Stafford Timberland Limited
Update to shareholders of Phaunos Timber Fund Ltd
by Stafford Timberland Limited, December 2014
2
Stafford Timberland Limited ("Stafford") is distributing this shareholder update 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. 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 update Stafford is relying on the fact that all recipients are qualified investors' within the meaning of section 86(7).of 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 the 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 shareholder update 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 Financial Conduct Authority) 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 of Stafford makes
any representation or warranty, express or implied, as to the accuracy or completeness of the information or opinions contained in this shareholder update.
Stafford is authorised and regulated by the FCA, but has not authorised the contents of, or any part of, this document. 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 shareholder update 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 shareholder update is being supplied to shareholders 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 shareholder update does not constitute a
recommendation regarding the Ordinary Shares of the Company.
Some statements contained in this update 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 shareholder update has been prepared on the
basis of a number of assumptions, only some of which are set out in the update, which may prove to be incorrect, and accordingly, actual results may vary.
For the avoidance of doubt, nothing in this shareholder update 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.
Disclaimer
1. Summary
2. Financial estimates
3. Management plan – a phased approach
4. Asset Review
Matariki, New Zealand
Mata Mineira, Brazil
Eucateca, Brazil
Aurora, Uruguay
Other Phaunos assets in brief
5. Conclusion
6. Notes and key assumptions
Appendix: Phaunos performance history
Contents
3
1. Stafford has completed its assessment of required operational changes. Implementation of these changes will
take less than a year and are expected to save a further USD 3-4m of costs per year. Management is also
focussing on increasing near-term harvesting revenue.
2. Cash low point is forecast at approximately USD 6m towards the end of 2015, (down from a projected USD
13m YE 2014) and based, inter alia, on the assumption that no investments are sold.
3. Year end NAV is expected to be lower and in the range USD 330-360m (approximately 58-63 cents per share)
reflecting foreign exchange losses and the Manager’s considered assessment of the value of some of the
higher risk properties.
4. Selective disposals will continue to be targeted but only at appropriate prices.
5. By the end of 2015, Phaunos is expected to be operationally cost efficient. Subject to market development,
harvesting revenues have the potential to provide surplus revenues available for distribution to shareholders
but at this stage we can give no guidance as to the timing or size of distributions.
Summary
4
Management plan – a phased approach
5
2014 – Phase I 2015 – Phase II 2016 – Phase III
CostsIdentification of cost control
measuresImplementation
Maintenance of low cost
operations
Revenues Identify key markets Increase market accessRegular harvesting in line
with increasing volumes
Asset sales
(high risk assets)
Focus on existing interested
partiesTarget buyers Target buyers
NAV
Provision against higher risk
assets & focus on appraisal
assumptions
NAV Consolidation Base NAV annual growth
Management Review structures & controls Implement change Maintain & adapt as required
Primary focus Cost reductionCost reduction and revenue
generationSustainable yields
-
5.0
10.0
15.0
20.0
25.0
30.0
2013
2014f
2015f
US
D m
Costs One-off/Remaining capital costs
Excluding one-off and restructuring items, costs are forecast to reduce by 46% from USD 22m to USD 12m over
the 2 years between 2013 and 2015
Management plan a phased approach - 2014
6
Phaunos budgets: 2013, 2014f, 2015f
7
Financial estimates
2014 and 2015 Financial Estimates
USD millions calendar year to Dec 2013Dec 2014
Estimate
Dec 2015
EstimatesComment
NAV at 31 December (Manager’s Estimates) 419 330-360FX and prudent assessment of high risk
assets
NAV per share 0.78 0.58 – 0.63
Cash inflows from operations 12 9 8 a Conservative estimate based on 2014
Cash outflows from operations (22) (16) (12) b
One-off / restructuring costs (6) (3)Includes remaining capital commitments
and other one-off costs
Other cash adjustments 7 - -Assumes no property sales in 2014 and
2015
Net cash outflows from operations (9) (7) (7)
Net cash inflow from investing activities 2
Equity placement 12
Cash held at start of FY 15 8 13
Cash held at end of FY 8 13 6
*Indicative estimates subject to variation
a, b – see notes page, Appendix
Stafford & Phaunos portfolio locations
USA
Uruguay
Brazil
New Zealand
China
Tanzania
Mozambique
Matariki
Mata Mineira
EucatecaUganda
Green Resources
GTTF
Aurora
Pradera Roja
Green ChinaNTP
Asset review
8
As detailed in the July 2014 Stafford shareholder presentation, the Phaunos portfolio includes
A relatively high percentage of higher risk assets (36%)
A large proportion of greenfield ‘venture capital’ style investments
Cashflows are reliant on a few mature assets and these assets are subject to single product and export market
risk….. as evident in the recent decline in New Zealand’s export log prices to China
The first 5 months of management have strengthened our views regarding the productivity risks, market risks,
cashflow risks, sovereign risks and liquidity risks associated with the higher risk assets. We expect that this will
be reflected in a lower combined year end December 2014 NAV for these assets.
Asset review
9
Phaunos portfolio risk summary June 2014 (by NAV) New Zealand A grade sawlog prices (USD/m3) a
Medium Risk 28%
Aurora Forestal
Mata Mineira
Pradera Roja
Higher Risk 36%
Eucateca
Green Resources
Green China
GTFF
Lower Risk 36%
Matariki
-
20
40
60
80
100
120
140
160
180
0.0
0.5
1.0
1.5
2.0
2.5
3.0
3.5
4.0
4.5
5.0
Mar-
05
Se
p-0
5
Mar-
06
Se
p-0
6
Mar-
07
Se
p-0
7
Mar-
08
Se
p-0
8
Mar-
09
Se
p-0
9
Mar-
10
Se
p-1
0
Mar-
11
Se
p-1
1
Mar-
12
Se
p-1
2
Mar-
13
Se
p-1
3
Mar-
14
NZ
D/M
3 F
OB
Volu
me (
mill
ion c
bm
)
China South Korea India
Japan Other FOB price (RHS)
a – see notes page, Appendix
0
20
40
60
80
100
120
140
160
180
Cost
2010
2011
2012
2013
Jun
-14
US
D m
0 20 40 60 80 100 120 140 160 180
NTP
Phaunos
Green China
Pradera Roja
Aurora
GTFF
Green Resources
Eucateca
Mata Mineira
Matariki
10
Matariki
Asset Description
Location: North & South Island, New Zealand
Species: Predominantly pine
Rotation: 27+ years harvest
Markets: Domestic & export sawlogs, pulpwood
Planted area: 123,000 hectares
Risk profile: Lower risk timberland asset
Key Issue: Volatility of key export markets
Matariki (Phaunos) NAV Evolution (USD m) a
Matariki (Phaunos) NAV June 30 2014 (USD m)
Phaunos Cashflow
(USDm)2012 2013 2014f
Revenue - dividend 1.9 1.7 1.9
Dividend 1.6% 1.2% 1.2%
a, – see notes page, Appendix
11
Matariki
Age distribution and prescribed harvesting
Harvesting
Projected woodflow supply (000 m3) a
0
500
1000
1500
2000
2500
3000
2014
2015
2016
2017
2018
2019
2020
2021
2022
2023
2024
2025
2026
2027
2028
2029
2030
Volu
me (
000)
m3
0
1000
2000
3000
4000
5000
6000
7000
1 3 5 7 9
11
13
15
17
19
21
23
25
27
29
31
33
35
37
39
41
Hecta
res
Harvest
Matariki is a mature even aged estate with a relatively steady harvest forecast
New Zealand continues to be the lowest cost producer of logs into China (including Russia)
Operating results lower in Q3 as prices declined due to high log inventories in China
Asian log demand expected to remain strong over the long term
Debt levels are currently under review. Lower debt would reduce yield volatility
a – see notes page, Appendix
0 20 40 60 80 100 120 140 160 180
NTP
Phaunos
Green China
Pradera Roja
Aurora
GTFF
Green Resources
Eucateca
Mata Mineira
Matariki
12
Mata Mineira
Asset Description
Location: Minas Gerais state, Brazil
Species: Eucalyptus
Rotation: 7-10 years short rotation, no thinning
Markets: Charcoal, wood pulp
Planted area: 9,877 hectares
Risk profile: Medium risk timberland asset
Key Issue: Market supply exceeds demand
Brazil
Mata Mineira NAV Evolution (USD m)
NAV June 30 2014 (USD m)
Cashflow (USDm) 2014f 2015f a Potential b
Revenue 4.1 4.4 7 -10
Costs (3.1) (3.2) (3) - (4)
Net Cashflow 1.0 1.2 4 - 6
Indicative yield 1.6% 2.0% 7% -10%
0
20
40
60
80
100
120
Cost
2009
2010
2011
2012
2013
Jun
-14
US
D m
a, b – see notes page, Appendix
0
200
400
600
800
1000
1200
1 2 3 4 5 6 7 8 9
10
11
12
13
14
15
16
17
18
19
20
21
22
23
24
25
26
Hecta
res
0
100
200
300
400
500
600
700
2014
2015
2016
2017
2018
2019
2020
2021
2022
2023
2024
2025
2026
2027
2028
2029
Vo
lum
e (
000 m
3)
Budget Forecast 2013 Valuation Forecast
Relatively even aged estate with 50% less than 4 years of age
Current supply of ~400,000m3/pa exceeds market demand of ~225,000 m3/pa
Ongoing flat market demand a reflection of low domestic and export demand for charcoal produced pig iron
Current net yield of 2% with potential yields going forward of up to 10% assuming full market access
Management focus on increasing market share and developing new wood supply contracts
13
Mata Mineira
Age distribution and prescribed harvesting
0
500
1000
1500
2000
2500
0 1 2 3 4 5 6 7 8 9
10
11
12
13
14
15
Hect
are
s
Harvest
Projected woodflow supply (000 m3) a
a – see notes page, Appendix
Brazil
0 20 40 60 80 100 120 140 160 180
NTP
Phaunos
Green China
Pradera Roja
Aurora
GTFF
Green Resources
Eucateca
Mata Mineira
Matariki
14
Eucateca – Eucalyptus & Teak
Asset Description
Location: Mato Grosso state, central Brazil
Species: Eucalyptus and Teak
Rotation: 7-10 years Euc., 22-25 years Teak
Markets: Biomass-Euc., Sawlogs-Teak
Planted area: 7,502 hectares Euc., 2,351 hectares Teak
Risk profile: High risk – markets, cashflow, liquidity
Key Issues: Biomass markets still to be developed
Poor early survival and variable growth
High cost operations
Eucateca NAV Evolution (USD m)
NAV June 30 2014 (USD m)
0
10
20
30
40
50
60
70
80
Cost
2008
2009
2010
2011
2012
2013
Jun
-14
US
D m
Cashflow (USDm) 2014f 2015f a Potential b
Revenue 0.0 0.0 3-6 (Euc only)
Costs (2.1) (2.9) (2) - (3) (50:50 Euc:Teak)
Net Cashflow (2.1) (2.9) 1 – 3
Indicative yield 0% 0% 2% -5% (Euc & Teak)
6%-13% (Euc only)
a, b – see notes page, Appendix
0
200
400
600
800
1000
1200
1400
2014
2015
2016
2017
2018
2019
2020
2021
2022
2023
2024
2025
2026
2027
2028
2029
2030
2031
2032
2033
2034
Volu
me (
000' m
3)
Teak Eucalyptus
0
500
1000
1500
2000
2500
3000
3500
4000
4500
5000
0 1 2 3 4 5 6 7 8 9
10
11
12
13
14
15
16
17
18
19
20
21
22
23
24
25
Hecta
res
Teak Eucalyptus
Eucalypts: Large planted areas in concentrated age class – volumes will have to be smoothed over time
Potential for substantial harvesting over next few years but markets need to be developed
Delay in market development, smoothing of woodflows and low biomass market prices likely to impact NAV
Teak: High cost plantations, limited external interest for acquisition
Management to focus on market development for eucalypts and lowering Teak management costs. In
addition there remains several time consuming legacy matters that need attention
15
Eucateca – Eucalyptus & Teak
Age distribution and prescribed harvesting
Teak
Harvest
Projected woodflow supply (000 m3) a
Indicative smoothed harvesting volumes
Subject to market development
Teak
biomass
Euc
Harvest
Teak
Thin
a, – see notes page, Appendix
0 20 40 60 80 100 120 140 160 180
NTP
Phaunos
Green China
Pradera Roja
Aurora
GTFF
Green…
Eucateca
Mata Mineira
Matariki
0
5
10
15
20
25
30
35
40
45
Cost
2008
2009
2010
2011
2012
2013
Jun
-14
US
D m
16
Aurora
Asset Description
Location: Northern Uruguay
Species: Pine, includes sawmilling infrastructure
Rotation: 22-25 years long rotation with thinning
Markets: Mouldings, sawn timber, electricity poles
Planted area: 11,024 hectares
Risk profile: Medium market risk and low growing risk
Key Issues: Capital required for sawmill expansion
Performance linked to export markets
Aurora NAV Evolution (USD m)
NAV June 30 2014 (USD m)
Cashflow (USDm) 2014f 2015f Potential a
Dividend revenue 1.5 1.5 2.5 – 3.5
Costs 0 0 0
Net Cashflow 1.5 1.5 2.5 – 3.5
Indicative yield 5% 5% 8-11%
a, – see notes page, Appendix
0
200
400
600
800
1000
1200
1 2 3 4 5 6 7 8 9
10
11
12
13
14
15
16
17
18
19
20
21
22
23
24
25
26
Hecta
res
0
50
100
150
200
250
300
350
400
2014
2015
2016
2017
2018
2019
2020
2021
2022
2023
2024
2025
2026
2027
2028
Volu
me (
000' m
3)
Budget Forecast 2013 Valuation Forecast
High quality pine plantation estate with maturing age classes
Potential for yield to increase above current levels of 5% subject to capital investment into sawmill
Managing partner focusing on mill expansion and improving marginal returns
17
Aurora
Age distribution and prescribed harvesting Projected woodflow supply (000 m3) a
HarvestThinThin
a, – see notes page, Appendix
18
Other Phaunos assets in brief
Green Resources
NAV June 14: USD 49m, 11% of total NAV
Location: Uganda, Tanzania & Mozambique
Species: Eucalyptus and Pine
Rotation: 7-10 years Euc, 18-22 years Pine & Euc
Markets: Wood pulp, poles, sawn timber
Planted area: 41,000 hectares
Risk profile: High risk – growth, markets, cashflow, liquidity
Key Issues: Greenfield plantation development liquidity risks
Cashflow and high variability around NAV
GTFF
NAV June 14: USD 35m, 8% of total NAV
Location: Oregon and Washington, USA
Species: Irrigated hybrid Poplar plantations
Rotation: 10-12 years
Markets:Lumber from integrated sawmill, veneer supply
agreement, pulp chips and residuals
Planted area: 11,402 hectares
Risk profile: High risk – markets, cashflow
Key Issues: Improving profitability of sawmill
High cost plantation management & operations
Green China
NAV June 14: USD 9m, 2% of total NAV
Location: Jiangxi province, China
Species: Predominantly Pine
Rotation: 23-25 years
Markets: Resin, sawlogs
Planted area: 13,323 hectares
Risk profile: High risk – markets, cashflow, sovereign risk
Key Issues: Very high management costs
Assets held for sale – low liquidity
Pradera Roja
NAV June 14: USD 29m, 7% of total NAV
Location: Eastern Uruguay
Species: Eucalyptus
Rotation: 7-10 years Euc, 18-22 years Euc
Markets: Wood pulp, poles, sawn timber
Planted area: 4,202 hectares
Risk profile: Medium risk – growth, markets
Key Issues: Greenfield plantation development risks
1. The portfolio includes a high percentage of higher risk assets. Selective disposals will continue to be targeted
but only at appropriate prices.
2. Year end NAV is expected to be lower, USD 330-360m (58-63 cents per share) reflecting foreign exchange
losses and the Manager’s considered assessment of the value of some of the higher risk properties.
3. A number of the Fund’s assets have increasing projected wood flow supplies over the next few years. Subject
to market development, harvesting revenues have the potential to provide surplus revenues available for
distribution to shareholders in the near term (1-3 years).
4. Stafford’s long term objective for Phaunos is to create a low cost, efficient fund producing consistent yields
based on harvesting revenues. The current focus on cost reduction and revenue generation is fully aligned
with long term improvements in the Fund’s NAV. This is no easy task given the Fund’s relatively high
percentage of higher risk, greenfield assets. In accordance with Stafford’s phased approach to management, a
key focus for 2015 will be the implementation of cost control measures, changes to management and
increasing market access for revenue generation.
Conclusion
19
Slide 6 Financial Guidance a: cash flow projections assume no dividend from Matariki in 2015 and no harvesting revenue from Eucateca
b: includes USD 4m of cost reductions. Replanting costs will increase should harvesting levels increase
Slide 8: Asset Review a: NZ A grade log prices sourced from the New Zealand Ministry of Forestry
Slide 9: Matariki a: The Matariki values detailed relate solely to the Phaunos percentage ownership of Matariki
Slide 10: Matariki a: The projected woodflow supply is based on 2013 valuation
Slide 11: Mata Mineira a: revenue assumes an indicative 10% increase in harvesting levels in 2015 compared with 2014
b: assumes full demand in-line with potential supply volumes and current market prices. Costs will vary depending
on the level of harvesting and replanting required
Slide 12: Mata Mineira a: The projected woodflow supply is based on 2013 valuation
Slide 13: Eucateca a: assumes no revenue from harvesting in 2015. Costs will vary subject to the level of harvesting/replanting required
b: revenue based on minimum harvesting levels of 200,000m3 per annum of eucalypt and no teak harvests in the
medium term. Different yields are provided on the basis of the teak and eucalypt costs and the eucalypt costs alone
Slide 14: Eucateca a: The projected woodflow supply is based on the 2013 valuation. The indicative smoothed harvesting volumes are
subject to market development with a wide range of outcomes possible based on market access
Slide 15: Aurora a: The potential revenue and yield is based on the successful processing of the increased woodflow supply by the
Aurora sawmill and cogeneration plant. Capital and mill augmentation is required to achieve this outcome
Slide 16: Aurora a: The projected woodflow supply is based on the 2013 valuation
Appendix – Notes and key assumptions
20
0
0.2
0.4
0.6
0.8
1
1.2
1.4
Dec-0
6
Mar-
07
Jun-0
7
Sep-0
7
Dec-0
7
Mar-
08
Jun-0
8
Sep-0
8
Dec-0
8
Mar-
09
Jun-0
9
Sep-0
9
Dec-0
9
Mar-
10
Jun-1
0
Sep-1
0
Dec-1
0
Mar-
11
Jun-1
1
Sep-1
1
Dec-1
1
Mar-
12
Jun-1
2
Sep-1
2
Dec-1
2
Mar-
13
Jun-1
3
Sep-1
3
Dec-1
3
Mar-
14
Jun-1
4
Sep-1
4
Phaunos
share
pri
ce a
nd N
AV/sh
are
LSE Share Price NAV
0
100
200
300
400
500
600
700
2009
2010
2011
2012
2013
Jun
e2014
US
D m
Cash Matariki Green Resources Aurora
GTFF NTP Mata Mineira Eucateca
Pradera Green China Other
Appendix: Phaunos performance history
21
USD 536m closed ended listed (LSE) timberland investment fund, raised in 2006/07
USD 433m Net Asset Value, 30 June 2014
USD 24m dividend to date
USD 12m raised in September 2014 in a placing of 30 million shares at 40 cents per share
USD 238m market capitalisation, 1 December 2014
Phaunos Share Price & NAV/Share Phaunos funds raised and year end NAV