Phaunos Timber Fund Investor Presentation - 25 April 2017
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Phaunos Timber Fund Investor Presentation – 25 April 2017
Stafford representatives
Stephen Addicott
Partner, Stafford Timberland
Stephen is a professional forester with 25 years experience in
plantation management, timberland appraisals, due diligence and
investment modelling.
Marek Guizot
Investment Manager, Stafford Timberland
Marek is a professional forester with over 20 years experience of
forestry, primarily in Africa and Latin America.
2
Contents
Phaunos 2016 Investor Presentation
1. Phaunos Overview
2. Phaunos Turnaround
3. Dividend Proposal
4. Market Update
5. Stafford’s Capability & 2017
Continuation Vote
3
Phaunos Timber Fund overview
A listed global 7 underlying
1 timberland 2 investments on
company 3 continents
Phaunos investment
Interests in US$ 301.3m¹
150,000 ha of NAV of
3 4
sustainable timberland
plantations assets
¹ As at 31 December 2016
4
Phaunos investment portfolio
Matariki Forests NAV Mata Mineira NAV
Country : New Zealand Country : Brazil
46%
Planted area : 115,000 ha Planted area : 9,500 ha
Main species : Radiata pine Main species : Eucalyptus
11%
Rotation length : 24-26 years Rotation length : 8 years
Main markets : Domestic sawmills and sawlog exports Main markets : Charcoal and paper & packaging
Phaunos ownership : 23% Phaunos ownership : 100%
5
Phaunos investment portfolio
Eucateca
NAV Aurora Forestal NAV
Country : Brazil Country : Uruguay
Planted area : 7,300 ha Planted area : 11,000 ha 9%
Main species : Eucalyptus 10% Main species : Pine
Rotation length : 8 years Rotation length : 23 years
Main markets : Biomass (agricultural drying) Main markets : Own integrated sawmill
Phaunos ownership : 100% Phaunos ownership : 24%
6
Phaunos investment portfolio
Pradera Roja
NAV GTFF NAV
Country : Uruguay 7% Country : USA 5%
Planted area : 3,300 ha Planted area : 4,600 ha
Main species : Eucalyptus Main species : Poplar
Rotation length : 23 years Rotation length : 12 years
Main markets : Domestic sawmills or sawlog exports Main markets : Domestic sawmills and sawlog exports
Phaunos ownership : 100% Phaunos ownership : 17%
7
Phaunos Turnaround
Improving results following Phaunos turnaround
Key Metric YE 2015 YE 2016 Comments
Steady improvement from a
Net Asset Value (NAV) US$ 278.8m US$ 301.3m
realistic base
NAV/Share US$ 0.49 US$ 0.55 Assisted by share buybacks
Minimise volatility by debt
Revenues US$ 16.3m US$ 9.5m
reduction and market access
Operating expenses Reduced from (US$ 22m) in
(US$ 8.4) (US$ 7.3m)
(excl. non-cash costs) 2013.
Higher risk assets reduced
Asset sales US$ 9.3m US$ 27.6m
from 36% in mid-2014 to 13%.
US$15m reserve and surplus
Cash held US$ 25.6m US$ 45.6m
for investments/capital return
Share buybacks & Has supported share price
(US$ 0.3m) (US$ 9.1m)
dividends increases.
Consistent narrowing of
Share Price US$ 0.35 US$ 0.41
discount
A reflection of the turnaround
Net Profit/(Loss) (US$ 10.5m) US$ 18.3m
completed to date
9
Phaunos performance in 2016
NAV NAV for underlying investments
2015 2016
• The NAV for Phaunos increased by 8% to USD
Portfolio NAV (USD m)
150 300
301.3m.
Asset Nav (USD m)
120 240
• Matariki’s NAV increased by 11%, largely due to
90 180
good log prices.
60 120
• NAV growth for the Brazilian assets (Mata
Mineira & Eucateca) was relatively flat in local 30 60
currency, but BRL appreciation resulted in a
0 0
combined increase of 25% in USD-terms.
• Uruguayan assets (Aurora Forestal & Pradera
Roja) were largely flat1.
• Non-core assets2 reduced in line with ongoing
asset sales.
1 Reduction in Pradera Roja is due to the repatriation of cash from 2015
standing timber sales
2 GTFF, NTP and Green China
10Phaunos performance in 2016
Operating profit (excl. asset sales & non cash items) Income & costs
20
• Total income came to USD 9.5m. 15
16.3
10
• This decreased from US$ 16.3m in 2015 since the 8.8 9.5
5 8.6
large standing timber sale made in Brazil was not
USD million
repeated in 2016. 0
-5 -8.4 -7.3
-11.7
-10 -22.0
-15
-20
-25
-30
2013 2014 2015 2016
Income Cash costs
11Phaunos performance in 2016
Asset sales Asset sales and return of capital
30
25
• Phaunos’ objective has been and remains the sale
of assets that are: 20
USD million
• High risk (our target level is less than 10%). 15
• Non-yielding 10
• High cost
5
• Total income from asset sales and return of
capital amounted to USD 27.6m. 0
2014 2015 2016 2017-18*
• Phaunos has reduced its share of high risk assets Green China Eucateca (partial) Pradera Roja (partial)
GTFF Green Resources Eucateca (Alto Jauru)
from 36% in mid-2014 to 13% at the end of 2016. Sale contracted Sale under negotiation
* Forecast
Jun-14 Dec-16
13%
Lower risk 36% 36%
Medium risk 20%
Higher risk 66%
28%
12Phaunos performance in 2016
Cash position Cash held at year-end
50
• Phaunos’ cash position increased significantly to 40
USD 45.6m during 2016.
USD million
• The increase is due primarily to return of capital 30
and asset sales.
20
• This provides a buffer for operational costs in the
event revenues dip unexpectedly, as well as the
possibility to: 10
• Continue our programme of share 0
buybacks 2013 2014 2015 2016*
• Support dividend payments
• Take advantage of Stafford’s existing
pipeline of investment opportunities in the
secondary market * Note : After share buybacks and dividends totalling US$ 9.1m
13Phaunos performance in 2016
Phaunos share price
Share price & buybacks 0.46
0.44
0.42
• The share price increased by 17% from USD 0.35
USD/share
0.40
to USD 0.41 over the course of the year.
0.38
+17%
• The share price has increased a further 7% to 0.36
USD 0.44 in Q1 2017. 0.34
0.32
• In 2016 a total of 19.1 million shares were bought
0.30
back at an average price of USD 0.39 (total spend
Oct
Nov
Dec
May
Mar
Aug
Sep
Apr
Mar
Apr
Jan
Jun
Jul
Jan
Feb
Feb
USD 7.5m).
2016 2017
• The NAV per share has increased to USD 0.55,
and the share price discount has narrowed from Phaunos share price vs. NAV
29% in 2015 to 25% at end 2016. 90
80
• At the end of Q1 the share price discount was
USD cents per share
70
20%. 60
50
40
30
20
10
0
2013 2014 2015 2016 1Q2017
NAV per share Share Price
14Dividend Proposal
Phaunos dividends
Commencement of regular dividends Dividend payments outlook
3.0
• Phaunos paid a US 0.3 cent/share interim 2.5
US cents per share
dividend in 2016. 2.0
• The Board has proposed that a final dividend of 1.5
US 1.6 cent/share, totaling USD 8.9m, be paid
1.0
following the AGM in June.
0.5
• The total dividend of US 1.9 cent/share for 2016
is equivalent to 3.5% of NAV. 0.0
2016 2017 2018
• Phaunos expects to pay regular dividends going
forward and is targeting a sustainable annual 2016 dividend
distribution of at least US 1.9 cents/share1. 2017 dividend (forecast)
2018 dividend (forecast)
• 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.
1The ability to match or exceed this target will depend on a number of
variables and should not be interpreted as a profit forecast.
16Sustainable dividends from increasing wood flow
Wood flows increasing Cash flow positive
Annual harvest High
2.9 10 Estimate
Trend line (2016-25) 5 Low
2.7
Net cash flow (US$ million)
Estimate
0
2.5
Volume (million m3)
-5
2.3
-10
2.1
-15
1.9
-20
1.7
-25
1.5
2012- 2017 2018 2019 2020 2021 2022 2023 2024 2025 -30
2016 ¹ Post-Continuation Vote 2011 2012 2013 2014 2015 2016f 2017-22
• Sustainable revenue outlook is supported by • Looking ahead, Stafford estimates the current
increasing wood flows. 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
17Market update
Phaunos market exposure
Revenue exposure by geography 1 Revenue exposure by product/sector 1
Brazil Pulp &
US Uruguay paper
Wood-based panels
India Charcoal/pig-iron
Other
S.Korea Carbon
Finished
sawtimber
China
New Electricity generation
Zealand Sawmills
1 Based on Phaunos 2017 budget
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.
19Wood Markets – New Zealand
New Zealand is the world’s largest Buoyant housing construction sector
exporter of softwood logs. Its forests are is maintaining high local sawlog
typically not more than 150 km from a demand.
port. 35
Thousands
Consents approved (annualised)
30
25
20
15
10
5
0
Dec-05
Jun-07
Dec-08
Jun-10
Dec-11
Jun-13
Dec-14
Jun-16
Sep-06
Sep-09
Sep-12
Sep-15
Mar-08
Mar-11
Mar-14
Single Multi
Export demand is driven by China. Average increase in export sawlog
price.
120
100
South 80
Korea
NZD
China 60
40
India 20
Japan 0
Other 2013 2014 2015 2016
Domestic (NZD/ton) Export (NZD/JAS m3)
20Wood Markets – China & United States
China has a huge wood deficit and its Housing starts in the US are steadily
growing demand has been met by increasing following the 2009-11 crisis.
imports, particularly from New Zealand. 2,500
US housing starts (000's pa)
35
Softwood imports (Million m3)
30 2,000
25
1,500
20
15
1,000
10
5
500
0
2000
2001
2002
2003
2004
2005
2006
2007
2008
2009
2010
2011
2012
2013
2014
2015
2016
0
Jun-71
Dec-74
Jun-78
Dec-81
Jun-85
Dec-88
Jun-92
Dec-95
Jun-99
Dec-02
Jun-06
Dec-09
Jun-13
Dec-16
New Zealand Russia North America Australia Other
From 2017 China has banned all harvesting of Average sawtimber prices have trended
its natural forest – which accounted for almost upwards over the past 18 months.
30% of its timber (both soft- & hardwood). 450
USD/1,000 board feet
400
Domestic -
natural
350
forest
300
Imports
(logs &
30 million sawtimber) 250
m3
200
Mar
May
Sep
Mar
May
Sep
Mar
Jan
Nov
Jan
Nov
Jan
Jul
Jul
Domestic -
plantations 2015 2016 2017
21Stafford Timberland & Continuation Vote
Stafford Timberland
2.3bn 500m 10.1%
Timberland funds Secondary & Co-
under
$ Invested over the
Investment IRR ²
management1 past 18 months
An Investment Manager with specialist skills and proven track record
Funds Under Management
• Team of experienced forestry professionals.
2.5 Stafford Timberland
• 12 year track record.
Funds Under Management (US$ bn)
Phaunos
2.0 • Extensive network
1.5 • Access to unique proprietary deals, often in the
secondary market.
1.0
0.5
0.0
Dec-04 Dec-06 Dec-08 Dec-10 Dec-12 Dec-14 Dec-16
¹ In US$ as at March 2017, contributing towards US$ 4.8bn under management of Stafford Capital Partners
² Since inception to 31 December 2016. Across 58 secondary and co-investment transactions
232017 continuation vote
At the AGM on 19 June 2017, Phaunos will be seeking a 5-year continuation of the Company.
The case for continuation is that …
1 Stafford has completed the first phase of the Phaunos turnaround strategy announced in mid-2014.
2 In 2016 the Phaunos NAV/share increased 12%, and the share price increased 17%.
Positive operating cash flows, together with asset sales, have increased cash reserves to a level which will
3
allow for ongoing share buybacks, sustainable dividends, and potential new investments.
4 Phaunos provides low-cost and liquid exposure to the timberland asset class.
5 Stafford has the deal flow, knowledge, and ability to expand the Company.
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.
24Disclaimer
• 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.
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