With a world population of over seven billion, that means over seven billion trees are cut down and used yearly. It also means that over seven billion trees should be planted every year.
Touchwood Investments PLC (TIPLC) Group Chairman and Founder Roscoe Maloney strongly believes that it is the moral duty of every person to plant a tree per year. He stated: “Plant one in the backyard, get a company to plant it for you or offer to plant a tree for someone because the tree is the stepping stone of the environment.” This is the reason behind the company’s growth.
However, for an investor, there should be a way to gain maximum profitable returns from their timber investments. Maloney noted that the best way to invest hard earned money is in timber.
With strong reasons to invest in timber, he explained that timber is a long term investment product, which at the same time is safe. He added: “It is a very good investment to make because you have the security that you own the asset.”
With offices around the world, TIPLC deals and specialises in exotic, high value timbers that can bring in considerable returns, even in small quantities. He pointed out that although the quantity of the land area is small, the value is high.
Maloney created Touchwood after understanding the increasing value of timber.
He revealed that one of the main things that he often discussed with his father-in-law, who happened to be a carpenter, was the value of timber. He added: “He told me that one jak tree used to cost about Rs. 500 and now the value of a jak tree is more than Rs. 5,000. A jak tree takes nearly 25 years to harvest and you can’t just harvest it.”
Understanding that investing in timber is hard work that also earns well, he researched the best species that can be grown in Sri Lanka and found out that mahogany was indeed the best, with a harvest period of 15 years.
Maloney also found out that timber prices were increasing every year: “We got figures from the State Timber Corporation on how much one cubic metre of mahogany was and we calculated what the future value would be based on 20 years of past value. We then understood that if we plant mahogany, we would have a very good profit at the end of 15 years.”
In June 1999 with a 72 acre land, TIPLC planted its first batch of mahogany trees.
Creating a low-risk business model
Maloney explained that a good, stable business model was created for TIPLC – for every tree planted for a client, another tree would be planted by the company. This in process has created a 100% buffer and reduced the risk factor of pest attacks and other similar problems, and the company now has over 40 plantations in six districts.
Considering the weather conditions and other disastrous factors, newly appointed TIPLC Chief Operating Officer Jeffry Ebert asserted that they have an ample stock of timber, a result of the one for one plantation and the quantity taken from each tree.
Taking a sandalwood tree for an example, he explained: “You can get 35 kilograms of sandalwood from a tree, but only promise 25 kilograms to the client. We take the additional 10 kilograms as a buffer from that particular tree. Apart from that, we also have a physical buffer as well from our one to one tree. So we have ample buffers to compensate for any sort of causalities or lack of harvest.”
What’s also interesting in investing in timber is that TIPLC also gives clients ownership of the tree which makes it an asset backed investment. Maloney reasoned that since the objective is to purchase trees, the land value is insignificant, but the tree is significant.
Ebert also pointed out that an investment in timber is uncorrelated with monetary rates or economical conditions. He stated that as long as the tree grows, the return on investment too will securely grow.
Furthermore, the trees also have an insurance policy. Maloney explained: “If your tree dies on your plot, we will allocate one for you from the buffer as we have additional stocks. An entire plot can also be transferred. Transferring of a plot has never happened at a moment, but that facility is available because the company has its own plots for itself.”
He added that this business model was created in such a way that today, on the Sri Lankan balance sheet, it shows a 1:4 ratio – for nearly two billion liabilities. TIPLC has around five billion assets.
All in all, TIPLC’s business model is a 360 degree one as their course runs from developing the land to processing of the harvest. With a processing plant for sandalwood and vanilla, TIPLC also owns a wood flooring company which was started last year through which they supply wood for flooring, wall panelling and ceilings.
TIPLC started off with mahogany and ventured into other types of forestry such as vanilla, bamboo, sandalwood, agarwood and cash crops. The organisation has also moved into the field of agroforestry which is the process of cultivating trees and income based crops on one plot of land, a combination of agriculture and forestry techniques.
Ebert stated: “We are working with Dr. Hemanthi Ranasinghe of Sri Jayewardenepura University to identify what would be a good crop to grow in between the trees. We have already started in Girandurukotte and we had a very good successful crop of maize in between the sandalwood trees.”
As part of the cash crops, they have diversified into maize, sesame seeds, cinnamon, coconut just to name a few. Ebert stated that Maloney’s aim is to maximise the liabilities to 100%.
TIPLC has also faced many challenges in terms of harvesting agarwood in Thailand. Agarwood, used for perfumery, is potentially useful if kept for longer as it doubles the yield. Ebert stated that with certain advice from experts, they have decided to leave it as it is for a further three years.
He added that though the price stays unchanged, the return on investment increases since what matters is the tree’s potential. “The quantity every year increases which means your investment is growing. Keeping the tree for another three years would double the client’s investment and it will also benefit all stakeholders. That’s a challenge, but within the challenge there is also a greater opportunity,” stated Ebert.
In order to further their business, TIPLC looks at different kinds of species, but species limited to that particular country as they only work with species within the country. Maloney noted that this reduces the probability of a major environmental disaster taking place in the country. Some species like sandalwood bring in diseases which could harm the environment. He also commended the Sri Lankan forestry laws, stating that they are very good as they help to protect the present imbalanced economic system.
First mahogany harvest in 2017
Maloney stated that they still haven’t harvested the high value timber species, adding: “I think the first harvest is expected in 2017.” Although the harvesting period for mahogany is 15 years, Maloney has extended it to 18 years just to give the tree some extra time.
For sandalwood trees, the harvest period is around 13 to 17 years stated Ebert, adding: “So our first harvest is expected in five to six years time.” Vanilla harvesting takes only three years and since 2007, they have harvested the trees and paid their clients already mentioned Ebert.
Maloney explained that as an organisation, they don’t make a major profit until they start harvesting in 2017. However, Ebert noted that they have secured a forward income for the next 16 years.
Currently, TIPLC carries out small scale exports on vanilla to Germany for the domestic market. Ebert revealed that the quantities required internationally are huge and this prompted them to enter the international market.
Who are the investors?
Maloney stated that most of their clients are professionals who have funds to invest. While some investors understand the opportunity in timber investing and stay for the long term, some clients prefer to terminate their deal after a couple of years due to difficulties they have faced or pre-planned obligations, explained Ebert.
However, Maloney’s also advised all clients to not put all their investments into forestry. He added: “Your investment in forestry should not be more than 20% of your funds available. That way, you spread and reduce your risks, but the thing about forestry is that as a diversification tool, it increases your average portfolio value.”
With timber, he stated that there can be a yearly increase of 30% to 40% and sometimes as low as 20%.
Considering all the factors of timber based investments, the main factor to be considered is that it supports sustainable development. At TIPLC, they focus on management agroforestry in order to step away from deforestation. With global warming and the world population on the rise, there will be tremendous pressure enforced on rainforests yearly with strict regulations on felling.
Ebert stated that the only way to cater to this demand is through emphasis on management agroforestry. He believes that the future for management agroforestry is enormous due to this demand.
The future of Touchwood Sri Lanka
TIPLC’s main objective is to become a global 1,000 company within the next 10 years.
They also have plans to expand the wood flooring company. Maloney stated that they have had inquires from Italy, Russia, India, Thailand, Cambodia and China. He added: “The cost of products here is lower than in China because our clumps cost is lower here.”
In addition to that, they also plan to move into ecotourism as they have over 40 locations with small bungalows that can be used as holiday homes. Maloney noted that this in return will also provide revenue to the people in the local area. He added that through agroforestry intercropping, they have expectations to generate at least Rs. 400 to 500 million a year.