TIDMFSF
RNS Number : 7936V
Foresight Sustain. Forestry Co PLC
06 December 2023
6 December 2023
Foresight Sustainable Forestry Company Plc
Annual Results for the year ended 30 September 2023
Foresight Sustainable Forestry Company Plc ("FSF" or the
"Company"), an investment company that invests in UK forestry and
afforestation assets, announces its audited annual results for the
year ended 30 September 2023.
The Company also announces that its second Annual General
Meeting ("AGM") will be held on Wednesday 21 February 2024 at
1:00pm at the offices of Foresight Group, The Shard, 32 London
Bridge Street, London SE1 9SG. The Company has published a circular
convening the AGM (the "Circular").
The Company's Annual Report and Financial Statements for the
year ended 31 December 2022 and the Circular will be posted to
shareholders and in accordance with Listing Rule 9.6.1 copies of
the documents have been submitted to the UK Listing Authority and
will shortly be available to view on the Company's corporate
website at https://fsfc.foresightgroup.eu/ and from the National
Storage Mechanism at:
https://data.fca.org.uk/#/nsm/nationalstoragemechanism
Performance Highlights in the year to 30 September 2023
-- As at 30 September 2023, the Company's portfolio encompassed
12,545 hectares of land and comprised 38 afforestation properties,
25 forestry properties and five mixed (forestry and afforestation)
properties.
-- Acquisition of 18 properties in the year, increasing the
portfolio's afforestation allocation to 45% (by value).
-- Approximately 950,000 trees were planted at four
afforestation schemes during the year. The Company has now
successfully completed six planting schemes since IPO with the
value of these properties increasing by 85% versus acquisition
costs(1), based on their carrying value of GBP18.9 million as at 30
September 2023.
-- These four planted afforestation schemes and strong carbon
credit pricing growth over the period resulted in the value
ascribed towards creation of carbon credits increasing to GBP2.7
million in total, representing an increase of 3.5 times over the
year. Once the current afforestation schemes have been planted, the
Company is targeting to have 1.0 - 1.2 million Pending Issuance
Units validated by the Woodland Carbon Code in aggregate across the
whole portfolio.
-- Strong afforestation development programme of 37 additional
afforestation schemes that the Company expects to plant over the
next two financial years and bring the total trees planted since
IPO to 9 million. FSF's current afforestation portfolio, once fully
planted, is equivalent to over one third of the total area planted
across the UK in the year to 31 March 2023.
-- The Company expects an additional c.2,700 hectares of its
afforestation development portfolio to have completed planting by
the next valuation cycle. The recent status of the portfolio is set
out in the appendix of this RNS with progress being made on a daily
basis in this busy part of the planting season.
-- During the year, the Company's portfolio sequestered 35,081
tCO2e increasing the total to 63,954 tCO(2) e since IPO.
Key Metrics
30 September 2023 30 September 2022
Portfolio Value GBP174.9 million GBP144.8 million
------------------ ------------------
Portfolio (Hectares) 12,545 9,618
------------------ ------------------
Net Asset Value ("NAV") GBP169.2 million GBP180.6 million
------------------ ------------------
NAV per share 98.4 pence 105.0 pence
------------------ ------------------
Annual NAV return (6.3%) 7.0%
------------------ ------------------
NAV per share decreased to 98.4 pence, a total NAV reduction of
6.3% for the year. The key driver of the reduction in NAV per share
has been the decline in land values, which was impacted by a
significant reduction of comparable transactions observed by FSF's
independent valuer in the nine months to 30 September 2023.
Observed comparable transactions from 1 January 2023 to 30
September 2023 comprise 12% of the annual average value of forestry
properties sold in calendar year 2021 and 2022, respectively.
Results presentation
The Company will host a virtual SparkLive presentation at 9:30
a.m. (UK time) on Wednesday, 13 December 2023. To register your
interest in attending the presentation, please register at:
https://www.lsegissuerservices.com/spark/FORESIGHTSUSTAINABLEFORESTRYCOMPANY/events/2faac27f-fed3-4f36-a70e-0c5c742e587e
(1) Acquisition costs = consideration paid to Seller +
transaction taxes + due diligence costs + adviser fees
Richard Davidson, Chair of Foresight Sustainable Forestry
Company Plc, commented:
"FSF's two-year journey since IPO has been full of positive
milestones and I am pleased that the Company ends the year in a
position to deliver a nationally significant afforestation
programme . Whilst acknowledging the challenging wider market
conditions, FSF is investing for the long-term and delivering on
the strategy set out to shareholders."
For further information, please contact:
Foresight Sustainable Forestry Company Plc +44 (0) 20 3667 8100
Robert Guest
Richard Kelly
fsfc@foresightgroup.eu
Stifel Nicolaus Europe Limited +44 (0)20 7710 7600
Edward Gibson-Watt
Bruno Benega
Rajpal Padam
Catriona Neville
SEC Newgate +44 (0)20 3757 6882
Elisabeth Cowell fsf@secnewgate.co.uk
Alice Cho
Harry Handyside
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% per annum on a rolling five-year
basis, 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.
This announcement does not constitute, and may not be construed
as, an offer to sell or an invitation to purchase investments of
any description, or the provision of investment advice by any
party. No information set out in this announcement is intended to
form the basis of any contract of sale, investment decision or any
decision to purchase securities in the Company.
This announcement may include statements that are, or may be
deemed to be, "forward-looking statements". These forward-looking
statements can be identified by the use of forward-looking
terminology, including the terms "believes", "estimates",
"anticipates", "expects", "intends", "may", "will", "targeting" or
"should" or, in each case, their negative or other variations or
comparable terminology. All statements other than statements of
historical facts included in this announcement, including, without
limitation, those regarding the Company's financial position,
strategy, plans, proposed acquisitions and objectives, are
forward-looking statements.
Appendix
A. Portfolio Breakdown as at 30 September 2023 unless otherwise stated (all figures in hectares)
Asset classification Forest Area Other land(2) Total Forest Area
(1) at 17 November
2023
Development Stage Afforestation
Assets 4,446 721 5,167 4,226
------------ -------------- ------- ---------------
Planting Stage Afforestation
Assets 93 - 93 373
------------ -------------- ------- ---------------
Establishment Stage Afforestation
Assets 937 98 1,035 937
------------ -------------- ------- ---------------
Established Forestry Assets 5,184 1,067 6,251 5,184
------------ -------------- ------- ---------------
Total 10,660 1,886 12,545 10,720
------------ -------------- ------- ---------------
(1) Includes commercial stocked/stockable; broadleaf
stocked/stockable; designed open ground; natural forest/woodland
regeneration zones; and other land considered part of the forest
area.
(2) Includes areas of land that sit outside the forest area;
this includes, but is not limited to, land leased for grazing;
regenerative grazing land; peatland/wetland; hill ground; non-core
land considered for disposal; non-core land not considered for
disposal; house/farm curtilage.
Definitions:
Development Stage Afforestation Assets - Land prior to the
securing of planning permission and grant application.
Planting Stage Afforestation Assets - Planning permission and
grant application completed but initial planting of trees not yet
completed.
Establishment Stage Afforestation Assets - Initial planting of
site completed but trees establishing and stabilising (typically a
3-5 year period).
Established Forest Assets - Trees stabilised and
established.
Foresight Sustainable Forestry Company Plc
FOR THE YEARED 30 SEPTEMBER 2023
ABOUT US
Committed to long term value creation
Foresight Sustainable Forestry Company Plc ("FSF") is the first
and only UK listed investment trust focused on UK forestry,
afforestation and natural capital. FSF was awarded the London Stock
Exchange's Green Economy Mark at IPO.
In December 2022, FSF became the first fund to be accredited
with the London Stock Exchange's Voluntary Carbon Market
designation.
HIGHLIGHTS
AS AT 30 SEPTEMBER 2023
GBP169.2 million 98.4p
NET ASSET VALUD ("NAV")(1) NAV PER SHARE (1)
(30 September 2022: GBP180.6m) (30 September 2022: 105.0p)
0.3% 12,545 hectares
TOTAL NAV RETURN FROM IPO (1) IN THE PORTFOLIO
(30 September 2022: 7.0%)(2) (30 September 2022: 9,618 hectares)
118,000 tonnes c.1.4 million
TIMBER ANTICIPATED TO BE HARVESTED TOTAL TREES PLANTED SINCE IPO
IN
2024 PROGRAMME
(30 September 2022: c.26,000 tonnes)
6,455 hectares GBP2.7 million
LAND NEWLY PLANTED OR IN AFFORESTATION VALUE ASCRIBED TOWARDS CREATION
DEVELOPMENT OF CARBON CREDITS(4)
(30 September 2022: 3,917 hectares (30 September 2022: GBP0.6m)
(3) )
--------------------------------------- ------------------------------------
1. Alternative performance measures ("APMs") have been included
to better reflect the Group's underlying activities. Whilst
appreciating that APMs are not considered to be a substitute for,
or superior to, IFRS measures, the Company believes their selected
use may provide stakeholders with additional information, which
will assist in their understanding of the business. Further
information is available on page 50.
2. Calculated with IPO costs netted off, see page 50 for more information.
3. Total land in afforestation development. FSF's categorisations have since changed.
4. To facilitate the flow of capital to climate change
mitigation projects and provide our investors with exposure to
high-integrity and independently verified carbon credits that can
be used for science-based carbon offsetting.
INVESTMENT CASE
The Company is targeting attractive total returns through
investment in sustainably managed commercial forestry and
afforestation assets
The Company invests in a portfolio of UK afforestation (woodland
creation) and forestry assets to increase the UK's sustainable
timber supply. The Company targets the generation of attractive
risk-adjusted total returns through land capital appreciation,
sustainable timber and carbon credits sales.
The Company's newly planted trees additionally and permanently
remove carbon dioxide from the atmosphere, making a direct
contribution to the fight against climate change. Additionally, the
Company has a stated objective to protect and enhance biodiversity
across its portfolio. Read more about the Company's business model
on page 4.
Growing real Attractive asset Portfolio Inflation protection Fight against
assets class diversification climate change
Trees continue UK commercial UK forestry is Underpinned by The Company will
to grow and forestry uncorrelated to a global shortage make a direct
appreciate hashistorically traditional and of sustainable contribution
in value regardless outperformed alternative assets timber, amplified to the twin fights
of macroeconomic the Consumer (including UK in the UK as on against climate
conditions. Price Index ("CPI") power prices) of Europe's least change and
on a long--term underpinned by forested countries. biodiversity
basis. Until biological tree loss.
FSF, it has had growth which occurs
high barriers regardless of
to entry. the economic cycle.
36 First UK-listed Uncorrelated UK commercial 63,954
sites with investment trust to equities and forestry has strong tCO (2) e carbon
development focused on natural bonds inflation- sequestered by
phase afforestation capital protection the portfolio since
projects, characteristics IPO
covering 4,503 over the long term
hectares(1)
c.1.4m 98.5% 12,545 hectares CPI +5% 843
trees planted increase in the managed target per annum hectares in the
value of six over a rolling portfolio which
afforestation five-year basis is long-term, mixed
properties broadleaf woodland
developed(1)
-------------------- --------------------- --------------------- -------------------- --------------------
Statistics as at 30 September 2023.
BUSINESS MODEL
What we do
The Company seeks to generate an attractive total return for
Shareholders over the longer term, comprising capital growth and
aperiodic dividends. FSF targets impact through investing in
sustainably managed afforestation and forestry assets. The Company
makes a direct contribution to the fight against climate change and
biodiversity loss through forestry and afforestation carbon
sequestration initiatives .
NON-CORE <10%
Non-core assets comprise property and other assets which are not
suitable for forestry activities
a) Hold, manage and optimise, integrating with core assets,
or;
b) Dispose and recycle capital into core assets
Outputs : Jobs, education, recreation, eco-tourism, renewable
energy.
How we do it
AFFORESTATION <50%
Development returns and cash flow generation
c) Acquire suitable land
d) Secure permits and grants
e) Plant and establish trees
f) Sell established afforestation properties c.5-10 years after acquisition
g) Recycle capital into new project
Outputs
h) Community initiatives
i) Natural capital services(1)
j) Voluntary carbon credits
1. Examples include, but are not limited to, atmospheric carbon
sequestration, flood prevention and air purification.
ESTABLISHED FORESTRY >40%
Stable returns and cash flow generation
k) Buy and hold established forests
l) Manage the forests on a rotational basis for timber revenues
m) Improve forests through continual re-design, investment and
proactive management
n) Continuous re-stocking and replenishment
Outputs
o) Sustainable UK timber supply
p) Forestry skills training
q) Social and recreational services
UNDERPINNED BY
Risk management
Read more about risk management on pages 39 to 45.
Strong governance
Read more about governance on pages 51 to 79.
Our Fund objectives
Real returns and capital appreciation
Sustainable timber supply
Access to voluntary carbon credits
Value creation through afforestation
Combat climate change and biodiversity loss
GEOGRAPHIC FOOTPRINT
A diverse portfolio of UK forestry and afforestation asset
68
properties
Property types
25
Forestry
38
Afforestation
5
Mixed
Geographic split by area
85%
Scotland
5%
England
10%
Wales
Fordie Estate
Located in Perthshire, Scotland, Fordie is a 2,155-hectare mixed
property and is the largest within the Company's portfolio,
acquired in August 2021. Read more about our recent investor site
visit at Fordie on page 15.
Whiteburn
Located in Northumberland, England, this 485-hectare property is
the largest forestry asset within the portfolio. Acquired in June
2020.
Lambs Craig
Located in Dumfries & Galloway, Scotland, this property is a
482-hectare Development Stage Afforestation property. Acquired in
November 2022, the property has a high proportion of land suitable
for planting and is expected to form part of the 2024/25 planting
programme.
For more information see pages 24 to 32
CHAIR'S STATEMENT
Richard Davidson
Chair
GBP38.4m
deployed into 18 properties
1.4m
trees planted (since inception)
35,081 tCO(2) e
sequestration
For year ended 30 September 2023 unless otherwise stated
Chair's statement
On behalf of the Board, I am pleased to present the Company's
audited Annual Report and Financial Statements for the year ended
30 September 2023. FSF's two-year journey since IPO has been full
of positive milestones and I am pleased that the Company has
weathered a challenging period while building our forestry and
afforestation portfolio and establishing FSF as a genuine pioneer
in the sustainable investment space.
During the year, financial markets have grappled with issues
ranging from inflation and higher interest rates to uncertainty and
widening discounts in the investment trust sector. Against this
backdrop, we have seen volatility in our share price and Net Asset
Value ("NAV") as described below in this statement but we have
continued to invest in our portfolio, plant trees, harvest
sustainable timber and sequester carbon.
I would like to take this opportunity to reiterate the goals of
FSF. Forestry is a long-term business where cycles are measured in
decades rather than quarters.
Our purpose is to generate financial returns for our
Shareholders through investing in a diversified portfolio of UK
afforestation and forestry properties. Operating across the UK, our
actions are guided by our commitment to long-term value creation
and sustainability.
Over our 2022/23 year, FSF has added 18 new properties to its
portfolio, a total of 2,929 hectares. Our current planting pipeline
is material in a national context and is equivalent, once planted,
to one-third of the total amount of tree planting that the entire
UK achieved in the year to March 2023. We have already acquired six
sites which are due for planting in 2025 adding to our material
2023 and 2024 planting plans.
Despite market volatility, FSF invests for the long term.
However, the Board is currently acutely aware that the Company's
shares have fallen and moved to a discount to NAV over the last six
months. The share price move during the period aligns with the
broader pattern in the real assets investment trust sector, which
has shown a notable sensitivity to higher interest rates.
Our share price, at the time of writing, stands at a low since
our IPO of 59.8 pence. Having traded in a 100--110 pence range for
most of the year, our stock moved down sharply from June onwards
(despite a positive first half NAV announcement) as the dam burst
on many investment trust share prices, especially real assets.
The share price is, of course, not controlled by the Board and
over the long term we believe it will return to levels that reflect
the development of the Company's NAV and the Company's outlook and
prospects more generally in its core markets of land, natural
capital, timber and voluntary carbon.
Accordingly, in the current environment, I would like to
emphasise a few points:
-- FSF is unique as the only UK forestry vehicle listed on the
London Stock Exchange. The listed structure introduces a level of
transparency, liquidity and accessibility that was previously
unavailable in the forestry sector.
-- FSF's properties are all located in the UK and the products
from our forests will be almost entirely used in the UK.
-- FSF has, and intends to stay at, very limited levels of
gearing (currently 5.8% of Gross Asset Value ("GAV")).
-- Our acquisition policy is long term and our afforestation
land due for planting in 2024 and 2025 has already been
acquired.
-- We are fully invested but will manage our portfolio if
opportunistic and accretive situations arose including to sell
properties to employ capital to maximise Shareholder returns.
FSF is invested for the long term and doing what it set out to
do at IPO.
Highlights of the year
Our 2022/23 financial year has been the clichéd game of two
halves. In the six months to 31 March 2023, we delivered a NAV gain
of 3.3%, particularly helped by completion of planting at four
afforestation properties and an upward revaluation (by Savills, our
independent valuer) to our planting land portfolio. The second half
to 30 September 2023 saw a downwards move in our NAV by 9.3% as the
number of transactions in, and prices for, forestry and planting
land slowed significantly.
The combination of these different environments means that in
the full year to 30 September 2023, the Company generated a total
NAV loss of 6.3% (30 September 2022: +7.0%) and a NAV decrease of
GBP11.4 million to GBP169.2 million (30 September 2022: GBP180.6
million).
NAV per Ordinary Share fell to 98.4 pence (30 September 2022:
105.0 pence). Within this overall NAV number I would highlight the
split between the progression of valuations in established forestry
and our planting portfolio. Whilst afforestation values (excluding
carbon) decreased by 11.2% during the year, established forestry
values were relatively resilient, decreasing by a lesser figure of
6.5%, which means the opportunity for FSF to secure development
value through a disciplined purchasing strategy has actually
improved. The combination of increasing inflation and interest
rates along with the phased withdrawal of the Basic Payment Scheme
("BPS"), the main farming subsidy regime, has led to a weakening of
the planting land investment market over the last six months.
The Company has continued to acquire afforestation land during
the period to take advantage of the softer land prices.
Furthermore, voluntary carbon is becoming an increasingly
material part of FSF's NAV, increasing by GBP2.1 million to GBP2.7
million during the year. Our intention is to retain the carbon
credits that we generate as a long--term source of future income
and/or potentially distribute them to those Shareholders who elect
to receive them in-specie.
Since the last Annual Report, the Company has deployed a further
c.GBP38.4(1) million into 18 properties, mainly in Scotland. Of the
properties acquired, 15 have afforestation potential and the
remainder are established forestry. In many cases, properties are
acquired with some assets that we regard as non-core, such as farm
buildings. In the period, five sales of non-core assets took place.
A full description of our investment activity is provided in the
Investment Manager's report.
1. Inclusive of tax and transaction costs
Revolving Credit Facility
As our equity funds were fully invested by the spring of 2023,
the final acquisitions to complete our 2025 planting portfolio have
been funded through the utilisation of the Company's GBP30 million
Revolving Credit Facility ("RCF") which is now GBP10.4 million
drawn. The current acquisition programme is now substantially
complete and servicing/repayment of the RCF will be made through a
combination of timber harvesting and the planned disposal of
non-core or other assets.
Portfolio and operations
It has remained a busy and productive period for operations
across the portfolio. I am pleased to report that within the year
we planted 472 hectares across four properties. This has brought
the total area of the portfolio categorised as Establishment Stage
Afforestation to 1,024 hectares, with c.1.4 million trees planted
since FSF's inception.
Furthermore, we are currently gearing up for the 2024/2025
planting seasons, in which we plan to deliver a total of 9 million
trees planted over an area of c.4,000 hectares. The planting
programme is expected to create 1.0-1.2 million voluntary carbon
credits.
Despite significant government targets for tree planting in the
nations of the UK, delivery has fallen short with only 12,960
hectares of new woodland created in 2022/23. Disappointingly, UK
planting actually decreased by 7% year-on-year and the combined
nations' target was missed by approximately 17,000 hectares. FSF is
committed to narrowing this gap and our planting programme will be
one of the largest, if not the largest, planting operations across
the UK in 2024.
Sustainability and community
As a sustainable investing leader we have watched the emergence
of concerns around greenwashing. The travails of those companies
who have over--inflated their environmental, social and governance
("ESG") credentials has cast a wider shadow over many other
companies, good and bad. By investing in and growing trees, FSF is
dedicated to actions that make a positive environmental outcome,
and offers a transparent and leading approach to
sustainability.
Last year, we published our first Sustainability and ESG
("S&ESG") report, which introduced our three key S&ESG
objectives and outlined our positive progress against them and many
of our KPIs. Notably, the Company's growing portfolio achieved
35,081 tCO(2) e sequestration from the atmosphere over the period
(30 September 2022: 28,873 tCO(2) e).
Our 2024 planting programme is expected to create around 700
rural jobs and we have now rolled out our Forestry Skills Training
programme from Wales into Scotland.
Annual General Meeting
All Shareholders are invited to attend the Company's second
Annual General Meeting ("AGM") on 21 February 2024. Details of how
Shareholders may participate will be published in the circular
accompanying this report, dated 6 December 2023.
Afforestation development is the engine room of the Company's
returns and sustainable impact. Our investment policy allows FSF to
invest up to 50% of Gross Asset Value into afforestation land and
projects. The Board would like to increase the Company's
flexibility to invest in new afforestation assets whilst keeping
aggregate exposure to development risk within the agreed tolerable
threshold.
To make this possible, a proposed amendment to the Company's
investment policy will be put to the AGM, such that planted and
establishing afforestation schemes are changed from being
considered afforestation assets to being considered forestry assets
for the purposes of our investment policy.
The change, which acknowledges that afforestation assets become
materially de-risked once planting has been achieved, will enable
the Company to pursue a fuller rolling programme of afforestation
development, and the associated returns and positive impact this
affords.
I would like to point Shareholders towards the regulatory news
service ("RNS") announcement that will be released at the same time
as this Annual Report and Financial Statements which will provide
details of the AGM resolutions, including the proposed amendment to
the investment policy and an accompanying Circular which provides
the rationale for the proposed adjustment.
Summary
I would like to thank the Fund Managers, advisers, Shareholders
and other members of the Board for contributing to another very
busy year. The Board is very aware of the disconnect between our
share price and NAV and has been discussing with Shareholders and
advisers the potential to close this gap within our commitment to
long-term value creation. As Shareholders you should be reassured
that no matter what happens to the stock market or the base rate
each year, your trees will have grown.
Richard Davidson
Chair
6 December 2023
THE INVESTMENT MANAGER
FSF is managed by Foresight Group LLP ("Foresight", "Foresight
Group" or "Investment Manager"), an experienced team of investment,
forestry and asset management professionals that can draw on the
depth and breadth of Foresight Group's networks and resources,
managing the day-to-day activities.
Foresight Group
Foresight Group was founded in 1984 and is a leading listed
infrastructure and private equity investment manager. With a
long-established focus on ESG and sustainability-led strategies, it
aims to provide attractive returns to its institutional and private
investors from hard--to-access private markets. Foresight manages
over 400 infrastructure assets with a focus on solar and onshore
wind assets, bioenergy and waste, as well as renewable energy
enabling projects, energy efficiency management solutions, social
and core infrastructure projects and sustainable forestry assets.
Foresight operates in eight countries across Europe, Australia and
the United States with AUM of GBP12.1 billion(1) . Foresight Group
Holdings Limited listed on the Main Market of the London Stock
Exchange in February 2021 and is a constituent of the FTSE 250
index.
(1) Based on unaudited AUM as at 30 September 2023.
Our specialist forestry advisers
EJD Forestry Limited ("EJDF")
-- 80+ years of combined experience in forestry and silviculture.
-- Five full-time equivalent forestry professionals dedicated to the FSF portfolio.
Fund management
Robert Guest
Co-Lead, Foresight Sustainable Forestry Company
-- Joined in 2015
-- 16 years of experience
-- Previously Helius Energy PLC
Richard Kelly
Co-Lead, Foresight Sustainable Forestry Company
-- Joined in 2015
-- 16 years of experience
-- Previously Accenture
Portfolio and investment team
Julian Elsworth
Portfolio Director
-- Joined in 2013
-- 20+ years of experience including 4+ years of forestry experience
-- Previously WSP Future Energy
Helge Hansen
Forestry Portfolio Manager
-- Joined in 2023
-- 10+ years of forestry experience
-- Previously Head of Woodlands, Highlands Rewilding
Murray Aitchison
Forestry Portfolio Associate
-- Joined in 2020
-- 4+ years of forestry experience
Christian Tingsgaard Lassen
Investment Analyst
-- Joined in 2022
-- 3+ years of experience
-- Previously PwC
KEY PERFORMANCE INDICATORS
Fund objectives
Real returns and capital appreciation
To invest funds to provide sustainable, risk-adjusted financial
returns to our investors.
Sustainable timber supply
To deliver and increase the supply of home--grown UK timber to
reduce the country's reliance on imports, blending the commercial
aspects of forestry (planting, harvesting and the sale of
sustainable timber).
Value creation through afforestation
To demonstrate the capital appreciation of afforestation sites
once development milestones are met, through carefully considered
portfolio construction and management of afforestation development
schemes.
Access to voluntary carbon credits
To facilitate the flow of capital to climate change mitigation
projects and provide our investors with exposure to high-integrity
and independently verified carbon credits that can be used for
science-based
carbon offsetting.
Combat climate change and biodiversity loss
To mobilise our investors' capital into projects that play a key
role in tackling climate change, protecting the natural environment
and delivering positive impacts for communities and society.
NAV/NAV per Performance in 2022/23 Objectives for 2023/24 Principal risks
share NAV and NAV per share * NAV growth targeted by developing many of the Valuation risks (see
declined in the 12-month development stage properties to become planted risk 5 in the principal
GBP169.2m/98.4p period by 6.3%. properties with a higher valuation and creation of risk register on
(2022: GBP180.6m associated carbon credits. page 43).
/ 105.0p) Changes in regulation
or support for sustainable
* The Company is targeting a NAV total return of more forestry.
than CPI + 5% per annum on a rolling five-year basis,
based on NAV once the Company is substantially
invested. See the business model on page 4 for more
information.
Hectares in Performance in 2022/23 Objectives for 2023/24 Principal risks
the portfolio
12,545 * The number of hectares in the portfolio has increased * Disposal of some non-core assets and re-allocation * Lack of future funding impacts the Company's ability
(2022: 9,618) by 30% since September 2022. within the core portfolio to maximise the to purchase more land (see risk 4 - equity in the
afforestation development opportunity. Grow portfolio principal risk register on page 43).
if equity market conditions enable fundraising.
* Fully deploying the equity proceeds from the
Company's June 2022 fundraise ahead of schedule.
* Drawing GBP10.4 million of the Company's Revolving
Credit Facility to fund three opportunistic
acquisitions.
Tonnes of Performance in 2022/23 Objectives for 2023/24 Principal risks
timber in * Softening of timber prices seen since the end of * Selective harvesting in 2024 where it results in NAV * See risk 7 - demand for timber in the principal risk
annual 2022. accretion or there is a good silvicultural reason to register on pages 44.
harvesting pursue the harvesting or to provide cash flow to the
programme Company.
c.118,000 * Ongoing harvesting at five sites. * The risk that a reduction in demand from the
(2022: c.26,000) purchasers of timber would negatively impact the
Company's profitability. See risk 7 in the principal
* Harvesting at several of the highest yielding sites risk register on page 44.
has been postponed until timber prices are considered
to have returned to a premium.
Total hectares Performance in 2022/23 Objectives for 2023/24 Principal risks
of land in * Focus on increasing FSF's exposure to afforestation * Afforestation development will remain a focus for the * The risk that there is resistance to change of land
afforestation assets over the year. Company as a driver of higher valuation and creation use from the public, see risk 9 - reputational in the
development of associated carbon credits. principal risk register on page 45.
6,455
(2022: 3,917) * Overall percentage of the portfolio dedicated to
afforestation has risen from 40% to 45% (by value).
Trees planted Performance in 2022/23 Objectives for 2023/24 Principal risks
in the year * c.1.4 million trees planted since FSF's inception. Targeting planting 9 * Risk that extreme weather events impact trees planted
c.950,000 million trees over an in the year.
(2022: area of c.4,000 hectares
c.514,000) during the 2024 and 2025
planting seasons.
Value ascribed Performance in 2022/23 Objectives for 2023/24 Principal risks
to progress * In the period, four afforestation schemes completed * Targeting to create 1.0-1.2 million PIU carbon * The risk that demand or volume leads to a reduction
towards creation planting and FSF has recognised an additional GBP2.1 credits that are associated with the completion of in demand from the users of carbon credits, see risk
of carbon million of value ascribed to the creation of carbon the planting of 9 million trees over the 2024 and 6 - demand for carbon credits in the principal risk
credits credits. 2025 planting seasons. register on page 44.
GBP2.7m
(2022: GBP0.6m)
---------------- ------------------------------------------------------------ -------------------------------------------------------------- -----------------------------------------------------------
STAKEHOLDER ENGAGEMENT (SECTION 172)
The Board is committed to promoting the long-term sustainable
success of the Company whilst conducting business in a fair,
ethical and transparent manner
Section 172
The Directors consider that in conducting the business of the
Company over the course of the year 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.
The purpose of the Company is to act as an investment company to
provide financial returns to its Shareholders taking a long-term
view. Investment companies are generally active in the long term
and are typically externally managed, have no employees and are
overseen by an independent board of Non-Executive Directors. The
role of the Investment Manager is particularly important in
engaging with stakeholders on behalf of the Company and reporting
on developments to the Board and relationships with all service
providers are considered in detail at the annual Management
Engagement Committee meeting.
a) Long-term decisions
b) Interests of employees
c) Fostering relationships with suppliers, customers and others
d) Acting fairly between Company members
e) Impact on the community and environment
f) Maintaining high standards of business conduct
Role of the Board
The Board recognises that the Company should be run for the
benefit of Shareholders, but that the success of a business is
dependent on maintaining relationships with stakeholders and
considering the external impact of the Company's activities. The
Board, with the assistance of the Management Engagement Committee,
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 openness in how these are conducted. Through measures such
as these the Board embeds a strong culture of governance.
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, service providers and
lenders, 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 considered:
-- 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 wider environment in which it operates
-- The importance of the Company maintaining a reputation for
high standards of business conduct
-- The need to act fairly towards, and ensure equal treatment of Shareholders
Engagement with Shareholders
Shareholders are the Company's primary stakeholders, and all key
Board decisions are carefully considered with their long-term
interests in mind. As a public company listed on the LSE, 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 attached to such shares. With the assistance of regular
discussions with, and formal advice from, the Company's legal
adviser, Company Secretary and corporate broker, 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. During the year, the
Investment Manager and the Company's broker held multiple direct
engagement sessions with major Shareholders and prospective
investors. The Chair has also met with several Shareholders
alongside the Investment Manager. During discussions, Shareholders
often ask for additional information pertaining to certain aspects
of the Company, such as the factors influencing the Company's NAV,
as well as the methodology implemented in calculating it. There has
also been interest from Shareholders in visiting sites within the
portfolio.
Over the course of the year the Company has hosted several
investor site visits and will continue to expand this programme in
2024 (please see full annual report on the website for more
details).
The Company, supported by its Investment Manager, communicates
with Shareholders through a variety of means and always welcomes
their views. This includes the publication of interim and annual
accounts, the AGM and regulatory news and bi-annual NAV updates,
all published on the Company's website. The Board encourages
Shareholders to vote on the resolutions to be proposed at the AGM
to be held on 21 February 2024. Investors holding shares through
platforms should contact their investment platform directly for
guidance on how to cast their vote. An increase in the number of
investors who exercise their right to vote will help the Company
reflect the views of its Shareholder base.
Engagement with the Investment Manager
The Investment Manager is responsible for the implementation of
the investment strategy and the day-to-day investment and
management decisions, including identifying assets for acquisition.
The Board engages constructively with the Investment Manager to
ensure the expectations of Shareholders are being met and that it
is aware of the challenges being faced, including meeting the
long-term objectives for the Company's growth. 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 undertakes an annual strategy review
meeting to ensure that the Company is well positioned for the
future delivery of its objectives 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 lenders
The Company has a Revolving Credit Facility with Virgin Money
(formerly Clydesdale Bank Plc). This facility is subject to
covenants and lender consent may be required on certain business
decisions. The Investment Manager is in regular contact with Virgin
Money 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 service providers, which include its corporate broker,
legal adviser and its Public Relations agency. This occurs 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
The Board has placed Sustainability and ESG factors at the heart
of its investment objectives to guide the way it operates. The
Company's proactive approach to community engagement is applied
across the Company's afforestation projects as well as its
established forestry and woodland assets. A case study is provided
on page 16 that provides further details. Aiming to maximise the
Company's societal impact, in partnership with Tilhill Forestry
Limited, the Company launched a Forestry Skills Training Programme
in Wales last year. Expanding its scope to Scotland in 2023, and
likely England in the future, this initiative equips local rural
communities with essential skills, qualifications and opportunities
for employment within the forestry sector, aligning with the
Company's commitment to both community development and sustainable
practices underpinning afforestation-related land use change.
Completing participants are also offered paid work on the Company's
afforestation and forestry properties.
Environmental stewardship
In response to the AIC's call for ESG disclosures, the Company
shared its strategy on the AIC website in 2021. Notably, receiving
the LSE's Green Economy Mark at IPO affirmed the Company's
dedication to environmental and climate-related objectives. More
details on the Company's approach and impact are provided in the
S&ESG section of this report on pages 33 to 36.
FSF's LSE Green Economy Mark and Voluntary Carbon Market
designations recognise the ongoing environmental stewardship role
that FSF has and continues to contribute towards positive
environmental objectives including, but not limited to,
contributions to mitigating climate change and biodiversity
loss.
CASE STUDY
STAKEHOLDER ENGAGEMENT IN ACTION
FSF hosted its second Investor Day at Fordie Estate in Scotland
on 20 September 2023, following a successful event in April 2023.
This Investor Day offered Shareholders a comprehensive insight into
the Company's forestry and natural capital initiatives. Spanning
2,150 hectares, the mixed afforestation and forestry property at
Fordie Estate, a significant asset in FSF's portfolio, served as a
showcase of the Company's diverse business model.
Located near Comrie, Scotland, Fordie Estate features various
habitats and land uses, supporting diverse ecosystems,
biodiversity, socio-economic contributions and commercial timber
production.
The event provided attendees with a deeper understanding of
FSF's role in promoting sustainable land management.
Investors interacted with key members of the Foresight
management team, the Fordie Estate team, and advisory personnel,
exchanging perspectives on the Company's practices. This event
highlighted FSF's commitment to environmental stewardship and
responsible forestry.
Join us for our next investor site visit. Follow this link or
visit our website to find out more.
https://www.eventbrite.co.uk/e/foresight-sustainable-forestry-company-plc-investor-day-2024-tickets-744438925867?aff=oddtdtcreator
Industry Engagement
Date Event Fund Lead
---------- --------------------------------------------------------- ------------------
2-Nov NCIA Policy, Industry and Governance Workstream Richard Kelly
10-Nov Designing the Future - Developing the market for woodland Robert Guest
Carbon in the UK
10-Nov AIC Event Robert Guest
17-Nov Nature of Scotland Awards Robert Guest
22-Nov The UK Forest Richard Kelly,
Market Report Robert Guest
05-Dec LSE VCM Launch and Market Open Robert Guest
and Richard Kelly
17-Mar LSE Annual Funds Conference Robert Guest
16-17 May Foresight Sustainability Forum Josephine Bush
(S&ESG Committee
Chair), Robert
Guest
20-23 June Royal Highland Show Robert Guest
26-Sep UK Investor Virtual Conference Richard Kelly
02-Oct UUET Agreement and meeting Robert Guest
03-Oct Carbon Credits Demystified - Stifel Richard Kelly
03-Oct Fordie Site Visit Robert Guest
19-Oct VCM Market Infrastructure Roundtable Richard Kelly
---------- --------------------------------------------------------- ------------------
CASE STUDY
COMMUNITY ENGAGEMENT
Community engagement has been a key focus of the period with the
continual development of the afforestation pipeline.
Initiatives and outcomes in 2023
Townhall meetings
A townhall meeting either has or will be held for each of FSF's
woodland creation schemes, giving local residents the opportunity
to view plans and offer comments on the schemes. At Fordie Estate,
a community engagement meeting was held in April with
representatives of the estate, Foresight and trusted advisers
hosting the meeting which was well attended by the community.
Open days at Fordie Estate
A number of open days were held at the estate to allow locals to
walk the ground of the planting scheme and gain a better
understanding of how the plans sit within the landscape. Many of
the comments raised across these sessions have been incorporated
into the latest scheme design.
Research into the community impact of green investments
The James Hutton Institute has conducted research into the
community impact of green investments in Scotland and Fordie Estate
has been a key case study for this work. FSF engaged with the
institute to provide their views on land use and change and they
also engaged with members of the community directly.
Engagement with local environmental trusts
The Upper Urr Environmental Trust was interested in developing a
volunteer-led woodland planting and habitat restoration project.
FSF has made an agreement with the trust covering 95 hectares, with
a formal lease over a portion of the land for this purpose.
Sale of land for community projects
Two parcels of land at Frongoch have been sold to the benefit of
the local community. One parcel was sold to the local church to
extend the community graveyard and the other was sold to Natural
Resources Wales, allowing access to harvest an area of diseased
trees, removing an eyesore from the picturesque valley.
Mountain bike trails
The establishment of mountain bike trails at Banc Farm has
commenced and continues to progress.
Complaints handling
The Investment Manager strives to sensitively deal with any
objections or concerns that arise in relation to its woodland
creation schemes. The regular scheduling of townhall meetings and
open days around the planning phase of these schemes aims to inform
the local communities of its plans and also to provide a forum for
objections to be made. When concerns or issues are raised, the
Investment Manager will seek to proactively address these concerns
through further education, engagement and, where possible,
adaptations to the scheme design.
OUR MARKETS
UK timber market
The UK timber market continues to rely heavily on imports, which
account for c.80% of all timber consumed. Further, the UK is the
third largest timber importer globally, behind only China and the
USA. Total imports for the first seven months of 2023 were 5% less
than over the same period in 2022.
Timber pricing
UK timber market prices
(See full annual report on the Company website for the
graph)
Timber outputs are divided into the following three categories
depending on the top diameter(1) .
-- Sawlog, with a top diameter(1) 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 diameter1 between 6-18cm. 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 diameter1 of 6cm, is essentially
too small, too large or not straight enough to be processed in a
sawlog or fence wood mill. This product is chipped, rather than
sawn. The largest use of chipwood is in the manufacturing of
versatile panels such as Medium Density Fibreboard ("MDF"),
Oriented Strand Board ("OSB") and Particleboard ("PB"). However, it
can also be used in pulp mills to make paper products or in biomass
plants, generating power and heat .
The last year has seen mixed price signals. UK sawlog prices in
Q3 2023 declined by c.7.5% compared to Q3 2022, while fencing
prices declined by c.1.4%. Meanwhile, chipwood prices increased by
13.1%. The overall picture shows the blended price for timber has
decreased by -4.1% during the year(2) .
Of the publicly available timber indexes, the Softwood Standing
Price Spruce ("SSPI") / All Conifers Index published quarterly by
Forest Research is the most comparable to the sawlog price index
that is used by the Investment Manager. From Q2 2022 a material
deviation between the prices reported in both indexes is observed,
which has continued to widen. When analysed, the public SSPI
pricing suggests prices have been skewed by the significantly
higher volumes of Storm Arwen damaged timber, which has transacted
at increasingly discounted prices. Pricing of high quality and
undamaged sawlog, as represented in the Investment Manager's index,
has demonstrated more resilience.
Domestic demand
The UK's economic output has remained subdued during the year.
The aftermath of the UK Government's Mini Budget, rising debt costs
and a cost-of-living crisis have contributed to reduced demand for
UK timber. The CPA forecasts that construction output, a key driver
of timber demand, is expected to fall by 7% in 2023 but to grow by
0.3% in 2024. The Investment Manager's view is that domestic demand
for sawlog and roundwood will likely remain relatively subdued
during the rest of 2023 and 2024. In the Board's and Investment
Manager's opinion, we believe there is growing preference towards
home-grown timber.
1. Top diameter is a measurement dimension that expresses the
diameter of a log at its thinnest point, furthest from the
butt.
2. Based on the Investment Manager's estimates of market data.
Domestic supply
On the domestic supply side, most of the excess storm damaged
timber from Storm Arwen in 2021, representing c.20% of the UK's
annual harvest (and c.4% of UK annual demand, given that the
country imports c.80% of its needs), is understood to have been
processed through the timber supply chain. UK originated timber
supply and inventory levels are therefore gradually readjusting to
normal levels. The latest UK Forest Market Report on UK commercial
timber markets was released on 21 November 2023 and the Investment
Manager will utilise this data for future supply market
forecasting.
European energy crisis and fuel demand
Chipwood prices remained more stable during the year, increasing
by 13.1% according to the Investment Manager's Chipwood Price
Index. A main factor influencing European markets during the year
has been the ongoing conflict in Eastern Europe and the ensuing
energy crisis which has driven a surge in both European and UK
woodchip demand.
Bioenergy use in the EU increased by over 150% since 2000 and a
further increase between 70-150% by 2050 is predicted. Policy
developments such as the UK Government's Biomass Strategy seek to
generate more bioenergy using sustainable chipwood as fuel,
ensuring incentives for sustainable biomass energy. The Investment
Manager believes that chipwood demand will remain resilient and has
a robust long-term outlook. However, prices will also be influenced
by Europe's longer-term ability to secure supplies of liquefied
natural gas.
European supply dynamics
Overall, European supply of softwood is forecast to decline in
2024 which when combined with steady forecast demand is expected to
create a slight material supply deficit in Europe. This situation
is expected to place slow but steady upward pricing pressure on
European timber through the coming year. Key drivers of this
movement include the ongoing bark beetle(1) crisis (with current
damage considered to be nearly 10x larger compared to pre--2000
levels), climate change, and EU legislation. Key contributors to
European timber supply such as Germany and Latvia, and countries
such as the US, have proved susceptible to such factors.
UK forest climate change resilience
2023 has been a year where extreme weather patterns have
influenced the worldwide timber market. Timber supply disruptions
observed in Canada and Germany, for example, have been closely
linked to climate change and are expected to materially impact
the market. The bark beetle outbreak addressed previously in
this report is closely linked with the droughts brought on by
climate change. As global temperatures change, new emerging risks
for key timber geographies will require due attention by
managers.
Positively, UK forestry has been assessed as relatively climate
resilient, with a climactically wetter and cooler climate. Looking
at wildfire and drought risk, this is viewed to be significantly
lower in the UK than in much of mainland Europe, especially in
Scotland, which is marked with the lowest fire risk indication. The
Investment Manager believes that the UK's timber supply will
benefit positively from its climate resilient characteristic;
however, to mitigate potential climate-related risks, the
Investment Manager has followed a series of initiatives to create
more climate resilient forests within the portfolio (which will be
detailed in full in the Company's 2023 S&ESG Report due to be
published in early 2024).
International demand - American and Chinese markets on the rise
again
The outlook for American construction looks particularly
positive, following the Inflation Reduction Act and the additional
timber-related demand this will likely generate. With the debt
ceiling increase signed in June 2023 and the US Government thereby
avoiding default, growth in US construction has seemed to continue
undisturbed during the year. The latest report from the US Census
Bureau shows that during the first eight months of this year,
construction spending amounted to $1,284.7 billion, 4.2% above the
$1,233.4 billion for the same period in 2022.
Due to China's lifting of strict zero-COVID-19 policies and the
introduction of a 21-point plan to aid property developers with
financing and debt extensions worth up to $67 billion, the outlook
for Chinese timber demand has been positive during the period.
Following the announcement of stimulus measures, China's timber
market has since picked up, which is reflected in the country's
Global Timber Index registering 53.0% in July, indicating growth in
the sector. The Chinese construction industry was expected to grow
by 8.0% in 2023.
Last year, the top three largest global importers of timber were
China, the UK and the US. With global demands unlikely to decline,
more European timber is expected to reach Chinese and US markets in
future years. In our view, this could drive upward pressure on
domestic UK timber prices where the availability of, typically
steady, European imports is reduced.
1. Bark beetle is a forestry pest which can cause significant
damage to the trees if left uncontrolled.
Voluntary carbon market ("VCM")
Number of companies with SBTi commitments
(See full annual report on the Company website for the
graph)
Voluntary carbon credits recognise the additional and permanent
capture or avoidance of carbon dioxide from the atmosphere. Carbon
credits can be retired by companies with net zero pledges to offset
unabatable emissions created within their businesses or indirectly
within their supply chains. During the year, the number of
companies setting, or committing to set, Science Based Target
Initiative ("SBTi") net zero pledges has continued to accelerate,
with an all-time yearly high of 3,120 companies committing to SBTi
between Q4 2022 and Q3 2023, effectively doubling the total to
6,048.
Examples of firms making new SBTi commitments last quarter
include Heineken and Rolls-Royce. The total market capitalisation
of all the companies with SBTi targets in Q3 2023 is above $35
trillion. Companies' continued acceleration of net zero pledges
bolsters the long-term demand outlook for voluntary carbon credits.
In our view, these companies will likely require carbon credits to
offset up to 5-10% of their emissions, considered unabatable, in
line with SBTi rules.
Woodland Carbon Code carbon credits price annual increase
The Woodland Carbon Code ("WCC") has, for the first time,
published a price index of their voluntary carbon credits in
collaboration with Ecosystem Marketplace, summarised in the above
chart. Over 99% of units contributing to the index were Pending
Issuance Units ("PIUs"), that have yet to mature into Verified
Carbon Units ("VCUs"), that are capable of being used for
offsetting, with less than 1% of the units contributing to the
index being VCUs. The Investment Manager therefore sees this as the
best publicly available index yet, and provides a good proxy for
its own voluntary carbon credit portfolio, which currently consists
of 100% PIUs. The new index captures transactions totalling more
than half a million PIUs (since January 2021). FSF is expecting to
create 1.0-1.2 million PIUs with its current afforestation
portfolio and planting programme (based on c.4,000 hectares
planted). During the 2.5 years that the WCC index covers, the price
of WCC carbon credits has grown by 69.9%., with a CAGR of 42.4%
from GBP14.9 in 2021 to GBP25.4 in the first half of 2023.
Monthly volume weighted average voluntary carbon credit price by
project type
Following a Guardian article that exposed the low-integrity
nature of many avoided deforestation ("REDD+") voluntary carbon
credits, we have observed a significant shift in buyer preferences
towards higher-integrity nature-based carbon removal credits of the
sort which FSF creates with its afforestation schemes. Globally,
nature restoration voluntary carbon credits, which include the WCC
credits that FSF creates with its afforestation schemes, have
increased by 63% from Q1 2023 to Q2 2023. During the same period,
demand for carbon avoidance based REDD+ voluntary carbon credits
has diminished, which has been reflected in prices falling by 17%
from Q1 2023 to Q2 2023.
The Investment Manager has been encouraged by the progress made
within voluntary carbon markets this year. The combination of a
near doubling of corporate climate SBTi pledges, which further
bolsters the long-term demand outlook, combined with a material
shift in buyer preferences towards scarcer, higher-integrity,
nature-based carbon removals credits of the sort which FSF creates,
currently suggests that over the medium to long term, there will be
sustained upward pressure on pricing.
FSF's afforestation carbon credits are to be issued, validated
and independently verified using the WCC's UK Standard. The WCC is
well recognised as being of high integrity and has secured
International Carbon Reduction and Offsetting Accreditation
("ICROA"). ICROA is a non-profit organisation that promotes best
practices across the voluntary carbon market. ICROA certification
is an existing badge demarking WCC's high-integrity standards.
Global update: c.GBP30 billion invested into carbon credit
projects from 2012 to 2022
Trove Research published a paper in September 2023, which shows
that investment into carbon credit projects between 2012 and 2022
totalled $36 billion. Half of this occurred in the last three
years. There is also a further $3 billion in future investment
already committed. This wave of investment facilitates more than a
thousand new carbon reduction projects. More than $18 billion of
funding came from carbon credit funds during the last two and a
half years alone. Over 80% of this funding is targeted towards
nature--based projects such as FSF's afforestation projects and
others such as improved forest management and reducing emissions
from deforestation and forest degradation. The nature-based
projects cover c.30 million hectares.
Regulatory developments
The Integrity Council for Voluntary Carbon Markets ("ICVCM"), an
independent governance body, was specifically established with the
aim of setting and maintaining global standards for quality within
the voluntary carbon market. To assist with this, the ICVCM, in
March 2023, launched the Core Carbon Principles ("CCPs"), which are
intended to establish fundamental principles for high-quality
carbon credits that create a verifiable climate impact, based on
the latest science and best practice. Buyers and users of voluntary
carbon credits that are certified as aligning with the CCPs can be
assured of the high integrity of the underlying carbon credit. CCP
labels for carbon credit methodologies are expected to start being
issued in late 2023. The Investment Manager believes WCC could
receive confirmation of CCP alignment during 2024 along with
potentially a Carbon Offsetting Reduction Scheme for International
Aviation ("CORSIA") approval.
Demand-side integrity
During the period, as already mentioned, REDD+ has come under
scrutiny. The press articles exposed integrity issues with some
avoided deforestation voluntary carbon credits issued by Verra's
REDD+ methodology. REDD+ and other avoidance credits improve the
relative balance of carbon in the atmosphere by conserving nature
and avoiding deforestation. The additionality case for REDD+ rests
on the concept that without protection and conservation large areas
of natural forest (which acts as a valuable rotational natural
storage system for carbon) will be felled to make way for
agriculture and development (usually intensive livestock
farming).
However, proving the additionality case for REDD+ has proved
challenging as quantifying the level of threat of natural forest
destruction for specific projects/sites is quite variable and
subjective. With afforestation projects, proving additionality and
permanence, and therefore high levels of integrity of credits, is
relatively clearer and simpler as newly planted trees draw down
additional carbon from the atmosphere. In the view of the
Investment Manager, this may explain the apparent shift in buyer
preference that has been observed during the year.
On the demand side (i.e. companies seeking to make
climate-related claims), the Voluntary Carbon Markets Integrity
Initiative, whose ambition is to set the standard for high
integrity use of carbon credits in organisations' climate
strategies, issued their provisional Claims Code of Practice. This
outlines clear guidance on how companies can make transparent and
credible claims regarding carbon offsetting. Leveraging the newly
developed frameworks, Bloomberg and other media outlets have
criticised some corporate "carbon neutral" claims, that are not
science-based and where there is no obligation to decarbonise (as
up to 100% of emissions can be offset), as "junk carbon neutral
claims" enabled by "junk carbon offsets" such as avoidance-based
carbon credits. Unlike carbon removals-based credits,
avoidance-based carbon credits are not compatible with a SBTi net
zero claim.
It has also been encouraging to see regulators increasingly
pursue legal action against companies which exaggerate their
climate and environmental credentials, with several large companies
abandoning carbon neutral claims, to instead focus on decarbonising
first and only offsetting the balance. The Investment Manager is
encouraged by these developments. It provides further evidence
towards a high integrity market for voluntary carbon credits
establishing and scaling.
Whilst the nuances of how carbon credits can be used to support
a science-based climate claim have been in focus, a recent Trove
Research report finds that firms that use carbon credits, of any
type and quality, reduced their emissions twice as fast compared to
companies that do not use carbon credits at all. Further, companies
that used higher--integrity carbon credits are decarbonising faster
still.
The Company remains fully committed to investment in projects
that yield carbon credits that are compatible with internationally
recognised high integrity standards (such as ICROA and the CCPs)
that can be used by companies with a high integrity SBTi net zero
claim that adheres to the Claims Code of Practice.
INVESTMENT MANAGER'S REPORT
We are delighted to have fully deployed FSF's equity and
delivered strong capital appreciation on six planted afforestation
schemes completed to date
Executive summary
In its second year, FSF made solid progress on several fronts,
in the face of a challenging market and macroeconomic headwinds.
During the year, FSF has further demonstrated that successfully
developing and planting new forests (afforestation) remains the
reliable engine room of value creation. The year saw four new
forests planted, taking the total since FSF's inception to c.1.4
million trees planted across six properties. Since IPO, the value
of these six properties has increased by 85% versus acquisition
costs, based on their carrying value of GBP18.9 million as at 30
September 2023. During the year, strong progress was made in the
development of a further 37 properties with afforestation potential
in the portfolio. Many of these will be planted in the current
planting season, which runs from November to May. Once fully
planted, FSF's afforestation portfolio is expected to create
1.0-1.2 million carbon credits and representing a material upside
opportunity for investors.
During the year, the Woodland Carbon Code ("WCC") published new
financial additionality test rules for afforestation schemes.
Whilst good for carbon credit integrity levels, the Company has
reduced the level of grant taken in order for commercial forestry
projects to pass. The Investment Manager holds a seat on the WCC
Advisory Board and has led an industry group to provide feedback to
the WCC on how the test could be improved. Through a combination of
engagement with the WCC and optimizing afforestation designs we are
confident that the Company's position can be improved overall
whilst maintaining the high integrity levels of the carbon
credits.
NAV summary
In the year, the NAV declined by GBP11.4 million overall. FSF
delivered NAV per share gains in the first half of the year, mostly
relating to the outperformance of its afforestation portfolio, in
an otherwise flat market. The second half of the year has seen
FSF's NAV decline by GBP17.4 million since the 31 March 2023
valuation. These NAV losses primarily relate to the relatively less
buoyant UK forestry and agricultural land investment market, rather
than any material changes to the physical condition of FSF's
forestry assets or their long-term outlook. The Company's portfolio
valuation is dictated by the property specialist, Savills, in their
capacity as independent valuer using the Royal Institution of
Chartered Surveyors ("RICS") Red Book approach. The approach
incorporates comparable market transaction evidence and the
valuer's view of market sentiment and is reflective of current
conditions.
In the face of persistently high inflation and interest rates,
the value of UK forestry assets sold in the first nine-month period
of 2023 (to 30 September) represents 12% of the annual average of
the value of assets sold in 2021 and 2022. Prices for land with
afforestation potential declined significantly during the year,
when compared to market declines for established forestry
properties.
Whilst this has impacted FSF's NAV in the short term, it is
FSF's intention to change the land use of its afforestation
properties and only exit the property once it has been established
as a new forest. Further, acquiring land with afforestation
potential at lower entry prices increases the total return
prospects that can be achieved by successfully developing it.
Carbon credit prices relating to nature restoration have remained
highly resilient throughout the year, driven by a significant shift
in corporate demand towards higher-integrity carbon credits of the
sort FSF creates. We have been pleased to add afforestation
properties to the portfolio throughout the year, which have
enhanced capital appreciation prospects.
Established forestry values proved to be more resilient versus
afforestation values, but were still down on the year. Forest asset
prices' relative resilience is underpinned by the fact that trees
continue to grow and add timber value regardless of macroeconomic
conditions. Their values are driven more by investors' long-term
views on future timber prices, than they are from spot timber
prices. Whilst UK forestry is well recognised for its resilient and
inflation-beating qualities over the long term, it is not
completely immune to current market conditions (elevated base rates
and constrained capital supply) in the short term. Overall, whilst
it is disappointing to see a subdued forestry investment market in
the second half of the year having a negative impact on the
portfolio valuation, we are pleased by the operational achievements
and opportunistic acquisitions we have made in the period. We are
excited about the year ahead with a particular focus on
successfully planting many millions of trees and establishing
multiple new forests.
Acquisitions
At the beginning of the financial year FSF had approximately
GBP30.0 million of cash available for further acquisitions which
remained from the GBP45.0 million equity placing that took place in
June 2022. In January 2023, FSF had successfully acquired 12
properties, which saw the June 2022 equity proceeds fully deployed,
ahead of the committed six-month target. The Company bought six
more properties during the period. These acquisitions have
substantially completed FSF's acquisition of land in preparation
for its 2024/25 planting programme and there are no material
additions expected in the near term. The acquisitions completed in
September 2023 were funded by the RCF and repayment of the
borrowings will occur through a combination of timber harvesting
and the planned disposal of non-core or other assets.
The majority of acquisitions in the year were directly
originated off--market and bilateral opportunities, where we
continue to see better value. These opportunities are sourced from
a combination of Foresight's proprietary market--mapping deal
procurement approach and by leveraging our extensive network of
contacts. We are also increasingly enjoying inbound approaches from
vendors who recognise FSF's strong track record as a reliable,
all--cash counterparty that operates a highly efficient transaction
process. Immediate mark--to-market gains on new acquisitions have
been underpinned in many instances through the realisation of
marriage value with existing properties in the portfolio. The
Company has continued to acquire properties that are either
directly adjacent, or in close proximity, to existing FSF
properties, which can result in scale economies that are reflected
in uplifted valuations when combined.
Pipeline and deal procurement
Foresight sources deals and acquisition opportunities via
selling agents, on-market bids, bilateral deals, direct origination
and inbound direct approaches. Approximately 4,500 specific
properties (c.900,000 hectares) which are highly suitable for
afforestation have been identified by the Investment Manager.
OPERATIONAL REVIEW
Overview
As at 30 September 2023, the Company's portfolio comprised 68
properties covering a total area of 12,545 hectares. An overview of
the portfolio is provided in the full annual report as well as the
split of hectares by country and by property type.
The portfolio's allocation continues to be weighted towards
Scotland (85% of FSF's portfolio by land area), which is the most
forested of the UK's nations and the least far behind in achieving
its tree planting targets.
Portfolio breakdown
During the year, FSF updated the categorisation of afforestation
properties into three separate categories to help stakeholders to
more clearly follow the progression of portfolio development.
Properties are now classified as Development Stage, Planting Stage
and Establishment Stage, with full definitions provided below.
Other
Hectares Forest Area(1) Land area (2) Total area Forest Area
30 September 30 September 30 September at time of
2023 2023 2023
writing report
17 November
2023
---------------------------------- --------------- -------------- -------------- ----------------
Development Stage Afforestation 4,446 721 5,167 4,226
Planting Stage Afforestation 93 - 93 373
Establishment Stage Afforestation 937 98 1,035 937
Established Stage Forestry 5,184 1,067 6,251 5,184
---------------------------------- --------------- -------------- -------------- ----------------
Total 10,660 1,886 12,545 10,720
---------------------------------- --------------- -------------- -------------- ----------------
1. Includes commercial stocked/stockable; broadleaf
stocked/stockable; designed open ground; natural forest/ woodland
regeneration zones; and other land considered part of the forest
area.
2. Includes areas of land that sit outside the forest area; this
includes, but is not limited to, land leased for grazing;
regenerative grazing land; peatland/wetland; hill ground; non-core
land considered for disposal; non-core land not considered for
disposal; house/farm curtilage.
Category Definition
(1) Development Stage Afforestation Area Land prior to the securing of planning permission and grant application.
(2) Planting Stage Afforestation Area Planning permission and grant application completed but initial planting
of trees not yet
completed.
(3) Establishment Stage Afforestation Area Initial planting of site completed but trees establishing (typically three
to five years).
(4) Established Stage Forestry Area Trees established.
------------------------------------------ --------------------------------------------------------------------------
A particular area of interest for stakeholders will be the
progression from the Development Stage Afforestation to Planting
Stage Afforestation, as this will be the signal of the amount of
land which has received all permissions and grants and is ready to
commence their respective planting programmes. It can be considered
an early indication of expected capital appreciation of this area,
which is recognised by FSF's valuer at the point of planting
completion and the entering of the Establishment Stage.
Portfolio breakdown by value
Development Stage Afforestation
At time of
At year end writing report
Total hectares 30 September 2023 17 November 2023
(Forest Area)
---------------------------- ----------------- ----------------
Survey and design
stage 2,701 2,671
Initial public consultation
stage 1,416 469
Admitted to public
register stage 329 1,086
---------------------------- ----------------- ----------------
Total 4,446 4,226
---------------------------- ----------------- ----------------
The Investment Manager and their contractors and advisers
continue to hold public consultations and progress the projects
through to getting onto the public register for review and further
comments by the public and statutory consultees. If the
consultation with communities and statutory consultees is well run
and done in advance, it can take circa one to two months from point
of going on the register to receiving permission and grant
contract, after which point the Planting Stage can commence.
Planting Stage Afforestation
At time of
At year end writing report
Total hectares (Forest 30 September 2023 17 November 2023
Area)
----------------------------- ----------------- ----------------
Development Stage
Afforestation 4,446 4,226
Planting Stage Afforestation 93 373
Establishment Stage
Afforestation 937 937
----------------------------- ----------------- ----------------
Total 5,476 5,536
----------------------------- ----------------- ----------------
It is anticipated that approximately 19 sites covering 2,700
hectares of Forest Area will have completed the Development and
Planting Stage and entered the Establishment Stage by 31 March
2024, with the vast majority of the balance of Development Stage
and Planting Stage Afforestation entering the Establishment Stage
either in April/early May 2024 or in the subsequent planting season
between November 2024 and May 2025.
An afforestation progress to date and development outlook
summary is provided below.
Afforestation timeline
(Graph can be found in the full annual report on the Company's
website)
Establishment Stage Afforestation
Overall, FSF has planted six woodland creation schemes since
IPO. All six planted schemes continue to establish well. A
breakdown of FSF's Establishment Stage Afforestation assets can be
found below:
Newly planted Total
Establishment Stage Establishment
Afforestation Stage
(1 October 2022 - Afforestation
30 September 2023)
--------------------------------------------- ------------------- -------------
Properties (number) 4 6
Total Establishment Stage Afforestation
creation (hectares) 702 937
Commercially stocked afforestation
(%) 44% 50%
Non-commercially stocked afforestation
(%) 15% 14%
Designed open ground and other land
considered part of the forest area
(%) 41% 36%
Number of carbon credits awaiting validation
(exclusive of 20% buffer) 107,592 143,707
Anticipated tonnes of sustainable timber
to be produced from the first rotation 190,500 283,150
--------------------------------------------- ------------------- -------------
Trees planted
(Graph can be found in the full annual report on the Company's
website)
Planting breakdown across afforestation to date
(Graph can be found in the full annual report on the Company's
website)
CASE STUDY
UPPER BARR AFFORESTATION SITE
Location Dumfries & Galloway,
Scotland
Size 344 hectares
Land designated for 151.7 hectares
afforestation
Date of acquisition March 2022
------------------- --------------------
1. Afforestation scheme planning (summer 2022)
Surveys were undertaken and the scheme was drawn up by Scottish
Woodlands, the appointed Forest Manager ("FM"), with asset and
portfolio management oversight from EJD Forestry and Foresight's
portfolio management team respectively.
2. Community consultation
The community has been at the heart of this development process
and several key initiatives were presented to a variety of
community groups for feedback.
3. Planning approval
Planning approval and a woodland creation grant contract were
obtained.
4. Planting scheme (completed March 2023)
Tree species Native broadleaves, mixed conifers (Sitka Spruce, Norway Spruce,
type Noble Fir, Pacific Silver Fir, Scots Pine)
Total trees
planted 288,299
Gross area 151.7 hectares
planted
Jobs provided 1,460 hours (0.5 FTE)
-------------- ----------------------------------------------------------------
5. Establishment Stage Afforestation (ongoing)
Employment continued throughout the summer, bringing the total
hours worked for the year to 2,070 hours or 0.99 FTE. There have
been no issues with the establishment of the crops and minimal tree
loss is anticipated.
6. Valuation (March 2023 valuation)
Recognition of the successful planting at the property delivered
an 83% valuation uplift to the acquisition price paid for the
property.
7. Carbon credits (ongoing)
Upper Barr has been registered with the Woodland Carbon Code and
is due to benefit from carbon credits associated with the
sequestration achieved by the new planting. A total of c.40,000
Pending Issuance Units are expected to be registered following a
confirmatory inspection by the Soil Association.
8. Environmental and community benefits (ongoing)
FSF has made an agreement with the Upper Urr Environmental Trust
to develop a volunteer-led woodland planting and habitat
restoration project.
9. Working with the Eden Project, FSF was able to host a
wildflower seed collection day with members of the local community
and school that focused on harvesting and protecting the local seed
source. The seeds that were collected have been transferred to the
Eden Project's seed bank and are now available for dispersion to
create further areas of wildflower meadow at both Upper Barr and
potentially other properties within FSF's portfolio.
Established forestry
FSF has designed a portfolio that should supply a steady stream
of potential harvesting over the coming years. The table below
gives an overview of the quantity of standing timber in each
category within the FSF portfolio. Where gaps are present, FSF
will, over time, look to infill and generate the ability to harvest
to provide the Company with cash flow each year should it be
required.
Age profile of existing forestry
The above chart excludes afforestation assets at any stage.
Harvesting overview
There has been ongoing harvesting at five sites during the year.
Largely, these harvesting operations have focused on either
continued clear up of windblow or addressing Statutory Plant Health
Notifications ("SPHNs"). An SPHN is issued by either the Forestry
Commission, Scottish Forestry or Natural Resources Wales where
infected plants have been identified. In the cases seen within the
FSF portfolio, these are Larch crops at low volumes and this is not
considered by the Investment Manager to represent a material issue
for the Company or to be out of keeping with standard woodland
management practice in UK forestry. Income is still generated by
this harvesting. During the year a total of 17,000 tonnes of timber
was harvested generating net income of GBP750,000.
Harvesting strategy (short term)
Timber prices are yet to recover from the softening seen towards
the end of 2022 and the harvesting plan has been adjusted
accordingly. Harvesting is being included in the short-term
programme where it results in NAV accretion or there is a good
silvicultural reason to pursue the harvesting. It is not currently
the intention to harvest all the available timber within the
portfolio. The Investment Manager will continue to monitor prices
closely, commencing harvesting activities at the optimal time
giving consideration to timber market conditions and Company cash
revenue requirements.
Across all planned harvesting activities expected in the next 12
months, a total of 118,000 tonnes are anticipated to be
harvested.
Harvesting plan (long term)
In addition to the short-term view, FSF has reviewed the
long-term harvesting plan. Harvesting does not need to be
undertaken immediately and can be delayed. Making use of the
additional biological growth, it is useful to forecast what timber
will be available over the coming years. The chart below is
illustrative only and is subject to variation depending on the
Company's strategy and requirements.
Harvesting forecast
Upside opportunities
A number of upside opportunities continue to be developed across
the portfolio.
Knock Fell - Peatland restoration with the potential to create
up to 20,000 peatland carbon credits.
Drumelzie - Full planning application for a three turbine wind
farm development has been submitted by a developer for this site.
Negotiations regarding felling requirements are ongoing.
Fordie Estate - A glamping project continues to be developed.
This would see eight glamping pods being constructed at Fordie in
2024.
-- Re-negotiation of the existing hydro scheme onto a much
improved tariff of GBP485/MWh for exported electricity, good
through until April 2025.
-- Plans to increase water retention on the hill ground through
re-wetting projects outside the woodland creation scheme. Improving
habitats for several key bird species and also improving
consistency of supply to the hydro scheme.
Forest Stewardship Council ("FSC") and Programme for the
Endorsement of Forest Certification ("PEFC")
As at 30 September 2023, FSF has maintained compliance with its
Prospectus commitment to dual certify all forests within 12 months
of either acquisition or planting completion.
Number of As a %
projects
-------------------------------------- --------- ------
Projects certified 34 50%
Projects requiring certification 5 7%
Projects yet to require certification 29 43%
-------------------------------------- --------- ------
The importance of obtaining the correct certification for timber
ahead of selling continues to increase. The largest sawmilling
companies are placing ever-more stringent restrictions on
uncertified timber. Specifically, James Jones have recently
announced that they will only process dual certified timber.
Therefore, there continues to be a premium associated with
certified timber.
Quality and Environment Management Systems
ISO 9001 sets the requirements for a company's Quality
Management System ("QMS") and ISO 14001 is the equivalent standard
for an Environmental Management System ("EMS"). To date a review
has been completed in relation to the two ISO standards to assess
the current level of accreditation across the companies of the
Portfolio, where gaps in this exist and where the standards should
be implemented.
FSF's focus at present is on its suppliers to attain ISO
accreditation to provide an initial layer of ISO accreditation.
Further details will be provided in the Company's 2023 S&ESG
Report.
Biodiversity
A biodiversity monitoring tool called Biodiversity HAB-CON Alpha
has been developed by experienced ecology consultants in
collaboration with the Investment Manager. This tool is based on
the UK Habitat Classification System and condition assessment and
has the following notable key features:
Biodiversity value is ascribed to the transitional habitats that
both commercial softwood conifer forests and long term broadleaf
woodland provide during the cyclical forest process (i.e. trees
grow in establishment stage, canopy closure occurs, natural/planned
thinning occurs, trees are harvested or naturally perish, trees are
re-stocked or naturally re-generate).
Time Frames have been extended from 30-years to 60-years to
recognise the long term nature of forestry management and enable
managed woodlands additional time to reach target condition (e.g.
moderate or good condition).
Biodiversity HAB-CON Alpha is being pilot-tested across six FSF
pilot sites. After the pilot phase, the measurement and monitoring
tool will be rolled out over thirty FSF properties as part of the
next stage. FSF is seeking to deliver an overall biodiversity
uplift across the portfolio, using the tool to monitor the
environmental status of the Company's assets and drive nature
positive management decisions within the portfolio in the
future.
More information on this will be included in the Company's 2023
S&ESG report.
Health and safety
Health and safety ("H&S") is a focus for the Company's Board
and the Investment Manager's portfolio management team. The target
of the portfolio management team is to position FSF as a market
leader for forestry H&S best practices. Regular reporting on
notifiable incidents is provided to the Company's Directors to
ensure Board oversight on H&S matters.
Number during
Health and safety event the period
---------------------------------------------------------------------- -------------
Reporting of Injuries, Diseases and Dangerous Occurrences Regulations
("RIDDOR") 0
Near miss events 7
---------------------------------------------------------------------- -------------
RIDDOR events are serious and must be reported to the Health and
Safety Executive, which is administered by the UK Government. The
Company is pleased to report that no RIDDORs occurred during the
period.
"Near miss" events are categorised as all H&S incidents that
are not reportable under the RIDDOR framework. There were only
seven events throughout the year, which is considered low. Near
miss reporting is embedded in day-to-day forest management and the
portfolio management team continually reviews measures that can
further improve the quality of reporting. For the period these
include:
-- Deploying lone working devices throughout the portfolio to
prevent individuals from becoming stranded and out of communication
should an accident occur.
-- Requiring Forest Managers to produce hazard maps for each
site that they manage giving an overview of all the known key
identifiable hazards. The established protocol is that these are
provided to all contractors ahead of the pre-commencement meeting
and also posted on the entrances to each site for members of the
public accessing the site to view. In addition to this, where the
risk associated with each hazard can be mitigated, this will be
explored.
-- Re-engaging H&S experts to conduct a third annual review
of operational H&S practices within the portfolio.
Portfolio valuation
Valuation bridge
As at 30 September 2023, the forestry portfolio, excluding
additional carbon credits held through SPVs as described on page
47, was valued at GBP172.2 million. Since 30 September 2022, 18
assets valued at GBP38.4 million (inclusive of tax and transaction
costs) were acquired and the property revaluation in the portfolio
delivered a gain of GBP2.7 million, representing a weighted average
(across the three investment categories) valuation loss of
5.8%.
Afforestation properties observed unrealised losses of GBP2.3
million, representing a 7.5% decrease in that category, despite
observing mark--to-market gains and recognition of the successful
completion of planting at four properties (Auchensoul, Redding
Farm, Upper Barr and Frongoch). Forestry properties observed
unrealised losses of GBP3.2 million, representing a 4.8% decrease
in that category. Mixed afforestation and forestry properties
delivered unrealised losses of GBP1.0 million, representing a 4.9%
decrease in that category.
During the year to 30 September 2023, four afforestation schemes
completed planting and FSF has recognised an additional GBP2.1
million of value ascribed to the creation of carbon credits,
bringing the overall portfolio value to GBP2.7 million. This
estimate takes into consideration the verifier's 20% buffer to
ensure that the number of units offset or traded is conservative
versus the amount of carbon that will be sequestered. The four
properties are estimated to create c.108,000 voluntary carbon
credits (net of the 20% buffer) and are part of a wider
afforestation programme that is expected to see the creation of
1.0-1.2 million voluntary carbon credits in total from the current
portfolio. The methodology and treatment of the additional value
added at 30 September 2023 has remained consistent with the audited
financial statements as at 30 September 2022. The unit pricing of
voluntary carbon has increased from GBP17.50 at 30 September 2022
to GBP19.00 at 30 September 2023.
Portfolio valuation methodology
Savills Advisory Services Limited ("Savills") was engaged by the
Company to provide a fair value valuation of the portfolio in
accordance with the Royal Institution of Chartered Surveyors
("RICS") Valuation - Global Standards July 2017 (the "Red
Book").
The Red Book valuation falls within the International Financial
Reporting Standards ("IFRS"), as part of the International
Valuation Standards which requires investment properties to be
considered on the basis of fair value at the balance sheet date.
IFRS 13 outlines the principles for fair value measurement which
Savills' valuation is consistent with. The Red Book valuations are
undertaken on a property-by-property basis and are completed
semi-annually.
The fair value assessment of the properties has been completed
by Savills on a comparable basis by looking at transactions of
similar properties. Development Stage and Planting Stage
Afforestation property comparables include the rights to future
potential voluntary carbon credit creation. Establishment Stage
Afforestation and Established Forest property comparables exclude
any value ascribed to any associated voluntary carbon credits that
have been created.
In addition to the fair value, the Red Book methodology
considers a number of additional factors impacting the valuation. A
reasonable view of the potential for afforestation properties'
value uplift over time is considered rather than valuing the land
in its current state. Savills also considers the stage of each
property within the forestry grant application process and may make
reassessments as to the value of properties when a new
developmental milestone occurs. Additionally, as the properties
under ownership are located across the UK (Scotland, Northern
England and Wales), the external valuer accounts for the potential
differences in market interest and demand at the different
locations.
The value associated with the carbon credits attached with the
Establishment Stage Afforestation properties is excluded from the
RICS Red Book valuation of these properties. Value recognition for
carbon credits is ascribed separately using the Investment
Manager's assessment based on a range of recent comparable
voluntary carbon credit transactions that occurred in the period
and observed by leading third-party carbon credit consultants and
brokers. When establishing the value of carbon credits, a
conservative 25% risk discount is applied to the average observed
unit price of a validated carbon credit. The risk discount accounts
for the Woodland Carbon Code validation process not having fully
completed.
SUSTAINABILITY AND ESG
Sustainability and strong governance are fundamental to FSF's
business model, as captured in the Company's three key
Sustainability and ESG objectives
Key objective 1: timber supply
To deliver and increase the supply of home-grown UK timber to
reduce the country's reliance on imports.
Key objective 2: sustainable returns
To do so in a way that combines sustainable financial returns
with carbon sequestration, biodiversity protection and other
positive environmental and social impacts.
Key objective 3: progressive industry leadership
To be a sustainability leader in the UK forestry industry whilst
delivering both traditional commercial timber products and
innovative natural capital. Services.
2023 highlights
12,545 Total hectarage of portfolio (inc. forests and open
ground)
27 schoolchildren hosted from Carreg Hirfaen School to play a
part in the planting at Frongoch
Expansion of the Forestry Skills Training Programme to Scotland,
with ten placements awarded across Scotland and Wales
The publication of the Company's first dedicated S&ESG
Report(1)
GBP2.1 million additional value ascribed towards creation of
carbon credits with 143,707 PIUs held on balance (as at 30
September 2023)
35,081 tCO(2) e sequestered
Available on the Company website:
https://media.umbraco.io/foresight/ar0gzg2h/sustainability-and-esg-report-2022.pdf
Sustainable Development Goals impact reporting
FSF's vision and management of its assets, with a focus on its
key S&ESG objectives, are closely aligned with five of the UN
Sustainable Development Goals ("SDGs"). The SDGs represent a key
consideration of the Company's investment activities and, in the
following pages, we demonstrate the progress made by the Company in
each of these core areas for the period 1 October 2022 to 30
September 2023.
Timber supply chain
UN SDG 12 (Responsible Consumption and Production) is most
closely aligned with FSF's Key S&ESG Objective 1 (Timber
Supply). There is also strong overlap with Objective 2 (Sustainable
Returns) and Objective 3 (Progressive Industry Leadership). Timber
in the UK is used in a variety of ways; from a construction
material as an alternative to concrete and steel, through to
biomass to produce renewable power and heat. FSF's timber plays a
role in meeting these demands.
Goal SDG target Contribution
12.2 Achieve the sustainable Number of m3 of sustainably
management and efficient grown, standing timber.
use of natural resources.
Percentage of commercial
forestry projects that
are dual certified within
12 months of acquisition.
---- ---------------------------- ---------------------------
1,062,325
m3 of standing commercial timber
100%
existing forestry dual FSC and PEFC certified, in line with
commitment to dual certify within 12 months
Office for National Statistics, woodland natural capital
accounts, UK 2020.
Environmental impact
Pollutant removal
UN SDG 3 (Good Health and Wellbeing) is most closely aligned
with FSF's Key S&ESG Objective 2 (Sustainable Returns),
specifically the delivery of "other positive environmental and
social impacts". Aside from sequestering carbon, our trees help to
actively remove pollutants from the air.
Goal SDG target Contribution
3.9 Substantially reduce Number of tonnes of
the number of deaths pollutants(1) removed
and illnesses from hazardous from the atmosphere,
chemicals and air, water including: NO(2) (Nitrous
and soil pollution and Oxide), SO(2) (Sulphur
contamination. Dioxide), PM10 (<MU>m10
Particulate Matter),
PM2.5 (<MU>m2.5 Particulate
Matter), Ground-level
Ozone, NH(3) (Ammonia).
---- ----------------------------- ----------------------------
366.3 tonnes
of Ground-level Ozone
25.5 tonnes
of PM10 (<MU>m10 Particulate Matter)
16.3 tonnes
of NH(3) (Ammonia)
11.7 tonnes
of SO(2) (Sulphur Dioxide)
21.6 tonnes
of PM2.5 (<MU>m2.5 Particulate Matter)
5.2 tonnes
of NO(2) (Nitrous Oxide)
446.6 tonnes
of pollutants removed from the atmosphere
Sustainably managed watercourses
UN SDG 6 (Clean Water and Sanitation), specifically the delivery
of "biodiversity protection and other positive environmental and
social impacts", is most closely aligned with FSF's Key S&ESG
Objective 2 (Sustainable Returns). Greater focus is being placed on
the interconnectedness of our ecosystems. Watercourses and
peatlands within and around FSF's portfolio provide habitats for
wildlife and support biodiversity and drainage.
Goal SDG target Contribution
6.6 Protect and restore Number of kilometres
water--related ecosystems, of sustainably managed
including mountains, watercourses.
forests, wetlands, rivers,
aquifers and lakes.
---- --------------------------- -----------------------
349(1)
kilometres of sustainably managed watercourses
Carbon sequestration
UN SDG 13 (Climate Action) is most closely aligned with FSF's
Key S&ESG Objective 2 (Sustainable Returns), specifically the
delivery of "carbon sequestration". As FSF's operations grow, the
overall benefit here is twofold: carbon sequestration is increased
and simultaneously timber production is increased.
Goal SDG target Contribution
13.3 Strengthen resilience Total annual portfolio sequestration
and adaptive capacity (tCO(2) e/annum).
to climate--related Average annual sequestration per
hazards and natural stocked ha (tCO(2) e/stocked ha).
disasters in all countries. Average annual sequestration per
gross ha.
---- ---------------------------- ------------------------------------
35,081 tCO(2) e
arboreal sequestration achieved over the reporting period within
the portfolio
2.80 tCO(2) e/ha
average arboreal sequestration per gross hectare
7.53 tCO(2) e/stocked ha
average arboreal sequestration on a per stocked hectare basis
(commercial + non--commercial)
1. 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.
Natural capital services
Biodiversity
UN SDG 15 (Life on Land), specifically the delivery of
"biodiversity protection", is most closely aligned with FSF's Key
S&ESG Objective 2 (Sustainable Returns). As a natural capital
fund, we believe that, when managed responsibly, forestry and
afforestation can provide a wide-ranging flow of ecosystem services
which are valuable to society in which biodiversity plays a vital
role.
Goal SDG target Contribution
15.2 By 2020, promote Number of hectares of
the implementation of sustainably managed forests.
sustainable management Of which:
of all types of forests, * Number of hectares that are long-term, mixed
halt deforestation, restore broadleaf carbon sinks.
degraded forests and
substantially increase
afforestation and reforestation * Number of hectares that are SSSI(1) /SAC(2) .
globally.
---- -------------------------------- ----------------------------------------------------
12,545 ha
total hectarage of portfolio (inc. forests and open ground)
7,884 ha
of open ground and land awaiting approval for afforestation
769 ha
of which is SSSI(1) /SAC(2)
3,819 ha
of which is sustainably managed commercial forest (excludes open
ground)
843 ha
of which is long--term, mixed broadleaf woodland (excludes open
ground)
Carbon credits
Carbon credits generated:
------------------------------------- -------
PIUs awaiting validation
held on balance 143,707
PIUs held on balance -
PIUs sold -
PIUs pipeline 897,427
WCUs held on balance -
WCUs sold -
Total carbon credits held on balance 143,707
Total carbon credits sold -
------------------------------------- -------
1. Site of Special Scientific Interest.
2. Special Area of Conservation.
CASE STUDY
SKILLS TRAINING
One of the major issues that faces rural communities throughout
the UK is a shortage of skills. There are fewer individuals with
the necessary skills to undertake a variety of roles. The Forestry
Skills Training Programme, sponsored by FSF and administered by
Tilhill, aims at redressing the balance of skills within the
community.
In May of this year, FSF announced that following the success of
the pilot of the Forestry Skills Training Programme launched in
2022, it will repeat and significantly expand the initiative for
2023.
The skills training programme
Fully funded three-week programme that provides candidates with
the skills and equipment needed to commence a career in forestry.
The programme focuses on three key areas:
r) Forestry skills training
s) Mentoring
t) Provision of health and safety equipment
Scope of programme
Scope of Scope of
programme programme
in 2022 in 2023
Geographic area covered Wales Scotland
and Wales
Number of candidates 4 10
Number of candidates going onto receive paid forestry work 4 TBC
at an FSF afforestation property
----------------------------------------------------------- ---------- ----------
Outcome
FSF has closely followed candidates from the pilot and has been
proud of the positive professional and personal impact that has had
on the individuals involved.
TCFD AND EMISSIONS REPORTING
TCFD
The Company's 2022 S&ESG Report, published in April 2023(1)
, provides a comprehensive response to all 11 of the TCFD
recommended disclosures and can be found on the Company's website.
For the period to 30 September 2023, the Company will be publishing
its 2023 report in the new year. However, for the year ended 30
September 2023, the below reports on the Company's emissions
profile, using Scope 1, 2 and 3 emissions data and the TCFD Core
Metrics, calculated in accordance with the TCFD recommended
methodologies(2) .
Scope 1 emissions 349.8 tCO(2) e
Scope 2 emissions 0 tCO(2) e
Scope 3 emissions 863.5 tCO(2) e
----------------- --------------
Weighted average carbon intensity (tCO(2) e/GBPm revenue)
---------------------------------------------------------------------
Portfolio's exposure to carbon--intensive assets, expressed in tonnes
CO(2) e/GBPm revenue.
---------------------------------------------------------------------
149.7
---------------------------------------------------------------------
Total carbon emissions (tCO(2) e)
--------------------------------------------------------------------
The absolute greenhouse gas emissions associated with the portfolio,
expressed in tonnes CO(2) e.
--------------------------------------------------------------------
349.8
--------------------------------------------------------------------
Carbon footprint (tCO(2) e/GBPm invested)
--------------------------------------------------------------------
Total carbon emissions for a portfolio ormalized by the market value
of the portfolio, expressed in tonnes CO(2) e/GBPm invested
--------------------------------------------------------------------
2.0
--------------------------------------------------------------------
Carbon intensity (tCO(2) e/GBPm revenue)
---------------------------------------------------------------------
Volume of carbon emissions per million pounds of revenue (carbon
efficiency of a portfolio), expressed in tonnes CO(2) e/GBPm revenue
---------------------------------------------------------------------
183.9
---------------------------------------------------------------------
Exposure to carbon-related assets (%)
-------------------------------------------------------------------
The amount or percentage of carbon-related assets in the portfolio,
expressed in GBPm or percentage of the current portfolio value
-------------------------------------------------------------------
0
-------------------------------------------------------------------
Climate scenario analysis
As part of the Company's disclosures under TCFD, the S&ESG
Report(1) demonstrated the approach it has taken to conducting
robust scenario analysis using S&P Global's Climanomics
platform. This integrated not only physical and transition risks,
but also climate--related opportunities, providing a single output
reflecting the resilience of the portfolio under different climate
futures. The Company does not intend to repeat this test for future
years.
The Sustainable Finance Disclosure Regulation ("SFDR")
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 the
sustainability credentials as published by funds and/or
companies.
The Company is classified as an Article 9 fund, meeting the
necessary disclosure requirements as stipulated in the Level 2
Regulatory Technical Standards under SFDR. FSF updated its
pre-contractual and website disclosures, both of which can be found
on the Company's website and are summarised below:
Sustainable investment objective of the Company
The Company's investment objective stipulates the targeted
sustainable impact it aims to achieve through predominantly
investment in sustainably managed forestry assets (including
standing forests and afforestation assets).
FSF has a climate change mitigation objective, seeking to make a
direct contribution in the fight against climate change through its
forestry and afforestation carbon sequestration initiatives.
Performance of sustainability indicators
The indicators for the portfolio are reported in the SDG tables
on pages 34 to 36.
SFDR RTS Website Disclosure, Annex III and Annex V
FSF's Annex III Pre-Contractual Disclosure, RTS Website
Disclosure and Article V Periodic Disclosure are all available on
the Company's website1. For the purposes of periodic disclosure
updates, the Company will be aligning its reference period with its
annual reporting period, namely 1 October to 30 September.
1. Available on the Company's website here: https://fsfc .foresightgroup.eu/shareholder-centre
2. TCFD recommended methodologies for calculation of the Common
Carbon Footprinting and Exposure Metrics https://www
.fsb-tcfd.org/recommendations/
RISK AND RISK MANAGEMENT
FSF has a comprehensive risk management framework overseen by
the Audit and Risk 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. Pages 41 to 45
of this report detail the risks that the Directors consider are the
top ten risks to the Company.
Risk identification and monitoring
Risks are monitored by the Audit and Risk Committee, comprising
the full Board, which is responsible for overseeing the current and
potential risk exposures of the Company, with particular focus on
the principal and emerging risks, being those with the greatest
potential to influence Shareholders' economic decisions, and the
controls in place to mitigate those risks.
The identification, assessment and management of risk are
integral aspects of the Investment Manager's work in managing the
portfolio on a day-to-day basis.
Mitigation actions have been developed with respect to each risk
so as first to reduce the likelihood of such risk occurring and
secondly to minimise the severity of its impact in the case that it
does occur.
The risk register is reviewed and updated regularly by the
Investment Manager and the Audit and Risk Committee as new risks
emerge and existing risks change. The portfolio managers maintain
strong relationships between counterparties, contractors,
third-party asset managers and other stakeholders. This ensures
effective management of potential risks.
The Audit and Risk Committee regularly seek assurances as to the
resilience of the reporting and control systems in place for both
the management of the portfolio and for the Company's investment
activities. The Committee will continue to evaluate and challenge
the resilience of all key agents to the Company.
The Board undertook a robust assessment of the Company's
emerging and principal risks during the year. More information can
be found in the Governance section on page 54.
Emerging risks and risks relevant to the year under review
The following represent the most relevant emerging risks as
viewed by the Board and the Investment Manager:
Changes in the macroeconomic environment
The UK economy has seen significant fluctuations in growth over
the last two years, predominantly due to rising debt costs, high
inflation and Russia's invasion of Ukraine. However, the Company is
in a relatively strong position to withstand changes in the
macroeconomic environment as it is invested in real assets,
principally freeholds of UK land and forest stock. The forest stock
enjoys biological growth regardless of occurrences in financial
markets. UK freeholds, real assets and the value of commodities,
such as timber, have a strong track record of good performance
during periods of inflation and instability of equity markets. In
the view of the Investment Manager, the continued global supply and
demand imbalance in timber markets, which is accentuated in the UK
as a net timber importer and during a period where GBP is weak
versus EUR and USD, leaves the Company well positioned to deliver
real-term value growth for Shareholders. Moreover, FSF is in a
position to mitigate the impact of any intra-quarter or intra-year
falls in timber prices by postponing parts of its harvesting
programme, and allowing the trees to continue to grow until the
underlying imbalance between supply and demand begins to be
reflected in market prices again.
Financing capital
In order to achieve its growth ambitions and to ensure the
Company is able to take full advantage of the opportunities in its
pipeline, additional financing will be required in the short to
medium term. The Company's borrowing policy enables the Directors
to use gearing for liquidity and working capital purposes, or to
finance acquisition of investments subject to following a prudent
approach and maintaining a conservative level of aggregate
borrowings that will not exceed 30% of Gross Asset Value,
calculated at the time of drawdown. The Company has a GBP30 million
Revolving Credit Facility, that at the end of the period was
partially drawn by GBP10.4 million. The equity levels of the
Company are closely monitored by the Board and the Investment
Manager on a regular basis. The Company continues to work closely
with its broker and the Investment Manager's in-house Retail Sales
team will conduct market research ahead of any future funding
rounds to gauge demand from existing and new investors.
Timber market volatility
Timber prices can be volatile periodically. However, demand over
the medium to long term has historically created real-term pricing
growth. In the context of global under-supply and increasing
demand, this reduces market risk for the sale of the Company's key
products and revenue streams. Should timber prices be less
attractive at the point of felling, the Investment Manager also has
the option to delay felling, allowing trees to continue to grow and
provide time for a recovery from short-term pricing volatility.
Community engagement
The development of afforestation assets in rural areas is
sensitive for local residents and, if managed unsatisfactorily,
could result in poor relationships developing between the Company
and local communities. This in turn could impact both its ability
to obtain the necessary planning consent for planting to commence
and potentially the Company's reputation. The Investment Manager
selectively commissions an independent community risk assessment
and only pursues opportunities where the risk of not obtaining
planning consent, including for reasons relating to objections
raised by the local community, is assessed to be low.
Once afforestation properties are acquired, the Investment
Manager runs a co-ordinated programme of community engagement and
seeks to respond and, wherever possible, adapt the scheme design to
meet concerns raised by community members. In addition, in the
event that planting was unable to go ahead, the acquired land would
still have inherent agricultural value. Therefore, whilst the
return generated from this would be lower, an income stream would
still be available to the Company. The Company is also working
closely with industry bodies such as Confor and Timber Development
UK to promote the merits of increased sustainable UK timber supply.
For more information on the Company's community engagement
initiatives, please see the community engagement case study on page
16.
Principal risk register
The Company is exposed to a number of risks that have the
potential to materially affect the Company's valuation, reputation
and financial or operational performance. The nature and levels of
risk are identified according to the Company's investment
objectives and existing policies, with the levels of risk tolerance
ultimately defined by the Board.
The Company's risk register covers seven main areas of risk:
financial, market, forestry, legal and regulatory, operational,
economic and investment, although not all of these risks will fall
into the top ten risk category.
Forestry as an asset class has its own set of unique risks which
are considered and managed by the Investment Manager's dedicated
team and external advisers. After mitigations are taken into
account, most of these risks have a low residual risk score and
those that do not are covered in more detail in the top ten risks
section of this report.
Climate-specific risks are also monitored by the Board and the
Investment Manager and an extensive climate change scenario
analysis has been undertaken. The Investment Manager uses the
S&P Global Climanomics platform to undertake this work and
their findings are included in the Company's most recent
Sustainability and ESG Report. After mitigations are taken into
account, physical climate risks have a low residual risk score
while some transition risks feature in the Company's top ten
risks.
The Company's top ten risks are summarised on pages 41 to 45,
followed by a detailed discussion of the mitigating factors.
This risk map shows our assessment of each area of principal
risk after mitigation.
Heat map included in the full annual report on the Company
website.
Economic risks
1 Interest rates
2 Inflation
3 Macroeconomic
Financial risks
4 Equity risk
5 Valuation
Market risks
6 Demand for carbon credits
7 Demand for timber
8 Cost to transition to lower emissions technology
Forestry risks
9 Reputational
Legal and regulatory
10 Government commitment to net zero
Economic risks
1 Interest rates
Potential impact
The risk that there will be changes in the interest expense for
debt, or interest received on deposits, as measured in the currency
of that debt, due to movements in market interest rates. Higher
interest rates could also effectively increase the risk-free rate
and reduce the valuation of long-dated forestry assets. There is a
risk that rising interest rates could result in a higher cost of
debt than on the associated projects' return on equity, which would
be NAV destructive over time.
Mitigation
-- Manage the cost of borrowing potentially by borrowing using
fixed rate instruments, and/or by overlaying interest rate
derivatives against the Company's debt portfolio
-- In considering whether to execute hedging transactions, the
costs and benefits of hedging are to be balanced against the
effects of movements in interest rates on the debt portfolio
-- The Investment Manager ensures there is a sufficient margin
between the expected rate of return on the investment portfolio and
the cost of any borrowing, to ensure there is a buffer before
rising interest rates become dilutive to overall NAV
-- The Investment Manager undertakes interest rate scenario
analysis to inform the level of borrowing FSF is comfortable
taking
2 Inflation
Potential impact
The risk that inflation remains at persistently high levels and
this increases future costs of developing and operating the
portfolio. High inflation could also erode the valuation of the
existing portfolio.
Mitigation
-- Historically, over the long term, timber and forest asset
values have been positively correlated to inflation. General
recognition is for forestry as an asset class having inflationary
protection characteristics, but it should be noted that there is no
contracted link between inflation and timber or forest asset
prices
-- Agricultural land with afforestation potential is less
sensitive to inflationary pressures, therefore the strategy of the
Investment Manager is to increase the amount of afforestation
investment within the portfolio
3 Macroeconomic
Potential impact
Changes in economic, technological, political or regulatory
environment and market sentiment can impact the returns expected
from the assets in the Company's portfolio.
Mitigation
-- Diversity of revenue streams is targeted where possible,
preventing over-concentration to specific risks
-- The Company invests in forestry markets that have displayed
long-term political regulatory stability
-- The Investment Manager participates in industry forums linked
to the carbon markets and the related regulation
Financial risks
4 Equity risk
Potential impact
The risk that the Company is unable to access sufficient funding
to complete its operations.
Mitigation
u) The Company's broker will conduct market research ahead of
any future funding rounds to gauge demand from existing and new
investors
v) The Investment Manager and the Board have set budgets such
that a working capital buffer is held. The budgets include
forecasts of timber and grant income streams that are expected in
the next 18 months
w) The Company can recycle capital through the sale of non-core
assets and could also decide to exit one or multiple forestry
assets
x) In periods where the discount opens up, the Board has the option to consider share buybacks
5 Valuation
Potential impact
The risk that valuations are prepared incorrectly by either the
Investment Manager or the valuer, leading to a publicly stated NAV
that is not representative of the value of the portfolio. There is
a risk that there are an insufficient number of comparable
transactions used to inform the RICS Red Book valuation which is
less representative of FSF's actual value. This could reduce
investor confidence in the Company and could result in investors
selling FSF's shares.
Mitigation
-- The Company has appointed an independent forestry valuation
specialist, Savills, to value the portfolio. Savills are highly
experienced in forestry valuations and valued over GBP1 billion of
UK forestry assets in 2021. Savills will use the RICS Red Book
valuation approach to ensure valuations are conducted using a
consistent and well--recognised methodology
-- The Savills valuation agreement leaves it as a contractor
with a liability exposure of c.4% of the valuation figure and FSF
would have recourse up to that amount in the event of manifest
error
-- If the Company was concerned about the Red Book valuation it
could seek to pursue one or a number of exits above holding value,
providing additional actual transactional evidence, to provide
confidence to investors
Market risks
6 Demand for carbon credits
Potential impact
The risk that demand or volume leads to a reduction in demand
from the users of carbon credits that negatively impacts
profitability.
Mitigation
-- As outlined in the Prospectus, the demand for carbon credits
is expected to materially increase in the run--up to 2030 and 2050,
driving carbon price increases. Decreases in prices paid and issues
with supply of volume of carbon credits are more likely to be
driven by regulatory challenges than by overriding supply and
demand dynamics
-- The Investment Manager is part of the working/consultation
groups for the Woodland Carbon Code (carbon credits body/verifier
in the UK) and the LSE Voluntary Carbon Markets delivery group,
with the goal of ensuring continued additionality of carbon credits
and an orderly functioning market for trade of carbon credits
7 Demand for timber
Potential impact
The risk that a reduction in demand from the purchasers of
timber would negatively impact the Company's profitability .
Mitigation
-- The fundamental under-supply of standing timber in the UK and
globally in the context of strong increasing demand reduces market
risk for the sale of the Company's key product and revenue stream
and which affects the underlying asset values (land and crop
value). Timber prices can be volatile on an intra-month,
intra-quarter and sometimes intra-year basis. However, demand over
the medium to long term has historically created real terms pricing
growth over the medium to long term and in the context of global
under-supply and increasing demand this risk is reduced if a medium
to long-term investment view is applied
-- The Investment Manager has set a long-term five-year rolling
average returns target for the Company in order to deter investors
from a short-term investing approach
-- Due to no regular dividend yield commitments to Shareholders,
the Investment Manager will be able to postpone harvesting
programmes during periods of short--term timber pricing
volatility
8 Cost to transition to lower emissions technology
Potential impact
The risk that timber sawmills/processors could face increased
energy supply costs e.g. if biomass energy is phased out, or if the
supply chain have increased costs with mitigating their GHG
emissions. Costs could be passed onto FSF, in the form of lower
prices paid for FSF's timber and in higher prices charged for
downstream timber products leading to reduced timber demand.
Mitigation
-- FSF is in a strong position where its product has a very low
carbon intensity and a long time horizon (notably only processing
and delivery costs with product going to mills approximately every
40 years)
-- Downstream wood processors in Europe and North America (where
the UK sources most of its imported wood from) likely to follow a
similar energy transition pathway; risk is reduced while FSF keeps
in step with its peer group
-- FSF is proactively participating with the UK wood processing
industry to engage and consult with the UK Government on policies
and incentive schemes. FSF is a member of Timber Development UK, of
which FSF Non--Executive Director Christopher Sutton is
Chairman
-- Timber products are low carbon and renewable materials versus
the alternatives for the same use. If wood processors are under
pressure to decarbonise then so will the producers of the
alternative materials available. Overall, the demand for and value
of timber is likely to increase as its sustainability credentials
become increasingly valued versus the alternatives
Forestry risks
9 Reputational
Potential impact
The risk that there is resistance to change of land use from the
public generating negative PR.
Negative press and media coverage could negatively impact
investor sentiment, ultimately impacting the ability to raise more
capital.
Mitigation
-- During the due diligence phase of afforestation investments,
the Investment Manager commissions an independent community risk
assessment. This 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 a Forestry Skills
Training Programme that directly enables rural farming communities
to adapt to afforestation related land use change, by providing
local community members with the skills, training, qualifications,
mentoring and safety equipment required to commence in the work and
jobs created by the Company's afforestation schemes. More
information can be found on page 37.
-- 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
-- The Company pursues community engagement plans and conducts
in-person community days to enable the local community to engage
with and express their views about FSF's afforestation development
plans
Legal and regulatory
10 Government commitment to net zero
Potential impact
The risk that the UK Government changes its net zero strategy,
leading to less support for sustainable forestry and climate
action; timber regulation changes in favour of only broadleaf
afforestation schemes to achieve net zero action; fewer grants;
commercial timber falling out of favour; WCC changing the Carbon
Credit Policy; and convoluted policy developments.
Mitigation
-- Considered unlikely given the level of consensus and
commitment to achieve UK net zero by 2050
-- Per hectare, planting commercial conifers makes approximately
three times the climate contribution versus planting broadleaves;
this is due to the much faster biological growth rate of conifers
and to carbon remaining locked up in timber-based products for
decades in wood products
-- Proactive engagement with the market around this point,
continuing to educate around the dual benefits of sustainable
forestry to tackle climate change and biodiversity loss; in
particular, the argument against broadleaf afforestation sites and
monoculture risks
-- Changes to planting strategy would be considered if grants
are no longer available and action taken if necessary
FINANCIAL REVIEW
Analysis of financial results
The financial statements of the Company for the year ended 30
September 2023 are set out on pages 88 to 106.
The Company prepared the audited financial statements for the
year to
30 September 2023 in accordance with the UK adopted
International Accounting Standards as applicable to companies
reporting under those standards. The Company applies IFRS 10 and
Investment Entities: Amendments to IFRS 10, IFRS 12 and measures
all their subsidiaries that are themselves investment entities at
fair value. The Company accounts for its interest in its wholly
owned direct subsidiary FSFC Holdings Limited as an investment at
fair value through profit or loss in accordance with IFRS 13 Fair
Value Measurement.
The primary impact of this application, in comparison to
consolidating subsidiaries, is that the cash balances, the working
capital balances and borrowings in the intermediate holding
companies and project companies are presented as part of the
Company's fair value of investments.
The Company, its subsidiaries FSFC Holdings Limited and FSFC
Holdings 2 Limited (together the "Group"), hold investments in 68
portfolio properties held within five special purpose vehicles
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 on
pages 92 to 106.
Key financial metrics for the year ended 30 September 2023
As at As at
30 September 30 September
All amounts presented in GBPmillion (except as noted) 2023 2022
------------------------------------------------------- -------------- --------------
Gross Asset Value ("GAV")(1) 179.6 180.6
Market capitalisation 140.2 182.4
Net Asset Value ("NAV")(2) 169.2 180.6
NAV per share (pence) 98.4 105.0
Total return on investment (8.7) 11.0
Profit/(loss) before tax (11.3) 8.8
Earnings/(losses) per share (pence) (6.6) 6.2
------------------------------------------------------- -------------- --------------
Calculated as the sum of the NAV and total outstanding debt on
page 47.
Total equity as per the statement of financial position on page
89.
Net assets
Net assets decreased 6.3% from GBP180.6 million at 30 September
2022 to GBP169.2 million at 30 September 2023.
The net assets of GBP169.2 million comprise GBP172.2 million of
forestry and afforestation assets, with an additional GBP2.7
million carbon credit valuation and cash balances of GBP1.2 million
in the Company and GBP2.7 million in the project companies
Offset by the drawn Revolving Credit Facility ("RCF") balance of
GBP10.4 million, GBP2.0 million of other assets in the Company and
GBP1.2 million of other liabilities in the project companies.
At 30 September 2023, GBP10.4 million of the Group's GBP30
million RCF had been drawn. The GAV is equal to the sum of the NAV
of GBP169.2 million and the outstanding debt of GBP10.4 million as
described in the alternative measures table on page 50. The GAV as
at 30 September 2023 was GBP179.6 million.
Analysis of the Group's net assets at 30 September 2023
As at As at
30 September 30 September
All amounts presented in GBPmillion (except as noted) 2023 2022
------------------------------------------------------- ------------- -------------
Red Book valuation(1) 172.2 144.2
Carbon credits valuation(2) 2.7 0.6
------------------------------------------------------- ------------- -------------
Portfolio value 174.9 144.8
------------------------------------------------------- ------------- -------------
Project companies' cash 2.7 2.0
Project companies' other net liabilities (1.2) (0.5)
------------------------------------------------------- ------------- -------------
Revolving Credit Facility (10.4) -
------------------------------------------------------- ------------- -------------
Investments at fair value through profit or loss 166.0 146.3
Company's cash 1.2 34.3
Company's other net assets 2.0 -
------------------------------------------------------- ------------- -------------
Net Asset Value 169.2 180.6
Number of shares 172,056,075 172,056,075
Net Asset Value per share (pence) 98.4 105.0
------------------------------------------------------- ------------- -------------
1. Classified as the fair value of the underlying forestry assets held through the SPVs.
2. The carbon credit valuation noted is based on value ascribed
to progress towards creation of carbon credits.
Third-party debt arrangements and gearing position
As at 30 September 2023, the Company had used GBP10.4 million of
its RCF with GBP19.6 million remaining undrawn. The total
outstanding GBP10.4 million RCF balance represented 5.8% of GAV (30
September 2022: 0%).
Details of the debt arrangements:
Borrower Provider Facility Outstanding Maturity Applicable
type rate(1)
-------------- ----------- ---------- ------------ ---------- ----------------------
FSFC Holdings Clydesdale Revolving GBP10.40m July 2025 SONIA + (2.00%-2.20%)
2 Bank PLC credit
-------------- ----------- ---------- ------------ ---------- ----------------------
1. The margin varies depending on the completion of defined
S&ESG targets linked to the facility. In the first year of the
facility these targets were met, and the Company achieved a margin
of 2.00%.
NAV bridge
NAV bridge from 30 September 2022 to 30 September 2023
The Net Asset Value at 30 September 2023 was GBP169.2 million,
compared to GBP180.6 million at 30 September 2022. The decrease of
GBP11.4 million is the net impact of a reduction of the fair value
of the existing afforestation and forestry assets by GBP6.5
million, acquisition costs of GBP2.0 million, fund operational
expenditure of GBP3.4 million, asset-level operational expenditure
of GBP1.9 million and GBP1.3 million of capital expenditure, offset
by grant and timber income of GBP1.7 million and an additional
GBP2.1 million for 107,591 carbon credits attributed to four
underlying afforestation assets where planting has been completed
during the year.
Company performance
Profit and loss
The Company's loss before tax for the year to 30 September 2023
was GBP11.3 million, generating negative earnings of (6.6) pence
per share.
For the period to 30 September 2023, the total return on
investments was GBP(8.7) million, which relates to GBP2.6 million
of interest on the FSFC Holdings loan notes and GBP11.3 million net
losses on investments at fair value. The interest income is from
the Company's Shareholder loan to FSFC Holdings Limited. The net
loss 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 GBP2.7 million, in line with expectations. These
comprise investment management fees of GBP1.6 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
31 August
Year 2022
to
30 September to 30
September
All amounts presented in GBPmillion (except as noted) 2023 2022
------------------------------------------------------- ------------- -----------
Interest received on FSFC Holdings loan notes 2.6 0.9
Net (losses)/gains on investments at fair value (11.3) 10.1
------------------------------------------------------- ------------- -----------
Total return on investment (8.7) 11.0
Operating expenses (2.6) (2.2)
------------------------------------------------------- ------------- -----------
Profit before tax (11.3) 8.8
Earnings per share (pence) (6.6) 6.2
------------------------------------------------------- ------------- -----------
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 Association
of Investment Companies ("AIC") recommended methodology for
calculating this ratio, which is an annual figure.
The ongoing charges ratio for the year to 30 September 2023 was
1.46% (30 September 2022: 1.43%). 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 the Company, FSFC Holdings Limited and FSFC
Holdings 2 Limited.
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.
Ongoing charges
All amounts presented in GBPmillion (except as noted)
FSFC FSFC
H2
------------------------------------------------------- ------- -------
Investment management fees 1.56
Directors' fees 0.10
Administration fees 0.15
Audit fees 0.15
Other legal and professional fees 0.33
Other ongoing fees 0.19 0.13
------------------------------------------------------- ------- -------
Total 2.61
------------------------------------------------------- ------- -------
Ongoing charges ratio 1.46%
------------------------------------------------------- ------- -------
NAV
------------------- ------
31 March 2023 186.6
30 September 2023 169.2
-------------------- ------
Average 177.9
-------------------- ------
Cash flow
The Company held cash balances at 30 September 2023 of GBP1.2
million. This amount excludes cash held in subsidiaries. The
breakdown of the movements in cash during the year is shown
below.
Cash flows of the Company for the year to 30 September 2023
(GBPmillion)
Year 31 August
to 2021
30 September to 30
September
2023 2022
----------------------------------------- ------------- -----------
Opening cash balance 34.3 -
Gross proceeds from IPO and fundraising - 175.0
IPO and share issuance costs - (3.2)
Investment in FSFC Holdings Limited
(equity and loan notes) (31.0) (136.2)
Loan interest receipts 0.4 -
Group movements in working capital 0.2 0.9
Directors' fees and expenses (0.2) (0.1)
Investment management fees (1.5) (1.1)
Administrative expenses (1.0) (1.0)
----------------------------------------- ------------- -----------
Company's closing cash balance 1.2 34.3
----------------------------------------- ------------- -----------
Cash flows of the Group for the year to 30 September 2023
(GBPmillion)
The Group is defined as the Company and its two intermediate
holding companies. The cash flows for the Group of GBP1.2 million
include GBP0.01 million in FSFC Holdings 2 Limited .
Combined asset-level income analysis
The underlying investments generate revenue from grants, timber
harvesting and a number of isolated activities across a number of
sites. Details of the combined income at the asset level for the
year to 30 September 2023 are shown below:
Asset-level revenue type Revenue Details
(GBPm)
--------------------------------------- -------- ----------------------
Grant income 0.9 472 hectares
of planting
Timber income 0.7 16,755 tonnes
of harvesting
Livestock sales and agricultural rent 0.2 Includes livestock
sales and land
rental for livestock
Hydro power 0.1 Hydro electricity
sales at Fordie
Other income 0.2 Includes sporting
and hospitality
rental income
--------------------------------------- -------- ----------------------
Total asset-level revenue 2.1
--------------------------------------- -------- ----------------------
ALTERNATIVE PERFORMANCE MEASURES ("APMs")
APM purpose Calculation APM value Reconciliation
to IFRS
--------------------------- --------------------------- ----------------- --------------------------
Net Asset Value The sum of net GBP169.2 million The calculation
("NAV") A measure assets of the uses the Net Asset
of the value of Company as shown Value as per the
the Company's on the statement statement of financial
total assets. of financial position. position on page
89.
--------------------------- --------------------------- ----------------- --------------------------
Gross Asset Value The sum of total GBP179.6 million The calculation
("GAV") A measure assets of the uses the Net Asset
of the value of Company as shown Value as per the
the Company's on the statement statement of financial
total assets. of financial position position on page
Gross Asset Value and the total 89 and total outstanding
on investment debt of the Group. debt on page 47.
basis including
debt.
--------------------------- --------------------------- ----------------- --------------------------
Net Asset Value The net assets 98.4 pence As per the closing
per share Allows divided by the Net Asset Value
investors to gauge number of Ordinary per the statement
whether shares Shares in issuance. of financial position
are trading at on page 89 and
a premium or a the closing number
discount by comparing of Ordinary Shares
the Net Asset as per note 13
Value per share of the financial
with the share statements on
price. page 100.
--------------------------- --------------------------- ----------------- --------------------------
Total NAV return Closing NAV per 0.3% The calculation
since IPO A measure share as at 30 uses the Net Asset
of financial performance, September 2023 Value as per the
indicating the plus all dividends statement of financial
movement of the since IPO assumed position on page
value of the Fund reinvested, divided 89 and cash dividends
since IPO and by the NAV at as per the statement
expressed as a IPO, expressed of cash flows
percentage. as a percentage. on page 91.
--------------------------- --------------------------- ----------------- --------------------------
Market capitalisation Closing share GBP140.2 million The calculation
Provides an indication price as at 30 uses the closing
of the size of September 2023 share price as
the Company. multiplied by per the key investment
the closing number metric table on
of Ordinary Shares page 44 and the
in issuance. closing number
of Ordinary Shares
as per note 13
of the financial
statements on
page 100.
--------------------------- --------------------------- ----------------- --------------------------
Ongoing charges Calculated and 1.46% Ongoing charges
A measure, expressed disclosed in accordance are detailed on
as a percentage with the AIC methodology. page 48.
of average net Annualised expenses
assets, of the divided by average
regular, recurring NAV.
annual costs of
running the Company.
--------------------------- --------------------------- ----------------- --------------------------
Gearing Total debt of 5.8% The calculation
A measure of the Group and uses the total
financial risk underlying investments debt on page 47
on the balance as shown on page and the Net Asset
sheet of the Group. 47 as a percentage Value as per the
of GAV. statement of financial
position on page
89.
--------------------------- --------------------------- ----------------- --------------------------
BOARD OF DIRECTORS
Richard Davidson
Chair of the Board, Management Engagement Committee Chair
Richard has a 20-year track record of investing in UK forestry
and has been heavily involved in the management of his own Scottish
forestry investments, including the planning and design of several
new planting projects. He was previously the chair of the
investment committee of Gresham House Forestry.
Richard was formerly a Managing Director and Investment
Strategist at Morgan Stanley. He was also previously a partner of
Lansdowne Partners, running the macro fund. Richard chairs the
University of Edinburgh investment committee, overseeing the
university's endowment.
External directorships
Aberforth Smaller Companies Trust Plc
MIGO Opportunities Trust Plc
Sarika Patel
Non-Executive Director, Audit and Risk Committee Chair, Senior
Independent Director
Sarika has nearly 30 years' experience in a mixture of public
and private organisations. She is a chartered accountant and a
chartered marketer. Sarika is also currently Chair of Action for
Children and is a Board Member of the Office for Nuclear Regulation
where she chairs the Audit, Risk and Assurance Committee.
External directorships
abrdn Equity Investment Trust Plc
SDCL Energy Efficiency Income Trust Plc
Office for Nuclear Regulation
Action for Children
London General Surgery Ltd
Josephine Bush
Non-Executive Director, Sustainability and ESG Committee
Chair
Josephine was a senior partner at EY for 14 years, specialising
in the renewable energy sector. She is a qualified solicitor and
chartered tax adviser, as well as earning the CFA ESG investing
qualification and a sustainable finance certification. She is a
fellow of the Royal Geographic Society.
External directorships
JRB Consulting Limited
Vulcan Energy Resources
Sustineri Strategy Ltd
NextEnergy Solar Fund Plc
Christopher Sutton
Non-Executive Director, Nomination and Remuneration Committee
Chair
Christopher was a director of James Latham plc, one of the UK's
largest independent trade distributors of timber, panels and
decorative surfaces, for 14 years. He is currently the Chair of
Timber Development UK, a Non-Executive Commercial Director of
UNWASTED and an ambassador for the National Forest Company.
External directorships
Timber Development UK Limited
CDS Consultants Limited
UNWASTED Group Plc
BOARD LEADERSHIP AND COMPANY PURPOSE
GOVERNANCE FRAMEWORK
The Board
The role of the Board is to collectively promote the long-term
success of the Company. The Board shapes the Company's strategy,
having regard to all stakeholders within a framework of effective
controls. The "Matters Reserved for the Board" is available to view
on the Company's website or by writing to the Company Secretary at
the registered office.
Section 172 statement Pages 13 and 14
Principal risks Page 41 to 45
Supporting Committees
The Board has established four Committees to focus on the
specific activities of the Company, under the chairmanship of
different members of the Board, and ultimately all reporting to the
full Board.
Audit and Risk Committee Pages 56 to 59
Oversees financial reporting, maintains a constructive
relationship with the external auditor and monitors the
effectiveness of the Company's risk management systems.
Nomination and Remuneration Committee Pages 64 to 67
Ensures the Board and its Committees have the appropriate
balance of skills, knowledge, diversity, experience and
independence. Establishes a remuneration policy and ensures there
is a clear link between performance and remuneration.
Sustainability and ESG Committee Pages 62 and 63
Provides oversight in relation to its Sustainability and ESG
strategy.
Management Engagement Committee Pages 60 and 61
Reviews the performance of the Investment Manager, Fund
Administrator, Company Secretary and key external service
providers.
The Investment Manager
The day-to-day management of the Company and in particular the
management of its forestry and afforestation portfolio
Investment Manager's Report Pages 22 and 23
Operational review Pages 24 to 32
Stakeholders
The Company's stakeholders play an important role in monitoring
and safeguarding its governance. The Board ensures that its highly
experienced third-party advisers, such as its corporate broker and
legal adviser, are consulted on appropriate matters.
Section 172 statement Pages 13 and 14
Relationships with Shareholders Pages 13 and 14
CORPORATE GOVERNANCE REPORT
Purpose and governance culture
The Company has a clear and consistent purpose, which forms the
foundation of its strategic objectives. The Company's Board embeds
a strong culture of governance, informed by a number of factors
including its focus on long-term net total return through targeting
sustainable impact investments and openness and transparency with
stakeholders. This approach is at the heart of how the Directors
fulfil their duty under Section 172 of the Companies Act 2006 and
the Board feels strongly that its policies, practices and
behaviours contribute effectively to the success of the Company and
its stakeholders.
Meetings and attendance
The Board meets formally on a quarterly basis and, in addition,
also meets to review and discuss the Company's strategy annually.
The Board also holds ad hoc meetings for matters such as to approve
the half-yearly Net Asset Value, receive trading updates and other
general corporate matters. The Company Secretary attends all
scheduled meetings, whilst representatives of the Investment
Manager, the external auditor and other advisers are invited to
attend as required.
In addition to the scheduled Board and Committee meetings for
FY23, there were a further seven Board meetings held during the
period. Attendance at all scheduled meetings can be seen in the
table below.
Richard Sarika Josephine Christopher
Davidson Patel Bush Sutton
----------------------------------------------- -------- ------ --------- -----------
Quarterly Board meetings 4/4 4/4 4/4 4/4
Audit and Risk Committee meetings 2/2 2/2 2/2 2/2
Nomination and Remuneration Committee meetings 1/1 1/1 1/1 1/1
Management Engagement Committee meetings 1/1 1/1 1/1 1/1
Sustainability and ESG Committee meetings 1/1 1/1 1/1 1/1
----------------------------------------------- -------- ------ --------- -----------
Statement of compliance with AIC Code
The Company has complied throughout the accounting period ended
30 September 2023 with the Provisions set out in Sections 5 to 9 of
the AIC Code.
The Board has considered the need for an internal audit function
and, as all the day-to-day operations of the Company are
outsourced, this was not deemed necessary at this time. Due to the
size of the Board and the nature of the Company's business, the
Board considers it appropriate for the entire Board, including the
Chair, to fulfil the role of the Audit and Risk Committee.
Going concern
Under the AIC Code, the Board needs to consider whether it is
appropriate to adopt the going concern basis of accounting in
preparing the financial statements. The Board continues to adopt
the going concern basis and the detailed consideration is contained
on page 77.
Viability statement
The viability statement, under which the Directors assess the
prospects of the Company over a longer period, is contained on
pages 77 and 78.
Assessment of principal and emerging risks
The Board undertook a robust assessment of the Company's
emerging and principal risks during the year. Particular focus was
given to the liquidity of the Company's assets and subsidiaries.
Further details can be found on page 93.
DIVISION OF RESPONSIBILITIES
Board Role overview
------------------------ -------------------------------------------------------------
Chair * Sets the agenda for Board meetings
* Works with the Company Secretary to manage the
meeting timetable
* Facilitates open and constructive dialogue amongst
Directors during meetings
* Ensures timely flow of accurate and reliable
information within the Board
------------------------ -------------------------------------------------------------
Non-Executive Directors
* Work closely with the Chair and Foresight in
monitoring the Company's delivery of strategy
* Ensure internal controls are robust and that an
external audit is carried out
* Provide constructive input to the development of the
Company's strategy
* Serve on the Board's Committees
------------------------ -------------------------------------------------------------
Role overview
------------------------ -------------------------------------------------------------
Investment Manager
* Provides portfolio and risk management services
* Ensures compliance with the Company's investment
policy and the requirements of the AIFM Directive,
pursuant to the Investment Management Agreement
("IMA")
* Fulfils the duties set out in the IMA, which sets out
the matters over which the Investment Manager has
authority
* Works alongside the Board on corporate strategy, risk
management and corporate governance procedures
* Provides full information on the Company's investment
performance, assets, liabilities, projected cash flow
and other relevant information to the Board at its
quarterly meetings
------------------------ -------------------------------------------------------------
Administrator
* Maintains the Company's books and records
* Prepares the management and financial accounts
* Calculates, in conjunction with the Investment
Manager and Savills, the Company's NAV
------------------------ -------------------------------------------------------------
Company Secretary * Ensures regulatory compliance
* Supports the Board's corporate governance processes
and continuing obligations
* General secretarial functions required by the
Companies Act 2006
* Provides support to the Chair in ensuring timely and
accurate information flows to the Board
------------------------ -------------------------------------------------------------
AUDIT AND RISK
AUDIT AND RISK COMMITTEE REPORT
Sarika Patel
Chair of the Audit and Risk Committee
Composition
The Audit and Risk Committee comprises the full Board and is
chaired by Sarika Patel. Due to the size of the Board and the
independent, non-executive nature of the Directors, the Board
considers it appropriate for all of the Directors to be members of
the Committee. The Committee's terms of reference were reviewed
during the year and are available on the Company's website.
The Board is satisfied that, in line with the recommendations of
the AIC Code, at least one member of the Audit and Risk Committee
has recent and relevant financial experience, and that the
Committee as a whole has experience relevant to the sector in which
the Company operates. As the Chair of the Board was independent on
appointment, it is considered appropriate for him to be a member of
the Audit and Risk Committee and to bring his considerable
experience in the forestry sector to bear on its activities.
Responsibilities
The role of the Audit and Risk Committee is to ensure that the
financial and other reporting of the Company is accurate, complete,
and appropriately audited and reported thereon. The Committee
reviews internal procedures of its advisers and agents to ensure
that the Company's significant risks have been identified and that
suitable steps have been taken to ensure that the controls in place
appropriately mitigate these risks.
The duties of the Audit and Risk Committee are, inter alia:
-- To monitor the integrity of the financial statements of the
Company, including its annual and interim reports and any other
formal announcements relating to its financial performance, and
review and report to the Board on significant financial reporting
issues and judgements which those statements contain having regard
to matters communicated to it by the auditor
-- To review the content of the Annual Report and Accounts and
advise the Board on whether, taken as a whole, it is fair, balanced
and understandable and provides the information necessary for
Shareholders to assess the Company's position and performance,
business model and strategy and whether it informs the Board's
statement in the Annual Report on these matters that is required
under the AIC Code
-- To review the Company's internal financial controls and
review the adequacy and effectiveness of the Company's internal
control and risk management systems and monitor the proposed
implementation
of such controls
-- To review the adequacy and effectiveness of the Company's
compliance, whistleblowing and fraud--related processes and
procedures
-- To consider and make recommendations to the Board to be put
to Shareholders for approval at the Company's Annual General
Meeting in relation to the appointment, reappointment and removal
of the Company's auditor
-- To assess annually the auditor's independence and objectivity
taking into account relevant professional and regulatory
requirements and the relationship with the auditor as a whole,
including any threats to the auditor's independence and the
safeguards applied to mitigate those threats and the provision of
any non audit services
Activities during the year
In March 2023, the Committee undertook a detailed review of the
Company's risk register and emerging risks. The risk register was
updated to reflect, amongst other things, increased inflation and
interest rates and the general macroeconomic challenges in the
market.
During the year, the Audit and Risk Committee has sought
assurances as to the resilience of the reporting and control
systems in place for both the management of the portfolio and for
the Company's investment activities. The Committee will continue to
evaluate and challenge the resilience of all key agents to the
Company.
Although the Board has overall responsibility for preparing the
Annual Report and Financial Statements, the Audit and Risk
Committee considers the form and content of the Annual Report and
Financial Statements and any significant areas of complexity,
judgement and estimation that have been applied in the preparation
of the financial statements. These areas of judgement and
estimation were discussed with the Investment Manager,
Administrator and auditor during the year and the Audit and Risk
Committee reviewed and agreed the auditor's audit plan and audit
findings report following the conclusion of its year-end audit.
Meetings
The Committee formally met twice during the year and attendance
is set out on page 54. The meetings allowed sufficient time to
enable the Committee to consider all the matters of importance and
the Committee was satisfied that it received full information in a
timely manner to allow it to fulfil its obligations. The formal
Audit and Risk Committee meetings were also attended by
representatives of the Investment Manager, Administrator and
Company Secretary.
Risk management and internal controls
Risks
The Board has ultimate responsibility for the effective
management of risk for the Company including determining its risk
appetite and identifying key strategic and emerging risks. The
Audit and Risk Committee serves as a governance body to oversee,
review and challenge the risk management processes. The Committee
has conducted a robust assessment of the principal risks faced by
the Company and was satisfied on the adequacy and effectiveness of
the Company's risk management systems with appropriate operational
and assurance reporting from third parties. A description of these
risks, including procedures employed to manage or mitigate them, is
included in the strategic report on pages 41 to 45.
Internal controls
The Board is responsible for the internal financial control
systems of the Company and for reviewing their effectiveness. It
has contractually delegated these services to third parties, but
the Directors annually review the internal control framework
established by the Investment Manager and Administrator to satisfy
itself on the effectiveness of internal financial control.
The Directors receive and consider quarterly reports from the
Investment Manager, giving full details of the portfolio and of all
aspects of the financial position of the Company. Additional ad hoc
reports are received as required and Directors have access at all
times to the advice and services of the Company Secretary, which is
responsible for ensuring that Board procedures are followed, and
that applicable rules and regulations are complied with.
The Board has reviewed the need for an internal audit function.
It has decided that the systems and procedures adopted by the
Investment Manager, Administrator, the Audit and Risk Committee and
other third-party advisers provide sufficient assurance that a
sound system of internal control, which safeguards Shareholders'
investments and the Company's assets, is maintained. In addition,
the Company's financial statements are audited by external
auditors. The Board has therefore concluded that it is not
necessary to establish an internal audit function at present but
this approach will be kept under review.
The auditor
As part of the review of auditor independence and effectiveness,
Ernst & Young LLP (" EY ") has confirmed that they are
independent of the Company and have complied with the relevant
auditing standards. In evaluation of EY's performance, the Audit
and Risk Committee has taken into consideration the skills and
experience of the firm and of the audit team.
The Committee assessed the effectiveness of the audit process
through the quality of the audit planning reports it received from
EY, together with the contribution which EY made to the discussion
of any matters raised in these reports or by Committee members. The
Committee also took into account any relevant observations made by
the Investment Manager and Company Secretary. The Committee is
satisfied that EY provides an effective independent challenge in
carrying out its responsibilities.
EY was appointed as the Company's auditor upon its IPO in
November 2021. Having considered the effectiveness of the audit,
including reviewing the Audit Quality Inspection Reports in
relation to EY published by the Financial Reporting Council, the
Audit and Risk Committee has recommended the continuing appointment
of EY to the Board. EY's performance will continue to be reviewed
annually, taking into account all relevant guidance and best
practice.
All non-audit work to be carried out by EY must be approved in
advance by the Audit and Risk Committee to avoid compromising the
independence of EY as auditor. No non-audit fees were incurred
during the financial year to 30 September 2023.
Service provided
(excluding VAT) 2023 fee 2022 fee
------------------ ---------- ----------
Audit services GBP143,775 GBP118,250
Non-audit services GBP0 GBP0
Total GBP143,775 GBP118,250
------------------ ---------- ----------
Significant financial reporting areas
The key areas of risk identified and considered by the Committee
in relation to the business activities and financial statements of
the Company for the year ended 30 September 2023 were as
follows:
Matter Committee action
----------------------------------------- ---------------------------------------------
Valuation of the forestry and The Investment Manager liaises
afforestation portfolio with the valuers on a regular
basis to ensure they have up-to-date
Although valued by an independent management information to value
firm of valuers, Savills, the the portfolio. The Board reviewed
valuation of the Company's portfolio the results of the valuation procedure
is inherently subjective, requiring at each half-year and discussed
significant judgement by the valuers. in detail the process of producing
Errors in the valuation could each valuation with the Investment
have a material impact on the Manager.
Company's NAV. Further information
about the portfolio and inputs The Investment Manager discussed
to the valuations are set out with the auditor the work performed
in note 10 to the financial statements. to confirm the valuation and existence
of the assets in the portfolio.
The 30 September valuation was
also discussed in detail with
Savills to ensure that the Board
understood the assumptions underlying
the valuation and sensitivities
inherent in the valuation and
any significant area of judgement
----------------------------------------- ---------------------------------------------
Valuation of carbon credits The Investment Manager and the
valuer worked closely together
As the sale of carbon credits to consider the process for the
is a relatively new area, support valuation of the Company's carbon
for the pricing and valuations credits. Details of the methodology
prepared by the Company is more and assumptions applied can be
limited than its forestry and found on page 32. The valuers
afforestation assets. As carbon also reported directly to the
credits now make up a larger area Board at its strategy day in August
of the portfolio than the previous 2023, in relation to both the
year, errors or an overly conservative forestry and afforestation market
approach to the valuation have and the outlook for carbon credit
the potential to impact the Company's valuations.
NAV in a material way.
The Board reviewed the results
of the valuation procedure at
each half-year and discussed in
detail the process of producing
each valuation with the Investment
Manager.
----------------------------------------- ---------------------------------------------
ESG metrics The Audit and Risk Committee worked
closely with the Sustainability
Verification of the ESG metrics and ESG Committee and the Investment
contained on pages 34 to 36 does Manager to ensure that this data
not form part of the scope of is reliable, accurate and being
the external audit. Incomplete sufficiently tested. Further detail
or inaccurate data contributing on how these metrics have been
to these metrics could lead to produced can be found in the Sustainability
errors in reporting the Company's and ESG Committee report on pages
significant ESG considerations 62 and 63.
to Shareholders.
----------------------------------------- ---------------------------------------------
Going concern assessment In assessing the Company's going
concern, the Committee has taken
The Directors are required to into consideration the current
prepare the financial statements economic situation, the principal
on a going concern basis unless risks facing the Company, its
they intend to liquidate the Company loan arrangements and liquidity
or have no alternative but to position. The Company's going
do so. concern statement can be found
on page 93
Conclusion
The Audit and Risk Committee has concluded that the Annual
Report and Financial Statements for the year ended 30 September
2023, taken as a whole, are fair, balanced and understandable and
provide the information necessary for Shareholders to assess the
Company's business model, strategy and performance.
This conclusion was reached through knowledge of the Company and
its activities, a detailed review of this Annual Report and
enquiries of the various parties involved in the preparation of the
Annual Report and Financial Statements. The Audit and Risk
Committee has reported to, and agreed its conclusions with, the
Board.
Committee evaluation
A detailed and rigorous evaluation of the Committee was
undertaken as part of the Board's annual performance evaluation.
The skills and experience of the members, including recent and
relevant financial experience and industry experience, were found
to be appropriate. The Committee was found to be functioning
effectively and all Committee members were satisfied with the
overall workings of the Committee. Through the Nomination and
Remuneration Committee, there was also consideration of succession
planning and the continued independence of all the members of the
Committee.
Sarika Patel
Chair of the Audit and Risk Committee
5 December 2023
REPORT OF THE MANAGEMENT ENGAGEMENT COMMITTEE
Richard Davidson
Chair of the Management Engagement Committee
Composition of the Management Engagement Committee
The Management Engagement Committee comprises the full Board
with Richard Davidson as Chair. The Committee's terms of reference
were reviewed during the year and are available on the Company's
website.
Responsibilities of the Management Engagement Committee
The duty of the Management Engagement Committee is to review the
terms of appointment of, and the performance by, the Investment
Manager, the Administrator and the other key service providers
appointed by the Company and to decide whether it is in the best
interests of Shareholders for those appointments to continue.
The Company's auditor is not included in this review as their
appointment falls under the remit of the Audit and Risk
Committee.
The following are considered particular areas of focus for the
Committee:
-- To monitor and evaluate the Investment Manager's performance
(and, if necessary, provide appropriate guidance) and compliance by
the Investment Manager with the Investment Management Agreement
-- To reasonably satisfy itself that the Investment Management
Agreement is fair and that the terms thereof comply with all
regulatory requirements, conform with market and industry practice
and remain in the best interests of Shareholders
-- To reasonably satisfy itself that systems put in place by the
Investment Manager in respect of the Company are adequate to meet
relevant legal and regulatory requirements
-- To reasonably satisfy itself that matters of compliance are under proper review
-- To regularly review the composition and performance of the
key personnel performing the services on behalf of the Investment
Manager and consider whether the continuing appointment of the
Investment Manager, on the terms of the Investment Management
Agreement, is in the interests of Shareholders as a whole, and make
recommendations to the Board thereon together with a statement of
the reasons for this view
-- To consider and review the level and method of remuneration
of the Investment Manager pursuant to the terms of the Investment
Management Agreement, including the methodology of calculation of
the annual fee and any performance fee
-- To review the performance and services provided by the
Company's other service providers and consider whether the
continuing appointments of such service providers under the terms
of their agreements are in the interests of Shareholders as a whole
and make recommendations to the Board thereon together with a
statement of the reasons for their view
In addition to the Committee members drawing upon their own
experiences of working with the service providers, the Committee
also had Foresight Group complete assessments of the performance of
the other service providers. This feedback was carefully reviewed
and discussed by the Committee.
Activities during the year
Investment Manager
The day-to-day management of the Company, and in particular the
management of its forestry and afforestation portfolio, is
delegated to the Investment Manager. The Committee carried out a
robust assessment of the Investment Manager during the year,
including fee levels. The feedback was positive. The Board
requested a breakdown of the investment management fees, including
fees paid to EJD Forestry for asset management services, and these
were presented and discussed at the annual strategy day. It was
concluded that, despite the rate of acquisitions in the 2023
financial year being lower than the previous year, the development
of the Company's afforestation portfolio required a considerable
time commitment. The Investment Manager also employed a portfolio
manager during the year to assist with the implementation of the
Company's considerable planting programme in spring 2024. The
increased resource within the portfolio management team at
Foresight is expected to allow Robert Guest and Richard Kelly
additional time to focus on the overall strategy of the portfolio
and seeking prospects for improved performance and growth. The
Board also reviewed an Investment Manager prepared fee benchmarking
exercise, comparing the Investment Manager's fees to other
equivalent forestry investment funds and alternative investment
trusts. The Board was satisfied that the investment management fees
represented good value for the Company. Therefore, no fee changes
were recommended to the Board by the Committee for this financial
year.
The Committee remains firmly of the view that the Investment
Manager demonstrates the skills and commitment to perform its role.
The Committee recommended the Investment Manager's continued
appointment to the Board, and it was unanimously agreed that this
is in the best interests of Shareholders.
Administrator and Company Secretary
Foresight Group LLP has served as Administrator and Company
Secretary to the Company since its IPO in November 2021.
Under the terms of the Investment Management Agreement,
Foresight Group is entitled to an annual fee in respect of
administration and company secretarial services which is calculated
and payable monthly in arrears as the greater of: (i) 0.07 per
cent. of the Net Asset Value per annum; and (ii) GBP120,000. The
Investment Manager is also entitled to reimbursement of all
out--of--pocket costs, expenses and charges reasonably and properly
incurred on behalf of the Company in connection with these
services. No additional fees were paid to the Administrator and
Company Secretary during the period.
Following the Committee's recommendation, the Board agreed that
the continued appointment of the Administrator and Company
Secretary is in the best interests of the Company and its
Shareholders.
Other service providers
During the year, the Management Engagement Committee conducted a
review of the Company's other key service providers, as listed at
the back of this Annual Report. The Committee reviewed the
performance as well as the fees charged by each service provider
and instructed the Investment Manager to provide feedback to those
providers where it was deemed appropriate. As a result of this
review and following the departure of the Company's main corporate
broker contact, who had been instrumental in the Company's IPO, the
Company undertook a formal and rigorous tender process to select a
new corporate broker. A decision was made after the year end to
appoint Stifel Nicolaus Europe Limited as the new corporate broker
to the Company.
The Company appointed a new PR Adviser, SEC Newgate, during the
year and has been pleased with the results produced to date.
Committee evaluation
Following a robust review of the Committee as part of the
Company's annual performance evaluation, the experience of the
Committee's members was found to be appropriate. Committee meetings
were considered effective and efficient, and all members
contributed appropriately.
Richard Davidson
Chair of the Management Engagement Committee
6 December 20232
REPORT OF THE SUSTAINABILITY AND ESG COMMITTEE
Josephine Bush
Chair of the Sustainability and ESG Committee
Composition of the Sustainability and ESG Committee
The Sustainability and ESG Committee comprises the full Board
and is chaired by Josephine Bush. It is considered appropriate that
all Directors are members of the Committee due to the central focus
on sustainability of the Company and the importance of all Board
members remaining up to date with sustainability and ESG
matters.
Responsibilities of the Sustainability and ESG Committee
The Sustainability and ESG Committee is responsible for
reviewing the Company's ESG strategy and ensuring this is in line
with the aims and objectives agreed by the Board and the Investment
Manager. The Committee's terms of reference were reviewed during
the year and are available on the Company's website.
The duties of the Sustainability and ESG Committee are, inter
alia:
-- To guide, supervise and support the Investment Manager in
drafting and periodically reviewing the Sustainability and ESG
strategy which sets out the guiding principles, objectives,
strategic actions and policies with respect to ESG matters
-- To have oversight of the overall ESG strategy of Company,
including agreeing the Company's key ESG objectives and agreeing
the key performance indicators linked to each of the Company's
chosen ESG objectives, and monitoring progress against each of
these key performance indicators
-- To assess and prioritise ESG risks and opportunities for the
Company, such assessment to be carried out in alignment with chosen
reporting frameworks, including assessment of climate change risks,
and with relevant input from the Audit and Risk Committee
-- To receive reports and keep abreast of notable developments
in ESG-related regulation and industry trends relevant to the
Company and the sector in which it operates
-- To monitor the Company's adherence to ESG objectives and KPIs
and work with the Audit and Risk Committee to oversee the reporting
of these objectives and KPIs
-- To oversee the selection of non-financial reporting/ESG
disclosure frameworks by the Company
-- To oversee the engagement of any external service providers
or consultants retained for the purpose of auditing the Company's
performance in relation to ESG matters
-- To identify relevant ESG training and opportunities and
advise the Board and/or the Company's key service providers
accordingly
Meetings
The Sustainability and ESG Committee met once during the year to
oversee, guide and discuss the Company's approach to sustainability
and ESG strategy, review progress against KPIs, and to assess the
disclosures to make in this report and the separate Sustainability
and ESG Report. The Sustainability and ESG Committee Chair also met
with representatives of the Investment Manager throughout the year
to progress and evolve the approach to sustainability, and oversee
the finalisation of the standalone Sustainability and ESG Report,
which was published in April 2023. The Company Secretary attends
the meetings as Secretary to the Committee. In addition,
representatives of the Investment Manager are also invited to
attend.
Activities during the year
ESG strategy
The Company has categorised its ESG commitments into a series of
sustainable business initiatives, measures and targets, with the
core aim of generating "natural capital alpha" (as defined within
the standalone Sustainability and ESG Report) through sustainable
forestry management practice. This strategy is set out on page 33
of this report and in the standalone Sustainability and ESG Report
published on 18 April 2023.
Sustainability and ESG Report
In recognition of the increasing importance of Sustainability
and ESG credentials to Shareholders, the Board prepared and
published a separate Sustainability and ESG Report on 18 April
2023, following the publication of the 2022 Annual Report and
Financial Statements. The Sustainability and ESG Report aimed to
provide additional detail on the narrative surrounding the
statistics set out on pages 62 and 63.
Following positive engagement and feedback on the content of the
report, the Committee has taken the decision to prepare an updated
version for the 2023 financial year, which will build on the
Company's sustainability strategy, climate-related risk management,
metrics and targets.
International Sustainability Standards Board ("ISSB")
The Committee has considered the ISSB's first
sustainability-related reporting standards, S1 and S2, released in
June 2023 (the " Standards "), and is aware that the Standards are
open for voluntary adoption for annual reporting periods commencing
on or after 1 January 2024, with reporting to commence in 2025. It
is the view of the Board and the Investment Manager that the
Standards adopt a wider approach to sustainability and the Company
has a strong baseline to support a move towards the ISSB
recommendations. Therefore, the Company will continue to report
against TCFD for the 2024 financial year with a view to moving to
the voluntary adoption of the ISSB Standards for the 2025 financial
year.
Committee evaluation
An evaluation of the Committee was undertaken as part of the
Board's annual performance evaluation. The Committee was found to
be functioning well and that its approach to Sustainability and ESG
was appropriate for the Company.
Josephine Bush
Chair of the Sustainability and ESG Committee
6 December 2023
COMPOSITION, SUCCESSION AND EVALUATION
NOMINATION AND REMUNERATION COMMITTEE REPORT
Christopher Sutton
Chair of the Nomination and Remuneration Committee
Composition of the Nomination and Remuneration Committee
The Nomination and Remuneration Committee comprises the full
Board and is chaired by Christopher Sutton. The Board considers
that, given its size, it would be unnecessarily burdensome to
establish a Nomination and/or Remuneration Committee which did not
include the entire Board and believes that this enables all
Directors to be kept fully informed of any issues that arise on the
Board. The Committee's terms of reference were reviewed during the
year and these are available on the Company's website.
Responsibilities of the Nomination and Remuneration
Committee
The role of the Nomination and Remuneration Committee is to
ensure that there is a rigorous, formal and transparent procedure
for appointments to the Board and to determine Director
remuneration levels. The Committee assists the Board in ensuring
that its composition is optimal for Board effectiveness and that it
is able to operate in the best interests of Shareholders.
The Committee has various functions, the most important of which
are:
-- To review the structure, size and composition (including the
skills, knowledge, experience and diversity) of the Board as a
whole and make recommendations to the Board with regard to any
changes
-- To give full consideration to succession planning for
Directors in the course of its work, taking into account the
challenges and opportunities facing the Company, and the skills and
expertise needed on the Board in the future
-- To prepare a policy on the tenure of the Chair of the Board and the Board
-- To keep up to date and fully informed about strategic issues
and commercial changes affecting the Company and the market in
which it operates
-- To be responsible for identifying and nominating for the
approval by the Board, candidates to fill Board vacancies as and
when they arise
-- To prepare and maintain the Company's equity, diversity and inclusion policy
-- To review the results of the Board performance evaluation
process that relate to the composition of the Board
-- To review annually the time required from Non--Executive Directors
-- To review any proposed changes to the remuneration of the
Directors of the Company, in accordance with the Principles and
Provisions of the AIC Code
-- To design remuneration policies and practices to support
strategy and promote long-term sustainable success and review the
ongoing appropriateness and relevance of the remuneration
policy
Meetings
The Nomination and Remuneration Committee meets formally at
least once a year. At this meeting, the Committee discusses
succession planning, Board composition and also reviews the results
of the annual evaluation of the effectiveness of the Board and its
Committees. The Company Secretary attends the meetings as Secretary
to the Committee and representatives of the Investment Manager are
invited to attend as required.
Activities during the year
Succession planning
The Committee has adopted a policy for succession planning and
Board tenure, and this was reviewed during the year. Each Director
has indicated their preference and intentions with regard to their
length of service on the Board, with consideration being given to
the AIC Code's recommendation of a maximum term of nine years. In
acknowledgement of all Directors having the same appointment date,
in the event that all current Directors are still in place within
the next few years, the Board will agree provisional timings for
the recruitment of new Board members. Any new Board members who
will replace the Chair of the Board or the Chair of the Audit and
Risk Committee will be appointed prior to the existing Director's
resignation to ensure an effective handover is delivered. There are
no expected Board changes for the year ending 30 September
2024.
Board composition and diversity
The Board consists solely of Non-Executive Directors under the
chairmanship of Richard Davidson. All the Directors are considered
by the Board to be independent of the Investment Manager.
Richard Davidson was independent on appointment and is still
considered to be independent. The Company is subject to the AIC
Code and therefore there is no requirement to limit the Chair's
tenure. The Directors' feedback during the 2023 Board evaluation
process showed that the Chair effectively promoted a culture of
openness and debate, facilitated constructive Board dynamics and
ensured all Board members contributed effectively.
The Board supports the recommendations issued by the FTSE Women
Leaders Review, the Parker Review and the Listing Rule requirement
introduced in April 2022 for listed companies to target at least
40% female Board representation and at least one member of the
Board from an ethnic minority background by December 2024. This
information is set out in the tables below.
Number of
senior positions
Number of Percentage
Board members of the Board on the Board
----------------- ------------- ------------ ----------------
Men 2 50% N/A (1)
Women 2 50% N/A (1)
Other categories None None N/A (1)
----------------- ------------- ------------ ----------------
Number of
senior positions
Number of Percentage
Board members of the Board on the Board
--------------------------------------------------------------- ------------- ------------ ----------------
White British or other White (including minority white groups) 3 75% N/A(1)
Mixed/multiple ethnic groups None None N/A(1)
Asian/Asian British 1 25% N/A(1)
Black/African/Caribbean/Black British None None N/A(1)
Other ethnic group None None N/A(1)
--------------------------------------------------------------- ------------- ------------ ----------------
1. Inapplicable as the Company is externally managed and does
not have executive management functions, including the roles of CEO
and CFO.
All current Board members have been drawn from diverse working
and social experience with no prior connections between the
individual Board members.
Board evaluation
During the year, a formal and rigorous evaluation of the
performance of the Board, its Committees and the individual
Directors was carried out through an assessment process led by the
Nomination and Remuneration Committee Chair and the Company
Secretary. Areas of particular strength included the balance of
skills on the Board and the level of engagement and commitment
shown by all members. The Board's close working relationship with
the Investment Manager and detailed knowledge of the Company's
strategy and the issues the Company faces were also noted.
The Committee acknowledges the AIC Code's recommendation for an
independent Board evaluation to be carried out every three years.
As the Company has only been operating for two years and no
significant concerns were raised during the Board evaluation
process, it is the Board's view that an external evaluation is not
currently required. However, this will be kept under review
throughout the upcoming year.
Potential areas of consideration from the 2023 Board evaluation
are as follows:
Key recommendations Actions agreed
----------------------------------------------------------- ------------------------------------------------------------
Legal and corporate governance
* Increase the Board's understanding of the views and * Increased feedback from the Fund Managers regarding
desires of the Company's Shareholders and interactions with Shareholders
stakeholders
* Encourage all Shareholders to attend the Company's
second AGM in February 2024
* All Board members to remain open to discussions with
Shareholders at any time
Meetings and communication
* Feedback from the Board to the Investment Manager on * The Committee felt that these issues had largely been
timeliness of information and time frames for Board resolved during the second half of the year and the
approval upward trajectory should continue
Training and induction
* Acknowledgement of the need for continued * Periodic training, increased attendance at site
professional development on the Board visits and the maintenance of a training log to be
implemented
----------------------------------------------------------- ------------------------------------------------------------
Our Board evaluation process
1 Document Preparation
The Company Secretary considers the content of the review
questionnaire, ensuring that this is tailored to suit the nature of
the Company and the requirements of the AIC Code
2 Agree process and timetable
The Company Secretary and the Nomination and Remuneration
Committee Chair agree a timetable for the review to take place and
the content of the questionnaire to be sent to Directors
3 Board and Committee observation
Each Director provides their feedback to the Company Secretary
through the questionnaire
4 Results
The full responses are provided to the Nomination and
Remuneration Committee Chair
5 Reporting
An anonymised version of the consolidated scores and comments is
included in the Nomination and Remuneration Committee meeting pack
and a discussion lead by the Nomination and Remuneration Committee
Chair
6 Feedback
Any specific feedback relevant to an individual Director is
provided to them privately by the Nomination and Remuneration
Committee Chair
Remuneration policy
The Company's remuneration policy can be found in the Directors'
remuneration report on page 68 to 70. The remuneration policy was
last put to a vote at the Company's first AGM in February 2023 and
will be re--tabled every three years hereafter.
Board remuneration
A detailed review of Board emolument levels was undertaken by
the Committee during the year. This was supported by a peer group
and fee analysis and taking into account the general macroeconomic
environment and inflation levels. During this evaluation in the
2022 financial year, the Board's fees were found to be c.GBP10k
below market rate for an investment trust of this size. Therefore,
in addition to the increases implemented as at 1 October 2022, the
Board decided to increase its base remuneration by a further
GBP3,000 in order to more accurately reflect the current market and
time commitment required of the Directors. Further, an additional
fee of GBP1,000 per annum was awarded to Sarika Patel for her new
role of Senior Independent Director. Both increases became
effective on 1 October 2023. Additional fees for the roles of Chair
of the Board and Committee Chairs remain unchanged. Full Director
salary details can be found in the Directors' remuneration report
on page 68 to 70.
Committee evaluation
An evaluation of the Committee was undertaken as part of the
Board's annual performance evaluation. The Committee was found to
be functioning well and the diversity of skills and experience of
its members were considered appropriate and sufficient to ensure
informed debate and constructive challenge.
Christopher Sutton
Chair of the Nomination and Remuneration Committee
5 December 2023
REMUNERATION
DIRECTORS' REMUNERATION REPORT
Directors' remuneration report
The Board considers annually the level of fees paid to each
Director. Whilst the Board has final determination of the level of
Directors' fees, the Nomination and Remuneration Committee is
responsible for assessing whether the current fee levels are
appropriate. This review takes into account the individual
responsibilities of each Board member under the Committee
structure, anticipated input required to oversee the Company's
activities in the future and how Board remuneration is structured
for the Company's peers.
Board remuneration
Remuneration policy
The Company's policy is that the remuneration of Directors
should be determined with due regard to the experience of the Board
as a whole, the time commitment required and to be fair and
comparable to that of other Non-Executive Directors of similar
companies. The Company may also periodically choose to benchmark
Directors' fees with an independent review to ensure they remain
competitive, fair and reasonable.
The fees for the Directors are determined within the limits set
out in the Company's Articles of Association which states that the
Directors' remuneration for their services in the office of
director shall, in the aggregate, not exceed GBP300,000 per annum
or such higher figure as the Company, by ordinary resolution,
determines. The Directors may elect to apply the cash amount equal
to their annual fee to subscribe for or to purchase Ordinary
Shares. Directors' fees will be reviewed at least annually.
The Directors are entitled only to their annual fee and to be
reimbursed for any expenses properly and reasonably incurred by
them in and about the business of the Company or in the discharge
of his or her duties as a Director.
Any Director who performs services which in the opinion of the
Directors are outside the scope of the ordinary duties of a
Director, may be paid such reasonable additional remuneration to be
determined by the Directors or any committee appointed by the
Directors and such additional remuneration shall be in addition to
any remuneration provided for by way of their annual fee and their
reasonable expenses.
No element of the Directors' remuneration is performance
related, nor does any Director have any entitlement to pensions,
share options or any long-term incentive plans from the
Company.
The Directors hold their office in accordance with the Articles
of Association and their appointment letters. No Director has a
service contract with the Company, nor is any such contract
proposed. The Directors' appointments can be terminated in
accordance with the Articles of Association and their appointment
letters and without compensation.
Directors' emoluments for the year
The Directors who served during the year received the following
emoluments (excluding employers' National Insurance contributions)
in the form of fees:
Taxable Basic Committee Additional Total
benefits fees Chair fee fees (1) fees
2023 2023 2023 2023 2023
------------------------ -------- ---------- --------- ---------- ----------
Richard Davidson (Chair) - GBP48,000 - GBP2,500 GBP50,500
Sarika Patel GBP357 GBP33,000 GBP7,500 GBP2,500 GBP43,000
Josephine Bush GBP1,617 GBP33,000 GBP3,000 GBP2,500 GBP38,500
Christopher Sutton GBP362 GBP33,000 GBP2,500 GBP2,500 GBP38,000
------------------------ -------- ---------- --------- ---------- ----------
Total GBP2,336 GBP147,000 GBP13,000 GBP10,000 GBP170,000
------------------------ -------- ---------- --------- ---------- ----------
1. An additional fee of GBP2,500 per Director was agreed during
the financial year ended 30 September 2022, but paid in December
2022, in acknowledgement of the time commitment required of Board
members surrounding the placing programme undertaken in June
2022.
Note - members of the Board were reimbursed for travel and
accommodation expenses incurred in connection with their duties for
the Company, which in aggregate amounted to GBP2,336.
Future Board emoluments
As detailed in the Nomination and Remuneration Committee report,
the Board has elected to increase Directors' fees by GBP3,000 per
annum, plus an additional fee of GBP1,000 for Sarika Patel for her
role as Senior Independent Director, effective 1 October 2023.
Based on this, and the Directors appointed as at the date of this
report, Board remuneration for the year ending 30 September 2024 is
expected to be as follows:
Committee
Basic fees Chair fee Additional Total fees
fees
2024 2024 2024 2024
------------------------- ---------- --------- ----------- ----------
Richard Davidson (Chair ) GBP51,000 - - GBP51,000
Sarika Patel GBP36,000 GBP7,500 GBP1,000(1) GBP44,500
Josephine Bush GBP36,000 GBP3,000 - GBP39,000
Christopher Sutton GBP36,000 GBP2,500 - GBP38,500
------------------------- ---------- --------- ----------- ----------
Total GBP159,000 GBP13,000 GBP1,000 GBP173,000
------------------------- ---------- --------- ----------- ----------
For Senior Independent Director role.
Relative importance of spend on pay
The table below shows the actual expenditure during the year in
relation to Directors' remuneration and Shareholder distributions
in the financial year:
Total
2023
---------------------------------------- ----------
Aggregate Directors' remuneration GBP170,000
Aggregate dividends paid to Shareholders -
---------------------------------------- ----------
Directors' shareholdings
The Directors who held office at the year end and their
interests in the Ordinary Shares of the Company as at [publication
date] and 30 September 2023 were as follows:
6 December 30 September
2023 2023
------------------------- ----------- ------------
Richard Davidson (Chair) TBC 100,000
Sarika Patel TBC 24,000
Josephine Bush TBC 19,000
Christopher Sutton TBC 25,000
------------------------- ----------- ------------
Total TBC 168,000
------------------------- ----------- ------------
Management shareholdings
Although not forming part of this report, it is also noted that
the senior personnel of the Investment Manager held in aggregate
78,804 Ordinary Shares of the Company as at 30 September 2023. As
at 6 December 2023, these aggregate holdings were 78,804 Ordinary
Shares.
In addition, 51,003,762 (29.64%) of the Company's shares are
held by Blackmead Infrastructure Limited, an investee company of
the Foresight Inheritance Tax Fund, which is also managed by the
Investment Manager.
Voting at Annual General Meeting
An ordinary resolution for the approval of the Directors'
remuneration policy is proposed every three years and will
therefore be put to Shareholders next at the AGM to be held in
February 2026. An ordinary resolution for the approval of this
Directors' remuneration report will be put to Shareholders at the
forthcoming AGM in February 2024.
On behalf of the Board
Christopher Sutton
Nomination and Remuneration Committee Chair
5 December 2023
DIRECTORS' REPORT
The Directors present their report and financial statements of
the Company for the year ended 30 September 2023. The corporate
governance statement on page 86 forms part of their report.
Information contained elsewhere in the Annual Report
Information required to be part of this Directors' report can be
found elsewhere in the Annual Report as indicated below and is
incorporated into this report by reference:
Key performance indicators Page 11 and 12
Principal risks and risk management Page 41 to 45
Board of Directors Page 52
Report of the Audit and Risk Committee Page 56 to 59
Report of the Nomination and Remuneration Page 64 to 67
Committee
Report of the Management Engagement Page 60 to 61
Committee
Report of the Sustainability and Page 62 to 63
ESG Committee
Remuneration report Page 68 to 70
----------------------------------------- --------------
Principal activities and status
Foresight Sustainable Forestry Company Plc (the " Company ") is
registered as a public limited company in terms of the Companies
Act 2006 (number: 13594181). It is an investment company as defined
by Section 833 of the Companies Act 2006
The Company was incorporated on 31 August 2021 and listed on the
premium segment of the Official List for trading on the London
Stock Exchange's Main Market on 24 November 2021. The Company has a
single share class of Ordinary Shares in issue.
The Company is a member of the Association of Investment
Companies (" AIC "), Timber Development UK and Scottish Land &
Estates.
Dividend policy
The Company invests in forestry assets with cash flow typically
reinvested for further accretive growth.
The Company intends to pay dividends in order to satisfy the
ongoing requirements under the Investment Trust (Approved Company)
(Tax) Regulations 2011 save that, in the medium term, the Company's
forestry assets may also generate free cash flow which the Company
may decide not to reinvest. In such case(s), the Company currently
intends to distribute these amounts to Shareholders.
Distributions made by the Company may take either the form of
dividend income or may be designated as interest distributions for
UK tax purposes. The UK tax treatment of the Company's
distributions may vary for a Shareholder depending on the
classification of such distributions. In accordance with regulation
19 of the Investment Trust (Approved Company) (Tax) Regulations
2011, the Company will not (except to the extent permitted by those
regulations) retain more than 15% of its income (as calculated for
UK tax purposes) in respect of an accounting period.
In addition, the Company intends to explore the possible
distribution of carbon credits "in specie" to Shareholders in the
future.
Investors should note that references in this paragraph to
"dividends" and "distributions" are intended to cover both dividend
income and income which is designated as an interest distribution
for UK tax purposes and therefore subject to the interest streaming
regime applicable to investment trusts.
In accordance with the above policy, there have been no
dividends paid to Shareholders during the year and the Directors
are not recommending a final dividend.
Investment objective
The Company will seek to generate an attractive net total return
for Shareholders over the longer term, comprising capital growth
and aperiodic dividends, targeting sustainable impact through
investment predominantly in sustainably managed forestry assets
(including standing forests and afforestation assets). The Company
will seek to make a direct contribution in the fight against
climate change through forestry and afforestation carbon
sequestration initiatives. The Company will seek to preserve and
proactively enhance natural capital and biodiversity across its
portfolio. It is expected that the Company will achieve, and aim to
exceed, the requirements of compliance with the EU Green Taxonomy
and Article 9 of the Sustainable Finance Disclosure Regulation ("
SFDR ").
Investment policy
The Company's investment policy was updated during the year
following approval at a General Meeting of the members held on 21
December 2022. The amended policy is set out below.
The Company intends to achieve its investment objective by
predominantly investing in a diversified portfolio of sustainable
Forestry Assets, predominantly located in the UK.
" Forestry Assets " are land assets where stands of trees have a
canopy cover of at least 20% of land area (" Standing Forests "),
or have the potential to achieve this through new planting ("
Afforestation ") initiatives. These Forestry Assets may be used for
planting, maintaining and growing trees for commercial production
of timber or other forest products (" Commercial Forestry ") or for
non-commercial purposes (" Non-Commercial Forestry ") and in both
cases may include areas where a community of naturally occurring
tree species regenerate by natural (i.e. without intervention)
means (" native woodland ") and areas that are left unplanted with
trees (" open ground ").
The Group will seek to acquire a mixture of cash flow generating
sustainable Forestry Assets representing a mixture of Standing
Forests (of varying age classes) together with land suitable for
Afforestation projects (representing both Commercial Forestry
projects and Non-Commercial Forestry projects) to achieve a
balanced portfolio with an optimal harvesting and capital growth
profile.
Diversification within the Group's portfolio will be achieved
by:
(i) Investing in a range of individual underlying Forestry
Assets, each of which will be capable of separate disposal
(ii) Investing in different types of Forestry Assets (both
Standing Forests and Afforestation projects) with a range of age
classes and harvesting profiles
(iii) Where possible, seeking diversification in tree species
and a blend of Commercial Forestry and Non-Commercial Forestry
(including native woodland and open ground) across the overall
portfolio
(iv) Engaging with a range of different off-takers for the
Group's harvested timber
(v) Achieving a geographic spread across the underlying Forestry Assets
Although the Group's revenues will primarily be generated by the
sale of harvested timber and, in due course, the sale of carbon
credits, where appropriate and practicable, the Group will also
seek to generate ancillary non-core revenue streams from its
Forestry Assets, including, but not limited to, the leasing or
licensing of land to third parties for agricultural, sporting and
tourism activities, the leasing of land to third parties for
renewable energy and/or energy storage and/or telecommunications
development projects (such as the erection of wind turbines or
mobile telecommunications towers) and, if a future market develops,
the sale of biodiversity credits.
The Company will gain exposure to Forestry Assets indirectly
through its holding of equity interests in underlying asset holding
companies. The Company will invest via equity or debt interests in
such asset holding companies. The asset holding companies will use
the funds received by the Company to acquire Forestry Assets
directly or indirectly through intermediate holding companies.
Returns generated by the asset holding companies (either from
the sale of harvested timber, the sale of carbon credits or from
ancillary non-core revenue sources) will either be retained by the
relevant asset holding companies and reinvested or paid to the
Company in the form of dividends, distributions or the payment of
interest on intra-group debt.
The Group may acquire freehold or leasehold interests in
Forestry Assets or may acquire the shares in corporate entities
holding such Forestry Assets.
Investments in Forestry Assets will typically entail 100%
ownership by the Group. The Group may, however, enter into joint
venture arrangements alongside one or more co--investors where the
Investment Manager, in consultation with the Board, believes it is
in the Group's best interests to do so (such as where an investment
opportunity is too large for the resources of the Group on its own,
to share risk or where a joint venture arrangement will optimise
returns for the Group). In the case of such co-investments, the
Group will target retaining a control position, where this is
possible, or, where this is not possible, will have strong minority
investor protections and governance rights.
In addition, as part of a transaction to acquire Forestry
Assets, the Group may end up owning ancillary non-forestry related
assets, including, but not limited to, residential land and
buildings, vehicles, equipment, agricultural outbuildings and
small-scale renewable energy assets (together " Non-Core Assets ").
Where appropriate and beneficial to the overall strategy, the Group
will look to realise the value of any Non-Core Assets over time for
the benefit of Shareholders.
The Investment Manager will have overall responsibility for
asset managing the Group's Forestry Assets (including any ancillary
non-core revenue streams) and Non-Core Assets. The Group will also
appoint appropriate specialist third-party forestry management
companies who will be responsible for the day-to-day physical
management of the Group's Forestry Assets, including harvesting and
planting activity.
The Group's Forestry Assets will, where commercially
appropriate, be operated with a view to generating carbon credits.
Save where the sale of carbon credits is required to meet the
working capital needs of the Group, the Company intends to realise
the value of carbon credits for the direct benefit of Shareholders.
Generally, the Company intends, when appropriate, to sell carbon
credits and make aperiodic distributions to Shareholders of the net
proceeds of such sales. As an alternative to receiving a cash
distribution, the Company intends, where practicable, to offer
Shareholders the option to elect to receive distributions "in kind"
of carbon credits. The method and process for the distribution of
any carbon credits "in kind" will be determined by the Board from
time to time. The Company currently does not intend to retire
carbon credits on behalf of Shareholders. The Company may, in the
future, if considered appropriate, retire certain carbon credits
generated from the Group's Forestry Assets for the purposes of
meeting the Group's own net zero targets.
Investment restrictions
The Company will invest and manage its assets with the objective
of spreading risk and, in doing so, will maintain the following
investment restrictions:
y) No single Forestry Asset will represent more than 15% of
Gross Asset Value (with two or more Forestry Assets which are
directly adjacent being treated as a single asset), save that the
Board may approve the increase of this limit up to 25% of Gross
Asset Value on an exceptional basis where considered appropriate to
cater for a larger-scale strategic Forestry Asset investment
z) At least 90% of Gross Asset Value shall be invested in
Forestry Assets located in the United Kingdom
aa) No more than 10% of Gross Asset Value may be invested in
Forestry Assets located in EEA countries
bb) The maximum exposure to Afforestation projects will not
exceed, in aggregate, 50% of Gross Asset Value
cc) The maximum exposure to Non-Core Assets will not exceed, in
aggregate, 10% of Gross Asset Value
dd) The Company will not invest in other listed investment
companies
In accordance with the requirements of the Listing Rules, the
Company will not undertake any trading activity which is material
in the context of the Company as a whole.
Compliance with the above investment limits is measured at the
time of investment and non-compliance resulting from changes in the
price or value of assets following investment will not be
considered as a breach of the investment limits.
Financial risk management
Details of the financial risk management objectives and policies
followed by the Directors can be found on pages 103 to 104.
Future developments
The likely future developments of the Company are contained in
the strategic report on pages 9 to 50.
Directors
Biographical details of the Directors, all of whom are
non--executive, can be found on page 52.
The Directors do not have service contracts, but each new
Director is provided with a letter of appointment. The Directors'
letters of appointment are available on request at the Company's
registered office during business hours.
The Articles of Association require that each Director retires
by rotation and be re-elected every three years. The Board has
agreed that, in accordance with governance best practice and the
Provisions of the AIC Code, Directors will stand for election
annually at each AGM.
The Directors' appointment dates are shown below:
Date of original appointment
------------------------ ----------------------------
Richard Davidson (Chair) 31 August 2021
Sarika Patel 31 August
2021
Josephine Bush 31 August
2021
Christopher Sutton 31 August
2021
------------------------ ----------------------------
The Directors believe that the Board has an appropriate balance
of skills, experience, independence and knowledge of the Company
and the sector in which it operates to enable it to provide
effective strategic leadership and proper guidance to the Company.
The Board confirms that, following the evaluation process set out
in the report of the Nomination and Remuneration Committee on pages
66 and 67, the performance of each Director is and continues to be
effective and demonstrates commitment to the role. The Board
believes therefore, that it is in the interests of Shareholders
that each of the Directors be re-elected.
Conflicts of interest
Under the Companies Act 2006, a Director must avoid a situation
where he or she has, or could have, a direct or indirect interest
that conflicts, or possibly may conflict, with the Company's
interests. This could also apply where a Director becomes a
director of another company or trustee of another organisation. The
Companies Act 2006 allows directors of public companies to
authorise conflicts and potential conflicts, where appropriate,
where the Articles of Association contain a provision to this
effect.The Company's Articles of Association give the Directors
authority to approve such situations.
The Company maintains a register of Directors' conflicts of
interest which have been disclosed and approved by the other
Directors. This register is kept up to date and the Directors are
required to disclose to the Company Secretary any changes to
conflicts or any potential new conflicts.
Investment Manager
The Company's Investment Manager, Foresight Group LLP, is
responsible for the acquisition and management of the Company's
assets, including the sourcing and structuring of new acquisitions
and advising on the Company's borrowing strategy. Foresight Group
is authorised and regulated by the Financial Conduct Authority.
Foresight Group was founded in 1984 and is a leading listed
infrastructure and private equity investment manager. With a
long-established focus on ESG and sustainability-led strategies, it
aims to provide attractive returns to its institutional and private
investors from hard--to-access private markets.
Foresight manages over 400 infrastructure assets with a focus on
solar and onshore wind assets, bioenergy and waste, as well as
renewable energy enabling projects, energy efficiency management
solutions, social and core infrastructure projects and sustainable
forestry assets. Its private equity team manages 11 regionally
focused investment funds across the UK and an SME impact fund
supporting Irish SMEs. This team reviews close to 2,500 business
plans each year and currently supports more than 250 SMEs.
Foresight Capital Management manages four listed strategies across
seven investment vehicles.
Foresight operates in eight countries across Europe, Australia
and the United States with AUM of GBP12.1 billion (unaudited as at
30 September 2023). Foresight Group Holdings Limited listed on the
Main Market of the London Stock Exchange in February 2021.
Foresight's Infrastructure team consisted of 160+ full--time
employees as at 30 September 2023. The team is comprised of:
a) An investment management team of professionals responsible
for originating, assessing and pricing assets, managing due
diligence and executing transactions
b) A portfolio management team with expertise across electrical
and civil engineering, finance and legal disciplines
The Foresight Group Infrastructure team has substantial
experience in sourcing and executing all required elements of the
capital structure of an investment across geographies, including
project-level debt finance and other required forms of finance.
The key strengths of the infrastructure investment team
include:
a) Sourcing and execution of asset acquisitions
b) Experience of pricing complex revenue streams
c) Pricing wholesale power exposure
d) Managing construction projects
e) Finance and structuring, including bank debt and project finance
The Foresight portfolio management team consists of individuals
with engineering, accountancy, consulting and operations
backgrounds and is responsible for the process of "on-boarding",
managing and reporting on the acquired assets. Members of these
teams work closely with the Investment Manager together throughout
the investment lifecycle.
The portfolio management services provided ensure the day-to-day
operation of the forestry assets is robust, with commercial and
strategic decisions clearly communicated to the various
counterparties involved.
The services also include:
-- Health and safety compliance
-- Oversight of third-party asset managers and forest managers
-- Portfolio optimisation including negotiation of project
contracts, harvesting, insurance policies, and evaluation of
innovative technologies to enhance forestry assets
-- Accounting and financial management from SPV to Fund level
-- Management of in-house portfolio management platforms
-- Providing a focus on ESG and upside opportunities across the forestry assets
-- Contractual compliance of all contracts
Alternative Investment Fund Management Directive ("AIFMD")
The AIFMD was implemented across the EU on 22 July 2013 and aims
to harmonise the regulation of Alternative Investment Fund Managers
(" AIFMs "). It imposes obligations on managers who manage or
distribute Alternative Investment Funds (" AIFs ") in the EU or who
market shares in such funds to EU investors. Foresight Group LLP
acts as AIFM to the Company and ensures compliance with regulation
under the UK AIFMD and the UK National Private Placement
Regime.
Share capital
Information on the Company's share capital, including voting
rights, as at 30 September 2023 can be found in note 13 to the
financial statements.
Substantial interests in share capital
As at 30 September 2023, the Company had received notification
of the following holdings of voting rights (under the Financial
Conduct Authority's Disclosure Guidance and Transparency
Rules):
30 September 2023
-----------------------
Number
of Ordinary
Investor Shares held Percentage
held (1)
-------------------------------------- ----------- ----------
Blackmead Infrastructure 51,503,762 29.93
Aviva Investors 14,876,607 8.65
Rathbones 13,382,175 7.78
East Riding of Yorkshire 13,238,318 7.69
Equilibrium Asset Management 11,802,000 6.86
West Yorkshire PF 11,000,000 6.39
Cantor Fitzgerald Ireland 8,852,145 5.14
Privium Fund Management 7,896,299 4.59
Hargreaves Lansdown stockbrokers (EO) 6,105,288 3.55
-------------------------------------- ----------- ----------
1. Based on 172,056,075 Ordinary Shares in issue as at 30
September 2023. The Company has only one class of share.
There have been no changes notified to the Company in respect of
the above holdings, and no other new holdings notified, since the
year end.
Related party transactions
Related party transactions during the year to 30 September 2023
can be found in note 21 to the financial statements.
Directors' shareholdings
Information on the Directors' shareholdings as at 30 September
2023 can be found in the Directors' remuneration report on page
69.
Directors' indemnity
The Company has maintained a Directors' and Officers' liability
insurance policy on behalf of the Directors, indemnifying them in
respect of certain liabilities that may be incurred by them in
connection with the activities of the Company. This policy does not
provide cover for fraudulent or dishonest actions by the
Directors.
Other Companies Act 2006 disclosures
-- There are no significant restrictions concerning the transfer
of securities in the Company (other than certain restrictions
imposed by laws and regulations such as insider trading laws); no
agreements known to the Company concerning restrictions on the
transfer of securities in the Company or on voting rights; and no
special rights with regard to control attached to securities.
-- There are no significant agreements which the Company is a
party to that might be affected by a change of control of the
Company following a takeover bid.
-- There are no agreements between the Company and the Directors
providing for compensation for loss of office that occurs because
of a takeover bid or other corporate events.
Articles of Association
These are available on the Company's website or by application
to the Company Secretary. Any amendment to the Company's Articles
of Association may only be made by passing a special resolution of
the Shareholders of the Company.
Branches outside the UK
The Company does not have any branches outside the UK.
Political donations
No political donations were made during the year.
Employees
The Company has no employees and therefore no employee share
scheme or policies for the employment of disabled persons or
employee engagement.
Additional information
There are no disclosures required in accordance with Listing
Rule 9.8.4R.
Relations with stakeholders
The Board recognises the importance of regular and effective
communication with the Company's stakeholders. Further information
on engagement with stakeholders during the year can be found in the
Section 172 statement on pages 13 to 15.
2024 AGM
Shareholders are invited to attend the Company's AGM to be held
at The Shard, 32 London Bridge Street, London SE1 9SG on 21
February 2024. The AGM notice is contained in the circular dated 6
December 2023 which was published alongside this Annual Report.
Those Shareholders who are unable to attend the AGM in person
are encouraged to raise any questions in advance with the Company
Secretary at fsfc@foresightgroup.eu (please include "FSF AGM" in
the subject heading). Questions must be received by 5.30pm on 7
February 2024. Any questions received will be replied to by either
the Investment Manager or the Board via the Company Secretary
before the AGM. A Shareholder presentation will be made on the day
and later made available on the Company's website updating
Shareholders on the activities of the year.
Resolutions to be proposed at the AGM
Ordinary Resolutions
Resolution One
To receive the Annual Report and Accounts of the Company for the
year ended 30 September 2023.
Resolution Two
To approve the Directors' Remuneration Report included in the
Annual Report for the year ended 30 September 2023.
Resolution Three
To re-elect Richard Davidson as a Director of the Company
Resolution Four
To re-elect Sarika Patel as a Director of the Company
Resolution Five
To re-elect Christopher Sutton as a Director of the Company
Resolution Six
To re-elect Josephine Bush as a Director of the Company
Resolution Seven
To re-elect Ernst & Young LLP as external auditor to the
Company.
Resolution Eight
To authorise the Directors to fix the auditor's remuneration
until the conclusion of the next Annual General Meeting of the
Company.
Resolution Nine
That, in addition to all existing authorities, the Directors be
generally and unconditionally authorised to allot shares in the
Company. Read more in the Circular dated 6 December 2023.
Special Resolutions
Resolution Ten
To adopt the Amended Investment Policy. Read more in the
Circular dated 6 December 2023.
Resolution Eleven
That, in addition to all existing authorities, the Directors be
generally and unconditionally authorised to allot equity securities
in the Company. Read more in the Circular dated 6 December
2023.
Resolution Twelve
To authorise the Company to make market purchases of its own
shares. Read more in the Circular dated 6 December 2023.
Resolution Thirteen
That a general meeting, other than an AGM, may be called on not
less than 14 clear days' notice.
Recommendation on resolutions to be proposed at the AGM
The Directors consider the passing of the resolutions to be
proposed at the AGM to be in the best interests of the Company and
its Shareholders and likely to promote the success of the Company
for the benefit of its Shareholders as a whole. Accordingly, the
Directors unanimously recommend that Shareholders should vote in
favour of the resolutions, as they intend to in respect of their
own beneficial shareholdings .
Business ethics
As an investment vehicle the Company does not provide goods or
services in the normal course of business and does not have
customers. Accordingly, the Directors consider that the Company
does not fall within the scope of the Modern Slavery Act 2015 and
is not, therefore, obliged to make a slavery and human trafficking
statement. The Company's SPVs which hold its assets have their own
policies in place related to modern slavery, as well as
anti-bribery and corruption, sustainability and ESG, and health and
safety. In any event, the Company considers its supply chains to be
low risk for modern slavery.
In line with the requirements of The Criminal Finances Act 2017,
the Directors confirm that the Company has a commitment to zero
tolerance towards the criminal facilitation of tax evasion.
In order to ensure compliance with the UK Bribery Act 2010, the
Directors confirm that the Company has zero tolerance towards
bribery and a commitment to carry out business openly, honestly and
fairly.
In considering the appointment of Directors, the Company will
continue to show no bias for age, gender, race, sexual orientation,
marital status, religion, nationality, ethnic or national origins,
or disability.
Going concern
The Directors, in their consideration of going concern, have
reviewed comprehensive cash flow forecasts prepared by the
Company's Investment Manager, Foresight Group, which are based on
prudent market data, a reasonable worst case and a stress test
scenario and believe, based on those forecasts and an assessment of
the Company's subsidiary's banking facilities, that it is
appropriate to prepare the financial statements of the Company on
the going concern basis.
In arriving at their conclusion, the Directors assessed the
current macroeconomic situation, the RCF, liquidity position and
the potential impact of the principal risks documented in the
strategic report. In addition to these principal risks, the
Directors have also considered the sustainability-related risks
covering environmental, social and governance factors, including
climate change (in line with the recommendations of the Task Force
on Climate-related Financial Disclosures (" TCFD ")), outlined on
page 38. The Investment Manager has reviewed the portfolio's
exposure to these risks in the period under review and has
concluded that it is currently not material to the Fund, although
it continues to monitor the market attentively.
The Directors have also considered scenario analysis on the
impact of different levels of harvesting across the portfolio, over
varying timescales, on the Company's financial position and the
Company's ability to reduce outflows were liquid resources to be
required.
The Directors also considered that the Company has adequate
financial resources, and were mindful that the Group had
unrestricted cash of GBP1.2 million as at 30 September 2023 and a
revolving credit and accordion facility (available for investment
in new or existing projects and working capital) of GBP30 million.
As at 30 September 2023, the Company's wholly owned subsidiary FSFC
Holdings 2 Limited had borrowed GBP10.4 million under the facility,
leaving GBP19.6 million available to draw. All key financial
covenants under this facility are forecast to continue to be
complied with for the duration of the going concern assessment
period.
The Investment Manager and Directors have assessed the headroom
available to meet the revolving credit covenants. The covenants
have been tested on downside risk scenarios and in all scenarios
run, including the combined downside case, the Company remained
compliant with its key covenants.
The Directors are satisfied that the Company 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 continue to adopt the going concern basis in
preparation of these financial statements.
Viability statement
In accordance with the UK Corporate Governance Code, the Board
of Directors has assessed the viability of the Company over a
five-year period to 30 September 2028, taking account of the
Company's current position, the long-term nature of the assets in
the portfolio and the potential impact of the principal risks
documented on pages 41 to 45.
In addition to the principal risks, the Directors have also
considered the sustainability-related risks covering environmental,
social and governance factors, including climate change (in line
with the recommendations of TCFD, outlined on page 38).
Sensitivity analysis has also been undertaken to consider the
potential impact of principal and emerging risks that could
threaten the business model, future performance, solvency and
liquidity over the period. In particular, this has considered the
inability to access sufficient funding in the debt and equity
markets and deploy capital to complete growth expectations, timber
price volatility and a reduction in demand for users of timber,
continued government support for voluntary carbon credits market
and the impact of a proportion of the portfolio not harvesting due
to adverse weather conditions.
The Directors have determined that a five-year look forward to
September 2028 is an appropriate period over which to provide its
viability statement. This is consistent with the outlook period
used in economic and other medium-term forecasts regularly prepared
for the Board by the Investment Manager and the discussion of any
new strategies undertaken by the Board in its normal course of
business. These reviews consider both the market opportunity and
the associated risks, principally the ability to raise third-party
funds and invest capital, or mitigating actions taken, such as sale
of forestry assets and utilisation of additional borrowings
available under the RCF.
The Group's risk management processes outlined on pages 39 to 45
set out the key risks for the next five years and beyond. These
include rising debt costs and persistently high inflation,
financing capital risks and timber market volatility. Risks
presented by the current macro environment also include Russia's
invasion of Ukraine. Whilst these risks are deemed significant to
the Group's ability to operate its projects, generate revenue and
to the value of the Company's investments, the Directors believe
that this has had limited impact on the business to date as it is
invested in real assets, principally freeholds of UK land and
forest stock. The forest stock enjoys biological growth regardless
of fluctuations in financial markets. UK freeholds, real assets and
commodities like timber have a track record of good performance
during periods of inflation and instability of equity markets. Risk
mitigating activities (as outlined on pages 39 to 45) have also
aided in the reduction of the impact.
Timber prices can be volatile periodically and demand over the
medium to long term has historically created real-term price
growth. In the context of global under-supply and increasing
demand, this reduces market risk for FSF's key revenue streams.
Should timber prices be less attractive at the point of felling,
FSF is in a position to mitigate the impact by postponing parts of
its harvesting programme and delay felling, allowing trees to
continue to grow until the underlying imbalance between supply and
demand begins to be reflected in market prices again.
FSF is focused on growing its portfolio as a newly listed entity
and will require additional financing to take full advantage of
opportunities in its pipeline. The existing borrowing policy
enables the use of gearing that must not exceed 30% of Gross Asset
Value.
There is a risk that FSF will be unable to access sufficient
funding to complete operations. This is mitigated by using brokers
to conduct market research ahead of any future funding rounds to
gauge demand from new and existing investors. FSF has also set
budgets with sufficient cash buffers to ensure liquidity.
There is a risk of reputational damage due to negative PR
generated by the resistance to change of land use by the public.
This could in turn negatively impact investor sentiment and
ultimately the ability to raise more capital. This is mitigated by
independent community risk assessments during the due diligence
phase of afforestation investments. This ensures that afforestation
only takes place in low community risk areas where the likelihood
of community resistance is low. FSF also actively pursues a
co-ordinated programme of community engagement and recently
launched a Forestry Skills Training Programme.
The risk of changing weather patterns and more extreme weather
events can cause direct damage to the portfolio, leading to a
market flooded with windblow timber and the subsequent price
depreciation. This is mitigated by a prudent acquisition strategy
for sheltered area, silviculture management and a diverse portfolio
to create natural resilience. Where appropriate, windthrow
insurance cover is taken out.
The Company's wholly owned subsidiary FSFC Holdings 2 Limited
has a three-year GBP30 million RCF (agreed in July 2022) with two
one-year extension options, increasing the liquidity of the Group,
of which a proportion can be deployed as working capital. It also
has an accordion feature that allows for another GBP30 million. The
Company utilises the investments' cash flows from operations and
proceeds from equity fundraises to repay the RCF.
In order to repay the RCF at the maturity date (July 2025 or
2027 with extensions), the Company would be required to renew the
RCF and/or perform an equity raise, under the base case assumptions
included in the viability forecasts. In conjunction with this, the
Company could consider strategic disposals as appropriate.
Based on this assessment, the Directors have a reasonable
expectation that FSF will be able to continue in operation and meet
its liabilities as they fall due over the five-year period to
September 2028. In making this statement, the Directors have
considered and challenged the reports of the Investment Manager in
relation to the resilience of the Group, taking into account its
current position, the principal risks facing it in reasonable
downside scenarios, the effectiveness of any mitigating actions and
the Group's risk appetite.
Requirements of the Listing Rules
Listing Rule 9.8.4 requires the Company to include specified
information in a single identifiable section of the Annual Report
or a cross-reference table indicating where the information is set
out. The Directors confirm that there are no disclosures required
in relation to Listing Rule 9.8.4.
By order of the Board
Foresight Group LLP
Company Secretary
6 December 2023
DIRECTORS' RESPONSIBILITIES STATEMENT
The Directors are responsible for preparing the strategic
report, the Directors' report, the Directors' remuneration report
and the financial statements in accordance with applicable laws and
regulations.
These financial statements have been prepared in accordance with
UK-adopted International Accounting Standards (" IAS ") in
conformity with the requirements of the Companies Act 2006 and in
accordance with International Financial Reporting Standards (" IFRS
"). Company law in the United Kingdom requires the Directors to
prepare financial statements for each financial year. Under this
law the Directors must not approve the financial statements unless
they are satisfied that they give a true and fair view of the state
of affairs and profit or loss of the Company for that period. In
preparing these financial statements, the Directors are required
to:
-- Select suitable accounting policies and then apply them consistently
-- Make judgements and accounting estimates that are reasonable and prudent
-- State whether applicable IFRSs have been followed, subject to
any material departures disclosed and explained in the financial
statements
-- Prepare the financial statements on the going concern basis
unless it is inappropriate to presume that the Company will
continue in business
The Directors are responsible for keeping adequate accounting
records that are sufficient to show and explain the Company's
transactions, disclose with reasonable accuracy at any time the
financial position of the Company, and enable the Directors to
ensure that the financial statements and the Directors'
remuneration report comply with the Companies Act 2006 and Article
4 of the IAS Regulation. They are also responsible for safeguarding
the assets of the Company and thus for taking reasonable steps for
the prevention and detection of fraud and other irregularities.
The Directors are responsible for the maintenance and integrity
of the corporate and financial information included on the
Company's website. Legislation in the United Kingdom governing the
preparation and dissemination of financial statements may differ
from legislation in other jurisdictions.
Directors' responsibility statement in respect of the Annual
Report and financial statements
The Directors are responsible for preparing the Annual Report in
accordance with applicable law and regulations. The Directors
consider the Annual Report and financial statements, taken as a
whole, provide the information necessary to assess the Company's
performance, business model and strategy and are fair, balanced and
understandable.
Directors' responsibility statement under the Disclosure
Guidance and Transparency Rules
To the best of our knowledge:
-- The Company's financial statements have been prepared in
accordance with UK-adopted International Accounting standards. They
give a true and fair view of the assets, liabilities, financial
position and profit or loss of the Company and the
undertakings.
-- The Annual Report, including the strategic report and the
Directors' report, includes a fair review of the development and
performance of the business and the position of the Company and the
undertakings together with a description of the principal risks and
uncertainties they face.
Disclosure of information to the auditor
The Directors confirm that:
-- So far as each Director is aware, there is no relevant audit
information of which the Company's auditor is unaware
-- The Directors have taken all the steps that they ought to
have taken as Directors in order to make themselves aware of any
relevant audit information and to establish that the Company's
auditor is aware of that information
Richard Davidson
Chair
5 December 2023
FINANCIAL STATEMENTS
STATEMENT OF COMPREHENSIVE INCOME
FOR THE YEARED 30 SEPTEMBER 2023
Period from
Year ended 31 August
2021
30 September to 30 September
2023 2022
Revenue Capital (Audited) (Audited)
Notes GBP'000 GBP'000 GBP'000 GBP'000
----------------------------- ----- ------- -------- ------------ ---------------
Return on investment 4 2,605 (11,279) (8,674) 11,042
----------------------------- ----- ------- -------- ------------ ---------------
Total income 2,605 (11,279) (8,674) 11,042
Investment management fees 5 (1,562) - (1,562) (1,071)
Operating expenses 6 (1,102) - (1,101) (1,166)
----------------------------- ----- ------- -------- ------------ ---------------
Total expenses (2,664) - (2,663) (2,237)
----------------------------- ----- ------- -------- ------------ ---------------
(Loss)/profit before tax (59) (11,279) (11,338) 8,787
----------------------------- ----- ------- -------- ------------ ---------------
Tax 8 - - - -
----------------------------- ----- ------- -------- ------------ ---------------
(Loss)/profit for the period (59) (11,279) (11,338) 8,787
----------------------------- ----- ------- -------- ------------ ---------------
Earnings per share (pence ) 9 - (6.6) (6.6) 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 on pages 92 to 106 form an integral part
of the financial statements.
STATEMENT OF FINANCIAL POSITION
FOR THE YEARED 30 SEPTEMBER 2023
30 September 30 September
2023 2022
(Audited) (Audited)
Notes GBP'000 GBP'000
------------------------------------------------- ----- ------------ ------------
Non-current assets
Investments at fair value through profit or loss 10 166,039 146,291
------------------------------------------------- ----- ------------ ------------
Total non-current assets 166,039 146,291
------------------------------------------------- ----- ------------ ------------
Current assets
Trade and other receivables 11 2,796 852
Cash and cash equivalents 16 1,217 34,326
------------------------------------------------- ----- ------------ ------------
Total current assets 4,013 35,178
------------------------------------------------- ----- ------------ ------------
Total assets 170,052 181,469
------------------------------------------------- ----- ------------ ------------
Current liabilities
Trade and other payables 12 (803) (886)
------------------------------------------------- ----- ------------ ------------
Total current liabilities (803) (886)
------------------------------------------------- ----- ------------ ------------
Total liabilities (803) (886)
------------------------------------------------- ----- ------------ ------------
Net assets 169,249 180,583
------------------------------------------------- ----- ------------ ------------
Equity
Called up share capital 13 1,721 1,721
Share premium 13 43,820 170,075
Revenue reserve (2,550) (1,333)
Capital reserve 14 126,258 10,120
------------------------------------------------- ----- ------------ ------------
Shareholders' funds 14 169,249 180,583
------------------------------------------------- ----- ------------ ------------
Net assets per share (pence per share) 15 98.4 105.0
------------------------------------------------- ----- ------------ ------------
The accompanying notes form an integral part of the financial
statements.
The financial statements were approved by the Board of Directors
and authorised for issue on 5 December 2023.
They were signed on its behalf by:
Richard Davidson
Chair
STATEMENT OF CHANGES IN EQUITY
FOR THE YEARED 30 SEPTEMBER 2023
Called up Share Capital Revenue Total
share
capital premium reserve reserve GBP'000
GBP'000 GBP'000 GBP'000 GBP'000
Notes
------------------------------------------------------------- ----- --------- ------- ------- ------- -------
Balance at 31 August 2021 - - - - -
Gross proceeds from share issue 1,721 173,279 - - 175,000
Share issue costs 13 - (3,204) - - (3,204)
Dividends 7 - - - - -
Total comprehensive income for the period 14 - - 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
------------------------------------------------------------- ----- --------- ------- ------- ------- -------
Called up Share Capital Revenue
share
capital premium reserve reserve Total
Notes GBP'000 GBP'000 GBP'000 GBP'000 GBP'000
------------------------------------------------------------ ----- --------- --------- -------- ------- --------
Balance at 1 October 2022 1,721 170,075 10,120 (1,333) 180,583
Gross proceeds from share issue - - - - -
Share issue costs 13 - 3 - - 3
Dividends 7 - - - - -
Share premium cancellation 13 - (126,258) 126,258 - -
Total comprehensive income for the period 14 - - (11,279) (58) (11,338)
------------------------------------------------------------ ----- --------- --------- -------- ------- --------
Net assets attributable to Shareholders at 30 September 2023 1,721 43,820 125,099 (1,391) 169,249
------------------------------------------------------------ ----- --------- --------- -------- ------- --------
The Company's reserves consist of the capital reserve
attributable to fair value unrealised gains on the Fund portfolio's
valuation.
There have been no realised gains or losses at the reporting
date.
STATEMENT OF CASH FLOWS
FOR THE YEARED 30 SEPTEMBER 2023
Period from
Year ended 31 August
2021 to
30 September 30 September
2023 2022
(Audited) (Audited)
GBP'000 GBP'000
----------------------------------------------------------------------- ------------ ------------
(Loss)/profit for the period from continuing operations (11,338) 8,787
Adjustments for:
Net (loss)/profit on investments at fair value through profit and loss 11,279 (10,120)
----------------------------------------------------------------------- ------------ ------------
Operating cash flows before movements in working capital (59) (1,333)
----------------------------------------------------------------------- ------------ ------------
Cash flows from operating activities
Increase in trade and other receivables (1,944) (852)
(Decrease)/increase in trade and other payables (83) 886
----------------------------------------------------------------------- ------------ ------------
Net cash outflow from operating activities (2,086) (1,299)
----------------------------------------------------------------------- ------------ ------------
Cash flows from investing activities
Investing activities
Purchase of investments (15,513) (114,350)
Loans to subsidiaries (15,513) (21,821)
----------------------------------------------------------------------- ------------ ------------
Net cash used in investing activities (31,026) (136,171)
----------------------------------------------------------------------- ------------ ------------
Cash flows from financing activities
Financing activities
Gross proceeds from share issue - 175,000
Share issue costs 3 (3,204)
----------------------------------------------------------------------- ------------ ------------
Net cash inflow from financing activities 3 171,796
----------------------------------------------------------------------- ------------ ------------
Net (decrease)/increase in cash and cash equivalents (33,109) 34,326
Cash and cash equivalents at beginning of period 34,326 -
----------------------------------------------------------------------- ------------ ------------
Cash and cash equivalents at end of period 1,217 34,326
----------------------------------------------------------------------- ------------ ------------
The accompanying notes form an integral part of the financial
statements.
NOTES TO THE AUDITED FINANCIAL STATEMENTS
FOR THE YEARED 30 SEPTEMBER 2023
1. Company information
(a) Statutory information
Foresight Sustainable Forestry Company Plc (the " Company " or "
FSF ") is a public limited company limited by shares and 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 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 financial statements of the Company are for the year to 30
September 2023 and have been prepared on the basis of the
accounting policies set out below. The financial statements
comprise only the results of the Company, as its direct investments
in FSFC Holdings Limited, FSFC Holdings 2 Limited, and all
underlying SPVs thereafter, are measured at fair value as detailed
in the significant accounting policies below.
2. Significant accounting policies
(a) Basis of preparation
This 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 annual 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 ").
The same accounting policies and standards have been observed in
these annual financial statements as were applied in the last
annual financial statements, with no change to the nature or effect
of these standards' application.
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 intend to constitute statutory
accounts as defined in Section 434(3) of the Companies Act 2006. As
such, these statutory accounts in respect of the year to 30
September 2023 have been audited and reported on by the Company's
auditors and delivered to the Registrar of Companies and included
the Report of Auditors.
No statutory accounts in respect of any period after 30
September 2023 have been reported on by the Company's auditors or
delivered to the Registrar of Companies.
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 in
note 10.
These annual financial statements comprise the results for the
year to 30 September 2023 as well as comparatives to the audited
period ended 30 September 2022.
Foresight Sustainable
Forestry Company Plc
FSFC Holdings Limited
----------------------------
FSFC Holdings 2 Limited
---------------------- ---------------------------- ---------------------
FSFC Company 1 Limited Blackmead Forestry Limited Blackmead Forestry II
Limited
---------------------------- ---------------------
Coull Forestry Limited Fordle Estates Limited
------------------------------------
(b) Going concern
The Directors have adopted the going concern basis in preparing
the financial statements. 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 2023, the Company had net current assets of GBP3.2
million, including GBP1.2 million of cash; it also had access to
GBP19.6 million that remained undrawn on the Revolving Credit
Facility, held by its indirect subsidiary, which can be utilised
for the Company's working capital requirements. As such, with all
factors mentioned above, the Company's cash position is considered
sufficient to meet all 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 of the Ukraine--Russia conflict on the forestry
industry.
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 no 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 an investor 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 estimates and judgements
Key judgements
Investment entity status
The Company conducts a judgement in relation to its status as an
investment entity by satisfying the three criteria below:
i. It must obtain funds from multiple investors for the purpose
of providing its investment management services to those
investors
ii. It must commit to its investors that its business purpose is
to invest funds solely for returns from capital appreciation,
investment income, or both. Similarly, the entity must ensure there
is also an exit strategy for such investments
iii. It must measure and evaluate the performance of its investments on a fair value basis
The Company assesses its compliance with the requirements of
being an investment entity in note 3 in more detail.
Key accounting estimates
Fair valuation of investment assets - Red Book valuation
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. These are also
subject to an accounting estimate that the Directors are satisfied
with. The significant methods and assumptions used by the external
valuers in estimating the fair value of investment assets are set
out in note 10.
Fair value of investment assets - carbon credit valuation
The carbon credit valuations are not determined by an external
valuer but are currently based on the Ecosystem Marketplace
collected trade data from UK Woodland Carbon Code and Peatland Code
market participants who are project developers and resellers
through the Ecosystem Marketplace Global Carbon Markets Hub. These
are also subject to an accounting estimate that the Directors are
satisfied with.
(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.
( f) New, revised and amended standards applicable to future
reporting periods
There were no new standards, amendments or interpretations
effective for the first time for periods beginning on or after
incorporation that had a material effect on the Company's financial
statements. The Company has explored to what extent these new
standards have an immaterial impact on the financial statements, as
below.
IFRS 17 Insurance Contracts
The standard requires an entity to reasonably identify and
recognise any contract in which an entity accepts significant
insurance risk from another party as a combination of a financial
instrument and a service contract, in order to help users of the
financial statements to assess the effect on the Company's
financial position. The Company does not deem this standard to have
a material effect on its financial statements as the Company is not
party to any such contract in which it accepts any insurance risk
from or for another party.
Amendments to definition of accounting estimates - Amendments to
IAS 8
The standard now defines an accounting estimate as "monetary
amounts in financial statements that are subject to measurement
uncertainty". Despite the Company using accounting estimates (see
note 2(d) Key judgements and estimates) in its assessment of carbon
credit validation and Red Book valuation, the Directors would not
deem this amendment to have any material effect on the Company's
results for the current or prior period(s). The Company maintains
that, at each reporting date, the latest available and reliable
information was used to arrive at its accounting estimates, with no
instances requiring a restatement of information due to error.
The Disclosure Initiative - amendments to the accounting policy
disclosure
The IASB issued amendments to IAS 1 Presentation of Financial
Statements in which they require disclosure of "material"
accounting policies, instead of what was "significant" accounting
policies. The aim of this amendment is to enhance the usefulness of
financial statements for users and in turn to enhance their
effectiveness overall. The Company has not chosen to apply an early
adoption of this standard as the threshold of materiality needs to
be considered in more depth. The Company, however, plans to adopt
this standard in its next reporting cycle.
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:
i. It must obtain funds from multiple investors for the purpose
of providing its investment management services to those
investors
ii. It must commit to its investors that its business purpose is
to invest funds solely for returns from capital appreciation,
investment income, or both. Similarly, the entity must ensure there
is also an exit strategy for such investments
iii. It must measure and evaluate the performance of its investments on a fair value basis
In assessing whether the Company meets the definition of an
investment entity set out in IFRS 10, the Directors note that:
i. The Company is an investment company that invests funds
obtained from multiple investors in a diversified portfolio of UK
forestry and afforestation assets and has appointed Foresight Group
as the Investment Manager to manage the Company's investments
ii. The Company's purpose is to invest funds with the intention
of providing real returns to investors and capital appreciation
driven by global demand for timber. The Company's exit strategy
will depend on factors of portfolio balance and/or profit
iii. The Board evaluates the performance of the Company's
investments on a fair value basis as part of the quarterly
management accounts review and the Company values its investments
on a fair value basis driven by a RICS Red Book 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
Year ended 31 August
2021
30 September to 30 September
2023 2022
(Audited) (Audited)
GBP'000 GBP'000
---------------------------------------------- ------------ ---------------
Unrealised fair value movement of investments (11,279) 10,120
Interest income - Loans to direct subsidiary 2,364 852
Interest income - Bank 241 52
---------------------------------------------- ------------ ---------------
Total (8,674) 11,024
---------------------------------------------- ------------ ---------------
5. Investment management fee
Period from
Year ended 31 August
2021
30 September to 30 September
2023 2022
(Audited) (Audited)
GBP'000 GBP'000
-------------------------- ------------ ---------------
Investment management fee 1,562 1,071
-------------------------- ------------ ---------------
Total 1,562 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% per annum of NAV up to GBP500 million and 0.75%
per annum of NAV in excess of GBP500 million.
The Company paid GBP1.2 million during the period. A further
GBP0.4 million investment management fees were accrued and remained
unpaid at the year end.
6. Operating expenses
Period from
Year ended 31 August
2021 to
30 September 30 September
2023 2022
(Audited) (Audited)
GBP'000 GBP'000
---------------------------- ------------ ------------
Administration services fee 129 104
Directors' fees 191 140
Other expenses(1) 782 922
---------------------------- ------------ ------------
Total 1,102 1,166
---------------------------- ------------ ------------
1. Other expenses include adviser fees, independent valuer fees,
audit fees, broker fees, depositary fees and other Fund-related
costs.
Details of Directors' fees are set out in note 22
7. Dividends
The Company did not pay any dividend in the year to 30 September
2023 (30 September 2022: GBPnil).
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
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.
30 September 30 September
2023 2022
GBP'000 GBP'000
------------ ------------ ------------
Income taxes - -
------------ ------------ ------------
30 September 30 September
2023 2022
GBP'000 GBP'000
-------------------------------------------------------------------------------------- ------------ ------------
(Loss)/profit before tax (11,338) 8,787
(Loss)/profit before tax multiplied by the rate of corporation tax in the UK of 19.0% (2,154) 1,670
Effects of:
Non-taxable capital profits due to UK approved investment trust company status 2,143 (1,923)
Non-taxable dividend income - -
Dividend designated as interest distributions - -
Prior period deferred tax - -
Temporary differences on which deferred tax is not recognised 11 253
-------------------------------------------------------------------------------------- ------------ ------------
Total income tax charge in the statement of comprehensive incom e - -
-------------------------------------------------------------------------------------- ------------ ------------
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 19.0% (2022: 19.0%),
and the difference is explained below:
The Company's affairs are directed so as to allow it to meet the
requisite conditions to continue to operate as an approved
investment trust company for UK tax purposes. The approved
investment trust status allows certain capital profits of the
Company to be exempt from tax in the UK and also permits the
Company to designate the dividends it pays, wholly or partly, as
interest distributions. These features enable approved investment
trust companies to ensure that their investors do not ultimately
suffer double taxation of their investment returns, i.e. once at
the level of the investment fund vehicle and then again in the
hands of the investors.
Analysis of tax expense
There was no corporation tax payable during the year to 30
September 2023. 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.
Factors that may affect future total tax charges
Under the UK Finance Act 2021, the UK corporation tax rate
increased for large companies from the current rate of 19.0% to
25.0% with effect from 1 April 2023. Should the Company recognise
any deferred tax assets and liabilities, a rate of 19.0% or 25.0%
would be used depending on when the assets and liabilities are
expected to be crystallised. The Company is recognised as a UK
investment trust and is taxed at the main rate of 19.0%, prevalent
at the reporting period end.
At the period end, there is a potential deferred tax asset of
GBP264,320 carried forward (30 September 2022: GBP253,194). The
deferred tax asset is unrecognised at the period end in line with
the Company's stated accounting policy.
9. Earnings per share
Capital reserve Revenue reserve Total
GBP'000 GBP'000 GBP'000
------------------------------------------------ --------------- --------------- --------
Revenue and capital profit attributable to
equity holders of the Company (11,279) (59) (11,338)
Average number of Ordinary Shares 172,056 172,056 172,056
------------------------------------------------ --------------- --------------- --------
Earnings per share at 30 September 2023 (pence) (6.6) 0.0 (6.6)
------------------------------------------------ --------------- --------------- --------
Capital reserve Revenue reserve Total
GBP'000 GBP'000 GBP'000
------------------------------------------------ --------------- --------------- -------
Revenue and capital profit attributable to
equity holders of the Company 10,120 (1,333) 8,787
Average number of Ordinary Shares 142,847 142,847 142,847
Earnings per share at 30 September 2022 (pence) 7.1 (0.9) 6.2
------------------------------------------------ --------------- --------------- -------
10. Investments at fair value through profit and loss
30 September 30 September
2023 2022
GBP'000 GBP'000
--------------------------------------------- ------------ ------------
Fair value at start of the period 146,291 -
Loans to intermediate holding companies 15,513 21,821
Equity investment in holding companies 15,513 114,350
Unrealised gain on investments at fair value (11,278) 10,120
--------------------------------------------- ------------ ------------
Total 166,039 146,291
--------------------------------------------- ------------ ------------
As at 30 September 2023, there was a loan between Foresight
Sustainable Forestry Company Plc and FSFC Holdings Limited for
GBP37,334,413. The loan is repayable on demand. The rate of
interest on the loan has been set at 7% per annum. Interest accrued
at the year end was GBP2,796,336.
The Company owns 12,986,337,835 shares in FSFC Holdings Limited
at a nominal value of GBP0.01 each.
Fair value investments
The Investment Manager has carried out fair value market
valuations of the underlying SPV investments as at 30 September
2023 independently administered by Savills. The Directors have
approved the methodology used, as well as confirming their
understanding of all underlying key assumptions applicable. All SPV
investments are at fair value through profit or loss and are valued
using the IFRS 13 framework for fair value measurement.
Savills includes all investments under ownership by FSF in their
portfolio valuation, for both afforestation and forestry
properties. The valuations have been prepared in accordance with
the RICS Valuation - Global Standards July 2017 (the "Red Book")
and incorporate the recommendations of the International Valuation
Standards which are consistent with the principles set out in IFRS
13.
Savills, in forming its opinion, makes various assumptions on
the basis of current market conditions; the following are the key
assumptions made:
Fair value of assets
ee) 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, Northern 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.
The value associated with the carbon credits attached with the
Establishment Stage Afforestation properties is excluded from the
RICS Red Book valuation of these properties. As previously
mentioned in the report, value recognition for carbon credits is
ascribed using the Investment Manager's assessment. For further
detail, please see an explanation of the methodology on page
32.
Fair value hierarchy
The Group considers that all of its investments fall within
Level 3 of the fair value hierarchy as defined by IFRS 13. There
have been no transfers between Level 1 and Level 2 during any of
the periods, nor have there been any transfers between Level 2 and
Level 3 during any of the periods.
The valuations have been prepared on the basis of market value
(" MV "), which is defined in the RICS Valuation Standards as: "The
estimated amount for which an asset should exchange on the date of
valuation between a willing buyer and a willing seller in an
arm's-length transaction after proper marketing wherein the parties
had each acted knowledgeably, prudently and without
compulsion."
Market value as defined in the RICS Valuation Standards meets
the requirements of fair value defined under IFRS.
11. Trade and other receivables
30 September 30 September
2023 2022
GBP'000 GBP'000
-------------------------------------- ------------ ------------
Interest receivable from subsidiaries 2,796 852
-------------------------------------- ------------ ------------
Total 2,796 852
-------------------------------------- ------------ ------------
12. Trade and other payables
30 September 30 September
2023 2022
GBP'000 GBP'000
--------------------- ------------ ------------
Creditors 455 477
Accruals 348 385
Intercompany account - 24
--------------------- ------------ ------------
Total 803 886
--------------------- ------------ ------------
13. Called up share capital
Allotted share capital, issued and fully paid Number of
shares
----------------------------------------------------- -----------
Opening balance at 1 October 2022 172,056,075
----------------------------------------------------- -----------
Allotted/redeemed (since 1 October 2022)
----------------------------------------------------- -----------
Ordinary Shares issued -
----------------------------------------------------- -----------
Total number of Ordinary Shares at 30 September 2023 172,056,075
----------------------------------------------------- -----------
30 September 30 September
Share capital Share premium 2023 2022
GBP'000 GBP'000 GBP'000 GBP'000
------------------------------------- ------------- ------------- ------------ ------------
Opening balance 1,721 170,075 171,796 -
Shares issued - - - 175,000
Costs associated with share issuance - 3 3 3,204
Cancellation of share premium - (126,258) (126,258) -
------------------------------------- ------------- ------------- ------------ ------------
Total 1,721 43,820 45,541 171,796
------------------------------------- ------------- ------------- ------------ ------------
At the beginning of the period, the total number of Ordinary
Shares in issue was 172,056,075. 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 Company
has not issued any further Ordinary Shares.
On 28 February 2023, there was a special resolution to cancel
the share premium account which was confirmed by court order and
registered by Companies House. The amount cancelled was
GBP126,258,589, with the objective of creating distributable
reserves.
14. Retained earnings
30 September 30 September
Revenue Capital 2023 2022
GBP'000 GBP'000 GBP'000 GBP'000
----------------------------- ------- -------- ------------ ------------
Opening balance (1,333) 10,120 8,787 -
(Loss)/profit for the period (58) (11,279) (11,337) 8,787
Dividends paid - - - -
----------------------------- ------- -------- ------------ ------------
Closing balance (1,391) (1,159) (2,550) 8,787
----------------------------- ------- -------- ------------ ------------
The nature and purpose of each of the reserves within the
Retained Earnings as at 30 September 2023 are as follows:
-- Capital reserve: This is a non-distributable reserve of the
cumulative net gains and/or losses recognised in the Statement of
Comprehensive Income.
-- Revenue reserve: This represents a distributable reserve of
all profit and loss recognised in the revenue account of the
Statement of Comprehensive Income.
15. Net Asset Value per Ordinary Share
The total Net Asset Value per Ordinary Share is based on the net
assets attributable to equity Shareholders as at 30 September 2023
of GBP169.2 million and Ordinary Shares in issue of
172,056,075.
30 September 30 September
2022 2023
------------------------------------------- ------------ ------------
NAV (GBPm) 169.2 180.6
Number of Ordinary Shares issued (million) 172.1 172.1
------------------------------------------- ------------ ------------
Net Asset Value per Ordinary Share (pence) 98.4 105.0
------------------------------------------- ------------ ------------
16. Cash and cash equivalents
At the period end, the Company held cash and cash equivalents of
GBP1.2 million. This balance was held by HSBC Bank plc.
30 September 30 September
2023 2022
-------------------------------- ------------ ------------
Cash and cash equivalents:
HSBC Bank plc - current account 855 4,283
HSBC Bank plc - liquidity fund 362 30,043
-------------------------------- ------------ ------------
Total cash and cash equivalents 1,217 34,326
-------------------------------- ------------ ------------
17. Financial instruments
Financial instruments by category
The Company held the following financial instruments at 30
September 2023. There have been no transfers of financial
instruments between levels of the fair value hierarchy. There are
no non-recurring fair value measurements.
Financial
assets
Financial at fair value Financial
assets
Cash and held at through profit liabilities
at
bank amortised or loss amortised Total
cost cost
balances GBP'000 GBP'000 GBP'000 GBP'000
----------------------------------------------------------- -------- --------- -------------- ----------- -------
Non-current assets
Investments at fair value through profit or loss (Level 3) - - 166,039 - 166,039
----------------------------------------------------------- -------- --------- -------------- ----------- -------
Current assets
Trade and other receivables - 2,796 - - 2,796
Cash and cash equivalents 1,217 - - - 1,217
----------------------------------------------------------- -------- --------- -------------- ----------- -------
Total financial assets 1,217 2,796 166,039 - 172,052
----------------------------------------------------------- -------- --------- -------------- ----------- -------
Current liabilities
Trade and other payables - - - (803) (803)
----------------------------------------------------------- -------- --------- -------------- ----------- -------
Total financial liabilities - - - (803) (803)
----------------------------------------------------------- -------- --------- -------------- ----------- -------
Net financial instruments 1,217 2,796 166,039 (803) 169,249
----------------------------------------------------------- -------- --------- -------------- ----------- -------
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 a
discounted cash flow approach (" DCF ") to value the assets and
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. To date, no PIUs have been authorised by the
Woodland Carbon Code.
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 32. 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 2023 was GBP75.5 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 in Changes in
portfolio NAV
Forestry assets sensitivity valuation per share
--------------------------------------- ---------------- ----------
Forestry assets value increases by 10% +GBP7.53m/+4.3% +4.4p
Forestry assets value decreases by 10% -GBP7.53m/-4.3% -4.4p
--------------------------------------- ---------------- ----------
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 2023 was GBP67.1 million. Due to this asset
class forming more than 10% of the current portfolio valuation,
this was deemed an appropriate sensitivity to sample.
Changes in Changes in
portfolio NAV
Afforestation assets sensitivity valuation per share
-------------------------------------------- ---------------- ----------
Afforestation assets value increases by 10% +GBP6.71m/+3.8% +3.9p
Afforestation assets value decreases by 10% -GBP6.71m/-3.8% -3.9p
-------------------------------------------- ---------------- ----------
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 2023 was
GBP23.9 million. Due to this asset class forming more than 10% of
the current portfolio valuation, this was deemed an appropriate
sensitivity to sample.
Changes in Changes in
portfolio NAV
Mixed forestry and afforestation assets sensitivity valuation per share
---------------------------------------------------- ---------------- ----------
Mixed assets value increases by 10% +GBP2.39m/+1.4% +1.4p
Mixed assets value decreases by 10% -GBP2.39m/-1.4% +1.4p
---------------------------------------------------- ---------------- ----------
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 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
borrowing policy, the Company's outstanding borrowings, excluding
the debts of underlying assets, will be limited to 30% of the
Company's Gross Asset Value.
As at 30 September 2023, the Company had no outstanding debt.
The Company's subsidiary FSFC Holdings 2 Limited has a GBP30
million Revolving Credit Facility, of which GBP10.4 million had
been drawn at 30 September 2023.
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; 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 2023, the Company had no
recourse to debt, although as set out above in the Company
structure chart, 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 are 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 period and at the reporting date, the
Company maintained relationships with HSBC Bank plc.
Moody's 30 September 30 September
credit 2023 2022
rating GBP'000 GBP'000
-------------------------------- -------- ------------ ------------
HSBC Bank plc P1 1,217 34,326
-------------------------------- -------- ------------ ------------
Total cash and cash equivalents 1,217 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
Direct or of shares
indirect Country of Registered Principal and voting
Name holding incorporation address activity rights held
------------------------ ---------- -------------- ------------------------ ---------------- -----------
C/O Foresight Group
LLP,
The Shard, 32 London
Bridge Street, London,
FSFC Holdings Limited Direct UK England, SE1 9SG Holding company 100%
C/O Foresight Group
LLP,
The Shard, 32 London
Bridge Street, London,
FSFC Holdings 2 Limited Indirect UK England, SE1 9SG Holding company 100%
C/O Foresight Group
LLP,
The Shard, 32 London
Bridge Street, London,
FSFC Company 1 Limited Indirect UK England, SE1 9SG SPV 100%
C/O Foresight Group
LLP,
The Shard, 32 London
Blackmead Forestry Bridge Street, London,
Limited Indirect UK England, SE1 9SG SPV 100%
C/O Foresight Group
LLP,
The Shard, 32 London
Blackmead Forestry Bridge Street, London,
II Limited Indirect UK England, SE1 9SG SPV 100%
C/O Foresight Group
LLP,
The Shard, 32 London
Bridge Street, London,
Coull Forestry Limited Indirect UK England, SE1 9SG SPV 100%
C/O Foresight Group
LLP, Clarence House,
133 George Street,
Edinburgh, Scotland,
Fordie Estates Limited Indirect UK 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 of the
Directors' emoluments.
20. Contingencies and commitments
The Company has no guarantees or significant capital commitments
as at 30 September 2023.
21. 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. As per the Director's report on
pages 71 to 78, it is however noted that Blackmead Infrastructure
Limited's substantial interest in share capital (29.93%)
constitutes a party with significant influence on 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 note10. 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 year to 30
September 2023 were GBP1,561,930, of which GBP399,781 remained
unpaid as at 30 September 2023.
Additionally, the Company incurred fees during the year to 30
September 2023 of GBP128,623, which related to administration
services provided by the Investment Manager, in its capacity as
Administrator for the Company. GBP32,564 of the fees incurred
remained unpaid as at 30 September 2023.
Other transactions with related parties
The amount incurred in respect of Directors' fees during the
year to 30 September 2023 was GBP160,000. The Directors also
received GBP2,336 in relation to miscellaneous Director expenses.
These amounts had been fully paid as at 30 September 2023. The
amounts paid to individual Directors were as follows:
Taxable Basic and
benefits Committee Total
fees
Director GBP GBP GBP
------------------------- -------- --------- -------
Richard Davidson (Chair) - 48,000 48,000
Sarika Patel 357 40,500 40,857
Christopher Sutton 1,617 35,500 37,117
Josephine Bush 362 36,000 36,362
------------------------- -------- --------- -------
Total 2,336 160,000 162,336
------------------------- -------- --------- -------
The Directors held the following shares in the Company:
% of issued
Number of Ordinary
Shares
Director Ordinary capital
Shares
------------------------- --------- -----------
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.
22. Events after the balance sheet date
The Directors have evaluated the need for disclosures and/or
adjustments resulting from post balance sheet events through the
financial statements were available to be issued.
On 19 October 2023, one of the Company's SPVs, FSFC Company 1
Limited, completed the acquisition of a site in Scotland for
GBP0.7million.
On 1 December 2023, one of the Company's SPVs, Fordie Estates
Limited, completed the acquisition of a site in Scotland for
GBP0.5million.
There are no other significant events since 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 2023.
COMPANY SUMMARY
Below are the Company key facts, advisers and other information
(which have not been audited).
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
GBP140.2 million at 30 September 2023
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 on pages 71 and
72.
Website
https://fsfc.foresightgroup.eu/
ADVISERS
Investment Manager, Administrator and Company Secretary
Foresight Group LLP
The Shard
32 London Bridge Street
London
SE1 9SG
Registrar and Receiving Agent
Computershare Investor Services PLC
The Pavilions
Bridgwater Road
Bristol
BS99 6AH
Depositary
NatWest Trustee and Depositary Services Limited
250 Bishopsgate
London
EC2M 4AA
Financial advisor and corporate broker
Stifel Nicolaus Europe Limited
150 Cheapside
London
EC2V 6ET
Public Relations
SEC Newgate
14 Greville Street
London
EC1N 8SB
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
Savills Advisory Services Ltd
Earn House
Broxden Business Park
Perth
PH11 1RA
GLOSSARY OF TERMS
AGM Annual General Meeting
AIC The Association of Investment Companies
AIFs Alternative Investment Funds
AIFMs Alternative Investment Fund Managers
AIFMD Alternative Investment Fund Managers Directive
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
Company Foresight Sustainable Forestry Company Plc
EJDF E.J. Downs Forestry, who have significant experience
in the forestry management space and advise the
Company on silvicultural decisions
Ernst & Young LLP Ernst & Young is the Company's auditor
ESG Environmental, Social and Governance
FCA Financial Conduct Authority
FITF Foresight Inheritance Tax Fund
Foresight Foresight Group LLP
FSC Forest Stewardship Council
FSF Foresight Sustainable Forestry Company Plc
FTE Full-time equivalent
Fund Foresight Sustainable Forestry Company Plc
Fund Managers Richard Kelly and Robert Guest
GAV Gross Asset Value on investment basis including
debt held at Company and subsidiary level
H&S Health and safety
HMRC HM Revenue & Customs
IAS International Accounting Standard
ICVCM Integrity Council for Voluntary Carbon Markets
IFRS International Financial Reporting Standards as
adopted by the EU
Intermediate holding companies Companies within the Group which are used to
invest in afforestation and forestry assets,
namely FSFC Holdings Limited and FSFC Holdings
2 Limited
Investment Manager Foresight Group LLP, appointed by Foresight Group
CI Limited
IPO Initial Public Offering
ITC Investment Trust Company
KPI Key performance indicator
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
PIU Pending Issuance Units
Portfolio The 68 assets in which FSF had a shareholding
as at 30 September 2023
RCF Revolving Credit Facility
Red Book Valuation or the Royal Institution of Chartered Surveyors
the Red Book Valuation - Global Standards July 2017
RICS Royal Institution of Chartered Surveyors
RIDDOR Reporting of Injuries, Diseases and Dangerous
Occurrences Regulations
RNS Regulatory News Services
RPI The Retail Price Index
S&ESG Sustainability and ESG
SAC Special area of conservation
Savills Savills Advisory Services Limited
SDGs United Nations Sustainable Development Goals
SDR UK Green Taxonomy and UK Sustainable Disclosure
Requirements
SFDR The EU Sustainable Finance Disclosure Regulation
SORP Statement of Recommended Practice: Financial
Statements of Investment Trust Companies and
Venture Capital Trusts
SPHN Statutory plant health notifications
SPV The special purpose vehicles which hold the Company's
investment portfolio of underlying operating
assets
SSSI Sites of special scientific interest
tCO(2) e Tonnes of carbon dioxide equivalent
TCFD Task Force on Climate-related Financial Disclosures
UK The United Kingdom of Great Britain and Northern
Ireland
VCM Voluntary Carbon Market
VCU Verified carbon units
WCC UK Woodland Carbon Code
------------------------------ -----------------------------------------------------
Appendix One: Voluntary Carbon Market Designation, Schedule 8,
Clause 9: Continuing Obligations of the Eligible Issuer
Reference period: 01 October 2022 - 30 September 2023 (noting
the Company was awarded the Voluntary Carbon Market designation in
December 2022).
As an Eligible Issuer under the LSE's Voluntary Carbon Market
designation, the Company confirms that this audited annual report
and financial statements include:
VCM Designation Disclosure Issuer comment
a a statement confirming that there During the year to 30 September,
has been no change in the investments the Company has made 18 investments,
held by the Fund or the funding arrangements adding a total of 2,929 hectares
of the Operating Company (as the case to its portfolio. In addition,
may be) in the Proposed Projects and/or it disposed of five properties
Qualifying Projects or, in the event within its portfolio. Please refer
that there has been a change, details to pages 22 to 23 for full details
of the change on investment activity during
the year.
The Company confirms that beyond
its investment activity, in pursuit
of its investment and sustainable
investment objectives, there have
been no changes.
---------------------------------------------- ----------------------------------------------------
b in respect of a Fund, which is not The Company announced that it
fully invested, confirmation of the completed the investment of its
expected timing of any further investments June 2022 fundraise in January
in Proposed Projects and/or Qualifying 2023. Please refer to page 25
Projects for a forecast of when afforestation
schemes in development are expected
to achieve planting completion.
---------------------------------------------- ----------------------------------------------------
C an update in respect of the stage Please refer to pages 24 to 25
of each Proposed Project in relation for a forecast of when the Company's
to the standards of the relevant Qualifying afforestation schemes in development
Body including, without limitation: are expected to achieve planting
i. the expected timing of achieving completion milestones.
key milestones to achieve the status
of a Qualifying Project; or ii. a
statement of the likelihood that the
relevant Proposed Project will or
will not become a Qualifying Project
---------------------------------------------- ----------------------------------------------------
D a restatement of its expected Carbon Please refer to pages 11 and 12
Credit target yield and a description for details on the Company's objectives
of how the Eligible Issuer has performed for 2023/24.
in relation to the previously stated
expected target Carbon Credit yield As at 30 September the Company's
current afforestation portfolio
is expected to create up to 1.0-1.2
million voluntary carbon credits.
---------------------------------------------- ----------------------------------------------------
E a statement confirming the percentage Please refer to pages19 to 32
of the Eligible Issuer's gross assets, for a breakdown of the Company's
which are invested (directly or indirectly) portfolio and progress towards
in Qualifying Projects and Proposed the creation of carbon credits.
Projects
At 30 September 2023, the Company's
afforestation portfolio comprised
a c.45% allocation (by value).
---------------------------------------------- ----------------------------------------------------
F for a Fund, confirmation that, to As part of transactions to acquire
the extent the Fund is not invested forestry assets, the Company may
in Proposed Projects and/or Qualifying end up owning ancillary non-forestry
Projects, the revenues from its investments related assets such as residential
(other than in cash or cash equivalents) land and buildings and small-scale
can be mapped to the Tier 1 or Tier renewable energy assets. The Company
2 micro sectors within FTSE Russell's classifies these as "non-core"
Green Revenues Classification System; and at any point these will account
for no more than 10% of the Company's
assets (by value).Where appropriate
and beneficial to the overall
strategy, the Company will look
to realise the value of any Non-Core
Assets over time for the benefit
of Shareholders.
As at 30 September 2023 non-core
assets, not expected to align
with FTSE Russell's Green Revenues
Classification System accounted
for 3.52% of the Company's Gross
Asset Value ("GAV"). The remaining
96.48% of the Company's GAV as
at 30 September 2023, was invested
into sustainable forestry and
afforestation assets that can
be mapped onto Tier 1 or Tier
2 micro sectors within FTSE Russell's
Green Revenues Classification
System.
---------------------------------------------- ----------------------------------------------------
G for an Operating Company, confirmation N/A
that the revenues from any other business
activity conducted can be mapped to
the Tier 1 or Tier 2 micro sectors
within FTSE Russell's Green Revenues
Classification System
---------------------------------------------- ----------------------------------------------------
H details (including the number) of In the period to 30 September
any Carbon Credits received by the 2023, the Company has not received
Eligible Issuer in the period, including: or owned any Carbon Credits.
i. the Qualifying Body and the Voluntary
Carbon Industry Body; ii. certification
standard name; iii. type (reduction
and/or removal); iv. project name;
v. identification number; vi. issuing
Registry for each Carbon Credit issued;
vii. host country; viii. Carbon Credit
vintage; ix. methodology/project type;
and; whether or not the Carbon Credit
is associated with corresponding adjustments
(as evidenced by authorisation and
authorised use) by the host and/or
buyer country
---------------------------------------------- ----------------------------------------------------
i details (including the number) of N/A
any Carbon Credits that have been
retained, retired on behalf of shareholders,
distributed or sold onwards by the
Eligible Issuer in the period
---------------------------------------------- ----------------------------------------------------
J in respect of cash equivalents, how The Company may hold cash reserve
such investments are compatible with for the purposes of ancillary
the principle of climate change mitigation; liquidity and ongoing portfolio
and management to enable the continued
attainment of the Company's sustainable
investment objective. At any point,
this cash reserve will account
for no more than 5% of the Company's
assets. As at 30 September, cash
reserves comprised 0.72% of the
Company's GAV.
The Company utilises the following
responsible bank reserves:
HSBC Sterling Liquidity Fund Class
F; and
HSVC Sterling ESG Liquidity Fund
Class F
These are aligned with the principles
of climate change mitigation and
sustainable investment.
---------------------------------------------- ----------------------------------------------------
k an update in respect of the disclosure Please refer to the Company's
required pursuant to paragraph 6(e) sustainable impact reporting on
in respect of the United Nation's pages 33 - 36. This outlines the
Sustainable Development Goals ("SDGs") specific SDG indicators used for
the FSF portfolio.
---------------------------------------------- ----------------------------------------------------
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FR FSIEEIEDSEEE
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December 06, 2023 02:00 ET (07:00 GMT)
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