Tenon: Half Year Results Announcement

Half Year Results Announcement To 31 December 2004

AUCKLAND, 11 February 2005 – Tenon today reported operating earnings for the six months ended December 2004 of $28 million, compared with $25 million recorded in the corresponding six months to December 2003. Commenting on the result the Chief Executive, John Dell, said, “We are obviously very pleased with the strong performance for the first six months. The business delivered earnings growth in a challenging business environment.

The adverse impact of foreign exchange rates, period over period, negatively impacted operating earnings by $14 million, so the headline result masks strong underlying operating earnings growth.” Highlights during the six month period included: • Solid earnings contribution from our US distribution businesses, The Empire Company (“Empire”) and American Wood Mouldings (“AWM”) • Continued strong domestic and Australian demand for lumber products and strong first quarter USA product prices • Commenced upgrade at the Kawerau sawmill and completed improvements at the Mount Maunganui Plywood plant • Announcement of the second capital return of $321 million which equates to $1.15 per existing share • Conditional agreement to sell the Structural Consumer Solutions business to Carter Holt Harvey Limited (“CHH”) for $165 million plus working capital movements The net profit after taxation for the six months to December 2004 was $17 million compared to a $26 million loss for December 2003. The prior year loss included a loss from discontinued activities of $46 million. 2

Operating Performance Operating revenue for the period totalled $367 million, up $155 million (73%) on the corresponding six months to December 2003. The increase was driven by the consolidation of Empire for the full six month period, increased sales volumes to the domestic and Australasian markets, and the inclusion of arising grade log sales that were previously included within discontinued forestry activities. Earnings before interest, tax, depreciation and amortisation (“EBITDA”) for the six months to December 2004 were $36 million, compared to $32 million for the six months to December 2003. The average NZ / US dollar and NZ / Australian dollar exchange rates during the six months to December 2004 were $0.6756 and $0.9223 compared to $0.6036 and $0.8810 respectively for the six months to December 2003.

The earnings impacts of these currency movements were not mitigated by hedging activities (2003: $6 million pre-tax gain). EBITDA for the Structural Consumer Solutions segment was $11 million for the current period, compared to $13 million for the prior year corresponding period and $8 million for the six months to June 2004. Sales prices remained firm, however, increased log prices over the prior comparative period reduced earnings. EBITDA for the Appearance Consumer Solutions segment was $27 million for the current period, compared to $13 million for December 2003 and $24 million for the six months to June 2004.

Earnings were adversely impacted by the strong NZ dollar, however, this was offset in the first quarter by strong Moulding and Better sales prices (USD1,355 per mbf). Earnings were also enhanced by the consolidation of Empire for the full six month period, compared to two months in the comparative period to December 2003. Continued revenue growth within Tenon’s US distribution companies increased underlying US dollar earnings. Included within the current period EBITDA is a charge of $6 million for Support Services costs, interest income of $6 million and foreign exchange losses of $2 million. In the comparative period to December 2003, EBITDA included a foreign exchange gain of $6 million while Support Service costs were included within discontinued activities.

Cash Flows Net cash from operating activities for the six months to December 2004 was $4 million, down from $9 million in the corresponding period to December 2003 due to increased investment in working capital. Cash applied to working capital of $21 million supported revenue growth at Empire, an increased proportion of longer lead time export debtors within Structural Consumer Solutions, additional safety stock at Kawerau sawmill in advance of the commissioning of the front-end upgrade project and higher inventory levels in the USA. 3 The company invested $10 million of capital expenditure during the period, primarily for the Kawerau sawmill front-end upgrade project ($7 million) and the log preconditioning upgrade at the Mount Maunganui Plywood plant ($1 million). The Kawerau sawmill front-end upgrade is in the final stages of commissioning, while the log pre-conditioning upgrade was successfully commissioned in October 2004. The company has net cash of $200 million as at 31 December 2004, including the debt owed by Empire of $14 million.

Capital Return On 22 December 2004, shareholders approved a capital return of $321 million by cancellation of three out of every four shares on issue and payment of $1.5333 per share cancelled which equates to $1.15 per share prior to cancellation. Shareholders of record at 5:00 pm on Wednesday 16 February 2005 are entitled to the payment, which is expected to be made on or around 23 February 2005.

Structural Consumer Solutions Review Following credible unsolicited approaches in relation to the Structural Consumer Solutions business, the company undertook a strategic review that resulted in a conditional agreement to sell the Structural Consumer Solutions business to CHH for $165 million plus working capital movements, all payable in cash. Including additional working capital to be released from log procurement, the cash to be received will increase to approximately $170 million. The agreement is subject to the completion of the Kawerau Sawmill front-end upgrade project and other standard commercial conditions. Settlement is expected to occur in the first quarter of calendar 2005.

Market Outlook / Financial Guidance

It is expected that while the company’s underlying EBITDA for the full year will be in the range of $60 - $64 million (before accounting for the sale of the Structural Consumer Solutions business), the composition of earnings will change. It is anticipated that the Appearance Consumer Solutions business’ earnings will be lower than forecast in the Target Company Statement released on 12 May 2004, that assumed a NZ / US dollar exchange rate of NZD1.00 = USD0.60, offset by improved earnings from the Structural Consumer Solutions business and interest income. The company will provide further earnings guidance, following the sale of the Structural business becoming unconditional, to reflect the impact of the sale on the full year’s result. 4

Segmental Volume Information Sales Volumes (000m3) Six months to Dec 2004 Jun 2004 Dec 2003

Manufactured Product Sales

Solid Lineal Mouldings 16 18 13 Laminated and Finger-Jointed Product Appearance 0 0 7 Structural 37 33 32 Lumber and Roundwood Appearance 77 69 74 Structural 235 222 208 Total 365 342 334 Third Party Lumber Trading 15 15 17 Total 380 357 351 5 Tenon Limited and Subsidiaries

Statement of Financial Performance (unaudited) Six Months Year Ended Six Months Note Dec 2004 June 2004 Dec 2003 NZ$m NZ$m NZ$m Operating Revenue 2 367 556 212 Operating Expenses (339) (506) (187) Unusual Items 3 (2) Operating Earnings 28 48 25 Funding Costs 4 (1) (2) Earnings before Taxation 27 46 25 Taxation (7) (11) (4) Earnings after Taxation 20 35 21 Minority Interest (3) (3) (1) Net Earnings from Continuing Operations 17 32 20 Net Earnings from Discontinued Operations (74) (46) Net Earnings 17 (42) (26)

Per Share Information - Continuing Operations: Basic and Diluted Net Earnings per Share (cents) 6.1 11.5 7.2 Net Assets per Share ($) 1.72 1.69 1.49 Basic and Diluted Weighted Average Number of Shares Outstanding (millions of shares) 279 279 279 Shares used for Net Assets per Share (millions of shares) 279 279 558 6 5 0 Tenon Limited and Subsidiaries

Statement of Movements in Equity (unauditied)

Six Months Year Ended Six Months Dec 2004 June 2004 Dec 2003 NZ$m NZ$m NZ$m Net Earnings for the year, comprising: Net Earnings from Continued Operations Parent Shareholders' Interest 17 32 20 Minority Interest 3 3 1 Net Earnings from Discontinued Operations Parent Shareholders' Interest (74) (46) Minority Interest (1) 20 (40) (25) Other Recognised Revenues and Expenses for the year Movement in Currency Translation Reserve Parent Shareholders' Interest (8) (3) (6) Minority Interest (1) Total Recognised Revenues and Expenses for the year 11 (43) (31) (Disposal)/Acquisition of Minority Interest (19) 6 6 Capital Return - Parent Shareholders' Interest (349) Dividends - Minority Interest (1) Movements in Equity for the year (8) (387) (25) Total Group Equity at the beginning of the year, comprising Parent Shareholders' Interest 470 864 864 Minority Interest 28 21 21 498 885 88 Total Group Equity at the end of the year, comprising Parent Shareholders' Interest 479 470 832 Minority Interest 11 28 28 490 498 86 7 Tenon Limited and Subsidiaries

Statement of Financial Position (unaudited) Dec 2004 June 2004 Dec 2003 NZ$m NZ$m NZ$m

ASSETS

Current Assets: Cash and Liquid Deposits 214 141 Stocks 92 83 71 Debtors 70 82 43 Current Assets - Discontinued Operations 10 133 62 Total Current Assets 386 439 176 Term Assets: Fixed Assets 118 116 114 Investments 26 34 29 Goodwill 11 12 12 Deferred Taxation Asset 22 22 (3) Term Assets - Discontinued Operations 750 Total Group Assets 563 623 1,078

LIABILITIES AND GROUP EQUITY

Liabilities Current Liabilities: Creditors 55 73 46 Provision for Current Taxation 1 1 1 Current Liabilities - Discontinued Operations 3 17 30 Total Current Liabilities 59 91 77 Term Liabilities: Term Debt 14 34 35 Term Liabilities - Discontinued Operations 106 Total Group Liabilities 73 125 218

Group Equity

Group Equity 479 470 832 Minority Equity 11 28 28 Total Group Equity 490 498 860 Total Group Liabilities and Equity 563 623 1,078 8 2 Tenon Limited and Subsidiaries

Statement of Cash Flows (unaudited)

Six Months Year Ended Six Months Dec 2004 June 2004 Dec 2003 NZ$m NZ$m NZ$m Total Provided 371 557 20 Total Applied 367 537 193 Net Cash from/(to) Operating Activities 4 20 9 Sale of Investments 9 Purchase of Fixed Assets (10) (12) (5) Purchase of Investments (1) Purchase of Subsidiary (17) (17) Net Cash to Investing Activities (1) (30) (22) Net Debt (Settlements)/Drawdowns (18) (94) 13 Capital Return Paid to Shareholders (349) Net Cash (to)/from Financing Activities (18) (443) 13 Net Cash from/(to) Discontinued Operations 90 549 (29) Net Movement in Cash Held 75 96 (29) Add Opening Cash and Liquid Deposits - Continuing Operations 141 - Discontinued Operations 47 47 Effect of Exchange Rate Changes on Net Cash - Continuing Operations (2) (1) - Discontinued Operations (1) (2) Closing Cash and Liquid Deposits - Discontinued Operations 16 Closing Cash and Liquid Deposits - Continuing Operations 214 141 9 Tenon Limited and Subsidiaries

Reconciliation of Net Earnings to Net Cash from Operating Activities

(unaudited) Six Months Year End Six Months Dec 2004 June 2004 Dec 2003 NZ$m NZ$m NZ$m Cash was Provided from: Net Earnings from Continuing Operations 17 32 20 Adjustment for Items not involving Cash: Depreciation, Amortisation and Provisions 8 7 (1) Taxation 1 1 2 Minority Interest 3 3 1 Equity Earnings (4) (8) (5) Cash Flow from Operations before Net Working Capital Movements 25 35 17 Net Working Capital Movements (21) (15) (8) Net Cash from Operating Activities 4 20 9 Notes to the Condensed Financial Statements 1. These interim Financial Statements have been prepared in accordance with FRS 24 "Interim Financial Statements".

The statements should be read in conjunction with the 2004 Annual Report of Tenon Limited. The accounting policies used in these Financial Statements are consistent with those used in the previously published Annual Report. 2. Operating revenues includes Equity Earnings from Associate Companies of $8 million (June 2004: $15 million, December 2003: $8 million), including dividends received of $4 million (June 2004: $7 million, December 2003: $3 million), and interest of $6 million (June 2004: $4 million, December 2003: $1million).

On 1 November 2003, Tenon increased its stake in The Empire Company from 33% to 67%. From this date the financial results of The Empire Company are fully consolidated. 3. Unusual Items Six Months Year Ended Six Months Dec 2004 June 2004 Dec 2003 NZ$m NZ$m NZ$m Costs associated with partial takeover - (2) - 4. Interest expense for the year ended June 2004 includes a $2 million mark to market gain on interest rate swaps (December 2003: $2 million cost). 5. The net cash from Discontinued Operations of $90 million comprises $97 million for the sale of forestry rights, $24 million for the sale of forest land and $2 million forestry debtor receipts, partially offset by the payment of $14 million to creditors and $19 million for the purchase of the Tarawera Forests Limited minority equity from Maori Investments Limited and The Crown. 6. On 22 December 2004, the company entered into a conditional agreement to sell the Structural Consumer Solutions business to Carter Holt Harvey Limited, for $165 million plus working capital movements, all payable in cash. The effect of this conditional agreement has not been recognised in these interim financial statements. 10

Segmental Information Summary

December 2004 Structural Appearance Support(1) Other(2) Tenon Six months to NZ$m NZ$m NZ$m NZ$m NZ$m Operating Revenue 154 207 6 367 Earnings before Interest, Taxation, Depreciation, Amortisation and Unusual Items 11 27 (2) 36 Depreciation and Amortisation (4) (3) (1) (8) Operating Earnings before Unusual Items 7 24 (1) (2) 28 Unusual Items - Operating Earnings 28

June 2004 Structural Appearance Support(3) Other(2) Tenon

Six months to NZ$m NZ$m NZ$m NZ$m NZ$m Operating Revenue 143 199 2 344 Earnings before Interest, Taxation, Depreciation, and Unusual Items 8 24 (3) 3 32 Depreciation (3) (3) (1) (7) Operating Earnings before Unusual Items 5 21 (4) 3 25 Unusual Items (2) Operating Earnings 23

December 2003 Structural Appearance Support(4) Other(2) Tenon

Six months to NZ$m NZ$m NZ$m NZ$m NZ$m Operating Revenue 108 104 212 Earnings before Interest, Taxation, Depreciation, and Unusual Items 13 13 6 32 Depreciation (4) (3) (7) Operating Earnings before Unusual Items 9 10 6 25 Unusual Items - Operating Earnings 25 (1) Relates to interest income on cash ($6 million) and included within operating expenses are overheads of $7 million. (2) Relates to realised foreign exchange losses of $2 million December 2004 (June 2004: $3 million, December 2003: $6 million) not attributed to a specific business segment. (3) Prior to the sale of the forest assets, shared service overheads not specific to the Structural Consumer Solutions or Appearance Consumer Solutions segments were included in the Forests and Supply segment and included in discontinued operations. Includes interest income on cash ($2 million), also included within the operating expenses from continuing operations are overheads of $6 million for June 2004 (being support costs post the forest assets sale).

Support costs on an annualised basis are estimated at $15 million. (4) Prior to the sale of the forest assets, shared service overheads not specific to the Structural Consumer Solutions or Appearance Consumer Solutions segments were included in the Forests and Supply segment and included in discontinued operations.

ENDS

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