Investment policy

The Directors have adopted the following Investment Policy, which governs the investments made by the Company:

Certification the Company fully intends to have each of its forestry operations certified by the Forest Stewardship Counsel (FSC), or, when relevant, another equally reputable forest management certification scheme. The Company will do this by implementing due diligence processes and requiring a forest audit based on international and regional standards to ensure that all assets acquired by the Company will be eligible to receive appropriate certification.

Minimum Investment Size each project should be substantial enough to require at least a USD 5 million capital commitment from the Company in order to ensure cost efficient management of the investments.

Maximum Investment Size the Company will seek to maintain a suitably diversified portfolio of investments so as to seek to manage the Company’s economic exposure to any counterparty, single project or separate legal entity.

Duration of Investment the duration of investments will vary according to end-markets, species and local requirements. The Company will aim, when possible and appropriate, to structure investments over periods in excess of fifteen years and is unlikely to seek early exits from a project as a whole except for opportunistic reasons, portfolio rebalancing transactions or if changes in regulatory conditions so require.

Target Returns the Company will not seek to invest in a project unless the Investment Manager believes that the project has the possibility to generate a minimum real IRR of 8 per cent. per annum over the duration of the investment (on an unleveraged basis).

Diversification of End-Markets — the Company will seek to invest in projects that serve different end-markets and different value chains in order to reduce the Company’s overall sensitivity to developments in the different value chains that consume wood produced by the Company.

Species Diversification — there are no set species diversification limits, however, the Company aims to diversify its investments into different species in order to reduce its exposure to extreme weather, species specific diseases and price movements in specific end-markets.

Geographical Diversification there are no set geographical diversification restrictions, however, the Company will have regard to the benefits of geographical diversification in relation to its investments and the management of its regulatory risk, currency risk, political risk, environmental policy risk and risk from adverse natural events.

Age Class Diversification — there are no set age class diversification limits, however, the Company will seek to invest in projects with different levels of maturity and times to harvest with the aim of smoothing cash flows.

Investment Structure the investments in forest assets will, where possible, be conducted through SPVs via a structure of subsidiaries, set up for each respective project. The Company intends to enter into agreements in which it either holds a controlling stake in the investment vehicle, or in which it has a minority stake but has secured satisfactory protections to its minority stake. The Company may invest either in partnership with a major wood consuming industrial company, with an existing landowner or independently. The Company intends, where suitable, to enter into long-term wood sale agreements with leading companies as partners. However, long-term wood sale agreements will only represent one part of the overall sales.

Borrowings the Company may not incur debt at the Company level without Board approval. The Company may, however, use overdraft and short-term borrowing facilities to satisfy short-term working capital needs, and the Board has approved the entering into by the Company of a short-term working capital facility. The Company may incur debt at the project level to the extent that the Investment Manager determines that a leveraged investment is in the best interests of the Company. However, the Board of the Company must approve the drawdown of any debt financing at the project level that will result in the total Group leverage (being debt/(debt + Adjusted Net Asset Value)) exceeding 20 per cent. at the time of such drawdown.

Hedging Policy the Company will keep the majority of its cash in USD. When the Company has anticipated expenses or capital outlays denominated in a currency other than USD, the Company may potentially enter into a foreign currency hedge to manage exposure to the currency of the outlay. The Company does not currently envisage using other types of futures contracts apart from currency hedges as noted above.