UNLEASHING THE POWER OF FORESTRYreportingnz.org/wp-content/uploads/2018/07/79-New... · Rural ﬁre researchers mobilised ... circular economies. Global demand for forest biomass

G.43G.43

Annual Report2017Highlights

UNLEASHINGTHE POWEROF FORESTRY

Annual Report 2017Highlights

Presented to the House of Representatives pursuant to section 44 of the Public Finance Act 1989.

Our Annual Report is presented in two parts – Highlights (Part A) and Reports and Financial Statements (Part B). Together, both documents fulfil our annual reporting responsibilities under the Crown Research Institutes Act 1992.

The Reports and Financial Statements (Part B) includes the employment and environmental reports, Strategic Science Investment Funding (Core), directors’ report, performance targets and financial statements.

Our Annual Report is also available in digital format at www.scionresearch.com/annual-reports

Published by:Scion, 49 Sala Street, Private Bag 3020,Rotorua 3046, New Zealandwww.scionresearch.com

September 2017

© 2017 New Zealand Forest Research Institute Limited trading as Scion

ISSN 1177-1763 (print version)ISSN 1178-5276 (online version)

Cover: Magnified sample of a plastic composite reinforced with Scion’s engineered wood fibre (licensed and sold as Woodforce), colour coded for particle orientation to predict product strength.

CONTENTS

Highlightscontents 1

Page 2

Scion at a glance

Page 4

Chair andChief Executiveoverview

Page 7

Forestry-basedbioeconomy

Page 17

Resilient forests

Page 23

Energy security

Page 27

Ecosystembenefits

Page 29

In partnershipwith Māori

Page 31

Collaboratingwith top teams

Page 33

Achieving ourscience goals

Page 39

Pursuingexcellence andreaching out

Page 40

Financial resultssummary

Page 9Eyes in thesky enableprecisionforestry

Page 11Biospifesin thehands ofthousands

Page 15Reinventingthe toiletto work offthe grid

Page 18Rural fireresearchersmobilised

Page 29Ngāti Wharenurseryboostsindigenousforestry

Page 30WeavingmātaurangaMāori andscience

SCION AT A GLANCE

2 Scionat a glance

Operating revenue

$51.9m Last year: $49.6m

Total comprehensive income

$2.3m Last year: $1.8m

Return on equity

6.2% Last year: 5.2%

268 Rotorua 1 Wellington 23 Christchurch 1 Dunedin

Full-time equivalent staff

293Published refereed papers

143 56.89 5-year weighted average H-index

296 Commissionedreports accepted byusers

Ligate™

Our bioadhesives technology was named NZBIO “Biotechnology of the Year”

April 2017 marked our 70th anniversary

Scion’svision 3

OUR VISION IS Prosperity from trees - Mai i te ngahere oranga

Trees are remarkable, renewable resources. Planted as forests they have a powerful potential to be at the heart of a low-carbon, biobased future New Zealand.

With 70 years’ of science andtechnological innovation backing us, Scion is uniquely placed to unleash the power of forestryto build economic value and achieve better environmental and social outcomes for New Zealand.

Protect and enhance market access and improve risk

Increase renewable energy production and energy securityfrom forest biomass

Enhance benefits from forestry-based ecosystem services

Our responsibility as a Crown research institute is to work with industry, government and Māori to achieve four national outcomes for New Zealand. These are:

Increase the value and productivity of New Zealand forestry,wood products, wood-derived and other biomaterial sectors

CHAIR AND CHIEF EXECUTIVE OVERVIEW

4 Chair and ChiefExecutive overview

As leaders of Scion our role is to keep the institute’s vision “Prosperity from trees” front of mind. We believe in our people’s passion, dedication and capabilities to get us there. Importantly too, we believe in trees. Indeed, we see the power of trees as a renewable resource that can meet the market needs of a low-carbon biobased economy.

Our long legacy of delivering science impact gives us the confidence to think boldly about the future. Ourachievements and those of our predecessors reaching back to the 1920s have built Scion’s reputation as a world-leader in forest industry research and technology development. We recognise too that increasingly Māori are playing an important role in shaping the future New Zealand forest industry, and our partnerships with Māori are a valued strategic priority.

Last November our annual strategic review confirmed the increasing demand for wood and wood products driven by the global move to renewable circular economies. Global demand for forest biomass is projected to grow by at least 300 per cent by 2050 as supply chains decarbonise and more wood is used in buildings and other construction.

We are excited by Scion’s unique contribution to shaping a truly sustainable future for New Zealand. In this report, we are proud to present some of the past year’s achievements that are stepping us towards our vision as we help ‘unleash the power of forestry’ to deliver prosperity from trees.

A highlight demonstrating this effect was the opening of the Ngāti Whare nursery in Minginui. We worked with Ngāti Whare to support their ambition to build an indigenous commercial nursery, including partnering with them

Forests as powerhouses of our futureto co-develop our novel propagationtechnology. This initiative will provide local employment and planting stock to support the 10-year Te Pua O Whirinaki Regeneration Plan. Our partnership aims to licence the propagation technology to other nurseries.

we can undertake a national analysis of the full value of New Zealand planted forests, both existing and potential, enabling better representation of the wider benefits provided by forests in land use management, policy and decision making.

An inland container terminal at Kawerau, with a rail link to the Port of Tauranga, is a very likely prospect after a feasibility study we led confirmed such a terminal would be viable, offering considerable benefits to the eastern Bay of Plenty. Establishment of the container terminal is now out for tender.

Ensuring that New Zealand forests are resilient to current and future natural threats is vital for our economy, our environment and our way of life. Media headlines this year warned of the devastating consequences of fire and biosecurity threats. Our forest protection teams have responded swiftly to such threats as they have arisen.

The fire-fighting response to Christchurch’s Port Hills fire in February was boosted with our rural fire team mobilised to assist the incident management team to develop fire attack strategies, determine resource needs and ensure fire-fighter and public safety. Post event, the TVNZ One News weather programme used Scion’s rural fire risk tool to provide summer fire forecasts. Ironically, February 2017 marked the 25th anniversary of rural fire research in New Zealand, centred at our institute.

Collaborative responses to kauri dieback and myrtle rust have pooled talent from multiple organisations. Scion botanists and pathologists, in the laboratory and field, have played an important part in the overall incursion response, which is ongoing. Our continued investigationsinto the radiata pine red needle cast disease provided key clues to the disease and its pathway to New Zealand.

This year our bioplastics innovations have reached the hands of thousands.

We are now seeing the significant progress the Growing Confidence in Forestry’s Future programme has made in better understanding the key drivers of forest productivity, with development of management interventions to increase productivity and profitability. The programme has demonstrated that increasing site utilisation by increasing final crop stocking can substantially lift productivity, and many companies are altering their silvicultural regimes to reflect this.

Responding to the forest industry’s goal to increase the value of forestry as a land use option, we developed a forest investment framework to assess forestecosystem services (such as carbon storage, erosion control, water quality, biodiversity and recreation). We are further developing the framework so that

Our role is to keep ourvision “Prosperity fromtrees” front of mind ...we believe in trees.Indeed, we see thepower of trees as arenewable resourcethat can meet themarket needs of alow-carbon biobasedeconomy.

Chair and ChiefExecutive overview 5

Tony Nowell CNZMChair

Dr Julian ElderChief Executive

The biospife, a novel bioplastic based spoon-knife, was officially launched by Zespri at Fieldays 2017, with more than 300,000 produced by Scion and Alto for the global market. For another primary producer, we developed biodegradable bioplastic vineyard net clips containing red grape pomace. The opportunities ahead for bioplastics in the horticulture sector are vast.

Our bioenergy work has sparked the interest of businesses who are invested in their future energy supply. Highly engaged attendance at our 2035 Biofuels Roadmap workshops ensured that the key insights from the work, due to be delivered within the next six months, will be highly relevant to influencers and decision makers.

Deriving value from waste using green technologies is another focus area, and one of our projects has the power to transform lives in developing nations. After successfully completing the first phase of the Bill and Melinda Gates Foundation “Reinvent the toilet challenge” to prove the concept that wet oxidation could treat human waste, we received close to $3 million over two years for phase two, to develop a prototype, simple eco-friendly toilet unit.

Recognition for our clever technologies is highly rewarding. Our environmentally- friendly Ligate™ bioadhesives technology received many accolades in the year. Being named NZBIO Biotechnology of the Year was a welcome surprise and honour, with NZBIO describing the technology as “a game changer for wood panel manufacturers”.

Ensuring our people can continue to deliver outstanding work requires aninvestment in infrastructure and the work environment. In May our Christchurch staff relocated to the NIWA campus from their long-standing home at the University of Canterbury following avery low seismic rating of the building they occupied.

Our main campus in Rotorua also was the matter of serious consideration. In October the Minister of Science and Innovation approved a business case for enhanced science and office facilities and design of an Innovation Hub. Our plans to redevelop 1950s vintage laboratories, co-location opportunities and creation of an Innovation Hub have been well received by industry and other local stakeholders. Including some public access to our science will add an exciting dimension to the project and broaden stakeholder awareness of the important work we do. Starting next year, the three-year development, thelargest at Scion for many years, will cost an estimated $18 million.

Financially 2016-17 has also been a good year. Revenue has grown 4.6 per cent to $51.9 million (budget $50.3 million) providing a net profit after tax of $2.3 million (budget $1.6 million). Our cash reserves have increased to $15.5 million(budget $7.3 million) supported by an$8.4 million net cash surplus from operating activities. This positions us well for reinvesting back into the organisation such as through the construction of the Innovation Hub and other significant science and building infrastructure planned over the coming five years.

We thank everyone on staff and all ourcustomers and partners who have

contributed to our successful year.

We would like to especially acknowledge the contribution of Dr Warren Parker, who retired from Scion during this past year. Under Warren’s leadership Sciontransformed its strategy, andrelationships with the sector, key stakeholders and major international science organisations were considerably strengthened. We thank Warren for his very personal contribution to Scion and the New Zealand forest industry.

We also acknowledge and thank retiring Directors Judith Stanway and Sheldon Drummond for their services to the Board and for their strong contribution to making Scion the best it can be.

This year we marked our 70th anniversary by launching a series of events through to the end of 2017 to celebrate our science and our people. Now we are poised to look far into the future in our upcoming strategy refresh. We are very excited by the significant opportunity that forestry and manufactured products from forestry have for all New Zealand, regional economies and the Māori economy. We look forward to realising Scion’s role in enabling that potential, starting with the year ahead.

Financially 2016-17 hasalso been a good year.Revenue has grown4.6 per cent to$51.9 million (budget$50.3 million) providinga net profit after tax of$2.3 million (budget$1.6 million).

6 Forestry-basedbioeconomy

UNLEASHING THE POWER OF FORESTRYTHROUGH SCIENCE AND TECHNOLOGICALINNOVATION TO MEET CURRENT ANDFUTURE MARKET NEEDS OF A STRONGBIOBASED ECONOMY

Forestry-basedbioeconomy 7

So, to maximise the value and productivity of New Zealand’s commercial forests, we work in close collaboration with thecommercial forest growing and management sector;

To improve the competiveness of the solid wood processing industry, we work inpartnership with innovative manufacturers and engineering companies; and

To expand opportunities for using wood fibres, biopolymers and biochemicals, we work with a wide range of high-value manufacturers, chemical and industrial biotechnology companies in existing and emerging industries.

Increase the value andproductivity of New Zealandforestry, wood products,wood-derived and otherbiomaterial sectors

Outcome area

Our wood-reinforced plastic is making inroads into automotive manufacturing – future opportunities for new industrial bioproducts from trees are huge.


Timberlands, Rayonier

Ministry of Business, Innovationand Employment, Forest GrowersLevy Trust

“The work being carried out by the team at Scion isopening up opportunities we haven’t been able toexplore in the past. We see real opportunity in the soilmanagement area and … we are now moving quicklyfrom science based trials to large operational trials withthe expectation that enhanced soil management willbecome a key part of our productivity tool box.”

Ian Hinton,Technical Manager, Timberlands Limited

Getting our soil foundations rightSoil is critical to forest productivity, providing the resources that support the growth of trees in nurseries and forests. Scion’s soil scientists are using genetic, molecular, and chemical analyses to directly link soil processes to the productivity and sustainability of New Zealand’s planted forests. This work is proving that we can use ourunderstanding of soil processes to minimise the use of expensive chemical fertilisers and maximise forest growth.

Research funded by industry through the Forest Growers Levy Trust and Growing

Confidence in Forestry’s Future programme has resulted in some key findings in soil science. We can now show the importance of nursery conditions in growing trees and how the influence ofsoil properties in the nursery can effecttree growth and performance for up tosix years in the forest. This has created potential for significant improvement in forest volume by management of soil in the nursery.

Dr Simeon Smaill, microbiologist and project leader, says, “The team has developed new treatments that can

enhance the activity of soil microbes and benefit tree performance and forest sustainability. For example, continued positive results from a new soil nitrogen treatment has shown that it is possible to reduce chemical inputs without compromising seedling growth and survival.”

Scientists at Scion have also continued to develop and improve our NutrientBalance Model (NuBalM) to predict hownutrients affect growth at the stand level, the effect that management decisionscould have, and how to ensure soil quality is maintained to support future rotations. This work has been ongoing for 25 years and data from our long-term site productivity trials has enabled Scion and the forestry sector to improve NuBalM and test its accuracy over multiple locations across the country. It has also been used to prove the value of retaining harvest residue on site for long-term soil fertility.

Major forestry companies are increasingly using Scion’s soil-based knowledge and expertise to better manage their forest estates.

Ian Hinton, Technical Manager at Timberlands Limited, says, “The work being carried out by the team at Scion is opening up opportunities we haven’t been able to explore in the past. We see real opportunity in the soil management area and with the help of Simeon and others we are now moving quickly from science based trials to large operational trials with the expectation that enhanced soil management will become a key part of our productivity tool box.”

The deeper we dig, the more we reveal the untapped potential for managing soil, as an integral and living part of the forest ecosystem, to increase both the productivity and sustainability of New Zealand’s forestry estate.


Ministry for Primary Industries,University of Tasmania, ImagineUAV, AsureQuality

Forest Growers Levy Trust, NZ FarmForestry Association, AGMARDT,Neil Barr Foundation, StrategicScience Investment Funding

“The remote sensingand UAV researchcarried out by Scion inour Matakana estate iscutting-edge and ishelping to provide anew perspective on themanagement of ourforests. The innovativenew tools andtechniques they aredeveloping will providereal value to theindustry for years tocome.”

Aaron Gunn,Port Blakely NZ

The use of unmanned aerial vehicles (UAVs) and remote sensing in forestry management is helping to usher in a new era of precision forest management. Scion science is helping to realise the potential benefits these tools can provide, and make them more accessible to forest managers than ever before.

As certified operators (Part 102) under the Civil Aviation Act, our UAV team is able to undertake more complex operations leading to new developments over the wide spectrum of research areas we are pursuing. The work has included a project to identify new ways that industry can use UAV data including applications as varied as post planting survival assessment, mapping wind damage and post-harvest residue assessments.

The UAV research programme has been working with forestry technical managers, like Aaron Gunn at Port Blakely NZ, and other partners to undertake field trials of the work.

Aaron, who is also on the Growing Confidence in Forestry’s Future technicalsteering team for this research, says,

Precision forestry:easier and moreaccessible with UAVscience

“The remote sensing and UAV research carried out by Scion in our Matakana estate is cutting-edge and is helping to provide a new perspective on the management of our forests. The innovative new tools and techniquesthey are developing will provide real value to the industry for years to come.”

This year, our research team has developed methods for monitoringdisease expression in plantation trees. Through carefully designed trials we have defined suitable data collection hardware and procedures using very high resolution multi-spectral imagery. Now, for the first time, low-cost and highly flexible methods are available for the early detection of needle diseases for planted forests. This enables forest managers to undertake targeted management, reducing disease spread and increasing forest productivity.

Scion has worked with the Ministry for Primary Industries to develop new methods to map tree species in urban areas using UAV imagery. This work will allow better surveillance to protect New Zealand’s forests from biosecurity incursions.

Weed (gorse and broom) identification is now also a possibility thanks to Scion’s data analysis undertaken in five and eight-year-old Pinus radiata stands. In this research UAV data was used to validate predictions made from satellite imagery making use of both technologies for better forest management.

Fire behaviour modelling has also benefitted from our multispectral and LiDAR data, which has been used in a fire prediction model, providing information around fire behavior in controlled burns.

Our work has harnessed the high resolution spatial and temporal data to provide a host of new services to forest growers, including pre-harvest assessments of forest volume, micro-site soil classification, data for tree stocking and restocking based on individual tree health, and animal health monitoring.


Bringing Bay of Plenty businesses together

Eastern Bay of Plenty exporters,Opotiki District Council

Kawerau Industrial Symbiosis,Kawerau and Whakatāne DistrictCouncils, Bay of Plenty RegionalCouncil and Ministry of Business,Innovation and Employment

“... the terminal isregarded as being asignificant asset thatwill benefit the entireregion and the Scionresearch team hasbeen pivotal in helpingus progress thistowards becoming areality.”

David Turner,Chair of IndustrialSymbiosis Kawerau

Industrial Symbiosis Kawerau is bringing together manufacturers and exporters in the eastern Bay of Plenty (EBoP) to save the region millions in transport costs, and Scion is helping to make it happen.

Scion’s recent survey estimates that approximately 50,000 20-foot equivalent containers are filled with goods from exporters and manufacturers in the EBoP each year. Most of the cargo will make its way on trucks to Sulphur Point

in Tauranga. Each truck carrying cargo passes the underutilised, but capable East Coast Trunk railway line. This will not be the case for much longer thanks to the initiative led by Industrial Symbiosis Kawerau and supported by a feasibility study by value chain optimisation researcher, Ginny Christians.

The feasibility study revealed that although no single exporter is large enough to commission a freight train service, collectively, exporters operating across the EBoP dispatch enough cargo to the port to justify a daily freight train.

Ginny says, “Although the solution was obvious from a global perspective, individual businesses in the region simply didn’t have the mandate to assess regional-scale solutions. We were able to get the right people in the room to have the right discussion.”

Ginny’s report concluded that a container terminal facility at Kawerau would be the ideal solution. Local companies have seen the merit in the concept and have expressed interest in investing in the container terminal.

David Turner, Chair of Industrial Symbiosis Kawerau, who initiated the project said that “A vital point regarding the container

terminal is that principally, it is about eliminating supply chain waste for value-add businesses in the EBoP ‒ so those businesses can access global markets more efficiently. This way our communities have more opportunities to add value – because the only way individuals can become more valuable, is by adding more value. Consequently, the terminal is regarded as being a significant asset that will benefit the entire region and the Scion research team has been pivotal in helping us progress this towards becoming a reality.”

A total annual saving of approximately $4 million in avoided transport costs is expected once the container terminal is fully operational, in addition to a net reduction in vehicle emissions and decreased congestion on the roads.

This initiative is part of the Toi Moana Bay of Plenty Regional Growth Strategy.

PHOTO: NZRAILPHOTOS.CO.NZ


Zespri’s kiwifruit spife (spoon-knife) can be used for cutting, scooping and now composting, thanks to Scion innovation.

It was Zespri’s determination to explore a more environmentally-friendly solution that led to the creation of the biospife. The original version of the spife was made of polystyrene, a plastic that uses non-renewable fossil fuels in its formulation which can take 500 years to break down. The biospife is the solution to all of the polystyrene spife’s problems.

Made with PLA (polylactic acid, a plastic from corn) and Scion’s kiwifruit compound, the biospife contains renewable materials including kiwifruit skin and is compostable.

Biospife project leader Gildas Lebrun and the team settled on a process called masterbatching. He says, “The ‘masterbatch’ mixture acts like a concentrate that is added to a compostable bioplastic before being injected into the spife moulds. Getting the mix right was key to making sure the biospife would have the right qualities and meet food safety standards.”

Biospife provides global kiwifruit marketerwith an environmentally-friendly solution

“Scion and Alto’s innovative work has created anexcellent, more environmentally-friendly product. It isgreat to be able to offer an alternative bio-degradablespife and we’re looking forward to engaging consumersand telling them about the science behind it as theycut, scoop and eat our kiwifruit.”

Alice Moore,Global Marketing Manager for Organics, Zespri

Zespri

http://bit.ly/2tIpEAX

The biospife is a ‘kiwi’ project in many ways. The kiwifruit skins in the biospife are a side product from puree processing in Te Puke. They were shipped to Scion’s Rotorua campus to be turned into the masterbatch. After being added to the bioplastic by Alto in Christchurch, the finished biospifes go to Zespri’s headquarters in Mount Maunganui. From there, Zespri delivers the biospife to the world, sending them to any of the 53 countries they sell kiwifruit to.

Kiwifruit skins are a biomass side stream

of kiwifruit horticulture. If the material can’t be reused in a product like the biospife, it is sold as animal food or composted. Adding kiwifruit to the biospifes creates another use and adds value to the by-product before it is composted.

Alto’s Engineering Services Manager, Paul Clemence says, “Here at Alto Packaging Limited we are passionate about developing innovative and sustainable products. This is often a difficult process, but when all parties involved have a similar philosophy and are determined to succeed, it makes the challenges a lot easier to overcome. This project was a good example of that.”

Zespri’s Alice Moore, Global Marketing Manager for Organics, says, “Scion and Alto’s innovative work has created an excellent, more environmentally-friendly product.

“It is great to be able to offer an alternative bio-degradable spife andwe’re looking forward to engaging consumers and telling them about the science behind it as they cut, scoop and eat our kiwifruit.”

After the initial production run of biospife using the optimised masterbatch, Zespri ordered a new batch of biospifes and launched the product in New Zealand at Fieldays in June 2017.


Huge opportunity for plant-based bioadhesives Engineered wood products made with adhesives from fossil fuels that contain formaldehyde are common place in our homes, but some can release compounds into the air that contribute to poor indoor air quality and pose health risks.

In a world first, the Scion bioadhesives team has developed 100 per cent biobased-adhesives and resins that could replace formaldehyde-emitting adhesives. With an increasing interest in sustainable alternatives in the global wood adhesives market, estimated to be more than US$4 billion, the opportunity for this environmentally-friendly glue to become commercially successful is very promising.

Made from natural sources, including forestry and agricultural waste, the

Scion-made bioadhesives and resins are petrochemical-free, have very low formaldehyde emissions and can be made and used in existing manufacturing operations.

The technology, which has been developed over seven years, has been patented and trademarked as ‘Ligate’. The ‘green’ credentials of Ligate™

Dr Will Barker,Chief Executive, NZBIO

“The technology is agame changer for woodpanel manufacturers.”

products will provide manufacturers with a competitive advantage over wood panel processors using conventional petrochemical-based adhesives and resins.


“Adhesives and resins made from natural sources have a lower environmental footprint and are considered more socially acceptable than their traditional formaldehyde-based counterparts,” says Dr Warren Grigsby, the driving force behind Ligate™.

Ligate™ has earnt a number of accolades since it was trademarked in 2016. In September this technology was named 2016 Biotechnology of theYear by NZBIO, was awarded a judges’ commendation for renewable innovation at the NZ Sustainable Business Network Awards and was a finalist for the Innovation in Sustainability and Clean- Tech category at the NZ Innovation Awards.

Chief Executive of NZBIO Dr Will Barker

said, “The technology is a game changer for wood panel manufacturers”.

Ministry of Business, Innovationand Employment

http://bit.ly/2aiSvyk

“We’ve spent years mixing and matching assorted ingredients to come up with the right recipe. This is the icing on the cake for our bioadhesives team,” says Warren.

The technology has been manufactured to mill scale and the first phase attracted significant international interest. Warren has spent considerable time in New Zealand and Europe profiling Ligate™ with manufacturers.


Reusing rubber – the road from tyre to timber

Asona, other industry partners

Ministry for the Environment

Around three and ahalf million tyres endup in New Zealandlandfills each year orare illegally dumped.Finding sustainablesolutions to end-of-lifetyre problems are achallenge tackled byScion.

Around five million tyres are disposed of each year in New Zealand. Some 30 per cent of these end-of-life tyres (ELT) are recycled, but 70 per cent end up in our landfills or are illegally dumped. In addition to the enormous pressure placed on landfill space, getting rid of waste tyres is costly, and stockpiles of tyres are a fire hazard.

Finding solutions to this environmental challenge is the focus of a two-phase research and product development project led by Scion’s Dr Grant Emms and Asona (a specialist New Zealand manufacturer, distributor and installer of acoustic decorative ceiling and wall finishes serving the commercial interior market). Together, we have been investigating the creation of a New Zealand based ELT rubber and processing facility to recycle crumbed rubber into high-value acoustic building products such as flooring.

Grant says, “We’ve created a number of small scale samples with Asona, so we’ve proven we can do it.”

This project is one of three rubber recycling projects funded through the Ministry for the Environment’s Waste Minimisation 2015 funding round.

One project is undoing the vulcanisation process that converts raw rubber into hard, durable tyres. Scion is developing an underpinning extrusion process,

based on equipment currently available, to revert the cross-linked structure of tyre rubber, and produce thedevulcanised, crumbed rubber for use as a high-performance binder for New Zealand’s roads.

The final project is adding recycled rubber into manufactured wood panels for acoustic and vibration damping properties. Dr Warren Grigsby is behind this project, which he says has a lot of potential. “The success of this project would create a win-win for New Zealand with fewer tyres sent to landfill and profit from a range of new export products.”

Scion is working with commercial partners on all three projects to ensure the work done in the laboratories will be commercially feasible.

¹ See http://www.gatesfoundation.org/What-We-Do/Global-Development/Reinvent-the-Toilet-Challenge

Scion is using waste water treatment science from the pulp and paper industry in an aid assistance project to help solve the world’s sanitation problems by reinventing the toilet.

There are 2.5 billion people worldwide ¹ living without adequate access to safe and affordable sanitation. While the implications on human andenvironmental health are enormous, the toilet as we know it is not an option for many of the regions that need sanitation the most. A new solution to treat human waste is needed, and the Bill and Melinda Gates Foundation is working with scientists from Scion, and all over the world, to make it happen.

The challenge to reinvent the toilet was started by the foundation in 2011. The foundation’s aim is to remove the barriers to safe sanitation by funding work to create a toilet that is safe for humans and the environment, is sustainable, cheap to use (less than US$0.05 per user per day) and works ‘off the grid’.

Scion came to the project in 2015, when the foundation awarded our research team a grant to create a proof of concept – showing that our wet oxidation

Swansea University (Wales),University of West England

The Bill and Melinda GatesFoundation

http://bit.ly/2tEkAcMhttp://bit.ly/2wjeqCD

Reinventing the water closet

“This is a wonderful opportunity to bring togethermultiple technologies (Scion, Swansea and UWE) andcollectively try to solve some of the world’s sanitationproblems.”

Ioannis IeropoulosProfessor of Bioenergy and Self-Sustainable Systems,University of West England

technology could be an effective way to treat human waste. In 2016, the initial results prompted the foundation to award our team a further grant to create a full-scale working prototype in the next two years. Scion has also been given funding to work to apply extrusion technology to the dewatering of pit latrines and has delivered a highly successful proof of concept.

Research Leader Dr Daniel Gapes says the real winners of this challenge will be the 2.5 billion people who will benefit from the technology. “That number keeps us motivated, it’s been key to our success. We’re just one of many teams around the world working on a solution to this problem, but we’re all sharing

information and working together.”

To help reduce the organic load of the effluent coming from the wet oxidation process, the Scion team has begun a collaboration with the University of West England (UWE). Ioannis Ieropoulos, Professor of Bioenergy and Self-Sustainable Systems, from UWE says, “This is a wonderful opportunity to bring together multiple technologies (Scion, Swansea and UWE) and collectively try to solve some of the world’s sanitation problems. The collaboration with Scion allows us, for the first time, to trial our Microbial Fuel Cells in line with the wet oxidation process; this is novel in its own right and together may give us an outcome, which is more than the sum of the different components coming together.”

Scion has a lot of experience in waste treatment, arising from a long-term focuson the pulp and paper industry andover a decade developing the TERAX® technology. Daniel says, “This work arose from our forestry waste research, and the things we learn from it, such as creating new reactors to process chemicals, are applicable across a variety of fields and places.”


Resilientforests16

17Resilientforests

So, to improve New Zealand’s ability to manage risks associated with biosecurity, fire and climate change, we work withgovernment agencies, forest growers and research collaborators both nationally and internationally.

And, to sustain New Zealand forestryindustry’s licence to operate both domestically and internationally we are engaged with many stakeholders in developing and providing tools, technologies and input to regulatory compliance frameworks.

Outcome area

Protect and enhancemarket access and improverisk management in theforest industry

UNLEASHING THE POWER OF FORESTRYMEANS THAT FORESTS MUST BERESILIENT TO CURRENT AND FUTURENATURAL THREATS AND INDUSTRY HASFREEDOM TO OPERATE

Resilientforests18

¹ http://www.radionz.co.nz/news/national/334606/port-hills-fire-bill-reaches-7-point-9m

Rural fire research at the ready: Port Hills fire

Richard McNamara,Fire and Emergency New Zealand Regional Manager Rural

“Scion’s assistance with fire intensity prediction andmodelling of fire perimeter growth greatly aided thesuppression efforts on this highly complex fire ground.”

Authorities are estimating that it cost over $8 million to put out the fires that claimed over 2000 hectares of Christchurch’s Port Hills¹. But this number, which is predicted to rise as final costs come in, could have been a lot larger if not for the expertise of Scion’s rural fire research team who worked 180 hours over two weeks supporting the fire response.

The team’s work is helping to make fire suppression safer and more cost efficient while also improving protection of people and property. Rural fire researchers Grant Pearce, Veronica Clifford and Dr Tara Strand assisted

the fire incident management teams throughout the Port Hills fire and the multiple Hawke’s Bay fires.

Grant says, “We were able to provide accurate predictions of fire intensity,

where it would spread and how fast. After the fire was contained, we continued to use modelling to monitor potential break outs from smouldering hotspots.”

19Resilientforests

February 2017 marked 25 years of rural fire research in New Zealand. In 1990 the National Rural Fire Authority (NRFA) was established and one of its responsibilities was to coordinate research into forest and rural fire management. Along with the Department of Conservation, New Zealand Forest Owners Association and local government, the NRFA worked to establish a research programme at Scion (then the Forest Research Institute). Since the fire research capability was established in 1992, science has been used to improve the art of fire management.

Employed as New Zealand’s first full time fire research scientist Grant Pearce (opposite) has been on the scene since then. He says, “Our research has focussed on reducing fire risk, being ready to fight it, responding to fire and recovering from it. Now we are preparing for a future with more extreme fires. We can’t stop nature, but we can take precautions and be prepared based on the best science possible.”

25 years of ruralfire research

http://bit.ly/2w58paX

Interpine, Fire and EmergencyNew Zealand

Ministry of Business, Innovationand Employment and Rural FireStakeholder co-funding

Scion staff were not the only team using our science to help manage the fire response. Rotorua-based company Interpine used techniques developed by Scion for UAVs with infrared cameras to identify and map hotspots that had the potential to flare up and cause the fire to spread again. This is the first time the approach had been applied operationally at a major wildfire in New Zealand.

Fire and Emergency New Zealand Regional Manager Rural, Richard McNamara, was an Incident Controller in the Port Hills fire response. He says, “Scion’s assistance with fire intensity prediction and modelling of fire perimeter growth greatly aided the suppression efforts on this highly complex fire ground. By using the best of wildfire science in both real time and scenario planning, the incident management team was able to finally get ahead of the fire development and put in place suppression tactics which fire crews, heavy machinery and air attack used to finally control this massive blaze.”

Beyond the fire front, Dr Tara Strand created smoke dispersion models to inform the wider public of likely smoke spread over a 72-hour period. Smoke from wildfires can have a serious health impact for some people, even if they

are far from the flames. Her smoke forecasts were able to help vulnerable people and those with respiratory problems to avoid smoke and prevent health problems such as asthma attacks.

Following the fire, Scion has continued to provide advice to Fire and Emergency New Zealand, councils and communities about recovery and ecological planning to assist with the rehabilitation.

Resilientforests20

Kauri dieback disease is wreaking havoc on our northern kauri forests, and without intervention, this prolific wasting disease will continue to spread, choking kauri to death from their roots. To date, there are limited options for managing kauri dieback after it has become established and given the slow regeneration time of kauri, this insidious disease is a cause of major concern. Kauri’s best chance for survival long-term is to find kauri plants with inherent resistance to the disease.

Looking for resistant strains of kauri to breed from is a major focus of the Scion-led Healthy Trees, Healthy Future (HTHF) collaborative research programme. Kauri dieback is caused by the soil-borne fungus-like organism Phytophthora agathidicida, and the HTHF programme aims to identify markers and establish screening methods to assess any natural disease resistance.

The team, led by Dr Nari Williams, is working with regional mana whenua groups to screen kauri sourced from within their rohe. Nari and the team have

Understanding kauri whakapapa in fightagainst dieback disease

Healthy Trees, Healthy Futureresearch programme (see https://healthytrees.co.nz), iwi

Strategic Science InvestmentFunding, Ministry of Business,Innovation and Employment,Forest Growers Levy Trust, Ministryfor Primary Industries

http://bit.ly/2w1bWWx

“I’m optimistic that theinvestment from bothMāori and agencies inlooking for naturallyoccurring resistancecould present asolution that will ensurethe existence of kaurifor future generations.”

Waitangi Wood,Tāngata WhenuaRoopū member

established partnership agreements with mana whenua from Northland, Auckland and the Waikato regions and have undertaken two seed collectionsfor growing kauri in the newly installed P. agathidicida-free growing facilities at Scion.

This year, the team has successfully

raised 12,000 kauri and will use them to test the susceptibility of kauri siblings from the same mother tree and identify families with potential dieback resistance.

Nari explains, “The seed we collect from a single mother tree has been pollinated by a pollen donor somewhere upwind. If one seedling proves to be resistant, there is either a resistant pollen donor in the area, or the mother is resistant. This is where we need to understand the structure of resistance – is it one gene, or a group of genes, and what does the pathogen do when it infects a seedling?

“Early stages of screening have already shown different responses toPhytophthora infection across different kauri lines. While promising, there is still a great deal we don’t know about how well our various screening assays predict disease susceptibility as trees age and across environments. Kauri are a long-lived tree. We need to understand whether trees showing resistance today are likely to stand up to infection 5, 50 and 500 years from now.”

The Tāngata Whenua Roopū (a collective of the mana whenua groups throughout the kauri regions) remain concerned about the resilience and health of kauri forests. Waitangi Wood, a member of Tāngata Whenua Roopū, says, “I’m optimistic that the investment from both Māori and agencies in looking for naturally occurring resistance could present a solution that will ensure the existence of kauri for future generations.”

21Resilientforests

Hancock Forestry Management,Dothistroma Control Committee

Strategic Science InvestmentFunding, Forest Growers LevyTrust

Red needle cast (RNC) is a foliage disease that can affect the growth of radiata pine. In certain conditions, the disease causes severe defoliation, reducing growth by about 40 per cent in the following year and potential earnings for the forest owner. While research is underway to identify long-term solutions, Scion has developed a new copper treatment to protect trees that are already planted. We are working alongside industry partners to trial the use of copper on a wide scale, and so far results are very promising.

RNC is caused by Phytophthora pluvialis, a pathogen also found in North America.

Controlling red needle cast with copper

Dr Wei-Young Wang,Seed and Special Project Manager, PF Olsen Limited

“Red needle cast has been troubling the forestryindustry since 2008. Scion’s development of thiseffective and relatively inexpensive method to controlthe disease is welcome news to the industry.”

The chemical typically used to control Phytophthora diseases is phosphite, but Scion’s research showed mixed results for RNC, where a large volume

of chemical was needed to produce a response. Copper is an excellent alternative because it is cheaper than phosphite and is already applied routinely to control dothistroma needle blight. As it is already in use, the application methods and logistics have been determined.

Scion worked with industry to undertake a major field spray trial in February, comparing copper and phosphite as management tools. Forest Protection Science Leader Lindsay Bulman says, “The results showed that copper may be the next best tool for reliably managing red needle cast. One month after copper application, needles showed significantly less disease compared with the control and the phosphite treatment.”

Dr Wei-Young Wang, Seed and Special Project Manager at PF Olsen Limited, is a member of the Forest Growers Levy Trust team that is steering the research. He says, “Red needle cast has been troubling the forestry industry since 2008. Scion’s development of this effective and relatively inexpensive method to control the disease is welcome news to the industry.”

Our research indicates that the best time to apply the copper treatment is during late summer and again in autumn. The next steps will be to determine the dosage and precise timing.

22 Energysecurity

UNLEASHING THE POWER OF FORESTRYTO FUEL NEW ZEALAND FROMRENEWABLE RESOURCES

So, to help increase New Zealand’s energy security through expanded utilisation of forest biomass for energy, we are working with government, forest and land owners, industrial manufacturers, wood processors, energy companies and commercial consumers of transport fuels.

Our science focusses on:• Wood-based replacements for transport biofuels and industrial energy• Identifying, adopting and adapting the best international technologies and building the capability for large-scale uptake and deployment.

23Energysecurity

Outcome area

Increase renewable energyproduction and energysecurity by growing NewZealand’s ability to producesustainable bioenergy andliquid biofuel products

Energysecurity24

Using biomass to replace fossil fuels in industrial heating would be a major step towards reducing New Zealand’s greenhouse gas (GHG) emissions. Scion is helping to guide the switch from coal and gas to biomass powered heat especially from forestry feedstocks.

Coal and gas fuelled industrial heating (for example, heating for milk processing in dairy factories) makes up a large proportion of New Zealand’s energy use, and it has been identified in the New Zealand Energy Efficiency & Conservation Strategy 2017-22 as one of the largest areas where we could reduce our energy-related CO₂ emissions (along with transport). The potential for GHG reductions at a national level from

Biomass for industrial heat

Coal and gas fuelled industrial heating has beenidentified as one of the largest areas where New Zealandcould reduce energy-related CO₂ emissions (along withtransport). The potential for greenhouse gas reductionsat a national level from substituting wood for coal isestimated to be around 900,000 to 1,000,000 tonnesof CO₂e per annum.

substituting wood for coal is estimated to be around 900,000 to 1,000,000 tonnes of CO₂e per annum.

Scion is taking a three-fold approach:

modelling the potential supply of biomass particularly woody biomass from plantation forests, for example, availability and price at a given location; looking for biomass derived fuels that

Energysecurity 25

Energy Efficiency and ConservationAuthority (EECA), local and nationalgovernment, industry stakeholders

Ministry of Business, Innovationand Employment, Strategic ScienceInvestment Funding, commercialfunding

New Zealand Biofuels RoadmapNew Zealand uses almost 8.5 billion litres of transport fuels every year with less than 0.1 per cent coming from a renewable source. Transport fuels are responsible for 17 per cent of our country’s greenhouse gas (GHG) emissions.

Large-scale liquid biofuel use will reduce transport sector GHG emissions, give greater security of fuel supply through reduced reliance on imports, as well as economic and employment growth. However, the pathway to establish this new industry is unclear owing to multiple options available at all points long the value chain and the best fit for New Zealand.

Some 18 months ago, Scion started a project to create a biofuels implementation roadmap that will plot out the optimum courses for large-scale production and use of liquid biofuels in the New Zealandmarket. Over the last year, interviews

and workshops were held with stakeholders representing land owners, feedstock processors, distributors, commercial users, researchers and government.

A key element of the work has been modelling different biofuel scenarios that use variable feedstock, conversion technologies and costs inputs across multiple land classes throughout the entire country.

Clean Technologies Science Leader Dr Paul Bennett says, “At the end of the project we intend to have an evidence-based, stakeholder-agreed direction for New Zealand’s biofuels future.”

The project will conclude in late 2017 with the public release ofrecommendations scheduled for early 2018.

http://bit.ly/2vqHsfThttp://bit.ly/2wTUuHn

can be used in existing coal-fired boilers; and our team is leading a programme and case study with GNS Science and the University of Waikato.

The case study looked at biomass replacing coal at a specific industrial site. It compared the cost of biomass to that of coal or gas. Our results showed that biomass could be competitive over the 20-year lifetime of a boiler while also emitting fewer greenhouse gases.

In the last year, Scion hosted EECA’s Large Energy User’s Forum with the top 200 or so industrial energy consumers in New Zealand in attendance. The forum is part of EECA’s business sector which partners with businesses from across New Zealand that spend $1 million or more annually on energy and have high carbon emissions. We were able to demonstrate what Scion is working on in the bioenergy sector and showcase our pyrolysis plant. The forum was attended by businesses and public sector agencies, including government, hospitals and universities.

Our biofuels team has also undertaken commercial contracts for facilities interested in understanding their biomass availability and price, allowing them to decide if biomass is a feasible option for them. For example, Scion provided a South Island consulting company with an assessment that used our databases on wood processing, forest residues and a GIS-based biomass supply model to determine the potential wood supply for a heat plant located in central Christchurch. We found that there were sufficient wood residues available to meet demand.

26 Ecosystembenefits

PHOTO: DESTINATION ROTORUA

27

So, with our partners we are working towards demonstrating to forest and land owners, Māori, regional councils and policy makers the value of forests in the landscape through economic, environmental and socialcontributions to regional development and community well-being.

Ecosystembenefits

Outcome area

Enhance benefits fromforestry-based ecosystemservices to improve boththe global market positionof industry and theenvironmental sustainabilityof forestry production inNew Zealand

UNLEASHING THE POWER OF FORESTRYTO NOURISH OUR LAND AND PEOPLE WITHBENEFITS BEYOND TIMBER PRODUCTION

28 Ecosystembenefits

The nation’s 1.7 million hectares of planted forests provide a range of benefits, called ecosystem services (which include timber, avoided erosion, recreation, biodiversity conservation, water regulation, carbon sequestration and nutrient regulation). Most of these services have enormous value to the environment and society, but they can be difficult to quantify. Interest in understanding the worth of those services is increasing, and to help to consistently measure said services Scion is further developing and refining a tool called the Forest Investment Framework (FIF).

Over the past 12 months, the FIF has been used in conjunction with economic valuation techniques to assist in better understanding the full value of existing and prospective forests to inform policy and investment decisions. To date, the quantification of forest ecosystem services has contributed to discussions on the National Policy Statement for Freshwater Management, Emissions Trading Scheme, afforestation policies, forest investment, land use management and forest product certification.

A new biodiversity valuation function has also been added to the FIF. This enables forest owners to calculate the private costs and public benefits of conservation programmes in existing planted forests. If the proposed biodiversity programme is to be undertaken in forests close to where

How much is your forest really worth?

Wenita Forest Products,Marlborough District Council,Ministry for Primary Industries

Forest Growers Levy Trust, Ministryof Business, Innovation andEmployment

“We commissionedthe ecosystem servicesreport to demonstratea commitment toquantifying non-timberbenefits accruing fromour forests.”

James McEwan,Technical Manager,Wenita Forest Products

people live, the value in the region would likely increase as these residents would benefit from the biodiversity programme. This biodiversity function can be used for valuing biodiversity investment programmes for North Island brown kiwi, karearea, green gecko, kākābeak, giant kōkopu and other native species.

FIF was also used to estimate key forest ecosystem service values provided by 20 forest blocks of the Wenita Forest Products Estate, the largest producer of timber in Otago. Estimated values suggest that the combined environmental value of carbon sequestration and avoided erosion can be greater than the timber profits, not including the recreational hunting and biodiversity conservation values.

James McEwan, Technical Manager at Wenita Forest Products, says, “We commissioned the ecosystem services report to demonstrate a commitment to quantifying non-timber benefits accruing from our forests. This is an area that (Principle 5: Benefits from the Forest) is covered in the FSC® Principles and Criteria.”

The ecosystem services report produced by Scion provided information for the criteria and indicators that ensure forest products are used efficiently for economic, social and environmental benefits.

At the conclusion of this research in September 2019, the FIF will include timber, carbon, avoided erosion, biodiversity, avoided nitrogen, water yield and recreation functions. As a final stage, the FIF project team will undertake a national analysis of the full value of New Zealand planted forests, both existing and potential, enabling better representation of the wider benefits provided by forests in land use management, policy and decision making.

29Partneringwith Māori

WORKING IN PARTNERSHIP WITH MAORI-

Māori own some 40 per cent of New Zealand’s land in commercial forests, making them one of our most important stakeholders.

This year we celebrated milestones in three projects with our Māori partners and began one new project.

The Northland tōtara project is a long- term and in-depth look at the possibilities for using tōtara growing on private farmland in Northland. The potential in this area was identified in the 1980s. Now, we are looking at how these trees could be turned from a paddock nuisance into a valuable, sustainable forest resource that benefits the whole region.

Māori and their access to this important resource has long been a consideration, and we are working closely with Taitokerau Māori Forestry Collective, a collective of nine Māori land trusts, and Northland Tōtara Working Group and central and local government to make this aspiration a reality. Together, our aim is to realise the value of this potential new industry in the fullest way possible, including social, economic and cultural benefits.

Northland tōtara

This year we initiated a small pilot study, harvesting 40m³ of tōtara. The harvested wood was used to conduct initial tests that will help us to better understand

the characteristics and properties of this species. This timber will be taken through the full value chain and converted into products.

Ngāti Whare are the proud owners of a brand new, state-of-the-art nursery at Minginui. Thanks to their ongoing partnership with Scion, they also have access to new cutting-edge propagation technology that will allow them to produce native seedlings, specifically – tōtara, rimu, kahikatea and miro – with

Minginui nursery the potential to expand indigenous forestry in New Zealand.

The Ngāti Whare nursery at Minginui, on the edge of the Whirinaki Forest, is using a technique, newly developed by Scion to grow trees from cuttings. This process enables the seedlings to grow faster and in larger numbers, and overcomes the difficulty of sourcing viable seed and unreliable germination

of that seed. The novel technology will enable the mass production of four indigenous podocarps on a large commercial scale with assurance as to their whakapapa and their genetic attributes.

Our partnership aims to further develop the propagation approach and expand its application across New Zealand over the next few years.

30

Waikura Valleyerosion controlThe Whangaparaoa 2L Trust are kaitiaki of Mataroa Station - nearly 2,500 hectares of steep, erosion-prone land on the East Coast. The trust’s ability to continue farming the station, and to bring its vision of environmental sustainability and community resilience to life, is dependent on stabilising some of the trust’s more vulnerable land. Working to this goal, Scion designed a planting trial to address the erosion with plants that retain soil and fit with the Māori land owners preferences for their land.

The trust, together with Scion, secured funding from MPI’s Sustainable Farming Fund and erosion control funding

programmes to research the survival and benefits of different plant species for erosion management, and to reforest 64 hectares around the trial area.

The project team worked directly with trustees to understand what they wanted planted on their land. Māori landowners practice intergenerational governance, which allows them to consider issues from a long-term perspective and securing the environmental resilience of the land was a key priority for the trust as well as balancing the economic, social and cultural values that underpin trustees’ livelihood.

This year, Scion completed the three-year planting trial and presented the results at a hui at Rotorua in April. The results were published in a brochure and are available here: http://bit.ly/2vPXsNe

Te Pakarito - Ngāti Whakaue kete collaborationWeaving the old with the new was the main theme of our newest collaboration, partnering with Te Taumata o Ngāti Whakaue Iho Ake (Te Taumata). The project was initiated by Te Taumata, who run Matakōkiri, a science eduation programme for rangatahi (young people) between 7 and 14. Their latest project was to build kete (baskets) to store their six new bilingual science kits.

Te Taumata project leaders and the Scion team created a project where Te Arawa weavers and local scientists would work with Ngāti Whakaue rangatahi to create kete that combined the traditional weaving material – harakeke (flax) witha biobased biodegradable plastic (polylactic acid, plastic derived from corn).

Funded through an MBIE Curious Minds grant, they used three different manufacturing technologies to build three very different harakeke kete – using computer based CAD modelling and 3D printing; raw harakeke fibre set in resin; and sheets of harakeke bioplastic cut into strips and woven like traditional kete. http://bit.ly/2vkCjtn

WORKING IN PARTNERSHIP WITH MAORI-

Starting at Tunohopu marae in Ohinemutu, rangatahi spent time with their whānau (family) learning about traditional ways to work with harakeke.From there they spent several sessions at Scion, working on their three kete prototypes. In between kete design and build, staff demonstrated how extrusion was used to make sheets for weaving and the 3D printing filament, and also

showcased material characterisation methods using microscopy and tensile testing.

Rangatahi returned to Tunohopu on 25 May to showcase the kete to their Ngāti Whakaue whānau, peers and the Scion team.

Topteams 31

UNLEASHING THE POWER OF FORESTRYTHROUGH COLLABORATING WITH TOPTEAMS

Being part of a 125-year-old global forestscience network Scion’s ties with the International Union of Forest Research Organizations (IUFRO) stretch back to the 1970s. Today, Scion scientists participate at division and task force level, and Principal Scientist and entomologist Dr Ecki Brockerhoff sits on the IUFRO Board.

IUFRO is a voluntary, global network for forest science cooperation, uniting more than 15,000 scientists in almost 700 member organisations in over 110 countries. IUFRO’s goal is to advance research and knowledge sharing, and to foster the development of science-based solutions to forest-related challenges for the benefit of forests and people worldwide.

Nine divisions cover IUFRO’s activity in key forestry research fields supporting collaborative work and linking research groups. Other IUFRO work is managed by temporary task forces that coordinate cooperation and interdisciplinary research between two or more divisions. www.iufro.org

The task forces focus on key emerging issues. For instance, Dr Elspeth MacRae, General Manager Manufacturing and Bioproducts was the deputy task leader for the IUFRO Forest Bioenergy Task Force from 2010 to 2014.

Division 7, Forest Health, focusses on the effects and control of pathogens, insects and pollution. Ecki is division coordinator and is involved with the two task forces Contribution of Biodiversity to Ecosystem Services in Managed Forests, and Forests and Biological Invasions. In the past year, Ecki has co-authored four papers and contributed to special issues of the journals Biodiversity and Conservation and Biological Invasions.

Dr Peter Clinton, Science Leader for Forest Systems, is active in Division 8, Forest Environment, which includes study of forest ecosystems, natural disasters, fire, climate and mitigation

measures. Wind damage is one of these risks. Research Leader for Systems Biology and Risk Dr John Moore says collaboration in understanding and developing approaches to manage the wind damage in New Zealand forests has bolstered local industry capability in this area. John also contributes to wood quality interactions within Division 5, Forest Products.

Forest policy and economics is covered in Division 9, with a concentration on forest sector analysis, the social and economic aspects of forestry, policy and governance and environmental legislation. Dr Tim Payn, Research Leader for Enabling Environments, says he values the links to more fundamental science that working with IUFRO brings, and the alternative perspectives that can be gained from working with different forest types and approaches to forest management.

Other Scion staff currently are IUFRO office holders, typically as coordinators and deputies of research units within divisions: Dr Heidi Dungey (within Division 2, Physiology and Genetics), Dr Beccy Ganley (Division 7), and Drs Richard Yao and Peter Edwards (Division 9).

Working with IUFRO gives Scion the opportunity to build on a large foundation of knowledge, benefit from reciprocal sabbaticals, contribute to publications and conferences that influence national and international policy. The result of these collaborative relationships connecting Scion with like researchers around the world is continual innovation across our work.

Dr Heidi Dungey, convenor of the 2016 IUFRO Division 2 conference hosted by Scion in Rotorua.

32

Working in new ways to create novel products fromnatural resources General Manager of Manufacturing and Bioproducts Dr Elspeth MacRae is leading Portfolio 5 – Materials, Manufacturing and Applications – of the Science for Technological Innovation National Science Challenge (NSC).

The aim of the NSC is to enhance New Zealand’s capacity to use physical sciences and engineering for economic growth. The goal of Portfolio 5 is to see New Zealand selling new materials and products based on the country’s biological resources and distributed manufacturing by 2025. Combining biomaterials with additive manufacturing methods such as 3D printing,electrospinning and layering will allow New Zealand to create a diverse range of new products in areas such as furniture, electronics, sensors, marine components, aerospace components, agritech and medical devices.

The spearhead project on 3D printing using New Zealand biomaterials has brought together eight organisations, some of whom have never worked together before. Scion’s contribution includes leadership and its capability in manufacturing plastic-biomass

composites. Other team members bring expertise in materials and process modelling, materials science, design, engineering, equipment andmanufacturing.

The strengths of the collaboration, according to the team, include its cross- disciplinary nature, the opportunities to share equipment, and to maximise investment and funding. Among the benefits are building technical capability and relationships, mixing design and science, and exciting prospects of new science.

A recent outcome is a 3D version of the Science for Technological Innovation (SfTI) 20-sided-solid (icosahedron) logo. The first successful ‘print’ was presented to Science and Innovation Minister Paul Goldsmith at the All of SfTI Researchers’ Workshop in July 2017.

The icosahedron was the product of close collaboration between design, biopolymer and object manufacture, and finishing touches. The development process used a design-led approach starting with an aspirational concept that was used to channel and inspire the

science. The final object wasmanufactured at Scion using a biopolymer/harakeke composite. The creative process was captured on video.

Scion, in collaboration with major research partners, is building a future where wood fibres, cellulose from other plant sources and co-products from primary production can be combined in new plastic-like materials. New Zealand industries, using distributedmanufacturing technologies to make new products from these materials, will increasingly become part of the growing local and global circular bioeconomy.

http://bit.ly/2x1CBX0

COLLABORATING WITH TOP TEAMS

ACHIEVING OUR SCIENCE GOALS

33Achieving ourscience goals

Meeting our strategic outcomes as set out in our 2016-2021 Statement of Corporate Intent.

Science outcome5-15 years

Maximise the value and profitability of commercial forests and their ecosystem services

Leading indicators3-5 years

Sustainably increasethe productivity ofNew Zealand forests

Achievements in 2016-2017

The Growing Confidence in Forestry’s Future (GCFF) programme has made significant progress towards a better understanding of the key drivers of forest productivity and is developing a range of management interventions to increase productivity and profitability. The programme has demonstrated that increasing site utilisation by increasing final crop stocking can substantially lift productivity, and many companies are altering their silvicultural regimes to reflect this. The first application of the phenotyping platform quantified the key environmental factors affecting productivity and how different seedlots perform across these environments.

The GCFF programme continued to generate better information on the physiological basis of tree growth and how trees respond to different stimuli/ stresses. Results from an operational nursery trial demonstrated that seedlings with improved growth and equivalent or improved nutritional status can be produced using a fraction of the chemical inputs conventionally used.

In simulations on the potential impact that genomics has on the delivery of genetic gain in conifer breeding programmes, genomics was found to increase considerably the genetic gain when the size of the training population was largest or when the heritability was higher. Compared with forward selection, simulations showed that genomic selection had the potential to deliver an increase of up to 24% per generation for wood density and up to 19% for growth.

Deploying clones of the selected individuals always resulted in higher additional genetic gain than deploying progeny/seedlings.

Genomic selection was tested for the first time on tree breeding traits. With genomic information used in the breeding analysis, it appears that between 13 and 115% additional genetic gain over traditional breeding will be available to breeders. With clonal propagation, genomics looks like an efficient and effective means to rapidly deliver genetic gain to the forest.

Accurate, precise and reliable physical description of plants (phenotyping) is vital to determine underlying genetic and environmental influences. Trees are difficult to phenotype because they are large and grow in the forest, unlike agricultural plants where rapid mass phenotyping in glasshouses has reduced breeding cycles and delivered new genotypes for a range of environments.

Scion has developed a prototype, novel phenotyping platform as the first step towards the use of phenomics in forestry. This platform harnesses new sensor technologies and the use of accurate and reliable geographical information systems to relieve the phenotyping bottle neck and put forestry on the same footing as agriculture. The impact of this platform will be transformational,where outstanding trees and the environments they perform best in will be identified to inform future breeding decisions.

Achieving ourscience goals34



Extract value from forests and dispersed forest holdings

Quantify the role of forests in increasing economic,environmental and social outcomes for New Zealand

Use of Scion’s spatial economic modelling system, the Forest Investment Framework (FIF), continued to increase with new projects for a number of regional councils, central government agencies and the forest sector. The first ecosystem services assessment for a major New Zealand company’s forest estate showed the significant contribution of ecosystem services (e.g. carbon, erosion control and recreation) to the full value of the estate in addition to timber. Also excellent progress was made on the development of biodiversity, avoided nitrogen leaching and water flow functions, which will add significant functionality to FIF in 2018.

The sixth annual (and first regional) forest ecosystem services forum held in Havelock, Marlborough, was attended by a wide range of regional and national stakeholders and focussed on new approaches to link ecosystem service flows across land and marine sectors. This was the first stage of a national programme on new economic and spatial approaches to ecosystem service flows and will link land-based primary sectors with marine-based aquaculture.

Forestry and its multitude of values lends itself to a new national System of Economic-Environmental Accounting approach (i.e. more than just timber), and a quantitative framework (i.e. computable general equilibrium model) was developed to assess the economic impacts from environmental, fiscal and trade policies on various primary industries (including forestry) nationally. The team is working with NZ Forest Owners Association, Ministry for Primary Industries, Treasury and Statistics New Zealand to scope out the opportunities for using an ecosystem services framework as a basis for this approach.

Scion partnered with ForestX, a New Zealand on-line trading board that lists forests for sale. Scion’s wide range of scientific tools are used to provide production expectations for the listed forests. The trading board was launched in August 2016.

Log price outlooks were disseminated quarterly.

A feasibility study for an inland container terminal at Kawerau, presented to stakeholders in early 2017, has led to the district council and other parties embarking on the process to establish a container terminal in Kawerau with a rail link to the Port of Tauranga.


Newly planted biotech trees (for improved growth and new lines for improved processing) were planted out in the field trial where they are establishing well. The trees will be regularly monitored to follow their growth as the trees develop and in accordance with our field trial approval.



Increase the profitability of solid wood processing through customer solutions and supply chain innovations


Facilitate new seed- to-market value chains for specialty wood products

Expand opportunities for wood products and building systems


A forest-to-product study quantified the timber grade recovery that could be obtained from farm tōtara. The study took approximately 40 m³ of logs that were harvested under a sustainable management permit and processed these into appearance grade timber. The properties and the grade of each board were assessed and the results showed good recoveries of high-quality appearance grade material. This work helps to underpin a future industry based on the sustainable use of the farm tōtara resource.

In partnership with Scion, Ngāti Whare established an indigenous commercial nursery at Minginui to provide employment and planting stock to the 10-year Te Pua O Whirinaki Regeneration Plan. The plan aims to restore the identity of Ngāti Whare and enhance the value of Whirinaki for New Zealand.

The potential of genomic selection was investigated in an advanced third generation Eucalyptus nitens population with the breeding goal for solid wood production.

Genetic gains using genomics showed that a considerable improvement in tree material towards high-value solid wood production is achievable when certain selection criteria are included in the breeding programme.

Many high-value international markets demand naturally durable wood. The challenge with such high-value timbers, including many of New Zealand’s indigenous species, is drying them in a way that provides high timber recovery and enhances wood material properties such as stability. Building on our experimental knowledge of the effect of supercritical CO2 on key wood/water relationships, and the effect of mechanical stress, we have successfully predicted the softening effect of CO2 on wood material by means of predictive modelling. The results allow us to determine the effect of process parameters on dewatering efficiency, and moisture-related distortion, for a wide range of scenarios, as well as providing an engineering scale-up design tool for larger plants.

We showed that for a hard-to-dry species the use of supercritical CO2 and a new thermal drying technique can reduce the development of shrinkage and internal checking.

This work is supported by novel drying research with an industry partnership focussing on eucalypts, Douglas-fir and cypresses. These potential drying solutions could be applicable to some indigenous species, such as tōtara and beech, and is part of a programme with Ministry for Primary Industries, Northland Inc, Tane’s Tree Trust and iwi in developing greater economic returns from planted tōtara.

Scion continued development of high performance wood products (such as very durable and stable wood) with results from scaling up of two technologies using radiata pine. We can now justify moving to commercialisation of these modification technologies, proved to improve the stability and durability while enabling radiata pine natural feature to be expressed in a wide range of colours from natural hues to bright vivid colours. Further novel approaches to protect and enhance a range of wood species are being explored at laboratory- scale, such as thermal modification of non-radiata species. This technique was applied to three species with success. Results indicate that improvements to durability stability have been achieved, and importantly for the species trialled this technique produces new colours with greater uniformity, which should lead to new market opportunities.




Expandopportunities in the wood fibre, pulp, biopolymer, packaging and biochemical industries and from their biomass side streams

Develop new industrial bioproducts for existing and emergingmanufacturing industries in New Zealand

Success in phase one resulted in follow-on funding for the Bill and Melinda Gates Foundation “Reinvent the toilet” challenge. Good progress was made towards building a prototype. Market analysis was completed of opportunities in the developed world where such a simple eco-friendly toilet could be used.

The Woodforce licensee in Europe (Sonae-Arauco) continued to work hard at opening the market for Woodforce with good engagement in the automotive sector and small sales volume. Concurrently, Scion is progressing initiatives to understand and open the Asian market for Woodforce.

Scion filed a patent to protect its novel high-moisture barrier coating that increases the lifetime of paperboard packaging in humid conditions. Discussions with several New Zealand and overseas companies are underway to establish commercial trials of the technology.

Our formaldehyde free and 100% biobased adhesives technology for use in engineered wood products was named Biotechnology of the Year by NZBIO and received other accolades. The adhesive, named Ligate™, was introduced to targeted global companies resulting in significant interest.

The biospife – a novel spoon-knife produced through a partnership between Zespri, Alto and Scion – is made from bioplastic material (PLA) that incorporates kiwifruit residues. It is designed to be composted with the skins after the kiwifruit has been eaten. Biospife was officially launched at Fieldays 2017, and >300,000 biospifes were produced by Scion and Alto.


Scion continued to develop options to address an important market issue, e.g. wood treatment options that avoid the use of highly toxic chemicals such as copper-chrome-arsenic (CCA) formulations. After three years, our biobased chemical durability samples in above-ground trials (decking, flat-panel, joinery and framing) showed no signs of decay. We are now exploring some of the secondary effects that our biobased chemical durability treatment may have on paint and fastener corrosion performance, and a long-term exposure trial was established. In response to increasing demand for non-radiata species we treated a range of house framing and exterior decking applications and established long-term exposure trials.

Many home and building decisions are made by designers and developers who focus on the cosmetics and functions of houses. This drives a ‘code minimum’ approach that does not always produce energy efficient and healthy homes. We produced a demo version of a tool that collated a wide range of background material on current building design and built environment planning decision tools, including international research initiatives, existing tools and software. The work supports development of Scion’s interface and partnership with the Building Better Homes, Towns and Cities National Science Challenge. With an international secondment we explored the role, the uptake and impact of life cycle analysis and environment product declarations in the New Zealand building sector. Via our work in the built environment we secured a position in the Australian Industrial Transformation Research Hub for Advanced Solutions to Transform Tall Timber Buildings, which aims to grow the role of timber in the medium rise buildings.




Increase New Zealand’s energy security through the use of forest and waste biomass for bioenergy

Accelerate the use of bioenergy and liquid biofuels in New Zealand

Protect and enhance market access and improve risk management in the forest industry including forest health and preparedness for biosecurity incursions, fire and climate change

Ensure New Zealand forests are resilient to current and future natural threats


Scion produced biodegradable bioplastic vineyard net clips containing red grape pomace. Development of the next versions – targeting defined degradation timelines – is underway. The commercial proposition for large- scale manufacture is currently being evaluated.

Scion’s fire behaviour models helped operations staff make decisions on where it was safe to deploy firefighters and what properties and communities were at risk and needed evacuating during the Port Hills fires in Canterbury.

Breeding for resistance to needle loss caused by Cyclaneusma minus has been included in the needle disease strategy of Pinus radiata in New Zealand since the late 1970s. Using data from the North Island (New Zealand) and from Tasmania, Australia, we confirmed that resistance to this needle disease is moderately heritable. Using statistics we also determined that considerable genetic gains, up to 30%, could be achieved with further selection.

Significant research progress was made into chemical control of wildings, including strong engagement with end users.

Very successful planning workshops and field trips were held with local and international collaborators to firm up the new Extreme Fire programme, with focus on how fire spreads and integrated fire modelling systems and tools.

Trials showed that copper could provide viable control for red needle cast.

Resistance to red needle cast was indicated for some industry relevant radiata pine genotypes.

The Urban Toolkit for Biosecurity progressed by developing an aerial spot spraying system that is a useful method for pest eradication in an urban environment, particularly where aircraft access is challenging.

Scion developed a risk-based forestry biosecurity surveillance system that should lead to improved early detection and eradication probability when adopted in 2018.

Scion submitted on the draft New Zealand Energy Efficiency and Conservation Strategy, and the new strategy now contains targets for industrial heat and transport.

Several New Zealand Biofuels Roadmap stakeholder workshops were held and the results of the modelling work was presented to all key stakeholders. Valuable feedback was fed into the next phase of the project.

The Bioprocessing Alliance Ecostock project aims to develop a cost-effective and sustainable alternative to land filling of pre-consumer food waste through the use of anaerobic digestion technology yielding energy and a nutrient rich digestate as a fertiliser product. The plant commissioning was successfully completed, with consistent operation to date.

External communication of the findings from the Industrial Symbiosis project resulted in several invitations to speak at conferences. Findings show impact of closer interaction of operating plants on profit, jobs, greenhouse gas emissions and more.




Ensure the forest industry and bioeconomy businesses’ licence to operate

Sustain New Zealand forest industry and bioproductmanufacturers’ licence to operate

Working with a range of primary industry stakeholders and research providers (Plant and Food Research, Lincoln University, University of Otago, CSIRO, University of Tasmania) and international experts from Canada and the UK, we identified ‘trust’ as a major component of social licence to operate and developed a conceptual approach to explore this. We explored a number of elements of social licence through an international virtual symposium and New Zealand workshop. One outcome was the framework for a wide-ranging conceptual paper and future collaboration. We obtained support from the Our Land and Water National Science Challenge for a scoping project on trust and will establish a national primary sector discussion forum on social licence to operate in late 2017 to take the research further.

Our ongoing research in the detection of wilding conifers resulted in initial successes being able to detect unwanted spread of conifers from plantations with large-scale deployable remote sensing systems, allowing plantation managers to manage their spread more effectively.

We initiated a successful collaboration to better determine the risk of wilding spread from plantations by wind-modelling.

Through interactions with schools, the public, government, regional councils and industry players Scion continued to give input into the biotechnology debate occurring in New Zealand. Our contained field trial of biotech trees was maintained and shown to numerous stakeholder groups. Scion is keeping New Zealand informed through membership of international fora such as the EPSO Agricultural Technologies Working Group on regulatory issues with GMOs and new breeding technologies.

Scion was one of nine New Zealand research organisations participating in the newly formed New Zealand-China Food Protection Network, which aims to enhance communication between research scientists, government organisations and industries here and in China.

Scion achieved proof of concept that tritium dating could become an additional more precise method of authenticating biobased products. Working with GNS Science and the Energy Research Centre of the Netherlands, Scion validated the idea. If accepted as an international standard, this methodology will add more certainty around the ultimate source of plastic and make it more difficult for counterfeit products to enter the market.

We were represented on three Standards committees (two New Zealand and one joint Australian/NZ) including chairing of NZS 3602 ‘Timber and wood-based products for use in building’.


A keynote presentation at an IUFRO conference in Vietnam on host and geographical range of Phytophthora species and their risk of spread to new regions became a key talking point of the conference.

Collections and molecular reference material from the National Forestry Herbarium assisted the myrtle rust response by helping to identify potential myrtle rust host plants.

39Reachingout

UNLEASHING THE POWER OF FORESTRYTHROUGH PURSUING EXCELLENCE ANDREACHING OUT

Science papers68 Collaborations with universities and research institutions9 Formal collaborations with Māori6 National Science ChallengesCollaborations326 Presentations on technical information and research results296 Commissioned reports198 Publications on technical information and research results29 Popular articles and videos15 Events sponsored11 Programme newsletters6 Software/tools4 Editions of Scion Connections

Tech translation

39 Interns and students hosted>550 Interactions with students at school or on campus67,405 Unique visitors to our website (over 11 months)12,167 YouTube video views2275 Followers on LinkedIn1259 Subscribers to Scion Connections765 Followers on Twitter

Outreach

Awards Accolades for our bioadhesives Ligate™ technology • NZBIO Biotechnology of the Year• 2016 NZI Sustainable Business Network Awards commendation• NZ Innovators Awards finalist

www.scionresearch.com/ar17/publications

www.scionresearch.com/ar17/awards ‒ for more awards

143 Refereed papers published26 Papers published in Vol 46 of the New Zealand Journal of Forestry Science56.89 5-year weighted average H-index

40 Financialresults

FINANCIAL RESULTS SUMMARY Revenue: Includes science research, contract work for government and commercial clients, royalties and licence fees.

EBIT: Earnings before interest, tax and restructuring costs.

EBIT Margin: EBIT ÷ revenue.

EBIT-R: EBIT before reinvestment where reinvestment are amounts approved by the Minister.

EBIT-R Margin: EBIT-R ÷ revenue.

Return on equity: Net profit after tax ÷ average shareholders’ funds, expressed as a percentage.

Equity Ratio: Average shareholders’ funds ÷ average total assets.

Gearing: Financial debt ÷ financial debt plus shareholders’ funds.

(The Minister of Finance and the Minister of Science and Innovation each hold 50% of the shares on behalf of the public.)

2017Budget50.31

2.15

4.3%

1.47

3.62

7.2%

50.11

4.3%

7.1%

75.3%

0

0.0%

2017Actual51.90

3.01

5.8%

1.37

4.38

8.4%

54.20

6.2%

8.8%

73.5%

0

0.0%

2015Actual47.34

3.27

6.9%

0.80

4.07

8.6%

46.31

7.3%

8.9%

74.1%

0

0.0%

2016Actual49.60

2.28

4.6%

1.35

3.63

7.3%

48.11

5.2%

7.8%

75.1%

0

0.0%

Revenue, $m

EBIT, $m

EBIT Margin

Reinvestment, $m

EBIT-R, $m

EBIT-R Margin

Total Assets, $m

Return on Equity

Pre-reinvestmentReturn on Equity

Equity Ratio

Dividend, $m

Gearing

Ministry of Business, Innovation and Employment (other)

Ministry of Business, Innovation and Employment (SSIF (Core))

Government departments

Other commercial

Interest

24%

34%

12%

29%

1%

Employee remuneration

Training and recruitment

Consumables

Depreciation and amortisation

External services and contractors

Premises costs

Travel

Other operating costs

Non operating costs

Net profit before tax

48.9%

1.3%

2.6%

6.9%

21.3%

5.8%

3.6%

2.6%

0.6%

6.4%

Where our revenue comes from

How our revenue is spent

Our full Reports and Financial Statements are presented in Part B of the Annual Report. www.scionresearch.com/annual-reports

J007

056

SCION is proud to be a Crown Research Institute.Over the past 25 years our science has been helping to create a more prosperous,sustainable and innovative nation — together we will continue to deliver sciencethat works for New Zealand.

G.43G.43

Annual Report2017Reports and Financial Statements

UNLEASHINGTHE POWEROF FORESTRY

Presented to the House of Representatives pursuant to section 44of the Public Finance Act 1989.

Our Annual Report is presented in two parts - Highlights (Part A)and Reports and Financial Statements (Part B). Together both documents

ful�l our annual reporting responsibilities under theCrown Research Institutes Act 1992.

Highlights is an illustrated document containing the Chairand Chief Executive report, descriptions of our research performance,

collaborations, work with Māori, and outreach summary.

Our Annual Report is also available in digital format atwww.scionresearch.com/annual-reports

Published by:Scion

49 Sala Street, Private Bag 3020, Rotorua 3046, New Zealandwww.scionresearch.com

September 2017

© 2017 New Zealand Forest Research Institute Limited trading as Scion

ISSN 1177-1763 (print version)ISSN 1178-5276 (online version)

Cover: Magnified sample of a plastic composite reinforced with Scion’s engineered wood fibre (licensed and sold as Woodforce), colour coded for

particle orientation to predict product strength.

Annual Report2017

Reports and Financial Statements

GOOD EMPLOYER AND EQUAL OPPORTUNITIES ....................................................................................... 3

ENVIRONMENTAL PERFORMANCE ........................................................................................................... 9

STRATEGIC SCIENCE INVESTMENT FUNDING (CORE FUNDING) ............................................................. 10

CORPORATE GOVERNANCE ................................................................................................................... 24

DIRECTORS’ REPORT .............................................................................................................................. 25

Principal Activities .......................................................................................................................... 25

Summary of Group Financial Results to 30 June 2017 ........................................................................ 25

Remuneration and Compensation ................................................................................................... 26

Dividend ........................................................................................................................................ 26

Director Profiles ............................................................................................................................. 27

Changes in Directors ...................................................................................................................... 28

Directors’ Interests ........................................................................................................................ 28

Directors’ Remuneration ................................................................................................................. 28

Use of Company Information ........................................................................................................... 28

The State of the Company’s Affairs .................................................................................................. 28

Auditor .......................................................................................................................................... 28

Directors’ Indemnity and Insurance ................................................................................................. 29

Statement of Responsibility ............................................................................................................ 29

PERFORMANCE TARGETS ....................................................................................................................... 30

NON-FINANCIAL INDICATORS ............................................................................................................... 31

AUDIT REPORT ........................................................................................................................................ 32

FINANCIAL STATEMENTS ....................................................................................................................... 34

BOARD OF DIRECTORS ........................................................................................................................... 61

REGISTERED OFFICE DETAILS ................................................................................................................ 62

CONTENTS

Scion Annual Report 2017

3S c i o n A n n u a l R e p o r t 2 0 1 7 P a g e | 3

GOOD EMPLOYER AND EQUAL OPPORTUNITIES Scion is committed to being a good employer and promoter of Equal Employment Opportunities (EEO). This commitment is demonstrated through our day-to-day practice and history of compliance with the requirements of the Human Rights Commission Annual Report Review. Our Scion Values help build a culture that supports empowerment, diversity, inclusion, innovation and accountability. We believe these attributes create an environment that allows the Good Employer principles to thrive. With our company values, we deliver on the good employer obligations through our Board Good Employer Policy and our Equal Employment Policy, along with our management policies, programmes and practices. Scion’s progress against the seven key good employer elements over the 2016-17 financial year are summarised below.

Good employer key element Scion’s achievements 2016/2017

Leadership, accountability and culture

•! Seventeen new members joined the Future Leaders cohort. •! Leadership group strategy session and resilience session held. •! Executive Management team completed Leadership Styles Inventory

profiling. •! Continued embedding of the Scion values in leadership practice,

recognition and company processes. •! Progress against the 2017 Climate Survey action areas including supporting

career pathways, remuneration, helping staff transition through campus upgrade, increasing fun and improving communication.

•! Two leadership-in-practice training sessions delivered to the first line manager group.

•! L&D Programme delivered to all employees including Productivity and Self-Management, Unfiltered and Excel.

•! Two P&P employees completed their crucial conversations accreditation and delivered the programme four times this year.

•! Te Rangihakahaka professional development programme rolled out and was perceived very positively by staff.

Recruitment, selection and induction

•! Participated in the Rotorua Careers Expo. •! Used diverse media to attract candidates and created an excellent

candidate database to achieve our time to fill goal. •! Recruitment module delivered to first line managers. •! Diversity and Inclusion reference added to policies, job adverts and

careers website. Employee development, promotion and exit

•! Six employees supported with further tertiary education. •! Mindfulness training completed with 70 staff. •! Stable turnover of 8.7%. •! ACE performance management training rolled out to all ACE managers

across the business. •! Twenty-four staff promoted via Scion’s progression panel process.

Flexibility and work design •! One in four employees worked part time. •! Draft working remotely policy submitted to Team Managers for

consultation. •! Twenty-one employees approved for changes in hours to accommodate

lifestyle choices. •! Eleven employees accessed parental leave (six males and five females) and

seven employees received ex-gratia payment upon return from parental leave (three males and four females).

•! Breastfeeding room was made available for returning mothers. ! !



Good employer key element Scion’s achievements 2016/2017

Remuneration, recognition and conditions

•! Maintained regular Partnership for Quality meetings with PSA Union. •! Scion Science Excellence Award awarded. •! One hundred and one employees accessed sick and bereavement leave

beyond the legislative allowance. •! Two employees accessed income protection and one our life insurance

policy. •! Remuneration specialist completed an audit on pay equity across Scion.

Harassment and bullying prevention

•! First line manager training delivered on treating staff consistently and fairly.

•! Team feedback sessions after climate survey reinforced bullying is unacceptable and staff reminded of their support options.

•! Positive 11.5% EAP usage compared to national average of 8.20%. •! Crucial conversations training delivered to support staff with healthy

dialogue. Safe and healthy environment •! Health monitoring implemented for staff exposed to hazards – 26 staff

were retested for hearing and lung function. •! Influenza vaccinations were taken up by 76 staff. •! Wellness calendar introduced with monthly initiatives to support staff in

all areas of wellbeing including: !! Fortnightly seated massages onsite for staff; !! Mind Club for staff to ‘calm the mind’ and practice meditation; !! Weekly yoga classes at lunchtime; !! Prizes for all teams entering the Rotorua Ekiden relay race; !! Men’s Health month (subsidised health checks for all male staff,

healthy morning tea, screened the Sugar Film for staff and completed a 4-week most waist centimetres lost challenge).

•! Occupational hygienist engaged to review our nursery, noise and fungal exposure.

•! Mental health webinar launched for managers. •! CIMS emergency training completed by Health and Safety Coordinator. •! Emergency warden procedure training for all emergency wardens.

1.! Leadership, accountability and culture Scion recognises that excellent leadership, real accountability and a high performance culture are vital in order to grow the quality and impact of our science and achieve our strategic goals. We continued to develop our organisational leadership capability, primarily through three targeted programmes. The first, focused on our senior leadership group of tier one to tier three leaders (CEO, executive managers and senior managers) to expand a leadership mindset and provide a forum to address organisational challenges. Highlights include a group strategy session and resilience session to better communicate how the team contributes to the goals of the organisation; mindfulness in business to learn mindfulness techniques that activate clear and focused thinking by Dr Chantal Hofstee; and the Executive Management Team also completed Leadership Styles Inventory profiling to help our leaders make productive changes in their behaviour to improve overall effectiveness. The second initiative, our research leaders programme (first line management), sought to expand leadership and accountability into tier four and beyond. The 24 members of this cohort are our first line management. They received investment in the form of training, organisational opportunities and coaching to strengthen our leadership depth and allow for succession planning. An external facilitator delivered two sessions on Leadership in Practice to the research leaders, and People and Performance delivered a Tools for Success leadership training module. The third initiative, the Scion learning and development organisational wide plan, was offered to all staff to support their career development at Scion. A number of new courses were added including Te Rangihakahaka professional development, identity, culture and language programme giving staff a


Scion Annual Report 20175S c i o n A n n u a l R e p o r t 2 0 1 7 P a g e | 5

better understanding of Te Arawa tikanga, Mindfulness in Business, Productivity and Self-management, and Unfiltered. Promotion of Scion values continued, and we recognised the demonstration of values-aligned behaviours through our reward and recognition programmes. From our quarterly CEO award, our annual Scion Awards to our values-branded mugs for all new staff, we believe that recognition positively impacts the Scion culture. Our biennial climate survey provides us with insights into our culture and was conducted in February 2017. We reviewed and implemented recommendations over the last four months of the year. Initiatives that resulted from the survey included ACE (performance management system) toolkit training delivered to all managers to ensure consistency in our process and provision of additional tools and resources for staff to feel confident in this process. Other actions included progress on career pathways, remuneration, helping staff transition through the campus redevelopment, bringing more fun to the workplace and improving communication. 2.! Recruitment, selection and induction Scion’s recruitment and selection practices are free from discrimination and support our Equal Employment Policy to ensure that we recruit the best person for the job. We reject the use of terms that may be seen as discriminatory in our advertising and our recruitment panels are informed on the principles of the Human Rights Act 1993, particularly the 13 areas of discrimination. We also ensure that candidates are given an opportunity to share any specific needs that they may need to be met in the recruitment process. We continued to diversify the way in which we recruit, utilising print media, online job sites, social media, industry specific media and the Science New Zealand careers website to ensure a wide range of people have access to the opportunities here at Scion. All Scion job advertisements, policies and careers site have been updated to reflect our commitment to diversity and inclusion and EEO. Recruitment training was delivered to all first line managers on why, how and what our commitment to EEO consists of, and we encouraged the use of a competency framework in order to shortlist candidates for a role. Scion’s induction programme remained an essential element in successfully ‘settling in’ employees at Scion. This programme is particularly important when welcoming international employees or those new to the Rotorua area. Our process is guided by a self-directed Induction Passport that engages the employee with all key personnel, processes and policies. Attendance at a whakatau, hosted by the Executive Management Team, is an important element demonstrating respect of Te Arawa, and for some of our employees offers their first experience of tikanga Māori. 3.! Employee development, promotion and exit Our employee development strategy is based on clear goals, fair assessment and access to continued learning and development opportunities. Our performance management tool, known as ACE, is used by all staff to plan their annual work, development and safety goals. Following feedback from the 2017 staff climate survey, all ACE managers received refreshed ACE training. All employees had access to development opportunities through their ACE and our organisational learning and development programme. We also prioritised training for our first line managers as the employee-line manager relationship is a key driver in terms of positive wellbeing, development and engagement. Scion offers staff a unique process for career progression via a progression panel that allows staff to apply through a peer review process to advance to a higher job band. The panel consists of a diverse

6Scion Annual Report 2017S c i o n A n n u a l R e p o r t 2 0 1 7 P a g e | 6

group of employees from across Scion, including a Public Service Association (PSA) union delegate, one general manager and an external remuneration consultant. Twenty-four employees were promoted via the Progression Panel process. Employee turnover was 8.7% (including redundancies). We completed exit interviews and surveys with exiting employees to identify opportunities for improvement. Exit survey results reflected a positive experience at Scion, and recorded a 95% satisfaction with Scion’s commitment to company values, 95% satisfaction in Scion’s commitment to Health and Safety and 85% satisfaction with fairness and equity across Scion. Voluntary departures were 57% and 43% were involuntary. Of the voluntary exits, reasons for leaving were family (17%), new career (33%), not a good fit (25%) or retirement 25%. Scion’s Education Assistance Policy supported five staff members with their PhD studies, one staff member with a Post Graduate Diploma in Business Management and one staff member with the Homeward Bound Leadership Programme in Antarctica. 4.! Flexibility and work design Diversity and staff wellbeing is valued, and we demonstrate this by being a flexible employer, through working hours or location. One in four employees works less than the traditional 40 hour working week, and over the past 12 months 21 employees (15 female and six males) altered their working hours to better achieve their desired lifestyle. This work-life balance ethos was also demonstrated by the number of staff seen mountain biking, running or walking their dogs in the forest alongside our campus. Access to meaningful work requires more than flexibility of hours and location, and so we implemented a number of additional initiatives acknowledging external diversity and inclusion standards. These include a breastfeeding room for returning mothers, a wellness calendar with frequent events, competitions, support, resources and giveaways to promote health and wellbeing in and out of the workplace. A working remotely policy was drafted and submitted for approval. Also a greater awareness of our Employee Assistance Programme (EAP) for staff and their families saw a positive increase in our EAP usage. Paid and unpaid parental leave was taken by 11 employees (six males and five females) and we made ex-gratia payments of six weeks’ wages to seven employees (three male and four female) six months after their return to work. 5.! Remuneration, recognition and conditions Remuneration is based on job bands and remuneration ranges sourced from external market surveys produced by Korn Ferry Hay Group. Annually we work with the PSA Union and our Scion Board of Directors to set our remuneration budget. We then determine in negotiation with the PSA Union how this budget will be applied across all staff in the annual remuneration round. This year, as traditionally, we applied a performance-based increase or non-consolidated payment. We believe that our remuneration process is free from discrimination, and we monitor for potential gender equity issues through an annual review of our remuneration, promotion and performance assessments conducted by an independent consultant. We worked closely with the PSA Union under a Partnership for Quality Programme and utilised this forum to discuss morale, H&S, operating environment and matters potentially affecting Scion employees. Additional support was provided to 101 employees for bereavement and/or sick leave beyond legislative entitlements. One employee accessed the long-term illness benefit but passed away so the life insurance


policy became available to her family. The income protection and life insurance policy was available to all permanent staff. The Scion Annual Awards continued and a highlight was the Science Excellence Award made to Dr Michael Watt, Research Leader Forest Industry Informatics for the impact and significance shown in leadership of the team, funding received, increase in his team’s utilisation and lead authorship on papers published. Recognition for employees also occurred through both Scion and team communication channels such as team meetings, Treehouse (our staff intranet) and external Scion Connections newsletter. Our team managers were also supported with a budget allowing them to celebrate success within their teams. We completed ongoing review and renewal of our EEO and Good Employer initiatives and policies. We sought input into our Learning and Development calendar from the organisation and ensured leadership and the PSA union delegates had input into policy review. 6.! Harassment and bullying prevention Scion encourages a self-resolution approach to relationship problems at work to empower employees, promote efficiency and support an effective workplace. To achieve this we up-skilled our staff with complementary training including Crucial Conversations, Resilience, Mindfulness and Safe Behaviour workshops. We promoted our Problem Resolution and Unacceptable Behaviour in the Workplace Policy and the Worksafe Guidelines for ‘Preventing and Responding to Workplace Bullying’. Our culture and values endorsed the benefit of prompt and respectful feedback, access to EAP and one-on-one behavioural coaching as methods to ensure a healthy workplace discouraging negative behaviours before they start. This year we completed training for our first line managers around treating staff consistently and fairly to raise awareness that bullying can also be very subtle. Team feedback sessions following the climate survey reminded staff that bullying is unacceptable and that a variety of support is available for staff should they have concerns. Employees at Scion were able to access EAP for support around personal or workplace matters. A total of 29 employees accessed EAP along with five family members, reflecting a usage rate of 11.15% compared to the national average of 8.20%. Our Christchurch staff indicated a preference for an onsite presence through local provider Workplace Support. With a very similar usage rate to last year’s 11.68%, we believe the higher than average EAP support was in response to the encouragement staff received from their leaders and People and Performance. The session average for the staff members was 2.3, and 71% of the problems were personal rather than work related which was a positive result. 7.! Safe and healthy environment Scion continued to advocate for a culture that promotes employee wellbeing and contribution to the H&S environment. This commitment saw us complete significant training with our H&S Committee, including supporting one employee to undertake a Graduate Diploma in Health and Safety. We continued to take a base line assessment of new staff and implemented monitoring for staff who were exposed to hazards, with 26 staff re-tested this year on hearing and lung function. This initiative made our staff feel cared for, and the results reflected our good practices in respect of personal protective equipment use. An occupational hygienist conducted a review of our nursery, noise and fungal exposure and provided recommendations for our housekeeping practices that we will implement in the coming year. CIMS


Emergency training was completed by Scion’s Health and Safety Coordinator, as well as emergency warden procedure training for all emergency wardens. A key initiative was the launch of our Safety and Wellness calendar to support staff in all areas of wellbeing, which provided a range of monthly activities as listed in table (see page 4). The year completed with one serious harm incident, 28 incidents, and 31 near misses reported (these compared with 24, 31 and 37 respectively in 2015-16). Eight staff were medically treated, 19 non-medically treated (compared 7 and 15 respectively in 2015-16) and one lost time due to injury. A total of 76 staff received a company-paid influenza vaccination. Work place profile

Total staff Total permanent employees 293 – 51.7% male and 48.3% female

FTEs Full time equivalent permanent employees total 273.46

(excludes fixed-term staff, students & post doctorates - 20)

Māori Māori represent 9% of permanent employees

Disability 2.7% of employees are recorded as disclosing a disability

Age 26.7% of employees are in the under 40 years age group, 28.4% are in the 40 to 49 years age group and 44.9% in the 50 years and over age group

Nationality 23% of employees are recorded as disclosing a nationality other than New Zealander or Māori, and represent 30 nationalities

Pacific Islander No employees are recorded as disclosing a Pacific Island nationality


ENVIRONMENTAL PERFORMANCE

! Scion obtained Enviro-Mark Silver accreditation in July 2016. We are looking to move to gold certification in the near future. Scion staff were involved in a riparian planting project adjacent to the Puarenga Stream with our neighbour Whakarewarewa School and tenant Wildland Consultants. Scion staff were active in reducing electricity and gas usage during 2016-17, resulting in a 4 per cent reduction in carbon emissions from the previous year. Energy efficiency was also a focus of the planning for the renovation of our main office block top floor as well as being integrated into the design of our new innovation building. Reductions in waste to landfill and water usage will be a focus of the 2017-18 financial year as well as continued reductions in electricity and gas usage.

!


Electricity

Gas

Fuel

Flight

22%

47%

4%

27%

Comparison of relative CO² loads fromScion activities for 2016 - 2017


STRATEGIC SCIENCE INVESTMENT FUNDING (CORE FUNDING)

Intermediate Outcome 1

Maximise the value and profitability of commercial forests and their ecosystem services

Alignment to Statement of Core Purpose

Improve the value and productivity of the New Zealand forestry sector

Alignment to Sector Priorities

New Zealand Forest Owners Association and New Zealand Farm Forestry Association

Investment as per the SCI 2016-17

$3.1 million

Investment Actual

$3.1 million

New tree finger printing kit developed Scion, with the Radiata Pine Breeding Company Ltd Genomic Selection Programme, has successfully identified markers for Pinus radiata (radiata pine) that meet criteria for parentage reconstruction and clone identification. Generating a (near) complete database of potential parents reflecting our breeding and production populations is our next priority. A commercial release of the parentage assay is expected during 2018. Markers for radiata pine have been combined with markers for parentage reconstruction and genetic diversity analysis for Eucalyptus nitens, E. fastigata and for Leptospermum scoparium (mānuka) to increase the cost-effectiveness of the parentage assay. Genomic resources Work continued on the sequencing and assembly of the radiata pine genome, resulting in the most complete assembly for the Pinus genus to date. The assembly of the mitochondrial genome was initiated, and is expected to be completed during 2018. With new compute resources in place, long reads will be used to assemble a final 1.0 sequence for publication. This genomic resource is vital for the development of robust genomics platforms in radiata pine and opens the door for greater understanding into epigenetics and functional genomics. Drought tolerance Drought tolerance and photosynthetic rate was measured on radiata pine clones using changes in isotope level and chlorophyll fluorescence. Variation in these prior to drought stress was found among genotypes. Results from analysis of changes after drought stress will be used to develop genomic estimated breeding value (GEBV) prediction models to select radiata pine for drought tolerance. First genomic selection demonstrated greater genetic gain than progeny testing The first genomic selection paper, on the non-key traits in radiata pine, has been completed, and is ready for submission. These traits, other than growth, wood density and stiffness, are of interest to breeders. The study evaluated the accuracy and predictive ability of genomic selection and its efficiency over traditional forward selection in radiata pine for: branch-cluster frequency; stem straightness; internal checking; and external resin bleeding. The results were very encouraging and further sites, training populations and traits will be examined in future years. Scenario analysis of genomic selection indicated the importance of a rapid pathway to market Several scenarios for the implementation of genomic selection in conifers were tested. Genetic gain per generation was found to increase considerably when the size of the training population was largest, or when the heritability was higher. The largest genetic gain (24%) was achieved where large training populations (3000 clones) and high heritability traits (0.5) were combined in the simulation. Deploying clones of the selected individuals always resulted in higher additional genetic gain than deploying progeny/seedlings. Deploying genetic material selected from genomic selection with top-grafting for early cloning appeared to be the best option. Application of genomic selection to conifer breeding programmes, combined with deployment tools such as top-grafting and embryogenesis are powerful tools to speed the delivery of genetic gain to the forest. Biotechnology approaches to forest productivity Scion continues to take a leading role in the application of biotechnology for forestry in New Zealand. Genetic



modification (GM) and new breeding technologies (gene editing) have the potential to make step changes in production forestry through improving productivity and/or profitability. Biotechnology can also address some important social licence to operate issues (e.g. reducing the incidence of wildings) and could be applied in the future to achieve disease resistance. Scion is continuing to evaluate new technologies, carrying out robust science and to keeping up-to-date with international developments to inform commercial forestry companies, the public and to support policy development. We are making a substantial contribution to international science in conifer biotechnology and leveraging that knowledge for New Zealand’s benefit. Research has been presented at: American Society of Plant Biologists Annual Conference, Queenstown Molecular Meeting, Australasian Genomics Technologies Association Conference, IUFRO Asia and Oceania Conference, Queensland University of Technology and Institute for Future Environments, Swetree, Forschungszentrum Jülich (a Helmholtz Research Centre Germany) phenotyping workshop. This evaluation and monitoring of existing plantings continued during 2016/17. Additionally, four new lines of biotechnology trees have been planted in field trials. The new lines have been developed to improve productivity and will allow testing of the performance of the biotech trees compared with unmodified controls during growth under field-trial conditions. This project will now be complemented by a new Endeavour fund project for sterility research and wilding pine mitigation. Informatics ‘Big-data’ approaches, remote sensing and the use of unmanned aerial vehicles (UAVs) are major contributors in the move towards practical precision forestry. Scion is validating many of these tools and defining how they can be applied to develop the next generation of forest management systems. GeoSpatial data processing has been a major focus for Scion during the past year as extracting maximum value from the large amounts of data being collected is a priority. A collaborative work programme with Forest and Wood Products Australia is pushing the boundaries of useful information that can be extracted from LiDAR point clouds. This work is producing new ways of processing high resolution LiDAR data for tree measurement. Analysing detailed point cloud data requires large-scale processing. Scion has worked with local technology company Nyriad to produce a new cloud-enabled platform for processing LiDAR data at an unprecedented speed and scale. This new platform will open opportunities for science delivery into the primary sector, enabling analysis of data hitherto impossible to achieve. The UAV programme continues to push the limits of what these machines are capable of. Scion UAV-collected LiDAR data was showcased at a major remote sensing conference in South America. This work is widely regarded to be world leading in the detail of data being collected and its analysis. Uptake by industry is validating this technology and the approach. Scion has also trialled Virtual Reality, the Internet of Things, and helped our industry deal with new Sentinel 2 satellite data. Ecosystem services Scion continued to build national capability and leadership in ecosystem services, bringing in a wider economics perspective and experience in agriculture and the impacts and adaptation to climate change. Scion organised the first Oceania Forest Ecosystem Services Forum and connectivity with Europe has been extended increasing our ability to influence and leverage international research efforts. Scion is now well recognised for its leading position in Forest Ecosystem Services (FES) and developing a comprehensive understanding of the value of New Zealand’s planted forests. We have worked with regional councils, national policy agencies, forestry companies, iwi groups, and through input to the NZ Institute of Forestry Forest Policy discussion piece. The Forest Investment Framework (FIF), alongside economic valuation techniques applied in forestry, are now seen as the state-of-the-art approaches in New Zealand and have significant sector and local government support. The growing interest of the forest industry on ecosystem services is reflected by the team’s invited to contribute to the special issue on Ecosystem Services of the NZ Journal of Forestry (two professional papers). The vital importance of ecosystem services in policy is recognised, for example, considering the synergistic effects of forest and dairy industries to inform policy development and forestry as a low-input alternative land use for nitrogen-sensitive catchments.



Scion’s ecosystem services work reaches beyond New Zealand. We took part and supported in the first Oceania Ecosystems Forum held in Brisbane, which included a forest ecosystem services specific workshop with speakers from across Oceania. This has strengthened key collaborations (Universities of Melbourne and Queensland, Australia National University, US Geological Survey, Centre for International Forestry Research) that allow both learning from others and extending Scion’s work into the Pacific and beyond. Scion has been recognised for its work on the economic valuation of forest ecosystem services with keynote presentations such as a “Workshop on Ecosystem Services and Land Use” at the International Union of Forest Research Organisations (IUFRO) Congress to be held September 2017 (organised by Institut National de la Recherche Agronomique (INRA) Laboratory of Forest Economics). This invitation has resulted from the launch in 2017 of the four year EU COST Action project on Payments for Environmental Services for Water (PESFOR-W) in which Scion is a foundation partner. This enables strengthening of collaborative research activities on that project. Our involvement in PESFOR-W has resulted in the publication of a journal article. Scion presented at the 31st International Zamorano Convention in Santa Cruz, Bolivia in August 2016 on the role of forests on climate mitigation. As a result, Zamorano University has approached Scion offering interns as part of the institution’s fourth-year teaching curriculum. This will extend our reach into Latin America. Systems for Economic and Environmental Accounts (SEEA) for forestry have been developed. This includes working with NZFOA, MPI, Treasury and StatsNZ and with international partners. The forestry SEEA will assist New Zealand’s development of satellite accounts for the forestry sector to more fully account for the values and benefits over and above that of timber. This work is supported by two conceptual or positioning papers on ‘inclusion and recognition of forest ecosystem services into policy’, and ‘frameworks for policy impact analysis’. Capability in political science has been added to the team to support this work. A third internal discussion paper identifies Scion’s scientific niche in the forest policy and economics area (spatial economic approaches with a focus on forestry within wider landscapes and the bioeconomy) and will help overall positioning for Scion. A computable general equilibrium (CGE) model has been developed and will be used in studies of the impact of various economic and environmental policies, as well as management interventions, on the broader economic performance of the industry and contribution to the national economy. This will be a pivotal tool to get New Zealand involved in the global effort to implement the new SEEA led by the United Nations and World Bank. The CGE model will be used in a sustainable land management and adaptation to climate change project on the impacts of climate change in regional economies led by Landcare Research. A new programme, ‘Connections Matter’, is being developed to advance spatial economic modelling methods linking different land uses and the marine ecosystem within an ecosystem services framework. The focus will be on the Marlborough Sounds. The Regional FES Forum held in Havelock on 24 May 2017, with participants from local council, land users, the aquaculture industry, local community groups and businesses, academia, and iwi, along with the Envirolink project in the Marlborough Sounds and conversations with Terra Moana and Moana NZ, have set the foundations for the development of this programme in 2017/18. International ecosystems services collaborators from the US Geological Survey, Purdue University and Durham University will be invited to assist in the development of the programme. The national forestry Permanent Sample Plot (PSP) database and collection Scion’s longitudinal study of tree growth (PSP), continues to underpin research programmes of national importance. Data from this work has been used to develop new programmes, such as an examination of the technical and economic feasibility of growing short-rotation fibre forests using radiata pine. There has also been a greater focus on undertaking more wide-ranging and comprehensive analyses of the data to test metabolic scaling theories, determine the optimal density (stocking) for growing radiata pine, and calculate the levels of attrition losses due to wind and identify the contributing factors. Advances in data analysis techniques have made this possible. Further development of data visualisation and analytical tools will enable additional interrogation of databases such as studying the impact of drought on the growth of radiata pine. A focus for 2016-17 was on ultra-high pruning trials and the pruning followers’ trials, both of which are reaching maturity and are soon to be harvested. End-of-rotation measurements have been made and the data analysed to show the impact of pruned height, stocking and number of followers on the yield and size of pruned logs. The Specialty Wood Products Partnership programme also support measurement of selected trials and plots in species other than radiata pine. This work will be completed over the next 12 months.




Increase the profitability of solid wood processing through customer solutions and supply chain innovations


Improve the value and productivity of the New Zealand wood products sector


WoodCo Strategy

WPMA Vision 2050


$3.45 million

Investment Actual

$3.45 million

Work in wood products and processing creates the underpinning knowledge that enables industry to develop and enhance the performance of products that best fit with the needs of high value (and profit) markets. Our aims are: to improve the proportion of each log converted to saleable products through understanding wood quality and the increased use of residues; to provide information to address licence to operate issues; to support the increasing diversity of the wood products portfolio that New Zealand can offer; and to sustain our capability to support current and evolving industry needs and to troubleshoot industry problems. The key outcomes for 2016-17 are: High-performance wood products Scion has continued development of high-performance wood products (such as very durable and stable wood). Two technologies using radiata pine have been scaled-up and shown to improve the stability and durability while enabling natural features of the wood to be expressed in colours from natural hues to bright, vivid shades. The project is ready to move to commercialisation of these technologies. Further novel approaches to protect and enhance a range of wood species are being explored at laboratory-scale, such as thermal modification of non-radiata species. The approaches have been successfully applied to three other species. Importantly for the species trialled, this technique produces new colours with greater uniformity, which should enable new market opportunities to be developed. Extension to drying and stabilising other wood species Many of the highest value international markets are demanding naturally durable wood, e.g. some eucalypt species. The challenge with these timbers, including many of New Zealand’s indigenous species, is drying them in a way that provides high timber recovery and enhances wood material properties such as stability. Building from Scion’s experimental knowledge of the effect of supercritical CO2 on key wood/water relationships, and the effect of mechanical stress, we have been able to successfully predict the softening effect of CO2 on wood material by means of predictive modelling. This allows us to determine the effect of process parameters on dewatering efficiency and moisture related distortion for a wide range of scenarios, as well as providing an engineering scale-up design tool for larger plants. We have also shown that using supercritical CO2 and a new thermal drying technique can reduce the development of shrinkage and internal checking in a hard-to-dry species. This work is supported by novel drying research with an industry partnership focussing on eucalypts, Douglas-fir and cypresses. These potential drying solutions could also be used for tōtara and beech; and is part of a programme with Ministry for Primary Industries (MPI), Northland Inc, Tane’s Tree Trust and iwi in developing greater economic returns from planted tōtara. Wood preservation treatment options Scion continued to develop options to address radiata pine wood treatment options that avoid the use of chemicals such as copper-chrome-arsenic (CCA) formulations. This can be a market access issue in some countries. Scion has developed a bio-based chemical option that can be delivered into the wood in water emulsions. Initial evaluation suggests this will meet the challenges of above-ground applications such as decking, flat-panel, joinery, and framing. In 2016-2017, our bio-based chemical durability samples showed no signs of decay after three years in above-ground trials. Scion is now exploring whether the bio-based chemical durability treatment affects paint and fastener corrosion performance with the establishment of a long-term exposure trial. In response to an increasing demand for non-radiata species, a range of house-framing and exterior-decking applications have also been treated and installed in long-term exposure trials. New wood product species - indigenous forests and wood products Ngāti Whare opened a state-of-the-art nursery for propagating native trees and plants at Minginui in September 2016. The iwi investment includes irrigation booms and tray-filling equipment from Italy, the latest technology from New Zealand’s nursery sector and locally engineered plant tables. The nursery development is the direct result of



the experience provided by over 60 years of nursery experience at Scion and capability supported through this programme. The nursery aims to use Scion-developed propagation protocols for indigenous forest plants in order for Ngāti Whare to regenerate part of the Whirinaki forest, as well as providing plants for commercial-scale, regeneration and riparian plantings. Scion and Ngāti Whare have partnered to build on the science and innovation potential of Māori knowledge, resources (Whirinaki Forest), and people (Ngāti Whare). A Vision Mātauranga programme is providing additional support to build capability within the iwi to to do research to take nursery production of rimu, miro, kahikatea, and tōtara from a research scale to a commercial nursery and forest out-planting scale. Scion staff will be mentored by kaumātua and hāpu to explore and understand Ngāti Whare mātauranga for integration into the research work. The indigenous forestry programme in 2016/17 focussed on better understanding the potential for the development of a commercial industry based on the sustainable management of farm-grown tōtara in Northland. A pilot study looking at the properties of farm-grown tōtara, the timber grade recovery and the costs of harvesting and processing trees has been carried out. A sample of approximately 40 trees were selected on a property that had an existing harvesting permit. The trees were characterised in situ, felled and processed into boards that were graded. The results showed that both the volume and grade recovery were good, providing confidence around a critical factor that affects the viability of a commercial industry. The timber will be characterised. Some of it will be used to test the viability of kiln drying, while other material will be sliced into veneer and tested. The project has helped to create momentum around tōtara, which will help support and inform future initiatives in this area. Scion has also developed kauri DNA extraction methodologies, contributed to additional collections of kauri populations for testing and a hypothetical breeding plan. These projects are aimed at supporting partnering with iwi and developing an iwi-based genetics solution to host resistance to kauri dieback disease. New wood product value chains from non-radiata pine exotic species Scion has tested genomic selection in an advanced generation open-pollinated Eucalyptus population. Breeding values estimated using the EUChip 60K SNP chip genotyping tool were compared with a scenario using the documented (non-marker-based) pedigree. The marker-based model gave better model fit and accuracy of breeding values. Inbreeding was found in growth traits, and appeared to have actually inflated documented pedigree-based estimates, probably over-estimating predicted genetic gain for these traits. The beneficial effect of using genomics was profound, especially in traits suffering from inbreeding depression such as DBH and height. Genomic selection using the EUChip60K SNP chip appears to be useful and it is hoped to test and implement this technology further during the next few years. Scion has continued to build a strategy to test genomic selection in Douglas-fir. DNA was extracted and identified from a number of trees during 2016-17 in preparation for extensive genotyping throughout 2017-19. A provisional economic analysis has been undertaken to test the expected benefits of implementation of genomic selection compared with quantitative breeding. Results showed that the genomics programme delivers a potential $47.8 million to the forestry growing and processing sectors, or $290 ha-1 over the predicted 40,000 ha of new plantings. In contrast, traditional breeding with the current modelled genetic gains delivered potential losses. Tissue culture pathways for Douglas-fir Previous work in Douglas-fir propagation has now migrated to a new pan CRI-industry programme focussed on eliminating wilding trees. Most of the development of Douglas-fir propagation technologies now lies within the Wildings research project. A small amount of support is focussed on tissue culturing of control-pollinated Douglas-fir material. Proof of concept transformation testing is proving challenging due to the difference in behaviour of Douglas-fir in culture compared to radiata pine, and issues around the recovery of some of the embryogenic cultures previously stored in cryopreservation. Recently, there has been some limited success in the transformation of embryogenic cultures. Development of cryopreservation protocols has been initiated to improve the success of recovery of lines cryopreserved in the future. Wildings Wilding conifers invading conservation and pastoral land are a major concern in New Zealand. Current wilding conifer control methods are effective but expensive, and depend on herbicide used at rates that exceed label recommendations. Improved control that reduces cost and risks to people and the environment requires reductions in herbicide use and new application systems, while maintaining efficacy. Scion’s goal is to enhance herbicide efficacy and optimise spraying methods. This year, our programme collaborated with Plant Protection Chemistry, DOC and HeliResources: to develop laboratory methods to test the phytotoxicity and efficacy of different chemical mixes; to test the effect of a range of adjuvants on the uptake of triclopyr; and to compare these


15 Scion Annual Report 2017S c i o n A n n u a l R e p o r t 2 0 1 7 P a g e | 15

results to those used in current operations for controlling dense wilding infestations. Early results indicate there is scope to refine the adjuvants currently used operationally, which could reduce costs and increase the efficiency. Together with DOC and HeliResources, we evaluated the targeting efficiency of a novel helicopter spot-application system and incorporated the AIMMS software into the helicopter flight-control software systems and synchronised this platform with the spray boom. In association with the Winning Against Wildings theme, a programme with strong industry direction, we have engaged with DOC, regional councils, forest owners, the Defence Force, Ngai Tahu and many trusts and commercial spray operators. These facilitated workshops and meetings have ensured that the research is aligned with the needs of those managing wilding conifers across New Zealand. Better home and building decision making In New Zealand, designers and developers who focus on the cosmetics and functions of buildings make many of the decisions around the design and construction of our homes and buildings. This drives a ‘code minimum’ approach that does not always produce energy efficient and healthy homes. Design of performing, affordable, neighbourhood-integrated and fit-for-purpose homes requires information that currently is not easy to access. Presenting this information in an appropriate way will help people make informed decisions encompassing energy/operation, transportation and capital costs while providing a healthy living environment. In 2016-17, we produced a demo version of a tool that collated a wide range of background material on the current building design and built environment planning decision tools. This supports the development of Scion’s interface and partnership with the National Science Challenge “Better buildings, towns and cities”. With an international secondment from VITO (a Belgian Research Organisation), the role, the uptake and the impact of life cycle analysis (LCA) and environment product declarations (EPDs) in the New Zealand building sector has been explored. The Scion built environment programme has also secured a position in the Australian Tall Timber Building Hub, which aims to grow the role of timber in the medium-rise buildings. Value chain optimisation The forest industry operates across a value chain that is a complex series of highly inter-related activities. The forestry value chain includes growing, haulage, processing, shipping, marketing and the final customer. Less tangible activities include managing risk, international financial transactions and biosecurity impacts and addressing market trends. Forests in New Zealand seldom change hands. When it does happen, buyers and vendors have to rely on ad hoc agreements and negotiations in order to enable a trade. The value of a forest depends not only on the volume and quality of the wood, but also on accessibility, market outlooks and the location of the forest relative to sawmills and ports. Scion has developed models that can be used to estimate forest production and assess the issues concerning the infrastructure and the location of a commercial pine forest. In 2016, Scion entered a partnership with ForestX, a company that has a unique business model to provide a commercial forestry-resource electronic trading board. Scion combined several models and derived a Forest Expectation Report for any forest that is listed on the trading board. This report helps buyers compare listed forests. Training for rural real estate agents to help them develop a better appreciation of forest resources was carried out. By the end of 2016/17, a number of listed forests had changed hands and Forest Expectation Reports supported some of these listings. This process is now being used by third parties. Scion has been disseminating quarterly operational log-price outlooks since 2015. The outlooks reflect the main drivers expected to influence log prices in the coming months and provide a consensus view among approximately 50 industry participants. These participants deal with at least 70% of the entire industry’s logs. Following on from the short- to medium-term outlooks, Scion has generated a longer-term outlook towards 2025 and 2035. More than 130 stakeholders spanning the value chain participated in this. Opportunities and challenges with respect to wood availability, harvesting, transport, ports and shipping, processing, international markets and competitors have been identified and will be the focus of on-going work. Scion undertook a national logistics scan in 2016/17 to assess qualitatively significant logistics challenges and opportunities in the regions. Some 67 councils throughout New Zealand participated in 10 regional reference panels held online throughout May 2017. There were significant differences between the logistics needs in rural communities compared to those in urban areas. Challenges in rural areas revolve around communication infrastructure, aging populations, public transport and labour availability to industry. Several opportunities for emerging technologies to resolve many of these issues were identified. Two specific opportunities were further developed. The first of these was a container terminal operation in the Eastern Bay of Plenty. As part of a commercial contract, a container packing and transhipment terminal in Kawarau (EBOP) was found to be of exceptional value to the industry and the community. This will move 50,000 twenty-foot


equivalent containers from the road to rail with savings to the exporters in the region of $4 million per annum, as well as environmental and social annual savings estimated at $3 million. A second study investigated the opportunity to import pruned logs from the South Island to supply North Island appearance lumber mills via the Port of Tauranga. The most viable option was to utilise empty space on vessels already travelling from Southland to Tauranga at a delivery cost of approximately $55 per m3. The WoodScape tool developed within this programme enables companies to identify options and intervention points that, if overcome, will increase confidence for companies to invest in new wood processing options in New Zealand. Monte Carlo risk analysis (@Risk) has been added to the WoodScape model. Log prices, exchange rates and product prices were updated as part of the process. Preliminary results show that risk adjusted return on capital employed (ROCE) are consistently lower, with ROCEs dropping on average by 17%, under a wide range of variation. The updated WoodScape model was used within the Government funded Industrial Symbiosis project to assist with identification of wood processing options suitable for expansion of wood processing in Kawerau.


Expand opportunities in the wood fibre, pulp, biopolymer, packaging and biochemical industries and from their biomass side streams


Improve the value and productivity of the New Zealand wood products sector and bio-material industries


WoodCo Strategy, WPMA Vision 2050, Packaging Council strategy, packaging industry, polymer, pulp and paper and biobased/renewable chemicals


$5.7 million

Investment Actual

$5.7 million

High-value products from biomass Scion continued to invest in its programme targeting the conversion of woody biomass and other sustainably derived feedstocks into valuable plastics/polymers (bioplastics) and ultimately into biobased products. Converting biobased feedstocks into higher value products creates beneficial outcomes for New Zealand. It increases the intrinsic value of the biomass feedstock (e.g. trees), and creates new high-value biomaterials and bioproducts manufacturing industries for a large and growing international market as well as providing bioproducts that add value to New Zealand’s other export industries such as high-value food. We are focussing on de-risking new technologies and developing bioproduct prototypes and pilot plant scale processing options. At the same time, we are exploring the fundamental problems in bringing these materials to market. An important part of the programme is interaction with industry and the ultimate end users. A key recognition of Scion’s national and international role in developing bioproducts combined with sustainable manufacturing technologies are the expanding strategic relationships with Fraunhofer IGB and ICT (Germany), VTT (Finland) and VITO (Belgium). Staff were supported in building collaborations relating to packaging, biorefineries, nanotechnology and 3D printing. During 2016-17, Scion established two virtual research programmes - aligning all internal work related to polyhydroxyalkanoate (PHA) and 3D/4D printing. These virtual programmes ensure that activities across a number of government funded projects maximise the research outcomes. Scion considers PHAs as a feasible target for polymer production in New Zealand as we are lacking the infrastructure for refining petroleum to chemicals and polymers. PHAs can be produced using renewable feedstocks including plant material, biobased oils and fats and carbon dioxide and methane. A commercially viable biopolymer plant can be as small as 50 kt/pa of production capacity – a perfect size for New Zealand – leading to new onshore manufacturing and export opportunities. We have improved the production of different forms of PHAs through fermentation. This was accelerated through hosting a postdoc from the University of Manitoba (Canada) allowing Scion to build on the knowledge around production of PHAs. PHA polyesters have a wide range of properties. Combining these with Scion’s industrial



extrusion processing capability led to a number of new bioplastic composites. Additionally, a successful Catalyst Proposal with Professor Michelle Coote from the Australian National University allows us to work with her to bring computational modelling into stronger alliance with plastic design and degradation – enabling us to predict the best plastics for the future before they are even realised. Some of the PHA containing biopolymers produced at Scion have been tested in 3D printing processes. Additive manufacturing suits New Zealand perfectly – it enables onshore added manufacturing (decentralised, regional and small scale) for a range of innovative and complex products. Both the emerging bio- and circular economies offer several opportunities to utilise 3D printing at several points of the value chain. Other programmes at Scion have focussed on using high-molecular weight wood hemicelluloses (from thermo-mechanical pulping pressate water) as feedstock for the production of durable oxygen barrier films. This is a joint project with VTT developing new biobased products through co-invention and adaptation of partner technologies. Scion’s activities in this area are closely aligned with targets of the recently established National Science Challenge Science for Technological Innovation. A multi-party spearhead team has been working together for one year and first new materials and 3D-printed prototypes have been manufactured. Converting ‘wastes’ into high-value products Hemicellulose fragments are part of the pulp and paper by-product streams. This year, Scion explored producing films from these hemicelluloses at a large scale in collaboration with international partners. The ability to remove resin from liquid waste to improve the value proposition for pulp mills has also been explored. We have completed proof-of-concept experiments and assessed the feasibility of resin recovery from pulp-mill process waters. Scion’s break-through technology to deconstruct the organic component of waste streams (TERAX®) is a continuing focus. The application of the technology has been extended into other areas, including a concept for the processing of the organic fraction of municipal organic wastes using the TERAX® technology. Reducing landfill by converting the organic component into high-value products is potentially a very large economic and environmental opportunity for New Zealand. The application of the wet oxidation technology at small scale is being supported by the Bill and Melinda Gates Foundation. Enhancing the resilience of fibre processing industries and fibre composites manufacturing Finding ways to lightweight materials, such as glass fibre plastic composites, while maintaining performance and end of life benefits is a global challenge. Scion has developed a world-leading approach to integrating polymers and wood-fibre to produce a high performing product able to be developed into complex three-dimensional shapes with an excellent sustainability footprint and yet able to be processed in standard industrial manufacturing equipment. This is licensed for manufacture in several countries. During 2016-17, we worked towards the identification of a fully biobased and biodegradable composite with good mechanical properties that would be able to compete with commodity plastic available on the market. Scion opted for PHA as its strategic choice for a biobased plastic matrix. To support Scion’s fibre-composite technology, the focus this year was on the interface between matrix and fibres, aiming to increase stress transfer that will lead to better mechanical properties when used in conjunction with matrix reinforcement. Another focus was the need for more fibre availability that fits within investment cycles, the potential for products such as paper and board (packaging) and fibre composites to be produced through short-rotation forests. High-value products from lignin Lignin, about a third of the composition of wood, is currently seen as a low-value product arising from wood processing and is burnt for its energy content. Lignin has the potential to directly substitute for the aromatic subset of petrochemicals. The challenges are isolating lignin in a useful form and managing the high level of variability of materials arising from plant sources. Applications include lignin that can be converted to carbon nanofiber mats, or used in polymer blends, for moulded or extruded products and in developing industrial resins (e.g. coatings and adhesives). Overcoming processing challenges could lead to high-value industries in New Zealand turning our forests into feedstocks for biorefineries. The processing of industrial lignin into lignin-nanofibre materials and thus carbon-nanofibre materials has opened up new electrical applications. Scion’s work in deconstructing lignin to produce lignin derivatives formed by hydrogenolysis is continued through an international collaboration with VITO (Belgium). This approach aims to develop new opportunities for lignin oligomers in multiple industrial uses. At Scion, bio-oil production and thermal treatments developed initially for bioenergy applications have been used to deconstruct lignin to produce



derivatives that have been modified using specific enzymes developed at Scion to improve chemical properties of the lignin derivatives for further processing into industrial resins or adhesives. Scion is a member of CLIB 2021, an international open-innovation cluster of companies, academic institutes, and universities in Northern Europe that is active in biotechnology and the bioeconomy as a whole. Scion staff presented at the CLIB2021 conference (January 2017). Packaging Packaging is a critical element in New Zealand’s $60 billion dollar export industry. It is needed to contain and protect the product while communicating essential information and the brand story. Packaging is also an export product in itself and contributes 1.8% of New Zealand’s GDP. Globally, there is a need for improved packaging quality, reliability, sustainability and traceability. Scion packaging capability supports the wider export sector and the packaging manufacturing sector. In the past year, we have continued to develop new technologies, specialised equipment and capability in: •! Fibre-based packaging including measuring performance in chilled supply chains; •! Printing and ink development including printed electronics; •! Plastics processing including the development of biobased gas barrier coatings; and •! Global requirements to ensure materials are safe for food contact. This work provides New Zealand-centric solutions and give local firms a competitive advantage in materials, product support and new intellectual property. Investment in this area in 2016-17 delivered the following outcomes: Scion’s specially designed test facility (the WHITE room) with accurately controlled temperature and cycle humidity is fully operational and being used by national and global partners for box testing. The WHITE room is the only facility of its kind in New Zealand, and one of very few globally, providing truly independent test evaluation capability for New Zealand and international firms. First-test results outlining the importance of investigating creep in corrugated packaging under temperature control and cycle humidity have been published. Increasing regulatory mandates put commercial pressures and expectations on businesses. They rely on traceability to manage quality, recalls, liability, counterfeit parts, inefficiencies in manufacturing and cost savings. Through an ongoing collaboration with AgResearch and Plant & Food Research, several technologies enabling packaging to provide product traceability are being explored. This has included trials of both near field communication (NFC) tags and isotope testing of papers from different parts of the world (New Zealand, Australia, and Sweden). Scion’s moisture barrier coating research has progressed into commercialisation. A patent for the most recently invented formulation has been filed. Extensive market validation and customer engagement with New Zealand and international companies to map their requirements with the attributes of our coating technologies is underway. Scion is member of the new New Zealand-China Food Protection Network (NZ-CFPN) partnership involving nine New Zealand research organisations and is providing expertise in packaging for food protection. The network will enhance communication between research scientists, government organisations and industries here, and in China. The network will create a new mechanism for knowledge generation and exchange, transforming research into effective policies that reduce hazards in the food chain and ensure a sustainable supply of safe and nutritious food. Scion’s packaging research has been communicated widely in industry through visits and presentations at national and international conferences and workshops. A Scion-organised packaging workshop brought over 40 representatives of New Zealand companies together to learn about Scion’s packaging capability and international trends around packaging technologies and emerging biobased material opportunities. Scion’s General Manager Manufacturing and Bioproducts sits on the executive board of the Packaging Council of New Zealand.

19 Scion Annual Report 2017S c i o n A n n u a l R e p o r t 2 0 1 7 P a g e | 19


Increase New Zealand’s energy security through the use of forest and waste biomass for bioenergy


Increase renewable energy production and energy security by growing New Zealand’s ability to produce sustainable bioenergy and liquid biofuel products


New Zealand Energy Efficiency and Conservation Strategy 2017-2022

NZ commitment to 30% GHG emissions reduction by 2030

WoodCo strategy

WPMA Vision 2050.


$2.6 million

Investment Actual

$2.6 million

Energy is of critical importance to any economy, particularly its cost, availability and, increasingly, source (renewable or non-renewable). The forest industry currently produces about 10% of New Zealand’s total energy supply. Expansion of production, increased efficiency and material utilisation (including maximum use of a tree through biorefining approaches) creates substantial direct economic advantage to forest-based industries, and also seeds new manufacturing firms creating benefit to New Zealand. This will increase the country’s ability to use renewable energy directly, support the Government’s aim to reduce greenhouse gas emissions (30% by 2030), and reduce sovereign risk through New Zealand’s exposure to imported energy sources. The role the transport and industrial heat sectors could play in greenhouse-gas (GHG) emission reduction has been recognised in the recently published New Zealand Energy Efficiency and Conservation Strategy (MBIE). Scion focus is on providing the underpinning technologies necessary to support the above, identifying the most likely value chains for biofuels implementations and leveraging international research capability for direct New Zealand benefit. Scion contributed to several workshops and exchanges to maintain national and international connections and to support national forums in bioenergy and related fields. This activity involved the Bioenergy Association of New Zealand, Advanced Biofuels Research Network, IEA (International Energy Association) Bioenergy, IRENA (International Renewable Energy Agency/United Nations Economic and Social Commission for Asia and the Pacific, and an MBIE German exchange. A senior staff member participated in an expert advisory role for the Royal Society in Climate Change Mitigation, as a board member on the Building Association of NZ (BANZ) and as a member on the executive committee of IEA Bioenergy. Scion was also interviewed as part of IEA’s five-year review of New Zealand’s Energy Strategy. New and strengthened international collaborations were established within the programme. These included the Korean Institute of Energy Research, and Fraunhofer Umsicht and Karlsruhe Institute of Technology in Germany. By leveraging off larger international programmes, Scion has been able to secure access to state-of-the-art knowledge in important areas such as pyrolysis and biochemical conversion of biomass. Scion’s capabilities in biofuels has convinced several companies, five government agencies, land owners (including iwi) and four industry bodies and universities to collaborate in the Biofuels Roadmap project. National linkages with New Zealand universities were also strengthened, particularly via jointly-supervised students with Canterbury, Otago and Waikato Universities. The programme work led to several firms and an iwi investing in the on-going industrial symbiosis programme that started in 2015. The Energy Efficiency and Conservation Agency recently joined this programme. Bioenergy research directly links to our work in developing high-value chemicals from woody biomass. This is part of validating biorefining in New Zealand with the ability to produce high-value products from our forest resources, strengthen existing manufacturing processes and develop new firms. To that end, Scion is developing cost-effective pre-treatment approaches to convert cellulose/hemi-cellulose components into sugar precursors and also capture lignin as a valuable co-product. The focus is to de-risk this technology. Scion has developed a fast pyrolysis unit and established a fluidised bed micro-reactor, which are vital capabilities as we develop our understanding of thermochemical approaches towards biofuel and biochemical production.



Protect and enhance market access and improve risk management in the forest industry including forest health and preparedness for biosecurity incursions, fire and climate change


Protect and enhance market access and improve risk management in the forestry industry and enhance New Zealand’s opportunity to benefit from forestry based ecosystem services to improve global market position of the industry and the environmental sustainability of forestry production in New Zealand


New Zealand Forest Owners Association, Ministry for Primary Industries


$2.7 million

Investment Actual

$2.7 million

Biosecurity Protecting New Zealand’s forests and exports from biotic and abiotic threats is a priority for the forest industry. Scion’s work in this area sustains existing capability, enables development of leading tools and new capabilities, maintains international linkages and supports future planning. Scion and the forestry industry activities are strongly tied with industry and government (MPI, DOC and regional and other authorities) co-funding. Preventing new pests Work aimed at preventing the establishment of new pests and pathogens included reviewing Import Health Standards for relevance to forestry and to determine which standards may require further review in order to minimise biosecurity risks from imported goods. Over 400 standards were screened, of which 54 needed more detailed examination. Fortunately, only seven of these warranted further consideration and action. They included import standards for nursery stock, seeds for sowing, and wood packaging. The report is being considered by MPI for action. A new formal collaboration began with the Centre of Excellence of Biosecurity Risk Analysis (CEBRA) from Australia to determine the effectiveness of all interventions across the entire biosecurity system and then guide where operational effort should be placed. The project uses additional funding from CEBRA and MPI and links to a Better Border Biosecurity (B3) project that will start in July 2017. During this year, data were collected from pest risk pathways and stakeholders were consulted. A total of 11 manuscripts were submitted for publication, including four that will appear in the journal Biological Invasions and another in Nature Ecology & Evolution. A major effort was the preparation and coordination of a special issue of Biological Invasions on the topic of ‘Biological invasions of forests’ with about 24 papers on a range of taxa and biosecurity measures, by authors from several countries, including several from New Zealand. Surveillance that results in early detection increases the probability of eradication and reduces incursion response costs. Scion has developed a risk-based surveillance system whereby most of the surveillance aimed at detecting forest pests will be carried out in urban areas where imported goods arrive and where pests most often first establish. A pilot study demonstrating the feasibility of the system is planned for late 2017 with full adoption in 2018. This will be the first surveillance system of its kind in the world and it should lead to improved early detection and eradication probability. With pest detection in urban areas becoming more likely, it is important that we have the tools to eradicate those pests. Scion investment supplemented an Endeavour funded programme aimed at developing a toolbox for pest eradication in urban areas. The funding was directed at targeted spraying. An aerial spot-spraying trial using a ‘ring’ boom suspended on a tether demonstrated that this is a useful method for pest eradication in an urban environment, particularly where aircraft access is challenging. It is possible that, for aerial spraying of myrtle rust, those techniques would minimise the risk of spore dispersal from the aircraft’s turbulence. A paper on an analysis of host and geographical range of Phytophthora spp. and their risk of spread to new regions


was presented as a keynote speech at an IUFRO conference in Vietnam. It was concluded that understanding the biogeography of pathogens is essential to biosecurity risk management. Management of existing diseases and threats Reduction of red needle cast disease (caused by Phytophthora pluvialis) on trees is a priority for the forest industry. Phosphite and copper were trialled for effective control of this disease. An aerial spray trial that was monitored for over 12 months showed that phosphite was not as effective as hoped, but copper continues to show promise. We have recommended the use of copper to control red needle cast, and one major company applied copper to affected trees in February 2017. More research needs to be done on optimising dose and timing of application and this will be a focus for 2017/18. A supervised MSc student received the Sir Don Llewellyn Scholarship for $22,000 for her research on how repeated phosphite use affects Phytophthora disease resistance. Scion has evaluated industry relevant radiata pine genotypes for susceptibility to red needle cast in laboratory and field trials. In collaboration with researchers from the Al Rae Centre at Massey University, an epidemiological model for red needle cast was developed. It will allow examination of the dynamics, genetic drivers and chemical signatures associated with infection, sporulation and host defence, leading to application in field chemical control and epidemiological studies. Molecular assays have been developed that will allow differentiation and quantification of the problematic foliage pathogen of pines, Cyclaneusma species. This will be especially important when more than one needle disease exists and will have application in determining the effectiveness of breeding programmes to reduce the impact of pine foliage disease. Kauri dieback caused by Phytophthora agathadicida remains a key focus. Seedlings from 110 family lines have been potted up in a new growth facility ready for screening for resistance next year. Cones were collected from Northland through to Tauranga under partnership agreements with local mana whenua. Initial indications are that the germination rates have been good and should provide a solid resource for further screening. Biological control programmes for an important eucalypt pest and giant willow aphid made excellent progress. Eight non-target species were tested to determine if they were at risk from attack by the eucalypt pest biocontrol agent and only one was shown to be a potential host. This is a very helpful result to input into the formal approval process to release the agent. In California, a parasitic wasp attacking giant willow aphid was found. This wasp will be imported into quarantine in September 2017. Scion is contributing to international knowledge of wood decay fungi by examining DNA sequences from 36 fungal isolates. These will be used to construct a phylogenetic tree, thus making sequences of morphologically identified southern hemisphere wood decay species available internationally on GenBank, where they tend to be under-represented, and to investigate taxonomic relationships. Market protection An important outcome from the market access programmes (includes an Endeavour Fund programme) is that a phytosanitary treatment-free winter period is feasible, especially in the cooler regions. Scion was invited to present the idea of a treatment-free period based on forest insect ecology at trade bilateral discussions to improve outcomes for New Zealand plantation forest exports. However, before trading partners will adopt the low pest prevalence approach more data needs to be presented and more discussion needs to take place. Supporting this call for more evidence stakeholders in Methyl Bromide Reduction (STIMBR) funded two literature reviews that demonstrated that the trapping programme (an Endeavour Fund programme) was robust and that mass rearing of Sirex noctilio woodwasps (a wood-boring insect that could be a potential impediment to adoption of a treatment-free period) is feasible. Scion investment was used to prepare eight papers from the market access programme to improve science impact and progress the acceptance of a treatment-free period by our trading partners. Investment was used to start a Sirex noctilio colony so as to be well prepared if STIMBR agrees to fund further work in this area. Scion also provided MPI with advice on directions of strategic importance that can pave the way for future phytosanitary measures to support the export of wood products. The current state of the processes involved with meeting phytosanitary compliance requirements for Australia and Asia for sawn timber was determined in collaboration with the University of Lincoln by applying Value Stream Mapping (VSM) across multiple organisations in a supply chain. The same approach was also used to suggest a future state map for the phytosanitary compliance system in New Zealand. VSM is a lean production tool normally used to identify areas of waste. It is traditionally used in manufacturing processes in a single organisation. Six operational timber supply chains were analysed. Overall, the current phytosanitary processes were found to be well managed in New Zealand and to meet the requirements of our key export customers. Applying a supply-chain VSM view also revealed opportunities for improving the process.

Scion Annual Report 2017 22S c i o n A n n u a l R e p o r t 2 0 1 7 P a g e | 22

Fire protection Loss from fire and the increasing risk of fire in New Zealand forests and rural landscape is a serious issue for New Zealand. Several major rural fires (in Hawkes Bay and the Port Hills in Canterbury) occurred during the year. Scion supported the Incident Management Teams by providing fire behaviour predictions to help operational decision-making on firefighting resource needs and control tactics. Scion also provided smoke model forecasts throughout the Port Hills incident, which were used to inform the public of potential health threats. After the immediate fire threat, the fire break-out potential for the Port Hills was modelled over subsequent days using the Prometheus fire growth tool. The results assisted decision-making around the lifting of evacuation cordons and recreational access restrictions. Scion’s fire research staff worked 180 hours over two weeks supporting the fire response at Port Hills. They provided presentations on fire progression, behaviour and wildfire risk mitigation opportunities to recovery staff and affected residents at six community recovery meetings and additional workshops. Strategic Science Investment Funding (Core Funding) was used for operational research at the fire. Life and property were saved because of adoption of our fire research. In addition, the data gathered was used to validate our models and recommendations. Herbarium The nationally significant database and collection National Forestry Herbarium has been heavily involved with:

•! Identifying myrtle rust host plants based on morphology as well as using a DNA barcoding library developed by the herbarium

•! Next Generation Sequencing analyses of mānuka and kānuka to determine the number of species in New Zealand. This is supporting MPI’s manuka honey validation project

•! Collecting seed of New Zealand Myrtaceae to support a project determining the variation in susceptibility of native Myrtaceae to myrtle rust

•! Sequencing species of Metrosideros to determine the nature of the relationship between the South American, African and Pacific species.

The herbarium continues to acquire new specimens, including those submitted for identification, particularly from biosecurity surveys of sites considered at high risk of incursions, and research reference specimens. During the year, 407 specimens were added. In addition, 1,737 specimens were imaged and 2,923 nomenclatural edits to species were made. Two popular articles were also written, and three scientific papers are in preparation.

Safety Key stakeholders understanding of how evolutionary human cognition can significantly influence safety and performance in complex, high-risk situations has been improved through presentations at the New Zealand and Australian Forest Industry Safety Summit conferences (March 2017), a position paper in the New Zealand Journal of Forestry and several articles were published in popular media channels.

The use of fast and frugal heuristic decision-making in motor-manual tree-falling operations in New Zealand is being investigated by Scion in collaboration with Associate Professor Konstantinos Katsikopoulos of the University of South Hampton. Further work and our findings will be published next financial year.

An article exploring improved motor manual exhaust exposure practices has been published in the Journal of Occupational and Environmental Health. Opportunities for collaboration have also been explored with the New Zealand Defence Technology Agency (DTA). Common areas of interest were sensor technology, inhaled toxins, situational awareness, wearable technology and fatigue. The DTA are providing us with information on the operational use of their technology. This could improve our ability to solve industry problems.


Ensure the forest industry and bioeconomy businesses’ licence to operate


Protect and enhance market access and improve risk management in the forestry industry


New Zealand Forest Owners Association, Ministry for Primary Industries


$0.2 million

Investment Actual

$0.2 million


New perspectives on Human Factors in automation and robotics have been developed into a work plan. This represents one third of the new steepland harvesting PGP proposal that has proceeded to the preparation of its business case. Using the novel approach of considering the human brain as an incredibly well-developed robot that we can study, understand and learn from, our goal is to incorporate mechanisms honed by evolution into our machines for smarter, more effective performance. Data from this approach will help flesh out specific requirements for future forestry automation with a focus on using a virtual reality paradigm to assess and augment human-machine interaction and teaming. The seven-year proposal for the Human Factors stream is for approximately $3,000,000 and will be led by Scion. Informing the GM debate Scion provided input into the national debate on New Zealand policy on genetic modification technologies including gene editing by presenting to industry and policymakers an authoritative robust scientific perspective on alternative biotechnologies through workshops and seminar presentations and visits to our field trials. Standards for wood products, packaging and new bio-based products Scion provides independently sourced data for the review and updating of many of the New Zealand and Australasian standards that incorporate the use of wood to ensure their ongoing ease of use and relevance to modern timber use, design and safety. Scion, with the Wood Processing Manufacturers’ Association, have started to provide information to the Chinese Timber Use manual. This follows the inclusion of New Zealand structural grades in the Chinese Timber standard GB50005. A public draft document is now available on the revision of NZ timber design standard NZS3603. Scion is also supporting the revision of timber standards NZS3602 (Timber and Wood-based Products for Use in Buildings) and NZS3640 (Chemical Preservation of Round and Sawn Timber). Commissioning trials of the facility to measure and quantify the aerobic composting and biodegradation of bio-based materials are nearly complete. The facility is unique-to-New Zealand and was built to ISO 14855-1 to provide results showing levels of biodegradation within six months. Scion will be using the facility to quantify the biodegradation of newly developed biomaterials. It will also be available to commercial clients, seeking evidence to support environmental marketing claims. Scion participated in the EU project “Open-Bio” from November 2013 to October 2016. The project investigated how markets for bio-based products could be expanded through standardisation, labelling and procurement. The project has used the data on customer needs and demands to develop a database that provides information about bio-based products to assist people making purchasing decisions. The database was launched in November 2016 and is available to the public. Scion has completed validating the migration testing method in accordance with European food contact material regulations. Scion-developed products can be now be assessed. Monitoring developments in the areas of food contact materials and regulations continues.


CORPORATE GOVERNANCE Scion’s Board of Directors is appointed by its shareholding Ministers, the Minister of Science and Innovation and the Minister of Finance. All members of the Board are independent. The responsibility of the Board is to guide and monitor the business of Scion and its subsidiaries including: •! reviewing and approving Scion’s strategy and Statement of Corporate Intent; •! adopting policies of corporate conduct (including risk management and delegations of authority) and ensuring

that systems and procedures are in place to carry out those policies; •! adopting annual operating and capital plans, and budgets; •! monitoring performance against key objectives and budgets on a monthly basis; •! ensuring Scion proactively meets all health and safety requirements; •! evaluating the performance of the Chief Executive; and •! reviewing and improving the effectiveness of the Board. The Board operates in accordance with Scion’s Constitution. It has up to seven directors who meet 11 times over the year either in person or by video conference. The Chief Executive and Chief Financial Officer (who is also the Company Secretary) attend all meetings. The Board may retain independent advisers, including independent legal counsel or other experts, as it deems appropriate. The Board’s Strategic Advisory Māori Panel (Ngā Rangatira Rōpu) provides input to Scion’s Te Papa Tipu (Māori) plan and its effective implementation. The Board has two standing committees, the Audit and Risk Committee and the Remuneration and Organisation Committee. These meet twice yearly but may meet more regularly if the need arises. The function of the Audit and Risk Committee is to assist the Board in discharging its responsibilities regarding financial reporting, regulatory conformance and matters of risk management. The committee is the liaison point for internal and external auditors, assesses the performance of financial management (the investment cases for major items of capital expenditure), reviews audit findings, the annual financial statements and interim financial information, and has oversight of the development and review of policies to ensure compliance with statutory responsibilities. The function of the Remuneration and Organisation Committee is to assist the Board in the establishment and regular review of remuneration and organisation policies and practices, and to assist the Board in discharging its responsibilities relating to the appointment, remuneration setting and review of Scion’s Chief Executive. The committee also approves the appointment and remuneration of senior executives and inputs into and monitors achievement of the annual Health and Safety Plan. Each committee comprises no less than three members of the Board, appointed by the Board from time to time; and meets at least twice annually and intersessionally as required. While the Chair of the Board is an ex-officio member of each committee and has full voting rights, s/he may not be Chair of the Audit and Risk Committee. A Campus Master Plan Board Committee has been established in 2017 to support the Board with its governance and guidance of the redevelopment of the Rotorua campus. All Directors are entitled to attend all committee meetings. Each committee establishes annual work plans and undertakes an annual review of its objectives and responsibilities, and its terms of reference. Each committee also makes regular reports to the Board. The Board’s risk management policy and procedures involve formal reporting by management of the most significant risks Scion is exposed to, and the Board regularly monitors management of those risks. There is also regular monitoring and reporting on progress in meeting recommendations made by external auditors.


DIRECTORS’ REPORT Principal Activities New Zealand Forest Research Institute Limited (trading as Scion) is a company registered under the Companies Act 1993. Our principal activity is to conduct research in accordance with the purpose and principles specified in Sections 4 and 5 of the Crown Research Institutes Act 1992 (the Act). Scion has met all the obligations under the Act for the year ended 30 June 2017. Scion is a commercially focused science and technology company, delivering solutions to both commercial and Crown clients. While the principal research facility is located in Rotorua our co-location with the School of Forestry at the University of Canterbury provides access to complementary capabilities on the campus and postgraduate students. Scion has two wholly-owned subsidiaries (Te Papa Tipu Properties Limited and Sala Street Holdings Limited), is a 50% shareholder in Terax 2013 Limited and is a 50% partner in Terax Limited Partnership, and has a 33% shareholding in an associate company Biopolymer Network Limited. Scion is a member of the research consortium WQI Limited with a 5.05% shareholding. •! Te Papa Tipu Properties Limited owns the Group’s land assets. •! Sala Street Holdings Limited is a holding company, holding Scion’s 50% share of Terax 2013 Limited and Terax

Limited Partnership. •! Terax 2013 Limited is the general partner for Terax Limited Partnership. •! Terax Limited Partnership is a limited partnership jointly owned by Scion (through Sala Street Holdings

Limited) and Rotorua District Council and has been set up to commercialise a waste minimisation process. •! Biopolymer Network Limited is an incorporated joint venture whose purpose is to create technologies for

advancing the utilisation of renewable bio-based materials in industrial applications. •! WQI Limited is a consortium that carries out research focused on wood quality, appearance and stability that

can affect the performance of the wood, and to develop effective segregation methods and technologies that allow the industry to gain maximum value from their timber resource. WQI Limited ceased trading on 30 June 2016 and has moved into solvent liquidation process from 1 July 2016.

Summary of Group Financial Results to 30 June 2017

2017 $000

2016 $000

Operating revenue 51,897 49,599

Surplus before taxation 3,312 2,494

Taxation expense (980) (657)

Net surplus attributable to the shareholders 2,332 1,837

Equity

Issued and paid up capital 17,516 17,516

Retained earnings 21,140 18,808

Reserve 61 61

Total equity 38,717 36,385 Scion’s strategy focuses on delivering science and technologies in the following key areas:

•! Commercial forestry •! Wood products and processing •! Wood fibre, biopolymer and biochemical industries •! Risk and adaptation •! Licence to operate •! Bioenergy and energy security through forest biomass.


The Statement of Corporate Intent maps out the strategic framework for Scion to achieve outcomes aligned to its Statement of Core Purpose, and the New Zealand Government’s overarching objective for Crown Research Institutes to lead the country’s economic growth with improved environmental, social and cultural outcomes; in particular increase export earnings to the equivalent of 40% of GDP by 2025. Scion’s science and commercial focus is strongly aligned with the opportunities being presented locally, nationally and globally, and when brought together, will continue to enable Scion to provide leadership on issues of local, national and global significance. Remuneration and Compensation Remuneration and compensation included performance awards, superannuation benefits, and KiwiSaver subsidy. Some other benefits were not quantified and are therefore excluded, including staff parking, home telephone, and membership of relevant professional societies.

Bands Number in Each Band

$460,000 - $469,999 1

$250,000 - $259,999 2

$230,000 - $239,999 1

$220,000 - $229,999 1

$170,000 - $179,999 2

$160,000 - $169,999 2

$150,000 - $159,999 2

$140,000 - $149,999 5

$130,000 - $139,999 5

$120,000 - $129,999 8

$110,000 - $119,999 13

$100,000 - $109,999 7 During the year ended 30 June 2017, $334,082 was paid to 7 employees in relation to cessation of employment with Scion (2016: $231,479 to 7 employees). Cessation payments included $28,956 of retirement benefits (2016: $10,763). Dividend No dividend was recommended for the year ended 30 June 2017 (2016: $0k).


Director Profiles Mr Anthony (Tony) Nowell CNZM (Chair) is a professional company Director and in addition to his chairmanship of Scion he is currently Chair of Wellington Drive Technologies, The Omega Lamb Primary Growth Partnership and Douglas Nutrition, he is a board member of New Zealand Food Innovation Auckland Limited and in June 2017 completed an 8-year term as a board member of Food Standards Australia New Zealand (FSANZ). Mr Nowell is Founding Director of Valadenz Limited, a trade and export development company and was previously the CEO of Zespri International, the Managing Director of Griffin's Food Limited and Regional Vice President of Sara Lee Asia. Mr Nowell brings extensive experience in corporate management, governance and international trade and development to the Board and for the past 10 years he represented New Zealand on the APEC Business Advisory Council (ABAC), the APEC Policy Partnership for Food Security (PPFS) and was Chair of the Asia Pacific Food Industry Forum. He has previously chaired the New Zealand Food and Grocery Council, the New Zealand Food and Beverage Taskforce and the New Zealand Packaging Accord Governing Board, was Deputy Chair of Leadership New Zealand and a member of the Export Advisory Board of Business New Zealand. Mr Nowell is also independent Chair of the Professional Golfers' Association of New Zealand. Mrs Judith Stanway (Deputy Chair), a Fellow of the New Zealand Institute of Accountants, retired as a partner of BDO Rotorua Limited and was the Chair of BDO New Zealand Limited, a New Zealand wide Chartered Accountancy and Business Advisory firm. Mrs Stanway is also a Fellow of the New Zealand Institute of Directors, a Director of Wharerata Forest Limited, and a number of private companies. She has also chaired the Lakes District Health Board and has been a Director of Te Puia. Mrs Stanway lives in Tauranga, has worked with the forestry sector for many years and has wide experience in tourism and with charitable organisations and was a Director of the Charities Commission. Judith was also chosen as 2012 Rotorua Business Person of the Year. Mrs Stanway resigned from the Scion Board as at 30 June 2017. Mr Sheldon Drummond (Director) has worked in the forest and wood processing industry for more than four decades, having held a range of senior company executive roles as well as industry board positions over time. Mr Drummond has forestry as well as wood technology qualifications and from his years of experience in both sectors of the industry he has a very detailed knowledge of the forestry and wood products business. As a board member at Scion for the past eight years he brings together the research and industry knowledge to assist Scion’s progression for the industry benefit. Mr Drummond resigned from the Scion Board as at 30 June 2017. Ms Colleen Neville (Waikato-Tainui) (Director) is the Rotorua-based Chief Executive Officer of Te Arawa Group Holdings Limited. She is a chartered accountant and has 18 years’ experience in a range of financial roles for national and international companies. Colleen has governance experience as a Director of Te Arawa Group Holdings Limited subsidiaries, Te Kakano Whakatipu Limited & Te Ohu Kaimoana Portfolio Management Services Limited, and as a trustee for Poutama Trust. Dr Barry O'Neil (Director) is Chief Executive of Kiwifruit Vine Health, the kiwifruit biosecurity organisation that also leads the response to the vine disease Psa-V. Barry is the principal Director of Biosecurity NZ Ltd, a company specialising in biosecurity consultancy, and is an independent Director on Horticulture NZ, and the Bio-Protection Research Centre based in Lincoln. He also sits on the governance board of New Zealand’s Biological Heritage National Science Challenge. Barry's experience includes policy and international standard setting; trade negotiations; operational biosecurity risk-management activities involving the border, surveillance, response and eradication; and organisational change management. Barry also owns a kiwifruit orchard in Katikati. Mr Jon Ryder (Director) is currently the Chief Executive Officer of Oji Fibre Solutions (Oji FS) - Pulp, Paper and Packaging and is directly responsible for all activities of these businesses: health safety and environment, EBIT, manufacturing, engineering, sales and marketing and strategic development. Jon has gained over 25 years’ experience in the forestry, pulp and paper business. Jon’s interest in the industry started from his biochemistry degree from Manchester University and then a PhD from UMIST in Pulp and Paper Manufacturing. His career has spanned international boundaries starting in the United Kingdom in technical and production management of fine coated papers mills, in New Zealand with packaging paper manufacturing at Kinleith and then pulp mill management experience at Tasman. He also managed the Pulp and Paper Mills in Australia as well as sales and marketing functions for Australian Papers. Jon returned to New Zealand in 2012 to take up the challenge as CEO of the business formerly known as Carter Holt Harvey Pulp, Paper and Packaging. The name changed to Oji Fibre Solutions (Oji FS) in November 2015 following the sale of the business on 1 December 2014 to a joint venture between Oji Holdings and Innovation Network Corporation of Japan (INCJ).


Mr Steve Wilson (Director) was awarded the New Zealand Order of Merit (MNZM) for services to industry and is a Fellow of the New Zealand Institute of Management (Southern) and a Life Member of Plastics New Zealand. Steve is Executive Director and owner of Talbot Technologies Ltd, a technical plastics manufacturer based in Christchurch. His other current roles include Director, Holmes Solutions LP, Chairman of the Advisory Board for the Product Accelerator, and advisory board member for Mechanical Engineering, University of Canterbury. Steve was one of the founders, and is a shareholder of, Powerhouse Ltd, a venture investment company. He began life as a mechanical engineer after graduating from Canterbury University with a B.E. (1st Class Hons) and started in business as a design engineer when at the age of 23 he became CEO of a manufacturing engineering company. Steve has had 34 years’ experience as a CEO of companies primarily in the garments and plastics industries. He has also had 28 years’ experience in governance roles. Mr Wilson commenced on 1 July 2016. Changes in Directors Mrs Judith Stanway’s term concluded on 30 June 2017. Mr Sheldon Drummond’s term concluded on 30 June 2017. Mr Steve Wilson commenced on 1 July 2016. Directors’ Interests Any business the company has transacted with organisations in which a Director has an association has been carried out on a commercial ‘arms-length’ basis. Directors’ Remuneration

Scion 30 June 2017

Te Papa Tipu Properties Ltd 30 June 2017

Terax 2013 Ltd

30 June 2017

Total 30 June 2017

Tony Nowell 58,000 58,000

Judith Stanway1 39,500 2,000 8,000 49,500

Sheldon Drummond 28,500 28,500

Colleen Neville 28,500 28,500

Barry O’Neil2 30,500 30,500

Jon Ryder 28,500 28,500

Steve Wilson 28,500 28,500

Total $242,000 $2,000 $8,000 $252,000 1 Chair Audit and Risk Committee 2 Chair Remuneration and Organisation Committee

Use of Company Information During the year no notices were received from members of the Board requesting to use Scion information received in their capacity as Directors which would not otherwise have been available to them. Additions to the Interests Register are noted in the profiles above. The State of the Company’s Affairs A commentary on the year’s performance is outlined in the Chair’s and Chief Executive’s Report and in the opinion of the Directors, the state of the company’s affairs continues to be satisfactory and the outlook bright. Auditor In accordance with Section 21 of the Crown Research Institutes Act 1992, the Office of the Auditor General is Auditor for the Company and, pursuant to Section 29 of the Public Finance Act 1977, has appointed Ernst & Young to undertake the audit on its behalf.


Directors’ Indemnity and Insurance Scion has insured all Directors and the Directors of its subsidiaries against liabilities to other parties (except to Scion or a related party of Scion) that may arise from their position as Directors. The insurance does not cover liabilities that may arise from criminal actions.

For and on behalf of the Board Tony Nowell CNZM Chair 31 August 2017 Statement of Responsibility The following statement from the Board is made in accordance with Section 155 of the Crown Entities Act 2004: 1. The Board is responsible for the preparation of the annual financial statements and the judgements used in

these. 2. The Board is responsible for establishing and maintaining a system of internal control designed to provide

reasonable assurance as to the integrity and reliability of the financial reporting. 3. In the opinion of the Board, the annual financial statements for the year ended 30 June 2017 fairly reflect the

financial position and operations of the New Zealand Forest Research Institute Limited.

Tony Nowell CNZM Barry O’Neil Chair Director 31 August 2017


PERFORMANCE TARGETS

Actual 2017

Budget 2017

Actual 2016

Efficiency:

Operating margin 12.6% 12.3% 15.1%

Operating margin per FTE $22,126 $20,569 $26,564

Risk:

Quick ratio 2.78:1 1.76:1 2.39:1

Interest coverage N/A N/A N/A

Operating margin volatility 12.3% 12.6% 20.9%

Forecasting risk 1.8% 1.4% 1.7%

Growth/Investment:

Adjusted return on equity 6.2% 4.3% 4.4%

Revenue growth 4.6% 1.9% 4.8%

Capital renewal 1.1x 2.1x 0.5x Formula for the above calculations can be found at: http://www.mbie.govt.nz/info-services/science-innovation/research-organisations/crown-research-institutes/cri-toolkit/section-3/#generic-indicators


NON-FINANCIAL INDICATORS

Indicator name

Measure Frequency 2017 Target 2017 Actual

CRI generic indicators

End user collaboration

Revenue per FTE ($) from commercial sources

Quarterly $62,817 $72,495

Research collaboration

Percentage of peer-reviewed publications with collaborators

Quarterly 75% 73%

Technology and knowledge transfer excellence

Number of commercial/ customer reports per Scientist FTE

Annual 2.5 4.23

Science quality

Mean journal impact factor Annual 2.8 2.29

Financial indicator

Revenue per FTE ($) Quarterly

$166,885

$175,976

CRI generic indicators

Stakeholder engagement

Relevant funding partners and other end users (number and %) that have a high level of confidence that Scion sets research priorities relative to the forest industry and biomaterials sector

Biennial MBIE survey n>30; 85%

No survey conducted for 2017

National and international research providers (%) who have a high level of confidence in Scion’s ability to assemble the most appropriate research team

Biennial >85% No survey conducted for 2017

Relevant end-users (%) who have adopted knowledge and/or technology from Scion

Biennial >90% No survey conducted for 2017

Scion strategic indictors

Maori economic development

Partnerships (number (n) and value ($)) established with Māori entities to support economic development through the forest industry

Quarterly n>5; >$1.0m

n= 9 !$3m!

Accelerated commercialisation

Technologies in Scion’s pipeline (number and co-investment ($)); projects that progress to the business case stage (case studies)

Quarterly 25 & $600k; Cases ≥4pa

12 & $385k; Cases 2

Internationalisation Joint research and technology development programmes and staff exchanges with Scion’s international strategic partner organisations

Six monthly >5 1

6 21

People and culture Staff recruitment and retention (quality and days to fill); leadership development (assessment); good employer (EEO rating); health and safety; and internal staff satisfaction survey (biennial)

Annual and Biennial

Qualitative <50 days; EEO rating; Zero harm

51 days to fill; 8.7% turnover; EEO level one; 1 serious harm


AUDIT REPORT !"#$!%&'(!)*+,!-*./0+123!0/4!53++32,304!)*66!73!'2&8*434!7(!9:!;!<23.!+&!=1+!*/+&!>*/06!23'&2+!'630?3! Check how many pages 2 pages?

A member firm of Ernst & Young Global Limited

INDEPENDENT AUDITOR’S REPORT

TO THE READERS OF NEW ZEALAND FOREST RESEARCH INSTITUTE LIMITED’S FINANCIAL STATEMENTS FOR THE YEAR ENDED 30 JUNE 2017

The Auditor-General is the auditor of New Zealand Forest Research Institute Limited (the company). The Auditor-General has appointed me, Susan Jones, using the staff and resources of EY, to carry out the audit of the financial statements of the company, on his behalf. Opinion We have audited the financial statements of the company on pages 34 to 60, that comprise the statement of financial position as at 30 June 2017, the statement of comprehensive income, statement of changes in equity and statement of cash flows for the year ended on that date and the notes to the financial statements that include accounting policies and other explanatory information. In our opinion, the financial statements of the company: - present fairly, in all material respects:

- its financial position as at 30 June 2017; and - its financial performance and cash flows for the year then ended; and - comply with generally accepted accounting practice in New Zealand in accordance with New Zealand

Equivalents to International Financial Reporting Standards. Our audit was completed on 31 August 2017. This is the date at which our opinion is expressed. The basis for our opinion is explained below. In addition, we outline the responsibilities of the Board of Directors and our responsibilities relating to the financial statements, we comment on other information, and we explain our independence. Basis for our opinion We carried out our audit in accordance with the Auditor-General’s Auditing Standards, which incorporate the Professional and Ethical Standards and the International Standards on Auditing (New Zealand). Our responsibilities under those standards are further described in the Responsibilities of the auditor section of our report. We have fulfilled our responsibilities in accordance with the Auditor-General’s Auditing Standards. We believe that the audit evidence we have obtained is sufficient and appropriate to provide a basis for our audit opinion. Responsibilities of the Board of Directors for the financial statements The Board of Directors is responsible on behalf of the company for preparing financial statements that are fairly presented and that comply with generally accepted accounting practice in New Zealand. The Board of Directors is responsible for such internal control as it determines is necessary to enable it to prepare financial statements that are free from material misstatement, whether due to fraud or error. In preparing the financial statements, the Board of Directors is responsible on behalf of the company for assessing the company’s ability to continue as a going concern. The Board of Directors is also responsible for disclosing, as applicable, matters related to going concern and using the going concern basis of accounting, unless the Board of Directors has to cease operations, or has no realistic alternative but to do so. The Board of Directors’ responsibilities arise from the Crown Research Institutes Act 1992. Responsibilities of the auditor for the audit of the financial statements Our objectives are to obtain reasonable assurance about whether the financial statements, as a whole, are free from material misstatement, whether due to fraud or error, and to issue an auditor’s report that includes our opinion. Reasonable assurance is a high level of assurance, but it is not a guarantee that an audit carried out in accordance with the Auditor-General’s Auditing Standards will always detect a material misstatement when it exists. Misstatements are differences or omissions of amounts or disclosures and can arise from fraud or error. Misstatements are considered material if, individually or in the aggregate, they could reasonably be expected to influence the decisions of readers taken on the basis of these financial statements. For the budget information reported in the financial statements, our procedures were limited to checking that the information agreed to the company’s statement of corporate intent.

Scion Annual Report 201733A member firm of Ernst & Young Global Limited

We did not evaluate the security and controls over the electronic publication of the financial statements. As part of an audit in accordance with the Auditor-General’s Auditing Standards, we exercise professional judgement and maintain professional scepticism throughout the audit. Also: - We identify and assess the risks of material misstatement of the financial statements, whether due to fraud or error,

design and perform audit procedures responsive to those risks, and obtain audit evidence that is sufficient and appropriate to provide a basis for our opinion. The risk of not detecting a material misstatement resulting from fraud is higher than for one resulting from error, as fraud may involve collusion, forgery, intentional omissions, misrepresentations, or the override of internal control.

- We obtain an understanding of internal control relevant to the audit in order to design audit procedures that are appropriate in the circumstances but not for the purpose of expressing an opinion on the effectiveness of the company’s internal control.

- We evaluate the appropriateness of accounting policies used and the reasonableness of accounting estimates and

related disclosures made by the Board of Directors. - We conclude on the appropriateness of the use of the going concern basis of accounting by the Board of Directors

and, based on the audit evidence obtained, whether a material uncertainty exists related to events or conditions that may cast significant doubt on the company’s ability to continue as a going concern. If we conclude that a material uncertainty exists, we are required to draw attention in our auditor’s report to the related disclosures in the financial statements or, if such disclosures are inadequate, to modify our opinion. Our conclusions are based on the audit evidence obtained up to the date of our auditor’s report. However, future events or conditions may cause the company to cease to continue as a going concern.

- We evaluate the overall presentation, structure and content of the financial statements, including the disclosures and

whether the financial statements represent the underlying transactions and events in a manner that achieves fair presentation.

We communicate with the Board of Directors regarding, among other matters, the planned scope and timing of the audit and significant audit findings, including any significant deficiencies in internal control that we identify during our audit. Our responsibilities arise from the Public Audit Act 2001. Other Information The Board of Directors is responsible for the other information. The other information comprises the information included on pages 34 to 60, but does not include the financial statements, and our auditor’s report thereon. Our opinion on the financial statements does not cover the other information and we do not express any form of audit opinion or assurance conclusion thereon. In connection with our audit of the financial statements, our responsibility is to read the other information. In doing so, we consider whether the other information is materially inconsistent with the financial statements or our knowledge obtained in the audit, or otherwise appears to be materially misstated. If, based on our work, we conclude that there is a material misstatement of this other information, we are required to report that fact. We have nothing to report in this regard. Independence We are independent of the company in accordance with the independence requirements of the Auditor-General’s Auditing Standards, which incorporate the independence requirements of Professional and Ethical Standard 1 (Revised): Code of Ethics for Assurance Practitioners issued by the New Zealand Auditing and Assurance Standards Board. Other than the audit, we have no relationship with, or interests in, the company. Susan Jones EY On behalf of the Auditor-General Auckland, New Zealand

Scion Annual Report 2017 34

!

S c i o n A n n u a l R e p o r t 2 0 1 7 P a g e | 34

FINANCIAL STATEMENTS GROUP STATEMENT OF COMPREHENSIVE INCOME FOR THE YEAR ENDED 30 JUNE 2017

ACTUAL BUDGET (unaudited)

ACTUAL

Note 2017 $000

2017 $000

2016 $000

Revenue 2 (a) 51,897 50,307 49,599

Other Income/(Expenditure) 2 (b) (14) 0 297

Expenditure 3 (a) (48,363) (47,977) (47,001)

Finance Costs 3 (b) (9) 0 0

Share of Profit/(Loss) of Associates 14 (b) (199) 0 (401)

Profit Before Tax 3,312 2,330 2,494

Tax Expense 9 (980) (734) (657)

Total comprehensive income for the period attributable to the shareholders of the parent company

2,332 1,596 1,837

The accompanying notes form part of these financial statements.


!


GROUP STATEMENT OF CHANGES IN EQUITY FOR THE YEAR ENDED 30 JUNE 2017 Ordinary

Shares

Asset Revaluation

Reserve

Retained Earnings

Total

Ordinary Shares

Asset Revaluation

Reserve

Retained Earnings

Total

2017 $000

2017 $000

2017 $000

2017 $000

2016 $000

2016 $000

2016 $000

2016 $000

GROUP Balance as at 1 July 17,516 61 18,808 36,385 17,516 61 16,971 34,548 Profit for the period 0 0 2,332 2,332 0 0 1,837 1,837 Total comprehensive income 0 0 2,332 2,332 0 0 1,837 1,837

Balance as at 30 June 17,516 61 21,140 38,717 17,516 61 18,808 36,385



!


GROUP STATEMENT OF FINANCIAL POSITION AS AT 30 JUNE 2017 ACTUAL BUDGET

(unaudited) ACTUAL

Note 2017 $000

2017 $000

2016 $000

Equity Share capital 5 17,516 17,516 17,516 Retained earnings 5 21,140 20,286 18,808 Revaluation reserve 5 61 61 61

38,717 37,863 36,385

Non-Current Liabilities Provisions 6 481 439 472 Defined benefit plan 7(a) 696 1,013 796 Deferred tax liability 9(d) 980 1,957 1,132 2,157 3,409 2,400 Current Liabilities Trade and other payables 8 12,516 8,276 8,013 Provisions 6 98 214 256 Defined benefit plan 7(a) 238 62 200 Tax payable 475 285 780 13,327 8,837 9,249

Total Equity and Liabilities 54,201 50,109 48,034

Non-Current Assets Property, plant and equipment 10 27,801 34,446 27,346 Biological assets 11 548 466 550 Intangible assets 12 719 550 746 Investments in associates 14 433 313 332 Other investments 30 30 30 29,531 35,805 29,004 Current Assets Cash and cash equivalents 15 15,517 7,317 11,433 Trade and other receivables 16 8,847 6,607 7,217 Inventories 17 306 380 380 24,670 14,304 19,030

Total Assets 54,201 50,109 48,034

The accompanying notes form part of these financial statements. For and on behalf of the Board, who authorised the issue of these accounts on 31 August 2017.

Chairman Director


!


GROUP STATEMENT OF CASH FLOWS FOR THE YEAR ENDED 30 JUNE 2017 ACTUAL BUDGET

(unaudited) ACTUAL

Note 2017 $000

2017 $000

2016 $000

Cash Flows from Operating Activities Cash was provided from: Receipts from customers 53,159 49,672 49,520 Interest received 422 348 331 53,581 50,020 49,851 Cash was applied to: Payments to employees 25,406 26,204 24,522 Payments to suppliers 18,370 17,900 17,105 Interest paid 9 0 0 Income tax paid 1,437 721 1,191 45,222 44,825 42,818

Net cash flows from operating activities 19 8,359 5,195 7,033

Cash Flows from Investing Activities Cash was provided from: Proceeds from sale of fixed assets 19 0 0 19 0 0 Cash was applied to: Purchase of property, plant and equipment 3,736 8,651 2,781 Purchase of intangibles 188 120 213 Additional investment in associate 370 200 350 4,294 8,971 3,344

Net cash flows used in investing activities (4,275) (8,971) (3,344)

Net Increase (Decrease) in Cash Held 4,084 (3,776) 3,689 Add opening cash brought forward 11,433 11,093 7,744

Ending Cash Carried Forward 15 15,517 7,317 11,433



!


NOTES TO AND FORMING PART OF THE FINANCIAL STATEMENTS FOR THE YEAR ENDED 30 JUNE 2017 1. Statement of Accounting Policies Reporting Entity New Zealand Forest Research Institute Limited is a Crown Research Institute registered under the Companies Act 1993. The

registered office is Te Papa Tipu Innovation Park, 49 Sala Street, Rotorua. The financial statements consists of New Zealand Forest Research Institute Limited and its subsidiaries (the group).

New Zealand Forest Research Institute Limited (the Company) is a reporting entity for the purposes of the Financial Reporting

Act 2013. It is domiciled and incorporated in New Zealand and is wholly owned by the Crown. The Financial Statements of New Zealand Forest Research Institute Limited for the year were authorised for issue in

accordance with a resolution of the directors on the date as set out on the Statement of Financial Position. The activities of New Zealand Forest Research Institute Limited include a range of research and development programmes

aimed at using plant-based renewable resources and waste streams to create new materials, energy sources and environmentally sustainable products and processes.

New Zealand Forest Research Institute Limited trades as Scion and these names have identical meaning in this report. 1.1 Summary of Significant Accounting Policies

a) Basis of Preparation The financial statements have been prepared in accordance with generally accepted accounting practice in New Zealand

(NZ GAAP) and the requirements of the Companies Act 1993 and the Financial Reporting Act 2013. The financial statements have also been prepared on a historical cost basis, except for forestry assets, carbon credits and certain heritage assets that have been measured at fair value.

The financial statements are presented in New Zealand dollars and all values are rounded to the nearest thousand

dollars ($000). b)! Statement of Compliance

The financial statements have been prepared in accordance with NZ GAAP. They comply with New Zealand equivalents to International Financial Reporting Standards, and other applicable Financial Reporting Standards, as appropriate for profit-oriented entities. The financial statements comply with International Financial Reporting Standards (IFRS).

c) Basis of Consolidation The consolidated financial statements comprise the financial statements of the Group and its subsidiaries as at 30 June.

Control is achieved when the Group is exposed, or has rights, to variable returns from its involvement with the investee and has the ability to affect those returns through its power over the investee. Specifically, the Group controls an investee if and only if the Group has:

•! Power over the investee (i.e. existing rights that give it the current ability to direct the relevant activities of the investee)

•! Exposure, or rights, to variable returns from its involvement with the investee, and •! The ability to use its power over the investee to affect its returns.

When the Group has less than a majority of the voting or similar rights of an investee, the Group considers all relevant facts and circumstances in assessing whether it has power over an investee, including:

•! The contractual arrangement with the other vote holders of the investee •! Rights arising from other contractual arrangements •! The Group’s voting rights and potential voting rights.

The Group re-assesses whether or not it controls an investee if facts and circumstances indicate that there are changes to one or more of the three elements of control. Consolidation of a subsidiary begins when the Group obtains control over the subsidiary and ceases when the Group loses control of the subsidiary. Assets, liabilities, income and expenses of a subsidiary acquired or disposed of during the year are included in the statement of comprehensive income from the date the Group gains control until the date the Group ceases to control the subsidiary. All intra-group assets and liabilities, equity, income, expenses and cash flows relating to transactions between members of the Group are eliminated in full on consolidation.


!


NOTES TO AND FORMING PART OF THE FINANCIAL STATEMENTS FOR THE YEAR ENDED 30 JUNE 2017

c) Basis of Consolidation (continued) A change in the ownership interest of a subsidiary, without a loss of control, is accounted for as an equity transaction. If the Group loses control over a subsidiary, it:

•! Derecognises the assets (including goodwill) and liabilities of the subsidiary •! Derecognises the carrying amount of any non-controlling interests •! Derecognises the cumulative translation differences recorded in equity •! Recognises the fair value of the consideration received •! Recognises the fair value of any investment retained •! Recognises any surplus or deficit in profit or loss •! Reclassifies the parent’s share of components previously recognised in OCI to profit or loss or retained

earnings, as appropriate, as would be required if the Group had directly disposed of the related assets or liabilities.

d) Associate Companies These are companies in which the group holds substantial shareholdings but does not have control and in who’s

commercial and financial policy decisions it participates. Associate companies have been reflected in the consolidated financial statements on an equity accounting basis which

shows the group’s share of surpluses in the Consolidated Statement of Comprehensive Income and its share of post-acquisition increases or decreases in net assets, in the Consolidated Statement of Financial Position.

e) Intangible Assets Intangible assets acquired separately are capitalised at cost and those acquired from a business combination are

capitalised at fair value as at the date of acquisition. Following initial recognition, the cost model is applied to the class of intangible assets.

The useful lives of these intangible assets are assessed to be either finite or indefinite. Where amortisation is charged on assets with finite lives, this expense is recognised in profit and loss. Intangible assets created within the business are not capitalised and expenditure is charged to profit and loss in the year

in which the expenditure is incurred. Intangible assets are tested for impairment where an indicator of impairment exists, and in the case of indefinite life

intangibles, annually, either individually or at the cash generating unit level. Useful lives are also examined on an annual basis and adjustments, where applicable, are made on a prospective basis.

A summary of the policies applied to the group’s capitalised intangible assets is as follows:

Software Useful lives Finite Method used 4 years – Straight line Type Acquired Impairment test/Recoverable amount testing

Amortisation method reviewed at each financial year-end; Reviewed annually for indicators of impairment

Gains or losses arising from de-recognition of an intangible asset are measured as the difference between the net

disposal proceeds and the carrying amount of the asset and are recognised in the profit and loss when derecognised. Carbon Credits New Zealand emission reduction units (NZU's) are recognised when the Group controls the units, provided that it is

probable that economic benefits will flow to the Group and the fair value of the units can be measured reliably. Control of the NZU's arises when the Group is entitled to claim the NZU's from the government.

NZU's are initially measured at fair value on entitlement as an intangible asset unless the Board have determined they

are held for sale, in which case they would be recorded at fair value as inventory. Following initial recognition, the intangible asset is measured at fair value when the Board of Directors consider there is

an active market for the sale of NZU's. NZU's determined as held for sale at recognition and recorded as inventory, are subsequently measured at the lower of cost and net realisable value.

The liability arising from the deforestation of eligible land is measured using the market value approach. A liability exists

and is recognised on pre-1990 forests if the land use changes from forestry.


!



f) Biological Assets Biological assets consist entirely of tree plantations which are measured at fair value less any point of sale costs. Gains

and losses arising on initial recognition or change in fair value, less estimated point of sale costs, are included in profit and loss in the period in which they arise.

The fair value of tree plantations is determined by an independent valuer. The valuation method for immature trees is the net present value of future net harvest revenue less estimated costs of

owning, protecting, tending and managing trees. For mature trees fair value is deemed to be the net harvest revenue value.

g) Property, Plant and Equipment

All items of property, plant and equipment are valued at the cost of purchase from the Crown as at 1 July 1992 adjusted for subsequent additions at cost, disposals, depreciation and impairment. Plant and equipment are recorded at cost less accumulated depreciation. Land and capital work in progress are recorded at cost. Some library books have been identified as heritage assets and are recorded at fair value as determined by an independent valuer. Valuations are obtained every five years or more often where circumstances indicate that a significant change in fair value has occurred.

Expenditure incurred on property, plant and equipment is capitalised where such expenditure will increase or enhance

the future benefits provided by the asset. Expenditure incurred to maintain future benefits is classified as repairs and maintenance.

When an item of property, plant and equipment is disposed of the difference between the net disposal proceeds and the

carrying amount is recognised as a gain, or loss, in profit and loss. Depreciation is provided for using the straight-line method to allocate the historical cost, less an estimated residual

value, over the estimated useful life of the asset. The useful lives of the major classes of assets have been calculated as follows:

Buildings and Land Improvements 20–60 years Plant and Equipment 3–20 years Furniture and Fittings 10–20 years Motor Vehicles 3–7 years Library Books and Periodicals 20 years

h) Recoverable amount of non-current assets At each reporting date, the group assesses whether there is any indication an asset may be impaired. Where an indicator

of impairment exists, the group makes a formal estimate of recoverable amount. Where the carrying amount of an asset exceeds its recoverable amount the asset is considered impaired and is written down to its recoverable amount.

Recoverable amount is the greater of fair value less costs to sell and value in use. It is determined for an individual asset,

however, if the asset’s value in use cannot be estimated to be close to its fair value less costs to sell, and it does not generate cash inflows that are largely independent of those from other assets or groups of assets, it is determined for the cash-generating unit to which the asset belongs.

In assessing value in use, the estimated future cash flows are discounted to their present value using a pre-tax discount

rate that reflects current market assessments of the time value of money and the risks specific to the asset. i) Trade Receivables Trade receivables are initially recognised at fair value and subsequently valued at amortised cost less impairment

allowance. Collectability of trade receivables is reviewed on an ongoing basis. Debts that are known to be uncollectible are written

off when identified. An allowance for doubtful debts is raised when there is objective evidence that it is probable the group will not be able to collect the debt. Financial difficulties and payment defaults without explanation are considered objective evidence of impairment.


!



j) Inventories Consumable stores are valued at the lower of cost, on a weighted average price of stock on hand, and net realisable

value. Nursery stocks are valued at lower of cost or net realisable value. Changes in net realisable value are recognised in the

profit and loss account in the period in which they occur. k) Research Costs Research costs are expensed in the period incurred. l) Provisions and Employee Benefits Provisions are recognised when the group has a present obligation (legal or constructive) as a result of a past event, it is

probable that an outflow of resources embodying economic benefits will be required to settle the obligation and a reliable estimate can be made of the amount of the obligation.

Provisions are measured at the present value of management’s best estimate of the expenditure required to settle the

present obligation at the Statement of Financial Position date using a discounted cash flow methodology. (i) Wages, Salaries and Annual Leave The liability for wages, salaries and annual leave recognised in the Statement of Financial Position is the amount

expected to be paid at balance date. Provision has been made for benefits accruing to employees for annual leave in accordance with the provisions of employment contracts in place at balance date.

(ii) Long Service Leave The liability for long service leave is recognised and measured as the present value of expected future payments to

be made in respect of services provided by employees up to the reporting date using the projected unit credit method. Consideration is given to expected future wage and salary levels, experience of employee departures, and periods of service. Expected future payments are discounted using market yields at the reporting date on national government bonds with terms to maturity and currencies that match, as closely as possible, the estimated future cash outflows.

(iii) Defined Benefit Plan The defined benefit plan is unfunded. The cost of providing benefits under the defined benefit plan is determined

using the projected unit credit actuarial valuation method. Actuarial gains and losses are recognised in the profit and loss account in the period in which they arise.

The defined benefit liability recognised in the Statement of Financial Position represents the present value of the

defined benefit obligations. Long service leave and defined benefit plan provisions are based on an actuarial valuation.

m) Leases

The determination of whether an arrangement is or contains a lease is based on the substance of that arrangement at inception date.

Group as a Lessee Operating lease payments, where the lessors effectively retain substantially all the risks and benefits associated with

ownership of the leased items, are included as an expense in the profit and loss in equal instalments over the lease term.

Group as a Lessor Leases in which the group retains substantially all the risks and benefits of ownership of the leased asset are classified

as operating leases. Initial direct costs incurred in negotiating an operating lease are expensed as incurred.

n) Cash and Cash Equivalents Cash and short-term deposits in the Statement of Financial Position comprise cash at bank and in hand and short-term

deposits with an original maturity of three months or less. For the purposes of the Statement of Cash Flows, cash and cash equivalents consist of cash and cash equivalents as

defined above, net of outstanding bank overdrafts. o) Goods and Services Tax (GST) All items in the financial statements are stated net of GST, with the exception of trade receivables and payables, which

are inclusive of GST invoiced.


!



p) Foreign Currencies Functional and presentation currency Both the functional and presentation currency of New Zealand Forest Research Institute Limited and its subsidiaries is

New Zealand dollars. Transactions and balances Transactions in foreign currencies are initially recorded in the functional currency by applying the exchange rates ruling

at the date of the transaction. Monetary assets and liabilities denominated in foreign currencies are retranslated at the rate of exchange ruling at the Statement of Financial Position date.

Non-monetary items that are measured in terms of historical cost in a foreign currency are translated using the

exchange rate as at the date of the initial transaction. Non-monetary items measured at fair value in a foreign currency are translated using the exchange rates at the date when the fair value was determined.

q) Revenue Recognition Research Revenue Research revenue from both Government and commercial sources is recorded when earned based on the percentage of

work completed. Percentage of work completed is based on management judgement, after considering costs incurred and other contracted commitments. Work completed but not invoiced is recorded as accrued revenue while work invoiced but not completed is recorded as revenue in advance.

Government revenue includes revenue received from the Ministry of Science and Innovation in the form of Core Funding,

Public Good Science and Technology investment, and Preseed Accelerator Fund programmes. Funding includes both devolved and milestone related programmes. Government revenue has only been recognised after all appropriate conditions have been met.

Rent Revenue Rent revenue is recognised when earned. Sale of Goods

Revenue is recognised when the significant risks and rewards of ownership of the goods have passed to the buyer. Risk and reward are considered passed to the buyer at the time of delivery.

Interest Revenue Interest revenue is recognised when earned based on applicable interest rates applied to the group’s cash deposit

balances. r) Taxation The income tax expense charged to the profit and loss includes both the current year’s provision and the income tax

effects of temporary differences calculated using the liability method. Tax effect accounting is applied on a comprehensive basis to all temporary differences. A debit balance in the deferred

tax account, arising from temporary differences or income tax benefits from income tax losses, is only recognised if it is probable there will be taxable profits available in the future against which the deferred tax asset can be utilised.

Subsequent realisation of the tax benefit is subject to the requirements of income tax legislation being met. s) Borrowing Costs Borrowing costs are recognised as an expense when incurred except for those borrowing costs determined as directly

attributable to the acquisition, construction or production of a qualifying asset (i.e. an asset that necessarily takes a substantial period of time to get ready for its intended use or sale).

t) Interest-bearing Loans and Borrowings All loans and borrowings are initially recognised at the fair value of the consideration received net of issue costs

associated with the borrowing. After initial recognition, interest-bearing loans and borrowings are subsequently measured at amortised cost using the

effective interest method. Amortised cost is calculated by taking into account any issue costs, and any discount or premium on settlement.

For the purpose of valuing bank borrowings, the bank interest rate is taken as the discount rate. As such the bank

borrowings are carried at the value of the debt with the bank.


!



u) Trade and Other Payables Trade and other payables are carried at amortised cost and due to their short term nature they are not discounted. They

represent liabilities for goods and services provided to the group prior to the end of the financial year that are unpaid and arise when the group becomes obliged to make future payments in respect of the purchase of these goods and services. The amounts are unsecured and are usually paid within 60 days of recognition.

1.2 Significant Accounting Judgements, Estimates and Assumptions

a) Revenue Recognition Revenue is recognised based on the percentage of work completed on a project basis. Percentage of work completed is

based on management judgement after considering such things as hours completed, costs incurred, milestones achieved, costs to complete and actual results to date.

b) Heritage Assets The group holds several heritage assets which have significant value due to being both rare, and having importance to

the nation. Where a heritage cost can be measured reliably they are revalued at least every five years and included as part of property plant and equipment.

Due to the nature of some heritage assets, management does not believe they can be valued reliably. These assets have

been identified and disclosed. Details of heritage assets can be found in Note 10 and 21. c) Biological Assets The group’s biological assets consist of tree plantations. These are valued at the net present value of future net harvest

revenue less estimated costs of owning, protecting, tending and managing trees. The valuation process includes several judgements and estimations around discount rates, future costs, and future prices. Management used the experience of a registered forestry valuer to reduce the risk of misstatement resulting from these judgements and estimates.

d) Defined Benefit Scheme The group operates an unfunded defined benefit plan. Significant assumptions used involving the plan include the

discount rate and future salary increases as set out in the notes to the financial statements. Management used the experience of a registered actuary to reduce the risk of misstatement resulting from these judgements and estimates.

1.3 Accounting Standards Issued but not yet Effective

The following standards have had changes that have been issued but not yet made effective:

Date Applicable for Scion

•! NZ IFRS 9 Financial Instruments (2014) 1 July 2018 •! NZ IFRS 10 Consolidated Financial Statements 1 July 2020 •! NZ IFRS 15 Revenue from Contracts with Customers 1 July 2018 •! NZ IFRS 16 Leases 1 July 2019 •! NZ IAS 28 Investments in Associates and Joint Ventures 1 July 2020

The group has chosen not to apply the changes in the above standards prior to their effective date. While these standards are applicable to the group they are not, except for NZ IFRS 15, expected to have a material impact on our accounts. NZ IFRS 15 potentially has a material impact on revenue recognition. The company is reviewing its revenue types and contractual terms and processes to ensure it can effectively meet the standard requirements. There are no amendments to standards under the Annual Improvements to NZ IFRS programme that affect Scion’s Financial Statements.


!



ACTUAL ACTUAL 2017

$000 2016 $000

2. Revenue and Other Income (a) Revenue Government research revenue 30,195 30,301 Commercial research revenue 20,405 17,975 Software product sales and maintenance 102 155 Commercial lease revenue 696 714 Royalty 63 86 Interest revenue 436 368 51,897 49,599 (b) Other Income/(Expenditure) Change in fair value of plantation trees (2) 84 Change in fair value of carbon credits (12) 213 (14) 297

3. Expenditure and Finance Costs (a) Expenditure Personnel remuneration and expenses 25,370 24,311 Other personnel related costs 692 502 Contractors and subcontractors 7,794 6,472 Consumables 1,363 1,211 External services 3,244 2,981 Travel and accommodation 1,887 1,506 Lease and rental costs 211 184 Depreciation 3,383 5,481 Amortisation 201 191 Loss on disposal of fixed assets 71 298 Impairment of assets 47 140 Reversal of impairment (4) (23) Premises 3,015 2,756 Directors’ fees 253 224 Restructuring costs 122 152 Doubtful debt provision 0 2 Bad debts expense 0 1 Compensation provision 50 0 Realised exchange fluctuations 1 0 Unrealised exchange fluctuations 0 1 Other 663 611 48,363 47,001 (b) Finance Costs IRD use of money interest 9 0 9 0 4. Auditor’s Remuneration Amounts paid or due and payable to the auditors for: Auditing financial statements Parent entity auditor 113 116 113 116


!


NOTES TO AND FORMING PART OF THE FINANCIAL STATEMENTS FOR THE YEAR ENDED 30 JUNE 2017 5. Equity New Zealand Forest Research Institute Limited has authorised, issued and paid up capital of 17,516,000 (2016: 17,516,000)

ordinary shares. Shares do not have a par value.

All shares have equal rights with respect to voting, dividends and distribution on winding up. There are no restrictions on the distribution of dividends or repayment of capital. No dividends were declared or paid to shareholders during the year (2016: $0). The asset revaluation reserve is used to record increments and decrements in the fair value of heritage book assets. Movements in the asset revaluation reserve are not reclassified to the profit and loss in subsequent periods.

Capital Management Scion is 100% Crown owned. Scion completes a five year plan on an annual basis and as part of that five year plan, Scion

considers any capital requirements for the future. When managing capital, management’s objective is to ensure the entity continues as a going concern while balancing its financial goals of delivering returns in line with market cost of capital, with its public good goals of reinvesting in science that will benefit New Zealand. Management uses total equity as capital. The group has no externally imposed capital requirements.

6. Provisions The group has provisions for long service leave and restructuring. The long service leave provision totals $551k at June 2017

(2016: $545k) and was actuarially valued by Aon Hewitt Consulting, an independent risk management and consulting organisation. The group has a restructuring provision of $28k at June 2017 (2016: $183k).

The provisions are made up as follows: ACTUAL ACTUAL 2017

$000 2016 $000

Current Provision 98 256 Non-Current Provision 481 472 579 728 Movement in each class of provision during the year is as follows: Long Service

Leave Restructuring TOTAL Long Service

Leave Restructuring TOTAL

2017 2017 2017 2016 2016 2016 $000 $000 $000 $000 $000 $000 Balance 1 July 545 183 728 553 121 674 Provision reversed during

the year 0 (72) (72) 0 (31) (31)

Amounts used during the year (85) (111) (196) (87) (90) (177)

Provisions made during the year 91 28 119 79 183 262

Balance 30 June 551 28 579 545 183 728


!


NOTES TO AND FORMING PART OF THE FINANCIAL STATEMENTS FOR THE YEAR ENDED 30 JUNE 2017 7. Pension Plans a) Defined Benefit Plan Scion operates an unfunded final salary defined benefit plan. The level of benefits provided depends on the member’s

length of service and salary at retirement age. The plan is closed to new members and will cease when the current 42 members have either retired or left the group. There are no assets backing the unfunded liability. The cost of providing benefits under the defined benefit plan is determined using the projected unit credit actuarial valuation method. Actuarial gains and losses are recognised in the Profit and Loss account. Past service cost is recognised immediately. The defined benefit liability recognised in the Statement of Financial Position represents the present value of the defined benefit obligation.

ACTUAL ACTUAL 2017

$000 2016 $000

Net plan expense Current service cost 27 35 Interest cost on benefit obligation 33 45 Net actuarial gains recognised in the year (88) 31 Net plan expense/(income) (28) 111 The net plan expense is included in the Personnel remuneration and expense line in Note 3(a) Expenditure. Defined Benefit Plan 2017

$000 2016 $000

2015 $000

2014 $000

2013 $000

Benefit liability included in the Statement of Financial Position

Present value of defined benefit obligation 934 996 960 1,030 1,264 ACTUAL ACTUAL 2017

$000 2016 $000

Changes in the present value of the defined benefit obligation are as follows:

Opening balance 996 960 Current service cost 27 35 Interest cost 33 45 Actuarial gains recognised in the year (88) 31 Benefits paid (34) (75) Closing balance 934 996 Current provision 238 200 Non-current provision 696 796 934 996


!


NOTES TO AND FORMING PART OF THE FINANCIAL STATEMENTS FOR THE YEAR ENDED 30 JUNE 2017 7. Pension Plans (cont.) a) Defined Benefit Plan The history of experience adjustments is as follows:

2017

$000 2016 $000

2015 $000

2014 $000

2013 $000

Experience adjustments on plan liabilities (80) (37) (75) (59) (103) The principal actuarial assumptions used in determining the defined benefit plan obligations are shown below:

2017

$000 2016 $000

Discount rate 3.61% 3.30% Future salary increases 4.10% 4.20% At 30 June a change in the assumed rates of salary growth and resignation rates, all other assumptions remaining

unchanged, would affect the balance of the liability as follows: ACTUAL ACTUAL 2017

$000 2016 $000

Current obligation 934 996 Salary growth Reduction of 1% per annum 884 932 Increase of 1% per annum 988 1,056 Resignation rates 150% of assumed rates 912 963 50% of assumed rates 957 1,021 Interest rate assumptions are based on Treasury’s published risk free discount rates.

b) Defined Contribution Plan During the period defined contributions totalling $703k (2016: $699k) were made to the Government Superannuation Fund

and KiwiSaver. ACTUAL ACTUAL 2017

$000 2016 $000

8. Trade and Other Payables Trade payables 5,335 4,179 Employee payables and accruals 2,278 2,009 Revenue in advance 4,903 1,825 12,516 8,013

The carrying amount disclosed above is a reasonable approximation of fair value. Trade creditors are non-interest bearing

and are normally settled within 60 days.


!


NOTES TO AND FORMING PART OF THE FINANCIAL STATEMENTS FOR THE YEAR ENDED 30 JUNE 2017 ACTUAL ACTUAL 2017

$000 2016 $000

9. Income Tax (a) Income Tax Expense

The major components of income tax expense in the Statement of Comprehensive Income are:

Current income tax Current income tax charge 1,096 1,436 Adjustments to prior year current income tax charge 36 47 1,132 1,483 Deferred income tax Deferred tax expenses/(income) related to prior year (41) (38) Relating to origination and reversal of temporary differences (111) (788) (152) (826) Income tax expense/(income) reported in the Statement of Comprehensive Income 980 657

(b) Amounts charged or credited directly to other comprehensive income Deferred income tax related to items charged (credited) directly to other

comprehensive income

Net gain on revaluation of heritage assets 0 0 (c) Reconciliation between the aggregate tax expense recognised in the

Statement of Comprehensive Income to tax expense calculated at the statutory income tax rate

Accounting profit before income tax 3,312 2,494 Tax at the statutory income tax rate of 28% (2016: 28%) 927 698 Adjusted by: Prior year income tax (5) 10 Entertainment 16 14 Other 42 (65) Income tax expense 980 657 (d) Deferred income tax relates to the following: Deferred tax liabilities Property, plant and equipment (1,796) (1,923) Nursery inventory (77) (102) Standing timber (154) (154) (2,027) (2,179) Deferred tax assets Patents and trademarks 200 177 Payroll provisions 732 798 Provision for doubtful debts 10 10 Income in advance 28 42 Other 77 20 1,047 1,047 Net Deferred Tax Asset/(Liability) per Statement of Financial Position (980) (1,132 ) The group has no unused tax losses (2016: $0k).


! Sc

io

n A

nn

ua

l R

ep

or

t 2

01

7

Pa

ge

| 49

NOT

ES T

O AN

D FO

RMIN

G PA

RT O

F TH

E FI

NAN

CIAL

STA

TEM

ENTS

FO

R TH

E YE

AR E

NDE

D 30

JUN

E 20

17

10.

Prop

erty

, Pla

nt a

nd E

quip

men

t

GR

OUP

Land

&

Impr

ovem

ents

$0

00

Build

ings

$000

Plan

t &

Equi

pmen

t $0

00

Furn

iture

&

Fitt

ings

$0

00

Mot

or V

ehic

les

$0

00

Book

s &

Perio

dica

ls

$000

Capi

tal W

ork

in

Prog

ress

$0

00

Tota

l

$000

At 1

July

201

6

Carr

ying

am

ount

net

of

accu

mul

ated

dep

reci

atio

n an

d im

pairm

ent a

t 1 J

uly

2016

1,

860

12,1

82

10,2

48

897

297

82

1,78

0 27

,346

Ad

ditio

ns

0 10

1,

865

106

96

0 1,

893

3,97

0

Tran

sfer

s fr

om C

WIP

0

0 1,

277

19

0 0

(1,2

96)

0

Disp

osal

s 0

(181

) (4

) 0

(1)

0 (4

4)

(230

)

Impa

irmen

t pro

visi

on m

ade

0 (4

7)

0 0

0 0

0 (4

7)

Re

vers

al o

f im

pairm

ent p

rovi

sion

0

145

0 0

0 0

0 14

5

Depr

ecia

tion

expe

nsed

(6

2)

(606

) (2

,547

) (9

1)

(77)

0

0 (3

,383

)

Ca

rryi

ng a

mou

nt n

et o

f ac

cum

ulat

ed d

epre

ciat

ion

and

impa

irmen

t at 3

0 Ju

ne 2

017

1,79

8 11

,503

10

,839

93

1 31

5 82

2,

333

27,8

01

At 3

0 Ju

ne 2

017

Co

st o

r fai

r val

ue

2,35

7 22

,717

45

,561

2,

861

908

82

2,33

3 76

,819

Accu

mul

ated

dep

reci

atio

n an

d im

pairm

ent

(559

) (1

1,21

4)

(34,

722)

(1

,930

) (5

93)

0 0

(49,

018)

N

et c

arry

ing

amou

nt

1,79

8 11

,503

10

,839

93

1 31

5 82

2,

333

27,8

01

Book

s an

d pe

riodi

cals

incl

ude

som

e lib

rary

boo

ks c

lass

ified

as

Her

itage

Ass

ets.

The

gro

up e

ngag

ed R

owan

Gib

bs, a

n an

tiqua

rian

book

selle

r of 3

7 ye

ars’

exp

erie

nce

of S

mith

’s B

ooks

hop

Lim

ited

to d

eter

min

e th

e fa

ir va

lue

of th

e he

ritag

e lib

rary

boo

ks a

s at

30

June

201

3. F

air v

alue

is th

e am

ount

for w

hich

the

book

s co

uld

be e

xcha

nged

bet

wee

n a

know

ledg

eabl

e w

illin

g bu

yer a

nd a

kno

wle

dgea

ble

will

ing

selle

r in

an

arm

s-le

ngth

tran

sact

ion

as a

t val

uatio

n da

te. F

air v

alue

is d

eter

min

ed b

y re

fere

nce

to re

cent

pric

es re

alis

ed a

t nat

iona

l and

inte

rnat

iona

l auc

tions

and

pric

es b

eing

ask

ed fo

r by

spec

ialis

t dea

lers

for

com

para

ble

item

s. R

efer

to N

ote

21 re

gard

ing

othe

r her

itage

ass

ets.

The

her

itage

ass

et li

brar

y bo

oks

have

bee

n va

lued

at $

82k

(201

6: $

82k)

. Sc

ion

reco

gnis

ed a

n im

pairm

ent l

oss

of $

47k

on b

uild

ings

whi

ch a

re n

ot te

nant

ed a

nd th

e co

mpa

ny c

onsi

ders

that

they

are

unl

ikel

y to

be

tena

nted

in th

e fo

rese

eabl

e fu

ture

(201

6: $

140k

). S

cion

als

o

re-a

sses

sed

the

econ

omic

use

ful l

ife o

f som

e bu

ildin

gs th

at a

re to

be

part

ly o

r who

lly d

emol

ishe

d as

par

t of i

ts c

ampu

s de

velo

pmen

t pla

ns a

nd a

ccor

ding

ly a

ccel

erat

ed d

epre

ciat

ion

on th

e bu

ildin

gs. S

cion

m

ade

no o

ther

impa

irmen

t pro

visi

ons

and

redu

ced

prov

isio

ns w

here

dep

reci

atio

n on

an

asse

t has

con

tinue

d to

be

reco

gnis

ed.


! Sc

io

n A

nn

ua

l R

ep

or

t 2

01

7

Pa

ge

| 50

NOT

ES T

O AN

D FO

RMIN

G PA

RT O

F TH

E FI

NAN

CIAL

STA

TEM

ENTS

FO

R TH

E YE

AR E

NDE

D 30

JUN

E 20

17

10.

Prop

erty

, Pla

nt a

nd E

quip

men

t (co

nt.)

GR

OUP

Land

&

Impr

ovem

ents

$0

00

Build

ings

$000

Plan

t &

Equi

pmen

t $0

00

Furn

iture

&

Fitt

ings

$0

00

Mot

or V

ehic

les

$0

00

Book

s &

Perio

dica

ls

$000

Capi

tal W

ork

in

Prog

ress

$0

00

Tota

l

$000

At 1

July

201

5

Carr

ying

am

ount

net

of

accu

mul

ated

dep

reci

atio

n an

d im

pairm

ent a

t 1 J

uly

2015

1,

784

15,1

26

10,3

95

987

362

251

1,44

8 30

,353

Ad

ditio

ns

136

0 1,

787

0

41

0 92

5 2,

889

Tran

sfer

s fr

om C

WIP

0

0 57

2 0

0 0

(572

) 0

Di

spos

als

0 0

(108

) 0

0 (1

69)

(21)

(2

98)

Im

pairm

ent p

rovi

sion

mad

e 0

(140

) 0

0 0

0 0

(140

)

Reve

rsal

of i

mpa

irmen

t pro

visi

on

0 23

0

0 0

0 0

23

De

prec

iatio

n ex

pens

ed

(60)

(2

,827

) (2

,398

) (8

9)

(106

) 0

0 (5

,481

)

Ca

rryi

ng a

mou

nt n

et o

f ac

cum

ulat

ed d

epre

ciat

ion

and

impa

irmen

t at 3

0 Ju

ne 2

016

1,86

0 12

,182

10

,248

89

7 29

7 82

1,

780

27,3

46

At 3

0 Ju

ne 2

015

Co

st o

r fai

r val

ue

2,22

0 23

,260

40

,851

2,

755

812

251

1,56

0 71

,709

Accu

mul

ated

dep

reci

atio

n an

d im

pairm

ent

(436

) (8

,134

) (3

0,45

6)

(1,7

68)

(450

) 0

(112

) (4

1,35

6)

N

et c

arry

ing

amou

nt

1,78

4 15

,126

10

,395

98

7 36

2 25

1 1,

448

30,3

53

At 3

0 Ju

ne 2

016

Co

st o

r fai

r val

ue

2,35

7 23

,024

42

,768

2,

742

853

82

1,78

0 73

,606

Accu

mul

ated

dep

reci

atio

n an

d im

pairm

ent

(497

) (1

0,84

2)

(32,

520)

(1

,845

) (5

56)

0 0

(46,

260)

N

et c

arry

ing

amou

nt

1,86

0 12

,182

10

,248

89

7 29

7 82

1,

780

27,3

46


!


NOTES TO AND FORMING PART OF THE FINANCIAL STATEMENTS FOR THE YEAR ENDED 30 JUNE 2017 11. Biological Assets Biological assets consist of tree plantations. The group has 73.2 hectares of trees planted initially for experimental purposes.

When experiments are completed, they are classified as biological assets. Trees will be harvested when they reach maturity. ACTUAL ACTUAL 2017

$000 2016 $000

Carrying amount 1 July 550 466 (Loss)/Gain from changes in fair value less estimated point-of-sale costs (2) 84 Carrying amount 30 June 548 550 The above biological assets are level 3 in the fair value hierarchy.

The group has tree plantations at three locations: (a)! 31 hectares of immature Radiata Pine is located at Puruki. The trees were planted for experimental purposes. The group

has a forestry right which expires in 2067. (b)! 5.5 hectares of Mexican Cypress are located at Tikokino. The trees were planted for experimental purposes. The Mexican

Cypress has a clear fell date of June 2033. (c)! 34.5 hectares of immature Radiata Pine is located at Mamaku plus 2.2 hectares of mature Sitka Spruce. The trees were

planted for experimental purposes. The group has a forestry right which terminates when the trees are harvested or in 2024, whichever is the earlier.

The tree plantations were valued as at 30 June 2017 by PF Olsen Limited, an independent forestry management and consultancy company. The valuation method for immature trees is the net present value of future net harvest revenue less estimated costs of owning, protecting, tending and managing trees. For mature trees fair value is deemed to be the net harvest revenue value. Fair value is sensitive primarily to log prices. Significant increase (decreases) in log prices would result in a significantly higher (lower) fair value.

ACTUAL ACTUAL 2017

$000 2016 $000

12. Intangible Assets Software Opening balance 1 July At cost 4,028 3,817 Less accumulated amortisation (3,628) (3,439) Opening net carrying amount 1 July 400 378 Opening carrying amount 1 July 400 378 Additions 186 213 Current year amortisation (201) (191) Closing carrying amount 30 June 385 400

Closing balance 30 June At cost 4,214 4,028 Less accumulated amortisation (3,829) (3,628) Closing net carrying amount 30 June 385 400 Carbon Credits Carrying amount 1 July 346 133 Increase/(Decrease) in fair value (12) 213 Carrying amount 30 June 334 346 Total intangible assets 30 June 719 746


!


NOTES TO AND FORMING PART OF THE FINANCIAL STATEMENTS FOR THE YEAR ENDED 30 JUNE 2017 13. Investments in Subsidiaries

Shares Percentage

Held 2017

Percentage Held 2016

Balance Date

Subsidiaries Te Papa Tipu Properties Limited 100 100% 100% 30 June Sala Street Holdings Limited 100 100% 100% 30 June Te Papa Tipu Properties Limited was incorporated on 25 March 2004. The company owns the group’s land assets.

Sala Street Holdings Limited was incorporated on 9 November 2015. The company holds the groups 50% investment in Scion

Terax technologies.

All subsidiaries are incorporated in New Zealand. ACTUAL ACTUAL 2017

$000 2016 $000

14. Investments in Associates (a) Investment Details Biopolymer Network Limited 241 259 Terax 2013 Limited 0 0 Terax Limited Partnership 192 73 433 332 New Zealand Forest Research Institute Limited has a 33.33% (2016: 33.33%) shareholding in Biopolymer Network Limited, a

company carrying on research, development and commercialisation of biopolymers. New Zealand Forest Research Institute Limited Group has a 50% shareholding in Terax 2013 Limited. The company was incorporated in February 2012. Terax 2013 Limited manages Terax Limited Partnership in which Scion Group also has a 50% interest. Terax Limited Partnership was registered on 8 April 2013. The group’s proportion of voting power held in each associate is the same as its ownership interest. All of the companies are incorporated in New Zealand.

ACTUAL ACTUAL 2017

$000 2016 $000

(b) Movements in the carrying amount of the group’s investments in associates Opening carrying amount of investments 332 313 Current year investment in associates 300 420 Current year share of increase/(decrease) in net assets of associates (199) (401) Closing carrying amount of investments 433 332


!



$000 2016 $000

14. Investments in Associates (cont.) (c) Summarised financial information The following table illustrates summarised financial information relating to the

group’s associates:

Extract from the associates’ Statement of Financial Position: Current assets 1,424 1,112 Non-current assets 405 347 1,829 1,459 Current liabilities 746 536 746 536 Net assets 1,083 923 Share of associates’ net assets 433 332 Extract from the associates’ Statement of Comprehensive Income: Revenue 3,399 4,039 Net Profit/(Loss) (75) (536) There are no known contingent liabilities relating to Associates. 15. Cash and Cash Equivalents Cash on hand 5 7 Bank 1 1 Call deposits 4,811 3,791 Short term deposits 10,700 7,634 15,517 11,433

Deposits earn interest at rates ranging from 1.60% to 3.81% (2016: 2.25% to 3.57%). For the purposes of the Statement of Cash Flows, Cash and Cash equivalents are equivalent to Cash and Cash equivalents presented in the Statement of Financial Position.


!



$000 2016 $000

16. Trade and Other Receivables Trade receivables 6,983 5,091 Allowance for impairment loss (35) (35) Other debtors 97 79 Prepayments 917 927 Accrued revenue 718 989 Related party receivables: Associates 167 166 Other related parties 0 0 Carrying amount 30 June 8,847 7,217 (a) The carrying amount disclosed above is a reasonable approximation of fair value due to the short term nature of the

receivables. (b) Allowance for Impairment Loss Trade receivables are non-interest bearing and are generally on 30–60 day terms. A provision for impairment loss is

recognised when there is objective evidence that a trade receivable is impaired. No increase or decrease in the allowance for impairment loss in the current year.

Movements in the allowance for impairment loss were as follows: ACTUAL ACTUAL 2017

$000 2016 $000

Opening balance 1 July 35 37 Reversal of prior year provision 0 (2) Charge for the year 0 6 Bad debts written off 0 (6) Closing balance 30 June 35 35 At 30 June, the ageing analysis of trade receivables is as follows:

Total

$000s

0-30 Days CNI*

$000s

0-30 Days CI*

$000s

31-60 Days CNI*

$000s

31-60 Days CI*

$000s

61-90 Days PDNI* $000s

61-90 Days CI*

$000s

+91 Days PDNI* $000s

+91 Days CI*

$000s

2017 6,983 6,653 0 186 0 76 0 33 35

2016 4,724 4,294 0 218 0 3 0 174 35 * Current not impaired (CNI) * Past due not impaired (PDNI) * Considered impaired (CI) (c) For related party terms and conditions refer to Note 23.


!



$000 2016 $000

17. Inventories Consumable stores (at cost) 30 16 Nursery stock 276 364 Closing carrying amount 306 380 Consumable stores recognised as an expense for the year are $67k (2016: $35k). The expense has been included in the

“consumables” line item in Note 3 (a). Consumable inventory write-down in the period was $0k (2016: $0k).

18. Financial Instruments Financial Instruments include: Loans and Receivables Cash and cash equivalents

Trade receivables Other debtors Related party receivables

Other Financial Liabilities Trade payables

Other payables Related party payables

All the above financial instruments apart from derivative financial instruments are measured at amortised cost. Due to their short term nature their carrying amount is a reasonable approximation of their fair value. All financial instruments held at fair value are Level 2. Management have not identified any concentrations of risk for any of the below risk categories.

Liquidity Risk

The group’s objective is to maintain a balance between continuity of funding and flexibility through the use of a bank debt facility and a bank overdraft. Management monitors, on a monthly basis, our free capacity within the debt facility and our forecasted ability to pay for that debt. Trade payables ($2,753k) are non-interest bearing and are normally settled within 60 days. The company and group liabilities all have contractual maturities of less than 120 days.

Credit Risk Financial instruments that potentially subject the group to credit risk consist of bank balances and accounts receivable.

The group generally does not require any security. Significant new non-Government customers are credit checked. Trade receivable ageing is reviewed monthly and all aged trade receivables are followed up. Credit stops are used for non-paying customers.

Maximum exposures to credit risk as at balance date are: ACTUAL ACTUAL 2017

$000 2016 $000

Current account 1 1 Call and short term deposits 15,511 11,425 Trade receivables 6,893 5,091 Other debtors 97 79 Related party receivables 167 166 The above maximum exposures are net of any provision for impairment on these financial instruments.


!


NOTES TO AND FORMING PART OF THE FINANCIAL STATEMENTS FOR THE YEAR ENDED 30 JUNE 2017 18. Financial Instruments (cont.) Market Risk Market risk on financial instruments comprise the following three types of risk:

Interest Rate Risk The group’s exposure to market interest rates relates primarily cash deposits. Cash and cash equivalents have increased during the year to a year ended 30 June 2016 group balance of $15,517k (2016: $11,433k).

ACTUAL ACTUAL 2017

$000 2016 $000

Cash in hand 5 7 Current account 1 1 Call deposits 4,811 3,791 Short term deposits 10,700 7,634 15,517 11,433 The current account is managed at low levels and interest returns on the current account are not material. Cash funds in

excess of our current requirements are invested in short-term bank deposits to attract improved interest returns. At 30 June 2017 bank call and short term deposits were earning interest at rates between 1.60% and 3.81% (2016: 2.25% and 3.57%).

At 30 June 2017, if interest rates moved as indicated in the table below, with all other variables being held constant, post-tax profit and equity would have been affected as follows:

2017 2017 2016 2016 Judgement of reasonably possible movements in

interest rates Change in

Interest Rate Effect on Post

Tax Profit & Equity $000

Change in Interest Rate

Effect on Post Tax Profit &

Equity $000

+1% 112 +1% 82 -1% (112) -1% (82) Management has taken account of Reserve Bank of New Zealand indications of future interest rate movements in the

Official Cash Rate and various other market indicators and after considering these indicators, believe the interest rate changes are reasonable and possible.

Currency Risk Only small balances are held in currencies other than New Zealand dollars, materially all in debtors. Collection on all

these debtors is expected within 60 days resulting in minimal foreign exchange risk. Other Price Risk Other price risk primarily relates to the market price of financial instruments. As Scion does not trade in financial

instruments there is no perceived risk in this category.


!



$000 2016 $000

19. Reconciliation of Operating Surplus after Taxation with Cash Flows from Operating Activities

Reported surplus/(loss) after taxation 2,332 1,837

Add/(less) non-cash items: Depreciation (Refer Note 3 and 10) 3383 5,481 Amortisation 201 191 Compensation provision 50 0 Impairment provision 43 117 Movement in deferred tax (Refer Note 9) (152) (825) 3,525 4,964 Add/(less) items classified as investing activity: Investment contribution included in payables 70 (70) (Gain)/loss on disposal of property, plant and equipment 71 299 Share in associate company (profit)/loss 199 401 Capital related items in creditors (234) (109) Fair value movement in carbon credits 12 (213) Fair value movement in biological assets 2 (84) 120 224 Movements in working capital items: (Increase)/Decrease in debtors and prepayments (1,630) (779) (Increase)/Decrease in inventories 75 76 Increase/(Decrease) in creditors and accruals 4,242 420 Increase/(Decrease) in taxation payable (305) 291 2,382 8 Net cash flows from operating activities 8,359 7,033 20. Contingencies Treaty of Waitangi Issues

Two verified land claims affecting the group currently exist: (i) Ngati Whakaue – covering the whole Rotorua Campus (ii) Ngati Wahiao – covering the southern end of the Rotorua Campus No reliable estimates can be made of the impact of these contingencies.

21. Heritage Assets The company has identified its library, herbarium and germplasm collections as heritage assets. For the herbarium and

germplasm collections the Directors believe that there is no practical basis upon which to reliably value these collections. For the library refer to note 10.


!


NOTES TO AND FORMING PART OF THE FINANCIAL STATEMENTS FOR THE YEAR ENDED 30 JUNE 2017 22. Commitments Operating Lease Commitments – Group as Lessee:

The group has entered into commercial leases on certain motor vehicles and items of office equipment. The leases have lives of three or four years with renewal options included in the motor vehicle leases only. There are no restrictions placed on the lessee by entering into these leases. In addition the parent company leases land from its subsidiary Te Papa Tipu Properties Limited. Future minimum rentals payable under non-cancellable operating leases as at 30 June are as follows:

ACTUAL ACTUAL 2017

$000 2016 $000

Lease commitments under non-cancellable operating leases: Within one year 20 22 One to five years 18 31 38 53 Operating Lease – Group as Lessor: The group has entered into commercial property leases for buildings and land. These non-cancellable leases have

remaining terms including rights to renew of up to 5 years on buildings and 13 years on land leases, with rights to renew for a further 40 years. All leases include a clause to enable upward revision of the rental charge at a specified review date of between one and five years basis according to prevailing market conditions. Future minimum rentals receivable under non-cancellable operating leases as at 30 June are as follows:

ACTUAL ACTUAL 2017

$000 2016 $000

Within one year 364 344 One to five years 504 617 Greater than five years 406 483 1,274 1,444 Capital Commitments Capital expenditure contracted for at balance date but not provided for 484 0

23. Transactions with Related Parties (a) Parent

New Zealand Forest Research Institute Limited is wholly owned by the New Zealand Government (the ultimate parent). All transactions with the Government, Government departments and agencies and Government entities are conducted at arms-length. Government Public Good Science funding and Capability funding comprises close to 50% of research revenue earned by Scion.

ACTUAL 2017 $000

ACTUAL 2016 $000

(b) Subsidiary Companies of Parent Te Papa Tipu Properties Ltd Charge for services 76 76 Payment of rent (398) (398) Net Paid on behalf 187 151 Amount (payable)/receivable at balance date – Intercompany account (215) (80) Sala Street Holdings Ltd Paid on behalf 370 100 Amount receivable at balance date 470 100


!



$000 2016 $000

23. Transactions with Related Parties (cont.) (c) Associates of Parent Biopolymer Network Ltd Supplied goods and services 1,737 1,722 Receivable at balance date 167 163 Terax 2013 Ltd Services provided 101 288 Cash contributions made 300 420 Receivable at balance date 0 2 Terax Limited Partnership Services provided 20 0 Services paid on behalf 0 22 Receivable at balance date 0 0 (d) Other Related Parties WQI Ltd Supplied goods and services 0 211 Received goods and services 0 (13) Receivable/(Payable) at balance date 0 0 New Zealand Forest Research Institute Limited has a 5.05% shareholding in WQI Limited (2016: 5.05%). The company's

policy is to record such investments at fair value but these shareholdings have not been recorded in the financial statements as their value is not considered to be material to the group. Refer to Note 14 for shareholdings in associates. Other The group’s transactions during the year and year end balances with other parties are as follows:

i) Oji Fibre Solutions (NZ) Limited (related party from 1 January 2016) Provided services during the period totalling $412k (2016: $137k for the period from 1 January 2016 to 30 June 2016). The amount receivable at year end was $173k (2016: $21k). ii) Wood Processing and Manufacturing Association (related party from 1 January 2016) Received services totalling $12k at year end (2016: $3k for the period from 1 January 2016 to 30 June 2016). The amount payable at year end was $1k (2016: $0k). iii) University of Canterbury Provided services during the period totalling $386k (2016: $142k). The amount receivable at year end was $431k (2016: $150k). Also services totalling $407k were received during the period (2016: $457k) and the amount payable at year end was $33k (2016: $138k).

Mrs Judith Stanway, a director of New Zealand Forest Research Institute Limited, is Chair of Te Papa Tipu Properties Limited and a Director at Terax 2013 Limited. Mrs Stanway’s term concluded 30 June 2017. Mr Jon Ryder, a director of New Zealand Forest Research Institute Limited, is CEO of Oji Fibre Solutions NZ Limited and a director of Oji Oceania and Wood Processors and Manufacturers Association. Mr Steve Wilson, a director of New Zealand Forest Research Institute Limited, is a University of Canterbury Mechanical Engineering Advisory Board Member.

Terms and conditions of transactions with related parties Outstanding balances at year end are unsecured and interest free. No guarantees are provided or received for any related party receivables or payables. No related party debts were written off during the year (2016: $0k) and no impairment allowance has been raised for any of these debts.


!



$000 2016 $000

24. Key Management Personnel Short term employee benefits 1,968 1,925 KiwiSaver employee benefits 36 34 2,004 1,959 !


!


BOARD OF DIRECTORS Mr Tony Nowell CNZM – Chair Mr Sheldon Drummond (resigned 30 June 2017) Ms Colleen Neville Dr Barry O’Neil Mr Jon Ryder Mrs Judith Stanway (resigned 30 June 2017) Mr Steve Wilson Mr Rob Trass (Company Secretary) EXECUTIVE MANAGEMENT Dr Warren Parker – Chief Executive Officer (resigned 6 March 2017) Dr Julian Elder – Chief Executive Officer (commenced 7 February 2017) Dr Russell Burton – General Manager, Research and Investments Dr Elspeth MacRae – General Manager, Manufacturing and Bioproducts Mr Rob Lei – Acting General Manager, Business Development and Commercialisation Prof Alison Stewart CNZM– General Manager, Forest Science Mrs Keri-Anne Tane – General Manager, People, Culture and Safety (resigned 26 May 2017) Mr Rob Trass – Chief Financial Officer AUDITORS Susan Jones Ernst & Young, Auckland, on behalf of the Auditor-General BANKERS ANZ Bank of New Zealand SOLICITORS Bell Gully, Auckland


!


REGISTERED OFFICE DETAILS Te Papa Tipu Innovation Park 49 Sala Street, Private Bag 3020 Rotorua 3046, New Zealand Contact Details Telephone: + 64 7 343 5899 Facsimile: + 64 7 348 0952 Email: [email protected] Website: www.scionresearch.com Scion – Christchurch

Telephone: + 64 3 363 0910 Scion – Wellington

Telephone: + 64 4 472 3283

Documents

UNLEASHING THE POWER OF FORESTRYreportingnz.org/wp-content/uploads/2018/07/79-New... · Rural ﬁre researchers mobilised ... circular economies. Global demand for forest biomass