INTERVIEW WITH MARCUS DERHAM, CHIEF EXECUTIVE OFFICER OF WILLMOTT FORESTS LIMITED (WFL)

“WFL - FY2008 Annual Results Discussion”

http://www.brr.com.au/event/50260

WEDNESDAY, AUGUST 27, 2008, 2:30 PM.

            BRR    Today on Boardroom Radio we speak with Mr. Marcus Derham, the Chief Executive Officer of Willmott Forests Limited. Welcome to Boardroom Radio,

10                    Marcus.

            WFL    Thanks, Terence. I am happy to be here.

            BRR    Marcus, you are joining us today to talk about your full year results for 2008. What has driven the woodlot sales in FY2008 for Willmott Forests?

15        WFL    There are a number of factors commencing with a highly rated product that delivers annuity style income, diversification of species and geographical location along with a range of end markets. Good product is, of course, an imperative, but it is virtually useless without distribution. This is an area where we have focussed heavily in the last few years, and our distribution strategy

20                    has certainly paid off recently. FY2008 saw Willmott Forests distribute our product nationally. We achieved a significant uplift in all states of Australia and we more than doubled our market share and our total sales. The average age of our customer base has reduced, the amount of business written per advisor has increased and more than 50% of our sales came from taxpayers

25                    below the top marginal tax rate. All this shows that we have gained significant traction across the wider investment community. We have managed to bring forestry more into the mainstream.

            BRR    Marcus, can you provide any guidance for woodlot sales in FY2009 and

30                    FY2010?

            WFL    We are expecting an increase in woodlot sales in FY2009 and again in the following year.

            BRR    Can you provide a summary of the highlights of the FY2008 accounts

35                    covering both the balance sheet and the profit and loss statement?

            WFL    Certainly. Woodlot sales were up 115%. Total revenue increased by 30%. Our underlying EBITDA, net profit after tax and EPS all increased by around 40%. Net tangible assets were up from $1.57 in FY2007 to $1.72 in FY2008. We generated net operating cash of 48.2 million which was up from 8.8

40                    million in the previous year. Revenue carried forward to FY2009 is $75 million, up from 35 million in the previous year.

            BRR    Can you just talk us through the FY2008 annual accounts?

            WFL    Starting with the profit and loss, total revenue has grown by 29% up to 90.8

45                    million, up from 70.3 in the previous year. We have 75 million of carried forward revenue from the current year Woodlot Projects to underpin 2009 revenues. To put this in perspective, we are carrying forward more revenue from FY2008 to FY2009 than the Company had in total revenue for the FY2007 year. Underlying net profit after tax has increased by 40%, up from 8.1 million in FY2007 to 11.3 million in FY2008. Earnings per share have jumped by 39% to 19.2 cents per share. Looking at net tangible assets, the Company continues to trade profitably and adds to its net tangible asset position annually. The current NTA is $1.72 compared with $1.57 in FY2007.

5                      Readers of the Company’s financial account should note that the plantation land owned by the Company is carried at a cost of $100 million. The market value of this land on an ‘in use’ basis would be well in excess of this carrying value. Regarding cash flow, the capital management initiatives the Company has implemented in the last two years are evident by the reported strong cash

10                    flows from operating activities of 48.2 million compared to 8.8 million in FY2007.

            BRR    What is the franking credit position of the Company?

            WFL    $24.9 million at present. We expect to continue to enjoy significant franking

15                    credit surpluses going forward that will ensure that all distributions to ordinary and preference shareholders will remain fully franked.

            BRR    Marcus, you have had some positive announcements out from Willmott Forests recently? Can you give us an update on what has been happening?

20        WFL    Firstly, on the timber processing side, we secured a 20-year wood license from the New South Wales government, which gives us exclusive access to Forests New South Wales sawlog resource in Bombala. On the back of that, we formed a 50:50 joint venture with Dongwha – a major Korean company with global timber processing operations - to expand our Willmott Timbers

25                    processing business in Bombala. Dongwha are attracted to Willmott Forests because we are resource rich with a strong track record of performance in the plantation industry. In the Forestry MIS space last year, we completed the takeover of BioEnergy/BioForest which has delivered us an exceptional return in a short timeframe. This has enabled us to bring our Premium Forestry

30                    Blend product to market, which has been a huge success. Let us not forget about our arrangements with Hancock Victorian Plantations -- the Hancock Land Deal as we call it – where we are able to access Hancock’s second rotation land throughout Victoria. We are proud of these achievements as every one of them is expected to deliver significant shareholder value.

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            BRR    Marcus, you have mentioned the Dongwha joint venture. When will the Company benefit from a cash flow perspective from this deal?

            WFL    The new mill facility in Bombala is expected to commence operations during FY2010 with full production being reached in FY2011.

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            BRR    Marcus, just moving onto a separate point. Can you quantify the current dollar value of the 20-year wood license from the New South Wales government you were recently awarded?

            WFL    It is difficult to quantify, other than to say that it is a very valuable asset. In

45                    terms of value-added products, it will be worth in excess of 60 million of revenue per annum for the joint venture or 1.2 billion in today’s dollars over the life of the contract.

            BRR    Marcus, just looking at the tax environment at the moment, how settled is the tax environment for Forestry MIS?

            WFL    This is as settled as I have seen it in my experience, and I have been in the sector for almost a quarter of a century. A couple of years back, our industry

5                      went through a detailed plantations and tax review by the Federal Government. In my role as Chair of the peak plantation industry body - Treefarm Investment Managers Association known as TIMA, I was at the forefront of this review. The outcome was an excellent one that provided our industry with 100% tax deductibility and a secondary market. That is not to

10                    say that we will not be reviewed in the future, but we have an excellent story and continued government support is expected.

            BRR    So, Marcus, what does differentiate Willmott Forests in the sector?

            WFL    In a nutshell, it is products, people and service. We have been packaging up

15                    plantation forestry investment products and offering them to the retail market longer than anyone. So we certainly understand what the market wants. Our products are always highly rated and this is evident from our recent results. Our people are first class. They posses both experience and passion, which is a formidable mix. We have an innate focus on quality and service in all that

20                    we do. Financially, we have a strong balance sheet and we have significant land assets that are a must for any serious forest business.

            BRR    How will secondary market trading help Willmott Forests’ MIS offers?

            WFL    Our new Premium Forestry Blend product, which is a perfect example of this,

25                    was launched last week nationally. It is the first Forestry MIS product to have a built-in secondary market. We, at Willmott Forests, believe this is the way forward and early indications from our Dealer Network tell us we are on a winner here.

30        BRR    Marcus, is there an appetite for institutional and offshore pension fund involvement in Australian forestry?

            WFL    Absolutely. We are seeing increasing interest in this area both domestically and globally. We believe we are well placed to participate on a number of fronts.

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            BRR    Marcus, just looking at the carbon trading environment, how well is Willmott Forests positioned to benefit from carbon trading?

            WFL    We are as well placed, if not better placed than most businesses in the sector. Having said that, we have always been cautious in this arena. As to

40                    date, the carbon trading market has provided as many pitfalls as it has opportunities. We see this changing in the short to medium term and we are well placed to capitalise in this arena.

            BRR    Finally, Marcus, how do you see Willmott Forests growing its business going

45                    forward?

            WFL    Clearly, our core business is plantation forestry, and we are particularly well placed to continue to grow our plantation resources via forestry funds management activities. Emerging carbon markets are expected to be a positive factor in the medium term. Our timber processing operations in Bombala are about to undergo a major upgrade that will deliver sustainable returns to our shareholders. We have entered the energy space via our BioForest and EthTech businesses. These have, and will continue to be, sound strategic players for us. In summary, we have a solid core business in

5                      which we are a market leader, a number of initiatives that are designed to enhance that core business and a management team that will deliver positive outcomes. Anyone who is looking for exposure in the plantation sector should look at us as a viable vehicle.

10        BRR    Marcus Derham, the Chief Executive Officer of Willmott Forests, thanks for joining us today and telling us about your full year 2008 annual results.

            WFL    Thanks, Terence.

INTERVIEW CONCLUDED

Contact brr@brr.com.au for more information

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