TEN
21/08/2014 09:52
FLLYR
REL: 0952 HRS Tenon Limited
FLLYR: TEN: Tenon Annual Report for year ended 30 June 2014
TENON CONTINUES TO ENJOY EARNINGS MOMENTUM
21 August 2014 - International wood products manufacturer and distributor,
Tenon, said it expected earnings momentum to continue in 2015, after
announcing a return to profitability in its full-year 30 June 2014 result
today.
Tenon's Chairman, Luke Moriarty, said "It is pleasing to see Tenon return to
bottom-line profitability and in doing so more than double EBITDA1
year-on-year. Our net earnings of US$2 million (2013 loss of US$3 million)
came despite the extended severe weather conditions that prevailed in the US
for much of winter through to spring, and the impact of $1 million of costs
relating to the establishment of our new US$70 million bank funding facility.
Our EBITDA1 performance increased 120% year-on-year to US$11 million, as our
volumes began to lift in response to the early phase of the US housing market
recovery. As building industry activity improves further, our operational
leverage to incremental volume should become apparent."
Tenon has a volume-sensitive fixed cost-base that underlies and supports its
extensive global procurement, logistics and US distribution activities.
"Tenon is now well past the 'break-even' US macro-conditions that prevailed
over the past 5-6 years, and as volumes increase from hereon they should be
translated directly into further improved earnings performance," Mr Moriarty
said.
Tenon's COO, Tony Johnston said, "You can see the Company's leverage to
improvements in the US housing market in our reported revenue, which was up
US$32 million on the previous year and which approached US$400 million in the
period. Similarly our Gross Profit rose 11%, to US$92 million. We enjoyed
revenue increases in both of our core US customer segments - the pro-dealer
market (the new home construction market) and the DIY/retail segment, which
grew 15%+ and 5%+ respectively, year-on-year. We expect continued growth in
2015," he said.
The Company also advanced its strategic agenda during the period, by -
? Signing a new 5-year US$70 million financing facility
? Establishing a completely new business in Australia with Masters Home
Improvement (a JV between Woolworths and Lowe's)
? Announcing a US$5 million optimisation upgrade at the Company's large Taupo
processing and remanufacturing site
The new Masters and Taupo clearwood optimisation initiatives, the
restructuring and efficiency programs executed in recent periods, and strong
mid-cycle activity levels predicted, saw Tenon re-confirm its mid-cycle
EBITDA1 guidance of circa US$45 million.
Tenon's share price performance over the year was strong, increasing 37%
across fiscal '14. This compared very favourably with the 16% and 12% total
shareholder returns recorded on the NZX50 and ASX50 indices over the same
period. Despite this strong relative performance, Tenon still believes its
traded share price is below fair value at this point in the cycle, and it has
put in place operational, strategic, and structural initiatives to help close
the gap.
The Company also said that as the US housing market continued to recover and
the Company's earnings lifted, in addition to re-investment in business
growth its intention was to begin to return surplus cash to shareholders by
way of successive on-market share buyback programs. In this respect, Tenon
announced a new program, commencing 27 August 2014, for the repurchase
on-market of an additional 400,000 shares, with the intention that further
announcements of this type would be made in the future.
Summary Highlights for the six month period are attached.
2014 Summary Highlights
- Tenon is leveraged to both new housing and DIY / retail in the US, and will
be a beneficiary of the broader recovery in the US housing market as it
progresses
- US industry activity now only at early cycle recovery levels
- Upside potential from current industry activity level is therefore
significant
- New 5-year, $70 million syndicated debt financing facility established
- Advancement of Australian strategy with the establishment of a new business
relationship with the Masters Home Improvement chain
- Announcement of $5 million optimisation upgrade at Taupo manufacturing site
- Revenue of $396 million recorded, up $32 million, or 9%, on the
corresponding year -
- Revenue from US pro-dealer customers up 15%+
- Revenue from US DIY / retail customers up 5%+
- Revenue from Europe and Australia up $4 million
- A return to bottom line profitability was recorded (net profit after tax of
$2 million, corresponding prior period $3 million loss). This result included
-
- $1 million of expenses relating to establishment of new financing facility
- $1+ million earnings foregone from severe US winter weather storms
- Operating Profit before financing costs increased to $7 million (2013, $1
million)
- EBITDA1 for the 12 months more than doubled (i.e. up 120%) to $11 million
- EBITDA1 is projected to increase again in fiscal 2015,3 as US housing
market recovers
- Potential mid-cycle2 EBITDA1 upgraded to circa $45 million (previously
circa $35 m)
- Share price increased 37% across the period
- NZX50, ASX50 and Dow Jones up 16%, 12% and 13% respectively
- Shareholder Plan (completed) strongly supported by shareholders
- Announcement of new share buyback program
1 EBITDA (i.e. Earnings before Interest, Taxation, Depreciation and
Amortisation) is a non-GAAP earnings figure that equity analysts tend to
focus on for comparable company performance analysis, because that number
removes distortions caused by the difference in asset ages, depreciation
policies, and debt : equity structures. EBITDA is calculated as Net
Profit/Loss after Taxation of $2 million (2013 $3 million loss), plus income
tax expense of $1 million (2013 $nil million), plus financing costs of $4
million (2013 $4 million), plus depreciation and amortisation of $4 million
(2013 $4 million). Please refer also to Note 3 of our Condensed Financial
Statements.
2 Mid-cycle assumptions include US housing starts circa 1.7 million per annum
and NZD:USD of 70 cents.
3 Eventual earnings outcome will be dependent upon continued US housing
market recovery, interest rates, and NZ:US FX rate (amongst other drivers).
____________
Forward-Looking Statements
There are forward-looking statements included in this document. As
forward-looking statements are predictive in nature, they are subject to a
number of risks and uncertainties relating to Tenon, its operations, the
markets in which it competes and other factors (some of which are beyond the
control of Tenon). As a result of the foregoing, actual results and
conditions may differ materially from those expressed or implied by such
statements. In particular Tenon's operations and results are significantly
influenced by the level of activity in the various sectors of the economies
in which it competes, particularly in North America. Fluctuations in
industrial output, commercial and residential construction activity, capital
availability, housing turnover and pricing, levels of repairs, remodelling
and additions to existing homes, new housing starts, relative exchange rates,
interest rates, and profitability of customers, can have a substantial impact
on Tenon's results of operations and financial condition. Other risks include
competitor product development and demand and pricing and customer
concentration risk. As a result of the foregoing, actual results and
conclusions may differ materially from those expressed or implied by such
statements.
All references in this document to $ or "dollars" are references to United
States dollars unless otherwise stated.
About Tenon
Tenon is a wood-products processing, marketing and distribution business,
focusing on high-value markets in North America. Tenon has strong supplier
relationships with the independent pro-dealer (i.e. new housing) segment, and
channels into the world's largest (DIY) home improvement centre stores (i.e.
Lowes and The Home Depot). As well as providing a channel to market for
product made at Tenon's large clearwood remanufacturing facility in Taupo
(NZ), its distribution business sources significant quantities of finished
product from other international suppliers for sale into North America. Tenon
ships over 8,000 40' containers annually, through an internal logistics
system that sources specialised product from China, Chile, Brazil, United
States, Canada, and New Zealand. In addition to Tenon's Taupo operation
selling product into the North American market, it also has an export
presence into Europe, China and Australia.
End CA:00254168 For:TEN Type:FLLYR Time:2014-08-21 09:52:44
