Half Year Results Announcement To 31 December 2004
AUCKLAND, 11 February 2005 – Tenon today reported operating earnings for the six months ended December 2004 of $28
million, compared with $25 million recorded in the corresponding six months to December 2003. Commenting on the result
the Chief Executive, John Dell, said, “We are obviously very pleased with the strong performance for the first six
months. The business delivered earnings growth in a challenging business environment.
The adverse impact of foreign exchange rates, period over period, negatively impacted operating earnings by $14 million,
so the headline result masks strong underlying operating earnings growth.” Highlights during the six month period
included: • Solid earnings contribution from our US distribution businesses, The Empire Company (“Empire”) and American
Wood Mouldings (“AWM”) • Continued strong domestic and Australian demand for lumber products and strong first quarter
USA product prices • Commenced upgrade at the Kawerau sawmill and completed improvements at the Mount Maunganui Plywood
plant • Announcement of the second capital return of $321 million which equates to $1.15 per existing share •
Conditional agreement to sell the Structural Consumer Solutions business to Carter Holt Harvey Limited (“CHH”) for $165
million plus working capital movements The net profit after taxation for the six months to December 2004 was $17 million
compared to a $26 million loss for December 2003. The prior year loss included a loss from discontinued activities of
$46 million. 2
Operating Performance Operating revenue for the period totalled $367 million, up $155 million (73%) on the
corresponding six months to December 2003. The increase was driven by the consolidation of Empire for the full six month
period, increased sales volumes to the domestic and Australasian markets, and the inclusion of arising grade log sales
that were previously included within discontinued forestry activities. Earnings before interest, tax, depreciation and
amortisation (“EBITDA”) for the six months to December 2004 were $36 million, compared to $32 million for the six months
to December 2003. The average NZ / US dollar and NZ / Australian dollar exchange rates during the six months to December
2004 were $0.6756 and $0.9223 compared to $0.6036 and $0.8810 respectively for the six months to December 2003.
The earnings impacts of these currency movements were not mitigated by hedging activities (2003: $6 million pre-tax
gain). EBITDA for the Structural Consumer Solutions segment was $11 million for the current period, compared to $13
million for the prior year corresponding period and $8 million for the six months to June 2004. Sales prices remained
firm, however, increased log prices over the prior comparative period reduced earnings. EBITDA for the Appearance
Consumer Solutions segment was $27 million for the current period, compared to $13 million for December 2003 and $24
million for the six months to June 2004.
Earnings were adversely impacted by the strong NZ dollar, however, this was offset in the first quarter by strong
Moulding and Better sales prices (USD1,355 per mbf). Earnings were also enhanced by the consolidation of Empire for the
full six month period, compared to two months in the comparative period to December 2003. Continued revenue growth
within Tenon’s US distribution companies increased underlying US dollar earnings. Included within the current period
EBITDA is a charge of $6 million for Support Services costs, interest income of $6 million and foreign exchange losses
of $2 million. In the comparative period to December 2003, EBITDA included a foreign exchange gain of $6 million while
Support Service costs were included within discontinued activities.
Cash Flows Net cash from operating activities for the six months to December 2004 was $4 million, down from $9 million
in the corresponding period to December 2003 due to increased investment in working capital. Cash applied to working
capital of $21 million supported revenue growth at Empire, an increased proportion of longer lead time export debtors
within Structural Consumer Solutions, additional safety stock at Kawerau sawmill in advance of the commissioning of the
front-end upgrade project and higher inventory levels in the USA. 3 The company invested $10 million of capital
expenditure during the period, primarily for the Kawerau sawmill front-end upgrade project ($7 million) and the log
preconditioning upgrade at the Mount Maunganui Plywood plant ($1 million). The Kawerau sawmill front-end upgrade is in
the final stages of commissioning, while the log pre-conditioning upgrade was successfully commissioned in October 2004.
The company has net cash of $200 million as at 31 December 2004, including the debt owed by Empire of $14 million.
Capital Return On 22 December 2004, shareholders approved a capital return of $321 million by cancellation of three out
of every four shares on issue and payment of $1.5333 per share cancelled which equates to $1.15 per share prior to
cancellation. Shareholders of record at 5:00 pm on Wednesday 16 February 2005 are entitled to the payment, which is
expected to be made on or around 23 February 2005.
Structural Consumer Solutions Review Following credible unsolicited approaches in relation to the Structural Consumer
Solutions business, the company undertook a strategic review that resulted in a conditional agreement to sell the
Structural Consumer Solutions business to CHH for $165 million plus working capital movements, all payable in cash.
Including additional working capital to be released from log procurement, the cash to be received will increase to
approximately $170 million. The agreement is subject to the completion of the Kawerau Sawmill front-end upgrade project
and other standard commercial conditions. Settlement is expected to occur in the first quarter of calendar 2005.
Market Outlook / Financial Guidance
It is expected that while the company’s underlying EBITDA for the full year will be in the range of $60 - $64 million
(before accounting for the sale of the Structural Consumer Solutions business), the composition of earnings will change.
It is anticipated that the Appearance Consumer Solutions business’ earnings will be lower than forecast in the Target
Company Statement released on 12 May 2004, that assumed a NZ / US dollar exchange rate of NZD1.00 = USD0.60, offset by
improved earnings from the Structural Consumer Solutions business and interest income. The company will provide further
earnings guidance, following the sale of the Structural business becoming unconditional, to reflect the impact of the
sale on the full year’s result. 4
Segmental Volume Information Sales Volumes (000m3) Six months to Dec 2004 Jun 2004 Dec 2003
Manufactured Product Sales
Solid Lineal Mouldings 16 18 13 Laminated and Finger-Jointed Product Appearance 0 0 7 Structural 37 33 32 Lumber and
Roundwood Appearance 77 69 74 Structural 235 222 208 Total 365 342 334 Third Party Lumber Trading 15 15 17 Total 380 357
351 5 Tenon Limited and Subsidiaries
Statement of Financial Performance (unaudited) Six Months Year Ended Six Months Note Dec 2004 June 2004 Dec 2003 NZ$m
NZ$m NZ$m Operating Revenue 2 367 556 212 Operating Expenses (339) (506) (187) Unusual Items 3 (2) Operating Earnings 28
48 25 Funding Costs 4 (1) (2) Earnings before Taxation 27 46 25 Taxation (7) (11) (4) Earnings after Taxation 20 35 21
Minority Interest (3) (3) (1) Net Earnings from Continuing Operations 17 32 20 Net Earnings from Discontinued Operations
(74) (46) Net Earnings 17 (42) (26)
Per Share Information - Continuing Operations: Basic and Diluted Net Earnings per Share (cents) 6.1 11.5 7.2 Net Assets
per Share ($) 1.72 1.69 1.49 Basic and Diluted Weighted Average Number of Shares Outstanding (millions of shares) 279
279 279 Shares used for Net Assets per Share (millions of shares) 279 279 558 6 5 0 Tenon Limited and Subsidiaries
Statement of Movements in Equity (unauditied)
Six Months Year Ended Six Months Dec 2004 June 2004 Dec 2003 NZ$m NZ$m NZ$m Net Earnings for the year, comprising: Net
Earnings from Continued Operations Parent Shareholders' Interest 17 32 20 Minority Interest 3 3 1 Net Earnings from
Discontinued Operations Parent Shareholders' Interest (74) (46) Minority Interest (1) 20 (40) (25) Other Recognised
Revenues and Expenses for the year Movement in Currency Translation Reserve Parent Shareholders' Interest (8) (3) (6)
Minority Interest (1) Total Recognised Revenues and Expenses for the year 11 (43) (31) (Disposal)/Acquisition of
Minority Interest (19) 6 6 Capital Return - Parent Shareholders' Interest (349) Dividends - Minority Interest (1)
Movements in Equity for the year (8) (387) (25) Total Group Equity at the beginning of the year, comprising Parent
Shareholders' Interest 470 864 864 Minority Interest 28 21 21 498 885 88 Total Group Equity at the end of the year,
comprising Parent Shareholders' Interest 479 470 832 Minority Interest 11 28 28 490 498 86 7 Tenon Limited and
Subsidiaries
Statement of Financial Position (unaudited) Dec 2004 June 2004 Dec 2003 NZ$m NZ$m NZ$m
ASSETS
Current Assets: Cash and Liquid Deposits 214 141 Stocks 92 83 71 Debtors 70 82 43 Current Assets - Discontinued
Operations 10 133 62 Total Current Assets 386 439 176 Term Assets: Fixed Assets 118 116 114 Investments 26 34 29
Goodwill 11 12 12 Deferred Taxation Asset 22 22 (3) Term Assets - Discontinued Operations 750 Total Group Assets 563 623
1,078
LIABILITIES AND GROUP EQUITY
Liabilities Current Liabilities: Creditors 55 73 46 Provision for Current Taxation 1 1 1 Current Liabilities -
Discontinued Operations 3 17 30 Total Current Liabilities 59 91 77 Term Liabilities: Term Debt 14 34 35 Term Liabilities
- Discontinued Operations 106 Total Group Liabilities 73 125 218
Group Equity
Group Equity 479 470 832 Minority Equity 11 28 28 Total Group Equity 490 498 860 Total Group Liabilities and Equity 563
623 1,078 8 2 Tenon Limited and Subsidiaries
Statement of Cash Flows (unaudited)
Six Months Year Ended Six Months Dec 2004 June 2004 Dec 2003 NZ$m NZ$m NZ$m Total Provided 371 557 20 Total Applied 367
537 193 Net Cash from/(to) Operating Activities 4 20 9 Sale of Investments 9 Purchase of Fixed Assets (10) (12) (5)
Purchase of Investments (1) Purchase of Subsidiary (17) (17) Net Cash to Investing Activities (1) (30) (22) Net Debt
(Settlements)/Drawdowns (18) (94) 13 Capital Return Paid to Shareholders (349) Net Cash (to)/from Financing Activities
(18) (443) 13 Net Cash from/(to) Discontinued Operations 90 549 (29) Net Movement in Cash Held 75 96 (29) Add Opening
Cash and Liquid Deposits - Continuing Operations 141 - Discontinued Operations 47 47 Effect of Exchange Rate Changes on
Net Cash - Continuing Operations (2) (1) - Discontinued Operations (1) (2) Closing Cash and Liquid Deposits -
Discontinued Operations 16 Closing Cash and Liquid Deposits - Continuing Operations 214 141 9 Tenon Limited and
Subsidiaries
Reconciliation of Net Earnings to Net Cash from Operating Activities
(unaudited) Six Months Year End Six Months Dec 2004 June 2004 Dec 2003 NZ$m NZ$m NZ$m Cash was Provided from: Net
Earnings from Continuing Operations 17 32 20 Adjustment for Items not involving Cash: Depreciation, Amortisation and
Provisions 8 7 (1) Taxation 1 1 2 Minority Interest 3 3 1 Equity Earnings (4) (8) (5) Cash Flow from Operations before
Net Working Capital Movements 25 35 17 Net Working Capital Movements (21) (15) (8) Net Cash from Operating Activities 4
20 9 Notes to the Condensed Financial Statements 1. These interim Financial Statements have been prepared in accordance
with FRS 24 "Interim Financial Statements".
The statements should be read in conjunction with the 2004 Annual Report of Tenon Limited. The accounting policies used
in these Financial Statements are consistent with those used in the previously published Annual Report. 2. Operating
revenues includes Equity Earnings from Associate Companies of $8 million (June 2004: $15 million, December 2003: $8
million), including dividends received of $4 million (June 2004: $7 million, December 2003: $3 million), and interest of
$6 million (June 2004: $4 million, December 2003: $1million).
On 1 November 2003, Tenon increased its stake in The Empire Company from 33% to 67%. From this date the financial
results of The Empire Company are fully consolidated. 3. Unusual Items Six Months Year Ended Six Months Dec 2004 June
2004 Dec 2003 NZ$m NZ$m NZ$m Costs associated with partial takeover - (2) - 4. Interest expense for the year ended June
2004 includes a $2 million mark to market gain on interest rate swaps (December 2003: $2 million cost). 5. The net cash
from Discontinued Operations of $90 million comprises $97 million for the sale of forestry rights, $24 million for the
sale of forest land and $2 million forestry debtor receipts, partially offset by the payment of $14 million to creditors
and $19 million for the purchase of the Tarawera Forests Limited minority equity from Maori Investments Limited and The
Crown. 6. On 22 December 2004, the company entered into a conditional agreement to sell the Structural Consumer
Solutions business to Carter Holt Harvey Limited, for $165 million plus working capital movements, all payable in cash.
The effect of this conditional agreement has not been recognised in these interim financial statements. 10
Segmental Information Summary
December 2004 Structural Appearance Support(1) Other(2) Tenon Six months to NZ$m NZ$m NZ$m NZ$m NZ$m Operating Revenue
154 207 6 367 Earnings before Interest, Taxation, Depreciation, Amortisation and Unusual Items 11 27 (2) 36 Depreciation
and Amortisation (4) (3) (1) (8) Operating Earnings before Unusual Items 7 24 (1) (2) 28 Unusual Items - Operating
Earnings 28
June 2004 Structural Appearance Support(3) Other(2) Tenon
Six months to NZ$m NZ$m NZ$m NZ$m NZ$m Operating Revenue 143 199 2 344 Earnings before Interest, Taxation,
Depreciation, and Unusual Items 8 24 (3) 3 32 Depreciation (3) (3) (1) (7) Operating Earnings before Unusual Items 5 21
(4) 3 25 Unusual Items (2) Operating Earnings 23
December 2003 Structural Appearance Support(4) Other(2) Tenon
Six months to NZ$m NZ$m NZ$m NZ$m NZ$m Operating Revenue 108 104 212 Earnings before Interest, Taxation, Depreciation,
and Unusual Items 13 13 6 32 Depreciation (4) (3) (7) Operating Earnings before Unusual Items 9 10 6 25 Unusual Items -
Operating Earnings 25 (1) Relates to interest income on cash ($6 million) and included within operating expenses are
overheads of $7 million. (2) Relates to realised foreign exchange losses of $2 million December 2004 (June 2004: $3
million, December 2003: $6 million) not attributed to a specific business segment. (3) Prior to the sale of the forest
assets, shared service overheads not specific to the Structural Consumer Solutions or Appearance Consumer Solutions
segments were included in the Forests and Supply segment and included in discontinued operations. Includes interest
income on cash ($2 million), also included within the operating expenses from continuing operations are overheads of $6
million for June 2004 (being support costs post the forest assets sale).
Support costs on an annualised basis are estimated at $15 million. (4) Prior to the sale of the forest assets, shared
service overheads not specific to the Structural Consumer Solutions or Appearance Consumer Solutions segments were
included in the Forests and Supply segment and included in discontinued operations.
ENDS