I will start by wishing everyone a happy and prosperous 2019.

I had intended to release this note on 2nd January along with the following picture, knowing that it would engender great feelings of festive joy amongst all. 

Can you tell what it is?

 

Unfortunately I was struck down with a virus and so that didn’t happen. I have pretty much lost my 2 month target weight reduction goal though, so there’s been a personal upside.

To anyone struggling to recognise the picture – it’s agarwood chips fermenting and this was taken 2nd January at our new facility in Trat. The facility is extremely modest and very old to the point where I’m tempted to look for a more suitable noun than “facility” but this is in keeping with the approach now in play and which will be how this is done until it’s done.

Since all previous posts remain online there is no need for a detailed recap and – let’s be frank – there’s been several general, identifiable themes underpinning the overall narrative: lack of funds, misrepresentations or unreliability of counterparties, unsaleablilty of produce to name but three. If anyone reading hasn’t tired of hearing it then I can tell you that I’m weary to re-relating it.

 

 

So where has the road travelled delivered us to?

The acceptance that agarwood production still very much remains a cottage industry, that margins and demand do not lend themselves to scaleability, that poached product in the market commanding high prices still feeds a myth in the market as to the value of plantation produced agarwood and that we’ve all been sold a pup. There have been a number of failures in the industry over the last 6 to 9 months and a few that a teetering on the edge.

Ironically, we might be ahead of the game in some respects and there may even be some interesting vulture opportunities in this space over the next few years. Such whimsical thinking clearly has no place here so let’s move on to where we’re at.

The Funds formally closed a tad more brusquely than was ideal but that formalised the position in which we’ve always been: basically with an informal winding up of assets for a final distribution amongst shareholders. It is not much more than a point of honour now but the position remains as it did on the fateful day Touchwood Group folded with such dire consequences: the fundamental assets are there (trees) so doing something is better than doing nothing.

I am not convinced I still hold that view but this remains an exercise in serving honour and the hurdle has been for some time, how to round that out.

Einstein is widely credited as having defined insanity as continuing to repeat the same process expecting the outcome to alter. Accordingly, if I presented the fruits of recent labour as a new “White Knight” we’ve identified who will off take our produce and problems and all we have to do is let them have stock for free… Well, you’ll get the point.

Action / plans must match the reality and we absolutely must learn from experience. If there was one single thing missing from previous attempts it was this: control. Naturally this was very much down to funding issue, as beggars cannot be choosers after all, but it;s fair to note that we’ve not been served well by such an approach.

As I stated in the previous recent updates I have spent some time 100% focussed several projects away from agarwood in an effort to rebuild a financial base upon which I could found the long promised final push in respect of this project. Rather sadly, the mainstay project was cut short prematurely due to the inability of the company which had engaged me to pay for services rendered. Nonetheless that and other initiatives did bring much needed stability to finances.

 

Not Gone Anywhere

Over recent months pretty much everything I referred to in the prior update has been done. We’ve re-engaged lawyers, we’ve visited the Touchwood Forestry Company plantations, a representative of the Guernsey Fund has been out to Thailand and is able to corroborate things independently if needs be such as location of warehouse and facility and continuing existence assets. Most significantly for readers here is that we’ve recommenced chipping at the warehouse and we’ve taken on a new facility for oil production. On 2nd January, we started fermentation and as the notification of this missive reaches your inboxes we should be commencing the first round of cooking.

In short – we have genuinely, rather than purportedly, progressed… Finally.

 

I always said that there was no point in processing even if we had the money if all we would then do is store the oil. As previously related, when first researching this a decade ago there were some telling us that agarwood oil, like fine wine, matured if stored properly. It’s funny, isn’t it, how we are then later told having stored oil to try and mature it that it needs to be sold fresh!

That sort of double handedness remains a core disruptive issue with the local and ieven international agarwood market. 

 

Accordingly, we’ve withdrawn to our core circle of contacts and we are going at this as a cottage industry. As an aside, I checked the oil in storage in December too and I can promise you it smells identical and as strong to my (albeit untrained) nose, as it did when it was bottled.

The ideal in any production scenario is to sell what you produce pretty much as you produce it. That’s the aim here. We’re starting small working with people we know and with relative certainty of price parameters based on existing lines of supply. Target pricing to clients in Thailand and possibly beyond is $6 to $7k. 

 

We aim to get to a production level of 1Kg per month quickly as we believe we can sell this level of production. If we ever got sales beyond 2 Kg per month I would be quite surprised and those in the local market claiming to sell 5kg and upwards can somehow never seem to substantiate such claims so we’ll stick to what WE know and quite frankly, what anyone else in this space says now is just “white noise” to us. To get superior volume and price we would need to crack the Middle East. We have an Arabic speaker in-house now and we’ll do what we can. Again – we’ll do it… We will not rely on others.

We will then work to expand distribution capacity and production capacity hand in hand whilst we continue to work on yield / quality enhancing ideas (again this time totally under our control, observation and assessment).

I’ve said this previously – but it’s never been under in-house control.

The rest is then time. The quicker we expand production and distribution the quicker we can wrap this up. A year ago (if not more) I was suggesting a two year plan to just roll it out and wrap it up. Another year has passed but the clock starts at 2/2/2019. At the end of 2021 we can look at where we’re at and what we’ve got left to sell (as production will be complete by then) and a decision can be made whether to continue with existing channels as shall be at that time to the natural final end or to whether to fire-sell off, and declare the final distribution and walk away at that point.

I will say this: there will not be a further reimagining of how this can be completed. This is what we’ve set in motion and are in the process of investing into and if it doesn’t work out then it just ends. 

 

There are no guarantees here and the whole thing is fragile. For example, if I were to use some or all of the team that might kill it all. However, with everything we’ve learned and experienced this is a route to market that we know exists and we know its capacity and we have it locked in as best we can through longstanding relationships. If we can explode the market, then great. But if this has to run at a slow cook, slow trickle pace – and I have come to believe that it does – then that is the way of the cottage industry; but be assured that the decision to make the investment and to trigger recommencement of processing has not been made lightly or with a view to futility.

 

I would like to thank you all for your incredible patience and understanding, especially during my frustrating bouts of non-reporting. Going forwards – although it will be a few months before it can start for obvious reasons, I should be able to give a monthly update on production and / or sales and any little breakthroughs we may or may not be getting.

 

Mike.

Aequus Jan 2019