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Wood processor Tenon triples profit on US housing recovery, says strategic review on-going

Tuesday 16th February 2016

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Tenon, the Taupo-based wood processing, marketing and distribution company, has tripled first-half net profit mainly due to the improving US economy driving the American housing market recovery.

Net profit was US$6 million for the six months ended Dec. 31, compared to US$2 million in the previous corresponding period, the NZX-listed company said in a statement.

Tenon, which sells most of its wood mouldings in the US, was formerly known as Fletcher Forests when spun out of the old Fletcher Challenge conglomerate in 2001.

Revenue was up 5 percent to US$210 million in the first half, with its dependence on the North American market increasing. The US accounted for US$188 million of revenue and Australasia for just US$22 million compared to US$178 million and US$31 million respectively in the first half of last year.

Foreign exchange losses, which were up 70 per cent on the same time last year, and US$1.8 million in costs associated with its strategic review, reduced earnings before income and tax from US$12 million to US$10 million.

Last year Tenon hired Deutsche Craigs and Deutsche Bank to review the gap between its value and the company’s share price, now at $2.55.

Chief executive Luke Moriarty said in a letter to shareholders today that the review was not yet at the point where it could formally announce any conclusions on the process. “However, we can say that it remains on track for an announcement in Q2 of this calendar year,” he said. He made no mention of talk last year that the review had sparked buyer interest. 

Tenon is nearly 60 percent controlled by forest research business Rubicon which NBR reported is appealing a December US court ruling that found it jointly liable to pay damages and costs of US$53 million to nine employees of Arborgen, its other investment in which it has a near 32 percent stake.

Moriarty said the first-half results are a continuation of the recovery in Tenon’s earnings driven by on-going growth in the US and the commissioning of two capital upgrades at its New Zealand manufacturing plant.

Tenon has already indicated that its target for the current fiscal year is to produce earnings before income, tax, depreciation, and amortisation in excess of US$20 million, excluding project costs and foreign exchange hedging contract losses.

“Our first-half result puts us well on track to comfortably meet this goal,” Moriarty said.

Woolworth’s announcement last month that its struggling Masters home improvement chain in Australia would be wound down or sold won’t be material to Tenon’s earnings although it provides product and services to the chain, he said.

Last year Tenon resumed dividend payments and will pay an interim dividend for the 2016 year of 5.75 cents per shares, a 15 percent increase on last year’s 5 cent final dividend.  The record date is March 29 and it will be payable on Apr. 4.

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