CAVALIER CORPORATION IS PROUD OF ITS PEOPLE

— Jerome Abelardo — Bevan Abraham — Jared Adam — Janine Adams — Pauline Afaese — Agaimalo Afoa — Derek Ainge — Dean Aitken

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Eunike Tupuono — Sina Turner — Kenneth Turner — Terry Tusani — Mereana Tutira — Henry Tyler — Anne Ualiu — Raera Umaki — Peter Vear — David Vernall — Prasad Vinay — Gerry Voskamp — Joshua Wakefield — Anthony Walker — Andrew Walker — Raewyn Wallace — Selwyn Wallace — Phillip Walsh — Lindsay Ward — Michael Ward — Patrick Warren — Anthony Waters — Bruce Watson — Peter Watterson — Lynley Webb — Warren Welch — Malcolm Wells — Donna Whatu — Lynette Wheeler — Alan Whittaker — Noel Wilkins — Gareth Williams — Mikayla Williams — John Williams — Atapana Williams — Patrick Williams — David Williams — Joyce Williamson — Ian Williamson — Robert Wilson — Kevin Wilson — John Wilson — Bruce Wilson — Vanessa Wilson — Alan Wilson — Grant Wilson — Trish Wilson — Melody Winiata — Nicolas Winter — Daniel Withers — Shane Wood — Craig Woolford — Nigel Worthington — Fiona Worthington — Fraser Wright — Grant Wrightson — Peter Yandall — Tony Yee — Stanley Yee — Jimmy Yee — Michael York — Chris Young — Douglas 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##


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


Q&APg.13 DIRECTORS’

REPORTPg.16

134.5

8

SHAREHOLDER INFORMATION

Pg.24


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


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


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##


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


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’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


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



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


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


9##FOOTER##


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


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



11##FOOTER##


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


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)



13


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


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


(cont inued)

15


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.



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.


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##


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


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


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


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


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


Other directorships — Aragorn Limited, Custom Consulting Limited, Super Liquor Holdings Limited, Swift and Moore Pty Limited, and Zespri Group Limited

21


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


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


(cont inued)

23


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.



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).


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


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



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


28 ##FOOTER##


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


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


30

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.


31


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.



32

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

33



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 minority shareholders of subsidiary 1,245 1,008 - -

$63,226 $57,699 $25,794 $24,650

EQUITY AT END OF THE YEAR:


Attributable to minority shareholders of subsidiaries 801 1,245 - -

$67,397 $63,226 $23,577 $25,794



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


34


Shareholders’ equity 5, 6, 7


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



STATEMENTS OF FINANCIAL POSITIONA S AT 3 0 J U N E 2 0 0 4

STATEMENTS OF FINANCIAL POSITION

35



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


Fixed assets sold 276 81 - -


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


Minority shareholders of subsidiary - 244 - -

Term loans raised 8,981 - - -

Advances from subsidiaries - - 3,533 3,759


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



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


36

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


37


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 - -



38

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)


39


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.



40

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.



41


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) - -




42

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 - -


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.



43


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



44

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



45


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.



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.



47


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.



48

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.



49


2004 2003 2002 2001 1 2000 1999 1998 1997 $000 $000 $000 $000 $000 $000 $000 $000


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


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


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


52

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



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



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


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

53


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.



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 (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


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).



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 (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


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


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


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)


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


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


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Stevens — Hayden Stevenson — Antoinette Stewart — Susan Stewart — Blair Stitson — Dominie Stock — Karolyn Stok — Susan Stow — Cindy Stuart — Sam Suksavong — Leon Summerfield — Huo Sun — Adrian Sundman — Karen Sundman — David Tahana — Sydney Taiaroa — Faamao Taiivao — James Tait — Dorothy Takerei — David Takiaho — Sesilia Talivaa — Victor Tan — Susana Taugaai — Atahere Taurima — Rangitere Taurima — Tracy Teague — Maria Temu — Lukin Tengu — Nooroa Terei — Linda Terongomau — Vanessa Tewaa — Van Thai — Curtis Thin — Kane Thomas — Kenneth Thomas — Sarah Thompson — Lavinia Thompson — John Thompson — Alan Thompson — Ivan Thomson — Keith Thorpe — Riwaru Tihema — Inano Tikinau — Tony Timpson — Eddie Timu — Luke Tither — Elisala Toai — Aranui Toatoa — Anarosa Tofaeono — Dorothy Togiatau — Matapakia Tom — Andrew Toohey — Gary Topless — Thoung Tran — Dale Transom — Keriann Trask — Karen Travers — Hamish Tristram — Andrew Tristram — Toe Tua — Misitopa Tuala — Jeremy Tuck — Salatielu Tupuono — Eunike Tupuono — Sina Turner — Kenneth Turner — Terry Tusani — Mereana Tutira — Henry Tyler — Anne Ualiu — Raera Umaki — Peter Vear — David Vernall — Prasad Vinay — Gerry Voskamp — Joshua Wakefield — Anthony Walker — Andrew Walker — Raewyn Wallace — Selwyn Wallace — Phillip Walsh — Lindsay Ward — Michael Ward — Patrick Warren — Anthony Waters — Bruce Watson — Peter Watterson — Lynley Webb — Warren Welch — Malcolm Wells — Donna Whatu — Lynette Wheeler — Alan Whittaker — Noel Wilkins — Gareth Williams — Mikayla Williams — John Williams — Atapana Williams — Patrick Williams — David Williams — Joyce Williamson — Ian Williamson — Robert Wilson — Kevin Wilson — John Wilson — Bruce Wilson — Vanessa Wilson — Alan Wilson — Grant Wilson — Trish Wilson — Melody Winiata — Nicolas Winter — Daniel Withers — Shane Wood — Craig Woolford — Nigel Worthington — Fiona Worthington — Fraser Wright — Grant Wrightson — Peter Yandall — Tony Yee — Stanley Yee — Jimmy Yee — Michael York — Chris Young — Douglas 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


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

Documents

CAVALIER CORPORATION IS PROUD OF ITS PEOPLE