Anger at Feltex profit slump

Investor anger is mounting over Feltex Carpets' profit warning, with analysts calling for the Securities Commission to investigate.

It comes amid rumours that Feltex will make a financial announcement - possibly as soon as today - to try to reassure the market after the warning on April 1 wiped almost a third off the manufacturer's sharemarket value.

The major shareholder's complaint focuses on disclosure statements in Feltex's prospectus, issued ahead of last June's share float.

The shares floated at $1.70 each but yesterday fell 5c to 87c.

"If we've got a strong legal angle [to pursue recovery] we will certainly look at pursuing it," said the shareholder, who did not wish to be named.

The trouble began when Feltex slashed its 2004/05 profit forecast by up to $9 million to between $15 million and $16 million.

The warning came just weeks after Feltex posted a 7.1 per cent rise in half-year profit to $12.2 million on February 23. It sent the company's shares crashing 46c to $1.04.

On February 23, Feltex also said it was on track to meet prospectus earnings forecasts and net profit projections for the full year "remained achievable". Yesterday, investors and analysts said those forecasts had been repeated verbally by Feltex after February 23.

One analyst, also speaking on condition of anonymity, said Feltex's revised full-year profit forecast amounted to a prediction of a second- half profit of no more than $4 million - 70 per cent less than earlier forecasts.

The analyst said the commission would be failing in its duty to protect investors if it did not investigate why Feltex had fallen so short of prospectus forecasts.

"The investing public and the market is owed a decent explanation," the analyst said.

Feltex's prospectus predicted net profit for the year to June 30 this year of $23.9 million.

Shareholders' Association chairman Bruce Sheppard said he was offered "hundreds of thousands" of Feltex shares at the float but declined.

Sheppard is also concerned that Feltex chairman Tim Saunders is overcommitted with directorships at several major companies including Contact Energy, NZX and Solid Energy.

"I think he needs to pull out of the Contact board and focus his energies on fixing Feltex," Sheppard said.

Saunders, chief executive Sam Magill and finance chief Des Tolan were unavailable for comment yesterday, and NZX and the commission refused to comment.

Among reasons for the April 1 downgrade, Feltex cited market conditions in New Zealand and Australia being more difficult than expected, a shortage of laying contractors, increased price competition and the ongoing strength of the kiwi dollar.

The analyst, meanwhile, said another issue was investors who bought Feltex shares after February 23 on the basis of confirmation that the company was on target to meet earnings and profit forecasts.

Feltex's major shareholders include Australia's Hunter Hall Investment Management with 9 per cent, the Accident Compensation Corporation with 4.8 and South Canterbury Finance with 2.

Feltex's $254 million float was New Zealand's biggest in five years.

Carpeted

June 2004: Floats at $1.70, forecasting profits for the year to June of $23.9 million.
August 2004: Shares hit high of $1.75.
February: Claims net profit forecasts achievable.
April 1: Slashes forecast of net profit to between $15 million and $16 million. Shares plunge.