Christmas trees no bonanza

Christmas tree planting has proved a mixed success for many investors. The tax breaks involved have been very tempting, (profits are exempt under Section 18 of the Finance Act, 1969) but much has depended on the quality of the growing conditions and the professionalism of the backers.

One of the latest woodland schemes is the share placing offer by First Irish Christmas Tree plc which is trying to raise £1.5 million to invest in new and semimature top-quality Christmas tree plantations. The plantations will be managed by The Emerald Group, the largest non semi-state Christmas Tree plantation managers in the country. Up to 30,000 ordinary shares of £1 each and £1.47 million in loan capital is on offer and investors must purchase a minimum of £1,000 worth of shares.

This offer is low risk in that Anglo Irish Bank is guaranteeing 100 per cent return of the original £1.5 million investment. If all goes well, investors will receive a compounded annual return of 7.5 per cent at the end of year six, paid tax free. Their payment is in the form of a lump sum which includes the return of their initial capital sum. This represents a total net return of 54.3 per cent.

Emerald manages more than 1,350 acres of trees in Ireland, Scotland and England accounting for in excess of 3.5 million trees. They are the largest grower of the Noble Pine, the preferred Christmas tree in the all-important German market and this tree accounts for 80 per cent of its total plantations. The company had a turnover last year of £1.7 million and by last month had pre-sold 60,000 Christmas trees into the European market. With this new money Emerald intends to buy or lease another 200 acres of unplanted land for at least another 540,000 Noble Fir trees and 85 acres of land containing semi-mature trees.

One of the biggest problems in the past with Christmas tree investments, according to financial advisers Family Money consulted, is that the quality of management - from the scheme promoter right down to the harvesters was simply not up to scratch. To sell into the premium end of the market - i.e. Germany, Britain, Austria, Switzerland and Holland - the trees had to be grown in the best site conditions, the horticulture and tree management had to be of the highest calibre, and the distribution and marketing had to be highly professional.

This company appears to fulfil these criteria: the managing director is a former tax consultant with Arthur Andersen, other directors are the chairman of Davy Stockbrokers and the managing partner of the accountants BDO Simpson Xavier, while the plantation and marketing managers are listed as having considerable experience in forestry and estate management.

On the downside, there is always the possibility that the tax exemptions for woodland investments could be withdrawn or reduced and profits could be affected by risks associated with climate, disease, fire, theft and even currency exchange fluctuations. The company has set out in its prospectus the way it intends to control these risks.

Not all tree planting ventures have ended happily - some have gone under, others have left farmers/investors financially worse off - and anyone considering this kind of direct investment should consult an independent adviser.