Communicators

TFS accelerates vertical Integration Strategy with Acquisition of Mount Romance

24 July 2008

• TFS acquires Mount Romance sandalwood and essential oils sales and processing business
• EPS accretive in first year of acquisition
• Significantly accelerates TFS’s strategy to become a vertically integrated producer and distributor of sandalwood oil
o Provides existing sales function and manufacturing facilities
o Extends perfumery industry customer base

TFS Corporation (TFS), the Western Australia-based Indian sandalwood (Santalum album) grower, is pleased to advise that it has reached agreement to acquire Mount Romance Australia (Mount Romance), the Albany-based essential oils business, for $28.6 million.

Overview of Mount Romance

Mount Romance was established in 1993 and, following conclusion of a long term contract with the Western Australian government for the supply of raw material, has become an internationally recognised producer of high quality Australian sandalwood (Santalum spicatum) oil.

Mount Romance exports Australian sandalwood oil across the globe and has supplied directly to the French perfume industry for over 5 years, with contracts entered into with a number of leading industry participants.

Processing and manufacturing operations are located at Albany in Western Australia, where Mount Romance has established a lengthy track record for the quality of its product through the application of world-class technology and quality control systems.

Inclusive of other health and sandalwood based retail body care products, which are sold through Mount Romance’s Albany-based tourism facility and mail order sales, Mount Romance’s annual sales revenue now amounts to approximately $13.9 million. Mount Romance has experienced strong revenue and profit growth in recent years which is expected to continue in future years.

“The addition of Mount Romance realises our vision to become a vertically integrated producer and distributor of sandalwood oil and by-products to blue chip customers in the global fine fragrance and cosmetics industry, ahead of our own first harvest of Indian sandalwood anticipated to be in 2011/2012,” said Frank Wilson, Executive Chairman. “Mount Romance brings to TFS valuable expertise in oil distillation and well-established links with key participants in our target market. Although native Australian sandalwood oil has a lower santalol concentration than that of Indian sandalwood, through Mount Romance’s efforts it has established a strong presence within existing perfumes and has become an established new compound in the global fragrance industry,” added Mr Wilson.

Transaction overview

Net consideration of $28.6 million includes the assumption of $17.6 million of net debt and a cash payment of $9.9 million. The $1.1 million balance payable will be met through the issue of TFS shares. TFS will remain conservatively geared, being in a net positive cash position as at 30 June 2008 .

The acquisition is expected to be immediately EPS accretive to TFS.

The acquisition is subject to and conditional upon approval by the Forest Products Commission (WA). Settlement will occur 10 days after approval is given.

“This is another important initiative which is consistent with our vision to become a vertically integrated producer of sandalwood oil and by-products, and one which accelerates the realisation of that vision by providing immediate diversification of TFS’s operations and revenue streams. TFS remains strongly positioned to pursue other opportunities that may arise and which complement our long term growth strategy,” said Mr Wilson.

“This merger of the world’s largest future producer and distributor of Santalum album oil with the world’s largest existing producer and distributor of Santalum spicatum oil bodes well for both the Kununurra and Albany communities of Western Australia, in an environment where demand from the global fragrance and cosmetics industry, for natural ingredients coming from a sustainable and socially responsible source, is increasing at a rapid rate,” added Mr Wilson.

About TFS Corporation Ltd

TFS Corporation Ltd (ASX: TFC) is an owner and manager of Indian sandalwood plantations in the east Kimberley region of Western Australia. As part of its vision to be a vertically integrated producer of finished sandalwood products, TFS owns a significant proportion of the plantations in its own right. The majority of the plantations are managed on behalf of investors in Managed Investment Schemes regulated by ASIC and the ATO.

TFS was founded in 1997 to exploit the success of government trials into the plantation growth of Indian sandalwood in the Ord River Irrigation Area (ORIA) of north-east Western Australia.

TFS’s first planting was in 1999 and it now manages the largest area of Indian sandalwood plantation in the world, with 1,750 hectares planted in the ORIA. TFS has a land bank of over 4,000 hectares for future sandalwood plantings in the ORIA and at its Kingston Rest property 65 kilometres south of the ORIA.

The company listed on the Australian Stock Exchange in December 2004 and is currently capitalised at over $200 million.

TFS is committed to adopting and maintaining the highest environmental and ethical standards in all aspects of its business. All plantations are grown on land that has previously been used for agricultural or horticultural production. As the first ORIA land owner to recycle its water, TFS was the winner of the 2006 State Regional Water Award. TFS was recently ranked as an industry leader in ethical and sustainable practices by Oekom Research, a leading international ratings agency.

About Indian Sandalwood

Indian sandalwood has a history as a tradeable commodity spanning thousands of years, but is now endangered due to the illegal harvest of wild trees throughout the world. As a result, Indian sandalwood is the world’s most expensive tropical hardwood and continues to increase in price each year. Its heartwood currently trades for in excess of A$100,000 per tonne on average, having risen at a compounding rate of over 21% per annum over the past 16 years.

Indian sandalwood is a globally important ingredient in fine fragrances, cosmetics and toiletries, incense sticks, high quality carvings and for medicinal purposes (aromatherapy and Chinese medicine). Indian sandalwood has a well entrenched market throughout the world. This is particularly so in India and China, which are two of the fastest growing economies in the world.

For more information please contact:

Frank Wilson
Executive Chairman
TFS Corporation
+ 61 8 9221 9466