Year-end report 2023

Period January-December 2023 

• Book value of land and forest amounts to 41,093.1 (38,752.7) TEUR
• Equity amounts to EUR 0.931 (0.914) per share
• Property holdings amounts to 8,287 (7,751) hectares
• Timber volume is estimated at 1,171,000 (1,140,000) cubic meters
• Net sales were 1,578.8 (2,108.8) TEUR
• Operating profit was 353.4 (1,081.6) TEUR
• Change in value, forest 1,301.8 (570.3) TEUR
• Net profit amounted to EUR 462.5 (2,197) TEUR

 Period October-December 2023 

• Net sales were 483.2 (150.9) TEUR
• Operating profit was 16.7 (-92.1) TEUR
• Change in value, forest -7.9 (-265.8) TEUR
• Net profit amounted to -322.5 (15.9) TEUR                                                                                                                  

(Data in brackets refer to the corresponding period previous year)

Latvian Forest Company

Latvian Forest Company AB (publ.) is a Swedish listed company that invests in and conducts forestry on favourably valued forest in countries around the Baltic Sea. The starting point is the belief that forest is a safe investment, and that forestry is a stable and value-creating business.

In addition to forest being a sought-after asset that grows by its own power, the main fundamentals of the business are: (1) value creation for shareholders through active forest management, (2) value creation through consolidation of a larger holding of real estate, and (3) a belief in a general increase in the price levels of forest and agricultural real estate in Latvia and Lithuania.

The expansion is financed through a phased implementation of new share issues as properties are acquired and the business develops. Since Latvian Forest is a co-owner of many properties, shareholders get a good risk diversification.

The prices of Latvian and Lithuanian forest properties are currently lower than what is common in the EU and in Sweden. On the other hand, the price of the end product, log, is in many cases on a par with what can be obtained on the common timber and pulpwood market around the Baltic Sea. This creates opportunities for profitable forestry and good future returns at low risk. Several factors indicate that conditions will continue to be favourable for investments in Latvian and Lithuanian forest properties.

Latvian Forest Company AB has Euro as its accounting currency and all reporting is done in Euro. Trading in the share on 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 reach a certain given volume. The holding that exists today is sufficient to be able to generate sufficient current income over time, to be able to cover the costs of the current organization. The goal is a continued expansion until it is no longer deemed favourable for existing and new shareholders to continue with an acquisition-driven expansion.

Investments in forest properties have been made continuously, and holdings totalled 8,287 (7,751) hectares at the end of the period. Of these, 6,709 (6,396) were forest, 1,065 (911) agricultural land, and 513 (444) other land. At the same time, the total growing stock was estimated at approximately 1,171,000 (1,140,000) cubic meters after felling and property sales. The breakdown by country is as follows: The company owns 6,580 (6,042) hectares of land, of which 5,026 (4,743) hectares are forest land with 839,000 (785,517) cubic meters of growing stock in Latvia. In Lithuania, the company owns 1,709 (1,709) hectares, of which 1,653 (1,653) hectares are forest land with 332,000 (353,766) cubic meters of growing stock.

In average, the company estimates that there are 174 cubic meters of growing forest per hectare. The company acquired forest products in both Latvia and Lithuania.

(Map of the existing property holdings in Latvia and Lithuania)

The company has acquired 368 hectares with approx. 40,000 cubic meters of growing stock during the fourth quarter. Of these, 284 hectares with 33,000 cubic meters were in Lithuania. It is especially worth noting that this included 74.5 hectares of agricultural land with 10–12-year-old oak, spruce, and birch seedlings.

(Spruce plantations in Lithuania)

In total, the company has acquired 608 hectares, of which 296 are forest land, 196 agricultural land and 114 other and, with 51,566 cubic meters of growing stock, of which approx. 30,940 cubic meters are fellable. 

The company has divested 68.98 hectares, of which 48.6 hectares were a swap deal with SCA. The purpose of the swap was to improve the land consolidation of a property in eastern Latvia. All transactions have been completed in Latvia, but the portfolio in Lithuania has not changed in 2023.

The company's management will continue to streamline the holding with the intention of creating a higher proportion of forest land. This means, among other things, planting forests on agricultural land that cannot be used in active farming and selling off larger agricultural fields to local farmers. In 2023, the company has managed to optimize the portfolio to a proportion where forest land corresponds to 81% of the holding, compared to 82% at the end of 2022, and 68% at the end of 2020. 

The company has planted 24,000 spruce seedlings on a total of approx. 12 hectares in 2023. It cleared up 142 hectares, of which 111.71 hectares in Lithuania and 30.8 hectares in Latvia. The low activity for planting and clearing is due to the fact that the company was locked into sales negotiations regarding the Latvian assets.

(After clearing in Latvia)

The company has sold felling rights for 34,372 cubic meters in 2023. The average felling price was EUR 40 per cubic meter.

Sales and aernings

Sales in the fourth quarter amounted to 483.2 (150.9) TEUR and refers to revenue from felling, i.e. sale of root items, as well as rental income from agricultural land. Total revenue for the year amounted to 1,578.8 (2,108.8) TEUR. Operating expenses continued to develop satisfactorily. Operating profit was 353.4 (1,081.6) TEUR for 2023. Operating profit should be positively adjusted to a non-cash item attributable to the assumption of a cost for the biological asset in Lithuania, corresponding to 402 TEUR. That assumption arises only in Lithuania and depends on the local legislation advocating how profit tax is calculated in Lithuania. The company reports it as a cost for felled forest. Otherwise, the increase in costs is due to legal and other costs related to the unsuccessful sale in early 2023. Net profit for the full year was 825.9 (2,197.0) TEUR.

The estimated fair value of forest assets totalled 41,466 (38,752) TEUR. The increase in value is mainly attributable to the company's acquisition of new properties. The fair value of growing forest has been calculated by discounting the cash flow in a 100-year series of estimated felling volumes/sales revenues and forest management costs at a discount rate of 7.25%. The net income from the sale of growing stock is set at an average price in Euro per cubic meter, which is based on historical data for different wood and pulpwood assortments.

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

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

Financing

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

During the fourth quarter, no loans were taken and no new issues carried out.

Equity and valuation

In connection with the transition to IFRS, it was decided to no longer continuously disclose an estimated net asset value but instead to report equity per share. The main difference is that the net asset value also considers estimated surplus values on the land. On the other hand, according to IFRS, only forest assets are measured at their estimated fair value. Equity per share at the end of the period was EUR 0.931 (0.914) per share.

Share

At the end of the period, the share capital amounted to EUR 4,106,436.97 divided into 80,000 Class A shares and 36,583,521 Class B shares. Class A shares represent ten votes and Class B shares represent one vote each. Each share has a quota value of EUR 0.112 in share capital. According to the latest information received by the company, the five largest shareholders in terms of votes control 67.6% of the capital and 67.2% of the votes.

Timber and forest property market

The global timber market has become more stable in 2023. Trading in timber futures on the NASDAQ exchange began with approx. 644 USD/1000 MBFT in January 2023. By the end of the third quarter, the price had stabilized around $550/MBFT, which is around a fifth higher than at the same time in 2022. This corresponds to a fifth higher price level for timber futures on the NASDAQ than before the coronavirus pandemic.

The same trends can also be observed in the Latvian and Lithuanian markets where the purchase price of the premium range of softwood logs has been around 100 EUR/m3. This price level reflects a trend where the inflation rate has been compensated by higher market prices for timber products. 

The development of the pulpwood market has followed the same trend with a gradual decline to a level corresponding to EUR 55 per cubic meter. This is approx. a third higher than the cost to buy a cubic meter of hardwood pulpwood before the corona pandemic.

The demand for birch veneer logs, and consequently also the price, has been more robust and has not had the same decline from the record level corresponding to EUR 232 per cubic meter of premium class assortment at the beginning of September 2022. The price for the premium class range is now around 180 EUR per cubic meter. This can be explained by deficits caused by sanctions against Russian producers of lower quality veneer boards. Russia was the largest exporter of veneer sheets to the EU with almost 1 million cubic meters before invading Ukraine on  February 24, 2022.

The price level for energy wood, including raw material for wood chips, has also been very stable and has been at a level that is two times higher than in 2019. The price level today is EUR 16.5 per cubic meter compared to EUR 9/m3 in 2019.

The company management expects the outlook for the general market price level to be stable with a limited upturn in 2024. This is partly because timber stocks are 15 percent lower than average for the past five years, as shown by the Swedish Forest Agency's latest stock survey. The same trend can also be seen for timber producers in the Baltic countries.

Taking the above into account, the prices of forest properties have been affected and in 2023 gradually turned to become a buyer's market where there are several major property portfolios for sale. The company management expects to be able to capitalize on this development. LFC will actively continue to analyse different opportunities and acquire new properties, using its experience and knowledge to identify and acquire forest properties at a favourable price.

(Pine forest in Lithuania)

 Significant events after the end of the period

At the time of this report the property holdings amounted to 8,287 hectares with 1,171,000 cubic meters of growing stock. 

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 2024 is planned to be published on May 20, 2024.

Dividend

 The Board of Directors has not yet taken a position on the dividend for 2023 but will return to the matter later in the spring. 

Annual Report and Annual General Meeting

 The Annual Report for the financial year 2023 is planned to be published in the usual manner at the end of May or beginning of June 2024. The annual report will be available at the company's office and website and on Spotlight Stock Market's website. The Annual General Meeting is planned to be held in Stockholm in June 2024. The date for 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 forest has been calculated on the assets that were in the company as of December 31, 2023. The value is calculated by discounting a 100-year cash flow from biological fixed assets (forest) at an interest rate of 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

2022, note 20.

 About this report

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

Stockholm, 2024-02-28

Board

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

Or visit our website: www.latvianforest.se

 http://www.latvianforest.lv/f/Financial data 2023.pdf