ArborGen Holdings Announces Annual Result

PERIOD ENDED 31 MARCH 2020 PRELIMINARY ANNOUNCEMENT
ArborGen Holdings Limited (Consolidated)
Full year ended 31 March 2020
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 and unaudited financial statements. The previous accounting period was the 12 months to 31 March
2019. 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 comprising members of the ArborGen Holdings Board of Directors. On the 30th of September
2019 Rubicon Limited formally changed its name to ArborGen Holdings Limited. Any historical references to ArborGen Holdings refer also to Rubicon Limited.
The financial statements are presented in US$ millions, rounded to the nearest hundred thousand.
Reporting Period12 months to 31 March 2020
Previous Reporting Period12 months to 31 March 2019
Amount US$
millions
Percentage
change
Revenue from ordinary activities56.9 15.9%
Profit (loss) from ordinary activities after tax attributable to security holders(2.7)37.2%
Net profit (loss) attributable to security holders(2.7)37.2%
Amount per securityImputed amount per security
Interim/Final DividendNo dividend is proposed for the periodNot applicable
Record DateNot applicable
Dividend Payment DateNot applicable
1NET ASSET BACKING PER SHAREAs atAs at
31 Mar 202031 Mar 2019
Cents per shareCents per share
Net assets per shareNZ 48 cps NZ 44 cps
Net tangible assets per shareNZ 13 cps NZ 12 cps
Net assets per shareUS 29 cps US 30 cps
Net tangible assets per shareUS 8 cps US 8 cps
2EARNINGS PER SHARE
Year ended12 Months
31 Mar 202031 Mar 2019
US$ earnings per share
Cents per shareCents per share
Basic US (0.5) cpsUS (0.9) cps
Diluted US (0.5) cpsUS (0.9) cps
NZ$ earnings per share
Basic NZ (0.8) cpsNZ (1.3) cps
Diluted NZ (0.8) cpsNZ (1.3) cps
3
FINANCIAL STATEMENTS
The consolidated income statement, consolidated statement of comprehensive income, statement of changes in equity, consolidated statement of cash flows
and consolidated balance sheet, and segmental information are included in the Annual Release (issued today with this announcement).
4COMMENTS BY DIRECTORS
See attached ArborGen Holdings 2020 Annual Release (issued today).
5DIVIDENDS - Nil
6COPY OF AUDIT REPORT
See attached ArborGen Holdings 2020 Annual Release (issued today).
7ANNUAL SHAREHOLDERS MEETING AND DIRECTOR NOMINATIONS
The next Annual Shareholders' Meeting (ASM) will be held in August 2020.
The opening and closing dates for the nomination of Directors for election at the ASM, are 4 June 2020 and 26 June 2020 respectively.
The Annual Release is available today on the NZX and at
www.arborgenholdings.com and the Annual Report will be distributed to shareholders in June 2020.
This Release was approved by a resolution of Directors on 27 May 2020
S Ludher-Chandra
Company Secretary
Page 1 of 1

---

Annual Release
2020

Table of Contents
Chairman’s Letter .............................................................. 1
Financial Statements ......................................................... 8
Auditor’s Report ................................................................. 31













There are statements in this Release 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 the Group, many of which are beyond
our control.
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, conditions and conclusions may differ materially from those expressed or implied
by such statements.
All references to currencies in this document are in US dollars (US$) unless otherwise stated.

1


Annual Release 2020

Dear Shareholder
In our Interim Review, we highlighted our continued focus on advancing the key initiatives critical to
lifting the earnings and cash flow performance of your Company. Needless to say, the global Covid-19
environment that we operate in today only solidifies our need to be extremely diligent and
streamlined in ensuring we achieve our core objectives.
This Release outlines our performance for the twelve month period to 31 March 2020, and our longer-
term assessment for the Company.
Financial Performance
The Group reported an IFRS net loss of $2.7 million for the period, inclusive of $3.9 million of abnormal
items (explained below), i.e. a net profit result of $1.2 million (excluding abnormal items), compared
with the prior period of $0.3 million. Pleasingly, Group revenue increased 16% from $49.1 million in
the prior period to $56.9 million in the period.
Cash from operating activities was $4.8 million, compared with the prior period $4.1 million.
In our Interim Result, we reported $2.8 million of abnormal items. The final quantum of abnormal
items confirmed and expensed in the period is $3.9 million, the majority of which are non-cash costs
and relate to prior year events. Specifically, the $3.9 million of abnormal items relate to –
 A $2.25 million seed adjustment that arose due to a combination of abnormal weather events and
unusual biological factors that materially reduced seed harvest yields in the prior year. This
resulted in higher than normal seed costs impacting cost of goods sold in the current period by
$1.1 million, and closing seed inventory costs (seed for future use) by $1.15 million;
 $1.0 million of seedling credits provided to customers in the period in respect of seedlings sold in
the prior period (2019 fiscal year) to address seedling survival claims;
 $0.4 million relating to varietal yield losses representing circa 30% of total inventory for sale in the
2021 fiscal year ($0.4 million); and
 The final expensing of the ArborGen acquisition transaction costs ($0.2 million).
ArborGen Inc (ArborGen) recorded US-GAAP underlying EBITDA earnings of $9.3 million
1
. This result
is in line with the updated guidance we provided to the market in early April of “at least 40% higher
than the prior year’s (FY2019) $6.1 million comparative.”

2

Regarding the single largest abnormal item recorded in the period, the seed adjustment, while we had
identified at the ASM last year higher than normal seed costs impacting margins in the current period
and subsequently recorded a $1.6 million charge in our Interim Result, we have since quantified the
full cost of the adjustment at $2.25 million inclusive of seed inventory still on-hand for next period’s
seedlings. By way of background, the seed harvest in fall 2018 (i.e. the 2019 fiscal year) was impacted
by a number of abnormal weather events and unusual biological outcomes including a lower than
normal flower count and a freeze event in 2017 impacting several of our orchards, followed by the
impact of Hurricane Michael which hit the Florida Gulf coast in late 2018 destroying portions of our
orchards in Bellamy, Florida. As shareholders may be aware, the seed production cycle of pine species
is a relatively extended one involving a two-year process commencing from flower production and
pollination activity in early spring of year one, to cone formation, fertilisation and maturation before
cones are finally harvested in the fall of the following year (year two). Harvested seed is then sown in
the spring of the subsequent year (year three) to produce seedling crop, or held in inventory for future
periods. While ArborGen typically uses historical weighted averages to estimate seed and equivalent
seedling costs, the extremely challenging conditions impacting the 2018 seed harvest resulted in much
higher seed costs in the period under review impacting both cost of goods sold and closing seed
inventory.
In respect of the seedling credits, the weather-related stress events that lowered ArborGen’s US
seedling sales in the final months of the 2019 fiscal year, also resulted in extremely unusual
widespread seedling survival issues throughout the US South-Eastern region affecting seedlings sold
in that period, including across several of ArborGen’s customer sites. Recognising the extremely
challenging events in early 2019 and consistent with the approach taken by some of our competitors,
we chose to assist our customers who suffered excessive seedling mortality losses by offering
replacement seedlings in the period under review. While we don’t believe this mortality issue can be
attributed to our seedling quality, we are confident this decision has significantly improved our already
strong customer relationships, and we believe this will serve us in good stead in the years to come.
However, we are fully cognisant of the cost to our business and given the uncharacteristic nature of
the events, we have taken the opportunity to implement new severe weather event standard
operating procedures for all our nurseries, and updated our terms and conditions of sale to further
reinforce that where seedling quality is not the sole cause for mortality, ArborGen is not required to
provide compensation.
Turning then to seedling sales performance in the 12 month period to 31 March 2020, we are pleased
to report that we lifted and delivered a record volume of seedlings to our customers. ArborGen sold
437 million seedlings globally – 333 million seedlings in the US (including 300 million loblolly pine
seedlings of which 30% were mass control pollinated (MCP) and varietal seedlings), 39 million
seedlings in Australasia, and 65 million seedlings in Brazil.
In the US, unit seedling sales increased by circa 20% to 333 million units in the period, from 280 million
seedling units in the prior period. This increase was due to the integration of the TexMark Timber
Treasury (TTT) nursery in Texas into our seedling production platform, incremental uplift from the
Taylor nursery in South Carolina as well as our continued emphasis on the private, non-industrial land
owners’ segment, which comprise more than 50% of the total US loblolly pine seedling market. While
MCP seed supply constraints resulted in flattish advanced genetics seedling unit sales year over year,
we were sold out of MCP and varietal products very early in the sales season. Importantly this confirms
that our Acquire, Build Confidence, and Convert (ABC) strategy is working, and that the demand for
our MCP products is solid and growing, and hence as our MCP seed supply constraints start to ease
particularly from fiscal year 2022 onwards, we will reap the benefits of our investments to date.

3

Similarly, our New Zealand business had a very strong year and we were able to fully leverage our
extensive nursery footprint and achieve an over 80% increase in unit seedling sales, and revenue
growth of 51%, over prior year, with our pre-eminent position allowing us to play a key role in the NZ
Government’s one billion tree planting programme which was a large contributor to this growth.
In Brazil, our sales have increased over the prior year as reforestation rates began to increase in line
with the recovery of the Brazilian economy and as the value of our proprietary products become
increasingly clear. The integration of the Brotale eucalyptus nursery leased late last year, combined
with a general recovery of Brazilian eucalyptus markets, as well as the continued expansion of our
pine sales resulted in an overall 30% increase in unit seedling sales over prior year.
Refined Portfolio
As outlined in our Interim Review, following the portfolio change which saw the sale of Tenon and the
100% acquisition of the US-based ArborGen business, ArborGen has become the Group’s sole
operating activity. Given the significant changes over prior years to your Company, below is a helpful
recap of who we are today -
 We are the largest global commercial supplier of tree seedlings, specialising in loblolly (US and
Brazil), radiata (NZ), and eucalyptus (Brazil and Australia) plantation forestry species.
 We are the leading provider of advanced genetics for the forest industry in these regions, operating
across the entire technology spectrum offering high-value products that significantly improve the
productivity of a given acre of forestry land by enabling our customers to grow trees that –
o Yield more wood (particularly saw-timber) per acre,
o Demonstrate greater consistency, uniformity and quality,
o Grow in a shorter period of time; and
o Are more resilient and disease resistant.
 By employing state-of-the-art technology (we continue to invest millions of dollars in R&D each
year), we are –
o Developing and expanding ArborGen’s pipeline of industry leading advanced genetics,
including building a future supply of our high-value premium MCP products in the US, and
o Transitioning our customers from open pollinated (OP) genetics to advanced MCP and
varietal genetics in the US (our single largest market) which is also where we believe our
largest earnings uplift will come from in the future.
 Our MCP seedling production is projected to grow significantly as our large, younger and more
advanced seed orchards approach their maximum seed yielding years - the direct result of
investments made in expanding our MCP orchard capacity 5-10 years ago –
o ArborGen’s MCP seed production is projected to more than triple from the current 90
million up to ~300 million seedling equivalents by 2025,
o Allowing us to meet the growing demand for these products (we are currently supply
constrained); and
o ... build sufficient buffer inventory to counter any adverse weather events.
 Our production assets are located across the US Southern forestry region, NZ, Brazil and Australia
comprising:–
o 18 seedling production nurseries (8 in the US, 6 in NZ, 3 in Brazil and 1 in Australia), and
o 9 seed producing orchards (6 in the US and 3 in NZ)
o ... with an overall production capacity of over 400 million seedlings in the US-South, 40
million in ANZ and 100 million in Brazil (including outsourced production in Brazil and the
US).

4

 We have extensive field trials throughout the US demonstrating the performance of our advanced
genetic products, which have been developed using unique intellectual property from a
proprietary genetics database representing the combined forestry genetic history of our three
predecessor companies – Fletcher Challenge, International Paper and WestRock.
 We service over 1,000 customers each year across a range of market segments, including selling
to the large industrial and diversified private markets.
Outlook
Achieving Goals
With the core building blocks for ArborGen firmly in place, our focus is now on progressing the critical
strategic, operational and financial goals we have set for the business –
 First among equals is improving cash flow generation,
 Expanding our footprint in a capital-light manner in our core growth regions,
 Continuing to invest in developing and expanding our portfolio of proprietary advanced genetics,
and
 Mitigating the financial impact of adverse climatic events.

Improving Cash Flow
We constantly strive to increase the cash generation performance of our business. In that regard, we
continue to work to reduce overhead cost and any non-operational cash expenditures, and improve
asset utilisation. By way of example, in August, we acquired the US property where ArborGen’s
headquarters in Ridgeville, South Carolina is located. This move has allowed us to immediately
decrease our annual occupancy cash cost for this facility by accessing a financing cost lower than the
prior annual lease rate. We have also consolidated our operations at the site, allowing us to lease out
resulting surplus floor space to a third party. We project that these actions will improve ArborGen
Holdings’ net earnings and cash flow by approximately $1 million on an annualised basis moving
forward.

Expanding Our Footprint
United States
In our largest and most critical market segment – the US, as noted above, we achieved record total
seedling volumes and were sold out of our advanced genetic seedling products very early in the year.
These record sales were enabled by the –
 Expansion of our US nursery capacity with the full integration of the TTT 30 million seedling
nursery in Texas, and the 30 million seedling Taylor nursery in South Carolina into our production
platform. Beyond their respective production capacity additions, these nurseries have also
facilitated incremental sales through integration of the customers these nurseries were servicing
into our system, thereby expanding our market reach in these regions; and
 Increased success with the private landowner segment, which comprises more than 50% of the
US seedling market. Our primary goal with this segment is to drive increased rates of conversion
to advanced genetics through our ABC strategy which acknowledges that the conversion of private
landowners to advanced genetics is a process not an event, and that the very first step to achieving
our advanced genetics sales’ targets in this segment is to gain market share.

5

With constrained advanced genetics supply, our focus is on ArborGen’s superior seedling quality,
customer service and logistics and technical knowledge, allowing us to capture market share.
Australasia
After several challenging years due to weak market conditions in both New Zealand and Australia, our
Australasian operations reported record seedling sales, revenue and profits for the fiscal year ending
March 2020. In New Zealand, the Government’s billion trees programme, combined with increased
harvesting and reforestation efforts due to the maturing of forestry estates planted in the early 1990s
led to a significant expansion of the New Zealand seedling market. In Australia, reforestation has
increased as the market recovered from the collapse of the Management Investment Schemes earlier
in the decade. Following expansion of our container facility in Victoria in 2019, we are now effectively
“sold out” for the next several years.
The market increases in both countries have allowed us to fully leverage our nursery production
capability.
Brazil
In Brazil, we systematically executed our strategy to grow our Brazilian business by leasing two
nurseries with a total capacity of over 25 million seedlings from Brotale. In October, we announced
the lease of the nursery in the state of Minas Gerais, giving us an immediate presence in the state with
the largest eucalyptus market in Brazil. This was followed by the lease of a second nursery in the state
of Mato Grosso do Sul – the most rapidly growing eucalyptus market in the country.
We are now focused on integrating these two new, leased nurseries into our production platform and
continuing to work with current and new customers to help them understand the value of proprietary
eucalyptus and pine products.

Continuing to Expand our Portfolio of Proprietary Genetics
As noted above, demand for our MCP products in the US has been especially strong this year,
demonstrating that an increasing proportion of landowners understand the value that MCP based
seedlings offer. Continued education of our expanded customer base, and the maturing of operational
stands validating the MCP value proposition will further accelerate market acceptance and drive
strong growth in MCP seedling sales in future periods as our MCP seedling supply expands. In this
respect, we have begun to see the projected increase in supply as our younger orchards reached an
age where productivity is now increasing rapidly. Based on our most recent inventory counts, we are
projecting a major increase in the MCP seed we will harvest in the fall of this year, which will be
available for seedling sales in fiscal year 2022. In March this year, we set a record for MCP pollination
activity, supporting another strong seed harvest in the fall of next year (subject to the normal weather
caveats).
In addition to the volumetric growth in MCP seed supply, our continued investments in improving the
underlying genetics of our MCP products is resulting in continued expansion of our portfolio, allowing
us to offer even higher value products to our customers. We already have three broad performance
categories of MCP products, which customers can use to move up the MCP value chain, and last year
we introduced a new class of MCP to the market – MCP 2.0, which has even better performance
outcomes that our MCP-Elite product, and are increasing its production this year. Our investments in
genomics technology are also beginning to bear fruit, as genomic selected products are now in the
early stages of production, which will further extend the scope of our product offerings. As we rebuild
the Bellamy orchards lost to Hurricane Michael, we are using only the most advanced parents, which
in the intermediate term will further strengthen our position as a technology and product leader.

6

In Brazil, we continue to expand our portfolio of eucalyptus products. In November 2018 we executed
a eucalyptus genetic and license agreement with Gerdau Acos Longos SA, giving us access to products
especially suited to Minas Gerais. We also continue to invest in R&D developing our own eucalyptus
tree improvement programme and have identified several advanced genetic products that we are
beginning to commercialise. Our pine programme in Brazil also continues to grow albeit from a lower
base, and we project double digit growth in volume and margins as the value of our proprietary
products becomes clear from field trial performance data across various sites in Brazil.

Mitigating Adverse Climatic Events
In our Interim Review we stated that we are actively developing and implementing plans to further
mitigate the effects of adverse weather events that can impact our performance and that of our
customers. This has always been a key element of our operation, however global climate change has
made this increasingly important. Recent actions to address this issue include –
 Implementation of a multi-year plan to improve the drainage of our nurseries to reduce potential
losses due to heavy rain;
 Installation of fencing at our nurseries to reduce the impact of heavy winds early in the season;
and
 Revisions to our seed processing and allocation procedures to improve seed and nursery yields
and give us greater flexibility to respond to early season losses.
In addition, our new Texas and South Carolina nurseries have improved our production planning
options, allowing us to better diversify our production to mitigate the impact of adverse weather
event, and our growing MCP seed supply (discussed above) will allow us to generate much needed
buffer inventory for our advanced genetic products.

Fiscal Year 2021
Needless to say, the world we currently operate in is materially different to what it was just three
months ago. That said, and reiterating what we said in April in our press release(s), we expect
ArborGen’s fiscal year 2021 US-GAAP underlying earnings
1
to be higher again than the $9.3 million
reported in the period under review (subject to uncontrollable factors including any impact from
Covid-19). In short, we continue to believe ArborGen should achieve double digit US-GAAP underlying
earnings this year, absent any disruptions that may present themselves as a result of Covid-19,
particularly as we have recognised certain costs (i.e. the seed adjustment and varietal yield loss) in
fiscal year 2020 as abnormal items.

7

Covid-19
In the United States, as previously reported, the US Department of Homeland Security has defined
the forestry industry as an “essential critical infrastructure workforce”. As such, our operations across
all nurseries and orchards continue to progress with all typical activities continuing as planned, while
ensuring compliance with all appropriate state specific regulations and requirements. Customers
continue to indicate they are committed to their planned 2020-2021 planting programmes. However,
given the rapidly evolving market conditions surrounding the impact of Covid-19, we are pro-actively
taking additional steps including reducing discretionary costs and capital spend to mitigate any
downside risk. In this respect, we announced earlier this month that ArborGen had received $2.35
million from the US Small Business Administration (SBA) under the Paycheck Protection Program
(PPP). The PPP funding is essential to ensuring ArborGen can weather any disruptions that arise as a
result of COVID-19. ArborGen has not laid-off any employees as a result of Covid-19 and fully expects
to meet the requirements to have the loan forgiven based on SBA’s criteria that at least 75% of the
forgiven amount must have been used for payroll costs.
In New Zealand, while seedling unit sales will be lower than prior year due to lower OP seedling sales
for the Government’s billion tree programme, we continue to focus on being the leading supplier of
high value radiata seedlings to the NZ forestry industry, as well as progressing the development of our
horticultural service offering for high-value species such as blueberries, hops, apples, strawberries and
raspberries. This includes quarantine services, true to typing and nucleus stock multiplication and
management, tissue culture and plant production for nursery owners and orchardists. In Australia,
following the expansion of our container facility in 2019, we are effectively ‘sold out’ until 2024, with
demand projected to be strong over the next few years given the need for estate owners to
progressively re-stock their forests after the 2019 fires. ArborGen also received NZ$0.4 million of wage
subsidies in NZ and A$0.1 million of business stimulus funding in Australia meeting the requisite
eligibility criteria in each of these regions.
In Brazil, while the vast majority of ArborGen’s customers are continuing with their 2020 planting
programmes, planting rates have slowed somewhat as planting crews adjust to new health and safety
measures in the current Covid-19 environment. However, with pulp and paper being the primary end-
market for forestry in Brazil, projected planting demand should pick-up again in the second half of the
year. We will focus on leveraging our two newly leased nurseries (which give us combined internal
and outsourced eucalyptus and pine production capacity of approximately 100 million seedlings), and
our advanced proprietary products, to grow our market share.

As always, we would like to thank all of our stakeholders for their continued support – it is very much
appreciated.

Dave Knott
Chairman (on behalf of the Board)

27 May 2020

1.
US GAAP underlying earnings is a non-GAAP earnings measure which does not have a prescribed meaning
by GAAP, and may not be comparable to similar financial information presented by other entities. Please
refer to Note 30 of the 31 March 2020 Annual Release.

ArborGen Holdings Limited and Subsidiaries
Consolidated Income Statement
For the year ended 31 March 2020
Year endedYear ended
March 2020March 2019
NotesUS$mUS$m
Revenue2456.9 49.1
Cost of sales7
(37.2) (32.0)
Gross profit19.7 17.1
Change in fair value of biological assets11
(0.6) 0.8
Other income0.3 -
Administration expense
(17.0) (16.8)
Operating earnings excluding items below
2.4 1.1
Inventory adjustment and extreme weather event related expenses7
(3.7) -
Restructuring and transaction-related expenses7
(0.2) (4.1)
Gain on sale
- 0.5
Operating loss before financing expense(1.5) (2.5)
Financing expense22(2.3) (2.2)
Loss before taxation(3.8) (4.7)
Tax benefit81.1 0.5
Net loss after taxation from continuing operations(2.7) (4.2)
Net earnings after taxation from discontinued operations31
- (0.1)
Net loss(2.7) (4.3)
Basic/diluted loss per share information (cents per share)
(0.5) (0.9)
Continuing operations
(0.5) (0.8)
Weighted average number of shares outstanding (millions of shares)497.8 496.9
The accompanying notes form part of, and are to be read in conjunction with, these financial statements.
8

ArborGen Holdings Limited and Subsidiaries
Consolidated Statement of Comprehensive Income
For the year ended 31 March 2020
Year endedYear ended
March 2020March 2019
US$mUS$m
Net loss(2.7) (4.3)
Items that may be reclassified to the Consolidated Income Statement:
Movement in currency translation reserve20(2.5) (0.8)
Movement in hedge reserve20(0.7) -
Other comprehensive loss (net of tax)(3.2) (0.8)
Total comprehensive loss(5.9) (5.1)
ArborGen Holdings Limited and Subsidiaries
Statement of Changes in Equity
For the year ended 31 March 2020
Year endedYear ended
March 2020March 2019
NotesUS$mUS$m
Total comprehensive loss(5.9) (5.1)
Movement in ArborGen Holdings shareholders' equity:
Movement in issued capital191.3 -
Movement in share based payment reserve20
(1.1) 1.3
Total movement in shareholder equity(5.7) (3.8)
Opening Group equity147.6 151.4
Closing Group Equity141.9 147.6
The accompanying notes form part of, and are to be read in conjunction with, these financial statements.
9

ArborGen Holdings Limited and Subsidiaries
Consolidated Statement of Cash Flows
For the year ended 31 March 2020
Year endedYear ended
March 2020March 2019
NotesUS$mUS$m
Cash was provided from operating activities
Receipts from customers55.7 51.4
Cash provided from operating activities
55.7 51.4
Payments to suppliers, employees and other(50.9) (47.3)
Cash (used in) operating activities
(50.9) (47.3)
Net cash from (used in) operating activities4.8 4.1
Sale of assets0.1 0.8
Investment in fixed assets13(5.3) (2.7)
Deferred settlement
- (10.0)
Investment in intellectual property
15(4.1) (4.7)
Net cash from (used in) investing activities(9.3) (16.6)
Debt drawdowns25.2 9.0
Repayment of lease liabilities(12.6) (0.9)
Debt repayment
(4.7) (18.0)
Interest paid(2.5) (2.1)
Net cash from (used in) financing activities
5.4 (12.0)
Net cash from discontinued operations
31- 2.4
Net movement in cash
0.9 (22.1)
Opening cash, liquid deposits and restricted cash
7.2 29.0
Effect of exchange rate changes on net cash
(0.2) 0.3
Closing Cash, Liquid Deposits and restricted cash7.9 7.2
Net Earnings
(2.7) (4.3)
Adjustment for:
Financing expense
2.5 2.1
Depreciation and amortisations
79.5 8.7
Taxation
(1.1) (0.5)
Foreign exchange
(0.8) (0.5)
Change in fair value of biological assets
0.6 (0.8)
Other non cash items
0.2 0.5
Cash flow from operations before net working capital movement
8.2 5.2
Trade and other receivables
(1.4) (1.4)
Inventory
(0.5) (3.7)
Trade and other payables
(1.5) 4.0
Net working capital movement
(3.4) (1.1)
Net cash from operating activities4.8 4.1
The accompanying notes form part of, and are to be read in conjunction with, these financial statements.
10

ArborGen Holdings Limited and Subsidiaries
Consolidated Balance Sheet
As at 31 March 2020
March 2020March 2019
NotesUS$mUS$m
Current assets
Cash and liquid deposits
95.9 3.2
Trade and other receivables
1010.5 9.1
Inventory
1129.3 29.4
Total current assets45.7 41.7
Non current assets
Restricted cash9 & 182.0 4.0
Fixed assets
1343.5 42.7
Right-of-use assets
145.7 -
Intellectual property
15 & 16103.8 105.6
Total non current assets155.0 152.3
Total assets200.7 194.0
Current liabilities
Trade, other payables and provisions
17(13.1) (14.5)
Current lease obligation22(1.2) (0.8)
Current debt18(6.3) (0.5)
Total current liabilities(20.6) (15.8)
Term liabilities
Term debt
18(31.2) (16.5)
Derivative financial instruments
5 & 27(0.7) -
Lease obligation22(4.5) (11.2)
Deferred taxation liability
12(1.8) (2.9)
Total term liabilities(38.2) (30.6)
Total liabilities(58.8) (46.4)
Net Assets
141.9 147.6
Equity
Share capital
19202.3 201.0
Reserves
20(60.4) (53.4)
Total Group Equity
141.9 147.6
Net Asset Backing
29US 29 cps US 30 cps
Dave Knott JrPaul Smart
Chairman of the BoardAudit Committee Chairman
27 May 2020
Both 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 ArborGen Holdings Group.
The accompanying notes form part of, and are to be read in conjunction with, these financial statements.
11

ArborGen Holdings Limited and Subsidiaries
Notes to the Consolidated Financial Statements
For the period ended 31 March 2020
12

1 GENERAL INFORMATION
ArborGen Holdings Limited (ArborGen Holdings) is an international forestry business. ArborGen Holdings, a limited liability company
incorporated and domiciled in New Zealand, is listed on the New Zealand stock exchange. As at 31 March 2020 ArborGen Holdings had one
investment ArborGen Inc (ArborGen Inc) (95% economic interest (with 5% warrants outstanding relating to ArborGen’s acquisition of Cellfor),
and 100.0% voting interest and ownership of common stock).
On the 30th of September 2019 Rubicon Limited formally changed its name to ArborGen Holdings Limited and also changed its NZX listing
ticker to be ARB on that date. Any historical references to ArborGen Holdings refer also to Rubicon Limited.
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 27 May 2020.
3 BASIS OF PRESENTATION
The financial statements presented are those of ArborGen Holdings Limited (the Company) and Subsidiaries (the Group).

Basis of preparation
The Company is a FMC reporting entity for the purposes of the Financial Reporting Act 2013 and Financial Markets Conduct Act 2013.
The presentation currency used in the preparation of these financial statements is United States dollars (US$), rounded to the nearest hundred
thousand 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
The chief operating decision-makers’ are the Board of Directors who jointly make strategic decisions for ArborGen Holdings.
COVID-19
The US has defined the forestry industry as an “essential critical infrastructure workforce” and as such, our operations across all nurseries and
orchards continue to progress with all typical activities continuing as planned, while ensuring compliance with all appropriate state specific
regulations and requirements. Customers continue to indicate they are committed to their planned 2020-2021 planting programs. However,
given the rapidly evolving market conditions surrounding the impact of Covid-19, we are pro-actively taking additional steps including reducing
discretionary costs and capital spend to mitigate any downside risk.
In New Zealand, while seedling unit sales will be lower than prior year due to lower OP seedling sales for the Government’s billion tree
programme. We continue to focus on being the leading supplier of high value radiata seedlings to the NZ forestry industry, as well as
progressing the development of our horticultural service offering for high-value species such as blue berries, hops, apples, strawberries and
raspberries. This includes quarantine services, true to typing and nucleus stock multiplication and management, tissue culture and plant
production for nursery owners and orchardists. In Australia, following the expansion of our container facility in 2019, we are effectively ‘sold
out’ until 2024, with demand projected to be strong over the next few years given the need for estate owners to progressively re-stock their
forests after the 2019 fires.
In Brazil, while the vast majority of ArborGen’s customers are continuing with their 2020 planting programs, planting rates have slowed
somewhat as planting crews adjust to new health and safety measures in the current Covid-19 environment. However, with pulp and paper
being the primary end-market for forestry in Brazil, projected planting demand should pick-up again in the second half of the year.
4 SIGNIFICANT ACCOUNTING POLICIES
Accounting Policies
All significant accounting policies are set out on the following pages. Other than the first time adoption of NZ IFRS 16 Leases (NZ IFRS 16)
there have been no changes made to accounting policies during the year.
The new standard replacing the previous guidance in NZ IAS 17 Leases, and is effective for annual periods beginning on or after 1 January
2019 and deals with the recognition, measurement, presentation and disclosure of leases. The new standard introduces a single model for
lessees, removing the previous distinction between operating and finance leases, and recognises all leases on the balance sheet through an
asset representing the rights to use the leased asset and a liability for the obligation to make lease payments. The new standard aims to

ArborGen Holdings Limited and Subsidiaries
Notes to the Consolidated Financial Statements
For the period ended 31 March 2020
13

provide users of the financial statements relevant information to assess the effect that leases have on the balance sheet, income statement
and cash flows of the reporting entity.
The Group reviewed leases where it is the lessee and these leases primarily relate to leases for properties, nursery/orchard land, motor
vehicles and plant and equipment.
The Group has used the NZ IFRS 16 modified retrospective approach, with the right-of-use (ROU) asset being equal to the lease liability as
at commencement date for all existing leases at 1 April 2019. The Group has made use of the practical expedients available on transition to
NZ IFRS 16 not to reassess whether a contract is or contains a lease. Accordingly, the definition of a lease in accordance with NZ IAS 17 will
continue to be applied to those leases entered or modified before 1 April 2019. Comparative numbers have not been restated.
The ROU assets are subsequently depreciated using the straight line method over the shorter of the estimated useful lives of the ROU assets
or the remaining estimated lease term. The estimated useful lives of ROU assets are determined on the same basis as similar owned assets
within fixed assets. An additional depreciation expense of $0.9 million has been recognised in relation to the adoption of NZ IFRS 16. The
lease liabilities are initially measured at the present value of the unpaid lease payments at commencement date, discounted using a discount
rate. For leases that were classified as finance leases applying NZ IAS 17, the carrying amount of the finance leased assets and finance
lease obligations measured applying NZ IAS 17 immediately before the date of initial application is reclassified to ROU assets and lease
liabilities respectively without any adjustments. ROU asset and the lease liability are accounted for applying NZ IFRS 16 from 1 April 2019.
Under NZ IFRS 16, ROU assets are tested for impairment in accordance with NZ IAS 36 Impairment of Assets, replacing the previous
requirements to recognise a provision for onerous lease contracts.

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:

Right-of-use assets (note 14)
Key judgment areas in applying NZ IFRS 16 are the discount rate and assessment of whether options to extend or terminate a lease will be
exercised. The discount rates used are the Group’s incremental borrowing rates (IBR), which reflects the borrowing rates that could be obtained
from financial institutions as if the Group had purchased the leased asset, with the term of the borrowing similar to the lease term. The weighted
average rate applied was 5.3%.
As noted, the Group has applied the practical expedients when applying NZ IFRS 16 to leases previously classified as operating leases under
NZ IAS 17, using a single discount rate for a portfolio of similar leases and not recognising short-term (less than 12 months) or low-value
assets as ROU assets and liabilities. For short-term and low-value assets leases, the Group has opted to recognise a lease expense on a
straight-line basis as is permitted by NZ IFRS 16. This expense is presented within cost of sales or administration expense in the income
statement.
Reconciliation of lease commitment to opening lease liability as at 1 April 2019:

Operating lease commitments as at 31 March 2019

(4.5)
Effect of discounting using incremental borrowing rates at 1 April 2019

0.9
Recognition exemption for:

- short-term leases

0.3
- leases of low-value assets

0.1
Extension and termination options reasonably certain to be exercised

(2.2)
Lease liabilities recognised at 1 April 2019

(5.4)

Under NZ IAS 17, all lease payments on operating leases were presented as part of cash flows from operating activities. Consequently, for
the12 months to 31 March 2020, the net cash generated by operating activities has increased by $1.0 million and net cash used in financing
activities increased by the same amount. Comparative numbers have not been restated. The adoption of NZ IFRS 16 did not have an impact
on net cash flows.

Investment impairment (note 16)
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
value of assets acquired are also effected by the estimates and judgements applied to capitalisation of developmental expenditure and the
adopted amortisation policy.

ArborGen Holdings Limited and Subsidiaries
Notes to the Consolidated Financial Statements
For the period ended 31 March 2020
14

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
ArborGen Holdings Limited.
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 costs and
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 Inc’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 initially recognised at fair value and subsequently measured at amortised cost using the effective interest method, less
any provision for expected credit losses.

The Company applies the simplified approach to measuring expected credit losses which uses a lifetime expected credit loss allowance for all
trade receivables as they all display the same risk profile. The measurement of expected credit losses is a function of the probability of default,
loss given default and the exposure at default. The Company considers an event of default as occurring when information obtained (internally
and externally) indicates a debtor is unlikely to pay its creditors including the Company. The assessment of the probability of default and loss
given default is based on historical data adjusted by forward looking information relating to the debtor and general economic conditions of the
debtors. As for the exposure at default, this is represented by the assets’ gross carrying amount at the reporting date.

ArborGen Holdings Limited and Subsidiaries
Notes to the Consolidated Financial Statements
For the period ended 31 March 2020
15

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 post-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 amortised 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.

Hedge accounting
The Group designates certain derivatives as hedging instruments in respect of cash flow hedges. Interest Rate swaps hedging interest rate
exposure on issued debt and hedges of foreign exchange risk on firm commitments are both accounted for as cash flow hedges.
At the inception of the hedge relationship, the Group documents the relationship between the hedging instrument and the hedged item, along
with its risk management objectives and its strategy for undertaking various hedge transactions. Furthermore, at the inception of the hedge

ArborGen Holdings Limited and Subsidiaries
Notes to the Consolidated Financial Statements
For the period ended 31 March 2020
16

and on an ongoing basis, the Group documents whether the hedging instrument is effective in offsetting changes in fair values or cash flows
of the hedged item attributable to the hedged risk, which is when the hedging relationship meets all of the following hedge effectiveness
requirements:
- there is an economic relationship between the hedged item and the hedging instrument;
- the effect of credit risk does not dominate the value changes that result from that economic relationship; and
- the Group applies a hedge ratio of 1:1.
The effective portion of changes in the fair value of derivatives and other qualifying hedging instruments that are designated and qualify as
cash flow hedges is recognised in other comprehensive income and accumulated under the heading of cash flow hedging reserve, limited to
the cumulative change in fair value of the hedged item from inception of the hedge. The gain or loss relating to the ineffective portion is
recognised immediately in profit or loss, and is included in the ‘other gains and losses’ line item. The Group discontinues hedge accounting
only when the hedging relationship (or a part thereof) ceases to meet the qualifying criteria (after rebalancing, if applicable). This includes
instances when the hedging instrument expires or is sold, terminated or exercised. The discontinuation is accounted for prospectively. Any
gain or loss recognised in other comprehensive income and accumulated in cash flow hedge reserve at that time remains in equity and is
reclassified to profit or loss when the forecast transaction occurs. When a forecast transaction is no longer expected to occur, the gain or loss
accumulated in the cash flow hedge reserve is reclassified immediately to profit or loss.
Items carried at fair value
The items which are carried at fair value include derivative financial instruments. These items are classified into the following levels in the fair
value measurement hierarchy:
Level 1 – quoted prices (unadjusted) in active markets for identical assets of liabilities;
Level 2 – inputs other than quoted prices included within level 1 that are observable for the asset or liability either directly (i.e. as prices) or
indirectly (i.e. derived from prices); and
Level 3 – inputs for the asset or liability that are not based on observable market data (unobservable inputs).

Income Determination

Revenue recognition
Revenue is measured based on consideration specified in a contract with a customer and is recognised when control over a good or service
transfers to a customer. Revenue excludes amounts collected on behalf of third parties and is net of any value added tax, rebates, returns and
discounts, and after eliminating sales within the Group.
The Group’s revenues are earned from the sale of seedlings or treestocks and logistics services to some customers. Seedling or Treestock
revenue is recognised, either when the goods are dispatched or when goods have reached their destination, depending on the terms and
agreements with customers and when documentary evidence supports the customer taking ownership and control of the product. Logistics
and other services revenue is recognised over the period the service is provided.

Goods sold
Revenue from the sale of goods is recognised in the income statement when control over a good or service transfers to a customer. 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.

Finance expense
Finance expenses comprise interest payable on borrowings calculated using the effective interest rate method.

Leases
The Group assesses whether a contract is or contains a lease, at inception of the contract. The Group recognises a ROU asset and a
corresponding lease liability with respect to all lease arrangements in which it is the lessee, except for short-term leases and leases of low
value assets.
The lease liability is initially measured at the present value of the lease payments that are not paid at the commencement date, discounted by
using the rate implicit in the lease. If this rate cannot be readily determined, the Group uses its incremental borrowing rate.
Lease payments included in the measurement of the lease liability comprise:
- Fixed lease payments (including in-substance fixed payments), less any lease incentives receivable;

ArborGen Holdings Limited and Subsidiaries
Notes to the Consolidated Financial Statements
For the period ended 31 March 2020
17

- Variable lease payments that depend on an index or rate, initially measured using the index or rate at the commencement date;
- The amount expected to be payable by the lessee under residual value guarantees;
- The exercise price of purchase options, if the lessee is reasonably certain to exercise the options; and
- Payments of penalties for terminating the lease, if the lease term reflects the exercise of an option to terminate the lease.
The lease liability is presented as a separate line in the consolidated statement of financial position.
The lease liability is subsequently measured by increasing the carrying amount to reflect interest on the lease liability (using the effective
interest method) and by reducing the carrying amount to reflect the lease payments made.
The Group remeasures the lease liability (and makes a corresponding adjustment to the related ROU asset) whenever:
- The lease term has changed or there is a significant event or change in circumstances resulting in a change in the assessment of
exercise of a purchase option, in which case the lease liability is remeasured by discounting the revised lease payments using a
revised discount rate.
- The lease payments change due to changes in an index or rate or a change in expected payment under a guaranteed residual value,
in which cases the lease liability is remeasured by discounting the revised lease payments using an unchanged discount rate (unless
the lease payments change is due to a change in a floating interest rate, in which case a revised discount rate is used).
- A lease contract is modified and the lease modification is not accounted for as a separate lease, in which case the lease liability is
remeasured based on the lease term of the modified lease by discounting the revised lease payments using a revised discount rate
at the effective date of the modification.
The Group did not make any such adjustments during the periods presented.
The ROU assets comprise the initial measurement of the corresponding lease liability, lease payments made at or before the commencement
day, less any lease incentives received and any initial direct costs. They are subsequently measured at cost less accumulated depreciation
and impairment losses.
ROU assets are depreciated over the shorter period of lease term and useful life of the underlying asset. The estimated useful lives of ROU
assets are determined on the same basis as similar owned assets within fixed assets. If a lease transfers ownership of the underlying asset
or the cost of the right-of-use asset reflects that the Group expects to exercise a purchase option, the related right-of-use asset is depreciated
over the useful life of the underlying asset. The depreciation starts at the commencement date of the lease.
The ROU assets are presented as a separate line in the consolidated statement of financial position.
The Group applies IAS 36 to determine whether a ROU asset is impaired and accounts for any identified impairment loss as described in the
‘Property, Plant and Equipment’ policy.
Variable rents that do not depend on an index or rate are not included in the measurement the lease liability and the ROU asset. The related
payments are recognised as an expense in the period in which the event or condition that triggers those payments occurs.

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
under intellectual property. The asset is amortised from the commencement of commercial production of the product to which it relates, over
the period of expected benefit.

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
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. The Group’s geographical segments are based on both the location of customers and
primary location of assets (refer to note 24 segmental information summary).

ArborGen Holdings Limited and Subsidiaries
Notes to the Consolidated Financial Statements
For the period ended 31 March 2020
18

Goods and Services Tax (GST)
The income statement, statement of comprehensive income and statement of cash flow have been presented exclusive of GST. All items in
the balance sheet are stated net of GST, except for receivables and payables, which include GST invoiced.

Comparatives
Changes in prior year disclosure comparatives have been made to align with the current year presentation.

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, none of these have been early adopted:. The Group expects to adopt
these standards when they become mandatory. None are expected to materially impact the Group's financial statements although may result
in changes in disclosure.

5 FINANCIAL RISKS
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 Foreign exchange risk
Both ArborGen Holdings and ArborGen Inc are US functional currency, operating in three geographies – the United States, Brazil and
Australasia. Generally there are limited cash flows between Australasia and the US, and the foreign exchange risk in Australasia is limited to
the translation effect on its net 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, which limits the effect of relative currency movements to
the net earnings and balance sheet translation impacts. There are no transactions in the US operations in a currency other than the USD.
5.2 Credit risk
The Group is at risk of customer default on payment for treestocks at the conclusion of a growing season. This risk is mitigated 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 nursery activity is such that its customers tend to require yearly repeat business, and historically customer payment defaults
have not been material to the business. However, in the US market (the Group’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.
5.3 Liquidity risk
The Group has four banking facilities (in total $40 million (2019: $28 million)) three are with two banks in the United States; a $10.5 million
reducing loan, matures in May 2036, a $17 million revolver which expires in August 2021 and a $11.3 million seven year mortgage, and a
NZ$2 million line of credit with a New Zealand bank. In addition to these bank facilities the Group has a $2.88 million Note issued to related
parties. These facilities are used to fund the group’s working capital and capital expenditure needs. If any of these facilities were not to be
renewed then the Group may need to obtain similar facilities from other banks, or an equivalent amount of funding may need to be provided
through a capital raising event.
Liquidity risk management requires the maintenance of available cash combined with the availability of funding to meet the Company’s needs
as they develop. Forecasts are prepared of cash requirements to ensure there are financial resources in place to meet its day-to-day operating
and investment needs. The Group believes it has sufficient resources to meet its funding needs through to 31 May 2021.
5.4 Interest rate risk
The Group’s has facilities that are either fixed or floating depending on their nature and use. Fixed interest rate facilities include; the $10.5
million reducing loan facility, the $11.3 million mortgage facility fixed via an interest rate swap and $2.88 million Note. Floating rate facilities
are the US revolver facility and the New Zealand Line of Credit (when drawn).
Interest rate swap contracts
Under interest rate swap contracts, the Group agrees to exchange the difference between fixed and floating rate interest amounts calculated
on agreed notional principal amounts. Such contracts enable the Group to mitigate the risk of changing interest rates on the fair value of issued
fixed rate debt held and the cash flow exposures on the issued variable rate debt held. The fair value of interest rate swaps at the reporting
date is determined by discounting the future cash flows using the curves at the reporting date and the credit risk inherent in the contract, and
is disclosed below. The average interest rate is based on the outstanding balances at the end of the financial year.

ArborGen Holdings Limited and Subsidiaries
Notes to the Consolidated Financial Statements
For the period ended 31 March 2020
19

The Group adopts a policy of ensuring that between 50% and 80% of its interest rate risk exposure is at a fixed rate. This is achieved partly
by entering into fixed‑rate instruments and partly by borrowing at a floating rate and using interest rate swaps as hedges of the variability in
cash flows attributable to movements in interest rates. The Group applies a hedge ratio of 1:1.
The Group determines the existence of an economic relationship between the hedging instrument and hedged item based on the reference
interest rates, tenors, repricing dates and maturities and the notional or par amounts. The Group assesses whether the derivative designated
in each hedging relationship is expected to be effective in offsetting changes in cash flows of the hedged item using the hypothetical derivative
method.
As at 31 March 2020, the Group had one interest rate swaps totalling $11.3 million (2019: nil), covering the US head office property mortgage
facility. The swap, entered into in August 2019 and expires in August 2026, receives a floating rate of 2% above 30-day LIBOR and pays a
fixed interest rate of 3.52%. This swap is designated a cash flow hedge, is fully effective with the counterparty being Synovus the issuing bank.
5.5 Capital risk
ArborGen Holdings capital includes share capital, reserves and retained earnings, and ArborGen Holdings manages capital in such a manner
as to maintain stakeholder confidence and safeguard ArborGen Holdings’ 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
ArborGen Holdings may, pay dividends or return capital, or issue new shares or sell assets.

ArborGen Holdings Limited and Subsidiaries
Notes to the Consolidated Financial Statements
For the year ended 31 March 2020
6REPORTING CURRENCY
The Group reports in United States dollars (US$), consequently all financial numbers are in US$ unless otherwise stated.
7OPERATING EXPENSES INCLUDE
Year endedYear ended
Mar 2020March 2019
Refer to noteUS$mUS$m
Depreciation and amortisations included in:
Cost of sales expense
(2.5) (1.7)
Administration expense: intellectual property
15(5.9) (5.8)
Administration expense: G&A(1.1) (1.2)
Total depreciation and amortisations(9.5) (8.7)
Cost of inventory expensed in cost of sales(37.2) (32.0)
Employee related expenses (excluding restructuring and transaction-related expenses)(17.3) (18.7)
Seedling mortality customer assistance
(1)
(1.0) -
Seed inventory cost adjustment
(2)
(2.3) -
Varietal inventory cost adjustment
(3)
(0.4) -
Inventory adjustment and extreme weather event related expenses(3.7) -
Transaction-related expenses incurred by ArborGen Inc in relation to the acquisition by ArborGen Holdings23(0.2) (1.0)
Restructuring expense19, 20, 23 & 25- (3.1)
Restructuring and transaction-related expenses
(4)
(0.2) (4.1)
(1)The extremely unusual and widespread seedling survival issues occurring throughout the US South-eastern region, affected the survival of some of last year’s
seedlings, including across some of our customer sites. While we don’t believe this mortality issue can be attributed to our seedling quality, the industry has agreed
to share the cost of this loss, and accordingly we will have recorded $1 million as an expense in the current fiscal year to assist customers to replace lost seedlings.
(2)A series of extreme weather events had the effect of lowering seed production volumes (yield) for the 2018/2019 seed harvest. This lower yield resulted in an
abnormally high average cost per pound of seed produced. This adjustment returns the seed costs to a normal production cost, or standard cost, per seed.
(3)In the current period circa one million of bareroot varietal seedlings, for sale in fiscal year 2021, were lost and this varietal inventory cost adjustment recognises the
write-down from those losses.
(4)The transaction related cost of $0.2 million in the current period, is the final expense under the ArborGen retention plan put in place when ArborGen was acquired
in June 2017. The final $1.0 million cash payment (under the retention) plan was paid in July 2019. The year to March 2019 includes costs relating to the retention
plan of $1.0 million, and severance expenses under the One-Company programme of $3.1 million.
Expenses incurred also includes payments made and accrued for:
- Directors fees for non-executive Directors of ArborGen Holdings for the current period of $265,939 (paid in NZ$413,105) (2019: $250,000 (paid in NZ$367,250)).
In addition non-executive Directors participate in Directors share plans, $235,369 was accrued in relation to these share plans (NZ$364,379) (2019: $148,344
(NZ$218,156)). In September 2019, 555,348 shares vested to directors under the 2018 Non-Executive Directors Share Plan together with cash tax payments of
$33,994 (NZ$53,065). (refer to notes 19, 20 and 25)
- The statutory audit of the annual financial statements in the current period; for ArborGen Holdings $59,000 (2019: $61,000) and ArborGen $180,000 (Deloitte)
(2019: $150,000).
- Other services provided by the auditors for ArborGen Holdings in the current period were less than $13,000 (2019: $27,000), which include attendance at the
annual meetings, procedures relating to the interim financial statements and corporate finance assistance with respect to the reasonableness of the proposed
interest rate on the subordinated debt issued to related parties (notes 18 & 25).
- Refer to Reporting and Disclosure and Auditors in the Corporate Governance section of the Annual Report for commentary on the Audit Committee process in
managing the relationship with the Auditor and confirming their independence.
8INCOME TAX EXPENSE
Year endedYear ended
March 2020March 2019
US$mUS$m
Earnings (loss) before taxation(3.8) (4.7)
Taxation at 28%1.1 1.3
Adjusted for:
Change in deferred tax liability1.1 0.6
Net taxation losses not recognised(1.8) (1.4)
Recognition of previously unrecognised benefits
(1)
0.7 -
Taxation (expense)/benefit1.1 0.5
(1)Reflects the utilisation of previously unrecognised tax losses. (refer to note 12)
9CASH, LIQUID DEPOSITS AND RESTRICTED CASH
At 31 March the Group held total cash, liquid deposits and restricted cash of $7.9 million (2019: $7.2 million) comprising cash held by: ArborGen Holdings $0.7 million
(2019: $1.7 million), restricted cash of $2.0 million on deposit with Synovus to secure the ArborGen debt facility (2019: $4.0 million) (refer to note 18) and ArborGen
$5.2 million (2019: $1.5 million).
10TRADE AND OTHER RECEIVABLES
March 2020March 2019
US$mUS$m
Trade debtors8.2 7.7
Prepayments1.9 1.2
Other receivables0.4 0.2
Trade and other receivables10.5 9.1
20

ArborGen Holdings Limited and Subsidiaries
Notes to the Consolidated Financial Statements
For the year ended 31 March 2020
11INVENTORY
March 2020March 2019
US$mUS$m
Finished goods - seedlings0.7 1.0
Work in progress - seedlings
(1)(4)
7.3 7.3
Finished goods - seed13.4 13.4
Work in progress - seed
(2)
7.0 6.2
Fair value on biological assets
(3)(4)
0.9 1.5
Inventory29.3 29.4
(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)Seedlings in progress are treated as biological assets for financial reporting purposes and are recognised at fair value less costs to sell, $8.2 million
(2019: $8.8 million). Biological assets will be transferred to finished goods seedlings at lifting, for dispatch to customers and sale.
Fair value adjustment on biological assetMarch 2020March 2019
US$mUS$m
Opening balance1.5 0.7
Change in fair value of biological assets recognised in income statement
Fair value change for crop to be lifted in the coming period0.9 1.5
Reversal of prior period fair value change(1.5) (0.7)
Change in fair value of biological assets recognised in income statement(0.6) 0.8
Closing fair value uplift biological asset0.9 1.5
At both 31 March 2020 and 31 March 2019, only the Australasian crops are established and fair valued. The Australasian crops are primarily lifted from late
May through until September of each year.
12TAXATION
Deferred taxation (liability)March 2020March 2019
Refer to noteUS$mUS$m
Opening provision for deferred taxation(2.9) (3.4)
Taxation (expense)/benefit in the income statement 81.1 0.5
Deferred taxation (liability)(1.8) (2.9)
In June 2017 when ArborGen Inc. became a consolidated subsidiary of the Company, a deferred tax liability was recognised on the intellectual property asset
as a result of the fair value exercise undertaken for the acquired assets and liabilities. The current year balance is $1.8 million (2019: $2.9 million).
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 after valuation adjustments) at 31 March 2020 of
$84.5 million, predominately in the United States (2019: $86.2 million). Following the ArborGen Holdings acquisition of ArborGen Inc, tax loss utilisation in
ArborGen, of it's unrecognised losses of $29.5 million, is limited to $1.4 million per annum (gross) on pre-acquisition losses of $26.9 million. The Group has
unrecognised tax losses in New Zealand of $31.9 million after the utilisation of $0.6 million (2019: $33.4 million) and in the US of $23.1 million, after the
utilisation of $0.2 million in the current period (2019: $23.3 million). (refer to note 8) The Group's unrecognised US losses will be utilised against future
earnings from the Group's ownership of the Ridgeville head office facility. ArborGen Holdings also has imputation credits available to its shareholders of
$2.4 million (2019: $2.7 million).
13FIXED ASSETS
March 2020March 2019
US$mUS$m
Cost
Land15.3 15.3
Buildings24.7 11.1
Plant and equipment6.3 7.0
Finance lease assets- 13.4
Total cost46.3 46.8
Accumulated depreciation
Buildings(2.0) (1.2)
Plant and equipment(0.8) (1.0)
Finance lease assets- (1.9)
Total accumulated depreciation(2.8) (4.1)
Net book value
Land15.3 15.3
Buildings22.7 9.9
Plant and equipment5.5 6.0
Finance lease assets- 11.5
Fixed assets net book value43.5 42.7
Domicile of fixed assets
Australasia8.7 9.7
United States34.8 33.0
Fixed assets net book value43.5 42.7
21

ArborGen Holdings Limited and Subsidiaries
Notes to the Consolidated Financial Statements
For the year ended 31 March 2020
13FIXED ASSETS continued
Fixed assets net book value
LandBuildingsPlant and
equipment
Finance lease
assets
Total
Refer to noteUS$mUS$mUS$mUS$mUS$m
31 March 2019
Opening net book value15.7 10.2 5.2 12.2 43.3
Exchange differences(0.2) (0.2) (0.2) - (0.6)
Additions- 0.7 2.0 0.4 3.1
Disposition of TCLP operations(0.2) - - - (0.2)
Depreciation charge- (0.8) (1.0) (1.1) (2.9)
Fixed assets net book value as at 31 March 201915.3 9.9 6.0 11.5 42.7
31 March 2020
Opening net book value15.3 9.9 6.0 11.5 42.7
Transfer of right-of-use assets14 - - - (11.5) (11.5)
Exchange differences(0.6) (0.3) (0.5) - (1.4)
Additions- 4.3 1.0 - 5.3
Transfer of leased assets
(1)
0.6 9.7 - - 10.3
Disposition- - (0.1) - (0.1)
Depreciation charge- (0.9) (0.9) - (1.8)
Fixed assets net book value as at 31 March 202015.3 22.7 5.5 - 43.5
(1)In August 2019 the Group acquired the ArborGen US headquarters' premises in Ridgeville South Carolina, for $14.5 million (including costs of $0.1 million).
Prior to acquisition these premises were recognised on the Group balance sheet as a finance lease asset and as a lease obligation. The value of the
leased asset transferred at acquisition was $10.3 million. (refer to notes 14 and 22)
14RIGHT-OF-USE ASSETS
Right-of-use assets net book value
Land &
Buildings
Plant and
equipment
Total
Refer to noteUS$mUS$mUS$m
31 March 2020
Opening net book value- - -
Transfer from finance lease assets13 10.7 0.8 11.5
Assets recognised under IFRS 16
(1)
4.0 1.4 5.4
Additions0.2 0.6 0.8
Other transfers
(2)
(10.3) - (10.3)
Depreciation charge(0.4) (1.3) (1.7)
Right-of-use assets net book value as at 31 March 20204.2 1.5 5.7
(1)This is initial recognition of the right-of-use assets existing at 1 April 2019 representing assets held under operating leases. (refer to note 4)
(2)In August 2019 the Group acquired the ArborGen US headquarters' premises in Ridgeville South Carolina, for $14.5 million. Prior to acquisition these premises
were recognised on the Group balance sheet as a finance lease asset of $10.3 million and as a lease obligation totalling $11.1 million. (refer to notes 13 and 22)
15INTELLECTUAL PROPERTY
March 2020March 2019
Refer to noteUS$mUS$m
Opening balance105.6 106.7
Capitalisation during period4.1 4.7
Amortisation during period7(5.9) (5.8)
Intellectual property103.8 105.6
16INTELLECTUAL PROPERTY AND IMPAIRMENT
We regularly review the carrying value of the ArborGen cash generating unit to determine whether there has been a subsequent change in circumstances or
conditions that requires an impairment to be taken through earnings. Our impairment review is undertaken on a ‘Value-in-use’ (VIU) basis, which is the estimated
value to be derived from our continued ownership and operation of the ArborGen business.
In the prior year (31 March 2019 fiscal year), our approach was to utilise a set of cash flow assumptions that had already been sensitised for more conservative
outcomes, particularly in the largest and most material market for ArborGen – the US, for impairment testing purposes (2019 Case). We have applied the same
approach this year, utilising a set of cash flow assumptions reflective of more conservative outcomes particularly for the US, (which implicitly takes into account
potential downsides), for impairment testing (2020 Case).
Consistent with the approach taken in the prior year, our impairment analysis utilises a 10-year plus terminal DCF valuation model. We use a 10-year period
rather than a shorter time period because ArborGen’s advanced genetic products, in the US market (the largest and most material market) are in the early
stages of supply availability and adoption, and hence this period of time is deemed appropriate to adequately capture the scale-up of advanced genetics
supply and adoption in the US. The same holds true for ArborGen’s Brazil position where projected growth in advanced genetics sales, market share expansion
and continued recovery in the forestry sector from its current depressed state, necessitate the use of a 10-year model. We use a DCF methodology because
ArborGen’s advanced products adoption profile does not lend itself to the application of short-term market multiple metrics to determine valuation, given the
relatively early-stage of ArborGen’s revenue, earnings and cash profile. With time these metrics will become directly applicable, but for now the Board believes
a 10-year DCF approach is the most appropriate to use to assess impairment.
22

ArborGen Holdings Limited and Subsidiaries
Notes to the Consolidated Financial Statements
For the year ended 31 March 2020
16ARBORGEN INVESTMENT AND IMPAIRMENT continued
Our DCF impairment model values only the projected cash flows from the existing core markets (i.e. Australia, New Zealand, United States and Brazil), with
growth market opportunities outside of the core excluded from the analysis. Separate demand projections are determined for each geography and end-use
market. The total addressable seedling market for each geography is then estimated, as is seedling type, production technology employed, production cost and
sales price.
To highlight the assumptions that have been utilised to derive the 2020 Case cash flows, the model assumes -
- Minimal organic growth in ArborGen’s US loblolly market share outside of recent acquisitive growth – i.e. the growth that is assumed is derived primarily from
recent acquisition activity already undertaken and in place – i.e. the Jasper nursery in Texas, and the Taylor nursery in Edgefield, South Carolina;
- Modest recovery in the overall US loblolly market, with no assumed growth from the replanting of extensive timberland estates in the US South damaged by
recent Hurricanes;
- Minimal ‘real’ price increases for individual US seedling products despite the projected recovery in US saw timber prices supported by continued projected
growth in US South saw timber demand and continued US R&D investment of circa $4 million per annum rising to over $5 million per annum over the next
10 years;
- That in the terminal year ArborGen’s total advanced genetics seedlings sales in the US represent 57% (primarily mass control pollinated (MCP) adoption)
of its total US loblolly sales. This adoption rate is significantly lower than ArborGen’s projected US MCP seed supply as younger seed orchards mature and
near-term supply constraints are overcome, and compares with a NZ adoption rate of over 80% of sales in recent years;
- Increasing overall OP and MCP weighted average prices reflecting an increasing proportion of higher value sub-category products;
- Limited recovery in the overall Brazilian eucalyptus forestry markets from current recessionary levels;
- Continued growth in Brazil following the recent expansion of ArborGen’s internal production capabilities in Minas Gerais, Mato Grosso do Sul and Sao Paulo;
- Continued expansion of ArborGen’s eucalyptus offering leveraging licensed International Paper and Gerdau’s eucalyptus clones, and ArborGen’s own
eucalyptus advanced products; and
- ArborGen’s advanced genetics sales as a percentage of its total eucalyptus in Brazil approaching 78% in the terminal year.
These cash flows are then discounted at a cost of capital that reflects the underlying risk inherent in the cash flow assumptions. Specifically, the discount rate
applied to the DCF analysis was calculated using a derived weighted average cost of capital (WACC), with the cost of equity calculated using the Capital Asset
Price Model and the cost of debt based on the risk-free rate plus the option adjusted spread for BBB rated bonds. Specifically, cash flows from each market that
forms the ArborGen cash generating unit are discounted at separate WACC rates, or an overall weighted average derived nominal post-tax nominal WACC of
11.0%.
The table below shows the assumptions and sensitivities for the critical US loblolly market compared with those used in last year’s assessment. As an added
sensitivity to test impairment, a change in discount rate is the simplest sensitivity to apply particularly given the DCF model assumes inputs at the conservative
end of the spectrum of outcomes. In this instance, the post-tax WACC applied to the DCF model would need to increase to 16.4% before an impairment would
arise, which we do not believe is within a reasonable range given the sector ArborGen operates in, and the relatively conservative inputs that underlie the longer
term cash flows for the US loblolly market. The uptake of advanced genetics seedlings sales in the US loblolly market (primarily MCP adoption) is a key
assumption in the model. This uptake progressively increases throughout the forecast period to the terminal year where it is assumed this uptake reaches 57%.
However, keeping all other elements constant and excluding ANZ and Brazil from the valuation, even if the uptake reached 41% by the terminal year, this would
not result in an impairment.
Given the headroom in the model and the sensitivity analysis that’s been performed on the key assumptions including market size and market share, we
consider it is not likely that the COVID-19 pandemic would result in an impairment.
US$ millions
2020 Case2019 Case
US Loblolly Market - terminal year assumptions
Loblolly market size - millions900 905
ArborGen market share %37.8%40.7%
ArborGen unit sales - millions340368
% advanced genetics MCP55%53%
% advanced genetics Varietal2%2%
% traditional genetics43%45%
Total ArborGen valuation
Us inflation rate3.0%3.0%
Terminal Growth rate (TGR)
(1)
3.0%3.0%
Nominal post-tax discount rate11.0%11.4%
ArborGen implied enterprise valuation
(2)
$290.4$258.7
less net debt$29.6$23.5
ArborGen equity valuation$260.8$235.2
Discount Rate Sensitivity
Nominal post-tax discount rate16.4%15.4%
ArborGen equity valuation$126.7$131.2
ArborGen Holdings carrying value of ArborGen $126.7$131.2
Terminal year sensitivities equity value impact (increase/decrease)Equity value change by
Total market size - 25 million+/- $4.2+/- $5.4
Market share by 1%+/- $4.0+/- $4.8
Advanced genetics adoption by 1%+/- $1.8+/- $2.3
Real MCP price by 5%+/- $8.6+/- $10.0
(1)A TGR of 3% in a 3% inflation environment equates to a 0% real TGR assumption.
(2)This represents the total ArborGen valuation and not just the US market.
23

ArborGen Holdings Limited and Subsidiaries
Notes to the Consolidated Financial Statements
For the year ended 31 March 2020
17TRADE, OTHER PAYABLES AND PROVISIONS
March 2020March 2019
US$mUS$m
Trade creditors(6.6) (6.6)
Accrued employee benefits
(1)
(2.4) (3.8)
Other payables (1.3) (0.4)
Seedling Mortality(0.2) (0.1)
Seedling deposits from customers
(2)
(2.6) (3.6)
Trade, other payables and provisions(13.1) (14.5)
(1)Includes accrued expense relating to options issued to ArborGen Inc Senior management in respect of 4.5% of ArborGen Inc’s issued share capital.
(refer note 25)
(2)The deposits from customers will be recognised as revenue within 12 months as the seedlings are transferred to the customer.
18TERM AND CURRENT DEBT
March 2020March 2019
Summary of repayment terms
US$mUS$m
Due for Repayment:
Less than one year(6.3) (0.5)
between one and two years(8.5) (6.6)
between two and three years(3.9) (0.6)
between three and four years(1.0) (0.6)
between four and five years(1.0) (0.6)
after five years(16.8) (8.1)
Total term and current debt(37.5) (17.0)
Summary of Interest Rates by Repayment PeriodMarch 2020March 2019
Due for Repayment:
Less than one year4.98% 5.05%
between one and two years4.96% 5.06%
between two and three years4.80% 4.95%
between three and four years4.38% 4.95%
between four and five years4.38% 4.95%
after five years4.13% 4.94%
Current debt - weighted average interest rate
4.98% 5.05%
Term debt - weighted average interest rate
4.44% 4.95%
The weighted average interest rates reflect the effective interest rate, inclusive of fee amortisations.
At 31 March 2020 the Group had 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. In addition the Group has subordinated promissory notes (Notes) (issued to
Directors, shareholders and senior management in August 2019) to facilitate the US Ridgeville headquarters property purchase.
ArborGen has a non-revolving promissory note issued to AgSouth for $10.5 million bearing interest at 4.95%, with a maturity date of 1 May 2036, which is secured
against ArborGen's US real estate properties. Annual principal repayments of $0.6 million are due 1 May each year, however AgSouth have agreed to defer the
2020 principal repayment (and interest payments) until 1 August 2020.
ArborGen's revolving facility agreement with Synovus is a $17 million letter of credit (LOC) facility, was favourably amended in October 2019 extending the expiry
from 31 August 2020 to 31 August 2021 and increasing the annual 60-day (continuous) pay down maximum borrowing limit (between 1 March and 31 August)
to $7.5 million (previously $6 million). Synovus has agreed to reduce the pay down period for this year to only a 30-day period rather than the usual 60-day period.
In addition, Synovus requires ArborGen to maintain a certificate of deposit (restricted cash) of $2 million (2019; $4 million). The LOC bears interest at the 30 day
LIBOR base rate plus 2.75%, subject to a minimum annual rate of 4.75%, and is collateralised by all the of ArborGen Inc.'s United States assets not otherwise
pledged under the AgSouth agreement.
The credit agreements with both Synovus and AgSouth include covenants which require ArborGen to maintain a minimum net worth of $27 million and $25
million respectively.
ArborGen New Zealand Unlimited (ArborGen NZ) has a NZ$2 million line of credit facility, which is subject to renewal on an annual basis.
As part of the acquisition of the US Ridgeville headquarters premises the Group has two new financing facilities. The first is represented by the Notes issued by
ArborGen Inc to related parties (being Directors, shareholders and senior management) for $2.88 million. The Notes are fully subordinated to all bank debt,
repayable at maturity (August 2022), and due to their subordinated nature attract a 7% per annum interest rate, payable six monthly in arrears. Independent
advice, at the time of issuance, has confirmed that the interest rate and terms were reasonable to the Company. (refer to note 25)
The second new facility, drawn through Rubicon Industries USA LLC (RIUSA), was a $11.5 million mortgage from Synovus (currently $11.3 million outstanding),
which is secured by headquarters land and buildings. The mortgage is a seven-year term facility, based on a 20-year amortising loan, incurring interest at the
30-day LIBOR base rate plus 2% (currently 2.94%). The Group has entered into a seven-year interest rate swap, with terms that match that of the mortgage, at a
fixed rate of 3.52%. The mortgage requires RIUSA to maintain a debt service coverage ratio of not less than 1.25:1 for the trailing 12 months.
At 31 March 2020 the Group held cash and liquid deposits of $7.9 million (including restricted cash of $2 million on deposit with Synovus) (2019: $7.2 million,
including restricted cash of $4 million) and had debt of $37.5 million and lease liability of $5.7 million (being predominantly leases formerly classified as
operating) (2019: $17.0 million of debt plus $12.0 million of lease obligations).
24

ArborGen Holdings Limited and Subsidiaries
Notes to the Consolidated Financial Statements
For the year ended 31 March 2020
19CAPITAL
March 2020March 2019
Share capitalUS$mUS$m
Share capital at the beginning of the period201.0 201.0
Issue of shares - transfer from share based payment reserve
(1) (3)
1.2 -
Vesting of shares - non executive directors share plan
(2)
0.1 -
Share capital202.3 201.0
Number of shares
March 2020March 2019
Opening shares on issue489,574,393 487,908,343
Issue of shares
(1)
9,000,000
Issue of shares
(2) (3)
820,998 1,666,050
Number of shares on issue499,395,391 489,574,393
Unissued shares
(1)
9,000,000
499,395,391 498,574,393
Treasury stock
March 2020March 2019
Opening shares on issue1,666,050 -
Issue of shares
(2) (3)
820,998 1,666,050
Vesting of shares
(2)
(555,348)
Number of shares on issue1,931,700 1,666,050
(1)Pursuant to the settlement agreed with the former CEO and CFO on 29 March 2019, ArborGen Holdings allotted and issued nine million new ordinary shares in
two tranches, four million on 1 April 2019 and five million on 30 May 2019.
(2)In accordance with the shareholders resolution passed at the ArborGen Holdings Annual Shareholders’ meeting held on 17 September 2018, on 18 September
2018 ArborGen Holdings issued 1,666,050 new shares to the Rubicon Non-Executive Directors Share Plan (the Trust). The Trust holds the shares on behalf of
the three Directors (Tom Avery, Ozey Horton, and Paul Smart, equally) until the vesting terms are met. The shares vest, to each Director, in three equal tranches
on the first, second and third anniversaries following the date of issue (18 September 2018), provided that the Director remains a Director of the Company on the
relevant anniversary date. The new shares were issued at the NZX 20-day market VWAP for ArborGen Holdings shares of NZ27.01 cents per share, for a total
value of NZ$450,000. These shares are accounted for as treasury stock until vesting, and the share based transactions are recorded in the share based payment
reserve. On 18 September 2019 the first tranche of 555,348 shares vested to the three Directors (185,116 each) (refer to notes 20 for share based payment
information).
(3)In accordance with the shareholders resolution passed at ArborGen Holdings Annual Shareholders’ meeting held on 17 September 2019, on 18 September
2019 ArborGen Holdings issued 820,998 new shares to the 2019 Rubicon Non-Executive Director Share Plan (the 2019 Trust). The 2019 Trust will hold the
shares on behalf of the newly appointed Director (George Adams) until the vesting terms are met. The shares will vest in three equal tranches on the first,
second and third anniversaries following the date of issue (18 September 2019), provided that the Director remains a Director of the Company on the relevant
anniversary date. The new shares were issued at the NZX 20-day market VWAP for ArborGen Holding shares of NZ18.27 cents per share, for a total value of
NZ$150,000. The share based transactions are recorded in the share based payment reserve. These shares are accounted for as treasury stock until vesting
(refer to note 20 for share based payment information).
20RESERVES
March 2020March 2019
Retained earnings
US$mUS$m
Opening balance(53.8) (49.5)
Net loss(2.7) (4.3)
Closing balance(56.5) (53.8)
Cash flow hedge reserve
(1)
Opening balance- -
Fair value gains / (losses) for the year(0.7) -
Closing balance(0.7) -
Share based payments reserve
Opening balance1.3 -
Non-executive Directors share plan
(2)
0.2 0.1
Non-executive Directors share plan shares vested
(3)
(0.1) -
Executive settlement share plan shares vested
(4)
(1.2) 1.2
Closing balance0.2 1.3
Currency translation reserve
Opening balance(0.9) (0.1)
Translation of independent foreign operations(2.5) (0.8)
Closing balance(3.4) (0.9)
Total reserves(60.4) (53.4)
(1)The cash flow hedging reserve records the net movement of cash flow hedging instruments, being interest rate swaps. (refer to notes 4, 5, 18 & 27)
(2)
Under the two Rubicon Non-Executive Directors Share Plans in the current period $157,697 was accrued in relation to the cost of the share plan (NZ$244,132)
(2019: $99,487 (NZ$146,164)).
(3)Under the 2018 Rubicon Non-Executive Directors Share Plan, in the current period, 555,348 shares vested and the relevant portion of the reserve transferred to
share capital. (refer to notes 19)
(4)Pursuant to the settlement agreed with the former CEO and CFO on 29 March 2019, ArborGen Holdings issued nine million new ordinary shares with the relative
portion of the reserve being transferred to share capital. (refer to notes 19)
25

ArborGen Holdings Limited and Subsidiaries
Notes to the Consolidated Financial Statements
For the year ended 31 March 2020
21CAPITAL EXPENDITURE COMMITMENTS
In November 2018 ArborGen entered into agreements with TexMark Timber Treasury, L.P. (TTT) initially to manage and then from 1 April 2019 lease TTT's
nursery and seed orchard facility located in Texas. ArborGen has the right to acquire the leased properties for $2.5 million, payable upon the expiration of the
5-year lease period. It is ArborGen’s current intention to exercise this option and the present value of this amount is recorded as a liability in term lease
obligation. (refer to note 22)
22LEASE OBLIGATIONS
The expected future minimum rental payments required under leases (including capitalised finance leases) that have initial or remaining non-cancellable lease
terms in excess of one year at 31 March 2020 are as follows:
March 2020March 2019
Refer to noteUS$mUS$m
Lease obligations are reconciled as follows:
Current lease obligations27(1.2) (0.8)
Term lease obligations27(4.5) (11.2)
Total lease obligation(5.7) (12.0)
Financing expense includes interest payments relating to lease obligations of $0.7 million (2019: $1.0 million).
The lease expense for short-term leases was $300,000 and low value leases $40,000.
In November 2018 ArborGen entered into a management agreements with TTT, which converted to a lease agreement from 31 March 2019. The terminal
payment (or deferred settlement) is the $2.5 million purchase price, payable at expiration of the lease. (refer to note 21)
In August 2019 the Group acquired the ArborGen US headquarters' premises in Ridgeville South Carolina, for $14.4 million. Prior to acquisition these premises
were recognised on the Group balance sheet as a finance lease asset of $10.3 million and as a lease obligation totalling $11.1 million (2019: $12.0 million). An
additional consequence of this acquisition is that the Group no longer has any obligations under the original lease guarantee given by the then partners to the
landlord nor the guarantees given to the former partners (International Paper and WestRock) when the Group moved to full ownership of ArborGen Inc.
23REMUNERATION
Year endedYear ended
Key management compensation
March 2020March 2019
Refer to noteUS$mUS$m
Salaries and other short-term employee benefits2.8 2.8
Termination benefits7- 1.8
Share based payments (executive settlement share plan)
(1)
7, 19, 20 & 25- 1.2
Other payments
(2)
71.0 1.0
3.8 6.8
Key management compensation excludes Directors. Directors remuneration is disclosed in notes 7 and 25.
(1)Pursuant to the settlement agreed with the former CEO and CFO on 29 March 2019, ArborGen Holdings allotted and issued nine million new ordinary shares in
two tranches, four million on 1 April 2019 and five million on 30 May 2019.
(2)Upon the 100% acquisition of ArborGen Inc a plan was put in place to retain ArborGen senior management, split across ten individuals. The benefit under this
plan totalled $2.0 million, with payments made by ArborGen Inc of $1.0 million in July 2018 and the final $1.0 million in June 2019.
24SEGMENTAL INFORMATION SUMMARY
The Group has one reportable segment and the analysis is as follows:Year endedYear ended
March 2020March 2019
Forestry geneticsUS$mUS$m
Operating revenue56.9 49.1
Financing expense(2.3) (2.2)
Tax (expense) / benefit1.1 0.5
Net loss after taxation from continuing operations(1.1) (0.2)
Total assets200.4 192.1
Liabilities(58.3) (45.9)
Capital expenditure(9.4) (7.4)
Depreciation and amortisation(9.5) (8.7)
Reconciliation
Net earnings after taxation from discontinued operations- (0.1)
Total assets - discontinued- 0.1
Corporate
Net loss after taxation from continuing operations(1.6) (4.0)
Total assets0.3 1.8
Liabilities(0.5) (0.5)
Total Group
Total revenue56.9 49.1
Financing expense(2.3) (2.2)
Tax (expense) / benefit1.1 0.5
Net loss after taxation from continuing operations(2.7) (4.2)
Net earnings after taxation from discontinued operations- (0.1)
Total assets - per balance sheet200.7 194.0
Total assets - discontinued- 0.1
Total assets - continuing200.7 193.9
Total liabilities(58.8) (46.4)
Capital expenditure(9.4) (7.4)
Depreciation and amortisation(9.5) (8.7)
26

ArborGen Holdings Limited and Subsidiaries
Notes to the Consolidated Financial Statements
For the year ended 31 March 2020
24
SEGMENTAL INFORMATION SUMMARY (continued)
The Group's geographical analysis is as follows:
Australasia
Operating revenue10.3 7.0
Non current assets8.9 9.7
South America
Operating revenue7.9 6.1
Non current assets0.3 0.4
North America
Operating revenue38.7 36.0
Non current assets145.8 142.2
Total Group
Operating revenue
(1)
56.9 49.1
Non current assets155.0 152.3
(1)The Group's revenue represents sales of seedlings and treestock of $55.6 million (2019: $47.9 million) and the provision of logistic services $1.2 million
(2019: $1.2 million).
25RELATED PARTY TRANSACTIONS AND BALANCES
March 2020March 2019
Refer to noteUS$mUS$m
Income Statement
Non-executive Directors share plan
(1)
7, 19 & 20
(0.2) (0.1)
Directors remuneration (excluding Non-executive Directors share plan)7(0.3) (0.3)
Executive settlement share plan7, 19, 20 & 23- (1.2)
ArborGen senior management share option scheme
(2)
(0.3) (0.3)
Management fees from Tenon Clearwood Limited Partnership (TCLP)
(3)
- (1.2)
Interest on subordinated notes
(4)
18
(0.1) -
Balance Sheet
ArborGen senior management share option scheme
(2)
17
(1.0) (0.6)
Subordinated notes
(4)
18
(2.9) -
(1)On 17 September 2018 (at the Annual Shareholders’ meeting) shareholders passed a resolution approving the Rubicon Non-Executive Directors Share Plan.
Under the share plan, 1,666,050 new shares were issued to the Trust on 18 September 2018. The Trust will hold the shares on behalf of the three Directors
(Tom Avery, Ozey Horton, and Paul Smart, equally) until the vesting terms are met. The shares will vest, to each Director, in three equal tranches on the first,
second and third anniversaries following the date of issue (18 September 2018), provided that the Director remains a Director of the Company on the relevant
anniversary date.
On 17 September 2019 (at the Annual Shareholders’ meeting) shareholders passed a resolution approving the 2019 Rubicon Non-Executive Directors Share
Plan. Under the share plan, 820,998 new shares were issued to the 2019 Trust. The 2019 Trust will hold the shares on behalf of the Director (George Adams)
until the vesting terms are met. The shares will vest in three equal tranches on the first, second and third anniversaries following the date of issue (18 September
2019), provided that the Director remains a Director of the Company on the relevant anniversary date. (refer to notes 7, 19 & 20).
(2)ArborGen Inc senior executive team hold options in respect of 4.5% of ArborGen’s issued share capital. These options are fully vested and can be exercised
(subject to service conditions) by the holders, at $423 per share (5,640 options on issue), upon an IPO of ArborGen Inc, a sale of substantially all of the assets of
ArborGen Inc, or upon a sale or restructuring event (including the issuance of new share capital to a third party) where following such event ArborGen Holdings
holds less than a 50.01% ownership position.
(3)ArborGen (Rubicon Clearwood GP Limited) remained the general partner for its former subsidiary TCLP until 31 March 2019, following the sale of Group's
44.88% interest in January 2018. The Group received management fee for services provided of $250,000 per annum.
(4)As part of the acquisition of the US Ridgeville headquarters premises subordinated Notes were issued by ArborGen Inc to related parties (being Directors,
shareholders and senior management) for $2.88 million. The Notes are fully subordinated to all bank debt, repayable at maturity (August 2022), and due to their
subordinated nature attract a 7% per annum interest rate, payable six monthly in arrears. Independent advice, at the time of issuance, has confirmed that the
interest rate and terms were reasonable to the Company. (refer to note 18)
27

ArborGen Holdings Limited and Subsidiaries
Notes to the Consolidated Financial Statements
For the year ended 31 March 2020
26PRINCIPAL OPERATIONS

ArborGen Holdings Limited (a New Zealand incorporated limited liability company) is the holding company of the ArborGen Group.
The principal subsidiaries, as at 31 March 2020, were:
Country of Interest %Interest %BalancePrincipal
DomicileMarch 2020Mar 2019DateActivity
Principal subsidiaries
Rubicon Forests Holdings LimitedNZ10010031 MarchHolding company
Rubicon Clearwood GP Limited
(1)
NZ10010031 MarchFormer General Partner to TCLP
Rubicon Industries USA LLCUSA10010030 JuneHolds ArborGen, Inc investment
ArborGen Inc
(2)
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)Rubicon Clearwood GP Limited retired as the general partner of TCLP on 31 March 2019. On 1 April 2020 Rubicon Clearwood GP limited was amalgamated
into its parent Rubicon Forests Holdings Limited.
(2)ArborGen Holdings owns 100% of ArborGen Inc’s issued share capital, or 95% by economic interest (given the 5% of outstanding warrants). These warrants
arose out of ArborGen Inc’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 Inc, or alternatively at any time if 66.67% of the warrant holders so elect. The warrants can also be exercised by ArborGen
Inc, upon either a sale of substantially all of the ArborGen Inc business or of a sale of 50.01% or more of ArborGen Inc’s share capital.
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$. The Group's exposure to foreign currency risks on financial instruments is shown in the following:
in US$mMarch 2020March 2019
US$Non US$US$Non US$
Cash, liquid deposits and restricted cash5.7 2.2 6.1 1.1
Trade debtors and other receivables7.4 1.2 7.0 0.9
Trade creditors and other payables(8.5) (4.6) (9.5) (5.0)
Current debt(6.3) - (0.5) -
Non current debt(31.2) - (16.5) -
Lease obligation(5.5) (0.2) (12.0) -
Gross balance sheet exposure
(1.0) (3.0)
The following exchange rates applied during the year:
Average rate
(1)
Spot rate
March 2020March 2019March 2020March 2019
NZ$:US$0.64780.68150.59940.6790
US$:R$0.24400.26490.19280.2571
US$:AU$0.68200.72760.61390.7104
(1)These are merely arithmetical averages not hedged rates.
Foreign exchange contracts
The Group had no foreign exchange contracts outstanding (2019: nil).
Sensitivity Analysis - gross balance sheet exposure
Given the small size of the gross balance sheet exposure shown above, any movement in the NZ$, R$ and AU$ against the US$ is unlikely to be material.
(ii) Exposure to interest rate risk
The Group has $37.5 million of debt at 31 March 2020 (2019: $17 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.
As at 31 March 2020, the Group had one interest rate swaps totalling $11.3 million (2019: nil), covering 31% (2019: nil) of total debt. The swap was entered
into in August 2019 and expires in August 2026. The swap receives a floating rate of 2% above 30-day LIBOR and pays a fixed interest rate of 3.52%. At
31 March 2020 the mark-to-market of the swap resulted in liability of $0.7 million, which is reflected in the cash flow hedge reserve and derivative financial
instrument liability. (refer note 20)
28

ArborGen Holdings Limited and Subsidiaries
Notes to the Consolidated Financial Statements
For the year ended 31 March 2020
27FINANCIAL INSTRUMENTS (continued)
(b)
Credit Risk
(i) Exposure to credit risk
The carrying amount of financial assets represents the maximum credit exposure, which at 31 March 2020 was $16.5 million of trade and other receivables,
and cash, liquid deposits and restricted cash (2019: $15.1 million).
US cash, liquid deposits and restricted cash are only held with banks that are part of the Group's banking consortiums. In the event of default, cash balances may be
set off against obligations owing by the Group to its lenders. Moody's credit ratings of the primary counterparties for cash and liquid deposits are all rated as
investment grade. The status of trade debtors, is as follows:
March 2020March 2019
US$mUS$m
Neither past due or impaired4.2 4.1
Past due but not impaired -1 month 2.6 2.3
2 month 1.5 1.4
Impaired 0.4 -
8.7 7.8
Less provision for expected credit loss(0.5) (0.1)
Net trade debtors
8.2 7.7
ArborGen Inc has a strong history of trade debtor collections and there is no reason to believe that the debtors will not be collected.
(c)Liquidity risk
The following are contractual maturities of financial liabilities and net settled derivatives. The amounts disclosed are the contractual undiscounted cash flows.
Carrying
value
Total cash
flows0-6 months6-12 months1-2 years2-5 yearsOver 5 years
Financial liabilitiesUS$mUS$mUS$mUS$mUS$mUS$mUS$m
31 March 2019
Non derivative financial liabilities
Trade and other payables (10.4) (10.4) (9.3) (0.2) (0.3) (0.6) -
Debt(17.0) (20.4) (0.5) - (6.9) (2.2) (10.8)
Lease obligation(12.0) (18.6) (0.8) (0.8) (1.6) (4.4) (11.0)
Financial liabilities as at 31 March 2019(39.4) (49.4) (10.6) (1.0) (8.8) (7.2) (21.8)
31 March 2020
Non derivative financial liabilities
Trade and other payables (9.0) (9.0) (8.1) - - (0.9) -
Debt(37.5) (50.9) (0.8) (5.6) (14.4) (6.8) (23.3)
Lease obligation(5.7) (6.5) (0.6) (0.6) (1.1) (3.2) (1.0)
Financial liabilities as at 31 March 2020(52.2) (66.4) (9.5) (6.2) (15.5) (10.9) (24.3)
28CONTINGENT LIABILITIES
There are no known contingent liabilities in the Group as at 31 March 2020 (2019: nil).
29ASSET BACKING - NON-GAAP MEASURE
At 31 March 2020 the net asset backing was 29 cents per share (cps) (NZ$48 cps), (2019: 30 cps, NZ$44 cps); and net tangible asset backing was 8 cps (NZ$13 cps)
(2019: 8 cps, NZ$12 cps), calculated on the basis of shares on issue at 31 March 2020 (excluding treasury stock) 497,463,691 (2019: 496,908,343).
30EARNINGS - NON-GAAP MEASURE
ArborGen Holdings shareholders and users of the financial statements are very interested in ArborGen Inc’s underlying earnings performance under US-GAAP (as
well as under IFRS ), as that is the result that ArborGen Inc would report in a US ‘listing’ situation. ArborGen Holdings believes 'US-GAAP underlying earnings'
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 different depreciation policies and debt:equity structures.
In contrast with US-GAAP, IFRS requires the capitalisation of ArborGen Inc’s development spend, the amortisation of intellectual property, and the accrual of the
change in fair value of biological assets on the seedling crop each year prior to its sale. Because of these differences, US-GAAP results, and in particular US-GAAP
underlying earnings' cannot be easily derived from reported IFRS numbers.
EBITDA, US-GAAP EBITDA and US-GAAP underlying earnings are all non-GAAP financial measure and are not recognised under NZ IFRS. As they are not
necessarily uniformly defined or utilised and these measures 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.
The following table provides users useful pro-forma ArborGen information for year-on-year comparison and reconciles net earnings to 'US-GAAP underlying earnings' .
29

ArborGen Holdings Limited and Subsidiaries
Notes to the Consolidated Financial Statements
For the year ended 31 March 2020
30
EARNINGS - NON-GAAP MEASURE (continued)
Year endedYear ended
March 2020March 2019
ArborGen
Refer to noteUS$mUS$m
Revenue2456.9 49.1
Cost of sales24(37.2) (32.0)
Gross profit19.7 17.1
Net loss after taxation from continuing operations24(1.1) (0.2)
less Tax benefit24(1.1) (0.5)
plus Financing expense242.3 2.2
Operating loss before financing expense0.1 1.5
plus Depreciation and amortisations79.5 8.7
EBITDA (NZ IFRS)9.6 10.2
Add back NZ IFRS adjustments
Investment in intellectual property15(4.1) (4.7)
Change in fair value of biological assets110.6 (0.8)
Other IFRS adjustments (including IFRS 16 adjustment)(0.7) 0.3
US-GAAP EBITDA5.4 5.0
Add back other significant items
Inventory adjustment and extreme weather event related expenses73.7 -
Transaction-related costs70.2 1.0
Restructuring costs7- 0.6
Less Gain on sale- (0.5)
US-GAAP underlying earnings
9.3 6.1
31DISCONTINUED OPERATIONS
In the prior period, Rubicon disposed of its interest in TCLP, and Tenon went into voluntary liquidation. Both of these operations are classified as discontinued in
these financial statements.
Income Statement
for the period ended
Year endedYear ended
March 2020March 2019
US$mUS$m
Loss on disposal- (0.1)
Net profit (loss) after taxation from discontinued operations- (0.1)
Statement of cash flows
Year endedYear ended
for the period endedMarch 2020March 2019
US$mUS$m
Net cash from:
Investing activities- 2.4
Net cash from discontinued operations- 2.4
32SUBSEQUENT EVENTS
In April 2020 ArborGen Brazil finalised agreements with Brotale to lease a eucalyptus nursery in Ribas do Rio Pardo, in the Brazilian state of Mato Grosso do Sul. The
nursery will initially be producing 12 million eucalyptus seedlings, including genetically improved clonal material, and plans to increase its production to 15 million
seedlings by 2021.
On 5 May 2020 ArborGen Inc received US$2.35 million from the US Small Business Administration (SBA) under the Paycheck Protection Program (PPP). The PPP is
a loan designed to provide a direct incentive for businesses with fewer than 500 employees in the US to keep their workers on the payroll due to the uncertainties
caused by COVID-19. SBA will forgive loans if all employees are kept on the payroll for eight weeks and the money is used for payroll costs, rent, mortgage interest, or
utilities payments over the 8 weeks after receiving the loan. At least 75% of the forgiven amount must have been used for payroll costs which includes employee
salaries, hourly wages, sick or medical leave, and group health insurance premiums. ArborGen Inc expects to meet the requirements to have the loan forgiven.
Our New Zealand subsidiary met the eligibility criteria for the New Zealand Government wage subsidy and after applying in March 2020 received NZ$391k in April.
This amount has been recorded as a receivable and liability in the 31 March 2020 accounts.
Our Australian subsidiary has received Jobkeeper payments from the Australian Government in April of AU$26k and expect to continue to receive monthly payments
(approximately AU$10k per month) through until September 2020.
The Board has determined to establish a new long term incentive plan, conditional upon the cancellation of the existing management options described in note 25
above. The terms of the new long term incentive plan will (once finalised) be outlined in the governance section of the annual report, to be released in June 2020.
30

31

Independent Auditor’s Report
To the Shareholders of ArborGen Holdings Limited
Opinion We have audited the consolidated financial statements of ArborGen Holdings Limited and its
subsidiaries (the ‘Group’), which comprise the consolidated balance sheet as at 31 March
2020, and the consolidated income statement, statement of comprehensive income,
statement of changes in equity and statement of cash flows for the year then ended, and
notes to the consolidated financial statements, including a summary of significant accounting
policies.
In our opinion, the accompanying consolidated financial statements, on pages 8 to 30,
present fairly, in all material respects, the consolidated financial position of the Group as at
31 March 2020, and its consolidated financial performance and cash flows for the year then
ended in accordance with New Zealand Equivalents to International Financial Reporting
Standards (‘NZ IFRS’) and International Financial Reporting Standards (‘IFRS’).
Basis for opinion We conducted our audit in accordance with International Standards on Auditing (‘ISAs’) and
International Standards on Auditing (New Zealand) (‘ISAs (NZ)’). Our responsibilities under
those standards are further described in the Auditor’s Responsibilities for the Audit of the
Consolidated Financial Statements section of our report.
We believe that the audit evidence we have obtained is sufficient and appropriate to provide
a basis for our opinion.
We are independent of the Group in accordance with Professional and Ethical Standard 1
(Revised) Code of Ethics for Assurance Practitioners issued by the New Zealand Auditing and
Assurance Standards Board and the International Ethics Standards Board for Accountants’
Code of Ethics for Professional Accountants, and we have fulfilled our other ethical
responsibilities in accordance with these requirements.
Other than in our capacity as auditor and the provision of corporate finance advice, we have
no relationship with or interests in the Company or any of its subsidiaries. These services
have not impaired our independence as auditor of the Company and Group.
Audit materiality


We consider materiality primarily in terms of the magnitude of misstatement in the financial
statements of the Group that in our judgement would make it probable that the economic
decisions of a reasonably knowledgeable person would be changed or influenced (the
‘quantitative’ materiality). In addition, we also assess whether other matters that come to
our attention during the audit would in our judgement change or influence the decisions of
such a person (the ‘qualitative’ materiality). We use materiality both in planning the scope
of our audit work and in evaluating the results of our work.
We determined materiality for the Group financial statements as a whole to be US$2m.
Key audit matters Key audit matters are those matters that, in our professional judgement, were of most
significance in our audit of the consolidated financial statements of the current period. These
matters were addressed in the context of our audit of the consolidated financial statements
as a whole, and in forming our opinion thereon, and we do not provide a separate opinion
on these matters.

32

Key audit matter How our audit addressed the key audit matter
Intangible assets – impairment assessment
As set out in note 15 of the financial statements the Group
has US$103.8m of intellectual property recorded on its
balance sheet relating to the ArborGen business.
The impairment assessment in relation to the ArborGen
business, or Cash Generating Unit (CGU) is considered to be
a key audit matter as a result of the significance of the
intellectual property asset to the Group, and the level of
judgement required when determining the value in use of
ArborGen.
The value in use of ArborGen is determined by undertaking a
discounted cash flow analysis which involves management
making a number of assumptions in relation to forecast future
cash flows, determining an appropriate weighted average cost
of capital (WACC) and terminal value (TV) growth rate. Each
of these inputs requires judgement to be applied.


In performing our audit procedures in this area we:
 assessed the appropriateness of the valuation
methodology applied by management;
 examined the robustness of the financial model used
by management to calculate ArborGen’s value in use;
 tested the key assumptions driving the forecast future
cash flow. Of particular importance are;
o changes in market share;
o average selling prices and gross margin
linked to the projected uptake of Mass
Controlled Pollinated (MCP) product primarily
in the US market;
 undertook sensitivity analysis on key assumptions to
assess the impact on the carrying value of ArborGen;
 tested the calculation of the WACC and TV growth
rate, including obtaining input from our valuation
specialists;
 assessed management’s consideration of COVID-19
with respect to the impairment model; and
 ensured the disclosures in the financial statements
properly reflect the judgements and estimates made
by management.

Other information
The directors are responsible on behalf of the Group for the other information. The other
information comprises the information in the Chairman’s letter that accompanies the
consolidated financial statements and the audit report, and the Annual Report, which is
expected to be made available to us after the date of the audit report.

Our opinion on the consolidated financial statements does not cover the other information
and we do not express any form of assurance conclusion thereon.

Our responsibility is to read the other information and consider whether it is materially
inconsistent with the consolidated financial statements or our knowledge obtained in the
audit or otherwise appears to be materially misstated. If so, we are required to report that
fact. We have nothing to report in this regard.

When we read the Annual Report, if we conclude that there is a material misstatement
therein, we are required to communicate the matter to the directors and consider further
appropriate actions.

Directors’ responsibilities for
the consolidated financial
statements
The directors are responsible on behalf of the Group for the preparation and fair presentation
of the consolidated financial statements in accordance with NZ IFRS and IFRS, and for such
internal control as the directors determine is necessary to enable the preparation of
consolidated financial statements that are free from material misstatement, whether due to
fraud or error.
In preparing the consolidated financial statements, the directors are responsible on behalf
of the Group for assessing the Group’s ability to continue as a going concern, disclosing, as
applicable, matters related to going concern and using the going concern basis of accounting
unless the directors either intend to liquidate the Group or to cease operations, or have no
realistic alternative but to do so.
Auditor’s responsibilities for
the audit of the consolidated
financial statements
Our objectives are to obtain reasonable assurance about whether the consolidated financial
statements as a whole are free from material misstatement, whether due to fraud or error,
and to issue an auditor’s report that includes our opinion. Reasonable assurance is a high
level of assurance, but is not a guarantee that an audit conducted in accordance with ISAs
and ISAs (NZ) will always detect a material misstatement when it exists. Misstatements can
arise from fraud or error and are considered material if, individually or in the aggregate,
they could reasonably be expected to influence the economic decisions of users taken on
the basis of these consolidated financial statements.
A further description of our responsibilities for the audit of the consolidated financial
statements is located on the External Reporting Board’s website at:

33

https://www.xrb.govt.nz/standards-for-assurance-practitioners/auditors-
responsibilities/audit-report-1
This description forms part of our auditor’s report.
Restriction on use

This report is made solely to the Company’s shareholders, as a body. Our audit has been
undertaken so that we might state to the Company’s shareholders those matters we are
required to state to them in an auditor’s report and for no other purpose. To the fullest
extent permitted by law, we do not accept or assume responsibility to anyone other than
the Company’s shareholders as a body, for our audit work, for this report, or for the opinions
we have formed.



Peter Gulliver, Partner
for Deloitte Limited
Auckland, New Zealand
27 May, 2020