TIDMFSF
RNS Number : 7586J
Foresight Sustain. Forestry Co PLC
14 December 2022
14 December 2022
Foresight Sustainable Forestry Company Plc
Full Year Results from incorporation to 30 September 2022
Foresight Sustainable Forestry Company Plc ("FSF" or "the
Company"), an investment company that invests in UK forestry and
afforestation assets, is pleased to announce the publication of its
inaugural audited Full Year Results (the "Annual Results") for the
period from FSF's incorporation on 31 August 2021 to 30 September
2022.
Performance highlights
-- NAV per Share over the period increased to 105.0 pence, a total
NAV return of 5.0%, driven primarily by the upwards revaluation
of FSF's afforestation sites, as a result of rising land prices,
granting of planting permission, and completion of planting.
-- As at 30 September 2022, the Company portfolio consisted of
27 afforestation properties, 22 forestry properties and one
mixed allocation property.
-- Since incorporation, FSF has raised GBP175 million of gross
proceeds and increased the Company's Net Asset Value to GBP180.6
million.
-- The Company's acquired portfolio comprised 9,618 hectares of
land, of which 41% (by value) are afforestation properties.
-- The planting of approximately 514,000 trees was completed during
the period.
-- 26,000 tonnes of timber were harvested during the period
-- The Company's Forestry Skills Training Programme was launched
in Wales, with four local candidates selected to undertake
the programme
-- On 5 December 2022, the Company announced that it had become
the first company to officially receive the London Stock Exchange's
Voluntary Carbon Market ("VCM") designation
Key metrics
As at 30 September 2022
----------------------------- -----------------------
Net Asset Value ("NAV") GBP180.6 million
NAV per Share 105.0 pence
Total NAV return 5.0%
Profit/(loss) for the period GBP8.8 million
----------------------------- -----------------------
Results presentatio n
The Company will host a virtual SparkLive presentation at 9:00
a.m. (UK time) on Mondday, 19 December 2022. To register your
interest in attending the presentation, please register at:
https://www.lsegissuerservices.com/spark/FORESIGHTSUSTAINABLEFORESTRYCOMPANY/events/b6793ad3-27a1-498e-9859-4e2282c53d6b
Commenting on the Company's results, Richard Davidson, Chair of
Foresight Sustainable Forestry Company Plc, said:
"Foresight Sustainable Forestry has had a very successful first
15 months and these are a strong set of inaugural annual results.
We have successfully delivered on our IPO objectives, are steadily
growing the afforestation part of our portfolio, and have a large
and exciting pipeline of further UK afforestation opportunities. We
have now planted well over half a million trees, and we were proud
to report the completion of the first Foresight Sustainable
Forestry Skills Training Programme, an initiative we intend to
repeat annually.
"More recently, becoming the first ever company to be awarded
the LSE's Voluntary Carbon Market designation is a potentially
game-changing development for FSF, connecting us with many
investors and companies focused on mitigating their impact on the
climate by looking to invest in projects creating high integrity
voluntary carbon credits. Foresight Sustainable Forestry is looking
forward to 2023 with considerable confidence."
For further information, please contact:
Foresight Sustainable Forestry
Company Plc +44 20 3667 8100
Robert Guest
Richard Kelly
fsfc@foresightgroup.eu
Jefferies International Limited +44 20 7029 8000
Neil Winward
Will Soutar
Harry Randall
Citigate Dewe Rogerson +44 7768 981763
Toby Moore (toby.moore@citigatedewerogerson.com)
Michael Mpofu (michael.mpofu@citigatedewerogerson.com)
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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.
About Us
Foresight Sustainable Forestry Company Plc ("FSF",the "Fund" or
the "Company") is the first and only UK listed investment trust
focused on UK forestry, afforestation and natural capital.
The Company raised GBP130 million at IPO on 24 November 2021.
Following a further GBP45 million equity raise in June 2022 the
Company has now raised a total of GBP175 million(1) .
The Company has 172,056,075 Ordinary Shares in issue, all of
which are listed on the Premium Segment of the Official List and
traded on the London Stock Exchange ("LSE") Main Market. FSF is
managed by Foresight Group LLP (the "Investment Manager" or
"Foresight").
[The first fund to be accredited with the Voluntary Carbon
Market designation]
1. Before costs of IPO and June 2022 equity raise of GBP2.4 million
and GBP0.8 million respectively.
OUR PURPOSE
Investing into the commercial aspects of UK forestry with the
added benefits of access to voluntary carbon credits, fighting
climate change and preventing biodiversity loss.
INVESTMENT OBJECTIVES
-- Real returns and capital appreciation
-- Value creation through afforestation
-- Sustainable timber supply
-- Combat climate change and biodiversity loss
-- Access to voluntary carbon credits
Highlights
AS AT 30 SEPTEMBER 2022
Key Performance Indicators ("KPIs")
GBP180.6m
NET ASSET VALUE ("NAV")
5.0%
TOTAL NAV RETURN SINCE IPO
105.0p
NAV PER SHARE
9,618 hectares
IN THE PORTFOLIO
c.26,000 tonnes
TIMBER IN 2022 HARVESTING PROGRAMME
3,917 hectares
TOTAL LAND IN AFFORESTATION DEVELOPMENT
c.514,000
TREES PLANTED IN 2022
GBP0.6m
VALUE ASCRIBED TO PROGRESS TOWARDS CREATION OF CARBON
CREDITS
Investment case
The Company is targeting sustainable impact through investment
in sustainably managed commercial forestry and afforestation
assets.
The Company creates natural capital alpha through its
proprietary sustainable forestry management practices. The impact
combines sustainable financial returns with natural capital
services output, including carbon sequestration, biodiversity
enhancements and local socio-ecological benefits. This is the focus
of the Company, supported by its business model (read more below).
With this approach, the Company is making a direct contribution to
mitigating climate change and UK biodiversity loss, which are at
the core of the Company's values.
Fight against climate change and biodiversity loss
The Company will make a direct contribution to the twin fights
of climate change and biodiversity loss
-- 27 afforestation schemes covering 3,917 hectares
-- c.514,000 trees planted
Strong pipeline
Identification of and access to a proprietary pipeline of
directly originated on and off-market forestry opportunities
-- c.860,000 hectares
-- 4,500 specific properties
Portfolio diversification
UK forestry has negative correlations to traditional and
alternative assets (including UK power prices) underpinned by
biological tree growth which occurs regardless of economic
cycle
First UK-listed Investment Trust focused on natural capital
-- 9,618 hectares managed
Attractive asset class
UK commercial forestry has historically outperformed the
Consumer Price Index ("CPI") on a long - term basis. Until now, it
has had high barriers to entry
-- Outperformed and uncorrelated to equities and bonds since inception
-- 17.5% FSF share price out performance of FTSE All Share since
IPO
Inflation protection
UK commercial forestry has strong inflation - beating
characteristics for both expected and unexpected inflation
-- Target return delivered once substantially
invested
-- CPI+5%
Statistics as at 30 September 2022
GEOGRAPHIC FOOTPRINT
A diversified portfolio of UK forestry and afforestation
assets
27 Mountmill Burn
Located in the Scottish Borders, the 119 - hectare property is
an afforestation asset. In July 2022, the planting of approximately
260,000 trees was completed.
40 Chatto Craigs
Located near Galashiels in the Scottish Borders, the 98 -
hectare property is an afforestation asset. Acquired in July 2022,
the property contains a mix of existing forest and woodland and
land well suited for the establishment of a productive woodland
creation scheme. The property is well located in relation to
sawmills and timber processors and expands the Company's growing
Scottish Borders portfolio.
41 Pilanton Wood
Located in Dumfries & Galloway, Scotland, the 79 - hectare
property is an afforestation asset. Acquired in July 2022, the
property has a small proportion of existing forestry, including
native broadleaves, and a high proportion of the land area is
expected to be suitable for inclusion in a woodland creation
scheme. The acquisition extends the Company's presence in the
region.
53 properties(1)
1 Aberarder Forestry
2 Whiteburn Forestry
3 Shorthope Forestry
4 Coull Forestry
5 W&C Forestry
Central Scotland
Portfolio
6 East Browncastle Forestry
7 Berrieswalls Forestry
8 Barkip Forestry
9 Over Auchentiber Forestry
10 Crofthead Forestry
11 Camps Woodlands Forestry
12 Derry Lodge Forestry
13 South Dairy Forestry
14 Bronnant Forestry
15 Waun Maenllyd Forestry
Donside Forestry Collection
16 Bogforlea Forestry
17 Harthills Forestry
18 Kirkwood Forestry
19 Tom Na Wan Forestry
20 Craigwell Wood Forestry
21 Auchensoul Afforestation
22 Frongoch Afforestation
23 Brynglas Afforestation
24 Esgair Hir Afforestation
25 Banc Farm Afforestation
26 Upper Barr Afforestation
27 Mountmill Burn Afforestation
28 Nor Hill Afforestation
29 Pistyll South Afforestation
30 Maescastell Afforestation
31 Cwmban Fawr Afforestation
Farm
32 Fordie Estate Mixed
33 Drumelzie Forestry
34 Lambs Craig Afforestation
35 Glass Rigg Forestry
36 Rory Hill Afforestation
37 Red Craig & Afforestation
Glen Burn
38 Burn of Bellyhack Afforestation
39 Dove Hill Afforestation
40 Chatto Craigs Afforestation
41 Pilanton Wood Afforestation
42 Coed Doethie Afforestation
43 Droveroad Wood Afforestation
44 Ness Bogie Afforestation
45 Reams Hill Afforestation
46 Brown Hill Afforestation
47 Knock Fell Afforestation
48 Windylaws Afforestation
49 Liddel Water Afforestation
50 Cheterknowes Afforestation
Wood
Acquisitions post-period end
51 Bogbain Wood(2) Forestry
52 Glendyne Wood(3) Afforestation
53 Burnside(4) Afforestation
-------------------------- ---------------------------------------------------
1. Including three properties acquired post-period end.
2. On 12 October 2022, the acquisition of a stocked UK forestry
project, Bogbain Wood, was completed.
3. On 17 October 2022, the acquisition of an afforestation project,
Glendyne Wood, was completed.
4. On 31 October 2022, the acquisition of an afforestation project,
Burnside, was completed.
Chair's statement
As Shareholders have recognised, FSF offers a unique proposition
amongst UK listed vehicles.
Richard Davidson
Chair
On behalf of the Board, I am pleased to present the first Annual
Report of Foresight Sustainable Forestry Company Plc for the period
to 30 September 2022, a period which covers our IPO, follow-on
fundraising and multiple forest and land acquisitions.
As Shareholders have recognised, FSF offers a unique proposition
amongst UK listed vehicles - an investment into the commercial
aspects of UK forestry with the added benefits of fighting climate
change and biodiversity loss through new forestry planting. This
combination of attributes has helped our share price move to and
retain a premium to NAV despite the challenging stock market
conditions of 2022.
The first period of trading has been busy on many fronts. Here
are the highlights:
Capital raising
Following the GBP130 million equity raise which culminated in
the Company's successful IPO on 24 November 2021, a subsequent
issue raised GBP45 million at a price of 107.0 pence per Share on
24 June 2022(1) . In market conditions which have been and remain
challenging for the whole sector, the Board and I are delighted
with our fundraising achieved to date and have ambitions to raise
more equity when market conditions allow and existing capital is
substantially deployed. After an initial dip to below 90 pence in
post-IPO trading, our share price followed a steady upwards trend
to May 2022 and at its peak reached 116 pence. Pleasingly, despite
discounts widening across the investment trust sector, FSF shares
traded at a premium to NAV from 14 April 2022 to period-end.
In August 2022, the Company finalised the arrangement of a
Revolving Credit Facility ("RCF"). At the time of writing, no funds
have been drawn under the RCF and therefore FSF currently has no
direct exposure to rising interest rates. Whilst the RCF provides
FSF with access to flexible capital to grow the portfolio, a
prudent and opportunistic approach will be taken to its use.
1. Before costs of IPO and June 2022 equity raise of GBP2.44
million and GBP0.76 million respectively.
Acquisitions
FSF soon established itself in the UK forestry market through
acquisitions from the seed asset portfolio. The two seed asset
transactions occurred through the purchase of Blackmead Forestry
Limited ("BFL") and Blackmead Forestry II Limited ("BFL II") from
Foresight Inheritance Tax Fund. Concluding in March 2022, the
transactions added 36 properties to the portfolio and utilised 87%
of IPO proceeds.
The additional 14 properties acquired were mainly transacted
through the Investment Manager's successful direct origination
campaign. This is an off-market and proprietary process covering
the sourcing and negotiation of properties that meet our
afforestation criteria. This approach has proved highly valuable to
the Company and we continue to seek afforestation opportunities
using this method.
At 30 September 2022, the total portfolio covered 9,618 hectares
across 50 properties. The Investment Manager continues to source an
attractive pipeline of investments for the Company.
One of our IPO objectives was to invest between 40-50% of the
portfolio by value in afforestation (new forestry planting)
properties. Afforestation assets by value now stand at 40% of the
portfolio, a 1,175 hectare increase from 31 March 2022. In addition
to the climate and biodiversity benefits of new forestry planting,
afforestation investments can also boost NAV as woodland creation
schemes reach key development milestones.
Forest operations
Having the correct tree species mix and forest designs is a core
part of our investment strategy. We believe it allows the Company
to successfully deliver a blend of cash flows. Throughout the
period, approximately 514,000 trees have been planted across two
properties. An estimated 6.4 million trees are currently planned to
be planted over 2023 and 2024 at 28 properties; which is expected
to create additional value for Shareholders through land
appreciation and creation of voluntary carbon credits.
Due to their nature, commercial timber assets allow the owner to
make an informed decision about when to harvest. Timber is not a
perishable asset that has to be cut in any one season and can be
left to grow in periods of price or demand weakness.
Over the course of 2022, we have seen a softening of timber
prices due to additional supply caused by extreme weather events,
such as Storm Arwen, and sawmill destocking driven by economic
caution. As a result, we have delayed harvesting plans at a number
of properties to ensure we maximise value by bringing the Company's
timber to market when prices are more favourable in the future.
Despite these partial delays, FSF harvested approximately 26,000
tonnes of sustainable timber in the period and, over the next five
years, we expect to have in the region of 213,000 tonnes of fully
FSC and PEFC certified timber available for harvest.
Key financials
In the period to 30 September 2022, the NAV per Ordinary Share
increased to 105.0 pence (31 March 2022: 104.2 pence). Over the
period since IPO, our NAV total return has been 5.0%. The key
driver of this gain was a 16.9% upwards revaluation of our
afforestation sites, driven by rising prices for land suitable for
afforestation development, securing of grants and planting
permissions, and the completion of planting. Valuations for
established forest properties have remained relatively muted during
the period, reflecting relative softness in the timber market. The
second half of the period has seen substantial investment into the
afforestation assets as well as getting new debt and equity capital
in place, and the related costs of that. We are very encouraged
that the two afforestation properties that were planted during the
period achieved a 42% valuation increase (contributing strongly to
the overall uplift for afforestation assets) before any
consideration of the value of voluntary carbon units.
With up to 25 further assets in the afforestation development
pipeline due to reach the planted milestone in the next two
financial years, we expect to see the hard work and capital
investment continue to deliver development returns going forward.
Recognition of the value of voluntary carbon credits in the
Company's NAV is also an exciting development.
Sustainability and Environmental, Social and Governance
In the sustainability and ESG section of this report you will
find the environmental and natural capital highlights that the
Company has achieved. We create natural capital alpha through our
proprietary sustainable forestry management practices. We balance
UK timber production, carbon sequestration, biodiversity and
positive social impacts, amongst other considerations, for each of
our afforestation sites. As well as commercial trees, this will
include the planting of significant hectarage of native broadleaf
trees and reinstating wetlands and reducing grazing levels on large
areas of open ground, which increases positive carbon impacts and
creates additional biodiverse ecosystems.
Particular achievements during the reporting period include
28,873 tCO2e of arboreal carbon sequestration achieved and material
progress with the data collection for establishing the ecology and
biodiversity baseline of the portfolio.
The launch of FSF's Forestry Skills Training Programme in Wales
has been a particularly notable development. All four candidates on
the pilot scheme graduated from the course and we look forward to
the scale-up and roll-out of the training programme as part of a
UK-wide expansion plan to add valuable skills in the rural
communities where we operate.
Awards
Recently we were delighted to be awarded the Most Innovative
Sustainable Fund Launch at the Investment Week Sustainable
Investment Awards. This was followed by the award of Infrastructure
Finance Initiative of the Year at the National Sustainability
Awards. These awards recognise the mix of our commercial model with
sustainability goals, which lies at the heart of our investment
approach.
Market outlook
Shareholders will know only too well the backdrop of the last
year, featuring rising interest rates, falling stock markets,
global political instability, an energy crisis and currency
volatility. Despite these significant headwinds, UK forest property
prices have exhibited their historic low correlation to other
assets and have held up well. This resilience may not always be the
case, particularly if other assets were to continue to deflate in
the face of rising interest rates. However, we would highlight the
following potential factors that may serve to offset this risk:
-- The UK imports 80% of its timber and therefore a weak GBP makes
domestic timber more competitive
-- Sanctions on Russian and Belarussian timber will have an additional
benefit for UK growers
-- Historically there has been limited debt involved in UK forestry
purchases due to its inheritance tax protected status and it
not being a mainstream asset class for banks, meaning less
risk of a debt - driven unwind of holdings
-- Sustainable timber remains a product in a long-term demand
uptrend in the UK and globally
-- Government support for new forestry planting across the UK
remains significant in both policy and grant terms
-- New planting trends are largely unaffected by market volatility
-- The global decarbonisation agenda continues to accelerate;
corporate net zero pledges are becoming increasingly common
practice with many looking to achieve this feat between 2030
and 2050
FSF is well placed to benefit from a future increase in timber
and voluntary carbon credit prices and remains focused on a
significant amount of new forestry planting. We will continue to
deploy our capital advantageously.
Voluntary Carbon Market designation
On 5 December 2022, the Company announced that it had become the
first company to officially receive the LSE's Voluntary Carbon
Market ("VCM") designation. I would like to take this opportunity
to reflect on what is a material post-period announcement, and that
we believe is a milestone for capital markets and the Company.
The VCM was launched by the LSE on 10 October 2022 and has been
created to facilitate financing at scale into projects that
mitigate climate change. The VCM designation will be applied to
funds or operating companies that are admitted to
the LSE's Main Market or AIM and which are intent on investing
into climate change mitigation projects that are expected to yield
voluntary carbon credits.
Annual General Meeting
We look forward to meeting Shareholders at the Company's Annual
General Meeting ("AGM") on 23 February 2023 at 1:00pm. Details of
how Shareholders may participate are set out in the Notice of
Annual General Meeting published in this report.
Summary
I would like to thank the Fund Managers, advisers, Shareholders
and other members of the Board for contributing to what has been a
very busy and successful period. We are proud of what we have
achieved so far and very much look forward to continuing the growth
of the Company.
Richard Davidson
Chair
14 December 2022
Investment Manager's Report
Executive Review
We are proud to have delivered our business plan and financial
performance targets for the Company in the reported period.
Robert Guest
Managing Director, Foresight Group Co-Lead, Foresight
Sustainable Forestry Company
Richard Kelly
Managing Director, Foresight Group Co-Lead, Foresight
Sustainable Forestry Company
Executive summary
In its first period, FSF, the London Stock Exchange's first
listed natural capital investment company, delivered a particularly
positive performance during a year of such significant political
and financial market volatility. During the period, the Company
demonstrated the success of its business model. This was clearly
shown by valuation uplifts, increase of NAV per share and a total
NAV return since IPO of 5.0%.
In aggregate, the Company's NAV increased by GBP50.6 million
between IPO on 24 November 2021 and 30 September 2022.
This was predominantly due to FSF's successful GBP45 million
equity raise in June 2022 but also aided by a GBP11.5 million (up
to 9.1%) valuation gain of fixed assets in the period.
The NAV per share increase in the period to 30 September 2022
has been impacted by transaction costs from the high volume of
afforestation acquisitions, the commencement of development
activities on multiple afforestation properties, and costs related
to securing new equity and debt capital. The benefits of investing
in development projects and increasing the Company's available
capital base for deployment are becoming apparent in the very
strong valuation uplifts delivered by the first two afforestation
assets where planting has been completed.
Successful afforestation development and the securing of the
related voluntary carbon credits is a core part of the Company's
business model and the value recognition received on the first two
afforestation properties validates this strategy.
Overall, we are proud to have delivered on our business plan and
financial performance targets for the Company in our first year.
Alongside this, the measurable sustainability and ESG impacts of
FSF are increasing whilst the regulatory risk management frameworks
and end markets for voluntary carbon units, nature positive units
and other methods for quantified provision of natural capital
services are rapidly emerging and taking shape.
We are excited to keep progressing our afforestation development
programme and project pipeline and to deliver continued "natural
capital alpha" (the combination of outperforming sustainable
financial returns with sustainable timber production, carbon
sequestration, biodiversity and positive social impacts, through
sustainable forestry management practices) for our Shareholders
in the Company's financial year.
Looking to the next year, we are particularly excited to
continue to increase the Company's exposure to afforestation via
new acquisitions and to commence and complete tree planting
activities on the pipeline of afforestation schemes within the
existing portfolio that are currently in development.
Portfolio
Acquisitions
The pace of deployment has been strong throughout the period.
Since inception, FSF has deployed GBP133.3 million into a portfolio
of 50 forestry and afforestation properties across the UK. In the
first six months since FSF's IPO, the investment focus was on
negotiating and completing the acquisition of seed assets portfolio
to ensure IPO proceeds were rapidly deployed to minimise the impact
of cash drag.
Looking forward to the next year, the Investment Manager will be
looking to further enhance FSF's exposure to afforestation assets
and maintaining investment discipline as we continue to search for
high quality assets to add to the portfolio.
Foresight sources deals and acquisition opportunities via
selling agents, on-market bids, bilateral deals and direct
origination for both established forestry and afforestation assets.
Approximately 4,500 specific properties, extending over c.860,000
hectares, have been identified as highly suitable for afforestation
and are specifically targeted with our direct origination system.
The Company has full priority rights over any acquisition
opportunities sourced from the direct origination system and other
Foresight forestry opportunities that are within the Company's
mandate in accordance with the Prospectus.
In the next year, we expect to increasingly deploy capital into
attractive forestry properties as we approach FSF's maximum 50%
afforestation allocation. Whilst forestry properties generally
offer lower returns than afforestation, they play an important cash
generation role within the Fund. Given how resilient FSF's share
price has been during recent market volatility, we expect to come
back to equity markets, conditions and pipeline allowing, in 2023
to expand FSF's capital base.
Portfolio by area
Scotland - 82%
England - 6%
Wales - 12%
Afforestation - 45%
Established forestry - 55%
Portfolio by value
Scotland - 82%
England - 7%
Wales - 11%
Afforestation - 40%
Established forestry - 56%
Non-forestry assets - 4%
In the build-up to that we will remain focused on securing an
attractive and well - developed pipeline that the proceeds can be
deployed into.
Portfolio
The primary acquisition strategy in the latter part of the
period was to increase FSF's allocation to afforestation
opportunities. In our IPO objectives, we stated that afforestation
properties would make up (by value) between 40-50% of the
portfolio. We were delighted to report in August 2022 that FSF had
achieved this objective.
As at 30 September 2022, the Company's portfolio comprised 50
assets covering a total area of 9,618 hectares. An overview of the
portfolio is provided above and the split of hectares by country
and by afforestation/forestry is illustrated below.
The portfolio's allocation continues to be weighted towards
Scotland (82% of FSF's portfolio by land area), which is the most
forested of the UK countries and the closest to achieving its
annual tree planting targets. Deployment into Scottish properties
is also aided by the larger property parcel sizes. We expect
deployment in 2023 to be weighted towards Scottish properties.
Wales (12% of FSF's portfolio by land area) is the second
largest country allocation within FSF's portfolio and government
targets for afforestation in Wales are significant.
However, properties and parcel sizes tend to be smaller than in
Scotland, particularly for afforestation properties, which limits
opportunities to deploy at scale. We are also seeking opportunities
in Northern England to slightly increase the allocation, but we
note that this is a relatively more challenging regulatory
environment with England yet to fulfil its annual planting targets.
We expect 2023 deployment into England to remain a relatively low
proportion of total deployment, versus both Scotland and Wales.
Following the release of the Interim Report, the Investment
Manager has carried out a detailed review of allocation to
non-forestry assets. The information below now includes non -
forestry assets as a reporting metric in the portfolio allocation
calculation, as is illustrated on below. In future, the allocation
to afforestation, forestry and non-forestry assets will be
reported, monitored and measured on this basis.
Portfolio valuation
As at 30 September 2022, the forestry portfolio held through
SPVs as described below, was valued at GBP144.8 million. Since IPO,
the portfolio delivered a valuation gain of GBP11.5 million in the
period.
Afforestation properties delivered gains of GBP7.5 million. The
largest percentage valuation increases were from two planted
afforestation properties, Mountmill Burn and Banc Farm.
Using Mountmill Burn as an example of what occurs when
development milestones are reached, the property was originally
valued at GBP1.4 million at acquisition. At that time, Mountmill
Burn was an afforestation scheme still in development and
unplanted. A year later, Mountmill Burn has been fully planted and
the saplings are establishing well. Mountmill Burn was valued in
September 2022, as part of FSF's portfolio valuation, at GBP2.5
million, an increase of approximately GBP1.1 million equivalent to
a 74% increase on a year earlier. In addition, Mountmill Burn has
seen a further GBP340k of value ascribed to progress towards
creation of 19,466 carbon credits to the property's valuation,
taking total returns delivered on Mountmill Burn to GBP1.4 million,
an increase of 97%.
Both planted properties demonstrate the capital appreciation
potential of afforestation sites once development milestones are
met. The Company has a further 25 afforestation properties as part
of a series of development activities which is estimated to see the
creation of approximately 800,000 voluntary carbon credits. This
estimate takes into consideration the verifier's 20% buffer to
ensure that the number of units offset or traded is conservative
versus the estimated carbon actually sequestered.
Afforestation properties remain the engine room of performance
and the Company is looking to increase the portfolio allocation to
this asset type in the coming year. Successful afforestation
development and the securing of the related voluntary carbon
credits is a core part of the Company's business model and the
value recognition received on the first two afforestation projects
validates this strategy.
Standing forestry properties delivered gains of GBP1.2 million
from acquisition to 30 September 2022. Valuations for established
forest properties have remained relatively stable.
Mixed forestry and afforestation properties, a category
dominated by the Fordie Estate, delivered a 18.4% increase from
acquisition to 30 September 2022, a GBP2.2 million uplift. The
Fordie Estate development, which includes an afforestation scheme
of material scale, continues to progress well.
Debt financing
As mentioned by the Chair, the Company completed the arrangement
of a GBP30 million RCF and an uncommitted accordion facility of up
to an additional GBP30 million on favourable margins. The RCF gives
FSF a committed source of flexible funding outside equity
raisings.
Once drawn, the facility is expected to be paid down
periodically using the proceeds of subsequent equity issues.
This enables FSF to make new investments with certainty of
funding and on a timely basis, reducing cash drag associated with
holding cash balances.
Pleasingly, the interest margin chargeable on the RCF is linked
to the Company's sustainability and ESG ("S & ESG")
performance, with FSF incurring a premium or discount to its margin
based on its performance against defined targets. These S & ESG
targets are:
-- A year-on-year increase in the total number of hectares of
land acquired for carbon sequestering activities (including
afforestation, peatland restoration and voluntary carbon credit
acquisition)
-- A year-on-year increase in the total number of people completing
FSF's Forestry Skills Training Programme
Performance against these targets will be measured annually,
with the interest cost of the RCF being amended accordingly in the
following year. The lender is Virgin Money and the interest margin
can vary between 200 bps and 220 bps over SONIA (Sterling Overnight
Index Average), depending on performance against the Company's S
& ESG targets.
Since arranging the facility, no drawdowns of the RCF have been
made and the potential utilisation of the facility will be
carefully considered by the Investment Manager in the context of
rising interest rates and market conditions. However, having the
RCF available gives the Company significant manoeuvrability for
strategic purchases and enhances growth prospects for the future.
Looking forward, we hope to deploy the proceeds of the RCF
opportunistically into favourably priced properties.
Operations
Established forestry
Of the Company's established forestry, 3,495 hectares is stocked
and 48% is dedicated to native broadleaves, rare and endangered
trees and open ground.
Planting
Excitingly, during FSF's first year, planting completion was
reached on two afforestation projects (Banc Farm and Mountmill
Burn), which has seen approximately 514,000 trees planted and
establishing well.
The Company has also been developing its other 26 properties
where afforestation activity is possible. Sixteen sites have
formally completed planting designs and are now busy gaining
permits, grants and admission to the Woodland Carbon Code ("WCC")
register. The ten other afforestation properties are expected to
complete planting designs in the first half of FY23.
The total portfolio will see the development of 3,917 hectares
and 6.4 million trees are expected to be planted throughout 2023
and 2024. Current development plans see 52% of the total area
dedicated to commercial conifers, alongside 16% of land area with
native broadleaves, rare and endangered trees, alongside 32%
dedicated to open ground.
Afforestation asset development progress
Twenty-seven afforestation properties and one mixed
afforestation and forestry property were being developed at the
year - end date. The status of each property at the year end was as
follows:
Permits
and grants
secured, Final WCC
Forest design admitted Planting validation Trees fully
Property name completed to WCC register completed completed established
--------------------- ------------- ---------------- ---------- ----------- ------------
Banc Farm Completed Completed Completed - -
Mountmill Burn Completed Completed Completed - -
Upper Barr Completed - - - -
Auchensoul Completed - - - -
Cwmban Fawr Farm Completed - - - -
Frongoch Completed - - - -
Brynglas Completed - - - -
Esgair Hir Completed - - - -
Pistyll South Completed - - - -
Ellenber Farm Completed - - - -
Fordie Completed - - - -
Rory Hill Completed - - - -
Lamb Craigs Completed - - - -
Maescastell Completed - - - -
Red Craig & Glen Burn Completed - - - -
Burn of Bellyhack Completed - - - -
Dove Hill - - - - -
Chatto Craigs - - - - -
Pilanton Wood - - - - -
Coed Doethie - - - - -
Droveroad Wood - - - - -
Ness Bogie - - - - -
Reams Hill - - - - -
Brown Hill - - - - -
Knock Fell - - - - -
Windylaws - - - - -
Liddel Water - - - - -
Chesterknowes Wood - - - - -
--------------------- ------------- ---------------- ---------- ----------- ------------
Harvesting
The Investment Manager took the opportunity during the period to
commence harvesting at two forests at good pricing levels. Two
other forests have proceeded as planned this winter to clear up
wind blow from Storm Arwen. In total, this is expected to yield
c.26,000 tonnes of timber harvesting. There will also be a thinning
operation carried out at two sites in order to comply with
Statutory Plant Health Notices ("SPHNs"); this is expected to yield
a further c.4,000 tonnes of timber. Both SPHNs that have been
issued are in relation to infected Larch. Larch trees are known to
be more susceptible to the Phythopthora Ramorum disease that is
currently prevalent, and, provided the SPHN felling is carried out,
this poses no further risk to the wider forests. The timber from
the Larch trees harvested can still be sold in the usual way to
sawmills, so there is no loss in revenue associated with the
process.
However, timber pricing was generally weaker during the year. As
a result of an increase of timber supply following the end of
COVID-19 restrictions and related timber demand surge, and higher -
than - normal timber supply inflows following Storm Arwen in
November 2021, planned harvesting at ten FSF properties of
harvestable age was postponed. In total, c.100,000 tonnes of timber
within the portfolio have reached maturity and is in a five - to -
ten - year optimum harvesting window.
The Company has set aside sufficient working capital and
forecast future capital expenditure to provide the Company with
flexibility to adjust and postpone the timing of commencing
harvesting on these sites.
The Company also enjoys significant income from woodland
creation grants, which offset a large portion of the capital
expenditure invested into planting afforestation sites.
The Company is well capitalised and pursues a total return,
rather than a dividend yield strategy, providing it with the
ability to be flexible with its harvesting programme, when supply
and/or demand variances indicate that it is beneficial to do so.
The timber will remain "on the stump" and continue to enjoy
biological growth until harvesting is deemed beneficial to the
Company's NAV. A harvesting programme for 2023 that ensures maximum
value is captured for any of the Company's mature timber is being
reviewed. All relevant felling permits have been secured and FSF is
able to mobilise at short notice when market conditions
improve.
Health and safety ("H&S")
H&S is a priority for the Company. No near misses or RIDDORs
(Reporting of Injuries, Diseases and Dangerous Occurrences
Regulations) have been reported since the Company's
establishment.
The Company continues to invest in enhancing its H&S
reporting processes. At the time of writing, Quadriga, an H&S
specialist adviser, have been re - engaged to carry out an H&S
audit on a second forest manager, following their review of the
first manager in the first half of the financial year.
Following the advice of the first Quadriga report carried out
during the period, the H&S reporting process has been expanded.
There is a flow of H&S information from the forest managers to
the Company Directors on a monthly basis. This allows any H&S
incidents to be discussed and appropriately responded to. This
information then flows through to the Company Board on a quarterly
basis as part of the Board report.
One initiative implemented by FSF during period is introducing
the requirement for all operatives to carry a lone working device
when working in the forest; thus ensuring they are always able to
contact someone in the event of an emergency. Foresight Asset
Management continue to look at ways to ensure FSF remain ahead of
the industry in relation to H&S and will continue to work with
E.J. Downs Forestry and the forest managers in order to do so. E.J.
Downs Forestry have significant experience in the forestry
management space and advise FSF on silvicultural decisions.
FSC and PEFC accreditation
The Company aims to achieve both the Forest Stewardship Council
("FSC") and Programme for the Endorsement of Forest Certification
("PEFC") accreditation for each property within 12 months of
acquisition. As at 30 September 2022, the Company had received dual
accreditation for 30 properties.
OPERATIONAL CASE STUDY
Coull Woodlands
Aberdeenshire, Scotland
Coull Woodlands ("Coull") is a 370-hectare, dual FSC and PEFC
certified commercial forestry project in Aberdeenshire, Scotland.
It is a highly productive commercial forestry asset, with a diverse
age profile due to the harvesting that has been carried out on
several coupes of the first rotation. Coull was purchased by FSF as
part of the initial seed asset transaction in March 2022.
Since acquisition, E.J. Downs Forestry worked closely with the
underlying forest manager, RTS, and the Foresight Asset Management
team to develop a plan to remove weeds and replant these
compartments, continuing to use Sitka Spruce as the main restock
crop. These reparative works have been carried out to a high
standard and a minimal beat up(1) was required of these new crops,
once again demonstrating the highly fertile nature of the
woodland.
The Long-Term Forest Plan ("LTFP") outlines plans to continue
restructuring the forest, removing the mature crops and restocking
these areas with Spruce. The mature pine is well - thinned and of a
generally good quality for Scots Pine.
Near-term plans are for the removal of approximately 4,500
tonnes of timber in a single harvesting coupe, crystallising some
of the value of these compartments. As has previously been done at
Coull, these areas will be restocked with Sitka Spruce as the main
species alongside a mix of Norway Spruce and Scots Pine to
diversify the compartments.
In addition to the commercial areas of Coull, there is also 34.5
hectares of mixed broadleaves and open ground. Under the LTFP, this
ground will be maintained in line with silvicultural best practice,
maximising the value add to the site from an ecological and amenity
perspective in line with the Investment Manager's sustainable
investment strategy.
In general, Coull offers excellent commercial and community
value providing high-quality timber into the UK timber market in
the immediate term and re-stocking the harvested areas with
high-yielding Spruce and Pine crops with the goal of longer-term
yields. Through these restructuring works FSF believes that the
financial, community and environmental value of Coull will
flourish.
1. The process of counting and replanting trees that have died
shortly after planting.
Investment overview
------------------- -----------------------
Property location Aberdeenshire, Scotland
Asset type Forestry
Project size 370 hectares
Acquisition date March 2022
------------------- -----------------------
Our Markets
Voluntary Carbon Market
The Investment Manager has been working in close collaboration
with the London Stock Exchange ("LSE") in relation to their new
Voluntary Carbon Market ("VCM") designation. This allows market
participants to easily identify listed investment companies that
are contributing positively to the establishment and scale-up of
voluntary carbon markets. FSF qualifies under all of the criteria
and is the first VCM designated company on the LSE. As part of
this, FSF intends to give investors the choice to receive cash
dividends from the net proceeds of the sale of voluntary carbon
credits, or to elect to receive in-specie voluntary carbon credit
dividends. If credits are received in - specie they can be directly
utilised by the recipient for its own net zero offsetting or onward
carbon trading strategy. The designation enables investors to:
-- Secure a supply of voluntary carbon credits for net zero commitments
or trading purposes
-- Hedge against the risk of rapidly rising voluntary carbon credit
prices
-- Generate an attractive risk adjusted return from otherwise
uninvested balance sheet cash, with flexibility to adjust carbon
credit yield requirements in a daily traded manner
On the demand side, according to Trove Research, at the end of
calendar Q3 2022 a total of 3,729 companies globally had put
Science Based Target initiatives ("SBTi") in place, or had
committed to one. Positively, this represented a 142% increase from
the commitment levels in Q3 2021.
On the supply side, over the same period, the number of new
voluntary carbon credits issued each quarter has fallen for four
consecutive quarters, declining at a rate of 16% CAGR since Q4
2021. It is unclear what has driven this decline. In the same
period, the retirement of units decreased by 14% CAGR but regained
9% from Q2 to Q3 2022. The market surplus rose by 2% to a new peak
of 667 Mt in Q3 2022. Foresight expects to see a reducing surplus
lifetime trend in 2023 as supply increasingly tightens.
As part of the process for ascribing carbon unit value to the
Banc Farm and Mountmill Burn afforestation properties, the
Investment Manager and the Company's auditor have reviewed evidence
of completed transactions for purchases of UK voluntary carbon
units, with the price of pending issuance units ("PIUs") sold
ranging between GBP14 and GBP35 per credit. Within the calendar
year, there is an upward pricing trajectory in prices paid. It is
worth noting that the value of individual carbon credits is
influenced by the location of the project (with those close to
populated areas attracting a premium price), the status of the
carbon credit (with woodland carbon units ("WCUs") that are capable
of retirement for offsetting purposes trading at a significant
premium over PIUs that have yet to mature to become WCUs) and the
project's specific co-benefits beyond just carbon sequestration
(with projects that have strong nature positive co-benefits, such
as biodiversity, trading at premiums). The outlook for voluntary
carbon markets remains strong. Foresight is encouraged by the level
of new SBTi net zero pledges made by companies in the period.
Whilst voluntary carbon prices are down from their January peak,
the annual pricing trend remains positive. Foresight believes that
we are likely to see sustained price volatility, an increasingly
tight supply and increasing prices for nature-based voluntary
carbon credits over the coming years. This view is supported by
research published by Boston Consulting Group which forecasts that
there will be an insufficient inventory of voluntary carbon credits
to meet forecast demand by 2028.
Immediately following the end of the reporting period (1 October
2022) the WCC released a new financial additionality test
methodology which affects a number of FSF's assets. The principle
of additionality looks to test that a positive carbon
sequestration/mitigation activity, development or intervention
would not have occurred in the absence of the incentive created by
carbon credit revenues. In other words, if the activity,
development or intervention would likely happen anyway with or
without carbon credit revenues then a project is not defined as an
additional contributor to net zero goals.
Banc Farm and Mountmill Burn fall under the old regime and for
new pipeline assets the known adjustments are being incorporated
into the prices offered. However, 19 of FSF's afforestation assets
are affected and Foresight is currently evaluating the impact,
which is most likely to manifest itself in a reduction in grants
taken and/or allocation to commercial forestry within scheme
designs in order to achieve financial additionality.
Foresight is also working closely with industry body Confor and
other market participants to provide constructive feedback to the
WCC regarding various aspects of the methodology. The consultation
is ongoing, with the WCC already having acknowledged some of the
points made and adjusting the methodology accordingly, which has a
positive impact for the Company and the wider afforestation market.
Further updates will be provided once conclusions have been reached
and further analysis has been carried out by Foresight regarding
impacts.
Timber uses
Timber outputs are broken down into three categories depending
on the top diameter:
-- Sawlog, with a top diameter of 18cm and above, is the primary
timber product and fetches the highest price. This timber can
be used for construction and is often used for fencing posts
and other home improvements
-- Small Roundwood, with a top diameter between 6-14cm, is sometimes
referred to as fencing wood. This is largely used in fencing
panels and pallet construction. It is processed at a separate
mill to sawlog, that is specifically designed to process the
smaller pieces of timber
-- Chipwood, with a minimum top diameter of 6cm, is essentially
too small or not straight enough to be processed in a saw or
fencing mill. This product is chipped, rather than sawn, and
used in pulp mills to make paper products or biomass plants,
generating power and heat
UK timber market
After a period of unprecedented demand and high timber pricing
due to COVID-19 during 2020 and 2021, the combination of Storm
Arwen and the cost-of - living crisis have left UK sawmills with
excess stock during 2022 and UK sawlog and medium - sized roundwood
prices have fallen accordingly through the year.
Storm Arwen is estimated to have brought forward early supply of
1 million cubic metres of wind-blown timber. However, in a country
that imports c.80% per annum, market practitioners are generally of
the view that the impact will likely have been fully absorbed by
the market by early 2023.
Trees that were wind - blown before reaching prime age for
harvesting will only result in a tighter UK timber supply in future
years.
Foresight understands that the high inventory levels held as a
result of COVID-19 by the sawmills are re - balancing as many UK
forest owners, like FSF, have chosen to leave value 'on the stump',
by postponing harvesting and looking forward to how 2023 order
books shape up.
As the financial implications of the COVID-19 pandemic, the
outbreak of war in Ukraine and the recent political and financial
actions taken by the Bank of England and the UK Government take
effect, most forecasters are anticipating a slowing of growth in
the UK economy and a period of shallow recession over the next
year.
It is likely that such an economic environment will result in
decreased demand for UK sustainable timber. The construction
products industry currently continues to forecast growth in overall
demand during 2022 and 2023 in anticipation that large warehouse
and major infrastructure construction projects will go ahead but
with downgrades to the previous estimates, driven by an expected
slowdown in the private housing and repair, maintenance and
improvement ("RM&I") markets. The UK S&P Global
Construction Purchasing Managers Index ("PMI") has declined
approximately 17% from just prior to the Russian invasion of
Ukraine (February 2022) to August 2022.
However, a weak GBP makes imported timber relatively less
attractive versus home-grown UK timber and the government may
choose to boost its 'build back better' efforts to offset
recessionary pressures, which may partially offset reduced demand
elsewhere.
The Investment Manager remains of the view that the embedded UK
timber supply deficit and the qualities of timber as a sustainable
material for construction and other uses provides a significant
opportunity if the harvesting strategy for the Company's timber is
pursued in the correct manner.
European and global timber market
Inflationary and economic pressures in Europe are not
anticipated to increase demand either, with the latest available
construction confidence indicators reporting decreases.
In China, new government rules limiting gearing levels for
housing development have caused serious debt servicing issues for
major property developers and unwanted knock - on effects further
down the supply chain. Property makes up a large part of the
Chinese economy and the debt restructuring required is dramatic.
This has had a substantial negative effect on house prices and
construction in China, although the underlying demand for new
housing still prevails and it seems likely that the government will
take action to stabilise the situation and continue to incentivise
infrastructure projects as part of that.
On the supply side there are forces moving in the opposite
direction, mainly stemming from Russia's war in Ukraine, to create
shortages of and competition for material.
Russian, Belarusian and Ukrainian timber is all now considered
as conflict timber by the FSC and PEFC. With timber from those
geographies representing a significant amount of global and
European timber demand, this creates an intense supply shortage of
certified timber globally.
It is understood that volumes of both certified and uncertified
harvested timber have increased elsewhere to make up for some of
the shortfall. For instance, Finland is expected to boost
harvesting volumes by 3% for each of the next two years, turning
Finland's forests into a net carbon emitter. Another example is
Estonia, which has announced a relaxation of its logging
restrictions on state - owned land, accounting for roughly half of
the country's forests. As a result, harvesting is expected to
increase. Further, satellite imagery of Ukraine illustrates
extensive forest fire damage caused by the conflict, further
reducing European supplies. This sort of drastic action
demonstrates the intensity of the current shortages.
War in Ukraine impacts on UK timber market
In the near term, it is forecast that imports of Russian timber
to the UK will have fallen to near zero. Wood pellets, plywood and
sawn softwood imports will be the most impacted. According to
Forest Research, in 2017, imported Russian wood pellets accounted
for 4% of total UK imported wood pellets, Russian plywood accounted
for 8% of total UK imported plywood and Russian sawn softwood
accounted for 7% of total UK sawn softwood imports. We have now
started to observe the tightening supply of timber translate
through to imported timber prices, with the TDUK Structural Timber
Imported Price Index increasing by c.9% from immediately prior to
the Russian invasion to April 2022.
The European energy crisis is also having an impact. With Russia
materially reducing gas supplies and Europe keen to quickly become
less reliant on Russian energy, parts of Europe have warned of the
risk of rolling blackouts and energy rationing this winter. Europe
is already the largest consumer of wood pellets, used for bioenergy
generation, globally.
Although there is not always uniform consensus regarding the
detailed rules and regulations relating to bioenergy generation,
the current status in Europe is that wood chips and wood pellets
are considered a renewable energy resource. With the combined
effects of lower certified timber supply and very high natural gas
prices, the value of chipwood, small roundwood and medium roundwood
is already experiencing upward pricing pressures in the UK and
Foresight believes this is likely to be sustained for at least the
rest of 2022 and the first half of 2023. Further, over the medium
and longer term, the accelerated harvesting of timber elsewhere is
likely to reduce overall supplies, and increase the relative value
of standing timber.
Strong relationships with offtakers
Through the Investment Manager, the Board and its network of
advisers, FSF has existing relationships with the major timber and
wood processors in the UK. At two sites within the FSF portfolio
during the period, harvesting agreements have been put in
place.
The Company sells timber in both standing (offtaker arranges all
harvesting and haulage) and delivered (FSF harvests and delivers to
mill) formats. The Company sells timber via both tender sales and
bilateral sales processes, depending on site - specifics and market
conditions. The sales arrangements made during the period are a
demonstration of strong relationships between FSF and its
customers, who rely on it for supply of UK softwood timber.
Timber market conclusion
With the overall weaker UK and global economic outlook,
Foresight's view is that UK timber demand will reduce in the short
term. However, with the effects of Storm Arwen now largely absorbed
by the market, mill inventories re - balancing, weak GBP making
imports less attractive in relative terms and material supply -
side issues as a result of the conflict in Ukraine, the Investment
Manager will continue to explore opportunities to achieve good
value for the Company's timber stock in 2023. Given the fundamental
structural supply shortages for timber in the UK and globally,
Foresight remains of the view that the medium and long - term
prospects for UK forest owners are strong.
Sustainability and ESG
The UK, and the world more broadly, are in the midst of both a
climate and a biodiversity crisis.
Meanwhile, the UK's high reliance on timber imports, with
current import levels constituting c.80% of total national demand,
is a limiting factor in its ability to adopt more sustainable
building and manufacturing practices. Through an integrated
approach to sustainable forest management, FSF is uniquely placed
to meaningfully address all three areas of concern.
A focus on enhancing commercial productivity increases the
portfolio's capacity for direct sequestration of CO(2) , while a
purposeful approach to nurturing both natural habitat and species
diversity helps build resilience against ever - changing and
unpredictable environmental conditions.
Both are seen as key drivers of portfolio value as the notions
of self - reliance and nature recovery become ever - more
prevalent.
The FSF unaudited Interim Report for 2022 clearly outlined the
Fund's sustainability and ESG objectives. These act as the guiding
principles for everything the Fund hopes to achieve in terms of its
contribution to both the national and international sustainability
agenda.
Alongside regulated reporting requirements, these objectives
provide the focus for the sustainability and ESG data presented
within this report. A standalone Sustainability and ESG Report, due
to be released in 2023, will provide added detail and case studies
of how these objectives are being achieved.
Sustainability and ESG ("S & ESG") objectives
-- To deliver and increase the supply of home-grown UK timber
to reduce the country's reliance on imports.
-- To do so in a way that combines sustainable financial returns
with carbon sequestration, biodiversity gain and other positive
environmental and social impacts.
-- To be a sustainability leader in the UK forestry industry whilst
delivering both traditional commercial timber products and
innovative natural capital services.
Sustainable Development Goals ("SDG") impact reporting
Demonstrating FSF's commitment to sustainability is the
Company's ability to report against the UN Sustainable Development
Goals ("SDGs"). The SDGs, which were adopted by all United Nations
member states in 2015, comprise the most urgent economic, social
and environmental issues to be addressed for peace and prosperity
for people and the planet.
To be achieved by 2030, they recognise that ending poverty must
go hand-in-hand with strategies that build economic growth and
address a range of social needs including education, health, social
protection and job opportunities, while tackling climate change and
environmental protection. The following table represents the
Company's contribution to the SDGs:
Timber
Goal SDG Target Contribution
-------------------------- ---------------------------- -------------------------------
12.2 Achieve the sustainable
12 Responsible consumption management and efficient Number of tonnes of sustainably
and production use of natural resources. grown, standing timber.
Percentage of commercial
forestry projects that
are dual FSC and PEFC
certified within 12 months
of acquisition.
-------------------------- ---------------------------- -------------------------------
-- 866,349 tonnes of standing commercial timber
-- 100% existing forestry dual FSC and PEFC certified
Environmental impact
Goal SDG Target Contribution
----------------- ------------------------- ----------------------------------
3 Good health and 3.9 Substantially reduce Number of tonnes of pollutants(1)
well-being the number of deaths and removed from the atmosphere,
illnesses from hazardous including: NOx (Nitrous
chemicals and air, water Oxide), SOx (Sulphur Dioxide),
and soil pollution and PM10 (<MU>m10 Particulate
contamination. Matter), PM2.5 (<MU>m2.5
Particulate Matter), Ground-level
Ozone, NH(3) (Ammonia)
----------------- ------------------------- ----------------------------------
Pollutant removals
-- 293,770 kg of pollutants removed from the atmosphere
-- 217,390 kg of Ground-level Ozone
-- 35,253 kg of PM10 (um10 Particulate Matter)
-- 11,751 kg of NH(3) (Ammonia)
-- 5,875 kg of SOx (Sulphur Dioxide)
-- 17,626 kg of PM2.5 (um2.5 Particulate Matter)
-- 2,938 kg of NOx (Nitrous Oxide)
Goal SDG Target Contribution
----------------- ------------------------------ -----------------------
6 Clean water and 6.6 Protect and restore Number of kilometres
sanitation water - related ecosystems, of sustainably managed
including mountains, forests, watercourses
wetlands, rivers, aquifers
and lakes.
----------------- ------------------------------ -----------------------
Sustainably managed watercourses
-- 285(2) kilometres of sustainably managed watercourses
1. Office for National Statistics, Woodland natural capital accounts,
UK 2020.
2. Includes all permanent water courses and larger drains whether
wholly inside the property boundaries or located on the property
boundary with a shared responsibility for watercourse management.
Goal SDG Target Contribution
----------------- ----------------------------- -----------------------------
13 Climate action 13.3 Strengthen resilience Total annual portfolio
and adaptive capacity sequestration (tCO(2)
to climate - related hazards e/annum)
and natural disasters
in all countries. Average annual sequestration
per stocked ha (tCO(2)
e/stocked ha)
Average annual sequestration
per gross ha
----------------- ----------------------------- -----------------------------
Carbon removals(3)
-- 28,873 tCO(2) e annual arboreal sequestration achieved over
the reporting period within the portfolio
-- 8 tCO(2) e / stocked commercial ha average annual arboreal
sequestration on a per stocked ha basis (commercial + non -
commercial)
-- 3 tCO(2) e / ha average annual arboreal sequestration per
gross hectare/ha
3. Based on estimates of terrestrial tree growth. Currently excludes
sub-subterranean (e.g. soil) and understory sequestration profile.
Natural capital services
Goal SDG Target Contribution
--------------- ----------------------------------- -------------------------------
15 Life on land 15.2 By 2020, promote Number of hectares of
the implementation of sustainably managed forests
sustainable management
of all types of forests, Of which:
halt deforestation, restore
degraded forests and substantially Number of hectares that
increase afforestation are long-term, mixed broadleaf
and reforestation globally. carbon sinks
Number of hectares that
are SSSI/SAC (2,3) .
--------------- ----------------------------------- -------------------------------
Biodiversity
-- 9,650 total hectarage of portfolio (inc. forests and open
ground)
-- 2,880 ha of which total hectarage of sustainably managed commercial
forests
-- 617 ha of which total hectarage of long - term, mixed broadleaf
carbon sinks
-- 6,152 ha of open ground
-- 744 ha of which total hectarage of SSSI(2) /SAC(3)
8. Site of Special Scientific Interest.
9. Special Area of Conservation.
Biodiversity measurement and management
In accordance with the Prospectus, the Company seeks to preserve
and proactively enhance natural capital and biodiversity across its
portfolio. As with all biodiversity management initiatives, the
first step in this process is to baseline the types and levels of
biodiversity across the Company's various forestry and
afforestation sites.
The Company has engaged SLR Consulting, a global leader in
environmental advisory services, to conduct this baselining work.
The primary aim of the study is to provide a consistent
biodiversity baseline across the portfolio of forestry and
afforestation sites for the purposes of future monitoring and
assessment against biodiversity standards. This may also include a
predicted performance assessment, using habitat type, habitat
condition and other factors to generate an overall estimation on
future biodiversity levels.
Work to complete the baselining surveys and predicted
performance reviews are ongoing. The results from these assessments
and a more comprehensive update will be shared in 2023.
Carbon credits
Carbon credits generated:
------------------------------------- -------
PIUs held on balance 47,997
PIUs sold -
PIUs pipeline 753,134
WCUs held on balance -
WCUs sold -
Total carbon credits held on balance 47,997
Total carbon credits sold -
------------------------------------- -------
TASK FORCE ON CLIMATE-RELATED FINANCIAL DISCLOSURES ("TCFD")
The Company recognises climate change as one of the defining
challenges of our time and is supportive of the framework
established by the Task Force on Climate-related Financial
Disclosures ("TCFD"). TCFD creates a uniform approach for
organisations to report on how they expect climate-related risks
and opportunities to impact upon their business over time.
The Company has sought to ensure that the consideration of
climate-related matters is appropriately embedded throughout its
governance, strategy and risk management processes. The Company
will provide a comprehensive response to all 11 of the recommended
disclosures within the Sustainability and ESG Report in 2023, but
recognises that its TCFD reporting will continue to develop and be
further enhanced in the future.
For the purposes of this Annual Report, the TCFD core metrics
are presented as a basis for comparison against other asset classes
and peer funds.
TCFD core metrics
The Company's focus for quantitative reporting of exposure to
climate - related risk is achieved using the universally accepted
core metrics, as recommended by the TCFD, including:
-- Weighted average carbon intensity
-- Total carbon emissions
-- Carbon footprint
-- Carbon intensity
-- Exposure to carbon-related assets
In line with current FCA guidance, the calculation of these
metrics will be performed using scope 1 and scope 2 emissions only,
with scope 3 emissions to be incorporated in future reports. The
Investment Manager is currently working with external consultants
to better understand and prepare to report on scope 3
emissions.
In using these core metrics, the Company is not only able to
compare performance amongst its own assets but against those of its
wider peer group, further incentivising the decarbonisation of the
Company's portfolio. Data drawn from the calculation of the core
metrics will be used as an aid to driving decarbonisation across
the portfolio and to highlight carbon hotspots in specific business
areas as a means of influencing decision - making across the
business.
TCFD core metrics
-------------------------------------------------------------------------------------------------------------
Weighted average
carbon intensity Total carbon Carbon footprint Carbon intensity Exposure to
(tCO(2) e/GBPm emissions (tCO(2) (tCO(2) e/GBPm (tCO(2) e/GBPm carbon-related
revenue) e) invested) revenue) assets (%)
--------------------- --------------------- ------------------ ------------------- ----------------------
The portfolio's The absolute Total carbon Volume of carbon The amount or
measure of carbon greenhouse gas emissions for emissions per percentage of
emissions normalised emissions associated a portfolio GBPm of revenue carbon-related
by revenues, with the portfolio, normalised by (carbon efficiency assets in the
expressed in expressed in the market value of a portfolio), portfolio, expressed
tonnes CO(2) tonnes CO(2) of the portfolio, expressed in in GBPm or percentage
e/GBPm revenue e. expressed in tonnes CO(2) of the current
tonnes CO(2) e/GBPm revenue portfolio value
e/GBPm invested
--------------------- --------------------- ------------------ ------------------- ----------------------
151.2 135.0 0.7 149.3 -
--------------------- --------------------- ------------------ ------------------- ----------------------
Calculation methodologies taken from TCFD website.
SFDR
The Sustainable Finance Disclosure Regulation ("SFDR") is a
framework designed to increase transparency on sustainability
reporting with a view to facilitating sustainable investment
practices and to aid the understanding of sustainability
credentials as published by funds and/or companies.
FSF considers itself an Article 9 fund and the SFDR Product
Disclosure for the Fund can be located at
fsfc.foresightgroup.eu[.]
Furthermore, as an Article 9 fund, FSF is required to report on
the 14 Principal Adverse Impact indicators as prescribed in the
Regulatory Technical Standards. This table can be found published
on the Company's website alongside the Annual Report.
EU Taxonomy
Under SFDR, Article 9 funds must report on their level of
alignment to the EU Taxonomy for Sustainable Activities ("EU
Taxonomy").
The aim of the EU Taxonomy is to create security for investors,
protect private investors from greenwashing, help companies to
become more climate-friendly, mitigate market fragmentation and
help move capital to where it is most needed.
The Company has set the objective of having all of its assets
compliant with the EU Taxonomy's pre-determined screening criteria.
As such, based on internal assessment, FSF believes 100% of its
assets to be aligned to the EU Taxonomy.
Absolute emissions
Scope 1
-- 104.9 tCO(2) e
Scope 2
-- 30.1 tCO2e
Scope 3
-- 293.9 tCO(2) e
SECTION 172 AND STAKEHOLDERS
Section 172
The Directors consider that in conducting the business of the
Company over the course of the period they have complied with
Section 172(1) of the Companies Act 2006 (the "Act") by fulfilling
their duty to promote the success of the Company and to act in the
way they consider, in good faith, would be most likely to promote
the success of the Company for the benefit of the members as a
whole, whilst also considering the broad range of stakeholders who
interact with and are impacted by the Company's business,
especially with regard to major decisions.
Since the Company's inception in 2021, the Board has taken its
responsibilities towards all the Company's stakeholders as an
utmost consideration in every scheduled Board meeting as well as at
the inaugural Management Engagement Committee meeting where
relationships with all the stakeholder groups were considered in
detail.
The purpose of the Company is to act as an investment vehicle to
provide financial returns to its Shareholders over time. Investment
vehicles are long-term and are typically externally managed, have
no employees and are overseen by an independent non-executive Board
of Directors. The role of the Investment Manager is particularly
important in engaging with stakeholders in the Company and
reporting on developments to the Board.
Community engagement
The Foresight Sustainable Forest Management approach is applied
across the Company's afforestation projects as well as its
established forest and woodland assets. Some additional examples,
not already highlighted in the Executive Summary section above, are
provided below of where this approach has been pro - actively
pursued during the period, with a particular focus on community
engagement and our drive to unlock positive natural capital service
and societal benefits:
-- Consultation and engagement with local communities has been
carried out, at the appropriate moment, as part of the design
and application stage of each of the Company's in - progress
afforestation schemes.
-- Opportunities to enhance connectivity between local communities
and the Company's forests and woodlands (e.g. signposts, walking
paths, mountain bike trails, carparks, gates/styles, donations
of land) have been initiated as part of the design process
on the Company's afforestation schemes.
-- The Company has sold and/or leased land that is not suitable
for afforestation to local farmers.
-- The Company has provided root balls from windthrown trees to
contribute to bank revetment works in the Comrie Flood Defence
Project.
-- The Company has hosted a planting day at Banc Farm and Mountmill
Burn for local school children, educated them on the benefits
of forestry as well as providing the opportunity for the children
to plant their own trees.
-- In addition to the planting days, seed collection days have
been carried out at Upper Barr and Fordie Estate. The Upper
Barr event was attended by members of the local community,
while the Fordie day was attended by members of the estate
staff and the Foresight team.
-- A business case has been successfully demonstrated where one
of the forests in the Company's portfolio has carried out thinning.
This harvesting site sits within a SSSI for igneous rock formations
and so a sensitive approach was preferred. The site manager
engaged a local contractor to drag the trees by horse to a
work - area, minimising ground disturbance and so protecting
the SSSI. The timber was subsequently sawn and processed on-site
and then sold. The products are highly specialised, bespoke
timber pieces that are used by local businesses.
Stakeholders: Local communities and the environment
Role of the Board
The Board retains responsibility for taking all decisions
relating to the Company's corporate governance, strategy and for
monitoring the performance of the Company's service providers. As
laid out in the Prospectus, the Investment Manager has discretion
over investment decisions within the Investment Policy; the Board
has oversight and ultimate control. The Board is engaged with the
activities of the Company and all Board members have relevant
direct experience for supporting the activities of the Company,
including substantial experience on other listed and non - listed
entities.
The Board aims to ensure that the Company operates in a
transparent manner where all parties are treated with respect and
provided with the opportunity to offer practical challenge and
participate in positive debate which is focused on the aim of
achieving the expectations of Shareholders and other stakeholders
alike. The Board, with the assistance of the Management Engagement
Committee, reviews the culture and manner in which the Investment
Manager operates at its scheduled meetings and through its annual
performance review. Regular reporting and feedback from other key
service providers is also sought and reviewed by the Management
Engagement Committee on an annual basis.
The Board is conscious of the ways it promotes the Company's
culture and ensures that, as part of its regular oversight, the
integrity of the Company's affairs is central to the way in which
the Company's activities are managed and promoted. The Board works
closely with the Investment Manager and the Company Secretary in
reviewing how stakeholder issues are handled, ensuring good
governance and responsibility in managing the Company's affairs, as
well as visibility and openness in how these are conducted.
As the Company is externally managed and has no employees, the
Board considers the key stakeholders to be Shareholders, local
communities closely linked to the portfolio, customers and agents
of the Company, including the Investment Manager.
The Board is acutely aware of its responsibilities to all the
stakeholders in the Company and has taken into account the
following:
-- The likely consequences of any decision in the long term
-- The need to foster and retain the Company's business relationships
with suppliers, customers and others
-- The impact of the Company's operations on the community and
the environment
-- The desirability of the Company maintaining a reputation for
high standards of business conduct
-- The need to act fairly towards and ensure equal treatment of
members of the Company
The Company regularly interacts with a variety of stakeholders
important to its success and strives to strike the right balance
between communication and direct engagement and is entirely open to
contact with stakeholders where there are issues to discuss.
As the Company grows, the Board intends to continue visiting
forestry assets. The Board makes detailed enquiries on the assets
in the portfolio and has periodic meetings with key stakeholders on
matters of particular importance.
Understanding stakeholders' views influences the Company's
investment strategy, including its focus on acquiring and managing
assets in a way that promotes capital growth. The Board is also
mindful of how Shareholders are affected by the secondary market
liquidity in the Company's shares and how the shares are rated
relative to its Net Asset Value ("NAV"). The Board, through the
Company's broker, promotes secondary market interest in the
Company's shares as part of its ongoing commitment to existing and
future Shareholders.
Engagement with Shareholders
As a public company listed on the London Stock Exchange, the
Company is subject to the Listing Rules and the Disclosure Guidance
and Transparency Rules. The Listing Rules include a principle that
a listed company must ensure that it treats all holders of the same
class of shares that are in the same position equally in respect of
the rights attaching to such shares. With the assistance of regular
discussions with and the formal advice from the Company's legal
counsel, Company Secretary and corporate broker, the Board abides
by the Listing Rules, as it does with other statutory provisions.
Likewise, the Board is kept appraised of developments in corporate
governance guidance, reporting standards and other non - statutory
provisions and does its best to comply or explain why it does not
comply.
The Investment Manager has developed relationships with key
Shareholders and prospective investors. It is in regular contact
with investors and reports back to the Board. During discussions,
Shareholders often ask for additional information around certain
aspects of the Company. Where it is appropriate to do so, the
Investment Manager will provide this detail. For example,
additional requests for information have been made on ESG matters,
which are covered in more detail in the Directors' report, and on
progress with deployment and acquisitions.
The Company will continue to engage with Shareholders in the
future to ensure that there is an understanding of stakeholders'
views on investment strategy, corporate developments, governance
and other issues such as the importance of sustainable income,
asset enhancement potential and ESG.
The Company has routine engagement with Shareholders and
prospective investors through the publication of interim and annual
accounts, the Annual General Meeting ("AGM") and regular news and
bi-annual NAV updates, all published on the Company's website.
Engagement with the Investment Manager
The Investment Manager is responsible for the implementation of
the investment strategy and the day-to-day investment decisions,
including identifying assets for acquisition. The Board engages
constructively with the Investment Manager to ensure the
expectations of Shareholders are being met and it is aware of the
challenges being faced, including meeting the long - term
objectives for the Company's growth.
The Board and the Investment Manager maintain an ongoing, open
dialogue on key issues facing the Company. This open dialogue takes
the form of regular Board meetings and very regular but more
informal contact, as appropriate, including additional ad hoc Board
and Committee meetings. This ensures that the Company and the
Investment Manager have aligned interests to safeguard the
Company's position and to try and ensure the future success of the
Company.
The Board regularly reviews the Company's performance against
its investment objectives and holds an annual strategy review
meeting to ensure that the Company is positioned well for the
future delivery of its objective for its Shareholders. The Board
receives presentations from the Investment Manager at every Board
meeting to help it to exercise effective oversight of the Company's
strategy and the performance of the Investment Manager. The Board,
through the Management Engagement Committee, reviews formally the
performance of the Investment Manager, at least annually.
Engagement with lender
The Company has a Revolving Credit Facility with Clydesdale Bank
Plc ("Clydesdale"). This facility is subject to covenants and
lender consent may be required on certain business decisions. The
Investment Manager is in regular contact with Clydesdale to keep it
appraised of ongoing portfolio matters and general market updates
so that they have a full understanding of the Company and how it is
performing.
Engagement with key service providers
The Board seeks to maintain constructive relationships with the
Company's suppliers, either directly or through the Investment
Manager, with regular communications and meetings. The Management
Engagement Committee conducts an annual review of the performance
and terms and conditions of the Company's main service providers to
ensure that they are performing their responsibilities in line with
Board expectations and providing value for money.
Engagement with local communities and the environment
The Board and Investment Manager are committed to investing in a
responsible manner and the Investment Manager embeds the
requirements of Article 9 into its investment decision-making
process. The Board also formally constituted a Sustainability and
ESG Committee during the year, to focus on embedding ESG into the
Company's strategy and objectives. Further detail on the work of
this Committee can be found in the online report.
In 2021, the AIC launched an option for individual investment
company ESG disclosures to be published on its website. The Company
has complied with this request and submitted a summary ESG strategy
and this is now publicly available on the Company's page on the AIC
website.
The Company was awarded the London Stock Exchange's Green
Economy Mark upon its IPO, which recognises London-listed companies
and funds that derive more than 50% of their revenues from products
and services that are contributing to environmental objectives such
as climate change mitigation and adaptation, waste and pollution
reduction, and the circular economy.
The Company aims to maximise its social and community
contribution to the markets in which it operates. In partnership
with Tilhill Forestry Limited, the UK's leading forest management,
timber harvesting and landscaping company, the Company launched a
Forestry Skills Training Programme during the year. Initially
focused in Wales, the programme is targeted to extend to Scotland
and England in due course. The initiative aims to directly help
rural farming communities adapt to afforestation - related land use
change by providing local community members with the skills,
training, qualifications and safety equipment required to seek
employment in the forestry sector.
The Board is also committed to ensuring that it operates in a
responsible and sustainable manner, having regard for the Company's
suppliers, local communities and the environment. In order to
achieve this, the Board has placed ESG factors at the heart of its
investment objectives to guide the way it operates.
Risk and Risk Management
FSF has a comprehensive risk management framework overseen by
the Audit Committee, comprising the Independent Non-Executive
Directors.
Risk is the potential for events to occur that may result in
damage, liability or loss. Such occurrences could adversely impact
the Company's business model, reputation or financial standing.
Alternatively, under a well-formed risk management framework,
potential risks can be identified in advance and can either be
mitigated or possibly converted into opportunities.
Below details the principal risks that the Directors consider
are material. Given that the Company delegates certain activities
to the Investment Manager, reliance is also placed on the controls
of the Company's service providers. The purpose of the Company's
risk management policies and procedures is not to eliminate risk
completely, rather it is to reduce the likelihood of occurrence and
to ensure that the Company is adequately prepared to deal with
risks so as to minimise their impact should they materialise.
The Company's risk register covers seven main areas of risk:
-- Financial
-- Market
-- Forestry
-- Legal and regulatory
-- Operational
-- Economic
-- Investment
See more in the TCFD report above.
Each of these areas, together with the principal risks within
that category, are summarised in the table below, followed by a
detailed discussion of the mitigating factors.
Risk Potential Impact Mitigation
----------------------- ------------------------------- -----------------------------------------------
Financial risks
----------------------- ------------------------------- -----------------------------------------------
Equity The Company would be -- The Company's broker
unable to access sufficient conducts, and will
funding to complete continue to conduct,
its operations. market research ahead
of any funding rounds
to gauge demand from
existing and new investors.
-- The Investment Manager
and the Board have
also set budgets in
such a way that a
working capital buffer
is held. These budgets
include forecasts
of timber and grant
income streams that
are expected in the
next 18 months.
----------------------- ------------------------------- -----------------------------------------------
Liquidity The Company would be -- The Company has consistently
unable to meet its financial held sufficient cash
obligations as they across its operating
fall due. accounts to meet its
working capital needs
throughout its first
year of listing and
will continue to do
so.
-- Cash flow forecasts
are prepared on a quarterly
basis to assist in
the ongoing analysis
of daily cash flow.
-- The Company has put
a Revolving Credit
Facility ("RCF") in
place which will provide
another liquidity option.
The facility includes
a payment-in-kind ("PIK")
feature that enables
interest to be rolled
up, rather than paid
in cash.
----------------------- ------------------------------- -----------------------------------------------
Valuation There is a risk of the -- Savills are highly
valuations being prepared experienced in forestry
incorrectly either by valuations and valued
the Investment Manager over GBP1 billion of
or Savills, leading UK forestry assets
to a publicly stated in 2021.
NAV that is not representative -- Savills uses the Royal
of the value of the Institute of Chartered
portfolio held through Surveyors ("RICS")
the SPVs. Red Book valuation
approach to ensure
The probability of this valuations are conducted
risk occurring is considered using a consistent
to be low, however the and well recognised
impact would be significant methodology.
if it did. -- The Savills valuation
agreement leaves it
with a liability exposure
of c.4% of the valuation
figure and the Company
would have recourse
up to that amount in
the event of a manifest
error.
Market risks
----------------------- ------------------------------- -----------------------------------------------
Demand for timber A reduction in demand -- The fundamental under-supply
from the purchasers of standing timber
of timber would negatively in the UK and globally
impact the Company's in the context of strong
profitability. increasing demand reduces
market risk for the
sale of the Company's
key product and revenue
stream and which affects
the underlying asset
values. Demand over
the medium to long
term has historically
created real terms
pricing growth and,
in the context of a
global under - supply
and increasing demand,
this risk is reduced
if a medium to long
- term investment view
is applied.
----------------------- ------------------------------- -----------------------------------------------
Demand for carbon units A reduction in demand -- The demand for carbon
from the users of carbon credit is expected
credits would negatively to materially increase
impact profitability. in the run-up to 2030
and 2050, driving carbon
price increases. Decreases
in prices paid and
issues with supply
of volume of carbon
credits are more likely
to be driven by regulatory
challenges than by
overriding supply and
demand dynamics.
----------------------- ------------------------------- -----------------------------------------------
Forestry risks
----------------------- ------------------------------- -----------------------------------------------
Reputational The Company could be -- During the due diligence
perceived negatively phase of afforestation
in the market due to investments, the Investment
resistance to change Manager commissions
of land use in the market an independent community
generating negative risk assessment. This
PR. element of due diligence
is intended to ensure
that afforestation
only takes place in
lower community risk
areas, where tree planting
is considered unlikely
to be contentious and
the expected likelihood
of community resistance
is considered low.
-- The Investment Manager
has launched its forestry
skills training programme
that will directly
enable rural farming
communities to adapt
to afforestation -
related land use change,
by providing local
community members with
the skills, training,
qualifications and
safety equipment required
to commence in the
work and jobs created
by the Company's afforestation
schemes.
-- The Investment Manager
is engaging with industry
bodies such as Confor
and Timber Development
UK to promote the merits
of increased sustainable
UK timber supply.
----------------------- ------------------------------- -----------------------------------------------
Harvesting A reduction in timber -- Should merchant timber
prices may delay the prices not be attractive
Company's harvesting at the point of felling,
and felling programme. the Investment Manager
has the option to delay
Long-term off-take agreements felling until such
are rare in the UK forestry time that timber prices
sector, which exposes recover.
the Company to merchant -- The Investment Manager
risk. will continue to investigate
suitable off-take agreements
that might become attractive
in future and will
continue to cultivate
relationships with
key off-takers.
----------------------- ------------------------------- -----------------------------------------------
Storm damage Particularly strong -- The Company has taken
winds may damage trees, out windblow insurance,
or possibly uproot them where appropriate,
entirely, at the Company's to cover possible storm
asset sites. damage.
-- Appropriate silvicultural
management will also
protect against wind
risk.
-- The Company's diverse
portfolio of forests
across the UK creates
natural resilience.
----------------------- ------------------------------- -----------------------------------------------
Disease Disease may infiltrate -- Whilst insurance against
one or multiple of the disease is not readily
Company's forests, damaging available in the current
the trees or otherwise insurance market, there
endangering the health are no known diseases
of the forest. that would incapacitate
a UK commercial conifer
forest with a focus
on Sitka spruce.
-- Larch trees are known
to be susceptible to
a disease called Phytophthora
ramorum. However, the
proportion of larch
in the Company's forests
is immaterial and any
issues are identified
during the Investment
Manager's due diligence
process and are manageable
post-acquisition.
-- The Company's diverse
portfolio of forests
across the UK creates
natural resistance.
----------------------- ------------------------------- -----------------------------------------------
Legal and regulatory
risks
----------------------- ------------------------------- -----------------------------------------------
Regulation change The Company is required -- The Company Secretary
to comply with certain keeps on top of any
regulations, as a London changes in regulation
Stock Exchange listed or legislation relevant
entity. A significant to the Company and
change in legal or regulatory provides an update
frameworks could impact on this to the Board
the ways in which the on a quarterly basis.
Company and/or Foresight -- Foresight Group has
Group operates. Failure close relationships
to comply with emerging with industry - leading
regulations could result legal and governance
in a negative reputational professionals whom
or financial impact it can seek advice
on the Company. from if required.
----------------------- ------------------------------- -----------------------------------------------
Operational risks
----------------------- ------------------------------- -----------------------------------------------
Supply chain risk Shortages of key materials -- The Investment Manager,
and resources required on behalf of the Company,
for the Company's sites is placing orders for
could lead to a delay saplings up to 12 months
in production and/or in advance and aggregating
development (in the orders across multiple
case of afforestation afforestation sites
sites). This has been in one place.
exacerbated by the Russian -- The Company is a large
invasion of Ukraine, player in the market
which impacts the flow with a pipeline of
of goods and commodities multiple orders. When
that are important in combined with relationships,
the global economy. contractors are more
likely to prioritise
the Company as a key
client.
-- The Company has launched
a forestry skills training
programme, which is
directly increasing
the pool of qualified
labour available to
work on the Company's
portfolio.
----------------------- ------------------------------- -----------------------------------------------
Economic risks
----------------------- ------------------------------- -----------------------------------------------
Macroeconomic changes Changes in economic, -- Diversity of revenue
technological, political streams is targeted
or regulatory environment, where possible, preventing
as well as inflation over - concentration
and market sentiment, to specific risks.
can impact the returns -- The Company invests
expected from the assets in forestry markets
in the Company's portfolio. that have displayed
long-term political
regulatory stability.
-- The Investment Manager
participates in industry
forums linked to the
carbon markets and
the related regulation.
-- In the current high
inflation environment
there is greater uncertainty
than previously
----------------------- ------------------------------- -----------------------------------------------
Interest rates The Company has some -- The Company manages
interest rate exposure, the cost of borrowing
through its own cash by using fixed rate
deposits and bank funding instruments and/or
(the RCF) as well as by overlaying interest
those within the projects rate derivatives against
themselves. the Company's debt
portfolio.
Interest rates have -- The Investment Manager
risen during the period ensures there is a
under review and are sufficient margin between
forecast to rise further the expected rate of
to combat inflation. return on the investment
portfolio and the cost
of any borrowing, to
ensure there is a buffer
before rising interest
rates become dilutive
to overall NAV.
-- The Investment Manager
undertakes interest
rate scenario analysis
to inform the level
of borrowing the Company
is comfortable taking.
Investment risks
----------------------- ------------------------------- -----------------------------------------------
Competitive market Increased competition -- The Investment Manager
for appropriate investment has to date observed
opportunities could a significant annual
lead to the Company opportunity deal flow
being unable to source and demonstrated that
investments that satisfy it can compete for
its investment criteria market share in competitive
and meet its return bidding processes.
objectives. -- The Investment Manager's
strong relationships
with a large network
of advisers, well-established
reputation and track
record mean that there
is scope for a high
number of bilateral
transactions.
-- Following the success
of the Investment Manager's
direct origination
campaigns, the number
of properties that
have been included
in scope of the campaign
has been increased
to 4,500 specific properties,
ex-tending over c.1
million hectares.
----------------------- ------------------------------- -----------------------------------------------
Financial crime There is a risk that -- KYC and AML diligence
the Company could suffer is a key foundation
a detrimental impact of the Company's investment
to its investment value and disposals review
caused by fraud, legal process.
consequences or fines -- Comprehensive desk-top
as the result of inadequate studies are undertaken
Know Your Customer ("KYC") on counterparties as
and Anti - Money Laundering appropriate and in
("AML") measures. Reputational line with Foresight
damage could be associated Group's KYC and AML
with the outcome of protocols, which are
such breaches. also used on more complex
counterparties or jurisdictions.
----------------------- ------------------------------- -----------------------------------------------
FINANCIAL REVIEW
Analysis of financial results
The financial statements of the Company from incorporation on 31
August 2021 to 30 September 2022 are set out below.
The Company prepared the financial statements from the date of
incorporation to 30 September 2022 in accordance with the UK
adopted International Accounting Standards as applicable to
companies reporting under those standards. The Company applies IFRS
10 Investment Entities: Amendments to IFRS 10, IFRS 12 and measures
all their subsidiaries that are themselves investment entities at
fair value. The Company accounts for its interest in its wholly
owned direct subsidiary FSFC Holdings Limited as an investment at
fair value through profit or loss in accordance with IFRS 13 Fair
Value Measurement.
The primary impact of this application, in comparison to
consolidating subsidiaries, is that the cash balance before taxes,
the working capital balances and borrowings in the intermediate
holding companies are presented as part of the Company's fair value
of investments.
The Company's intermediate holding companies provide services
that relate to the Company's investment activities on behalf of the
parent which are incidental to the management of the portfolio.
The Company, its subsidiaries FSFC Holdings Limited and FSFC
Holdings 2 Limited (together the "Group"), hold investments in
portfolio assets which intend to make distributions in the form of
interest on loans and dividends on equity as well as loan
repayments and equity redemptions.
For more information on the basis of accounting and Company
structure, please refer to the notes to the financial statements
below.
Net assets
The Net Asset Value ("NAV") at 30 September 2022 was GBP180.6
million and comprised GBP144.2 million portfolio value of forestry
and afforestation assets, with an additional GBP0.6 million carbon
credit valuation, cash balances of GBP36.3 million. The cash
balances are made up of GBP34.3 million in the Company and GBP2.0
million in the project companies, offset by GBP0.5 million of other
net liabilities (GBP0.5 million of other liabilities in the project
companies). The Gross Asset Value ("GAV") is equal to the sum of
the NAV and the outstanding debt as described in the alternative
performance measures table on page 109. The GAV as at 30 September
2022 was GBP180.6 million.
Analysis of the Company's net assets at 30 September 2022
As at
30 September
All amounts presented in GBPmillion (except as noted) 2022
----------------------------------------------------------------------------------- ---------------------------------
Portfolio value (Red Book valuation)(1) 144.2
Carbon credits valuation(2) 0.6
Project companies' cash 2.0
Project companies' other net liabilities (0.5)
----------------------------------------------------------------------------------- ---------------------------------
Investments at fair value through profit or loss 146.3
Company's cash 34.3
Company's other net liabilities -
----------------------------------------------------------------------------------- ---------------------------------
Net Asset Value 180.6
Number of shares 172.1
----------------------------------------------------------------------------------- ---------------------------------
Net Asset Value per share (pence) 105.0
-- Classified as the fair value of the underlying forestry assets held through the SPVs.
-- The carbon credit valuation noted is based on value ascribed to progress towards creation
of carbon credits.
Net Asset Value bridge
During the period the Company raised a total of GBP175.0 million
(GBP130.0 million at IPO in November 2021 and GBP45.0 million in
June 2022). This was offset by cumulative capital raise fees of
GBP3.2 million.
The GBP10.9 million fair value increase of the afforestation and
forestry assets held by the Group has been offset by operating
costs of GBP2.7 million (GBP2.3 million of Fund operating costs for
the Company, GBP0.4 million of project companies' outflows.)
The 36,116 carbon credits yet to be realised but attributed to
the two underlying afforestation assets where planting has
completed have also been valued at GBP0.6 million, resulting in a
Net Asset Value of GBP180.6 million at 30 September 2022.
Company performance
Profit and loss
The Company's profit before tax for the period ending 30
September 2022 was GBP8.8 million (6.2 pence per share).
For the same period to 30 September 2022, the total return on
investments was GBP11.0 million, which relates to GBP0.9 million of
interest on the FSFC Holdings loan notes and GBP10.1 million net
gains on investments at fair value. The interest income is from the
Company's Shareholder loan to FSFC Holdings Limited. The net gain
on investment is generated by the net fair value movement on the
Company's investment in FSFC Holdings Limited.
Operating expenses included in the income statement for the
period were GBP2.2 million, in line with expectations. These
comprise investment management fees of GBP1.1 million and GBP1.1
million of operating expenses. The details on how the investment
management fees are charged are set out in note 5 to the financial
statements.
Period from
incorporation
on
31 August 2021
to
All amounts presented in GBPmillion (except as noted) 30 September 2022
------------------------------------------------------ -----------------
Interest received on FSFC Holdings loan notes 0.9
Net gain on investments at fair value 10.1
------------------------------------------------------ -----------------
Total return on investment 11.0
Operating expenses (2.2)
------------------------------------------------------ -----------------
Profit before tax 8.8
Earnings per share (pence) 6.2p
------------------------------------------------------ -----------------
Ongoing charges
The "ongoing charges" ratio is an indicator of the costs
incurred in the day-to-day management of the Fund. FSF uses the
AIC-recommended methodology for calculating this ratio, which is an
annual figure.
The ongoing charges ratio percentage from incorporation on 31
August 2021 to 30 September 2022 was 1.4%. The ongoing charges have
been calculated, in accordance with AIC guidance, as annualised
ongoing charges i.e. excluding acquisition costs and other
non-recurring items) divided by the average published unaudited Net
Asset Value in the period. The ongoing charges percentage has been
calculated on the consolidated basis and therefore takes into
consideration the expenses of FSF Holdings as well as the
Company.
The Investment Manager believed this to be competitive for the
market in which FSF operates and the stage of development and size
of the Fund, demonstrating that management of the Fund is efficient
with minimal expense incurred in its ordinary operation.
Cash flow
The Company held cash balances at 30 September 2022 of GBP34.3
million. This amount excludes cash held in subsidiaries. The
breakdown of the movements in cash during the period is shown
below.
Cash flows of the Company for the period from incorporation on
31 August 2021 to 30 September 2022 (GBPmillion)
Period from
incorporation
to
30 September 2022
------------------------------------------------------------ -----------------
Cash balance at incorporation -
Gross proceeds from fundraising 175.0
Share issuance costs (3.2)
Investment in FSFC Holdings Limited (equity and loan notes) (136.2)
Group movements in working capital 0.9
Directors' fees and expenses (0.1)
Investment management fees (1.1)
Administrative expenses (1.0)
------------------------------------------------------------ -----------------
Company's cash balance at 30 September 2022 34.3
------------------------------------------------------------ -----------------
Cash flows of the Group for the period from incorporation on 31
August 2021 to 30 September 2022 (GBPmillion)
The Group is defined as the Company and its two intermediate
holding companies. The cash flows for the Group of GBP34.8 million
include GBP0.5 million in FSF Holdings 2 Ltd.
Portfolio valuation
Methodology
Savills Advisory Services Limited ("Savills") is engaged by the
Company to provide a fair value valuation of the underlying
forestry assets held through the SPVs in accordance with the Royal
Institution of Chartered Surveyors ("RICS") Valuation - Global
Standards July 2017 (the "Red Book").
The Red Book valuation is compliant with the UK adopted
International Accounting Standards as part of the International
Valuation Standards which requires investment properties to be
considered on the basis of fair value at the balance sheet date.
IFRS 13 outlines the principles for fair value measurement which
Savills' valuation is consistent with. The Red Book valuations are
undertaken on an asset-by-asset basis and will be completed
semi-annually.
The fair value assessment of the assets has been completed by
Savills on a comparable basis by looking at transactions of similar
assets. Afforestation land comparables include the rights to
voluntary carbon unit creation. However, the Red Book valuation
approach is largely backward-looking and thus the Investment
Manager is of the view that the valuations are likely to be
conservative in relation to the potential future value of the
voluntary carbon units that could be generated.
The Manager believes the Red Book valuation does not include any
value in relation to progress in units ("PIUs") as at 30 September
2022 and has therefore calculated an estimated value on the
progress made on obtaining the rights to PIUs as to date no PIUs
have been authorised by the Woodland Trust.
The Red Book methodology considers a number of additional
factors impacting the valuation. A reasonable view of the potential
for afforestation sites' value uplift over time is considered
rather than valuing the land in its current state. Savills also
consider the stage of each site within the forestry grant
application process and may make reassessments as to the value of a
site when a new developmental milestone occurs. Additionally, as
the assets under ownership are located across the UK (Scotland,
North England and Wales), the external valuer accounts for the
potential differences in market interest and demand at the
different locations. On a case - by - case basis Savills will also
assess the extent of damage suffered by sites due to any extreme
windblow incidents. Where damage is extensive, Savills will make
prudent adjustments to the value of the site, if it is evident that
some of the affected timber may be challenging to recover.
FINANCIAL STATEMENTS
INCOME STATEMENT
FOR THE PERIOD FROM 31 AUGUST 2021 (INCORPORATION) TO 30
SEPTEMBER 2022
Revenue Capital Total
Notes GBP'000 GBP'000 GBP'000
------------------------------------ ----- ------- ------- -------
Return on investment 4 904 10,120 11,024
------------------------------------ ----- ------- ------- -------
Total income 904 10,120 11,024
Investment management fees 5 (1,071) - (1,071)
Other expenses 6 (1,166) - (1,166)
------------------------------------ ----- ------- ------- -------
Total expenses (2,237) - (2,237)
------------------------------------ ----- ------- ------- -------
Profit/(loss) before tax (1,333) 10,120 8,787
------------------------------------ ----- ------- ------- -------
Tax 8 - - -
------------------------------------ ----- ------- ------- -------
Profit/(loss) for the period (1,333) 10,120 8,787
Earnings/(losses) per share (pence) 9 (0.9) 7.1 6.2
------------------------------------ ----- ------- ------- -------
All results are derived from continuing operations.
The supplementary revenue and capital columns are presented for
information purposes in accordance with the Statement of
Recommended Practice issue by The Association of Investment
Companies ("AIC").
There are no items of other comprehensive income in the current
period, other than the profit for the period, and therefore no
separate statement of comprehensive income has been presented.
The accompanying notes below form an integral part of the
financial statements.
STATEMENT OF FINANCIAL POSITION
AS AT 30 SEPTEMBER 2022
30 September
2022
Notes GBP'000
------------------------------------------------- ----- ------------
Non-current assets
Investments at fair value through profit or loss 10 146,291
Total non-current assets 146,291
------------------------------------------------- ----- ------------
Current assets
Trade and other receivables 11 852
Cash and cash equivalents 16 34,326
------------------------------------------------- ----- ------------
Total current assets 35,178
------------------------------------------------- ----- ------------
Total assets 181,469
------------------------------------------------- ----- ------------
Current liabilities
Trade and other payables 12 (886)
------------------------------------------------- ----- ------------
Total current liabilities (886)
------------------------------------------------- ----- ------------
Total liabilities (886)
------------------------------------------------- ----- ------------
Net assets 180,583
------------------------------------------------- ----- ------------
Equity
Called up share capital 13 1,721
Share premium 13 170,075
Revenue reserve 14 (1,333)
Capital reserve 14 10,120
------------------------------------------------- ----- ------------
Total Shareholders' funds 180,583
Net assets per share (pence per share) 15 105.0
------------------------------------------------- ----- ------------
The financial statements were approved and authorised for issue
by the Board of Directors on 14 December 2022.
They were signed on its behalf by:
Richard Davidson
Chair
The accompanying notes form an integral part of the financial
statements.
STATEMENT OF CHANGES IN EQUITY
FOR THE PERIOD FROM 31 AUGUST 2021 (INCORPORATION) TO 30
SEPTEMBER 2022
Called
up Share Capital Revenue
share
capital premium reserve reserve Total
GBP'000 GBP'000 GBP'000 GBP'000 GBP'000
------------------------------------------------------------- -------- ------- ------- -------- -------
Balance at incorporation - - - - -
------------------------------------------------------------- -------- ------- ------- -------- -------
Gross proceeds from share issue 1,721 173,279 - - 175,000
Share issue costs - (3,204) - - (3,204)
Total comprehensive income for the period - - 10,120 (1,333) 8,787
------------------------------------------------------------- -------- ------- ------- -------- -------
Net assets attributable to Shareholders at 30 September 2022 1,721 170,075 10,120 (1,333) 180,583
------------------------------------------------------------- -------- ------- ------- -------- -------
The accompanying notes form an integral part of the financial
statements.
The Company's distributable reserves consist of the capital
reserve attributable to fair value unrealised gains on the Fund
portfolio's valuation.
STATEMENT OF CASH FLOWS
FOR THE PERIOD FROM 31 AUGUST 2021 (INCORPORATION) TO 30
SEPTEMBER 2022
For the
period
ended
30 September
2022
GBP'000
---------------------------------------------------------------- ------------
Profit for the period 8,787
Adjustments for:
Net profit on investments at fair value through profit and loss (10,120)
---------------------------------------------------------------- ------------
Operating cash flows before movements in working capital (1,333)
---------------------------------------------------------------- ------------
Cash flows from operating activities
(Increase) in Trade and other receivables (852)
Increase in Trade and other payables 886
---------------------------------------------------------------- ------------
Net cash inflow from operating activities (1,299)
---------------------------------------------------------------- ------------
Cash flows from investing activities
Purchase of investments (136,171)
---------------------------------------------------------------- ------------
Net cash used in investing activities (136,171)
---------------------------------------------------------------- ------------
Cash flows from financing activities
Gross proceeds from share issue 175,000
Share issue costs (3,204)
---------------------------------------------------------------- ------------
Net cash inflow from financing activities 171,796
---------------------------------------------------------------- ------------
Net increase in cash and cash equivalents 34,326
Cash and cash equivalents at beginning of period -
---------------------------------------------------------------- ------------
Cash and cash equivalents at end of period 34,326
---------------------------------------------------------------- ------------
The accompanying notes form an integral part of the financial
statements.
NOTES TO THE AUDITED FINANCIAL STATEMENTS
FOR THE PERIOD FROM 31 AUGUST 2021 (INCORPORATION) TO 30
SEPTEMBER 2022
1. General information
(a) Statutory Information
Foresight Sustainable Forestry Company Plc (the "Company" or
"FSF"), a public limited company limited by shares, was
incorporated and registered in England and Wales on 31 August 2021
with registered number 13594181 pursuant to the Companies Act 2006.
The Company's registered address is C/O Foresight Group, The Shard,
32 London Bridge Street, London, United Kingdom, SE1 9SG.
(b) Corporate structure
The Company has one investment, FSFC Holdings Limited, and FSFC
Holdings Limited in turn has one investment, FSFC Holdings 2
Limited; together this is the "Group".
FSFC Holdings 2 Limited has three investments: FSFC Company 1
Limited, Blackmead Forestry Limited and Blackmead Forestry II
Limited. Blackmead Forestry Limited has two investments: Coull
Forestry Limited and Fordie Estates Limited. These five entities
together are the special purpose vehicles or "SPVs".
The Group's principal activity is investing in UK forestry,
afforestation and natural capital assets.
The audited financial statements of the Company are for the
period from incorporation on 31 August 2021 to 30 September 2022
and have been prepared on the basis of the accounting policies set
out below. The financial statements comprise only the results of
the Company, as its direct investments in FSFC Holdings Limited,
FSFC Holdings 2 Limited, and all underlying SPVs thereafter, are
measured at fair value as detailed in the significant accounting
policies below.
2. Significant accounting policies
(a) Basis of preparation
The set of financial statements has been prepared in accordance
with UK adopted International Accounting Standards. The financial
statements have been prepared under the historical cost convention
as modified by the revaluation of certain assets and on a going
concern basis. The accounting policies set out below have, unless
otherwise stated, been applied consistently to the period presented
in these financial statements.
These financial statements have also been prepared in accordance
with the Statement of Recommended Practice: Financial Statements of
Investment Trust Companies and Venture Capital Trusts ("SORP")
issued in April 2021 by the Association of Investment Companies
("AIC").
There are several amendments and standards that have been issued
and will be effective in future periods however, none of these are
expected to have a material effect.
The following standards became effective during the period and
did not have a material impact on the Company's reported
results:
-- Reference to the Conceptual Framework - Amendments to IFRS
3 (applicable for annual periods beginning on or after 1 January
2022);
-- Property, Plant and Equipment: Proceeds Before Intended Use
- Amendments to IAS 16 (applicable for annual periods beginning
on or after 1 January 2022);
-- Onerous Contracts - Costs of Fulfilling a Contract - Amendments
to IAS 37 (applicable for annual periods beginning on or after
1 January 2022);
-- AIP IFRS 1 First-time Adoption of International Financial Reporting
Standards - Subsidiary as a First-time Adopter (applicable
for annual periods beginning on or after 1 January 2022);
-- AIP IFRS 9 Financial Instruments - Fees in the "10 per cent"
Test for Derecognition of Financial Liabilities (applicable
for annual periods beginning on or after 1 January 2022);
-- AIP IAS 41 Agriculture - Taxation in Fair Value Measurements
(applicable for annual periods beginning on or after 1 January
2022); and
-- Annual improvements to IFRS standards 2018-2020 Cycle (effective
for annual periods beginning on or after 1 January 2022).
IFRS 10 Consolidated Financial Statements
IFRS 10 requires an entity that controls (meaning it is exposed,
or has rights, to variable returns from its involvement with the
investee entity and has the ability to affect those returns through
its power over the investee) one or more other entities, to present
consolidated financial statements. Consolidated financial
statements consist of assets, liabilities, equity, income, expenses
and cash flows of a parent and its subsidiaries as those of a
single economic entity. Notwithstanding the application of IFRS 10
in establishing the Fund as an investment entity, the standard has
not been adopted in full in as far as presenting consolidated
financial statements, as the Fund has presented these financial
statements on a fair value basis instead, pursuant to IFRS 13.
IFRS 16 Leases
IFRS 16 requires lessees to account for all leases under a
single on - balance sheet model in a similar way to finance leases
under IAS 17. Lessor accounting is substantially unchanged from
today's accounting under IAS 17. Lessors will continue to classify
all leases using the same classification principle as in IAS 17 and
distinguish between two types of leases: operating and finance
leases. The standard requires lessees and lessors to make more
extensive disclosures than under IAS 17. IFRS 16 is effective for
annual periods beginning on or after 1 January 2019, however early
adoption is permitted. The Fund is neither a lessor nor lessee,
thus has not adopted this standard.
These financial statements are presented in sterling (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 constitute statutory accounts as
defined in Section 434(3) of the Companies Act 2006 as they are
audited. The financial statements include all information and
disclosures required in annual audited financial statements.
The audited financial statements incorporate the financial
statements of the Company only.
Any estimates and underlying assumptions are reviewed on a
regular basis and revisions to accounting estimates are recognised
in the period when they occur and in any future period affected.
The significant estimates, judgements or assumptions are set out
below. This is the Company's first accounting period, so there are
no comparatives.
(b) Going concern
The Directors have adopted the going concern basis in preparing
the Annual Report. In their assessment of going concern they have
reviewed comprehensive cash flow forecasts prepared by the
Investment Manager and believe based on the forecasts and an
assessment of the Company's cash position and liquidity of the
investment portfolio that the Company will continue in operational
existence for at least 12 months from the date of approval of the
financial statements and therefore consider it appropriate to
prepare the financial statements on a going concern basis. As at 30
September 2022, the Company had net assets of GBP180.6 million
including GBP34.3 million of cash which are sufficient to meet
current obligations as they fall due.
The Directors have also assessed the impact of significant
potential risks to the operations of the Company since
incorporation and the principal risks in the UK forestry and
afforestation markets including the various risk mitigation
measures in place and do not consider this to have a material
impact on the assessment of the Company as a going concern.
Market risk
The Company has assessed its potential exposure to being
negatively impacted by a sudden loss of revenue stream. The
relevance of this risk has been significant given the recent
impacts made by the COVID-19 pandemic and the Ukraine - Russia
conflict. The Company has assessed these risks alongside the
potential risk of similar events having a negative impact on
revenue recoverability. The potential impacts of such market risks
include, but are not limited to:
(i) Material reductions in timber prices recoverable from the SPVs
(ii) Material reductions in demand for timber in the United Kingdom
(iii) Material reductions in forecasted revenues earned from the
sale of carbon credits
(iv) Change to the UK Woodlands Grant scheme
Each of the above potential impacts could have a direct
influence on the amount that can be distributed to the Company by
its subsidiaries. Foresight has reviewed the portfolio's exposure
to these risks and has concluded that if, even in the unlikely
case, these adverse impacts on revenue recoverability are material,
the Company should still have sufficient funds to continue
operations for the foreseeable future. If such impacts were to
continue on a long-term basis, continued monitoring processes would
need to be actioned.
Liquidity risk
Due to the nature of the Company's operation and deployment
strategy, there could be potential exposure to liquidity risk,
whereby the entity would encounter difficulties in paying its
financial liabilities. The Directors have considered this risk and
are satisfied that FSF has adequate financial resources to settle
its recurring expenses for the foreseeable future, based on
evidence provided from cash flow forecasting and sensitivity
testing to satisfy both the Investment Manager and the Directors
that the Company has sufficient funds available.
The Directors are satisfied that FSF has sufficient resources to
continue to operate for the foreseeable future, a period of not
less than 12 months from the date of this report. Accordingly, they
have adopted the going concern basis in preparation of these
financial statements.
(c) Segmental reporting
The Directors are of the opinion that the Company is engaged in
a single segment of business, being investment in UK forestry and
afforestation assets, to generate real returns for investors as
well as capital appreciation. The financial information used by the
Board to allocate resources and manage the Company presents the
business as a single segment comprising a homogeneous
portfolio.
(d) Key judgements
Fair valuation of investment assets
The market value of the Company's underlying investment
portfolio held through its SPVs consisting of Forestry,
Afforestation and Non - core assets (investment portfolio/
properties) is determined by an external valuer (see note 10) to be
the estimated amount for which an asset should exchange on the date
of the valuation in an arm's - length transaction. Properties have
been valued on an individual basis. The external valuer prepares
their valuations in accordance with the RICS Valuation - Global
Standards July 2017 (the "Red Book"). Factors reflected comprise
current market conditions including the comparable market value of
similar freehold forestry assets, the potential uplift in land
value above current in - use value (relevant to planting land), the
location and situation of individual assets, potential
vulnerability to winter storms and the developmental status of
properties (if afforestation). The market conditions stated are
assessed on a bi-annual basis. The significant methods and
assumptions used by the external valuers in estimating the fair
value of investment assets are set out in note 10. The carbon
credits valuation are not determined by an external valuer and are
subject to Directors' judgement and estimation.
(e) Taxation
Income taxes
Income taxes represent the sum of the tax currently payable,
withholding taxes suffered and deferred tax. Tax is charged or
credited in the statement of comprehensive income, except where it
relates to items charged or credited directly to equity, in which
case the tax is also dealt with in equity.
The tax currently payable is based on the taxable profit for the
year. This may differ from the profit included in the statement of
comprehensive income because it excludes items of income or expense
that are taxable or deductible in other years and it further
excludes items that are never taxable or deductible. To enable the
tax charge to be based on the profit for the year, deferred tax is
provided in full on temporary timing differences, at the rates of
tax expected to apply when these differences crystallise.
Deferred tax assets are recognised only to the extent that it is
probable that sufficient taxable profits will be available against
which temporary differences can be set off. In practice, some
assets that are likely to give rise to timing differences will be
treated as capital for tax purposes. Given capital items are exempt
from tax under the Investment Trust Company rules, deferred tax is
not expected to be recognised on these balances.
All deferred tax liabilities are offset against deferred tax
assets, where appropriate, in accordance with the provisions of IAS
12. The carrying amount of deferred tax assets is reviewed at each
balance sheet date and reduced to the extent that it is no longer
probable that sufficient taxable profits will be available to allow
all or part of the asset to be recovered.
3. Basis of consolidation
The Company's objective is to invest in UK forestry and
afforestation assets through its holding companies, which will
typically issue equity and loans to finance the investments.
Assessment as an investment entity
IFRS 10 Consolidated Financial Statements sets out the following
essential criteria, necessary for a company to be considered as an
investment entity.
Definition of an investment entity/trust:
-- It must obtain funds from multiple investors for the purpose
of providing its investment management services to those investors
-- It must commit to its investors that its business purpose is
to invest funds solely for returns from capital appreciation,
investment income, or both. Similarly, the entity must ensure
there is also an exit strategy for such investments
-- It must measure and evaluate the performance of its investments
on a fair value basis
In assessing whether the Company meets the definition of an
investment entity set out in IFRS 10, the Directors note that:
-- The Company is an investment company that invests funds obtained
from multiple investors in a diversified portfolio of UK forestry
and afforestation assets and has appointed Foresight Group
as the Investment Manager to manage the Company's investments
-- The Company's purpose is to invest funds with the intention
of providing real returns to investors and capital appreciation
driven by global demand for timber. The Company's exit strategy
will depend on factors of portfolio balance and/or profit
-- The Board evaluates the performance of the Company's investments
on a fair value basis as part of the quarterly management accounts
review and the Company values its investments on a fair value
basis driven by a RICS valuation provided by Savills (the "external
valuer") using various assumptions to reflect current market
conditions. This includes, amongst other factors, the comparable
market value of similar freehold forestry assets. These fair
value assessments happen on a bi - annual basis and are included
in the Company's annual and interim financial statements, with
the movement in the valuations taken to the statement of comprehensive
income and is therefore measured within its earnings
The Directors have concluded that the Company meets the
definition of an investment entity in accordance with IFRS 10 after
evaluation of the relevant criteria.
The Directors continue to consider the Company demonstrates the
characteristics and meets the requirements to be considered an
investment entity.
IFRS 10 states that investment entities are required to hold
subsidiaries at fair value through profit or loss rather than
consolidation on a line-by-line basis; this means that the Group's
cash, debt and working capital balances are included in the fair
value of the investment instead of in the Company's assets and
liabilities. The Company has one investee, namely FSFC Holdings
Limited, which invests the funds of the FSF investors on its behalf
and is effectively performing investment management services on
behalf of several unrelated beneficiary investors.
4. Return on investment and interest income
Period from
incorporation on
31 August 2021
to 30 September
2022
GBP'000
---------------------------------------------- ----------------
Unrealised fair value movement of investments 10,120
Interest Income - Loans to direct subsidiary 852
Interest Income - Bank 52
---------------------------------------------- ----------------
Total 11,024
---------------------------------------------- ----------------
5. Investment management fees
Period from
incorporation on
31 August 2021
to 30 September
2022
GBP'000
-------------------------- ----------------
Investment management fee 1,071
-------------------------- ----------------
Total 1,071
-------------------------- ----------------
Foresight Group LLP was appointed as the Investment Manager for
the Company under an Investment Management Agreement. Under the
terms of the agreement, the Investment Manager is entitled to a
management fee from the Company, which is calculated quarterly in
arrears at 0.85% of NAV per annum up to GBP500 million and 0.75%
per annum in excess of GBP500 million.
The Company paid GBP687,218 during the period. Investment
management fees of GBP384,092 were billed at the period end and
remained to be paid to Foresight Group LLP.
6. Operating expenses
Period from
incorporation
on
31 August
2021
to 30 September
2022
GBP'000
--------------------------- ---------------
Director fees and expenses 140
Administration fees 104
Legal costs 120
Audit fees 118
Other expenses 684
--------------------------- ---------------
Total 1,166
--------------------------- ---------------
Other expenses include adviser fees, independent valuer fees,
broker fees, depository fees and other company - related costs.
The Company had no employees during the period (30 September
2022: nil). There was no Directors' remuneration for the period
other than the fees detailed in note 19.
Included within other expenses is an amount of GBP118,250 to
Ernst & Young LLP for the audit of the Company for the period
ended 30 September 2022.
Details of Directors' fees are set out in note 22.
7. Dividends
The Company did not pay any dividends in the period from
incorporation to 30 September 2022.
8. Taxation
The Company received notice on 11 November 2021 confirming it is
an approved Investment Trust for accounting periods commencing on
or after 23 November 2021. The approval is subject to the Company
continuing to meet the eligibility conditions of Section 1158 of
the Corporation Taxes Act 2010. Furthermore, there are also ongoing
requirements for approved companies in Chapter 3 of Part 2
Investment Trust (Approved Company) (Tax) Regulations 2011
(Statutory Instrument 2011/2999). To maintain its ITC status, the
Company must adhere to the following conditions throughout an
accounting period:
(i) The Company must not be a closed company at any time in an
accounting period
(ii) An investment trust must not retain in respect of an accounting
period an amount which is greater than 15% of its income for
the accounting period and the relevant distribution must be
distributed before the filing date for the investment trust's
company tax return for the period
(iii) An investment trust must notify HMRC of a revised investment
policy before the filing date for its tax return for the accounting
period in which the investment policy was revised
(iv) An investment trust must notify HMRC in writing of a breach
of any of the conditions in Section 1158 or any of the requirements
in the regulations as soon as possible after the investment
trust becomes aware of the breach
The Company regularly monitors the conditions required to
maintain ITC status.
Current
year
ended
30 September
2022
GBP'000
----------------------------------------------------------------- ------------
Current taxes
Current year -
----------------------------------------------------------------- ------------
Total income tax charge in the statement of comprehensive income -
----------------------------------------------------------------- ------------
Total
as at
Revenue Capital 30 September
reserve reserve 2022
Current year ended 30 September 2022 GBP'000 GBP'000 GBP'000
------------------------------------------------------------------------------------- ------- ------- ------------
Profit before tax (1,333) 10,120 8,787
Profit before tax multiplied by rate of corporation tax in the UK of 19% (2021: 19%) (253) 1,923 1,670
Effects of:
Non-taxable capital profits due to UK approved investment trust company status - (1,923) (1,923)
Non-taxable dividend income - - -
Dividends designated as interest distributions - - -
Temporary differences on which deferred tax is not recognised 253 - 253
------------------------------------------------------------------------------------- ------- ------- ------------
Total income tax charge in the statement of comprehensive income - - -
------------------------------------------------------------------------------------- ------- ------- ------------
Analysis of tax expense
There was no corporation tax payable during the period from
incorporation on 31 August 2021 to 30 September 2022. As a result,
the tax charge for the period is GBPnil. Investment gains are
exempt from tax owing to the Company's status as an investment
trust.
Reconciliation of income taxes in the statement of comprehensive
income
The tax charge for the period is different from the standard
rate of corporation tax in the UK, currently 19% (2021: 19%), and
the difference is explained below:
Factors that may affect future total tax charges
Following the March 2022 Budget, the corporation tax rate will
increase from 19% to 25% with effect from April 2023. The Company
is recognised as an ITC for this interim accounting period and is
taxed at the current main rate of 19%.
At the period end, there is a potential deferred tax asset of
GBP253,194 in relation to excess management expenses carried
forward. The deferred tax asset is unrecognised at the period end
in line with the Company's stated accounting policy.
9. Earnings per share
Capital Revenue
reserve reserve Total
----------------------------------------------------------------------------------- ------- ------- -------
Revenue and capital profit attributable to equity holders of the Company (GBP'000) 10,120 (1,333) 8,787
Average number of Ordinary Shares issued ('000) 142,847 142,847 142,847
----------------------------------------------------------------------------------- ------- ------- -------
Profit per share at 30 September 2022 (pence) 7.1 (0.9) 6.2
----------------------------------------------------------------------------------- ------- ------- -------
10. Investments at fair value through profit and loss
Period from
incorporation on
31 August 2021
to 30 September
2022
GBP'000
--------------------------------------------- ----------------
Fair value at start of the period -
Loans to intermediate holding companies 21,821
Equity investment in holding companies 114,350
Unrealised gain on investments at fair value 10,120
--------------------------------------------- ----------------
Total 146,291
--------------------------------------------- ----------------
There is a loan between FSF and FSFC Holdings Limited for
GBP21,821,094. The rate of interest on the loan is 7% per annum.
Interest accrued at the period end and outstanding at the reporting
date was GBP852,198.
The Company owns 11,435,005,921 shares in FSFC Holdings Limited
that were purchased for a consideration of GBP0.01 per share.
Fair value investments
The Investment Manager has carried out fair value market
valuations of the underlying SPV investments as at 30 September
2022 on a RICS basis, as performed by Savills. The Directors have
approved the methodology used, as well as confirming their
understanding of all underlying key assumptions applicable. All SPV
investments are at fair value through profit or loss and are valued
using the IFRS 13 framework for fair value measurement.
Savills includes all investments under ownership by FSF in their
portfolio valuation, for both afforestation and forestry
properties. The valuations have been prepared in accordance with
the RICS Valuation - Global Standards July 2017 (the "Red Book")
and incorporate the recommendations of the International Valuation
Standards, which are consistent with the principles set out in IFRS
13.
Savills, in forming its opinion, makes various assumptions on
the basis of current market conditions; the following are the key
assumptions are made:
-- Fair value of assets
-- Savills employs a "comparable approach" by analysing comparable
market value(s) of similar freehold forestry and afforestation
assets from recent transactions, when assessing what fair
value is reasonable to attribute to assets with similar features,
held by subsidiaries of FSF
-- Planting land value
-- Savills includes a reasonable view of the potential for afforestation
sites' value uplift over time, rather than viewing the current
value of these sites as only attributable to their current
use as grazing land
-- Savills takes account of the relevant stage each site is
currently at of the forestry grant application process when
reaching a judgement
-- Location and situation
-- Due to the assets under ownership being located across the
UK (Scotland, North England and Wales), Savills accounts
for the potential differences in market interest associated
in different locations
-- Winter storm vulnerability
-- Savills makes assessments on the basis of the extent of damage
suffered by sites due to extreme windblow incidents. Where
damage is extensive, Savills will make prudent adjustments
to the value of the site, if it is evident that some of the
affected timber may be challenging to recover
-- Developmental status of afforestation sites
-- Due to the nature of operations for the afforestation assets,
Savills applies reassessments as to the value of an asset
when a new developmental milestone occurs
In addition, the Investment Manager believes the Red Book
valuation does not include any value in relation to progress in
units ("PIUs") as at 30 September 2022 and has therefore calculated
an estimated value on the progress made on obtaining the rights to
PIUs as to date no PIUs have been authorised by the Woodland
Trust.
Fair value hierarchy
All assets and liabilities for which fair value is measured or
disclosed in the financial statements are categorised within the
fair value hierarchy, described as follows, based on the lowest
level input that is significant to the fair value measurement as a
whole - these levels are defined, as per IFRS 13, below:
-- Level 1 - Quoted (unadjusted) market prices in active markets
for identical assets or liabilities.
-- Level 2 - Valuation techniques for which the lowest level input
that is significant to the fair value measurement is directly
or indirectly observable.
-- Level 3 - Valuation techniques for which the lowest level input
that is significant to the fair value measurement is unobservable.
The Company considers that all of its investments fall within
Level 3 of the fair value hierarchy as defined by IFRS 13.
There have been no transfers between Level 1 and Level 2 during
any of the periods, nor have there been any transfers between Level
2 and Level 3 during any of the periods.
The valuations have been prepared on the basis of market value,
which is defined in the RICS Valuation Standards as: "The estimated
amount for which an asset should exchange on the date of valuation
between a willing buyer and a willing seller in an arm's-length
transaction after proper marketing wherein the parties had each
acted knowledgeably, prudently and without compulsion."
Market value as defined in the RICS Valuation Standards meets
the requirements of fair value defined under IFRS.
11. Trade and other receivables
Period from
incorporation on
31 August 2021
to 30 September
2022
GBP'000
-------------------------------------- ----------------
Interest receivable from subsidiaries 852
-------------------------------------- ----------------
Total 852
-------------------------------------- ----------------
12. Trade and other payables
Period from
incorporation on
31 August 2021
to 30 September
2022
GBP'000
--------------------- ----------------
Creditors 477
Accruals 385
Intercompany account 24
--------------------- ----------------
Total 886
--------------------- ----------------
The total for creditors as at 30 September 2022 includes an
amount of GBP384,092 relating to investment management fees charged
by Foresight Group LLP to services provided during the period.
Similarly, an amount of GBP31,373 relating to administration
services fees has also been charged by Foresight Group LLP.
13. Share capital
Number
of shares
--------------------------------------------------------------------- -----------
Allotted share capital, issued and fully paid:
Opening balance at incorporation on 31 August 2021 -
Allotted upon incorporation
Issue of Ordinary Shares at 1 pence per share (31 August 2021) 1
Allotted since incorporation
Issue of management shares at 1 pence per share (12 October 2021) 50,000
--------------------------------------------------------------------- -----------
Allotted/redeemed following admission to London Stock Exchange
Ordinary Shares issued at Initial Public Offering (19 November 2021) 130,000,000
Management shares redeemed (50,000)
Ordinary Shares issued on 28 June 2022 42,056,074
--------------------------------------------------------------------- -----------
Total number of Ordinary Shares at 30 September 2022 172,056,075
--------------------------------------------------------------------- -----------
Period
from
incorporation
on
31 August
2021 to
Share Share 30 September
capital premium 2022
GBP'000 GBP'000 GBP'000
----------------------------------- ------- ------- -------------
Opening balance (at incorporation) - - -
Shares issued at IPO 1,721 173,279 175,000
Costs associated with IPO - (3,204) (3,204)
----------------------------------- ------- ------- -------------
Total 1,721 170,075 171,796
----------------------------------- ------- ------- -------------
Prior to IPO, one Ordinary Share was in issue, owned by
Foresight Group LLP. The initial placing of 130,000,000 Ordinary
Shares took place on 24 November 2021, raising gross proceeds of
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 second placing of 42,056,074 Ordinary Shares took place on
28 June 2022, raising gross proceeds of GBP44,999,999. Each
Ordinary Share has equal rights to dividends and has equal rights
to participate in a distribution arising from a winding - up of the
Company.
The total number of Ordinary Shares in issue as at 30 September
2022 was 172,056,075. The Company has not issued any further
Ordinary Shares.
The issue costs of GBP3,204,130 relating to fundraising
throughout the period were offset against the share premium
account.
14. Retained earnings
30 September
Revenue Capital 2022
GBP'000 GBP'000 GBP'000
------------------------------ ------- ------- ------------
Opening balance - - -
Profit/(loss) for the period (1,333) 10,120 8,787
Special distributable reserve - - -
Dividends paid - - -
------------------------------ ------- ------- ------------
Closing balance (1,333) 10,120 8,787
------------------------------ ------- ------- ------------
15. Net Asset Value per Ordinary Share
The total net asset per Ordinary Share is based on the net
assets attributable to equity Shareholders as at 30 September 2022
of GBP180.6 million and Ordinary Shares in issue of
172,056,075.
30 September
2022
------------------------------------------- ------------
NAV (GBPm) 180.6
Number of Ordinary Shares issued (million) 172.1
------------------------------------------- ------------
Net Asset Value per share (pence) 105.0
------------------------------------------- ------------
16. Cash and cash equivalents
At period end, the Company held cash and cash equivalents of
GBP34.3 million. This balance was held by HSBC Bank plc.
30 September
2022
GBP'000
-------------------------------- ------------
Cash and cash equivalents:
HSBC Bank plc - Current Account 4,283
HSBC Bank plc - Liquidity Fund 30,043
-------------------------------- ------------
Total cash and cash equivalents 34,326
-------------------------------- ------------
17. Financial instruments
Financial instruments by category
The Company held the following financial instruments at 30
September 2022. There have been no transfers of financial
instruments between levels of the fair value hierarchy. There are
no non-recurring fair value measurements.
Financial Financial Financial
assets held assets at fair liabilities
Cash and bank at amortised value through at amortised
balances cost profit or loss cost Total
GBP'000 GBP'000 GBP'000 GBP'000 GBP'000
-------------------------------------------------- ------------- ------------ -------------- ------------ -------
Non-current assets
Investments at fair value through profit or loss
(Level 3) - - 146,291 - 146,291
Current assets
Trade and other receivables - 852 - - 852
Cash and cash equivalents 34,326 - - - 34,326
-------------------------------------------------- ------------- ------------ -------------- ------------ -------
Total financial assets 34,326 852 146,291 - 181,469
-------------------------------------------------- ------------- ------------ -------------- ------------ -------
Current liabilities
Trade and other payables - - - (886) (886)
-------------------------------------------------- ------------- ------------ -------------- ------------ -------
Total financial liabilities - - - (886) (886)
-------------------------------------------------- ------------- ------------ -------------- ------------ -------
Net financial instruments 34,326 852 146,291 (886) 180,583
-------------------------------------------------- ------------- ------------ -------------- ------------ -------
The Company holds its portfolio of assets at fair value. These
assets are held through the Company's underlying
subsidiaries/intermediate holding companies ("the Group"). The
assets in the Group are valued in accordance with RICS Valuation -
Global Standards July 2017 (the "Red Book") methodology, with
inspections conducted by an independent valuer ("Savills") at the
end of the period.
Savills' fair value assessment of the assets has been completed
on a comparable basis by looking at recent transactions of similar
assets, to assess current market value, outlined in note 10. As a
management review control, the Investment Manager applies
discounted cash flow approach ("DCF") to value the assets, to
provide a precision level for validation of the fair value
presented by Savills. Whilst the two methodologies differ, the
Investment Manager has recorded an immaterial difference between
the respective portfolio valuation results in both the interim
period and the year-end period.
The Directors consider the DCF methodology used by the
Investment Manager to validate the Red Book valuation to be
appropriate. The Board and Investment Manager annually review the
valuation inputs and, where possible, make use of observable market
data to ensure valuations reflect fair value of the assets. A broad
range of assumptions are used in the valuation which are based on
long-term forecasts and are not affected by short-term fluctuations
in inputs, be it economic or operational.
For management control purposes of comparing the two valuations
on a like for like basis, neither the DCF valuation nor RICS
valuation conducted by Savills include explicit recognition of
Verified Carbon ("VC") value. The Manager has therefore calculated
an estimated value on the progress made on obtaining the rights to
PIUs as to date no PIUs have been authorised by the Woodland
Trust.
Sensitivity analysis of the portfolio
The sensitivity of the portfolio to changes in mature forestry
asset valuation is as follows:
The portfolio valuation of mature forestry and afforestation
assets is based on the RICS Red Book valuation approach. The
Directors consider the Red Book market value of the assets which is
a combination of several factors, including timber growth rates,
weighted age distribution and yield class to be the most important
unobservable input underpinning the valuation methodology described
on page 47. The Directors believe that the provision of market
value sensitivity analysis of mature forestry, afforestation and
mixed forestry and afforestation assets is appropriate to align
with the Company's portfolio composition.
Mature forestry asset valuation
The sensitivity of the portfolio to changes in mature forestry
asset valuation is as follows:
The independent valuer conducts inspections of all mature
forestry assets on a semi-annual basis, then provides a valuation
based on RICS methodology. The base case used for forestry asset
value as at 30 September 2022 was GBP72.6 million. Due to this
asset class forming significantly more than 10% of the current
portfolio valuation, this was deemed an appropriate sensitivity to
sample.
Changes Changes
in portfolio in NAV
Forestry assets sensitivity valuation per share
--------------------------------------- ---------------- ---------
Forestry assets value increases by 10% +GBP7.25m/+4.0% +4.2p
Forestry assets value decreases by 10% -GBP7.25m/-4.0% -4.2p
--------------------------------------- ---------------- ---------
Afforestation asset valuation
The sensitivity of the portfolio to changes in afforestation
asset valuation is as follows:
The independent valuer conducts inspections of all afforestation
assets on a semi-annual basis, then provides a valuation based on
RICS methodology. The base case used for afforestation asset value
as at 30 September 2022 was GBP52.1 million. Due to this asset
class forming more than 10% of the current portfolio valuation,
this was deemed an appropriate sensitivity to sample.
Changes Changes
in portfolio in NAV
Afforestation assets sensitivity valuation per share
-------------------------------------------- ---------------- ---------
Afforestation assets value increases by 10% +GBP5.21m/+2.9% +3.0p
Afforestation assets value decreases by 10% -GBP5.21m/-2.9% -3.0p
-------------------------------------------- ---------------- ---------
Mixed forestry and afforestation asset valuation
The sensitivity of the portfolio to changes in mixed forestry
and afforestation asset valuation is as follows:
The independent valuer conducts inspections of all mixed assets
on a semi-annual basis, then provides a valuation based on RICS
methodology. The base case used for the asset value of mixed
forestry and afforestation assets as at 30 September 2022 was
GBP14.7 million. Due to this asset class forming more than 10% of
the current portfolio valuation, this was deemed an appropriate
sensitivity to sample.
Changes Changes
in portfolio in NAV
Mixed forestry and afforestation assets sensitivity valuation per share
---------------------------------------------------- ---------------- ---------
Mixed assets value increases by 10% +GBP1.47m/+0.8% +0.9p
Mixed assets value decreases by 10% -GBP1.47m/-0.8% -0.9p
---------------------------------------------------- ---------------- ---------
Non-core asset valuation
Due to the relatively small size of the non-core assets in the
Company's valuation, the sensitivity to movement in this part of
the portfolio is deemed immaterial, so no sensitivity analysis has
been conducted.
Capital risk management
Capital management
The Group, which comprises the Company and its non-consolidated
subsidiaries, manages its capital to ensure that it will be able to
continue as a going concern while maximising the return to
Shareholders through the optimisation of the debt and equity
balances. The capital structure of the Group principally consists
of the share capital account and retained earnings as detailed in
notes 13 and 14. The Group aims to deliver its objective by
investing available cash and using leverage whilst maintaining
sufficient liquidity to meet ongoing expenses.
Gearing ratio
The Company's Investment Manager reviews the capital structure
of the Company and the Group on a semi-annual basis. The Company
and its subsidiaries intend to make prudent use of leverage for
financing acquisitions of investments and working capital purposes.
Under the Company's Articles, and in accordance with the Company's
investment policy, the Company's outstanding borrowings, excluding
the debts of underlying assets, will be limited to 30% of the
Company's Net Asset Value.
As at 30 September 2022, the Company had no outstanding debt.
The Company's subsidiary FSFC Holdings 2 Limited has a GBP30.0
million Revolving Credit Facility, which was undrawn at 30
September 2022.
Financial risk management
The Group's activities expose it to a variety of financial
risks: capital risk, liquidity risk, market risk (including
interest rate risk, inflation risk and power price risk) and credit
risk. The Group's overall risk management programme focuses on the
unpredictability of financial markets and seeks to minimise
potential adverse effects on the Group's financial performance.
For the Company and the intermediate holding companies,
financial risks are managed by the Investment Manager, which
operates within the Board-approved policies. All risks continue to
be managed by the Investment Manager. The various types of
financial risk are managed as follows:
Financial risk management - Company only
The Company accounts for its investments in its subsidiaries at
fair value. Accordingly, to the extent there are changes as a
result of the risks set out below, these may impact the fair value
of the Company's investments.
Capital risk
The Company has implemented an efficient financing structure
that enables it to manage its capital effectively. The Company's
capital structure comprises equity only (refer to the statement of
changes in equity). As at 30 September 2022, the Company had no
recourse to debt, although as set out above, the Company's
subsidiary FSFC Holdings Limited is a guarantor for the Revolving
Credit Facility of FSFC Holdings 2 Limited.
Liquidity risk
The Directors monitor the Company's liquidity requirements to
ensure there is sufficient cash to meet the Company's operating
needs. The Company's liquidity management policy involves
projecting cash flows and forecasting the level of liquid assets
necessary to meet these. Due to the nature of its investments, the
timing of cash outflows is reasonably predictable and, therefore,
is not a major risk to the Company. The Company was in a net cash
position and had no outstanding debt at the balance sheet date.
Market risk - foreign currency exchange rate risk
All the cash flows and investments are denominated in pounds
sterling.
Financial risk management - Company and non-consolidated
subsidiaries
The following risks impact the Company's subsidiaries and in
turn may impact the fair value of investments held by the
Company.
Market risk - interest rate risk
Interest rate risk arises in the Company's subsidiaries on the
Revolving Credit Facility borrowings and floating rate deposits.
Borrowings issued at variable rates expose those entities to
variability of interest payment cash flows. Interest rate hedging
may be carried out to seek to provide protection against increasing
costs of servicing debt drawn down by the holding company as part
of its Revolving Credit Facility. This may involve the use of
interest rate derivatives and similar derivative instruments.
Each investment hedges their interest rate risk at the inception
of a project. This will either be done by issuing fixed rate debt
or variable rate debt which will be swapped into fixed rate by the
use of interest rate swaps.
Market risk - inflation risk
Some of the Company's investments will have part of their
revenue and some of their costs linked to a specific inflation
index at inception of the project. In most cases this creates a
natural hedge, meaning a derivative does not need to be entered
into in order to mitigate inflation risk.
Market risk - timber price risk
Timber revenue forms a significant majority of forecasted
revenues for the Company's investments. Whilst projections suggest
a steady income flow through the sale of timber, there is a risk
that timber prices will drop due to market forces and minimise the
revenues the Fund will receive. This risk is mitigated by the
ability of the Company and underlying investments to sustain its
liquidity, even in the event of withholding from timber sales,
given sub - optimal pricing.
Credit risk
Credit risk is the risk that a counterparty of the Company or
its subsidiaries will default on its contractual obligations it
entered into with the Company or its subsidiaries. Credit risk
arises from cash and cash equivalents, derivative financial
instruments and deposits with banks and financial institutions, as
well as credit exposures to customers.
The Company and its subsidiaries place cash in authorised
deposit takers and is therefore potentially at risk from the
failure of such institutions. In respect of credit risk arising
from other financial assets and liabilities, which mainly comprise
of cash and cash equivalents, exposure to credit risk arises from
default of the counterparty with a maximum exposure equal to the
carrying amounts of these instruments. In order to mitigate such
risks, cash is maintained with major international financial
institutions. During the year and at the reporting date, the
Company maintained relationships with HSBC Bank plc.
Moody's 30 September
credit 2022
rating GBP'000
-------------------------------- -------- ------------
HSBC Bank plc P1 34,326
-------------------------------- -------- ------------
Total cash and cash equivalents 34,326
------------------------------------------ ------------
18. Subsidiaries
The following subsidiaries have not been consolidated in these
financial statements as a result of applying the requirements of
"Investment Entities: Applying the Consolidation Exception
(Amendments to IFRS 10)". The Company is not contractually
obligated to provide financial support to the subsidiaries and
there are no restrictions in place in passing monies up the
structure.
Proportion of
Direct or indirect Country of shares and voting
Name holding incorporation Registered address Principal activity rights held
------------------ ------------------ ------------------ ------------------ ------------------- -----------------
C/O Foresight
Group LLP, The
Shard, 32 London
Bridge Street,
FSFC Holdings London, England,
Limited Direct UK SE1 9SG Holding company 100%
------------------ ------------------ ------------------ ------------------ ------------------- -----------------
C/O Foresight
Group LLP, The
Shard, 32 London
Bridge Street,
FSFC Holdings 2 London, England,
Limited Indirect UK SE1 9SG Holding company 100%
------------------ ------------------ ------------------ ------------------ ------------------- -----------------
C/O Foresight
Group LLP, The
Shard, 32 London
Bridge Street,
FSFC Company 1 London, England,
Limited Indirect UK SE1 9SG SPV 100%
------------------ ------------------ ------------------ ------------------ ------------------- -----------------
C/O Foresight
Group LLP, The
Shard, 32 London
Bridge Street,
Blackmead Forestry London, England,
Limited Indirect UK SE1 9SG SPV 100%
------------------ ------------------ ------------------ ------------------ ------------------- -----------------
C/O Foresight
Group LLP, The
Shard, 32 London
Bridge Street,
Blackmead Forestry London, England,
II Limited Indirect UK SE1 9SG SPV 100%
------------------ ------------------ ------------------ ------------------ ------------------- -----------------
C/O Foresight
Group LLP, The
Shard, 32 London
Bridge Street,
Coull Forestry London, England,
Limited Indirect UK SE1 9SG SPV 100%
------------------ ------------------ ------------------ ------------------ ------------------- -----------------
C/O Foresight
Group LLP,
Clarence House,
133 George
Street,
Fordie Estates Edinburgh,
Limited Indirect UK Scotland, EH2 4JS SPV 100%
------------------ ------------------ ------------------ ------------------ ------------------- -----------------
19. Employees and Directors
The Company is governed by an independent and non-executive
Board of Directors. There are four Non-Executive Directors. Please
refer to the Directors' remuneration report, for details as to
Directors' emoluments.
20. Contingencies and commitments
The Company has no guarantees or significant capital commitments
as at 30 September 2022.
21. Events after the balance sheet date
The Directors have evaluated the need for disclosures and/or
adjustments resulting from post balance sheet events through to the
date the financial statements were available to be issued. These
include:
-- On 12 October 2022, the acquisition of a stocked UK forestry
project (Bogbain Wood) for GBP1 million was completed
-- On 17 October 2022, the acquisition of an afforestation project
(Auchentaggart) for GBP1.6 million was completed
-- On 31 October 2022, the acquisition of an afforestation project
(Burnside) for GBP1.7 million was completed
There are no other significant events since the period end which
would require to be disclosed. There were no adjusting post balance
sheet events and as such no adjustments have been made to the
valuation of assets and liabilities as at 30 September.
22. Related party transactions
Following admission of the Ordinary Shares (refer to note 13),
the Company and the Directors are not aware of any person who,
directly or indirectly, jointly, or severally, exercises or could
exercise control over the Company. The Company does not have an
ultimate controlling party.
The transactions between the Company and its subsidiaries which
are related parties of the Company and fair values are disclosed in
note 10. Details of transactions between the Company and related
parties are disclosed below.
This note also details the terms of the Company's engagement
with Foresight Group LLP, the Investment Manager.
Transactions with the Investment Manager
The Investment Manager, Foresight Group LLP, is entitled to a
base fee on the following basis:
(a) 0.85% per annum of the Net Asset Value of the Fund up to and
including GBP500.0 million
(b) 0.75% per annum of the Net Asset Value of the Fund in excess
of GBP500.0 million
The investment management fees incurred during the period to 30
September 2022 were GBP1,071,310, of which GBP384,092 remained
unpaid as at 30 September 2022.
Additionally, the Company incurred fees during the period to 30
September 2022 of GBP103,813, which related to Administration
services provided by the Investment Manager, in its capacity as
Administrator for the Company.
Seed asset acquisition
As mentioned in the Company's Prospectus dated 28 October 2021,
FSF had entered into an option agreement to acquire from Blackmead
Infrastructure Limited, a company within the Foresight Inheritance
Tax Solutions, a seed asset portfolio of c.11,000 hectares of
forestry and afforestation assets in the UK. This seed asset
acquisition represented a conflict of interest as the Investment
Manager provided investment management services to both the Company
and FITF.
The Investment Manager implemented its conflict management
policy as part of its process to mitigate the identified conflict,
including: disclosures of the relevant conflicts to the independent
boards of both FSF and FITF; due care was taken to keep the buy
side and sell side of the investment team separate; appointment of
independent external legal advisers; and a fairness opinion,
addressed to the Company on the valuation of the assets to be
acquired, was sought from an independent expert.
Other transactions with related parties
The amount incurred in respect of Directors' fees during the
period to 30 September 2022 was GBP143,750. The Directors also
received GBP47,500 in relation to activities prior to IPO. These
amounts had been fully paid as at 30 September 2022. The amounts
paid to individual Directors were as follows:
Basic and
Committee Pre-IPO
fees expenses Total
Director GBP GBP GBP
------------------------- ---------- -------- -------
Richard Davidson (Chair) 45,000 15,000 60,000
Sarika Patel 37,500 12,500 50,000
Christopher Sutton 30,000 10,000 40,000
Josephine Bush 31,250 10,000 41,250
------------------------- ---------- -------- -------
Total 143,750 47,500 191,250
------------------------- ---------- -------- -------
The Directors held the following shares in the Company:
% of issued
Number Ordinary
of
Ordinary Share
Director/PDMR/PCA Shares capital
------------------------- -------- -----------
Richard Davidson (Chair) 100,000 0.06
Sarika Patel 24,000 0.01
Christopher Sutton 25,000 0.01
Josephine Bush 19,000 0.01
------------------------- -------- -----------
The above transactions were undertaken on an arm's length
basis.
ALTERNATIVE PERFORMANCE MEASURES ("APM s ")
APM Purpose Calculation
------------------------- ------------------------------- ------------------------------
Gross Asset Value ("GAV") A measure of the value The sum of net assets
of the Company's total of the Company as shown
assets. on the Statement of Financial
Position and the total
debt of the Group, which
currently comprises only
of the RCF.
------------------------- ------------------------------- ------------------------------
Net Asset Value per share Allows investors to gauge 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 30 September 2022
the movement of the value plus all dividends since
of the Fund since IPO IPO assumed reinvested,
and expressed as a percentage. divided by the NAV at
IPO, to the power of
1 over the number of
years since IPO, expressed
as a percentage.
------------------------- ------------------------------- ------------------------------
Market capitalisation Provides an indication Closing share price as
of the size of the Company. at 30 September 2022
multiplied by the closing
number of Ordinary Shares
in issuance.
------------------------- ------------------------------- ------------------------------
Ongoing charges A measure, expressed Calculated and disclosed
as a percentage of average in accordance with the
net assets, of the regular, AIC methodology. Annualised
recurring annual costs expenses divided by average
of running the Company NAV.
per Ordinary Share.
------------------------- ------------------------------- ------------------------------
COMPANY SUMMARY
Below are the Company key facts, advisers and other
information.
Company information
Foresight Sustainable Forestry Company Plc ("FSF") is the first
and only UK listed investment trust focused on UK forestry,
afforestation and natural capital (registered number 13594181) with
a premium listing on the London Stock Exchange.
Registered address
The Shard, 32 London Bridge Street, London, SE1 9SG
Ticker/SEDOL
GB00BMDPKM71
Company year end
30 September
Investment Manager, Company Secretary and Administrator
Foresight Group LLP, No OC300878, registered in England and
Wales and authorised and regulated by the Financial Conduct
Authority
Market capitalisation
GBP182.4 million at 30 September 2022
Investment Manager fees
0.85% per annum of the NAV up to GBP500 million, falling to
0.75% per annum of NAV in excess of GBP500 million.
ISA, PEP and SIPP status
The Ordinary Shares are eligible for inclusion in PEPs and ISAs
(subject to applicable subscription limits) provided that they have
been acquired in the market, and they are permissible assets for
SIPPs.
AIFMD status
The Company is classed as an externally managed Alternative
Investment Fund under the Alternative Investment Fund Managers
Regulations 2013 and the European Union's Alternative Investment
Fund Managers Directive.
Non-mainstream pooled investment status
Approved UK Investment Trust subject to the Company continuing
to meet the eligibility conditions in Section 1158 of the
Corporation Taxes Act 2010 and the ongoing requirements for
approved companies in Chapter 3 of Part 2 Investment Trust
(Approved Company) (Tax) Regulations 2011 (Statutory Instrument
2011/2999).
FATCA
The Company has registered for FATCA and has a GIIN number
191P2V.99999.SL.826
Investment policy
The Company's investment policy is set out above.
Website
https://fsfc.foresightgroup.eu/
NOTICE OF ANNUAL GENERAL MEETING
23 FEBRUARY 2023
Notice is hereby given that the Annual General Meeting of
Foresight Sustainable Forestry Company plc ("the Company") will be
held on 23 February 2023 at 1.00 pm at the offices of Foresight
Group, The Shard, 32 London Bridge Street, London, SE1 9SG for the
purpose of considering and, if thought fit, passing the following
resolutions, of which resolutions 1 to 10 will be proposed as
ordinary resolutions and resolutions 11 and 13 will be proposed as
special resolutions.
Ordinary Resolutions
Resolution One
To receive the Annual Report and Accounts of the Company for the
year ended 30 September 2022.
Resolution Two
To approve the Directors' Remuneration Policy included in the
Annual Report for the year ended 30 September 2022.
Resolution Three
To approve the Directors' Remuneration Report included in the
Annual Report for the year ended 30 September 2022.
Resolution Four
To elect Richard Davidson as a Director of the Company.
Resolution Five
To elect Sarika Patel as a Director of the Company.
Resolution Six
To elect Christopher Sutton as a Director of the Company.
Resolution Seven
To elect Josephine Bush as a Director of the Company.
Resolution Eight
To appoint Ernst & Young LLP as auditor to the Company.
Resolution Nine
To authorise the Directors to fix the auditor's remuneration
until the conclusion of the next Annual General Meeting of the
Company.
Resolution Ten
That, in addition to all existing authorities, the Directors be
generally and unconditionally authorised pursuant to section 551 of
the Companies Act 2006 (the "Act") to allot shares in the Company,
or to grant rights to subscribe for or convert any security into
shares in the Company, up to an aggregate nominal amount of
GBP172,056.08 or, if less, the aggregate nominal amount equal to
10% of the nominal value of the issued ordinary share capital of
the Company (excluding treasury shares) immediately prior to the
passing of this resolution). The authority given by this resolution
10 shall, unless renewed, varied or revoked by the Company, expire
on the conclusion of the next Annual General Meeting of the Company
or, if earlier, upon the expiry of 15 months from the date of
passing of this resolution, save that the Company may, before such
expiry, make any offer or enter into an agreement which would or
might require shares to be allotted or rights to subscribe for or
convert any security into shares to be granted in pursuance of such
an offer or agreement as if such authority had not expired.
Special Resolutions
Resolution Eleven
That, in addition to all existing authorities and subject to the
passing of resolution 10, the Directors be and are empowered
pursuant to sections 570 and 573 of the Act to allot equity
securities (within the meaning of section 560(1) of that Act) for
cash either pursuant to the authority conferred by resolution 10 or
by way of sale of treasury shares as if section 561(1) of that Act
did not apply to any such allotment or sale, provided that this
power shall be limited to the allotment and/or sale of equity
securities with an aggregate nominal value of up to
GBPGBP172,056.08 or, if less, the aggregate nominal amount equal to
10% of the nominal value of the issued ordinary share capital of
the Company immediately prior to the passing of this resolution.
This authority will expire at the conclusion of the next Annual
General Meeting of the Company or, if earlier, upon the expiry of
15 months from the date of passing of this resolution, save that
the Company may, before such expiry, make any offer or enter into
an agreement which would or might require the allotment and/or sale
from treasury of equity securities in the Company in pursuance of
such an offer or agreement as if such authority had not
expired.
Resolution Twelve
That the Company be generally and unconditionally authorised in
accordance with section 701 of the Act to make market purchases
(within the meaning of section 693(4) of the Act) of its ordinary
shares of GBP0.01 each ("Ordinary Shares"), provided that:
(i) the aggregate number of shares to be purchased shall not
exceed 25,791,205 Ordinary Shares or, if lower, such number
of shares rounded down to the nearest whole share as shall
equal 14.99]% of the Company's ordinary share capital in
issue (excluding treasury shares) at the date of passing
this resolution;
(ii) the minimum price (excluding any expenses) which may be paid
for an Ordinary share is 1 penny (the nominal value thereof);
(iii) the maximum price (excluding any expenses) which may be paid
for an Ordinary Share is the higher of (1) an amount equal
to 105% of the average of the middle market quotations for
the Ordinary Shares taken from the London Stock Exchange
Daily Official List for the five business days immediately
preceding the day on which the Ordinary Shares are contracted
to be purchased, and (2) the higher of (a) the price of the
last independent trade and (b) the highest current independent
bid for any number of Ordinary Shares on the trading venue
where the purchase is carried out;
(iv) the authority conferred by this resolution shall expire on
the conclusion of the next Annual General Meeting of the
Company unless such authority is renewed prior to such time;
(v) the Company may make a contract to purchase Ordinary Shares
under the authority conferred by this resolution prior to
the expiry of such authority which will or may be executed
wholly or partly after the expiration of such authority and
may make a purchase of Ordinary Shares pursuant to such contract;
and
(vi) any Ordinary Shares bought back under this authority hereby
granted may, at the discretion of the Directors, be cancelled
or held in treasury and, if held in treasury, may be resold
from treasury or cancelled at the discretion of the Directors.
Resolution Thirteen
That, a general meeting, other than an AGM, may be called on not
less than 14 clear days' notice.
By order of the Board
Foresight Group LLP
Company Secretary
14 December 2022
Registered office:
The Shard
32 London Bridge Street
London
SE1 9SG
Notes:
1 No Director has a service contract with the Company. Directors'
appointment letters with the Company will be available for
inspection at the registered office of the Company until the
time of the meeting and from 15 minutes before the meeting
at the location of the meeting, as well as at the meeting.
2. To be entitled to attend and vote at the meeting (and for
the purposes of the determination by the Company of the votes
they may cast), members must be registered in the register
of members of the Company (the "Register of Members") at 10.00
pm on 21 February 2023 (or, in the event of any adjournment,
10.00 pm on the date which is two (excluding non-business
days) days before the time of the adjourned meeting). Changes
to the Register of Members after the relevant deadline shall
be disregarded in determining the rights of any person to
attend and vote at the meeting.
3. A member entitled to attend and vote at the meeting (in accordance
with note 2 above) is entitled to appoint a proxy or proxies
to attend, speak and vote on his or her behalf. A proxy need
not also be a member but must attend the meeting to represent
you. Details of how to appoint the chairman of the meeting
or another person as your proxy using the form of proxy are
set out in the notes on the form of proxy which is enclosed.
If you wish your proxy to speak on your behalf at the meeting,
you will need to appoint your own choice of proxy (not the
chairman) and give your instructions directly to them.
4. You may appoint more than one proxy, provided each proxy is
appointed to exercise rights attached to different shares.
You may not appoint more than one proxy to exercise rights
attached to any one share. To appoint more than one proxy,
(an) additional form(s) of proxy may be obtained by contacting
Computershare Investor Services PLC on 0370 707 1231. Please
indicate in the box next to the proxy holder's name the number
of shares in relation to which they are authorised to act
as your proxy. Please also indicate by ticking the box provided
if the proxy instruction is one of multiple instructions being
given. All forms must be signed and returned together in the
same envelope.
5. In the case of joint holders, only one need sign the form
of proxy. The vote of the senior joint holder will be accepted
to the exclusion of the votes of the other joint holders.
For this purpose, seniority will be determined by the order
in which the names of the joint holders appear in the Register
of Members (the first named being the most senior).
6. A corporation which is a member can appoint one or more corporate
representatives who may exercise, on its behalf, all its powers
as a member provided that no more than one corporate representative
exercises powers over the same share.
7. As at the publication of this notice, the Company's issued
share capital was 172,056,075 Ordinary Shares, carrying one
vote each. Therefore, the total voting rights in the Company
as at the date of this notice is 172,056,075.
8. Any person to whom this notice is sent who is a person nominated
under Section 146 of the Companies Act 2006 to enjoy information
rights (a 'Nominated Person') may, under an agreement between
him/her and the member by whom he/she was nominated, have
a right to be appointed (or to have someone else appointed)
as a proxy for the meeting. If a Nominated Person has no such
proxy appointment right or does not wish to exercise it, he/she
may, under any such agreement, have a right to give instructions
to the shareholder as to the exercise of voting rights.
The statement of the rights of members in relation to the
appointment of proxies in paragraphs 3 to 4 above does not
apply to Nominated Persons. The rights described in those
paragraphs can only be exercised by members of the Company.
9. Appointment of a proxy will not preclude a member from subsequently
attending and voting at the meeting should he or she subsequently
decide to do so. You can only appoint a proxy using the procedures
set out in these notes and the notes to the form of proxy.
10. The Register of Directors' Interests will be available for
inspection at the meeting.
11. Information regarding the meeting, including the information
required by Section 311A of the Companies Act 2006, is available
from www.foresightgroup.eu.
12. To be passed, ordinary resolutions require a majority in favour
of the votes cast and special resolutions require a majority
of not less than 75% of members who vote in person or by proxy
at the meeting. On a vote by a show of hands, every holder
of Ordinary Shares who, due to being an individual is present
by a person or by proxy, or, due to being a corporation is
present by a duly authorised representative (themselves not
being a member), shall have one vote. On a poll vote, every
holder of Ordinary Shares who is present in person, by proxy
or by duly authorised representative, shall have one vote
for every Ordinary Share held by him.
13. A vote withheld is not a vote in law, which means that the
vote will not be counted in the calculation of votes for or
against the resolution. If you either select the "Discretionary"
option or if no voting indication is given, your proxy will
vote or abstain from voting at his or her discretion. Your
proxy will vote (or abstain from voting) as he or she thinks
fit in relation to any other matter which is put before the
meeting.
14. A form of proxy and reply paid envelope is enclosed. To be
valid, it should be lodged with the Company's Registrar, Computershare
Investor Services PLC, The Pavilions, Bridgwater Road, Bristol
BS99 6ZY or the proxy must be registered electronically at
www.investorcentre.co.uk/eproxy, in each case, so as to be
received no later than 48 hours (excluding non-working days)
before the time appointed for holding the meeting or any adjourned
meeting. To vote electronically, you will be asked to provide
your Control Number, Shareholder Reference Number and PIN
which are detailed on your proxy form. This is the only acceptable
means by which proxy instructions may be submitted electronically.
CREST members who wish to appoint a proxy or proxies through
the CREST electronic proxy appointment service may do so for
the meeting (and any adjournment of the meeting) by following
the procedures described in the CREST Manual (available via
www.euroclear.com). CREST Personal Members or other CREST
sponsored members (and those CREST members who have appointed
a voting service provider) should refer to their CREST sponsor
or voting service provider, who will be able to take the appropriate
action on their behalf.
In order for a proxy appointment or instruction made by means
of CREST to be valid, the appropriate CREST message (a 'CREST
Proxy Instruction') must be properly authenticated in accordance
with Euroclear UK & International Limited's (EUI) specifications
and must contain the information required for such instructions,
as described in the CREST Manual. The message (regardless
of whether it constitutes the appointment of a proxy or an
amendment to the instruction given to a previously appointed
proxy) must, in order to be valid, be transmitted so as to
be received by the issuer's agent (ID 3RA50) by the latest
time(s) for receipt of proxy appointments specified in Note
3 above. For this purpose, the time of receipt will be taken
to be the time (as determined by the timestamp applied to
the message by the CREST Applications Host) from which the
issuer's agent is able to retrieve the message by enquiry
to CREST in the manner prescribed by CREST. After this time
any change of instructions to a proxy appointed through CREST
should be communicated to him by other means.
CREST members (and, where applicable, their CREST sponsors
or voting service providers) should note that EUI does not
take available special procedures in CREST for any particular
messages. Normal system timings and limitations will therefore
apply in relation to the input of CREST Proxy Instructions.
It is the responsibility of the CREST member concerned to
take (or, if the CREST member is a CREST personal member or
sponsored member or has appointed a voting service provider,
to procure that his CREST sponsor or voting service provider
takes) such action as shall be necessary to ensure that a
message is transmitted by means of the CREST system by any
particular time. In this connection, CREST members (and, where
applicable, their CREST sponsors or voting service providers)
are referred, in particular, to those sections of the CREST
Manual concerning practical limitations of the CREST system
and timings. The Company may treat as invalid a CREST Proxy
Instruction in the circumstances set out in Regulation 35(5)(a)
of the Uncertificated Securities Regulations 2001.
Proxymity Voting - if you are an institutional investor you
may also be able to appoint a proxy electronically via the
Proxymity platform, a process which has been agreed by the
Company and approved by the Registrar. For further information
regarding Proxymity, please go to www.proxymity.io. Your proxy
must be lodged by 1.00pm on 21 February 2023 in order to be
considered valid. Before you can appoint a proxy via this
process you will need to have agreed to Proxymity's associated
terms and conditions. It is important that you read these
carefully as you will be bound by them and they will govern
the electronic appointment of your proxy.
15. Under Section 319A of the Companies Act 2006, the Company
must answer any question you ask relating to the business
being dealt with at the meeting unless:
(a) answering the question would interfere unduly with the
preparation for the meeting or involve the disclosure of
confidential information;
(b) the answer has already been given on a website in the form
of an answer to a question; or
(c) it is undesirable in the interests of the Company or the
good order of the meeting that the question be answered.
16. Pursuant to Chapter 5 of Part 16 of the Companies Act 2006
(Sections 527 to 531), where requested by a member or members
meeting the qualification criteria the Company must publish
on its website, a statement setting out any matter that such
members propose to raise at the meeting relating to the audit
of the Company's accounts (including the auditor's report
and the conduct of the audit) that are to be laid before the
meeting. Where the Company is required to publish such a statement
on its website it may not require the members making the request
to pay any expenses incurred by the Company in complying with
the request, it must forward the statement to the Company's
auditors no later than the time the statement is made available
on the Company's website and the statement may be dealt with
as part of the business of the meeting.
GLOSSARY OF TERMS
AIC The Association of Investment Companies
AIFMD Alternative investment fund management directive
AIFMs Alternative Investment Fund Managers
AIFs Alternative Investment Funds
APMs Alternative performance measures
Asset Manager The Company's underlying investments have appointed
Foresight Group LLP, a subsidiary of Foresight Group
CI, to act as Asset Manager
BIG Bioenergy Infrastructure Group
Company Foresight Sustainable Forestry Company Plc
Ernst & Young Ernst & Young is the Company's auditor
LLP
ESG Environmental, Social and Governance
FITF Foresight Inheritance Tax Fund
Foresight Foresight Group LLP
FSC Foresight Sustainable Forestry Company Plc
FSF Foresight Sustainable Forestry Company Plc
Fund Foresight Sustainable Forestry Company Plc
GAV Gross Asset Value on Investment Basis including debt
held at SPV level
H&S Health and safety
HMRC HM Revenue & Customs
IAS International Accounting Standard
IFRS International Financial Reporting Standards as adopted
by the EU
Intermediate holding Companies within the Group which are used to invest
companies in afforestation and forestry assets, namely FSFC
Holdings Limited and FSFC Holdings 2 Limited
Investment Manager Foresight Group CI Limited
IPO Initial Public Offering
ITC Investment Trust Company
LSE London Stock Exchange
Main Market The main securities market of the London Stock Exchange
NAV Net Asset Value
PEFC Programme for the Endorsement of Forest Certification
Roundwood Small pieces of timber (about 5-15 cm, or 2-6 in.
in diameter); small logs
RICS Royal Institution of Chartered Surveyors
S & ESG Sustainability and ESG
Savills Savills Advisory Services Limited
SDFR Sustainable Finance Disclosure Regulation
SDGs United Nations Sustainable Development Goal
SDR UK Green Taxonomy and UK Sustainable Disclosure Requirements
SORP Statement of Recommended Practice: Financial Statements
of Investment Trust Companies and Venture Capital
Trusts
SPV The Special Purpose Vehicles which hold the Company's
investment portfolio of underlying operating assets
UK The United Kingdom of Great Britain and Northern
Ireland
WCC UK Woodland Carbon Code
ADVISERS
Investment Manager, Alternative Investment Fund Manager,
Administrator and Company Secretary
Foresight Group LLP
The Shard
32 London Bridge Street
London
SE1 9SG
Registrar and Receiving Agent
Computershare Investor Services PLC
The Pavilions
Bridgwater Road
Bristol
BS99 6AH
Depositary
NatWest Trustee and Depositary Services Limited
250 Bishopsgate
London
EC2M 4AA
Sponsor, Global Co-ordinator and Sole Bookrunner
Jefferies International Limited
Exchange House
Primrose Street
London
EC2A 2EG
Public Relations
Citigate Dewe Rogerson
3 London Wall Buildings
London
EC2M 5SY
Solicitors to the Company
Gowling WLG (UK) LLP
4 More London Riverside
London
SE1 2AU
Independent Auditor
Ernst & Young LLP
25 Churchill Place
London
E14 5EY
Valuation Adviser (independent valuer)
Savills Advisory Services Ltd
Earn House
Broxden Business Park
Perth
PH11 1RA
[ends]
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