TFS Sandalwood Investment 2016 Sophisticated Investment Offer

Transcription

TFS Sandalwood Investment 2016
Sophisticated Investment Offer
Information Memorandum
TFS CORPORATION LTD
ACN 092 200 854
INFORMATION MEMORANDUM
IMPORTANT INFORMATION
For the offer to qualified investors to
participate in the TFS Sandalwood
Investment 2016 – Sophisticated
Investment Offer 01 January 2016
(Project).
This Information Memorandum contains
important information about participating
in Project. You should read and consider
this document in its entirety before
deciding whether to invest.
If you do not understand this document
you should consult your professional
advisers without delay. Potential investors
should seek their own financial advice
in deciding whether to participate in the
offer set out in this document.
Issue of Information Memorandum
01 January 2016
This Information Memorandum is issued
by TFS Corporation Ltd (TFS) and contains
important information about participating
in the TFS Sandalwood Investment
2016 – Sophisticated Investment Offer
(Project). This Information Memorandum
is being provided to a restricted number
of parties (Recipients or Recipient).
Purpose
This Information Memorandum has been
prepared solely for assisting Recipients in
deciding whether to make an Investment
in the TFS Sandalwood Investment 2016
– Sophisticated Investment Offer as
detailed in this Information Memorandum,
and may only be used for that purpose.
The statements made in this Information
Memorandum should not be considered
as financial product advice and does
not take into account the personal
circumstances of any individual Investor
or the Investor’s objectives, financial
situation or needs. This Information
Memorandum does not constitute a
recommendation by TFS or any other
person in connection with an investment
in the Project. In line with TFS’ obligations,
we note that Investors risk losing some
or all of their principal investment and
there is a risk that the Investment may
achieve lower than expected returns.
Further information regarding the risks
applicable to an investment in the TFS
Sandalwood Investment 2016 is set out in
this Information Memorandum.
This Information Memorandum has
not been, and will not be, lodged with
Australian Securities and Investment
Commission. Any invitation to invest in
the Project will be an offer that does not
require disclosure for the purposes of
Party 7.9 of the Corporations Act.
Exclusion of Liability
TFS does not accept any liability for any
loss or damage suffered or incurred by
the Recipient or any other person or entity
however caused relating in any way to
this Information Memorandum including,
without limitation, the information
contained in it, any errors or omissions
however caused by the Recipient or any
other person or entity placing any reliance
on this Information Memorandum.
Investments in the TFS Sandalwood
Investment Offer are speculative in
nature. No person, firm or corporation
associated with this Information
Memorandum guarantees, warrants
or underwrites the performance of the
Project or any particular investment return
from this Information Memorandum.
Confidentiality
By accepting this Information
Memorandum, the Recipient
acknowledges and agrees that the
Information Memorandum and all of the
information contained in it is confidential
and it will keep strictly confidential the
Information Memorandum and all of such
information, and all other information
made available to the Recipient in
connection with it.
All enquiries regarding this document
should in the first instance be directed to:
Craig Peden
General Manager – Corporate Sales
TFS Corporation Ltd
[email protected]
Mob : +61 438 825 514
Quentin Megson
General Manager – Operations
& Corporate Services
TFS Corporation Ltd
[email protected]
Ph : +61 8 9386 3299
Once you have reviewed this
Information Memorandum, and
understand the opportunity being
offered by TFS, we are available to
discuss the Offer and application
process in detail.
Contents
1. Investment Highlights................................................................................................................ 2
2.Foreword....................................................................................................................................... 4
3. Sandalwood: An Introduction.................................................................................................. 6
4. Introducing TFS..........................................................................................................................14
5. Board Members.........................................................................................................................20
6. Senior Forestry Management................................................................................................22
7. Your Sandalwood Investment: An Overview......................................................................24
8. Details of the Offer...................................................................................................................26
9. Investment Returns..................................................................................................................30
10. Risk Factors and Insurance.....................................................................................................32
11. Summary of Material Agreements........................................................................................34
12.Glossary.......................................................................................................................................40
13. Frequently Asked Questions..................................................................................................42
Corporate Directory
Issuing Entity and Investment Manager
Leasing Entity
Solicitors to the Issuing Entity
TFS Corporation Ltd
ACN 092 200 854
169 Broadway
NEDLANDS WA 6009
Telephone: +61 8 9386 3299
Facsimile: +61 8 6389 1546
TFS Properties Ltd
ACN 093 330 977
169 Broadway
NEDLANDS WA 6009
Telephone: +61 8 9386 3299
Facsimile: +61 8 6389 1546
Steinepreis Paganin
Level 4, The Read Buildings
16 Milligan Street
PERTH WA 6000
Telephone: +61 8 9321 4000
Facsimile: +61 8 9321 4333
SOPHISTICATED INVESTMENT OFFER 2016 | 1
1. Investment Highlights
Key Investment Features include:
POTENTIAL FOR ATTRACTIVE
PRE-TAX RETURNS
2 | SOPHISTICATED INVESTMENT OFFER 2016
ESTABLISHMENT FEES OF
A$80,000 (PLUS GST) PER
HECTARE WITH A MINIMUM
INVESTMENT OF A$500,000
Indian sandalwood is a
commodity revered by nations
for over 2,000 years due
to its unique set of natural
properties. Traditional sources
of demand stem from cultural
and religious origins with newer
sources of demand coming
from the pharmaceutical,
cosmetics and fragrance
industries. This overwhelming
demand has led to the natural
supply of Indian sandalwood
being over harvested with the
species now being listed on the
endangered list. This dynamic
has played out over decades,
and is reflected by an annually
compounding price growth
for wild Indian sandalwood
over the last 15 years of
approximately 14%.
UPFRONT ESTABLISHMENT FEES
AND ONGOING LEASE AND
MANAGEMENT FEES ARE TAX
DEDUCTIBLE SUBJECT TO AN ATO
RULING WITH THE OPPORTUNITY
TO NOT PAY ALL ONGOING FEES
IN RETURN FOR A PERCENTAGE
OF THE HARVEST PROCEEDS
TFS Corporation Ltd (“TFS”) is the
world’s largest commercial producer of
plantation grown Indian sandalwood,
and a specialist in the industry. Through
a vertically integrated “Soil to Oil to
Shelf” approach, TFS is able to maximise
the results of years of research &
development to the benefit of its
investors. At present, the company is
cultivating and commercialising over
4.5 million trees across over 10,500
hectares of plantations located in the
north of Australia.
This Offer provides the opportunity to
invest alongside global institutions into
the world’s largest sustainable source
of a highly valuable and endangered
tropical hardwood.
This Information Memorandum details
the key elements of the Offer, which is
provided for your consideration.
OFFERS DIVERSIFICATION INTO
A NICHE SEGMENT WITH HIGHLY
ATTRACTIVE SUPPLY AND
DEMAND CHARACTERISTICS
2. Foreword
4 | SOPHISTICATED
RETAIL INVESTMENT
INVESTMENT
OFFER 2016
OFFER 2016
Dalton Gooding
Frank Wilson
Adam Gilchrist
Independent Non-Executive
Chairman
Managing Director
Global Brand Ambassador
Thank you for taking the time to learn
more about Indian sandalwood and
the opportunity to invest in this rare
and valuable commodity with TFS - the
world’s leading producer of Indian
sandalwood.
Over 20 years ago, I moved to Perth
to join the Western Australian Cricket
Team. I subsequently met Frank Wilson,
the CEO and founder of TFS, through his
law practice where he was in partnership
with my manager Stephen Atkinson.
TFS was founded 19 years ago with
the vision to create a high quality and
sustainable supply of Indian sandalwood
for the global market. With wild supplies
dwindling due to poaching and overharvest, we identified an opportunity to
create a business that could capture the
full value from “Soil to Oil to Shelf” and
meet the ever-increasing demand for
this revered product.
Through this connection, I became
aware of the unique and precious
commodity that is Indian sandalwood
and the extent to which it is revered
around the world for its cultural,
fragrance and pharmaceutical
properties.
I am very pleased to personally invite
you to consider this rare and exclusive
opportunity to invest directly in an
Indian sandalwood plantation with TFS.
When I joined TFS as its Non-Executive
Chairman, I was attracted not only by
the exceptional market fundamentals
for Indian sandalwood, but also by the
strength and diversity of the TFS business.
TFS is the world’s largest owner
of sustainable Indian sandalwood
plantations, and continues to drive value
from this investment through its first
class plantation management techniques
which optimise yields and returns.
Its reputation as a sustainable, ethical
and environmentally responsible supplier
has been integral to its success in not
only producing a quality product, but also
establishing itself as part of the global
supply chain for sandalwood products.
In addition to its commercial plantations,
TFS owns Mount Romance, the leading
global distiller of sandalwood oil. The
facility is instrumental to TFS’ long term
supply agreement with international
dermatology company Galderma, to
produce pharmaceutical grade Indian
sandalwood oil products.
The company has a strong balance
sheet, and in the 2015 financial year
delivered a net profit after tax of A$113
million. Continued growth is forecast for
the year ahead.
This offer has been structured to
provide Investors with growth potential
and taxation benefits, delivered by an
industry-leading team.
Today that vision is a reality. TFS now
has over 10,500 hectares of Indian
sandalwood plantations across
Australia. The company is a producer
and distributor of both the valuable
heartwood and heartwood oil, as well as
related products.
The company, which listed on the
Australian Securities Exchange in 2004,
has attracted the support of leading
global institutions and a sovereign
wealth fund, and has grown to be an ASX
300 listed company.
Once I had the opportunity to learn
more about the TFS business and
Frank’s vision and leadership, I soon
became an investor and grower of trees.
Since then, I have been proud to serve
on the board of TFS and I continue to
be associated with TFS as their Global
Brand Ambassador.
Adam Gilchrist
Global Brand Ambassador
In short, this is a company with a unique
story, a track record of success and an
amazing future ahead of it.
We have proven that our vertically
integrated Indian sandalwood business
is real and creates value for growers and
shareholders alike.
Thank you for taking the time to
consider this unique investment
opportunity with TFS.
This project is about repeating the
process we have refined over the
past 19 years and provides a unique,
diversification opportunity for
Sophisticated investors. It is my pleasure
to invite you to become a part of this
unique opportunity.
Dalton Gooding
Independent Non-Executive Chairman
Frank Wilson
Managing Director
3. Sandalwood: An Introduction
Indian sandalwood (Santalum
album) is the most valuable
species of sandalwood in the
world. This tropical hardwood
has been used for thousands
of years in perfumes, religious
ceremonies, religious artefacts,
incense, traditional medicines,
carvings and elite furnishings.
What is Sandalwood?
Species – Indian and Australian
Sandalwood is a medium-sized parasitic
tree, which is part of the same botanical
family as European mistletoe. The
wood is heavy, fine-grained and, unlike
many other aromatic woods, retains
its fragrance for decades. Sandalwood
oil is extracted from the heartwood of
the trees, and both the wood and oil
produce a distinctive fragrance that
has been highly valued for centuries.
There are a number of species of
sandalwood with the most notable being
Indian, Santalum album, and Australian,
Santalum spicatum, sandalwood species.
Indian sandalwood (Santalum album)
and Australian sandalwood (Santalum
spicatum) have very different properties,
characteristics and markets. These
differences are reflected in value,
with Australian sandalwood selling for
approximately A$23,096 per tonne
as compared Indian sandalwood
heartwood, which has sold for up to
A$212,409 per tonne. What is Heartwood?
Heartwood is found at the core of the
tree. It is yellow-brown to red in colour
and contains Sandalwood oil, which
gives the product its value, either as
timber or as oil. Oil is extracted from
the heartwood through a process
of distillation and the value of the
heartwood is largely determined by the
quantity and quality of the oil it contains.
Investors should note that this auction
price relates to wild Indian sandalwood
which generally is older and contains
more oil than plantation grown Indian
sandalwood. Raw and unprocessed TFS
grown plantation Indian sandalwood has
recently achieved a sale price in August
2015 of A$123,000 per tonne.
The global supply of wild Indian
sandalwood is decreasing due to
poaching and over-harvest. As a tropical
hardwood, Indian sandalwood will
grow to harvest in 14 to16 years under
irrigation. By contrast, the Australian
species is a slow-growing tree suited to
an arid climate.
When comparing mature sandalwood,
Indian sandalwood oil has almost three
times the alpha beta Santalols (valuable
constituents found within sandalwood
oil) than the Australian sandalwood
variety. This gap increases to up to
six times if trees are compared at a
harvest age of 14 to 16 years. TFS has
proven that its plantation-grown Indian
sandalwood will produce sandalwood
oil that will meet the ISO specification
for Indian sandalwood oil at its 14 to
16 year rotation period.
Indian Sandalwood – Growing
Considerations
Sandalwood requires host trees in
order to grow. As a parasitic tree, the
roots of the sandalwood tree attach
to the roots of the host to draw
nutrients and water. Over the course
of its life, each sandalwood tree needs a
selection of host trees to sustain
it through to maturity.
In order to grow Indian sandalwood
successfully in Australia, the following
growing conditions must be met:
•
•
•
•
A tropical climate
Access to reliable water supplies
Free-draining soils
Land with a flat to undulating
topography, and not subject to
water-logging
• Distance from high risk cyclone zones
Indian sandalwood plantations are
currently managed across the tropical
north of Australia - in Western Australia,
the Northern Territory and Queensland.
Common Uses for
Indian Sandalwood
Indian sandalwood has been a traded commodity for over 2,000 years and was declared a royal
tree in India in 1792. Today, the heartwood has a variety of applications and end-markets.
OIL
Pharmaceutical Consumer Products
On-going research conducted by our
pharmaceutical development arm
Santalis Pharmaceuticals continues to
uncover the therapeutic properties of
Indian sandalwood oil. Sandalwood is
a potent yet gentle ingredient that has
potential commercial application for
the treatment of various skin conditions
(e.g. acne, dermatitis, rosacea, eczema,
impetigo and warts). Indian sandalwood
oil possesses anti-inflammatory, antimicrobial and anti-viral therapeutic
properties that make it a solution for
these complaints. TFS has actively
undertaken research to bring these
therapeutic benefits to market.
In December 2014, Galderma, a
wholly-owned subsidiary of Nestlé,
launched the company’s new Benzac®
Acne Solutions cream - an over-thecounter acne treatment containing
the exclusive pharmaceutical grade
Indian sandalwood oil from plantations
managed by TFS. The products are
distributed to around 30,000 stores
across the U.S, including Walmart,
Walgreens and Amazon.com. Fragrances, Cosmetics and
Aromatherapy
Upon distillation, powdered heartwood
yields oil, which is a highly priced raw
material in the perfume industry. Almost
half of all perfumes created since
1750 contain the evocative scent of
sandalwood. Due to the limited supply of
Indian sandalwood, the demand for its
oil is higher than current levels of supply
in the global fragrance, cosmetics and
aromatherapy industries.
WOOD
Jewellery
Fine Furniture and Carvings
Religious Worship
Sandalwood is a highly sought after
material that is used to create jewellery
such as that worn by Buddhist
worshipers. A combination of its scent
and religious significance make it a
very popular wood to be used for this
purpose.
For centuries, sandalwood has been
used as a medium for religious and
artistic carvings. With the continuous
emergence of wealth in Asia, sandalwood
is now used to make fine furniture.
Consumers in China are prepared to
pay thousands of dollars for Indian
sandalwood logs, which are used to
create a personalised piece of furniture.
The logs may be put on display in lounge
rooms and offices where they are viewed
as a status symbol.
Sandalwood is sacred and revered
throughout Asia and is used in religious
ceremonies, funerals and worshiped
by Hindus and Buddhists. It is in fact
a lifetime spiritual companion of the
Buddhist and Hindu faiths and has been
revered this way for thousands of years.
The Global Market for
Indian Sandalwood
The global market for Indian
sandalwood is world wide.
Dwindling wild supplies in
India (resulting in Governmentimposed export bans on wood
and oil) coupled with increasing
global demand has made
Indian sandalwood a highly
sought-after commodity.
Dwindling Supply
Lack of Indian sandalwood has
reached critical levels in India (currently
around 95% of the total annual Indian
sandalwood supply comes from India),
with the tree recognised as a vulnerable
species on the International Union for
Conservation of Nature and Natural
Resources (IUCN) Threatened Species
Red list.
There is growing demand for a legal
and sustainable source of Indian
sandalwood, with plantation-grown trees
offering an important alternative to
the traditional wild sources. The Indian
Government has imposed an export ban
over Indian sandalwood and restricted
annual harvest quotas due to concerns
over sustainability.
Established Demand
The popularity of sandalwood is seen
in the wide range of countries and
regions that import the wood and
oil. Sandalwood and sandalwood oil
are currently imported by the Middle
East, Japan, China, Taiwan, Hong Kong,
Singapore, Germany, Switzerland,
France, Australia, the UK and the USA.
Strong demand for oil in the USA and
Europe is driven by the fragrance
industry, where sandalwood oil remains
an important ingredient in fragrant
soaps, cosmetics and perfumes. It is
in the Asian markets, however, that
sandalwood has the most cultural
significance.
India, Taiwan and China remain
significant consumers of sandalwood.
China was historically a major importer
of sandalwood and, since the times of
the ancient Silk Road, Indian sandalwood
has been its preferred species. Since
the end of import restrictions in 1999,
Chinese demand for sandalwood
has reportedly grown. TFS believes
that these changed regulations, the
increasing wealth of China (population
1.4 billion people – 2015 est.) and a
subtle return toward traditional values is
likely to increase future Chinese demand
for Indian sandalwood.
The global pharmaceutical market is
emerging as a new source of potential
significant demand.
Official Indian Government Sandalwood Harvest
1,600
1,400
1,000
800
600
400
200
2014/15
2013/14
2012/13
2011/12
2010/11
2009/10
2008/09
2007/08
2006/07
2005/06
2004/05
2003/04
2002/03
2001/02
0
2000/01
Tonnes
1,200
Year
Source: H.S. Anantha Padmanabha, Expert Market Report, August 2015
$212,409
Sandalwood Auctions in India (AU$/Tonne)
FEB 15
$150,179
JAN 14
JUL 14
$124,876
$114,139
2012/13
$115,893
2011/12
$111,893
2010/11
$103,142
2009/10
$115,000
$110,000
2007/08
2008/09
$107,985
2006/07
$105,451
2005/06
$85,300
$58,700
2003/04
2004/05
$54,600
$36,800
2001/02
2002/03
$30,900
2000/01
Price Trend (Average)
Source: H.S. Anantha Padmanabha, Expert Market Report, August 2015
Investors should note that this auction price relates to wild Indian sandalwood which has a higher oil content than plantation grown sandalwood.
Raw and unprocessed TFS grown plantation Indian sandalwood has recently achieved a sale price in August 2015 of $123,000 per tonne.
Indian Sandalwood Oil (US$/kg)
$6,000
$5,500
Indian Sandalwood Oil Spot Price (US$)
$5,000
TFS Oil Price (US$)
Fine Fragrance off-take Agreement (2014)
USD/Kilogram of Oil
$4,500
Supply Agreement with Galderma (2014)
Oil from Trial Harvest (2011-2013)
$4,000
$3,500
Viroxis Off-take Agreement (2009)
$3,000
$2,500
Lush Off-take Agreement (2008)
$2,000
$1,500
$1,000
Year
Source: UK Ledger
2015
2014
2013
2012
2011
2010
2009
2008
2007
2006
2005
2004
2003
2002
2001
2000
1999
1998
1997
$500
Forecast Demand vs Supply: 2015 – 2030
60,000
Tonnes of Heartwood
50,000
Pharmaceutical
Handicrafts
Fragrance
Worship
Mouth Freshener
TFS Supply
- Pharmaceutical
40,000
30,000
- Fragrance
- Mouth Freshener
20,000
- Handicrafts
Phase 3 (2025-30)
TFS Target < 30% market
Phase 2 (2020-25)
TFS Target - 10% market
10,000
- TFS Supply
- Worship
2030
2029
2028
2027
2026
2025
2024
2023
2022
2021
2020
2019
2018
2017
2016
2015
Phase 1 (2015-20)
TFS Target < 1% market
Year
Source: Incipient Capital
Heartwood Pricing
Oil Pricing
The auction price of Indian sandalwood
heartwood in India has increased
from A$30,900 per tonne in 2000 to
A$212,409 ($244,270 inc. 15% tax) per
tonne in 2015. This equates to a price
increase of approximately 14% per
annum since 2000.
The average price obtained by TFS in
FY15 for its album sandalwood oil was
US$4,385kg.
Investors should note that this auction
price relates to wild Indian sandalwood
which generally is much older than TFS
plantation grown sandalwood and as
a consequence has a much higher oil
content. TFS grown plantation Indian
sandalwood logs in raw unprocessed
form has recently achieved a sale
price in August 2015 of A$123,000 per
tonne. Refer to Section 9.4(a) for further
information regarding the potential
differences between wild and plantation
Indian sandalwood.
Market Outlook
It is expected that global demand for
Indian sandalwood heartwood and
oil will continue to far outweigh the
global supply. Global demand for the
heartwood is estimated to be in excess
of 50,000 tonnes per annum by 2030.
TFS expects its own peak supply to be
approximately 12,000 tonnes per annum
and does not expect there to be any
material suppliers or resources of Indian
sandalwood available to the market at
that time.
4. Introducing TFS
TFS is the world’s leading
producer of sandalwood from
soil to oil to shelf. From our
base in Australia we grow
the world’s largest Indian
sandalwood plantations and
produce a reliable, sustainable
supply of this precious wood
and oil.
TFS Corporation Ltd
Specialist Sandalwood Grower
and Producer
TFS Group is the world’s largest
producer of Indian sandalwood and
related products. As a specialist
sandalwood grower and producer, TFS is
committed to a sustainable, ethical and
environmentally responsible operation.
First-class plantation management is
delivered by an experienced team,
whose aim is to provide investors with
industry-leading growth, yields and
returns.
TFS uses research, innovation and
expertise, as well as 18 years of
experience, to help minimise the risks
inherent in a forestry project. TFS’ seed
orchards are designed to improve the
genetics of the seed stock. Superior
trees have been selected based on
growth characteristics and oil content.
These are then control- pollinated to
produce seeds for use in the Project.
TFS has the world’s largest custom-built
Indian sandalwood nursery, within which
its seedlings are grown alongside host
species.
In addition to research into cultivation
techniques, TFS is active in end-market
development for Indian sandalwood
products.
Vertical Integration –
from “Soil to Oil to Shelf”
A key determinant of TFS’ success
stems from its complete control of the
supply chain. From control of landbanking through to global marketing
& distribution of end products, TFS’
competitive advantage at the Nursery &
Plantation stages is maximised.
An Integrated Business Model
Control of supply and quality through ‘Soil to Oil to Shelf’ approach
1.Sourcing Plantation Land
Suitable land in sub-tropical regions acquired for
plantation establishment
Land Search
2.Plantation Establishment & Management
Nursery and other infrastructure ensures capacity to
establish up to 1,600ha per season
Plantation Management
Advanced forestry management operations including
planting, maintenance and harvesting
3.Processing
Specialist processing and distilling facilities located at
Mount Romance
Capacity to process 2,000 tonnes annually
Processing
4.Quality Assurance
Ensuring customer requirements are met in terms of
quality and consistency of product
Quality Assurance
5.Pharmaceutical Development
Pharmaceutical Product
Development
Our US based subsidiaries develop pharmaceutical
products using TFS oil. Already our oil is the subject of
clinical trials to create prescription drugs to treat the skin
6.Marketing and Distribution
International marketing of sandalwood heartwood,
oil and various end-user products
Marketing & Product
Development
Products & Markets
Indian sandalwood is revered for both its heartwood and oil.
TFS produces both of these for the following end uses:
OIL
HEARTWOOD
Pharmaceuticals
Fine Furniture and Carving
Cosmetics
Religious ceremony and worship
Fragrances
Jewellery
Mouth Fresheners
Aromatherapy
The sandalwood market is truly global in nature
and the potential geographic spread is vast.
NORTH AMERICA
EUROPE
CHINA / JAPAN
Perfumes
Pharmaceuticals
Beauty & Fragrance
Worship
Beauty & Fragrance
Handicrafts
Incense
SOUTH AMERICA
MENA
INDIA
SOUTH EAST ASIA
Beauty & Fragrance
Beauty & Fragrance
Incense
Worship
Cremation
Mouth Fresheners
Handicraft
Beauty & Fragrance
Pharmaceutical
Incense
Worship
Beauty & Fragrance
Pharmaceutical
Incense
The current ownership mix is as follows:
•Retail & Sophisticated Investors: 34%
•Institutional Investors
(Beyond Carbon): 33%
•TFS (Direct and Indirect
Ownership): 33%
TFS founded
Funds raised for
first plantation
in Ord River
Irrigation Area
(ORIA)
Album oil spot
price ~ US$360
per kg
1999
1998
1997
TFS’ investment products have received
strong support from both foreign and
domestic investors, further increasing
investor diversification.
First plantation
established
(144 ha)
Founded in 1997, TFS Corporation
Ltd (ACN 092 200 854) listed on the
Australian Securities Exchange (ASX) in
December 2004 (ASX Code: TFC) and has
grown to be a member of the ASX 300
Index.
Now a vertically integrated sandalwood
products company, TFS commenced
planting commercial plantations on
behalf of investors in 1999. Since
that time, TFS has established over
10,500 hectares of Indian sandalwood
plantations on behalf of over 3,500
growers comprising individual and
institutional investors.
In July 2008, TFS acquired Mount
Romance Australia Pty Ltd, the leading
global distiller of Western Australian
sandalwood oil and a producer of
~600 hectares
of plantations
established
between 1999 &
2004
$21.7m raised
A
exclusively from
retail investors
over this period
lbum oil spot
A
price ~US$750
per kg IPO Market cap at
listing A$31m
TFS History - Key Milestones
Strong demand
from retail
investors with
the 2006 limited
pre-release sold
within a month
Acquisition of an
additional 517
hectares in the
ORIA region
In June 2015 TFS announced
the acquisition of its US-based
pharmaceutical partners ViroXis
Corporation and Santalis
Pharmaceuticals which will extend
TFS’s vertically integrated strategy.
ViroXis and Santalis are well
advanced in the formulation, testing
and commercialisation of various
dermatology products containing
TFS pharmaceutical grade Indian
sandalwood oil, including the Benzac®
products which were successfully
launched by Nestle-owned Galderma in
December 2014. Acquire 2,000
hectares at
Kingston Rest
Drip irrigation
leads to sharp
rise in survival
rates
2008
Investor Diversification and
Alignment
Corporate History
sandalwood consumer products. The
company first attracted institutional
investment into its products in 2010,
and the program continues to gather
strength. Over this period, TFS and
its investors have benefited from
increases in the global prices of both the
heartwood and oil.
2007
All locations are carefully selected to
ensure optimal growing conditions,
including fertile land and abundant
and secure irrigation. Furthermore, all
locations are at least 100km from the
coast in order to minimise cyclone risk.
2006
TFS’ plantation assets are strategically
located across northern Australia,
specifically Western Australia,
Queensland and the Northern Territory.
Finally, TFS owns approximately 33% of
plantations under management, further
aligning its interests with those of its
investor partners.
2004
Geographic Diversification
Record plantings
and survival rates
cquire Mount
A
Romance to
complete vertical
integration
strategy
Investment in
Forestry R&D
Develop global
sales team for
sandalwood
product markets
First Institutional
investments at
Kingston Rest
Annual planting
capacity reaches
1,500 hectares
Planning
commences for
first harvest
First JV with
pharmaceutical
sector (ViroXls)
announced
Album oil spot
price US$2,000
per kg
Secures balance
sheet with
US$150m bond
raising
Album oil spot
price US$2,500
per kg
Establishment of
new plantations
in Qld & NT
First harvest
commences
First harvest
completed
Divest MIS loan
portfolio
Album oil supply
agreements @
US$4,500 per kg
Independent
non-executive
Chairman
appointed
TFS Album oil
sells for
US$4,000 per kg
TFS owns >1,300
ha of plantation
assets (direct)
Market Cap ~A$280m (31/12)
Commitment
from 2 new
Institutional
investors
Raised A$67m
via institutional
placement
TFS enters
ASX300
Plantation
ownership
>2,300 ha (direct)
2015
2014
2013
2012
2011
2010
2009
Institutional
Investment Offer
created
Acquisition
of US-based
pharmaceutical
partners ViroXis
Corporation and
Santalis
Benzac acne
product
produced by
Nestle owned
Galderma
launches in
30,000 stores in
USA, was best
acne treatment
of 2015 as
voted by Health
Magazine (USA)
Market Cap
~A$542m (31/12)
5. Board Members
The Directors of TFS Corporation Ltd are persons with strong corporate, legal and
business skills, each of whom are highly experienced in company management.
The Directors, at the date of this Information Memorandum, are:
Dalton Gooding
Non-Executive Chairman
Frank Wilson
Managing Director
Julius Matthys
Non-Executive Director
Mr Gooding is a Non-Executive Director
and Chairman of a number of public
and private company boards, including
RAC Group, St Ives Group and Brierty
Ltd. Mr Gooding was formerly a long
standing partner at Ernst & Young and
is a Fellow of the Institute of Chartered
Accountants in Australia. He has over 25
years’ experience and is currently the
Managing Partner of Gooding Partners,
where he advises a wide range of
business with an emphasis on taxation
and accounting issues, due diligence,
feasibilities and general business advice.
Mr Wilson is the founding Chairman,
major shareholder and Chief Executive
of TFS Corporation Ltd. For 16 years
he held the role of founding principal
and Managing Partner of the legal
firm Wilson and Atkinson, which
has established a reputation as a
leading Australian taxation litigation
and advisory law firm. Frank is an
experienced businessman who has
a long-standing involvement in the
agribusiness industry. He has been an
advisor to a variety of large listed public
and private forestry and viticulture
groups and has been appointed to the
Board of Governors at the University
of Notre Dame. There are few people
with the same depth of technical and
practical commercial experience in the
agribusiness sector.
Mr Matthys is an experienced Senior
Executive with BHP Billiton. He has held
senior roles in iron ore and aluminium
marketing with responsibility for global
sales and customer relationships. From
2008 to 2011 he managed the Worsley
Alumina Joint Venture between BHP
Billiton, Japan Alumina Associates and
Sojitz Corporation. Worsley Alumina is
one of the largest alumina refineries in
the world producing 3.5 million tonnes
of alumina per annum. Mr Matthys is
currently the Vice President External
Affairs WA for the BHP Billiton Group.
Giovanni (John) Groppoli
Gillian Franklin
Michael Kay
Mr Groppoli has been a Non- Executive
Director of Automotive Holdings
Group (AHG) for the last 8 years, and
is a member of their Remuneration
and Nomination Committees. AHG is
an ASX 200 Company with a market
capitalisation of approximately A$1.2
billion. Mr Groppoli was a partner of
national law firm Deacons (now Norton
Rose) from 1987 to 2004 where he
specialised in franchising (and related
wholesale and retail distribution
networks), mergers and acquisitions, and
corporate governance. He was Managing
Partner of the Perth office of Deacons
from 1998 to 2002. Mr Groppoli left
private practice in 2004 and is currently
Managing Director of RGM Equity whose
business operations consist of the
marketing and distribution of premium
international homewares, optical
products and accessories, occupational
health and safety products and the
provision of niche third party logistics/
warehousing. He is also a Director of the
Senses Foundation, a leading disability
service provider in Western Australia.
Ms Franklin has extensive commercial
experience, including Managing Director
and founder of The Heat Group, a
distributor in Australia of leading
cosmetics brands. Over the past 14
years, Ms Franklin has expanded The
Heat Group into the largest Australianowned cosmetics company, distributing
international brands such as Max
Factor and CoverGirl and an expanding
portfolio of its own brands. Ms Franklin
also serves on a number of boards,
including the Australian Formula 1
Grand Prix, where Ms Franklin, has
for many years, chaired the Audit and
Risk Committee. Other Board positions
include the Melbourne Theatre
Company, the Cosmetic, Toiletry and
Fragrance Association of Australia and
ACCORD (the national industry for
the hygiene, cosmetics and speciality
products industry). Previous Board
positions include the Committee for
Economic Development of Australia
(CEDA), the Microsurgery Foundation
and Neopec. Ms Franklin also worked on
the Victorian Government Strategic Bid
Committee for the 2006 Commonwealth
Games, and chaired the Prime Minister’s
Gold Medal Access Committee for Prime
Minister John Howard.
Mr Kay possesses significant commercial
experience, most recently as Managing
Director and Chief Executive Officer of
McMillan Shakespeare Ltd, Australia’s
largest provider of salary packaging and
novated leasing services. Before joining
McMillan Shakespeare Ltd in May 2008,
Mr Kay was the Chief Executive Officer
of Australian Associated Motor Insurers
Limited (AAMI). Mr Kay joined AAMI in
1993, and before rising to the position
of Chief Executive Officer in 2006, he
served as General Manager, Southern
Region (comprising Victoria, Tasmania
and South Australia) and Executive
Chairman, Corporate Affairs and then,
from 2002, as the Chief Operating
Officer. Before joining AAMI, Mr Kay
practised for 10 years as a solicitor.
Mr Kay is a director of RAC Insurance
and a former member of the
Commonwealth Consumer Affairs
Advisory Council, the Administrative
Law Committee of the Law Council of
Australia, the Victorian Government
Finance Industry Council and the
Committee for Melbourne. Mr Kay holds
a Bachelor of Law from the University of
Sydney.
6. Senior Forestry Management
Brett Blunden
General Manager Forestry
Matt Barnes - B Ag Sc
Deputy General Manager Forestry
Brett joined TFS in 2001, bringing
highly recognised regional agricultural
experience. Brett has in-depth
knowledge of the entire sandalwood
plantation management process.
Following a number of years as
Plantation Manager of TFS’ state-of-theart plantation at Kingston Rest, Brett
moved from Kingston Rest to take on
the role of Western Australia Regional
Manager where he oversaw operations
in Kununurra and Kingston Rest. Brett is
now the General Manager Forestry with
responsibility for operations across the
entire TFS estate.
Matt completed an Agricultural Science
degree in 1996 at the University of
Adelaide. He worked as an agronomist
in South Australia and the Northern
Territory for 8 years providing advice
to growers on broad acre cropping,
irrigated small seed production and
horticulture. Matt joined TFS in March
2005 and has been responsible for
providing an agronomic focus to
plantation management. Matt has
developed significant experience in drip
irrigation systems, and has overseen
the large scale introduction of these
systems into the plantations. Matt
relocated to the Northern Territory in
2014 to manage all aspects of TFS’ forest
agronomy as well as to oversee TFS
operational expansion into Queensland.
Andrew Brown - BSc (Organic
Chemistry and Pharmacology), MBA
Head of Product Research,
Development & Regulatory & Estate
Inventory
With 28 years of experience in
sandalwood oil distillation and the health
& beauty, pharmaceutical and brewing
industries where he has occupied
technical and senior management
roles, Andrew has a strong technical
and commercial background making
him ideal to head the Research and
Development Team at TFS.
This blend of skills gives Andrew a very
commercial and operational approach to
research activities which are conducted
with the appropriate technical rigour.
He has been with TFS since 2008 when
the company took over Mt Romance - a
commercial sandalwood oil distiller where he had been employed since
2006.
Johan Nortier
Infrastructure Maintenance &
Development and Pre Processing
Centre Manager
Johan holds an N4 Engineering South
Africa Technical College Certificate
in Management Higher Diploma. Johan
has a mechanical trade background
and extensive experience in production
and plant management. He has more
than 10 years’ experience in the timber
industry managing a Particle and MDF
board plant where he oversaw the day
to day running of the plant and the
harvesting operations. He has managed
a vast variety of projects from turn-key
to self-designed and implemented.
Richard (Ray) Fremlin - BSc (Forestry)
Independent Forester
Ray has over 50 years’ experience in
forestry. He trained in South Africa,
attaining a Diploma of Forestry and
moved to Western Australia in 1965
where he joined the WA Forest
Department. Ray specialised in
plantation establishment and silviculture.
He rose to a senior management
position with the Western Australian
Forest Products Commission before
joining Great Southern Limited in 2006.
Ray is now a consultant to the forestry
industry. He has been directly involved in
the growth of temperate plantations in
Australia and has extensive experience
with tree improvement and silviculture
in tropical plantations in northern
Australia. Ray has also consulted in
South Africa, Indonesia and Africa.
7. Y
our Sandalwood Investment:
An Overview
1
FS engages a team of experts
T
to carefully select land suited to
the growth of Indian sandalwood.
TFS will arrange for the Indian
sandalwood to be planted in
suitable locations in tropical
northern Australia. The region’s
high levels of sunshine, suitable
soil types and access to water
resources make these areas
preferred for cultivation. The land
will be conditioned and prepared
prior to planting.
2
FS has seed orchards designed
T
to improve the genetics of the
seed stock to produce higher
quality trees. Superior trees have
been selected based on growth
characteristics and oil content.
These are then control pollinated
to produce higher quality seeds.
A high proportion of seed for this
project will be sourced from the
seed orchard.
3
FS has the world’s largest
T
custom-built Indian sandalwood
nursery. Sandalwood seedlings
are grown in the nursery with the
pot host species. Other host trees
are also cultivated in separate
pots in preparation for planting.
4
ithin 18 months of the signing
W
of your Investment Management
Agreement, sandalwood seedlings
and host species will be planted
on prepared land.
7
ood will be processed and sold
W
as cleaned logs. It is anticipated
that the major buyers of cleaned
logs will be oil distilleries or
wood product manufacturers
who will then on-sell their end
products to the global luxury and
religious product markets. These
products and markets include
Indian worship, cremation, Pan
Masala, European style elite
fragrance products, Mid-Eastern
and Asian (especially Chinese)
traditional medicines, religious
artefacts (beads necklaces,
carvings, incense) and elite quality
furnishings. TFS, or a related
entity, is a potential purchaser of
the cleaned logs.
5
andalwood is a parasite and
S
needs to tap nutrients and water
from other trees to survive.
Several host species have been
selected based on years of
trialling and research. These are
planted in careful configuration
with the sandalwood with the aim
of maximising the growth of the
sandalwood trees.
8
Investors have the opportunity
between 1 July 2031 and 30
June 2032 to instruct TFS to
convert their wood into other
Sandalwood Products, such as oil.
If this instruction is made, TFS will
undertake to sell the products on
behalf of the Investor. Further
details of this option are set out in
section 8.8 page 28.
6
It is anticipated that harvests
will be conducted 14 to 16 years
after planting. Heartwood – the
most valuable oil bearing section
of the wood – is concentrated
in the butt and lower part of the
tree. Harvest methods continue
to be improved to maximise the
recovery of this valuable resource.
9
FS grows and markets each
T
Investor’s trees, wood and, if
applicable, Sandalwood Products,
separately from the investments
of other Investors in the Project.
However, an Investor may, upon
application, elect to pool their
trees, wood and Sandalwood
Products with other ‘pooling’
Investors in the Project. Further
details of this option are set out
in Section 8.7 on page 28.
8. Details of the Offer
8.1 Your Investment
The Project provides the opportunity
to invest in an Indian sandalwood
plantation for the purpose of receiving
the Net Proceeds of Sale (as that term
is defined in Section 11.1 (1) from
the growing and harvesting of your
sandalwood plantation and to avail
yourself of the experiences, resources
and assistance available to TFS as your
Investment Manager.
Your Investment will be pursuant to:
(a)An Investment Management
Agreement between the Investor,
TFS, TFS Properties and Tropical
Forestry Services; and
(b)A Lease Agreement between the
Investor and TFS Properties as the
lessor of the plantations.
The key provisions of these agreements
are summarised in Section 11.1 (a).
TFS
Investor
Process
TFS will provide you with investment
services, property management services
and establishment services, with further
details set out in Section 11.1 (a).
TFS Properties will provide you with
selling and marketing services (detailed
in Section 11.1 (a) and grant you a lease
to your plantation pursuant to the Lease
Agreement.
8.2 Establishment Fee
Pursuant to the Offer, TFS invites
applications for investments in the
Project on the following terms:
Minimum investment amount:
A$500,000 (plus GST)
Establishment Fee per hectare:
A$80,000 (plus GST)
In accordance with the above, the
minimum Investment offered is
6.25 hectares of Indian sandalwood
plantations.
1
2
3
4
Investor
conducts due
diligence
Investor has
the opportunity
for Q & A with
TFS Senior
Exec team and
Professional
Advisor
Investor is given
the opportunity
to visit TFS
plantations
Investor decides
to invest with
world’s leading
sustainable
sandalwood
supplier
8.3 O
ngoing Annual Fees –
Investment Options
Plantation Age 1:
$7,500 (plus GST) fixed cost
In addition to the Establishment Fee,
on-going annual fees, consisting of land
lease fees and maintenance fees, are
payable. Investors have the option of
paying these fees annually or deferring
the annual fees and forfeiting up to 20%
of Gross Proceeds of Sales. These two
options are detailed below.
Plantation Age 2:
a) Annual Investment Option
After payment of the Establishment
Fee, you may elect to pay the ongoing
annual fees on an annual basis through
the remaining life of the Project. The
following fees are payable:
i. L
ease Fee per hectare: A$1,500 (plus
GST) fixed cost;
ii.Property Management Fee per
hectare (in A$):
Plantation Age 3 – 5:
Plantation Age 6 – 14:
Financial Year of
Deferral
% of Gross
Proceeds of Sale
Years 1 – 2
3% per annum
Years 3 – 4
2% per annum
Years 5 – 14
1% per annum
8.4 Selling & Marketing Fee
Subject to the receipt of an Australian
Tax Office (ATO) Ruling (refer to Section
8.9), these fees are deductible for tax
purposes in the year they are paid.
A fee of 5% (plus GST) of the Gross
Proceeds of Sale will be deducted
from the Gross Proceeds of Sale in
consideration of TFS performing the
marketing and selling of the sandalwood.
b)Annual Deferred
Investment Option
8.5 Performance Fee
After paying the Establishment Fee, you
may elect (on an annual basis) not to pay
any further ongoing annual fees in any
year during the life of the Project. If you
choose this option, TFS will satisfy these
ongoing annual fees by the retention
of the applicable percentage of Gross
Proceeds of Sale as shown in the
following table:
You will be charged a Performance Fee
where the actual internal rate of return
from the Investment exceeds an annual
benchmark rate of 7%.
The Performance Fee will equal 20% of
the amount received in excess of the
amount needed to provide you with a
return on invested capital equal to the
benchmark rate.
5
6
7
8
9
Investor seeks
finance
Investor finance
approved
Investor
completes IMA
agreement
(including
election to pool
Investment, if
applicable)
Investor
completes lease
agreement
Agreements
signed with
payment made
by 30 June
8.6 H
arvesting and
Processing Costs
You will pay for the Costs of Harvesting
and Processing your wood and, if the
election is made, the costs of processing
the wood into Sandalwood Products.
8.7 Election to Pool Investment
Each Investor has the opportunity, when
applying to invest in the Project, to elect
to pool their sandalwood trees with the
sandalwood trees of other Investors in
the Project who have also elect to pool
their trees (Pooling Investors) (Pooling
Option).
Under the Pooling Option, the Pooling
Investors’ trees will be pooled upon
harvest to be processed and sold
collectively, A Pooling Investor’s costs
of harvest, process, sale and marketing
will be equal to that Pooling Investor’s
Proportional Share of the costs of
harvest, process, sale and marketing
of all pooled trees (based on the size
of the Pooling Investors’ sandalwood
plantations). The Establishment Fee,
Property Management Fee, Annual
Deferred Investment Option fees and
Performance Fee shall remain the same
as for non-Pooling Investors.
Whilst this election provides Pooling
Investors with the opportunity to
diversify the physical risks of their
Investment and realise potential
economies of scale, each Pooling
Investor acknowledges that there may
be risks associated with the pooling of
their Investment and that TFS will not
be liable to the Pooling Investors for any
loss suffered as a result of the election
to pool their Investment.
8.8 Investment Returns
a) Sale of wood
In return for your Investment, you
will receive the Gross Proceeds of
Sale of the wood after harvesting and
processing less:
i. The Costs of Harvest and Processing,
ii. The Selling and Marketing fee,
iii.The Performance Fee and
iv.Any other amounts owing to TFS
including the Annual Deferred
Investment Option fees.
For clarity, the seed stock is retained by
TFS and is therefore not sold as part of
the Gross Proceeds of Sale.
b)Election to convert to other
Sandalwood Products
At any time between 1 July 2031 and
30 June 2032 you may instruct TFS to
convert the wood into Sandalwood
Products (including sandalwood oil).
If this election is made you will receive
the Gross Proceeds of Sale of the
Sandalwood Products (which includes
oil), less:
i. The Costs of Harvest and Processing,
ii. The Selling and Marketing Fee,
iii.The Performance Fee, and
iv.Any other amounts owing to TFS
including the Annual Deferred
Investment Option fees.
Please refer to Section 9 for further
discussion on Investment returns.
8.9 Taxation
8.12 Risk Factors
TFS will seek a product ruling from the
ATO to allow the investment amount
(the Establishment Fee and Property
Management Fees) to be treated as a
tax-deductible expense. TFS will submit
the Ruling application to the ATO on
behalf of Investors, with the assistance
of a taxation law specialist, and the costs
of the application will be borne by TFS.
Prospective Investors should be aware
that the Offer that is the subject of this
Information Memorandum involves a
number of risks. Some of the risks are
set out in Section 10 of this Information
Memorandum and Investors are urged
to consider those risks carefully (and,
if necessary, consult their professional
adviser) before deciding whether to
invest in the Project.
8.10 Acceptance of Offer
If you would like to accept an
Investment opportunity as set out in
this Information Memorandum, please
liaise with one of the contacts set
out in the Important Notice section
at the beginning of this Information
Memorandum.
Should you wish to proceed with an
Investment, one of these contacts will
assist you in completing the necessary
Investment Management Agreement
between the Investor, TFS, TFS
Properties and Tropical Forestry Services
and Lease Agreement between the
Investor and TFS Properties as the lessor
of the plantations.
8.12 Queries
This Information Memorandum provides
information for Investors to decide
if they wish to take up the Offer and
should be read in its entirety. If you have
any questions about this Information
Memorandum, please contact your
professional adviser.
8.11 Indicative Timetable
Opening Date
1 January 2016
Closing Date
30 June 2016
The above dates are indicative only and
may change without notice. TFS reserves
the right to extend the Closing Date or
end the Offer early without notice.
9. Investment Returns
To calculate the potential
returns of this Investment you
must consider a number of
variables, many of which TFS is
unable to control.
Subsequently, it is impossible to
determine financial returns over the
life of a 15 to 17 year project with any
certainty.
9.2 General Assumptions
An Investor in the Project should be
looking to achieve long-term investment
returns, and should not be anticipating a
return before the 14th to 16th year after
planting which is proposed as the year
of harvest.
b. There are no material beneficial
or adverse effects arising from the
actions of competitors;
9.1 Secondary Market
There have been examples of investors
who have sold semi mature trees to
both TFS and institutional investors; TFS
makes no guarantee of the liquidity of
the secondary market.
Returns are also influenced by the
individual taxation position of investors,
and the risks detailed in Section 10. We
recommend that you seek professional
advice from a licensed investment
adviser, tax adviser or accountant before
investing.
a. The existing competitive and
regulatory environments of TFS’
business will not change substantially;
c. There is no material change to TFS
business; and
d. There are no material changes in
industrial, political, environmental or
economic conditions with respect
to the sandalwood and forestry
industries and the Australian
economy.
9.3 Yield Assumptions
The following details are TFS’ best
current estimate of yield assumptions.
These estimates are based on the best
information available to TFS at the time.
a. Trees will be planted at a rate that
is sufficient to reasonably expect to
result in at least 420 sandalwood
trees per hectare being available for
harvest. This allows for a survival rate
of approximately 83%.
b. The total production of oil-bearing
heartwood per sandalwood tree to
be harvested is currently estimated at
20kg assuming a moisture content of
approximately 25% at the point of sale.
The subsequent average heartwood
production per hectare is estimated at
8,400 kilograms (8.4 tonnes).
c. The harvest of the sandalwood trees
is expected to occur between years
14 to 16 after establishment, at TFS’
discretion.
d. The oil yield extracted out of the
heartwood is estimated at 3.7% at a
moisture content of 25% therefore
the expected oil yield per hectare is
311 kilograms.
9.4 O
ther Important Assumptions
a)Price
Mr. Anantha Padmanabha, a Forestry
and Sandalwood Market Expert
from Bangalore who has focused his
expertise on the Indian sandalwood
tree, has previously provided an
Expert Sandalwood Market Report
for TFS Properties. The information
contained below has been taken from
Mr Padmananha’s Report, a full copy
of which can be provided to potential
Investors upon request.
“The auction price of wild mature
Indian sandalwood heartwood in
India has increased from $30,900 per
tonne in 2000 to $212,409 per tonne
in 2015. This equates to an annually
compounding price growth over the last
15 years of approximately 14%. This
rise in sale price, which has become a
trend over the past few years, is due
to increased demand for sandalwood
and its oil. It is likely that this trend will
continue due to dwindling supplies.”
It should be noted that the price of
heartwood from Indian auctions relates
to mature wild sourced trees. These do
not necessarily reflect anticipated prices
for 14 to 16 year old plantation sourced
heartwood. The sale of raw unprocessed
heartwood derived from TFS’ first EKS
Project sold at public tender for an
average of A$101,115 per tonne of
estimated heartwood. In August 2015,
raw unprocessed heartwood harvested
from the companies second harvest
from the TFS Sandalwood Project No. 2
(known as “TFS 2”) was sold for $123,000
per tonne.
We also note the following:
i. T
he wood sold at the Kerala auctions
in India is of a high quality, tending to
contain on average 4.0% to 5.5% oil.
ii. While it is possible that wood grown
in plantation-conditions might
achieve this oil content, it is more
likely that a lower average figure of
approximately 3.7% oil content (at a
moisture content of about 25%) may
be achieved.
iii.The oil yield from heartwood
from our 2014 harvest (EKS), was
approximately 3%. This is due to
the trees ranging in age from 12-15
years old. TFS estimates that 14-16
year old trees harvested from our
current day plantations should yield
approximately 3.7% oil.
In December 2004, 40 samples
were taken from 14-year-old Indian
sandalwood trees owned by the Western
Australian Forest Products Commission
(FPC) (a Government agency). Tests
performed on these samples showed a
3.15% average oil (at a moisture content
of 45% - 50%) yield from the heartwood.
In 2010 / 2011, TFS sampled 90 trees
owned by the FPC that were a mix of 19
to 23 year old trees. The results showed
an average oil yield of 4.6% from the
heartwood. The mean heartwood per
tree was 25.0kg. These results were all
calculated at a moisture content of 25%.
estimating the price of cleaned logs.
iii.Forest produce includes host trees
and other parts of the sandalwood
tree (other than the seeds). It is
expected that these products may
have commercial value, although
this has not been included in yield
assumptions as it is expected to be
relatively minor in amount.
iv.Potential Investors should note that
the Project’s life will be approximately
15 to 17 years including the
establishment period, and that the
price of cleaned logs will be affected
by market fluctuations in that time.
v. Mr. Padmanabha has indicated in his
Expert Sandalwood Market Report
that he anticipates on-going price
increases for heartwood of at least
5% per annum for the life of the
Project.
This study proved that commercial yields
of heartwood could be generated from
plantation trees established in the Ord
River Irrigation Area (ORIA). The trees
used in this trial harvest represent
some of the first plantings in the ORIA.
These results support the continued
development of a plantation-grown
Indian sandalwood industry in the ORIA.
Silvicultural practices have improved
significantly since these trees were
planted.
b)Harvest and Processing
A strong correlation was observed
between diameter over bark (DOB)
at 20cm, age and merchantable
mass, heartwood and sandalwood oil
yield. This correlation supports the
proposition that trees with a large DOB
at 20cm and high tree mass promote
heartwood development.
c) Exchange Rate
This relationship is also contributing to
the development of a predictive model
for these characteristics in standing
trees, which is the subject of on-going
research.
i. T
he present day costs of harvesting,
transporting to store and processing
the Indian sandalwood to cleaned
logs are estimated by TFS to be
approximately A$16,000 (plus GST)
per hectare.
ii. The costs of harvest and processing
provided are an estimate. Actual
Costs of Harvest and Processing
will be deducted from the Gross
Proceeds of Sale prior to distribution.
The Indian auctions are conducted in
Indian Rupee and the price of Indian
sandalwood oil is given in US Dollars. It
is not reasonable to forecast exchange
rate fluctuations between the Australian
Dollar and the Indian Rupee or US
Dollar. Investors should, however, be
aware that exchange rate fluctuations
can either positively or negatively affect
the Gross Proceeds of Sale in Australian
currency terms.
The yield results were independently
audited by the University of Western
Australia.
i. R
eturns will be subject to a variety
of risks including the failure of trees
to achieve the anticipated yields of
heartwood and oil, fluctuations in the
exchange rate and changes in the
supply and demand for sandalwood.
These risks are set out in more detail
in Section 10 of this Information
Memorandum.
ii. Potential Investors should note that
TFS will arrange for the sandalwood
timber to be sold as cleaned logs
containing heartwood (unless the
Investor exercises their rights in
Section 8.8). The oil prices are
provided only for the purpose of
10.Risk Factors and Insurance
An investment in this Project
is long term, and may
be adversely affected by
unforeseen events, or events
beyond the control of TFS.
Where possible, TFS works to
safeguard against risks.
Set out below are some of the specific
and general risks which TFS believes
should be considered by potential
Investors when deciding whether to apply.
10.1 Agricultural Risks
a)Fire
Like many agricultural projects, there is a
risk of fire over the dry months, although
existing projects have not experienced
any significantly damaging wildfires.
b)Climate
TFS’ current plantations are located in
tropical northern Australia including
in and around Kununurra in northern
Western Australia, in the surrounding
the villages of Dalbeg and Millaroo in the
upper Burdekin Irrigation area outside
of Ayr in Northern Queensland and the
Katherine and Douglas Daly regions in
the Northern Territory. All land acquired
is subject to the land acquisition due
diligence protocols TFS currently has
in place which include the need to be
located sufficiently inland to be less
susceptible to cyclone damage.
Thunderstorms and strong winds
represent a risk in these regions and can
result in damage to the trees. To limit
this risk, TFS follows a policy of planting
host species along the more exposed
edge of the plantations.
Other climate related risks include
drought, frost, hailstorm, flooding
and long term climate change. The
occurrence of such events has the
potential to be detrimental to the
survival of the plantation and may affect
the success of the Project.
c) Other Physical Risks
A number of other physical risks such
as disease, insects and other pests can
affect the plantation. Full-time staff
operate throughout the plantation on a
regular basis to assist in identifying and
treating risks where possible.
TFS aims to manage these risks through
good forestry practice relating to land
preparation, weed control, nursery
management, pest control and fertiliser
application.
10.2 Financial Risks
a) Exchange Rate
If heartwood is exported from Australia
for sale in foreign countries (such as
India), then the exchange rate between
the Australian dollar and the currency of
sale will impact on the Project’s returns to
Investors. There is a risk that the proceeds
of harvest in Australian dollars may be
reduced due to unfavourable exchange
rate variations between the time of
investment and the time of harvest.
b)Plantation Sandalwood Price
Discount
The price of sandalwood will influence
the financial returns of the Project. As
sandalwood grows older, the amount
of heartwood in the tree generally
increases, as does the oil content of the
heartwood, resulting in higher prices
(discussed in Section 9 Investment
Returns on page 30. It is anticipated
that sandalwood in the Project will
be harvested at age 14 to 16 years.
Consequently the heartwood harvested
from the plantation may be younger
than the heartwood harvested from
old growth natural forests on which
international prices are based. Any
consideration of the returns from this
Project should factor in a discount
on the current market price of Indian
sandalwood harvested from the wild.
c) Yield Estimates and Quality
If the forecast yield is reduced due to
higher than anticipated fatality rates, or
lower than anticipated heartwood yields,
the financial yields of this Project will be
reduced. If the quantity or the quality of
the oil is lower than expected this may
also reduce the value of the heartwood
timber.
c) Insolvency of TFS
The Investment may be adversely
affected if TFS has insufficient funds to
meet its financial commitments, or to
meet the financial requirements.
d) Working Capital Risk
There is a risk that TFS may be unable
to access sufficient funding to meet its
working capital requirements for the
purpose of both cultivating and harvest
and processing the trees. This may
adversely affect an investment in the
Project by resulting in a decrease in the
amount realised from the sale of the
trees, or preventing an Investor from
realising their investment in the Project.
10.6 Other General Risks
Over the duration of the Project, there is
a risk that the success of the Project may
be adversely affected by unforeseen
political, economic or social events or
natural disasters.
d)Increased Costs and Unexpected
Expenditure by TFS
10.4 Regulatory Risks
Changes in the costs of harvesting,
transporting and processing may affect
the financial success of the Project.
a)Failure to obtain the necessary
approvals required to operate
the Project;
10.3 Market Risks
a) Demand and Supply Forces
Economic changes in the supply and
demand for sandalwood may affect
the price of sandalwood. The wealth of
consumers, the availability and price of
substitutes and consumer tastes are
just some of the factors affecting the
demand for sandalwood.
Other factors that may affect the price
and sale of sandalwood include trade
policies of importing countries, the
development of private plantations and
difficulties accessing markets.
b) New Technologies
New technologies may be introduced
which allow synthesis of an exact
substitute of Indian sandalwood oil,
which may in turn lead to a decrease
in the demand for, or price of, natural
Indian sandalwood oil.
Regulatory risks include:
b)Changes in government and
regulatory legislation and
requirements which affect the
Project; and
c)Failure to obtain or maintain
adequate access to the required
infrastructure such as irrigation,
power and transport.
10.5 Management Risks
a) Loss of Key Personnel
The loss of key personnel may affect the
success of the Project. To mitigate this
risk, TFS has implemented a staff share
incentive program to limit staff turnover.
TFS has expanded its professional
forestry team helping to mitigate this
risk through shared knowledge amongst
team members.
b)Decrease in Sandalwood
Project Sales
A decrease in future sandalwood Project
sales would result in a decrease in
the revenue of the TFS Group and a
corresponding decrease in the funds
available to meet existing obligations
Return assumptions in respect of a
project that will continue for 14 to
16 years after planting are subject to
significant uncertainties, many of which
are outside the control of TFS and its
Directors. You should make your own
assessment of the Project based on the
information set out in this Information
Memorandum and based upon advice
from your financial adviser.
10.7 Insurance
Once your plantation has been
established, TFS will investigate the
availability of plantation insurance for
the trees on your plantation. The choice
and cost to insure your plantation will
be at your election. TFS will contact you
each year and provide you with the offer
for insurance for your plantation. You
will then be asked to respond whether
your wish to take up the insurance offer
for the upcoming year and TFS will in
turn advise the independent insurance
company of your election to take up the
insurance. At the same time you will be
required to pay the applicable premium.
The proceeds of any successful claims
made under the policy of insurance will
be paid to you, after deducting or paying
all costs, fees, expenses and any other
money payable by you to TFS or any
other person.
If you are indebted to a TFS organised
finance package at the time of the
insurance election, you will be required
to accept the TFS organised insurance
cover or organise your own insurance
cover.
11. S
ummary of
Material Agreements
11.1 I nvestment Management
Agreement
The parties to the Investment
Management Agreement are TFS (as the
Investment Manager), TFS Properties,
Tropical Forestry Services and the
relevant Investor.
The Investment Management Agreement
includes the following key provisions.
a) The Services
The Services to be provided by the
Investment Manager are as follows:
Investment Services
The Investment Manager will perform,
or cause to be performed, the following
investment services with respect to the
Investor’s Interest (meaning, in relation
to the plantation leased under the Lease
Agreement, the Investor’s rights and
interests under the Lease Agreement
and any associated rights):
i.
repare an annual report setting
P
out a summary of the status and the
latest valuation of the Interest.
ii. U
se commercially reasonable efforts
to ensure that the Interest and the
operation and maintenance of the
same comply with all applicable
Australian laws.
iii. Prepare all reports required to be
prepared by the Investor pursuant
to any future credit arrangements
between the Investor or any of its
affiliates and any financial institution
with respect to the Interest provided
that any costs in this regard are
borne by the Investor.
iv. M
aintain accounts and records
relating to the Interest in accordance
with International Financial
Reporting Standards.
v. C
oordinate all legal and tax work
relating to the Interest with counsel
approved in advance by the Investor
provided that any costs in this
regard are borne by the Investor.
vi. S
olicit annually, and, at the Investor’s
cost, obtain and maintain on the
most favourable terms commercially
available, insurance coverage on
behalf of the Investor with respect to
the Interest.
vii. O
versee and coordinate the efforts
of all third parties that provide
services to the Investor relating
to the Interest, including, but not
limited to, the Property Manager.
viii. Perform such other services as may
be required from time to time for
management or other administrative
activities relating to the Interest as
the Investor shall reasonably request
provided that any costs in this
regard are borne by the Investor.
Property Management Services
The Investment Manager will provide
or shall procure to be provided the
following property management services
with respect to the Interest (when
performing such duties, the Property
Manager):
i.
anage weed control, fertilisation,
M
thinning, pruning, harvest and postharvest activities.
ii. U
to ensure proper land protection,
including but not limited to pest
prevention, control and monitoring,
and fire prevention and fire
suppression activities.
iii. U
to maintain the leased plantation,
which may include workers’ camps
construction and maintenance,
watercourses and water bore
construction and maintenance,
irrigation systems maintenance, and
health and safety audits.
iv. U
to monitor the leased plantation to
detect any detrimental events and
coordinate and execute activities
reasonably necessary to address any
discovered detrimental events.
v. M
anage competing vegetation and
animal, insect and disease control
practices.
vi. M
aintain records of all harvests,
measurement data and inventory.
vii. Establish and maintain property
maps.
viii. Use commercially reasonable efforts
to obtain any authorisations, comply
with the terms and conditions of
such authorisations and obtain
any renewals or replacement
authorisations, as required.
ix. Manage harvesting in accordance
with prevailing industry standards
including complying with relevant
Australian laws in relation to such
activities.
x. Except in compliance with Australian
laws, use commercially reasonable
efforts to prevent the bringing of
hazardous or dangerous substances
onto the leased plantation, other
than such hazardous or dangerous
substances which are necessary
and customary for sandalwood
operations; provided further, that
the Property Manager is entitled to
rely on qualified experts in Australia.
xi. Enter into and manage contracts
relating to the operation of the
leased plantation as are necessary
and customary in sandalwood
plantations.
Establishment Services
The Investment Manager will provide
or shall procure to be provided prior
to 31 December 2017 the following
establishment services with respect to
the Interest:
i.
arry out weed control, surveying
C
and ground preparation.
ii. P
lant, in accordance with good
silvicultural and forestry practices,
sufficient sandalwood seedlings or
trees:
a)Which would reasonably
be expected to produce
harvestable timber within 15
years from the date of the Lease
Agreement; and
b)At a rate which would reasonably
be expected to provide an
average survival rate of at least
420 trees per hectare at the end
of the third year after the date of
the Lease Agreement.
iii. P
lant such other short term host
trees as it may consider to be
necessary.
iv. Irrigate, cultivate, tend, cull, prune,
fertilise and spray, as required, in
support of planting.
v. U
(in support of planting) to keep the
leased plantation free of infestation
from rabbits and other vermin.
Selling and Marketing Services
TFS Properties must provide or shall
procure to be provided the following
selling and marketing services with
respect to the Interest:
ii)Maintain an international list of
potential buyers of sandalwood in
the years preceding harvest.
For the avoidance of doubt, for the
year ending 30 June 2018, the Property
Management Fee must be paid by 31
December 2017.
Year ending 30
June
Annual
Payment (per
hectare) A$
2018
$7,500
ii)Run an advertising campaign
to attract potential purchasers
of sandalwood, including on an
international level, whether before
or after harvest.
2019
$6,000
2020
$4,500
2021
$4,500
2022
$4,500
iii)Manage the negotiation of the sale,
at the maximum practicable price
available, including entering into any
sale agreement with a purchaser on
such terms and conditions as TFS
Properties considers appropriate,
whether before or after harvest.
2023
$4,000
2024
$4,000
2025
$4,000
2026
$4,000
2027
$4,000
2028
$4,000
b) Carbon Sequestration Rights
2029
$4,000
The Investment Manager retains every
right, title and interest in, and the sole
ownership, and benefit, of all carbon
sequestered in the trees grown on the
leased plantation and every right to
the economic benefits, credits, assets,
permits and rights, including trading
rights and units and other incidents of
or connected with such sequestered
carbon (if any).
2030
$4,000
2031
$4,000
c) Election to pool Investment
The Investor has the opportunity,
when completing the schedule to the
Investment Management Agreement,
to become a Pooling Investor and to
pool their trees with the trees of other
Pooling Investors.
Each Pooling Investor acknowledges that
there may be risks associated with the
pooling of their Investment and that TFS
will not be liable to the Pooling Investors
for any loss suffered as a result of the
election to pool their Investment.
d) Project Fees
The Investor agrees to pay the fees as
set out below:
Establishment Fee
In consideration of the Establishment
Services being performed, the Investor
must pay the Establishment Fee of
A$80,000 (plus GST) per hectare to TFS
by 30 June 2016.
Property Management Fee
In consideration of the Property
Management Services being performed,
the Investor must pay the Property
Management Fee as set out below to
TFS by 31 December of each year.
e) Annual Deferred
Investment Option
For the years in which the Investor elects
to defer the payment of the Property
Management Fee, the obligation to pay
the Property Management Fee for the
deferred years will be satisfied by the
retention by the Investment Manager or
its Affiliates of the applicable percentage
of Gross Proceeds of Sale as set out
below.
Financial
year of
deferral
Percentage of gross
Proceeds of sale
which TFS Properties
is entitled to for that
financial year
Years 1-2
3% (plus GST)
Years 3-4
2% (plus GST)
Years 5-14
1% (plus GST)
f) Selling and Marketing Fee
In consideration of TFS Properties
performing the Selling and Marketing
Services, the Investor shall pay the
Selling and Marketing Fee in accordance
with paragraph (i) on page 37.
g) Costs of Harvesting and Processing
In consideration of the Investment
Manager harvesting and processing
the sandalwood trees on the Leased
Plantation, the Investor shall pay the
Costs of Harvest and Processing in
accordance with paragraph (i) on page 37.
h) Performance Fee
As further compensation for the services
to be provided by the Investment
Manager for the benefit of the
Investor pursuant to the Investment
Management Agreement, the Investor
shall pay the Investment Manager the
Performance Fee as summarised below:
i.
he Performance Fee determined
T
and payable pursuant to these
terms shall apply to the harvested
and processed sandalwood from
the leased plantation and/or, if the
election summarised in paragraph
(j) below is made, to the Sandalwood
Products (Covered Interests).
ii. A
s soon as practicable following the
sale or other disposition of any or
all of the Covered Interests, except
for a sale or disposition which
results from the Investor making the
election summarised in paragraph
(j) below, (Exit), the Investment
Manager shall, using information
available on hand from its own
books and records and requested
from the Investor, calculate all
revenues and receipts the Investor
has derived from such sold or
disposed of Covered Interests from
all sources, after the payment of, or
provision for the payment of, all fees,
costs and expenses incurred since
the Agreement Date (Exit Value).
iii. T
he Investment Manager shall then
calculate an annualised internal rate
of return of such sold or disposed of
Covered Interests (Actual IRR) using
cash flows expressed in Australian
Dollars. The Investment Manager
shall compare the Actual IRR against
a seven percent (7%) annualised
internal rate of return benchmark
(IRR Benchmark).
iv. T
he Investment Manager shall
communicate these calculations to
the Investor in writing within thirty
(30) days of the Exit. The Investor
shall then have thirty (30) days to
notify the Investment Manager if it
disputes the Exit Value or the Actual
IRR (Valuation Dispute).
v. In the event of a Valuation Dispute,
the Investment Manager shall be
entitled to request the Investor
to appoint an independent and
reputable auditor, consented to
by the Investment Manager, to
resolve the Valuation Dispute, and
each of the parties shall provide all
information reasonably requested
by the auditor concerning revenues,
receipts and fees, taxes, costs
and expenses in connection with
such sold or disposed of Covered
Interests. Such auditor’s calculations
and determinations shall be binding
on the Investment Manager and on
the Investor. All costs and expenses
incurred in connection with the
hiring of the independent auditor
pursuant to a Valuation Dispute shall
be borne 50% by the Investor and
50% by the Investment Manager.
vi. A
s soon as reasonably practicable
after the Investment Manager
has calculated the Exit Value and
the Actual IRR following the sale
or other disposition of any or all
of the Covered Interests, or in
the event of a Valuation Dispute,
after the auditor’s calculations and
determinations are complete, but
in no event later than forty five
(45) days after the Exit if there is
no Valuation Dispute or ninety
(90) days after the Exit if there is a
Valuation Dispute, the Investor will
pay the Performance Fee due, if any,
to the Investment Manager. The
Performance Fee will be calculated
as follows:
a.
the Actual IRR from the
If
Agreement Date is less than or
equal to the IRR Benchmark,
then there will be no
Performance Fee.
b.
If the Actual IRR from the
Agreement Date is greater
than the IRR Benchmark,
the Performance Fee shall
equal twenty percent (20%)
of the amount (expressed in
Australian Dollars) in excess of
the amount needed to provide
the Investor with a return on its
invested capital equal to the IRR
Benchmark.
vii. In the event of more than one Exit,
as soon as practicable following a
further sale or a further disposition
of any or all of the Covered Interests
(Further Exit), the Investment
Manager shall calculate the
Performance Fee by combining the
Covered Interests from any earlier
Exit or Exits with the Further Exit
including such Covered Interests
for which a Performance Fee has
already been paid. For the avoidance
of doubt, this process will ensure
that a cumulative Performance Fee
is calculated as opposed to separate
Performance Fees for each Exit. The
process set out above will continue
to apply, except, in the event the
calculation shows that an amount is
owing from the Investment Manager
to the Investor, the Investment
Manager must pay such amount
to the Investor within 10 Business
Days.
viii. As soon as practicable following
the sale or disposition of all of the
Covered Interests (Full Exit) the
Investment Manager shall calculate
the Performance Fee by combining
the Covered Interests from any
earlier Exit or Exits with the Full Exit
including such Covered Interests
for which a Performance Fee has
already been paid. The process set
out in paragraphs (ii) and (vi) above
will continue to apply, except, in
the event the calculation shows
that an amount is owing from the
Investment Manager to the Investor,
the Investment Manager must pay
such amount to the Investor within
10 Business Days.
ix. T
he Investment Manager shall issue
to the Investor a tax invoice setting
out the amount of GST payable with
respect to any Performance Fee.
all steps to process the Forest Yield
into Sandalwood Products;
i) P
ayments from Gross Proceeds
of Sale
Within 15 Business Days of receiving
Gross Proceeds of Sale, TFS Properties
must pay to itself, from those Gross
Proceeds of Sale:
i.
The Costs of Harvest and Processing;
ii. The Selling and Marketing Fee;
iii. A
mounts owing in accordance with
the provision of the annual deferred
investment option provisions;
ii. T
he Forest Yield will include the
Sandalwood Products; and
iii. T
he Investor must pay to the
Investment Manager the costs
relating to the processing steps
undertaken by the Investment
Manager.
k) Termination by Investor
iv. T
he Investment Manager’s
entitlement to the Performance Fee;
and
Unless terminated earlier in accordance
with its terms, the Investment
Management Agreement shall expire
ninety (90) days following the Full Exit.
v. A
ny outstanding amounts due and
payable to the TFS Group pursuant
to the Investment Management
Agreement,
The Investment Management Agreement
may be terminated:
(the remainder being the Net Proceeds
of Sale).
The Investment Manager must distribute
the Net Proceeds of Sale to the Investor
within 5 Business Days of completing the
above payments.
j) Sandalwood Products Election
At any time between 1 July 2031 and
30 June 2032, the Investor may instruct
the Investment Manager to convert the
Forest Yield to products derived from
the Forest Yield including through oil
distillation (Sandalwood Products)
(Election). If the Investor makes the
Election:
i.
The Investment Manager must take
i.
y mutual written agreement of the
b
parties;
ii. b
y either the Investor or the
Investment Manager for cause
(including criminal or willful
misconduct, gross negligence or
breach of an essential term, that is
not rectified within 15 Business Days
of receipt of notice to rectify the
breach); or
iii. if the corresponding Lease
Agreement is terminated or expires.
The Investor may also terminate the
upon written notice to the Investment
Manager if:
i.
he Investor reasonably determines
T
that continued ownership of the
Investment or performance of the
by either Party would constitute a
violation of Australian laws;
ii. T
he Investment Manager ceases to
conduct the business of managing
plantations;
iii. A
receiver for all or substantially all
of the property of the Investment
Manager is appointed;
iv. A
voluntary or involuntary
petition in bankruptcy, corporate
reorganisation or similar proceeding
with respect to the Investment
Manager (or any material subsidiary
of the Investment Manager) is filed
and is not dismissed or withdrawn
within sixty (60) calendar days;
v. T
he Investment Manager (or
any material subsidiary of the
Investment Manager) makes an
assignment for the benefit of its
creditors or, in each case, if the
result is to materially and adversely
affect the ability of the Investment
Manager to fulfil its affirmative
or negative obligations under
this the Investment Management
Agreement;
vi. T
here occurs any liquidation or
dissolution of the Investment
Manager; or
vii. T
he Investment Manager takes any
corporate action to achieve the
result described in any of subparagraphs (ii) through (vi) above.
Termination of the Investment
Management Agreement for any reason
shall not release either party from any
liability or obligation which has already
accrued prior to the termination date
or which may subsequently accrue in
respect of any act or omission prior to
the termination date.
(l)Covenants of the Investment
Manager
he Investment Manager covenants and
T
agrees as follows:
i.
he Investment Manager shall use
T
commercially reasonable efforts to
protect the Interest from losses.
ii. A
ll personnel providing services
under the Investment Management
Agreement on behalf of the
Investment Manager, whether or not
directly employed by the Investment
Manager, shall be appropriately
qualified to properly discharge the
responsibilities assigned to them
by the Investment Manager. The
Investment Manager shall comply
with its labour and employment
obligations with respect to the
personnel providing services under
the Investment Management
Agreement on behalf of the
Investment Manager.
iii. T
he Investment Manager shall
refrain from taking any action
which it believes, in its reasonable
judgment made in good faith would
violate or cause the Investor to
violate any law, rule or regulation of
any governmental body or agency.
iv. A
t all times during the term of
the Investment Management
Agreement, the Investment Manager
shall maintain a “professional
indemnity” insurance policy,
covering any breach of duties or
obligations under the Investment
Management Agreement, with at
least A$10,000,000 in coverage. The
Investment Manager shall furnish
the Investor with details of its
insurance coverage if requested by
the Investor.
(m) Assignment
The Investor must not assign the
or any of its rights or obligations
without the Investment Manager’s prior
written consent, except as expressly
contemplated in the Investment
Management Agreement. In relation to
a permitted assignment, the Investor
acknowledges that:
i.
he assignment or transfer must
T
comply with the rules of any
secondary market on which the
Interest is traded;
ii. T
he assignment or transfer must
comply with the Tax Laws Amended
(2007 Measures No. 3) Act 2007 (if
applicable); and
iii. T
he assignment may occur before
a period of four (4) years after the
end of the income year of the date
of the Investment Management
Agreement, however the Investor
acknowledges that it will be
responsible for any and all tax and
legal consequences.
11.2 Lease Agreement
The parties to the Lease Agreement are
the relevant Investor and TFS Properties
(as the Lessor).
The Lease Agreement includes the
following key provisions.
(a) Grant of Lease
The Lessor grants to the Investor a lease
of the Leased Area together with all
improvements and fixtures for the term
upon and subject to any encumbrances
and the covenants and provisions set
out in the Lease Agreement.
The parties acknowledge and agree
that the trees remain the property
of the Investor until the end of the
Term or until termination of the Lease
Agreement in accordance with its terms,
with the exception of the seeds which
remain the property of the Lessor to
be collected and used at its discretion,
provided that such collection does not
adversely affect the cultivation of the
trees.
(b)Rent
Rent is A$1,500 (excluding GST) per
plantable hectare per year of the Lease
Agreement and is payable as follows:
i.
he Investor may prepay, in the
T
first year, the rent for the duration
of the term. Any prepayment paid
in this way is subject to adjustment
depending on the duration of the
Lease Agreement.
ii. S
ubject to (i) above, if the Investor
makes the election to defer, as set
out in the Investment Management
Agreement, the rent will be deferred
on the same basis.
affecting or relating to the relevant
Leased Plantation;
iii. If paragraphs (i) and (ii) above do not
apply, the Investor must pay the rent
for each year by 31 December. For
the avoidance of doubt, the Investor
must pay the Rent for year 1 by 31
December 2017.
v. U
pon the expiration or sooner
determination of the lease, to
peaceably surrender and yield up
to the Lessor the relevant Leased
Plantation clear and free of rubbish
and in good and substantial repair
and condition.
(c) Investor’s Obligations
(d) Lessor’s Covenants
The Investor’s obligations include (but
are not limited to) the following:
The Lessor’s covenants include the
following:
i.
ot to use or permit to be used
N
the relevant Leased Plantation
for any purpose other than that
of commercial silviculture of
sandalwood trees and not to use
the relevant Leased Plantation for
the purpose of permanently or
temporarily residing on it or for
residential, recreational or tourist
purposes;
ii. A
t all times to manage, cultivate
and work the relevant Leased
Plantation in a proper and skilful
manner and according to generally
accepted silvicultural methods, so
as to maintain and develop the
relevant Leased Plantation for the
purpose of commercial silviculture
of sandalwood trees;
iii. D
o all things reasonable to prevent
the outbreak or spread of fire upon,
from or to the relevant Leased
Plantation;
iv. C
omply with all statutes, ordinances,
proclamations, orders and
regulations present or future
i.
o give the Investor quiet enjoyment
T
of the Leased Plantation during the
term; and
ii. T
hat if the Lessor receives notice of
any application by any person for
a mining tenement over any part
of the Leased Plantation, or any
notice of intention to mine a mining
tenement on any part of the Leased
Plantation, it will sign and lodge a
notice of objection within the time
and in the manner prescribed by the
relevant mining legislation and in
any negotiations relating to mining
tenements, the Lessor will act on
behalf of the Investor and have
due regard to the interests of the
Investor.
(e) Termination by the Lessor
The Lessor may terminate the Lease
Agreement, by notice in writing to the
Investor, if:
i.
he relevant Investor defaults in
T
relation to the payment of money
and the default continues for
15 business days without being
remedied; or
ii. The relevant Investor defaults:
A.
ut not in relation to the
B
payment of money;
B.
he Lessor has given the
T
Investor written notice specifying
the default and requiring the
default to be remedied within 15
business days; and
C.
he default is not remedied
T
within that time.
The Lease Agreement will automatically
terminate upon the Investment
Management Agreement terminating or
expiring.
(f)Assignment
The Investor may not transfer or assign
their rights under the Lease Agreement,
or sub-let or part with possession of or
grant any licence affecting the Leased
Plantation without the Lessor’s prior
written consent.
(g)Duty
The Investor must pay all duties payable
in respect of the Lease Agreement.
12. Glossary
Where the following terms
are used in this Information
Memorandum, they have the
following meanings:
A$ or $ means an Australian dollar, the
legal currency of Australia;
Business Day means a week day when
trading banks are ordinarily open for
business in Perth, Western Australia;
Closing Date means the closing date of
the Offer as set out in Section 8.11 of
this Information Memorandum (subject
to the Closing Date being extended or
the Offer being closed early);
Establishment Fee means the
establishment fee described in
Section 8.2.
Forest Yield means:
i.
in relation to a Non-Pooling
Investor – the timber from the
Leased Plantation after harvest and
processing (other than the seeds);
and
ii. in relation to a Pooling Investor –
that Investor’s Proportional Share
of the timber from the Lease
Plantations of all Pooling Investors,
after harvest and processing (other
than the seeds);
Corporations Act means the
Corporations Act 2001 (Cth);
Gross Proceeds of Sale means the
gross amount received by TFS from the
sale of Forest Yield;
Costs of Harvest and Processing
means
Information Memorandum means this
Information Memorandum;
i.
in relation to a Non-Pooling Investor
- all costs incurred by the Investment
Manager in the harvesting and
processing of the Investor’s trees; and
ii. in relation to a Pooling Investor –
that Investor’s Proportional Share of
all costs incurred by the Investment
Manager in the harvesting and
processing of trees of all Pooling
Investors.
Investment means an investment in
the Project by execution of the relevant
and Lease Agreement and payment to
TFS of the required fees;
means the agreement between TFS,
TFS Properties and the Investor for the
provision of various services by TFS and
TFS Properties to the Investor;
Investor means an investor in the
Project;
Lease Agreement means the
agreement between TFS Properties
and the Investor for the lease of the
Investor’s Leased Plantation;
Leased Plantation means the area of
land leased by the Investor pursuant to
the Lease Agreement;
Lease Fee means the lease fee payable
under the Lease Agreement.
Net Proceeds of Sale has the meaning
given in Section 11.1(i);
Non-Pooling Investor means an
Investor who is not a Pooling Investor;
Offer means the offer to qualified
investors to invest in the Project;
Performance Fee means the fee
described in Section 11.1(h).
Pooling Investor means an Investor
who has made an election to pool their
Investment as described in Section 8.7.
Project means the TFS Sandalwood
Investment Offer;
Property Management Fee means the
property management fee described in
Section 8.3(a).
Proportional Share means the
proportion which the number of
Sandalwood Lots leased by the relevant
Pooling Investor bears to the total
number of Sandalwood Lots leased by
all Pooling Investors for the time being.
Sandalwood Product means products
derived from the Forest Yield including
through oil distillation;
Section means a section of this
Information Memorandum;
Selling and Marketing Fee means a fee
of 5% (plus GST) of the Gross Proceeds
of Sale to be deducted by TFS from the
Gross Proceeds of Sale in consideration
of TFS performing the selling and
marketing services.
TFS means TFS Corporation Ltd
(ACN 092 200 854);
TFS Group means TFS and its wholly
owned subsidiaries;
TFS Properties means TFS Properties
Ltd (ACN 093 330 977); and
Tropical Forestry Services means
Tropical Forestry Services Ltd
(ACN 080 139 966)
13. Frequently Asked Questions
1. Why Indian sandalwood?
Indian sandalwood is one of the world’s
longest traded commodities and most
valuable tropical hardwoods.
•
Indian sandalwood produces two
highly valuable core end products –
heartwood and oil
•
ach of the heartwood and oil has
E
multiple applications / markets and
demand from multiple locations
•
•
•
upply of Indian sandalwood has
S
been falling consistently for many
years. This is due to reducing
official harvests by the Indian
Government, the over-harvesting
of native supplies and the lack of a
meaningful sustainable plantation
industry other than in Australia
FS is a fully integrated Indian
T
sandalwood company, best placed
to add value and maximise the
opportunity presented by these
exceptional demand / supply
dynamics
FS’ subsidiary Santalis recently
T
executed a 20-year contract for the
sale of Indian sandalwood oil at an
initial price of US$4,500 per kg with
Galderma, one of the world’s leading
dermatology companies, which
provides further evidence of the
demand for sustainably produced
TFS Indian sandalwood oil
2. I s this a managed
investment scheme?
To the extent that any Investor elects
to pool their Investment as described
in Section 8.7, they will be participating
in a managed investment scheme with
the other Pooling Investors. However,
as each Pooling Investor classifies as
a wholesale investor for the purposes
of the Corporations Act, TFS will not
be required to register the resulting
managed investment scheme under the
Corporations Act.
5. W
hat is the rationale behind
the geographic location of the
plantations?
•
Non-Pooling Investors will not be
participating in a managed investment
scheme.
3. I s there a secondary market?
Can I exit my investment prior
to year 15?
There is no structured secondary
market, although there have been nearly
$40m of secondary market acquisitions
by institutional investors to date. The
investment is intended to be held longterm.
•
Ability to gain clear title
•
Access to goods, services & staff
•
ccess to ample, consistent and
A
secure water supply
•
Excellent soil drainage
•
Intensive soil testing of soil
chemical and physical properties
completed
•
his strategy has been undertaken
T
to ensure TFS has access to the
most suitable land and to broaden
TFS’ geographic exposure, thereby
reducing risks inherent in a single
plantation region.
•
FS has completed freehold and
T
leasehold land acquisitions near
the town of Kununurra in Western
Australia, within the Burdekin region
of Northern Queensland, and in the
Northern Territory. TFS established
the first plantations in the Northern
Territory and Queensland in 2012
•
FS is continually evaluating new
T
land acquisition opportunities
and aims to hold a land bank of
approximately 2 years planting at
any time
4. W
hat happens if TFS is subject
to a takeover?
The agreements TFS has in place with
existing investors are binding. Should
TFS be subject to a takeover, these
agreements would remain in place.
FS’ geographic focus is the tropical
T
region of Australia, specifically land
that is suited to the growth of Indian
sandalwood. TFS’ land due diligence
team only considers land with
following attributes:
6. C
ould you provide a
description of the primary
steps involved in establishing a
successful Indian sandalwood
plantation?
Harvest
Flooding:
•
•
ost of the preferential soil types
M
are located on flood plains, so
flooding can be a risk
•
It is very unlikely that any floods
would be of a moving nature
sufficient to cause direct damage
•
In almost all cases, good drainage
ensures excess water will be
dispersed quickly to ensure no long
term damage to the trees
•
FS’ plantation design and site
T
preparation includes the creation
of appropriate land falls to ensure
adequate drainage and dispersal of
excess water during wet seasons
The primary steps in the successful
execution of an Indian sandalwood
project are:
•
Identification and securing of
appropriate land
•
and assessment due diligence
L
process includes detailed
consideration of factors such as
geographic / climatic / rainfall
analysis, soil mapping to determine
suitability for Indian sandalwood,
water availability & security
7. O
utline the primary plantation
/ agricultural risks and how
they are mitigated by TFS.
Fire:
•
ll plantations have been designed
A
to minimise fire risk, with the
inclusion of fire breaks and
consideration of prevailing winds
•
FS has fire prevention measures
T
in place with plantation staff
equipped with light duty fire-fighting
equipment and who receive training
in fire prevention and fire fighting
Land preparation
•
rocess includes sub-division, soil
P
testing, soil levelling and general
preparation and irrigation (access
and installation)
•
Seed germination and seedling
cultivation
•
•
•
•
FS’ tree breeding program has seen
T
improvement in the genetic stock of
sandalwood seeds
nly the best seeds are planted.
O
Ongoing monitoring during early
seedling growth ensures only those
seedlings with straight root lines are
potted, maximising their survival and
growth potential
ot hosts are introduced at
P
the nursery and only released
for planting once the parasitic
connection is established
•
fter 18 years, TFS has developed
A
a clear understanding of optimal
planting times and processes
•
dvanced knowledge of host tree
A
selection, tree types and planting
configuration has had a marked
positive impact on survival rates
Ongoing management
•
ptimise irrigation schedules for
O
each tree vintage
•
ine-tuned silvicultural practices
F
including, but not limited to,
irrigation, pruning, weed control and
general plantation maintenance
lthough plantations managed
A
by TFS have not experienced
any damaging wildfires, TFS
recommends Investors insure their
sandalwood plantations
Drought:
•
s all our plantations are irrigated,
A
and have access to long term,
secure water supplies, the impact of
droughts is minimal
•
rought conditions in Australia are
D
more likely in the southern, more
arid part of the country
•
FS’ plantations are located in the
T
sub-tropical north where the risk of
drought is far lower
Cyclones / Severe Winds:
•
•
•
esult is improved germination rates
R
at the TFS nursery and ensuring the
planting of only the healthiest and
most robust seedlings
Planting
FS’ first commercial harvest
T
commenced in September 2013,
and recently completed the second
harvest in 2015, with the processes
developed proving to be both
effective and efficient
xisting plantations have not
E
experienced any cyclones or cyclone
damage
Other Physical Risks:
wing to the inland location of
O
existing plantations in the Kimberley
Region, Northern Territory and
Queensland it is generally expected
that cyclonic activities will dissipate
to rain-bearing depression
•
number of other physical risks
A
such as disease, insects, weeds and
other pests can affect the plantation
•
he only insects that may be a
T
significant issue are termites,
however termites do not like the
soils that are most favourable
for sandalwood plantation
development. Any termites found on
the plantations are easily dealt with
by a spraying regimen
•
FS manages these risks through
T
comprehensive land due diligence,
good forestry practice relating to
land preparation, weed control,
nursery management, pest control
and fertiliser application. These
objectives are outlined in the
adopted by TFS for the management
of the project
and acquired by TFS is subject
L
to land acquisition due diligence
protocols. These include the need
to be located sufficiently inland to
be less susceptible to any cyclone
damage
•
hunderstorms and strong winds
T
represent a risk that can result in
tree damage. The history of Indian
sandalwood plantations in Australia
has shown that plantations have
been resilient to high winds
•
ven so, to mitigate this risk TFS
E
follows a policy of planting host
species along the more exposed
edge of the plantations to shelter
the sandalwood trees from high
winds
www.tfsltd.com.au

TFS Sandalwood Investment 2016 Sophisticated Investment Offer

Transcription

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