Good morning, ladies and gentlemen. Welcome to the annual meeting of shareholders of ArborGen Holdings Limited. I'm Dave Knott, the chairman of the board of ArborGen. Thank you for your attendance today. I'm very happy to be back in New Zealand again, and to be able to introduce ArborGen's new CEO, Justin Birch, to you in person. Justin joined ArborGen as Andrew Baum's successor in June of this year. I'm pleased to advise that a quorum is present and that this meeting is duly constituted. The notice of meeting sent to shareholders last month sets out the formal agenda for today's meeting. We are conducting our meeting this year, both here in person at the Ellerslie Event Centre in Auckland and online through the Computershare online meetings platform. All shareholders have the ability to ask questions and vote.
For those of you joining us online, if you would like to ask a question, please select the Q&A tab on the right half of your screen at any time. Type your question into the field and press Send. It will then be sent through for us to answer. If you require any assistance, refer to the virtual meeting guide that was sent to shareholders, or use the chat function by typing your query and one of the Computershare team will assist. I would encourage you to submit your questions as early as possible, as that will allow us to answer at the appropriate time of the meeting. Please also note that your questions may be moderated, or if we receive multiple questions on one topic, amalgamated together. Voting today will be conducted by way of a poll on all items of business.
In order to provide all online attendees with enough time to vote, I will shortly open the online voting for all resolutions. At that time, if you are eligible to vote at this meeting, you will be able to cast your vote under the Vote tab. Once the voting is opened, the system will allow votes to be submitted. To vote, simply select your voting direction from the options shown on the screen. You can vote for all resolutions at once or by each resolution. Your vote has been cast when the tick appears. To change your vote, simply select Change Your Vote, and you have the ability to change your vote up until the time I declare voting closed. I now declare voting open on all business, all items of business. The resolutions will now be open on the Vote tab.
Please submit your votes at any time. I will give you a warning before I move to close voting. I would like to introduce the members of your board and management to you. Presently with me here today are our two New Zealand-based directors, Paul Smart and George Adams. From the U.S., we have directors Tom Avery and Ozey Horton, attending virtually. From management, we have ArborGen's Chief Executive Officer, Justin Birch, our company secretary, Sharon Ludher-Chandra, our CFO, Alex Brown, and our communications contact, Pam Wardenburg. Turning then to our program for today. First, I will ask Justin to update you on the fiscal year 2023 performance and recent progress. I will then make some comments from the board's perspective.
You will then have the opportunity to raise any questions you may have, and we will then deal with the formal resolutions to be considered by this meeting. I'll now ask Justin to review our recent activity for you.
Thank you, David. On behalf of the ArborGen team, I'd like to extend a warm welcome to our shareholders, joining us today, both in person and virtually. It's certainly been a busy three and 1/2 months since I joined ArborGen, and it's been an absolute pleasure to be here in person to address you. As you well know, the last few months have seen some significant changes at the senior management level. With me joining as Andrew Baum's successor, as CEO of the ArborGen Group in June, and the appointment of Adriano de Almeida as General Manager of ArborGen's Brazil operations in August, succeeding Gabriela Monnerat. Needless to say, it is early days, but I'm still learning a great deal about the business. However, from what I've seen thus far, I'm truly excited about ArborGen's growth prospects and the opportunities for step change.
I'm also privileged to be working alongside a great team of people, including recognized industry leaders across the entire organization, who are passionate about the business and what we have to offer. To ensure a smooth leadership transition, we also have the benefit of both Gabriela and Andrew's continued support in a consulting capacity. Over the last couple of months, I've visited nearly all of our sites in the U.S. and Brazil, and spent time understanding the uniqueness of ArborGen's value proposition. In particular, its advanced genetics know-how, production capability, and high-quality product and service offering. ArborGen is undeniably the market leader in advanced genetics seedlings, with the ability to make transformational changes to forest productivity. I'm sure you've heard this before, but our products are truly game-changing for forest owners.
We are also fortunate to have a strong balance sheet helped by the sale of ArborGen's business in New Zealand and Australia, giving us the headroom for growth in our core and emerging growth markets. Turning then to our fiscal year ending the March 30, 2023, I'm pleased to report ArborGen achieved several commercial objectives as we focus on our vision of being a world-leading provider of value-added, high-quality seedlings for the forest industry. In particular, we produced our highest ever MCP seed volumes. MCP stands for Mass Control Pollinated seed, which is produced from crossing specific elite mother and father parent trees to generate seed with the highest genetic potential. So we produced the highest ever MCP seed volumes from our U.S. orchards in a single year.
Specifically, our 2023 orchard cone harvest produced seed equivalent to around 240 MCP seedlings, 2.5x the MCP seed produced the prior year. Importantly, approximately 65% of the seed is for eastern provinces, where we have been mostly supply constrained following Hurricane Michael in 2018. This seed was partly used for the current fiscal year's MCP seedling production, with the balance being held in seed inventory, allowing us to build buffer in our inventory to mitigate risk for future years' seedling production. We achieved significant growth in Brazil, and our Brazilian operations achieved record sales volumes, revenue, gross margin, and earnings. We successfully completed our U.S. container expansion approved for fiscal year 2023, effectively increasing our in-house container capacity by approximately 70% to nearly 20 million seedlings per annum.
And we successfully integrated a new 10 million capacity pine seedling nursery and a fourth 15 million capacity eucalyptus seedling nursery into our operations in Brazil, increasing overall internal production to almost 60 million seedlings per annum. Turning to our financial results for fiscal year 2023, the group reported in U.S. dollars, revenue from continuing operations of $56.1 million, up 18% on the prior year, comprising sales of $39.3 million in the U.S. and $16.8 million in Brazil. Gross margin from continuing operations of $18.2 million, up from $17.8 million in fiscal year 2022. Operating profit, including items outside of normal operations of $2.2 million, up from a loss of $1.3 million in the prior year.
Net loss after tax of $2.5 million, down from net earnings after tax of $1.7 million in the prior period. U.S. GAAP EBITDA of $10.3 million, up 35% from the $7.6 million reported in fiscal year 2022. Adjusted U.S. GAAP EBITDA of $9.2 million, down from $10.1 million in the prior period. Net cash from operating activities of $6.5 million, down from $7.5 million in the prior period, and net debt, excluding capitalized leases, of $13 million, up from $11.5 million.
Items outside of normal operations during the period was a gain of $0.6 million, compared to an expense of $4 million in the prior year, comprising of $1.2 million in employee retention credits, or ERCs, received under the Coronavirus Aid, Relief, and Economic Security Act, or CARES, and $0.6 million relating to residual strategic review costs and a portion of CEO severance costs. Net loss of $2.5 million included a non-cash, net deferred tax loss recognition of $2.6 million, comprising a deferred tax liability of $8.3 million related to how the group expects to recover the carrying value of intellectual property, offset by a deferred tax asset of $5.7 million relating to the recognition of previously unrecognized losses in the U.S.
In contrast, the prior year period, net earnings of $1.7 million included $4.7 million tax benefit. Net debt of $13 million at fiscal year-end was higher than expected, primarily due to the delayed receipts of approximately $2 million in ERCs received post-fiscal year-end, additional investments made for certain growth initiatives, and working capital timing. Following the recent leadership changes, we have revisited and refined ArborGen's mission, vision, and values. To put it succinctly, ArborGen's mission is to produce superior performing trees for the forestry industry through innovation, strategic partnerships, and dedication to our clients' success. Our vision is to be the world leading provider of, provider of value-added, high-quality seedlings for the forestry industry, creating thriving forests that benefit landowners, the environment, and future generations through unmatched industry expertise. Our values comprise five core elements.
First, excellence: to pursue the maximization and enhancement of all parts of our business. Second, people: to commit to an environment where teamwork, diversity, safety, and development are valued. Third, integrity: to stand by our word and our people. Fourth, customers: to partner with our customers to achieve their long-term goals while treating them with honesty and respect. And finally, sustainability: to support the future of forestry through socially and environmentally responsible practices. We are confident that our mission, vision, and values, combined with our superior position in pine and eucalyptus advanced genetics, will allow us to build a sustainable, highly profitable business that is recognized as the preeminent seedling supplier in terms of product breadth and quality and superior service delivery.
As you've heard before, the sale of ArborGen's operations in New Zealand and Australia has allowed us to refocus the business on our core high-growth markets in the U.S. South and Brazil, as well as new and emerging high-growth carbon markets. Our overarching strategy is to increase our sales of advanced genetic seedlings. To achieve this, we are focused on the following: continuously converting our customers to higher value, higher value, advanced genetics, loblolly pine seedlings, and eucalyptus seedlings. Leveraging our most advanced and broadly adapted portfolio of advanced genetics in the industry to generate strong returns for forest owners. As we note in our customer slogan, "We strive to have the best trees, the best results." Building MCP inventory to meet demand growth and mitigate seed supply risk from weather and biological risks. Leveraging our internal seedling production capacity.
Evaluating opportunities to strategically expand production capacity. Working to expand the market and opportunities to showcase our superior genetics, including opportunities in carbon. To achieve our goals, we have recently reviewed our priorities and are focusing on our efforts in five key initiatives, each with a range of agreed upon targeted actions. These are to expand our market share and increase MCP adoption in the U.S. We believe that continuing to educate our customers to the value of genetics, as well as find new opportunities to show the value of our genetics, will allow for more sales of MCP. Focusing our product development, our efforts on market-driven genetics for the future. We are working to make sure that product development continues to maintain our industry leadership in ensuring we are market-driven in our efforts. Third, opportunistic and measured expansion in Brazil.
We are working on continuing our growth in Brazil, capitalizing on the strong market, while recognizing the volatility and preparing for it. Fourth, optimizing productivity and margins in Brazil and U.S. Working on improving how we work with our customers on pricing, while focusing on efficiencies in our cost structure. And finally, strengthening our organizational culture, taking the organization to the next level professionally and instilling a culture of performance. I'd like to spend a few minutes on ArborGen's business in Brazil, which continues to grow and build as a market leader, a testament to the hard work of ArborGen's team and the market leadership position. Brazil is projected to contribute around 40% of our total revenues in the current fiscal year, 2024.
ArborGen Brazil has grown to become one of the largest commercial suppliers of eucalyptus and pine seedlings in the Brazilian market, leveraging the following: its strong portfolio of best-in-class seedling products from exclusive in-licensing relationships and internal product development capability. Its preferred partner status with suppliers and customers, excellent sales and marketing capability, established network of in-house and contract nurseries, and establishing operating systems and logistics, collectively allowing us to offer reliable, high-quality products to meet demand across several markets. Seedling sales increased by 34% to 102 million seedlings in fiscal year 2023. In addition to the very strong volume growth, strong volume growth achieved, ArborGen Brazil also achieved strong price increases for both pine and eucalyptus seedlings in real terms and margin expansion, driving exceptional earnings growth.
To provide some context, eucalyptus pulp is an excellent short fiber hardwood pulp due to its uniform fiber, simple cell structure, low degree of lignification, smoothness, bulk, and water absorption characteristics. Brazil is the world's largest producer and exporter of hardwood pulp, driven by the superior productivity of its eucalyptus plantations. As this table shows, there have been significant expansions in the Brazilian pulp industry, with several announced expansionary projects targeted for the rest of this decade, collectively projected to lift pulp production capacity up by approximately 30% in Brazil. This, in turn, driving a eucalyptus seedling supply, demand, and balance. On the supply front, the seedling industry in Brazil is fragmented and unsophisticated, and has been shrinking due to recessionary conditions, poor management, and weak capitalization of independent nurseries.
Moreover, after many years of increasing eucalyptus productivity, yields per acre have fallen over the past few years as a result of expanded eucalyptus growing areas, increasing issues with disease and insect pests and heat and drought stress. ArborGen has now grown to become one of the largest commercial suppliers of eucalyptus and pine seedlings in the Brazilian market. With our compelling portfolio and pipeline of products, we believe there is significant opportunity for the eucalyptus tree improvement. Our products offer growers higher yields and higher wood density than standard market clones, improved disease and insect resistance, and good drought tolerance, which is an increasingly important trait as eucalyptus plantings in Brazil expand into drier regions, and as rainfall patterns change as a result of global climate change.
We operate the most extensive set of trials across Brazil as we look to continue to find the next level of genetics and continue our market-leading position. This map shows our field trial program in Brazil, which consists of approximately 200 trials involving 1,500 eucalyptus clones spread across 17 Brazilian states.
Consistent with our growth aspirations for this market, over the last 18 months, we have done the following: acquired a 10 million seedling capacity pine nursery in Canoinhas, Santa Catarina, in April of 2022, leased a fourth 20 million capacity eucalyptus nursery in Minas Gerais state late in calendar 2022, leased our 55 million capacity eucalyptus nursery in Rondonópolis, in the state of Mato Grosso, in April of 2023, and most recently acquired our sixth 15 million capacity eucalyptus nursery in Rio Grande do Sul, which we will assume control of from October 2nd. This latest nursery, which will be referred to as ArborGen Erval Grande, was acquired for the purchase price of BRL 15 million, which is approximately NZD five million and $3 million, and will be financed by the sellers.
The deal also includes a 10-year initial lease for the land, with no payments for the first seven years. ArborGen Erval Grande currently has capacity to produce 15 million eucalyptus seedlings per annum, with the opportunity to expand a further five million seedlings. The acquisition increases ArborGen's internal production capacity to approximately 80 million seedlings per annum and is expected to lift earnings by $1 million on an annualized basis initially. Following the most recent nursery expansion of ArborGen Erval Grande, ArborGen will operate six eucalyptus nurseries and one pine nursery in Brazil, complemented by a network of contract producers that allow us to address all the major pine and eucalyptus markets in the country. ArborGen's eucalyptus products are available in all the primary eucalyptus growing regions in Brazil, including the states of Minas Gerais, Mato Grosso, Mato Grosso do Sul, São Paulo, and Paraná.
Turning to current year performance, that is for the year ending March 31, 2024 . In the U.S., seedling orders are currently behind prior year orders at the same time last year. While there are still a couple of months before lifting and dispatch of seedlings begins, we are currently expecting to be flattish on last year's overall seedling sales volumes and slightly ahead on advanced genetic seedling volumes. Our customers have had some decreases in orders this year due to weather impacting ability to prep areas for planting and mill closures that have constrained harvest capacity and ability to turn the land for replanting, as well as normal yearly deviations due to sales and acquisitions of land.
On a positive note, we are expecting an increase in total dollar revenues and solid improvement in gross margin and earnings over the prior year as a result of lower unit MCPs—MCP seed costs, expense in our cost of sales, increased internal container seedling production, and higher selling prices year-on-year. In Brazil, seedling sales are projected to be materially higher than prior year as a result of continued strong underlying demand for both eucalyptus and pine seedlings, as well as the expansion of ArborGen's internal seedling capacity summarized earlier. Added to this, higher pricing and margins for both eucalyptus and pine seedlings is projected to increase profitability substantially. Dave will provide further guidance on the current year out and, current year in his outlook and comments. Thank you for your support.
Thank you, Justin. Before we move on to your questions in the more formal sessions of the day, I would like to make a few comments on recent management changes, the business, and the current fiscal year ending March 2024. This year has seen some significant changes at the leadership level, with the appointment of Justin as CEO of the group and the appointment of Adriano de Almeida as the General Manager of ArborGen's Brazilian operations. Justin, who was previously based in California, officially joined ArborGen in June and is now based at our headquarters in Ridgeville, South Carolina. He is an experienced senior executive with significant experience in the agriculture sector and a strong background in private equity.
He brings to the company solid financial, operational, and strategic experience, and the board believes he is a great fit for our company, with a combination of skills and experience to lead the business through its next phase. Adriano brings a wealth of knowledge and experience in tree improvement and tree breeding, as well as an understanding of the Brazilian forestry market. He will oversee our Brazilian production and sales operations, as well as the marketing program. Adriano succeeds Gabriela Monnerat, who will continue in a consulting capacity to facilitate a seamless transition. Both Justin and Adriano are great additions to the ArborGen executive team, and we are very excited about the future growth of the company under their leadership.
On behalf of the board, I would like to take this opportunity to also acknowledge and thank Andrew and Gabriela for their significant efforts and contributions to the company that span over a decade for each of them. Under Andrew's leadership, the company has developed an unparalleled leadership position in the advanced genetics seedling market. Similarly, Gabriela has successfully managed our Brazilian operations through a period of strong growth and has ensured that ArborGen's Brazilian operations are well positioned for the future. We thank both Gabriela and Andrew for their valued leadership and contributions, and wish them the very best in their future endeavors. This year, we also simplified the ownership of ArborGen Inc, the operating, wholly owned subsidiary of ArborGen Holdings, by repurchasing the warrants according to approximately 5% of ArborGen Inc's fully diluted common stock for $1.35 million.
These warrants arose out of the acquisition of the assets and intellectual property for CellFor Inc in 2012, pursuant to which shareholders for CellFor received CAD 1.1 million in cash and warrants to purchase ArborGen, Inc common stock. Following the repurchase of the warrants, ArborGen Holdings' effective economic interest in ArborGen, Inc increased from 95% - 100%, with no dilution overhang remaining. The purchase price reflects a significant discount based on a number of factors, including intercompany advances between ArborGen Holdings and ArborGen, Inc, and the fact that the warrants were exercisable for ArborGen, Inc shares rather than ArborGen Holdings shares. We are now very much focused on achieving the strategic objectives of the business.
The sale of our Australasian business in late 2021 released NZD 22.5 million capital, allowing us to focus our efforts and capital on our core markets in the U.S. South and Brazil. 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. In the U.S., we are focused on driving increased adoption of advanced genetics across the U.S. South as the leading commercial supplier of advanced genetics loblolly seedlings, leveraging decades of investment in developing best-in-class proprietary MCP products. Turning to our fiscal year, we have sold nearly 90% of all seedlings we have available in the U.S. and are currently not expecting seedling sales volumes in the U.S. to be materially different to fiscal 2023 levels.
Having said that, as Justin mentioned, we're expecting a solid improvement in revenues, gross margin, and earnings over prior year as a result of higher average selling prices, lower unit MCP seed costs, expensed in costs of sales, increased internal container seedling production, and increased internal container seedling production. In Brazil, the underlying market dynamics are very strong, driving robust demand for eucalyptus and softwood seedlings, and in turn, higher seedling prices. Added to this, we have the benefit of our recent investment in expanding in-house nursery production capacity. As a result, we are projecting strong growth in seedling sales, volumes, prices, and margins in the current fiscal year.
Taking these factors into account, including approximately $2.7 million of CEO costs in the period, we expect double-digit growth in U.S. GAAP EBITDA in the current fiscal year, 2024, over the $10.3 million recorded in fiscal year 2023. Having said that, management are currently reviewing seed inventory on hand across the U.S., which may result in seed write-down costs relating to seed obsolescence. While this would reduce earnings, it is a non-recurring item and will not impact cash. Of the $2.7 million of CEO cost to be expensed in fiscal year 2024, $1.2 million relates to half of the first and second tranches of Justin's equity grant, assuming Resolution two is passed.
$800,000 relates to the base salary and guaranteed bonus for Justin, $300,000 of relocation costs and sign-on bonus, and $400,000 relates to the previous CEO, including cash tax paid on shares issued and for consulting costs incurred pursuant to a 29-month consulting agreement. Turning to cash flow, inclusive of expansionary activities in the period, including the acquisition of our Jasper Nursery in the U.S. for $2.5 million and growth initiatives in Brazil, the repurchase of the warrants, as well as CEO transition cash expenses in the period, net debt is projected to be relatively flat on the prior year level of $13 million, excluding capital leases. As we look ahead, however, recent expansionary activities are expected to be both earnings and cash flow creative in fiscal year 2025 and beyond.
The board and management are very excited about ArborGen's future. We have brought on strong new leadership, refined the business to focus on core existing and emerging growth markets, and significantly strengthened ArborGen's balance sheet to ensure we deliver on the company's growth potential. Before I move on to the business of the meeting, I would also like to acknowledge and thank the ArborGen teams in the U.S., Brazil, and New Zealand for their commitment and dedication. Finally, I would like to thank all of our shareholders for your continued support, for which we are very grateful. We acknowledge the share price performance has been disappointing over recent months, which is unrelated to the underlying performance of the business. We're committed to ensuring strong returns for shareholders as a result of strong earnings and cash flow growth. I will now open up to questions.
If you are yet to submit your question online, select the Q&A tab on the right half of your screen, type your questions, and press Send. For questions relating to the actual resolutions, we'll respond to these as we deal with each of the resolutions in turn. For those shareholders who are present here in Auckland who want to ask a question, please raise your hand and wait until a microphone is brought to you. Please, then, clearly give your name for those online before you address the meeting. Thank you. I know Frank's got one. Oh, they're gonna bring a mic over.
No, I need to.
We need to for the people online.
Yeah. No, I'm not going to ask the questions that you and I talked about beforehand. The 17-year amortization of the intellectual capital, how is that derived? It's a very precise sum. It's a very large amount involved. Just curious as to what the basis of that is, please.
Yeah. Oh, Justin, do you wanna take that?
Sure.
Or Paul. I'm sorry, Paul. Not yet.
How's that?
Yeah, we got you.
Great. I guess, Frank, at the end of the day, it's a, an assessment the directors have made about the economic life and value of that, intellectual property. There's a few... I guess, there's a, a degree of judgments are required in that, and we've taken advice, and, in fact, we've reduced it from 20 years down to 17 in the last, I think it was last year, wasn't it, Alex? To recognize the, what a reassessment of, of, of that value.
Thank you. I've got another question, but I want to invite other people. [audio distortion]
I think you're the only one right now that-
Um-[audio distortion]
Hold on one second for Glenn.
What's a sales contract worth in the United States? So, do you get a deposit, and if so, how much is that deposit? What percentage? In other words, what's to stop people booking something with you and then walking away? And if there's not much, is that part of the issues that you're now facing?
Sure. I'll let Justin handle that one.
Yeah. No, I think that's a, it's a very... Typically, our typical contract involves some measure of, you know, up to 30% down payment for that. But that being said, I would say that coming into this business, there is a lot of history around every different customer, and, you know, many small relationships that have grown over the years and have had different agreed-to sales terms. So, you know, going forward to your point, is that it currently there is, I would say, a somewhat of a misalignment on us taking the risk.
... for, you know, of, of planting these seedlings, and the customers having that ability to cancel. We've already instituted and moved up our cancellation date a month on our typical contracts this year. We continue to explore ways with our customers to make sure that there is a proper alignment of, you know, if we're going to go out there and invest the capital and the time to grow these seedlings, that they're not just left and plowed under at the end. Acknowledge that there is at least some ability in our, to have some sort of deposit, but there is a cancellation period built into most of our contracts from legacy type of formation.
Yes, sir.
Mr. Chairman, I don't know where to start. I've been coming to these AGMs for quite a long time, and I've gone back over a few annual reports, and they all seem to say the same thing. Every year, things are gonna come right next year. We've employed new CEOs. Nothing really has changed over the specific period of time. The company just does not grow at all. Profit-
But-
The profitability is always going to be the next year and the year after. Why should I believe what I've just heard, that things are gonna come right in 2024, 2025?
Yeah. I'm not sure we're reading the same annual reports. Our profitability has increased. The company continues to perform. Our stock price, however, I think is what you're referring to, has continued to underperform. Is that correct?
Well, yeah. Well, it's underperformed because you've never made a profit, really. That's the problem. And you continue to issue more and more shares. I see the new remuneration package is going, talking about 20 million new shares. You issued new shares to previous CEOs when they've left. You issue shares to the directors. The number of shares on issue continues to increase all the time without any growth in the, in the company at all.
There's significant growth in the company. The stock price is not growing.
Well, has the profit gone up?
Yes.
Well, how much?
I mean, over the. S ince I've been on the board, I would say about threefold.
Yeah. Well, well, but it's still not an adequate return for this company at all. The number of shares-
From a share price perspective, of course, and I feel that just as much as you do.[crosstalk]
Yeah.
There's a lot of other factors that are at play that don't have nothing to do with the company performance with respect to our share price. A lot of that is selling pressure, illiquidity in the stock, the inability to attract institutional investors to such an illiquid stock, the geographic problems with the business being listed in New Zealand, with the main operations in the U.S. and a big chunk of them in Brazil now. It's kind of an orphaned company in a lot of respects, and-
I agree, but-
I think with respect to your question, though, I think the company continues to perform, and at some point, this is gonna be too cheap for people to ignore. They will get over the illiquidity in the stock, and they'll come in and start buying it. But right now, we've got a lot of selling pressure without enough buyers coming in to pick that up, and that's why the stock price has declined, I think.
Is there anybody you can help on this? [audio distortion]
I think I own a pretty fair amount of the stock already, and I would actually need your approval to buy more. But yeah, I think everyone in this room has the ability to go out and pick up shares and increase the stock price. It doesn't take a lot of buying to move this price, as we've seen.
Well, I mean, the asset backing in here in New Zealand dollars is probably NZD 0.50 a share, is it not, on your-
I think, yeah, in the 40s, I believe.
Yeah. Yeah. Well, that, that's right. So it's up to you as the board of directors to make sure that the market acknowledges that-
Yeah, for sure.
-in a way. And, and it hasn't happened over the last 10, 15 years.
For sure. I agree with that, and I think, you know, we've got... We brought in Justin as a new CEO. We're trying to increase our marketing efforts and our investor relation efforts. You know, we're not tracked by any of the banks. We don't have any real research reports out there to attract kind of institutional investors, which is what you really need here to move the stock meaningfully and keep it up meaningfully. But I think that these are all things that we consider all the time, and they're certainly on the top of my mind as the largest shareholder.
Yeah, well, as I, as I say, one of the problems is you keep issuing more shares.
Yeah, I mean, we, well, we issued the... I mean, I think the biggest swath of shares that we issued was back in 2017, I believe, with the acquisition of the other two-thirds of ArborGen Holdings, and that was done so that we could complete the purchase of ArborGen Inc, and we needed to issue those shares. There was no other cash in Rubicon at the time to make that purchase. And otherwise, we were gonna be forced to sell ArborGen Inc for a below-market price at the time, and we got a very good deal on it. So, I mean, I understand. Trust me, I don't like the dilution either, right? I'm right there with you on that, but these were necessary evils, essentially.
So why should I believe what's gonna happen in the next two or three years from what I've heard in the last several years? Thank you, and I'll-
Yeah, sure. I mean, I think that in terms of what's going on right now, we've seen Brazil finally go from being break even to starting to be very meaningfully profitable and becoming a meaningful part of our business. I think the US is... Listen, you know, the MCP adoption in the U.S. has not been as rapid as it was in New Zealand, which is where we were kind of modeling things off of prior to this, if you're going back several years. I think that Justin has a lot of ideas on how to increase that. I think that there's a lot of stuff going on with carbon right now, that once it rationalizes in the US in terms of the carbon market there, there's gonna be a lot of stuff to be done.
That's something that we have zero control over, and frankly, I'm still trying to understand myself, and I don't think there's a lot of regulatory backing behind it yet to make it a rational market. But there's a lot of growth built into that if it does come to fruition. Hope I answered some of your question there.... Sure.
Gordon Wallace, shareholder. Well, I don't want to go over it again, but the hard part, I must admit, is the issuing of shares when you're like you've just done now, another 20 million.
Sure.
I mean, end of the day, what we're hearing, I must admit, it sounds good. Really amazed at how you have turned it. A bit worried about Brazil, though, because, you know, we hear so many stories about Brazil, especially with their inflation going through the roof. I mean, we talk about ours. I mean, over there, it's just... I don't know how you make a profit, but somehow you do. Is it all in U.S. dollars or something? All I'm say- and the other thing was, you mentioned a bit on it as well, about carbon credits. Your, our last CEO used to-- said quite a bit about that, but obviously there's no advantage for us yet on that?
I mean, Andrew had spoken, I believe it was last year actually, on this, with respect to a couple of new customers that we've added in the U.S. hat are doing various—they're buying seedlings from us for various carbon-related investments. Beyond that, we don't know what's going on right now with the carbon markets in the U.S. There's just, there's nothing there. It's very gray. I know that there's a lot of really smart people working on it and trying, and a lot of really smart money buying seedlings right now in anticipation of that coming to fruition. I'm sorry, I forgot the first part of your question there.
No, it's just about issuing, you know, 20 million.[audio distortion]
Oh, sure, yeah. So, I mean, I think we'll probably get more questions on this.
Also for him to be shift, you know, $300,000, and that's a bit more than a Tesla car, you know? It's just that, it's quite a bit of money. I know it's part of your contract with, Justin.
Yeah. So I'll just address this in general, because I think it's probably going to come up during the resolutions as well. I'll start at the beginning. We, you know, we engaged a search firm in New York in the U.S. this past fall, essentially, or I believe it was last fall. At which point, they informed us immediately that Andrew's base salary and current package was severely below market rate at the time. And that we were going to be looking at, you know, anywhere from high six figures into the $ millions for a quality CEO during given the current labor market in the U.S. and the inflation experience and all that stuff right there.
And so what we tried to do when we finally identified Justin, we knew he was the guy for the job, and we tried to kind of minimize cash costs with this whole process in order to be able to invest into growth, some growth CapEx, and some maintenance CapEx is kind of put off with the company. And so what we did essentially was we took Justin, we gave him, you know, what is basically the same thing as Andrew's base salary, which is gonna extend into the future. We front-loaded with time-based shares, or hopefully we'll be front-loading with time-based shares after the resolutions are passed, where that is essentially done so that he's got skin in the game right off the bat. He's highly aligned with shareholders.
For his performance-based shares to vest, he's got to really meaningfully impact the company right now, right? And so for me, it pers-
Performance shares.[audio distortion]
Yeah.
There's nothing against you, Justin. It's just that, there's a lot of people here. It's good to hear news that things are getting better and all right, new blood, you know, new people that you know, well, it's hopeful, and, okay, the performance shares.
So for him to vest his performance shares and to get those shares, he's got to materially impact earnings over the next year and then the following year, right? And so that way, with the time-based shares, he'll be able to play it to ex- to grow with the company on that sense, right? And for me, personally, I'm sick of waiting around, and I didn't want to make this a long, drawn-out, you know, increase it slowly and get these performance shares over time. I want it done now, in the near, next two years or whatever it is. Justin's committed to that. He's got to put his... A lot of his pay package behind that, actually. And so, you know, in that respect, we did that, and then I think there's going to probably be a question about the STI being guaranteed this year.
That was essentially, Justin was at a job, had a great job before we, we hired him away from, with a lot of incentives on the table, both the short-term, long-term incentive plan there, and we basically wanted to make him whole on that, to bring him over to our side. So we, we guaranteed his bonus for this year, and we did that, and going forward, his STI will be 50% in cash and 50% in shares, and that's gonna minimize the cash costs on the company. I mean, the dilution following this LTI, the performance and the time-based shares will be minimal going forward. But, you know, we essentially, we had to make it, so we made him whole, we brought him on, and we tried to do that with as little cash leakage as possible.
Thank you.
You're welcome. Are there any other questions?
Yeah. Thank you. Yeah. My name is Haley Ching, and I have been a shareholder of this company for quite a number of years.
Right.
My views are different from other shareholders. I can see the light at the end of the tunnel. Why? For example, like Brazil is a safe place. If Third World War break out, it will be safe. Like First World War, Second World War, nothing happened in the south-
Yeah, I'm sorry.[crosstalk]
South America.
Can we just run to the question, though, so we can kind of get through this?[crosstalk]
Hold on, please. I wish to see whether the company is doing the right step. I wish to inquire about Texas. What is your business doing in Texas now? Because you have a business in Texas.
Texas?
Yeah. How is it going now?
Yeah, Justin.
Yeah. No, I'd be happy to talk. So in Texas, we have two nurseries, one in Jasper and one in Bullard.
Mm-hmm.
as well as an orchard there.
Mm.
I think we view that as one where Texas right now has been very hit hard by the drought.
Yeah.
That's been one of the areas with climate change that we've seen. We continue to breed and work on genetics that have drought tolerance, to be able to kind of showcase that to our customers there. I think we still see a lot of expansionary growth and hope, a target area for us there. You know, the eastern region is more developed, and I think Texas still has a lot of opportunity there, and we've built a presence there with two nurseries and continue to invest there.
Yeah. Is there any area that is not so hot in Texas?
Well, I think there's certain portions. I think the more north you go, you're going to get there, but that typically is not... You know, we focus on eastern Texas, where obviously the production and forest production is typically in western Texas and other areas. There's not as much forestry potential.
Oh, because I mentioned this is just because of the Affordable Act. Is it called Affordable Act, recently passed, and they have subsidized on this environmental, what should I say, matter. The people there do not need to pay income tax. If you have employees there, they will earn a much lot more. Also, Texas is the number one earning power in the whole 50 U.S. states. Just keep in mind-
Yes, I mean, I think that's fair to say. Look, Texas has a very positive economic profile for many people. For us, we are, you know, obviously driving our business by our customers, so where they're planting, where there are pulp and sawmill production obviously ties to forest development, so that's our driving factor. Noting that, yes, there, you know, is economic incentives to be there, and we continue to look to try and get those to get the most that we can for the company.
Yeah. Thank you, Justin.
Thank you. If there's not any other questions in the room, do we have any online? Oh, sure, Frank. Hold on one second.
Um-
There we go.
I find it very hard to deal with the question of the, the options, the share allocations, because they're under a long-term, a long-term performance plan, right? Incentive plan, right?
Yeah.
And they're patently short-term, 9 months and 21 months. So that's... And you've explained why, kind of. But and you also said they're geared to short-term profitability, which obviously contradicts the long-term, but that's fair enough. I accept that. But then you don't tell us yet what the performance criteria are, and so how can I vote in favor of a scheme involving 20 million shares, if I've got no idea, given that they're short-term, what the criteria are? Because they seem potentially just to be a straight giveaway without that information.
Sure. I mean, with respect to the short-term growth, you know, I would say that short-term growth leads to long-term growth with this company, right? It's acquiring customers. They're very sticky once they're in the ecosystem. And so, you know, I'm not quite sure what it is, but it's probably around 90%-95% retention of customers and very little slippage there. So short term improvements lead to long-term improvements in that sense. With respect to... What was the second part there?
It was, that could only really be assessed-
Oh.
in relation to what the performance
Yeah, so-
-criteria are.
Yeah.
Which is none.
Yeah, right. So the, you know, the performance targets are basically material improvement in the earnings of the company, right? And we're- we haven't gone into detail about the exact targets, but they're- they will reflect the material impact in the earnings of the business. And, you know, if you want a little bit more color on that, I would say that we'll be doing better, and everyone will be very pleased with the targets that we hit, and should drive the stock price higher and therefore pay for these earnings in that, in that respect, if I was to be a guessing man.
The implication, though, is that the first year's earnings are already underwater because of what you've told us about the fact there's no growth in earnings this year.
Oh, no, I said there's no seedling volume growth in the U.S., right? But there's performance improvements in a lot of respects there, with respect to costs, so margins should improve, and Brazil is doing well as well, and there'll be a good update on that, I believe, at the half year results.
Apologies if I misunderstood.
No problem. So do we have any questions online? Sure.
What is the board considering to provide value back to shareholders when the share price is well below the asset backing of the company? What about a share buyback to all shareholders? What about dividend payments? What about realizing the true value of the assets and returning the funds back to shareholders? Shareholders cannot wait forever for a return on their investment.
... Sure. I think we touched on that a little bit. I think there's been a lot of selling pressure on the stock recently that's has nothing to do with the company performance, in my view. With respect to the dividend or buyback, I think what we've got right now is we wanna take our-- the cash that we generate and exploit any kind of growth opportunities that are available to us. We want to pay down some debt, and I think once we've done that, we will certainly explore the best ways to put money back in shareholders' hands or to, to pass on the value to shareholders in whatever way that might be. But I don't think we are there yet, and I think we've got a few years probably, until we have that conversation. Yeah, sure. One more.
From Richard Napier, a shareholder: If ArborGen is a market leader, why is there no demand for its shares in the U.S.?
I think that it's very difficult for people in the U.S. to buy a New Zealand-based stock. It trades at odd hours for them. It's incredibly illiquid. And I think that ArborGen is not a really well-known business to people in the financial industry by any means. I don't think there's a lot of research on the company there. You know, I can kind of go on and on about this probably, but I think that's a sufficient answer. Yeah, sure.
Question from shareholder, Mr. Douglas: How do the tree growth rates experienced by recent customers compare with the best trees from competitor nurseries?
Oh, Justin.
Yeah, I mean, I think we, we see, you know, from our Open Pollinated to our Mass Control Pollinated, the OP to the MCP, we know that, that there's, you know, over 30% more softwood growth at the first thinning, and saw timber has increased significantly, which generates a lot more revenue for the end customer. I think the question about, you know, our competitor nurseries, we definitely feel that we have a, a more solid product. You know, it's tough to, to say exactly and disparage with exact results, but we know that our, our Mass Control Pollinated has some of the highest quality.
I think one of the questions that is kind of touched on with what Dave's hit is that, you know, what's different going forward is that we continue to have more real-world results to be able to showcase to our customers. You know, there's a long-standing, you know, in decades of investment, and so when you're trying to sell people on something that you're only seeing five years of growth, well, now we're-- they're seeing people that are having thinning, and growth of things, and we can literally take them to plots of land and say, "Somebody made the investment 10, 12 years ago. Here are the results." You're starting to see that.
And so I think, you know, I, I know I'm kind of doubling back to some of the other questions, but I think hopefully answering this is that, we, we really feel that, that we have a, a superior product. We take quality, and that involves, to go a little bit into detail, we bag the cones on the trees, and we make sure that everyone is marked so that we're not mixing seed in, and we take a lot of steps to make sure that, that our growth is, is substantially higher, and I think we're seeing that with, with customers that come back repeatedly for that MCP product.
Sure. Do we have another one back there? Go ahead.
From Mr. Douglas: Can ArborGen reduce the severance payments, share issues, and other benefits to officers and directors, given that at present there is no payment to shareholders? Please make disclosures about these payments in contracts.
Yeah, I think that we are fully disclosing, Justin's package here with an incredible amount of detail so that there's no underlying questions left after the meeting. With respect to the other individuals, we can't disclose that due to privacy concerns. Go ahead. We have another one.
A question from Mr. Napier: How can we increase the profile of ArborGen in U.S. investment circles?
You know, well, I sure try to talk about it every chance I get. But I think that basically the company's not big enough. It's, there's not enough liquidity right now for a lot of U.S. professional investors to get involved with it. I think if we start delivering and growing the business the way that we plan to grow it over the next few years, then it's gonna have to attract a lot of interest from foreign buyers, probably, and as well as other New Zealand buyers, based on it's gonna get incredibly cheap. And so that, that's, you know, and that's the goal, I guess, is we'll make it too cheap for people to ignore.
To add to that, too, I think, look, we're also continuing to push our social media presence. That's big for our buyers, right? They wanna, you know, it's a-- if you get on there, and I'd encourage you all to do so, there's a lot of great pictures of tree stands that a lot of our customers actually love. But we're also working to try and build out so that we can highlight more our focus and partnerships with different companies in the carbon area, which is obviously one of those areas that can attract investment in the U.S., and trying to just get our name and profile out there in our overall marketing efforts in the US.
As Dave said, I don't think that that's necessarily geared directly towards investors, but in a sector that has a very strong ESG play, our hope is that as we continue to showcase and be a provider that helps in a lot of different areas, in carbon, great reforestation, increasing forest productivity in a sustainable long-term way, that that can get out there, and then we can continue to highlight that in regional associations, which we do, but ultimately, that those will kind of gain some national profile and be able to make it into those circles.
Yeah. Yeah, I would also note that I think about half of our stock is held over in the U.S., if I'm not mistaken, from the annual report. Is there another question?
Uh, just-
Oh.
... I must admit, you're suffering, I know, 'cause of the amount of shares you got.
Yeah.
But we still want you to come back and have these meetings. All right?
Yeah, that's the plan. Do we have any more back there? No. Any more in the room? All right, well, thank you. I now propose that we move to the three formal resolutions for the meeting. These were notified, and the notice of meeting and explanatory notes have been provided. Only shareholders, proxy holders, or corporate representatives of a shareholder may vote on today's resolutions. Voting on each of the resolutions in the notice of meeting will be by way of poll. We will answer any questions on each resolution after I've moved it. Let's now turn to the individual resolutions. This resolution relates to the re-election of Independent Director, Paul Smart. Paul was appointed to the board in 2018. He is based in New Zealand and brings broad industry knowledge to the board.
He has more than 30 years experience as a senior financial executive and professional director in local and international markets, including listings on the NZX, the ASX, and the Nasdaq. Paul's key executive experience is as CFO of New Zealand's largest energy company, Meridian Energy, and prior to that, founding CFO of Sky Television, which during his tenure went on to become a top 10 listed company on the NZX. As a professional director, Mr. Smart has acted as a director, audit, and finance chair, and board chair for a broad range of companies, including listed venture capital, high-net-worth family, and large private companies. The board unanimously supports Paul's re-election today. I will now ask Paul to address you regarding his appointment.
Thank you, Dave, and good morning, everyone that's here, and good day to others who are in different parts of the world. You'll all have had an opportunity to read about my background in the notice of meeting, and Dave certainly covered it extensively too. So I don't propose to repeat that, but rather answer three questions that would be on my mind if I was sitting in your seat. Firstly, given my role as one of an independent director, I'd want to be assured of relevant experience. As a director, I've had many roles in publicly listed private and family-owned companies, where my role is that of an independent director.
Recent examples listed MHM Automation, carbon farming company, Tāmata Hauhā, which is quite relevant for us at the moment, and animal genetic improvement Company, Genus, ABS IntelliGen, amongst others. Over the years, my experience is that directors generally work well together, utilizing their complementary skills to provide good governance, and perhaps more importantly, given this morning's discussion, contribute to the enhancement of shareholder value. It's very much on our board's mind. I have no doubts about that. However, as an independent, one represents the interests of shareholders, of all shareholders, which naturally includes minority shareholders. This is a role that I am comfortable taking on alongside my fellow directors. Secondly, what specific skills do I bring to the company?
As a chartered accountant and chartered member of the Institute of Directors, I bring solid financial and commercial experience from a broad range of industries, as Dave said. And thirdly, in my role of, as chair of the Audit and Risk Committee, what are examples of things I focus on? Primarily ensuring the company complies with its legal and statutory obligations, but also providing an independent conduit between the company and its audit firm, along with identifying key risks to the business and mitigating their potential impact, as set out on page 77 of your annual reports. So, short, short and sweet, but hopefully I've given you some insight into being considered for this role, and your support in my re-election would be much appreciated. Thank you. Well, I'll now pass you back to, to Dave.
Do I take my... Yeah, thank you. Thank you, Paul. Are there any questions in relation to this resolution? Okay, thank you. Let me... Resolution two. We're gonna... Slide. Do we-- There we go. Okay, resolution two relates to the issuance of 10,471,477 restricted ordinary shares to ArborGen's Chief Executive Officer, Justin Birch, as part of Justin's remuneration arrangement. Sorry. Here we go. Sorry. The remuneration arrangement that were agreed, that were agreed with Mr. Birch under his employment agreement with ArborGen Inc, dated 23 of May, 2023, includes an equity grant of restricted ArborGen ordinary-- ArborGen Holdings ordinary shares under the company's 2019 Omnibus Incentive Scheme, equal to 4% of the outstanding shares of ArborGen, or a total of 20,000...
20,251,477 restricted shares, subject to shareholder approval as required. The resolution is in accordance with NZX Listing Rule 4.2.1, and a comprehensive explanation, including the terms of the issuance, is set out in explanatory note two of the notice of meeting. The board believes that the equity grant was critical to attracting Mr. Birch to the company and has been carefully structured with the intention of motivating and retaining him. The strong emphasis on equity-based remuneration for Mr. Birch is designed to align his interests with those of the company's shareholders.... The directors unanimously recommend the shareholders vote in favor of this resolution. Are there any questions in relation to this resolution? Okay, thank you.
Excuse me.[audio distortion]
Yep.
I know, I know it's been touched on. [audio distortion]
Sure.
But obviously, it's very difficult-[audio distortion]
Here it comes.
The gentleman over here, and I just don't know whether you can add any more to it, about what the performance criteria determined by the company remuneration committee are. What are those criteria?
Yeah, it's, it's largely based on material EBITDA improvement. And so-
Material?
Material, yes. I mean, listen, we're not giving him these shares. I know I'm not satisfying you with that answer.
It's not a very good answer, really, is it?
I mean, I would agree that it's a fair answer, actually. You know, we're, when we say material, it means that you're gonna notice the changes in the business, and you're gonna notice the changes and the improvements in the company. And that I think it should attract new buyers to the stock. We're gonna make them work for these shares. Yeah.
I don't know what the definition of material in America is different to here.
You know, I'm not the one to answer that question, because I don't know what your definition is exactly, but I think, you know, I think it would cover-
Which I thought that you might tell us.
I think it would cover the New Zealand definition as well.
Okay.
Yeah.
That's very large, and I'd like that you tell us what it is, the material.
Yeah. I mean, we'll be back next year, and we can dive into it more at that point in time as well. I think we'll have a better...
If I'm still a shareholder, yeah.
Well, I hope you are.
Yeah.
Are there any other questions? I'm happy to talk about this more if anyone has any other questions. Okay. Resolution three relates to our auditor, Deloitte. They have confirmed their willingness to continue in that role. Deloitte is automatically reappointed at this annual shareholders meeting as auditor of the company. The proposed ordinary resolution is required to authorize the directors of the company to fix Deloitte's fees and expenses for the following fiscal 2024 year. Are there any questions related to this? Okay. There are no further resolutions. I wish to advise that votes have been received in respect of 283.8 million shares, being approximately 55% of total shares on issue. Please ensure that you have voted on all resolutions by selecting your voting option online. If you have any difficulty, please follow the instructions in the virtual meeting guide.
In a minute, I will close the voting system. Please ensure that you've cast your vote on all resolutions. I will now pause to allow you time to finalize those votes.
Can I just, did you say 55% of the vote?
Yes. Thank you. Online voting has now been closed. The results of these votes will be released to the stock exchange later today, and I can advise now that all resolutions have passed. That brings the formal part of the meeting to a close. Is there any other business shareholders would like to discuss? I thank you for joining our meeting today and for your questions. I now declare the meeting closed. For those shareholders present here today, please join us for some refreshments at the end of the room.