Feltex Carpets Limited has today announced a net surplus of $11.2 million for the year ended June 2004, compared to $6.8 million in the previous year, representing a $4.3 million improvement. This performance exceeded the forecast made in the IPO prospectus by $1.1 million.

Net Profit after tax, excluding one-off items, was $27.2 million for the year ended June 2004, compared to $6.8 million in the previous year, representing a $20.4 million improvement.

Revenue increased to $328 million, compared with $314 million in the prior financial year. The increase of $14 million represented a 4.3% improvement and is attributed to the following factors:

1) Completion of the installation of the relocated and acquired spinning equipment in New Zealand, providing Feltex with additional capacity to service the middle sector of the wool carpet market;

2) Maintenance of sales of higher value products and better margin market segments;

3) New products introduced into the market as a result of the investment in new tufting technology installed in June 2003. These products have been well accepted by the market and sales are above expectations;

4) Generally favourable market conditions in New Zealand and Australia.

EBITDA, adjusted for one-off items, increased to $46.2 million, compared with $31.2 million in the prior financial year. The increase of $15 million represents an improvement of 48.1% and is attributed to the following factors:

1) Improved margins associated with the successful change in product mix to the upper end of the value spectrum;

2) Ongoing cost savings associated with increased yarn production in New Zealand for use in Australian manufacturing;

3) Benefits of the 2003 financial year’s capital expenditure programme, which increased wool yarn capacity, lowered wool yarn costs and enabled new products to be manufactured by the tufting technology acquired in that programme.

During the year the company restructured its woven carpet operations in Christchurch in response to a decrease in the demand for its woven carpet. The decrease in demand is in part due to advances in tufting technology and in part to the strength of the New Zealand dollar relative to the currencies of some of the company’s significant export markets, particularly in the USA. In the year ended June 2004, the one-off cost of the restructuring was $2.8 million, in line with the forecast. Feltex projects that the resulting cost savings of a reconfigured woven carpet operation will be approximately $3 million per annum.

The company closed its rubber underlay manufacturing plant in May 2004. In the year ended June 2004, the one-off closure cost was $1.25 million, slightly below the forecast. Discontinuing the rubber underlay business will not have a material impact on the future earnings of Feltex.

It is pleasing to report that the financial forecast, apart from sales, for the year ended June 2004 made in the IPO prospectus were achieved or exceeded.

 

Capital Expenditure

Capital expenditure for the year ended June 2004 was $10.6 million. The most significant item was the purchase of the Foxton manufacturing site for $4.8 million at which the company’s New Zealand tufted carpet operations are based. The purchase of the property provides the Company with full control over one of its key manufacturing sites and the flexibility for future development and expansion on the site. The company has leased the property since the 1980s. The purchase of the property will have a positive impact on future earnings, with depreciation and financing costs being more than offset by the property rental savings.

 

Dividends

The Directors of Feltex Carpets have authorised a final dividend of 6 cents per ordinary share for the year ended June 2004, in line with the forecast in the prospectus.

Due to the Company’s Initial Public Offering of shares and the resultant change of ownership of the Company on 2 June 2004, the Company was unable to carry forward imputation credits as it did not satisfy the shareholder continuity provisions of the Income Tax Act. As a result the final dividend for the year ended June 2004 will have no imputation credits attached.

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.

Outlook

The overall market is expected to be stable with continued growth in the commercial market offsetting a slow down in the residential market in the new housing and apartments segments. We expect to achieve the projected earnings for 2005 as outlined in the IPO prospectus; EBITDA of $51.7 million and Net Profit After Tax of $23.9 million.