Phaunos Timber Fund Investor Presentation 25 April 2017 · 2017. 4. 25. · Wood-based panels Charcoal/pig-iron Carbon Despite its large weighting towards New Zealand assets, Phaunos

Phaunos Timber Fund

Investor Presentation – 25 April 2017

Stafford representatives

2

Stephen Addicott

Partner, Stafford TimberlandStephen is a professional forester with 25 years experience in plantation management, timberland appraisals, due diligence and investment modelling.

Marek Guizot

Investment Manager, Stafford TimberlandMarek is a professional forester with over 20 years experience of forestry, primarily in Africa and Latin America.

3

Phaunos 2016 Investor Presentation

1. Phaunos Overview

2. Phaunos Turnaround

3. Dividend Proposal

4. Market Update

5. Stafford’s Capability & 2017

Continuation Vote

Contents

7 underlying

investments on

3 continents

2

Phaunos Timber Fund overview

4

Phaunos investment

A listed global

timberland

company

1

Interests in

150,000 ha of

sustainable

plantations

3

¹ As at 31 December 2016

US$ 301.3m¹

NAV of

timberland

assets

4

Matariki Forests

Country : New Zealand

Planted area : 115,000 ha

Main species : Radiata pine

Rotation length : 24-26 years

Main markets : Domestic sawmills and sawlog exports

Phaunos ownership : 23%

Phaunos investment portfolio

5

NAV

46%

Mata Mineira

Country : Brazil


Main species : Eucalyptus

Rotation length : 8 years

Main markets : Charcoal and paper & packaging


NAV

11%

Eucateca

Country : Brazil




Main markets : Biomass (agricultural drying)



6

NAV

6

10%

Aurora Forestal

Country : Uruguay


Main species : Pine


Main markets : Own integrated sawmill


NAV

9%

Pradera Roja

Country : Uruguay




Main markets : Domestic sawmills or sawlog exports



7

NAV

7%

GTFF

Country : USA


Main species : Poplar


Main markets : Domestic sawmills and sawlog exports


NAV

5%

Phaunos Turnaround

Improving results following Phaunos turnaround

9

YE 2015 YE 2016 Comments

Revenues US$ 16.3m US$ 9.5mMinimise volatility by debt

reduction and market access

Operating expenses(excl. non-cash costs)

(US$ 8.4) (US$ 7.3m)Reduced from (US$ 22m) in

2013.

Asset sales US$ 9.3m US$ 27.6mHigher risk assets reduced

from 36% in mid-2014 to 13%.

Share buybacks &

dividends(US$ 0.3m) (US$ 9.1m)

Has supported share price

increases.

Cash held US$ 25.6m US$ 45.6mUS$15m reserve and surplus

for investments/capital return

Net Asset Value (NAV) US$ 278.8m US$ 301.3mSteady improvement from a

realistic base

Share Price US$ 0.35 US$ 0.41Consistent narrowing of

discount

NAV/Share US$ 0.49 US$ 0.55 Assisted by share buybacks

Net Profit/(Loss) (US$ 10.5m) US$ 18.3mA reflection of the turnaround

completed to date

Key Metric

Phaunos performance in 2016

10

• The NAV for Phaunos increased by 8% to USD 301.3m.

• Matariki’s NAV increased by 11%, largely due to good log prices.

• NAV growth for the Brazilian assets (Mata Mineira & Eucateca) was relatively flat in local currency, but BRL appreciation resulted in a combined increase of 25% in USD-terms.

• Uruguayan assets (Aurora Forestal & PraderaRoja) were largely flat1.

• Non-core assets2 reduced in line with ongoing asset sales.

NAV NAV for underlying investments

1 Reduction in Pradera Roja is due to the repatriation of cash from 2015 standing timber sales2 GTFF, NTP and Green China

0

30

60

90

120

150

Asse

t N

av (

US

D m

)

2015 2016

0

60

120

180

240

300

Po

rtfo

lio N

AV

(U

SD

m)


11

• Total income came to USD 9.5m.

• This decreased from US$ 16.3m in 2015 since the large standing timber sale made in Brazil was not repeated in 2016.

Operating profit (excl. asset sales & non cash items) Income & costs

8.6 8.8

16.3

9.5

-22.0

-11.7-8.4 -7.3

-30

-25

-20

-15

-10

-5

0

5

10

15

20

2013 2014 2015 2016

US

D m

illio

n

Income Cash costs


12

• Phaunos’ objective has been and remains the sale of assets that are:

• High risk (our target level is less than 10%).

• Non-yielding

• High cost

• Total income from asset sales and return of capital amounted to USD 27.6m.

• Phaunos has reduced its share of high risk assets from 36% in mid-2014 to 13% at the end of 2016.

Asset sales Asset sales and return of capital

0

5

10

15

20

25

30

2014 2015 2016 2017-18*

US

D m

illio

n

Green China Eucateca (partial) Pradera Roja (partial)GTFF Green Resources Eucateca (Alto Jauru)Sale contracted Sale under negotiation

36%

28%

36%

Jun-14

Lower risk

Medium risk

Higher risk 66%

20%

13%

Dec-16* Forecast


13

• Phaunos’ cash position increased significantly to USD 45.6m during 2016.

• The increase is due primarily to return of capital and asset sales.

• This provides a buffer for operational costs in the event revenues dip unexpectedly, as well as the possibility to:

• Continue our programme of share buybacks

• Support dividend payments

• Take advantage of Stafford’s existing pipeline of investment opportunities in the secondary market

Cash position Cash held at year-end

0

10

20

30

40

50

2013 2014 2015 2016

US

D m

illio

n

* Note : After share buybacks and dividends totalling US$ 9.1m

*

0.30

0.32

0.34

0.36

0.38

0.40

0.42

0.44

0.46

Jan

Feb

Ma

r

Apr

Ma

y

Jun

Jul

Aug

Sep

Oct

No

v

De

c

Jan

Feb

Ma

r

Apr

2016 2017

US

D/s

hare


14

• The share price increased by 17% from USD 0.35 to USD 0.41 over the course of the year.

• The share price has increased a further 7% to USD 0.44 in Q1 2017.

• In 2016 a total of 19.1 million shares were bought back at an average price of USD 0.39 (total spend USD 7.5m).

• The NAV per share has increased to USD 0.55, and the share price discount has narrowed from 29% in 2015 to 25% at end 2016.

• At the end of Q1 the share price discount was 20%.

Share price & buybacksPhaunos share price

+17%

Phaunos share price vs. NAV

0

10

20

30

40

50

60

70

80

90

2013 2014 2015 2016 1Q2017

US

D c

ents

per

share

NAV per share Share Price

Dividend Proposal

Phaunos dividends

16

• Phaunos paid a US 0.3 cent/share interim dividend in 2016.

• The Board has proposed that a final dividend of US 1.6 cent/share, totaling USD 8.9m, be paid following the AGM in June.

• The total dividend of US 1.9 cent/share for 2016 is equivalent to 3.5% of NAV.

• Phaunos expects to pay regular dividends going forward and is targeting a sustainable annual distribution of at least US 1.9 cents/share1.

• Dividends will be paid twice a year.

• The total distribution expected for 2017 is therefore US 2.55 cents/share, or 5.8% yield on the Q1 2017 share price of USD 0.44.

Commencement of regular dividends Dividend payments outlook

0.0

0.5

1.0

1.5

2.0

2.5

3.0

2016 2017 2018

US

ce

nts

pe

r sh

are

2016 dividend

2017 dividend (forecast)

2018 dividend (forecast)

1 The ability to match or exceed this target will depend on a number of variables and should not be interpreted as a profit forecast.

Sustainable dividends from increasing wood flow

17

• Sustainable revenue outlook is supported by increasing wood flows.

1.5

1.7

1.9

2.1

2.3

2.5

2.7

2.9

2012-2016 ¹

2017 2018 2019 2020 2021 2022 2023 2024 2025

Volu

me (

mill

ion m

3)

Wood flows increasing

Estimate

Annual harvest

Trend line (2016-25)

Post-Continuation Vote

• Looking ahead, Stafford estimates the current portfolio can provide sustainable net cash flow of US$ 5m to 11m in addition to capital appreciation

• Cashflow can be improved by re-investment of cash together with further diversification

-30

-25

-20

-15

-10

-5

0

5

10

2011 2012 2013 2014 2015 2016f

Net cash flo

w (

US

$ m

illio

n)

Cash flow positive

2017-22

EstimateHigh

Low

Market update

New Zealand

China

S.Korea

India

USBrazil

Uruguay

Other

Phaunos market exposure

19

Revenue exposure by geography 1

1 Based on Phaunos 2017 budget

Revenue exposure by product/sector 1

Finished sawtimber

Electricity generation

Sawmills

Pulp & paper

Wood-based panels

Charcoal/pig-iron

Carbon

Despite its large weighting towards New Zealand assets, Phaunos has a well-diversified market exposure, with

scope to improve this further by increasing wood sales from its Brazilian assets as market conditions improve.

Wood Markets – New Zealand

20

Export demand is driven by China.

New Zealand is the world’s largest exporter of softwood logs. Its forests are typically not more than 150 km from a port.

Buoyant housing construction sector is maintaining high local sawlogdemand.

Average increase in export sawlogprice.

0

5

10

15

20

25

30

35

Dec-0

5

Se

p-0

6

Jun

-07

Ma

r-08

Dec-0

8

Se

p-0

9

Jun

-10

Ma

r-11

Dec-1

1

Se

p-1

2

Jun

-13

Ma

r-14

Dec-1

4

Se

p-1

5

Jun

-16

Consents

appro

ved (

annualis

ed)

Th

ousands

Single Multi

0

20

40

60

80

100

120

2013 2014 2015 2016N

ZD

Domestic (NZD/ton) Export (NZD/JAS m3)

China

South Korea

India

Japan

Other

Wood Markets – China & United States

21

From 2017 China has banned all harvesting of

its natural forest – which accounted for almost

30% of its timber (both soft- & hardwood).

China has a huge wood deficit and its

growing demand has been met by

imports, particularly from New Zealand.

Housing starts in the US are steadily

increasing following the 2009-11 crisis.

Average sawtimber prices have trended

upwards over the past 18 months.

0

500

1,000

1,500

2,000

2,500

Jun

-71

Dec-7

4

Jun

-78

Dec-8

1

Jun

-85

Dec-8

8

Jun

-92

Dec-9

5

Jun

-99

Dec-0

2

Jun

-06

Dec-0

9

Jun

-13

Dec-1

6

US

housin

g s

tart

s (

000's

pa)

Imports (logs &

sawtimber)

Domestic -plantations

Domestic -natural forest

200

250

300

350

400

450

Jan

Ma

r

Ma

y

Jul

Se

p

Nov

Jan

Ma

r

Ma

y

Jul

Se

p

Nov

Jan

Ma

r

2015 2016 2017

US

D/1

,000 b

oard

feet

30 million

m3

0

5

10

15

20

25

30

35

2000

2001

2002

2003

2004

2005

2006

2007

2008

2009

2010

2011

2012

2013

2014

2015

2016Soft

wood im

port

s (

Mill

ion m

3)

New Zealand Russia North America Australia Other

Stafford Timberland & Continuation Vote

0.0

0.5

1.0

1.5

2.0

2.5

Dec-04 Dec-06 Dec-08 Dec-10 Dec-12 Dec-14 Dec-16

Fu

nds U

nder

Managem

ent (U

S$ b

n)

Stafford Timberland

23

¹ In US$ as at March 2017, contributing towards US$ 4.8bn under management of Stafford Capital Partners² Since inception to 31 December 2016. Across 58 secondary and co-investment transactions

10.1%Secondary & Co-Investment IRR ²

500m

Invested over the past 18 months

$

Stafford Timberland

Phaunos

Funds Under Management

2.3bnTimberland funds under management1

• Team of experienced forestry professionals.

• 12 year track record.

• Extensive network

• Access to unique proprietary deals, often in the secondary market.

An Investment Manager with specialist skills and proven track record

2017 continuation vote

24

Stafford has completed the first phase of the Phaunos turnaround strategy announced in mid-2014.1

In 2016 the Phaunos NAV/share increased 12%, and the share price increased 17%.2

Phaunos provides low-cost and liquid exposure to the timberland asset class.4

Stafford has the deal flow, knowledge, and ability to expand the Company.5

At the AGM on 19 June 2017, Phaunos will be seeking a 5-year continuation of the Company.

The case for continuation is that …

Positive operating cash flows, together with asset sales, have increased cash reserves to a level which will allow for ongoing share buybacks, sustainable dividends, and potential new investments.

3

Phaunos is now in a position to deliver on its vision of being a …

Globally diversified, listed timberland fund, with potential to provide yields of 3-5% p.a. and NAV growth of 3-5% p.a., managed in accordance with ESG best practice.

Disclaimer

25

• Stafford Capital Partners Limited ("Stafford") is distributing this strategy presentation in its capacity as manager of Phaunos Timber Fund Limited (the "Company") The Company is a

Guernsey domiciled Authorised Closed-ended investment scheme pursuant to section 8 of the Protection of Investors (Bailiwick of Guernsey) Law 1987, as amended and rule 6.02 of the

Authorised Closed-ended Investment Schemes Rules 2008 published by the Guernsey Financial Services Commission. The Ordinary Shares of the Company are admitted to the Official List

of the UK Listing Authority and to trading on the London Stock Exchange’s main market.

• In distributing this presentation Stafford is relying on the fact that all recipients are qualified investors' within the meaning of section 86(7) of Financial Services and Markets Act 2000

(“FSMA”) who are also (i) investment professionals within the meaning of Article 19(5) of the Financial Services and Markets Act 2000 (Financial Promotion) Order 2005 (''FPO"); or (ii) high

net worth companies within the meaning of Article 49 of the FPO; or.(iii) members of the Company within the meaning of Article 43(2) of the FPO; or (iv) certified high net worth individuals

within the meaning of Article 48 of the FPO; or (v) certain sophisticated investors within the meaning of Article 50(1) of the FPO (each a "relevant person"). Persons who do not fall within any

of these definitions should not rely on this document nor take any action upon it. The document is only exempt if it is distributed to these exempt categories of recipients. This document has

not been approved as a financial promotion or otherwise by a person who is authorised under FSMA for the purposes of section 21 of FSMA and rules made under such legislation or any

other applicable securities laws of any other territory. Approval will be required unless the recipient of this promotion is a relevant person. This presentation has not been, and will not be,

reviewed or approved by the Financial Conduct Authority ("FCA") or any other authority or regulatory body.

• Stafford is issuing this strategy presentation exclusively as manager of the Company and will not be responsible to anyone other than the Company for providing regulatory and legal

protections afforded to customers (as defined in the rules of the FCA) nor for providing advice in relation to the contents of this document on any matter, transaction or arrangement referred

to in it. None of Stafford nor the Company, nor any of their respective directors, officers or employees makes any representation or warranty, express or implied, as to the accuracy or

completeness of the information or reasonableness of any opinions contained in this strategy presentation .

• Stafford is authorised and regulated by the FCA, but has not authorised the contents of, or any part of, this document for the purposes of Section 21 of FMSA. To the fullest extent permitted

by law, none of Stafford nor the Company (nor their respective members, directors, officers, employees, agents or representatives) nor any other person accepts any liability whatsoever for

any errors, omissions or inaccuracies in such information or opinions or for any loss, cost or damage suffered or incurred howsoever arising, directly or indirectly, from any use of this

document or its contents or otherwise in connection with the subject matter of this document. The contents of this strategy presentation are not to be construed as legal, financial or tax

advice. This document should not be distributed in whole or in part to other parties.

• This strategy presentation is being supplied to shareholders and other relevant persons and solely for their information and does not constitute or contain any invitation or offer to any person

to subscribe for, otherwise acquire, or dispose of any Ordinary Shares in the Company or advise persons to do so in any jurisdiction. This strategy presentation does not constitute a

recommendation regarding the Ordinary Shares of the Company.

• Some statements contained in this presentation are or may be forward-looking statements, including without limitation any forecasts or projections. Actual results may differ from those

expressed in such statements, depending on a variety of factors. Any forward-looking information contained in this strategy presentation has been prepared on the basis of a number of

assumptions, only some of which are set out in the presentation , which may prove to be incorrect, and accordingly, actual results may vary.

• For the avoidance of doubt, nothing in this strategy presentation is intended to constitute a profit forecast.

• The value of any investment may fall over time and you may receive back less than you invested.

• Stafford Capital Partners Limited is incorporated in England under registered number 04752750 and its registered office is at 4th Floor, 24 Old Bond Street, London, W1S 4AW, England.

Documents

Phaunos Timber Fund Investor Presentation 25 April 2017 · 2017. 4. 25. · Wood-based panels Charcoal/pig-iron Carbon Despite its large weighting towards New Zealand assets, Phaunos