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Rubicon turns to full-year profit on Tenon improvement

Rubicon turns to full-year profit on Tenon improvement, disappointed at 'moribund' shares

By Jonathan Underhill

Aug. 31 (BusinessDesk) - Rubicon, the forestry biotech company, returned to full-year profit on a recovery in earnings for Tenon, the wood mouldings company it owns 59.8 percent of, and said it was disappointed that its shares haven't tracked Tenon's higher as a result.

Profit was US$3 million in the year ended June 30, from a loss of US$2 million a year earlier, the Auckland-based company said in a statement. Revenue rose to US$406 million from US$396 million.

Because of its controlling stake in Tenon, Rubicon consolidates Tenon's income and cash flows with its own statements, while it treats 32 percent-owned ArboGen, a supplier of seedlings to the forestry industry, as an associate. Today Rubicon said ArborGen had met targets for global sales, which rose 17 percent by volume to 309 million seedlings in the latest year, mainly in the US market, while revenue grew 17 percent to US$35 million. ArborGen was on track "to meet (an) ebitda positive run-rate by the end of calendar 2015," it said.

The company said ArborGen is entering a period of growth, including a 'step-out' expansion in Brazil and organic growth in the US. Funding for the expansion "should ideally be met out of capital raised in an external ArborGen financing event" and it "continues to actively advance this financing objective," Rubicon said.

Rubicon's shares were unchanged at 30 cents on the NZX and have fallen 19 percent in the past 12 months. By contrast, Tenon shares have advanced 25 percent in that period, and rose 7.5 percent to $2.15 in early trading. Tenon announced today that it will begin paying dividends for the first time in 17 years, with a 5 cent final payment declared and the intention to make regular dividend payments starting in 2016.

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Tenon has also hired Deutsche Bank for a strategic review.

"Given that Rubicon holds the strategic control stake in Tenon and our investment should therefore carry some additional 'premium' value to us, the moribund Rubicon share price performance is even more disappointing," Rubicon said. Tenon's improvement should flow directly through to Rubicon's share price and "we need to acknowledge that this has not been the case to date, with recovery in Tenon's price being more than offset by a decline in the underlying value of ArborGen implicit in Rubicon's share price."

It views Rubicon's poor share price performance as counter-intuitive as it "doesn't reflect the reality of the progress that ArborGen has made in its commercialisation goals over the past 12 months," it said.

A proposed initial public offering for ArborGen to raise between US$82 million and US$92 million was put on hold in 2011, with owners Rubicon and partners International Paper and MeadWestvaco saying market conditions on Wall Street at the time were too weak. Rubicon reiterated in December that an IPO was still on the cards.

In May this year Rubicon, which was originally spun out of Fletcher Challenge, extended its US$20 million debt facility with ANZ Bank New Zealand and issued US$7 million in notes to its major shareholder David Knott and its board members, with potential to issue a further US$3 million of notes.


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