INDEPENDENT NEWS

Feltex Delivers Earnings Above IPO Prospectus

Published: Tue 24 Aug 2004 03:42 PM
NEWS RELEASE: 24 AUGUST 2004
Feltex Carpets Delivers Earnings
Above IPO Prospectus Forecast
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.
FY 2004 FY 2003
Actual Actual
$000 $000
Operating revenue 327,755 314,352
EBITDA - Before one-off items
(Earnings before interest, taxation, depreciation and & amortisation) 46,174 31,172
EBITDA - After one-off items (Refer table below)
(Earnings before interest, taxation, depreciation and & amortisation) 42,151 31,172
Net surplus 11,183 6,841
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.
A complete comparison of the IPO forecast against the actual statement of financial performance is included at the end of this news release.
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:
- 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;
Maintenance of sales of higher value products and better margin market segments;
- 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;
- 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:
- Improved margins associated with the successful change in product mix to the upper end of the value spectrum;
- Ongoing cost savings associated with increased yarn production in New Zealand for use in Australian manufacturing;
- 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.
The actual EBITDA comparison to the forecast included in the IPO prospectus is detailed below:
FY 2004
Actual Forecast
$000 $000
EBITDA - Before one-off items 46,174 45,791
Christchurch woven plant redundancies (2,773) (2,800)
Rubber underlay closure costs (1,250) (1,350)
EBITDA - After one-off items
(Earnings before interest, taxation, depreciation, amortisation and write-offs - excluding one-off items) 42,151 41,641
EBITA
(Earnings before interest, taxation, amortisation and write-offs - excluding one-off items) 38,866 37,715
NPAT
(Before amortisation, write-offs, premium on early redemption of secured bonds and one-off items) 27,201 26,457
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.
IPO Forecast Comparison
Detailed below is a comparison of the IPO forecast against the actual statement of financial performance.
Statement of Financial Performance Actual Forecast Variance
For the year ended 30 June 2004 $000 $000 $000
Total operating revenue (a) 327,755 335,498 (7,743)
EBITDA (Earnings before interest, tax, depreciation and write-offs - excluding one-off items) 46,174 45,791 383
Christchurch woven plant redundancies (2,773) (2,800) 27
Rubber underlay closure costs (1,250) (1,350) 100
EBITDA (Earnings before interest, tax, depreciation and write-offs) (b) 42,151 41,641 510
Depreciation (c) (7,308) (8,076) 768
EBITA (Earnings before interest, tax, and write-offs) 34,843 33,565 1,278
Amortisation of goodwill (1,974) (1,958) (16)
Write-off of bank facility fee (339) (341) 2
Write-off of secured bond issue expenses (4,882) (4,881) (1)
Earnings before interest and income tax 27,648 26,385 1,263
Interest expense (13,466) (13,307) (159)
Premium paid on early redemption of secured bonds (Early Redemption Amount) (4,800) (5,014) 214
Operating surplus before income tax 9,382 8,064 1,318
Income tax benefit / (expense) 492 649 (157)
Net surplus after income tax 9,874 8,713 1,161
Equity accounted earnings of associate company 1,309 1,400 (91)
Net surplus attributable to ordinary shareholders (d) 11,183 10,113 1,070
Earnings per share - cents per share 9.15 8.27
Dividends per share for year ended June 2004
- cents per share
(Declared subsequent to balance date) 6.00 6.00
Explanations for variances to forecast
(a) Sales were lower than forecast by $7,743,000 mainly due to the following:
- The translation impact of the stronger New Zealand dollar in the month of June 2004 on the Group's Australian sales when converted into New Zealand dollars for reporting purposes;
- Lower than forecast sales in April and May 2004, particularly in the volume segments of the business. The shortfall was to some extent made up by stronger than forecast sales in the month of June 2004. Although sales were below forecast in the fourth quarter, the Group achieved a superior product mix of sales, yielding higher than forecast margins.
(b) EBITDA, after one-offs, was higher than forecast by $510,000 mainly due to the superior product mix of sales, yielding higher than forecast margins and actual overheads lower than forecast.
(c) The depreciation charge was $768,000 below forecast mainly due to the timing of capital expenditure; i.e. capital expenditure being incurred later than forecast. Excluding the Foxton property purchase of $4.8 million at the end of June 2004, actual capital expenditure was $2,691,000 below forecast.
(d) Net surplus attributable to ordinary shareholders exceeded forecast by $1,070,000, mainly due to higher than forecast EBITDA of $510,000 (refer note (b) above) and lower than forecast depreciation of $768,000 (refer note (c) above).
ENDS

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