Feltex axes 235 workers

Tim Saunders

Carpet manufacturer Feltex is shedding 235 staff and closing a yarn plant in Australia in an effort to revive its fortunes.

The company's 900 New Zealand workers have come off better from the cutbacks than their counterparts across the Tasman where 185 jobs will be cut when the Braybrook yarn plant in Melbourne closes at the end of the month.

However, 30 workers will lose their jobs at the company's woven carpet operation in Christchurch. Another 20 management jobs will be lost in Melbourne.

The changes will result in savings of $11 million before tax - a figure analysts said was more than expected - against a one-off cost of $11.5 million.

Chairman Tim Saunders said there was no reason the bulk of the savings would not flow through to the bottom line.

The decision, which came out late yesterday, has been anticipated since the company disclosed plans to review all its operations in July in an effort to restore profitability.

The company has made two profit downgrades this year and its share price has plunged from its issue price of $1.70 in June last year to 59c last night.

Saunders, who has chaired Feltex for five years, said the company had looked at closing plants in New Zealand as an alternative to closing the Braybrook plant.

But it became clear closing Braybrook would be the best bet from the point of view of cost and the ability to service a growing market.

Feltex would continue to run a tufting plant in Braybrook to service its Australian customers.

Now all its woollen yarn would be made in New Zealand and, as demand increased, that would boost its workforce here.

Saunders was comfortable with the company's long-term future in woollen carpets, an area in which it was internationally competitive.

Closure of the Braybrook plant would mean the 600 New Zealand employees who had been working four-day weeks would resume normal hours earlier than planned.

The Christchurch woven plant - rumoured to be closing - would stay open despite strong competition from Asia. Saunders believed a move to service niche sectors of the woven carpet market would ensure the plant's survival but, in the short-term, 30 jobs would go.

The company was consulting with unions over the lay-offs, which are in addition to 46 management redundancies made in July.

The company's synthetic carpet operations, import arrangements and manufacturing of yarn were still being reviewed and decisions were expected next month.

However, the company was now through the worst in terms of its restructuring and job cuts, said Saunders.

He confirmed there would not be job cuts at the Dannevirke, Foxton, Lower Hutt or Fielding plants.

More redundancies or closures could not be ruled out at its synthetic operations in Australia.

"I'm not saying there will be or there won't be, but we're certainly examining the viability of that area at the moment."

Saunders did not think the initiatives would affect discussions with Australian carpet manufacturer Godfrey Hirst.

Saunders was due to meet GH, which has been seeking merger talks since snaring a 6 per cent stake in Feltex in June, early next week.

"What we're doing here makes good sense for the company as a whole, and certainly doesn't prejudice any initiatives which might be able to be taken in terms of a merger later on."

Godfrey Hirst could not be reached for comment last night.

Saunders hoped 2006 would be the year Feltex could "take everything on the chin" and that it would start making strides in 2007.

"The only thing we need now is for the market to turn up."

Analysts said costs savings set out by the company looked attractive and perhaps higher than they had expected.

But the extent of the savings fuelled scepticism about how the company was being managed.

"I find it hard to believe they can find $11 million from under the carpet," said one.

Another analyst said it was mildly positive the company had been able to make the changes by itself, rather than under the influence of a predator.