TIDMFSF
RNS Number : 4721C
Foresight Sustain. Forestry Co PLC
13 June 2023
13 June 2023
Foresight Sustainable Forestry Company Plc
Announcement of half-year results for the period to 31 March
2023
Foresight Sustainable Forestry Company Plc ("FSF" or "the
Company"), an investment company that invests in UK forestry and
afforestation assets, is pleased to announce the publication of its
unaudited Interim Results (the "Interim Results") for the period
from 30 September 2022 to 31 March 2023.
Financial Highlights
- The Company recorded a Profit for the period of GBP6.0 million
(31 March 2022: GBP7.9 million).
- Net Asset Value ("NAV") has increased to GBP186.6 million (30
September 2022: GBP180.6 million).
- NAV per Ordinary Share has increased to 108.5 pence, a NAV per
share return of 3.3% since 30 September 2022.
- The Company has delivered a total NAV return of 10.6%(1) since IPO.
- The key drivers of the uplift are the upwards revaluation of
FSF's properties (+5.1p) and carbon credit creation (+1.1p), driven
by mark-to-market valuation gains on recently acquired properties
and the completion of planting c.955,000 trees at four
afforestation properties.
- As at 31 March 2023, the Company had GBP1.6 million of cash
available and a GBP30.0 million of additional available liquidity
in its RCF facility.
Key Metrics
As at 31 March
2023
Net Asset Value GBP186.6 million
-----------------
NAV per Share 108.5 pence
-----------------
Total NAV return since IPO
(1) 10.6%
-----------------
Profit/(loss) for the period GBP6.0 million
-----------------
(1) Calculated with IPO costs netted off
Summary of NAV key drivers from 30 September 2022 to 31 March
2023:
Item p/share movement
NAV at 30 September 2022 105.0
-----------------
Tax and transaction costs
on acquisitions (0.9)
-----------------
Operational expenditure (1.0)
-----------------
Afforestation & restock costs (0.8)
-----------------
Portfolio revaluation gains 5.1
-----------------
Voluntary carbon credit valuation
gains 1.1
-----------------
NAV at 31 March 2023 108.5
-----------------
Portfolio and Operational Highlights
- FSF acquired 15 properties in the period, leading to a total
portfolio of 65 individual properties at 31 March 2023.
- Of the total portfolio, 42% are established forestry
properties, 42% are afforestation properties and 16% are mixed
properties (by value).
- FSF now has six planted afforestation assets with a further 34
properties with afforestation potential being developed in its
portfolio.
- Once planted, FSF's afforestation portfolio will further
create more than 35 full-time equivalent employment opportunities,
on average over each 40-year rotation, to manage these
properties.
- The majority of the current timber harvesting programme
remains on hold with the Company opting instead for biological
growth of its timber stock. The Company has elected to leave
c.117,000 tonnes of mature timber 'on-the-stump' and will continue
to monitor timber pricing and bring more substantial volumes to
market when trading conditions are more favourable.
Sustainability and ESG
- FSF's current afforestation portfolio in on track to see 4,120
hectares of land planted with trees, equivalent to approximately a
third of the total area (c.13,840 hectares) that was planted with
trees across the UK in FY 21/22.
- The Company's current afforestation portfolio will create
c.700 regional employment opportunities to get all projects
planted, requiring c.11,000 person-days of combined effort,
equivalent to more than 50 person-years of work.
Results presentation
The Company will host a virtual SparkLive presentation at 9:30
a.m. (UK time) this morning. To register your interest in attending
the presentation, please click here .
Analyst presentation
The Company will host a webinar for analysts at 10.30 a.m. (UK
time) this morning. To register your interest in attending the
presentation, please email FSF@SecNewgate.co.uk .
Richard Davidson, Chair of Foresight Sustainable Forestry
Company Plc, commented:
"Today's results confirm the positive NAV progression during the
period, demonstrating the ability of our business to deliver value
growth during volatile macroeconomic conditions. This is very
pleasing, and the upward revaluation gains in our portfolio,
particularly in the afforestation segment, have been instrumental
in this achievement. The successful completion of planting
approximately 955,000 trees has not only enhanced our NAV
substantially, but has also created a significant number of
employment opportunities for communities while facilitating
additional carbon sequestration to help combat fossil fuel driven
climate change.
We are also very pleased that the value of the Company's
voluntary carbon portfolio has continued to increase, with GBP2.5
million included in our NAV. With our growing afforestation asset
base and the increasing demand for high integrity carbon credits,
this places us in a strong position to deliver further meaningful
returns to our valued shareholders.
Tree planting is a core pillar of the UK Government's Net Zero
strategy, and we are leading facilitators of this, committed to
achieving this transparently, in a way which delivers long-term
value to investors, increasing the UK's supply of sustainable
timber and positively contributing to the Just Transition."
For further information, please contact:
Foresight Sustainable Forestry Company Plc
Robert Guest
Richard Kelly
fsfc@foresightgroup.eu +44 20 3667 8100
Jefferies International Limited
Tom Yeadon
Will Soutar
Harry Randall +44 20 7029 8000
SEC Newgate
Elisabeth Cowell
fsf@secnewgate.co.uk
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-year average) +5%, the Company
provides investors with the opportunity for real returns and
capital appreciation driven by the prevailing global imbalance
between supply and demand for timber; the inflation-protection
qualities of UK land freeholds; and biological tree growth of 3% to
4% not correlated to financial markets. It also offers outstanding
sustainability and ESG attributes and access to carbon units
related to carbon sequestration from new afforestation planting.
The Company targets value creation as the afforestation projects
successfully achieve development milestones in the process of
converting open ground into established commercial forest and
woodland areas. The Company is seeking to make a direct
contribution in the fight against climate change through forestry
and afforestation carbon sequestration initiatives and to preserve
and proactively enhance natural capital and biodiversity across its
portfolio. It is managed by Foresight Group LLP.
https://fsfc.foresightgroup.eu/
This announcement does not constitute, and may not be construed
as, an offer to sell or an invitation to purchase investments of
any description, or the provision of investment advice by any
party. No information set out in this announcement is intended to
form the basis of any contract of sale, investment decision or any
decision to purchase securities in the Company.
This announcement may include statements that are, or may be
deemed to be, "forward-looking statements". These forward-looking
statements can be identified by the use of forward-looking
terminology, including the terms "believes", "estimates",
"anticipates", "expects", "intends", "may", "will", "targeting" or
"should" or, in each case, their negative or other variations or
comparable terminology. All statements other than statements of
historical facts included in this announcement, including, without
limitation, those regarding the Company's financial position,
strategy, plans, proposed acquisitions and objectives, are
forward-looking statements.
ABOUT US
Foresight Sustainable Forestry Company Plc ("FSF", the "Fund" or
the "Company") is the first and only UK listed investment trust
focused on UK forestry, afforestation and natural capital. 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.
FSF aims to generate sustainable financial returns for its
Shareholders through investing in a diversified portfolio of UK
forestry and afforestation assets.
INVESTMENT OBJECTIVES
Real returns Value creation Sustainable Combat climate Access to voluntary
and capital through afforestation timber supply change and biodiversity carbon units
appreciation loss
HIGHLIGHTS
AS AT 31 MARCH 2023
GBP186.6m 117,000 tonnes
NET ASSET VALUE ("NAV")(1) Timber under consideration for harvesting
(30 September 2022: GBP180.6m) in 2023
(30 September 2022: 26,000 tonnes)
------------------------------------ ------------------------------------------
10.6% 4,120 hectares
TOTAL NAV RETURN SINCE IPO(1) Land newly planted or in afforestation
(30 September 2022: 7.0%)(2) development
(30 September 2022: 3,917 hectares)
------------------------------------ ------------------------------------------
108.5p c.955,000
NAV Per share(1) Trees planted this year
(30 September 2022: 105.0p) (30 September 2022: c.514,000)
------------------------------------ ------------------------------------------
11,743 hectares GBP2.5m
IN THE PORTFOLIO Value ascribed to progress towards
(30 September 2022: 9,618 hectares) creation of carbon credits
(30 September 2022: GBP0.6m)
------------------------------------ ------------------------------------------
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 33.
2. Calculated with IPO costs netted off, see page 33 of APMs for more information.
GEOGRAPHIC FOOTPRINT
A diversified portfolio of UK forestry and afforestation
assets
65 properties
1 Fordie Estate
2 Whiteburn
3 Lambs Craig
4 Shorthope
5 Aberarder
6 Frongoch
7 Brynglas
8 Esgair Hir
9 East Browncastle
10 Berrieswalls
11 Barkip
12 Over Auchentiber
13 Crofthead
14 Coull
15 Auchensoul
16 Upper Barr
17 Bogforlea
18 Harthills
19 Kirkwood
20 Tom Na Wan
21 Rorie Hill
22 Waterhead and Craigenputtock
23 Camps Woodlands
24 Banc Farm
25 Glass Rigg
26 Mountmill Burn
27 Nor Hill
28 Cwmban Fawr Farm
29 Drumelzie
30 Waun Maenllyd
31 South Dairy
32 Derry Lodge
33 Bronnant
34 Craigwell Wood
35 Maescastell
36 Pistyll South
37 Red Craig & Glen Burn
38 Burn of Bellyhack
39 Dove Hill
40 Drove Road
41 Chatto Craigs
42 Coed Doethie
43 Piltanton Wood
44 Brown Hill
45 Ness Bogie
46 Reams Hill
47 Knock Fell
48 Cheterknowes Wood
49 Windylaws
50 Liddel Water
51 Bogbain Wood
52 Glendyne Wood
53 Bruntaburn Forest
54 Goukstane Wood
55 Cessnock Wood
56 Redding Farm
57 Allanton Farm
58 Newnoth Forest
59 Coed Y Garreg
60 Knocktail Wood
61 Bedehouse & East Bennachie
62 Highside Wood
63 High Auldgirth
64 Newnoth Farm
65 Balnagowan
----------------------------
CHAIR'S STATEMENT
FSF's strategy has delivered resilient NAV progression during
the period, despite volatile macroeconomic conditions.
Richard Davidson
Chair
Introduction
On behalf of the Board, I am pleased to present the Unaudited
Interim Report and Financial Statements for Foresight Sustainable
Forestry Company Plc ("FSF", the "Company" or the "Fund") for the
period ended 31 March 2023.
The Company has had an encouraging first half of the year,
delivering an increased Net Asset Value ("NAV"), progressing on
four new planting schemes and fully deploying the equity proceeds
from our June 2022 fundraise while buying 15 new properties.
In December 2022, FSF also became the first company to be
awarded the London Stock Exchange's new Voluntary Carbon Market
designation. This is a designation that recognises funds that have
invested in carbon credit projects that meet internationally
recognised standards.
FSF's share price has reflected the momentum in the business by,
for the most part, trading at, or above, NAV through the half-year
period. This is despite the investment trust sector, as a whole,
trading on close to all time record discounts to NAV. Whilst
exhibiting low volatility through the six months, our share price
closed at 108.0 pence on 31 March 2023.
Key financials
In the six months to 31 March 2023, our NAV increased by GBP6.0
million to GBP186.6 million (30 September 2022: GBP180.6 million)
and NAV per Ordinary Share increased to 108.5 pence (30 September
2022: 105.0 pence). The key driver of this gain was the 7.4%
upwards revaluation of our portfolio of afforestation sites. This
figure was largely influenced by a combination of capital
appreciation from the completion of planting at four of our
afforestation properties, and mark--to--market gains on the 15
properties acquired in the period.
Acquisitions and capital deployment
During the period, the Company deployed a further c.GBP30
million(1) into 15 acquisitions. Of these properties, ten were
afforestation, three were forestry and two were mixed.
FSF remains focused on its process of acquiring and owning
high-quality afforestation and established forestry properties.
Given the higher interest rate and tougher asset market
environments in 2022, the Managers have been highly selective on
the quality and pricing of additional acquisitions through the six
month period.
While we have now deployed the proceeds of our most recent
equity fundraise, we remain in acquisition mode as the Company's
Revolving Credit Facility ("RCF") remains undrawn and available.
Our ambition remains to grow FSF, and we continue to pursue a
pipeline of attractive NAV accretive investment opportunities.
Forest operations
It has been a busy and productive period for operations across
the portfolio. Operational efforts have been focused on completing
the planting of nearly one million trees across four woodland
creation schemes, and taking the total number of planted
afforestation properties in the portfolio to six. Overall, 690
hectares(2) of the portfolio now sits in our Establishment Stage
Afforestation category. The four newly planted (spring 2023)
properties are forecast to produce an estimated 190,500 tonnes of
sustainable timber (for each c.35--40-year rotation), contributing
to domestic timber security and the removal of atmospheric carbon
dioxide while aligning with both regional and national tree
planting strategies.
(1) Inclusive of tax and transaction costs.
(2) Full breakdown of the portfolio is included on page 17 and 18.
The engine room of FSF's returns is expected to remain the
successful development of woodland creation schemes as has been
seen on the six afforestation properties that have been planted to
date. FSF has 34 further afforestation properties in the portfolio
that remain on track to be planted in the spring of 2024 and
2025.
Things have been quieter on the harvesting side due to softer
timber prices. For the period, FSF harvested and sold 6,400 tonnes
of timber. The Company elected to leave c.117,000 tonnes of mature
timber biologically growing "on--the--stump" and will bring that
and more substantial volumes to market when trading conditions are
more favourable.
Voluntary Carbon Market Designation
In December, FSF became the first ever company to receive the
London Stock Exchange's newly created Voluntary Carbon Market
designation. The designation is aimed at enabling companies with
net zero pledges to invest in investment companies, like FSF, that
are investing in projects that will create and distribute
high-integrity voluntary carbon credits. The carbon credits can
ultimately be used by these companies, alongside efforts to reduce
emissions, to offset the final 5-10% of unavoidable emissions to
achieve net zero. A more detailed description of the voluntary
carbon credits markets can be found on pages 14 to 16 in the
Investment Manager's report.
The Board's plan remains for the Company to distribute carbon
credits, for those investors who elect, as in--specie dividends
from 2030 onwards. For those who elect not to receive in-specie,
the Company will sell the carbon units on their behalf and
distribute the proceeds in cash.
Sustainability
A post-period event, but one we are especially proud of, is the
publication of the Company's first dedicated Sustainability &
Environmental, Social and Governance ("S&ESG") report in April
2023. The report outlines the Company's sustainability vision and
provides Shareholders with an update on the Company's delivery
against its Key Sustainability and ESG objectives (over the period
ended 30 September 2022), as well as explaining the natural capital
land management approach that the Company is applying with a view
to generating natural capital alpha. The report is available on the
Company's website(3) .
Of particular note is the additional work that the Company is
doing in respect of community engagement with local stakeholders on
planting plans and the successful completion of year one of FSF's
Forestry Skills Training Programme. The Company aims to be a
progressive industry leader and an advocate for sustainable
land-use design.
(3) FSF Sustainability and ESG Report 2022: https://media.umbraco.io/foresight/ar0gzg2h/sustainability-and-esg-report-2022.pdf
Market outlook for FSF's key markets
Despite sharp rises in interest rates and falling equity and
real estate prices in 2022, our Managers have observed good
evidence that indicates that the investment market for forestry
assets and FSF's strategy will remain resilient. Underpinning this
resilience are three characteristics. First, UK forest owners tend
not to use structural leverage, meaning forest property prices are
to some extent insulated from rising interest rates. Second, UK
forest owners enjoy a five to ten year harvesting window on mature
trees, meaning less impact from short-term timber price volatility.
Proactive decisions can be made to not cut and instead leave
maturing timber "on--the-stump"
to add biomass and value during times of softer timber prices.
Finally, the global sustainable timber supply deficit is widely
expected to continue to expand. Whilst the UK is waking up to the
importance of increased domestic timber security, trees, by their
nature, will take 35-40 years until they will reach harvesting
maturity.
In the short term, domestic demand for sustainable timber is
expected to remain subdued. Domestic construction demand is
forecast by the Construction Products Association ("CPA") to be
down by c.5% in 2023, versus 2022, impacted by a combination of
high inflation and high interest rates.
On the supply side, with most storm damaged timber now processed
through supply chains, inventories are back to more normal levels.
Over the long term, the uneven age profile of commercial forests in
the UK means that annual softwood supply is forecast by Forest
Research to peak in the 2030s and then decline by c.45% by 2050.
Over the long term, in the UK, demand for sustainable timber is
expected to almost double by 2050, according to industry body
Confor.
It also remains important to note that the UK imports c.80% of
all timber consumed, and of these imports 63% are softwood, so
international dynamics remain an important factor in determining UK
conditions. The ongoing Russian war in Ukraine means all timber
originating from Ukraine, Russia and Belarus is deemed conflict
timber and cannot be certified as sustainable for the duration of
the conflict. Pre--invasion, Russia, Belarus and Ukraine accounted
for c.20% of the global timber trade.
The demand outlook internationally has improved during the
reporting period. The Inflation Reduction Act ("IRA") in the US is
expected to materially increase US timber demand. There is early
anecdotal evidence that increasing volumes of European timber are
being exported to the US to fulfil this growing demand. The demand
outlook in China has also improved following the lifting of
zero-Covid policies and the implementation of a substantial rescue
plan for its indebted property developers.
Finally, with the rest of Europe enjoying a slightly softer
landing than the UK, the demand for sustainable timber has been
slightly more resilient in Europe than in the UK. However, the
long-term demand outlook for sustainable timber in both the UK and
Europe remains positive and underpinned by the prevailing
decarbonisation agenda.
Conclusion
As we embark on the next six months, the Company is well
positioned to leverage a range of environmental tailwinds whilst it
continues to deliver on its business objectives. I am pleased with
the trajectory that the Company has maintained over the six months
to 31 March 2023 and would like to thank our Shareholders, my
fellow Board members and the Fund Managers for their dedication to
the Company's successful growth.
Richard Davidson
Chair
12 June 2023
INVESTMENT MANAGER'S REPORT
We are pleased to have fully deployed FSF's equity in a NAV
accretive manner, whilst simultaneously delivering strong capital
appreciation by successfully planting four afforestation schemes in
the period.
Robert Guest
Managing Director, Foresight Group, Co-lead Manager of FSF
Richard Kelly
Managing Director, Foresight Group, Co-lead Manager of FSF
Executive summary
During the last six-month reporting period, the Company has been
intensely focused on a combination of disciplined capital
deployment and afforestation development activity. The period has
seen FSF's portfolio deliver strong returns on both the
afforestation and standing forestry components, with both
outperforming in an otherwise flat market. Whilst the economic
backdrop has been highly uncertain and volatile during this
challenging time for investors, we are encouraged to see the
resilience of FSF's NAV progression and share price for our
investors and stakeholders.
Key Performance Metrics
Key investment metrics for the period ended 31 March 2023
As at As at
All amounts presented in 31 March 30 September
GBPmillion (except as noted) 2023 2022
--------------------------------- -------- ------------
Market capitalisation 185.8 182.4
Share price 108.0p 106.0p
Gross Asset Value ("GAV") 186.6 180.6
Total NAV return from IPO(1) 10.6% 7.0%
Net Asset Value ("NAV") 186.6 180.6
NAV per share 108.5p 105.0p
Profit before tax for the period 6.0 8.8
--------------------------------- -------- ------------
The purpose and calculation methodology of the key APMs are
shown on page 33.
(1) Calculated with IPO costs netted off, see page 33 of APMs for more information.
Acquisitions
FSF started the period with approximately GBP30.0 million of
cash available for further acquisitions, which remained from the
GBP45 million equity placing that took place in June 2022. We were
pleased to report in January 2023 that FSF had successfully
acquired 12 properties in the period which saw the June 2022 equity
proceeds fully deployed, ahead of the six-month target committed to
participating investors. On 30 March 2023, the Company acquired a
further three properties for a total consideration of GBP9.9
million. These acquisitions were funded from cash and not the
Revolving Credit Facility ("RCF"), although the Company expects to
draw on the facility in the second half of the year for planned
capital expenditure. The Company's intention is to minimise
exposure to interest charges whilst retaining a sufficient cash
buffer.
The portfolio section on the following pages summarises the
acquisitions that have been made and the impact on FSF's portfolio
during the period.
In the aftermath of the UK Government's 'Mini-Budget' in
September 2022, we observed extraordinary levels of market
volatility, rising debt costs and elevated levels of economic
uncertainty. In response, we undertook a forensic review of FSF's
entire investment pipeline. Given the market uncertainties, a
cautious approach was adopted and only the most robust and
value-accretive opportunities were progressed. Many opportunities
were re-negotiated, and several aborted. We are pleased to report
that this strategy, of highly disciplined deployment, has worked
well. The second largest area of NAV gains to the period ended 31
March 2023 came from mark--to--market gains realised on properties
that were acquired during the period, in what was otherwise a flat
market for afforestation and forestry property values.
The majority of acquisitions in the period 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. Acquiring properties that are either directly
adjacent, or in close proximity, to existing FSF properties can
result in scale economies that are reflected in uplifted valuations
when combined. As a result, the acquisitions added to the portfolio
this period were all in FSF's three core property clusters, South
and Central Scotland and South Wales.
Portfolio
As can be seen in the portfolio section below, the acquisition
strategy has shifted this period, from being nearly exclusively
focused on afforestation properties in the prior period, to being
on a blend of afforestation, standing forestry and mixed
opportunities. FSF's portfolio started the reporting period with a
41% allocation to afforestation assets, which is in line with the
target 40--50% allocation to afforestation. With the re-balance of
FSF's portfolio now complete, this has the potential to materially
accelerate the pace of future deployment. The typical cheque sizes
for standing forestry properties are generally materially larger
than those for bare and unplanted afforestation land.
The other key change which we have had to adapt to has been
changes to the Woodland Carbon Code's ("WCC") new financial
additionality rules that became effective in October 2022.
The new rules require that an afforestation scheme must pass a
financial additionality test to qualify for the issuance of
voluntary carbon credits. The new test focuses on the level of
income forgone by converting agricultural land into forestry. Only
projects where the net present value of the afforestation scheme
(purely from an income perspective and using standardised WCC
assumptions) is less than leaving the land in agriculture qualify
for carbon credits. As a result, afforestation developers broadly
have three options. Firstly, if a scheme design does not pass this
test, a proportion of woodland creation grants can be sacrificed
until the scheme does pass. Secondly, the scheme can be redesigned,
increasing allocations to non-commercial broadleaves until the
scheme passes the financial additionality test. Finally, the option
not to commence with afforestation on the land in question remains
available.
The new rules are idiosyncratic in how they apply to different
land classifications in different areas of the country. We have
carried out a detailed review of the new rules and have adapted
FSF's acquisition approach accordingly.
We also continue to liaise with the industry and the WCC to
identify where some of the standardised assumptions in the
financial additionality test are creating unusual and unplanned
outcomes, and where improvements could be made to make the test
more fair and accurate for applicants whilst continuing to uphold
the important concept of financial additionality for WCC units.
Robert Guest (Co-Lead Manager of FSF) now sits on the WCC Advisory
Board, having been appointed to the position during the period.
In terms of afforestation development during the period, we are
delighted to report that FSF has successfully planted four further
afforestation schemes in the portfolio, including Upper Bar,
Auchensoul, Frongoch and Redding Farm. In total, these schemes have
seen c.1 million trees planted over an area that extends to 426
hectares. The revaluation of these four properties, which have
moved from planting stage afforestation properties to establishment
stage afforestation properties, was the biggest driver of FSF's NAV
appreciation during the period. In total these properties enjoyed
gains of GBP5.0 million during the period. GBP3.1 million of this
gain was in relation to the freehold, with the remaining GBP1.9
million associated with the addition of another c.107,500 voluntary
carbon credit Pending Issuance Units ("PIUs").
It has been pleasing to see the achievement of capital value
uplifts versus the initial cost of acquisition (inclusive of
consideration, transaction taxes and advisor costs) on these four
properties has remained at similar levels to those achieved with
FSF's first two planted afforestation properties, Banc Farm and
Mountmill Burn.
In total, as at the reporting period end, FSF has six
establishment stage afforestation properties in the portfolio where
689 hectares are planted. Across these six properties, c.1.5
million trees have successfully been planted and are expected to
sequester 143,707 tonnes of additional atmospheric CO2. These
properties have enjoyed total returns of over 98.5% (including
freehold and carbon credit appreciation) versus cost to 31 March
2023. We believe this is a clear testament to the strategy and
further enhancement of FSF's track record for successfully
developing afforestation properties in a way that is strongly value
accretive for our investors. Looking forward, we are excited to
progress and plant the remaining 34 development stage afforestation
assets over the coming two years.
The recent and successful completion of planting on these four
afforestation properties has created an additional c.107,500
voluntary carbon credit PIUs, which are now recognised within the
Fund's Net Asset Value. This takes the total number of voluntary
carbon credits recognised on FSF's balance sheet to 143,707 at the
period end. The value ascribed to each carbon credit has remained
unchanged at GBP17.50 per unit during the period. The expansion of
the number of carbon credits in FSF's portfolio means that as at 31
March, carbon credits were valued at GBP2.5 million and are now
considered a material part of the portfolio. A more detailed
description of the approach and methodology applied to the
valuation of voluntary carbon credits can be found on page 11 of
this report.
During the period, FSF also delivered GBP1.6 million of returns
on standing forestry properties. Market valuations for standing
forestry properties remained flat during the period. These gains
are as a result of a series of structural enhancement projects the
team have delivered, such as restocking lower yielding species with
higher yielding crops, as well as capital expenditure investments,
including upgrades to internal roading and fencing on portfolio
properties.
We have continued to observe UK sawlog prices remaining
generally subdued. On the demand side, the cost-of-living crisis,
high inflation and elevated debt costs are dampening demand. On the
supply side, chipwood prices have enjoyed a c.26% increase as
demand for wood pellets to fuel bioenergy plants has increased in
reaction to the Russian invasion of Ukraine and the associated
European energy crisis.
It has been encouraging to see forest and afforestation values
hold up in the face of a more uncertain and volatile economic
backdrop, and lower timber prices during the period.
Forest prices have historically shown to be more resilient
during times of economic stress and we observe that this trend
continued during the reporting period. UK forest owners tend not to
use structural leverage for property ownership, meaning forest
prices are less sensitive to rising debt costs than many other
asset classes. Further biological growth of trees occurs regardless
of what is going on in the economy.
Whilst spot timber prices are not immune to economic conditions,
forest owners who are not reliant on taking a consistent and
regular cash yield possess a powerful optionality to choose when to
harvest mature trees and bring the related timber to market for
sale. Therefore, forest values are more affected by investors'
long-term view of timber prices than they are of short-term spot
prices. This characteristic makes forest property prices and FSF's
NAV less volatile than many other asset classes to short and
medium-term economic volatility. With respect to FSF's portfolio,
we exercised this optionality and continued to postpone c.117,000
tonnes of timber that has entered this harvesting window.
It has been pleasing to see both FSF's share price and NAV
remain remarkably resilient during the period, particularly versus
the universe of other LSE listed investment trusts, which have
traded on an unweighted discount to NAV of 12.4% in the six months
to 31 March 2023. Resilience has remained a key facet of forestry
and natural capital as an asset class.
To help put our activities into context on a national level, FSF
is making a very material contribution to delivering the
government's tree planting target, with our existing afforestation
portfolio covering 4,120 hectares of land, which will be planted
with c.9 million trees. That's equivalent to one third of the total
amount of planting that was achieved in the UK in 21/22, which
totalled 14,000 hectares(1) . Tree planting is a core pillar of the
UK Government's national Net Zero strategy, and we're proud to be
leading the way in making this target a reality. In doing so, we
are creating new employment opportunities, ensuring that we are
positively contributing to the Just Transition.
(1) Provisional Woodland Statistics 2022
Portfolio valuation
As at 31 March 2023, the forestry portfolio, excluding
additional carbon credits held through SPVs as described on page 9,
was valued at GBP182.0 million. Since 30 September 2022, 15 assets
valued at GBP30.1 million were acquired and the property
revaluation in the portfolio delivered a gain of GBP7.1 million,
representing a weighted average (across the three investment
categories) valuation uplift of 4.0%.
Afforestation properties delivered gains of GBP5.0 million,
representing a 7.4% increase in that category, driven by
mark--to-market gains and recognition of the successful completion
of planting at four properties (Auchensoul, Redding Farm, Upper Bar
and Frongoch).
Standing forestry properties delivered gains of GBP1.6 million,
representing a 2.1% increase in that category, largely driven by
mark-to-market uplifts on recently acquired properties. Valuations
for established forest properties have remained comparatively
stable during a period of relatively subdued timber prices.
Mixed afforestation and forestry properties delivered gains of
GBP0.5 million, representing a 2.0% increase in that category.
Valuations have remained stable, reflecting the market for forestry
properties and the fact that the afforestation projects included
within these mixed properties are yet to complete planting.
Valuations were conducted by an independent third-party on a
property-by-property basis in accordance with the Royal Institute
of Chartered Surveyors ("RICS") Red Book Fair Value methodology.
Despite the challenging economic issues over the last six months,
the investment market for forestry assets has remained robust, with
the independent valuer confirming that there were enough comparable
transactions during the period to provide sufficient evidence for
the portfolio's valuation.
In the same period, four afforestation schemes completed
planting and FSF has recognised an additional GBP1.9 million of
value ascribed to the creation of carbon credits, bringing the
overall portfolio value to GBP183.9 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.107,500 voluntary carbon credits (net of the
20% buffer) and are part of a wider afforestation programme that is
expected to see the creation of c.1,000,000 voluntary carbon
credits in total from the current portfolio. The methodology, unit
pricing of GBP17.50 and treatment of the additional value added at
31 March 2023 has remained consistent with the audited financial
statements as at 30 September 2022.
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 is 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 consider 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, North England
and Wales), the external valuer accounts for the potential
differences in market interest and demand at the different
locations. On a case--by--case basis, Savills will also assess the
extent of damage suffered by sites due to any extreme windblow
incidents. Where damage is extensive, Savills will make prudent
adjustments to the value of the site if it is evident that some of
the affected timber may be challenging to recover.
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 their value of carbon credits, a
conservative 25% risk discount is applied to the average observed
unit price of a verified carbon credit. The risk discount accounts
for the Woodland Carbon Code verification process not having fully
completed. As the volume of carbon credits created by the Company
increases, to further add to the robustness and validity of the
carbon credit valuation, it is the intention of the Board, in due
course, to use an independent third-party consultant/valuer to
value the Company's carbon credits.
Portfolio allocation
As at 31 March 2023, the Company's portfolio comprised 65
properties with a total area of 11,743 hectares. An overview of the
portfolio is provided on page 2 (geographic footprint). The split
of hectares by country and the split of hectares by
afforestation/forestry is illustrated below.
Portfolio by area
Key:
Scotland - 85%
England - 5%
Wales - 10%
Key:
Afforestation - 43%
Forestry - 33%
Mixed - 24%
Portfolio by value
Key:
Scotland - 85%
England - 5%
Wales - 10%
Key:
Afforestation - 42%
Forestry - 42%
Mixed - 16%
UK timber market
The timber outputs are divided into the following three
categories depending on the top diameter(1) . Quarters follow the
calendar year.
a) 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
b) 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
c) 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 panel such as Medium Density Fibreboard ("MDF") and
Oriented Strand Board ("OSB"). However, it can also be used in pulp
mills to make paper products or biomass plants, generating power
and heat
(1) Top diameter is a measurement dimension that expresses the
diameter of a log at its thinnest point, furthest from the
butt.
The last six-month period has seen a mixed picture for UK timber
prices, with sawlog prices declining by c.5.4%, fencing prices
increasing by c.3.7%, and chipwood prices increasing significantly,
by 19.6%.
The UK continues to remain heavily reliant on timber imports,
importing c.80% of all timber consumed. Further, the UK remains the
second largest importer of timber globally, behind only China. As
such, UK timber prices are impacted by both domestic and
international timber dynamics. The Investment Manager believes that
the following key themes have impacted on timber prices and the
outlook during the period.
Domestic supply
On the domestic supply side, most of the excess storm damaged
timber, representing c.20% of the UK's annual harvest (or c.4% of
the UK's overall annual demand, once 80% timber importation is
considered), from Storm Arwen in 2021 is now understood to have
been processed through the timber supply chain. UK originated
timber supply and inventory levels are therefore returning to more
normal levels. This is starting to ease some of the downward
pricing pressure observed in 2022.
Looking forward, the maturity levels of UK commercial forests
are such that reducing supply levels over the medium and long term
are a certainty. The Forestry Commission forecasts that the amount
of UK grown softwood that will reach maturity and be ready for
harvest is trending steadily down for the next five decades. By
2046, the total standing conifer volume is expected to decline by
15%.
It is the view of the Investment Manager that, now most of the
storm damaged timber has been processed, the impact of Storm Arwen
will slightly intensify the forecast domestic supply contraction -
as a reasonable proportion of the storm-damaged trees will not have
achieved optimal size and bulk at the point they were blown.
The Russian invasion of Ukraine and the related European energy
crisis
The global timber market has continued to be significantly
impacted by the Russian invasion of Ukraine, which began on 24
February 2022. Prior to the invasion, in 2021, Russia, Ukraine, and
Belarus accounted for a quarter of worldwide timber trade. They
supplied 8.5 million cubic metres of timber to Europe, representing
c.9% of the region's total demand. In July 2022, all imports of
Russian wood were banned in Europe. Further, the PEFC and FSC
declared that all timber originating from these countries was
deemed conflict timber and no longer certified. This has resulted
in the global trade of softwood logs plunging by 20% during the
first half of 2022 year-on-year. This situation has continued
during this reporting period, while Russia furthermore has been
accused of industrial--scale logging of Ukraine's forests without
compensation. The US has not put a ban on Russian timber in 2022,
but instead placed a 50% tariff. By the end of 2022, US imports of
Russian plywood were half of 2021, but the US still directly
imported at least $1.2 billion from Russia. The reduction in global
timber supply has placed more muted downward pressure on UK sawlog
prices during the period, as only c.1.2% of timber imports were
directly from Russia, Belarus and Ukraine prior to the
invasion.
The impact of the invasion has been more directly felt on
domestic chipwood prices during the period. As a result of the
invasion, Europe has been through an energy crisis, as it weans
itself off Russian--originated oil and gas. Biomass material used
for bioenergy power plants has become increasingly scarce. To
compensate for reduced Russian gas imports, European and UK
woodchip demand from bioenergy power plants has surged and
translated into UK woodchip prices rising by 19.61% between the end
of Q3 2022 and Q1 2023.
In the early part of 2023, European wholesale energy prices have
eased, falling to new lows since the invasion began following a
warmer than expected winter and the implementation of various
energy related European policies. The Investment Manager is of the
view that with the invasion ongoing, a European energy crisis could
be re--ignited in the winter of 2023/2024. Europe will need to both
secure supplies of liquefied natural gas and reduce energy demand
in parallel to avoid significantly escalating gas prices.
Domestic demand softens
Whilst the UK has technically avoided a recession during the
period, economic output has remained subdued. This, combined with a
UK cost-of-living crisis, has resulted in reduced demand for sawlog
products during the period. In the aftermath of the UK Government's
Mini Budget, rising debt costs and a cost-of-living crisis have
created uncertainty in the housing sector and tempered domestic
demand for sawlog. Looking forward, the CPA forecasts that
construction output is expected to fall by 4.7% in 2023, and grow
by 0.6% in 2024. It is also the view of the Investment Manager that
domestic demand for sawlog will likely remain relatively subdued
during 2023 and 2024.
International demand and outlook strengthens
The outlook for American construction looks particularly
positive, following the IRA and the additional timber-related
demand this is likely to generate. US imports from Europe jumped by
27% in 2022 compared to 2021, overtaking the previous record set in
2005, with the majority imported from Germany. During the first
three months of 2023, construction spending in the US amounted to
$403 billion, 4.3% above the $386.7 billion for the same period in
2022. However, the potential of the US Government defaulting on its
national debt, due to debt ceiling restrictions, could temper the
strong US demand outlook, if that comes to pass.
The outlook for Chinese timber demand has also improved during
the period. The lifting of strict zero-COVID-19 policies is likely
to result in higher economic growth, more construction and boost
Chinese timber demand. In addition, progress has been made on the
Chinese property developer debt crisis. The Chinese government has
introduced a 21-point plan to aid property developers with
financing and debt extensions, worth up to $67 billion, that is
generally expected to bring confidence back to Chinese property and
construction markets, also contributing to an improved outlook for
Chinese timber demand.
Harvesting plan
The harvesting programme for 2023 is still evolving. Previously
it was reported that harvesting would occur across eight properties
with an estimated timber yield of c.100,000 tonnes. However, in
light of softening timber prices towards the end of 2022, the
proposed harvesting blocks were not considered accretive to the
fund and so have been postponed.
Following a full review, FSF have identified 18 properties that
have compartments of suitable age and quality for felling from a
silvicultural perspective in 2023. Of these, 11 have been
identified as being of potential interest for felling this year. An
NAV accretion analysis tool has been created to assist with the
financial decision making on which compartments to harvest. This
tool will be used in conjunction with live market data to
establish, on an ongoing basis, where harvesting coupes will
provide sufficient value to be felled. If all 11 coupes are felled,
they will yield c.117,000 tonnes of timber.
At five forests, (including Aberarder, Bogforlea, Harthills,
Kirkwood and Tom Na Wan), agreements with James Jones, one of the
UK's largest sawmillers, are in place for them to undertake the
harvesting directly. It is likely that these will proceed at some
point during 2023.
Harvesting work will continue at Whiteburn throughout much of
2023. The focus of this operation is clearing up a block of
windblown timber left over from Storm Arwen. This is largely a
silvicultural decision, as the windblown timber needs to be
harvested within a one to two years to limit staining and the
timber drying out and depreciating in value.
Voluntary carbon market
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 period, the number of
companies setting Science Based Target Initiative ("SBTi") net zero
pledges has continued to accelerate, with an all-time monthly high
of 782 companies committing to SBTi in Q1 2023. This takes the
total number of companies which have, or committed to, set SBTi net
zero pledges to 4,797 by the end of Q1 2023. The continued
acceleration of net zero pledges by companies bolsters the
long-term demand outlook for voluntary carbon credits. It is highly
likely each of these companies will ultimately require carbon
credits to offset up to 5-10% of their emissions, considered
unabatable in line with SBTi rules.
During the period, voluntary carbon credits have come under the
media spotlight. An article in the Guardian exposed integrity
issues with some avoided deforestation voluntary carbon credits,
issued by Verra's REDD+ methodology. We have since observed
shifting buyer preferences towards nature-based afforestation
credits, which are seen as high-integrity as they remove carbon
from the atmosphere and permanently store it in organic material.
In contrast REDD+ and similar avoidance-based carbon credits, by
for example conserving nature and avoiding deforestation, less
clearly demonstrate the permanence and additionality principles.
The chart in the report from Trove, a leading voluntary carbon
credit research group, illustrates that whilst prices of
avoidance-based credits (e.g. REDD+) have declined 24.0% during the
period, prices of high--integrity nature-based credits (which
include afforestation credits of the kind that FSF's afforestation
portfolio generates) have increased by 14.8% between September and
March.
Despite significant market volatility and uncertainty, it has
been pleasing to see global retirements of voluntary carbon credits
remaining steady during the period, as can be seen on the graph in
the report.
FSF's carbon strategy continues its focus on building up its
stock of high-integrity credits. From a UK voluntary carbon market
perspective, the Investment Manager has observed stable pricing for
high-integrity WCC Pending Issuance Units, with its unit price
assumption remaining unchanged at c.GBP17.50 per tonne during the
period. The Investment Manager remains optimistic about the
prospects for pricing growth in WCC units that FSF's portfolio
expects to generate over time, providing that the Company can
continue to demonstrate that its units are of the highest quality
in the future.
We are keenly attuned to the development of the LSE's Voluntary
Carbon Market. This, as introduced by the Company's Chairman,
allows market participants to easily identify listed investment
companies that are contributing positively to the establishment and
scale-up of voluntary carbon markets. FSF qualifies under all of
the criteria and as part of this, FSF intends to give investors the
choice to receive cash dividends from the net proceeds of the sale
of voluntary carbon credits, or to elect to receive in-specie
voluntary carbon credit dividends. If credits are received
in--specie they can be directly utilised by the recipient for its
own net zero offsetting or onward carbon trading strategy. The
designation enables investors to:
d) Secure a supply of voluntary carbon credits for net zero commitments or trading purposes
e) Hedge against the risk of rapidly rising voluntary carbon credit prices
f) Generate an attractive underlying risk adjusted return via
the Company's land development and timber operations (over and
above the voluntary carbon value) with FSF's listed structure
allowing the flexibility to adjust the volumes of shares held as
the investor's carbon credit yield requirements change over
time
Health and safety ("H&S")
There were no H&S incidents (near misses or RIDDORs) during
the period across the portfolio. Despite this, H&S management
of the sites remains a key focus for FSF. Operational activities
across all of the portfolio continue to be monitored to ensure that
the correct information is provided at regular intervals, so
appropriate action taken where necessary.
During the period, the Investment Manager conducted the second
annual health and safety audit of a Forest Manager. The Asset
Management team continue to work closely with E.J. Downs Forestry
("EJDF"), who have significant experience in the forestry
management space and advise the Company on silvicultural decisions,
to implement the recommendations from this report. Forest Managers
continue to work on compiling hazard maps for each site to identify
and mitigate all risks that may be present. In addition, a near
miss incentive scheme has also been developed and initiated to
encourage the reporting of near miss events across the forestry
operations.
Afforestation property development progress
FSF has now acquired 40 sites with afforestation potential.
During the period, FSF has been developing a more efficient
categorisation of afforestation development. The definitions of
these phases can be found below:
g) Development Stage Afforestation
Land prior to the securing of planning permission and grant
application.
h) Planting Stage Afforestation
Planning permission and grant application completed but initial
planting of trees not yet completed.
i) Establishment Stage Afforestation
Initial planting of site completed but trees establishing and
stabilising (typically a 3-5 year period).
j) Established Forests
Trees stabilised and established.
All FSF afforestation sites have been categorised in line with
the definition above, as follows:
Development Planting Establishment
Stage Stage Stage
Property name Afforestation Afforestation Afforestation. Established
Forest
-------------------------- ------------- ------------- -------------- -----------
Auchensoul -- -- -- -
Banc Farm -- -- -- -
Frongoch -- -- -- -
Mountmill Burn -- -- -- -
Redding Farm -- -- -- -
Windylaws -- - - -
Allanton Farm -- - - -
Bedehouse & East Bennachie -- - - -
Brown Hill -- - - -
Bruntaburn Forest -- - - -
Brynglas -- - - -
Burn of Bellyhack -- - - -
Cessnock Wood -- - - -
Chatto Craigs -- - - -
Cheterknowes Wood -- - - -
Coed Doethie -- - - -
Coed Y Garreg -- - - -
Cwmban Fawr Farm -- - - -
Dove Hill -- - - -
Drove Road Wood -- - - -
Esgair Hir -- - - -
Fordie Estate -- - - -
Glendyne Wood -- - - -
Goukstane Wood -- - - -
High Auldgirth -- - - -
Highside Wood -- - - -
Knock Fell -- - - -
Knocktail Wood -- - - -
Lambs Craig -- - - -
Liddel Water -- - - -
Maescastell -- - - -
Ness Bogie -- - - -
Newnoth Farm -- - - -
Nor Hill -- - - -
Piltanton Wood -- - - -
Pistyll South -- - - -
Reams Hill -- - - -
Red Craig & Glen Burn -- - - -
Rorie Hill -- - - -
-------------------------- ------------- ------------- -------------- -----------
(1) Status as at 31 March 2023.
The Investment Manager continues to attach a high importance to
achieving the development milestones. It is an important metric for
the Company both in terms of driving returns and achieving its
sustainability targets. To date, 690 hectares have been consented
and planted, meanwhile 3,430 hectares with afforestation potential
continue to be developed.
Asset Classification Hectares
-------------------------------------------- --------
Development Stage Afforestation Assets(1) 3,430
Planting Stage Afforestation Assets(1) -
Establishment Stage Afforestation Assets(1) 690
Established Forest Assets(1) 5,772
Other Land(2) 1,851
-------------------------------------------- --------
Total 11,743
-------------------------------------------- --------
(1) Hectares within woodland creation scheme boundary or managed forest boundary.
(2) Other Land is held as part of the core Forestry Assets
allocation and can accompany both afforestation and Established
Forest Assets. It includes land that is considered unplantable due
one or multiple constraints. For example other land includes, but
is not limited to, areas of land that are too steep slopes, areas
of deep peat and waterways.
Pipeline and deal procurement
Foresight sources deals and acquisition opportunities via
selling agents, on-market bids, bilateral deals, direct origination
and direct approaches. Approximately 4,500 specific properties
(c.900,000 hectares) which are highly suitable for afforestation
have been identified by the Investment Manager, which is able to
secure transaction opportunities through its direct origination
system. The Company has priority over these and other Foresight
forestry opportunities that are within the Company's mandate.
At the time of writing, FSF has a live pipeline of afforestation
and forestry opportunities worth c.GBP77.4 million.
Community engagement
Throughout the period, FSF has continued to engage closely with
communities to ensure maximum benefit is gained by local residents
from each of FSF's sites. As part of our standard approach, three
afforestation sites were taken through a formal community
engagement process during the period, culminating in the successful
planting of four woodland creation schemes(1) . Community
engagement meetings will continue to take place for all other
afforestation schemes in the portfolio.
In addition to this, several other community based projects are
being developed and implemented across the properties in the FSF
portfolio, for example:
k) Mountain bike trails are being developed at Banc Farm along
with a car park to enable access. Discussions are ongoing with the
local mountain bike group and the hope is that the trails will be
in use later this year
l) An area of c.20 hectares is being leased back to the
community at Upper Barr to undertake a community planting
scheme
m) A parcel of land has been gifted to the local Chapel at
Frongogh, to enable it to extend their otherwise full graveyard
n) A larger parcel of land at Frongoch, considered inappropriate
for tree planting, has been leased back to a local farmer. This
enables ongoing employment in the farming industry and diversifying
the land use within the valley
Representatives of FSF attended a community wealth building day
in Moffat during the period. The session was organised by South
Scotland Enterprises and Scottish Forestry and included
representatives from a series of key stakeholders from the forestry
industry in south Scotland.
During the period, FSF also completed the pilot of its Forestry
Skills Training Programme. The initiative was established to ensure
that FSF is not just making material contributions to the twin
fights against climate change and biodiversity loss, but is doing
so in a way that enables a just transition. Following the success
of the pilot, steps were taken during the reporting period to
refine and significantly expand the programme. This has culminated
in FSF announcing, in May 2023, that it has launched the 2023
Forestry Skills Training Programme.
The number of places available this year has increased from four
to ten, and the geographic scope increased from being only
available in Wales, to being available in Wales and Scotland. We
are deeply proud of the deep real-world impact the pilot has had on
local communities, and are excited to now scale the initiative.
(1) Redding Farm was purchased with an approved woodland
creation grant contract, so no community engagement was carried out
by Foresight.
Upside opportunities
Upside opportunities continue to be identified and progressed
across the portfolio with key themes including wind farm
development, eco-tourism and disposing of, repurposing or
renovating buildings that were included as part of the original
land acquisition. Each upside opportunity is reviewed on its merits
and taken forward on a case--by--case basis. For the reporting
period, specific examples include agreeing exclusivity for a small
wind farm development and signing a new two-year PPA for the hydro
plant at Fordie on a very favourable rate.
Biodiversity enhancement and nature-based credits
Discussions continue with our partners and consultants on the
potential verification routes/tools to determine biodiversity
baselines across the portfolio. A number of metrics for measuring
biodiversity have been screened such as the DEFRA metric, the
Biodiversity Intactness Index and FSC Ecosystem Services. In
addition, the Company continues to explore how nature enhancement
projects can translate into a tangible financial benefit for the
Company is ongoing. There are a number of standards including Plan
Vivo and Credit Nature that are developing methodologies to verify
and issue nature-based credits. The data being collected in order
to baseline biodiversity is intended to become the basis for any
future biodiversity credits created. The exploration of bundling
nature enhancement value with carbon credits is underway and
ongoing.
AFFORESTATION CASE STUDY
REDDING FARM
South Lanarkshire, Scotland
Redding Farm is a 71 hectare afforestation property in South
Lanarkshire, Scotland. The property was acquired in November 2022
and has 52 hectares of land deemed suitable for afforestation
development.
Shortly prior to purchase, planting designs for a Woodland
Creation Scheme were finalised and this was followed by planting
grant application submission. FSF unusually acquired the property
with planning consent and a grant contract in place. Following
acquisition, FSF engaged with Cheviot Trees to provide the trees
required for the development of the property. It is common practice
for FSF to begin conversations with suppliers at an early stage to
establish what stock is available. Following initial contact with
the nursery, the quantity of trees required was refined to
specifically suit the planting design, which is usually completed
in parallel with the grant application.
There is a two-year process at the tree nursery to prepare the
saplings for planting. This involves propagating the seeds,
transferring them outside, biological growth, picking the saplings,
grading them and placing them in cold storage. For the trees at
Redding Farm, this process was complete by November 2022. The
saplings arrived at the property in two deliveries, on the 13 and
20 March 2023, after much of the ground prep had been
undertaken.
The ground prepping involves a tractor turning over 'mounds' of
turf to provide suitable and evenly spaced sites to plant the
saplings. This ensures that as soon as the saplings arrive,
planting can commence. The planting process is done manually,
rather than mechanically. This is still considered to be best
practice due to mechanical planting being more costly and
susceptible to weather. At Redding Farm, the planting team were
able to complete the whole planting stage in 17 days.
The sensitive planting design incorporated 18% Broadleaves and
open ground, with Sitka Spruce forming 43% of the gross area. A
total of 108,400 trees were planted and the Forest Manager will
continue to monitor the planting throughout the summer to ensure
the trees are establishing properly. Throughout the growing season,
weed control, mowing and other maintenance work will be undertaken
as and when required to minimise competition with the tree
saplings.
At the end of the first growing season, which runs from Spring
2023 to Autumn 2023, a survey will be taken by the Forest Manager
to establish how many of the saplings have failed. Replacement
saplings will then be ordered and planted to replace the failed
saplings. This process is known as 'beating up' and is a important
step of successful forest establishment.
The process of weed control and mowing will continue for
approximately three growing seasons. At Redding Farm this will
continue through to the end of summer 2025, at which point the
trees are expected to be considered successfully established.
Visually, the commercial species, such as Sitka Spruce will look
like small trees and typically be 1.0-1.5m in height three years
after planting. The native broadleaves have more varied growth
rates in early years and typically be 0.75-2.0m in height three
years after planting. However, this is the point at which FSF will
view the site as an established forest, rather than as an
afforestation site.
Grant payments are available across the first 5-years of forest
establishment, which offsets a significant proportion of the
capital expenditure associated with forest establishment.
Investment overview
Company Foresight Sustainable Forestry Company Plc
----------- ----------------------------------------------------------------------------
Property South Lanarkshire, Scotland
location
----------- ----------------------------------------------------------------------------
Property Afforestation
type
----------- ----------------------------------------------------------------------------
Project 71 hectares
size
----------- ----------------------------------------------------------------------------
Operational 31.03.2023
date
----------- ----------------------------------------------------------------------------
Investment GBP0.95 million, including deal costs, but excluding all afforestation costs
amount
----------- ----------------------------------------------------------------------------
SUSTAINABILITY AND ESG
Introduction
Sustainability and strong governance are fundamental to FSF's
business model, as captured in the Company's three key
Sustainability and ESG objectives:
2023 Interim highlights
o) The publication of the Company's first dedicated S&ESG report.
p) Voluntary Carbon Market Designation.
q) Hosted 27 school children from Carreg Hirfaen school to play
a part in the planting at Frongoch
Key objective 1: timber supply
To deliver and increase the supply of homegrown 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.
Sustainability and ESG report
In April 2023, post-period end, the Company published its first
dedicated S&ESG report which outlined the Company's S&ESG
vision and provided stakeholders with an update on the Company's
delivery against its Key Sustainability and ESG objectives over the
period ended 30 September 2022. The report is available on the
Company's website. The report also explains the natural capital
land management approach that the Company is applying with a view
to generating natural capital alpha, which is the delivery of
ecosystem services to society alongside resilient risk-adjusted
financial returns to its Shareholders. These concepts and the
related terminology are described in the report which is available
on the Company's website.
Sustainable development goals ("SDGs") impact reporting
FSF embeds sustainability at the core of its business. The SDG's
represent a core driver of the Company's investment activities. The
Company believes it can make the greatest contribution to five of
the SDGs. 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 31 March 2023.
Timber supply chain
Goal SDG Target Contribution
---- ----------------------------- ---------------------------------
12.2 Achieve the sustainable Number of tonnes of sustainably
management and efficient use grown, standing timber.
of natural resources.
Percentage of commercial forestry
projects that are dual FSC
and PEFC certified within 12
months of acquisition.
---- ----------------------------- ---------------------------------
990,701 100%
tonnes of standing commercial timber existing forestry dual FSC and PEFC
certified in line with commitment
to dual certify within 12 months
------------------------------------- ------------------------------------
Environmental impact
Goal SDG Target Contribution
---- ------------------------------- -------------------------------------
3.9 Substantially reduce the Number of tonnes of pollutants(1)
number of deaths and illnesses removed from the atmosphere,
from hazardous chemicals and including:
air, water and soil pollution NOx (Nitrous Oxide), SOx (Sulphur
and contamination. Dioxide), PM10 (<MU>m10 Particulate
Matter), PM2.5 (<MU>m2.5 Particulate
Matter), Ground-level Ozone,
NH(3) (Ammonia).
---- ------------------------------- -------------------------------------
Pollutant removal
Key:
Ground-level Ozone
PM10
PM2.5
NH(3)
SOx
NOx
191,058 kg
of pollutants removed from the atmosphere
140,643 kg 22,807 kg
of Ground-level Ozone of PM10 (<MU>m10 Particulate Matter)
7,602 kg 3,801 kg
of NH(3) (Ammonia) of SOx (Sulphur Dioxide)
11,403 kg 1,901 kg
of PM2.5 (<MU>m2.5 Particulate Matter) of NOx (Nitrous Oxide)
--------------------------------------- -------------------------------------
Goal SDG Target Contribution
---- --------------------------------- -----------------------------------
6.6 Protect and restore water Number of kilometres of sustainably
-- related ecosystems, including managed watercourses.
mountains, forests, wetlands,
rivers, aquifers and lakes.
---- --------------------------------- -----------------------------------
Sustainably managed watercourses
325(2)
kilometres of sustainably managed watercourses
(1) Office for National Statistics, woodland natural capital accounts, UK 2020.
(2) Includes all permanent water courses and larger drains
whether wholly inside the property boundaries or located on the
property boundary with a shared responsibility for watercourse
management.
Goal SDG Target Contribution
---- --------------------------------- ------------------------------------
13.3 Strengthen resilience Total annual portfolio sequestration
and adaptive capacity to climate (tCO(2) e/annum).
-- related hazards and natural Average annual sequestration
disasters in all countries. per stocked ha (tCO(2) e/stocked
ha).
Average annual sequestration
per gross ha.
---- --------------------------------- ------------------------------------
Carbon Sequestration(3)
17,036 tCO(2) e 1.5 tCO(2) e / stocked 3.8 tCO(2) e / ha
arboreal sequestration ha average arboreal sequestration
achieved over the reporting average arboreal sequestration per gross hectare.
period within the portfolio. on a per stocked hectare
basis (commercial + non
-- commercial).
----------------------------- ------------------------------- -------------------------------
Natural capital services
Goal SDG Target Contribution
---- ------------------------------------- ---------------------------------
15.2 By 2020, promote the Number of hectares of sustainably
implementation of sustainable managed forests
management of all types of Of which:
forests, halt deforestation, r) Number of hectares that
restore degraded forests and are long-term, mixed broadleaf
substantially increase afforestation carbon sinks
and reforestation globally. s) Number of hectares that
are SSSI/SAC(1,2)
---- ------------------------------------- ---------------------------------
Biodiversity
Key:
Open ground - 61%
Commercial forestry - 32%
Native broadleaves/long--term carbon sink - 7%
11,743 ha 7,218 ha
total hectarage of portfolio (inc. of open ground and land awaiting
forests and open ground) approval for afforestation
765 ha
of which is SSSI1/SAC(2,3)
3,704
of which is total hectarage of sustainably managed commercial forests
821 ha
of which is long -- term, mixed broadleaf carbon sinks
------------------------------------------------------------------------
(1) Site of Special Scientific Interest.
(2) Special Area of Conservation.
(3) Both SSSI and SAC areas will be included within the open ground.
Carbon credits
Carbon credits generated:
PIUs held on balance 143,707
PIUs sold -
WCUs held on balance -
WCUs sold -
Total carbon credits held on balance 143,707
Total carbon credits sold -
------------------------------------- -------
Richard Kelly, Managing Director, Foresight Group and Co-lead
Manager of FSF, with three of the four successful FSF Forestry
Skills Training Programme graduates at a community tree planting
day at Frongoch, Wales, in March 2023. Following this success of
this pilot initiative, the Company is proud to have extended both
the scale and geographic scope of the initiative in 2023. The
number of places has been increased from four to ten, and the
geographic scope extended from just in Wales, to cover both Wales
and Scotland. It is through initiatives like this, that FSF is
ensuring it is making a direct contribution to the twin fights
against climate change and diversity loss in a way that also
enables a just transition. A detailed case study covering this
initiative can be found in the Company's 2022 Sustainability and
ESG Report.
TCFD AND EMISSIONS REPORTING
The Company's focus for quantitative reporting of exposure to
climate--related risks is achieved using the universally accepted
core metrics, as recommended by the Task Force on Climate Related
Financial Disclosures ("TCFD").
TCFD
The Company's S&ESG report, published in April 2023,
provides a comprehensive response to all 11 of the disclosures and
can be found on the Company's website.
Climate scenario analysis
As part of the Company's disclosures under TCFD, the S&ESG
report 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 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.
FSF considers itself and Article 9 fund. In compliance with the
Level 2 disclosure requirements under the Regulatory Technical
Standards (RTS), 1 the Company updated its pre-contractual and
website disclosures, both of which can be found on the Company's
website.
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.
RISK AND RISK MANAGEMENT
Risk and risk management
FSF has a comprehensive risk management framework overseen by
the Audit and Risk Committee, comprising the independent
Non-Executive Directors.
The Directors consider the following as the principal risks and
uncertainties to the Company at this time:
t) The Company being unable to access sufficient funding to complete its growth ambitions
u) A reduction in demand from the users of timber that negatively impacts profitability
v) Resistance to change of land use from the public generating
negative PR and impacting the Company's ability to obtain planning
consent
w) Changes in the economic, technological, political or
regulatory environment, including inflation
The following represent the most relevant emerging risks as
viewed by the Board and the Investment Manager:
The Company is exposed to a number of risks that have the
potential to materially affect the Company's valuation, reputation
and financial or operational performance. The nature and levels of
risk are identified according to the Company's investment
objectives and existing policies, with the levels of risk tolerance
ultimately defined by the Board.
Financing capital
As a newly listed entity, the Company is focused on growing its
portfolio. In order to achieve our growth ambitions and to ensure
the Company is able to take full advantage of the opportunities in
its pipeline, additional financing will be required in the short to
medium term.
The Company's borrowing policy enables the Directors to use
gearing for liquidity and working capital purposes, or to finance
acquisition of investments subject to following a prudent approach
and maintaining a conservative level of aggregate borrowings that
will not exceed 30% of Gross Asset Value, calculated at the time of
drawdown. The Company has a GBP30 million Revolving Credit
Facility, that at the end of the period remains fully undrawn. The
equity levels of the Company are closely monitored by the Board and
the Investment Manager on a regular basis.
The Company continues to work closely with its broker, Jefferies
International Limited, and the Investment Manager's in-house Retail
Sales team, will conduct market research ahead of any future
funding rounds to gauge demand from existing and new investors.
Timber market volatility
Timber prices can be volatile periodically. However, demand over
the medium to long term has historically created real-term pricing
growth. In the context of global under-supply and increasing
demand, this reduces market risk for the sale of the Company's key
products and revenue streams.
Should timber prices be less attractive at the point of felling,
the Investment Manager also has the option to delay felling,
allowing trees to 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 the Company's
reputation, ability to obtain the necessary planning consent for
planting to commence and potentially the Company's share price.
During the due diligence phase of afforestation investments, the
Investment Manager commissions an independent community risk
assessment to ensure that afforestation only takes place in areas
where tree planting is less likely to be a contentious issue. A
separate planning risk assessment is also undertaken ahead of all
potential land acquisitions where afforestation is intended and the
Investment Manager only pursues opportunities where the risk of not
obtaining planning consent, including for reasons relating to
objections raised by the local community, is assessed to be
low.
Once afforestation properties are acquired, the Investment
Manager runs a co-ordinated programme of community engagement and
seeks to respond and, wherever possible, adapt the scheme design to
meet concerns raised by community members.
In addition, in the event that planting was unable to go ahead,
the acquired land would still have agricultural value. Therefore,
whilst the 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. The Investment Manager has piloted
and is significantly expanding its Forestry Skills Training
Programme that enables members of rural farming communities to
adapt to afforestation-related land use change by providing them
with all of the skills, training, certifications, safety equipment
and mentoring required to commence a new career in forestry.
Changes in the macroeconomic environment
The UK economy has seen significant fluctuations in growth over
the last two years, predominantly due to Russia's invasion of
Ukraine, rising debt costs and persistently high inflation.
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.
FINANCIAL REVIEW
Analysis of financial results
The condensed set of financial statements of the Company for the
six-month period ended 31 March 2023 are set out on pages 34 to
55.
The Company prepared the condensed unaudited financial
statements for the period to 31 March 2023 in accordance with IAS
34 as adopted by the UK and issued by the International Accounting
Standards Board. The Company applies IFRS 10 and Investment
Entities: Amendments to IFRS 10, IFRS 12 and measures all their
subsidiaries that are themselves investment entities at fair value.
The Company accounts for its interest in its wholly owned direct
subsidiary FSFC Holdings Limited as an investment at fair value
through profit or loss in accordance with IFRS 13 Fair Value
Measurement.
The primary impact of this application, in comparison to
consolidating subsidiaries, is that the cash balances, the working
capital balances and borrowings in the intermediate holding
companies and project companies are presented as part of the
Company's fair value of investments.
The Company's intermediate holding companies provide services
that relate to the Company's investment activities on behalf of the
parent which are incidental to the management of the portfolio.
The Company, its subsidiaries FSFC Holdings Limited and FSFC
Holdings 2 Limited (together the "Group"), hold investments in 65
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 condensed unaudited
financial statements on pages 40 to 55.
Key financial metrics for the period ended 31 March 2023
As at As at
31 March 30 September
All amounts presented in GBPmillion (except as noted) 2023 2022
------------------------------------------------------ -------- ------------
Gross Asset Value ("GAV")(1) 186.6 180.6
Net Asset Value ("NAV")(2) 186.6 180.6
NAV per share (pence) 108.5 105.0
Total Income 7.3 11.0
Profit before tax 6.0 8.8
Earnings per share (pence) 3.5 6.2
------------------------------------------------------ -------- ------------
(1) Calculated as the sum of the NAV and total outstanding debt on page 37.
(2) Total equity as per the statement of financial position on page 37.
Net assets
Net assets increased 3.3% from GBP180.6 million at 30 September
2022 to GBP186.6 million at 31 March 2023.
The Net Assets of GBP186.6 million comprises GBP181.4 million
portfolio value of forestry and afforestation assets, with an
additional GBP2.5 million carbon credit valuation and cash balances
of GBP3.8 million comprising cash of GBP1.6 million in the Company
and GBP2.2 million in the project companies, offset by GBP1.1
million of other net liabilities (GBP1.8 million of other assets in
the Company and GBP2.9 million of other liabilities in the project
companies).
At 31 March 2023, the Group's Revolving Credit Facility of
GBP30.0 million remained undrawn. The GAV is equal to the sum of
the NAV and the outstanding debt as described in the alternative
measures table on page 33. The GAV as at 31 March 2023 was GBP186.6
million.
Analysis of the Group's net assets at 31 March 2023
As at As at
31 March 30 September
All amounts presented in GBPmillion (except as noted) 2023 2022
------------------------------------------------------ ----------- ------------
Red Book valuation(1) 181.4 144.2
Carbon credits valuation(2) 2.5 0.6
------------------------------------------------------ ----------- ------------
Portfolio Value 183.9 144.8
------------------------------------------------------ ----------- ------------
Project companies' cash 2.2 2.0
Project companies' other net liabilities (2.9) (0.5)
------------------------------------------------------ ----------- ------------
Investments at fair value through profit or loss 183.2 146.3
Company's cash 1.6 34.3
Company's other net assets 1.8 -
------------------------------------------------------ ----------- ------------
Net Asset Value 186.6 180.6
Number of shares 172,056,075 172,056,075
------------------------------------------------------ ----------- ------------
Net Asset Value per share (pence) 108.5 105.0
------------------------------------------------------ ----------- ------------
(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.
Net Asset Value bridge
During the period from 30 September 2022, there was an GBP8.6
million fair value increase of the afforestation and forestry
assets held by the Group, offset by Fund operational expenditure of
GBP2.0 million, GBP1.3 million of afforestation and restock costs
and deal costs of GBP1.5 million. An additional 107,591 of carbon
credits attributed to four underlying afforestation assets where
planting has been completed in the period have also been valued at
GBP1.9 million, resulting in a Net Asset Value of GBP186.6 million
at 31 March 2023.
Company performance
Profit and loss
The Company's profit before tax for the six month period to 31
March 2023 was GBP6 million generating earnings of 3.5 pence per
share.
For the same period to 31 March 2023, the total return on
investments was GBP7.3 million, which relates to GBP1.4 million of
interest on the FSFC Holdings loan notes and GBP5.9 million net
gains on investments at fair value. The interest income is from the
Company's Shareholder loan to FSFC Holding Limited. The net gain on
investment is generated by the net fair value movement on the
Company's investment in FSFC Holding Limited.
Operating expenses included in the income statement for the
period were GBP1.3 million, in line with expectations. These
comprise investment management fees of GBP0.8 million and GBP0.5
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
Period from incorporation
1 October On 2021
2022 to 31 August
to
31 March 30 September
All amounts presented in GBPmillion (except as noted) 2023 2022
------------------------------------------------------ ----------- -------------
Interest received on FSFC Holdings loan notes 1.4 0.9
Net gain on investments at fair value 5.9 10.1
Total return on investment 7.3 11.0
Operating expenses (1.3) (2.2)
------------------------------------------------------ ----------- -------------
Profit before tax 6.0 8.8
Earnings per share (pence) 3.5 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
AIC-recommended methodology for calculating this ratio, which is an
annual figure.
The ongoing charges ratio percentage was 1.4% in September 2022
and remains the same for the six-month period to 31 March 2023
(annualised).
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.
Cash flow
The Company held cash balances at 31 March 2023 of GBP1.6
million. This amount excludes cash held in subsidiaries. The
breakdown of the movements in cash during the period is shown
below.
Cash flows of the Company for the period to 31 March 2023
(GBPmillion)
Period from
incorporation
Six months on 31 August
ended 2021 to 30
31 March 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)
Group movements in working capital (0.4) 0.9
Directors' fees and expenses (0.1) (0.1)
Investment management fees (0.8) (1.1)
Administrative expenses (0.5) (1.0)
------------------------------------------------------------ ---------- -------------
Company's closing cash balance 1.6 34.3
------------------------------------------------------------ ---------- -------------
Cash flows of the group for the period to 31 March 2023
(GBPmillion)
The Group is defined as the Company and its two intermediate
holding companies. The cash flows for the Group of GBP1.9 million
include GBP0.3 million in FSF Holdings 2 Ltd.
Alternative performance measures ("APMs")
Purpose Calculation APM value Reconciliation to IFRS
Gross Asset Value
("GAV")
A measure of the value The sum of net assets GBP186.6 The calculation uses the Net Asset Value as
of the Company's total of the Company as shown million per statement of financial position on page 37
assets. on the statement of financial and total outstanding debt.
position and the total
debt of the Group.
Net Asset Value per
share
Allows investors to The net assets divided 108.5p As per the closing Net Asset Value per the
gauge whether shares by the number of Ordinary statement of financial position on page 37,
are trading at a premium Shares in issuance. the
or a discount by comparing closing number of Ordinary Shares as per Note
the Net Asset Value 13 of the financial statements on page 48.
per share with the
share price.
Total NAV return
since IPO
A measure of financial Closing NAV per share 10.6% The calculation uses the Net Asset Value as
performance, indicating as at 31 March 2023 plus per the statement of financial position on
the movement of the all dividends since IPO page
value of the Fund assumed reinvested, divided 37 and cash dividends as per the statement of
since IPO and expressed by the NAV at IPO expressed cash flows on page 39.
as a percentage. as a percentage.
Market capitalisation
Provides an indication Closing share price as GBP185.8 The calculation uses the closing share price
of the size of the at 31 March 2023 multiplied million as per key investment metric table on page 29,
Company. by the closing number and closing number of Ordinary Shares as per
of Ordinary Shares in Note 13 of the financial statements on page
issuance. 48.
Ongoing charges
A measure, expressed Calculated and disclosed 1.4% Ongoing charge is detailed on page 31.
as a percentage of in accordance with the
average net assets, AIC methodology. Annualised
of the regular, recurring expenses divided by average
annual costs of running NAV.
the Company per Ordinary
Share.
--------------------------- ------------------------------ --------- ----------------------------------------------
FINANCIAL STATEMENTS
STATEMENT OF DIRECTORS' RESPONSIBILITIES
The Disclosure Guidance and Transparency Rules ("DTR") of the UK
Listing Authority require the Directors to confirm their
responsibilities in relation to the preparation and publication of
the Unaudited Interim Financial Report for the period ended 31
March 2023.
The Directors confirm to the best of their knowledge that:
(a) The condensed set of financial statements, which has been
prepared in accordance with the applicable set of accounting
standards, gives a true and fair view of the assets, liabilities,
financial position and profit or loss of the issuer, or the
undertakings included in the consolidation as a whole as required
by DTR 4.2.4 R
(b) The interim management report includes a fair review of the
information required by DTR 4.2.7 R
(c) The interim management report includes a fair review of the
information required by DTR 4.2.8 R
Richard Davidson
Chair
For and on behalf of Foresight Sustainable Forestry Company
Plc
12 June 2023
CONDENSED UNAUDITED STATEMENT OF COMPREHENSIVE INCOME
for the period to 31 March 2023
Period from Period from Period from
01 October 31 August 31 August
2021
2022 2021 to 30
to 31 March to 31 March September
2023 2022 2022
Revenue Capital (Unaudited) (Unaudited) (Audited)
Notes GBP'000 GBP'000 GBP'000 GBP'000 GBP'000
--------------------------- ----- ------- ------- ----------- ------------ -----------
Return on investment 4 1,470 5,877 7,347 8,868 11,024
--------------------------- ----- ------- ------- ----------- ------------ -----------
Total income 1,470 5,877 7,347 8,868 11,024
Investment management fees 5 (767) - (767) (380) (1,071)
Operating expenses 6 (568) - (568) (584) (1,166)
--------------------------- ----- ------- ------- ----------- ------------ -----------
Total expenses (1,335) - (1,335) (964) (2,237)
--------------------------- ----- ------- ------- ----------- ------------ -----------
Profit before tax 135 5,877 6,012 7,905 8,787
--------------------------- ----- ------- ------- ----------- ------------ -----------
Tax 8 - - - - -
--------------------------- ----- ------- ------- ----------- ------------ -----------
Profit for the period 135 5,877 6,012 7,905 8,787
--------------------------- ----- ------- ------- ----------- ------------ -----------
Earnings per share (pence) 9 0.1 3.4 3.5 6.1 6.2
--------------------------- ----- ------- ------- ----------- ------------ -----------
All results are derived from continuing operations.
The supplementary revenue and capital columns are presented for
information purposes in accordance with the Statement of
Recommended Practice issue by the Association of Investment
Companies ("AIC").
There are no items of other comprehensive income in the current
period, other than the profit for the period, and therefore no
separate statement of comprehensive income has been presented.
The accompanying notes on pages 40 to 55 form an integral part
of the condensed set of financial statements.
CONDENSED UNAUDITED STATEMENT OF FINANCIAL POSITION
As at 31 March 2023
31 March 31 March 30 September
2023 2022 2022
(Unaudited) (Unaudited) (Audited)
Notes GBP'000 GBP'000 GBP'000
------------------------------------------------- ----- ----------- ----------- ------------
Non-current assets
Investments at fair value through profit or loss 10 183,195 126,448 146,291
------------------------------------------------- ----- ----------- ----------- ------------
Total non-current assets 183,195 126,448 146,291
------------------------------------------------- ----- ----------- ----------- ------------
Current assets
Trade and other receivables 11 2,112 1,218 852
Cash and cash equivalents 16 1,595 8,643 34,326
Total current assets 3,707 9,861 35,178
------------------------------------------------- ----- ----------- ----------- ------------
Total assets 186,902 136,309 181,469
------------------------------------------------- ----- ----------- ----------- ------------
Current liabilities
Trade and other payables 12 (304) (790) (886)
------------------------------------------------- ----- ----------- ----------- ------------
Total current liabilities (304) (790) (886)
------------------------------------------------- ----- ----------- ----------- ------------
Total liabilities (304) (790) (886)
------------------------------------------------- ----- ----------- ----------- ------------
Net assets 186,598 135,519 180,583
------------------------------------------------- ----- ----------- ----------- ------------
Equity
Called up share capital 13 1,721 1,300 1,721
Share premium 13 43,819 126,314 170,075
Revenue reserve (1,198) (855) (1,333)
Capital reserve 14 142,256 8,760 10,120
------------------------------------------------- ----- ----------- ----------- ------------
Shareholders' funds 14 186,598 135,519 180,583
------------------------------------------------- ----- ----------- ----------- ------------
Net assets per share (pence per share) 15 108.5 104.2 105.0
------------------------------------------------- ----- ----------- ----------- ------------
The accompanying notes form an integral part of the condensed
set of financial statements.
The condensed set of unaudited financial statements were
approved by the Board of Directors and authorised for issue on 13
June 2023.
They were signed on its behalf by:
Richard Davidson
Chair
CONDENSED UNAUDITED STATEMENT OF CHANGES IN EQUITY
for the period to 31 March 2023
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 - (126,259) 126,259 - -
Total comprehensive income
for the period 14 - - 5,877 135 6,012
---------------------------------- ----- ------------- --------- ------- ------- --------
Net assets attributable to
Shareholders at 31 March 2023 1,721 43,820 142,256 (1,198) 186,598
---------------------------------- ----- ------------- --------- ------- ------- --------
Called up Share Capital Revenue
share capital premium reserve reserve Total
Notes GBP'000 GBP'000 GBP'000 GBP'000 GBP'000
---------------------------------- ----- ------------- --------- ------- ------- --------
Balance at 24 November 2021 - - - - -
Gross proceeds from share issue 1,300 128,700 - - 130,000
Share issue costs 13 - (2,386) - - (2,386)
Dividends 7 - - - - -
Total comprehensive income
for the period 14 - - 8,760 (855) 7,905
---------------------------------- ----- ------------- --------- ------- ------- --------
Net assets attributable to
Shareholders at 31 March 2022 1,300 126,314 8,760 (855) 135,519
---------------------------------- ----- ------------- --------- ------- ------- --------
Called up Share Capital Revenue
share capital premium reserve reserve Total
Notes GBP'000 GBP'000 GBP'000 GBP'000 GBP'000
---------------------------------- ----- ------------- --------- ------- ------- --------
Balance at 24 November 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
---------------------------------- ----- ------------- --------- ------- ------- --------
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.
CONDENSED UNAUDITED STATEMENT OF CASH FLOWS
for the period to 31 March 2023
Period from Period from Period from
1 October 31 August 31 August
2021
2022 2021 to 30
to 31 March to 31 March September
2023 2022 2022
(Unaudited) (Unaudited) (Audited)
GBP'000 GBP'000 GBP'000
---------------------------------------------------------------- ----------- ------------ -----------
Profit for the period from continuing operations 6,012 7,905 8,787
Adjustments for:
Net profit on investments at fair value through profit and loss (5,877) (8,760) (10,120)
---------------------------------------------------------------- ----------- ------------ -----------
Operating cash flows before movements in working capital 135 (855) (1,333)
---------------------------------------------------------------- ----------- ------------ -----------
Cash flows from operating activities
(Increase)/decrease in Trade and other receivables (1,260) (1,066) (852)
(Decrease)/increase in Trade and other payables (579) 638 886
---------------------------------------------------------------- ----------- ------------ -----------
Net cash outflow from operating activities (1,704) (1,283) (1,299)
---------------------------------------------------------------- ----------- ------------ -----------
Cash flows from investing activities
Investing activities
Purchase of investments (31,027) (117,688) (136,171)
---------------------------------------------------------------- ----------- ------------ -----------
Net cash used in investing activities (31,027) (117,688) (136,171)
---------------------------------------------------------------- ----------- ------------ -----------
Cash flows from financing activities
Financing activities
Gross proceeds from share issue - 130,000 175,000
Share issue costs - (2,386) (3,204)
---------------------------------------------------------------- ----------- ------------ -----------
Net cash inflow from financing activities - 127,614 171,796
---------------------------------------------------------------- ----------- ------------ -----------
Net increase/(decrease) in cash and cash equivalents (32,731) 8,643 34,326
---------------------------------------------------------------- ----------- ------------ -----------
Cash and cash equivalents at beginning of period 34,326 - -
---------------------------------------------------------------- ----------- ------------ -----------
Cash and cash equivalents at end of period 1,595 8,643 34,326
---------------------------------------------------------------- ----------- ------------ -----------
The accompanying notes form an integral part of the condensed
set of financial statements.
NOTES TO THE CONDENSED UNAUDITED FINANCIAL STATEMENTS
FOR THE PERIOD TO 31 MARCH 2023
1. Company information
(a) Statutory information
Foresight Sustainable Forestry Company Plc (the "Company" or
"FSF"), is a public limited company limited by shares, was
incorporated and registered in England and Wales on 31 August 2021
with registered number 13594181 pursuant to the Companies Act 2006.
The Company's registered address is 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 condensed unaudited financial statements of the Company are
for the six-month period to 31 March 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.
Foresight Sustainable Forestry Company PIc
Foresight Sustainable Forestry Company Pic
FSFC Holdings Limited
FSFC Holdings 2 Limited
FSFC Company Blackmead Forestry Blackmead
1 Limited Limited Forestry II
Limited
Coull Forestry Fordie Estates
Limited Limited
2. Significant accounting policies
(a) Basis of preparation
This set of condensed unaudited financial statements has been
prepared in accordance with UK adopted International Accounting
Standards. The financial statements have been prepared under the
historical cost convention as modified by the revaluation of
certain assets and on a going concern basis. The accounting
policies set out below have, unless otherwise stated, been applied
consistently to the period presented in these financial
statements.
These financial statements have also been prepared in accordance
with the Statement of Recommended Practice: Financial Statements of
Investment Trust Companies and Venture Capital Trusts ("SORP")
issued in April 2021 by the Association of Investment Companies
("AIC").
The same accounting policies and standards have been observed in
these interim 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 do not intend to constitute statutory
accounts as defined in Section 434(3) of the Companies Act 2006 as
they are unaudited. As such, these statements have been neither
audited nor formally reviewed. Statutory accounts in respect of the
period to 30 September 2022 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 2022 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 financial statements comprise the results for the
unaudited six--month period to 31 March 2023 as well as
comparatives to the audited period ending 30 September 2022 and
unaudited period ending 31 March 2022.
(b) Going concern
The Directors have adopted the going concern basis in preparing
the Interim Report. In their assessment of going concern they have
reviewed comprehensive cash flow forecasts prepared by the
Investment Manager and believe, based on the forecasts and an
assessment of the Company's cash position and liquidity of the
investment portfolio, that 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 31
March 2023, the Company had net assets of GBP186.6 million
including GBP1.6 million of cash, it also has an undrawn GBP30
million 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 made by the COVID-19 pandemic and the Ukraine--Russia
conflict.
The Company has assessed these risks alongside the potential
risk of similar events having a negative impact on revenue
recoverability. The potential impacts of such market risks include,
but are not limited to:
(i) Material reductions in timber prices recoverable from the SPVs
(ii) Material reductions in demand for timber in the United Kingdom
(iii) Material reductions in forecasted revenues earned from the
sale of carbon credits
(iv) Change to the UK Woodlands Grant scheme
Each of the above potential impacts could have a direct
influence on the amount that can be distributed to the Company by
its subsidiaries. Foresight has reviewed the portfolio's exposure
to these risks and has concluded that if, even in the unlikely
case, these adverse impacts on revenue recoverability are material,
the Company should still have sufficient funds to continue
operations for the foreseeable future. If such impacts were to
continue on a long-term basis, continued monitoring processes would
need to be actioned.
Liquidity risk
Due to the nature of the Company's operation and deployment
strategy, there could be potential exposure to liquidity risk,
whereby the entity would encounter difficulties in paying its
financial liabilities. The Directors have considered this risk and
are satisfied that FSF has adequate financial resources to settle
its recurring expenses for the foreseeable future, based on
evidence provided from cash flow forecasting and sensitivity
testing to satisfy both the Investment Manager and the Directors
that the Company has sufficient funds available.
The Directors are satisfied that FSF has sufficient resources to
continue to operate for the foreseeable future, a period of 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 judgements
Fair valuation of investment assets
The market value of the Company's underlying investment
portfolio held through its SPVs consisting of Forestry,
Afforestation and Non--core assets (investment
portfolio/properties) is determined by an external valuer (see note
10) to be the estimated amount for which an asset should exchange
on the date of the valuation in an arm's--length transaction.
Properties have been valued on an individual basis. The external
valuer prepares their valuations in accordance with the RICS
Valuation - Global Standards July 2017 (the "Red Book"). Factors
reflected comprise current market conditions, including the
comparable market value of similar freehold forestry assets, the
potential uplift in land value above current in--use value
(relevant to planting land), the location and situation of
individual assets, potential vulnerability to winter storms and the
developmental status of properties (if afforestation). The market
conditions stated are assessed on a bi-annual basis. The
significant methods and assumptions used by the external valuers in
estimating the fair value of investment assets are set out in note
10. The carbon credit valuations are not determined by an external
valuer and are subject to Directors' judgement and estimation.
(e) Taxation
Income taxes
Income taxes represent the sum of the tax currently payable,
withholding taxes suffered and deferred tax. Tax is charged or
credited in the statement of comprehensive income, except where it
relates to items charged or credited directly to equity, in which
case the tax is also dealt with in equity.
The tax currently payable is based on the taxable profit for the
year. This may differ from the profit included in the statement of
comprehensive income because it excludes items of income or expense
that are taxable or deductible in other years and it further
excludes items that are never taxable or deductible. To enable the
tax charge to be based on the profit for the year, deferred tax is
provided in full on temporary timing differences, at the rates of
tax expected to apply when these differences crystallise.
Deferred tax assets are recognised only to the extent that it is
probable that sufficient taxable profits will be available against
which temporary differences can be set off. In practice, some
assets that are likely to give rise to timing differences will be
treated as capital for tax purposes. Given capital items are exempt
from tax under the Investment Trust Company rules, deferred tax is
not expected to be recognised on these balances.
All deferred tax liabilities are offset against deferred tax
assets, where appropriate, in accordance with the provisions of IAS
12. The carrying amount of deferred tax assets is reviewed at each
balance sheet date and reduced to the extent that it is no longer
probable that sufficient taxable profits will be available to allow
all or part of the asset to be recovered.
3. Basis of consolidation
The Company's objective is to invest in UK forestry and
afforestation assets through its holding companies, which will
typically issue equity and loans to finance the investments.
Assessment as an investment entity
IFRS 10 Consolidated Financial Statements sets out the following
essential criterion, necessary for a company to be considered as an
investment entity.
Definition of an investment entity/trust:
(i) It must obtain funds from multiple investors for the purpose
of providing its investment management services to those
investors
(ii) It must commit to its investors that its business purpose
is to invest funds solely for returns from capital appreciation,
investment income, or both. Similarly, the entity must ensure there
is also an exit strategy for such investments
(iii) It must measure and evaluate the performance of its
investments on a fair value basis
In assessing whether the Company meets the definition of an
investment entity set out in IFRS 10, the Directors note that:
(i) The Company is an investment company that invests funds
obtained from multiple investors in a diversified portfolio of UK
forestry and afforestation assets and has appointed Foresight Group
as the Investment Manager to manage the Company's investments
(ii) The Company's purpose is to invest funds with the intention
of providing real returns to investors and capital appreciation
driven by global demand for timber. The Company's exit strategy
will depend on factors of portfolio balance and/or profit
(iii) The Board evaluates the performance of the Company's
investments on a fair value basis as part of the quarterly
management accounts review and the Company values its investments
on a fair value basis driven by a RICS valuation provided by
Savills (the "external valuer") using various assumptions to
reflect current market conditions. This includes, amongst other
factors, the comparable market value of similar freehold forestry
assets. These fair value assessments happen on a bi-annual basis
and are included in the Company's annual and interim financial
statements, with the movement in the valuations taken to the
condensed statement of comprehensive income and is therefore
measured within its earnings.
The Directors have concluded that the Company meets the
definition of an investment entity in accordance with IFRS 10 after
evaluation of the relevant criteria.
IFRS 10 states that investment entities are required to hold
subsidiaries at fair value through profit or loss rather than
consolidation on a line-by-line basis; this means that the Group's
cash, debt and working capital balances are included in the fair
value of the investment instead of in the Company's assets and
liabilities. The Company has one investee, namely FSFC Holdings
Limited, which invests the funds of the FSF investors on its behalf
and is effectively performing investment management services on
behalf of several unrelated beneficiary investors.
4. Return on investment and interest income
Period from Period from Period from
1 October 31 August 31 August
2022 2021 2021 to 30
to 31 March to 31 March September
2023 2022 2022
(unaudited) (unaudited) (audited)
GBP'000 GBP'000 GBP'000
---------------------------------------------- ----------- ----------- -----------
Unrealised fair value movement of investments 5,877 8,760 10,120
Interest income - Loans to direct subsidiary 1,260 100 852
Interest income - Bank 210 - 52
---------------------------------------------- ----------- ----------- -----------
Total 7,347 8,860 11,024
---------------------------------------------- ----------- ----------- -----------
5. Investment management fee
Period ended Period ended Year ended
31 March 31 March 30 September
2023 2022 2022
(unaudited) (unaudited) (audited)
GBP'000 GBP'000 GBP'000
-------------------------- ------------ ------------ ------------
Investment management fee 767 380 1,071
-------------------------- ------------ ------------ ------------
Total 767 380 1,071
-------------------------- ------------ ------------ ------------
Foresight Group LLP were appointed as the Investment Manager for
the Company under an Investment Management Agreement. Under the
terms of the agreement, the Investment Manager is entitled to a
management fee from the Company, which is calculated quarterly in
arrears at 0.85% per annum of NAV up to GBP500.0 million and 0.75%
per annum of NAV in excess of GBP500.0 million.
The Company paid GBP766,714 during the period. No further
investment management fees were billed nor accrued and remained
unpaid at period end.
6. Operating expenses
Period from Period from Period from
1 October 31 August 31 August
2022 2021 2021 to 30
to 31 March to 31 March September
2023 2022 2022
(unaudited) (unaudited) (audited)
GBP'000 GBP'000 GBP'000
---------------------------- ----------- ----------- -----------
Administration services fee 63 42 104
Director fees paid 100 50 140
Other expenses(1) 404 492 922
---------------------------- ----------- ----------- -----------
Total 567 584 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 period to 31 March
2023.
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.
31 March 31 March 30 September
2023 2022 2022
GBP'000 GBP'000 GBP'000
------------------------------------------------------------------------------- --------- -------- ------------
Income taxes - - -
------------------------------------------------------------------------------- --------- -------- ------------
31 March 30 September
2023 2022
Current Period to 31 March 2023 GBP'000 GBP'000
Profit before tax 6,012 8,787
Profit before tax multiplied by the rate of corporation tax in the UK of 25% 1,503 1,670
Effects of:
Non-taxable capital profits due to UK approved Investment trust company status (1,469) (1,923)
Non-taxable dividend income
Dividend designated as interest distributions - -
Prior period deferred tax - -
Temporary differences on which deferred tax is not recognised (34) 253
Total income tax charge in the statement of comprehensive income - -
------------------------------------------------------------------------------------------ -------- ------------
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 19pc (2022: 19pc), 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 period to 31
March 2023. As a result, the tax charge for the period is GBPnil.
Investment gains are exempt from owing to the Company's status as
an investment trust.
Factors that may affect future total tax charges
Following the March 2022 budget, the corporation tax rate will
increase from 19% to 25% with effect from April 2023. The Company
is recognised as a UK investment trust for this interim accounting
period and is taxed at the main rate of 19%, prevalent at the
reporting period end.
At the period end, there is a potential deferred tax asset of
GBP227,000 carried forward. The deferred tax asset is unrecognised
at the period end in line with the Company's stated accounting
policy.
9. Earnings per share
Capital Revenue
reserve reserve Total
GBP'000 GBP'000 GBP'000
------------------------------------------------------------------------- ------- ------- -------
Revenue and capital profit attributable to
equity holders of the Company 5,877 135 6,012
Average number of Ordinary Shares issued 172,056 172,056 172,056
------------------------------------------------------------------------- ------- ------- -------
Net assets attributable to Shareholders at 31 March 2023 (pence) 3.4 0.1 3.5
------------------------------------------------------------------------- ------- ------- -------
Capital Revenue
reserve reserve Total
GBP'000 GBP'000 GBP'000
------------------------------------------------------------------------- ------- ------- -------
Revenue and capital profit attributable to equity holders of the Company 8,760 (855) 7,905
Average number of Ordinary Shares issued 130,000 130,000 130,000
------------------------------------------------------------------------- ------- ------- -------
Net assets attributable to Shareholders at 31 March 2022 (pence) 6.7 (0.6) 6.1
------------------------------------------------------------------------- ------- ------- -------
Capital Revenue
reserve 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 issued 142,847 142,847 142,847
------------------------------------------------------------------------- ------- ------- -------
Net assets attributable to Shareholders at 30 September 2022 (pence) 7.1 (0.9) 6.2
------------------------------------------------------------------------- ------- ------- -------
10. Investments at fair value through profit and loss
31 March 31 March 30 September
2023 2022 2022
GBP'000 GBP'000 GBP'000
--------------------------------------------- -------- -------- ------------
Fair value at start of the period 146,291 - -
Loans to intermediate holding companies 26,500 15,000 21,821
Equity investment in holding companies 4,527 102,688 114,350
Unrealised gain on investments at fair value 5,877 8,760 10,120
--------------------------------------------- -------- -------- ------------
Total 183,195 126,448 146,291
--------------------------------------------- -------- -------- ------------
There is a loan between FSF and FSFC Holdings Limited for
GBP48,321,230. The rate of interest on the loan has been set at 7%
per annum. Interest accrued at the period end and outstanding at
the reporting date was GBP2,112,186.
The Company owns 11,887,656,121 shares in FSFC Holdings Limited
that was purchased for a consideration of GBP0.01.
Fair value investments
The Investment Manager has carried out fair value market
valuations of the underlying SPV investments as at 31 March 2023 as
administered by Savills. The Directors have approved the
methodology used, as well as confirming their understanding of all
underlying key assumptions applicable. All SPV investments are at
fair value through profit or loss and are valued using the IFRS 13
framework for fair value measurement.
Savills includes all investments under ownership by FSF in their
portfolio valuation, for both afforestation and forestry
properties. The valuations have been prepared in accordance with
the RICS Valuation - Global Standards July 2017 (the "Red Book")
and incorporate the recommendations of the International Valuation
Standards which are consistent with the principles set out in IFRS
13.
Savills, in forming its opinion, makes various assumptions on
the basis of current market conditions; the following are the key
assumptions made:
Fair value of assets
x) 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
y) 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
z) 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
aa) Due to the assets under ownership being located across the
UK (Scotland, North England and Wales), Savills accounts for the
potential differences in market interest associated in different
locations
Winter storm vulnerability
bb) 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
cc) 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
11.
Fair value hierarchy
The Group considers that all of its investments fall within
Level 3 of the fair value hierarchy as defined by IFRS 13. There
have been no transfers between Level 1 and Level 2 during any of
the periods, nor have there been any transfers between Level 2 and
Level 3 during any of the periods.
The valuations have been prepared on the basis of market value
("MV"), which is defined in the RICS Valuation Standards as: "The
estimated amount for which an asset should exchange on the date of
valuation between a willing buyer and a willing seller in an
arm's-length transaction after proper marketing wherein the parties
had each acted knowledgeably, prudently and without
compulsion."
Market Value as defined in the RICS Valuation Standards meets
the requirements of fair value defined under IFRS.
11. Trade and other receivables
31 March 31 March 30 September
2023 2022 2022
GBP'000 GBP'000 GBP'000
-------------------------------------- -------- -------- ------------
Interest receivable from subsidiaries 2,112 100 852
Other Debtors - 1,118 -
-------------------------------------- -------- -------- ------------
Total 2,112 1,218 852
-------------------------------------- -------- -------- ------------
12. Trade and other payables
31 March 31 March 30 September
2023 2022 2022
GBP'000 GBP'000 GBP'000
--------------------- -------- -------- ------------
Creditors 14 232 477
Accruals 266 558 385
Intercompany Account 24 - 24
--------------------- -------- -------- ------------
Total 304 790 886
--------------------- -------- -------- ------------
13. Called up share capital
Number of
Allotted share capital, issued and fully paid shares
--------------------------------------------------------------------- -----------
Opening balance at 31 August 2021 -
--------------------------------------------------------------------- -----------
Allotted upon incorporation
Issue of Ordinary Shares at 1 pence per share (31 August 2021) 1
--------------------------------------------------------------------- -----------
Allotted since incorporation
Issue of management shares at 1 pence per share (12 October 2021) 50,000
--------------------------------------------------------------------- -----------
Allotted/redeemed following admission to London Stock Exchange
Ordinary Shares issued at Initial Public Offering (19 November 2021) 130,000,000
Management shares redeemed (50,000)
--------------------------------------------------------------------- -----------
Total number of Ordinary Shares at 31 March 2022 130,000,001
--------------------------------------------------------------------- -----------
Allotted/redeemed following admission to London Stock Exchange
Ordinary shares issued at Initial Public Offering (19 November 2021) 130,000,000
--------------------------------------------------------------------- -----------
Management shares redeemed (50,000)
--------------------------------------------------------------------- -----------
Ordinary Shares issued on 28 June 2022 42,056,074
--------------------------------------------------------------------- -----------
Total number of Ordinary Shares at 30 September 2022 172,056,075
--------------------------------------------------------------------- -----------
Allotted/redeemed (since 01 October 2022)
Ordinary Shares issued -
Management shares redeemed -
--------------------------------------------------------------------- -----------
Total number of Ordinary Shares at 31 March 2023 172,056,075
--------------------------------------------------------------------- -----------
Share Share 31 March 31 March 30 September
capital premium 2023 2022 2022
GBP'000 GBP'000 GBP'000 GBP'000 GBP'000
------------------------------------- ------- --------- --------- -------- ------------
Opening balance 1,721 170,075 171,796 - -
Shares issued - - - 130,000 175,000
Costs associated with share issuance - 3 3 (2,386) (3,204)
Cancellation of share premium - (126,259) (126,259) - -
------------------------------------- ------- --------- --------- -------- ------------
Total 1,721 43,819 45,540 127,614 171,796
------------------------------------- ------- --------- --------- -------- ------------
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.
During the period, 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
31 March 31 March 30 September
Revenue Capital 2023 2022 2022
GBP'000 GBP'000 GBP'000 GBP'000 GBP'000
------------------------------ ------- ------- -------- -------- ------------
Opening balance (1,333) 10,120 8,787 - -
Profit for the period 135 5,877 6,012 7,960 8,787
Cancellation of share premium - 126,259 126,259 - -
Dividends paid - - - - -
------------------------------ ------- ------- -------- -------- ------------
Closing balance (1,198) 142,256 141,058 7,960 8,787
------------------------------ ------- ------- -------- -------- ------------
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 31 March 2023 of
GBP172,056,075 and Ordinary Shares in issue of 172,056,075.
31 March 31 March 30 September
2023 2022 2022
------------------------------------------- -------- -------- ------------
NAV (GBPm) 186.6 135.5 180.6
Number of Ordinary Shares issued (million) 172.1 130 172.1
------------------------------------------- -------- -------- ------------
Net Asset Value per Ordinary Share (pence) 108.5 104.2 105.0
------------------------------------------- -------- -------- ------------
16. Cash and cash equivalents
At period end, the Company held cash and cash equivalents of
GBP1.6 million. This balance was held by HSBC Bank plc.
31 March 31 March 30 September
2023 2022 2022
-------------------------------- -------- -------- ------------
Cash and cash equivalents:
HSBC Bank plc - Current account 1,427 8,643 4,283
HSBC Bank plc - Liquidity Fund 168 - 30,043
-------------------------------- -------- -------- ------------
Total cash and cash equivalents 1,595 8,643 34,326
-------------------------------- -------- -------- ------------
17. Financial instruments
Financial instruments by category
The Company held the following financial instruments at 31 March
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 Financial Financial
assets held assets at liabilities
at fair
Cash and amortised value through at amortised
bank balances cost profit or cost Total
loss
GBP'000 GBP'000 GBP'000 GBP'000 GBP'000
---------------------------------- ------------- ----------- ------------- ------------ -------
Non-current assets
Investments at fair value through
profit or loss (Level 3) - - 183,195 - 183,195
---------------------------------- ------------- ----------- ------------- ------------ -------
Current assets
Trade and other receivables - 2,112 - - 2,112
Cash and cash equivalents 1,595 - - - 1,595
---------------------------------- ------------- ----------- ------------- ------------ -------
Total financial assets 1,595 2,112 183,195 - 186,902
---------------------------------- ------------- ----------- ------------- ------------ -------
Current liabilities
Trade and other payables - - - (304) (304)
---------------------------------- ------------- ----------- ------------- ------------ -------
Total financial liabilities - - - (304) (304)
---------------------------------- ------------- ----------- ------------- ------------ -------
Net financial instruments 1,595 2,112 183,195 (304) 186,598
---------------------------------- ------------- ----------- ------------- ------------ -------
The Company holds its portfolio of assets at fair value. These
assets are held through the Company's underlying
subsidiaries/intermediate holding companies ("the Group"). The
assets in the Group are valued in accordance with RICS Valuation -
Global Standards July 2017 (the "Red Book") methodology, with
inspections conducted by an independent valuer ("Savills") at the
end of the period.
Savills' fair value assessment of the assets has been completed
on a comparable basis by looking at recent transactions of similar
assets, to assess current market value, outlined in note 10. As a
management review control, the Investment Manager applies
discounted cash flow approach ("DCF") to value the assets 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. As 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 47. The Directors believe that the provision of market
value sensitivity analysis of mature forestry, afforestation and
mixed forestry and afforestation assets is appropriate to align
with the Company's portfolio composition.
Mature forestry asset valuation
The sensitivity of the portfolio to changes in mature forestry
asset valuation is as follows:
The independent valuer conducts inspections of all mature
forestry assets on a semi-annual basis, then provides a valuation
based on RICS methodology. The base case used for forestry asset
value as at 31 March 2023 was GBP77.0 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
portfolio Changes
in
Forestry assets sensitivity valuation NAV per
share
--------------------------------------- ---------------- -------
Forestry assets value increases by 10% +GBP7.70m/+4.1% +4.1p
Forestry assets value decreases by 10% -GBP7.70m/-4.1% -4.1p
--------------------------------------- ---------------- -------
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 31 March 2023 was GBP71.8 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
portfolio Changes
in
Afforestation assets sensitivity valuation NAV per
share
-------------------------------------------- --------------- -------
Afforestation assets value increases by 10% +GBP7.2m/+3.9% +3.8p
Afforestation assets value decreases by 10% -GBP7.2m/-3.9% -3.8p
-------------------------------------------- --------------- -------
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 31 March 2023 was GBP26.0
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
portfolio Changes in
Mixed forestry and afforestation assets sensitivity valuation NAV per share
---------------------------------------------------- ---------------- -------------
Mixed assets value increases by 10% +GBP2.60m/+1.4% +1.4p
Mixed assets value decreases by 10% -GBP2.60m/-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
investment policy, the Company's outstanding borrowings, excluding
the debts of underlying assets, will be limited to 30% of the
Company's Net Asset Value.
As at 31 March 2023, the Company had no outstanding debt. The
Company's subsidiary FSFC Holdings 2 Limited has a GBP30.0 million
Revolving Credit Facility, which was undrawn at 31 March 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 31 March 2023, the Company had no
recourse to debt, although as set out above, the Company's
subsidiary FSFC Holdings Limited is a guarantor for the Revolving
Credit Facility of FSFC Holdings 2 Limited.
Liquidity risk
The Directors monitor the Company's liquidity requirements to
ensure there is sufficient cash to meet the Company's operating
needs. The Company's liquidity management policy involves
projecting cash flows and forecasting the level of liquid assets
necessary to meet these. Due to the nature of its investments, the
timing of cash outflows is reasonably predictable and, therefore,
is not a major risk to the Company. The Company was in a net cash
position and had no outstanding debt at the balance sheet date.
Market risk - foreign currency exchange rate risk
All the cash flows and investments are denominated in pounds
sterling.
Financial risk management - Company and non-consolidated
subsidiaries
The following risks impact the Company's subsidiaries and in
turn may impact the fair value of investments held by the
Company.
Market risk - interest rate risk
Interest rate risk arises in the Company's subsidiaries on the
Revolving Credit Facility borrowings and floating rate deposits.
Borrowings issued at variable rates expose those entities to
variability of interest payment cash flows. Interest rate hedging
may be carried out to seek to provide protection against increasing
costs of servicing debt drawndown by the holding company as part of
its Revolving Credit Facility. This may involve the use of interest
rate derivatives and similar derivative instruments.
Each investment hedges their interest rate risk at the inception
of a project. This will either be done by issuing fixed rate debt
or variable rate debt which will be swapped into fixed rate by the
use of interest rate swaps.
Market risk - inflation risk
Some of the Company's investments will have part of their
revenue and some of their costs linked to a specific inflation
index at inception of the project. In most cases this creates a
natural hedge, meaning a derivative does not need to be entered
into in order to mitigate inflation risk.
Market risk - timber price risk
Timber revenue forms a significant majority of forecasted
revenues for the Company's investments. Whilst projections suggest
a steady income flow through the sale of timber, there is a risk
that timber prices will drop due to market forces and minimise the
revenues the Fund will receive. This risk is mitigated by the
ability of the Company and underlying investments to sustain its
liquidity, even in the event of withholding from timber sales,
given sub--optimal pricing.
Credit risk
Credit risk is the risk that a counterparty of the Company or
its subsidiaries will default on its contractual obligations it
entered into with the Company or its subsidiaries. Credit risk
arises from cash and cash equivalents, derivative financial
instruments and deposits with banks and financial institutions, as
well as credit exposures to customers.
The Company and its subsidiaries place cash in authorised
deposit takers and is therefore potentially at risk from the
failure of such institutions. In respect of credit risk arising
from other financial assets and liabilities, which mainly comprise
of cash and cash equivalents, exposure to credit risk arises from
default of the counterparty with a maximum exposure equal to the
carrying amounts of these instruments. In order to mitigate such
risks, cash is maintained with major international financial
institutions. During the period and at the reporting date, the
Company maintained relationships with HSBC Bank plc.
31 March 31 March 30 September
Moody's 2023 2022 2022
credit rating GBP'000 GBP'000 GBP'000
-------------------------------- -------------- -------- -------- ------------
HSBC Bank plc P1 1,595 8,643 34,326
-------------------------------- -------------- -------- -------- ------------
Total cash and cash equivalents 1,595 8,643 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 Principal and voting
Name holding of incorporation Registered address activity rights held
C/O Foresight Group LLP, The
FSFC Holdings Shard, 32 London Bridge Street,
Limited Direct UK London, England, SE1 9SG Holding company 100%
C/O Foresight Group LLP, The
FSFC Holdings Shard, 32 London Bridge Street,
2 Limited Indirect UK London, England, SE1 9SG Holding company 100%
C/O Foresight Group LLP, The
FSFC Company Shard, 32 London Bridge Street,
1 Limited Indirect UK London, England, SE1 9SG SPV 100%
The Shard, 32 London Bridge
Blackmead Forestry Street, London, England, SE1
Limited Indirect UK 9SG SPV 100%
C/O Foresight Group LLP, The
Blackmead Forestry Shard, 32 London Bridge Street,
II Limited Indirect UK London, England, SE1 9SG SPV 100%
C/O Foresight Group LLP, The
Coull Forestry Shard, 32 London Bridge Street,
Limited Indirect UK London, England, SE1 9SG SPV 100%
C/O Foresight Group LLP, Clarence
House, 133 George Street,
Fordie Estates Edinburgh,
Limited Indirect UK Scotland, EH2 4JS SPV 100%
------------------- ---------- ------------------ --------------------------------- ---------------- ------------
19. Employees and Directors
The Company is governed by an Independent and Non-Executive
Board of Directors. There are four Non-Executive Directors. Please
refer to the Directors' remuneration report for details as to the
Directors' emoluments.
20. Contingencies and commitments
The Company has no guarantees or significant capital commitments
as at 31 March 2023.
21. Events after the balance sheet date
The Directors have evaluated the need for disclosures and/or
adjustments resulting from post balance sheet events through to the
date the financial statements were available to be issued.
There are no other significant events since the period end which
would require to be disclosed. There were no adjusting post balance
sheet events, and as such, no adjustments have been made to the
valuation of assets and liabilities as at 31 March 2023.
22. Related party transactions
Following admission of the Ordinary Shares (refer to note 13),
the Company and the Directors are not aware of any person who,
directly or indirectly, jointly, or severally, exercises or could
exercise control over the Company. The Company does not have an
ultimate controlling party.
The transactions between the Company and its subsidiaries, which
are related parties of the Company and fair values, are disclosed
in note 10. Details of transactions between the Company and related
parties are disclosed below.
This note also details the terms of the Company's engagement
with Foresight Group LLP, the Investment Manager.
Transactions with the Investment Manager
The Investment Manager, Foresight Group LLP, is entitled to a
base fee on the following basis:
(a) 0.85% per annum of the Net Asset Value of the Fund up to and including GBP500.0 million
(b) 0.75% per annum of the Net Asset Value of the Fund in excess of GBP500.0 million
The investment management fees incurred during the period to 31
March 2023 were GBP766,714, of which GBPnil remained unpaid as at
31 March 2023.
Additionally, the Company incurred fees during the period to 31
March 2023 of GBP63,313, which related to administration services
provided by the Investment Manager, in its capacity as
Administrator for the Company.
Other transactions with related parties
The amount incurred in respect of Directors' fees during the
period to 31 March 2023 was GBP80,000. The Directors also received
GBP10,000 in acknowledgement of the time commitment required for
Board members pertaining to the placing programme undertaken in
June 2022. The Directors also received GBP1,588 in relation to
miscellaneous Director expenses. These amounts had been fully paid
as at 31 March 2023. The amounts paid to individual Directors were
as follows:
Basic and
Taxable Committee Fundraising
benefits fees expenses Total
Director GBP GBP GBP GBP
------------------------- -------- --------- ----------- ------
Richard Davidson (Chair) - 24,000 2,500 26,500
Sarika Patel 167 20,250 2,500 22,917
Christopher Sutton 1,264 17,750 2,500 21,514
Josephine Bush 157 18,000 2,500 20,657
------------------------- -------- --------- ----------- ------
Total 1,588 80,000 10,000 91,588
------------------------- -------- --------- ----------- ------
The Directors held the following shares in the Company:
% of issued
Number of Ordinary
Ordinary Share
Director/PDMR/PCA Shares capital
------------------------- --------- -----------
Richard Davidson (Chair) 100,000 0.06
Sarika Patel 24,000 0.01
Christopher Sutton 25,000 0.01
Josephine Bush 19,000 0.01
------------------------- --------- -----------
The above transactions were undertaken on an arm's-length
basis.
Advisers
Investment Manager, Administrator and Company Secretary
Foresight Group LLP
The Shard
32 London Bridge Street
London
SE1 9SG
Registrar and Receiving Agent
Computershare Investor Services PLC
The Pavilions
Bridgwater Road
Bristol
BS99 6AH
Depositary
NatWest Trustee and Depositary Services Limited
250 Bishopsgate
London
EC2M 4AA
Sponsor, Global Co-ordinator and Sole Bookrunner
Jefferies International Limited
Exchange House
Primrose Street
London
EC2A 2EG
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
1 More London Riverside
London
SE1 2AF
Valuation Adviser
Savills Advisory Services Ltd
Earn House
Broxden Business Park
Perth
PH11 1RA
Glossary of terms
AIC The Association of Investment Companies
AIFMD Alternative investment fund management directive
AIFMs Alternative Investment Fund Managers
AIFs Alternative Investment Funds
APMs Alternative Performance Measures
Asset Manager The Company's underlying investments have appointed Foresight
Group LLP, a subsidiary of Foresight Group CI, to act as
Asset Manager
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
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
IFRS International Financial Reporting Standards as adopted
by the EU
Intermediate holding Companies within the Group which are used to invest in
companies 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
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
Portfolio The 65 assets in which FSF had a shareholding as at 31
March 2023
RICS Royal Institution of Chartered Surveyors
RIDDORS Reporting of Injuries, Diseases and Dangerous Occurrences
Regulations
RPI The Retail Price Index
S&ESG Sustainability and ESG
Savills Savills Advisory Services Limited
SDGs United Nations Sustainable Development Goal
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
SPV The Special Purpose Vehicles which hold the Company's investment
portfolio of underlying operating assets
TCFD Task Force on Climate-related Financial Disclosures
UK The United Kingdom of Great Britain and Northern Ireland
VCM Voluntary Carbon Market
WCC UK Woodland Carbon Code
-------------------- ----------------------------------------------------------------
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