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Investing in Sustainable Timberland

EBG CapitalEBG CapitalEBG CapitalEBG CapitalEnvironmental Investments

Savoy – Baur en Ville, Zurich

7 December 2009

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Table of contents

I - Takeaways for Investors

II - Investment Case

III - Opportunities for Professional Investors


Takeaways for investors

Critical Skills

Right Timing

Value Drivers

Unique Asset Class

� Sustainable returns, portfolio diversification, inflation & recession protection, strong fundamental drivers, environmental & social benefits

� Choice of assets, purchase price, quality of integrated timber management and hence selection of local partners

� Window to acess quality assets and experienced local managers at attractive terms

� Integrated alternative investments and hands-on timber management, sustainability and emerging markets expertise

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II - Investment Case

3


Grouping timberland assets

4

Pla

ntat

ion

Sin

gle-

spec

ies

Pla

ntat

ion

Mul

tiple

-spe

cies

Sem

i-nat

ural

fore

st

Sem

i-nat

ural

fore

st

Nat

ural

fore

st

(man

aged

)

Nat

ural

fore

st

(not

man

aged

)

Diversification

DiversificationSource: Waka


From plantations and natural forests to timber products

Acacia mangium plantation, Borneo

Araucaria plantation, Australia

Teak plantation,Costa Rica

Harvesting, FSC-certified forest, Brazil

Selangan batu tree, FSC-certified forest, Malaysia

Protected Brazil nut tree, Brazil

Garden furniture (FSC certified mix of hardwoods), Malaysia

Offcuts from lesser known species (FSC) for hammocks, Brazil

Massaranduba (FSC) fence-posts, Brazil


Unique revenue components

6

Biological growth 65-70%

Timber price changes 25-30%

Land value 10%

Source: Waka, ITTO, Standard & Poors


Optimizing production: particular non-linear curve for each forest, species, region and site

7

� Management Value (Price)Volume

Quality

Source: Waka


Low correlation with traditional asset classes and inflation hedge …

Correlation between NCREIF and respective other indexesSource: Ibbotson & Associates, 2007

38%

3%

-18%

-16%

-30% -20% -10% 0% 10% 20% 30% 40% 50%

Inflation - US CPI

US Treasury Bills

S&P 500

S&P Small Cap 600


Timber (NCREIF

Timber Index)

Global Stocks (MSCI)

European Stocks (DJ

Euro Stoxx)

European Bonds

(EFFAS)

Real Estate (NCREIF

RE Index)

6%

8%

10%

12%

0% 5% 10% 15% 20% 25%

Risk (Standard Deviation)

Re

turn

9

…result in enhanced portfolio efficiency

Source: IWC, 2007

Portfolio including timberland

Portfolio excluding timberland


Increasing demand triggered by population growth and rise in income …

10

Source: FAO, World Bank Development Report

1

3

4

6

7

1960 1970 1980 1990 2000 2010 2020

Volu

me (

bill

ion m

3)

3

4

5

6

7

8

Popula

tion (

bill

ion)

Global timber demand

Population


… and serious constraints on the supply side…

Source: WHO, USDA, FAO, UNEP World Conservation Monitoring Centre, EBGC

Natural forests

Planted forests

Protected areas (million Km2)

3300

3500

3700

3900

4100

1990 2000 2005 2015

Mill

ion h

a

9

18

5%

8%

92%

95%


… will necessarily impact prices in the long-term

Productivity

� Motivated by climate change (higher degradation, pests, fires)

Other alternative uses

� Ecosystems services (water, soil regulation, carbon, biodiversity)

Input stress

� Rising transport costs (via oil prices) and water scarcity

Population growth

� Particularly in emerging markets

Rising incomes

� High correlation with timber and paper consumption

New forest product/services

� Green procurement/buildings, lifestyle, NWFP, ecotourism, etc

Higherprices

��Demand

Land pressure/Deforestation

� Competition from urbanization, agriculture and biofuels

Bioenergy policy

� High demand for forest resources (e.g.cellulosic ethanol, biomass-gas)

Carbon

� Acceptance of forest-related c. capture in major carbon markets

Environmental concerns

� Rise of protected areas and widespread of certification

12

Source: World Bank, FAO, EBGC

��Supply


Fix Inc Fix IncFix Inc

PEPE

PE

Equities

Equities

Equities

Real Assets

Real Assets

Other

Fix Inc

PEEquitiesReal Assets

Other

0%

25%

50%

75%

100%

1990 2000 2008

Timberland – an established investment in the US

Source: Harvard Management Company, Annual Report 2008

13%

5y Annualized Returns

25%

23%

10%

22%

�Real assets: shifting from US based sophisticated financial institutions to mainstream investors

�Timberland: US pension and endowment funds allocate up to 15% of total AuM

�> 85% of all timberland investment currently within the US

Harvard asset allocation and returns

13


III - Opportunities for Professional Investors

14


A globally spread but increasingly scarce resource

� Russia, Brazil, Canada, US and China account for more than half of the total forest area

� Forest products make up more than 2% of world GDP and global trade in primary wood products > US$ 200 billion

� 12 million ha of forest are lost every year. Africa, South East Asia and South America provide the best environment for tree growth but account for >75% of total losses

Source: FAO.

15


New growth markets

Small logs mainly for pulpwood

Logs for sawn wood

Branches to bioenergy

Small logs mainly for pulpwood

Logs for sawn wood

World cons.in 2005:

366 ml ton

Current value of forests Future value of forests

World cons.in 2005:

660 ml ton

World cons.in 2030:

746 ml ton

World cons.in 2030:

1115 ml ton

World cons.in 2030:

1075 MTOE

World cons.in 2030:

??

Forest for ecosystem services and carbon sequestration

Source: FAO, State of World Forests 2009, EBGC


Primary MarketForests Secondary Market

Fu

ture

Valu

e C

hain

An

aly

sis

New

Dist./Consumers

Roundwood and wood chips

Forest residues and low value timber

Forest related / ecosystems services

SawmillsMouldings

Wood products millsPaper mills

Carbon sequestration

Forest biorefinary

Transport fuels and electricity

Oils/organic extracts for pharma/cosmetic ind.

Carbon credits

Wood and paper products

Biodiversity/green credits

EBG Capital focus

Cu

rren

t

Investm

en

t F

eau

tues

Min Volatility and exposure to markets Max

Higher Barriers to entry Lower

Tailored Risk management Standard

Along the timber value chain, upstream and select adjacent downstream operations appear most attractive

Pallet millsPulp mills


Window of opportunity to get access to attractively priced assets and experienced local managers

FOB prices in constant 1990 US$ per cubic meterSource: ITTO

�Limited amount of investable timberland assets and experienced investment managers

�Recent financial crisis led to a decline in prices for timber and – to a lesser extent –

timberland assets

50

150

250

350

1990 1992 1994 1996 1998 2000 2002 2004 2006 2008 Sep

09

Cameroon

Logs Price

(African

Mahogany)

Malaysian

Logs Price

(Selangan

Batu)

Malaysian

Logs Price

(Meranti)

Brazil

Sawnwood

Price

(Jatoba)


Mitigation of risks

Species and end markets

diversification

Geographic and manager

diversification

Insurance products

Potential risks:

-Price

-Political / Regulatory

-Financial

-Operations

-Diseases

-Climate

-Reputational

Robust due diligence process

and monitoring

Flexible harvesting and possibly

hedging instruments

Best practice operations

Selection of tested operational models and best-in-class

local partners


50

150

250

200

400

600

1000

1500

2000

2500

Diversification and attractive niche markets help mitigate volatility and create value for investors

20

CAGR: 4,0%

CAGR: 3,9%

CAGR: 0,3%

Market

Sizea)b) Gross

Returns

mln m3

US$ / m3 – 1998 - 08 NRR (%)

Eucalyptus

- Brazil

Softwood -

Planted784 7-15% 2,68

Teak -

Myanmar

Hardwood "Commodity" -

Planted and Natural

45 12-20% 2,26

Ipé - BrazilHardwood

"Premium" -

Natural

11 16-28% 2,09

Source: Waka, ITTO, FAO

a) a) Calculation based on estimated global hectares and densityb) b) Prices and trend line c) c) Indicative figures: Volume growth x wood price / land value (based on current explorations in Central & South America and South East Asia)d) d) Planted Forest, Semi Natural and Natural Forest price volatility against regression line

Avg TypeSpecies Type

MarketSize Gross

Returns Avg

Volatility

d)c)

a)c) d)

Pricesb)


Historical Timberland Investments

Land appreciation

Biological (core natural return)

Va

lue D

rivers

Retu

rns

Current Timberland Investments Our Investment Strategy

∆ for reinforced macro trend

∆ for timing factor

A broad perspective, market insight and rigorous execution can create value for investors

∆ for new revenue streams

9%*

∆ for management quality

First downstream operati.

* NCREIF last 10 years, proxy for historical return of average timber manager in US

Acess to attractive niches and assets, global and broad diversification,

sustainability

Timberland investment features as an asset class

Macro trends, new revenue streams (bionergy, eco services),

assets now at discount

∆ for SRI factor

∆ for unique strategy


Integration of skills, expertise, networks and passion is key

22

Research & Analysis

Investment-Strategie

Due Diligence

Manager-Selection / InvestmentDecision

Monitoring/ Reporting

FundsManaged Accounts

Co-InvestmentsDirect

Investments/ Advisory

Customized solutionsfor clientsEBG Capital

Alternative assetsmanagement

Forestmanagement

Emergingmarkets

Sustainability


Thank you

Critical Skills

Right Timing

Value Drivers

Unique Asset Class

� Sustainable returns, portfolio diversification, inflation & recession protection, strong fundamental drivers, environmental & social benefits

� Choice of assets, purchase price, quality of integrated timber management and hence selection of local partners

� Window to acess quality assets and experienced local managers at attractive terms

� Integrated alternative investments and hands-on timber management, sustainability and emerging markets expertise


Contacts

Dr. Reinhold Glauner

WaKa - Forest Investment Services AGTelephone: +41 52 202 8935

E-mail: [email protected]

Ralph Kretschmer

EBG Capital AGTelephone: +41 44 586 05 35

E-mail: [email protected]

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Disclaimer

This document was produced by EBG Capital and is for information purposes only. It is not intended as investment advice and under no circumstances is it to be used or considered as an offer to sell, or a solicitation of an offer to buy, any security or a recommendation to buy or sell any security. EBG Capital makes no representation or warranty, express or implied, as to the accuracy or completeness of the information contained herein and shall not have any liability for the information contained in, or any omissions from, this document. Neither this document nor any copy thereof may be sent or taken into the United States, or distributed in the United States or to any U.S. person.

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