Feltex on track to spring back

Peter Thomas says Feltex cannot keep using the currency and economy as an excuse for its drop in profits but the building blocks are in place for a better future. Picture / Kenny Rodger

Restructuring costs dragged Feltex to a first-half loss but the carpet manufacturer expects its performance to improve - if things go its way.

"We need to do better but we've come a long way. The building blocks are there," said chief executive Peter Thomas after the company announced an $11.8 million loss in the six months to the end of December.

What Feltex needed now was consistency in the currency, better consumer confidence, a pick-up in home building and no shocks.

"But we can't keep using the currency and economy as an excuse. We need to get to a position to compete in various economic environments," Thomas said.

The net profit was dragged to a loss by one-off restructuring costs of $15 million - mainly for the 302 redundancies that followed closure of the Braybrook yarn plant in Melbourne.

Thomas said Feltex could now better ride out the difficult market where profits were also affected by rising costs and lower prices.

Sales were $21.5 million lower at $139.2 million, with New Zealand sales down by $6 million and Australian sales down by $15.5 million.

In Australia, where it makes 75 per cent of its sales, Feltex had faced more rivalry from imports, a slower housing market and heavy discounting by local manufacturers to maintain volumes.

It had been unable to increase prices to recover high raw material costs, with the average selling price for synthetic carpets falling 4.5 per cent on the same time the previous year.

Without restructuring costs, trading profit for the period would have been $12.5 million, compared with $7.5 million at the same time last year.

Feltex shares sank as low as 46c on the result and recovered slightly to close down 2c at 48c last night. Feltex will not pay a dividend.

Although the company was not yet where he wanted it to be, Thomas said improvements from the restructuring were starting to flow through.

Merger discussions with rival Godfrey Hirst had been canned and after receiving two proposals, Thomas said it was "highly improbable" areas of the two businesses could be rationalised on terms and conditions fair to all Feltex shareholders other than the McKendrick family's Godfrey Hirst, which has an 8.72 per cent stake.

"The McKendrick family want to take on Feltex as cheaply as they can and that's not our job," he said.

"We could not have been more open with them in the face of some difficulties."

Thomas was "cautiously optimistic" about the Australian market, but the New Zealand economy was a concern.

"It's tough out there and we expect it to be tougher. But we are in a far better position to address it than we were six months to 12 months ago."

In that time, the company has carried out a wide-ranging review of all its operations to address the two profit downgrades last year.

That saw former chief executive Sam Magill and 46 senior executives replaced by a new management team, closure of the Melbourne yarn plant and consolidation of woollen yarn manufacturing in New Zealand, and reorganisation of the company's sales and marketing divisions.

Stock had been reduced by $12.5 million, slowing production at all plants, and the company was now "far more careful about forward production planning", said Thomas.

At the time, Feltex said the restructuring was expected to result in annual savings of $11 million against a one-off cost of about $11.5 million. The company was looking to improve plant use, manufacturing processes and reduce its general corporate overhead.