Rubicon Group Annual Review - 2007

Rubicon Group Annual Review - 2007

The 2007 year saw us advance the operational and strategic initiatives for each of our investment activities according to the business plans we have previously outlined to Shareholders.

In the period since we last reported to Shareholders, we have been delighted with the strides towards full commercialisation that our international biotechnology venture – ArborGen – has made. While the review below outlines in specific detail some of the key developments in the period, one of the most significant events was undoubtedly the recent announcement that ArborGen would be acquiring the tree improvement businesses of International Paper, MeadWestvaco and Rubicon (i.e. our Horizon2 business) in a US$60 million deal. This transaction (which is subject to approval of the New Zealand Overseas Investment Office (“OIO”)) fundamentally repositions ArborGen from a business in development to an established commercial entity, operating on a truly global scale. In one move, ArborGen has been transformed into a company producing and selling, to thousands of established customers, over 300 million treestocks annually in the United States, Brazilian, New Zealand, and Australian markets. It will make ArborGen the world’s largest producer of tree planting stock for landowners and the forest products industry. This is a very exciting development for ArborGen – one which significantly advances its business model, and which will allow it to bring forward value for its customers and shareholders accordingly.

At Horizon2, we moved to 100% ownership by acquiring (subject to OIO consent) from Carter Holt Harvey (“CHH”) the 50% interest we did not already own, thereby allowing us to contribute the complete Horizon2 business into ArborGen (as noted above). Simultaneous with this acquisition, the previous Horizon2 strategic relationship agreement with CHH was terminated and replaced with two new exclusive, long-term supply agreements with Hancock Natural Resources Group (“HNRG”), the new owner and manager of the former CHH estate. We are very pleased with the total outcome.

For our investment in Tenon, progress was achieved amidst extremely difficult external market conditions. The combination of a very high NZ dollar against our US dollar functional currency, the much-publicised collapse of the sub-prime mortgage market in Tenon’s core US market, and the worst US housing market in nearly 20 years, produced a “perfect storm” for Tenon in terms of operating conditions. Despite the macro-environment not being conducive to Tenon reporting a strong earnings performance, and in an environment where many of its competitors recorded significant losses, it was positive to see Tenon record earnings of US$20 million at the EBITDA (i.e. earnings before interest, tax, depreciation and amortisations) level – a reflection of the value of the restructuring initiatives that have been put in place over the past 12 - 18 months.

Consistent with our previously announced position, we exited our 50% investment in Forestadora Tapebicua for a cash payment of US$5 million. The sale of this problematic investment in a “clean” deal allows us to focus on bringing value to our much larger and more significant ArborGen and Tenon activities.

Our 2007 performance and achievements against our goals, are discussed in greater detail below.

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