Prospects for the New Look Tenon

1
Prospects for the New Look Tenon

• John Dell
• Chief Executive, Tenon Limited
• Crowne Plaza Hotel, Auckland
• 16 November 2004

2
First, a bit of history

• Fletcher Challenge Forests was a vertically
  integrated business, dominated by investment in
  forest resource
• Characterised by
• Capital intensive and low returns
• Not earning cost of capital
• Declining long term product price trend /
  increasing global supply profile
• Persistent under-valuation by equity market
• Pension funds natural owners

3
Why we sold the forest assets

• Forest returns low and volatile
• Processing and distribution returns high and
  growing

Return on Assets at Operating Earnings Level
4
A bit more history

• November 2002 Forest divestment strategy
  announced
• March 2003 Sale of Teal cutting rights for 121m
• February 2004 Sale of forests to Kiwi Consortium
  for 560m
• April 2004 Sale of Tarawera cutting rights to
  Hancock for 165m
• June 2004 Rubicon acquires majority control of
  Tenon
• October 2004 Substantial completion of forest
  sale process
• October 2004 Strategic review of structural
  business commenced

5
Excess capital is being returned to shareholders

• 349m returned to shareholders in March 2004
• Forest sale now substantially complete - 98 of
  cash received
• Further 321m intended to be returned early 2005
• This further capital return represents 1.15 per
  existing share

6
Strategy is adding value TEN Share Price
(adjusted)
16/6/03ForestSale Plan
15/9/03Campbell Bid
15/1/03Sale of Cutting Rights

19/12/03Kiwi Sale Agreement
1/04/04 Tarawera Sale
8/04/04 Rubicon Offer
7
To the future

• A focus on manufacturing, marketing and
  distribution of solid wood products,
  characterised by
• Relatively low capital intensity
• High and increasing returns on capital
• Significant investment in distribution
• Strong market positions
• Significant growth opportunities

8
Structural building solutions

• For the Australian and New Zealand building
  sectors
• Key customers
• Frame and truss manufacturers
• NZ Building merchants
• Australian timber/panel distributors
• Rural supply merchants
• Key drivers
• Building sector activity, particularly
  residential
• brand performance

9
Structural business strategic review

• Received unsolicited approaches in relation to
  our Structural business
• Undertaking a strategic review
• Good assets, good market position, good brand
• With plans for growth
• But - will sell if this maximises value to
  shareholders

10
Appearance wood products

• For the North American, Asian and European
  markets
• Key customers
• American Wood Moulding The Home Depot
• Empire Lowes
• US millwork manufacturers
• Zenia House in Europe
• European / Asian furniture manufacturers
• Key drivers
• US repair and remodelling spend
• Furniture buyers acceptance of Radiata pine

11
Manufacturing facilities combined capacity
900,000 m3
12
US distribution

• Trade NZ Exporter of the Year wood products
  category
• AWM The Home Depots category vendor of the
  year
• Increased Empire shareholding from 33 to 67
• Empire/AWM Combined sales exceed US300 million

50 holding in AWM - supplier to The Home Depot
67 holding in Empire - supplier to Lowes
14th largest US retailer Second largest US home
improvement retailer 900 stores
Second largest US retailer Largest US home
improvement retailer 1,600 stores
13
US distribution centres and service areas
American Wood Moulding 50 owned

• The Empire Company
• 67 owned

14
Growth

• Tenon Consumer Solutions 10,000 stores by 2010
• Expand US position through acquisitions and
  organic growth
• Replicate US channel-to-market model in Europe,
  providing
• A supply channel for high value product, and
• Equity profits
• China
• US24b home renovation market growing at 30 per
  annum
• Global furniture manufacturing centre
• Establishing key relationships

15
Acquired 20 Zenia House
16
Financial outlook
million Actual FY04 Sales
556 EBITDA 64 (before Unusual Items)
Projected FY05 735 64

• Underlying earnings growth in excess of 30
• Marked by impact of foreign exchange movement and
  corporate costs

17
Balance sheet

• Projected net debt to total market cap 2005 25
• Borrowing covenants
• Gearing net debt / EBITDA
• Policy max 3.0 x
• Projected 2005 1.7 x
• Interest cover EBIT / interest expense
• Policy min 3.0 x
• Projected 2005 6.5 x

18
Summary

• Forest divestment strategy successfully
  implemented
• Diversified targeted market exposure
• Australasia, US, Europe, Asia
• Decision on continued ownership of Structural
  business will be based on maximising shareholder
  value
• Defined growth plans
• Shareholder value focus strongly evidenced by
  strategy and actions