Video | Agriculture | Confidence | Economy | Energy | Employment | Finance | Media | Property | RBNZ | Science | SOEs | Tax | Technology | Telecoms | Tourism | Transport | Search

 


High kiwi dollar stole $5M gains from Tenon efficiency drive

High kiwi dollar stole $5M gains from Tenon efficiency drive

Feb. 21 (BusinessDesk) - Finished wood products manufacturer Tenon says it's on the cusp of profitability as the prolonged slump in the US housing market comes to an end, but its cost-cutting and efficiency investments in New Zealand have been completely eroded by the high kiwi dollar.

Tenon reported a reduced US$2 million loss in the six months to Dec. 31, down from US$6 million the year before. The company turned to positive earnings on an earnings before interest, tax, depreciation and amortisation basis, reporting a US$1 million surplus for the period from a US$2 million loss in the same period last year.

"The big picture environment for Tenon is now changing," said chairman Luke Moriarty and chief operating officer Tony Johnston in a statement to the NZX. "The US housing cycle is at last turning in our favour."

This "pre-recovery" was so far only affecting housing starts rather than the renovation market and the pick-up would be "a little bumpy", but "it appears clear now that we are heading out of the deep cycle trough that has plagued the industry for too many years now."

Tenon boasts substantial penetration of major US hardware and renovation chains, but has suffered in a historic seven year slump in US housing activity since the sub-prime debt crisis, which preceded the full-blown global financial crisis.

It expects the strong upturn in activity, which is already affecting sales, tightening supply chains and raising input prices, to become more apparent in the next six months, and the company's share price has lifted around 57 percent in the last six months. Directors upgraded their outlook for the sector last November.

Tenon shares closed at $1.02 yesterday, down on a recent 12 month high of $1.11, although a report by independent research house Edison suggested a fair value range of $1.79 to $2.05. The company would be "addressing this issue further as the year continues."

However, it is giving no specific earnings guidance, beyond saying "our expectation is that the company's North American financial performance in the second six months of the year will comfortably surpass that recorded for the six months just completed."

Tenon believes that under future mid-cycle conditions and assuming a 70 US cents exchange rate, the company is capable of producing ebitda of $35 million a year.

"The frustratingly strong and strengthening NZ/US dollar cross-rate and resolution to the US fiscal cliff issue (are) the two immediate factors that could chart a significantly different course than we currently anticipate."

At balance date, the kiwi dollar cross rate was at 82 US cents and had risen beyond that since.

"Internally, we think of this adverse currency movement as representing a 5 percent gross profit margin decline in the profitability of our New Zealand manufacturing activities, which we must make up with further cost-out initiatives across the group.

Gains from a $5 million profit improvement initiative at its Taupo manufacturing plant last year "have now effectively been 'stolen' by the strengthening New Zealand currency."

Total revenues were up 7.4 percent to US$174 million in the period, with growth in sales volumes and margins in key US sectors, while product from Taupo was also shipping to European and Chinese markets, and efforts to tap the Australian market ramped up during the period.

Debt on the balance sheet at US$44 million was down from the one-time peak of US$90 million, but was unlikely to fall further as the company requires additional working capital to meet anticipated sales growth and to help fund acquisitions yet to be identified in the Chinese and US markets to accelerate growth.

(BusinessDesk)

© Scoop Media

 
 
 
 
 
Business Headlines | Sci-Tech Headlines

 

Scoop Business: RBNZ Keeps OCR At 3.5%, Signals Slower Pace Of Future Hikes

Reserve Bank governor Graeme Wheeler kept the official cash rate at 3.5 percent and signalled he won’t be as aggressive with future rate hikes as previously thought as inflation remains tamer than expected. The kiwi dollar fell to a seven-month low. More>>

ALSO:

Weather: Dry Spells Take Hold In South Island

Many areas in the South Island are tracking towards record dry spells as relatively warm, dry weather that began in mid-August continues... for some South Island places, the current period of fine weather is quite rare. More>>

ALSO:

Scoop Business: Productivity Commission To Look At Housing Land Supply

The Productivity Commission is to expand on its housing affordability report with an investigation into improving land supply and development capacity, particularly in areas with strong population growth. More>>

ALSO:

Forestry: Man Charged After 2013 Death

Levin Police have arrested and charged a man with manslaughter in relation to the death of Lincoln Kidd who was killed during a tree felling operation on 19 December 2013. More>>

ALSO:

Smells Like Justice: Dairy Company Fined Over Odour

Dairy company fined over odour Dairy supply company Open Country Dairy Limited has been convicted and fined more than $35,000 for discharging objectionable odour from its Waharoa factory at the time of last year’s ”spring flush” when milk supply was high. More>>

Scoop Business: Dairy Product Prices Decline To Lowest Since July 2012

Dairy product prices dropped to the lowest level since July 2012 in the latest GlobalDairyTrade auction, led by a slump in rennet casein and butter milk powder. More>>

ALSO:

SOE Results: TVNZ Lifts Annual Profit 25% On Flat Ad Revenue, Quits Igloo

Television New Zealand, the state-owned broadcaster, lifted annual profit 25 percent, ahead of forecast and despite a dip in advertising revenue, while quitting its stake in the pay-TV Igloo joint venture with Sky Network Television. More>>

ALSO:

Get More From Scoop

 
 
Computer Power Plus

Standards New Zealand

Standards New Zealand

Mosh Social Media
 
 
 
 
 
 
 
 
Business
Search Scoop  
 
 
Powered by Vodafone
NZ independent news