The Tenon® Group

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As a direct result of both the strategic and operational enhancements made to the business during the 2007 period, Tenon® managed to deliver a flat year-on-year EBITDA of $20 million – in an environment of unprecedently unfavourable macro-economic conditions.

Strategically, the inclusion of the positive earnings from OMI and the exclusion of the negative earnings of AWM (as a result of the transactions that took place in November 2006) have confirmed the Company’s view of the long-term significance of those two transactions for the business.

Operationally, the Company focused on the execution of sustainable initiatives to maintain its revenue growth in specialty products and to reduce costs across the Group:

• With the inclusion of OMI revenue and the growth in the Company’s outdoor product programme, total operating revenue was $394 million – up $24 million on the prior year’s $370 million. Excluding OMI, revenue was similar to the previous year.
• Gross profit expanded marginally during the period as a result of the blending of specialty manufacturing margins, the favourable impact of increasing lumber prices, improved recoveries from the New Zealand manufacturing operations, and the US distribution businesses working closely with suppliers to manage volume and costs in line with market conditions.
• Costs savings were achieved by way of:
  • efficiency and rate-savings in shipping and logistics costs in both New Zealand and the US
  • improved effective log input prices relative to log-conversions achieved at the Taupo site
  • reduced IT management costs.
• Early benefits were seen from the One-Company platform, including:
  • specialty manufacturing optimisation in North America, with the integration of Kok’s Woodgoods with OMI
  • gains from a strategic procurement review across our distribution businesses
  • Group-wide inventory reduction of $5 million in cash terms (excluding the OMI acquisition and the impact of foreign exchange).

Strategically, the Company is very well positioned to benefit from the future cyclical recovery in the US building materials market and the depreciation of the New Zealand currency with:

• Over two thirds of its business in the remodelling segment, which has historically been far more robust to adverse economic conditions than has the new housing sector
• The great majority, by volume and value, of Tenon®’s US sales being in specialty millwork products which generally display less pricing volatility
• Best-in-class operations, maintaining leading market shares in the core categories in which we operate
• A unique blend of manufacturing and distribution facilities, which provides key points of leverage in the supply chain and good earnings diversification
• A strong growth profile, with excellent regional and product programmes already in place
• Implemented cost management programmes at both operational and corporate levels.