Annual Results Release
1
Annual Results Release
6-Months ended 31 March 2018
Table of Contents
Chairman’s Letter .................................................. 2
Audited Financial Statements ............................... 7
Auditor’s Report .................................................. 28
FORWARD LOOKING STATEMENTS
There are statements in this Report that are ‘forward looking statements.’ As these forward-looking statements are predictive
in nature, they are subject to a number of risks and uncertainties relating to Rubicon and ArborGen, many of which are beyond
our control. As a result of the foregoing, actual results and conditions may differ materially from those expressed or implied
by such statements.
In particular, ArborGen’s operations and results are significantly influenced by the general level of economic activity in the
various sectors of the economies in which it competes, particularly in the United States, Brazil, New Zealand and Australia.
Fluctuations in industrial output and the impact that has on global demand for wood fibre and hence harvest and
reforestation levels, government environmental and regional development policies, capital availability, relative exchange
rates, interest rates, the profitability of our customers, can each have a substantial impact on our operations and financial
condition. ArborGen-specific risks and uncertainties include (in addition to those broad economic factors noted above) the
global markets and geographies in which it operates, intellectual property protection, regulatory approvals, public and
customer acceptance of genetically engineered products, the rate of customer adoption of advanced seedling products, the
success of its research and development activities, weather conditions, cone and seed inventory, biological matters, and the
fact that ArborGen’s annual crops and seed orchards are not the subject of insurance cover.
As a result of the foregoing, actual results and conclusions may differ materially from those expressed or implied by such
statements.
All references in this document to currencies are as stated – i.e. US$, NZ$ and Euro.
2
Chairman’s Letter
Rubicon has transitioned through multiple year-end balance dates over the past 21 months, moving from 30 June to 30
September and now to 31 March. This has largely been dictated by our changing investment portfolio, with the latest change
of balance date to 31 March being dictated by our 100% acquisition of ArborGen and a desire to align the balance dates of
our two companies. ArborGen has a March balance date largely because that represents the material conclusion to the lifting
and sale of its annual US seedling crop – its most significant geography of operation. Accordingly, this Review covers the 6
months from 1 October 2017 through to 31 March 2018, and the comparative period is the 15 months through to 30
September 2017. The financial statements in both periods are Audited.
Dear shareholder –
The period under review has seen the completion of the transformation of Rubicon’s investment
portfolio to be solely the 100% ownership of ArborGen Inc (ArborGen) – i.e. we have achieved our
desired outcome.
In order to get to this positon, we sold our 45% economic interest in the Tenon Clearwood Limited
Partnership (TCLP) in January of this year. We made the decision to sell this investment in order to be
sure that we would be in a good funding position to make the final US$10 million in deferred ArborGen
acquisition payments on July 1, 2018, without the need to seek Rubicon shareholder funding – a strong
commitment we had already made to shareholders. We closed the sale on 31 January 2018, for US$15
million in cash – US$1.6 million more (including dividends received) than we paid for TCLP only nine
months earlier, so that all worked out well for us.
At balance date (i.e. 31 March 2018), following the completion of the TCLP transaction, the payment
of the first deferred-acquisition payment of US$5 million, and the repayment of all Rubicon’s
subordinated debt notes, Rubicon Limited had no debt and cash at bank of US$20 million (including
US$6 million of cash collateralised to support ArborGen’s banking facilities). ArborGen had bank debt
1
(net of cash) of US$17 million at balance date, compared with available bank facilities of over US$30
million. It also had capitalised finance leases totalling US$13 million. The table below reconciles the
US$9 million reduction in net interest bearing debt (inclusive of capitalised finance leases) that has
occurred over the past six months.
Rubicon Consolidated GroupUS$m
Net interest bearing debt
6
at 30 September '17
-19
Cas h recei pt from Sal e of TCLP15
Di vi dend from TCLP1
Operati ng Cas hfl ow3
Interes t pai d-2
Inves tment i n Term As s ets-3
ArborGen deferred-acqui s i ti on payment-5
Net Cash inflow for the period9
Net interest bearing debt at 31 March '18-10
3
From a balance sheet leverage perspective, and taking a conservative view by using our market
capitalisation as the equity number, Rubicon Group’s interest bearing debt (including finance leases
and net of cash)
1
as a percentage of debt plus equity
1
was only 10% at balance date. Even if the US$10
million outstanding ArborGen acquisition deferred settlement payment to be made on 1 July this year
is included, the leverage only moves to 18%. So, it’s fair to say that on a consolidated basis we are in
good funding shape right now.
We managed to get to this position without any funding demands on our shareholders, other than
Dave Knott and Ranjan Tandon (our two largest shareholders) who in aggregate invested US$13
million in new capital into Rubicon last year in order to ensure the ArborGen transaction completed
with certainty. We used most of that new capital to ‘shore-up’ ArborGen’s balance sheet post our
acquisition – investing US$6 million in new capital and US$5 million by way of working capital
advances. We remain very grateful to each of them, as their belief in the future upside of ArborGen
has been fundamental to us attaining our immediate objective of owning 100% of this exciting
opportunity.
To repeat our position on this, we do have great belief in the potential future upside in ArborGen -
It is a global leader in advanced forestry genetics, operating in the world’s major commercial tree
species pine and eucalyptus, in geographies with high annual planting rates in Brazil, the US, and
Australasia. It sells to major forestry players in those countries, and has leading market positions
in each of those markets.
It has a pre-eminent intellectual property position, which includes an industry-leading genetic
library, a proprietary ‘tree machine’ platform, an extensive database of global trials, varietal and
transgenic technology, and an advanced genomics platform - all protected by a patent portfolio
and a ‘bank’ of trade secrets.
It has a portfolio of advanced seedling products that do not require regulatory approval, which
are currently being commercialised. In that respect, the considerable investment in research,
capability, and customer preparation, has been made. ArborGen is now all about commercialising
that investment by converting its customers to its advanced genetics products. We believe it is
well positioned to do so, and this will be reflected in its future earnings, and hence in its value for
Rubicon shareholders.
Looking to our immediate earnings, the audited reporting period contained in this Annual Report, is
both unusual and unhelpful to readers, because our recent balance date change from September to
March means the financials included in this document are only for six-months (where the Rubicon
Group recorded Gross Profit of US$15 million and Net Earnings of US$2 million, after transaction–
related costs and impairment provisions of ~US$2 million). However, we know that shareholders are
more interested in understanding ArborGen’s performance for the full 12 month period to 31 March.
We also know that readers are most interested in ArborGen’s earnings under US-GAAP rather than
under IFRS (International Financial Reporting Standards), as that is the result that ArborGen would
report in a US ‘listing’ situation. In contrast with US-GAAP, IFRS require us to capitalise ArborGen’s
development spend and expense its research spend, amortise a portion of the ArborGen intellectual
property that we carry on our balance sheet relating to our acquisition of 100% of ArborGen, and
accrue the fair value biological uplift on the seedling crop each year prior to its sale – so the numbers
and their make-up are quite different under the two approaches, and the US-GAAP result cannot be
easily derived from our reported IFRS numbers. So, for now, let me instead quickly summarise in this
letter the numbers you are likely to be looking for.
4
We previously announced our EBITDA
2
target for the fiscal year ending 31 March 2018 as being for
ArborGen to double the US-GAAP EBITDA result achieved in the prior year – i.e. to achieve US-GAAP
EBITDA of US$3.4 million (~US$9 million pre R&D). We are happy to now report that, despite an
extremely tough hurricane season that prevailed during the year and which adversely impacted
seedling sales by ~20 million units, ArborGen managed to record a US-GAAP EBITDA result for the 12
months to 31 March 2018 of US$4.3 million (pre transaction-related costs and impairment costs
3
), on
a gross profit of US$18 million. Excluding R&D of US$5.6 million, EBITDA was ~US$10 million (all figures
stated under US-GAAP, pre-depreciation). These numbers are ahead of our previously announced
earnings targets, in what turned out to be a very difficult operating environment, so we are very
pleased with the result.
In terms of the unit sales performance for the 12 months to 31 March ’18, ArborGen sold 347 million
seedlings globally, which was down slightly on the 351 million reported in the prior year, as the impact
of the hurricane season took its toll on the growth we had otherwise planned to see in the US market.
270 million seedlings were sold in the US (236 million of which were loblolly pine), inclusive of more
than 73 million in MCP and varietals, 19 million in ANZ, and 58 million in Brazil (50 million of which
were eucalyptus). Most notably here, is that ArborGen’s advanced genetics sales in the US, as a
percentage of its total loblolly pine sales, increased from 25% to 31%, with MCP sales up 22% on the
prior year. This in turn saw the US loblolly pine ASP (average sale price) lift 7% year-on-year. Globally,
loblolly and radiata advanced-genetics pine sales as a percentage of ArborGen’s total unit sales
increased from 29% to 34%.
Looking to our next fiscal year target, we have said that we want to see the prior year’s US$1.7 million
EBITDA result double and then double again, so a long way of saying we are now targeting
4,5
a US-
GAAP EBITDA result approaching US$7 million for the year ended 31 March 2019. While we will be
setting crop numbers for this new fiscal year at 10%+ over last year’s sales numbers in order to achieve
this, this forecast earnings guidance obviously comes with the usual weather and demand condition
disclaimers. However those two factors behaving (which was not the case last year), we believe the
guidance to be achievable at this point, and will be working the business hard to meet this goal.
It should be clear now that ArborGen’s heavy product development phase and the related past EBITDA
losses which peaked at US$18 million, are now well behind us. ArborGen is now firmly EBITDA positive,
and its forecasts
4,5
are for it to also be net earnings and operating cash-positive from now onwards, as
it continues to ramp-up the sales of its advanced genetics products in the US and grows its position
further in Brazil over time. Our new fiscal-year targets are consistent with this statement.
Mitigating the impact of adverse weather events remains a top priority for us, as it now appears they
are increasingly becoming more the ‘norm’ than the exception. In this respect, US conditions in the
period were very unfavourable to ArborGen in terms of MCP pollination activity. An unseasonably cold
January followed by an extremely hot February (the hottest on record in some regions) resulted in a
very short pollination window, with some trees not even flowering. This resulted in low MCP-bagging,
which will have some impact on future MCP seed counts and sales. The difficulty here is that ArborGen
has largely been selling whatever MCP it can produce, so we have just not been in a position to build
up an inventory of this advanced-seed to allow us to proceed normally through seasonal variations.
Having said that, we are currently putting in place initiatives to largely fill the impact of this ‘gap’ in
supply.
5
To help raise operational intensity, a comprehensive and detailed six-month review of every aspect of
ArborGen’s operating activities was completed, with the key output being a long-term Operational
and Strategic Plan for the business. This Plan has now been formally adopted by the Rubicon Board,
and will represent the ‘operational blueprint’ for the business moving forward. It will also provide the
key metrics and milestones against which management performance will be measured.
One of the outputs from that Plan is the desire to improve the immediate cash performance of the
combined Rubicon-ArborGen business, to ensure that ArborGen’s future needs, inclusive of growth
capital, can be satisfied from its own internal funding resources. As you know, earlier this year we
announced our goal was to improve the annual cash position by up to $2 million. We can report that
for this new fiscal year, we have put in place a mix of cash improvement and overhead reduction
initiatives (e.g. where duplication existed) that will ensure this goal is met or exceeded.
We will likely be aided in our future earnings targets by the NZ government’s positive approach to
forestry planting and regional development. As you know, the government has announced an annual
New Zealand planting goal of 100 million seedlings per annum for the next ten years – 1 billion in total.
Given approximately 70 million are currently being planted commercially, the government ‘top-up’ is
~30 million per annum. As ArborGen has six nurseries spread throughout the regions in both of the
North and South Islands, we are very well placed to assist the government in reaching its goals. We
have had initial discussions on this and we believe the programme will generate sales for us in the
next fiscal year (i.e. the Mar 2020 fiscal year) – the lag being necessary for the identification of the
geographic regions of focus, the accessing of suitable land for planting, as well as the physical growing
time for the seedling crops. We will outline greater detail on this as it comes to hand.
In February we announced ArborGen was the successful candidate in a proposal with the South
Carolina Forestry Commission to exclusively lease and modernise the Taylor nursery. This 10-year
partnership allows ArborGen to quickly bring this nursery into operation in a high seedling-demand
region. For the new fiscal year, 15 million seedlings have already been set at Taylor, and this will
double quickly over time as the nursery is brought up to date. We will continue to look for other similar
growth opportunities, as this has proven to be a great model to expand ArborGen’s core business
activities in a capital light or capital-deferred manner.
On Governance matters, following the completion of the sale of our investment in TCLP, Bill Hasler
and George Karaplis resigned from the Rubicon Board. Both have contributed strongly to the Company
over an extended period of time, which has included the global financial crisis, the extensive
restructuring and sale of the Tenon Group, and last year’s acquisition of ArborGen. We are extremely
grateful for their assistance through all of that period, and we wish them well for the future. The
smaller Rubicon Board we now have reflects the completion of the Company’s heavy transactional
phase and aligns with the single-line business we now have moving forward. Remaining directors have
also taken a reduction in director fees in line with the new business structure we now have.
The six-month period saw a significant change in the shareholder base of the Company. For some time
two of Rubicon’s major shareholders had been daily selling-down Rubicon shares in order to drive
their fund liquidity. In late December, their remaining Rubicon positions were taken-out in an
overnight placement of their stock predominantly to two shareholders – the ACC (7%) and Irv Kessler
(5%). This placement has largely eliminated the selling pressure, and the share price has lifted ~45%
since that stock was cleared, which is pleasing - albeit it disappointing that it is still trading at a value
~35% below our book value today.
6
While we understand there is a lot of discussion as to the potential value of ArborGen over time, and
its relationship to the current Rubicon share price, the share price is something we cannot determine.
However, what we can impact is value-creation, and the best way to show that is through earnings
growth. Growth in earnings and cash flow over time will prove out value. And for those of you who
are looking for greater understanding of potential value, we would point you to Note 15 of our Annual
Audited Financial Statements, where we outline various scenarios and sensitivities derived from
ArborGen’s 10-year Plan. You will note that the Tax Cuts and Jobs Act enacted in January this year in
the US has had a positive impact on valuation, as it has the effect of reducing the US federal corporate
tax rate from 35% down to 21% (or ~25% inclusive of average state tax) on ArborGen’s future US
assessable income.
In terms of the Outlook, the key focus will be on meeting our ArborGen earnings guidance, on
continuing to find capital-light methods to grow ArborGen’s business, particularly in the US, and on
implementing all immediate operational aspects of the Budget and Plan. We will also be looking to
close-out the ArborGen acquisition with the final deferred-payment of US$10 million to be made on 1
July, 2018. From a Group funding perspective, we also need to renegotiate ArborGen’s revolving credit
facilities in Q3 of this year, and we will continue to search for initiatives to improve the cash positon
of the combined Rubicon-ArborGen entities moving forward. All-in-all, we look forward to a positive
fiscal 2019.
As usual, I would like to thank all our stakeholders for their continued support – it is very much
appreciated.
Sincerely,
Stephen Kasnet
Chairman (on behalf of the Board)
28 May 2018
Notes:
(1)
Net interest bearing debt (net of cash) is $10 million, calculated as Term debt ($11 million) + Current debt ($15 million)
+ Finance lease obligations ($13 million) less Cash and liquid deposits ($29 million). Market equity is $88 million,
calculated as 487.9 million shares x 25 cents x 0.7205 cents (the FX rate at balance date).
(2)
EBITDA (i.e. Earnings before Interest, Taxation, Depreciation and Amortisations) is a non-GAAP earnings figure that
equity analysts tend to focus on for comparable company performance, because that number removes distortions
caused by differences in asset ages, depreciation policies, and debt:equity structures.
(3)
Transaction-related costs include direct costs related to the ArborGen acquisition plus the cost of the management
retention package put in place at ArborGen on acquisition ($1 million in total). The impairment cost ($0.8 million)
relates to the rationalisation of ArborGen’s NZ varietal programme.
(4)
This is pre transaction-related costs, impairments, and any one-off restructuring-type costs
(5)
These statements are ‘forward-looking statements, which are predictive in nature and which are necessarily subject to
a number of risks and uncertainties relating to Rubicon and ArborGen, many of which are beyond our control [please
refer page 1 of this Annual Report document for a discussion of some of those uncertainties and risks]. As a result,
actual outcomes, results and conditions may differ materially from those expressed or implied.
(6)
Excludes Tenon and TCLP combined net interest bearing debt which was deconsolidated on liquidation / sale.
Rubicon Limited and Subsidiaries
Consolidated Income Statement
For the six months ended 31 March 2018
RUBICON GROUP
6 months
Re-presented
(1)
15 Months
Mar 2018Sep 2017
NotesUS$mUS$m
Revenue35 6
Cost of sales7(20) (5)
Gross profit15 1
Change in fair value of biological assets11(3) 4
Earnings by associate15- 1
Administration expense7(10) (8)
Operating earnings excluding items below2 (2)
Impairment7(1) -
Net fair value gain15- 2
Operating earnings before financing expense1 -
Financing expense(1) (2)
Earnings before taxation- (2)
Tax benefit82 -
Net earnings after taxation from continuing operations
2 (2)
Net earnings after taxation from discontinued operations31- (4)
Net Earnings2 (6)
Attributable to:
Rubicon shareholders2 (6)
Minority shareholders
- -
Net Earnings2 (6)
Basic/diluted earnings per share information (cents per share)0.4 (1.4)
Continuing operations0.4 (0.5)
Discontinued operations- (0.9)
Weighted average number of shares outstanding (millions of shares)488 425
(1) The 15 months ended 30 September 2017 has been re-presented to show net profit after taxation from discontinued
operations separately.
The accompanying notes form part of, and are to be read in conjunction with, these financial statements.
7
Rubicon Limited and Subsidiaries
Consolidated Statement of Comprehensive Income
For the six months ended 31 March 2018
RUBICON GROUP
6 months15 Months
Mar 2018September 2017
US$mUS$m
Net Earnings2 (6)
Items that may be reclassified to the Consolidated Income Statement:
Movement in currency translation reserve- 3
Other comprehensive income (net of tax)- 3
Total comprehensive income2 (3)
Total comprehensive income attributable to:
Rubicon shareholders2 (3)
Minority shareholders
- -
Total comprehensive income2 (3)
Rubicon Limited and Subsidiaries
Statement of Changes in Equity
For the six months ended 31 March 2018
6 months15 Months
Mar 2018September 2017
NotesUS$mUS$m
Total comprehensive income2 (3)
Movement in Rubicon shareholders' equity:
Issue of shares19- 13
Movement in minority shareholders' equity:
Capital investment by TCLP minority21- 17
Disposal of TCLP minority21(7) -
Deconsolidation of Tenon minority21(2) -
Capital return from Tenon21- (46)
Distribution paid by TCLP21(1) -
Dividend paid by Tenon21- (1)
Total movement in shareholder equity attributable to:
Rubicon shareholders' equity2 10
Minority shareholders' equity(10) (30)
Opening equity attributable to:
Rubicon shareholders150 140
Minority shareholders10 40
Opening total Group equity160 180
Closing equity attributable to:
Rubicon shareholders152 150
Minority shareholders21- 10
Closing Total Group Equity152 160
The accompanying notes form part of, and are to be read in conjunction with, these financial statements.
8
Rubicon Limited and Subsidiaries
Consolidated Statement of Cash Flows
For the six months ended 31 March 2018
RUBICON GROUP
6 months15 Months
Mar 2018September 2017
NotesUS$mUS$m
Cash was provided from operating activities
Receipts from customers47 275
Cash provided from operating activities47 275
Payments to suppliers, employees and other(43) (278)
Cash (used in) operating activities
(43) (278)
Net cash from (used in) operating activities4 (3)
Sale of TCLP15 -
Sale of Tenon North American operations- 107
Investment in fixed assets13- (4)
Investment in subsidiaries15(5) (14)
Investment in intellectual property14(3) (1)
Cash in subsidiaries disposed/deconsolidated, acquired(8) 2
Net cash from (used in) investing activities(1) 90
Debt drawdowns5 52
Debt repayment(7) (89)
Interest paid(2) (4)
Issue of shares- 13
Minority shareholders' cash flow by way of:
Capital return from Tenon21- (46)
Capital investment by TCLP minority21- 17
Distributions and dividend paid to minority21(1) (1)
Net cash from (used in) financing activities(5) (58)
Net movement in cash(2) 29
Opening cash, liquid deposits and overdrafts
31 2
Closing Cash, Liquid Deposits and Overdrafts29 31
Net Earnings2 (6)
Adjustment for:
Financing expense1 4
Depreciation and amortisations74 4
Taxation(2) -
Earnings from associate- (1)
Change in fair value of biological assets3 (4)
Other non cash items1 13
Cash flow from operations before net working capital movement9 10
Trade and other receivables(4) 1
Inventory1 (14)
Trade and other payables(2) -
Net working capital movement(5) (13)
Net cash from operating activities4 (3)
The accompanying notes form part of, and are to be read in conjunction with, these financial statements.
9
Rubicon Limited and Subsidiaries
Consolidated Balance Sheet
As at 31 March 2018
RUBICON GROUP
Mar 2018September 2017
NotesUS$mUS$m
Current assets
Cash and liquid deposits929 31
Trade and other receivables1010 9
Inventory1125 41
Total current assets64 81
Non current assets
Fixed assets1344 62
Intellectual property14107 107
Goodwill16- 18
Total non current assets151 187
Total assets215 268
Current liabilities
Trade, other payables and provisions17(10) (23)
Current lease obligation23(1) (1)
Current debt18(15) (18)
Deferred settlement15(10) (15)
Total current liabilities(36) (57)
Term liabilities
Term debt18(11) (33)
Finance lease obligation23(12) (12)
Deferred taxation liability12(4) (6)
Total term liabilities(27) (51)
Total liabilities(63) (108)
Net Assets
152 160
Equity
Share capital19201 201
Reserves20(49) (51)
Equity attributable to Rubicon shareholders152 150
Equity attributable to minority shareholders21- 10
Total Group Equity
152 160
Net Asset Backing 29US 31 cps US 31 cps
Stephen KasnetLuke MoriartyMark Taylor
ChairmanChief Executive OfficerChief Financial Officer
and Director
28 May 2018
Each of the above signatories certifies that these financial statements comply with generally accepted accounting
standards and present a true and fair view of the financial affairs of the Rubicon Group.
The accompanying notes form part of, and are to be read in conjunction with, these financial statements.
10
Rubicon Limited and Subsidiaries
Notes to the Consolidated Financial Statements
For the period ended 31 March 2018
11
1 GENERAL INFORMATION
Rubicon Limited (Rubicon) is an international investor in forestry related industries. Rubicon, a limited liability company incorporated and
domiciled in New Zealand, is listed on the New Zealand stock exchange. As at 31 March 2018 Rubicon had one investment ArborGen Inc
(ArborGen) (95% economic interest (with 5% warrants outstanding relating to ArborGen’s acquisition of Cellfor), and 100.0% voting interest
and ownership of common stock)
This reporting period Rubicon changed its balance date from 30 September to 31 March, to align with that of its subsidiary ArborGen.
Accordingly, the financial statements presented are for the 6 months from 1 October 2017 to 31 March 2018, with the comparative period
being the 15 months from 1 July 2016 to 30 September 2017. In the comparative period, the Consolidated Statement of Cash Flows and the
Consolidated Balance Sheet include Tenon Limited (Tenon) and the Tenon Clearwood Limited Partnership (TCLP) operations, which are not
materially different from the disclosures in note 32 discontinued operations.
2 APPROVAL OF ACCOUNTS
These consolidated financial statements have been prepared on a consolidated Group basis and were approved for issue by the Board of
Directors on 28 May 2018.
3 BASIS OF PRESENTATION
The financial statements presented are those of Rubicon Limited (the Company) and Subsidiaries (the Group).
Basis of preparation
The Company is a FMC (Financial Markets Conduct) reporting entity for the purposes of the Financial Reporting Act 2013 and Financial
Markets Conduct Act 2013.
The accounting policies are consistent with those used in the September 2017 consolidated financial statements. The significant accounting
policies are set out below.
The presentation currency used in the preparation of these financial statements is United States dollars (US$), rounded to the nearest million
dollars.
Statement of compliance
The financial statements have been prepared in accordance with New Zealand International Financial Reporting Standards (NZ IFRS) and
other applicable financial reporting standards. The financial statements are in compliance with International Financial Reporting Standards
(IFRS). The Group has designated itself as a profit-oriented entity for the purposes of compliance with NZ IFRS.
The financial statements have been prepared in accordance with the requirements of the Financial Reporting Act 2013, Financial Markets
Conduct Act 2013 and the Companies Act 1993 and comply with generally accepted accounting practice in New Zealand (NZ GAAP).
Chief operating decision-makers
Rubicon’s ‘chief operating decision-makers’ are Ranjan Tandon and David Knott, who are Rubicon board directors whose investment funds
and associated parties own approximately 46% of Rubicon’s issued share capital, and, who jointly make strategic decisions for Rubicon.
4 SIGNIFICANT ACCOUNTING POLICIES
Changes in Accounting Policy
There have been no changes in accounting policies during the year.
New and amended standards adopted by the Group.
There were no new standards or amendments to standards adopted by the Group in the current year that had a material impact on the Group.
Use of Estimates and Judgement
The preparation of financial statements in conformity with NZ IFRS requires management to make estimates and assumptions that affect the
reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of the financial statements and the
reported amounts of revenues and expenses during the reporting period. Actual results could differ from those estimates. The principal areas
of judgement in preparing these financial statements are:
Investment impairment (notes 15)
The carrying value of investments is assessed at least annually to ensure there is no impairment. Performing these assessments generally
requires management to estimate future cash flows to be generated by the investment, which entails making judgements about the expected
future performance and cash flows of the investment and the appropriate discount rate to apply when valuing future cash flows. The carrying
Rubicon Limited and Subsidiaries
Notes to the Consolidated Financial Statements
For the period ended 31 March 2018
12
value of assets acquired are also effected by the estimates and judgements applied to capitalisation of developmental expenditure and the
adopted amortisation policy.
Basis of Consolidation
Subsidiaries
Subsidiaries are entities that are controlled, either directly or indirectly, by the Company. Control exists when the Parent has the power, directly
or indirectly, to govern the financial and operating policies of an entity so as to obtain benefits from its activities. In assessing control, potential
voting rights that presently are exercisable or convertible are taken into account. The financial statements of subsidiaries are included in the
consolidated financial statements from the date that control commences until the date that control ceases. ArborGen is a subsidiary of Rubicon
Limited. Following Tenon entering in voluntary liquidation in December 2017, Tenon no longer meets the definition of a subsidiary and
consequently it has been deconsolidated. After the sale of Rubicon’s interest in TCLP, in January 2018, it is no longer a subsidiary.
Transactions and balances between subsidiaries or between the Parent and subsidiaries are eliminated on consolidation.
Functional Currency
Foreign operations
Items included in the financial statements of each entity in the Group are measured using the currency that best reflects the economic
substance of the underlying events and circumstances relevant to that entity (the functional currency). The consolidated financial statements
are presented in US$ (the presentation currency).
The assets and liabilities of all of the Group companies that have a functional currency that differs from the presentation currency, including
goodwill and fair value adjustments arising on consolidation, are translated to the presentation currency at foreign exchange rates ruling at
balance date. All exchange differences arising from the translation of foreign operations are recognised in the foreign currency translation
reserve.
Transactions
Transactions in currencies other than the functional currency are translated at the foreign exchange rate ruling at the date of the transaction.
Monetary assets and liabilities denominated in currencies other than the functional currency at balance date are translated to the functional
currency at the foreign exchange rate ruling at that date, with foreign exchange differences arising on translation being recognised in the
income statement. Non-monetary assets and liabilities that are measured in terms of historical cost in a currency other than the functional
currency are translated using the exchange rate at the date of the transaction. Non-monetary assets and liabilities that are stated at fair value
in a currency other than the functional currency are translated using the exchange rate ruling at the date the fair value was determined.
Valuation of Assets
Land, buildings, plant and equipment
Land, buildings, plant and equipment are stated at historical cost less accumulated depreciation and impairment. Land is not depreciated.
Depreciation on other fixed assets is calculated using the straight-line method. Expected useful lives are:
Buildings 25 years
Plant and equipment 3 to 15 years
Inventory
Trading inventory, raw materials and work in progress are valued at the lower of cost or net realisable value. Cost includes direct manufacturing
costs and manufacturing overheads at normal operating levels, and excludes borrowing costs. Net realisable value is the estimated selling
price in the ordinary course of business, less applicable variable selling costs.
Biological assets (such as seedlings or treestocks) are measured at the end of each reporting period at their fair value less costs to sell. Fair
value is the price that would be received to sell an asset in an orderly transaction between market participants at the measurement date.
Intellectual property
Intellectual property is amortised over the useful life of the assets. Intellectual property relates primarily to output from ArborGen’s research
and development activities and is reviewed at least annually for impairment, and otherwise is amortised (on average) over 20 years. The useful
life is reviewed each balance date and adjusted if appropriate.
Trade and other receivables
Trade receivables are carried at cost, less provision for impairment. A provision for impairment of trade receivables is established when there
is objective evidence that the Group will not be able to collect all amounts due according to the original terms of receivables. The amount of
the provision is the difference between the asset’s carrying amount and the present value of estimated future cash flows, discounted at the
effective interest rate. The movement in the provision is recognised in the income statement.
Rubicon Limited and Subsidiaries
Notes to the Consolidated Financial Statements
For the period ended 31 March 2018
13
Cash and cash equivalents
Cash and cash equivalents comprises, cash balances and call deposits. Bank overdrafts that are repayable on demand and form an integral
part of the Group’s cash management are included as a component of cash and cash equivalents for the purpose of the statement of cash
flows.
Assets held for sale and discontinued operations
Assets held for sale are assets whose carrying value will be recovered principally through sale rather than through continuing use. Assets held
for sale are stated at the lower of their carrying amount and fair value less costs to sell and are not depreciated or amortised while they are
classified as held for sale.
A discontinued operation is a component of the Group’s business that represents a separate major line of business. Classification as a
discontinued operation occurs upon disposal or when the operation meets the criteria to be classified as held for sale, if earlier.
Impairment
The carrying amounts of the Group’s assets are reviewed regularly, including at each reporting date, to determine whether there is any
indication of impairment. If any such indication exists, the asset’s recoverable amount is estimated and whenever the carrying amount of an
asset or its cash-generating unit exceeds its recoverable amount, an impairment loss is recognised. Impairment losses are recognised in the
income statement.
Impairment losses recognised in respect of cash-generating units are allocated first to reduce the carrying amount of any goodwill allocated
to cash-generating units, and then to reduce the carrying amount of other assets in the cash-generating unit on a pro-rata basis.
The recoverable amount of non-financial assets is the greater of their fair value less costs to sell or value in use. In assessing value in use,
the estimated future cash flows are discounted to their present value using a pre-tax discount rate that reflects current market assessments of
the time value of money and the risks specific to the asset. For an asset that does not generate largely independent cash flows, the recoverable
amount is determined for the cash-generating unit to which the asset belongs. With the exception of goodwill, an impairment loss is reversed
if there has been a change in the estimates used to determine the recoverable amount.
An impairment loss is reversed only to the extent that the asset’s carrying amount does not exceed the carrying amount that would have been
determined, net of depreciation or amortisation, if no impairment loss had been recognised.
Valuation of Liabilities
Trade and other payables
Trade and other payables are stated at cost.
Provisions
A provision is recognised in the balance sheet when the Group has a present legal or constructive obligation as a result of a past event, and
it is probable that an outflow of economic benefits will be required to settle the obligation. Provisions are measured at the Group’s best estimate
of the expenditure required to settle the present obligation. Provisions are determined by discounting the expected future cash flows at a rate
that reflects current market assessments of the time value of money and, where appropriate, the risks specific to the liability.
Interest-bearing borrowings
Interest-bearing borrowings are recognised initially at fair value less attributable transaction costs. Subsequent to initial recognition, borrowings
are stated at amortised cost with any difference between cost and redemption value being recognised in the income statement over the period
of the borrowings on an effective interest rate basis.
Deferred income tax
Deferred income tax is provided in full, using the balance sheet method, on temporary differences arising between the tax bases of assets and
liabilities and their carrying amounts in the consolidated financial statements. The deferred income tax is not accounted for if it arises from
initial recognition of an asset or liability in a transaction, other than a business combination, that at the time of the transaction affects neither
accounting, nor taxable, profit or loss. Deferred income tax is determined using tax rates (and laws) that have been enacted or substantively
enacted by the balance date and are expected to apply when the related deferred income tax asset is realised or the deferred income tax
liability is settled. The measurement of deferred taxation assets and liabilities reflects the tax consequences that would follow from the manner
that the Group expects, at balance date, to recover or settle the carrying amount of its assets and liabilities. Deferred income tax assets are
recognised to the extent that it is probable that future taxable profit will be available against which the temporary differences can be utilised.
Derivative financial instruments
The Group uses derivative financial instruments for the purpose of managing its exposure to adverse fluctuations in foreign currency exchange
rates and commodity prices. While these instruments are subject to fluctuations in value, such fluctuations are generally offset by the change
in value of the underlying exposures being hedged.
Rubicon Limited and Subsidiaries
Notes to the Consolidated Financial Statements
For the period ended 31 March 2018
14
The Group policy specifically prohibits the holding or issuing of derivative financial instruments for trading or speculative purposes. Derivatives
that do not qualify for hedge accounting are classified as financial assets and are initially recognised at fair value at the date the contract is
entered into. The subsequent gains or losses arising from changes in the fair value of financial assets are recognised immediately in the
income statement.
However, where derivatives qualify for hedge accounting, recognition of any resultant gain or loss depends on the nature of the item being
hedged.
Cash flow hedge
For cash flow hedge transactions in which the Group is hedging the variability of future cash flows related to a variable-rate asset, liability or
a forecasted transaction, the effective portion of the changes in the fair value of the derivative instrument are reported in the statement of
comprehensive income. The gains and losses on the derivative instrument that are reported in the statement of comprehensive income are
reclassified to earnings in the periods in which earnings are impacted by the variability of the cash flows of the hedged item.
The ineffective portion of all hedges is recognised in current period earnings.
The net interest received or paid on the contracts is reflected as interest income or expense of the related hedged position. Gains and losses
resulting from the termination of contracts are recognised over the original period hedged as long as the underlying cash flows are still probable
of occurring. If the hedged positions are sold, or the underlying cash flows are no longer probable of occurring, any unrealised gains or losses
are recognised in the current period.
Fair value hedges
Changes in the fair value of derivatives which are designated and qualify as fair value hedges are recorded in the income statement, together
with any changes in the fair value of the hedged asset or liability that are attributable to the hedged risk.
Income Determination
Revenue recognition
Revenue comprises the fair value of the consideration received for the sale of goods and services, net of any value added tax, rebates, returns
and discounts, and after eliminating sales within the Group.
Goods sold
Revenue from the sale of goods is recognised in the income statement when the significant risks and rewards of ownership have been
transferred to the buyer. Products are generally sold with volume discounts and customers have a right to return faulty product. Sales are
recorded based on the price negotiated with the customer, net of estimated volume discounts and returns. Historical experience is used to
estimate the level of returns likely and volume rebates are calculated on a preset formula.
Investment income
Interest income is recognised in the income statement as it accrues, using the effective interest method. Dividend income is recognised in the
income statement on the date the Group’s right to receive payment is established.
Finance expense
Finance expenses comprise interest payable on borrowings calculated using the effective interest rate method.
Leasing commitments
The Group leases certain plant, equipment, land and buildings. Leases in which a significant portion of the risks and rewards of ownership are
retained by the lessor are classified as operating leases. Operating lease payments are charged to the income statement in the periods of
expected benefit.
Leases in which the Group assumes substantially all the risks and rewards of ownership are classified as finance leases. Upon initial
recognition the leased asset is measured at an amount equal to the lower of its fair value and the present value of the minimum lease payments.
Subsequent to initial recognition, the asset, leased under a finance lease, is accounted for in accordance with the accounting policy applicable
to that asset.
Research and development costs
All research costs are recognised as an expense when incurred. When a project reaches the stage where it is reasonably certain that further
expenditure can be recovered through the processes or products produced, development expenditure is recognised as a development asset.
The asset is amortised from the commencement of commercial production of the product to which it relates, over the period of expected
benefit.
Rubicon Limited and Subsidiaries
Notes to the Consolidated Financial Statements
For the period ended 31 March 2018
15
Income tax
Income tax on the profit or loss for the year comprises current and deferred tax. Income tax is recognised in the income statement except to
the extent that it relates to items recognised directly in equity, in which case it is recognised in equity.
Current tax is the expected tax payable on the taxable income for the year, using tax rates enacted or substantially enacted at balance date,
and any adjustment to tax payable in respect of previous years.
Employee Benefits
Other employee benefits
Long service leave vests to certain employees after varying periods of service. The Group’s net obligation in respect of long service leave is
the amount of future benefit that employees have earned in return for their service in the current and prior periods.
Share-based payments
The grant-date fair value of equity-settled share-based payment arrangements granted to employees is generally recognised as an expense,
with a corresponding increase in equity, over the vesting period of the awards.
Segmental Reporting
Operating segments are reported in a manner consistent with the internal reporting provided to the chief operating decision-makers. The Group
has one reportable segment, being forestry genetics (ArborGen). Previously the Group also had the appearance and wood products (Tenon
Clearwood) segment. The Group’s geographical segments are based on both the location of customers and primary location of assets (refer
to note 25 segmental information summary).
Goods and Services Tax
The income statement and statement of cash flow have been prepared exclusive of goods and services taxation.
Comparatives
Changes in prior year disclosure comparatives may have been made to align with the current year presentation. Changes have been made to
the results for the 15 months ended 30 September 2017 to reflect the Tenon Clearwood operations as discontinued.
Future NZ IFRS Pronouncements
Standards or interpretations issued but not yet effective and relevant to the Group.
The International Accounting Standards Board has issued a number of standards, amendments and interpretations which are not yet effective
and which may have an impact on the Group’s financial statements. These are detailed below. The Group has not applied these in preparing
these financial statements and will apply each standard in the period in which it becomes mandatory:
a) NZ IFRS 9 – Financial Instruments – Classification and Measurement This standard addresses the classification, measurement and
de-recognition of financial assets, financial liabilities, impairment of financial assets and hedge accounting, and will be effective for
the year ended 31 March 2019.
b) NZ IFRS 15 – Revenue from Contracts with Customers - This standard establishes the framework for revenue recognition, and will
be effective for the year ended 31 March 2019.
c) NZ IFRS 16 – Leases - This standard requires a lessee to recognise a lease liability reflecting the future lease payments and a ‘right-
of-use asset’ for substantively all lease contracts, and will be effective for the year ended 31 March 2020.
The Group has not fully assessed the impact of these new standards or amendments, however the impact is not expected to be significant.
5 FINANCIAL RISKS
The Group’s principal asset is its investment in ArborGen.
This note presents information about the Group's potential exposure to financial risks that the Group has identified; the Group’s objectives,
policies and processes for managing those risks; the estimation of fair values of financial instruments; and the Group's management of capital.
Quantitative disclosures of some of the key financial risks are made below.
5.1 ArborGen
ArborGen has exposure to financial risks which are actively assessed and managed.
5.1(a) Foreign exchange risk
ArborGen is a US functional currency business, which operates in three geographies – the United States, Brazil and Australasia. Australasian
operations are self-sufficient from a funding perspective, and generally there are no cash flows between Australasia and the US. Accordingly,
the foreign exchange risk in Australasia is limited to the translation effect on its earnings and balance sheet from movements in the USD
against the NZD and AUD. Similarly, the Brazil operations are to a large degree internally self-sufficient from a funding perspective, and in
addition there has been a link between the Reais and the USD, which has largely limited the effect of relative currency movements to their
translation impacts. There are no transactions in the US operations in a currency other than the USD.
Rubicon Limited and Subsidiaries
Notes to the Consolidated Financial Statements
For the period ended 31 March 2018
16
5.1(b) Credit risk
ArborGen is at risk of customer default on payment for treestocks at the conclusion of a growing season. ArborGen mitigates this risk by
dealing with a wide-range of customers in multiple markets and by securing up-front deposits from selected customers for the treestocks it
grows each year. The nature of ArborGen’s activity is that its customers tend to require yearly repeat business, and historically customer
payment defaults have not been material to ArborGen’s business. However, in the US market (ArborGen’s largest market), as treestock orders
are not considered to be unconditional until late in the season each year, there remains the risk that orders cancelled prior to collection may
not be able to be sold to other customers during the remaining season.
5.1(c) Liquidity risk
ArborGen has banking facilities (in total $27 million (2017: $28 million)) with two banks in the United States. One of these facilities, a $11.6
million reducing loan, matures in May 2036 and the other, a $15 million revolver, expires in August 2018. These facilities are used to fund
ArborGen’s working capital and capital expenditure needs in its US activities. ArborGen also has a NZ$4.25 million NZ-based bank facility,
which has an expiry date of 1 November 2018, and an NZ$1.5 million line of credit facility, which matures on December 31, 2018 and is subject
to renewal on an annual basis. These NZ dollar facilities are used to fund its Australasian operations. If any of these facilities were not to be
renewed then ArborGen would need to obtain similar facilities from other banks, or an equivalent amount of funding would need to be supplied
by Rubicon, or through an ArborGen capital raising event. None of these ArborGen bank facilities have recourse to Rubicon Limited.
5.1(d) Interest rate risk
ArborGen’s $11.6 million facility is at a fixed interest rate. Its US revolver facility is LIBOR + a margin, and is currently fully floating. The mix of
fixed and floating in these two facilities balances ArborGen’s relative US interest rate risk. This position is regularly reassessed based on
underlying macro-economic conditions and ArborGen’s cash flow projections.
5.2 Rubicon Limited
Rubicon’s capital includes share capital, reserves, retained earnings and minority interest, and Rubicon manages capital in such a manner as
to maintain stakeholder confidence and safeguard Rubicon’s ability to continue as a going concern, whilst also maximising the return for
shareholders and sustaining resources for the future development of the business. In order to maintain or adjust the capital structure Rubicon
may, pay dividends or return capital, or issue new shares or sell assets.
Liquidity risk management requires the maintenance of available cash combined with the availability of funding to meet the Company’s needs
as they develop. Rubicon prepares forecasts of its cash requirements and ensures it has financial resources in place to meet its day-to-day
operating and investment needs.
In addition to the financial risks applicable to ArborGen, Rubicon is exposed to financial risk with respect to its cash and short-term deposits.
At balance date Rubicon Limited had no borrowings (and $14.5 million in cash (2017: debt $6 million, cash $12.6 million). Its cash is held in
its functional currency, i.e. US dollars. It believes these resources, together with forecast proceeds yet to be received from the liquidation of
Tenon Limited, will be sufficient to meet its funding needs through to 31 March 2019.
Rubicon Limited and Subsidiaries
Notes to the Consolidated Financial Statements
For the six months ended 31 March 2018
6REPORTING CURRENCY
Rubicon reports in United States dollars (US$), consequently all financial numbers are in US$ unless otherwise stated.
7OPERATING EXPENSES INCLUDE
RUBICON GROUP
6 months15 Months
Mar 2018Sep 2017
US$mUS$m
Depreciation and amortisations included in:
Cost of sales expense(1) (1)
Administration expense: intellectual property (refer note 14)(3) (1)
Other- -
Total depreciation and amortisations(4) (2)
Cost of inventory expensed in cost of sales(20) (5)
Employee related expenses(12) (5)
Transactional costs incurred by ArborGen in relation to Rubicon acquisition(1) -
Impairment relating to the rationalisation of ArborGen's New Zealand varietal programme(1)-
Expenses incurred also includes payments made and accrued for:
- Directors fees for non-executive Directors of Rubicon for the current period of $0.2 million (paid in NZ$0.2 million), (2017: $0.5 million (paid in NZ$0.6 million)).
- The statutory audit of the annual financial statements and review of the interim financial statements in the current period; for Rubicon $0.1 million (2017: $0.1 million)
and ArborGen $0.2 million (2017: $0.2 million).
- Taxation services provided by KPMG for Rubicon in the current period of less than $0.1 million (2017: $0.1 million).
- Other services provided by the auditors for Rubicon in the current period were less than $0.1 million (2017: less than $0.1 million), which include attendance at the
annual meetings and agreed upon procedures.
- Until June 2017, Tenon's NZ corporate office subleased office space from Rubicon. In addition the directors fees associated with the Rubicon CEO serving as
chairman of Tenon were paid to Rubicon for Rubicon's account. Recovery of office and administrative costs and directors fees from Tenon were nil in the current
period (2017: $0.2 million).
8INCOME TAX EXPENSE
RUBICON GROUP
6 months15 Months
Mar 2018Sep 2017
US$mUS$m
Earnings before taxation- (2)
Taxation at 28%- 1
Adjusted for:
Permanent differences- (1)
Change in liability due to change in United States tax rate2 -
Taxation (expense)/benefit2 -
9CASH AND LIQUID DEPOSITS
Cash and liquid deposits of $29 million (2017: $31 million) comprises cash held by: Rubicon $20 million (inclusive of $6 million cash on deposit with Synovus
to secure the ArborGen debt facility) (2017: $19 million), Tenon nil (2017: $5 million), TCLP nil (2017: $4 million) and ArborGen $9 million (2017: $3 million).
10TRADE AND OTHER RECEIVABLES
RUBICON GROUP
Mar 2018Sep 2017
US$mUS$m
Trade debtors6 7
Prepayments1 1
Other receivables
(1)
3 1
Trade and other receivables10 9
(1)Includes the estimated realisable value of Rubicon's net investment in Tenon Limited (in liquidation) of $2.6 million as a receivable (refer to notes 21 and 27).
17
Rubicon Limited and Subsidiaries
Notes to the Consolidated Financial Statements
For the six months ended 31 March 2018
11INVENTORY
RUBICON GROUP
Mar 2018Sep 2017
US$mUS$m
Finished goods - seedlings1 1
Work in progress - seedlings
(1)
7 13
Seed12 6
Work in progress - seed
(2)
4 5
Fair value adjustment on biological assets
(3)
1 4
Finished goods - other
(4)
- 10
Work in progress - other
(4)
- 2
Inventory25 41
(1)Work in progress - seedlings, is principally growing seedling crop.
(2)Work in progress - seed, is principally harvesting seed to be sown as a future crop.
(3)Fair value adjustment on biological assets reflects the change in fair value less costs to sell of biological assets (seedlings) as at balance date.
(4)Inventory of discontinued operations - TCLP.
12TAXATION
Deferred taxation asset
Deferred income taxation assets and liabilities are offset when there is a legally enforceable right to do so and when the deferred income taxes relate to the
same fiscal authority.
RUBICON GROUP
Mar 2018Sep 2017
US$mUS$m
The gross movement on the deferred taxation asset is as follows:
Opening provision for deferred taxation- 8
Transfer to discontinued operations
(1)
- (8)
Deferred taxation asset- -
Deferred taxation assetRUBICON GROUP
DepreciationProvisions Tax losses Current assetsTotal
US$mUS$mUS$mUS$mUS$m
30 September 2017
Opening provision for deferred taxation(4) 1 12 (1) 8
Movement in deferred taxation4 (1) (12) 1 (8)
Deferred taxation asset as at 30 September 2017- - - - -
31 March 2018
Opening provision for deferred taxation- - - - -
Deferred taxation asset as at 31 March 2018- - - - -
(1)As a result of Tenon's disposition of all of its operations it derecognised all deferred taxation assets in the period to 30 September 2017.
Deferred taxation (liability)RUBICON GROUP
Mar 2018Sep 2017
US$mUS$m
Opening provision for deferred taxation(6) -
Change in liability due to change in United States tax rate
(2)
2 -
Deferred taxation on acquisition of ArborGen- (6)
Deferred taxation (liability)(4) (6)
(2)In January 2018 the Tax Cuts and Jobs Act was enacted in the US. One of the effects of this Act is to reduce the Federal corporate tax rate down from 35% to 21%.
This has resulted in a reduction in the deferred tax liability balance in relation to ArborGen's US activities (deferred taxation relates to timing differences on
intellectual property and product development).
NZ IFRS only allows the recognition of taxation assets when utilisation is considered probable, which is subject to the future earnings of the Group and on meeting
shareholder continuity and loss carry forward expiry dates. The Group had taxation losses (gross) at 31 March 2018 of $97 million, predominately in the United
States, of which $29 million relates to ArborGen. Following the Rubicon acquisition of ArborGen, tax loss utilisation in ArborGen is limited to $1.4 million per
annum (gross). Rubicon has imputation credits available to Rubicon shareholders of $3 million (2017: $3 million).
18
Rubicon Limited and Subsidiaries
Notes to the Consolidated Financial Statements
For the six months ended 31 March 2018
13FIXED ASSETSRUBICON GROUP
Mar 2018Sep 2017
US$mUS$m
Cost
Land16 20
Buildings11 20
Building - finance lease13 13
Plant and equipment6 36
Total cost46 89
Accumulated depreciation
Buildings(1) (6)
Building - finance lease(1) -
Plant and equipment- (21)
Total accumulated depreciation(2) (27)
Net book value
Land16 20
Buildings10 14
Building - finance lease12 13
Plant and equipment6 15
Fixed assets net book value44 62
Domicile of fixed assets
Australasia10 28
United States34 34
Fixed assets net book value44 62
RUBICON GROUP
Fixed assets net book valueLandBuildingsBuilding -
finance lease
Plant and
equipment
Total
US$mUS$mUS$mUS$mUS$m
30 September 2017
Opening net book value6 9 - 11 26
Additions- - - 4 4
ArborGen assets acquired16 10 13 6 45
Disposition of Tenon North American operations(2) (4) - (4) (10)
Depreciation charge- (1) - (2) (3)
Fixed assets net book value as at 30 September 201720 14 13 15 62
31 March 2018
Opening net book value20 14 13 15 62
Disposition of TCLP operations(4) (4) - (9) (17)
Depreciation charge- - (1) - (1)
Fixed assets net book value as at 31 March 201816 10 12 6 44
14INTELLECTUAL PROPERTY
RUBICON GROUP
Mar 2018Sep 2017
US$mUS$m
Opening balance107 -
Acquired on acquisition of ArborGen- 107
Capitalisation during period3 1
Amortisation during period(3) (1)
Intellectual property107 107
15ARBORGEN INVESTMENT AND IMPAIRMENT
In June 2017 Rubicon acquired the 66.66% of the ArborGen shares held by its then partners International Paper and WestRock, and increased its ownership to
100% of ArborGen’s issued share capital. The total purchase price for the partners’ combined shareholding was $28.5 million. Rubicon paid each partner $6.767
million (total $13.53 million) in June 2017 and (under the deferred settlement agreement) a further $2.5 million in December 2017 (total $5 million). A final $5
million is payable to each partner on 30 June 2018 (total $10 million). As part of the acquisition, Rubicon agreed with the partners that should it, prior to 30 June
2018, sell-down its ArborGen position to a third party such that upon completion it holds less than 50% of the business (i.e. shares or assets), for a value above that
implied by the Rubicon acquisition purchase price, then Rubicon would make a cash payment to each partner equivalent to their share of the sale gain. Separately,
there are warrants outstanding equal to 5% of the issued ArborGen share capital, which reduces Rubicon's effective economic exposure to ArborGen to 95%.
These warrants arose out of ArborGen's purchase of Cellfor in 2012, and represent part-consideration for that acquisition. The warrants are automatically exercised,
for no payment, upon an IPO of ArborGen, or alternatively at any time if 66.67% of the warrant holders so elect. The warrants can also be exercised by ArborGen,
upon either a sale of substantially all of the ArborGen business or of a sale of 50.01% or more of ArborGen's share capital. In addition, the ArborGen senior
management team hold options in respect of 5.3% of ArborGen's issued share capital. These options are fully vested and can be exercised (subject to service
conditions) at the price per share paid by Rubicon when it acquired 100% of ArborGen, by the holders upon an IPO of ArborGen, a sale of substantially all of the
assets of ArborGen, or upon a sale or restructuring event (including the issuance of new share capital to a third party) where following such event Rubicon holds
less than a 50.01% ownership position.
19
Rubicon Limited and Subsidiaries
Notes to the Consolidated Financial Statements
For the six months ended 31 March 2018
15
ARBORGEN INVESTMENT AND IMPAIRMENT continued
US$m
Carrying value of associate (as at 28 June 2017)
(1)
Balance at the beginning of the period91
Earnings of associate1
Total investment in associate (as at 28 June 2017)92
US$m
Earnings relating to associate
(2)
Revenue49
Profit from operations
4
Group's share of earnings relating to associate (to 28 June 2017)
1
(1)ArborGen has a 31 March balance date. ArborGen has been accounted for as an associate of Rubicon through to 28 June 2017. Because of the different
timing of the lifting seasons in the US and NZ, the results for the September 2017 period reflected a full year revenue in the US, approximately 15 months
revenue in NZ, and 15 months of expenses in both jurisdictions.
(2)100% of ArborGen's operations.
Recognised assets and liabilities acquired of ArborGen (as at 28 June 2017)US$m
Cash2
Trade receivables and other3
Inventory23
Fixed assets45
Intellectual property and product development107
Total assets180
Current liabilities(13)
Current debt(11)
Deferred taxation liability(6)
Term liabilities(26)
Total liabilities(56)
Fair value of identifiable net assets124
Pre-existing investment in ArborGen(92)
32
Rubicon acquisition price29
Net fair value adjustment on associate investment and bargain purchase gain arising on acquisition3
Less currency translation reserve reclassified to earnings(1)
Net fair value gain
(3)
2
(3)Following the acquisition of 100% of ArborGen and subsequent fair valuation exercise as required under NZ IFRS, (which was completed on 24 November 2017)
Rubicon recognised a fair value of $124 million for 100% of ArborGen. This fair value was the result a fair value loss on the carrying value of the former associate
investment of $48 million, a bargain purchase gain (on acquisition) of $51 million and the reclassification of currency translation reserves to earnings.
The reason the purchase price, in this instance, does not reflect the fair value of the ArborGen business acquired is because an orderly sales process was not run
for the business. This was due to the unique nature of the then governing ArborGen shareholders’ agreement, which included strong pre-emptive rights over
existing partners’ interests in the event of a sale, and also minority veto rights in favour of the remaining partner. This meant that a 50.01% ownership interest would
not have bought effective control of the business. Given Rubicon was not prepared to forgo these protective provisions, this in turn meant that the exiting partners
were effectively unable to run a sales process for their respective shareholdings. Accordingly, we believe the business was acquired at a ‘bargain purchase price’ as
defined by NZ IFRS, requiring a separate fair value determination of the identifiable assets and liabilities acquired to be made. In determining the fair value of the
ArborGen business acquired at US$124 million, we referenced and utilised the work of a third party independent valuation report. That report was prepared for the
ArborGen Board of Directors in May 2017, in support of the valuation of options issued to ArborGen management in June 2017. The report used a discounted cash
flow (DCF) model projection, over a 10-year period inclusive of a terminal value. Only existing core ArborGen markets were valued (i.e. Australia, New Zealand,
United States and Brazil), with growth market opportunities (outside of the core) excluded from the analysis. Separate demand projections were determined for
each geography and end-use market. ArborGen’s addressable seedling market for each was estimated, as was seedling type (e.g. softwood or hardwood, species,
and production technology employed (i.e. traditional, MCP, varietal, transgenic)), and sales price and cost by product for each market. Please refer Rubicon’s 2017
Annual Review for a more detailed explanation of the model metrics.
We regularly review the carrying value of our assets to determine whether there has been a subsequent change in circumstances or conditions that requires an
impairment to be taken through earnings. In carrying out this impairment exercise at 31 March 2018, we utilised a 10-year DCF model of a similar type to that used
in our acquisition analysis (above), in order to determine a ‘value-in-use’ (VIU). As this terminology implies, this is the estimated value to be derived from continued
ownership of the ArborGen business. Since our acquisition in June last year, the Tax Cuts and Jobs Act company tax changes were enacted in the US in January
2018. One of the effects of these changes is to reduce the corporate federal tax rate in the US down from 35% to 21% (~25% inclusive of state taxes), and
accordingly this represents a positive impact on our after-tax cashflow valuation analysis. In addition, the Rubicon Board has reviewed and adopted a Budget for the
next financial year and a 10-year Plan for ArborGen’s business moving forward. The inputs to the impairment DCF model reflect those Budget and Plan documents.
The largest market and greatest valuation sensitivity resides with the US, where the model assumes that over a 10-year period, the market size will grow to ~1 billion
seedlings per annum, ArborGen’s market share will increase to represent ~40% of that total market, and its customers will increasingly move to a higher share of
advanced treestocks in their loblolly pine estates, such that by the terminal year (i.e. year 10) ~35% of ArborGen’s loblolly sales will be in traditional open pollinated
(OP) units, with ~65% being represented by advanced genetics (~55% MCP and ~10% varietal). A terminal growth rate (TGR) of 3% nominal (i.e. zero real TGR
under a 3% inflation assumption) is assumed. As a sensitivity, in order to equate the DCF output to our current carrying value of ArborGen (i.e. US$132 million), a
composite discount rate of more than 26.0% nominal pre-tax would need to be applied to the model’s cash flow projections – a discount rate much higher than we
believe is applicable to ArborGen’s cashflows. In addition, we also compared our carrying value with values derived from ‘multiples’ applied to the future revenue
numbers projected under the model. Using NZ IFRS terminology, these two methods utilised Level 3 and Level 2 inputs respectively, reflecting the observable
certainty that each has. Under each methodology, the conclusion is that there is no impairment required to ArborGen's carrying value as at balance date.
20
Rubicon Limited and Subsidiaries
Notes to the Consolidated Financial Statements
For the six months ended 31 March 2018
15
ARBORGEN INVESTMENT AND IMPAIRMENT continued
A mid-case VIU was also derived, utilising the same model inputs as outlined above and maintaining the same TGR assumption (i.e. effectively zero real, using a
3% inflation rate), but by reducing the discount rate applied to the projected cashflows to 17.75% nominal pre-tax. The VIU determined under this discount rate was
~US$345 million. This mid-case scenario is helpful to readers in that it gives an understanding of the sensitivity of the valuation outcomes solely to changes in the
discount rate. It can be seen that anything we can do in order to ‘de-risk’ ArborGen’s future cashflows, and hence lower the discount rate applied, is materially
positive to value.
For completeness, and as a further sensitivity, a higher-case VIU of ~US$510 million was derived, by reducing the discount rate by 1.0%, to 16.75%, increasing the
TGR to 5.0% (i.e. 2% real), and increasing the terminal year share of advanced genetics to 80%. By way of further sensitivity, if the discount rate and the TGR
assumptions in the high case were the same as used in the mid-case, the $510 million VIU would decrease to ~$400 million, implying a product adoption sensitivity
of $55 million (i.e. the difference between the mid-case value of $345 million and $400 million), being the value uplift from moving from 60% advanced genetics
adoption in the terminal year, to 80%.
16GOODWILLRUBICON GROUP
Mar 2018Sep 2017
US$mUS$m
Opening balance18 54
Disposition of Tenon North American operations- (36)
Disposition of TCLP operations
(1)
(18) -
Goodwill- 18
(1)Following Tenon's sale of its North American operations all goodwill related solely to the TCLP operations. With the sale of TCLP in January 2018 the Group
has no remaining Goodwill.
17TRADE, OTHER PAYABLES AND PROVISIONSRUBICON GROUP
Mar 2018Sep 2017
US$mUS$m
Trade creditors(4) (10)
Accrued employee benefits (4) (7)
Other payables - (1)
Seedling deposits from customers(2) (5)
Trade, other payables and provisions(10) (23)
18TERM AND CURRENT DEBTRUBICON GROUP
Mar 2018Sep 2017
Summary of repayment termsUS$mUS$m
Due for Repayment:
Less than one year(15) (18)
between one and five years(2) (25)
after five years(9) (8)
Total term and current debt(26) (51)
Summary of Interest Rates by Repayment PeriodMar 2018Sep 2017
Due for Repayment:
Less than one year4.74% 6.99%
between one and five years4.95% 4.72%
after five years4.95% 4.95%
Current debt - weighted average interest rate4.74% 6.99%
Term debt - weighted average interest rate4.95% 4.75%
The weighted average interest rates reflect the effective interest rate, inclusive of fee amortisations.
Debt facilities availableUS$m
March 201831
March 201911
March 202010
March 202110
March 20229
ArborGen has three debt facilities with the following banks: Synovus Financial Corporation (Synovus) and AgSouth Farm Credit (AgSouth) in the United
States, and Westpac New Zealand Limited (Westpac) in New Zealand.
ArborGen has a non-revolving promissory note issued to AgSouth for $12.6 million bearing interest at 4.95%, with a maturity date of 1 May 2036, which is secured
against the ArborGen's US real estate properties. Annual principal repayments of $0.6 million are due 1 May each year. ArborGen has a revolving credit facility
agreement with Synovus, which provides for a $15 million revolving line of credit (LOC) bearing interest at the 30 day LIBOR base rate plus 2.75%, subject to a
minimum annual rate of 4.25%. The LOC has a maturity date of 31 August 2018 and is collateralised by all the United States assets not otherwise pledged under
the AgSouth note. The terms of the LOC limit borrowings to $6 million for a continuous 60 day period between 1 March and 31 August of each year. The Synovus
agreement requires ArborGen to maintain a $6 million certificate of deposit with Synovus until settlement of the LOC obligation. The credit agreements with both
Synovus and AgSouth include a covenant, which requires ArborGen to maintain a minimum net worth of $24 million, which was met at 31 March 2018. ArborGen
New Zealand Unlimited (ArborGen NZ) has an agreement with Westpac for a multi option credit facility (MOCF) for an amount up to NZ$4.25 million, bearing
interest at 4.4% with a maturity date of 1 November 2018, and an NZ$1.5 million line of credit facility ($1 million drawn at March 2018, 2017: $1.5 million), which
matures on December 31, 2018 and is subject to renewal on an annual basis. The Westpac facility is collateralised by mortgages over ArborGen NZ’s assets, land
and buildings. ArborGen NZ met all of the financial covenants required by Westpac as of 31 March 2018, including: EBIT/Interest coverage of more than 1.75 times,
equity ratio of not less than 60% of adjusted tangible assets, and loan:value ratio less than 50% of secured property.
Rubicon utilised the proceeds of the sale of TCLP (in January 2018) to repay its outstanding $6 million of unsecured subordinated debt notes, so that at 31 March
2018 Rubicon had no outstanding debt.
21
Rubicon Limited and Subsidiaries
Notes to the Consolidated Financial Statements
For the six months ended 31 March 2018
19CAPITAL
RUBICON GROUP
Mar 2018Sep 2017
US$mUS$m
Share capital at the beginning of the period201 188
Issue of shares
(1)
- 13
Share capital201 201
Mar 2018Sep 2017
Opening shares on issue487,908,343 409,051,378
Issue of shares
(1)
- 78,856,965
Number of shares on issue487,908,343 487,908,343
(1)In June 2017 Rubicon placed 56.8 million ordinary shares to Libra Fund LP and 22.1 million to Knott Partners LP. The shares were issued at the 10-day VWAP
(NZ21.78 cents per share) raising $12.5 million (NZ$17.175 million) in new capital.
20RESERVES
RUBICON GROUP
Mar 2018Sep 2017
Retained earningsUS$mUS$m
Opening balance(51) (46)
Net earnings2 (6)
Revaluation transferred to retained earnings on disposal
(1)
- 1
Closing balance(49) (51)
Revaluation reserve
Opening balance- 1
Revaluation transferred to retained earnings on disposal
(1)
- (1)
Closing balance- -
Currency translation reserve
Opening balance- (3)
Transfer to earnings- 3
Closing balance- -
Total reserves(49) (51)
(1)The revaluation reserve relates to Tenon's North American operations disposed.
21EQUITY ATTRIBUTABLE TO MINORITY SHAREHOLDERS
RUBICON GROUP
Mar 2018Sep 2017
US$mUS$m
Opening balance10 40
TCLP minority investment- 17
Tenon capital return
(3)
- (46)
Net earnings1 -
Disposal of TCLP minority
(1)
(8) -
Deconsolidation of Tenon minority
(2)
(2) -
TCLP distribution(1) -
Tenon dividend- (1)
Equity attributable to minority shareholders- 10
(1)In December 2017 Rubicon entered an agreement to sell its interest in TCLP to entities related to our two largest shareholders and Directors (David Knott
and Ranjan Tandon) together with existing TCLP investors. This transaction was approved by shareholders at a special shareholders meeting on 12
January 2018, and the transaction was completed on 31 January 2018.
(2)In December 2017 Tenon Limited (in which Rubicon is a 59.78% shareholder) entered into voluntary liquidation. The loss of control of Tenon means that it
no longer meets the definition of a subsidiary and it has therefore been deconsolidated. Rubicon's net investment in Tenon is recorded at estimated realisable
value in trade and other receivables (refer to note 10).
(3)In the prior period Tenon completed two court-approved share cancellations and pro-rata returns of capital, the minority share of which was $46 million.
22CAPITAL EXPENDITURE COMMITMENTS
Other than the outstanding deferred settlement payments of $10 million in relation to the ArborGen acquisition (2017: $15 million) (refer note 15), the Group had no
material capital expenditure commitments as at 31 March 2018.
22
Rubicon Limited and Subsidiaries
Notes to the Consolidated Financial Statements
For the six months ended 31 March 2018
23GROUP LEASE COMMITMENTS
The expected future minimum rental payments required under leases (including capitalised finance leases) that have initial or remaining non-cancellable lease terms
in excess of one year at 31 March 2018 are as follows:
RUBICON GROUP
Mar 2018Sep 2017
US$mUS$m
Lease commitments are as follows:
Within one year2 2
two years2 2
three years2 2
four years2 2
five years2 2
After five years14 12
Total lease commitments24 22
Lease commitments relate mainly to occupancy leases of buildings and vehicles.
ArborGen has a 20-year lease agreement over its research, development and headquarters facility at its head office complex in Ridgeville South Carolina, which
commenced in February 2012. Under the terms of the lease ArborGen is obligated to pay annual rent of $1.4 million, and has an option to purchase the facility at
the higher of market value or the landlord's investment plus 5%. This lease is treated as a finance lease under NZ IFRS, which means that both the lease asset and
liability are capitalised on the balance sheet. Over the term of the lease the asset is depreciated and the lease liability is amortised.
In order to provide the necessary level of support required to have the facility developed, in 2012 each of the ArborGen partners agreed to guarantee $2
million (each) of ArborGen's future lease payments. Under the ArborGen sale and purchase agreement, Rubicon assumed the guarantees of both
International Paper and WestRock (given it would be the 100% owner of ArborGen, and in effect, economically exposed to the full lease commitment in any
case). WestRock and International Paper each have the right to call for a $0.5 million payment from Rubicon on 30 June 2019, which if called would eliminate
Rubicon's assumed partner guarantee.
All other leases are operating leases and are included in the above table.
24REMUNERATION
Key management compensation
Salaries and other short-term employee benefits paid to Rubicon and ArborGen key management employees were $2 million (September 2017: $2 million).
Payments to TCLP and Tenon employees in the prior period, including payments to exiting employees, were $6 million.
Upon the 100% acquisition of ArborGen by Rubicon, a plan was put in place to retain ArborGen senior management. The benefit under this plan totals $2 million,
and provides for the payment by ArborGen of up to $1 million on 1 July 2018 and another $1 million on 1 July 2019 to senior executives. The package is split
across ten individuals, with the requirement being that an individual must still be employed by ArborGen on those respective dates in order for them to receive a
payment on those dates. If an individual is made redundant by ArborGen, then they will still receive the benefit of the plan.
25SEGMENTAL INFORMATION SUMMARY
The Group has one reportable segment and the analysis is as follows:RUBICON GROUP
6 months15 Months
Mar 2018Sep 2017
Forestry genetics
(1)
US$mUS$m
Operating revenue35 6
Share of (loss)/profit from associate- 1
Financing expense(1) (1)
Tax (expense) / benefit2 -
Net earnings after taxation from continuing operations4 1
Total assets198 193
Liabilities(53) (53)
Capital expenditure(3) (2)
Depreciation and amortisation of intellectual property(4) (2)
Reconciliation
Appearance and wood products
Operating revenue - discontinued19 263
Financing expense- (1)
Net earnings after taxation from discontinued operations- (4)
Total assets - discontinued3 62
Liabilities - discontinued- (33)
Capital expenditure - (3)
Depreciation- (2)
Corporate
Financing expense- (2)
Net earnings after taxation from continuing operations(2) (3)
Total assets14 13
Liabilities(10) (22)
23
Rubicon Limited and Subsidiaries
Notes to the Consolidated Financial Statements
For the six months ended 31 March 2018
25
SEGMENTAL INFORMATION SUMMARY continued
Total Group
Total revenue54 269
Operating revenue - discontinued19 263
Operating revenue - continuing - per income statement35 6
Share of (loss)/profit from associate- 1
Financing expense(1) (4)
Tax (expense) / benefit2 -
Net earnings after taxation from continuing operations2 (2)
Net earnings after taxation from discontinued operations- (4)
Total assets - per balance sheet215 268
Total assets - discontinued3 62
Total assets - continuing212 206
Liabilities - per balance sheet
(63) (108)
Liabilities - discontinued- (33)
Liabilities - continuing(63) (75)
Capital expenditure(3) (5)
Depreciation and amortisation of intellectual property(4) (4)
The Group's geographical analysis is as follows:
Australasia and South America
Operating revenue4 34
Non current assets10 46
North America and Europe
Operating revenue31 81
Non current assets141 141
Total Group
Operating revenue35 115
Non current assets151 187
(1)In the comparative 15 month period ArborGen moved from being an associate to being a subsidiary.
26PRINCIPAL OPERATIONS
Rubicon Limited (a New Zealand incorporated limited liability company) is the holding company of the Rubicon Group.
The principal subsidiaries, as at 31 March 2018, were:
Country of Interest %Interest %BalancePrincipal
DomicileMar 2018Sep 2017DateActivity
Principal subsidiaries
Rubicon Forests Holdings LimitedNZ10010030 SeptemberHolds a 59.78% interest in Tenon (in liquidation)
Rubicon Clearwood GP Limited
(1)
NZ10010030 SeptemberGeneral Partner to TCLP
Tenon Clearwood Limited Partnership
(1)
NZ044.8831 MarchWood products
Tenon Limited
(2)
NZ59.7859.7830 JuneIn liquidation
Rubicon Industries USA LLCUSA10010030 JuneHolds ArborGen, Inc investment
ArborGen Inc
(3)
USA10010031 MarchForestry genetics
ArborGen Inc subsidiaries
ArborGen Comercie de Produtos FlorestalBrazil10010031 MarchForestry genetics
Importacao e Exportacao LTDA
ArborGen Technologia Florestal LTDA Brazil10010031 MarchHolding company
ArborGen New Zealand Holding LLCUSA10010031 MarchHolding company
ArborGen New Zealand UnlimitedNZ10010031 MarchForestry genetics
ArborGen Australia Holdings Pty LtdAust10010031 MarchHolding company
ArborGen Australia Pty LtdAust10010031 MarchForestry genetics
(1)Following the sale of Rubicon's 44.88% interest in TCLP to entities related to David Knott, Ranjan Tandon and existing TCLP investors, Rubicon no longer has an
economic interest in TCLP. However Rubicon (Rubicon Clearwood GP Limited) remains as the general partner of TCLP, for which it receives a fee of $0.25
million per annum ($0.1 million received in period) in return for management services provided. The General Partner can be changed by a majority vote of
the Limited Partners.
(2)Refer to note 4, Basis of Consolidation - Subsidiaries above.
(3)In June 2017 Rubicon, acquired the 66.66% of ArborGen shares held by its then partners International Paper and WestRock, and as a result increased Rubicon's
33.34% ownership interest to 100% of ArborGen’s issued share capital, or 95% by economic interest (given the 5% warrants outstanding to third parties relating to
the ArborGen acquisition of Cellfor in 2012). $10 million of the purchase price for ArborGen remains outstanding as a deferred settlement, which is to be paid on 30
June 2018.
24
Rubicon Limited and Subsidiaries
Notes to the Consolidated Financial Statements
For the six months ended 31 March 2018
27FINANCIAL INSTRUMENTS
(a) Market risk
(i) Exposure to currency risk
The functional currency of the Group is the US$ and the risk to the Group's equity and earnings are from assets, liabilities, revenues and costs in currencies
denominated in currencies other than US$. The Group's exposure to foreign currency risks on financial instruments is shown in the following:
RUBICON GROUP
in US$mMar 2018Sep 2017
US$Non US$US$Non US$
Cash and liquid deposits28 1 28 3
Trade debtors and other receivables8 1 5 3
Trade creditors and other payables(6) (4) (10) (13)
Current debt(11) (4) (17) (1)
Non current debt(11) - (30) (3)
Gross balance sheet exposure
(6) (11)
(ii) Exposure to interest rate risk
The following exchange rates applied during the year:
Average rate
(1)
Spot rate
Mar 2018Sep 2017Mar 2018Sep 2017
NZ$:US$0.71260.71620.72050.7235
US$:R$0.30790.31650.30260.3161
US$:AU$0.77740.79030.76900.7840
(1)These are merely arithmetical averages not hedged rates.
(ii)
Exposure to interest rate risk continued
Foreign exchange contracts
As at 31 March 2018, the Group had one Foreign Exchange contract outstanding converting NZ$3.5 million (being the expected proceeds from the liquidation of Tenon) into
US$2.4 million. Due for settlement in May 2018, the mark-to-market valuation adjustment on the contracts was less than $0.1 million and was included in the cash flow
hedging reserve.
Sensitivity Analysis - gross balance sheet exposure
Given the small size of the gross balance sheet exposure shown above, any movement in the NZ$, R$ and AU$ against the US$ is unlikely to be material.
Rubicon has nil debt (2017: $6 million) at 31 March 2018 and ArborGen had $26 million (2017: $22 million), drawn at a mix of fixed and floating rates.
The weighted average interest rate of borrowings and interest rate hedges are shown in note 18 term and current debt.
(b)Credit Risk
(i) Exposure to credit risk
The carrying amount of financial assets represents the maximum credit exposure, which at 31 March 2018 was $39 million of trade and other receivables,
and cash and liquid deposits (2017: $40 million).
US Cash and liquid deposits are only held with banks that are part of the Group's banking consortiums. In the event of default, cash balances may be set off against
obligations owing by the Group to its lenders. Moody's credit ratings of the counterparties for cash and liquid deposits are all rated as investment grade.
The status of trade debtors, is as follows:
RUBICON GROUP
Mar 2018Sep 2017
US$mUS$m
Neither past due or impaired3 6
Past due but not impaired -1 month 2 1
2 month 1 -
6 7
Less provision for doubtful debts - -
Net trade debtors
(1)
6 7
ArborGen has a strong history of trade debtor collections and there is no reason to believe that the debtors will not be collected.
(1)Post balance date $5 million of trade debtors had been received.
25
Rubicon Limited and Subsidiaries
Notes to the Consolidated Financial Statements
For the six months ended 31 March 2018
27
FINANCIAL INSTRUMENTS continued
(c)Liquidity risk
The following are contractual maturities of financial liabilities and net settled derivatives (excluding estimated interest payments). The amounts disclosed are the
contractual undiscounted cash flows.
Carrying valueFair value0-6 months6-12 months1-2 years2-5 yearsOver 5 years
Financial liabilitiesUS$mUS$mUS$mUS$mUS$mUS$mUS$m
30 September 2017
Non derivative financial liabilities
Trade and other payables (23) (23) (19) (3) (1) - -
Debt(51) (51) (10) (8) (7) (18) (8)
Finance Leases(13) (13) - (1) (1) (2) (9)
Deferred Settlement(15) (15) (5) (10) - - -
Financial liabilities as at 30 September 2017(102) (102) (34) (22) (9) (20) (17)
31 March 2018
Non derivative financial liabilities
Trade and other payables (8) (8) (8) - - - -
Debt(26) (26) (12) (3) - (2) (9)
Finance Leases(13) (13) - (1) (1) (4) (7)
Deferred Settlement(10) (10) (10) - - - -
Financial liabilities as at 31 March 2018(57) (57) (30) (4) (1) (6) (16)
28CONTINGENT LIABILITIES
There are no known contingent liabilities in the Rubicon Group as at 31 March 2018 (2017: nil). (refer also to note 23, which outlines lease commitment guarantees)
29ASSET BACKING
At 31 March 2018 the net asset backing was 31 cents per share (cps) (NZ$43 cps), (2017: 31 cps, NZ$42 cps); and net tangible asset backing was 9 cps
(NZ$12 cps) (2017: 6 cps, NZ$8 cps).
30NON-GAAP MEASURES
Rubicon uses EBITDA when discussing financial performance. This is a non-GAAP financial measure and is not recognised within NZ IFRS. As it is not
necessarily uniformly defined or utilised this measure may not be comparable with similarly titled measures used by other companies. Non-GAAP financial
measures should not be viewed in isolation or considered as a substitute for measures reported in accordance with GAAP. Rubicon believes EBITDA
provides useful information, as it is used internally to evaluate performance, and it is also a measure that equity analysts focus on for comparative company
performance purposes, as the measure removes distortions caused by differences in asset age, depreciation policies and debt:equity structures. The
following tables reconcile Net Earnings to operating earnings before financing expense and then to EBITDA for ArborGen.
6 months15 Months
Mar 2018Sep 2017
US$mUS$m
ArborGen
Net earnings after taxation from continuing operations4 1
less Tax benefit(2) -
plus Financing expense1 1
Operating earnings before financing expense3 2
plus Depreciation, amortisations and impairment5 2
EBITDA8 4
26
Rubicon Limited and Subsidiaries
Notes to the Consolidated Financial Statements
For the six months ended 31 March 2018
31DISCONTINUED OPERATIONS
During the current period, Rubicon disposed of its interest in TCLP, and Tenon went into voluntary liquidation. In the prior period Tenon disposed of its US and
Australian operating assets. All of these operations are classified as discontinued in these financial statements.
Income StatementRUBICON GROUP
for the period ended
6 months15 Months
Mar 2018Sep 2017
US$mUS$m
Operating revenue19 263
Profit before taxation
(1)
1 7
Loss on disposal
(2)
(1)
(2)
Tax expense on profit before taxation- (9)
Net profit after taxation from discontinued operations- (4)
(1)Profit before taxation from discontinued operations includes:
Depreciation- (2)
Financing expense- (3)
(2)Loss on disposal
Cash inflow on sale of subsidiaries15 113
Distribution received1
Costs of sale- (6)
16 107
Recognised values on sale
Net Assets26 109
Less minority interest9 -
Group share of net assets17 109
Net loss on sale(1) (2)
Statement of cash flows6 months15 Months
for the period endedMar 2018Sep 2017
US$mUS$m
Net cash from:
Operating activities- 1
Investing activities15 107
Financing activities
- (1)
Net cash from discontinued operations15 107
27
---
PERIOD ENDED 31 MARCH 2018 PRELIMINARY ANNOUNCEMENT
Rubicon Limited (Consolidated)
Six Months Ended 31 March 2018
Preliminary report on consolidated results (including the results for the previous period) in accordance with Listing Rule 10.3.2.
This report has been prepared in a manner which complies with generally accepted accounting practice and gives a true and fair view of the matters to which the report
relates and is based on audited financial statements. The September 2017 income statement has been re-presented to reflect the separation between continuing and
discontinued operations. The Group's financial statements have been prepared in accordance with New Zealand International Financial Reporting Standards (NZ IFRS).
The Listed Issuer has a formally constituted Audit Committee of the Board of Directors.
The financial statements are presented in US$ millions, rounded to the nearest million.
Reporting Period6 months to 31 March 2018
Previous Reporting Period15 months to 30 September 2017
Amount US$
millions
Percentage
change
Revenue from ordinary activities35 483.3%
Profit (loss) from ordinary activities after tax attributable to security holders2 n/a
Net profit (loss) attributable to security holders2 n/a
Amount per security
Imputed amount
per security
Interim/Final DividendNo dividend is proposed for the periodNot applicable
Record DateNot applicable
Dividend Payment DateNot applicable
1CONSOLIDATED INCOME STATEMENT
6 months
Re-presented
(1)
15 months ended
31 Mar 201830 Sep 2017
US$ MillionsUS$ Millions
Revenue35 6
Cost of sales(20) (5)
Gross profit
15 1
Change in fair value of biological assets(3) 4
Earnings by associate- 1
Administration expense(10) (8)
Operating earnings excluding items below
2 (2)
Impairment(1) -
Net fair value gain- 2
Operating earnings before financing expense1 -
Financing expense(1) (2)
Earnings before taxation
- (2)
Tax benefit2 -
Earnings after taxation from continuing operations
2 (2)
Net earnings after taxation from discontinued operations- (4)
Net Earnings2 (6)
Attributable to:
Rubicon shareholders2 (6)
Minority shareholders- -
Net Earnings2 (6)
(1) The 15 months ended 30 September 2017 has been re-presented to show net profit after taxation from discontinued operations separately.
2CONSOLIDATED STATEMENT OF COMPREHENSIVE INCOME6 months15 months ended
31 Mar 201830 Sep 2017
US$ MillionsUS$ Millions
Net Earnings2 (6)
Items that may be reclassified to the Consolidated Income Statement:
Movement in currency translation reserve- 3
Other comprehensive income (net of tax)- 3
Total comprehensive income2 (3)
Total comprehensive income attributable to:
Rubicon shareholders2 (3)
Minority shareholders- -
Total comprehensive income2 (3)
Page 1 of 6
PERIOD ENDED 31 MARCH 2018 PRELIMINARY ANNOUNCEMENT
Rubicon Limited (Consolidated)
Six Months Ended 31 March 2018
3STATEMENT OF CHANGES IN EQUITY6 months15 months ended
31 Mar 201830 Sep 2017
US$ MillionsUS$ Millions
Total comprehensive income2 (3)
Movement in Rubicon shareholder equity:
Issue of shares- 13
Movement in minority shareholder equity:
Cash investment by minorities- 17
Disposal of TCLP minority(7) -
Deconsolidation of Tenon minority(2) -
Capital return from Tenon- (46)
Distribution paid by TCLP(1) -
Dividend paid by Tenon- (1)
Total movement in shareholder equity attributable to:
Rubicon shareholders' equity2 10
Minority shareholders' equity(10) (30)
Opening equity attributable to:
Rubicon shareholders150 140
Minority shareholders10 40
Opening total Group equity160 180
Closing equity attributable to:
Rubicon shareholders152 150
Minority shareholders- 10
Closing Total Group Equity152 160
4CONSOLIDATED STATEMENT OF CASH FLOWS6 months15 months ended
31 Mar 201830 Sep 2017
US$ MillionsUS$ Millions
Cash was provided from operating activities
Receipts from customers47 275
Cash provided from operating activities47 275
Payments to suppliers, employees and other(43) (278)
Cash (used in) operating activities
(43) (278)
Net cash from (used in) operating activities
4 (3)
Sale of TCLP15 -
Sale of Tenon North American operations- 107
Investment in fixed assets- (4)
Investment in subsidiaries(5) (14)
Investment in intellectual property(3) (1)
Cash in subsidiaries disposed/deconsolidated, acquired(8) 2
Net cash from (used in) investing activities
(1) 90
Debt drawdowns5 52
Debt repayment(7) (89)
Interest paid(2) (4)
Issue of shares- 13
Minority shareholders' cash flow by way of:
Capital return from Tenon- (46)
Capital investment by minority- 17
Distributions and dividend paid to minority(1) (1)
Net cash from (used in) financing activities
(5) (58)
Net movement in cash
(2) 29
Opening cash, liquid deposits and overdrafts
31 2
Closing Cash, Liquid Deposits and Overdrafts29 31
Net earnings2 (6)
Adjustment for:
Financing expense1 4
Depreciation and amortisations4 4
Taxation(2) -
Earnings from associate- (1)
Change in fair value of biological assets3 (4)
Other non cash items1 13
Cash flow from operations before net working capital movement9 10
Trade and other receivables(4) 1
Inventory1 (14)
Trade and other payables(2) -
Net working capital movement(5) (13)
Net cash from operating activities4 (3)
Page 2 of 6
PERIOD ENDED 31 MARCH 2018 PRELIMINARY ANNOUNCEMENT
Rubicon Limited (Consolidated)
Six Months Ended 31 March 2018
5CONSOLIDATED BALANCE SHEETAs atAs at
31 Mar 201830 Sep 2017
US$ MillionsUS$ Millions
Current assets
Cash and liquid deposits29 31
Trade and other receivables10 9
Inventory25 41
Total current assets
64 81
Non current assets
Fixed assets44 62
Intellectual property107 107
Goodwill- 18
Total non current assets
151 187
Total assets
215 268
Current liabilities
Trade, other payables and provisions(10) (23)
Current lease obligation(1) (1)
Current debt(15) (18)
Deferred settlement(10) (15)
Total current liabilities
(36) (57)
Term liabilities
Term debt(11) (33)
Finance lease obligation(12) (12)
Deferred taxation liability(4) (6)
Total term liabilities
(27) (51)
Total liabilities
(63) (108)
Net Assets152 160
Equity
Share capital201 201
Reserves(49) (51)
Equity attributable to Rubicon shareholders
152 150
Equity attributable to minority shareholders- 10
Total Group Equity
152 160
6MATERIAL ACQUISITION OF SUBSIDIARY
(a)Name of subsidiary or group of subsidiariesN/a
(b)Percentage of ownership acquired
7DETAILS OF ASSOCIATES AND JOINT VENTURES
(a)THE GROUP HAS A MATERIAL INTEREST (FROM THE GROUP'S VIEWPOINT) IN THE FOLLOWING CORPORATIONS:
Percentage of ownershipContribution to Net Profit
As atAs at6 months15 months ended
31 Mar 201830 Sep 201731 Mar 201830 Sep 2017
Earnings from associate
US$ MillionsUS$ Millions
ArborGen Inc
(1)
n/an/an/a1
(b)INVESTMENTS IN ASSOCIATEAs atAs at
31 Mar 201830 Sep 2017
US$ MillionsUS$ Millions
Carrying value of investment in associate at beginning of period91
Earnings of associate1
Conversion to subsidiary(92)
Carrying value of investment in associate at the end of period or on dispositionn/a-
(1)Post the acquisition on 28 June 2017 by Rubicon, the results of ArborGen are fully consolidated into the accounts of Rubicon. Earnings and cash flow are
consolidated for the full current period and in the prior period for the three months to 30 September 2017.
8NET ASSET BACKING PER SHARE
As atAs at
31 Mar 201830 Sep 2017
Cents per shareCents per share
Net assets per shareNZ 43 cps NZ 42 cps
Net tangible assets per shareNZ 12 cps NZ 8 cps
Net assets per shareUS 31 cps US 31 cps
Net tangible assets per shareUS 9 cps US 6 cps
Page 3 of 6
PERIOD ENDED 31 MARCH 2018 PRELIMINARY ANNOUNCEMENT
Rubicon Limited (Consolidated)
Six Months Ended 31 March 2018
9EARNINGS PER SHARE
6 months15 months ended
31 Mar 201830 Sep 2017
US$ Basic & diluted earnings per share
Cents per shareCents per share
Total earnings per shareUS 0.4 cps US (1.4) cps
Continuing operationsUS 0.4 cps US (0.5) cps
Discontinued operationsUS 0.0 cps US (0.9) cps
NZ$ Basic & diluted earnings per share
Total earnings per shareNZ 0.6 cps NZ (2.0) cps
Continuing operationsNZ 0.6 cps NZ (0.7) cps
Discontinued operationsNZ 0.0 cps NZ (1.3) cps
10SEGMENTAL6 months15 months ended
The Group has one reportable segments and their analysis is as follows:31 Mar 201830 Sep 2017
Forestry genetics
US$ MillionsUS$ Millions
Operating revenue35 6
Share of (loss)/profit from associate- 1
Financing expense(1) (1)
Tax (expense) / benefit2 -
Net earnings after taxation from continuing operations4 1
Total assets198 193
Liabilities(53) (53)
Capital expenditure(3) (2)
Depreciation and amortisation of intellectual property(4) (2)
Reconciliation
Appearance and wood products
Operating revenue - discontinued19 263
Financing expense- (1)
Net earnings after taxation from discontinued operations- (4)
Total assets - discontinued3 62
Liabilities - discontinued- (33)
Capital expenditure - (3)
Depreciation- (2)
Corporate
Financing expense- (2)
Net earnings after taxation from continuing operations(2) (3)
Total assets14 13
Liabilities(10) (22)
Total Group
Total revenue54 269
Operating revenue - discontinued19 263
Operating revenue - continuing - per income statement35 6
Share of (loss)/profit from associate- 1
Financing expense(1) (4)
Tax (expense) / benefit2 -
Net earnings after taxation from continuing operations
2 (2)
Net earnings after taxation from discontinued operations
- (4)
Total assets - per balance sheet215 268
Total assets - discontinued3 62
Total assets - continuing212 206
Liabilities - per balance sheet(63) (108)
Liabilities - discontinued- (33)
Liabilities - continuing(63) (75)
Capital expenditure(3) (5)
Depreciation and amortisation of intellectual property(4) (4)
Page 4 of 6
PERIOD ENDED 31 MARCH 2018 PRELIMINARY ANNOUNCEMENT
Rubicon Limited (Consolidated)
Six Months Ended 31 March 2018
11DISCONTINUED OPERATIONS
North American distribution business
During the current period, Rubicon disposed of its interest in TCLP, and Tenon went into voluntary liquidation. In the prior period Tenon disposed of its US and Australian
operating assets. All of these operations are classified as discontinued in these financial statements.
Income Statement6 months15 months ended
for the period ended31 Mar 201830 Sep 2017
US$ Millions US$ Millions
Net operating revenue19 263
Profit before taxation
(1)
1 7
Loss on disposal
(2)
(1) (2)
Tax expense on profit before taxation
- (9)
Net profit after taxation from discontinued operations
- (4)
(1)Profit before taxation from discontinued operations includes:
Depreciation- (2)
Financing expense- (3)
(2)Loss on disposal
Cash inflow on sale of subsidiaries15 113
Distribution received1 -
Costs of sale- (6)
16 107
Recognised values on sale
Net Assets26 109
Less minority interest9 -
Group share of net assets17 109
Net loss on sale
(1) (2)
Statement of cash flows
6 months15 months ended
for the period ended
31 Mar 201830 Sep 2017
US$ Millions US$ Millions
Net cash from:
Operating activities- 1
Investing activities15 107
Financing activities- (1)
Net cash from discontinued operations15 107
12NON-GAAP MEASURES
Rubicon uses EBITDA when discussing financial performance. This is a non-GAAP financial measure and is not recognised within NZ IFRS. As it is not
necessarily uniformly defined or utilised this measure may not be comparable with similarly titled measures used by other companies. Non-GAAP financial
measures should not be viewed in isolation or considered as a substitute for measures reported in accordance with GAAP. Rubicon believes EBITDA provides
useful information, as it is used internally to evaluate performance, and it is also a measure that equity analysts focus on for comparative company performance
purposes, as the measure removes distortions caused by differences in asset age, depreciation policies and debt:equity structures. The following tables reconcile
Net Earnings to operating earnings before financing expense and then to EBITDA for ArborGen.
6 months15 months ended
31 Mar 201830 Sep 2017
US$ Millions US$ Millions
ArborGen
Net earnings after taxation from continuing operations4 1
less Tax benefit(2) -
plus Financing expense1 1
Operating earnings before financing expense
3 2
plus Depreciation, amortisations and impairment5 2
EBITDA8 4
13COMMENTS BY DIRECTORS
(a)
Material factors affecting the Rubicon Group for the current period ended 31 March 2018.
See attached Rubicon 2018 Annual Results Release (issued today) and subsequent events note below.
(b)
Significant trends or events since end of the current period ended 31 March 2018.
See attached Rubicon 2018 Annual Results Release (issued today) .
(c)Management's discussion and analysis of financial condition, result, and/or operations (optional)
See attached Rubicon 2018 Annual Results Release (issued today).
(d)Use of estimates and judgement
The preparation of financial statements in conformity with NZ IFRS requires management to make estimates and assumptions that affect the reported amounts of
assets and liabilities, and disclosure of contingent assets and liabilities at the date of the financial statements and the reported amounts of
revenues and expenses during the reporting period. Actual results could differ from those estimates.
Page 5 of 6
PERIOD ENDED 31 MARCH 2018 PRELIMINARY ANNOUNCEMENT
Rubicon Limited (Consolidated)
Six Months Ended 31 March 2018
(e)Capital Expenditure Commitments
Other than the outstanding deferred settlement payments of $10 million in relation to the ArborGen acquisition (2017: $15 million) (refer note 15 of the Rubicon
2018 Annual Results Release), the Group had no material capital expenditure commitments as at 31 March 2018.
(e)Contingent Liabilities
There are no known contingent liabilities in the Rubicon Group as at 31 March 2018 (2017: nil). Please refer to note 23 in the Rubicon 2018 Annual Results
Release, which outlines lease commitment guarantees.
14DIVIDENDS
Nil
15COPY OF AUDIT REPORT
See attached Rubicon 2018 Annual Results Release (issued today).
16ANNUAL SHAREHOLDERS MEETING AND DIRECTOR NOMINATIONS
The next Annual Shareholders' Meeting (ASM) will be held on 17 September 2018.
The opening and closing dates for the nomination of Directors for election at the ASM, are 15 June 2018 and 17 July 2018 respectively.
The Rubicon Annual Results Release is available today on the NZX and at
www.rubicon-nz.com, and the Annual Report will be distributed to shareholders
in June 2018.
********
This Release was approved by a resolution of Directors on 28 May 2018
M A Taylor28 May 2018
Company Secretary
********
Page 6 of 6
Data sourced from publicly available filings. Our datasets may not be complete. Automated analysis can produce errors. If you believe any data on this page is incorrect, please contact us at hello@nzxplorer.co.nz. For informational purposes only. Not investment advice.