Global Opportunities in Forestry and Timber

Transcription

1 Global Opportunities in Forestry and Timber

2 Important Notice and Disclaimer This presentation has been prepared bytfs 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 purchase securities in TFS in any jurisdiction. This presentation contains general information only and does not take into account the investment objectives, financial situation and particular needs of individual investors. Investors should make their own independent assessment of the information in this presentation and obtain their 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 or other information, or the reasonableness of any assumption or other statement, contained in this presentation. Nor is any representation or warranty (express or implied) given as to the accuracy, completeness, likelihood of achievement or reasonableness of any forecasts, prospective statements or returns contained in this presentation. Such forecasts, prospective statements or returns are by their nature subject to significant uncertainties and contingencies, many of which are outside 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 and responsibility (including without limitation any liability arising from fault or negligence) for any direct or indirect loss or damage which may arise or be suffered through 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 not guarantee 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 seek advice on and observe any such restrictions. TFS CORPORATION LTD 2

3 Differentiating Timber from Farmland Farmland & Timber have different return profiles, but each fills a need INVESTMENT HORIZON TIMING OF CASH FLOWS SUPPLY IMPACTING PRICE VOLATILITY LIQUIDITY FARMLAND Typically shorter investment profile than timber More regular cash flow but more susceptible to a single bad year Perishable crops limit flexibility of timing to market Typically higher with more buyers TIMBER Generally a longer term investment horizon mitigate with multiple vintages Lumpy asset value growing continually via biological growth Able to store on the stump Relatively low with liquidity premium inherent in returns RETURN SOURCES More balanced between cash and land value appreciation Returns weighted towards timber values / prices MANAGEMENT More pro-active, on the ground Management requirements can vary depending on species TFS CORPORATION LTD 3

4 Key Drivers of Timberland Returns 1. YIELD FOREST RISKS Weather Climate Fire Pests Disease Management / Personnel Flood Drought Storms / Wind FOREST YIELD 2. SELLING PRICE FINANCIAL RISKS Market Currency Increased Costs Regulation / Sovereign Management / Personnel Timber Price Timing Competition TFS CORPORATION LTD 4

5 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: 40.00% 35.00% 30.00% 25.00% 20.00% 15.00% 10.00% NCREIF Timberland Index to 2014 Increased efficiency of timberland markets has lowered liquidity risk; 5.00% 0.00% -5.00% % More investors able to participate in very large transactions, lowering the wholesale to retail discount; and Source: NCREIF Timberland Index Timber Prices ( ) 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% Source: Timber Mart-South, Log Lines, Oregon Department of Forestry, Pacific Rim Wood Market Report, CAIA TFS CORPORATION LTD 5

6 Opportunity for Outperformance exists in Niche Species How are timberland investors looking to enhance returns in 2015 and beyond 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 TFS CORPORATION LTD 6

7 Comparing Traditional Timber to Alternative / Niche Species Exposure to / Reliance on Specific Markets End Products Markets Demand / Supply TRADITIONAL TIMBERLAND Can be High Typcially timber based with low value add Limited Relatively Balanced ALTERNATIVE SPECIES Relatively Low Certain species can derive multiple products Multiple & Global Supply Shortages can be Exploited Price Maker Price Volatility Prices / Margins Competition TRADITIONAL TIMBERLAND ALTERNATIVE SPECIES No. Many Competitors (Buyers Market) Yes. Limited Competitors (Sellers Market) Medium / High Low / Low High Low High / High Relatively Low Barriers to Entry Target Returns Transparency of Information Maturity of Market / Investors TRADITIONAL TIMBERLAND Low ~6-8% IRR High Mature markets & investors ALTERNATIVE SPECIES High ~20%+ IRR Relatively Low Mature markets, less mature investors TFS CORPORATION LTD 7

8 Case Study: Indian Sandalwood s Multiple Products / Multiple Markets Sandalwood Tree Oil Wood Cosmetics & Fragrance Pharma Mouth Fresheners Worship Cremation Handicrafts & Furniture By Products TFS CORPORATION LTD 8

9 Indian Sandalwood - A Global Commodity TFS CORPORATION LTD 9

10 Tonnes Supply A Long Term Downward Trend Depleted global supply due to an over-harvesting of native stands and a lack of commercial plantations 2,000 1,800 1,600 1,400 1,200 Official Indian Government Sandalwood Harvest: , Year Source: H.S. Anantha Padmanabha, Expert Market Report, September 2014 TFS CORPORATION LTD 10

11 $US per Tonne Historical Price Growth of Sandalwood Demand / supply imbalance creates market tension, pushing wood prices higher $250,000 Sandalwood Auction Price (A$ per tonne) $200,000 $150,000 $100,000 $50,000 $0 Date * Source: H.S. Anantha Padmanabha, Expert Market Report TFS CORPORATION LTD 11

12 $US per KG Price Trend the same for Sandalwood Oil Supply constraints and pharma market development driving oil price growth $5,000 Oil Spot Price ($US) TFS Contracted Oil Price (US$) $4,500 $4,000 $3,500 $3,000 $2,500 $2,000 $1,500 $1,000 $500 $ (TFS) 2009 Q$ 2009 (TFS) (TFS) 2013 Q (TFS) (TFS) Date Source: UK Ledger & TFS Corporation TFS CORPORATION LTD 12

13 Illustrative Value Chain of Indian Sandalwood 1 Hectare (A$80,000 Estab Fee + Land Cost) 420 Trees 1 (at harvest) 305 kg of Oil 1 (~8.2T Heartwood) A$1,850,000 2 ~15 Year Plantation Rotation (Total Management Costs ~A$80,000 per hectare) Note 1: Key assumptions include: (i) survival rate 83%, (ii) heartwood yield average yield estimated at 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. TFS CORPORATION LTD 13

14 Contact Duncan Caldwell General Manager, Financial Products Ph: Mob: +61 (0) duncan@tfsltd.com.au 169 Broadway Nedlands, Perth, WA Australia, TFS CORPORATION LTD 14