Foresight Sustain. - Interim Results to 31 March 2022
14/06/2022 07:00
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RNS Number : 7734O Foresight Sustain. Forestry Co PLC 14 June 2022
14 June 2022
Foresight Sustainable Forestry Company Plc
Interim Results to 31 March 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 (unaudited) inaugural interim
results (the "Interim Results"), covering the seven month period from FSF's
incorporation on 31 August 2021 to 31 March 2022.
H1 2022 Performance Highlights
- Since the Company's IPO raised £130m of gross proceeds in November 2021, the
Company's Net Asset Value has increased to £135.5 million.
- NAV per Share over the period increased to 104.2 pence, a total NAV return of
4.2%. The key driver of the uplift has been the 18% upwards revaluation of
FSF's afforestation sites, driven by rising land prices, granting of planting
permission, and completion of planting.
- As at 31 March 2022, 91% of IPO proceeds (£117.7 million) had been utilised
to acquire 29 forestry and afforestation assets made up of 38 properties,
making the Company substantially invested.
- The Company's acquired portfolio comprised 8,473 hectares of land, of which
36% (by value) are afforestation properties (FSF expects this to rise to over
40% in the near future).
- Planting of approximately 250,000 trees was completed during the period.
- FSF plans to harvest 100,000 tonnes of timber during 2022.
Key Metrics
As at 31 March 2022
Net Asset Value ("NAV") £135.5 million
NAV per Share 104.2 pence
Total NAV return 4.2%
Profit/(loss) for the period £7.9 million
Recent Developments
-
- Since the Company's IPO in November 2021, FSF has acquired a total of 40
individual properties (38 properties prior to the period end, including the
seed assets deal, and 2 additional properties since 31 March 2022).
- The total size of the Company's portfolio is 8,658 hectares, of which 37% by
value are afforestation properties. The properties (by value) are located in
Scotland (80%), Wales (12%) and England (8%).
Results presentation
The Company is holding a webcast presentation for analysts at 8.30 a.m. today.
Analysts wishing to attend should contact Citigate Dewe Rogerson by email at
fsfc@citigatedewerogerson.com (mailto:fsfc@citigatedewerogerson.com) . A
results presentation will also be uploaded to the FSF website.
Commenting on the Company's results, Richard Davidson, Chair of Foresight
Sustainable Forestry Company Plc, said:
"Foresight Sustainable Forestry has achieved a huge amount over the past few
months - a successful IPO as we became the first natural capital investment
company to list on the LSE, the delivery of our initial objectives once
listed, the acquisition of new sites, community engagement programmes, and the
planting of new forests. Sustainable forestry and afforestation has a vital
role in the ongoing battles against climate change and biodiversity loss and I
am delighted that the Company is increasingly playing its part.
"An attractive, diversified portfolio has been successfully constructed with
strong upside potential from afforestation sites in particular. The £6.9
million increase in the valuation of our afforestation properties highlight
that when development milestones are met, value can immediately be unlocked.
Sustainable UK timber supply is a crucial part of the Company's strategy and
the long-term timber supply deficit provides us with a significant
opportunity."
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
Toby Moore (toby.moore@citigatedewerogerson.com +44 7768 981763
(mailto:toby.moore@citigatedewerogerson.com) )
+44 7834 336650
Jos Bieneman (jos.bieneman@citigatedewerogerson.com
(mailto:jos.bieneman@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.
INVESTMENT OBJECTIVES
· Real returns and capital appreciation driven from supply/demand
dynamics for UK timber and land
· Value creation through new afforestation opportunities
· Direct contribution to the fight against climate change
· Access to voluntary carbon units related to carbon sequestration from
new afforestation planting
HIGHLIGHTS
As at 31 March 2022
£135.5m
NET ASSET VALUE ("NAV")
104.2p
NAV PER SHARE
8,473
HECTARES IN THE PORTFOLIO
3,340 hectares
LAND NEWLY PLANTED OR IN AFFORESTATION DEVELOPMENT
4.2%
TOTAL NAV RETURN SINCE IPO
91.0%
IPO PROCEEDS UTILISED
100,000 tonnes
TIMBER IN 2022 HARVESTING PROGRAMME
CHAIR'S STATEMENT
On behalf of the Board, I am pleased to present the very first Unaudited
Interim Report and Financial Statements for Foresight Sustainable Forestry
Company Plc (the "FSF", "Company" or the "Fund") for the period to 31 March
2022.
Richard Davidson
Chair
On 24 November 2021, we were delighted to complete the listing of the Company.
In doing so, FSF became the only listed forestry vehicle on the main market of
the LSE with a primary focus on UK forestry investment. The Company raised
£130 million at a share price of 100.0 pence in the fundraising process.
After an initial dip to close to 90.0 pence in post-IPO trading, our shares
have followed a steady upwards trend to recent highs of 116.0 pence (at the
time of writing, 13 June 2022). Also, pleasingly, for almost the
entire period since mid-April 2022, our shares have traded at a premium to
NAV.
I'd like to put on record my sincere congratulations and thanks to the Fund
Managers, advisors, new Shareholders and other members of the Board for
contributing to the early successes we are reporting. We are very proud of
both the listing and the investment strategy which offers investors asset
class diversification and resilience to market conditions (such as inflation)
whilst offering strong sustainability, biodiversity and ESG credentials.
FSF offers both retail and institutional investors an opportunity to invest in
UK forestry. The Company's investment strategy focuses on the UK's need for
sustainable timber production and is targeting a diversified portfolio of both
forestry and afforestation (forest creation) sites.
We believe that having the correct tree species mix and forest designs will
allow the Company to successfully deliver a blend of cash flows from the sale
of timber whilst sequestering carbon, increasing biodiversity and creating
natural habitats. As at 31 March 2022, afforestation assets by value make up
36% of the portfolio and, as outlined in the Prospectus, the ambition is to
increase the allocation to over 40% in the near future. Suitable afforestation
also allows access to grant schemes and the ability to create voluntary carbon
credits.
During the period, FSF took ownership of 38 individual properties across 29
assets spanning an area a little under 8,500 hectares. Pleasingly, two new
forests were also planted, the first of multiple afforestation schemes. With
over 91% of IPO proceeds deployed, the Board looks forward to continuing the
positive trajectory for the remainder of the financial year.
Key financials
In the period to 31 March 2022, the NAV per Ordinary Share increased to 104.2
pence (24 November 2021: 98.1 pence). The key driver of this gain was an 18%
upwards revaluation of our afforestation sites, driven by rising land prices,
granting of planting permission and completion of planting.
Acquisitions
The Company made three acquisitions during the period. The first was the
portfolio of seed assets from the Foresight Inheritance Tax Fund for £113.4
million which was a critical part of the early-stage business plan. FSF
continues to actively seek further opportunities in the market, is in
exclusivity to acquire several afforestation sites and has a healthy pipeline.
Now that the IPO proceeds are significantly deployed, our stated intention is
to grow the Company with additional fundraising at the appropriate time.
Forest operations
During the period, the Investment Manager has been working hard at all stages
of the forestry lifecycle. A particular highlight of the period was the
planting of over a quarter of a million trees at Banc Farm in Wales. In
addition, plans for significant harvesting and subsequent re-stocking in
2022/23 have been finalised. The Investment Manager has led successful grant
funding applications.
Sustainability
We are proud that FSF was awarded the Green Economy Mark at IPO. This
recognises companies that derive 50% or more of their revenues from
environmental solutions.
The Company also 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 and is
currently on track to achieve this. FSC and PEFC are the two main global
certification schemes and exist to promote sustainable forest management and a
system for product assurance. The schemes allow consumers to identify,
purchase and use timber and wood products produced from well-managed forests.
Market outlook
Prices in the forest property market remain underpinned as the asset class
continues to attract interest from new private and institutional sources. This
has been driven by many of forestry's traditional long-term attributes such as
inflation protection, environmental impact and attractive cash flows from
growing timber.
The planting land market has seen particularly strong demand in recent years.
Forestry interest is now a key driver in the market for marginal land types.
The recent strong rise in ESG investing has widened this from land purely
suitable for growing commercial timber, to a range of land types suitable for
commercial forestry, native woodland planting for CO2 sequestration and
various other holistic environmental projects such as rewilding or habitat
restoration.
Timber prices have shown some volatility in recent months after an
exceptionally strong two-year performance. The UK economy appears to be
slowing and winter storms have increased supply. In contrast, the pound has
weakened (which is important due to the level of UK imports of timber) and the
conflict in Ukraine has led to timber import bans from both Russia and
Belarus, reducing supply. In addition to this, the FSC and PEFC have defined
Russian and Belarusian timber as "conflict timber" and as such will not
qualify for any accreditations whilst the conflict is ongoing.
The Investment Manager and the Board remain of the view that the longer-term
timber supply deficit provides a significant opportunity beyond any current
uncertainty.
Summary
The first seven months of FSF's life has been filled with many successful
events: the IPO, property acquisitions, new Shareholders and the planting of
new forests. As a Board, we are proud of what has been achieved so far and are
optimistic for the future. FSF aims to be a success for our Shareholders but
also to make a difference to the planet.
Richard Davidson
Chair
14 June 2022
INVESTMENT MANAGER'S REPORT
Robert Guest
Investment Director, Co-lead Manager of FSF
Richard Kelly
Investment Director, Co-lead Manager of FSF
Executive summary
We are very fortunate to have a Board of Non-Executive Directors with a deep
and broad range of experience, a progressive mindset and who share our passion
for sustainability, biodiversity and a home-grown renewable supply of UK
timber. We thank each of them for their support and guidance in the run-up to
the IPO and during this first period in the life of the Company as a listed
entity.
The seed assets transaction means that the Company has been able to get off to
a flying start in terms of deployment. We were then pleased to complete two
further afforestation acquisitions during the period. Beyond that, we have
primarily focused our efforts on continuing the origination of a strong
pipeline of afforestation deals using our network of contacts and our
proactive market-mapping and deal procurement approach.
Afforestation is the development of land that is suitable for the planting of
both commercial conifer and native broadleaf trees, and results in new forest
and woodland creation. Such planting projects initiate additional carbon
sequestration, serve to increase the supply of sustainable UK timber for the
next generation, as well as enhance biodiversity levels, provide natural
capital services and offer other societal educational, recreational and health
benefits.
We are pleased by the prospect of generating incremental value uplifts as
these projects successfully achieve their development milestones. The
development programme is progressing very well, with much of the design work,
environmental surveys, forward-ordering for the supply of saplings, and
applications for permissions and grant funding ready for submission to the
relevant authorities for approvals now well-advanced.
To see the first trees planted on two sites during the period was particularly
satisfying and with multiple assets poised to progress through various next
key development stages, the team are keen to see more results from all the
hard work done to date.
The other major aspect of the Company's portfolio is mature established
forests. From the commercially productive areas within these forests we
supply, each year, a stream of sustainable home-grown timber to the UK market
by thinning and harvesting on a rotational basis, re-stocking as we go. From
what is harvested, the sawlog (supplied to the construction industry) is the
main product and has the additional benefit of locking up carbon in buildings
(embodied carbon) over the long term.
The by-products of FSF's sawlog-focused commercial forestry - small and
medium-sized Roundwood - are utilised following waste-hierarchy principles and
these ultimately become pallet wood, fencing wood and wood chips that are used
in pulp, paper, panel board, chipboard mills and for biomass heat and
electrical energy generation.
Despite some recent headwinds and related pricing volatility, overall levels
of demand for timber has remained robust following a period of strong price
growth during the COVID-19 pandemic and we have a significant harvesting
programme lined up for the calendar year 2022.
As well as the afforestation development, harvesting and ongoing management of
the land during the period, there are several new initiatives underway which
target positive sustainability and ESG impacts and/or generate value upside.
Details of the highlights of these are covered in this section, the Investment
Manager's Report and the Sustainability and ESG section.
The Investment Manager is looking forward to building on this strong initial
first period as we now work towards the year end. The medium term goal is to
grow the Company to in excess of £500 million Gross Asset Value ("GAV")
within four to five years of listing, whilst delivering a combination of
strong financial returns and environmental and social impacts for the
Shareholders.
Portfolio allocation
As at 31 March 2022, the Company's portfolio comprised 29 assets across 38
properties with total area of 8,473 hectares. All of these assets were
acquired during the period across three transactions.
The allocation is currently weighted towards Scotland, which is the most
forested of the UK countries and the closest to achieving its annual planting
targets. Wales is the next most prominent country in the portfolio and
government targets for afforestation in Wales are significant. The Investment
Manager is also seeking opportunities in Northern England to increase
allocation there, noting that this is a relatively more challenging market
environment and with England yet to come anywhere close to fulfilling its
annual planting targets.
The Company has made strong progress during the period towards achieving its
afforestation target of greater than 40% (by value).
The Company has made strong progress during the period in terms of its
allocation to afforestation towards the target of greater than 40% (by value).
UK timber market
2022 timber market
·
- Storm Arwen in November 2021 came in from the North East and caused a large
amount of damage to forests in the North East of England and North and East of
Scotland. Circa 30% of the annual national cut now needs to be cleared and
brought to market during 2022. This has impacted short-term Roundwood prices
in particular and had some effect on sawlog prices. However, larger
commercially managed forests were generally less impacted, with smaller policy
woodland and shelter belts on farms and estates experiencing the most severe
effects. Further, for larger players able to push back harvesting of
wind-blown compartments to later in the year, timber prices, in particular for
sawlog, have remained resilient, underpinned by continued overall shortage of
supply and sustained demand.
- Construction for 2022 remains on schedule, but for 2023/24 there is market
sentiment that the spike in commodity prices (pushing up the capex costs of
construction) may force some projects to go "on standby". However, the
Investment Manager's view is that the global shortage of timber and shortage
of housing with a rising population means that the fundamentals for sustained
increases in timber prices remain strong. Further, as a net importer of
timber, UK forest owners are likely to remain relatively well insulated from
these effects.
- GBP has weakened against EUR and USD during the period. This has a positive
effect on prices for UK timber growers.
- As the Chair has outlined in his statement, the effect of the tragic war in
Ukraine on timber supply is likely to put upward pressure on global timber
prices, including UK timber prices. Russia supplied c.20% of global timber and
c.3.5% of UK timber prior to the conflict.
- The maturity levels of UK commercial forests are such that reducing supply
levels over the medium term are a certainty. It is the view of the Investment
Manager that, once the storm damage has been cleaned up, the impact of Storm
Arwen will only intensify the supply shortage - as a reasonable portion of the
storm-damaged trees will not have achieved optimal size and bulk at the point
they were wind blown. We are therefore of the view that the overall outlook
for UK timber prices remains good.
Harvesting plan
The harvesting programme for 2022 involves eight assets with an estimated
timber yield of 100,000 tonnes. The first FSF forests are planned to begin
harvesting in summer 2022 and the process of tendering and agreeing prices is
well underway. The 2022 harvesting programme will include the small number of
assets affected by Storm Arwen where wind blow has occurred. During the seed
asset transaction, FSF negotiated an equitable commercial solution to deal
with the harvesting and revenue generated from the windblown timber. This
meant that despite the storm, FSF was not impacted financially. Since
acquiring, the Company has insured the portfolio assets to cover future storm
events.
Voluntary carbon market
The EU Emissions Trading Scheme (EU ETS) is a regulated cap-and-trade market
for carbon in Europe which operates separately to the voluntary carbon market.
However, the Investment Manager is of the view that it is a useful proxy
market for voluntary carbon. In theory, the gap between voluntary carbon
market pricing and regulated carbon market pricing may narrow/converge over
time as the trust in the voluntary carbon markets and the related systems and
controls increases.
The most notable development in the EU ETS pricing during the period was a
material (c.30%) decrease in March 2022 from highs of approximately €95 per
tonne to below €60 per tonne. Market commentators suggested at the time that
the drivers for this were threefold: (i) fear of regulatory amendments where
the EU Commission could reduce the trigger point for market intervention where
the current market price exceeds the average price of the preceding 6 month
period from 3.0x to 2.0x, (ii) market speculation about whether the Russian
war in Ukraine could accelerate net zero ambitions of countries such as
Germany thereby reducing demand for carbon and (iii) traders liquidating
carbon to offset losses elsewhere as a result of equity market
volatility/corrections.
From a voluntary carbon market perspective, the Investment Manager has,
anecdotally, observed higher pricing for high quality UK Woodland Carbon Code
("WCC") Pending Issuance Units of between £12 per tonne and £15 per tonne
during the period, increased from an observed/ anecdotal range of £5 per
tonne to £8 per tonne 12 months ago. The Investment Manager remains
optimistic about the prospects for pricing growth in the WCC units that the
portfolio expects to generate over time, providing that the Company can
demonstrate that its units are of the highest quality in the future. Please
see the Sustainability and ESG section of this interim report, on pages 14 to
18 for the Investment Manager's view of why data collection and management
will be key to the integrity and value of voluntary units in the future.
Voluntary biodiversity market update
There is a material opportunity within FSF's forest, woodland and
afforestation areas to enhance connected ecosystems and natural habitats that
generate a significant uplift in biodiversity. There are also large areas of
open ground within the portfolio which contain upland montane habitats and
wetland/ peatland habitats which are not suitable for tree planting but which
can be enhanced ecologically by alleviating the impacts of over-grazing by
livestock and/or deer.
The goal of the Company is to combine a wide range of sustainable income
streams and positive natural capital service outcomes including timber,
eco-tourism, renewable energy, carbon sequestration, flood protection, water
quality and societal/community benefits. Alongside those elements, the market
for biodiversity net gain is gathering momentum at a rapid pace.
The Taskforce for Nature-related Financial Disclosures ("TNFD"), a group of 34
international taskforce members backed by 350 institutional supporters, has
published its first beta version framework for how companies and funds should
report on the impact they are having on the natural world. The UK Green
Finance Institute has estimated that there is a funding gap of between €44
billion and €97 billion over the next 10 years if the UK is to meet its
targeted levels of nature related sustainability and environmental outcomes.
The Natural History Museum has carried out a global Biodiversity Intactness
Survey and scored the UK at 53% intactness, putting it in the bottom 10% of
the World's countries. The governments of England, Scotland and Wales now
recognise the importance of nature-recovery, and this is being reflected in
policy, regulation and incentives.
Foresight advocates in favour of nature and biodiversity recovery and has
joined the Natural Capital Investment Alliance (NCIA) which was created by the
Prince of Wales in recognition of the need to mobilise investment in
nature-based economic opportunities. As part of the Foresight Sustainable
Forest Management approach for FSF the Investment Manager is therefore
carrying out baseline biodiversity surveys and looking to deploy strategies to
improve from that baseline, including exploring the potential to integrate
livestock amongst some of the Company's forest and woodland areas (i.e.,
agroforestry/rewilding).
In some instances, we are collecting data to test against DEFRA's biodiversity
metric 3.0. In other scenarios this involves a more intensive level of data
collection, sampling and testing, including potentially environmental DNA
(eDNA) testing. There are already examples of over-the-counter sales and
purchases of voluntary biodiversity uplift units and biodiversity net gain
units and this could represent a substantial revenue stream for the Company in
the future. Often the verifiers of such biodiversity units require
identification of positive social impacts alongside the biodiversity impacts
before they will approve and verify units.
This is a nascent area and many of the initiatives are at pilot/feasibility
stage. However, Foresight is taking steps to make sure that the Company is
well placed to participate strongly in this emerging sector as the market
develops.
Data management
The Investment Manager is of the view that efficient data collection and
management will be critical for validation and verification of voluntary
carbon units, voluntary biodiversity units and other such credits in the
future and is therefore running a pilot with a data management Software as a
Service ("SaaS") partner with a view to this facilitating efficient data
capture which can then be used for multiple other purposes, including general
management and reporting functions.
Health and safety ("H&S")
H&S management of the assets is a key focus and there are a number of
activities in place to ensure that the correct information is provided at
regular intervals to Foresight so that appropriate action can be taken where
necessary. There were no H&S incidents (near misses or RIDDORs) during the
period across the portfolio.
Afforestation asset development progress
There are 14 afforestation assets in the portfolio, located in both Scotland
and Wales. The status(1) of each of the afforestation assets for the period is
as follows:
Property name Forest design completed Permits and grants secured, admitted to WCC register Planting completed Initial WCC validation completed Trees fully established
Banc Farm · · · - -
Mountmill Burn · · - - -
Upper Barr · - - - -
Auchensoul · - - - -
Cwmban Fawr Farm · - - - -
Frongoch · - - - -
Brynglas · - - - -
Esgair Hir · - - - -
Pistyll South · - - - -
Ellenber Farm · - - - -
Fordie · - - - -
Rory Hill · - - - -
Lamb Craigs · - - - -
Maescastell · - - - -
((1) ) Status as at 31 March 2022
As described in the executive summary, the Investment Manager attaches high
importance to reaching development milestones in terms of the financial return
value and positive sustainable and ESG impacts that this will deliver.
Pipeline and deal procurement
Foresight sources deals and acquisition opportunities via selling agents,
on-market bids, bilateral deals, direct origination and direct approaches.
Approximately 4,500 specific properties (c.900,000 hectares) which are highly
suitable for afforestation have been identified by the Investment Manager,
which is able to secure transaction opportunities through its direct
origination system. The Company has priority over these and other Foresight
forestry opportunities that are within the Company's mandate.
At the time of writing, FSF holds exclusivity over approximately £77 million
worth of afforestation and forestry pipeline.
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 examples 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.
· A forestry skills training programme has been launched that sponsors
interested members of the local community to receive the training,
qualifications/ certifications, mentoring and equipment to enable jobs and
careers in the forestry industry, with a view to expanding the scale and
geographic reach of the programme in due course if the initial phase is
successful.
· 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.
· Potential for utilisation of various bothies and cottages within the portfolio
as centres for education and recreation relating to sustainable forest
management and wildlife & ecosystem enhancement is being explored.
· The Company is promoting local tourism and job creation by working with a
luxury glamping pod business to establish plans to install pods across several
forests and afforestation sites.
· Foresight is exploring several opportunities to co-locate renewable energy
generation (e.g., wind, hydro) with forest sites to supply sustainable
electricity into the local grid system and is carrying out an enhancement
project at an existing run-of-hill-stream hydro scheme at one of the Company's
properties.
· Foresight has made a pro-active decision, upon acquisition of a
landscape-scale estate, to manage the houses, buildings and employees closely
alongside the land, forest and woodland. The estate staff are deeply involved
in the forestry/afforestation/ peatland/rewilding project that is in progress,
with the letting of a number of the estate houses to local families and with
the establishment of an eco-tourism business.
· A business case has been successfully demonstrated where one of the forests in
the Company's portfolio has carried out thinning, engaged a local contractor
to drag the trees by horse to a work-area (a low impact method), subsequently
sawn and processed the timber on-site and then sold the resultant highly
specialist timber product to local buyers.
Please see the Sustainability and ESG section on pages 14 to 18 of this report
for more details of the Foresight Sustainable Forestry Management ethos and
approach
Upside opportunities
A number of upside opportunities have been identified across the portfolio
with key themes emerging, including wind farm development on existing or
proposed wind farm sites, eco-tourism (holiday lets and glamping pods) and
repurposing or renovating buildings that have been included as part of the
acquisition. Each upside opportunity will be reviewed on its merits and taken
forward on a case-by-case basis.
We also have a significant focus on biodiversity and are actively exploring
the potential verification routes which are available.
The value of these upside opportunities is not currently included in the
valuations of the Company's properties. On successful implementation and
completion of such projects the Investment Manager will notify the RICs Red
Book valuer in order that the additional value created is reflected in the
Company's NAV.
AFFORESTATION CASE STUDY
BANC FARM
Carmarthenshire, Wales
Investment overview
Company Foresight Sustainable Forestry Company Plc
Property location Carmarthenshire, Wales
Asset type Afforestation
Project size 150 hectares
Operational date April 2022
Investment amount £1.48 million, including deal costs, but excluding all afforestation costs
Banc Farm is a 150 hectare afforestation property in Carmarthenshire in
Central Wales. This property is marginal farmland, located in a highly
afforested part of Wales and surrounded by mature forests owned by Natural
Resources Wales ("NRW"). NRW offer grants for afforestation under the Glastir
Woodland Creation Scheme. To qualify for these grants, scheme designs must
include at least 25% native broadleaves and a maximum of 50% of a single
species.
The UK is well below its afforestation targets; as such, FSF targets a 40-50%
allocation to afforestation projects. In 2021, only 300 hectares of
afforestation was undertaken across all of Wales. At 150 hectares, Banc Farm
represents one of the largest afforestation schemes undertaken in Wales in
recent years.
The Foresight Forestry team has worked with third parties EJDF (Forestry
Advisors) and Tilhill (Forest Managers) to develop a scheme design that is
expected to generate good returns for investors and benefits for the
community.
Accordingly, the scheme design incorporates both commercial and broadleaf
species, including: Sitka Spruce; Douglas Fir; Norway Spruce; Silver Birch;
Sycamore; Oak; Black Poplar; and Juniper. Black Poplar and Juniper are both
recognised as "rare and endangered" by the Forestry Commission. The property
will also incorporate community benefits such as the extension of mountain
bike trails and the creation of a car park.
Once the scheme design was agreed and approved by NRW, the planting process
began and has now been completed.
FSF is committed to using low-impact, sustainable planting methods; as such,
continuous mounding is used in place of ploughing to prepare the ground for
planting. Trees are then planted by hand; a single individual will plant in
the region of 2,000 trees per day.
Approximately 250,000 commercial trees have been planted in the period to 31
March 2022. Once established, the property is expected to yield an estimated
48,000 tonnes of sustainable timber for each rotation. In addition to the
timber yield, this project has been registered with the WCC and will seek
approval and verification from the WCC. The project is expected to sequester
21,000 tonnes of CO2e and generate the carbon units associated with this
sequestration.
On 2 March 2022, a group of children from Talley Primary School attended a
community planting day at Banc Farm. The children learnt about biodiversity
conservation and new silviculture skills including how to establish, grow and
maintain healthy forests and woodlands and the importance of doing so for
society and the planet. They each planted a tree at Banc Farm and hammered in
an orange peg with their name engraved on it so they can follow their tree's
progress. The children also took home a sapling to practise their new planting
skills. Nick Gale, a teacher present on the day stated, "the children of
Talley Primary School thoroughly enjoyed planting trees at Banc Farm. They
learnt about the environment, climate change and the value of planting trees
for our future. The experience was a very beneficial one for the pupils. Thank
you for the opportunity."
Sustainability and ESG
Our core Sustainability and ESG objectives
1. To deliver and increase the supply of home-grown UK timber to reduce the
country's reliance on imports;
2. To do so in a way that combines sustainable financial returns with carbon
sequestration, biodiversity gain and other positive environmental and social
impacts; and
3. To be a sustainability leader in the UK forestry industry whilst delivering
both traditional commercial timber products and innovative natural capital
services.
Our Sustainable business model
We blend:
· tangible commercial products (e.g., timber, renewable energy, eco-tourism)
with
· natural capital service outputs (e.g., carbon sequestration, biodiversity
gain, flood protection, social contributions, water quality) with an ethical
approach to governance and management decision making to deliver sustainable
financial returns.
Our holistic approach to Sustainability and ESG
FORESIGHT SUSTAINABLE FOREST MANAGEMENT
SUSTAINABLE FINANCIAL RETURNS
·
Environmental
· Increase home-supply of UK timber
· Sawlog-focused timber production
· Substitution of carbon intensive materials
· Substitution of wasteful materials
· Increase standing forest carbon sinks
· Embodied carbon locked up in buildings
· Additional carbon sequestration
· Biodiversity gain & ecosystem services
· Flood protection
· Water quality
Social
· Job creation
· Renewable products GDP contribution
· Recreation
· Education
· Physical health
· Mental health
· Society/community engagement
· Communication and consultation
· Community/donations
Governance
· Manager with sustainability ethos and expertise
· Experienced independent board with S & ESG committee
· Supply chain counterparties comply with ethos
· Transparency, data and reporting
· Member of the AIC
· Company code
Foresight Sustainable Forest Management - generating 'natural capital alpha'
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
re-instating wetlands and reducing grazing levels on large areas of open
ground, which increases positive carbon impacts and creates additional
biodiverse ecosystems. We have multiple schemes where the proportion of native
broadleaf trees relative to commercial conifer trees is significant (even in
excess of 50% on some projects).
Our sustainable approach tackles some of the key challenges and opportunities
in UK Forestry
The importance of timber as a sustainable product
On average, around two-thirds of the commercial trees grown by FSF produce
sawlog (the best sites can produce >80% sawlog) which is used in building
construction, locking up carbon for up to 100 years or more. Waste hierarchy
principles are generally applied to the non-sawlog parts of the commercial
trees (i.e., the residual resource is not wasted) and these by-products have a
broad range of sustainable applications.
Timber products are renewable and have a low/negative carbon profile when
compared with the alternatives. Concrete, steel, plastics and synthetics have
highly negative carbon and/or waste impacts which means displacing these with
home-grown timber products is a highly sustainable endeavour.
The Importance of reducing the UK's level of reliance on timber imports
The UK is increasingly reliant on imports to meet its own demand for timber,
with current annual import levels of c.80%. Because only c.30% of world demand
for timber is currently met by commercial plantations, higher levels of UK
imports ultimately put increased pressure on natural and semi-natural forests
in the global timber supply chain. So, FSF's contribution towards increased
home-grown UK timber supply from our afforestation schemes has positive local
impacts as well as far-reaching global impact
Climate change, biodiversity loss, positive social impacts - Data is key to
integrity
The urgent requirement to reduce the rate of global warming and the dramatic
decreases in the UK's baseline biodiversity levels are well documented. The
FSF Management approach ensures that the impact our projects is having in
these key areas (and other of the core S & ESG areas) will be carefully
monitored over time through meticulous data collection and management.
Foresight is partnering with natural-capital focussed Software as a Service
("SaaS") experts, piloting a LIDAR methodology for measuring biomass levels
and related carbon sequestration rates, exploring a range of biodiversity
monitoring techniques and investigating methodologies for quantifying 'natural
capital premium' in order to ensure that FSF remains in the vanguard of the
drive for accountability, verification, transparency and credibility. This
will ensure that any voluntary carbon, biodiversity or social units generated
by FSF meet high standards of integrity and consequently hold high financial
natural capital values.
Afforestation as part of UK land use change - Communicating a sustainable
transition
The UK government's tree planting target of 900,000 hectares in total by 2050,
whilst ambitious, represents only 3.7% of total UK land area. This is part of
a much larger national adjustment as the UK seeks to re-invent its approach to
agriculture and general land use and will see an increase in UK forest cover
from c.13% to c.17%, compared to the European average of 34%.
With the UK's current high reliance on timber imports, the urgent need to
reach net zero carbon and low levels of biodiversity baseline, FSF considers
that an allocation of a reasonable proportion of UK land towards the creation
of new forest and woodland is a sensible objective, provided it is carried out
in the right way. To date, the UK is yet to achieve its annual planting
target. However, the Scottish government remains supportive of additional
planting and the Welsh and English governments are taking additional steps to
further encourage planting. The Company will materially contribute towards the
UK's afforestation targets.
For FSF, the key is communication with communities about the design and
development process on our afforestation sites, demonstrating what the FSF
Management approach can bring in terms of positive contribution towards local
industry, local society and the local environment.
Contribution to the United Nations Sustainable Development Goals ("SDGs")
The following diagram highlights the 5 most relevant SDGS that the Company has
contributed to during the period.
The annual report to the period 30 September 2022 will report more
specifically, and quantitively, on the Company's contributions to UN SDGs
during its first year.
FSF's commitment to other leading Sustainability and ESG standards
The Investment Manager confirms its view that at the half year point the
Company meets or exceeds the following voluntary compliance standards.
EU Article 9 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.
· Article 6 - Funds without any consideration of sustainability
· Article 8 - Funds that promote a social or environmental characteristic (light
green)
· Article 9 - Funds that sustainable investment as their objective alongside a
robust framework for reporting sustainable impact
EU Green Taxonomy
· Under SFDR, Article 9 funds must report on their level of alignment to the EU
Taxonomy for Sustainable Activities ('EU Taxonomy')
· The EU taxonomy is a classification system, establishing a list of sustainable
economic activities under six environmental objectives as outlined below:
o Climate change mitigation
o Climate change adaptation
o Sustainable use and protection of water and marine resources
o Transition to a circular economy
o Pollution prevention and control
o Protection and restoration of biodiversity and ecosystems
· 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 shift capital to
where it is most needed.
· The Company has set the objective of having all of its assets be compliant
with the EU Taxonomy's pre-determined screening criteria
· The intention to have all assets aligned to an internationally recognised
sustainable forest management standard (such as FSC or PEFC) is a fundamental
component of achieving EU Taxonomy compliance.
UK Green Taxonomy and UK Sustainable Disclosure Requirements ("SDR")
· The goals of the UK Green Taxonomy and SDR are broadly similar to EU Green
Taxonomy and SFDR.
· As a UK managed fund, FSF will ultimately come under the UK's Green Taxonomy
and its SDR regime, both of which are currently in the consultation phase and
do not yet have a set date for implementation
· The Investment Manager will continue to monitor developments so that the
Company is compliant with the emerging requirements.
The LSE Green Economy Mark
· This standard 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 meets
these qualification requirements and holds the LSE Green Economy Mark.
Objectives set - Working towards the year-end Sustainability & ESG update
Having outlined the Company's Sustainability and ESG objectives in this set of
Interims, we will publish KPIs and data sets that align with our mission
statement and goals in the forthcoming year-end annual report.
PORTFOLIO VALUATION
Methodology
Savills Advisory Services Limited ("Savills") is engaged by the Company to
provide a fair value valuation of the portfolio in accordance with the Royal
Institution of Chartered Surveyors ("RICS") Valuation - Global Standards July
2017 (the "Red Book").
The Red Book valuation falls within the International Financial Reporting
Standards ("IFRS"), 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 backwards 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.
In addition to the fair value, 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.
Portfolio valuation
Following the successful IPO, the Company acquired a seed asset portfolio for
€110.9 million (pre-tax and transaction costs) and two further assets
(€5.2 million) that were valued using the Red Book methodology at 30
September 2021 (€116.3 million). Following the revaluation at 31 March 2022,
forestry asset valuations increased by €2.3 million and afforestation asset
valuations increased by €6.9 million.
For forestry, there were a relatively low number of comparable transactions
over the period, partly due to market seasonality and Storm Arwen which saw a
reluctance of buyers to acquire storm-affected properties. The valuation
period also covers the winter months, when trees are dormant and not adding
biological growth to the portfolio.
The increase in valuation of the afforestation portfolio was driven by a
combination of factors: the rapidly appreciating market for properties with
strong afforestation and carbon credit potential, and several properties
achieving material development milestones - mainly the completion of planting
at Banc Farm and the commencement of planting at Mountmill Burn.
RISK AND RISK MANAGEMENT
The Directors consider the following as the principal risks and uncertainties
to the Company at this time:
· The Company being unable to access sufficient funding to complete its growth
expectations
· A reduction in demand from the users of timber that negatively impacts
profitability
· Resistance to change of land use from the public generating negative PR and
impacting the Company's ability to obtain planning consent
· Changes in the economic, technological, political or regulatory environment,
including inflation
Risk and risk management
The Company is exposed to a number of risks that have the potential to
materially affect the Company's valuation, reputation and financial or
operational performance. The nature and levels of risk are identified
according to the Company's investment objectives and existing policies, with
the levels of risk tolerance ultimately defined by the Board.
Financing capital
As a newly listed entity, the Company is focused on growing its portfolio. In
order to achieve our growth ambitions and to ensure the Company is able to
take full advantage of the opportunities in its pipeline, additional financing
will be required in the short to medium term.
The Company's borrowing policy enables the Directors to use gearing for
liquidity and working capital purposes or to finance acquisition of
investments subject to following a prudent approach and maintaining a
conservative level of aggregate borrowings that will not exceed 30% of Gross
Asset Value, calculated at the time of drawdown. The equity levels of the
Company are closely monitored by the Board and the Investment Manager on a
regular basis.
The Company continues to work closely with its broker, Jefferies International
Limited, and the Investment Manager's in-house Retail Sales team, will conduct
market research ahead of any future funding rounds to gauge demand from
existing and new investors.
Timber market volatility
Timber prices can be volatile periodically. However, demand over the medium to
long term has historically created real-term pricing growth. In the context of
global under-supply and increasing demand, this reduces market risk for the
sale of the Company's key products and revenue streams.
Should timber prices be less attractive at the point of felling, the
Investment Manager also has the option to delay felling, allowing trees to
grow on and provide time for a recovery from short-term pricing volatility.
Community engagement
The development of afforestation assets in rural areas is sensitive for local
residents and, if managed poorly, could result in poor relationships
developing between the Company and local communities. This in turn could
impact both the Company's reputation, ability to obtain the necessary planning
consent for planting to commence and potentially the share price.
During the due diligence phase of afforestation investments, the Investment
Manager commissions an independent community risk assessment to ensure that
afforestation only takes place in areas where tree planting is less likely to
be a contentious issue. A separate planning risk assessment is also undertaken
ahead of all potential land acquisitions where afforestation is intended and
the Investment Manager only pursues opportunities where the risk of not
obtaining planning consent, including for reasons relating to objections
raised by the local community, is assessed to be low.
Once afforestation properties are acquired, the Investment Manager runs a
co-ordinated programme of community engagement and seeks to respond and,
wherever possible, adapt the scheme design to concerns raised by community
members.
In addition, in the event that planting was unable to go ahead, the acquired
land would still have agricultural value. Therefore, whilst the revenue
generated from this would be lower, an income stream would still be available
to the Company.
The Company is also working closely with industry bodies such as Confor and
Timber Development UK to promote the merits of increased sustainable UK timber
supply. The Investment Manager is in the process of developing a forestry
skills training programme that will enable members of rural farming
communities to adapt to afforestation-related land use change by providing
them with the required skills, training, qualifications and safety equipment.
Changes in the macroeconomic environment
The UK economy has seen significant fluctuations in growth over the last 2
years, predominantly due to the COVID-19 pandemic and Russia's invasion of
Ukraine. Rising inflation is also impacting the price of goods and materials
used in planting and felling.
However, the Company is in a relatively strong position to withstand changes
in the macro-economic environment as it is invested in real assets,
principally freeholds of UK land and forest stock. The forest stock is
experiencing biological growth regardless of occurrences in financial markets.
UK freeholds, real assets and the value of commodities, such as timber, have a
strong track record of good performance during periods of inflation and
instability of equity markets. In the view of the Investment Manager, the
continued global supply and demand imbalance in timber markets, which is
accentuated in the UK as a net timber importer and during a period where GBP
is weak versus EUR and USD, leaves the Company well positioned to deliver real
terms value growth for shareholders. Moreover, FSF is in a position to
mitigate the impact of any intra-quarter or intra-year falls in timber prices
by postponing parts of its harvesting programme and allowing the trees to
continue to grow until the underlying imbalance between supply and demand
begins to flow through to market prices again.
FINANCIAL REVIEW
Analysis of financial results
The financial statements of the Company for the period from incorporation on
31 August 2021 to 31 March 2022 are set
out on pages 35 to 46.
The Company prepared the condensed unaudited financial statements from the
date of incorporation to 31 March 2022 in accordance with IAS 34 as adopted by
the UK and issued by the International Accounting Standards Board. The Company
applies IFRS 10 and 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 balances, 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 29 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.
Net assets
The Net Asset Value at 31 March 2022 is £135.5 million and comprises £125.2
million portfolio value of forestry and afforestation assets, cash balances of
£10.4 million (£8.6 million in the Company and £1.8 million in the project
companies), offset by £0.1 million of other net liabilities (£0.5 million of
other assets in the Company and £0.6 million of other liabilities in the
project companies).
Analysis of the Group's net assets at 31 March 2022
As at
All amounts presented in £million (except as noted) 31 March 2022
Portfolio value (Red Book valuation) 125.2
Project companies' cash 1.8
Project companies' other net liabilities (0.6)
Fair value of the Company's investment in FSFC Holdings Limited 126.4
Company's cash 8.6
Company's other net assets 0.5
Net Asset Value 135.5
Number of shares 130,000,001
Net Asset Value per share (pence) 104.2
(1) Classified as the gross fair value of the underlying assets in the
portfolio
Net Asset Value bridge
With the net proceeds of £127.6 million from the successful IPO (£130.0
million gross proceeds less IPO costs of £2.4 million), capital was deployed
to acquire the portfolio of assets. The £8.9 million fair value increase of
the afforestation and forestry assets held by the Group, offset by fund
operating costs of £1.0 million, resulted in a Net Asset Value of £135.5
million at 31 March 2022.
Company performance
Profit and loss
The Company's profit before tax for the period from incorporation on 31 August
2021 to 31 March 2022 is £7.9 million
(6 pence per share).
For the same period to 31 March 2022, the total return on investments was
£8.9 million, which comprised £0.1 million of interest on the FSFC Holdings
loan notes and £8.8 million net gains on investments at fair value. The
interest income is from Company's Shareholder loan to FSFC Holding Limited.
The net gain on investment is generated by the net fair value movement on the
Company's investment in FSFC Holding Limited.
Operating expenses included in the income statement for the period were £1.0
million, in line with expectations. These comprise investment management fees
of £0.4 million and £0.6 million of operating expenses. The details on how
the investment management fees are charged are set out in note 4 to the
financial statements
Period from
incorporation on
31 August 2021
All amounts presented in £million (except as noted) to 31 March 2022
Interest received on FSFC Holdings loan notes 0.1
Net gain on investments at fair value 8.8
Total return on investment 8.9
Operating expenses (1.0)
Profit before tax 7.9
Earnings per share (pence) 6.0
Cash flow
The Company held cash balances at 31 March 2022 of €8.6 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 31 March 2022 (£million)
Period from
31 August 2021
to 31 March 2022
Gross proceeds from IPO 130.0
IPO issuance costs (2.4)
Investment in FSFC Holdings Limted (equity and loan notes) (117.7)
Assets acquisition cost paid on behalf of subsidiaries (1.0)
Directors' fees and expenses (0.1)
Investment management fees (0.1)
Administrative expenses (0.1)
Company's cash balance at 31 March 2022 8.6
Cash flows of the group for the period to 31 March 2022 (£million)
The Group is defined as the Company and its two intermediate holding
companies. The cash flows for the Group of
€8.6 million are the same as the cash flows for the Company.
CORPORATE SUMMARY
Corporate summary
Foresight Sustainable Forestry Company Plc is a closed-ended investment
company incorporated in England and Wales on 31 August 2021 with registration
number 13594181. The Company has been granted Investment Trust status as
defined in Chapter 4 of Part 24 of the Corporate Tax Act 2010.
The Company's IPO on 24 November 2021 raised €130 million in seed funding.
Following three significant acquisitions since launch, the Company has a Net
Asset Value of €135.5 million as at 31 March 2022. It is the only UK-listed
investment trust dedicated to forestry and afforestation.
As at 31 March 2022, the Company has 130,000,001 Ordinary Shares in issue
which are listed on the Premium Segment of the Official List and traded on the
LSE's Main Market. The Company subscribes to the AIC Code of Corporate
Governance (2019).
Operating structure and business model
As an investment company, the Company has no direct employees and outsources
all operations to a number of key service providers.
The Company makes its investments through intermediate holding companies and
underlying special purpose vehicles ("SPVs").
Significant shareholders
The Company's Shareholders include a mix of institutional and retail
investors.
Shareholders in the Company with more than a 5% holding as at 31 March 2022
are as follows:
% shareholding
Investor in the Company
Blackmead Infrastructure 29.92
Friends Life Stewardship Equity Fund 8.46
Cantor Fitzgerald Ireland 8.12
East Riding of Yorkshire PF 7.69
West Yorkshire PF 6.15
Total 60.34
Investment objective
The Company seeks to generate an attractive net total return for Shareholders
over the longer term, comprising capital growth and aperiodic dividends,
targeting sustainable impact through investment predominantly in sustainably
managed Forestry Assets, including Standing Forests and Afforestation assets).
The Company seeks to make a direct contribution in the fight against climate
change through forestry and afforestation carbon sequestration initiatives.
The Company seeks to preserve and proactively enhance natural capital and
biodiversity across its portfolio. It is expected that the Company will
achieve, and aim to exceed, the requirements of compliance with the EU Green
Taxonomy and Article 9 of the Sustainable Finance Disclosure Regulation
("SFDR").
Investment policy
The Company achieves its investment objective by investing in a diversified
portfolio of sustainable Forestry Assets, predominantly located in the UK.
The Company acquires a mixture of cash flow generating sustainable Forestry
Assets representing a mixture of Standing Forests (of varying age classes)
together with land suitable for Afforestation projects (representing both
Commercial Forestry projects and Non-Commercial Forestry projects) to achieve
a balanced portfolio with an optimal harvesting and capital growth profile.
Diversification within the Company's portfolio is achieved by:
a) investing in a range of individual underlying Forestry Assets, each of which
will be capable of separate disposal;
b) investing in different types of Forestry Assets (both Standing Forests and
Afforestation projects) with a range of age classes and harvesting profiles;
c) where possible, seeking diversification in tree species and a blend of
Commercial Forestry and Non-Commercial Forestry (including native woodland and
open ground) across the overall portfolio;
d) engaging with a range of different off-takers for the Company's harvested
timber; and
e) achieving a geographic spread across the underlying Forestry Assets.
The Company's revenues are primarily generated by the sale of harvested timber
and, in due course, the sale of Carbon Credits. Where appropriate the Company
will also seek to generate ancillary non-core revenue streams from its
Forestry Assets. This includes, but is not limited to, the leasing or
licensing of land to third parties for agricultural, sporting and tourism
activities, the leasing of land to third parties for renewable energy and/or
energy storage and/or telecommunications development projects (such as the
erection of wind turbines or mobile telecommunication towers) and, if a future
market develops, the sale of biodiversity credits.
The Company gains exposure to Forestry Assets indirectly through its holding
of equity interests in underlying asset holding companies. The Company invests
via equity or debt interests in such asset holding companies. The asset
holding companies will use the funds received by the Company to acquire
Forestry Assets directly or indirectly through intermediate holding
companies.
The Company may acquire freehold or leasehold interests in Forestry Assets or
may acquire the shares in corporate entities holding such Forestry Assets.
Returns generated by the asset holding companies will either be reinvested,
paid to the Company in the form of dividend distributions or the payment of
interest on intra-group debt.
Investments in Forestry Assets will typically entail 100% ownership by the
Company. The Company may, however, enter into joint venture arrangements
alongside one or more co-investors where the Investment Manager, in
consultation with the Board, believes it is in the Company's best interests to
do so (such as where an investment opportunity is too large for the resources
of the Company on its own, to share risk or where a joint venture arrangement
will optimise returns for the Company). In the case of such co‑investments,
the Company will target retaining a control position, where this is possible,
or, where this is not possible, will have strong minority investor protections
and governance rights.
In addition, as part of a transaction to acquire Forestry Assets, the Company
may end up owning ancillary non-forestry-related assets, including, but not
limited to, residential land and buildings, vehicles, equipment, agricultural
outbuildings and small-scale renewable energy assets (together "Non-Core
Assets"). Where appropriate and beneficial to the overall strategy, the
Company will look to realise the value of any Non‑Core Assets over time for
the benefit of the Shareholders.
The Investment Manager has overall responsibility for asset managing the
Company's Forestry Assets (including any ancillary non-core revenue streams)
and Non-Core Assets. The Company has appointed appropriate specialist
third-party forestry management companies which are responsible for the
day-to-day physical management of the Company's Forestry Assets, including
harvesting and planting activity.
Investment restrictions
The Company invests and manages its assets with the objective of spreading
risk and, in doing so, will maintain the following investment restrictions:
· no single Forestry Asset will represent more than 15% of Gross Asset Value
(with two or more Forestry Assets which are directly adjacent being treated as
a single asset), the Board may approve the increase of this limit up to 25% of
Gross Asset Value on an exceptional basis where considered appropriate to
cater for a larger scale strategic Forestry Asset investment;
· at least 90% of Gross Asset Value shall be invested in Forestry Assets located
in the United Kingdom;
· no more than 10% of Gross Asset Value may be invested in Forestry Assets
located in EEA countries;
· the maximum exposure to Afforestation projects will not exceed, in aggregate,
50% of Gross Asset Value;
· the maximum exposure to Non‑Core Assets will not exceed, in aggregate, 10%
of Gross Asset Value; and
· the Company will not invest in other listed investment companies.
In accordance with the requirements of the Listing Rules, the Company will not
undertake any trading activity which is material in the context of the Company
as a whole.
Compliance with the above investment limits is measured at the time of
investment and non‑compliance resulting from changes in the price or value
of assets following investment will not be considered as a breach of the
investment limits.
Investment manager
The Company's Investment Manager, Foresight Group LLP, is responsible for the
acquisition and management of the Company's assets, including the sourcing and
structuring of new acquisitions and advising on the Company's borrowing
strategy. Foresight Group is authorised and regulated by the Financial Conduct
Authority.
Foresight Group was founded in 1984 and is a leading listed infrastructure and
private equity investment manager. With a long-established focus on ESG and
sustainability-led strategies, it aims to provide attractive returns to its
institutional and private investors from hard-to-access private markets.
Foresight manages over 300 infrastructure assets with a focus on solar and
onshore wind assets, bioenergy and waste, as well as renewable energy enabling
projects, energy efficiency management solutions, social and core
infrastructure projects and sustainable forestry assets. Its private equity
team manages eight regionally focused investment funds across the UK and an
SME impact fund supporting Irish SMEs. This team reviews close to 2,500
business plans each year and currently supports more than 130 SMEs. Foresight
Capital Management manages four strategies across six investment vehicles with
an AUM of over €1.6 billion.
Foresight operates from 12 offices across six countries in Europe and
Australia with AUM of €8.7 billion as at 31 March 2022. Foresight Group
Holdings Limited listed on the Main Market of the LSE in February 2021
Foresight consisted of 249 full-time employees as at 30 September 2021. The
team is comprised of:
1. An investment management team of professionals responsible for originating,
assessing and pricing assets, managing due diligence and executing
transactions.
A portfolio management team with expertise across electrical and civil
engineering, finance and legal disciplines.
2. The Foresight Group infrastructure team has substantial experience in sourcing
and executing all required elements of the capital structure of an investment
across geographies, including project‑level debt finance and other required
forms of finance.
The key strengths of the infrastructure investment team include:
a) sourcing and execution of asset acquisitions;
b) experience of pricing complex revenue streams;
c) pricing wholesale power exposure;
d) managing construction projects; and
e) finance and structuring, including bank debt and project finance.
The in-house portfolio management team consists of individuals with
engineering, accountancy, consulting and operations backgrounds and is
responsible for the process of "on-boarding", managing and reporting on the
acquired assets. Members of these teams work closely with the investment team
together throughout the investment lifecycle.
The portfolio management services provided ensure the day-to-day operation of
the Forestry Assets is robust, with commercial and strategic decisions clearly
communicated to the various counterparties involved.
The services also include:
· H&S compliance;
· oversight of third-party asset managers and forest managers
· portfolio optimisation including negotiation of project contracts, harvesting,
insurance policies, and evaluation of innovative technologies to enhance
Forestry Assets
· accounting and financial management from SPV to Fund level
· management of in-house portfolio management platforms
· providing a focus on ESG and upside opportunities across the Forestry Assets
· contractual compliance of all contracts
Alternative investment fund management directive ("AIFMD")
The AIFMD, which was implemented across the EU on 22 July 2013, aims to
harmonise the regulation of Alternative Investment Fund Managers ("AIFMs") and
imposes obligations on managers who manage or distribute Alternative
Investment Funds ("AIFs") in the EU or who market shares in such funds to EU
investors. Foresight Group LLP acts as AIFM to the Company and ensures
compliance with regulation under the UK AIFMD.
BOARD OF DIRECTORS
Richard Davidson
Chair
Background
Richard has a near 20-year track record of investing in UK forestry and has
been heavily involved in the management of his own Scottish forestry
investments, including the planning and design of several new planting
projects. He is a partner in TFP, one of the UK's largest private forestry
owners and was previously the chair of the investment committee for Gresham
House Forestry.
Richard was formerly a Managing Director and Investment Strategist at Morgan
Stanley, where he worked for 15 years. He was also previously a partner of
Lansdowne Partners, running the macro fund. Richard chairs the University of
Edinburgh investment committee, overseeing the university's endowment.
External directorships
Aberforth Smaller Companies Trust Plc
MIGO Opportunities Trust Plc
Josephine Bush
Non-Executive Director, ESG Committee Chair
Background
Josephine was a senior partner at EY for 14 years, specialising in the
renewable energy sector. She is a qualified solicitor, and chartered tax
advisor, as well as holding the CFA ESG investing qualification and a
sustainable finance certification. She is a Fellow of the Royal Geographic
Society.
External directorships
Net Zero Now Limited
NextEnergy Solar Fund Limited
JRB Consulting Limited
Vulcan Energy Resources
Christopher Sutton
Non-Executive Director
Background
Christopher was a Director of James Latham plc, one of the UK's largest
independent trade distributors of timber, panels and decorative surfaces, for
14 years. He is currently the Chairman of Timber Development UK, a
non‑executive commercial director of UNWASTED and acts as a commercial board
advisor to, and ambassador for, the National Forest Company.
External directorships
Timber Development UK Limited
CDS Consultants Limited
Sarika Patel
Non-Executive Director, Audit Committee Chair
Background
Sarika has nearly 30 years' experience in a mixture of public and private
organisations. She is a Chartered Accountant and a Chartered Marketer and is
also a graduate in law. Sarika is the Chair of Action for Children and is a
Board Member of the Office for Nuclear Regulation where she chairs the Audit,
Risk and Assurance Committee. She is a Non-Executive Director and chairs the
Audit Committees at SEEIT plc, Sequoia Economic Infrastructure Income Fund
Limited, and Abrdn Equity Investment Trust.
External directorships
SDCL Energy Efficiency Income Trust Plc
Action for Children
London General Surgery Ltd
Office for Nuclear Regulation
Sequoia Economic Infrastructure Income Fund Limited
Abrdn Equity Investment Trust
FUND MANAGERS
Robert Guest
Investment Director, Co-lead Manager of FSF
Background
Robert joined Foresight in 2015 and is an Investment Director with a focus on
sustainable real estate and infrastructure.
Robert co-founded Foresight's forestry team in 2019 and has overseen c.£140
million of investment into the sector across more than 35 transactions. He is
primarily responsible for portfolio construction and uses his strong network
of forestry contacts to originate bilateral investment opportunities.
He has more than 15 years' experience in finance, with more than 12 of those
in renewable energy and waste recycling in the UK and Europe, was a key team
member on the launch of Bioenergy Infrastructure Group ("BIG") and sits on the
board of a biogas aggregation platform on behalf of a pension fund client.
Prior to Foresight, Robert worked as a Finance Executive at Helius Energy PLC,
focusing on the biomass sector, and at Noble & Company in the corporate
finance team.
Richard Kelly
Investment Director, Co-lead Manager of FSF
Background
Richard joined Foresight in 2015 and is an Investment Director focused on
sustainable real estate.
Richard co-founded Foresight's forestry team in 2019 and has overseen c.£140
million of investment into the sector across more than 35 transactions. He is
primarily responsible for investment strategy and has spear-headed the direct
origination campaign for off-market afforestation land.
He has over 15 years' experience in finance. Prior to co-founding Foresight's
Forestry team, Richard has been responsible for the origination, development
and launch of innovative investment products and new business divisions. He
has successfully originated and launched four innovative new fund strategies
(that have to date attracted c.£1.5 billion of investment) and founded three
new business divisions.
Prior to Foresight, Richard worked at Accenture as a Strategy Manager where he
focused on merger and acquisition strategy across a variety of industries.
STATEMENT OF DIRECTORS' RESPONSIBILITIES
The Disclosure Guidance and Transparency Rules ("DTR") of the UK Listing
Authority require the Directors to confirm their responsibilities in relation
to the preparation and publication of the Unaudited Interim Financial Report
for the period ended 31 March 2022.
The Directors confirm to the best of their knowledge that:
a) the condensed set of financial statements, which has been prepared in
accordance with the applicable set of accounting standards, gives a true and
fair view of the assets, liabilities, financial position and profit or loss of
the issuer, or the undertakings included in the consolidation as a whole as
required by DTR 4.2.4 R;
b) the interim management report includes a fair review of the information
required by DTR 4.2.7 R; and
c) the interim management report includes a fair review of the information
required by DTR 4.2.8 R.
Richard Davidson
Chair
For and on behalf of Foresight
Sustainable Forestry Company Plc
14 June 2022
CONDENSED UNAUDITED STATEMENT OF COMPREHENSIVE INCOME
for the period from incorporation on 31 August 2021 to 31 March 2022
Notes Revenue Capital Total
£'000
£'000
£'000
Return on investment 5 108 8,760 8,868
Total income 108 8,760 8,868
Operating expenses 6 (584) - (584)
Investment management fees 4 (380) - (380)
Total expenses (964) - (964)
Profit/(loss) before tax (855) 8,760 7,905
Tax 8 - - -
Profit/(loss) for the period (855) 8,760 7,905
Earnings/(losses) per share (pence) 9 (0.66) 6.74 6.08
The accompanying notes form an integral part of the condensed set of financial
statements.
All results are derived from continuing operations.
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.
CONDENSED UNAUDITED STATEMENT OF FINANCIAL POSITION
for the period from incorporation on 31 August 2021 to 31 March 2022
Notes 31 March 2022 £'000
Non-current assets
Investments at fair value through profit or loss 10 126,448
Total non-current assets 126,448
Current assets
Trade and other receivables 11 1,218
Cash and cash equivalents 16 8,643
Total current assets 9,861
Total assets 136,309
Current liabilities
Trade and other payables 12 790
Total current liabilities 790
Total liabilities 790
Net assets 135,519
Equity
Called up share capital 13 1,300
Share premium 13 126,314
Revenue reserve 8,760
Capital reserve 14 (855)
Shareholders' funds 14 135,519
Net assets per share (pence per share) 15 104.2
The accompanying notes form an integral part of the condensed set of financial
statements.
The condensed set of unaudited financial statements were approved by the Board
of Directors and authorised for issue on 14 June 2022.
They were signed on its behalf by:
Richard Davidson
Chair
CONDENSED UNAUDITED STATEMENT OF CHANGES IN EQUITY
for the period from incorporation on 31 August 2021 to 31 March 2022
Notes Called up Share Capital Revenue Total
share
premium
reserve
reserve
£'000
capital
£'000
£'000
£'000
£'000
Balance at 24 November 2021 - - - - -
Gross proceeds from share issue 1,300 128,700 - - 130,000
Share issue costs - (2,386) - - (2,386)
Dividends 7 - - - - -
Total comprehensive income for the period - - 8,760 (855) 7,905
Net assets attributable to Shareholders at 31 March 2022 1,300 126,314 8,760 (855) 135,519
The Company's distributable reserves consist of the Capital reserve
attributable to fair value unrealised gains on the Fund portfolio's valuation.
There have been no realised gains or losses at the reporting date.
CONDENSED UNAUDITED STATEMENT OF CASH FLOWS
for the period from incorporation on 31 August 2021 to 31 March 2022
Period ended 31 March 2022 (unaudited)
£'000
Profit from operations 7,905
Adjustments for:
Unrealised gain on investments (8,760)
Operating cash flows before movements in working capital (855)
(Increase)/decrease in receivables (1,066)
(Decrease)/increase in payables 638
Net cash outflow from operating activities (428)
Investing activities
Purchase of investments (117,688)
Net cash generated from investing activities (117,688)
Financing activities
Gross proceeds from share issue 130,000
Expenses relating to issue of shares (2,386)
Dividends paid -
Net cash inflow from financing activities 127,614
Net decrease in cash and cash equivalents 8,643
Cash and cash equivalents at beginning of period -
Cash and cash equivalents at end of period 8,643
The accompanying notes form an integral part of the condensed set of financial
statements.
NOTES TO THE CONDENSED UNAUDITED FINANCIAL STATEMENTS
for the period from incorporation on 31 August 2021 to 31 March 2022
1.Company information
(a) Corporate structure
Foresight Sustainable Forestry Company Plc (the "Company" or "FSF") is
registered in England and Wales under number 13594181 pursuant to the
Companies Act 2006 and its registered address is The Shard, 32 London Bridge
Street, London, United Kingdom, SE1 9SG.
The Company has one investment, FSFC Holdings Limited, and FSFC Holdings
Limited in turn has one investment, FSC 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.
(b) Investment Trust status
Company was incorporated in the United Kingdom on 31 August 2021 and is an
Investment Trust Company ("ITC"). The shares are publicly traded on the London
Stock Exchange under a premium listing. HM Revenue & Customs ("HMRC")
confirmed that the Company is an approved Investment Trust Company for
accounting periods commencing on or after 23 November 2021. The approval is
subject to the Company continuing to meet the eligibility conditions in s1158
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). HMRC provided this approval of ITC
status on the basis of the Company satisfying the following three conditions
throughout an accounting period:
a) The business of the company consists of investing its funds in shares, land or
other assets with the aim of spreading investment risk and giving members of
the company the benefit of the results of the management of its funds
b) Each class of shares making up the company's Ordinary Share capital is
admitted to trading on a "regulated market"
c) The company is not a Venture Capital Trust ("VCT") or a UK Real Estate
Investment Trust ("REIT")
The condensed unaudited financial statements of the Company are for the period
from incorporation on 31 August 2021 to 31 March 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
This condensed set of financial statements has been prepared in accordance
with International Financial Reporting Standards and IFRIC interpretations and
with those parts of the Companies Act 2006 applicable to companies reporting
under IFRS. 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 October 2019 by the
Association of Investment Companies ("AIC").
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 do not constitute statutory accounts as defined in
section 434(3) of the Companies Act 2006 as they are unaudited. The financial
statements do not include all information and disclosures required in annual
audited financial statements.
The condensed unaudited 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 on page 43.
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 Interim
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 it is appropriate to prepare the financial
statements on a going concern basis. As at 31 March 2022, the Company had net
assets of £135.5 million including £8.6 million of cash.
The Directors have also assessed the impact of significant potential risks to
the operation of the Company since incorporation and the principal risks in
the UK forestry and afforestation market(s).
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) Changes 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 is confident it will 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 Foresight Group 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 investment property 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.
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
criterion, necessary for a company to be considered as an investment entity.
Definition of an investment entity/trust:
(i) It must obtain funds from multiple investors for the purpose of providing its
investment management services to those investors
(ii) 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
(iii) 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:
(i) 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
(ii) The Company's purpose is to invest funds with the intention of providing real
returns to investors and capital appreciation is driven by global demand for
timber. The Company's exit strategy will depend on factors of portfolio
balance and/or profit
(iii) 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 condensed 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.
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. Investment management fee
Period ended 31 Mar 2022 (unaudited) £'000
Investment management fee 380
Total 380
Foresight Group LLP were 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 £113,690 during the period. Investment management fees of
£266,594 were accrued at the period end.
5. Return on investment
Period from 31 August 2021 to 31 March 2022 £'000
Unrealised fair value movement of investments 8,760
Interest on loans to Group companies 100
Total 8,860
6. Operating expenses
Period from 31 August 2021 to 31 March 2022 £'000
Administration services fee 42
Director fees paid 50
Other expenses(1) 492
Total 584
¹ Includes Advisor fees, Broker fees, Depository fees, Audit fees and Other
professional fees.
Other expenses include advisor fees, independent valuer fees, audit fees,
broker fees, depository fees and other fund related costs.
Details of Directors' fees are set out in note 20.
7.Dividends
The Company did not pay any dividend in the period from incorporation to 31
March 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 s1158 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.
Analysis of tax expense
There was no taxable income during the period from incorporation on 31 August
2021 to 31 March 2022. As a result, the tax charge for the period is £nil.
Factors that may affect future total tax charges
Following the March 2021 Budget, the corporation tax rate will increase from
19% to 25% with effect from April 2025. The Company is recognised as an ITC
for this interim accounting period and is taxed at the current main rate of
19%.
There is no unrecognised deferred tax asset or liability at 31 March 2022.
9. Earnings per share
Capital reserve £'000 Revenue reserve £'000 Total £'000
Revenue and capital profit attributable to equity holders of the Company 8,760 (855) 7,905
Average number of Ordinary Shares issued 130,000 130,000 130,000
Net assets attributable to Shareholders at 31 March 2022 (pence) 6.74 (0.66) 6.08
10. Investments at fair value through profit and loss
31 March 2022 £'000
Fair value at start of the period -
Loans to intermediate holding companies 15,000
Equity investment in holding companies 102,688
Unrealised gain on investments at fair value 8,760
Total 126,448
There is a loan between FSF and FSFC Holdings Limited for £15,000,000. The
rate of interest on the loan has been set at 7% per annum. Interest accrued at
the period end and outstanding at the reporting date was £113,000.
The Company owns one share in FSFC Holdings Limited that was purchased for a
consideration of £0.01.
Fair value investments
The Investment Manager has carried out fair value market valuations of the
underlying SPV investments as at 31 March 2022 on a RICS basis, as
administered 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
o 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
o 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
o 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
o 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
o 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
o 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
Fair value hierarchy
The Group 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 ("MV"), 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
31 March 2022 £'000
Interest receivable from subsidiaries 100
Debtors 1,118
Total 1,218
12. Trade and other payables
31 March 2022 £'000
Creditors 232
Accruals 558
Total 790
The total for accruals as at 31 March 2022 includes an amount of £266,595
relating to investment management fees charged by Foresight Group LLP after
the period. Similarly, an amount of £30,000 relating to administration
services fees also charged by Foresight Group LLP after the period.
13. Called up share capital
Allotted share capital, issued and fully paid Number of shares
Opening balance at 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)
Total number of Ordinary Shares at 31 March 2022 130,000,001
Share capital £'000 Share premium £'000 31 March 2022 £'000
Opening balance (at incorporation) -- - -
Shares issued at IPO 1,300 128,700 130,000
Costs associated with IPO - (2,386) (2,386)
Total 1,300 126,314 127,614
Prior to IPO, there was one Ordinary Share issued, which is owned by Foresight
Group LLP. The initial placing of 130,000,000 Ordinary Shares took place on 19
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 total number of Ordinary Shares in issue as at 31 March 2022 was
130,000,001. The Company has not issued any further Ordinary Shares.
The issue costs of £2,386,123 relating to the IPO were offset against the
share premium account.
14. Retained earnings
Revenue £'000 Capital £'000 31 March 2022 £'000
Opening balance - - -
Profit/(loss) for the period (855) 8,760 7,960
Dividends paid - - -
Closing balance (855) 8,760 7,960
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 31 March 2022 of £135,518,627 and Ordinary
Shares in issue of 130,000,001.
31 March 2022
NAV (£m) 135.5
Number of Ordinary Shares issued (million) 130
Net Asset Value per share (pence) 104.2
16. Cash and cash equivalents
At the period end, the Company had cash of £8.64 million. This balance was
held by HSBC Bank plc.
17. 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, IFRS 12
and IAS 27)".
Name Direct or indirect holding Country of incorporation Principal activity Proportion of shares and voting rights held
FSFC Holdings Limited Direct UK Holding company 100%
FSFC Holdings 2 Limited Indirect UK Holding company 100%
FSFC Company 1 Limited Indirect UK Investment 100%
Blackmead Forestry Limited Indirect UK Investment 100%
Blackmead Forestry II Limited Indirect UK Investment 100%
Coull Forestry Limited Indirect UK Investment 100%
Fordie Estates Limited Indirect UK Investment 100%
18. Employees and Directors
The Company is governed by an independent and non-executive Board of
Directors. There are four Non-Executive Directors and they received fees for
their services of £50,240 during the period.
19. Events after the balance sheet date
On 6 May 2022, the acquisition of an afforestation project (Dove Hill) for
£1.1 million was completed.
On 13 June 2022, the acquisition of an afforestation project (Coed Doethie)
for £1.3 million was completed.
There are no other significant events since the period end which would require
to be disclosed.
20. Related party transactions
The transactions between the Company and its subsidiaries which are related
parties of the Company and fair valued are disclosed in note 9. 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:
(i) 0.85% per annum of the Net Asset Value of the Fund up to an including £500
million; and
(ii) 0.75% per annum of the Net Asset Value of the Fund in excess of £500 million.
The investment management fees incurred during the period to 31 March 2022 was
£380,000 of which £266,594 remained unpaid as at 31 March 2022.
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 Fund ("FITF"), 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 advisors; 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 31 March
2022 was £50,240. The Directors also received £47,500 in relation to
activities prior to IPO. These amounts had been fully paid as at 31 March
2022. The amounts paid to individual Directors were as follows:
Director Directors' fees £ Pre-IPO expenses £
Richard Davidson (Chair) 15,865 15,000
Sarika Patel 13,221 12,500
Christopher Sutton 10,577 10,000
Josephine Bush 10,577 10,000
The Directors held the following shares in the Company:
Director/PDMR/PCA Number of Ordinary Shares % of issued Ordinary Share capital
Richard Davidson 75,000 0.06
Sarika Patel 4,000 0.00
Christopher Sutton 25,000 0.02
Josephine Bush 10,000 0.01
The above transactions were undertaken on an arm's length basis.
Alternative Performance Measures ("APMs")
APM Purpose Calculation
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 of Closing NAV per share as at 31 March 2022 plus all dividends since IPO
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
Advisers
Investment 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 Coordinator 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
1 More London Riverside
London
SE1 2AF
Valuation Advisor
Savills Advisory Services Ltd
Earn House
Broxden Business Park
Perth
PH11 1RA
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
DTR The Disclosure Guidance and Transparency Rules
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
LSE London Stock Exchange
Main Market The main securities market of the London Stock Exchange
MV Market value
NAV Net Asset Value
NRW Natural Resources Wales
PEFC Programme for the Endorsement of Forest Certification
REIT Real Estate Investment Trust
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
SaaS Software as a Service
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
TNFD The Taskforce for Nature-related Financial Disclosures
End of information
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