1

Prospects for the New Look Tenon

John DellChief Executive, Tenon Limited

Crowne Plaza Hotel, Auckland

16 November 2004

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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

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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

0%

4%

8%

12%

16%

2001 2002 2003 2004

Forests & Supply Processing & Distribution

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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

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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

0.00

0.50

1.00

1.50

2.00

2.50

Jan-03

Apr-03

Jul-03

Oct-03

Jan-04

Apr-04

Jul-04

Oct-04

15/1/03Sale of Cutting Rights

16/6/03Forest

Sale Plan

15/9/03Campbel

l Bid

19/12/03Kiwi Sale Agreeme

nt

$

Strategy is adding value – TEN Share Price (adjusted)

1/04/04 Tarawera

Sale

8/04/04 Rubicon

Offer

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• 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

To the future

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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

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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

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• For the North American, Asian and European markets

• Key customers– American Wood Moulding The Home Depot– Empire Lowe’s– US millwork manufacturers– Zenia House in Europe– European / Asian furniture manufacturers

• Key drivers– US repair and remodelling spend– Furniture buyers’ acceptance of Radiata pine

Appearance wood products

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Manufacturing facilities – combined capacity 900,000 m3

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14th largest US retailer

Second largest US home improvement retailer

900 stores

Second largest US retailer

Largest US home improvement retailer

1,600 stores

US distribution

50% holding in AWM - supplier to The Home Depot

67% holding in Empire - supplier to Lowe’s

• Trade NZ Exporter of the Year – wood products category

• AWM – The Home Depot’s category vendor of the year

• Increased Empire shareholding from 33% to 67%

• Empire/AWM Combined sales exceed US$300 million

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US distribution centres and service areas

The Empire Company67% owned

American Wood Moulding50% owned

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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

– US$24b home renovation market growing at 30% per annum

– Global furniture manufacturing centre

– Establishing key relationships

15

Acquired 20% Zenia House

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Financial outlook

• Underlying earnings growth in excess of 30%

• Marked by impact of foreign exchange movement and corporate costs

$million Actual FY04

Sales 556

EBITDA 64(before Unusual Items)

Projected FY05

735

64

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Balance sheet

• Projected net debt to total market cap 2005 – 25%

• Borrowing covenants

– Gearing – net debt / EBITDA

Policy max 3.0 xProjected 2005 1.7 x

– Interest cover – EBIT / interest expense

Policy min 3.0 xProjected 2005 6.5 x

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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