Operational Performance and Unaudited NAV

Foresight Sustain. Forestry Co PLC

09 November 2023

 

For immediate publication. This announcement contains information that is inside information.

9 November 2023

Foresight Sustainable Forestry Company Plc

("FSF" or "the Company")

Operational Performance for the 6 months period ended 30 September 2023

and Unaudited Net Asset Value at 30 September 2023

Foresight Sustainable Forestry Company Plc, an investment company that invests in UK forestry and afforestation assets, today announces an update on its operational performance for the 6 month period to 30 September 2023 and its unaudited Net Asset Value ("NAV") for its financial year ended 30 September 2023 ahead of the release of its annual results in early December 2023.

Portfolio Performance (full year to 30 September 2023)

·      Operational performance across the portfolio is tracking within budget.

·     18 attractive new assets acquired for a total of £38.4m (inc. tax and transaction costs) with opportunistic purchasing strategy employed during the financial year to capture favourable pricing window.

·      Completed planting on 4 afforestation schemes, benefitting from the associated voluntary carbon credit value creation and bringing total number of planted schemes to 6.

·      Strong progress on development pipeline of 37 afforestation schemes with the planting season now underway, with the expectation remaining that many schemes will complete planting by the spring of 2024 with the remainder by spring 2025.

Investment Market (six months to 30 September 2023)

·      Increasing inflation and interest rates have led to a weakening of the forestry and planting land investment market over the last 6 months, characterised by a higher proportion of distressed vendors of non-prime forestry and afforestation properties.

·      Lower prices paid across a relatively small transaction volume.

·      The value of UK forestry assets sold in the first nine month period of 2023 (to 30 September) represents 12% of the annual average of the value of assets sold in 2021 and 2022. 

·      Established forestry and voluntary carbon credit prices have both been more resilient versus afforestation land values.      

Valuation (six months to 30 September 2023)

·      As at 30 September 2023 the Company's unaudited NAV was £169.2 million (31 March 2023: £186.6 million), resulting in a NAV per Ordinary Share of 98.4 pence, equivalent to a 9.3% reduction.

·      The independent third-party valuer has completed its valuation in accordance with the Royal Institute of Chartered Surveyors ("RICS") Red Book Fair Value methodology which primarily utilises comparable market values of similar heritable title / freehold forestry and afforestation assets from recent transactions in the UK market.

·      The valuation methodology of the afforestation assets excludes the development progress made.

·      During the period, the company completed four non-core asset disposals totalling, £1.6m of net proceeds, made at book value. 

Company Outlook

·      Despite the challenging market conditions, the Board is disappointed to see the share price trade at a discount to NAV.

·      The Company has a strong platform to build from and the fundamental under-supply of land, sustainable timber and voluntary carbon remains.

·       The Company has a £30m Revolving Credit Facility ("RCF") which reaches maturity in July 2025. The RCF was drawn up to £10.4m to complete three acquisitions in Scotland as announced on 13 October 2023. The current acquisition programme is now substantially complete and servicing/repayment of the RCF will be made through a combination of timber harvesting and the planned disposal of non-core assets.

·      The Board and Investment Manager are focussed on protecting the Company's existing value and exploiting the ongoing opportunities in this market including:

o  Reviewing planting and harvesting timetables to optimise cash flows.

o  Advancing non-core asset disposals, including various residential properties attached to existing afforestation assets.

o  Maximising allocation to afforestation and voluntary carbon where possible.

o  Positioning the Company for rapid growth when equity market conditions improve.

A summary of the key unaudited NAV drivers from 31 March 2023 to 30 September 2023 are as follows:

Item	p/share movement	% change to 31 March 2023 NAV / cost (as applicable)
NAV at 31 March 2023	108.5	N/A
Acquisitions*	0.3	5.6%
Standing Forestry (existing at 31 March 2023) **	(3.1)	(6.5%)
Afforestation (existing at 31 March 2023) **	(4.7)	(11.2%)
Mixed Forestry (existing at 31 March 2023) **	(1.2)	(8.4%)
Existing Carbon Credit valuation	0.1	8.6%
Fund costs including RCF expense	(0.8)	N/A
Forest operational costs and working capital	(0.7)	N/A
NAV at 30 September 2023	98.4	N/A

*The change represents mark-to-market gains between the consideration paid (inc. tax and transactions costs), and the 30 September 2023 Red Book Valuation.

** On a like-for-like basis, excluding any acquisitions, disposals and harvesting.

Richard Davidson, Chair of Foresight Sustainable Forestry Company Plc,

"Despite the challenging macroeconomic backdrop, we are pleased with the Company's operational performance and the delivery of the business plan in the year to 30 September 2023.

"Against this positive operational performance, increasing inflation and interest rates have led to a weakening of the investment market and consequent falls in the independent valuation of FSF's assets, primarily driven by lower prices paid across a much smaller volume of transactions.

"Shareholders can take comfort from our disciplined strategy of purchasing high-quality assets, attention to cash flow and balance sheet management and focus on delivery of the afforestation development pipeline which positions us well to weather this period of elevated market volatility and uncertainty."

For further information, please contact:

Foresight Sustainable Forestry Company Plc Robert Guest Richard Kelly [e-mail]	[phone]
Jefferies International Limited Tom Yeadon Will Soutar Harry Randall	[phone]
SEC Newgate Elisabeth Cowell [e-mail]

About the Company

Foresight Sustainable Forestry Company Plc ("the Company") is an externally managed investment company investing in a diversified portfolio of UK forestry and afforestation assets. Targeting a net total return of more than CPI +5% per annum on a rolling five-year basis, the Company provides investors with the opportunity for real returns and capital appreciation driven by the prevailing global imbalance between supply and demand for timber; the inflation-protection qualities of UK land freeholds; and biological tree growth of 3% to 4% not correlated to financial markets. It also offers outstanding sustainability and ESG attributes and access to carbon units related to carbon sequestration from new afforestation planting. The Company targets value creation as the afforestation projects successfully achieve development milestones in the process of converting open ground into established commercial forest and woodland areas. The Company is seeking to make a direct contribution in the fight against climate change through forestry and afforestation carbon sequestration initiatives and to preserve and proactively enhance natural capital and biodiversity across its portfolio. It is managed by Foresight Group LLP. 

 

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