ArborGen Holdings Limited Analysis

Overview

The shares were listed in March 2001 as part of a recapitalisation of Fletcher Challenge Forests, and to acquire certain assets from Fletcher Challenge Energy. These included 594,000 ordinary shares in NASDAQ listed Capstone Turbine Corporation and the Challenge retail service station network in NZ. All of these interests were later sold. Remaining assets were acquired from Fletcher Challenge Forests following its recapitalisation. These included a 50% interest in FTSA, an Argentinean joint venture and interests in established biotechnology businesses - ArborGen, Trees & Technology and listed Genesis Research & Development. The company also held a 19.9% stake in Fletcher Challenge Forests.

In March 2004 RBC and Carter Holt Harvey agreed to merge their forestry biotechnology and propagation operations into a new venture - Horizon2. In June 2004 it acquired 50.01% of listed wood products company Tenon.

Performance

The following information was extracted from ArborGen Holdings Limited's full year results, released on 30 March 2025:

FY25 SUMMARY (in USD, comparatives to FY24):

• Continued growth in Brazil, sales up 11% in local currency – provided 41% of total revenue

• US headwinds persist, revenue down 9% – provided 59% of total revenue

• Seedling unit sales of 328 million, down 11% on prior year; advanced genetics make up 45% of total sales

• Revenue of $63.2m down 7% year on year but 13% above FY23 – strong Q4 performance across both regions

• Net Loss After Tax includes a non-cash $21.8m impairment of intangible assets (1)

• Adjusted US GAAP EBITDA (2) result of $8.8m, in line with guidance; below FY24 record result but similar to FY23

ArborGen demonstrated resilience while navigating a challenging year, with continuing growth in Brazil and a stronger Q4 performance in the US as opportunities were maximised and sales initiatives delivered.

The Brazil business presents significant growth potential and is not particularly seasonal in its capital needs. While volumes were flat, revenue increased 11% year on year in local currency (3). Demand and pricing in the eucalyptus market remains solid, however, an oversupply of market clone seedlings in the pine market put pressure on pricing, with a limited flow-on effect on protected clone pricing. ArborGen is continuing its strategic transition towards protected clones, which are higher value and provide greater revenue stability. While this shift is resulting in some short-term margin impact, it is expected to deliver meaningful long-term gains.

The US has a single planting and harvesting season each year, with the majority of sales recognised in the second half. Headwinds in the US continued to impact across the industry, with lower demand for timber driven by subdued housing construction, and mill production and harvesting curtailed accordingly. As a result, US revenue was down 9% year on year to $37.5m.

Cost mitigation efforts remain a priority across both regions, with significant operational savings being seen in the US from the sale of the in vitro business, the closure of the Taylor Nursery and lease of the Ridgeville Head Office building. An operational reset was undertaken in Brazil as the business scales up and matures, resulting in a stronger team, improved financial processes and systems, and a strong platform for future growth.

The proceeds of the in vitro sale were used to provide further headroom for investment into growth initiatives including the expansion of ArborGen’s containers, nursery improvements and other strategic initiatives such as the Eco Empreendimentos nursery acquisition in Brazil. Cash and cash equivalents were $3.5m as at 31 March 2025, with net debt of $20.9m. Capital expenditure was $7.7m for the year (FY24: $5.4m).