTS
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GROUP PARENT 2004 2003 2004 2003 $000 $000 $000 $000
4 INCOME TAX EXPENSE
Operating surplus before income tax as
per the Statement of Financial Performance $32,194 $28,316 $14,046 $14,204
THE INCOME TAX EXPENSE HAS BEEN CALCULATED AS FOLLOWS:
Income tax on the operating surplus for the year at 33% (10,624) (9,344) (4,635) (4,687)
Plus/(Less) taxation effect of:
Depreciation on revaluations (17) (17) - -
Dividends received - - 4,620 4,620
Non-deductible items (202) (176) (40) (37)
Non-assessable items - - - -
Difference in tax rate in overseas jurisdictions 99 74 - -
Prior year adjustments (17) 3 (6) -
(137) (116) 4,574 4,583
Income tax expense $(10,761) $(9,460) $(61) $(104)
THE INCOME TAX EXPENSE IS REPRESENTED BY:
Current tax (11,033) (8,440) (62) (104)
Deferred tax 272 (1,020) 1 -
$(10,761) $(9,460) $(61) $(104)
5 SHAREHOLDERS’ EQUITY
There is only one class of share in the Company. The number of shares on issue at 30 June 2004 was 64,914,551, fully paid up (2003 62,981,220, fully paid up). All shares within this class rank pari passu in all respects.
1,933,331 fully paid up shares were issued during the year under the terms of the Cavalier Corporation Limited 2000 Executive Share Rights Plan, the details of which are set out in note 7.
GROUP PARENT 2004 2003 2004 2003 $000 $000 $000 $000
6 RESERVES
Included within shareholders’ equity are the following reserves:
FOREIGN CURRENCY TRANSLATION RESERVE
Balance at beginning of the year (17) - - -
Difference arising on translation of independent
foreign operations (194) (17) - -
Balance at end of the year $(211) $(17) - -
SHARE RIGHTS RESERVE
Balance at beginning of the year 232 119 232 119
Amount transferred to capital consequent upon
the exercise of rights relating thereto (191) - (191) -
Corresponding amount of fair value of rights
expensed in the Statement of Financial Performance 100 113 100 113
Balance at end of the year $141 $232 $141 $232
NOTES TO THE FINANCIAL STATEMENTS (CONTINUED)
NOTES TO THE FINANCIAL STATEMENTS
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7 EXECUTIVE SHARE RIGHTS PLAN
The details of share rights issued under the Cavalier Corporation Limited 2000 Executive Share Rights Plan (“the Plan”) to the executive Directors of the Company and to selected senior executives of the Group were as follows:
PARENT 2004 2003 000 000
Share rights issued at beginning of the year 7,100 5,080
Share rights issued during the year 500 2,020
Share rights exercised during the year (3,480) -
Share rights issued at end of the year 4,120 7,100
Share rights approved but not issued 1,365 1,865
The Plan seeks to align the interests of senior executives with those of shareholders by having an element of the senior executives’ total remuneration linked to the returns enjoyed by shareholders, thereby providing them with the incentive to increase value for shareholders. At the same time, because the rewards under the Plan would not crystallise for at least three years, it also enables the Group to retain these senior executives for their loyalty, experience, and continuing performance.
The rights holders’ rewards under the Plan will be determined on the exercise date by multiplying the difference between the market price of the Company’s shares and the adjusted base price at exercise date by the number of rights exercised at that date. These rewards are then divided by the market price of the Company’s shares at exercise date to give the number of shares to be issued to the holders, subject to a maximum of one share for every 1.8 rights exercised.
The adjusted base price is the market price of the Company’s shares at issue date plus an escalation factor, being the Company’s tax paid cost of equity capital between issue date and exercise date, and then adjusted downwards for dividends paid between these two dates.
The market prices of the Company’s shares at the issue dates of 9 November 2001, 4 December 2002, 21 March 2003, and 14 November 2003 were $2.83, $3.11, $3.91, and $5.02 per share respectively.
Based on the current dividend policy of the Company, the rights holders’ rewards under various market price scenarios at the earliest possible exercise date of 9 November 2004 in respect of the 1,600,000 rights issued on 9 November 2001 can be best illustrated thus:
SCENARIO 1 SCENARIO 2 SCENARIO 31
Market price (A) at exercise date $3.00 or less $5.00 $6.75
Estimated adjusted base price (B) at exercise date $3.00 $3.00 $3.00
Rights holders’ rewards (being (A-B) x 1,600,000 Nil $3,200,000 $6,000,000
rights issued on 9 November 2001)
Number of shares to be issued (being rights holders’ rewards Nil 640,000 888,889
divided by market price), subject to maximum of one share
for every 1.8 rights or 888,889 shares
Dilution effect (maximum 1.4%, when market price Nil 1.0% 1.4%
reaches $6.75 at exercise date)
1 Market price at which the maximum number of shares are issued and maximum dilution is reached.
The rights can only be exercised in the period commencing on the third anniversary of the issue date, unless the Board of Directors determines otherwise, and terminating on the earlier of the rights holder ceasing full time employment or the date six years from issue date and then only if the market price of the Company’s shares exceeds the adjusted base price at that time.
The rights holders are restricted from dealing with some of the shares issued under the Plan in the first two years after their issue.
NOTES TO THE FINANCIAL STATEMENTS
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7 EXECUTIVE SHARE RIGHTS PLAN (continued)
The rights do not confer the same rights as shares and merely holding rights does not entitle the rights holders to:– receive any dividends paid,– attend or vote at any meeting of the shareholders, or– exercise any other rights which shareholders are entitled to exercise.
On 10 November 2003, 3,480,000 rights, which were issued on 6 December 2000 when the market price of the Company’s shares was $2.13, were exercised pursuant to the terms of the Plan. The market price of the Company’s shares and the adjusted base price at that exercise date were $5.26 and $2.15 respectively, which resulted in the issue of the maximum of one share for every 1.8 rights or 1,933,331 shares.
2004 2003
Average Average GROUP PARENT Interest Interest 2004 2003 2004 2003 Rate % Rate % $000 $000 $000 $000
8 TERM LIABILITIES
Loans secured by registered
mortgages over specific properties
and by debentures over assets and
undertakings of group companies 6.2 5.6 37,288 28,566 - -
Less current portion repayable
within one year1 - - - -
$37,288 $28,566 - -
Term liabilities fall due for repayment
in the following periods:
After one year but within two years $37,288 $28,566 - -
1 Excludes $3.3 million (2003 $6.2 million), which is subject to annual review, as it is anticipated that if required, the Group will be
able to have this renewed for a further term at the next review date.
GROUP PARENT 2004 2003 2004 2003 $000 $000 $000 $000
9 CURRENT LIABILITIES
Bank overdraft (secured) 1,839 1,230 - -
Short-term borrowings (unsecured) 1,655 2,436 - -
Employee entitlements 6,132 6,604 - -
Trade creditors and accruals 14,218 13,448 136 124
Provision for tax 1,210 - - 57
Advances from subsidiaries - - 19,577 16,044
$25,054 $23,718 $19,713 $16,225
The bank overdraft is secured by registered mortgages over specific properties and by debentures over assets and undertakings of group companies.
NOTES TO THE FINANCIAL STATEMENTS (CONTINUED)
NOTES TO THE FINANCIAL STATEMENTS
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GROUP GROUP 2004 2003 COST OR ACCUM. BOOK COST OR ACCUM. BOOK VALUATION DEPN. VALUE VALUATION DEPN. VALUE $000 $000 $000 $000 $000 $000
10 FIXED ASSETS
Freehold land
Cost 4,028 - 4,028 4,167 - 4,167
Valuation 75 - 75 75 - 75
4,103 - 4,103 4,242 - 4,242
Buildings
Cost 18,349 2,372 15,977 15,258 2,126 13,132
Valuation 2,961 490 2,471 2,961 490 2,471
21,310 2,862 18,448 18,219 2,616 15,603
Plant and equipment
Cost 42,193 20,052 22,141 33,486 18,310 15,176
Valuation 4,707 4,707 - 4,707 4,707 -
46,900 24,759 22,141 38,193 23,017 15,176
Other fixed assets
Cost 15,306 7,625 7,681 12,550 6,312 6,238
Valuation 324 324 - 324 324 -
15,630 7,949 7,681 12,874 6,636 6,238
$87,943 $35,570 $52,373 $73,528 $32,269 $41,259
These assets are charged by registered mortgages and debentures as security for the Group’s secured borrowings.
Other fixed assets consist of plant and equipment associated with the Microbial developmental project of $1,734,000 (2003 $1,716,000), motor vehicles, office equipment, computer equipment, fixtures and fittings, and tools.
The aggregate fair value of land and buildings, based on valuations conducted by independent registered valuers in the current financial year, was $23,788,000.
PARENT 2004 2003 000 000
11 INVESTMENTS
Shares in subsidiaries $24,590 $24,590
GROUP PARENT 2004 2003 2004 2003 $000 $000 $000 $000
12 GOODWILL
Balance at beginning of the year 2,080 2,388 - -
Goodwill relating to acquisition of 16.5%
of Hawkes Bay Woolscourers Limited 1,216 - - -
Goodwill amortised (430) (308) - -
Balance at end of the year $2,866 $2,080 - -
Gross carrying amount 4,290 3,074 - -
Accumulated amortisation (1,424) (994) - -
Balance at end of the year $2,866 $2,080 - -
NOTES TO THE FINANCIAL STATEMENTS
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GROUP PARENT 2004 2003 2004 2003 $000 $000 $000 $000
13 DEVELOPMENT EXPENDITURE
Balance at beginning of the year 4,716 3,725 - -
Development expenditure capitalised 1,109 991 - -
Balance at end of the year $5,825 $4,716 - -
Capitalised development expenditure relates to the expenditure associated with the Microbial developmental project, a summary of which is set out in note 1 of the Notes to the Financial Statements.
GROUP PARENT 2004 2003 2004 2003 $000 $000 $000 $000
14 TERM RECEIVABLES
Hire purchase debtors 755 732 - -
Provision for unearned finance income (65) (59) - -
Provision for doubtful debts (14) (13) - -
Net hire purchase debtors 676 660 - -
Less current portion repayable within one year (550) (521) - -
Term hire purchase debtors $126 $139 - -
Term hire purchase debtors fall due for
repayment in the following periods:
After one year but within two years $126 $139 - -
These assets are charged by debentures as security for the Group’s secured borrowings.
15 DEFERRED TAX ASSET
Balance at beginning of the year 1,332 1,686 22 22
Acquired on acquisition of subsidiary - 671 - -
Deferred tax portion of income tax expense 272 (1,020) 1 -
Effect of translation of foreign subsidiary (16) (5) - -
Balance at end of the year $1,588 $1,332 $23 $22
16 CURRENT ASSETS
Cash at bank 1,416 2,223 2 2
Trade debtors 26,592 24,668 - -
Other debtors and prepayments 1,173 1,462 - -
Stocks – Raw materials 12,657 13,211
– Work-in-progress 1,424 1,311
– Finished goods 23,699 22,174
– Total 37,780 36,696 - -
Income tax refund - 935 115 -
Advances to subsidiaries - - 18,560 17,405
$66,961 $65,984 $18,677 $17,407
These assets are charged by debentures as security for the Group’s secured borrowings.
NOTES TO THE FINANCIAL STATEMENTS (CONTINUED)
NOTES TO THE FINANCIAL STATEMENTS
43
C A V A L I E R C O R P O R A T I O N L I M I T E D & S U B S I D I A R Y C O M P A N I E S
GROUP PARENT 2004 2003 2004 2003 $000 $000 $000 $000
17 CASH FLOWS
Cash comprises cash at bank, bank overdraft,
and short-term borrowings as follows:
Cash at bank 1,416 2,223 2 2
Bank overdraft (1,839) (1,230) - -
Short-term borrowings (1,655) (2,436) - -
Cash at end of the year $(2,078) $(1,443) $2 $2
Investing activities comprise the purchase and sale of non-current assets used in the operations of the Group. All investing activities during the year were for cash.
Financing activities comprise the change in the equity and debt capital structure and the cost of servicing that equity capital. All financing activities during the year were for cash.
THE OPERATING SURPLUS AFTER TAX CAN BE RECONCILED WITH
THE NET CASH INFLOW FROM OPERATING ACTIVITIES AS FOLLOWS:
Operating surplus after tax as per the
Statement of Financial Performance 21,433 18,856 13,985 14,100
Adjust for non-cash items:
Depreciation 3,510 3,560 - -
Amortisation of goodwill 430 308 - -
Fair value of share rights expensed 100 113 100 113
Movements in deferred tax (272) 1,020 (1) -
Net (gain)/loss on foreign currency balance (40) (13) - -
3,728 4,988 99 113
Adjust for movements in non-current assets:
Development expenditure (1,109) (991) - -
Term receivables 13 (26) - -
(1,096) (1,017) - -
Adjust for movements in working capital items:
Trade debtors (2,162) 1,472 - -
Other debtors and prepayments 275 1,692 - -
Stocks (1,237) (4,774) - -
Income tax refund/Provision for tax 2,175 926 (172) (197)
Employee entitlements (461) 898 - -
Trade creditors and accruals 960 (196) 12 14
(450) 18 (160) (183)
Adjust for items classified as investing activities:
Net (gain)/loss on sale of fixed assets 18 88 - -
Net cash inflow from operating activities $23,633 $22,933 $13,924 $14,030
NOTES TO THE FINANCIAL STATEMENTS
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18 FINANCIAL REPORTING FOR SEGMENTS
The Group operates in two industry segments – carpet and wool. The carpet operation is involved with the manufacturing and sales of the Bremworth, Cavalier Bremworth, Knightsbridge, Kimberley, Tramore, and Ontera brands of carpet. The wool operation (continuing) is involved with the procurement and processing of raw wool. The wool operation (discontinued) was involved with wool trading and the wool processing previously conducted out of the Auckland scour of E Lichtenstein and Company Limited. The scour was closed in November 2000 and all wool trading activities were completed at 30 June 2001. The residual activities of that discontinued operation, which were all completed at balance date, have been disclosed under that segment.
For financial reporting purposes, statement of standard accounting practice SSAP-23 treats the Group as having its operations in two geographical segments – New Zealand and Australia. The New Zealand geographical segment comprises the activities of the Cavalier Bremworth carpet operation, which covers the manufacturing and sales of the Bremworth, Cavalier Bremworth, Knightsbridge, Kimberley, and Tramore brands of carpet, and the wool operations. The Australian geographical segment comprises the activities of Sydney-based Ontera Modular Carpets, which the Group acquired on 1 July 2002. The Australian activities of the Cavalier Bremworth carpet operation do not extend beyond facilitating export sales from New Zealand and are therefore classified as activities of the New Zealand geographical segment in accordance with SSAP-23.
All inter-segmental sales are at market prices. Inter-segmental sales during the period and intercompany profits on stocks at balance date are eliminated on consolidation.
The industry and geographical segmental information is set out on the following pages.
INDUSTRY SEGMENTAL INFORMATION WOOL WOOL CONSOLIDATION CARPET (CONTINUING) (DISCONTINUED) ADJUSTMENTS CONSOLIDATED 2004 2003 2004 2003 2004 2003 2004 2003 2004 2003 $000 $000 $000 $000 $000 $000 $000 $000 $000 $000
SEGMENT REVENUE
Revenue derivedoutside the Group 155,414 148,797 43,071 44,289 - 23 - - 198,485 193,109Inter-segmentrevenue - - 7,421 10,016 - - (7,421) (10,016) - -Interest received 148 113 - - - - - - 148 113Total revenue $198,633 $193,222
SEGMENT RESULTS
Operating surplusbefore corporatecosts, interest, andincome tax 32,212 28,089 3,968 3,807 176 353 76 (105) 36,432 32,144Corporate costs (2,159) (1,849)Net interest expense (2,079) (1,979)Operating surplusbefore income tax $32,194 $28,316
SEGMENT ASSETS
Segment assets 106,014 94,667 18,083 15,926 - 27 - - 124,097 110,620Unallocated assets 5,642 4,890Total assets $129,739 $115,510
OTHER SEGMENT INFORMATION
Depreciation 2,729 2,791 781 769 - - - - $3,510 $3,560
EMPLOYEE NUMBERS
Operations 689 681 96 77 - - - - 785 758Unallocated 3 3Total 788 761
NOTES TO THE FINANCIAL STATEMENTS (CONTINUED)
NOTES TO THE FINANCIAL STATEMENTS
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C A V A L I E R C O R P O R A T I O N L I M I T E D & S U B S I D I A R Y C O M P A N I E S
18 FINANCIAL REPORTING FOR SEGMENTS (continued)
GEOGRAPHICAL SEGMENTAL INFORMATION CONSOLIDATION NEW ZEALAND AUSTRALIA ADJUSTMENTS CONSOLIDATED 2004 2003 2004 2003 2004 2003 2004 2003 $000 $000 $000 $000 $000 $000 $000 $000
SEGMENT REVENUE
Revenue derived outside the Group 170,921 164,791 27,564 28,318 - - 198,485 193,109Inter-segment revenue - - - - - - - -Interest received 148 113 - - - - 148 113Total revenue $198,633 $193,222
SEGMENT RESULTS
Operating surplus before corporatecosts, interest and income tax 32,939 29,433 3,493 2,711 - - 36,432 32,144Corporate costs (2,159) (1,849)Net interest expense (2,079) (1,979)
Operating surplus before income tax $32,194 $28,316
SEGMENT ASSETS
Segment assets 110,836 100,035 13,261 10,585 - - 124,097 110,620Unallocated assets 5,642 4,890Total assets $129,739 $115,510
OTHER SEGMENT INFORMATION
Depreciation 3,125 3,351 385 209 - - $3,510 $3,560
EMPLOYEE NUMBERS
Operations 715 692 70 66 - - 785 758Unallocated 3 3Total 788 761
GROUP PARENT 2004 2003 2004 2003 $000 $000 $000 $000
19 RELATED PARTY TRANSACTIONS
The unsecured short-term borrowings as
detailed in Note 9 is made up of borrowings
from the following related parties:
Chippendale Holdings Limited 1,655 1,325 - -
A M James and A White-James - 1,111 - -
$1,655 $2,436 - -
These borrowings are repayable on demand. At balance date, the interest rate on these borrowings was 5.8% (2003 5.3%). This compares with an average interest rate, at balance date, of 6.2% (2003 5.6%) for the Group’s other borrowings.
Chippendale Holdings Limited is a substantial security holder in the Company. Mr A M James is non-executive Chairman of the Company.
NOTES TO THE FINANCIAL STATEMENTS
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46
GROUP 2004 2003 $000 $000
20 IMPUTATION CREDIT ACCOUNT
Balance at beginning of the year 19,592 19,669
Income tax paid/refunded 7,514 6,615
Imputation credits attached to dividends paid (8,057) (6,692)
Balance at end of the year $19,049 $19,592
The Parent Company is a member of the Cavalier Corporation consolidated group for tax purposes and its imputation credit account entries are accounted for within the Group.
GROUP 2004 2003 $000 $000
21 LEASE COMMITMENTS
The Group’s commitments in respect of operating lease agreements were:
Within one year 1,990 2,030
After one year but within two years 1,476 1,481
After two years but within five years 446 1,419
After five years 5 -
The Parent had no operating lease commitments at 30 June 2004 (2003 Nil).
Neither the Group nor the Parent had any finance lease commitments at 30 June 2004 (2003 Nil).
22 CAPITAL COMMITMENTS
The Group had commitments for capital expenditure at 30 June 2004 of $3,810,000 (2003 $315,000).
The Parent had no capital commitments at 30 June 2004 (2003 Nil).
GROUP PARENT 2004 2003 2004 2003 $000 $000 $000 $000
23 CONTINGENT LIABILITIES
Bank guarantee in respect of operating lease 263 - - -
Bank guarantees in relation to subsidiary
company obligations - - 30,763 22,062
$263 - $30,763 $22,062
Some of the companies in the Group are parties to a cross guarantee in favour of the ANZ Banking Group (New Zealand) Limited securing each other’s obligations.
NOTES TO THE FINANCIAL STATEMENTS (CONTINUED)
NOTES TO THE FINANCIAL STATEMENTS
47
C A V A L I E R C O R P O R A T I O N L I M I T E D & S U B S I D I A R Y C O M P A N I E S
24 FINANCIAL INSTRUMENTS
MANAGEMENT POLICIES
It is the Group’s policy to hedge foreign currency risks on trade-related transactions as they arise. However, this general policy may be varied from time to time, when circumstances dictate, so that existing currency risks are left unhedged or anticipated future currency risks are hedged.
The Group does not engage in speculative transactions or hold derivative financial instruments for trading purposes.
The Group’s policy also requires that exposures to foreign currency risks are reported to and reviewed by the Board of Directors, monthly.
Interest rate risks are continually monitored having regard to the circumstances at any given time. When circumstances dictate, interest rate swaps, interest rate options, and forward rate agreements are entered into to hedge against fluctuations in interest rates.
FAIR VALUE
The carrying amounts and estimated fair values of the Group’s financial assets and liabilities at 30 June 2004 were as follows:
GROUP 2004 2003
CARRYING FAIR CARRYING FAIR AMOUNT VALUE AMOUNT VALUE $000 $000 $000 $000
Cash at bank 1,416 1,416 2,233 2,233
Trade debtors 26,718 26,718 24,807 24,807
Other debtors 1,173 1,173 1,462 1,462
Foreign currency forward exchange contracts - 263 - -
Foreign currency option agreements - 848 - (539)
Interest rate swaps - 7 - (17)
Term liabilities (37,288) (37,288) (28,566) (28,566)
Bank overdraft (1,839) (1,839) (1,230) (1,230)
Short-term borrowings (1,655) (1,655) (2,436) (2,436)
The following methods and assumptions were used to estimate the fair value of each class of financial assets and liabilities:
Cash at bank, trade debtors, other debtors, bank overdraft, and short-term borrowingsThe carrying amounts of these items are equivalent to their fair values.
Foreign currency forward exchange contracts and option agreementsThe fair values of these instruments are estimated based on their quoted market prices at balance date.
Term liabilitiesThe carrying amounts of the Group’s term liabilities are equivalent to their fair values because these liabilities are at interest rates which approximate the interest rates currently available to the Group for debts of similar maturities.
OFF BALANCE SHEET RISK
The Group has entered into foreign currency forward exchange contracts and foreign currency option agreements to manage its exposure to fluctuations in foreign currency exchange rates.
Whilst these financial instruments are subject to the risk that exchange rates may change subsequent to implementation, such changes would generally be offset by the equal and opposite effects on the balances being hedged.
NOTES TO THE FINANCIAL STATEMENTS
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GROUP 2004 2003 $000 $000
24 FINANCIAL INSTRUMENTS (continued)
The notional principal or contract amounts outstanding at 30 June 2004 were as follows:
Foreign currency forward exchange contracts
– NZD purchase commitments 3,578 -
– NZD sell commitments 1,593 -
Foreign currency options
– NZD call options purchased 15,353 6,586
– NZD put options sold 30,705 22,917
Interest rate swaps 19,354 5,000
CREDIT RISK
Foreign currency forward exchange contracts and foreign currency option agreements have been entered into with parties approved by the Board of Directors 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.
The Group places its surplus funds with trading banks approved by the Board of Directors as having the required credit rating and further minimises its credit exposure by limiting the amount placed with any one bank at any one time. Credit risk exposure with respect to debtors is limited by stringent credit controls, by the utilisation of irrevocable letters of credit and trade insurances wherever required, and by the large number of customers within the Group’s customer base.
The Parent had no financial instruments at 30 June 2004 (2003 Nil), and all financial assets and liabilities at balance date were stated at fair value.
25 FOREIGN CURRENCY DENOMINATED ASSETS AND LIABILITIES
At 30 June 2004, the Group had the following foreign currency denominated monetary assets and monetary liabilities which were not hedged:
GROUP 2004 2003 ASSETS LIABILITIES ASSETS LIABILITIES $000 $000 $000 $000
United States Dollars USD 19 USD 370 USD 12 USD 183
Great British Pounds GBP 96 GBP 22 GBP 65 -
Euro - EUR 148 - EUR 322
The conversion rate at balance date for the USD was .6278, GBP .3473, and EUR .5195.
26 EVENTS AFTER BALANCE DATE
The following are the non-adjustable events after balance date affecting the Parent and the Group:
DIVIDENDS
The Directors declared, on 20 August 2004, a fully imputed final dividend of 14.5 cents per ordinary share on the 64,914,551 shares on issue to give a total final dividend of $9,412,610.
NOTES TO THE FINANCIAL STATEMENTS (CONTINUED)
NOTES TO THE FINANCIAL STATEMENTS
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C A V A L I E R C O R P O R A T I O N L I M I T E D & S U B S I D I A R Y C O M P A N I E S
2004 2003 2002 2001 1 2000 1999 1998 1997 $000 $000 $000 $000 $000 $000 $000 $000
FINANCIAL PERFORMANCE
Operating revenue $198,633 $193,222 $164,787 $188,780 $218,391 $201,329 $193,912 $190,411
EBITDA and abnormal items 38,213 34,163 25,810 23,447 24,924 21,966 23,110 19,606
Abnormal items - - - (3,052) - - - -
EBITDA 38,213 34,163 25,810 20,395 24,924 21,966 23,110 19,606
Depreciation (3,510) (3,560) (3,094) (2,965) (2,990) (2,960) (3,265) (3,238)
Amortisation (430) (308) (308) (164) (139) (63) (440) (56)
EBIT 34,273 30,295 22,408 17,266 21,795 18,943 19,405 16,312
Net interest expense (2,079) (1,979) (1,888) (974) (2,394) (3,082) (4,291) (4,118)
Operating surplus before tax 32,194 28,316 20,520 16,292 19,401 15,861 15,114 12,194
Income tax expense (10,761) (9,460) (6,986) (5,297) (6,304) (5,269) (5,063) (4,125)
Operating surplus after tax 21,433 18,856 13,534 10,995 13,097 10,592 10,051 8,069
Minority interest (422) (593) (383) (746) - - - -
Net operating surplus
attributable to shareholders
of the Company 21,011 18,263 13,151 10,249 13,097 10,592 10,051 8,069
Ordinary dividends declared (16,302) (13,069) (10,864) (10,797) (10,077) (9,357) (7,558) (8,638)
Surplus after dividends $4,709 $5,194 $2,287 $(548) $3,020 $1,235 $2,493 $(569)
FINANCIAL POSITION
Shareholders’ equity 67,397 63,226 57,699 55,198 80,095 77,075 75,840 73,347
Term liabilities 37,288 28,566 26,467 13,595 28,409 55,484 56,632 55,884
Current liabilities 25,054 23,718 21,776 41,508 18,412 16,333 17,177 17,706
Shareholders’ equity
and total liabilities $129,739 $115,510 $105,942 $110,301 $126,916 $148,892 $149,649 $146,937
Fixed assets 52,373 41,259 40,395 39,250 36,788 35,234 35,281 38,334
Goodwill 2,866 2,080 2,388 2,696 350 413 476 539
Development expenditure 5,825 4,716 3,725 2,809 2,030 1,397 875 361
Term receivables 126 139 113 1,272 212 987 - 2,971
Deferred tax asset 1,588 1,332 1,686 2,448 1,708 1,243 1,378 1,609
Non-current assets 62,778 49,526 48,307 48,475 41,088 39,274 38,010 43,814
Current assets 66,961 65,984 57,635 61,826 85,828 109,618 111,639 103,123
Total assets $129,739 $115,510 $105,942 $110,301 $126,916 $148,892 $149,649 $146,937
1 Closure of the Lichtenstein merchant wool scouring operation
TREND STATEMENT
TREND STATEMENT
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50
2004 2003 2002 20011 2000 1999 1998 1997
FINANCIAL RATIOS AND SUMMARY
USE OF FUNDS AND RETURN
ON INVESTMENT
Return on average
shareholders’ equity 32.8% 31.2% 24.0% 13.7% 16.7% 13.9% 13.5% 11.0%
NOPAT : Total funds employed 21.4% 21.6% 16.4% 12.4% 13.3% 9.4% 9.6% 8.3%
Basic earnings per ordinary share 32.7c 29.0c 20.9c 14.2c 18.2c 14.7c 14.0c 11.2c
FINANCIAL STRUCTURE
Net tangible asset backing
per ordinary share $0.89 $0.88 $0.80 $0.78 $1.08 $1.05 $1.03 $1.01
Proprietorship ratio 51.9% 54.7% 54.5% 50.0% 63.1% 51.8% 50.7% 49.9%
Net interest-bearing debt:equity ratio 37:63 32:68 36:64 20:80 28:72 42:58 44:56 44:56
Net interest cover (times) 16.5 15.3 11.9 17.7 9.1 6.1 4.5 4.0
RETURNS TO SHAREHOLDERS
Dividends paid per ordinary
share (excluding supplementary) 25.50c 20.75c 17.25c 15.00c 14.00c 13.00c 10.50c 12.00c
Dividend imputation 100% 100% 100% 100% 100% 100% 100% 100%
Ordinary dividend cover (times) 1.3 1.4 1.2 0.9 1.3 1.1 1.3 0.9
Supplementary dividends
paid per ordinary share 4.50c 3.66c 3.04c 2.65c 2.47c 2.29c 1.85c 2.12c
SHARE PRICE
June $4.84 $4.80 $3.10 $2.73 $1.69 $1.75 $1.14 $1.21
52 week high $5.70 $4.95 $3.20 $2.82 $1.88 $1.88 $1.40 $1.72
52 week low $4.40 $2.85 $2.44 $1.60 $1.54 $1.08 $0.93 $1.16
MARKET CAPITALISATION ($000)
June $314,186 $302,310 $195,242 $171,939 $121,644 $125,962 $82,056 $87,094
CAPITAL EXPENDITURE AND
DEPRECIATION ($000)
Capital expenditure $15,160 $3,515 $4,674 $10,655 $4,808 $2,909 $3,119 $4,760
Depreciation $3,510 $3,560 $3,094 $2,965 $2,990 $2,960 $3,265 $3,238
1 Closure of the Lichtenstein merchant wool scouring operation
TREND STATEMENT (CONTINUED)
TREND STATEMENT
51
C A V A L I E R C O R P O R A T I O N L I M I T E D & S U B S I D I A R Y C O M P A N I E S
Earnings before interest, tax, depreciation, Operating surplus before tax plus net interest expense,
and amortisation (EBITDA) depreciation, and amortisation
Earnings before interest Operating surplus before tax plus net interest expense
and tax (EBIT)
Net operating profit after tax EBIT less theoretical tax on EBIT
(NOPAT)
Net assets Total assets less total liabilities
Total funds employed Shareholders’ equity plus net interest-bearing liabilities, or
Total assets less cash at bank less non interest-bearing liabilities
USE OF FUNDS AND RETURN ON INVESTMENT
Return on average shareholders’ equity Operating surplus after tax
Average shareholders’ equity
NOPAT : Total funds employed NOPAT
Total funds employed
Basic earnings per ordinary share Net operating surplus attributable to shareholders of the Company
Weighted average number of ordinary shares on issue during the year
FINANCIAL STRUCTURE
Net tangible asset backing per ordinary share Net assets less goodwill, development expenditure, and minority interest
Number of ordinary shares on issue at balance date
Proprietorship 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 EBIT
Net interest expense
RETURNS TO SHAREHOLDERS
Ordinary dividend cover Net operating surplus attributable to shareholders of the Company
Ordinary dividends declared
GLOSSARY OF FINANCIAL TERMS
GLOSSARY OF FINANCIAL TERMS
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DIRECTORS (S211(1)( i ) )
The Directors of the Company as at 30 June 2004 were:
G C W Biel
W K Chung
R G Ebbett
G S Hawkins
A M James
V T S Tan
K L Thorpe
A C Timpson
K L Thorpe was appointed to the Board with effect from 23 February 2004.
A M James stepped down as Managing Director to assume the chairmanship of the Company from A C Timpson with effect
from 13 April 2004. At the same time, W K Chung was appointed Managing Director and V T S Tan was appointed to the
position of Finance Director previously held by W K Chung. A C Timpson remains on the Board as a non-executive Director.
INTERESTS REGISTER (S189(1)(c) ) (S211(1)(e))
The Companies Act 1993 requires the Company to maintain an interests register in which are recorded the particulars of
certain transactions and matters (eg. use of company information, share dealing, remuneration, and indemnity and insurance)
involving the Directors. It further requires particulars of the entries in this interests register for the year to be disclosed in the
Annual Report.
USE OF COMPANY INFORMATION (S145)
During the year, no notices were received from the Directors regarding the use of company information that would not
otherwise have been available to them, except in their capacity as directors.
SHARE DEALING (S148)
Notice in relation to share dealings were received from the following during the year:
W K Chung – exercised, on 10 November 2003, 500,000 rights issued pursuant to the Cavalier Corporation Limited 2000
Executive Share Rights Plan as a consequence of which 277,778 ordinary shares in the capital of the Company were issued.
111,111 of these shares, representing the 40% allowed to be sold under the terms of the Plan to fund the tax liability arising
from the issue of the shares, were sold for $5.25 per share on the same day.
A M James – exercised, on 10 November 2003, 860,000 rights issued pursuant to the Cavalier Corporation Limited 2000
Executive Share Rights Plan as a consequence of which 477,778 ordinary shares in the capital of the Company were issued.
191,111 of these shares, representing the 40% allowed to be sold under the terms of the Plan to fund the tax liability arising
from the issue of the shares, were sold for $5.25 per share on the same day. Also sold, at the same time, 57,670 ordinary shares
in the capital of the Company at the same price.
V T S Tan – exercised, on 10 November 2003, 350,000 rights issued pursuant to the Cavalier Corporation Limited 2000
Executive Share Rights Plan as a consequence of which 194,444 ordinary shares in the capital of the Company were issued.
77,778 of these shares, representing the 40% allowed to be sold under the terms of the Plan to fund the tax liability arising
from the issue of the shares, were sold for $5.25 per share on the same day.
A C Timpson – acquired, on 25 March 2004, a relevant interest in 21,774 ordinary shares at $4.70 per share.
DISCLOSURES UNDER THE COMPANIES ACT 1993
DISCLOSURES UNDER THE COMPANIES ACT 1993
F O R T H E Y E A R E N D E D 3 0 J U N E 2 0 0 4
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C A V A L I E R C O R P O R A T I O N L I M I T E D & S U B S I D I A R Y C O M P A N I E S
Directors’ relevant interests in shares in the Company at 30 June 2004 were:
G C W Biel Beneficial - Other 8,467,642
W K Chung Beneficial 172,171 2
Other -
R G Ebbett Beneficial 24,146 Other -
G S Hawkins Beneficial 5,250 2
Other -
A M James Beneficial 290,247 2
Other -
V T S Tan Beneficial 116,666 2
Other -
K L Thorpe Beneficial 2,000 Other -
A C Timpson Beneficial 99,160 Other -
Directors’ relevant interests in rights under the Cavalier Corporation Limited 2000 Executive Share Rights Plan1 at 30 June 2004 were:
W K Chung Beneficial 440,000 2
Other -
A M James Beneficial 760,000 2
Other -
V T S Tan Beneficial 300,000 2
Other -
1 A summary of the terms of the Plan is set out on pages 39 and 40 of this document (note 7 of the Notes to the Financial Statements).2 Includes those held by trusts of which the Director is a beneficiary.
REMUNERATION (S161)
The Board authorised the following during the year:
– in respect of W K Chung, an increase in the base remuneration by $8,000 per annum with effect from 1 July 2003 and a further increase in that base by $75,000 per annum with effect from 13 April 2004 upon his appointment as Managing Director
– in respect of A M James, a retirement allowance of $130,000 on his retirement as Managing Director on 13 April 2004
INDEMNITY AND INSURANCE (S162)
During the year, the Company effected directors’ and officers’ liability insurance to cover, to the extent normally covered by such policies, the risks arising out of the acts or omissions of the Directors and employees of the Company and its subsidiaries in their capacity as such. The cost of this cover was $13,500.
SPECIFIC DISCLOSURES OF INTEREST (S140(1))
No specific disclosures of interest were received during the year.
DISCLOSURES UNDER THE COMPANIES ACT 1993
C A V A L I E R C O R P O R A T I O N L I M I T E D & S U B S I D I A R Y C O M P A N I E S
54
GENERAL DISCLOSURES OF INTEREST (S140(2))
General disclosures of interest that have been received and are still current are:
G C W Biel Director of: Auckland Air Charter Limited Heli Harvest Limited Rural Aviation (1963) Limited
W K Chung Trustee of JWJ Family Trust and JVT Family Trust
R G Ebbett Director of: Acma Capital (N.Z.) Limited Anglesea Properties Limited Ebbett Waikato Group Limited Horticom Limited Renaissance Corporation Limited TBS Corporation Limited
G S Hawkins Director of: Ballance Agri-Nutrients Co-operative Limited Fonterra Co-operative Group Limited Hawkins Consulting Services Limited Horizon Energy Distribution Limited Stableburn Farms Limited Watercare Services Limited
A M James None
V T S Tan Trustee of CWC Family Trust
K L Thorpe Director of: Aragorn Limited Custom Consulting Limited Super Liquor Holdings Limited Swift and Moore Pty Limited Zespri Group Limited
A C Timpson Director of: Astrograss Allweather Surfaces Limited Chippendale Holdings Limited Marama Trading Limited Pauanui Publishing Limited Radford Yarn Technology Limited
DIRECTORS’ REMUNERATION (S211(1)( f ) )
The total remuneration and value of other benefits earned (received, and due and receivable) by each of the Directors of the Company for the year ended 30 June 2004 were:
G C W Biel $30,000W K Chung $528,388R G Ebbett $30,000G S Hawkins $30,000A M James $911,615 1
V T S Tan $404,331K L Thorpe $10,615A C Timpson $48,017
1 Includes directors’ fees for period from 13 April 2004 to 30 June 2004 of $11,483 and retiring allowances of $130,000.
DISCLOSURES UNDER THE COMPANIES ACT 1993
DISCLOSURES UNDER THE COMPANIES ACT 1993 (CONTINUED)F O R T H E Y E A R E N D E D 3 0 J U N E 2 0 0 4
55
C A V A L I E R C O R P O R A T I O N L I M I T E D & S U B S I D I A R Y C O M P A N I E S
EMPLOYEES’ REMUNERATION (S211(1)(g) )
The number of employees of the Company and its subsidiaries (excluding employees holding office as directors of the Company, but including other employees holding office as directors of subsidiaries) whose remuneration and value of other benefits for the year ended 30 June 2004 fall into the various brackets specified by the Companies Act 1993 is as follows:
REMUNERATION AND VALUE NUMBER OF EMPLOYEES OF OTHER BENEFITS ($)
100,000 – 109,999 3
110,000 – 119,999 8
120,000 – 129,999 10
130,000 – 139,999 1
140,000 – 149,999 1
150,000 – 159,999 2
160,000 – 169,999 1
170,000 – 179,999 -
180,000 – 189,999 1
190,000 – 199,999 -
200,000 – 209,999 3
210,000 – 219,999 4
220,000 – 229,999 2
230,000 – 239,999 -
240,000 – 249,999 -
250,000 – 259,999 1
260,000 – 269,999 -
270,000 – 279,999 1
320,000 – 329,999 1
340,000 – 349,999 1
440,000 – 449,999 1
TOTAL NUMBER OF EMPLOYEES 41
DONATIONS (S211(1)(h), S211(2))
Refer to page 37 of this document (note 3 of the Notes to the Financial Statements).
AUDIT FEES (S211(1)( j ) , S211(2))
Refer to page 37 of this document (note 3 of the Notes to the Financial Statements).
DISCLOSURES UNDER THE COMPANIES ACT 1993
C A V A L I E R C O R P O R A T I O N L I M I T E D & S U B S I D I A R Y C O M P A N I E S
56
SUBSIDIARY COMPANY DIRECTORS (S211(2))
The following persons respectively held office as directors of subsidiary companies at the end of the year:
SUBSIDIARIES DIRECTORS
Cavalier Bremworth Limited G C W Biel and Cavalier Spinners Limited W K Chung A M James A C Timpson
Cavalier Bremworth (Australia) Limited G C W Biel and Kimberley Carpets Pty. Limited W K Chung D M Cotton A M James A C Timpson
Cavalier Holdings (Australia) Limited G C W Biel and Cavalier Bremworth Pty. Limited W K Chung D M Cotton A M James
Cavalier Bremworth (North America) Limited G C W Biel and Northern Prospecting Limited W K Chung A C Timpson
E Lichtenstein and Company Limited, W K Chung Elco Direct Limited, A M James Elcopac Limited, A C Timpson Elcotex Limited, Elcowool Limited, e-Wool Limited, Heron Distributors Limited and Knightsbridge Carpets Limited
Hawkes Bay Woolscourers Limited G C W Biel W K Chung (alternate of G C W Biel) D M Ferrier A M James
Microbial Technologies Limited W K Chung D J Cooper A M James D E Pinnock V T S Tan A C Timpson
Ontera Modular Carpets Pty. Limited E Allemano W K Chung A M James
There were no retirements or resignations of subsidiary company directors during the year.
No subsidiary company directors received, in their capacity as such, directors’ fees or other benefits from the subsidiaries.
The details of entries in the interests register and the remuneration and value of other benefits of subsidiary company directors who are also the Directors of the Company are set out on pages 52 to 54.
There were no entries in the interests register in respect of any of the subsidiary company directors who are not also the Directors of the Company. The remuneration and value of other benefits of these directors is disclosed under employee remuneration on page 55.
DISCLOSURES UNDER THE COMPANIES ACT 1993
DISCLOSURES UNDER THE COMPANIES ACT 1993 (CONTINUED)F O R T H E Y E A R E N D E D 3 0 J U N E 2 0 0 4
57
C A V A L I E R C O R P O R A T I O N L I M I T E D & S U B S I D I A R Y C O M P A N I E S
ANALYSIS OF SHAREHOLDINGS (L ISTING RULE 10.5.1) NUMBER OF SHARES SHAREHOLDERS % HELD %
SIZE OF SHAREHOLDINGS
Up to 199 100 1.6 8,059 0.0
200 – 499 177 2.9 61,775 0.1
500 – 999 431 6.9 312,354 0.5
1,000 – 1,999 1,214 19.6 1,766,996 2.7
2,000 – 4,999 1,938 31.2 6,163,306 9.5
5,000 – 9,999 1,197 19.3 8,150,591 12.6
10,000 – 49,999 1,036 16.7 18,404,161 28.4
50,000 – 99,999 76 1.2 4,971,555 7.7
Over 99,999 34 0.5 25,075,754 38.6
6,203 100.0 64,914,551 100.0
LOCATION OF SHAREHOLDERS
New Zealand 6,080 98.0 64,267,451 99.0
Overseas – Australia 73 1.2 348,012 0.5
– Others 50 0.8 299,088 0.5
6,203 100.0 64,914,551 100.0
TOP 20 SHAREHOLDERS
Chippendale Holdings Limited 8,886,490 13.7
Rural Aviation (1963) Limited 8,467,642 13.0
New Zealand Central Securities Depository Limited 2,144,217 3.3
Peter Hanbury Masfen and Joanna Alison Masfen 787,500 1.2
Alan Michael James, Ann White-James and Wayne Keung Chung 286,667 0.4
First New Zealand Capital Custodians Limited 268,512 0.4
J & D Sands Limited 250,000 0.4
Forbar Custodians Limited 237,022 0.4
Mary Dorcas Spackman 231,874 0.4
Forbar Custodians Limited 223,081 0.3
Herbert Charles Wilson 204,000 0.3
Nicolaas Johannes Kaptein 200,000 0.3
Solwin Investments Limited 192,500 0.3
Chi-Ping Lui 175,000 0.3
Owen Thomas Goold Wright and David Raymond Simpson 175,000 0.3
Wayne Keung Chung, Colleen Linda Chung and Victor Thien Soo Tan 166,667 0.3
Custodial Services Limited 165,278 0.3
Ann Martin McLean 161,000 0.2
Custodial Services Limited 152,401 0.2
Estate Gabriel David Tetro Deceased 140,282 0.2
23,515,133 36.2
DISCLOSURES UNDER THE NEW ZEALAND EXCHANGE LISTING RULES
DISCLOSURES UNDER THE NEW ZEALAND EXCHANGE LISTING RULESA S AT 3 1 A U G U S T 2 0 0 4
C A V A L I E R C O R P O R A T I O N L I M I T E D & S U B S I D I A R Y C O M P A N I E S
58
DISCLOSURES UNDER THE NEW ZEALAND EXCHANGE LISTING RULES (CONTINUED)A S AT 3 1 A U G U S T 2 0 0 4
DISCLOSURES UNDER THE NEW ZEALAND EXCHANGE LISTING RULES
NEW ZEALAND CENTRAL SECURITIES DEPOSITORY LIMITED
New Zealand Central Securities Depository Limited provides a custodial depository service to offshore and institutional shareholders and does not have a beneficial interest in the shares registered in its name. The beneficial owners of the shares registered in its name as at 31 August 2004 were: SHARES % HELD
Guardian Trust Investment Nominees (RWT) Limited 768,874 1.18
Citibank Nominees (New Zealand) Limited 572,830 0.88
Accident Compensation Corporation 434,455 0.67
TEA Custodians Limited – NZ Mid Cap Index Fund 204,708 0.32
New Zealand Guardian Trust Investment Nominees Limited 140,101 0.22
Westpac Banking Corporation - Client Assets No. 2 7,946 0.01
Portfolio Nominees Limited 7,874 0.01
ANZ Nominees Limited 5,221 -
HSBC Nominees (NZ) Limited 1,500 -
Guardian Nominees Limited – Westpac NZ Share Index Plus Trust 700 -
National Nominees New Zealand Limited 8 -
2,144,217 3.30
DIRECTORS’ AND ASSOCIATED PERSONS’ SHAREHOLDINGS 30 JUNE 2004 BENEFICIAL NON-BENEFICIAL
SHARES
G C W Biel - 8,526,262 1
W K Chung 172,171 4 -
R G Ebbett 24,146 -
G S Hawkins 5,250 4 -
A M James 290,247 4 -
V T S Tan 116,666 4 -
K L Thorpe 2,000 -
A C Timpson 99,160 8,902,164 2
RIGHTS UNDER THE CAVALIER CORPORATION LIMITED 2000 EXECUTIVE SHARE RIGHTS PLAN3
W K Chung 440,000 4 -
A M James 760,000 4 -
V T S Tan 300,000 4 -
1 Includes 58,620 held by associated persons.2 All held by associated persons.3 A summary of the terms of the Plan is set out on pages 39 and 40 of this document (note 7 of the Notes to the Financial Statements).4 Includes those held by trusts of which the Director is a beneficiary.
WAIVERS FROM THE NEW ZEALAND EXCHANGE
The Company has been granted waivers from complying with Listing Rule 7.3.2 (a) and Listing Rule 9.2.2 (d) by virtue of the exception set out in Listing Rule 9.2.4 (c).
59
C A V A L I E R C O R P O R A T I O N L I M I T E D & S U B S I D I A R Y C O M P A N I E S
APPENDIX 1 30 JUNE 2004 2003
Return on Assets (%)
(EBIT divided by Total Assets) 26.4% 26.2%
Return on Equity (%)
(Net Income divided by Shareholders’ Equity) 31.8% 29.8%
Debt to Equity Ratio (%)
(Total Liabilities divided by Shareholders’ Equity) 92.5% 82.7%
Dividend Yield (based on Dividend Paid) 7.86% 6.45%
Tax Adjusted Dividend Yield (based on Dividend Paid) 5.27% 4.32%
DISCLOSURES UNDER THE SECURITIES MARKETS ACT 1988
DISCLOSURES UNDER THE SECURITIES MARKETS ACT 1988A S AT 3 1 A U G U S T 2 0 0 4
SUBSTANTIAL SECURITY HOLDERS (S26)
The substantial security holders of the Company in respect of whom notices have been received were:
NUMBER OF VOTING SECURITIES WHERE RELEVANT INTEREST EXISTS
G C W Biel 8,467,642
Chippendale Holdings Limited 8,886,490
Rural Aviation (1963) Limited 8,467,642
Tony Timpson Family Trust 8,902,164
The total number of issued voting securities for the purposes of the Securities Markets Act 1988 was 64,914,551.
The definition of the term “relevant interest” in the Act is extremely wide, and more than one relevant interest can exist in the same voting securities.
DISCLOSURES UNDER THE NEW ZEALAND EXCHANGE LISTING RULES (CONTINUED)
C A V A L I E R C O R P O R A T I O N L I M I T E D & S U B S I D I A R Y C O M P A N I E S
60
CORPORATE DIRECTORY
BOARD OF DIRECTORS:
G C W Biel B.E. (Mech.) Deputy Chairman of Board Member of Audit Committee Member of Remuneration Committee
W K Chung B.Com., CA, CMA Managing Director
R G Ebbett B.Com., ACA, FinstD Non-executive Director Chairman of Audit Committee Member of Remuneration Committee
G S Hawkins B.Sc., B.Com., ACA Non-executive Director Member of Audit Committee Member of Remuneration Committee
A M James B.Tech. (Hons.), Dip.Bus.Admin. Chairman of Board Member of Audit Committee Member of Remuneration Committee
V T S Tan CA, ACIS Finance Director
K L Thorpe M.A. Non-executive Director Member of Audit Committee Member of Remuneration Committee
A C Timpson Non-executive Director Member of Audit Committee Chairman of Remuneration Committee
COMPANY SECRETARY:
V T S Tan CA, ACIS
REGISTERED OFFICE:
7 Grayson Avenue, Papatoetoe,
P O Box 97-040, Auckland 1730.
Telephone: 64-9-277 6000, Facsimile: 64-9-279 4756.
SHARE REGISTRAR:
Computershare Investor Services Limited
Level 2, 159 Hurstmere Road, Takapuna, North Shore City,
Private Bag 92119, Auckland 1020.
Telephone: 64-9-488 8700, Facsimile: 64-9-488 8787, Investor Enquiries: 64-9-488 8777.
AUDITORS:
KPMG
LEGAL ADVISORS:
Hornabrook Macdonald
Minter Ellison Rudd Watts
Russell McVeagh
BANKERS:
ANZ Banking Group (New Zealand) Limited
WEB SITES:
Corporate - www.cavcorp.co.nz
Carpet Operations – www.cavbrem.co.nz, www.cavbrem.com.au, www.ontera.com.au
CORPORATE DIRECTORY
CONNECTED WITH SUCCESSINTRODUCTIONANNUAL REPORT 2004
Cavalier’s ongoing success is no accident. It is the result of many connected events and
decisions, all of which contribute to a company with a solid performance history and a bright
future. The members of Cavalier’s management team have a strong working relationship. They
know the challenges and potential in their industries because these are industries they have
helped shape. The most important connection is the one that happens out in the marketplace.
Our customers connect with our brands, and they connect these brands with success.
THE 2004 ANNUAL REPORT OF CAVALIER CORPORATION LIMITED is presented in a single document
containing both the Annual Review and the Financial Statements and Other Disclosures. As
required by section 211(1)(k) of the Companies Act 1993, this document is signed on behalf of the
Board on 17 September 2004 by :
A M JAMES — CHAIRMAN W K CHUNG — MANAGING DIRECTOR
MANAGING DIRECTOR’S
REVIEWPg.4 CAVALIER
AND THE ENVIRONMENT
Pg.8 HEALTH & SAFETY
AT CAVALIERPg.10
CORPORATE:
Managing Director W K Chung
Finance Director and Company Secretary V T S Tan
Information Services Manager M N McElroy
CARPET OPERATIONS:
CAVALIER BREMWORTH:
Australian General Manager D M Cotton
Australian National Sales Manager K R Battiste
Australian Finance and Administration Manager M O Hintze
New Zealand General Manager Sales S J Duncan
Market Planning Manager C Anderson
Group Marketing Manager D W Philippe
General Manager Manufacturing C A McKenzie
Tufting Plant Manager G J M Voskamp
Wanganui Spinning Plant Manager D J Blakemore
Napier Spinning Plant Manager P N Shuker
Product Development Manager P A Leyland
New Zealand Financial Controller J C Johnson
KNIGHTSBRIDGE CARPETS:
Manager B R Smith
KIMBERLEY CARPETS:
Manager M A Bryant
ONTERA MODULAR CARPETS:
General Manager E Allemano
Commercial Manager G A McFadzean
WOOL OPERATIONS:
HAWKES BAY WOOLSCOURERS:
General Manager N R Hales
CANTERBURY WOOLSCOURERS:
General Manager S J Harrison
ELCO DIRECT:
General Manager R P Cooper
C A V A L I E R C O R P O R A T I O N L I M I T E D & S U B S I D I A R Y C O M P A N I E S
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Hastings — Douglas E. 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CAVALIER CORPORATION IS PROUD OF ITS PEOPLE
AND THANKS THEM FOR THEIR CONTRIBUTION
CA
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ANNUAL REPORTFOR THE YEAR ENDED 30 JUNE 2004
C A V A L I E R C O R P O R A T I O N L I M I T E D
CAVALIER CORPORATION KNOWS CONSISTENT
FINANCIAL RESULTS ARE NOT ACHIEVED IN ISOLATION.
THEY ARE PART OF A WHOLE — THE RESULT OF MANY
EVENTS AND DECISIONS, MANY CONNECTIONS