Ethical Timestm

Autumn newsletter 2012

this issue...Being diligent

IFA Mike Yeatman shares hisdue diligence report, writtenafter visiting our operationsin Costa Rica

R&D centre updateRead the latest report on ourCosta Rica research and

development centre

The path to successFollow the path of a seed fromgermination to field planting

Selecting our landRead the process for selecting our landand how we prepare it for planting

The ‘Wow factor’

On target and on timeAfter a productive spring harvest, our investors receivetheir projected returns

Another successful harvest. Trees are removed from our plantation

We are pleased to report that our 2012 spring harvests in Costa Rica. Mike was given a tour of our head office,were completed on time and our projections were on nurseries, plantations and timber mill.

target. Investors who had their trees harvested areCosta Rican National Parks offernature-hungry tourists Utopia

Investor storiesDr. Thoreya Swage explains why sheinvested with Ethical Forestry

now receiving their returns.

Spring time is particularly busy for our Costa Rican teamswho are overseeing the harvests, new land acquisitions,new product development and the continual growingand planting of up to 25,000 new trees per week.

This continual cycle of growing, reinvestment and landacquisition ensures we are building a sustainable business forthe future, creating security, jobs, supporting communitiesand most importantly, giving investors their returns.

In this issue you can read a due diligence report by IFAand investor Mike Yeatman, who visited our operations

You can also see an update on the new nursery centrethat produces up to 25,000 new trees per week at fullcapacity. We have also included a step-by-step guideshowing what happens to the life of a seed from beingplanted to arriving at one of our plantations.

Professor Ignacio Rodríguez Varela explains the variousprocesses involved when we are selecting prospectiveland. Inside you can see a typical new plantation, theprotected land and some of the wildlife that lives there.We hope you like this newsletter and always welcomeany feedback.

Ethical Forestry Ltd, 80 Holdenhurst Road, Bournemouth, Dorset, BH8 8AQ telephone 0800 075 30 10 email enquiries@ethicalforestry.com

Being Diligent... By Mike Yeatman - Independent Financial Advisor

When IFA and investor Mike Yeatman said he was visiting CostaRica and would like to see our plantations, we happily obliged.

“In Costa Rica, I spent time on the ground with the plantationmanagers, inspecting and visiting all aspects of their operations.

The plantations are located inland some 100-150km from the capital,San Jose, on and around the Alajuela District accessed by mountain roads.The plantations are widespread with some being virtually inaccessible atthis time of year. Those that were visited required use of a Land Rover todo so. Access is not an issue during the harvesting season as the weatherconditions are more conducive to accessing the plantations.My predominant hosts were the managers of the Costa Rican operations,Rob Brown and his wife Geri. They both have huge enthusiasm andknowledge for their task. They had originally left the US to settle in CostaRica, in order to start a private multi-species plantation of their own. Havingcommenced planting, they had an arranged meeting with Ethical ForestryDirectors and shortly after joined the company.

“We visited the offices, which are sited at newly acquired land that alsocontains nurseries, a saw-mill/factory and lumber yard.

The offices also house the SAT/NAV equipment that minutely locates eachtree; something that surprised me in its thoroughness. Thus my own treescould be located exactly within a huge forest. The timber mill completes thecircle for Ethical Forestry.

The mill was stocked with timber belonging to other firms (Ethical Forestryearn money through the processing) as investors’ timber was yet to comeon-line. With the first investor plantings being just four years old, Ethical

Forestry timber was imminent. *Please see our update at the end of this article.The timber is currently milled into sawn lumber for building and Pallet Packs(for assembly elsewhere). Ethical Forestry wish to complete the processingfrom start to finish shortly with the addition of a high-production assemblyline. The mill works in shifts for most of the hours of the day supplying localpeople thus supporting the local community.

Team members were all very enthusiastic; wearing their Ethical Forestrygreen shirts with some pride it seems. The prolific milled wood was Acaciaand Formelata. Rob informed me that they regularly mill Melina and Teak.

The nursery showed strong shoots from seeds after just three days withplantings wrapped and ready for ground planting after six weeks. A largeamount of work was going on preparing the overall site for larger nurseries,a big apron and potential waste processing facilities. A caretaker’s cottagewas also being built.

The site has security at its gates. On our travels we encountered several Police,24-hour manned checkpoints. These stop any vehicle carrying any wood. If thewood does not have the correct accompanying papers (Guia certificate) thenboth wood and vehicle are impounded. Rob was able to show me a semi-rigtrailer loaded with logs that had been seized in such manner. It was reassuringto see such checkpoints well ‘in-country’ as it were.

“Overall, the operation is veryimpressive and being run in anextremely sound manner.”

Land acquisition has become a time-consuming task for Rob as demandfor trees through investor money grows significantly. We visited the newest

bought land which lies very conveniently some 5km from the mill on a mainroad. This farmland of some 4km by 1km provides a massive planting potentialfor Ethical Forestry with 600,000-800,000 plantings allocated for summer 2012.It was clear to see the satisfaction that Rob had gained from sorting anotherlarge piece of planting area.

We visited plantings that were two years old, four years old and some EthicalForestry-owned wood, six years old. In each case the growth was surprisingand impressive. I noted that Ethical Forestry plantations are neater and moreverdant than others with straighter and quicker growth. In part, this is becausethere is no dual use of the land. Much indigenous use combines cattle on thesame land, which reduces other plant growth, compresses land suppressingtree growth and causes young tree damage. All plantations have caretakersresiding. Road access is not improved until timber extraction is required.”

Follow-up notes from Ethical Forestry:

* Mike Yeatman visited us in Costa Rica during February 2012, after which hecompiled this report. Since his visit, we have harvested and paid our first investorstheir projected returns and started the development of our pallet factory.

Top: Mike stands in front of Melina at one of the entrances to the Cocobolo plantation

Middle: A Guia certificate for transporting timberBottom: Mike inspects a young tree within a plantation

From seed to fieldHere, we follow the path of a seed from nursery to plantation

Melina saplings within the shaded ‘Growing-on’ area

If this is the first newsletter you have received from Ethical Forestry, youwill not have seen the recent developments on our 25-acre head officeand research and development centre in Costa Rica.

After months of continual development, our nursery is now nearingcompletion and producing at full capacity. Up to 25,000 seeds are plantedeach week in our germination tunnels, fed by the mist fertigation systemseen hanging above them. From the germination tunnels, they follow thepath to transplanting, growing-on and hardening-off, where they becomeslowly acclimatised to the elements.

The path of a seed

Once fully acclimatised, they are transported to our plantations. The task ofplanting so many saplings and creating unique GPS (Global Positioning System)coordinates for each one is considerable and ongoing. Our teams of forestryengineers and the GPS specialists oversee this task, making sure every tree isregistered and gets the best start in life.

“ The focus of the nursery is tocycle 25,000 new trees

per week. ”

Stage 1: Melina seeds are planted Stage 2: The seed trays are placed within Stage 3: The saplings are transplantedin growing trays our germination tunnels into individual trays

A sea of green. Tens of thousands of young Melina trees within the ‘hardening-off’ area wait to be moved to the dispatch area

Melina saplings in a germination tunnel being fed by the fertigation system A Melina sapling breaks ground in one of the many seed trays

Stage 4: The saplings are placed within Stage 5: The young trees are placed in Stage 6: The trees are transferred forthe shaded ‘growing-on’ area the ‘hardening-off’ area field planting

to acclimatise them

Selecting the correct plantationsIgnacio Rodríguez Varela explains what he looks for whensurveying new land.

Stage 1:Any prospective land is first surveyed using GIS (Geographic InformationSystem) maps that filter areas throughout the country that are conducive to

growing our tree species. Close attention is paid to precipitation, soil suitabilityand percentage of sunshine per annum.

Stage 2:Farm ownership information is reviewed in the country’s land registry system toensure there are no legal barriers that would affect clear transfer of the propertyor certain activities such as forestry. As 25% of Costa Rica currently falls withinprotected National Park land, we have to ensure our land is external of these

boundaries.

Stage 3:After we determine a farm is located within a plantable region of the country,our forestry engineers visually check the topography and take various soil

samples from strategic locations. The samples are checked by local universitylaboratories and reviewed by field experts to ensure suitability for planting. Wework closely with the university, aiming to employ the finest forestry engineerstudents upon graduation.

Protected forestOn this particular site, 132.57 hectares(327.58 acres) have been placed within ourForestry Easement Trust to protect the land andthe ecosystems within it. This section illustratesa small strip that leads deep into the plantation.

Plantation preparation

Stage 4:If the previous stages are completed successfully, our GPS team measures thetotal area of the farm. The protected areas such as wild forests, bodies of waterand areas that are suitable to plant trees are mapped. The precision of thesemaps have an error of less than 2cm and allow us to construct 3D imagesof the farms’ topography, which are then used to help predict the behaviourof rainfall and to plan the road infrastructure.

Chimurria 1San Carlos

1Kilometer

The panoramicphoto shown

below was takenfrom this point

Forestry Easement Trust132.57 (Ha)

Assigned for planting292.45 (Ha)

Viewing platformA viewing platform will be erected on thissite allowing visitors to experience a typical

plantation. The platform will overlook the newtrees and a section of protected forest.

Stage 1: The prospective land Stage 2: Farm ownership established Stage 3: Soil samples are taken andis surveyed using the land registry topographic data analysed

Soil samples are taken throughout the plantation Samples are then sent for analyses

When we purchasedthis land we placed 30%immediately within ourForestry Easement trust

Plantable landThis plantation has 292.45 hectares (722.65 acres)of plantable land, equating to approximately

325,000 new trees.

The soil is turned and prepared for planting

Rows of stakes indicate where the new trees will be planted

Stage 4: Global Positioning System Stage 5: The land is cleared for planting Stage 6: The trees are planted and uniqueteams measure the land to and location stakes are placed GPS points registered on our TMDdetermine plantable areas and in formation (tree management database).

protected zones

National parks offer ‘Wow factor’If you are ever fortunate enough to visit Costa Rica, with its abundant natural beauty, you will appreciate why it attracts

1.5 million nature-loving tourists each year. Within the country are many National Parks that account for over 25% of the

country’s total land area. These photographs were taken within a nature walk near Lake Arenal, a vast dammed expanse

of water created to provide hydroelectric power. Another noteworthy landmark within this region is The Children’s

Eternal Rainforest, 54,000 acres of protected forest, created and supported by children around the world.

An Investor’s StoryWritten by Dr. Thoreya Swage

If you would also like to appear inAn Investor’s Story, please contactpeter.bowdler@ethicalforesty.com

Dr. Thoreya Swage explains why sheinvested with Ethical Forestry

“ I first came across Ethical Forestry whilst reading a green-themed supplement withinthe Guardian newspaper. The thought of making a difference whilst making a decentreturn really appealed to me. The combination of the positive returns on offer with thefact that my current investments, such as my ISA, had not been performing well, alsomade the opportunity conducive. After speaking with a member of Ethical Forestry’sstaff, I was sent a timber investment guide that explained how the investments worked.Also within the pack were newsletters that gave me a less formal view into how

the company operated, which I felt offered a useful insight. I decided to explore theopportunity further, so I requested a meeting at their Bournemouth head office.

I visited their offices, where we discussed the investment opportunities in greater detail.I was particularly interested in the management of the whole system, in other wordsin the care and management of my prospective trees, the fact that the land would beprotected within their Forestry Easement Trust after use, and the health and welfare ofthe local people who would be looking after the trees. Mark Finn explained how theyonly used their own approved forestry engineers to monitor trees within their care.

The combination of detailed, attentive management, and the fact Ethical Forestry ownall of their plantations, boosted my confidence regarding investing.

I decided to cash in an under-performing ISA and invest in some trees. When I receivemy returns I am considering reinvesting into more trees, building an on-going revenuestream. Being a Dr. and mother, my life is fairly hectic to say the least. By investing withEthical Forestry, I have the reassurance that I have a flexible investment opportunitythat can evolve with my family and make a difference for the future of the planet. ”

Ethical Forestry is not regulated by the Financial Services Authority and does not offer any advice about any regulated or unregulated investments, either within this newsletter or elsewhere. Please consult an Independent Financial Advisor prior to making any decision to buy our products.Our products are not regulated investments. Their value may rise or fall and no guarantees of future performance in respect of income or capital growth are given either expressly or by implication, and you may not get back the full amount you pay for them. Ethical Forestry shall not be heldliable to anyone for any errors, omissions or inaccuracies within this newsletter under any circumstances or for any loss or damage which may arise from the use of any of the information or detail contained herein.

For more information on our ethical investments or to speak with an advisor, please call us free on 0800 075 30 10 or visit www.ethicalforestry.com