Post on 25-Mar-2018
Global Opportunities in Forestry and
Timber
TFS CORPORATION LTD | 2
Important Notice and Disclaimer
This presentation has been prepared by TFS Corporation Ltd (TFS).
This presentation is not a financial product or investment advice or recommendation, offer or invitation by any person or to any person to sell or purchasesecurities in TFS in any jurisdiction. This presentation contains general information only and does not take into account the investment objectives, financialsituation and particular needs of individual investors. Investors should make their own independent assessment of the information in this presentation and obtaintheir own independent advice from a qualified financial adviser having regard to their objectives, financial situation and needs before taking any action.
No representation or warranty, express or implied, is made as to the accuracy, completeness, reliability or adequacy of any statements, estimates, opinions orother information, or the reasonableness of any assumption or other statement, contained in this presentation. Nor is any representation or warranty (express orimplied) given as to the accuracy, completeness, likelihood of achievement or reasonableness of any forecasts, prospective statements or returns contained inthis presentation. Such forecasts, prospective statements or returns are by their nature subject to significant uncertainties and contingencies, many of which areoutside the control of TFS.
To the maximum extent permitted by law, TFS and its related bodies corporate, directors, officers, employees, advisers and agents disclaim all liability andresponsibility (including without limitation any liability arising from fault or negligence) for any direct or indirect loss or damage which may arise or be sufferedthrough use or reliance on anything contained in, or omitted from, this presentation.
An investment in TFS securities is subject to investment and other known and unknown risks, some of which are beyond the control of TFS. TFS does notguarantee any particular rate of return or the performance of TFS securities.
The distribution of this presentation including in jurisdictions outside Australia, may be restricted by law. Any person who receives this presentation must seekadvice on and observe any such restrictions.
TFS CORPORATION LTD | 3
Differentiating Timber from Farmland
FARMLAND TIMBER
INVESTMENT HORIZONTypically shorter investment profile than timber
Generally a longer term investment horizon – mitigate with multiple vintages
TIMING OF CASH FLOWS
More regular cash flow – but more susceptible to a single bad year
Lumpy – asset value growing continually via biological growth
SUPPLY IMPACTING PRICE VOLATILITY
Perishable crops limit flexibility of timing to market
Able to “store on the stump”
LIQUIDITY Typically higher with more buyersRelatively low – with liquidity premium inherent in returns
RETURN SOURCESMore balanced between cash and land value appreciation
Returns weighted towards timber values / prices
MANAGEMENT More pro-active, on the groundManagement requirements can vary depending on species
Farmland & Timber have different return profiles, but each fills a need
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Key Drivers of Timberland Returns
1. YIELD
FOREST RISKS
Weather
Fire
Pests
Disease
Management /
Personnel
Climate
Flood
Drought
Storms / Wind
2. SELLING PRICE
FINANCIAL RISKS
Market
Currency
Increased Costs
Regulation /
Sovereign
Management /
Personnel
Timber Price
Timing
Competition
FOREST
YIELD
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Timberland Investing Today
Post GFC, the rate of return for pure
timberland has been lower than historical
norms
A depressed US housing market has
contributed, but is not the sole factor:
Increased efficiency of timberland markets
has lowered liquidity risk;
More investors able to participate in very
large transactions, lowering the wholesale
to retail discount; and
Investment demand has created large pools
of (sometimes impatient) capital, resulting
in competition and higher entry prices.
Increased “commoditization” of timber has
created a lower return environment
Current expected returns from “traditional
timber” types: ~6-8%
Timber Prices (1985-2013)
Source: Timber Mart-South, Log Lines, Oregon Department of Forestry, Pacific Rim Wood Market Report, CAIA
-10.00%
-5.00%
0.00%
5.00%
10.00%
15.00%
20.00%
25.00%
30.00%
35.00%
40.00%
87 88 89 90 91 92 93 94 95 96 97 98 99 00 01 02 03 04 05 06 07 08 09 10 11 12 13 14
NCREIF Timberland Index - 1987 to 2014
Source: NCREIF Timberland Index
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Diversification of holdings to include niche opportunities in new / alternative species
Limit over-reliance on a single market
Seek out commodities with a multiplicity of markets / buyers
Underlying demand / supply characteristics that support price growth
Low competition to avoid a “cheapest sells” situation
Seek out sectors with high barriers to entry for prospective competitors
How are timberland investors looking to enhance returns in 2015 and beyond
Opportunity for Outperformance exists in Niche Species
TFS CORPORATION LTD | 7
Comparing Traditional Timber to Alternative / Niche Species
Exposure to / Reliance
on Specific MarketsEnd Products Markets Demand / Supply
TRADITIONAL
TIMBERLANDCan be High
Typcially timber based
with low value add Limited Relatively Balanced
ALTERNATIVE
SPECIESRelatively Low
Certain species can
derive multiple products Multiple & Global
Supply Shortages can be
Exploited
Price Maker Price Volatility Prices / Margins Competition
TRADITIONAL
TIMBERLAND
No. Many Competitors
(Buyers Market)Medium / High Low / Low High
ALTERNATIVE
SPECIES
Yes. Limited
Competitors (Sellers
Market)
Low High / High Relatively Low
Barriers to Entry Target ReturnsTransparency of
Information
Maturity of Market /
Investors
TRADITIONAL
TIMBERLANDLow ~6-8% IRR High
Mature markets &
investors
ALTERNATIVE
SPECIESHigh ~20%+ IRR Relatively Low
Mature markets, less
mature investors
TFS CORPORATION LTD | 8
Case Study: Indian Sandalwood’s Multiple Products / Multiple Markets
Sandalwood Tree
Oil
Cosmetics & Fragrance Pharma
Mouth Fresheners
By Products
Wood
Worship Cremation Handicrafts & Furniture
TFS CORPORATION LTD | 9
Indian Sandalwood - A Global Commodity
TFS CORPORATION LTD | 10
Source: H.S. Anantha Padmanabha, Expert Market Report, September 2014
Supply – A Long Term Downward Trend
Depleted global supply due to an over-harvesting of native stands anda lack of commercial plantations
Year
Ton
nes
0
200
400
600
800
1,000
1,200
1,400
1,600
1,800
2,000
Official Indian Government Sandalwood Harvest: 1996 - 2014
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Historical Price Growth of Sandalwood
Demand / supply imbalance creates market tension, pushing wood prices higher
* Source: H.S. Anantha Padmanabha, Expert Market Report
$U
S p
er T
on
ne
Date
$0
$50,000
$100,000
$150,000
$200,000
$250,000
Sandalwood Auction Price (A$ per tonne)
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Price Trend the same for Sandalwood Oil
Supply constraints and pharma market development driving oil price growth
$U
S p
er K
G
Date
Source: UK Ledger & TFS Corporation
$0
$500
$1,000
$1,500
$2,000
$2,500
$3,000
$3,500
$4,000
$4,500
$5,000
Q41993
Q41994
Q41995
Q41996
Q41997
Q41998
Q41999
Q42000
Q42001
Q42002
Q42003
Q42004
Q42005
Q42006
Q42007
Q42008
Q42008(TFS)
Q42009
Q$2009(TFS)
Q42010
Q42011
Q42012
Q42012(TFS)
Q42013
Q32014(TFS)
Q42014
Q42014(TFS)
Oil Spot Price ($US) TFS Contracted Oil Price (US$)
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Note 1: Key assumptions include: (i) survival rate – 83%, (ii) heartwood yield – average yield estimated at 19.65 kg per tree, (iii) expected oil yield of 3.7%, (iv) oil price of US$4,500 per kg (no inflation), and (v) FX rate of AU$1.35 to US$1.00.
Note 2: Gross and undiscounted yield before maintenance, harvest, processing and distribution costs. Assumes all forest yield distilled into oil.
1 Hectare (A$80,000 Estab Fee +
Land Cost)
420 Trees1
(at harvest)
305 kg of Oil1(~8.2T Heartwood)
A$1,850,0002
Illustrative Value Chain of Indian Sandalwood
~15 Year Plantation Rotation (Total Management Costs ~A$80,000 per hectare)
TFS CORPORATION LTD | 14
Contact
Duncan Caldwell
General Manager, Financial Products
Ph: +61 8 9386 3299
Mob: +61 (0)478 406 540
Email: duncan@tfsltd.com.au
169 Broadway
Nedlands, Perth, WA
Australia, 6009
www.tfsltd.com.au