Wellington, New Zealand, February 23--Carpet maker Feltex Carpets Ltd. reported a 7.1% rise in net profit for the first half of its fiscal year despite a fall in revenue, and said the lift came as it shifted its product mix toward higher margin carpets.
The New Zealand-based company said in a statement that its net profit for the six months to Dec. 31, 2004 was NZ$12.2 million, up from NZ$11.4 million a year ago.
The profit was achieved from revenue of NZ$160.5 million, which was down 7.4% on year as the company's Australian sales were hurt by the translation effect of the New Zealand dollar's strength against its Australian counterpart.
Feltex said the stronger New Zealand dollar had reduced its first-half revenue by NZ$6 million, but sales had also fallen as the company concentrated its focus on "higher margin segments of the market."
The company warned it is unlikely to meet its prospectus forecast for full-year revenue of NZ$348.1 million, but said its forecast full-year net profit of NZ$23.9 million is still achievable.
Full-year revenue is likely to total between NZ$310 million and NZ$315 million, a shortfall of about 10% on the prospectus forecast, the company said.
Since listing on the stock exchange in the middle of last year Feltex has struggled to win favor with investors as it battled the effects of a high New Zealand dollar and expectations of weakening demand in the residential building markets of both New Zealand and Australia.
The company said it anticipates a fall in demand from the Australian residential market in the second half of its fiscal year, although it noted the effects should be partially offset by higher sales of premium residential carpets and stronger commercial sector sales.
Feltex's soft revenue outlook disappointed some investors, and by 2330 GMT the company's shares were down 3% at NZ$1.64, although they had made a small recovery after falling 5.9% in early trade.
First NZ Capital senior broker Malcolm Davie said Feltex's revenue comments were "somewhat disappointing."
"The market won't be too impressed by that," he added.
Feltex said its earnings before interest, tax, depreciation and amortization were NZ$24.6 million, up 6.9% on year, while its operating earnings margin lifted to 15.4% from 13.4%.
The company said its capital expenditure for the first-half period totaled NZ$9.2 million, most of it related to the acquisition of new tufting equipment which will be installed and commissioned in the second half.
Feltex said it expects its full-year capital expenditure to total NZ$16.5 million.
Forsyth Barr analyst John Cairns said Feltex has been spending money to upgrade its machinery as it moves away from high volume carpets toward higher margin carpets, a shift that has been well-flagged.
He said that the margin trends seen in Feltex's latest result are positive, and that the company's new machines will "further enhance" its position when they become operational.
Cairns added that investors appear disappointed with Feltex's revenue trend, but "the more important line is the operating profit line."
Feltex said its working capital increased by NZ$5.9 million on year, partly due to a seasonal increase in stock levels to service sales during the Christmas manufacturing break.
The company said it expects its working capital to drop back to projected levels by the end of the fiscal year.
Feltex said it is "continuing to make steady progress," but added that it is having trouble attracting labor in New Zealand, where the country's unemployment rate is at a record low of 3.6%.
"This has become a constraint on our ability to meet additional yarn requirements," Feltex said.
The company lifted its interim dividend payout to 6 NZ cents a share, which is 15.4% above the projection contained in its prospectus.
