30 May 2013 - Today Rubicon filed the attached announcement released by Tenon
Limited (59% owned by Rubicon), a wood products processing, marketing and
distribution business, focusing on the high value moulding and millwork
markets in the United States.
__________________________
TENON ISSUES POSITIVE MARKET UPDATE AS US HOUSING MARKET GAINS MOMENTUM
Released 30 May 2013
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. Fluctuations in industrial output, commercial and
residential construction activity, changes in availability of capital,
housing turnover and pricing, levels of repairs, remodelling and additions
to existing homes in North America, relative exchange rates, interest rates
in each market, input prices such as log prices, and profitability of
customers, can each 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.
All references in this document to $ or "dollars" are references to United
States dollars unless otherwise stated.
New Zealand based wood products manufacturer and distributor, Tenon,
confirmed today that it expected a significant turnaround in earnings as the
US housing recovery gains further momentum.
US building permits in April exceeded 1 million new homes, the highest level
recorded since June 2008, signalling a much stronger level of new building
activity than the fewer than 500,000 houses built at the cycle low. Over the
past 12 months US home prices have, on average, increased 11% (the largest
annual gain recorded since April 2006), and the National Association of
Realtors predicts further rises of 13% cumulatively in calendars 2013 and
2014. If such further increases were to occur, they would imply an increase
of over USD2 trillion in US household wealth, giving further confidence to
homeowners to spend on home improvement activities.
EBITDA (i.e. earnings before interest, tax, and depreciation) for Tenon''s 30
June 2013 fiscal year is now forecast to be in a range of USD4-5 million,
assuming existing operating conditions remain for the balance of the year.
Operating Profit before Financing Costs (i.e. EBITDA less depreciation) for
its fiscal ''13 year is forecast to be USD8-9 million better than then USD8
million loss (including restructuring costs) recorded in the previous year.
Luke Moriarty, the company''s Chairman, said "While this forecast represents a
considerable improvement on our last year''s ''bottom of the cycle'' result, our
expectation is that our next fiscal year will be much stronger yet. Assuming
the US housing market continues on its recovery path and the NZD:USD cross
rate remains around the current range, then we would expect our (June) fiscal
''14 EBITDA to be more than twice this year''s forecast EBITDA, and our
calendar ''14 EBITDA to be materially higher than that again."
Tony Johnston, Tenon''s Chief Operating Officer, said, "In addition to the
benefits that will accrue from the restructuring initiatives we have put in
place over the past two years, we have also gained confidence from the
continued recovery of the US housing market, which began to take hold during
our current fiscal year. Revenues from our pro-dealer activities (which now
represent approximately 45% of Tenon''s total North American revenues, and
which supply the new housing market) are up around 25% year-on-year, and we
are expecting that our retail activities (i.e. our sales to the large home
improvement centre stores), which have now begun to show positive store
comparisons, will lift further in this next fiscal year."
"In addition to the internal growth the Company had put in place from new
product launches and expanded existing programs (e.g. the plank panelling,
Find It, pine clear boards, hardwood boards, doors and stair parts programs),
Tenon has also achieved market share growth and geographic expansion (e.g.
greater volumes ex-Taupo into Europe). Combined, these will have a positive
impact on earnings going forward, and our forecasts are now also supported by
the emergence of much stronger US housing data."
The chart below shows Harvard''s Housing Studies Leading Indicator of
Remodelling Activity (LIRA), which projects much higher activity level in US
remodelling in the second half of the current calendar year (i.e. the first
half of Tenon''s fiscal ''14 year). It is the remodelling segment that drives
Tenon''s large home centre store sales.
[ Leading Indicator of Remodeling Activity Graph ]
Harvard''s projected activity is supported by the strong rise in house prices
recorded over the past year. US home prices have now recovered to the level
they were at in 2007, and more than US$1.6 trillion has been added to
homeowners'' equity over the past 12 months. This is important to the
remodelling market, as rising home price gives homeowners the confidence to
take on remodelling projects, in the belief that any spend will be reflected
in their home value. In addition, in many cases the price rises recorded also
provide the homeowners'' equity to fund the remodelling projects undertaken.
In terms of the pro-dealer segment, Mr Johnston said "New housing starts (per
annum) in the US for the four months reported this calendar year have
averaged 935,000 - almost twice the 478,000 per annum figure recorded at the
bottom of the cycle. The latest May report on building permits recorded a
figure of 1.02 million (annualised) new homes permitted - which is up more
than 25% on last year. If these permits convert to new home building activity
then this will help drive revenue growth in our pro-dealer activities next
year."
The company said that continued cycle recovery, product expansion, and market
share growth, had each contributed to a higher level of working capital need.
As a result, debt at 30 June ''13 is forecast to be in a range of USD45-50
million (USD 44 million at 31 December ''12).
As to the current Tenon share price, Mr Moriarty said, "We don''t believe
Tenon''s current traded share price reflects the company''s earnings potential
under a recovering US housing market - particularly for calendar ''14, which
is the year most analysts are using to derive their comparable company
multiple valuations. We are confident the share price will re-rate as our
future earnings profile reveals itself during the coming year."
ENDS
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.
Lowe''s 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 also 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:00236854 For:RBC Type:FORECAST Time:2013-05-30 10:32:38