Foresight Sustain. - 31st March 2023 NAV and Company Update

Foresight Sustainable Forestry

11/05/2023 07:00

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RNS Number : 0175Z  Foresight Sustain. Forestry Co PLC  11 May 2023

11 May 2023

Foresight Sustainable Forestry Company Plc

 

31 March 2023 Net Asset Value and Company Update

 

Foresight Sustainable Forestry Company Plc ("The Company", "FSF"), an
investment company that invests in UK forestry and afforestation assets,
announces that as at 31 March 2023 its unaudited Net Asset Value ("NAV") was
£186.6 million (30 September 2022: £180.6 million), resulting in a NAV per
Ordinary Share of 108.5 pence, up 3.5 pence from 105.0 pence at 30 September
2022.

 

H1 2023 Performance Highlights

 

-       NAV has increased to £186.6 million (30 September 2022: £180.6
million).

-       NAV per Ordinary Share has increased to 108.5 pence, a NAV per
share return of 3.3% since 30 September 2022.

-       The Company has delivered a total NAV per Ordinary Share return
of 10.6% since IPO.

-       The key drivers of the uplift are the upwards revaluation of
FSF's properties (+5.1p) and carbon credit recognition (+1.1p), driven by
mark-to-market valuation gains on recently acquired properties and the
completion of planting c.955,000 trees at four afforestation properties.

-       FSF acquired 15 properties in the period, leading to a total
portfolio of 65 individual properties at 31 March 2023.

-       Of the total portfolio, 53% are established forestry properties,
43% are afforestation properties and 4% are mixed properties (by value).

 -       The majority of the current timber harvesting programme remains
 on hold with the Company opting instead for biological growth of its timber
 stock whilst closely monitoring the timber market.

 

Summary of NAV key drivers from 30 September 2022 to 31 March 2023:

 

 Item                                       p/share movement
 NAV at 30 September 2022                   105.0
 Tax and transaction costs on acquisitions  (0.9)
 Operational expenditure                    (1.0)
 Afforestation & restock costs              (0.8)
 Portfolio revaluation gains                5.1
 Voluntary carbon credit valuation gains    1.1
 NAV at 30 September 2022                   108.5

 

Portfolio valuation update

 

Within the portfolio, from 30 September 2022, the property revaluation
delivered an aggregate gross gain of £7.1 million, representing a weighted
average (across the three investment categories) valuation uplift of 4.0%.

 

·      Afforestation properties delivered gross gains of £5.0 million,
representing a 7.4% increase in that category, driven by mark-to-market gains
and recognition of the successful completion of planting at four properties
(details of which can be found below).

 

·      Standing forestry properties delivered gross gains of £1.6
million, representing a 2.1% increase in that category, largely driven by
mark-to-market uplifts on recently acquired properties. Valuations for
established forest properties have remained comparatively stable during a
period of relatively subdued timber prices.

 

·      Mixed afforestation and forestry properties delivered gross gains
of £0.5 million, representing a 2.0% increase in that category. Valuations
have remained stable, reflecting the market for forestry properties and the
fact that the afforestation projects included within these mixed properties
are yet to complete planting.

 

Valuations were conducted by an independent third-party on a
property-by-property basis in accordance with the Royal Institute of Chartered
Surveyors (RICS) Red Book Fair Value methodology. Despite the widening
economic issues over the last six months, the investment market for forestry
assets has remained robust with the independent valuer confirming that there
were enough comparable transactions during the period to provide sufficient
evidence for the portfolio's valuation.

 

The breakdown of the portfolio as at 31 March 2023, including the progress
overview of how the portfolio's afforestation campaign is progressing, is
shown in Appendix A.

 

Operational Update

 

By the end of March 2023, FSF successfully completed planting at Auchensoul,
Redding Farm, Upper Bar and Frongoch, with c.955,000 trees planted as expected
with no material deviations.

 

Completion of planting on those properties represents a significant milestone
in the Company's development and is the main driver of the capital
appreciation delivered during the period.

 

In aggregate, the four newly planted properties are forecast to produce an
estimated 190,500 tonnes of sustainable timber for each c.35-40-year rotation
while also sequestering 126,000 tonnes of additional CO2. All of the
properties are undergoing an independent validation process to confirm the
number of voluntary carbon units that are accredited to each.

 

During the period to 31 March 2023, FSF sold 6,384 tonnes of timber. The
Company's strategy is to harvest when it is NAV accretive to do so. In H1
2023, the Company elected to leave c.117,0000 tonnes of mature timber
'on-the-stump' and continuing to add biomass, given slightly softer timber
prices. FSF will continue to monitor timber pricing and bring more substantial
volumes to market when trading conditions are more favourable.

 

Value ascribed to progress towards creation of carbon credits

 

Since the completion of planting at four afforestation schemes in the period,
FSF has recognised an additional £1.9 million of value ascribed to the
creation of carbon credits. This estimate takes into consideration the
verifier's 20% buffer to ensure that the number of units offset or traded is
conservative versus the amount of carbon that will be sequestered. The four
properties are estimated to create c.107,500 voluntary carbon credits (net of
the 20% buffer) and are part of a wider afforestation programme that is
expected to see the creation of c.1,000,000 voluntary carbon credits in total
from the current portfolio.

 

The Company now has a total of £2.5 million of value ascribed to carbon
credits. The methodology, unit pricing and treatment of the additional value
added at 31 March 2023 has remained consistent with the audited financial
statements as at 30 September 2022.

 

Pipeline and deployment update

 

The Company has continued to identify opportunities using its proprietary
direct origination campaign where assets may meet its afforestation criteria,
with the total area under review exceeding 860,000 hectares. As at 31 March
2023, the Company had £1.6 million of cash available and a £30.0 million of
additional available liquidity in its RCF facility.

 

FSF's pipeline is listed below and the Company continues to actively track and
transact deals.

 

 Stage of investment      Deployment (£m)    Hectares
 Transacting pipeline     2.5                251
 Near-term pipeline       15.2               1,112
 Further pipeline         59.7               5,717
 Total                    77.4               7,080

 

Definitions

 

Transacting Pipeline - Deals in full transaction stages (e.g. legal documents
in progress).

Near-term Pipeline - Opportunities with high likelihood of conversion (e.g.
detailed discussions and/or held under option).

Further pipeline - Early stage potential opportunities which the Investment
Manager is tracking, screening or in preliminary discussions on.

 

Richard Davidson, Chair of Foresight Sustainable Forestry Company Plc,
commented:

 

"We are pleased to announce yet another NAV uplift as the Company starts to
build momentum in its sustainable investment mission. Successful afforestation
development remains the engine room of FSF's returns. The completion of our
plantation projects at Auchensoul, Redding Farm, Upper Barr, and Frongoch
marks a significant milestone for us. FSF has now more than doubled the value
of the six completed afforestation schemes in the portfolio since original
acquisition. It has also enabled FSF to generate a material volume of
high-integrity, voluntary carbon credits. We believe that with the increasing
demand for voluntary carbon credits and 31 further afforestation schemes in
development, there is tremendous potential for the Company, leaving it
well-positioned to deliver further returns for our shareholders."

 

For further information, please contact:

 

 Foresight Sustainable Forestry Company Plc  +44 20 3667 8100

 Robert Guest

 Richard Kelly

 fsfc@foresightgroup.eu

 Jefferies International Limited             +44 20 7029 8000

 Tom Yeadon

 Will Soutar

 Harry Randall

 SEC Newgate

 Elisabeth Cowell

 fsf@secnewgate.co.uk

About the Company

Foresight Sustainable Forestry Company Plc ("the Company") is an externally
managed investment company investing in a diversified portfolio of UK forestry
and afforestation assets. Targeting a net total return of more than CPI
(5-year average) +5%, the Company provides investors with the opportunity for
real returns and capital appreciation driven by the prevailing global
imbalance between supply and demand for timber; the inflation-protection
qualities of UK land freeholds; and biological tree growth of 3% to 4% not
correlated to financial markets. It also offers outstanding sustainability and
ESG attributes and access to carbon units related to carbon sequestration from
new afforestation planting. The Company targets value creation as the
afforestation projects successfully achieve development milestones in the
process of converting open ground into established commercial forest and
woodland areas. The Company is seeking to make a direct contribution in the
fight against climate change through forestry and afforestation carbon
sequestration initiatives and to preserve and proactively enhance natural
capital and biodiversity across its portfolio. It is managed by Foresight
Group LLP.  https://fsfc.foresightgroup.eu/ (https://fsfc.foresightgroup.eu/)

 

This announcement does not constitute, and may not be construed as, an offer
to sell or an invitation to purchase investments of any description, or the
provision of investment advice by any party. No information set out in this
announcement is intended to form the basis of any contract of sale, investment
decision or any decision to purchase securities in the Company.

 

This announcement may include statements that are, or may be deemed to be,
"forward-looking statements". These forward-looking statements can be
identified by the use of forward-looking terminology, including the terms
"believes", "estimates", "anticipates", "expects", "intends", "may", "will",
"targeting" or "should" or, in each case, their negative or other variations
or comparable terminology. All statements other than statements of historical
facts included in this announcement, including, without limitation, those
regarding the Company's financial position, strategy, plans, proposed
acquisitions and objectives, are forward-looking statements.

 

Appendix

 

A.    Portfolio Breakdown

 

 Asset classification                          Hectares
 Development Stage Afforestation Assets ¹      3,430
 Planting Stage Afforestation Assets ¹         -
 Establishment Stage Afforestation Assets ¹    690
 Established Forest Assets ¹                   5,772
 Other Land ²                                  1,851
 Total                                         11,743

 

Definitions

 

Development Stage Afforestation Assets - Land prior to the securing of
planning permission and grant application.

Planting Stage Afforestation Assets - Planning permission and grant
application completed but initial planting of trees not yet completed.

Establishment Stage Afforestation Assets- Initial planting of site completed
but trees establishing and stabilising (typically a 3-5 year period).

Established Forests Assets - Trees stabilised and established.

 

¹ Hectares within woodland creation scheme boundary or managed forest area
boundary.

² Hectares not within woodland creation scheme boundary or managed forest
boundary. This Other Land is held as part of the core Forestry    Assets
allocation and can accompany both Afforestation and Established Forest Assets.

 

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