Foresight Sustain. - FULL YEAR RESULTS TO 30 SEPTEMBER 2022
14/12/2022 18:17
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RNS Number : 7586J Foresight Sustain. Forestry Co PLC 14 December 2022
14 December 2022
Foresight Sustainable Forestry Company Plc
Full Year Results from incorporation to 30 September 2022
Foresight Sustainable Forestry Company Plc ("FSF" or "the Company"), an
investment company that invests in UK forestry and afforestation assets, is
pleased to announce the publication of its inaugural audited Full Year Results
(the "Annual Results") for the period from FSF's incorporation on 31 August
2021 to 30 September 2022.
Performance highlights
· NAV per Share over the period increased to 105.0 pence, a total NAV return of
5.0%, driven primarily by the upwards revaluation of FSF's afforestation
sites, as a result of rising land prices, granting of planting permission, and
completion of planting.
· As at 30 September 2022, the Company portfolio consisted of 27 afforestation
properties, 22 forestry properties and one mixed allocation property.
· Since incorporation, FSF has raised £175 million of gross proceeds and
increased the Company's Net Asset Value to £180.6 million.
· The Company's acquired portfolio comprised 9,618 hectares of land, of which
41% (by value) are afforestation properties.
· The planting of approximately 514,000 trees was completed during the period.
· 26,000 tonnes of timber were harvested during the period
· The Company's Forestry Skills Training Programme was launched in Wales, with
four local candidates selected to undertake the programme
· On 5 December 2022, the Company announced that it had become the first company
to officially receive the London Stock Exchange's Voluntary Carbon Market
("VCM") designation
Key metrics
As at 30 September 2022
Net Asset Value ("NAV") £180.6 million
NAV per Share 105.0 pence
Total NAV return 5.0%
Profit/(loss) for the period £8.8 million
Results presentation
The Company will host a virtual SparkLive presentation at 9:00 a.m. (UK time)
on Mondday, 19 December 2022. To register your interest in attending the
presentation, please register at:
https://www.lsegissuerservices.com/spark/FORESIGHTSUSTAINABLEFORESTRYCOMPANY/events/b6793ad3-27a1-498e-9859-4e2282c53d6b
(https://www.lsegissuerservices.com/spark/FORESIGHTSUSTAINABLEFORESTRYCOMPANY/events/b6793ad3-27a1-498e-9859-4e2282c53d6b)
Commenting on the Company's results, Richard Davidson, Chair of Foresight
Sustainable Forestry Company Plc, said:
"Foresight Sustainable Forestry has had a very successful first 15 months and
these are a strong set of inaugural annual results. We have successfully
delivered on our IPO objectives, are steadily growing the afforestation part
of our portfolio, and have a large and exciting pipeline of further UK
afforestation opportunities. We have now planted well over half a million
trees, and we were proud to report the completion of the first Foresight
Sustainable Forestry Skills Training Programme, an initiative we intend to
repeat annually.
"More recently, becoming the first ever company to be awarded the LSE's
Voluntary Carbon Market designation is a potentially game-changing development
for FSF, connecting us with many investors and companies focused on mitigating
their impact on the climate by looking to invest in projects creating high
integrity voluntary carbon credits. Foresight Sustainable Forestry is looking
forward to 2023 with considerable confidence."
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
Neil Winward
Will Soutar
Harry Randall
Citigate Dewe Rogerson +44 7768 981763
Toby Moore (toby.moore@citigatedewerogerson.com)
Michael Mpofu (michael.mpofu@citigatedewerogerson.com)
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%,
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.
About Us
Foresight Sustainable Forestry Company Plc ("FSF",the "Fund" or the "Company")
is the first and only UK listed investment trust focused on UK forestry,
afforestation and natural capital.
The Company raised £130 million at IPO on 24 November 2021. Following a
further £45 million equity raise in June 2022 the Company has now raised a
total of £175 million(1).
The Company has 172,056,075 Ordinary Shares in issue, all of which are listed
on the Premium Segment of the Official List and traded on the London Stock
Exchange ("LSE") Main Market. FSF is managed by Foresight Group LLP
(the "Investment Manager" or "Foresight").
[The first fund to be accredited with the Voluntary Carbon Market designation]
1. Before costs of IPO and June 2022 equity raise of £2.4 million and £0.8
million respectively.
OUR PURPOSE
Investing into the commercial aspects of UK forestry with the added benefits
of access to voluntary carbon credits, fighting climate change and preventing
biodiversity loss.
INVESTMENT OBJECTIVES
· Real returns and capital appreciation
· Value creation through afforestation
· Sustainable timber supply
· Combat climate change and biodiversity loss
· Access to voluntary carbon credits
Highlights
AS AT 30 SEPTEMBER 2022
Key Performance Indicators ("KPIs")
£180.6m
NET ASSET VALUE ("NAV")
5.0%
TOTAL NAV RETURN SINCE IPO
105.0p
NAV PER SHARE
9,618 hectares
IN THE PORTFOLIO
c.26,000 tonnes
TIMBER IN 2022 HARVESTING PROGRAMME
3,917 hectares
TOTAL LAND IN AFFORESTATION DEVELOPMENT
c.514,000
TREES PLANTED IN 2022
£0.6m
VALUE ASCRIBED TO PROGRESS TOWARDS CREATION OF CARBON CREDITS
Investment case
The Company is targeting sustainable impact through investment in sustainably
managed commercial forestry and afforestation assets.
The Company creates natural capital alpha through its proprietary sustainable
forestry management practices. The impact combines sustainable financial
returns with natural capital services output, including carbon sequestration,
biodiversity enhancements and local socio-ecological benefits. This is the
focus of the Company, supported by its business model (read more below). With
this approach, the Company is making a direct contribution to mitigating
climate change and UK biodiversity loss, which are at the core of the
Company's values.
Fight against climate change and biodiversity loss
The Company will make a direct contribution to the twin fights of climate
change and biodiversity loss
· 27 afforestation schemes covering 3,917 hectares
· c.514,000 trees planted
Strong pipeline
Identification of and access to a proprietary pipeline of directly originated
on and off-market forestry opportunities
· c.860,000 hectares
· 4,500 specific properties
Portfolio diversification
UK forestry has negative correlations to traditional and alternative assets
(including UK power prices) underpinned by biological tree growth which occurs
regardless of economic cycle
First UK-listed Investment Trust focused on natural capital
· 9,618 hectares managed
Attractive asset class
UK commercial forestry has historically outperformed the Consumer Price Index
("CPI") on a long-term basis. Until now, it has had high barriers to entry
· Outperformed and uncorrelated to equities and bonds since inception
· 17.5% FSF share price out performance of FTSE All Share since IPO
Inflation protection
UK commercial forestry has strong inflation-beating characteristics for both
expected and unexpected inflation
· Target return delivered once substantially invested
· CPI+5%
Statistics as at 30 September 2022
GEOGRAPHIC FOOTPRINT
A diversified portfolio of UK forestry and afforestation assets
27 Mountmill Burn
Located in the Scottish Borders, the 119-hectare property is an afforestation
asset. In July 2022, the planting of approximately 260,000 trees was
completed.
40 Chatto Craigs
Located near Galashiels in the Scottish Borders, the 98-hectare property is an
afforestation asset. Acquired in July 2022, the property contains a mix of
existing forest and woodland and land well suited for the establishment of a
productive woodland creation scheme. The property is well located in relation
to sawmills and timber processors and expands the Company's growing Scottish
Borders portfolio.
41 Pilanton Wood
Located in Dumfries & Galloway, Scotland, the 79-hectare property is an
afforestation asset. Acquired in July 2022, the property has a small
proportion of existing forestry, including native broadleaves, and a high
proportion of the land area is expected to be suitable for inclusion in a
woodland creation scheme. The acquisition extends the Company's presence in
the region.
53 properties(1)
1 Aberarder Forestry
2 Whiteburn Forestry
3 Shorthope Forestry
4 Coull Forestry
5 W&C Forestry
Central Scotland Portfolio
6 East Browncastle Forestry
7 Berrieswalls Forestry
8 Barkip Forestry
9 Over Auchentiber Forestry
10 Crofthead Forestry
11 Camps Woodlands Forestry
12 Derry Lodge Forestry
13 South Dairy Forestry
14 Bronnant Forestry
15 Waun Maenllyd Forestry
Donside Forestry Collection
16 Bogforlea Forestry
17 Harthills Forestry
18 Kirkwood Forestry
19 Tom Na Wan Forestry
20 Craigwell Wood Forestry
21 Auchensoul Afforestation
22 Frongoch Afforestation
23 Brynglas Afforestation
24 Esgair Hir Afforestation
25 Banc Farm Afforestation
26 Upper Barr Afforestation
27 Mountmill Burn Afforestation
28 Nor Hill Afforestation
29 Pistyll South Afforestation
30 Maescastell Afforestation
31 Cwmban Fawr Farm Afforestation
32 Fordie Estate Mixed
33 Drumelzie Forestry
34 Lambs Craig Afforestation
35 Glass Rigg Forestry
36 Rory Hill Afforestation
37 Red Craig & Glen Burn Afforestation
38 Burn of Bellyhack Afforestation
39 Dove Hill Afforestation
40 Chatto Craigs Afforestation
41 Pilanton Wood Afforestation
42 Coed Doethie Afforestation
43 Droveroad Wood Afforestation
44 Ness Bogie Afforestation
45 Reams Hill Afforestation
46 Brown Hill Afforestation
47 Knock Fell Afforestation
48 Windylaws Afforestation
49 Liddel Water Afforestation
50 Cheterknowes Wood Afforestation
Acquisitions post-period end
51 Bogbain Wood(2) Forestry
52 Glendyne Wood(3) Afforestation
53 Burnside(4) Afforestation
1. Including three properties acquired post-period end.
2. On 12 October 2022, the acquisition of a stocked UK forestry project, Bogbain
Wood, was completed.
3. On 17 October 2022, the acquisition of an afforestation project, Glendyne
Wood, was completed.
4. On 31 October 2022, the acquisition of an afforestation project, Burnside, was
completed.
Chair's statement
As Shareholders have recognised, FSF offers a unique proposition amongst UK
listed vehicles.
Richard Davidson
Chair
On behalf of the Board, I am pleased to present the first Annual Report of
Foresight Sustainable Forestry Company Plc for the period to 30 September
2022, a period which covers our IPO, follow-on fundraising and multiple
forest and land acquisitions.
As Shareholders have recognised, FSF offers a unique proposition amongst UK
listed vehicles - an investment into the commercial aspects of UK forestry
with the added benefits of fighting climate change and biodiversity loss
through new forestry planting. This combination of attributes has helped our
share price move to and retain a premium to NAV despite the challenging stock
market conditions of 2022.
The first period of trading has been busy on many fronts. Here are
the highlights:
Capital raising
Following the £130 million equity raise which culminated in the Company's
successful IPO on 24 November 2021, a subsequent issue raised £45 million at
a price of 107.0 pence per Share on 24 June 2022(1). In market conditions
which have been and remain challenging for the whole sector, the Board and I
are delighted with our fundraising achieved to date and have ambitions to
raise more equity when market conditions allow and existing capital is
substantially deployed. After an initial dip to below 90 pence in post-IPO
trading, our share price followed a steady upwards trend to May 2022 and at
its peak reached 116 pence. Pleasingly, despite discounts widening across the
investment trust sector, FSF shares traded at a premium to NAV from 14 April
2022 to period-end.
In August 2022, the Company finalised the arrangement of a Revolving Credit
Facility ("RCF"). At the time of writing, no funds have been drawn under the
RCF and therefore FSF currently has no direct exposure to rising interest
rates. Whilst the RCF provides FSF with access to flexible capital to grow
the portfolio, a prudent and opportunistic approach will be taken to
its use.
1. Before costs of IPO and June 2022 equity raise of £2.44 million and £0.76
million respectively.
Acquisitions
FSF soon established itself in the UK forestry market through acquisitions
from the seed asset portfolio. The two seed asset transactions occurred
through the purchase of Blackmead Forestry Limited ("BFL") and Blackmead
Forestry II Limited ("BFL II") from Foresight Inheritance Tax Fund.
Concluding in March 2022, the transactions added 36 properties to the
portfolio and utilised 87% of IPO proceeds.
The additional 14 properties acquired were mainly transacted through
the Investment Manager's successful direct origination campaign. This is an
off-market and proprietary process covering the sourcing and negotiation of
properties that meet our afforestation criteria. This approach has proved
highly valuable to the Company and we continue to seek afforestation
opportunities using this method.
At 30 September 2022, the total portfolio covered 9,618 hectares across 50
properties. The Investment Manager continues to source an attractive pipeline
of investments for the Company.
One of our IPO objectives was to invest between 40-50% of the portfolio by
value in afforestation (new forestry planting) properties. Afforestation
assets by value now stand at 40% of the portfolio, a 1,175 hectare increase
from 31 March 2022. In addition to the climate and biodiversity benefits of
new forestry planting, afforestation investments can also boost NAV as
woodland creation schemes reach key development milestones.
Forest operations
Having the correct tree species mix and forest designs is a core part of our
investment strategy. We believe it allows the Company to successfully deliver
a blend of cash flows. Throughout the period, approximately 514,000 trees have
been planted across two properties. An estimated 6.4 million trees are
currently planned to be planted over 2023 and 2024 at 28 properties;
which is expected to create additional value for Shareholders through land
appreciation and creation of voluntary carbon credits.
Due to their nature, commercial timber assets allow the owner to make an
informed decision about when to harvest. Timber is not a perishable asset that
has to be cut in any one season and can be left to grow in periods of price or
demand weakness.
Over the course of 2022, we have seen a softening of timber prices due to
additional supply caused by extreme weather events, such as Storm Arwen, and
sawmill destocking driven by economic caution. As a result, we have delayed
harvesting plans at a number of properties to ensure we maximise value by
bringing the Company's timber to market when prices are more favourable in the
future. Despite these partial delays, FSF harvested approximately 26,000
tonnes of sustainable timber in the period and, over the next five years, we
expect to have in the region of 213,000 tonnes of fully FSC and PEFC certified
timber available for harvest.
Key financials
In the period to 30 September 2022, the NAV per Ordinary Share increased to
105.0 pence (31 March 2022: 104.2 pence). Over the period since IPO,
our NAV total return has been 5.0%. The key driver of this gain was a 16.9%
upwards revaluation of our afforestation sites, driven by rising prices for
land suitable for afforestation development, securing of grants and planting
permissions, and the completion of planting. Valuations for established forest
properties have remained relatively muted during the period, reflecting
relative softness in the timber market. The second half of the period has seen
substantial investment into the afforestation assets as well as getting new
debt and equity capital in place, and the related costs of that. We are very
encouraged that the two afforestation properties that were planted during the
period achieved a 42% valuation increase (contributing strongly to the overall
uplift for afforestation assets) before any consideration of the value of
voluntary carbon units.
With up to 25 further assets in the afforestation development pipeline due to
reach the planted milestone in the next two financial years, we expect to see
the hard work and capital investment continue to deliver development returns
going forward. Recognition of the value of voluntary carbon credits in the
Company's NAV is also an exciting development.
Sustainability and Environmental, Social and Governance
In the sustainability and ESG section of this report you will find the
environmental and natural capital highlights that the Company has achieved. We
create natural capital alpha through our proprietary sustainable forestry
management practices. We balance UK timber production, carbon sequestration,
biodiversity and positive social impacts, amongst other considerations, for
each of our afforestation sites. As well as commercial trees, this will
include the planting of significant hectarage of native broadleaf trees and
reinstating wetlands and reducing grazing levels on large areas of open
ground, which increases positive carbon impacts and creates additional
biodiverse ecosystems.
Particular achievements during the reporting period include 28,873 tCO2e of
arboreal carbon sequestration achieved and material progress with the data
collection for establishing the ecology and biodiversity baseline of the
portfolio.
The launch of FSF's Forestry Skills Training Programme in Wales has been a
particularly notable development. All four candidates on the pilot scheme
graduated from the course and we look forward to the scale-up and roll-out of
the training programme as part of a UK-wide expansion plan to add valuable
skills in the rural communities where we operate.
Awards
Recently we were delighted to be awarded the Most Innovative Sustainable Fund
Launch at the Investment Week Sustainable Investment Awards. This was
followed by the award of Infrastructure Finance Initiative of the Year at the
National Sustainability Awards. These awards recognise the mix of our
commercial model with sustainability goals, which lies at the heart of our
investment approach.
Market outlook
Shareholders will know only too well the backdrop of the last year, featuring
rising interest rates, falling stock markets, global political instability,
an energy crisis and currency volatility. Despite these significant
headwinds, UK forest property prices have exhibited their historic low
correlation to other assets and have held up well. This resilience may not
always be the case, particularly if other assets were to continue to deflate
in the face of rising interest rates. However, we would highlight the
following potential factors that may serve to offset this risk:
· The UK imports 80% of its timber and therefore a weak GBP makes domestic
timber more competitive
· Sanctions on Russian and Belarussian timber will have an additional benefit
for UK growers
· Historically there has been limited debt involved in UK forestry purchases due
to its inheritance tax protected status and it not being a mainstream asset
class for banks, meaning less risk of a debt-driven unwind of holdings
· Sustainable timber remains a product in a long-term demand uptrend in the UK
and globally
· Government support for new forestry planting across the UK remains significant
in both policy and grant terms
· New planting trends are largely unaffected by market volatility
· The global decarbonisation agenda continues to accelerate; corporate net zero
pledges are becoming increasingly common practice with many looking to achieve
this feat between 2030 and 2050
FSF is well placed to benefit from a future increase in timber and voluntary
carbon credit prices and remains focused on a significant amount of new
forestry planting. We will continue to deploy our capital advantageously.
Voluntary Carbon Market designation
On 5 December 2022, the Company announced that it had become the first company
to officially receive the LSE's Voluntary Carbon Market ("VCM") designation. I
would like to take this opportunity to reflect on what is a material
post-period announcement, and that we believe is a milestone for capital
markets and the Company.
The VCM was launched by the LSE on 10 October 2022 and has been created to
facilitate financing at scale into projects that mitigate climate change. The
VCM designation will be applied to funds or operating companies that are
admitted to
the LSE's Main Market or AIM and which are intent on investing into climate
change mitigation projects that are expected to yield voluntary
carbon credits.
Annual General Meeting
We look forward to meeting Shareholders at the Company's Annual General
Meeting ("AGM") on 23 February 2023 at 1:00pm. Details of how Shareholders
may participate are set out in the Notice of Annual General Meeting published
in this report.
Summary
I would like to thank the Fund Managers, advisers, Shareholders and other
members of the Board for contributing to what has been a very busy and
successful period. We are proud of what we have achieved so far and very much
look forward to continuing the growth of the Company.
Richard Davidson
Chair
14 December 2022
Investment Manager's Report
Executive Review
We are proud to have delivered our business plan and financial performance
targets for the Company in the reported period.
Robert Guest
Managing Director, Foresight Group Co-Lead, Foresight Sustainable Forestry
Company
Richard Kelly
Managing Director, Foresight Group Co-Lead, Foresight Sustainable Forestry
Company
Executive summary
In its first period, FSF, the London Stock Exchange's first listed natural
capital investment company, delivered a particularly positive performance
during a year of such significant political and financial market volatility.
During the period, the Company demonstrated the success of its business
model. This was clearly shown by valuation uplifts, increase of NAV per share
and a total NAV return since IPO of 5.0%.
In aggregate, the Company's NAV increased by £50.6 million between IPO on 24
November 2021 and 30 September 2022.
This was predominantly due to FSF's successful £45 million equity raise in
June 2022 but also aided by a £11.5 million (up to 9.1%) valuation gain of
fixed assets in the period.
The NAV per share increase in the period to 30 September 2022 has been
impacted by transaction costs from the high volume of afforestation
acquisitions, the commencement of development activities on multiple
afforestation properties, and costs related to securing new equity and debt
capital. The benefits of investing in development projects and increasing the
Company's available capital base for deployment are becoming apparent in the
very strong valuation uplifts delivered by the first two afforestation assets
where planting has been completed.
Successful afforestation development and the securing of the related voluntary
carbon credits is a core part of the Company's business model and the value
recognition received on the first two afforestation properties validates this
strategy.
Overall, we are proud to have delivered on our business plan and financial
performance targets for the Company in our first year. Alongside this, the
measurable sustainability and ESG impacts of FSF are increasing whilst the
regulatory risk management frameworks and end markets for voluntary carbon
units, nature positive units and other methods for quantified provision of
natural capital services are rapidly emerging and taking shape.
We are excited to keep progressing our afforestation development programme
and project pipeline and to deliver continued "natural capital alpha" (the
combination of outperforming sustainable financial returns with sustainable
timber production, carbon sequestration, biodiversity and positive social
impacts, through sustainable forestry management practices) for our
Shareholders
in the Company's financial year.
Looking to the next year, we are particularly excited to continue to increase
the Company's exposure to afforestation via new acquisitions and to commence
and complete tree planting activities on the pipeline of afforestation schemes
within the existing portfolio that are currently in development.
Portfolio
Acquisitions
The pace of deployment has been strong throughout the period. Since inception,
FSF has deployed £133.3 million into a portfolio of 50 forestry and
afforestation properties across the UK. In the first six months since FSF's
IPO, the investment focus was on negotiating and completing the acquisition
of seed assets portfolio to ensure IPO proceeds were rapidly deployed to
minimise the impact of cash drag.
Looking forward to the next year, the Investment Manager will be looking to
further enhance FSF's exposure to afforestation assets and maintaining
investment discipline as we continue to search for high quality assets to add
to the portfolio.
Foresight sources deals and acquisition opportunities via selling agents,
on-market bids, bilateral deals and direct origination for both established
forestry and afforestation assets. Approximately 4,500 specific properties,
extending over c.860,000 hectares, have been identified as highly suitable
for afforestation and are specifically targeted with our direct origination
system. The Company has full priority rights over any acquisition
opportunities sourced from the direct origination system and other Foresight
forestry opportunities that are within the Company's mandate in accordance
with the Prospectus.
In the next year, we expect to increasingly deploy capital into attractive
forestry properties as we approach FSF's maximum 50% afforestation allocation.
Whilst forestry properties generally offer lower returns than afforestation,
they play an important cash generation role within the Fund. Given how
resilient FSF's share price has been during recent market volatility, we
expect to come back to equity markets, conditions and pipeline allowing, in
2023 to expand FSF's capital base.
Portfolio by area
Scotland - 82%
England - 6%
Wales - 12%
Afforestation - 45%
Established forestry - 55%
Portfolio by value
Scotland - 82%
England - 7%
Wales - 11%
Afforestation - 40%
Established forestry - 56%
Non-forestry assets - 4%
In the build-up to that we will remain focused on securing an attractive and
well-developed pipeline that the proceeds can be deployed into.
Portfolio
The primary acquisition strategy in the latter part of the period was to
increase FSF's allocation to afforestation opportunities. In our IPO
objectives, we stated that afforestation properties would make up (by value)
between 40-50% of the portfolio. We were delighted to report in August 2022
that FSF had achieved this objective.
As at 30 September 2022, the Company's portfolio comprised 50 assets
covering a total area of 9,618 hectares. An overview of the portfolio is
provided above and the split of hectares by country and by
afforestation/forestry is illustrated below.
The portfolio's allocation continues to be weighted towards Scotland (82% of
FSF's portfolio by land area), which is the most forested of the UK countries
and the closest to achieving its annual tree planting targets. Deployment into
Scottish properties is also aided by the larger property parcel sizes.
We expect deployment in 2023 to be weighted towards Scottish properties.
Wales (12% of FSF's portfolio by land area) is the second largest country
allocation within FSF's portfolio and government targets for afforestation in
Wales are significant.
However, properties and parcel sizes tend to be smaller than in Scotland,
particularly for afforestation properties, which limits opportunities to
deploy at scale. We are also seeking opportunities in Northern England to
slightly increase the allocation, but we note that this is a relatively more
challenging regulatory environment with England yet to fulfil its annual
planting targets. We expect 2023 deployment into England to remain a
relatively low proportion of total deployment, versus both Scotland and Wales.
Following the release of the Interim Report, the Investment Manager has
carried out a detailed review of allocation to non-forestry assets.
The information below now includes non-forestry assets as a reporting metric
in the portfolio allocation calculation, as is illustrated on below.
In future, the allocation to afforestation, forestry and non-forestry assets
will be reported, monitored and measured on this basis.
Portfolio valuation
As at 30 September 2022, the forestry portfolio held through SPVs as described
below, was valued at £144.8 million. Since IPO, the portfolio delivered a
valuation gain of £11.5 million in the period.
Afforestation properties delivered gains of £7.5 million. The largest
percentage valuation increases were from two planted
afforestation properties, Mountmill Burn and Banc Farm.
Using Mountmill Burn as an example of what occurs when development milestones
are reached, the property was originally valued at £1.4 million at
acquisition. At that time, Mountmill Burn was an afforestation scheme still in
development and unplanted. A year later, Mountmill Burn has been fully planted
and the saplings are establishing well. Mountmill Burn was valued in September
2022, as part of FSF's portfolio valuation, at £2.5 million, an increase of
approximately £1.1 million equivalent to a 74% increase on a year earlier.
In addition, Mountmill Burn has seen a further £340k of value ascribed to
progress towards creation of 19,466 carbon credits to the property's
valuation, taking total returns delivered on Mountmill Burn to £1.4 million,
an increase of 97%.
Both planted properties demonstrate the capital appreciation potential of
afforestation sites once development milestones are met. The Company has a
further 25 afforestation properties as part of a series of development
activities which is estimated to see the creation of approximately 800,000
voluntary 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 estimated carbon actually sequestered.
Afforestation properties remain the engine room of performance and the Company
is looking to increase the portfolio allocation to this asset type in the
coming year. Successful afforestation development and the securing of the
related voluntary carbon credits is a core part of the Company's business
model and the value recognition received on the first two afforestation
projects validates this strategy.
Standing forestry properties delivered gains of £1.2 million from
acquisition to 30 September 2022. Valuations for established forest
properties have remained relatively stable.
Mixed forestry and afforestation properties, a category dominated by the
Fordie Estate, delivered a 18.4% increase from acquisition to
30 September 2022, a £2.2 million uplift. The Fordie Estate development,
which includes an afforestation scheme of material scale, continues to
progress well.
Debt financing
As mentioned by the Chair, the Company completed the arrangement of a £30
million RCF and an uncommitted accordion facility of up to an additional
£30 million on favourable margins. The RCF gives FSF a committed source of
flexible funding outside equity raisings.
Once drawn, the facility is expected to be paid down periodically using the
proceeds of subsequent equity issues.
This enables FSF to make new investments with certainty of funding and on a
timely basis, reducing cash drag associated with holding cash balances.
Pleasingly, the interest margin chargeable on the RCF is linked to the
Company's sustainability and ESG ("S & ESG") performance, with FSF
incurring a premium or discount to its margin based on its performance against
defined targets. These S & ESG targets are:
· A year-on-year increase in the total number of hectares of land acquired for
carbon sequestering activities (including afforestation, peatland restoration
and voluntary carbon credit acquisition)
· A year-on-year increase in the total number of people completing FSF's
Forestry Skills Training Programme
Performance against these targets will be measured annually, with the
interest cost of the RCF being amended accordingly in the following year. The
lender is Virgin Money and the interest margin can vary between 200 bps and
220 bps over SONIA (Sterling Overnight Index Average), depending on
performance against the Company's S & ESG targets.
Since arranging the facility, no drawdowns of the RCF have been made and the
potential utilisation of the facility will be carefully considered by the
Investment Manager in the context of rising interest rates and market
conditions. However, having the RCF available gives the Company significant
manoeuvrability for strategic purchases and enhances growth prospects for the
future. Looking forward, we hope to deploy the proceeds of the RCF
opportunistically into favourably priced properties.
Operations
Established forestry
Of the Company's established forestry, 3,495 hectares is stocked and 48% is
dedicated to native broadleaves, rare and endangered trees and open ground.
Planting
Excitingly, during FSF's first year, planting completion was reached on two
afforestation projects (Banc Farm and Mountmill Burn), which has seen
approximately 514,000 trees planted and establishing well.
The Company has also been developing its other 26 properties where
afforestation activity is possible. Sixteen sites have formally completed
planting designs and are now busy gaining permits, grants and admission to the
Woodland Carbon Code ("WCC") register. The ten other afforestation properties
are expected to complete planting designs in the first half of FY23.
The total portfolio will see the development of 3,917 hectares and
6.4 million trees are expected to be planted throughout 2023 and 2024.
Current development plans see 52% of the total area dedicated to commercial
conifers, alongside 16% of land area with native broadleaves, rare and
endangered trees, alongside 32% dedicated to open ground.
Afforestation asset development progress
Twenty-seven afforestation properties and one mixed afforestation and forestry
property were being developed at the year-end date. The status of each
property at the year end was as follows:
Property name Forest design completed Permits and grants secured, admitted to WCC register Planting completed Final WCC validation completed Trees fully established
Banc Farm Completed Completed Completed - -
Mountmill Burn Completed Completed Completed - -
Upper Barr Completed - - - -
Auchensoul Completed - - - -
Cwmban Fawr Farm Completed - - - -
Frongoch Completed - - - -
Brynglas Completed - - - -
Esgair Hir Completed - - - -
Pistyll South Completed - - - -
Ellenber Farm Completed - - - -
Fordie Completed - - - -
Rory Hill Completed - - - -
Lamb Craigs Completed - - - -
Maescastell Completed - - - -
Red Craig & Glen Burn Completed - - - -
Burn of Bellyhack Completed - - - -
Dove Hill - - - - -
Chatto Craigs - - - - -
Pilanton Wood - - - - -
Coed Doethie - - - - -
Droveroad Wood - - - - -
Ness Bogie - - - - -
Reams Hill - - - - -
Brown Hill - - - - -
Knock Fell - - - - -
Windylaws - - - - -
Liddel Water - - - - -
Chesterknowes Wood - - - - -
Harvesting
The Investment Manager took the opportunity during the period to commence
harvesting at two forests at good pricing levels. Two other forests have
proceeded as planned this winter to clear up wind blow from Storm Arwen. In
total, this is expected to yield c.26,000 tonnes of timber harvesting. There
will also be a thinning operation carried out at two sites in order to comply
with Statutory Plant Health Notices ("SPHNs"); this is expected to yield a
further c.4,000 tonnes of timber. Both SPHNs that have been issued are in
relation to infected Larch. Larch trees are known to be more susceptible to
the Phythopthora Ramorum disease that is currently prevalent, and,
provided the SPHN felling is carried out, this poses no further risk to the
wider forests. The timber from the Larch trees harvested can still be sold in
the usual way to sawmills, so there is no loss in revenue associated with
the process.
However, timber pricing was generally weaker during the year. As a result of
an increase of timber supply following the end of COVID-19 restrictions and
related timber demand surge, and higher-than-normal timber supply inflows
following Storm Arwen in November 2021, planned harvesting at ten FSF
properties of harvestable age was postponed. In total, c.100,000 tonnes of
timber within the portfolio have reached maturity and is in a five-to-ten-year
optimum harvesting window.
The Company has set aside sufficient working capital and forecast future
capital expenditure to provide the Company with flexibility to adjust and
postpone the timing of commencing harvesting on these sites.
The Company also enjoys significant income from woodland creation grants,
which offset a large portion of the capital expenditure invested into planting
afforestation sites.
The Company is well capitalised and pursues a total return, rather than a
dividend yield strategy, providing it with the ability to be flexible with its
harvesting programme, when supply and/or demand variances indicate that it is
beneficial to do so. The timber will remain "on the stump" and continue to
enjoy biological growth until harvesting is deemed beneficial to the Company's
NAV. A harvesting programme for 2023 that ensures maximum value is captured
for any of the Company's mature timber is being reviewed. All relevant felling
permits have been secured and FSF is able to mobilise at short notice when
market conditions improve.
Health and safety ("H&S")
H&S is a priority for the Company. No near misses or RIDDORs (Reporting
of Injuries, Diseases and Dangerous Occurrences Regulations) have been
reported since the Company's establishment.
The Company continues to invest in enhancing its H&S reporting processes.
At the time of writing, Quadriga, an H&S specialist adviser, have been
re-engaged to carry out an H&S audit on a second forest manager,
following their review of the first manager in the first half of the
financial year.
Following the advice of the first Quadriga report carried out during the
period, the H&S reporting process has been expanded. There is a flow of
H&S information from the forest managers to the Company Directors on a
monthly basis. This allows any H&S incidents to be discussed and
appropriately responded to. This information then flows through to the Company
Board on a quarterly basis as part of the Board report.
One initiative implemented by FSF during period is introducing the requirement
for all operatives to carry a lone working device when working in the forest;
thus ensuring they are always able to contact someone in the event of an
emergency. Foresight Asset Management continue to look at ways to ensure FSF
remain ahead of the industry in relation to H&S and will continue to work
with E.J. Downs Forestry and the forest managers in order to do so. E.J.
Downs Forestry have significant experience in the forestry management space
and advise FSF on silvicultural decisions.
FSC and PEFC accreditation
The Company aims to achieve both the Forest Stewardship Council ("FSC") and
Programme for the Endorsement of Forest Certification ("PEFC") accreditation
for each property within 12 months of acquisition.
As at 30 September 2022, the Company had received dual accreditation for
30 properties.
OPERATIONAL CASE STUDY
Coull Woodlands
Aberdeenshire, Scotland
Coull Woodlands ("Coull") is a 370-hectare, dual FSC and PEFC certified
commercial forestry project in Aberdeenshire, Scotland. It is a highly
productive commercial forestry asset, with a diverse age profile due to the
harvesting that has been carried out on several coupes of the first rotation.
Coull was purchased by FSF as part of the initial seed asset transaction in
March 2022.
Since acquisition, E.J. Downs Forestry worked closely with the underlying
forest manager, RTS, and the Foresight Asset Management team to develop a plan
to remove weeds and replant these compartments, continuing to use Sitka Spruce
as the main restock crop. These reparative works have been carried out to a
high standard and a minimal beat up(1) was required of these new crops, once
again demonstrating the highly fertile nature of the woodland.
The Long-Term Forest Plan ("LTFP") outlines plans to continue restructuring
the forest, removing the mature crops and restocking these areas with Spruce.
The mature pine is well-thinned and of a generally good quality for Scots
Pine.
Near-term plans are for the removal of approximately 4,500 tonnes of timber in
a single harvesting coupe, crystallising some of the value of these
compartments. As has previously been done at Coull, these areas will be
restocked with Sitka Spruce as the main species alongside a mix of
Norway Spruce and Scots Pine to diversify the compartments.
In addition to the commercial areas of Coull, there is also 34.5 hectares of
mixed broadleaves and open ground. Under the LTFP, this ground will be
maintained in line with silvicultural best practice, maximising the value add
to the site from an ecological and amenity perspective in line with the
Investment Manager's sustainable investment strategy.
In general, Coull offers excellent commercial and community value providing
high-quality timber into the UK timber market in the immediate term and
re-stocking the harvested areas with high-yielding Spruce and Pine crops with
the goal of longer-term yields. Through these restructuring works FSF believes
that the financial, community and environmental value of Coull
will flourish.
1. The process of counting and replanting trees that have died shortly after
planting.
Investment overview
Property location Aberdeenshire, Scotland
Asset type Forestry
Project size 370 hectares
Acquisition date March 2022
Our Markets
Voluntary Carbon Market
The Investment Manager has been working in close collaboration with the London
Stock Exchange ("LSE") in relation to their new Voluntary Carbon Market
("VCM") designation. This allows market participants to easily identify listed
investment companies that are contributing positively to the establishment and
scale-up of voluntary carbon markets. FSF qualifies under all of the criteria
and is the first VCM designated company on the LSE. As part of this, FSF
intends to give investors the choice to receive cash dividends from the net
proceeds of the sale of voluntary carbon credits, or to elect to receive
in-specie voluntary carbon credit dividends. If credits are received in-specie
they can be directly utilised by the recipient for its own net zero offsetting
or onward carbon trading strategy. The designation enables investors to:
· Secure a supply of voluntary carbon credits for net zero commitments or
trading purposes
· Hedge against the risk of rapidly rising voluntary carbon credit prices
· Generate an attractive risk adjusted return from otherwise uninvested balance
sheet cash, with flexibility to adjust carbon credit yield requirements in a
daily traded manner
On the demand side, according to Trove Research, at the end of calendar
Q3 2022 a total of 3,729 companies globally had put Science Based Target
initiatives ("SBTi") in place, or had committed to one. Positively, this
represented a 142% increase from the commitment levels in Q3 2021.
On the supply side, over the same period, the number of new voluntary carbon
credits issued each quarter has fallen for four consecutive quarters,
declining at a rate of 16% CAGR since Q4 2021. It is unclear what has driven
this decline. In the same period, the retirement of units decreased by 14%
CAGR but regained 9% from Q2 to Q3 2022. The market surplus rose by 2% to a
new peak of 667 Mt in Q3 2022. Foresight expects to see a reducing surplus
lifetime trend in 2023 as supply increasingly tightens.
As part of the process for ascribing carbon unit value to the Banc Farm and
Mountmill Burn afforestation properties, the Investment Manager and the
Company's auditor have reviewed evidence of completed transactions for
purchases of UK voluntary carbon units, with the price of pending issuance
units ("PIUs") sold ranging between £14 and £35 per credit. Within the
calendar year, there is an upward pricing trajectory in prices paid. It is
worth noting that the value of individual carbon credits is influenced by the
location of the project (with those close to populated areas attracting a
premium price), the status of the carbon credit (with woodland carbon units
("WCUs") that are capable of retirement for offsetting purposes trading at a
significant premium over PIUs that have yet to mature to become WCUs) and the
project's specific co-benefits beyond just carbon sequestration (with projects
that have strong nature positive co-benefits, such as biodiversity, trading at
premiums). The outlook for voluntary carbon markets remains strong.
Foresight is encouraged by the level of new SBTi net zero pledges made by
companies in the period. Whilst voluntary carbon prices are down from their
January peak, the annual pricing trend remains positive. Foresight believes
that we are likely to see sustained price volatility, an increasingly tight
supply and increasing prices for nature-based voluntary carbon credits over
the coming years. This view is supported by research published by Boston
Consulting Group which forecasts that there will be an insufficient inventory
of voluntary carbon credits to meet forecast demand by 2028.
Immediately following the end of the reporting period (1 October 2022) the
WCC released a new financial additionality test methodology which affects a
number of FSF's assets. The principle of additionality looks to test that a
positive carbon sequestration/mitigation activity, development or intervention
would not have occurred in the absence of the incentive created by carbon
credit revenues. In other words, if the activity, development or intervention
would likely happen anyway with or without carbon credit revenues then a
project is not defined as an additional contributor to net zero goals.
Banc Farm and Mountmill Burn fall under the old regime and for new pipeline
assets the known adjustments are being incorporated into the prices offered.
However, 19 of FSF's afforestation assets are affected and Foresight is
currently evaluating the impact, which is most likely to manifest itself in a
reduction in grants taken and/or allocation to commercial forestry within
scheme designs in order to achieve financial additionality.
Foresight is also working closely with industry body Confor and other market
participants to provide constructive feedback to the WCC regarding various
aspects of the methodology. The consultation is ongoing, with the WCC already
having acknowledged some of the points made and adjusting the methodology
accordingly, which has a positive impact for the Company and the wider
afforestation market. Further updates will be provided once conclusions have
been reached and further analysis has been carried out by Foresight regarding
impacts.
Timber uses
Timber outputs are broken down into three categories depending on the top
diameter:
· Sawlog, with a top diameter of 18cm and above, is the primary timber product
and fetches the highest price. This timber can be used for construction and is
often used for fencing posts and other home improvements
· Small Roundwood, with a top diameter between 6-14cm, is sometimes referred to
as fencing wood. This is largely used in fencing panels and pallet
construction. It is processed at a separate mill to sawlog, that is
specifically designed to process the smaller pieces of timber
· Chipwood, with a minimum top diameter of 6cm, is essentially too small or not
straight enough to be processed in a saw or fencing mill. This product is
chipped, rather than sawn, and used in pulp mills to make paper products or
biomass plants, generating power and heat
UK timber market
After a period of unprecedented demand and high timber pricing due to COVID-19
during 2020 and 2021, the combination of Storm Arwen and the cost-of-living
crisis have left UK sawmills with excess stock during 2022 and UK sawlog and
medium-sized roundwood prices have fallen accordingly through the year.
Storm Arwen is estimated to have brought forward early supply of 1 million
cubic metres of wind-blown timber. However, in a country that imports c.80%
per annum, market practitioners are generally of the view that the impact will
likely have been fully absorbed by the market by early 2023.
Trees that were wind-blown before reaching prime age for harvesting will only
result in a tighter UK timber supply in future years.
Foresight understands that the high inventory levels held as a result of
COVID-19 by the sawmills are re-balancing as many UK forest owners, like FSF,
have chosen to leave value 'on the stump', by postponing harvesting and
looking forward to how 2023 order books shape up.
As the financial implications of the COVID-19 pandemic, the outbreak of war in
Ukraine and the recent political and financial actions taken by the Bank of
England and the UK Government take effect, most forecasters are anticipating a
slowing of growth in the UK economy and a period of shallow recession over the
next year.
It is likely that such an economic environment will result in decreased demand
for UK sustainable timber. The construction products industry currently
continues to forecast growth in overall demand during 2022 and 2023 in
anticipation that large warehouse and major infrastructure construction
projects will go ahead but with downgrades to the previous estimates, driven
by an expected slowdown in the private housing and repair, maintenance and
improvement ("RM&I") markets. The UK S&P Global Construction
Purchasing Managers Index ("PMI") has declined approximately 17% from just
prior to the Russian invasion of Ukraine (February 2022) to August 2022.
However, a weak GBP makes imported timber relatively less attractive versus
home-grown UK timber and the government may choose to boost its 'build back
better' efforts to offset recessionary pressures, which may partially offset
reduced demand elsewhere.
The Investment Manager remains of the view that the embedded UK timber supply
deficit and the qualities of timber as a sustainable material for construction
and other uses provides a significant opportunity if the harvesting strategy
for the Company's timber is pursued in the correct manner.
European and global timber market
Inflationary and economic pressures in Europe are not anticipated to increase
demand either, with the latest available construction confidence indicators
reporting decreases.
In China, new government rules limiting gearing levels for housing development
have caused serious debt servicing issues for major property developers and
unwanted knock-on effects further down the supply chain. Property makes up a
large part of the Chinese economy and the debt restructuring required is
dramatic. This has had a substantial negative effect on house prices and
construction in China, although the underlying demand for new housing still
prevails and it seems likely that the government will take action to stabilise
the situation and continue to incentivise infrastructure projects as part of
that.
On the supply side there are forces moving in the opposite direction, mainly
stemming from Russia's war in Ukraine, to create shortages of and competition
for material.
Russian, Belarusian and Ukrainian timber is all now considered as conflict
timber by the FSC and PEFC. With timber from those geographies representing a
significant amount of global and European timber demand, this creates an
intense supply shortage of certified timber globally.
It is understood that volumes of both certified and uncertified harvested
timber have increased elsewhere to make up for some of the shortfall. For
instance, Finland is expected to boost harvesting volumes by 3% for each of
the next two years, turning Finland's forests into a net carbon emitter.
Another example is Estonia, which has announced a relaxation of its logging
restrictions on state-owned land, accounting for roughly half of the country's
forests. As a result, harvesting is expected to increase. Further, satellite
imagery of Ukraine illustrates extensive forest fire damage caused by the
conflict, further reducing European supplies. This sort of drastic action
demonstrates the intensity of the current shortages.
War in Ukraine impacts on UK timber market
In the near term, it is forecast that imports of Russian timber to the UK will
have fallen to near zero. Wood pellets, plywood and sawn softwood imports
will be the most impacted. According to Forest Research, in 2017, imported
Russian wood pellets accounted for 4% of total UK imported wood pellets,
Russian plywood accounted for 8% of total UK imported plywood and Russian sawn
softwood accounted for 7% of total UK sawn softwood imports. We have now
started to observe the tightening supply of timber translate through to
imported timber prices, with the TDUK Structural Timber Imported Price Index
increasing by c.9% from immediately prior to the Russian invasion to
April 2022.
The European energy crisis is also having an impact. With Russia materially
reducing gas supplies and Europe keen to quickly become less reliant on
Russian energy, parts of Europe have warned of the risk of rolling blackouts
and energy rationing this winter. Europe is already the largest consumer of
wood pellets, used for bioenergy generation, globally.
Although there is not always uniform consensus regarding the detailed rules
and regulations relating to bioenergy generation, the current status in Europe
is that wood chips and wood pellets are considered a renewable energy
resource. With the combined effects of lower certified timber supply and very
high natural gas prices, the value of chipwood, small roundwood and medium
roundwood is already experiencing upward pricing pressures in the UK and
Foresight believes this is likely to be sustained for at least the rest of
2022 and the first half of 2023. Further, over the medium and longer term,
the accelerated harvesting of timber elsewhere is likely to reduce overall
supplies, and increase the relative value of standing timber.
Strong relationships with offtakers
Through the Investment Manager, the Board and its network of advisers, FSF
has existing relationships with the major timber and wood processors in the
UK. At two sites within the FSF portfolio during the period, harvesting
agreements have been put in place.
The Company sells timber in both standing (offtaker arranges all harvesting
and haulage) and delivered (FSF harvests and delivers to mill) formats. The
Company sells timber via both tender sales and bilateral sales processes,
depending on site-specifics and market conditions. The sales arrangements made
during the period are a demonstration of strong relationships between FSF and
its customers, who rely on it for supply of UK softwood timber.
Timber market conclusion
With the overall weaker UK and global economic outlook, Foresight's view is
that UK timber demand will reduce in the short term. However, with the
effects of Storm Arwen now largely absorbed by the market, mill inventories
re-balancing, weak GBP making imports less attractive in relative terms and
material supply-side issues as a result of the conflict in Ukraine, the
Investment Manager will continue to explore opportunities to achieve good
value for the Company's timber stock in 2023. Given the fundamental
structural supply shortages for timber in the UK and globally, Foresight
remains of the view that the medium and long-term prospects for UK forest
owners are strong.
Sustainability and ESG
The UK, and the world more broadly, are in the midst of both a climate and a
biodiversity crisis.
Meanwhile, the UK's high reliance on timber imports, with current import
levels constituting c.80% of total national demand, is a limiting factor in
its ability to adopt more sustainable building and manufacturing practices.
Through an integrated approach to sustainable forest management, FSF is
uniquely placed to meaningfully address all three areas of concern.
A focus on enhancing commercial productivity increases the
portfolio's capacity for direct sequestration of CO(2), while a purposeful
approach to nurturing both natural habitat and species diversity helps build
resilience against ever-changing and unpredictable environmental conditions.
Both are seen as key drivers of portfolio value as the notions of
self-reliance and nature recovery become ever-more prevalent.
The FSF unaudited Interim Report for 2022 clearly outlined the Fund's
sustainability and ESG objectives. These act as the guiding principles for
everything the Fund hopes to achieve in terms of its contribution to both
the national and international sustainability agenda.
Alongside regulated reporting requirements, these objectives provide the focus
for the sustainability and ESG data presented within this report.
A standalone Sustainability and ESG Report, due to be released in 2023,
will provide added detail and case studies of how these objectives are being
achieved.
Sustainability and ESG ("S & ESG") objectives
· To deliver and increase the supply of home-grown UK timber to reduce the
country's reliance on imports.
· To do so in a way that combines sustainable financial returns with carbon
sequestration, biodiversity gain and other positive environmental and social
impacts.
· To be a sustainability leader in the UK forestry industry whilst delivering
both traditional commercial timber products and innovative natural
capital services.
Sustainable Development Goals ("SDG") impact reporting
Demonstrating FSF's commitment to sustainability is the Company's ability to
report against the UN Sustainable Development Goals ("SDGs"). The SDGs, which
were adopted by all United Nations member states in 2015, comprise the most
urgent economic, social and environmental issues to be addressed for peace and
prosperity for people and the planet.
To be achieved by 2030, they recognise that ending poverty must go
hand-in-hand with strategies that build economic growth and address a range of
social needs including education, health, social protection and job
opportunities, while tackling climate change and environmental protection. The
following table represents the Company's contribution to the SDGs:
Timber
Goal SDG Target Contribution
12 Responsible consumption and production 12.2 Achieve the sustainable management and efficient use of natural Number of tonnes of sustainably grown, standing timber.
resources.
Percentage of commercial forestry projects that are dual FSC and PEFC
certified within 12 months of acquisition.
· 866,349 tonnes of standing commercial timber
· 100% existing forestry dual FSC and PEFC certified
Environmental impact
Goal SDG Target Contribution
3 Good health and well-being 3.9 Substantially reduce the number of deaths and illnesses from hazardous Number of tonnes of pollutants(1) removed from the atmosphere, including: NOx
chemicals and air, water and soil pollution and contamination. (Nitrous Oxide), SOx (Sulphur Dioxide), PM10 (μm10 Particulate Matter), PM2.5
(μm2.5 Particulate Matter), Ground-level Ozone, NH(3) (Ammonia)
Pollutant removals
· 293,770 kg of pollutants removed from the atmosphere
· 217,390 kg of Ground-level Ozone
· 35,253 kg of PM10 (µm10 Particulate Matter)
· 11,751 kg of NH(3) (Ammonia)
· 5,875 kg of SOx (Sulphur Dioxide)
· 17,626 kg of PM2.5 (µm2.5 Particulate Matter)
· 2,938 kg of NOx (Nitrous Oxide)
Goal SDG Target Contribution
6 Clean water and sanitation 6.6 Protect and restore water-related ecosystems, including mountains, Number of kilometres of sustainably managed watercourses
forests, wetlands, rivers, aquifers and lakes.
Sustainably managed watercourses
· 285(2) kilometres of sustainably managed watercourses
1. Office for National Statistics, Woodland natural capital accounts, UK 2020.
2. Includes all permanent water courses and larger drains whether wholly inside
the property boundaries or located on the property boundary with a shared
responsibility for watercourse management.
Goal SDG Target Contribution
13 Climate action 13.3 Strengthen resilience and adaptive capacity to climate-related hazards Total annual portfolio sequestration (tCO(2)e/annum)
and natural disasters in all countries.
Average annual sequestration per stocked ha (tCO(2)e/stocked ha)
Average annual sequestration per gross ha
Carbon removals(3)
· 28,873 tCO(2)e annual arboreal sequestration achieved over the reporting
period within the portfolio
· 8 tCO(2)e / stocked commercial ha average annual arboreal sequestration on a
per stocked ha basis (commercial + non-commercial)
· 3 tCO(2)e / ha average annual arboreal sequestration per gross hectare/ha
3. Based on estimates of terrestrial tree growth. Currently excludes
sub-subterranean (e.g. soil) and understory sequestration profile.
Natural capital services
Goal SDG Target Contribution
15 Life on land 15.2 By 2020, promote the implementation of sustainable management of all Number of hectares of sustainably managed forests
types of forests, halt deforestation, restore degraded forests and
substantially increase afforestation and reforestation globally.
Of which:
Number of hectares that are long-term, mixed broadleaf carbon sinks
Number of hectares that are SSSI/SAC(2,3).
Biodiversity
· 9,650 total hectarage of portfolio (inc. forests and open ground)
· 2,880 ha of which total hectarage of sustainably managed commercial forests
· 617 ha of which total hectarage of long-term, mixed broadleaf carbon sinks
· 6,152 ha of open ground
· 744 ha of which total hectarage of SSSI(2)/SAC(3)
8. Site of Special Scientific Interest.
9. Special Area of Conservation.
Biodiversity measurement and management
In accordance with the Prospectus, the Company seeks to preserve and
proactively enhance natural capital and biodiversity across its portfolio. As
with all biodiversity management initiatives, the first step in this process
is to baseline the types and levels of biodiversity across the Company's
various forestry and afforestation sites.
The Company has engaged SLR Consulting, a global leader in environmental
advisory services, to conduct this baselining work. The primary aim of the
study is to provide a consistent biodiversity baseline across the portfolio of
forestry and afforestation sites for the purposes of future monitoring and
assessment against biodiversity standards. This may also include a predicted
performance assessment, using habitat type, habitat condition and other
factors to generate an overall estimation on future biodiversity levels.
Work to complete the baselining surveys and predicted performance reviews are
ongoing. The results from these assessments and a more comprehensive update
will be shared in 2023.
Carbon credits
Carbon credits generated:
PIUs held on balance 47,997
PIUs sold -
PIUs pipeline 753,134
WCUs held on balance -
WCUs sold -
Total carbon credits held on balance 47,997
Total carbon credits sold -
TASK FORCE ON CLIMATE-RELATED FINANCIAL DISCLOSURES ("TCFD")
The Company recognises climate change as one of the defining challenges of our
time and is supportive of the framework established by the Task Force on
Climate-related Financial Disclosures ("TCFD"). TCFD creates a uniform
approach for organisations to report on how they expect climate-related risks
and opportunities to impact upon their business over time.
The Company has sought to ensure that the consideration of climate-related
matters is appropriately embedded throughout its governance, strategy and risk
management processes. The Company will provide a comprehensive response to all
11 of the recommended disclosures within the Sustainability and ESG Report in
2023, but recognises that its TCFD reporting will continue to develop and be
further enhanced in the future.
For the purposes of this Annual Report, the TCFD core metrics are presented as
a basis for comparison against other asset classes and peer funds.
TCFD core metrics
The Company's focus for quantitative reporting of exposure to climate-related
risk is achieved using the universally accepted core metrics, as recommended
by the TCFD, including:
· Weighted average carbon intensity
· Total carbon emissions
· Carbon footprint
· Carbon intensity
· Exposure to carbon-related assets
In line with current FCA guidance, the calculation of these metrics will be
performed using scope 1 and scope 2 emissions only, with scope 3 emissions to
be incorporated in future reports. The Investment Manager is currently working
with external consultants to better understand and prepare to report on scope
3 emissions.
In using these core metrics, the Company is not only able to compare
performance amongst its own assets but against those of its wider peer group,
further incentivising the decarbonisation of the Company's portfolio.
Data drawn from the calculation of the core metrics will be used as an aid to
driving decarbonisation across the portfolio and to highlight carbon hotspots
in specific business areas as a means of influencing decision-making across
the business.
TCFD core metrics
Weighted average carbon intensity (tCO(2)e/£m revenue) Total carbon emissions (tCO(2)e) Carbon footprint (tCO(2)e/£m invested) Carbon intensity (tCO(2)e/£m revenue) Exposure to carbon-related assets (%)
The portfolio's measure of carbon emissions normalised by revenues, expressed The absolute greenhouse gas emissions associated with the portfolio, expressed Total carbon emissions for a portfolio normalised by the market value of the Volume of carbon emissions per £m of revenue (carbon efficiency of a The amount or percentage of carbon-related assets in the portfolio, expressed
in tonnes CO(2)e/£m revenue in tonnes CO(2)e. portfolio, expressed in tonnes CO(2)e/£m invested portfolio), expressed in tonnes CO(2)e/£m revenue in £m or percentage of the current portfolio value
151.2 135.0 0.7 149.3 -
Calculation methodologies taken from TCFD website.
SFDR
The Sustainable Finance Disclosure Regulation ("SFDR") is a framework designed
to increase transparency on sustainability reporting with a view to
facilitating sustainable investment practices and to aid the understanding of
sustainability credentials as published by funds and/or companies.
FSF considers itself an Article 9 fund and the SFDR Product Disclosure for the
Fund can be located at fsfc.foresightgroup.eu .
Furthermore, as an Article 9 fund, FSF is required to report on the 14
Principal Adverse Impact indicators as prescribed in the Regulatory Technical
Standards. This table can be found published on the Company's website
alongside the Annual Report.
EU Taxonomy
Under SFDR, Article 9 funds must report on their level of alignment to the EU
Taxonomy for Sustainable Activities ("EU Taxonomy").
The aim of the EU Taxonomy is to create security for investors, protect
private investors from greenwashing, help companies to become more
climate-friendly, mitigate market fragmentation and help move capital to where
it is most needed.
The Company has set the objective of having all of its assets compliant with
the EU Taxonomy's pre-determined screening criteria. As such, based on
internal assessment, FSF believes 100% of its assets to be aligned to the EU
Taxonomy.
Absolute emissions
Scope 1
· 104.9 tCO(2)e
Scope 2
· 30.1 tCO2e
Scope 3
· 293.9 tCO(2)e
SECTION 172 AND STAKEHOLDERS
Section 172
The Directors consider that in conducting the business of the Company over the
course of the period they have complied with Section 172(1) of the Companies
Act 2006 (the "Act") by fulfilling their duty to promote the success of the
Company and to act in the way they consider, in good faith, would be most
likely to promote the success of the Company for the benefit of the members as
a whole, whilst also considering the broad range of stakeholders who interact
with and are impacted by the Company's business, especially with regard to
major decisions.
Since the Company's inception in 2021, the Board has taken its
responsibilities towards all the Company's stakeholders as an utmost
consideration in every scheduled Board meeting as well as at the inaugural
Management Engagement Committee meeting where relationships with all the
stakeholder groups were considered in detail.
The purpose of the Company is to act as an investment vehicle to provide
financial returns to its Shareholders over time. Investment vehicles are
long-term and are typically externally managed, have no employees and are
overseen by an independent non-executive Board of Directors. The role of the
Investment Manager is particularly important in engaging with stakeholders in
the Company and reporting on developments to the Board.
Community engagement
The Foresight Sustainable Forest Management approach is applied across the
Company's afforestation projects as well as its established forest and
woodland assets. Some additional examples, not already highlighted in the
Executive Summary section above, are provided below of where this approach has
been pro-actively pursued during the period, with a particular focus on
community engagement and our drive to unlock positive natural capital service
and societal benefits:
· Consultation and engagement with local communities has been carried out, at
the appropriate moment, as part of the design and application stage of each of
the Company's in-progress afforestation schemes.
· Opportunities to enhance connectivity between local communities and the
Company's forests and woodlands (e.g. signposts, walking paths, mountain bike
trails, carparks, gates/styles, donations of land) have been initiated as part
of the design process on the Company's afforestation schemes.
· The Company has sold and/or leased land that is not suitable for
afforestation to local farmers.
· The Company has provided root balls from windthrown trees to contribute to
bank revetment works in the Comrie Flood Defence Project.
· The Company has hosted a planting day at Banc Farm and Mountmill Burn for
local school children, educated them on the benefits of forestry as well as
providing the opportunity for the children to plant their own trees.
· In addition to the planting days, seed collection days have been carried out
at Upper Barr and Fordie Estate. The Upper Barr event was attended by members
of the local community, while the Fordie day was attended by members of the
estate staff and the Foresight team.
· A business case has been successfully demonstrated where one of the forests in
the Company's portfolio has carried out thinning. This harvesting site sits
within a SSSI for igneous rock formations and so a sensitive approach was
preferred. The site manager engaged a local contractor to drag the trees by
horse to a work-area, minimising ground disturbance and so protecting the
SSSI. The timber was subsequently sawn and processed on-site and then sold.
The products are highly specialised, bespoke timber pieces that are used by
local businesses.
Stakeholders: Local communities and the environment
Role of the Board
The Board retains responsibility for taking all decisions relating to the
Company's corporate governance, strategy and for monitoring the performance of
the Company's service providers. As laid out in the Prospectus, the Investment
Manager has discretion over investment decisions within the Investment Policy;
the Board has oversight and ultimate control. The Board is engaged with the
activities of the Company and all Board members have relevant direct
experience for supporting the activities of the Company, including substantial
experience on other listed and non-listed entities.
The Board aims to ensure that the Company operates in a transparent manner
where all parties are treated with respect and provided with the opportunity
to offer practical challenge and participate in positive debate which is
focused on the aim of achieving the expectations of Shareholders and other
stakeholders alike. The Board, with the assistance of the Management
Engagement Committee, reviews the culture and manner in which the Investment
Manager operates at its scheduled meetings and through its annual performance
review. Regular reporting and feedback from other key service providers is
also sought and reviewed by the Management Engagement Committee on an annual
basis.
The Board is conscious of the ways it promotes the Company's culture and
ensures that, as part of its regular oversight, the integrity of the Company's
affairs is central to the way in which the Company's activities are managed
and promoted. The Board works closely with the Investment Manager and the
Company Secretary in reviewing how stakeholder issues are handled, ensuring
good governance and responsibility in managing the Company's affairs, as well
as visibility and openness in how these are conducted.
As the Company is externally managed and has no employees, the Board considers
the key stakeholders to be Shareholders, local communities closely linked to
the portfolio, customers and agents of the Company, including the Investment
Manager.
The Board is acutely aware of its responsibilities to all the stakeholders in
the Company and has taken into account the following:
· The likely consequences of any decision in the long term
· The need to foster and retain the Company's business relationships with
suppliers, customers and others
· The impact of the Company's operations on the community and the environment
· The desirability of the Company maintaining a reputation for high standards of
business conduct
· The need to act fairly towards and ensure equal treatment of members of the
Company
The Company regularly interacts with a variety of stakeholders important to
its success and strives to strike the right balance between communication and
direct engagement and is entirely open to contact with stakeholders where
there are issues to discuss.
As the Company grows, the Board intends to continue visiting forestry assets.
The Board makes detailed enquiries on the assets in the portfolio and has
periodic meetings with key stakeholders on matters of particular importance.
Understanding stakeholders' views influences the Company's investment
strategy, including its focus on acquiring and managing assets in a way that
promotes capital growth. The Board is also mindful of how Shareholders are
affected by the secondary market liquidity in the Company's shares and how the
shares are rated relative to its Net Asset Value ("NAV"). The Board, through
the Company's broker, promotes secondary market interest in the Company's
shares as part of its ongoing commitment to existing and future Shareholders.
Engagement with Shareholders
As a public company listed on the London Stock Exchange, the Company is
subject to the Listing Rules and the Disclosure Guidance and Transparency
Rules. The Listing Rules include a principle that a listed company must ensure
that it treats all holders of the same class of shares that are in the same
position equally in respect of the rights attaching to such shares. With the
assistance of regular discussions with and the formal advice from the
Company's legal counsel, Company Secretary and corporate broker, the Board
abides by the Listing Rules, as it does with other statutory provisions.
Likewise, the Board is kept appraised of developments in corporate governance
guidance, reporting standards and other non-statutory provisions and does
its best to comply or explain why it does not comply.
The Investment Manager has developed relationships with key Shareholders and
prospective investors. It is in regular contact with investors and reports
back to the Board. During discussions, Shareholders often ask for additional
information around certain aspects of the Company. Where it is appropriate to
do so, the Investment Manager will provide this detail. For example,
additional requests for information have been made on ESG matters, which are
covered in more detail in the Directors' report, and on progress with
deployment and acquisitions.
The Company will continue to engage with Shareholders in the future to ensure
that there is an understanding of stakeholders' views on investment strategy,
corporate developments, governance and other issues such as the importance of
sustainable income, asset enhancement potential and ESG.
The Company has routine engagement with Shareholders and prospective investors
through the publication of interim and annual accounts, the Annual General
Meeting ("AGM") and regular news and bi-annual NAV updates, all published on
the Company's website.
Engagement with the Investment Manager
The Investment Manager is responsible for the implementation of the investment
strategy and the day-to-day investment decisions, including identifying assets
for acquisition. The Board engages constructively with the Investment Manager
to ensure the expectations of Shareholders are being met and it is aware of
the challenges being faced, including meeting the long-term objectives for the
Company's growth.
The Board and the Investment Manager maintain an ongoing, open dialogue on key
issues facing the Company. This open dialogue takes the form of regular Board
meetings and very regular but more informal contact, as appropriate, including
additional ad hoc Board and Committee meetings. This ensures that the
Company and the Investment Manager have aligned interests to safeguard the
Company's position and to try and ensure the future success of the Company.
The Board regularly reviews the Company's performance against its investment
objectives and holds an annual strategy review meeting to ensure that the
Company is positioned well for the future delivery of its objective for its
Shareholders. The Board receives presentations from the Investment Manager at
every Board meeting to help it to exercise effective oversight of the
Company's strategy and the performance of the Investment Manager. The Board,
through the Management Engagement Committee, reviews formally the performance
of the Investment Manager, at least annually.
Engagement with lender
The Company has a Revolving Credit Facility with Clydesdale Bank Plc
("Clydesdale"). This facility is subject to covenants and lender consent may
be required on certain business decisions. The Investment Manager is in
regular contact with Clydesdale to keep it appraised of ongoing portfolio
matters and general market updates so that they have a full understanding of
the Company and how it is performing.
Engagement with key service providers
The Board seeks to maintain constructive relationships with the Company's
suppliers, either directly or through the Investment Manager, with regular
communications and meetings. The Management Engagement Committee conducts an
annual review of the performance and terms and conditions of the Company's
main service providers to ensure that they are performing their
responsibilities in line with Board expectations and providing value
for money.
Engagement with local communities and the environment
The Board and Investment Manager are committed to investing in a responsible
manner and the Investment Manager embeds the requirements of Article 9 into
its investment decision-making process. The Board also formally constituted a
Sustainability and ESG Committee during the year, to focus on embedding ESG
into the Company's strategy and objectives. Further detail on the work of this
Committee can be found in the online report.
In 2021, the AIC launched an option for individual investment company ESG
disclosures to be published on its website. The Company has complied with this
request and submitted a summary ESG strategy and this is now publicly
available on the Company's page on the AIC website.
The Company was awarded the London Stock Exchange's Green Economy Mark upon
its IPO, which recognises London-listed companies and funds that derive more
than 50% of their revenues from products and services that are contributing to
environmental objectives such as climate change mitigation and adaptation,
waste and pollution reduction, and the circular economy.
The Company aims to maximise its social and community contribution to the
markets in which it operates. In partnership with Tilhill Forestry Limited,
the UK's leading forest management, timber harvesting and landscaping company,
the Company launched a Forestry Skills Training Programme during the year.
Initially focused in Wales, the programme is targeted to extend to Scotland
and England in due course. The initiative aims to directly help rural farming
communities adapt to afforestation-related land use change by providing local
community members with the skills, training, qualifications and safety
equipment required to seek employment in the forestry sector.
The Board is also committed to ensuring that it operates in a responsible and
sustainable manner, having regard for the Company's suppliers, local
communities and the environment. In order to achieve this, the Board has
placed ESG factors at the heart of its investment objectives to guide the way
it operates.
Risk and Risk Management
FSF has a comprehensive risk management framework overseen by the Audit
Committee, comprising the Independent Non-Executive Directors.
Risk is the potential for events to occur that may result in damage, liability
or loss. Such occurrences could adversely impact the Company's business model,
reputation or financial standing. Alternatively, under a well-formed risk
management framework, potential risks can be identified in advance and can
either be mitigated or possibly converted into opportunities.
Below details the principal risks that the Directors consider are material.
Given that the Company delegates certain activities to the Investment Manager,
reliance is also placed on the controls of the Company's service providers.
The purpose of the Company's risk management policies and procedures is not to
eliminate risk completely, rather it is to reduce the likelihood of occurrence
and to ensure that the Company is adequately prepared to deal with risks so as
to minimise their impact should they materialise.
The Company's risk register covers seven main areas of risk:
· Financial
· Market
· Forestry
· Legal and regulatory
· Operational
· Economic
· Investment
See more in the TCFD report above.
Each of these areas, together with the principal risks within that category,
are summarised in the table below, followed by a detailed discussion of the
mitigating factors.
Risk Potential Impact Mitigation
Financial risks
Equity The Company would be unable to access sufficient funding to complete its · The Company's broker conducts, and will continue to conduct, market research
operations. ahead of any funding rounds to gauge demand from existing and new investors.
· The Investment Manager and the Board have also set budgets in such a way that
aworking capital buffer is held. These budgets include forecasts of timber
and grant income streams that are expected in the next 18 months.
Liquidity The Company would be unable to meet its financial obligations as they fall · The Company has consistently held sufficient cash across its operating
due. accounts to meet its working capital needs throughout its first year of
listing and will continue to do so.
· Cash flow forecasts are prepared on a quarterly basis to assist in the ongoing
analysis of daily cash flow.
· The Company has put a Revolving Credit Facility ("RCF") in place which will
provide another liquidity option. The facility includes a payment-in-kind
("PIK") feature that enables interest to be rolled up, rather than paid in
cash.
Valuation There is a risk of the valuations being prepared incorrectly either by the · Savills are highly experienced in forestry valuations and valued over £1
Investment Manager or Savills, leading to a publicly stated NAV that is not billion of UK forestry assets in 2021.
representative of the value of the portfolio held through the SPVs. · Savills uses the Royal Institute of Chartered Surveyors ("RICS") Red Book
valuation approach to ensure valuations are conducted using a consistent and
well recognised methodology.
· The Savills valuation agreement leaves it with a liability exposure of c.4% of
The probability of this risk occurring is considered to be low, however the the valuation figure and the Company would have recourse up to that amount in
impact would be significant if it did. the event of a manifest error.
Market risks
Demand for timber A reduction in demand from the purchasers of timber would negatively impact · The fundamental under-supply of standing timber in the UK and globally in the
the Company's profitability. context of strong increasing demand reduces market risk for the sale of the
Company's key product and revenue stream and which affects the underlying
asset values. Demand over the medium to long term has historically created
real terms pricing growth and, in the context of a global under-supply and
increasing demand, this risk is reduced if a medium to long-term investment
view is applied.
Demand for carbon units A reduction in demand from the users of carbon credits would negatively impact · The demand for carbon credit is expected to materially increase in the run-up
profitability. to 2030 and 2050, driving carbon price increases. Decreases in prices paid and
issues with supply of volume of carbon credits are more likely to be driven by
regulatory challenges than by overriding supply and demand dynamics.
Forestry risks
Reputational The Company could be perceived negatively in the market due to resistance to · During the due diligence phase of afforestation investments, the Investment
change of land use in the market generating negative PR. Manager commissions an independent community risk assessment. This element of
due diligence is intended to ensure that afforestation only takes place in
lower community risk areas, where tree planting is considered unlikely to be
contentious and the expected likelihood of community resistance is considered
low.
· The Investment Manager has launched its forestry skills training programme
that will directly enable rural farming communities to adapt to
afforestation-related land use change, by providing local community members
with the skills, training, qualifications and safety equipment required to
commence in the work and jobs created by the Company's afforestation schemes.
· The Investment Manager is engaging with industry bodies such as Confor and
Timber Development UK to promote the merits of increased sustainable UK
timber supply.
Harvesting A reduction in timber prices may delay the Company's harvesting and felling · Should merchant timber prices not be attractive at the point of felling, the
programme. Investment Manager has the option to delay felling until such time that timber
prices recover.
· The Investment Manager will continue to investigate suitable off-take
agreements that might become attractive in future and will continue to
Long-term off-take agreements are rare in the UK forestry sector, cultivate relationships with key off-takers.
which exposes the Company to merchant risk.
Storm damage Particularly strong winds may damage trees, or possibly uproot them entirely, · The Company has taken out windblow insurance, where appropriate, to cover
at the Company's asset sites. possible storm damage.
· Appropriate silvicultural management will also protect against wind risk.
· The Company's diverse portfolio of forests across the UK creates natural
resilience.
Disease Disease may infiltrate one or multiple of the Company's forests, damaging the · Whilst insurance against disease is not readily available in the current
trees or otherwise endangering the health of the forest. insurance market, there are no known diseases that would incapacitate a UK
commercial conifer forest with a focus on Sitka spruce.
· Larch trees are known to be susceptible to a disease called Phytophthora
ramorum. However, the proportion of larch in the Company's forests is
immaterial and any issues are identified during the Investment Manager's due
diligence process and are manageable post-acquisition.
· The Company's diverse portfolio of forests across the UK creates natural
resistance.
Legal and regulatory risks
Regulation change The Company is required to comply with certain regulations, as a London Stock · The Company Secretary keeps on top of any changes in regulation or legislation
Exchange listed entity. A significant change in legal or regulatory frameworks relevant to the Company and provides an update on this to the Board on a
could impact the ways in which the Company and/or Foresight Group operates. quarterly basis.
Failure to comply with emerging regulations could result in a negative · Foresight Group has close relationships with industry-leading legal and
reputational or financial impact on the Company. governance professionals whom it can seek advice from if required.
Operational risks
Supply chain risk Shortages of key materials and resources required for the Company's sites · The Investment Manager, on behalf of the Company, is placing orders for
could lead to a delay in production and/or development (in the case of saplings up to 12 months in advance and aggregating orders across multiple
afforestation sites). This has been exacerbated by the Russian invasion of afforestation sites in one place.
Ukraine, which impacts the flow of goods and commodities that are important in · The Company is a large player in the market with a pipeline of multiple
the global economy. orders. When combined with relationships, contractors are more likely
to prioritise the Company as a key client.
· The Company has launched a forestry skills training programme, which is
directly increasing the pool of qualified labour available to work on the
Company's portfolio.
Economic risks
Macroeconomic changes Changes in economic, technological, political or regulatory environment, as · Diversity of revenue streams is targeted where possible, preventing
well as inflation and market sentiment, can impact the returns expected from over-concentration to specific risks.
the assets in the Company's portfolio. · The Company invests in forestry markets that have displayed long-term
political regulatory stability.
· The Investment Manager participates in industry forums linked to the carbon
markets and the related regulation.
· In the current high inflation environment there is greater uncertainty than
previously
Interest rates The Company has some interest rate exposure, through its own cash deposits and · The Company manages the cost of borrowing by using fixed rate instruments
bank funding (the RCF) as well as those within the projects themselves. and/or by overlaying interest rate derivatives against the Company's
debt portfolio.
· The Investment Manager ensures there is a sufficient margin between the
expected rate of return on the investment portfolio and the cost of any
Interest rates have risen during the period under review and are forecast to borrowing, to ensure there is a buffer before rising interest rates become
rise further to combat inflation. dilutive to overall NAV.
· The Investment Manager undertakes interest rate scenario analysis to inform
the level of borrowing the Company is comfortable taking.
Investment risks
Competitive market Increased competition for appropriate investment opportunities could lead to · The Investment Manager has to date observed a significant annual opportunity
the Company being unable to source investments that satisfy its investment deal flow and demonstrated that it can compete for market share in competitive
criteria and meet its return objectives. bidding processes.
· The Investment Manager's strong relationships with a large network of
advisers, well-established reputation and track record mean that there is
scope for a high number of bilateral transactions.
· Following the success of the Investment Manager's direct origination
campaigns, the number of properties that have been included in scope of the
campaign has been increased to 4,500 specific properties, ex-tending over c.1
million hectares.
Financial crime There is a risk that the Company could suffer a detrimental impact to its · KYC and AML diligence is a key foundation of the Company's investment and
investment value caused by fraud, legal consequences or fines as the result of disposals review process.
inadequate Know Your Customer ("KYC") and Anti-Money Laundering ("AML") · Comprehensive desk-top studies are undertaken on counterparties as appropriate
measures. Reputational damage could be associated with the outcome of such and in line with Foresight Group's KYC and AML protocols, which are also used
breaches. on more complex counterparties or jurisdictions.
Liquidity
The Company would be unable to meet its financial obligations as they fall
due.
· The Company has consistently held sufficient cash across its operating
accounts to meet its working capital needs throughout its first year of
listing and will continue to do so.
· Cash flow forecasts are prepared on a quarterly basis to assist in the ongoing
analysis of daily cash flow.
· The Company has put a Revolving Credit Facility ("RCF") in place which will
provide another liquidity option. The facility includes a payment-in-kind
("PIK") feature that enables interest to be rolled up, rather than paid in
cash.
Valuation
There is a risk of the valuations being prepared incorrectly either by the
Investment Manager or Savills, leading to a publicly stated NAV that is not
representative of the value of the portfolio held through the SPVs.
The probability of this risk occurring is considered to be low, however the
impact would be significant if it did.
· Savills are highly experienced in forestry valuations and valued over £1
billion of UK forestry assets in 2021.
· Savills uses the Royal Institute of Chartered Surveyors ("RICS") Red Book
valuation approach to ensure valuations are conducted using a consistent and
well recognised methodology.
· The Savills valuation agreement leaves it with a liability exposure of c.4% of
the valuation figure and the Company would have recourse up to that amount in
the event of a manifest error.
Market risks
Demand for timber
A reduction in demand from the purchasers of timber would negatively impact
the Company's profitability.
· The fundamental under-supply of standing timber in the UK and globally in the
context of strong increasing demand reduces market risk for the sale of the
Company's key product and revenue stream and which affects the underlying
asset values. Demand over the medium to long term has historically created
real terms pricing growth and, in the context of a global under-supply and
increasing demand, this risk is reduced if a medium to long-term investment
view is applied.
Demand for carbon units
A reduction in demand from the users of carbon credits would negatively impact
profitability.
· The demand for carbon credit is expected to materially increase in the run-up
to 2030 and 2050, driving carbon price increases. Decreases in prices paid and
issues with supply of volume of carbon credits are more likely to be driven by
regulatory challenges than by overriding supply and demand dynamics.
Forestry risks
Reputational
The Company could be perceived negatively in the market due to resistance to
change of land use in the market generating negative PR.
· During the due diligence phase of afforestation investments, the Investment
Manager commissions an independent community risk assessment. This element of
due diligence is intended to ensure that afforestation only takes place in
lower community risk areas, where tree planting is considered unlikely to be
contentious and the expected likelihood of community resistance is considered
low.
· The Investment Manager has launched its forestry skills training programme
that will directly enable rural farming communities to adapt to
afforestation-related land use change, by providing local community members
with the skills, training, qualifications and safety equipment required to
commence in the work and jobs created by the Company's afforestation schemes.
· The Investment Manager is engaging with industry bodies such as Confor and
Timber Development UK to promote the merits of increased sustainable UK
timber supply.
Harvesting
A reduction in timber prices may delay the Company's harvesting and felling
programme.
Long-term off-take agreements are rare in the UK forestry sector,
which exposes the Company to merchant risk.
· Should merchant timber prices not be attractive at the point of felling, the
Investment Manager has the option to delay felling until such time that timber
prices recover.
· The Investment Manager will continue to investigate suitable off-take
agreements that might become attractive in future and will continue to
cultivate relationships with key off-takers.
Storm damage
Particularly strong winds may damage trees, or possibly uproot them entirely,
at the Company's asset sites.
· The Company has taken out windblow insurance, where appropriate, to cover
possible storm damage.
· Appropriate silvicultural management will also protect against wind risk.
· The Company's diverse portfolio of forests across the UK creates natural
resilience.
Disease
Disease may infiltrate one or multiple of the Company's forests, damaging the
trees or otherwise endangering the health of the forest.
· Whilst insurance against disease is not readily available in the current
insurance market, there are no known diseases that would incapacitate a UK
commercial conifer forest with a focus on Sitka spruce.
· Larch trees are known to be susceptible to a disease called Phytophthora
ramorum. However, the proportion of larch in the Company's forests is
immaterial and any issues are identified during the Investment Manager's due
diligence process and are manageable post-acquisition.
· The Company's diverse portfolio of forests across the UK creates natural
resistance.
Legal and regulatory risks
Regulation change
The Company is required to comply with certain regulations, as a London Stock
Exchange listed entity. A significant change in legal or regulatory frameworks
could impact the ways in which the Company and/or Foresight Group operates.
Failure to comply with emerging regulations could result in a negative
reputational or financial impact on the Company.
· The Company Secretary keeps on top of any changes in regulation or legislation
relevant to the Company and provides an update on this to the Board on a
quarterly basis.
· Foresight Group has close relationships with industry-leading legal and
governance professionals whom it can seek advice from if required.
Operational risks
Supply chain risk
Shortages of key materials and resources required for the Company's sites
could lead to a delay in production and/or development (in the case of
afforestation sites). This has been exacerbated by the Russian invasion of
Ukraine, which impacts the flow of goods and commodities that are important in
the global economy.
· The Investment Manager, on behalf of the Company, is placing orders for
saplings up to 12 months in advance and aggregating orders across multiple
afforestation sites in one place.
· The Company is a large player in the market with a pipeline of multiple
orders. When combined with relationships, contractors are more likely
to prioritise the Company as a key client.
· The Company has launched a forestry skills training programme, which is
directly increasing the pool of qualified labour available to work on the
Company's portfolio.
Economic risks
Macroeconomic changes
Changes in economic, technological, political or regulatory environment, as
well as inflation and market sentiment, can impact the returns expected from
the assets in the Company's portfolio.
· Diversity of revenue streams is targeted where possible, preventing
over-concentration to specific risks.
· The Company invests in forestry markets that have displayed long-term
political regulatory stability.
· The Investment Manager participates in industry forums linked to the carbon
markets and the related regulation.
· In the current high inflation environment there is greater uncertainty than
previously
Interest rates
The Company has some interest rate exposure, through its own cash deposits and
bank funding (the RCF) as well as those within the projects themselves.
Interest rates have risen during the period under review and are forecast to
rise further to combat inflation.
· The Company manages the cost of borrowing by using fixed rate instruments
and/or by overlaying interest rate derivatives against the Company's
debt portfolio.
· The Investment Manager ensures there is a sufficient margin between the
expected rate of return on the investment portfolio and the cost of any
borrowing, to ensure there is a buffer before rising interest rates become
dilutive to overall NAV.
· The Investment Manager undertakes interest rate scenario analysis to inform
the level of borrowing the Company is comfortable taking.
Investment risks
Competitive market
Increased competition for appropriate investment opportunities could lead to
the Company being unable to source investments that satisfy its investment
criteria and meet its return objectives.
· The Investment Manager has to date observed a significant annual opportunity
deal flow and demonstrated that it can compete for market share in competitive
bidding processes.
· The Investment Manager's strong relationships with a large network of
advisers, well-established reputation and track record mean that there is
scope for a high number of bilateral transactions.
· Following the success of the Investment Manager's direct origination
campaigns, the number of properties that have been included in scope of the
campaign has been increased to 4,500 specific properties, ex-tending over c.1
million hectares.
Financial crime
There is a risk that the Company could suffer a detrimental impact to its
investment value caused by fraud, legal consequences or fines as the result of
inadequate Know Your Customer ("KYC") and Anti-Money Laundering ("AML")
measures. Reputational damage could be associated with the outcome of such
breaches.
· KYC and AML diligence is a key foundation of the Company's investment and
disposals review process.
· Comprehensive desk-top studies are undertaken on counterparties as appropriate
and in line with Foresight Group's KYC and AML protocols, which are also used
on more complex counterparties or jurisdictions.
FINANCIAL REVIEW
Analysis of financial results
The financial statements of the Company from incorporation on 31 August 2021
to 30 September 2022 are set out below.
The Company prepared the financial statements from the date of incorporation
to 30 September 2022 in accordance with the UK adopted International
Accounting Standards as applicable to companies reporting under those
standards. The Company applies IFRS 10 Investment Entities: Amendments to IFRS
10, IFRS 12 and measures all their subsidiaries that are themselves investment
entities at fair value. The Company accounts for its interest in its wholly
owned direct subsidiary FSFC Holdings Limited as an investment at fair value
through profit or loss in accordance with IFRS 13 Fair Value Measurement.
The primary impact of this application, in comparison to consolidating
subsidiaries, is that the cash balance before taxes, the working capital
balances and borrowings in the intermediate holding companies are presented as
part of the Company's fair value of investments.
The Company's intermediate holding companies provide services that relate to
the Company's investment activities on behalf of the parent which are
incidental to the management of the portfolio.
The Company, its subsidiaries FSFC Holdings Limited and FSFC Holdings 2
Limited (together the "Group"), hold investments in portfolio assets which
intend to make distributions in the form of interest on loans and dividends on
equity as well as loan repayments and equity redemptions.
For more information on the basis of accounting and Company structure, please
refer to the notes to the financial statements below.
Net assets
The Net Asset Value ("NAV") at 30 September 2022 was £180.6 million and
comprised £144.2 million portfolio value of forestry and afforestation
assets, with an additional £0.6 million carbon credit valuation, cash
balances of £36.3 million. The cash balances are made up of £34.3 million in
the Company and £2.0 million in the project companies, offset by £0.5
million of other net liabilities (£0.5 million of other liabilities in the
project companies). The Gross Asset Value ("GAV") is equal to the sum of the
NAV and the outstanding debt as described in the alternative performance
measures table on page 109. The GAV as at 30 September 2022 was £180.6
million.
Analysis of the Company's net assets at 30 September 2022
As at
All amounts presented in £million (except as noted) 30 September 2022
Portfolio value (Red Book valuation)(1) 144.2
Carbon credits valuation(2) 0.6
Project companies' cash 2.0
Project companies' other net liabilities (0.5)
Investments at fair value through profit or loss 146.3
Company's cash 34.3
Company's other net liabilities -
Net Asset Value 180.6
Number of shares 172.1
Net Asset Value per share (pence) 105.0
· Classified as the fair value of the underlying forestry assets held through
the SPVs.
· The carbon credit valuation noted is based on value ascribed to progress
towards creation of carbon credits.
Net Asset Value bridge
During the period the Company raised a total of £175.0 million (£130.0
million at IPO in November 2021 and £45.0 million in June 2022). This was
offset by cumulative capital raise fees of £3.2 million.
The £10.9 million fair value increase of the afforestation and forestry
assets held by the Group has been offset by operating costs of £2.7 million
(£2.3 million of Fund operating costs for the Company, £0.4 million of
project companies' outflows.)
The 36,116 carbon credits yet to be realised but attributed to the two
underlying afforestation assets where planting has completed have also
been valued at £0.6 million, resulting in a Net Asset Value of £180.6
million at 30 September 2022.
Company performance
Profit and loss
The Company's profit before tax for the period ending 30 September 2022 was
£8.8 million (6.2 pence per share).
For the same period to 30 September 2022, the total return on investments was
£11.0 million, which relates to £0.9 million of interest on the FSFC
Holdings loan notes and £10.1 million net gains on investments at fair value.
The interest income is from the Company's Shareholder loan to FSFC Holdings
Limited. The net gain on investment is generated by the net fair value
movement on the Company's investment in FSFC Holdings Limited.
Operating expenses included in the income statement for the period were £2.2
million, in line with expectations. These comprise investment management fees
of £1.1 million and £1.1 million of operating expenses. The details on
how the investment management fees are charged are set out in note 5 to the
financial statements.
Period from
incorporation on
31 August 2021 to
All amounts presented in £million (except as noted) 30 September 2022
Interest received on FSFC Holdings loan notes 0.9
Net gain on investments at fair value 10.1
Total return on investment 11.0
Operating expenses (2.2)
Profit before tax 8.8
Earnings per share (pence) 6.2p
Ongoing charges
The "ongoing charges" ratio is an indicator of the costs incurred in the
day-to-day management of the Fund. FSF uses the AIC-recommended methodology
for calculating this ratio, which is an annual figure.
The ongoing charges ratio percentage from incorporation on 31 August 2021 to
30 September 2022 was 1.4%. The ongoing charges have been calculated, in
accordance with AIC guidance, as annualised ongoing charges i.e. excluding
acquisition costs and other non-recurring items) divided by the average
published unaudited Net Asset Value in the period. The ongoing charges
percentage has been calculated on the consolidated basis and therefore takes
into consideration the expenses of FSF Holdings as well as the Company.
The Investment Manager believed this to be competitive for the market in which
FSF operates and the stage of development and size of the Fund, demonstrating
that management of the Fund is efficient with minimal expense incurred in
its ordinary operation.
Cash flow
The Company held cash balances at 30 September 2022 of £34.3 million. This
amount excludes cash held in subsidiaries. The breakdown of the movements in
cash during the period is shown below.
Cash flows of the Company for the period from incorporation on 31 August 2021
to 30 September 2022 (£million)
Period from
incorporation to
30 September 2022
Cash balance at incorporation -
Gross proceeds from fundraising 175.0
Share issuance costs (3.2)
Investment in FSFC Holdings Limited (equity and loan notes) (136.2)
Group movements in working capital 0.9
Directors' fees and expenses (0.1)
Investment management fees (1.1)
Administrative expenses (1.0)
Company's cash balance at 30 September 2022 34.3
Cash flows of the Group for the period from incorporation on 31 August 2021 to
30 September 2022 (£million)
The Group is defined as the Company and its two intermediate holding
companies. The cash flows for the Group of £34.8 million include £0.5
million in FSF Holdings 2 Ltd.
Portfolio valuation
Methodology
Savills Advisory Services Limited ("Savills") is engaged by the Company to
provide a fair value valuation of the underlying forestry assets held through
the SPVs in accordance with the Royal Institution of Chartered Surveyors
("RICS") Valuation - Global Standards July 2017 (the "Red Book").
The Red Book valuation is compliant with the UK adopted International
Accounting Standards as part of the International Valuation Standards which
requires investment properties to be considered on the basis of fair value at
the balance sheet date. IFRS 13 outlines the principles for fair value
measurement which Savills' valuation is consistent with. The Red Book
valuations are undertaken on an asset-by-asset basis and will be completed
semi-annually.
The fair value assessment of the assets has been completed by Savills on a
comparable basis by looking at transactions of similar assets. Afforestation
land comparables include the rights to voluntary carbon unit creation.
However, the Red Book valuation approach is largely backward-looking and thus
the Investment Manager is of the view that the valuations are likely to be
conservative in relation to the potential future value of the voluntary carbon
units that could be generated.
The Manager believes the Red Book valuation does not include any value in
relation to progress in units ("PIUs") as at 30 September 2022 and has
therefore calculated an estimated value on the progress made on obtaining the
rights to PIUs as to date no PIUs have been authorised by the Woodland Trust.
The Red Book methodology considers a number of additional factors impacting
the valuation. A reasonable view of the potential for afforestation sites'
value uplift over time is considered rather than valuing the land in its
current state. Savills also consider the stage of each site within the
forestry grant application process and may make reassessments as to the value
of a site when a new developmental milestone occurs. Additionally, as the
assets under ownership are located across the UK (Scotland, North England and
Wales), the external valuer accounts for the potential differences in market
interest and demand at the different locations. On a case-by-case basis
Savills will also assess the extent of damage suffered by sites due to any
extreme windblow incidents. Where damage is extensive, Savills will make
prudent adjustments to the value of the site, if it is evident that some of
the affected timber may be challenging to recover.
FINANCIAL STATEMENTS
INCOME STATEMENT
FOR THE PERIOD FROM 31 AUGUST 2021 (INCORPORATION) TO 30 SEPTEMBER 2022
Revenue Capital Total
Notes £'000 £'000 £'000
Return on investment 4 904 10,120 11,024
Total income 904 10,120 11,024
Investment management fees 5 (1,071) - (1,071)
Other expenses 6 (1,166) - (1,166)
Total expenses (2,237) - (2,237)
Profit/(loss) before tax (1,333) 10,120 8,787
Tax 8 - - -
Profit/(loss) for the period (1,333) 10,120 8,787
Earnings/(losses) per share (pence) 9 (0.9) 7.1 6.2
All results are derived from continuing operations.
The supplementary revenue and capital columns are presented for information
purposes in accordance with the Statement of Recommended Practice issue by The
Association of Investment Companies ("AIC").
There are no items of other comprehensive income in the current period, other
than the profit for the period, and therefore no separate statement of
comprehensive income has been presented.
The accompanying notes below form an integral part of the financial
statements.
STATEMENT OF FINANCIAL POSITION
AS AT 30 SEPTEMBER 2022
30 September
2022
Notes £'000
Non-current assets
Investments at fair value through profit or loss 10 146,291
Total non-current assets 146,291
Current assets
Trade and other receivables 11 852
Cash and cash equivalents 16 34,326
Total current assets 35,178
Total assets 181,469
Current liabilities
Trade and other payables 12 (886)
Total current liabilities (886)
Total liabilities (886)
Net assets 180,583
Equity
Called up share capital 13 1,721
Share premium 13 170,075
Revenue reserve 14 (1,333)
Capital reserve 14 10,120
Total Shareholders' funds 180,583
Net assets per share (pence per share) 15 105.0
The financial statements were approved and authorised for issue by the Board
of Directors on 14 December 2022.
They were signed on its behalf by:
Richard Davidson
Chair
The accompanying notes form an integral part of the financial statements.
STATEMENT OF CHANGES IN EQUITY
FOR THE PERIOD FROM 31 AUGUST 2021 (INCORPORATION) TO 30 SEPTEMBER 2022
Called up Share Capital Revenue
share capital premium reserve reserve Total
£'000 £'000 £'000 £'000 £'000
Balance at incorporation - - - - -
Gross proceeds from share issue 1,721 173,279 - - 175,000
Share issue costs - (3,204) - - (3,204)
Total comprehensive income for the period - - 10,120 (1,333) 8,787
Net assets attributable to Shareholders at 30 September 2022 1,721 170,075 10,120 (1,333) 180,583
The accompanying notes form an integral part of the financial statements.
The Company's distributable reserves consist of the capital reserve
attributable to fair value unrealised gains on the Fund portfolio's valuation.
STATEMENT OF CASH FLOWS
FOR THE PERIOD FROM 31 AUGUST 2021 (INCORPORATION) TO 30 SEPTEMBER 2022
For the
period ended
30 September
2022
£'000
Profit for the period 8,787
Adjustments for:
Net profit on investments at fair value through profit and loss (10,120)
Operating cash flows before movements in working capital (1,333)
Cash flows from operating activities
(Increase) in Trade and other receivables (852)
Increase in Trade and other payables 886
Net cash inflow from operating activities (1,299)
Cash flows from investing activities
Purchase of investments (136,171)
Net cash used in investing activities (136,171)
Cash flows from financing activities
Gross proceeds from share issue 175,000
Share issue costs (3,204)
Net cash inflow from financing activities 171,796
Net increase in cash and cash equivalents 34,326
Cash and cash equivalents at beginning of period -
Cash and cash equivalents at end of period 34,326
The accompanying notes form an integral part of the financial statements.
NOTES TO THE AUDITED FINANCIAL STATEMENTS
FOR THE PERIOD FROM 31 AUGUST 2021 (INCORPORATION) TO 30 SEPTEMBER 2022
1. General information
(a) Statutory Information
Foresight Sustainable Forestry Company Plc (the "Company" or "FSF"), a public
limited company limited by shares, was incorporated and registered in England
and Wales on 31 August 2021 with registered number 13594181 pursuant to the
Companies Act 2006. The Company's registered address is C/O Foresight Group,
The Shard, 32 London Bridge Street, London, United Kingdom, SE1 9SG.
(b) Corporate structure
The Company has one investment, FSFC Holdings Limited, and FSFC Holdings
Limited in turn has one investment, FSFC Holdings 2 Limited; together this is
the "Group".
FSFC Holdings 2 Limited has three investments: FSFC Company 1 Limited,
Blackmead Forestry Limited and Blackmead Forestry II Limited. Blackmead
Forestry Limited has two investments: Coull Forestry Limited and Fordie
Estates Limited. These five entities together are the special purpose vehicles
or "SPVs".
The Group's principal activity is investing in UK forestry, afforestation and
natural capital assets.
The audited financial statements of the Company are for the period from
incorporation on 31 August 2021 to 30 September 2022 and have been prepared on
the basis of the accounting policies set out below. The financial statements
comprise only the results of the Company, as its direct investments in FSFC
Holdings Limited, FSFC Holdings 2 Limited, and all underlying SPVs thereafter,
are measured at fair value as detailed in the significant accounting policies
below.
2. Significant accounting policies
(a) Basis of preparation
The set of financial statements has been prepared in accordance with
UK adopted International Accounting Standards. The financial statements have
been prepared under the historical cost convention as modified by the
revaluation of certain assets and on a going concern basis. The accounting
policies set out below have, unless otherwise stated, been applied
consistently to the period presented in these financial statements.
These financial statements have also been prepared in accordance with the
Statement of Recommended Practice: Financial Statements of Investment Trust
Companies and Venture Capital Trusts ("SORP") issued in April 2021 by the
Association of Investment Companies ("AIC").
There are several amendments and standards that have been issued and will be
effective in future periods however, none of these are expected to have a
material effect.
The following standards became effective during the period and did not have a
material impact on the Company's reported results:
· Reference to the Conceptual Framework - Amendments to IFRS 3 (applicable for
annual periods beginning on or after 1 January 2022);
· Property, Plant and Equipment: Proceeds Before Intended Use - Amendments to
IAS 16 (applicable for annual periods beginning on or after 1 January 2022);
· Onerous Contracts - Costs of Fulfilling a Contract - Amendments to IAS 37
(applicable for annual periods beginning on or after 1 January 2022);
· AIP IFRS 1 First-time Adoption of International Financial Reporting Standards
- Subsidiary as a First-time Adopter (applicable for annual periods beginning
on or after 1 January 2022);
· AIP IFRS 9 Financial Instruments - Fees in the "10 per cent" Test for
Derecognition of Financial Liabilities (applicable for annual periods
beginning on or after 1 January 2022);
· AIP IAS 41 Agriculture - Taxation in Fair Value Measurements (applicable for
annual periods beginning on or after 1 January 2022); and
· Annual improvements to IFRS standards 2018-2020 Cycle (effective for annual
periods beginning on or after 1 January 2022).
IFRS 10 Consolidated Financial Statements
IFRS 10 requires an entity that controls (meaning it is exposed, or has
rights, to variable returns from its involvement with the investee entity and
has the ability to affect those returns through its power over the investee)
one or more other entities, to present consolidated financial statements.
Consolidated financial statements consist of assets, liabilities, equity,
income, expenses and cash flows of a parent and its subsidiaries as those of a
single economic entity. Notwithstanding the application of IFRS 10 in
establishing the Fund as an investment entity, the standard has not been
adopted in full in as far as presenting consolidated financial statements, as
the Fund has presented these financial statements on a fair value basis
instead, pursuant to IFRS 13.
IFRS 16 Leases
IFRS 16 requires lessees to account for all leases under a single on-balance
sheet model in a similar way to finance leases under IAS 17. Lessor accounting
is substantially unchanged from today's accounting under IAS 17. Lessors will
continue to classify all leases using the same classification principle as in
IAS 17 and distinguish between two types of leases: operating and finance
leases. The standard requires lessees and lessors to make more extensive
disclosures than under IAS 17. IFRS 16 is effective for annual periods
beginning on or after 1 January 2019, however early adoption is permitted. The
Fund is neither a lessor nor lessee, thus has not adopted this standard.
These financial statements are presented in sterling (£) and rounded to the
nearest thousand unless otherwise stated. They have been prepared on
accounting policies, significant judgements, key assumptions and estimates
set out below.
These financial statements constitute statutory accounts as defined in Section
434(3) of the Companies Act 2006 as they are audited. The financial statements
include all information and disclosures required in annual audited financial
statements.
The audited financial statements incorporate the financial statements of the
Company only.
Any estimates and underlying assumptions are reviewed on a regular basis and
revisions to accounting estimates are recognised in the period when they occur
and in any future period affected. The significant estimates, judgements or
assumptions are set out below. This is the Company's first accounting period,
so there are no comparatives.
(b) Going concern
The Directors have adopted the going concern basis in preparing the Annual
Report. In their assessment of going concern they have reviewed comprehensive
cash flow forecasts prepared by the Investment Manager and believe based on
the forecasts and an assessment of the Company's cash position and liquidity
of the investment portfolio that the Company will continue in operational
existence for at least 12 months from the date of approval of the financial
statements and therefore consider it appropriate to prepare the financial
statements on a going concern basis. As at 30 September 2022, the Company had
net assets of £180.6 million including £34.3 million of cash which are
sufficient to meet current obligations as they fall due.
The Directors have also assessed the impact of significant potential risks to
the operations of the Company since incorporation and the principal risks in
the UK forestry and afforestation markets including the various risk
mitigation measures in place and do not consider this to have a material
impact on the assessment of the Company as a going concern.
Market risk
The Company has assessed its potential exposure to being negatively impacted
by a sudden loss of revenue stream. The relevance of this risk has been
significant given the recent impacts made by the COVID-19 pandemic and the
Ukraine-Russia conflict. The Company has assessed these risks alongside the
potential risk of similar events having a negative impact on revenue
recoverability. The potential impacts of such market risks include, but are
not limited to:
(i) Material reductions in timber prices recoverable from the SPVs
(ii) Material reductions in demand for timber in the United Kingdom
(iii) Material reductions in forecasted revenues earned from the sale of carbon
credits
(iv) Change to the UK Woodlands Grant scheme
Each of the above potential impacts could have a direct influence on the
amount that can be distributed to the Company by its subsidiaries. Foresight
has reviewed the portfolio's exposure to these risks and has concluded that
if, even in the unlikely case, these adverse impacts on revenue recoverability
are material, the Company should still have sufficient funds to continue
operations for the foreseeable future. If such impacts were to continue on a
long-term basis, continued monitoring processes would need to be actioned.
Liquidity risk
Due to the nature of the Company's operation and deployment strategy, there
could be potential exposure to liquidity risk, whereby the entity would
encounter difficulties in paying its financial liabilities. The Directors
have considered this risk and are satisfied that FSF has adequate financial
resources to settle its recurring expenses for the foreseeable future, based
on evidence provided from cash flow forecasting and sensitivity testing to
satisfy both the Investment Manager and the Directors that the Company has
sufficient funds available.
The Directors are satisfied that FSF has sufficient resources to continue to
operate for the foreseeable future, a period of not less than 12 months from
the date of this report. Accordingly, they have adopted the going concern
basis in preparation of these financial statements.
(c) Segmental reporting
The Directors are of the opinion that the Company is engaged in a single
segment of business, being investment in UK forestry and afforestation assets,
to generate real returns for investors as well as capital appreciation.
The financial information used by the Board to allocate resources and manage
the Company presents the business as a single segment comprising a homogeneous
portfolio.
(d) Key judgements
Fair valuation of investment assets
The market value of the Company's underlying investment portfolio held through
its SPVs consisting of Forestry, Afforestation and Non-core assets (investment
portfolio/ properties) is determined by an external valuer (see note 10) to
be the estimated amount for which an asset should exchange on the date of the
valuation in an arm's-length transaction. Properties have been valued on an
individual basis. The external valuer prepares their valuations in accordance
with the RICS Valuation - Global Standards July 2017 (the "Red Book"). Factors
reflected comprise current market conditions including the comparable market
value of similar freehold forestry assets, the potential uplift in land value
above current in-use value (relevant to planting land), the location and
situation of individual assets, potential vulnerability to winter storms and
the developmental status of properties (if afforestation). The market
conditions stated are assessed on a bi-annual basis. The significant methods
and assumptions used by the external valuers in estimating the fair value of
investment assets are set out in note 10. The carbon credits valuation are
not determined by an external valuer and are subject to Directors' judgement
and estimation.
(e) Taxation
Income taxes
Income taxes represent the sum of the tax currently payable, withholding taxes
suffered and deferred tax. Tax is charged or credited in the statement of
comprehensive income, except where it relates to items charged or credited
directly to equity, in which case the tax is also dealt with in equity.
The tax currently payable is based on the taxable profit for the year. This
may differ from the profit included in the statement of comprehensive income
because it excludes items of income or expense that are taxable or deductible
in other years and it further excludes items that are never taxable or
deductible. To enable the tax charge to be based on the profit for the year,
deferred tax is provided in full on temporary timing differences, at the rates
of tax expected to apply when these differences crystallise.
Deferred tax assets are recognised only to the extent that it is probable that
sufficient taxable profits will be available against which temporary
differences can be set off. In practice, some assets that are likely to give
rise to timing differences will be treated as capital for tax purposes. Given
capital items are exempt from tax under the Investment Trust Company rules,
deferred tax is not expected to be recognised on these balances.
All deferred tax liabilities are offset against deferred tax assets, where
appropriate, in accordance with the provisions of IAS 12. The carrying amount
of deferred tax assets is reviewed at each balance sheet date and reduced to
the extent that it is no longer probable that sufficient taxable profits will
be available to allow all or part of the asset to be recovered.
3. Basis of consolidation
The Company's objective is to invest in UK forestry and afforestation assets
through its holding companies, which will typically issue equity and loans to
finance the investments.
Assessment as an investment entity
IFRS 10 Consolidated Financial Statements sets out the following essential
criteria, necessary for a company to be considered as an investment entity.
Definition of an investment entity/trust:
· It must obtain funds from multiple investors for the purpose of providing its
investment management services to those investors
· It must commit to its investors that its business purpose is to invest funds
solely for returns from capital appreciation, investment income, or both.
Similarly, the entity must ensure there is also an exit strategy for such
investments
· It must measure and evaluate the performance of its investments on a fair
value basis
In assessing whether the Company meets the definition of an investment entity
set out in IFRS 10, the Directors note that:
· The Company is an investment company that invests funds obtained from multiple
investors in a diversified portfolio of UK forestry and afforestation assets
and has appointed Foresight Group as the Investment Manager to manage the
Company's investments
· The Company's purpose is to invest funds with the intention of providing real
returns to investors and capital appreciation driven by global demand for
timber. The Company's exit strategy will depend on factors of portfolio
balance and/or profit
· The Board evaluates the performance of the Company's investments on a fair
value basis as part of the quarterly management accounts review and the
Company values its investments on a fair value basis driven by a RICS
valuation provided by Savills (the "external valuer") using various
assumptions to reflect current market conditions. This includes, amongst other
factors, the comparable market value of similar freehold forestry assets.
These fair value assessments happen on a bi-annual basis and are included in
the Company's annual and interim financial statements, with the movement in
the valuations taken to the statement of comprehensive income and is therefore
measured within its earnings
The Directors have concluded that the Company meets the definition of an
investment entity in accordance with IFRS 10 after evaluation of the relevant
criteria.
The Directors continue to consider the Company demonstrates the
characteristics and meets the requirements to be considered an investment
entity.
IFRS 10 states that investment entities are required to hold subsidiaries at
fair value through profit or loss rather than consolidation on a line-by-line
basis; this means that the Group's cash, debt and working capital balances are
included in the fair value of the investment instead of in the Company's
assets and liabilities. The Company has one investee, namely FSFC Holdings
Limited, which invests the funds of the FSF investors on its behalf and is
effectively performing investment management services on behalf of several
unrelated beneficiary investors.
4. Return on investment and interest income
Period from
incorporation on
31 August 2021
to 30 September
2022
£'000
Unrealised fair value movement of investments 10,120
Interest Income - Loans to direct subsidiary 852
Interest Income - Bank 52
Total 11,024
5. Investment management fees
Period from
incorporation on
31 August 2021
to 30 September
2022
£'000
Investment management fee 1,071
Total 1,071
Foresight Group LLP was appointed as the Investment Manager for the Company
under an Investment Management Agreement. Under the terms of the agreement,
the Investment Manager is entitled to a management fee from the Company, which
is calculated quarterly in arrears at 0.85% of NAV per annum up to £500
million and 0.75% per annum in excess of £500 million.
The Company paid £687,218 during the period. Investment management fees of
£384,092 were billed at the period end and remained to be paid to Foresight
Group LLP.
6. Operating expenses
Period from
incorporation on
31 August 2021
to 30 September
2022
£'000
Director fees and expenses 140
Administration fees 104
Legal costs 120
Audit fees 118
Other expenses 684
Total 1,166
Other expenses include adviser fees, independent valuer fees, broker fees,
depository fees and other company-related costs.
The Company had no employees during the period (30 September 2022: nil). There
was no Directors' remuneration for the period other than the fees detailed in
note 19.
Included within other expenses is an amount of £118,250 to Ernst & Young
LLP for the audit of the Company for the period ended 30 September 2022.
Details of Directors' fees are set out in note 22.
7. Dividends
The Company did not pay any dividends in the period from incorporation to 30
September 2022.
8. Taxation
The Company received notice on 11 November 2021 confirming it is an approved
Investment Trust for accounting periods commencing on or after 23 November
2021. The approval is subject to the Company continuing to meet
the eligibility conditions of Section 1158 of the Corporation Taxes Act 2010.
Furthermore, there are also ongoing requirements for approved companies in
Chapter 3 of Part 2 Investment Trust (Approved Company) (Tax) Regulations 2011
(Statutory Instrument 2011/2999). To maintain its ITC status, the Company
must adhere to the following conditions throughout an accounting period:
(i) The Company must not be a closed company at any time in an accounting period
(ii) An investment trust must not retain in respect of an accounting period an
amount which is greater than 15% of its income for the accounting period and
the relevant distribution must be distributed before the filing date for the
investment trust's company tax return for the period
(iii) An investment trust must notify HMRC of a revised investment policy before the
filing date for its tax return for the accounting period in which the
investment policy was revised
(iv) An investment trust must notify HMRC in writing of a breach of any of the
conditions in Section 1158 or any of the requirements in the regulations as
soon as possible after the investment trust becomes aware of the breach
The Company regularly monitors the conditions required to maintain
ITC status.
Current year
ended
30 September
2022
£'000
Current taxes
Current year -
Total income tax charge in the statement of comprehensive income -
Total as at
Revenue Capital 30 September
reserve reserve 2022
Current year ended 30 September 2022 £'000 £'000 £'000
Profit before tax (1,333) 10,120 8,787
Profit before tax multiplied by rate of corporation tax in the UK of 19% (253) 1,923 1,670
(2021: 19%)
Effects of:
Non-taxable capital profits due to UK approved investment trust company status - (1,923) (1,923)
Non-taxable dividend income - - -
Dividends designated as interest distributions - - -
Temporary differences on which deferred tax is not recognised 253 - 253
Total income tax charge in the statement of comprehensive income - - -
Analysis of tax expense
There was no corporation tax payable during the period from incorporation on
31 August 2021 to 30 September 2022. As a result, the tax charge for the
period is £nil. Investment gains are exempt from tax owing to the Company's
status as an investment trust.
Reconciliation of income taxes in the statement of comprehensive income
The tax charge for the period is different from the standard rate of
corporation tax in the UK, currently 19% (2021: 19%), and the difference is
explained below:
Factors that may affect future total tax charges
Following the March 2022 Budget, the corporation tax rate will increase from
19% to 25% with effect from April 2023. The Company is recognised as an ITC
for this interim accounting period and is taxed at the current main rate of
19%.
At the period end, there is a potential deferred tax asset of £253,194 in
relation to excess management expenses carried forward. The deferred tax asset
is unrecognised at the period end in line with the Company's stated accounting
policy.
9. Earnings per share
Capital Revenue
reserve reserve Total
Revenue and capital profit attributable to equity holders of the Company 10,120 (1,333) 8,787
(£'000)
Average number of Ordinary Shares issued ('000) 142,847 142,847 142,847
Profit per share at 30 September 2022 (pence) 7.1 (0.9) 6.2
10. Investments at fair value through profit and loss
Period from
incorporation on
31 August 2021
to 30 September
2022
£'000
Fair value at start of the period -
Loans to intermediate holding companies 21,821
Equity investment in holding companies 114,350
Unrealised gain on investments at fair value 10,120
Total 146,291
There is a loan between FSF and FSFC Holdings Limited for £21,821,094. The
rate of interest on the loan is 7% per annum. Interest accrued at the period
end and outstanding at the reporting date was £852,198.
The Company owns 11,435,005,921 shares in FSFC Holdings Limited that were
purchased for a consideration of £0.01 per share.
Fair value investments
The Investment Manager has carried out fair value market valuations of the
underlying SPV investments as at 30 September 2022 on a RICS basis, as
performed by Savills. The Directors have approved the methodology used, as
well as confirming their understanding of all underlying key assumptions
applicable. All SPV investments are at fair value through profit or loss and
are valued using the IFRS 13 framework for fair value measurement.
Savills includes all investments under ownership by FSF in their portfolio
valuation, for both afforestation and forestry properties. The valuations have
been prepared in accordance with the RICS Valuation - Global Standards July
2017 (the "Red Book") and incorporate the recommendations of the International
Valuation Standards, which are consistent with the principles set out in IFRS
13.
Savills, in forming its opinion, makes various assumptions on the basis of
current market conditions; the following are the key assumptions are made:
· Fair value of assets
· Savills employs a "comparable approach" by analysing comparable market
value(s) of similar freehold forestry and afforestation assets from recent
transactions, when assessing what fair value is reasonable to attribute to
assets with similar features, held by subsidiaries of FSF
· Planting land value
· Savills includes a reasonable view of the potential for afforestation sites'
value uplift over time, rather than viewing the current value of these sites
as only attributable to their current use as grazing land
· Savills takes account of the relevant stage each site is currently at of the
forestry grant application process when reaching a judgement
· Location and situation
· Due to the assets under ownership being located across the UK (Scotland, North
England and Wales), Savills accounts for the potential differences in market
interest associated in different locations
· Winter storm vulnerability
· Savills makes assessments on the basis of the extent of damage suffered by
sites due to extreme windblow incidents. Where damage is extensive, Savills
will make prudent adjustments to the value of the site, if it is evident that
some of the affected timber may be challenging to recover
· Developmental status of afforestation sites
· Due to the nature of operations for the afforestation assets, Savills applies
reassessments as to the value of an asset when a new developmental
milestone occurs
In addition, the Investment Manager believes the Red Book valuation does not
include any value in relation to progress in units ("PIUs") as at 30 September
2022 and has therefore calculated an estimated value on the progress made on
obtaining the rights to PIUs as to date no PIUs have been authorised by the
Woodland Trust.
Fair value hierarchy
All assets and liabilities for which fair value is measured or disclosed in
the financial statements are categorised within the fair value hierarchy,
described as follows, based on the lowest level input that is significant to
the fair value measurement as a whole - these levels are defined, as per IFRS
13, below:
· Level 1 - Quoted (unadjusted) market prices in active markets for identical
assets or liabilities.
· Level 2 - Valuation techniques for which the lowest level input that is
significant to the fair value measurement is directly or indirectly
observable.
· Level 3 - Valuation techniques for which the lowest level input that is
significant to the fair value measurement is unobservable.
The Company considers that all of its investments fall within Level 3 of the
fair value hierarchy as defined by IFRS 13.
There have been no transfers between Level 1 and Level 2 during any of the
periods, nor have there been any transfers between Level 2 and Level 3 during
any of the periods.
The valuations have been prepared on the basis of market value, which is
defined in the RICS Valuation Standards as: "The estimated amount for which an
asset should exchange on the date of valuation between a willing buyer and a
willing seller in an arm's-length transaction after proper marketing wherein
the parties had each acted knowledgeably, prudently and without compulsion."
Market value as defined in the RICS Valuation Standards meets the requirements
of fair value defined under IFRS.
11. Trade and other receivables
Period from
incorporation on
31 August 2021
to 30 September
2022
£'000
Interest receivable from subsidiaries 852
Total 852
12. Trade and other payables
Period from
incorporation on
31 August 2021
to 30 September
2022
£'000
Creditors 477
Accruals 385
Intercompany account 24
Total 886
The total for creditors as at 30 September 2022 includes an amount of
£384,092 relating to investment management fees charged by Foresight Group
LLP to services provided during the period. Similarly, an amount of £31,373
relating to administration services fees has also been charged by Foresight
Group LLP.
13. Share capital
Number
of shares
Allotted share capital, issued and fully paid:
Opening balance at incorporation on 31 August 2021 -
Allotted upon incorporation
Issue of Ordinary Shares at 1 pence per share (31 August 2021) 1
Allotted since incorporation
Issue of management shares at 1 pence per share (12 October 2021) 50,000
Allotted/redeemed following admission to London Stock Exchange
Ordinary Shares issued at Initial Public Offering (19 November 2021) 130,000,000
Management shares redeemed (50,000)
Ordinary Shares issued on 28 June 2022 42,056,074
Total number of Ordinary Shares at 30 September 2022 172,056,075
Period from
incorporation on
31 August 2021 to
Share Share 30 September
capital premium 2022
£'000 £'000 £'000
Opening balance (at incorporation) - - -
Shares issued at IPO 1,721 173,279 175,000
Costs associated with IPO - (3,204) (3,204)
Total 1,721 170,075 171,796
Prior to IPO, one Ordinary Share was in issue, owned by Foresight Group LLP.
The initial placing of 130,000,000 Ordinary Shares took place on 24 November
2021, raising gross proceeds of £130,000,000. Each Ordinary Share has equal
rights to dividends and has equal rights to participate in a distribution
arising from a winding-up of the Company.
The second placing of 42,056,074 Ordinary Shares took place on 28 June 2022,
raising gross proceeds of £44,999,999. Each Ordinary Share has equal rights
to dividends and has equal rights to participate in a distribution arising
from a winding-up of the Company.
The total number of Ordinary Shares in issue as at 30 September 2022 was
172,056,075. The Company has not issued any further Ordinary Shares.
The issue costs of £3,204,130 relating to fundraising throughout the period
were offset against the share premium account.
14. Retained earnings
30 September
Revenue Capital 2022
£'000 £'000 £'000
Opening balance - - -
Profit/(loss) for the period (1,333) 10,120 8,787
Special distributable reserve - - -
Dividends paid - - -
Closing balance (1,333) 10,120 8,787
15. Net Asset Value per Ordinary Share
The total net asset per Ordinary Share is based on the net assets attributable
to equity Shareholders as at 30 September 2022 of £180.6 million and
Ordinary Shares in issue of 172,056,075.
30 September
2022
NAV (£m) 180.6
Number of Ordinary Shares issued (million) 172.1
Net Asset Value per share (pence) 105.0
16. Cash and cash equivalents
At period end, the Company held cash and cash equivalents of £34.3 million.
This balance was held by HSBC Bank plc.
30 September
2022
£'000
Cash and cash equivalents:
HSBC Bank plc - Current Account 4,283
HSBC Bank plc - Liquidity Fund 30,043
Total cash and cash equivalents 34,326
17. Financial instruments
Financial instruments by category
The Company held the following financial instruments at 30 September 2022.
There have been no transfers of financial instruments between levels of the
fair value hierarchy. There are no non-recurring fair value measurements.
Financial Financial Financial
assets held assets at fair liabilities
Cash and bank at amortised value through at amortised
balances cost profit or loss cost Total
£'000 £'000 £'000 £'000 £'000
Non-current assets
Investments at fair value through profit or loss (Level 3) - - 146,291 - 146,291
Current assets
Trade and other receivables - 852 - - 852
Cash and cash equivalents 34,326 - - - 34,326
Total financial assets 34,326 852 146,291 - 181,469
Current liabilities
Trade and other payables - - - (886) (886)
Total financial liabilities - - - (886) (886)
Net financial instruments 34,326 852 146,291 (886) 180,583
The Company holds its portfolio of assets at fair value. These assets are held
through the Company's underlying subsidiaries/intermediate holding companies
("the Group"). The assets in the Group are valued in accordance with RICS
Valuation - Global Standards July 2017 (the "Red Book") methodology, with
inspections conducted by an independent valuer ("Savills") at the end of the
period.
Savills' fair value assessment of the assets has been completed on a
comparable basis by looking at recent transactions of similar assets, to
assess current market value, outlined in note 10. As a management review
control, the Investment Manager applies discounted cash flow approach ("DCF")
to value the assets, to provide a precision level for validation of the fair
value presented by Savills. Whilst the two methodologies differ, the
Investment Manager has recorded an immaterial difference between the
respective portfolio valuation results in both the interim period and the
year-end period.
The Directors consider the DCF methodology used by the Investment Manager to
validate the Red Book valuation to be appropriate. The Board and Investment
Manager annually review the valuation inputs and, where possible, make use of
observable market data to ensure valuations reflect fair value of the assets.
A broad range of assumptions are used in the valuation which are based on
long-term forecasts and are not affected by short-term fluctuations in inputs,
be it economic or operational.
For management control purposes of comparing the two valuations on a like for
like basis, neither the DCF valuation nor RICS valuation conducted by Savills
include explicit recognition of Verified Carbon ("VC") value. The Manager has
therefore calculated an estimated value on the progress made on obtaining the
rights to PIUs as to date no PIUs have been authorised by the Woodland Trust.
Sensitivity analysis of the portfolio
The sensitivity of the portfolio to changes in mature forestry asset valuation
is as follows:
The portfolio valuation of mature forestry and afforestation assets is based
on the RICS Red Book valuation approach. The Directors consider the Red Book
market value of the assets which is a combination of several factors,
including timber growth rates, weighted age distribution and yield class to be
the most important unobservable input underpinning the valuation methodology
described on page 47. The Directors believe that the provision of market value
sensitivity analysis of mature forestry, afforestation and mixed forestry and
afforestation assets is appropriate to align with the Company's portfolio
composition.
Mature forestry asset valuation
The sensitivity of the portfolio to changes in mature forestry asset valuation
is as follows:
The independent valuer conducts inspections of all mature forestry assets on a
semi-annual basis, then provides a valuation based on RICS methodology. The
base case used for forestry asset value as at 30 September 2022 was £72.6
million. Due to this asset class forming significantly more than 10% of the
current portfolio valuation, this was deemed an appropriate sensitivity to
sample.
Changes Changes
in portfolio in NAV
Forestry assets sensitivity valuation per share
Forestry assets value increases by 10% +£7.25m/+4.0% +4.2p
Forestry assets value decreases by 10% -£7.25m/-4.0% -4.2p
Afforestation asset valuation
The sensitivity of the portfolio to changes in afforestation asset valuation
is as follows:
The independent valuer conducts inspections of all afforestation assets on a
semi-annual basis, then provides a valuation based on RICS methodology. The
base case used for afforestation asset value as at 30 September 2022 was
£52.1 million. Due to this asset class forming more than 10% of the current
portfolio valuation, this was deemed an appropriate sensitivity to sample.
Changes Changes
in portfolio in NAV
Afforestation assets sensitivity valuation per share
Afforestation assets value increases by 10% +£5.21m/+2.9% +3.0p
Afforestation assets value decreases by 10% -£5.21m/-2.9% -3.0p
Mixed forestry and afforestation asset valuation
The sensitivity of the portfolio to changes in mixed forestry and
afforestation asset valuation is as follows:
The independent valuer conducts inspections of all mixed assets on a
semi-annual basis, then provides a valuation based on RICS methodology. The
base case used for the asset value of mixed forestry and afforestation assets
as at 30 September 2022 was £14.7 million. Due to this asset class forming
more than 10% of the current portfolio valuation, this was deemed an
appropriate sensitivity to sample.
Changes Changes
in portfolio in NAV
Mixed forestry and afforestation assets sensitivity valuation per share
Mixed assets value increases by 10% +£1.47m/+0.8% +0.9p
Mixed assets value decreases by 10% -£1.47m/-0.8% -0.9p
Non-core asset valuation
Due to the relatively small size of the non-core assets in the Company's
valuation, the sensitivity to movement in this part of the portfolio is deemed
immaterial, so no sensitivity analysis has been conducted.
Capital risk management
Capital management
The Group, which comprises the Company and its non-consolidated subsidiaries,
manages its capital to ensure that it will be able to continue as a going
concern while maximising the return to Shareholders through the optimisation
of the debt and equity balances. The capital structure of the Group
principally consists of the share capital account and retained earnings as
detailed in notes 13 and 14. The Group aims to deliver its objective by
investing available cash and using leverage whilst maintaining sufficient
liquidity to meet ongoing expenses.
Gearing ratio
The Company's Investment Manager reviews the capital structure of the Company
and the Group on a semi-annual basis. The Company and its subsidiaries intend
to make prudent use of leverage for financing acquisitions of investments and
working capital purposes. Under the Company's Articles, and in accordance with
the Company's investment policy, the Company's outstanding borrowings,
excluding the debts of underlying assets, will be limited to 30% of the
Company's Net Asset Value.
As at 30 September 2022, the Company had no outstanding debt. The Company's
subsidiary FSFC Holdings 2 Limited has a £30.0 million Revolving Credit
Facility, which was undrawn at 30 September 2022.
Financial risk management
The Group's activities expose it to a variety of financial risks: capital
risk, liquidity risk, market risk (including interest rate risk, inflation
risk and power price risk) and credit risk. The Group's overall risk
management programme focuses on the unpredictability of financial markets and
seeks to minimise potential adverse effects on the Group's financial
performance.
For the Company and the intermediate holding companies, financial risks are
managed by the Investment Manager, which operates within the Board-approved
policies. All risks continue to be managed by the Investment Manager.
The various types of financial risk are managed as follows:
Financial risk management - Company only
The Company accounts for its investments in its subsidiaries at fair value.
Accordingly, to the extent there are changes as a result of the risks set out
below, these may impact the fair value of the Company's investments.
Capital risk
The Company has implemented an efficient financing structure that enables it
to manage its capital effectively. The Company's capital structure comprises
equity only (refer to the statement of changes in equity). As at
30 September 2022, the Company had no recourse to debt, although as set out
above, the Company's subsidiary FSFC Holdings Limited is a guarantor for the
Revolving Credit Facility of FSFC Holdings 2 Limited.
Liquidity risk
The Directors monitor the Company's liquidity requirements to ensure there is
sufficient cash to meet the Company's operating needs. The Company's liquidity
management policy involves projecting cash flows and forecasting the level of
liquid assets necessary to meet these. Due to the nature of its investments,
the timing of cash outflows is reasonably predictable and, therefore, is not a
major risk to the Company. The Company was in a net cash position and had no
outstanding debt at the balance sheet date.
Market risk - foreign currency exchange rate risk
All the cash flows and investments are denominated in pounds sterling.
Financial risk management - Company and non-consolidated subsidiaries
The following risks impact the Company's subsidiaries and in turn may impact
the fair value of investments held by the Company.
Market risk - interest rate risk
Interest rate risk arises in the Company's subsidiaries on the Revolving
Credit Facility borrowings and floating rate deposits. Borrowings issued at
variable rates expose those entities to variability of interest payment cash
flows. Interest rate hedging may be carried out to seek to provide protection
against increasing costs of servicing debt drawn down by the holding company
as part of its Revolving Credit Facility. This may involve the use of interest
rate derivatives and similar derivative instruments.
Each investment hedges their interest rate risk at the inception of a project.
This will either be done by issuing fixed rate debt or variable rate debt
which will be swapped into fixed rate by the use of interest rate swaps.
Market risk - inflation risk
Some of the Company's investments will have part of their revenue and some of
their costs linked to a specific inflation index at inception of the project.
In most cases this creates a natural hedge, meaning a derivative does not need
to be entered into in order to mitigate inflation risk.
Market risk - timber price risk
Timber revenue forms a significant majority of forecasted revenues for the
Company's investments. Whilst projections suggest a steady income flow through
the sale of timber, there is a risk that timber prices will drop due to market
forces and minimise the revenues the Fund will receive. This risk is mitigated
by the ability of the Company and underlying investments to sustain its
liquidity, even in the event of withholding from timber sales,
given sub-optimal pricing.
Credit risk
Credit risk is the risk that a counterparty of the Company or its subsidiaries
will default on its contractual obligations it entered into with the Company
or its subsidiaries. Credit risk arises from cash and cash equivalents,
derivative financial instruments and deposits with banks and financial
institutions, as well as credit exposures to customers.
The Company and its subsidiaries place cash in authorised deposit takers and
is therefore potentially at risk from the failure of such institutions. In
respect of credit risk arising from other financial assets and liabilities,
which mainly comprise of cash and cash equivalents, exposure to credit risk
arises from default of the counterparty with a maximum exposure equal to the
carrying amounts of these instruments. In order to mitigate such risks, cash
is maintained with major international financial institutions. During the year
and at the reporting date, the Company maintained relationships with HSBC Bank
plc.
Moody's 30 September
credit 2022
rating £'000
HSBC Bank plc P1 34,326
Total cash and cash equivalents 34,326
18. Subsidiaries
The following subsidiaries have not been consolidated in these financial
statements as a result of applying the requirements of "Investment Entities:
Applying the Consolidation Exception (Amendments to IFRS 10)". The Company is
not contractually obligated to provide financial support to the subsidiaries
and there are no restrictions in place in passing monies up the structure.
Name Direct or indirect holding Country of incorporation Registered address Principal activity Proportion of shares and voting rights held
FSFC Holdings Limited Direct UK C/O Foresight Group LLP, The Shard, 32 London Bridge Street, London, England, Holding company 100%
SE1 9SG
FSFC Holdings 2 Limited Indirect UK C/O Foresight Group LLP, The Shard, 32 London Bridge Street, London, England, Holding company 100%
SE1 9SG
FSFC Company 1 Limited Indirect UK C/O Foresight Group LLP, The Shard, 32 London Bridge Street, London, England, SPV 100%
SE1 9SG
Blackmead Forestry Limited Indirect UK C/O Foresight Group LLP, The Shard, 32 London Bridge Street, London, England, SPV 100%
SE1 9SG
Blackmead Forestry II Limited Indirect UK C/O Foresight Group LLP, The Shard, 32 London Bridge Street, London, England, SPV 100%
SE1 9SG
Coull Forestry Limited Indirect UK C/O Foresight Group LLP, The Shard, 32 London Bridge Street, London, England, SPV 100%
SE1 9SG
Fordie Estates Limited Indirect UK C/O Foresight Group LLP, Clarence House, 133 George Street, Edinburgh, SPV 100%
Scotland, EH2 4JS
19. Employees and Directors
The Company is governed by an independent and non-executive Board of
Directors. There are four Non-Executive Directors. Please refer to the
Directors' remuneration report, for details as to Directors' emoluments.
20. Contingencies and commitments
The Company has no guarantees or significant capital commitments as at 30
September 2022.
21. Events after the balance sheet date
The Directors have evaluated the need for disclosures and/or adjustments
resulting from post balance sheet events through to the date the financial
statements were available to be issued. These include:
· On 12 October 2022, the acquisition of a stocked UK forestry project (Bogbain
Wood) for £1 million was completed
· On 17 October 2022, the acquisition of an afforestation project
(Auchentaggart) for £1.6 million was completed
· On 31 October 2022, the acquisition of an afforestation project (Burnside) for
£1.7 million was completed
There are no other significant events since the period end which would require
to be disclosed. There were no adjusting post balance sheet events and as such
no adjustments have been made to the valuation of assets and liabilities as at
30 September.
22. Related party transactions
Following admission of the Ordinary Shares (refer to note 13), the Company and
the Directors are not aware of any person who, directly or indirectly,
jointly, or severally, exercises or could exercise control over the Company.
The Company does not have an ultimate controlling party.
The transactions between the Company and its subsidiaries which are related
parties of the Company and fair values are disclosed in note 10. Details of
transactions between the Company and related parties are disclosed below.
This note also details the terms of the Company's engagement with Foresight
Group LLP, the Investment Manager.
Transactions with the Investment Manager
The Investment Manager, Foresight Group LLP, is entitled to a base fee on the
following basis:
(a) 0.85% per annum of the Net Asset Value of the Fund up to and including £500.0
million
(b) 0.75% per annum of the Net Asset Value of the Fund in excess of £500.0
million
The investment management fees incurred during the period to 30 September 2022
were £1,071,310, of which £384,092 remained unpaid as at 30 September 2022.
Additionally, the Company incurred fees during the period to 30 September 2022
of £103,813, which related to Administration services provided by the
Investment Manager, in its capacity as Administrator for the Company.
Seed asset acquisition
As mentioned in the Company's Prospectus dated 28 October 2021, FSF had
entered into an option agreement to acquire from Blackmead Infrastructure
Limited, a company within the Foresight Inheritance Tax Solutions, a seed
asset portfolio of c.11,000 hectares of forestry and afforestation assets in
the UK. This seed asset acquisition represented a conflict of interest as
the Investment Manager provided investment management services to both
the Company and FITF.
The Investment Manager implemented its conflict management policy as part of
its process to mitigate the identified conflict, including: disclosures of the
relevant conflicts to the independent boards of both FSF and FITF; due care
was taken to keep the buy side and sell side of the investment team separate;
appointment of independent external legal advisers; and a fairness opinion,
addressed to the Company on the valuation of the assets to be acquired, was
sought from an independent expert.
Other transactions with related parties
The amount incurred in respect of Directors' fees during the period to 30
September 2022 was £143,750. The Directors also received £47,500 in
relation to activities prior to IPO. These amounts had been fully paid as at
30 September 2022. The amounts paid to individual Directors were as follows:
Basic and Pre-IPO
Committee
fees expenses Total
Director £ £ £
Richard Davidson (Chair) 45,000 15,000 60,000
Sarika Patel 37,500 12,500 50,000
Christopher Sutton 30,000 10,000 40,000
Josephine Bush 31,250 10,000 41,250
Total 143,750 47,500 191,250
The Directors held the following shares in the Company:
% of issued
Number of Ordinary
Ordinary Share
Director/PDMR/PCA Shares capital
Richard Davidson (Chair) 100,000 0.06
Sarika Patel 24,000 0.01
Christopher Sutton 25,000 0.01
Josephine Bush 19,000 0.01
The above transactions were undertaken on an arm's length basis.
ALTERNATIVE PERFORMANCE MEASURES ("APMs")
APM Purpose Calculation
Gross Asset Value ("GAV") A measure of the value of the Company's total assets. The sum of net assets of the Company as shown on the Statement of Financial
Position and the total debt of the Group, which currently comprises only of
the RCF.
Net Asset Value per share Allows investors to gauge whether shares are trading at a premium or a The net assets divided by the number of Ordinary Shares in issuance.
discount by comparing the Net Asset Value per share with the share price.
Total NAV return since IPO A measure of financial performance, indicating the movement of the value Closing NAV per share as at 30 September 2022 plus all dividends since IPO
of the Fund since IPO and expressed as a percentage. assumed reinvested, divided by the NAV at IPO, to the power of 1 over the
number of years since IPO, expressed as a percentage.
Market capitalisation Provides an indication of the size of the Company. Closing share price as at 30 September 2022 multiplied by the closing number
of Ordinary Shares in issuance.
Ongoing charges A measure, expressed as a percentage of average net assets, of the regular, Calculated and disclosed in accordance with the AIC methodology. Annualised
recurring annual costs of running the Company per Ordinary Share. expenses divided by average NAV.
COMPANY SUMMARY
Below are the Company key facts, advisers and other information.
Company information
Foresight Sustainable Forestry Company Plc ("FSF") is the first and only UK
listed investment trust focused on UK forestry, afforestation and natural
capital (registered number 13594181) with a premium listing on the London
Stock Exchange.
Registered address
The Shard, 32 London Bridge Street, London, SE1 9SG
Ticker/SEDOL
GB00BMDPKM71
Company year end
30 September
Investment Manager, Company Secretary and Administrator
Foresight Group LLP, No OC300878, registered in England and Wales and
authorised and regulated by the Financial Conduct Authority
Market capitalisation
£182.4 million at 30 September 2022
Investment Manager fees
0.85% per annum of the NAV up to £500 million, falling to 0.75% per annum of
NAV in excess of £500 million.
ISA, PEP and SIPP status
The Ordinary Shares are eligible for inclusion in PEPs and ISAs (subject to
applicable subscription limits) provided that they have been acquired in the
market, and they are permissible assets for SIPPs.
AIFMD status
The Company is classed as an externally managed Alternative Investment Fund
under the Alternative Investment Fund Managers Regulations 2013 and the
European Union's Alternative Investment Fund Managers Directive.
Non-mainstream pooled investment status
Approved UK Investment Trust subject to the Company continuing to meet the
eligibility conditions in Section 1158 of the Corporation Taxes Act 2010 and
the ongoing requirements for approved companies in Chapter 3 of Part 2
Investment Trust (Approved Company) (Tax) Regulations 2011 (Statutory
Instrument 2011/2999).
FATCA
The Company has registered for FATCA and has a GIIN number 191P2V.99999.SL.826
Investment policy
The Company's investment policy is set out above.
Website
https://fsfc.foresightgroup.eu/
NOTICE OF ANNUAL GENERAL MEETING
23 FEBRUARY 2023
Notice is hereby given that the Annual General Meeting of Foresight
Sustainable Forestry Company plc ("the Company") will be held on
23 February 2023 at 1.00 pm at the offices of Foresight Group, The Shard, 32
London Bridge Street, London, SE1 9SG for the purpose of considering and, if
thought fit, passing the following resolutions, of which resolutions 1 to 10
will be proposed as ordinary resolutions and resolutions 11 and 13 will be
proposed as special resolutions.
Ordinary Resolutions
Resolution One
To receive the Annual Report and Accounts of the Company for the year ended
30 September 2022.
Resolution Two
To approve the Directors' Remuneration Policy included in the Annual Report
for the year ended 30 September 2022.
Resolution Three
To approve the Directors' Remuneration Report included in the Annual Report
for the year ended 30 September 2022.
Resolution Four
To elect Richard Davidson as a Director of the Company.
Resolution Five
To elect Sarika Patel as a Director of the Company.
Resolution Six
To elect Christopher Sutton as a Director of the Company.
Resolution Seven
To elect Josephine Bush as a Director of the Company.
Resolution Eight
To appoint Ernst & Young LLP as auditor to the Company.
Resolution Nine
To authorise the Directors to fix the auditor's remuneration until the
conclusion of the next Annual General Meeting of the Company.
Resolution Ten
That, in addition to all existing authorities, the Directors be generally and
unconditionally authorised pursuant to section 551 of the Companies Act 2006
(the "Act") to allot shares in the Company, or to grant rights to subscribe
for or convert any security into shares in the Company, up to an aggregate
nominal amount of £172,056.08 or, if less, the aggregate nominal amount equal
to 10% of the nominal value of the issued ordinary share capital of the
Company (excluding treasury shares) immediately prior to the passing of this
resolution). The authority given by this resolution 10 shall, unless renewed,
varied or revoked by the Company, expire on the conclusion of the next Annual
General Meeting of the Company or, if earlier, upon the expiry of 15 months
from the date of passing of this resolution, save that the Company may, before
such expiry, make any offer or enter into an agreement which would or might
require shares to be allotted or rights to subscribe for or convert any
security into shares to be granted in pursuance of such an offer or agreement
as if such authority had not expired.
Special Resolutions
Resolution Eleven
That, in addition to all existing authorities and subject to the passing of
resolution 10, the Directors be and are empowered pursuant to sections 570 and
573 of the Act to allot equity securities (within the meaning of section
560(1) of that Act) for cash either pursuant to the authority conferred by
resolution 10 or by way of sale of treasury shares as if section 561(1) of
that Act did not apply to any such allotment or sale, provided that this power
shall be limited to the allotment and/or sale of equity securities with an
aggregate nominal value of up to ££172,056.08 or, if less, the aggregate
nominal amount equal to 10% of the nominal value of the issued ordinary share
capital of the Company immediately prior to the passing of this resolution.
This authority will expire at the conclusion of the next Annual General
Meeting of the Company or, if earlier, upon the expiry of 15 months from the
date of passing of this resolution, save that the Company may, before such
expiry, make any offer or enter into an agreement which would or might require
the allotment and/or sale from treasury of equity securities in the Company in
pursuance of such an offer or agreement as if such authority had not expired.
Resolution Twelve
That the Company be generally and unconditionally authorised in accordance
with section 701 of the Act to make market purchases (within the meaning of
section 693(4) of the Act) of its ordinary shares of £0.01 each ("Ordinary
Shares"), provided that:
(i) the aggregate number of shares to be purchased shall not exceed 25,791,205
Ordinary Shares or, if lower, such number of shares rounded down to the
nearest whole share as shall equal 14.99]% of the Company's ordinary share
capital in issue (excluding treasury shares) at the date of passing this
resolution;
(ii) the minimum price (excluding any expenses) which may be paid for an Ordinary
share is 1 penny (the nominal value thereof);
(iii) the maximum price (excluding any expenses) which may be paid for an Ordinary
Share is the higher of (1) an amount equal to 105% of the average of the
middle market quotations for the Ordinary Shares taken from the London Stock
Exchange Daily Official List for the five business days immediately preceding
the day on which the Ordinary Shares are contracted to be purchased, and (2)
the higher of (a) the price of the last independent trade and (b) the highest
current independent bid for any number of Ordinary Shares on the trading venue
where the purchase is carried out;
(iv) the authority conferred by this resolution shall expire on the conclusion of
the next Annual General Meeting of the Company unless such authority is
renewed prior to such time;
(v) the Company may make a contract to purchase Ordinary Shares under the
authority conferred by this resolution prior to the expiry of such authority
which will or may be executed wholly or partly after the expiration of such
authority and may make a purchase of Ordinary Shares pursuant to such
contract; and
(vi) any Ordinary Shares bought back under this authority hereby granted may, at
the discretion of the Directors, be cancelled or held in treasury and, if held
in treasury, may be resold from treasury or cancelled at the discretion of the
Directors.
Resolution Thirteen
That, a general meeting, other than an AGM, may be called on not less than 14
clear days' notice.
By order of the Board
Foresight Group LLP
Company Secretary
14 December 2022
Registered office:
The Shard
32 London Bridge Street
London
SE1 9SG
Notes:
1 No Director has a service contract with the Company. Directors' appointment
letters with the Company will be available for inspection at the registered
office of the Company until the time of the meeting and from 15 minutes
before the meeting at the location of the meeting, as well as at the meeting.
2. To be entitled to attend and vote at the meeting (and for the purposes of the
determination by the Company of the votes they may cast), members must be
registered in the register of members of the Company (the "Register of
Members") at 10.00 pm on 21 February 2023 (or, in the event of any
adjournment, 10.00 pm on the date which is two (excluding non-business days)
days before the time of the adjourned meeting). Changes to the Register of
Members after the relevant deadline shall be disregarded in determining the
rights of any person to attend and vote at the meeting.
3. A member entitled to attend and vote at the meeting (in accordance with note 2
above) is entitled to appoint a proxy or proxies to attend, speak and vote on
his or her behalf. A proxy need not also be a member but must attend the
meeting to represent you. Details of how to appoint the chairman of the
meeting or another person as your proxy using the form of proxy are set out in
the notes on the form of proxy which is enclosed. If you wish your proxy to
speak on your behalf at the meeting, you will need to appoint your own choice
of proxy (not the chairman) and give your instructions directly to them.
4. You may appoint more than one proxy, provided each proxy is appointed to
exercise rights attached to different shares. You may not appoint more than
one proxy to exercise rights attached to any one share. To appoint more than
one proxy, (an) additional form(s) of proxy may be obtained by contacting
Computershare Investor Services PLC on 0370 707 1231. Please indicate in the
box next to the proxy holder's name the number of shares in relation to which
they are authorised to act as your proxy. Please also indicate by ticking the
box provided if the proxy instruction is one of multiple instructions being
given. All forms must be signed and returned together in the same envelope.
5. In the case of joint holders, only one need sign the form of proxy. The vote
of the senior joint holder will be accepted to the exclusion of the votes of
the other joint holders. For this purpose, seniority will be determined by the
order in which the names of the joint holders appear in the Register of
Members (the first named being the most senior).
6. A corporation which is a member can appoint one or more corporate
representatives who may exercise, on its behalf, all its powers as a member
provided that no more than one corporate representative exercises powers over
the same share.
7. As at the publication of this notice, the Company's issued share capital was
172,056,075 Ordinary Shares, carrying one vote each. Therefore, the total
voting rights in the Company as at the date of this notice is 172,056,075.
8. Any person to whom this notice is sent who is a person nominated under Section
146 of the Companies Act 2006 to enjoy information rights (a 'Nominated
Person') may, under an agreement between him/her and the member by whom he/she
was nominated, have a right to be appointed (or to have someone else
appointed) as a proxy for the meeting. If a Nominated Person has no such proxy
appointment right or does not wish to exercise it, he/she may, under any such
agreement, have a right to give instructions to the shareholder as to the
exercise of voting rights.
The statement of the rights of members in relation to the appointment of
proxies in paragraphs 3 to 4 above does not apply to Nominated Persons. The
rights described in those paragraphs can only be exercised by members of the
Company.
9. Appointment of a proxy will not preclude a member from subsequently attending
and voting at the meeting should he or she subsequently decide to do so. You
can only appoint a proxy using the procedures set out in these notes and the
notes to the form of proxy.
10. The Register of Directors' Interests will be available for inspection at the
meeting.
11. Information regarding the meeting, including the information required by
Section 311A of the Companies Act 2006, is available from
www.foresightgroup.eu.
12. To be passed, ordinary resolutions require a majority in favour of the votes
cast and special resolutions require a majority of not less than 75% of
members who vote in person or by proxy at the meeting. On a vote by a show of
hands, every holder of Ordinary Shares who, due to being an individual is
present by a person or by proxy, or, due to being a corporation is present by
a duly authorised representative (themselves not being a member), shall have
one vote. On a poll vote, every holder of Ordinary Shares who is present in
person, by proxy or by duly authorised representative, shall have one vote for
every Ordinary Share held by him.
13. A vote withheld is not a vote in law, which means that the vote will not be
counted in the calculation of votes for or against the resolution. If you
either select the "Discretionary" option or if no voting indication is given,
your proxy will vote or abstain from voting at his or her discretion. Your
proxy will vote (or abstain from voting) as he or she thinks fit in relation
to any other matter which is put before the meeting.
14. A form of proxy and reply paid envelope is enclosed. To be valid, it should be
lodged with the Company's Registrar, Computershare Investor Services PLC, The
Pavilions, Bridgwater Road, Bristol BS99 6ZY or the proxy must be registered
electronically at www.investorcentre.co.uk/eproxy, in each case, so as to be
received no later than 48 hours (excluding non-working days) before the time
appointed for holding the meeting or any adjourned meeting. To vote
electronically, you will be asked to provide your Control Number, Shareholder
Reference Number and PIN which are detailed on your proxy form. This is the
only acceptable means by which proxy instructions may be submitted
electronically.
CREST members who wish to appoint a proxy or proxies through the CREST
electronic proxy appointment service may do so for the meeting (and any
adjournment of the meeting) by following the procedures described in the CREST
Manual (available via www.euroclear.com). CREST Personal Members or other
CREST sponsored members (and those CREST members who have appointed a voting
service provider) should refer to their CREST sponsor or voting service
provider, who will be able to take the appropriate action on their behalf.
In order for a proxy appointment or instruction made by means of CREST to be
valid, the appropriate CREST message (a 'CREST Proxy Instruction') must be
properly authenticated in accordance with Euroclear UK & International
Limited's (EUI) specifications and must contain the information required for
such instructions, as described in the CREST Manual. The message (regardless
of whether it constitutes the appointment of a proxy or an amendment to the
instruction given to a previously appointed proxy) must, in order to be valid,
be transmitted so as to be received by the issuer's agent (ID 3RA50) by the
latest time(s) for receipt of proxy appointments specified in Note 3 above.
For this purpose, the time of receipt will be taken to be the time (as
determined by the timestamp applied to the message by the CREST Applications
Host) from which the issuer's agent is able to retrieve the message by enquiry
to CREST in the manner prescribed by CREST. After this time any change of
instructions to a proxy appointed through CREST should be communicated to him
by other means.
CREST members (and, where applicable, their CREST sponsors or voting service
providers) should note that EUI does not take available special procedures in
CREST for any particular messages. Normal system timings and limitations will
therefore apply in relation to the input of CREST Proxy Instructions. It is
the responsibility of the CREST member concerned to take (or, if the CREST
member is a CREST personal member or sponsored member or has appointed a
voting service provider, to procure that his CREST sponsor or voting service
provider takes) such action as shall be necessary to ensure that a message is
transmitted by means of the CREST system by any particular time. In this
connection, CREST members (and, where applicable, their CREST sponsors or
voting service providers) are referred, in particular, to those sections of
the CREST Manual concerning practical limitations of the CREST system and
timings. The Company may treat as invalid a CREST Proxy Instruction in the
circumstances set out in Regulation 35(5)(a) of the Uncertificated Securities
Regulations 2001.
Proxymity Voting - if you are an institutional investor you may also be able
to appoint a proxy electronically via the Proxymity platform, a process which
has been agreed by the Company and approved by the Registrar. For further
information regarding Proxymity, please go to www.proxymity.io. Your proxy
must be lodged by 1.00pm on 21 February 2023 in order to be considered valid.
Before you can appoint a proxy via this process you will need to have agreed
to Proxymity's associated terms and conditions. It is important that you read
these carefully as you will be bound by them and they will govern the
electronic appointment of your proxy.
15. Under Section 319A of the Companies Act 2006, the Company must answer any
question you ask relating to the business being dealt with at the meeting
unless:
(a) answering the question would interfere unduly with the preparation for the
meeting or involve the disclosure of confidential information;
(b) the answer has already been given on a website in the form of an answer to a
question; or
(c) it is undesirable in the interests of the Company or the good order of the
meeting that the question be answered.
16. Pursuant to Chapter 5 of Part 16 of the Companies Act 2006 (Sections 527 to
531), where requested by a member or members meeting the qualification
criteria the Company must publish on its website, a statement setting out any
matter that such members propose to raise at the meeting relating to the audit
of the Company's accounts (including the auditor's report and the conduct of
the audit) that are to be laid before the meeting. Where the Company is
required to publish such a statement on its website it may not require the
members making the request to pay any expenses incurred by the Company in
complying with the request, it must forward the statement to the Company's
auditors no later than the time the statement is made available on the
Company's website and the statement may be dealt with as part of the business
of the meeting.
GLOSSARY OF TERMS
AIC The Association of Investment Companies
AIFMD Alternative investment fund management directive
AIFMs Alternative Investment Fund Managers
AIFs Alternative Investment Funds
APMs Alternative performance measures
Asset Manager The Company's underlying investments have appointed Foresight Group LLP, a
subsidiary of Foresight Group CI, to act as Asset Manager
BIG Bioenergy Infrastructure Group
Company Foresight Sustainable Forestry Company Plc
Ernst & Young LLP Ernst & Young is the Company's auditor
ESG Environmental, Social and Governance
FITF Foresight Inheritance Tax Fund
Foresight Foresight Group LLP
FSC Foresight Sustainable Forestry Company Plc
FSF Foresight Sustainable Forestry Company Plc
Fund Foresight Sustainable Forestry Company Plc
GAV Gross Asset Value on Investment Basis including debt held at SPV level
H&S Health and safety
HMRC HM Revenue & Customs
IAS International Accounting Standard
IFRS International Financial Reporting Standards as adopted by the EU
Intermediate holding companies Companies within the Group which are used to invest in afforestation and
forestry assets, namely FSFC Holdings Limited and FSFC Holdings 2 Limited
Investment Manager Foresight Group CI Limited
IPO Initial Public Offering
ITC Investment Trust Company
LSE London Stock Exchange
Main Market The main securities market of the London Stock Exchange
NAV Net Asset Value
PEFC Programme for the Endorsement of Forest Certification
Roundwood Small pieces of timber (about 5-15 cm, or 2-6 in. in diameter); small logs
RICS Royal Institution of Chartered Surveyors
S & ESG Sustainability and ESG
Savills Savills Advisory Services Limited
SDFR Sustainable Finance Disclosure Regulation
SDGs United Nations Sustainable Development Goal
SDR UK Green Taxonomy and UK Sustainable Disclosure Requirements
SORP Statement of Recommended Practice: Financial Statements of Investment Trust
Companies and Venture Capital Trusts
SPV The Special Purpose Vehicles which hold the Company's investment portfolio of
underlying operating assets
UK The United Kingdom of Great Britain and Northern Ireland
WCC UK Woodland Carbon Code
ADVISERS
Investment Manager, Alternative Investment Fund Manager, Administrator and
Company Secretary
Foresight Group LLP
The Shard
32 London Bridge Street
London
SE1 9SG
Registrar and Receiving Agent
Computershare Investor Services PLC
The Pavilions
Bridgwater Road
Bristol
BS99 6AH
Depositary
NatWest Trustee and Depositary Services Limited
250 Bishopsgate
London
EC2M 4AA
Sponsor, Global Co-ordinator and Sole Bookrunner
Jefferies International Limited
Exchange House
Primrose Street
London
EC2A 2EG
Public Relations
Citigate Dewe Rogerson
3 London Wall Buildings
London
EC2M 5SY
Solicitors to the Company
Gowling WLG (UK) LLP
4 More London Riverside
London
SE1 2AU
Independent Auditor
Ernst & Young LLP
25 Churchill Place
London
E14 5EY
Valuation Adviser (independent valuer)
Savills Advisory Services Ltd
Earn House
Broxden Business Park
Perth
PH11 1RA
ends
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