Forestry Investment Brochure


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Tropical hardwood tree investments deliver fantastic returns as well as being eco-friendly, tax efficient, ethical and sustainable.

Find out how a £15,000 investment can grow into £193,000 in 18 years...

Published in: Technology, Business

Forestry Investment Brochure

  1. 1. From the earth to the sky.
  2. 2. What could be more beautiful than a bank of trees? pg 03 Why choose tropical hardwood trees as an investment pg 04 Eco friendly pg 05 Oxigen Investments Plc pg 06 The investment pg 07 Projected returns pg 08 Excellent tax incentives pg 09 Species of tree pg 13 Why Sri Lanka is the perfect place to grow commercial timber pg 15 How to buy pg 16 Why this is an excellent investment opportunity pg 17 Oxigen Investments’ guarantees pg 18 Security and risk pg 19 Exit strategy pg 20 Funding a forestry investment with a SIPP pg 21 Forestry investment = carbon neutral
  3. 3. Why choose tropical hardwood trees as an investment? Forestry investment is an accepted asset class and proven Tropical hardwoods offer a high return on decide at what point they wish to harvest investment because there is a huge demand. their trees and sell the timber. The investor means by which institutions and private individuals can World consumption has multiplied nearly 25 receives the profit of the value of the timber seek returns on their investments. times in the last 4 decades and more than 100 from their trees. billion board feet of tropical hardwoods are now being consumed each year. The trees’ growth period to maturity varies between 6 to 18 years depending The investor buys trees and leases part of on the species. The trees that are harvested a tree plantation for which they hold the will be replaced by new ones on the same leasehold title to the land. The forestry land so creating sustainable forests for management company will contact the generations to come. investor several months prior to their trees reaching maturity so that the investor can Teak tree aged 4 cumulative £5,646 per 300 trees
  4. 4. “The cultured tropical hardwoods planted will help reduce the pressure of deforestation on the world’s natural rainforests, as well as providing a sustainable source of commercial timber, because the plantations are replanted after harvesting.” Eco friendly Forests can offset climate change because trees absorb The world’s tropical rainforests are being Agarwood and teak trees are being illegally destroyed at the rate of 35 to 50 million acres felled in the natural rainforests and to find carbon dioxide, one of the main greenhouse gases. each year to supply commercial timber. Only one tree of high value may result in huge 1% of commercial timber, including tropical areas being felled. hardwoods such as teak, currently comes from sources other than rainforests. Each The cultured tropical hardwoods planted second a piece of rainforest the size of a will help reduce the pressure of deforestation football pitch is lost forever. The Food and on the world’s natural rainforests, as well Agriculture Organisation (FAO) estimates as providing a sustainable source of that each year about 13 million hectares of commercial timber, because the plantations the world’s forests are lost due to deforesta- are replanted after harvesting. tion. From 2000 to 2005 the net forest loss was 125 square miles per day. At this rate there will be very little tropical rainforest left in 30 years.
  5. 5. Oxigen Investments Plc Oxigen Investments Plc is a UK based company that They have created a team which brings a Oxigen Investments is using the oldest wealth of knowledge and experience both established forestry management company specialises in ethical and sustainable forestry investments. in forestry and financial investments, in the world and is working with the They have been established for 5 years in which time they including an in-house compliance officer governments of Sri Lanka and other agencies who is a qualified lawyer, to ensure that to create new plantations. Oxigen Investments have become one of the most respected companies in all investments are ethical and compliant. is actively replanting previously deforested their field. They have utilised technical advisors from land with plantation timber. For every unit many universities in the UK and abroad to of trees planted for investors the company harness the ever-improving knowledge and plants a further 40% of buffer stock which advances that are being made in the area of helps the regeneration of the rainforests ethical and sustainable forestry. and creates stability for the surrounding communities previously decimated.
  6. 6. “When the investor purchases their trees the saplings are planted and nurtured by expert foresters who will also provide the investor with an annual report detailing the conditions of their trees and explaining the options as appropriate.” The investment How it works options as appropriate. For instance teak Fees: Under Maintenance costs: trees need thinning to make more room The minimum investment is £10,000 and for the stronger trees; the harvested timber The forestry company charge a fee for The annual maintenance cost is 10% of the the amount of trees varies according to the from the thinning will be sold and the growing the trees, which includes the cost purchase price each year. species selected. For instance £10,000 buys investor receives a payment at years 4/5 and of acquiring and maintaining the land that 300 teak trees or 350 agarwood trees. every 3 years until the final harvest. the trees are planted on and the ongoing For teak the annual maintenance cost is only maintenance and the harvest of the trees. required for the first 5 years because the When the investor purchases their trees The investor can choose to sell their remaining maintenance is self-funding. The the saplings are planted and nurtured by investment at any time and will receive the annual maintenance cost can be paid quarterly expert foresters who will also provide the current market value of the trees according or annually. If the total maintenance cost is paid investor with an annual report detailing the to an independent valuation of the timber. up front the investor receives a 7.5% discount on conditions of their trees and explaining the the total maintenance cost.
  7. 7. Projected returns Oxigen Investments projections for All of our projected returns are based on a very cautious 6%, however last year teak harvest maturities are based on past delivered a return of 16.4% commodity values. Investment Returns on investment for teak Investment Returns on investment for agarwood £10k £193,950 £10k £47,880 £25k £484,875 £25k £119,700 £50k £969,750 £50k £239,400 £75k £1,454,625 £75k £359,100 £100k £1,939,500 £100k £478,800 £250k £4,848,750 £250k £1,197,000 £500k £9,697,500 £500k £2,394,000 Returns on investment are based after an 18 year period Returns on investment are based after a 6 year period Teak tree aged 7 cumulative £16,350 per 300 trees
  8. 8. There are various incentives in the UK for individual investors in forestry. Excellent tax incentives Capital Gains Tax Income Tax Inheritance Tax Capital Gains Tax Roll-over Relief The increase in the value of timber is exempt Income accrued from a timber crop is Timber qualifies for 100% business property Forestry investment is a qualifying asset from capital gains tax. Increases in the net exempt from income and corporation tax. relief if it has been held for two years prior to for capital gains tax roll-over relief. This value of land is assessable but land value Sri Lanka does not impose income tax on the death of the investor so no inheritance means that any capital gains tax liability currently accounts for only around 15 % of returns from timber. tax is payable. Lifetime transfers , which are on the sale of a business asset can be the value of mature woodland. often called Potentially Exempt Transfers, deferred by investing in forestry assets and will not attract an immediate tax charge but will be deferred permanently if the forest this could change if the original investor dies investment is held until death. within 7 years of making the transfer. If the investor gifts forestry assets during their lifetime it is possible for the beneficiary to qualify for hold-over relief from any capital gains tax on the land element of the gift. The timber value of the gift is exempt from Capital Gains Tax anyway.
  9. 9. “Teak is an ideal species for plantations because it grows relatively quickly and with demand out-stripping supply prices will continue to rise.” Species of tree - Teak Matures in 18 years Teak is a durable hardwood produced by cultivated plantations. It is an ideal species Also teak trees have one of the highest the species tectona grandis. It is rich in for plantations because it grows remarkably carbon sequestration rates which is the oil giving it a superior ability to withstand quickly. At just 6 months the trees are already process of removing carbon from the the elements and making it ideal for approximately 10 feet high. By year 2 they atmosphere and storing it in wood. constructing buildings, outdoor furniture, are well established as young durable trees. flooring and decking. It is also used for By year 3 the girth and height has grown luxury boats and super yachts and in the significantly with the trees starting to gain back of the Rolls Royce Phantom Drophead. considerable canopy mass. Most commonly it is used in the constuction industry globally. Currently demand out-strips supply so prices will continue to rise. There is an international boycott on felling teak trees in the world’s natural rainforests so the only alternative source of supply is
  10. 10. Species of tree - Teak Teak price list Teak price projections Quantity Price per 300 Trees (2 units) Of the many species of tropical rainforest hardwoods that The harvest dates are for projections only. The actual dates will are growing in plantations, teak is the only species for which be up to the investor. 2 units £10,000 sufficient historical data exists to allow us to make reasonably 10 units £50,000 detailed projections of potential harvests and yields. Please note that all prices are correct at time of going to The table below shows the projected growth, harvests and press and are quoted in UK pound sterling yields from planting 300 teak trees and the figures are based on the actual results from the first thinnings and the original historically-based data for the subsequent thinnings and final harvests. Teak projections - 300 trees These projections are Tree age 4 7 10 13 16 18 based upon a conservative lumber price of £0.72 per board foot for the first Number of trees harvested 126 60 36 30 24 24 thinning, increasing at an annual rate of 6% for the subsequent thinnings and Tree diameter - inches 6 11 15 19 23 26 the final harvest. The harvest and Approximate value per tree £56 £223 £613 £1,174 £2,461 £4,402 processing costs are the costs for milling the trees and we have allowed a Harvest and processing £706 £1,338 £2,204 £3,522 £5,906 £10,566 generous 10%. The actual costs are lower Net harvest proceeds £6,350 £12,042 £19,862 £31,698 £53,156 £95,082 than this. The care and management fees are the fees charged for growing Management fee and profit share £706 £1,338 £2,204 £3,522 £5,906 £10,566 and managing the trees. Net proceeds £5,646 £10,704 £17,658 £28,176 £47,250 £84,516 Cumulative £5,646 £16,350 £34,008 £62,184 £109,434 £193,950
  11. 11. “The oil from agarwood in its purest form is known as liquid gold and is used in the more expensive perfumes.” Species of tree - Agarwood Matures in just 6 years Agarwood – also known as eaglewood, Testament and it is known as the “Wood a small percentage of aquilaria trees. The gaharu, aloeswood - is a resinous, fragrant of the Gods.” The oil in its purest form is fragrant resin that permeates the heartwood and highly valuable heartwood produced by called oud oil. Known as liquid gold it is is produced as a response to wounding the species aquilaria malaccensis. The trees used in the more expensive perfumes such or a fungal infection which, in the wild, are large evergreens native to South East as those by Yves St Laurent. Today agarwood can take up to 100 years to form. However Asia. They grow in a wide range of soils and is recognised as the most precious wood when grown commercially using a recently mature very quickly, producing flowers and in the world with an extremely high value developed patented process to instigate seeds as early as 4 years old. and can bring as much as £5,000 per kilo of the fungal infection it reaches maturity at wood chip and even more for top quality oil approximately 6 years. Agarwood has a widespread and varied use and resinous wood. going back thousands of years including for incense and medicinal purposes. Its pure Currently the demand for agarwood far resin in its distilled form goes into perfume, exceeds the available supply which is a use which has been recorded in the New naturally restricted as it is only found in Teak tree aged 10 cumulative £34,008 per 300 trees
  12. 12. Species of tree - Agarwood Agarwood price list Agarwood price projections Quantity Price per 350 Trees (2 units) The table below shows the projected growth, harvests and yields from planting 350 agarwood trees and the figures 2 units £10,000 are based on the actual results from original historically- 10 units £50,000 based data. Please note that all prices are correct at time of going to Due to the new technology under University of Minnesota press and are quoted in UK pound sterling Patent 6848211 it is now possible to return harvest in 6 years, thus making this tree now commercially viable for our plantations to grow. The harvest date is for projections only. The actual dates will be up to the investor. (Within the terms of the lease). Agarwood projections - 350 trees Tree age 6 These projections are based upon a conservative price for the agarwood chips and are calculated using the lowest grade of chip available. Number of trees 350 Aquilaria is very labour intensive while in the plantations and when the agarwood is extracted. Tree diameter - inches 11 The harvest and profit share are the costs for extracting the valuable parts of the trees. Approximate value per tree £152 The annual maintenance fees are the fees charged for growing and managing the trees. (This is paid Approximate value per kilo of wood chips £446 by the investor annually or up front at initial purchase). Gross sale proceeds £53,200 Sale costs and profit shares £5,320 Net proceeds £47,880
  13. 13. Why Sri Lanka is the perfect place to grow commercial timber Sri Lanka lies in the Indian Ocean at the southern tip of The dry zone has near perfect conditions for Sri Lanka also enjoys the advantage of tropical hardwoods that naturally thrive in proximity to India which is its biggest India and has a tropical climate. The country has two these conditions such as teak and agarwood market for the sales of hardwoods along defined areas of differing ecology distinguished by their which are indigenous to Sri Lanka. with China and the rest of Asia. relative rainfall levels, commonly referred to as the Sri Lanka has a history of growing and “wet zone” of the southwestern part of the island and trading from managed commercial plantations going back over 300 years the “dry zone” of the south east and northern areas. with teak grown commercially since 1610. It is home to some of the most educated forestry experts in the world and many of its numerous universities specialise in forestry management.
  14. 14. India Indian Ocean Dry zone Indian Ocean Sri Lanka Wet zone
  15. 15. How to buy • Minimum investment £10,000 There is a 7 day cooling off period from payment of the deposit during which time due diligence is undertaken by Oxigen • Fully refundable £1,000 deposit Investments compliance department who will ensure that each investor understands what they are signing and investing in. Teak tree aged 13 cumulative £62,184 per 300 trees
  16. 16. “Timber has outperformed every other commodity for the last 100 years.” Why this is an excellent investment opportunity • For ninety eight of the last hundred years prices of teak have outperformed the stock market and over the last 4 years they have risen by 300% (ITTO). Teak has delivered a better return than property year on year with an average return of 9.7%. Returns are currently 16.4% and last year the IPD Foresty index returned 32%. • Demand for timber will increase per capita as population and emerging economies continue to grow. i.e. China is the biggest market for teak in the world due to demand for building materials. • Supply continues to be under pressure from environmental restraints and the increasing demand from consumers for timber from sustainable resources. • Only 1% of the world’s teak comes from FSC-approved forestry plantations. • A combination of the value of a naturally growing commodity and the underlying land provides investors with a low risk asset creating a long term capital appreciation in a sustainable and environmentally beneficial medium. • Harvard University invested US$500m of their total endowment fund into forestry last year.
  17. 17. “If a tree fails to grow for any reason a replacement will be made from stock so that at the final harvest the investor has all the trees they have purchased” Oxigen Investments’ guarantees By using the most advanced methods of cultivation in If a tree fails to grow for any reason Investments in forestry are fully transferable a replacement will be made from stock so and assignable at any time. Oxigen Investments all their plantations, including the use of the latest tissue that at the final harvest the investor has all charge an administration fee of £100. culture technologies, Oxigen Investments ensures that the trees they have purchased, apart from those removed for thinning. all trees are grown from the highest quality stock to grow faster, stronger and trees to maximise harvest returns. Oxigen Investments offers a guaranteed buy back at any time after the first year making this a flexible investment option because investors are able to liquidate their portfolio in response to market movements or cash- flow requirements. The returns received are based on an independent market valuation of the trees. Teak tree aged 16 cumulative £109,434 per 300 trees
  18. 18. Security and risk A well structured, diversified forestry portfolio has The security of an Oxigen Investments • Resident foresters living on the land to is of paramount importance and Oxigen help monitor and protect it. historically been shown to be a low risk investment Investments offer the following: • Using very conservative independent with minimal physical losses. • Providing a full lease on the land where figures in projections to ensure the returns the trees are planted. This lease is registered meet investors’ expectations. • The main risk is physical i.e. damage to the trees from pests, fire and disease. Teak has no with the Land Registry of Sri Lanka for the known risk of pests or disease. The plantations and trees will be insured against fire risk by • Protection from any potential crop loss by full growth period of the trees. Lloyds of London. undertaking to replace any trees which do • Providing a Forestry Title Deed giving full not reach maturity from stock. title over the trees. Having growth rates certified by our • Using experts’ experience in forestry registered forestry consultant and audited backed up by the scientific advisory board by BDO Stoy Hayward. of Enviro2.
  19. 19. Exit strategy The most important element to any investment is being able to realise a return at any time - not only getting the amount invested out but also getting a return at any time. This investment offers a valuable exit strategy- investors can realise their investment at any time after the trees have been in the ground for 9 months and it is a very simple process: 1. The investor notifies Oxigen Investments that they wish to finalise their investment. 2. Within 14 days the investor will be given an independent valuation on their trees. 3. The investor has 30 days to accept the price or to get their own valuation which can be submitted to Oxigen Investments. 4. Within 14 days of accepting the independent valuation, Oxigen Investments will provide the investor with a cheque for that amount.
  20. 20. Forestry investment has been approved as a SIPPable investment. Funding a forestry investment with a SIPP A SIPP is a personal pension into which the person There are several benefits to using a SIPP to invest in forestry: whose pension fund it is decides what their fund is • Full tax relief i.e. if an investor is a 40% tax payer and pays £100,000 into their SIPP it could only cost them £60,000 as it is tax free. invested in. Investors may have an existing SIPP but • The amount of funds available in a SIPP may be increased by it borrowing a further 50% if not it is easy to set one up. Existing pension funds of its value. For example if a SIPP has funds of £200,000, it can borrow another £100,000 such as those which may be ‘frozen’ from previous making available £300,000 to invest. employment or personal pension plans can be This is a complex area and it does need professional advice. Oxigen Investments have their own specialist Intermediary Adviser to assist with this process. Potential investors should transferred into a SIPP. Further contributions into the approach an IFA to review their existing pension plans to assess their value and whether they SIPP can be made. As with any pension fund the SIPP may be transferred into a SIPP. will have a Trustee to manage the fund and investments. Teak tree aged 18 cumulative £193,950 per 300 trees
  21. 21. Forestry investment = carbon neutral A carbon footprint is a measure of the impact human activities have on the environment in terms of the amount of greenhouse gases produced, measured in units of carbon dioxide. A conceptual tool in response to reducing a carbon footprint are carbon offsets or carbon credits which represent the mitigation of carbon emissions. Carbon credits can be purchased by individuals and companies to become carbon neutral by investing in projects that aim to reduce carbon dioxide emissions such as solar or wind energy or reforestation with sustainable forestry. Carbon credits can be exchanged between businesses or individuals and bought and sold in internationals markets at the prevailing market price. For instance an average four bedroom home with four people living in it produces approximately 19 tonnes of carbon a year and an investment in 300 teak trees actually offsets about 60 tonnes of carbon a year so an investor in this situation can relax about the impact their lifestyle is having on the environment as they are putting more good back into the atmosphere than what they are doing bad and they will be carbon neutral.
  22. 22. ...a bank of trees which help your investment grow
  23. 23. INVESTMENT FRONTIERS LTD Disclaimer 112 Wharton Court We are not authorised to give investment / tax advice and you should seek independent financial advice Hoole Lane on all information included in this document prior Chester to making any investment decision. All forecasts are based on historical performance and are purely Cheshire indicative. The value of your investment may rise or CH2 3DG fall. No guarantees as to future performance in respect of income or capital growth are given either expressly or by implication and nothing expressed or implied T. 01244 323555 should be taken as a forecast of future performance. This is not an offer to participate in a collective investment F. 01244 323999 scheme as defined in the Financial Services and Markets Act 2000 (section 235) and as such buyers have no M. 07984 158831 access to statutory or regulatory protections including E. the Financial Ombudsman Service and the Financial Services Compensation Scheme. We are not regulated by the FSA and is not authorised to offer advice to the general public concerning any regulated or unregulated investment.