Investor Presentation 23 February 2018
AGENDA Our Company Resetting Our Business Half Year Results Our Future SPEAKERS Paul Alston, CEO Alan Clarke, Deputy Chair Cavalier Corporation Investor Presentation 2
OUR COMPANY Cavalier Corporation is a vertically Cavalier Corporation integrated group of companies which Carpets operate across the entire spectrum of the soft flooring market. Wool We buy and scour wool, produce yarn, Procurement and design and make broadloom carpet. Felted Yarns Wool Scouring (27.5%)
OUR OPERATIONS Operations are based in New Zealand and Australia with exports around the world Auckland • Head office • Tufting factory • Brisbane Sales office • Sales office Cambridge • Sydney Wool store • AU head office • Administration Taumaruni/Raetihi/Taihape Napier • • Sales office Wool stores • Spinning factory • 2 wool scouring sites Melbourne Wanganui • • Sales office Felting plant Wellington • Wool store • Sales office Adelaide • Sales office Christchurch • Sales office Perth • Sales office Timaru • Scouring site Cavalier Corporation Investor Presentation 4
OUR STRENGTHS • Cavalier Bremworth is the most recognised and trusted carpet brand in the New Zealand market (winner of the Reader’s Digest most trusted brand award four years running - since its inauguration) • Very highly regarded brand in the Australian market, particularly with the retail trade • Cavalier Bremworth has a strong heritage and a great story - from its establishment and transformation into a company that is renowned for quality and innovation • A fully integrated company from sourcing of wool at farm gate to yarn production and the manufacture of carpet • Ownership of a wool acquisition business, and a meaningful shareholder in New Zealand’s only wool scourer • Strong supplier relationships built up from decades of dealing with key stakeholders in the industry • Felted yarn technology that is difficult to replicate and demands premium pricing Cavalier Corporation Investor Presentation 5
REFRESHED BOARD AND EXPERIENCED LEADERSHIP From 1 April 2018 ALAN CLARKE SARAH HAYDON LEADERSHIP TEAM INDEPENDENT CHAIR INDEPENDENT DIRECTOR CEO: Paul Alston CFO: Victor Tan GM Australia: Michael Richardson National Sales Manager NZ: Dean GRANT BEIL Chandler DIANNE MCATEER NON-INDEPENDENT JOHN RAE INDEPENDENT DIRECTOR DIRECTOR INDEPENDENT DIRECTOR GM Product Development/ Marketing: Rochelle Flint GM Manufacturing: Craig Wallace GM Comms/Culture: Lenska Papich GM Rest of World: Cathy Howitt 6 Cavalier Corporation Investor Presentation
RESETTING OUR BUSINESS Cavalier Corporation Investor Presentation 7
CHANGING MARKET Wool Price c/kg 700 • Wool price increase from 2011 (circa $5m - $8m impact) 600 Cents per Kilogram 500 • Strengthening NZD against AUD from 2012 – 80c to mid 400 300 90c’s (circa $5m - $8m impact) 200 100 • Significant move from wool to synthetics. Cavalier’s 0 infrastructure geared towards wool Dec-99 Oct-00 Aug-01 Jun-02 Apr-03 Feb-04 Dec-04 Oct-05 Aug-06 Jun-07 Apr-08 Feb-09 Dec-09 Oct-10 Aug-11 Jun-12 Apr-13 Feb-14 Dec-14 Oct-15 Aug-16 Jun-17 • Consolidation of retailers into groups (pressure on margins) – power shift to retailers NZD:AUD • 1 Flood of imported product (synthetics) helped by a strong 0.95 NZD:USD 0.9 NZD 0.85 • Increasing competition from low cost imported tiles 0.8 0.75 • Unprecedented drop in wool demand from 2016 – wool 0.7 business (scour and wool acquisition businesses suffered) 28/06/1996 28/06/1997 28/06/1998 28/06/1999 28/06/2000 28/06/2001 28/06/2002 28/06/2003 28/06/2004 28/06/2005 28/06/2006 28/06/2007 28/06/2008 28/06/2009 28/06/2010 28/06/2011 28/06/2012 28/06/2013 28/06/2014 28/06/2015 28/06/2016 28/06/2017 Cavalier Corporation Investor Presentation 8
RESETTING OUR BUSINESS • Restructuring in response to market challenges and changes within the industry: • Reduction in warehousing and distribution centres in NZ from two to one • Consolidating carpet tufting operations from two to one • Consolidating carpet yarn spinning operations from four to two • A 29% reduction in broadloom carpet employees • Closing two distribution centres in Australia and outsourcing these functions. • Introduction of synthetic carpets sold under the Cavalier Bremworth Brand to meet market trends • Exit out of the loss making Australian tile manufacturing business • Restructure of New Zealand administrative functions • Launching new and innovative carpets with exclusive yarns • Development and expansion of felted yarn capability • Selling surplus property in Australia to reduce debt The significant manufacturing costs associated with the restructuring have been accounted for in previous years. Cavalier Corporation Investor Presentation 9
HY18 INTERIM RESULTS For the six months ended 31 December 2017 Cavalier Corporation Investor Presentation 10
HALF YEAR RESULT SNAPSHOT HY18 HY17 YOY % Change Decrease due to reduced wool price impacting wool sales, $75.3m $84.3m -11% REVENUE supply issues and a softer market for carpet $4.4m -$2.0m +320% Improved operating profit reflecting better margins and EBITD reduced costs. 2017 includes large restructuring costs Improved NPAT as benefits start to flow from initiatives to $1.0m NIL - NPAT re-set the business and favourable macro-economic factors Improved cash flow reflecting increased profits, careful cash $7.5m -$4.8m +256% OPERATING CASH management and reduced working capital FLOWS Reduced debt from improved cash flow and lower inventory $33.3m $40.2m -17% NET DEBT Lower inventory due to efficient inventory management and $45.9m $50.6m -9% INVENTORY decrease in wool prices 11 Cavalier Corporation Investor Presentation
KEY METRICS Improvement on most key ratios HY17: HY18. Further improvements expected for 2H18 HY18 HY17 Return on equity 1.7% -2.7% Basic earnings/share 1.7c -2.7c Market Cap as at 31 Dec $28.2m $53.6m Debt/Equity 33:67 38:62 Tangible assets/share $0.97 $0.98 Cavalier Corporation Investor Presentation 12
CAPITAL MANAGEMENT Debt position improving following year of investment Net Debt $000 • Debt progressively dropped up until 2016, 70,000 following an aggressive debt reduction programme 60,000 50,000 • This enabled the business to invest in the future 40,000 by reinvigorating the Cavalier Bremworth brand and consolidating manufacturing operations - 30,000 debt climbed as a result 20,000 10,000 • Now the consolidation is complete, focus is on reducing debt again 0 Jun-14 Dec-14 Jun-15 Dec-15 Jun-16 Dec-16 Jun-17 Dec-17 • Making good progress and further reductions expected in the short term. Cavalier Corporation Investor Presentation 13
LOOKING TO OUR FUTURE Cavalier Corporation Investor Presentation 14
CURRENT MARKET TRENDS Movement away from soft flooring ESTIMATED FLOORING % • ESTIMATED FLOORING % Soft Flooring (carpets) has NOW declined at the expense of 10 YEARS AGO hard flooring and tiles Hard • Opportunities for Flooring 15% diversification Hard Flooring, 30% Tiles Soft 10% Flooring, 45% Soft Flooring 75% Tiles, 25% Cavalier Corporation Investor Presentation 15
OPPORTUNITY IN THE WOOL MARKET Wool rich % of Estimated total carpet wool • market market Wool products are our heritage size blm (000) • Market share leader in New Zealand New Zealand 12% - 15% 400 • Opportunities for growth in wool Australia 13% - 16% 2,500 products where we do not have a USA 1% - 2% 3,000 meaningful presence. Europe 1% - 2% 1,800 UK 25% - 30% 3,500 Asia 1% - 2% ? Cavalier Corporation Investor Presentation 16
OPPORTUNITY IN THE GLOBAL MARKET Percentage of sales • Majority of current sales into Australia and New Zealand 0.5% 2% • 0.5% Growth opportunities in other world markets – particularly North America, Europe and Asia. 42% • Currently have insignificant sales in these locations 55% Cavalier Corporation Investor Presentation 17
OUTLOOK FOR 2H18 AND BEYOND Profitability expected to improve in the short term due to: • Wool price more favourable with increased margins as a result. Full benefit will be realised in 2019 year • NZD/AUD more favourable. Coming off high 90’s (every 1c movement results in $500k - $600k impact) • Demand for wool improved – wool starting to flow through wool scour and wool trading volumes improved • High NZD/USD still assisting imported raw materials • Manufacturing consolidation complete (no more factories to merge) and producing the required volume • Efficiency improving in manufacturing operations and further gains to be realised • Continued close cost controls 18 Cavalier Corporation Investor Presentation
THE FUTURE • Increased focus on high-end, higher margin products • Growth opportunities in woollen products outside of New Zealand • Increased R&D and marketing spend - Innovation is key • Opportunities for growth in Australia (we are a small player) with various initiatives. • Growth in rest of world markets (outside of Australasia) in woollen products. • Focussed diversification / investment where appropriate • Consumer touch points (World of Difference) investment. Cavalier Corporation Investor Presentation 19
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