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Feltex Delivers Earnings Ahead Of Prospectus

Feltex Delivers Earnings Ahead Of Prospectus Projections

Feltex Carpets Limited has today announced a net surplus after income tax of $5.7 million for the year ended 30 June 2003, compared with a deficit of $18.5 million in the previous year. The latest performance exceeded projections made in the prospectus for Feltex’s May 2003 issue of secured bonds, of a surplus in the range from $4.2 million to $5.3 million.

After adjustment for minority interests and the earnings of associated companies, the net surplus was $6.8 million compared with a deficit of $18.3 million in the 2002 year.

The Chief Executive Officer, Mr Sam Magill, said the improvement reflected the realisation of benefits from the merger of Feltex Carpets Limited and Feltex Australia Pty Ltd (formerly Shaw Industries Australia Pty Ltd) in May 2000, buoyant market conditions, the commitment of employees and the continuing support of key business partners. Results in the 2002 year had been adversely affected by the contraction in demand in Australia following the preceding surge associated with the Sydney Olympics and the introduction of goods and services tax, by restructuring following the merger, and by industrial action affecting some of the Group’s Australian operations.

Earnings before interest, taxation, depreciation and amortisation grew from $13.2 million to $31.0 million in the latest year, compared to a projected range of $29.9 million to $31.0 million.

Revenue was reduced from $313.6 million to $304.0 million, in line with the projected range contained in the prospectus. Strong growth arising from market conditions in New Zealand and Australia was offset by two factors – firstly, the effects of the sale of the Group’s 51 percent share in Andersens Home Furnishing Co Pty Ltd in April 2002 ($19.2 million); and secondly, the strengthening of the New Zealand dollar against the Australian dollar, which reduced the NZD value of the Group’s Australian sales on consolidation ($22.4 million). The combined effect of these two factors was $41.6 million.

Revenue was also affected by the relocation of some wool spinning equipment from Australia to New Zealand following a decision to consolidate some of the Group’s spinning operations in New Zealand. This temporarily reduced capacity in the first half of the financial year while the equipment was re-installed, and constrained the Group’s ability to meet market demand for wool carpet.

The company’s improved performance enabled capital expenditure of $10.7 million on new equipment and improvements, of which the major proportion was invested in new tufting and spinning equipment acquired and commissioned during the financial year. The benefits of this programme, in the form of new product lines, will flow in the current financial year.

Mr Magill said the other notable feature of the year was the restructuring of Feltex’s financial base following the issue of $60 million in secured bonds in May 2003. New facilities negotiated with the ANZ Banking Group were in place until 2007, providing the Group with an improved and stable funding position and significantly reducing the overall cost of its borrowings.

Mr Magill said the outlook for the current year is encouraging, with trading conditions remaining relatively buoyant and with a number of initiatives under way to further improve performance. The realisation of further benefits from the restructuring of the Group’s operations over the past three years would also be positive for performance, he said.

Feltex Carpets Limited is one of the two largest carpet manufacturers in New Zealand and Australia, with operating revenue in excess of $300 million and with 10 manufacturing sites, of which seven are in New Zealand. The Group produces carpets for the residential and commercial markets – primarily in New Zealand and Australia, and also in the United States and Asia. It also produces rubber underlay, scours wool for its own use and for other wool exporters, and sells a small quantity of wool yarn to other producers. Secured bonds issued by Feltex are traded on the New Zealand Debt Market (NZDX) under the security symbol FTX010.

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