ArborGen Holdings Limited (RUBNF) 2025 Annual Shareholders Meeting Call (Transcript)

2025-09-10 11:54:10 ET

ArborGen Holdings Limited (RUBNF) 2025 Annual Shareholders Meeting Call

Company Participants

David Knott
Justin Birch - President & CEO
George Adams

Conference Call Participants

Unknown Attendee
Unknown Shareholder
Allan Best
Heidi Chen

Presentation

David Knott

All right. Good morning. Welcome to ArborGen's Annual Shareholder Meeting. I'm Dave Knott, the Chairman of the Board. It's great to be back in New Zealand to meet shareholders and talk about ArborGen's performance and outlook. Thank you for joining us today.

I'm pleased to advise that a quorum is present and that the meeting has been duly convened. The notice of meeting, which includes explanatory notes, has been circulated to all shareholders, and I intend to take it as read.

The audited financial statements for the year ended 31 of March 2025 were released on the 26th of June and included in the annual report.

In attendance today are representatives from our auditors, Grant Thornton, as well as members of the ArborGen team and other advisers. Welcome to you all.

For those of you attending the meeting online, if you would like to submit a question, the Q&A is always open, so please feel free to submit questions throughout the meeting. These will be addressed at the relevant time. Please also note that your questions may be moderated if we receive multiple questions on one topic, amalgamated together.

When asking questions in the room, please use the microphone and introduce yourself by name. A reminder that only shareholders, proxy holders or corporate representatives may ask questions during the meeting. Any questions not answered in time will receive an e-mail response after the meeting.

Voting today will be conducted by way of poll. I now declare voting open for all resolutions. If you are eligible, you'll be able to cast your vote under the Vote tab. You have the ability to vote at any time up until the time I declare voting closed.

Moving on to my address. I'm pleased to be joined today by our 2 New Zealand-based directors, Paul Smart and George Adams as well as ArborGen's CEO, Justin Birch, who you will hear from shortly; and our CFO, Christina Green.

Joining us online from the U.S. are directors, Tom Avery and Ozey Horton.

George is standing for reelection today, and you'll hear from him later in the meeting.

ArborGen remains a global leader in advanced genetic seedlings. Every year, we proudly deliver millions of seedlings to more than 2,000 customers worldwide. Today, our network spans 26 seedling nurseries and orchards with a production capacity around 500 million seedlings annually. This scale, combined with our expertise, positions us at the forefront of our industry.

Our goal remains clear and unwavering: To grow sales of our advanced genetic seedlings in our target markets, delivering greater value for forest owners, stronger returns for our business and increased rewards for you, our shareholders.

In fiscal year '25, despite the challenges we faced, we remain firmly focused on maximizing opportunities for ArborGen. We continue to advance MCP adoption in the U.S., secure new expansion opportunities in Brazil and continue to build our carbon offset business, areas that hold strong potential for the future and are our primary growth opportunities.

We strengthened our executive teams in both the U.S. and Brazil, ensuring we have the skills, experience and bench strength to deliver on our strategy. We have a disciplined approach to capital management, selling surplus assets and making responsible investments that fuel growth. We've also focused on strengthening our business, building greater resilience and reducing risk. Together, these priorities are positioning us to navigate the current environment and emerge stronger in the years ahead.

FY '25 was a challenging year with economic, market and weather challenges impacting results. Continued growth in Brazil was offset by a soft result in the U.S. as headwinds persisted. We were disappointed not to be able to maintain last year's record revenue result with soft market conditions in both countries hampering our sales. However, it was pleasing to see the year ending on a stronger note.

The Board considered the carrying value of our intangible assets as part of the year-end process and elected to recognize an impairment of $21.8 million related to intellectual property. Including this, reported net loss after tax was $21.5 million. U.S. GAAP EBITDA increased 47%, benefiting from the gain on sale of the in vitro business during the year. Excluding one-off and unusual transactions, adjusted U.S. GAAP EBITDA was $8.8 million, in line with guidance. This was below the fiscal year '24 record result, but similar to fiscal year '23 performance.

Our balance sheet remains solid. We are reinvesting earnings into growth, managing working capital with discipline and funding expansion in both the U.S. and Brazil. Net debt reflects strategic investment in the share buyback program. We are currently working to sell the Ridgeville building. Once sold, the proceeds will be used to reduce debt and make a meaningful difference to our balance sheet. We continue to invest into production expansion and resilience, expanding container capacity at 2 U.S. nurseries, adding hardwood cooler space at a deep well, completing our new smaller U.S. headquarters and automating inventory counts.

In Brazil, we grew our footprint with the acquisition of additional eucalyptus nursery while continuing R&D and product development across both regions. Planned initiatives for this year include upgraded irrigation systems, putting in place backup power and continued orchard expansion. In Brazil, we're investing in drought-mitigation measures and building a new R&D lab to support future innovation.

At this stage, the Board believes reinvesting cash into growth initiatives, paying down debt and repurchasing the company's shares at attractive prices will create longer-term value than paying a dividend.

As I said last year, your Board believes the ArborGen share price is disconnected from our fundamental value. On the 31st of March this year, our net assets were $140 million, while our market cap was only $41 million. There are several reasons we can see for this.

Our total market cap remains relatively modest, which unfortunately places us below the threshold for most institutional investors. While we remain focused on sharing our story, it has been difficult to attract institutional investors or funds to a smaller company listed in New Zealand, but with our operations offshore. This lack of institutional presence further limits the visibility and demand in the market.

We also have a large number of small investors. More than 80% of our shareholders have holdings of less than 5,000 shares, which can be too small to trade efficiently. This limits daily trading volumes and makes it difficult for buyers and sellers to engage effectively in the market. The share buyback last year provided an opportunity for some investors to sell down or exit.

We are actively working to address these challenges. We continue to engage with the investment community and seek interest from potential new investors who understand our long-term strategy and see the value in the business. We remain committed to growing shareholder value, and we'll continue to pursue initiatives that enhance our profile and support a more active and dynamic market for our shares.

As we said last year, similar businesses to ours in the U.S. have sold in the last few years for multiples of up to 10x EBITDA. ArborGen's current share price values our company at just 6.3x EBITDA, a significant value gap. As ArborGen's earnings increase, this gap will become even more pronounced, and our company will be increasingly positioned as a value opportunity.

Looking ahead, several macro trends will drive growth. In the U.S., a recovery in the housing market will lift demand for high-grade timber. In Brazil, fast-growing eucalyptus is the optimal choice for sustainable pulp. Our superior genetic seedlings offer higher yield, increased resilience and more value for growers in both markets. Reforestation and the emerging carbon markets also offer further long-term opportunities. The Board has full confidence in our strategy to capture these opportunities and deliver sustainable growth in the years to come.

ArborGen is strongly positioned for the future. We have a clear strategy and a robust balance sheet. As a market leader in the U.S. and Brazil -- U.S. South and Brazil, we offer unmatched product portfolios and bring decades of research and intellectual property investment that are now delivering real results.

In Brazil, we are leveraging our strong position in the pine and eucalyptus seedling markets to build a sustainable, highly profitable business that is recognized as the preeminent seedling supplier. And in the U.S., we are focused on driving increased adoption of advanced genetics across the U.S. South, leveraging decades of investment in developing best-in-class proprietary products. We're committed to driving value for shareholders as a result of strong earnings and cash flow growth.

Thank you. I'll now hand over to Justin to talk about our progress in more detail.

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