The O'Brien Column: Rubicon plans move beyond tidy up to new opportunities

By Peter V O'Brien

Friday 31st May 2002

Executives at forestry and biotechnology group Rubicon should change the words and phrases locked into their computerised word-processors.

Rubicon reported in November on the six months ended September 30 and headed the initial announcement "Rubicon announces strong six-months result."

Chief executive Luke Moriarty was quoted as saying "this is a very strong result for the company's first reporting period and one that reflects the successful transactional nature of our first six months of operation."

Rubicon earned $30.8 million in the first half. The group released a full-year result on May 21. The preliminary report was headed "Rubicon announces strong maiden profit result."

Mr Moriarty said, "this is a strong result to close out our first year of operation. The net-earnings figure largely reflects the significant transactional achievements we have made in the realignment of our business portfolio."

Rubicon earned $30.4 million for the year ended March. It could be suggested the company lost $400,000 in the second six months, bringing the year's profit back from the $30.8 million recorded in the first half, but things were not so simple.

Most of the company's "action" occurred in the first six months, which probably was the reason the wording of the two reports was almost identical.

The action was more than "transactional" - it had a strong "transitional" element as Rubicon tidied up and rationalised businesses and sundry investments it inherited on the Fletcher group break up.

Rubicon seemed to get the bits that would not fit elsewhere, although that was no reflection on their basic value.

The transitional nature of group operations was seen in the year's financial performance statement.

Rubicon earned total operating revenue of $73.88 million but the operating surplus before associates, unusual items and tax was $282,000. Unusual items (gains on disposal of assets) accounted for $63.15 million, reduced by $22.47 million for revaluation of listed securities, being holdings in Fletcher Challenge Forests and Genesis Research and Development.

There was a $10.6 million loss from associates, related to Rubicon's 50% holding in the Argentinian forestry company Forestadora Tapebicua SA (equity-accounted loss, $5.4 million) and research expenditure of $5.2 million in 31.3%-owned biotechnology group ArborGen.

Rubicon may have shown little in the way of standard operational earnings but had a busy year sorting out its structure.

A shareholding in US company Capstone Turbine Corporation was sold for $44 million, Brisbane fuels terminal for $A19 million and the group's Challenge petrol retailing operation for $50 million.

Mr Moriarty said the company realised more than $60 million over the acquisition costs of those businesses, "creating 18c per Rubicon share of value for shareholders." Rubicon bought back shares, returning $60 million to shareholders, as a consequence of the asset sales.

Mr Moriarty said the "value gap" in the stock had closed, with the share price being 64c on March 31, "more than twice the value at which the share had had traded in the grey market pre-listing in March of last year and 50% more than its listing price."

The stock listed at 40c and closed its first trading week at 45c, having been up to 49c. It was 65c last Friday.

Rubicon shares were among the list's best-performed last year, due partly to the share buyback, which also helped reduce the gap between share price and net-asset backing.

The company said asset backing was 89 cents a share at balance date.

That was still a sizeable margin (48%) above the current share price.

Rubicon's reorganising and settling down period seems to be ending. The question is where it goes to now, apart from investments in biotechnology and associated activities, which are longer-term ventures by the company's own admission.

Mr Moriarty's comments accompanying the preliminary result "reiterated the focus for Rubicon moving forward," but they were expressed in very general terms.

The focus was on:

bringing value to its shareholding in Fletcher Challenge Forests;
commercialising its existing forestry biotechnology portfolio; and
exploiting appropriate new investment opportunities.

"While we will deal with these objectives simultaneously, their order of importance in value terms to the company is as listed."

That may be but the market and shareholders will be more interested in those new opportunities now Rubicon seems to have crossed the river. The company will find, like Caesar, there is no turning back.

Hopefully, it will also find there is no turning back to repetition of earlier statements when it makes future reports.

Comments from our readers

No comments yet