Phaunos Investor Update 18 May 2016 Agenda Phaunos Mid-year - - PowerPoint PPT Presentation

18 May 2016

Phaunos Investor Update

Agenda

2

Phaunos Mid-year Investor Update

1. Summary 2. Phaunos portfolio update 3. Asset overview 4. Conclusion

Eucalyptus plantation, Pradera Roja

Disclaimer

3

• 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. 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 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

• f 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

• r 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 Financial Conduct Authority) nor for providing advice in relation to the contents of this document on any matter, transaction

• r 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 strategy presentation .

• 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

• therwise 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 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.

Summary

4

• The current estimated NAV is USD 288.4m (May 2016) a USD 9.6m increase¹,

including an unrealised FX gain of USD 5.3m and USD 4.3m uplift in the underlying assets

• Cash held has increased to USD 46.6m² (May 2016) from USD 25.6m (31 Dec

2015)

• Asset sale programme is nearing completion, with agreements reached on

all non-core assets

• Ongoing focus on cost reduction, revenue maximisation and NAV

improvement

• Positive net cash flows, budget and moderate NAV growth expected for

2016

• Core mature timberland assets provide a solid base for growth beyond 2016
• Focus on improving share price through share buy-backs

Loblolly pine planting, Aurora Forrestal

1 to NAV at 31 December 2015 2 Cash held across all entities

Phaunos portfolio update

5

• NAV of USD 288.4m¹ across 7 investments
• 5 sale events since July 2015, returning USD 31.5m to Phaunos
• 83% of NAV¹ is medium or lower risk assets
• Portfolio focused on New Zealand, Brazil and Uruguay

Pradera Roja: 9%

Partial Sale: USD 4.2m Loc.: Uruguay

Aurora: 9%

Loc.: Uruguay

Eucateca: 9%

Partial Sale: USD 2.5m Loc.: Brazil

Mata Mineira: 11%

Loc.: Brazil

Matariki: 42%

Loc.: New Zealand

Green China

Sold: USD 2.9m Loc.: China

GTFF: 8%

Partial Sale: USD 13.4m Loc.: USA

GRAS

Sold: USD 8.5m Loc.: East Africa

NTP: <1%

Loc.: USA

KEY

Sold Partial Sale Held

1 NAV estimate as of May 2016; 2 Cash and other assets includes GRAS, GTFF & Green China proceeds

Cash and Other Assets2: USD 33.8 m (12% of NAV)

Strengthening cash position

6

2016 Financial Guidance

Dec 2015a

(USD m)

May 2016e

(USD m)

Dec 2016g

(USD m)

NAV 278.8 288.4 NAV per share (USD/share) 0.49 0.51 Cash inflows 17.2 2.7 8.3 Cash outflows (13.3) (2.5) (7.7) One-off / restructuring costs – – – Net cash flow 3.9 0.2 0.6 Sale of non current assets 6.7 21.9 24.6 Share Buy-backs – (1.1)

• Cash held² at start of period

15.0 25.6 25.6 Cash held² at end of period 25.6 46.6 50.8¹

a Actual e Estimate, updated to 1 May 2016 g Guidance

¹ Excluding share buybacks or any non-budgeted capital expenses

² Across all entities

• 4%
• 44%
• 35%
• 11%

8% 6%

• 30%
• 4%

13% 13% 0% 0%

• 39%

255%

• 25

50 75 100 125 150 Matariki Forestry Mata Mineira Eucateca Aurora Forestal Pradera Roja Non-Core Assets Cash and Other Assets² USD m 31 Dec 2014 NAV 31 Dec 2015 NAV May 2016 est. NAV

Net asset value changes

7

• NAV reduced by USD 42.5m from USD 321.3m

(Dec 14) to USD 278.8m (Dec 15), this includes:

• USD 43.8m of unrealised foreign exchange losses
• Partially offset by USD 1.2m valuation gains
• 2016 has seen the NAV increase to USD 288.4m¹,

a USD 9.6m increase, comprising:

• USD 5.3m in unrealised FX gains
• USD 4.3m increase due to uplift in the assets

Phaunos estimated NAV reconciliation NAV comparison

¹ NAV estimate as of May 2016

² Cash and other assets includes GRAS, GTFF & Green China proceeds 250 300 350 YE 2014 NAV Movements in equity Unrealised FX loss Net expenses Value increases YE 2015 NAV Unrealised FX gain Value increases May 2016

• est. NAV

USD m Negative Positive

Eucateca (sold)* Pradera Roja (sold)* Non-core targeted for sale

• 10

20 30 40 50 NAV 2015 (31 Dec 2015) USD m Eucateca (sold)* Pradera Roja (sold)* GTFF (sold) GRAS (sold) Green China (sold) NTP (remaining) GTFF (remaining) Expected Sale Revenue **

• 10

20 30 40 50

Asset sales relative to NAV

8

Asset sales to date of USD 31.5m

Green China

• Sold 100% of interest in Green China for USD 2.9m
• Sale price consistent with June 30, 2015, NAV
• USD 1.5m reduction in annual operating costs

GRAS

• Sold 100% of interest in GRAS for USD 8.5m

Eucateca

• Opportunistic sale of teak assets
• 2 of 4 teak properties sold at 41% above NAV (USD

2.5m)

• Sale of eucalypt plantations to be considered should
• pportunity arise

Pradera Roja

• Sold 3 of 9 properties, representing 20% of planted area

for USD 4.2m

• Sale of remaining plantations to be considered should
• pportunity arise

GTFF

• 17% of a 11,400 hectare poplar plantation & sawmill
• Agreement reached to sell underlying assets
• Sale of underlying land has commenced, returning USD

13.4m to Phaunos, balance to be sold over 3-4 years * Value indicated as at time of sale ** GTTF (remaining) sale distributions to Phaunos are expected over time. The numbers detailed are based on best estimates and may change as the remaining assets are realised

NTP

• Remaining loan of USD 781,000

Lower Risk 60% Medium Risk 33% Higher Risk 7% Lower Risk 53% Medium Risk 30% GTFF 8% Eucateca 9%

Portfolio construction

9

Dec 2014: Too much risk Future: Balanced May 2016: Rebalancing the Portfolio

• Sold the majority of the higher risk assets identified for sale in 2014
• Combined, sale of GRAS and Green China, and partial sale of Eucateca, GTFF and Pradera Roja has

returned USD 31.5m to Phaunos

• Currently the portfolio has 83%¹ lower and medium risk assets. This will increase as the remaining

GTFF assets are sold

Lower Risk 36% Medium Risk 28% Higher Risk 36%

1 as of May 2016 NAV estimate

Management plan update…

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2014 – Phase I 2015 – Phase II 2016 – Phase III

Costs: Identification of cost control measures Implementation Maintenance of low cost

• perations

Revenues: Identify key markets Increase market access Regular harvesting in line with increasing volumes Asset sales: Focus on existing interested parties Target buyers Opportunistic sales 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 reduction Cost reduction and revenue generation Sustainable yields In Summary:

Stop Decline Stabilise Growth¹

1 Of existing assets and share price

…focus on sustainable growth from a low cost base

11

• We are now in Phase III.

2016 – Phase III Key changes

Costs: Maintenance of low cost

• perations

Annual running costs of USD 7.7m (2016f) down from USD 12.6m (2015) and USD 27.5m (2013) Revenues: Regular harvesting in line with increasing volumes On-going harvesting operations, supported by on-the-ground management of wholly owned subsidiaries. Focus on maximising revenues despite difficult market conditions Asset sales: Continue opportunistic sales and manage GTFF Opportunistic sale of remaining Eucateca teak properties and monitoring the sale of remaining GTFF assets NAV: Base NAV annual growth NAV considered realistic. Support NAV growth through market development and appropriate silviculture Management: Maintain & adapt as required Maintenance of management costs. Minimise legal and corporate costs Primary focus: Sustainable yields 2015 resulted in an operational budget surplus of USD 3.9m. This is expected to reduce to USD 0.6m in 2016 before increasing in 2017 in line with increasing harvest yields

f Forecast

Positive cash flow in 2015 and 2016 leading to future sustainable yields

12

Cash flows from operations and investments Existing portfolio overview

2015

(USD m)

2016

Budget (USD m)

2017 – 20

(USD m)

Gross Annual Revenue 16.3 8.3 15 – 17 Annual Costs

• f which;

(15.3) (7.7) (7) - (8)

Capital Expenditure (4.9) (2.3) (2.5) - (3.0) Operational Expenditure (10.4) (5.4) (4.5) - (5.0)

Net Cash 1.0 0.6 9 – 10 Yield on NAV 0.4% 0.2% 3 - 4%

• 30
• 25
• 20
• 15
• 10
• 5

5 10 15 20

• 30
• 25
• 20
• 15
• 10
• 5

5 10 15 20 2011 2012 2013 2014 2015 2016f Operating profit (USD m) Cash flow value (USD m) Capex: planting Capex: silviculture/infrastructure Plantation operating expenses Corporate expenses Annual Revenue Net position

• Debt restructure of Matariki to assist in

providing regular distributions

• Corporate and operating costs to stabilise at

USD 4.5m to 5.0m

• Potential to expand off a low existing cost

base

• Expected yield on NAV of 3 – 4% from 2017
• Expected NAV growth averaging 3 – 5%
• ver the coming years

Sustainable revenues

Share buybacks to assist in narrowing the discount to NAV

13

• Share buyback programme is supporting a recovery in share price
• To date, 4.2m shares have been repurchased for USD 1.5m (average of USD 0.35 per share)
• Share price discount to NAV is narrowing from 29% (31 Dec 2015) to 23% (17 May 2016)

2014 Annual Report published 2015 Phaunos AGM Pradera Roja forward sale Eucateca partial sale Pradera Roja partial sale Green China sold Matariki recapitalisation GTFF partial sale 2015 Annual Results published GRAS sold 2016 Phaunos AGM

100 200 300 400 500 600 700 800 900 1,000 0.3 0.31 0.32 0.33 0.34 0.35 0.36 0.37 0.38 0.39 0.4 Jan-15 Apr-15 Jul-15 Oct-15 Jan-16 Apr-16 Jul-16 Share buyback volume (000' shares) Share price (USD) Share buybacks Share price (USD) Forecast (linear trend) Announcement Share buyback (USD/share)

New investments focused on lower risk mature timberland assets Existing Assets GTFF (remaining) Cash Held Core Assets Non-Core Core Assets

For Phaunos we see potential for expanding portfolio

14

Indicative Phaunos Value Evolution 2015

Dec

2016

May Beyond

2017

Create efficient existing portfolio Stabilise NAV Initiate share buy-back Improve share price 2016 continuation vote 1 year continuation Sustainable management from low cost base 2017 continuation vote 5 year continuation Shareholder

• ption to

participate in future investments Illustrative expanded portfolio

Milestone Sequence

• to be used for:
• Working cash reserve (2 year base)
• Share buybacks and share buyback

reserve

• Reserve for capital requirements for

existing investments

• Potential for return of cash to

shareholders

Stop Decline Stabilise Growth Expansion Phase I Phase II Phase III Phase IV

Continuation vote

15

On 17 June 2016 Phaunos will hold a 1 year continuation vote to decide the future of the fund We expect a one year extension will allow:

• The achievement of annual operational expenditure targets of USD

4.5m to 5.0m

• The completion of non-core asset sales¹
• Time to improve the underlying asset NAVs²
• The implementation of an expanded share buy-back programme to

reduce the NAV to share price discount Through the turnaround completed to date and the benefits of the one year extension, we believe there will be greater confidence in the position of the company to seek a longer term extension in June 2017

Matariki: Debt recapitalisation expected to assist in the provision of regular distributions Ongoing asset sales nearing completion South America: Maintenance of low management costs, minimise corporate and legal costs

1 Noting the gradual (2-4 year) timeframe for the sale of GTFF assets 2 Subject to independent valuations

Asset Overviews

25 50 75 100 125 150 Non-Core Assets Pradera Roja Eucateca Aurora Forestal Mata Mineira Other assets (incl. cash) Matariki Forestry USD m 20 40 60 80 100 120 140 160 Cost 2012 2013 2014 2015 May 2016 USD m

Matariki

17

Asset description Matariki (Phaunos) NAV May 2016¹

Location: North & South Island, New Zealand Species: Predominantly pine Rotation: 27+ years harvest Markets: Domestic & export sawlogs, pulpwood Planted area: 114,000 hectares Risk profile: Lower risk timberland asset Key Issue: Volatility of key export markets

Matariki (Phaunos) NAV evolution

Cash flow (USD m) 2012 2013 2014 2015 2016 Budget Revenue (dividend) 1.9 1.7 1.9 1.4 3.9 Dividend (% of NAV) 1.6% 1.2% 1.5% 1.1% 3.1%

1 Adjusted for foreign exchange

Matariki

18

Age distribution and prescribed harvesting¹ Projected wood flow supply (‘000m3)¹

1,000 2,000 3,000 4,000 5,000 6,000 5 10 15 20 25 30 35 40+ Productive hectares Clearfell harvest ready 500 1,000 1,500 2,000 2,500 3,000 2016 2021 2026 2031 2036 Volume ('000 m3)

• Matariki benefits from a mature, even-aged estate, with relatively stable projected wood flows
• New Zealand remains a low cost producer of logs into China
• Q1 sales, harvest volumes and prices lower due to softer demand from China, although domestic

markets remains strong

• Asian, particularly Chinese, log demand expected to pull back from 2014 peaks but remain strong

in medium term

• Debt recapitalisation expected to assist in the provision of regular distributions

1 Independent valuation

10 20 30 40 50 60 70 80 90 100 Cost 2012 2013 2014 2015 May 2016 USD m

Mata Mineira

19

Asset description Mata Mineira NAV May 2016¹

Location: Minas Gerais state, Brazil Species: Eucalyptus Rotation: 7-10 years short rotation, no thinning Markets: Charcoal, wood pulp Planted area: 9,600 hectares Risk profile: Medium risk timberland asset Key Issue: Market supply exceeds demand

Mata Mineira NAV evolution

Cash flow (USD m) 2014 2015 2016 Budget Revenue 3.6 9.8 1.1 Costs (3.2) (2.9) (2.7) Net cash flow 0.4 6.9 (1.6) Indicative yield 1% 25% 0%

1 Adjusted for foreign exchange

25 50 75 100 125 150 Non-Core Assets Pradera Roja Eucateca Aurora Forestal Mata Mineira Other assets (incl. cash) Matariki Forestry USD m

50 100 150 200 250 300 350 400 2015 2020 2025 2030 2035 Volume ('000 m3) 500 1,000 1,500 2,000 2,500 1 2 3 4 5 6 7 8 9 10 11 12 13 Productive hectares

Mata Mineira

20

Age distribution and prescribed harvesting¹ Projected wood flow supply (‘000m3)¹

Clearfell harvest ready

• Relatively even age distribution, with approximately 15% ready for harvest and 55% aged 4 years

and below

• Current supply of 300,000m3 exceeds market demand, Stafford pursing additional marketing
• pportunities
• Ongoing low demand due to flat domestic and export demand for charcoal and pig iron
• Management focus on establishing wood supply agreements with pulp mills in adjoining states

1 Independent valuation

10 20 30 40 50 60 70 80 Cost 2012 2013 2014 2015 May 2016 USD m

Eucateca - Eucalyptus & Teak

21

Asset description Eucateca NAV May 2016¹

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: 8,800 hectares Euc.; 1,500 hectares Teak Risk profile: Higher risk timberland asset Key Issues: Biomass markets oversupplied, poor early survival and variable growth and high cost operations

Eucateca NAV evolution

Cash flow (USD m) 2014 2015 2016 Budget Revenue 0.7 0.7 0.8 Costs (3.0) (1.4) (1.4) Net cash flow (2.3) (0.7) (0.6) Indicative yield 0% 0% 0%

1 Adjusted for foreign exchange

25 50 75 100 125 150 Non-Core Assets Pradera Roja Eucateca Aurora Forestal Mata Mineira Other assets (incl. cash) Matariki Forestry USD m

50 100 150 200 250 300 350 400 450 2016 2021 2026 2031 2036 Volume (‘000 m3)

Indicative smoothed harvesting volumes* Current rotation woodlfow

• 500

1,000 1,500 2,000 2,500 3,000 3,500 4,000 4,500 5,000 1 2 5 6 7 Productive hectares

Eucateca - Eucalyptus

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Eucalypt age distribution and prescribed harvesting¹ Projected wood flow supply (‘000m3) ¹

Clearfell harvest ready

• Skewed age distribution, by area approximately 60% is harvest ready
• Biomass for industrial processing is presently oversupplied, biomass for electricity generation is

still developing

• Management focus is on cost control and establishing new market opportunities
• Teak properties continue to be marketed on an opportunistic basis, cost control the main

management focus

1 Independent valuation

* Subject to market development

5 10 15 20 25 30 35 40 45 Cost 2012 2013 2014 2015 May 2016 USD m

Aurora Forestal

23

Asset description Aurora Forestal (Phaunos) NAV May 2016¹

Location: Northern Uruguay Species: Pine, includes sawmilling infrastructure Rotation: 22-25 years long rotation with thinning Markets: Mouldings, sawn timber, electricity poles Planted area: 11,200 hectares Risk profile: Medium market risk and low growing risk Key Issues: Capital required for sawmill expansion, and performance linked to export markets

Aurora Forestal (Phaunos) NAV evolution

Cash flow (USD m) 2014 2015 2016 Budget Revenue (dividend) 0.8 2.2 0.9 Dividend (% of NAV) 3% 8% 3%

1 Adjusted for foreign exchange

25 50 75 100 125 150 Non-Core Assets Pradera Roja Eucateca Aurora Forestal Mata Mineira Other assets (incl. cash) Matariki Forestry USD m

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 Productive hectares 50 100 150 200 250 300 350 400 2016 2021 2026 2031 2036 Volume ('000 m3)

Aurora Forestal

24

Age distribution and prescribed harvesting¹ Projected wood flow supply (‘000m3)¹

Clearfell harvest ready

• Slightly uneven age distribution with two production peaks, 2016-2020 and 2030-35
• Potential to increase yields and timber consumption through a small capital investment into

sawmill

• Management focus is on improving operational efficiencies and mill expansion due diligence

1 Independent valuation

* Subject to market development

Other assets in brief

25

GTFF Pradera Roja NAV Maye: USD 24.0m, 8% of total NAV Location: Oregon, USA Species: Irrigated Poplar plantations and associated sawmill Rotation: 10-12 years Markets: Wood pulp, sawlogs, veneer logs Planted area: 11,400 hectares1 Risk profile: Higher risk – markets, cash flow Key Issue: Improving profitability of sawmill, and high cost plantation management and

• perations

NAV May 16e: USD 25.2m, 9% of total NAV Location: Eastern Uruguay Species: Eucalyptus Rotation: 7-10 years Euc (pulp), 18-22 years Euc (saw Markets: Wood pulp, poles, sawn timber Planted area: 3,000 hectares Risk profile: Medium risk – growth, markets Key Issue: Greenfield plantation development risks

Eucalyptus plantation, Pradera Roja Softwood logs, Aurora Forrestal

e NAV estimate as of May 2016, excluding asset sales to date; 1Does not include a reduction associated with asset sales

Conclusions

Conclusions

27

• Stafford has made considerable advances in the past 2 years: the company is cash positive, has a

lower cost base and a lower overall risk profile

• Stafford is very positive about the future of Phaunos based on the core assets and its potential to

grow

• Over the next 5 years Stafford expects the fund will benefit from the changes of the past 2 years

with improving yield and steady NAV growth

• Stafford has the deal-flow, experience and knowledge to expand the Phaunos estate into…

A low cost, globally diversified timberland portfolio, with potential to provide yields of 3-4% and NAV growth of 3-5%1, managed in accordance with ESG best practice2

1 Stafford estimates the existing portfolio could yield between 3-5% based upon the existing assets and potential

investments into mature timberland.

2 ESG – Environmental, Social and Corporate Governance – is vital component of the management thesis of Phaunos,

meeting best practice is essential to the ongoing success of the company