TIDMFSF
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 GBP130m of gross proceeds in November
2021, the Company's Net Asset Value has increased to GBP135.5 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 (GBP117.7 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") GBP135.5 million
--------------------
NAV per Share 104.2 pence
--------------------
Total NAV return 4.2%
--------------------
Profit/(loss) for the period GBP7.9 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 . 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 GBP6.9 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
Robert Guest
Richard Kelly
fsfc@foresightgroup.eu +44 20 3667 8100
Jefferies International Limited
Neil Winward
Will Soutar
Harry Randall +44 20 7029 8000
Citigate Dewe Rogerson
Toby Moore ( toby.moore@citigatedewerogerson.com
)
Jos Bieneman ( jos.bieneman@citigatedewerogerson.com +44 7768 981763
) +44 7834 336650
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/
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
GBP135.5m
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 GBP130 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 GBP113.4 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 GBP500
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 EUR95 per tonne to below EUR60 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
GBP12 per tonne and GBP15 per tonne during the period, increased
from an observed/ anecdotal range of GBP5 per tonne to GBP8 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
EUR44 billion and EUR97 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 Permits Planting Initial Trees fully
completed and grants completed WCC validation established
secured, completed
admitted
to WCC register
----------------- -------------- ----------------- ----------- ---------------- -------------
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
GBP77 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 GBP1.48 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 EUR110.9 million (pre-tax and transaction costs) and
two further assets (EUR5.2 million) that were valued using the Red
Book methodology at 30 September 2021 (EUR116.3 million). Following
the revaluation at 31 March 2022, forestry asset valuations
increased by EUR2.3 million and afforestation asset valuations
increased by EUR6.9 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 GBP135.5 million and
comprises GBP125.2 million portfolio value of forestry and
afforestation assets, cash balances of GBP10.4 million (GBP8.6
million in the Company and GBP1.8 million in the project
companies), offset by GBP0.1 million of other net liabilities
(GBP0.5 million of other assets in the Company and GBP0.6 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 GBPmillion (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 GBP127.6 million from the successful
IPO (GBP130.0 million gross proceeds less IPO costs of GBP2.4
million), capital was deployed to acquire the portfolio of assets.
The GBP8.9 million fair value increase of the afforestation and
forestry assets held by the Group, offset by fund operating costs
of GBP1.0 million, resulted in a Net Asset Value of GBP135.5
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 GBP7.9
million
(6 pence per share).
For the same period to 31 March 2022, the total return on
investments was GBP8.9 million, which comprised GBP0.1 million of
interest on the FSFC Holdings loan notes and GBP8.8 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 GBP1.0 million, in line with expectations. These
comprise investment management fees of GBP0.4 million and GBP0.6
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 GBPmillion (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 EUR8.6
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 (GBPmillion)
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
(GBPmillion)
The Group is defined as the Company and its two intermediate
holding companies. The cash flows for the Group of
EUR8.6 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 EUR130 million in
seed funding.
Following three significant acquisitions since launch, the
Company has a Net Asset Value of EUR135.5 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 EUR1.6 billion.
Foresight operates from 12 offices across six countries in
Europe and Australia with AUM of EUR8.7 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.GBP140 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.GBP140 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.GBP1.5 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
GBP'000 GBP'000 GBP'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 GBP'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 Share Capital Revenue Total
up premium reserve reserve GBP'000
share GBP'000 GBP'000 GBP'000
capital
GBP'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)
--------------------------------------------------------- ------------
GBP'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 (GBP) 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 GBP135.5 million including GBP8.6
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:
( Material reductions in timber prices recoverable from the SPVs
i)
(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)
GBP'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 GBP500 million
and 0.75% per annum in excess of GBP500 million.
The Company paid GBP113,690 during the period. Investment
management fees of GBP266,594 were accrued at the period end.
5. Return on investment
Period
from 31
August
2021 to
31 March
2022 GBP'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 GBP'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 GBPnil.
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 Revenue Total GBP'000
reserve reserve
GBP'000 GBP'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 GBP'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
GBP15,000,000. 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 GBP113,000.
The Company owns one share in FSFC Holdings Limited that was
purchased for a consideration of GBP0.01.
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 GBP'000
-------------------------------------- -------------
Interest receivable from subsidiaries 100
Debtors 1,118
Total 1,218
-------------------------------------- -------------
12. Trade and other payables
31 March
2022 GBP'000
Creditors 232
Accruals 558
---------- -------------
Total 790
---------- -------------
The total for accruals as at 31 March 2022 includes an amount of
GBP266,595 relating to investment management fees charged by
Foresight Group LLP after the period. Similarly, an amount of
GBP30,000 relating to administration services fees also charged by
Foresight Group LLP after the period.
13. Called up share capital
Number
Allotted share capital, issued and fully paid of shares
--------------------------------------------------------------- -----------
Opening balance at 31 August 2021 -
--------------------------------------------------------------- -----------
Allotted upon incorporation
Issue of Ordinary Shares at 1 pence per share (31 August 1
2021)
--------------------------------------------------------------- -----------
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 Share premium 31 March
GBP'000 GBP'000 2022 GBP'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 GBP130,000,000. 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 GBP2,386,123 relating to the IPO were offset
against the share premium account.
14. Retained earnings
Revenue Capital 31 March
GBP'000 GBP'000 2022 GBP'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
GBP135,518,627 and Ordinary Shares in issue of 130,000,001.
31 March
2022
------------------------------------------- --------
NAV (GBPm) 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 GBP8.64 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)".
Direct Country Principal Proportion
or indirect of incorporation activity of shares
holding and voting
rights
Name held
------------------------------ ------------- ------------------ ----------- -----------
Holding
FSFC Holdings Limited Direct UK company 100%
Holding
FSFC Holdings 2 Limited Indirect UK 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 GBP50,240 during the
period.
19. Events after the balance sheet date
On 6 May 2022, the acquisition of an afforestation project (Dove
Hill) for GBP1.1 million was completed.
On 13 June 2022, the acquisition of an afforestation project
(Coed Doethie) for GBP1.3 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
GBP500 million; and
(ii) 0.75% per annum of the Net Asset Value of the Fund in excess of GBP500
million.
The investment management fees incurred during the period to 31
March 2022 was GBP380,000 of which GBP266,594 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 GBP50,240. The Directors also received
GBP47,500 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:
Directors' Pre-IPO
fees GBP expenses
Director GBP
------------------------- ---------- ---------
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:
Number % of issued
of Ordinary Ordinary
Director/PDMR/PCA Shares 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 The net assets divided
whether shares are trading by the number of Ordinary
at a premium or a discount Shares in issuance
by comparing the Net
Asset Value per share
with the share price
Total NAV return since A measure of financial Closing NAV per share
IPO performance, indicating as at 31 March 2022 plus
the movement of the value all dividends since IPO
of the Fund since IPO assumed reinvested, divided
and expressed as a percentage 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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