Year- end report 2021

Period January-December 2021

• Book value of land and forest assets amounts to 35,490,8 (16,400.9) TEUR
• Equity amounts to EUR 0.914 (0.7) per share
• Property holdings amount to 7,315 (5,423) hectares
• Timber volume is estimated at 1,042,000 (611,000) cubic meters
• Net sales 0 (259.6) TEUR
• Operating profit 4 (-605.2) TEUR
• Change in value forest 8,376.0 (1,722.6) TEUR
• Net profit 8,256.6 (1,142.5) TEUR

Period October-December 2021

• Net sales 8 (13.7) TEUR
• Operating profit -69.9 (-158.3) TEUR
• Change in value forest 2,755.9 (1) TEUR
• Net profit 2,521.8 (5) TEUR

(Data in parentheses refer to the corresponding period last year)

Latvian Forest Company

Latvian Forest Company AB (publ) is a Swedish listed company that acquires and manages forest properties, preferably but not exclusively in Latvia. The starting point is the belief that forests are a safe investment, and that forestry is a stable and value-creating business.

In addition to forest being a sought-after asset that grows on its own, the main foundations of the business consist of: (1) value creation for shareholders through active forest management, (2) value creation by consolidating a larger holding of real estate, and (3) a belief in a general increase in the price levels for Latvian forest and agricultural properties.

The expansion is financed by carrying out new share issues in stages as properties are acquired and the business develops. Through Latvian Forest being a partner in several properties, shareholders receive a good risk diversification.

The prices of Latvian forest properties are currently significantly lower than is common in the EU and in Sweden. On the other hand, the price of the final product timber is in many cases in line with what can be obtained in the common timber and pulpwood markets around the Baltic Sea. This creates opportunities for profitable forestry and a good future return at low risk. Several indicators suggest that the conditions will remain favorable for investments in Latvian forest properties.

Latvian Forest Company AB has Euro as accounting currency and all reporting takes place in Euro. Trading in the share at Spotlight Stock Market takes place in Swedish kronor

Status and property holdings

The way the business is structured, and the strategy is formulated, the real estate holdings in Latvian Forest do not need to achieve a certain given volume. The holding that exists today is deemed to be sufficient to generate enough revenue over time to cover the costs of the current expansion-oriented organization. The goal is to continue expansion until it is no longer considered beneficial for existing and new shareholders to continue with an acquisition-driven expansion.

Investments in forest properties have been made continuously and the holdings at the end of the period amounted to a total of 7,315 (5,423) hectares. Of these, 5,712 (3,734) hectares were forest, 1,064 (1,319) agricultural land and 531 (370) were other land. At the same time, the total growing stock was estimated at approximately 1,042,000 (611,000) cubic meters after felling and purchases/sales of property.

In 2021, the company has invested a total of approximately 10.63 MEUR in 2,101 hectares with a growing stock of approximately 443,000 cubic meters. The average growing stock was 238 cubic meters per hectare of forest land. The company has acquired forests in both Latvia and Lithuania.

On December 2, 2021, Latvian Forest Company AB (publ.) ("LFC") completed the acquisition of all shares in UAB Siluona. Through the purchase, LFC acquired 1,347 hectares of land with approximately 300,000 cubic meters of growing stock in Lithuania. A total of 7.5 MEUR was invested in Lithuania. The decision was made because UAB Siluona has been valued as an attractive investment with the right return profile. This is due to the combination of relatively high volume of growing stock and low price per hectare. Furthermore, the highest growth per hectare per year (7-11 m3/ha/year) in the Baltic Sea region was cited as a reason for acquiring the portfolio. The purchase of the portfolio provides commercial advantages in terms of size to cover the operating costs. The company management has engaged UAB Investicijų partneriai (www.partneriai.lt) as forest manager in Lithuania. The company has been active since 2004 and is aimed at both smaller private clients and larger institutional investors. 

LAND PRICES AND GROWING STOCK

Source: Latio, Forest Market Baltic States, Sweden, Finland, Outlook 2021

In Latvia, during 2021, a total of approximately 3.13 MEUR has been invested in 754 hectares with a growing stock of approximately 143,067 cubic meters. The average growing stock was 223 cubic meters per hectare of forest land. During the fourth quarter, the company completed the purchase of 135 hectares of which 69 hectares are forest land and 65 hectares agricultural and other land. The total growing stock is estimated at approximately 15,620 cubic meters.

(Map of existing property holdings in Latvia)

(Map of existing property holdings in Lithuania)

Latvian Forest's management has continued to streamline the use of different types of agricultural land. In 2021, the company sold 385 hectares of which 315 hectares were productive agricultural land to Latvian farmers. In total, the purchase price corresponds to 0.83 MEUR or EUR 2,154 per hectare.

The company has planted 95,720 spruce and pine plants on a total of 50 hectares in 2021. The company management has proposed, and the Board of Directors approved, that 118,580 plant on a total of 65.29 hectares, should be planted during 2022 in Latvia. The company has cleared 23.05 hectares and decided to carry out clearances of 126 hectares in 2022.

The company has sold felling rights for 24,683 cubic meters in 2021. The average felling price was EUR 27 per cubic meter. Of the total sold harvest volume, 8,788 cubic meters were sales of grey alder for EUR 16.06 per cubic meter. This felling takes place on a property where the company carries out conversion of forest land to agricultural land. The property is located near Jelgava in an area with predominantly large country estates. The remaining sales of 15,894 cubic meters of root items were carried out at an average price equivalent to EUR 34 per cubic meter.

Sales and earnings

Net sales in the fourth quarter amounted to TEUR 193.2 (13.7) and relate to revenue from felling, i.e., sales of root items, as well as lease income from agricultural land. Total sales for the year amounted to 863.0 (259.6) TEUR. The costs of operating activities have continued to develop satisfactorily. Operating profit was -69.9 (-158.3) TEUR for the fourth quarter. The increase in costs is due to legal and other costs related to the acquisition of UAB Siluona and the completion of the new share issue earlier in 2021. Operating profit for the fourth quarter was -103.7 (-210.2) TEUR. In the fourth quarter, the result was 2,521.8 (220.5) TEUR. The estimated value of fixed assets amounted to 35,971 (16,743.6) TEUR in total. The increase in value can mainly be attributed to the company's acquisition of new properties. The company's timber stock has grown by 40% in 2021. The value of growing forests has been calculated by discounting cash flow in a 100-year series of estimated felling volumes/sales revenues and forest management costs at a discount rate of 6.75% (7.25%). The net income from the sale of root items is set at an average price in Euro per cubic meter based on historical data for the range of wood and pulpwood.

Otherwise, the result is affected by normal costs for clearing, property-related costs such as new property measurements, inventories and stamping of stocks before felling, as well as certain costs associated with felling.

External costs consist largely of other purchased services in connection with forest management, other consulting services such as accounting, auditing, legal advice, as well as travel, rent and transport costs. Variable costs for purchase commissions have been recorded to some extent as part of the acquisition costs of the individual properties and in these cases do not affect the result. Other variable compensations for clearing are recorded under raw materials and supplies (previous cost of goods sold).

In the parent company’s Cash flow statement under "Profit from shares in group companies", a loss is reported upon divestment of the Swedish subsidiary – Latfolde AB – of TEUR 657.

Prior to the divestment, Latfolde ABs wholly owned Latvian subsidiary had been transferred to the parent company Latvian Forest Co AB at its book value with Latfolde AB. As the transfer was made at book value – significantly lower than the market value of the holding – this loss of capitalization arose in accounting terms when the book value of the shares Latfolde AB was sold as an empty company for settlement. The loss is so far not real because the corresponding value is in the acquired company SIA Latfolde One. "

Financing

Following comments from shareholders and potential investors, the Board of Directors has decided that future financing, in the form of share issues, will primarily take place within the framework of share issues. This does not prevent directed issues from being carried out, for example in the case of acquisitions of property portfolios or in specific situations where a directed issue may be required (see section "Significant events after the end of the period").

In connection with the acquisition of UAB Siluona, the company borrowed 3.4 MEUR from SEB in Lithuania. In addition, the company in November 2021 according to the Board's decision took a loan corresponding to 0.6 MEUR from Swedbank in Latvia. The goal is, over time, to have a loan-to-value ratio of no more than about 20 percent of the total assets, not to place too high demands on the business's ability to generate cash flows.

Equity and valuation

In connection with the transition to IFRS, it was decided to no longer publish an estimated net asset value on an ongoing basis, but instead to account for equity per share. The main difference is that the net asset value also considers estimated surplus values on the land. According to IFRS, however, only forest assets are recorded at an estimated fair value. Equity per share at the end of the period was EUR 0.914 (0.7) per share.

Shares

At the end of the period, the share capital amounted to EUR 2,297,307 divided into 80,000 Class-A shares and 33,250,474 Class-B shares. Class-A shares represent ten votes and class-B shares one vote each. Each share represents EUR 0.112 (SEK 1.0) in share capital. According to the latest data, the five largest shareholders in terms of voting control approx. 50 % of the capital in Latvian Forest.

Timber and forest property market

By deciding to invest in Lithuanian forest assets, the company's management will strengthen their knowledge of the specific aspects of the timber and forest property market in Lithuania. There are more than 2 million hectares of good forest land in Lithuania. The dominant tree species are pine (35%), birch (22%) and spruce (21%). This is slightly less than in Latvia, where there are 3.412 million hectares of forest land, which corresponds to 53% of the entire country's area. In comparison, 33% of Lithuania is covered by forests. The total timber volume corresponds to 682 million cubic meters in Latvia. This corresponds to roughly 200 cubic meters per hectare. This is less than in Lithuania, where the timber storage is equivalent to 256 cubic meters per hectare. In comparison, it will be 130 cubic meters per hectare in Finland and 115 cubic meters in Sweden. 

Lithuania has the highest growth rate of forest per hectare among the countries around the Baltic Sea with close to 9 cubic meters per year. This corresponds to how fast forests are growing in Southern Sweden. It is estimated that forests in Latvia grow by around 7 cubic meters per year, which can be compared to the growth rates in Central Sweden and Southern Finland. Forests in northern Sweden and northern Finland grow by around 3 cubic meters per year. 

The ownership of forests is distributed so that the state has 49 % and the private forest owners 51 % in Latvia. Out of 2 million hectares of forest land in Lithuania, 888,000 hectares are privately owned, which corresponds to 44%. The privately owned forest properties are 5-10 hectares in size, which is smaller than in Latvia.

TREE SPECIES DISTRIBUTION

PRICE PER ^M3 TIMBER STORAGE IN THE BALTIC SEA REGION

Source: Latio, Forest Market Baltic States, Sweden, Finland, Outlook 2021

The local Latvian and Lithuanian timber markets are affected by global demand and supply. In the spring of 2021, lack of supply had pushed prices up to peak levels of USD 1,670/MBFT (a thousand board feet) on May 7 in the USA. Since then, prices have dropped to more normal around USD 450/MBFT. This trend has been reflected in the local market only by the high timber prices. The high timber prices have led to rising prices for other than birch to produce veneer boards, pulpwood, and wood chips for biofuel. There is a lot of speculation about what will happen in the timber market now, both in short and long term, but what can be predicted is a trend where the use of reusable and environmentally friendly products both for construction and other business sectors will increase. There is a high probability that forests will have a major impact on the new, more sustainable economic model both in Europe and globally. This will be reflected in the demand for wood and pulpwood and converge in rising forest asset prices.

Significant events after the end of the period 

Latvian Forest Company AB carried out a new issue of Class-B shares with preferential rights for existing shareholders that ended on January 28, 2022. In total, the issue was subscribed for at 154.2 per cent, of which 93.7 per cent was subscribed for with subscription rights and 60.4 per cent without subscription rights. In accordance with the principles set out in the prospectus, the Board of Directors has allotted all shares in the issue, a total of 3,333,047 Class-B shares, of which 3,123,560 Class-B shares subscribed for with preferential rights and 209,487 Class-B shares without preferential rights. Once the rights issue has been registered with the Swedish Companies Registration Office, the Company's share capital will amount to EUR 4,106,436 (rounded) and the total number of shares to 36,663,521 of which 36,583,521 class-B shares.

At the time of this report, the holding amounts to 7,417 hectares with a growing stock equivalent to 1,053,000 cubic meters.

The Board of Directors is monitoring developments regarding the Russian invasion of Ukraine and continuously evaluates how this may affect the company's operations in the short and long term. Due to Latvia's membership of NATO, the EU and the European cooperation, the Company assesses the risk level as low according to the company's management and board of directors.

(Picture of forest in one of the Lithuanian properties)

Related party transactions

During the year, the parent company received market interest on its dealings with subsidiaries.

Next report

The interim report for the period Jan-Mar 2022 is scheduled to be published on 24 May 2022.

Dividend

The Board of Directors and the CEO propose that no dividend be paid for the financial year 2021.

Annual Report and Annual General Meeting

The Annual Report for the financial year 2021 is scheduled to be published in the usual manner at the end of May or the beginning of June 2022. The annual report will be available at the company's office and website and will be available on Spotlight Stock Market's website. The Annual General Meeting is scheduled to be held in Stockholm in June 2022. The date of publication of the Annual Report and the time and place of the Annual General Meeting will be presented as soon as possible, but no later than in connection with the notice of the Annual General Meeting.

Accounting principles

The year-end report has been prepared for the Group in accordance with IFRS and IAS 34 Interim Financial Reporting and the Annual Accounts Act. For the parent company, the interim report has been prepared in accordance with the Annual Accounts Act, which is in accordance with the provisions of RFR 2 Accounting for Legal entities. Amounts are stated in TEUR unless otherwise stated.

The fair value of growing forests has been calculated on the assets that were in the company as of December 31, 2021. The value is calculated by discounting a 100-year cash flow from biological fixed assets (forests) at a discount rate of 6.75% (7.25%). See also the section "Sales and earnings".

For a description of risks, uncertainties, and risk management, please refer to the company's Annual Report for

2019, Note 20.

About this report

This report has not been subject to special examination by the company's auditor.

Stockholm, 2022-02-28

The Board

For further information, please contact Aleksandrs Tralmaks, CEO info@latvianforest.se

Or visit our website: www.latvianforest.se

Read more:
http://www.latvianforest.lv/f/Year- end report 2021.pdf