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Writedowns hurt Rubicon first half

By Phil Boeyen, ShareChat Business News Editor

Thursday 15th November 2001

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Fletcher Challenge spinoff Rubicon (NZSE: RBC) is placing a high priority on bringing value to its Fletcher Forests (NZSE: FFS) investment after taking a $30.5 million writedown on the stock in its interim result.

In its first reporting period, for the six months ended September, Rubicon has recorded net earnings of $30.8 million. Total operating revenue was $69.71 million made up of sales of $4.57 million and other revenue at $65.14 million.

The surplus follows the divestment of Fletcher-inherited assets including Capstone shares for $44 million, the Brisbane fuels terminal business for A$19 million and the Challenge petrol stations for $50 million. However, the sales were offset by a writedown of $31.5 million relating to the company's 17.6% stake in Fletcher Challenge Forests and its 2.8% investment in listed biotech Genesis (NZSE: GEN).

Despite the Forests writedown from 31.4 cents to 25.2 cents per share, Rubicon chief Luke Moriarty remains convinced the stock is undervalued.

"We continue to believe that the true value of our Fletcher Challenge Forests shareholding is well in excess of 25 cents per share - the market price on September 30."

Mr Moriarty says bringing value to the Forests shareholding is a major priority for the company.

"Our shareholding in Fletcher Challenge Forests now represents nearly 50% of Rubicon's net asset backing, with our shareholders having, indirectly, 1.76 Fletcher Challenge Forests shares for every Rubicon share they hold.

"It is clear that bringing value to our investment in Fletcher Challenge Forests is critical to the value of Rubicon moving forward."

The company is also planning a major focus on commercialising its existing forestry biotechnology portfolio, of which its main investment is ArborGen, the tree-engineering joint-venture with Westvaco and International Paper.

"Rubicon has a commitment to provide US$4 million a year for the next four years in follow-on funding, and it is actively participating in setting the strategy and development path of the business," says Mr Moriarty.

"The company is also moving forward the commercialisation of its Trees and Technology business - in particular, looking to bring the last decade's investment in superior treestock development through to the market in New Zealand."

Mr Moriarty says Rubicon is also investigating setting up operations in international markets that may allow it to leverage the clonal work it has already undertaken in Radiata and Eucalyptus in New Zealand and Argentina."

Aside from the investment writedowns another negative in the company's first financial report is a $1.2 million loss from associates, which it says reflects the impact that an extremely difficult, and deteriorating, Argentine economy was having on the company's eucalyptus forestry and processing activities in South America.

The company also has "exploiting new investment opportunities" down on its to do list and reports it has looked at over 30 investment proposals in the first six months, including taking some of them to the due diligence stage.

"To date, none has yet met our demanding criteria for investment," says Mr Moriarty.

"Having said that, however, we continue to believe that high-growth investment opportunities do exist within Rubicon's arenas of interest in forestry, horticulture and agriculture, and we have continued to build our relationships and networks accordingly."

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