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Tenon breaks even in first half; demand from China grows

Thursday 18th February 2010

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Tenon, the specialty wood products manufacturer, broke even in the first half, including financing expenses, as the weak US housing market dragged on earnings.

Operating profit fell to US$2 million in the six months ended December 31, from US$3 million a year earlier, the company said in a statement today. Financing costs of US$2 million wiped out the profit.

The absence of a net profit belies the activity at its Taupo-based plant, which is humming as Tenon fills booming orders from China, prompting the company to move to continuous four-shift operations. The company claimed in its first-half commentary that it was "the only grade-sawing mill in the world operating on a 24/7 rotation in today's operating climate".

The result was "an excellent achievement in a continuing difficult operating environment," chairman Luke Moriarty said.

Tenon's performance is highly correlated to activity in the U.S. housing market, which Tenon expects "will turn positive” in calendar 2010.  Charts with the first-half results show that the forward supply of new and existing housing in the US fell from a peak of near 12 months to around eight months in December, but that new housing starts continued the flat-line trend of the previous six months.

There was no change in the Tenon share price today, at 84 cents.

The company uses direct heat from geothermal steamfields to make high quality wooden mouldings and other home construction and renovation products, to date mainly for the U.S. market, where it has significant presence in two of the key "big box" home renovation chainstores, Lowes and The Home Depot.

Its growth was hit hard by the collapse in U.S. house prices which preceded the global financial crisis and the company says U.S. unemployment is "a key activity driver" for the company.

Revenue fell to US$159 million, from US$166 million a year earlier.  Cost of sales declined by US$5 million to US$114 million, but administration expenses rose US$2 million to US$8 million.

Kiwi dollar volatility was marked in the period, but the company adopted a hedging strategy that preserved $600,000 of value.

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