U-turn is still some way off for Feltex

Feltex chief executive Sam Magill cut tracks from the carpet-maker four months early yesterday as it warned the tough times were likely to roll into the next quarter.

Meanwhile, as the company disclosed full-year profits had risen just $587,000 to $11.8 million, chairman Tim Saunders was locked in merger talks with its biggest rival Godfrey Hirst. No agreement had been reached by last night.

Magill originally planned a Christmas departure date. He quit in June after the carpet-maker's second profit downgrade in three months.

The company would not disclose his severance payout, saying it was included in the $1.3 million payout to four senior managers who shared responsibility for the downgrades.

Melbourne-based director Peter Thomas will fill Magill's shoes until a new chief executive is appointed. A decision is expected by year end.

Saunders was in Melbourne trading financial information on Godfrey Hirst, which snared a 10 per cent stake in Feltex in June. He said the full-year result reflected the medley of adverse market conditions responsible for the first profit downgrade in March.

They included a severe drop in consumer confidence and a sharp slowdown in the residential carpet market across the Tasman, where it earns 75 per cent of its revenue.

Analysts and industry players have since argued management should have anticipated the slowdown. Sales fell $29 million to $300.2 million.

Australian sales made the biggest dent in the earnings, down $11.3 million on the previous year as competition from imports, intense local competition and higher synthetic raw material costs eroded margins. Translating the figures into local dollars also reduced revenue by $5.3 million.

New Zealand sales remained strong however, up $1.6 million..

No final dividend would be paid because of poor performance in the second half.

The company said lower demand, tighter margins and pressure from imports was expected to continue into the first quarter of this year.

From now on, Feltex will release its financial results six-monthly, rather than quarterly.

Saunders said good progress was being made with an operational review of top-level management, plant costs, locations and capacity.

Forty-six positions have been made redundant so far. The $2.5 million provision for their severance and other restructuring costs would be included in this year's result.

Saunders said having completed his part in the review process, Magill was able to leave the company early. It was also time for the senior executives to step up and work as a new team.

"Sam Magill has done a good job readying the company for its transition to a leaner and different business, and Peter will do an excellent job of overseeing the executive team until the new chief executive is appointed."

A 36-year veteran of the carpet industry, Magill had been at the helm of Feltex since 2000. He formerly managed Shaw Industries Australia which merged with Feltex that same year.

Saunders said the board had a good shortlist of candidates for his position and was on track to make an appointment before its December annual meeting.

Thomas served on the Feltex board for nine years. He was an executive of Credit Suisse First Boston in Australia for 20 years to 2001.

In 1996, CSFB and a management team paid $19.5 million for Feltex. It sold out in last year's float.

Feltex shares, which have plunged 61 per cent since April, making it the worst performer on the NZX, were unchanged on 59c yesterday. The company is now valued at $88.2 million, compared with $250 million at its float.