Feltex down, Magill out

Tim Saunders

Feltex chief executive Sam Magill yesterday promised to quit the carpet manufacturer as a second profit downgrade in 2 1/2 months saw its shares plummet.

Australian-based Magill will leave after the company's annual meeting in December as part of a full review of its operations and senior management, which threatens job losses at local plants.

New Zealand's largest carpet manufacturer is now expecting a full-year net profit of between $11.5 million and $12 million.

This compares with its April profit guidance of $15 million to $16 million - made one month after the company indicated its $23.9 million prospectus forecast would be met.

The shares yesterday fell 23c to close at 47c - 72 per cent down on last June's float price of $1.70.

That drop in value makes Feltex the worst performer on the NZSX-50 index this year.

Feltex chairman Tim Saunders said yesterday that the company - now valued at $70 million compared with $250 million at the float - was vulnerable to a takeover, although no approaches had been made.

Left to face media and analysts in Auckland, Saunders and chief financial officer Des Tolan attributed the latest downgrade to further weakening in its biggest market, Australia, and a weakening in New Zealand.

Saunders said rivalry across the Tasman, where the company makes 75 per cent of its sales, would probably intensify while demand fell in New Zealand. In both countries, rising local currencies had made imported carpets more competitive.

Fourth quarter earnings projections of between $200,000 and $700,000 before restructuring costs would be a small turnaround on its third quarter loss of $880,000 - but not to the level the company expected in April.

A 6c interim dividend was paid in April, but there would be no final dividend.

Uncertainty about a recovery in markets had highlighted the need for a full review of operations, including cost structures, the location of plants and production capacity.

Saunders said job cuts were possible if the company moved plants to Asia. "We are not ruling anything out."

Magill, a 36-year carpet industry veteran, would have a role to play in the review.

Saunders, who will head the company until Magill is replaced, will shortly begin talks on Magill's severance payment.

The chief executive, who receives a $510,000 basic salary and last year got a $450,000 bonus, is contracted to the company until December 2006.

His successor is likely to be an external appointment, Saunders said. "It's become clear for the changing situation we have to seek new blood to come into the top of the organisation."

June 2004: Feltex floats at $1.70, forecasts $23.9 million profit for year to June.
August 2004: Shares hit high of $1.75.
February: Company claims it is on track to meet net profit forecasts.
April 1: Slashes net profit forecast to $15 million-$16 million. Shares crash 46c to $1.04.
April 13: Reverses profit for three months to March from $2.4 million the previous year to a loss of $888,000.
June 20: Full-year net profit forecast lowered further to $11.5 million-$12 million. Chief executive Sam Magill to step down at end of the year.