Interim report January-March 2023

• Book value of land and forest amounts to 39,397 (36,356) TEUR
• Equity amounts to EUR 0.91 (0.9) per share
• Earnings per share EUR -0.002 (0.005)
• Property holdings amounts to 7,868 (7,489) hectares
• Timber volume is estimated at 1,142,857 (1,063,000) cubic meters
• Net sales were 64.2 (341.5) TEUR
• Operating loss was -120.4 (145.7) TEUR
• Change in value, forest 24.1 (67.5) TEUR
• Net loss amounted to -77.7 (191.5) 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 advantageously valued forest in the Baltic States. The three main foundations of the business are, in addition to forest being a sought-after real asset that grows by its own power,

• an expected increase in price levels for Latvian forest and agricultural properties.
• to create added value through active forest management.
• to create value by building up a larger property portfolio.

The expansion is financed by gradually carrying out new share issues as properties are acquired and the business develops. Through Latvian Forest Company, shareholders become co-owners of many properties instead of an individual one, which provides a good risk diversification. The operations conducted in day-to-day forestry create the turnover needed to cover the company's costs over time and eventually generate a surplus.

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 & property holdings 

Investments in forest properties have been made continuously and the holdings amounted to a total of 7,868 (7,489) hectares at the end of the period. Of these, 6,469 (5,914) were forest and 1,406 (1,576) other land, including 938 (1,011) hectares of agricultural land. At the same time, the total growing stock was estimated at approximately 1,143,000 (1,063,000) cubic meters after felling, property purchases and sales. 

On the 6,469 hectares of forest land owned by the company at the end of this period, the existing growing stock is estimated at 1,143,000 m3. According to updated information, the company's management estimates that there are 177 m3 of growing forest per hectare. More than 70% of the company's holdings consist of land types corresponding to bonity classes IA, I and II. Only 0.6% of the company's holdings have management measures prohibited due to nature conservation restrictions. Over 70% of the growing stock consists of the three most important industrial wood species: birch, pine, and spruce.

(Map of existing property holdings)

 A more detailed description of the company's holdings is available on the company's website with link here: www.latvianforest.se

Felling and clearing

During the first quarter, the company has sold felling rights or felled a total of 488 cubic meters, which is only part of the year's planned approx. 40,000 cubic meters in felling volumes, i.e., sales of root items. The company had suspended logging in Latvia due to the possible sale. The average felling price was EUR 66.67 per cubic meter with an income equivalent to 32.5 TEUR. The company has not cleared or carried out planting during the first quarter.

(Agricultural land converted to forest land in Northeast Latvia)

Sales and earnings

Net sales in the first quarter amounted to TEUR 64.2 (341.5) and relate to revenue from felling, i.e., sales of root items. Operating loss was TEUR -120.4 (145.7) for the first quarter. Net loss for the period was TEUR -77.7 (191.7).

The estimated fair value of forest assets was TEUR 29,905 (26,930). In total, the value of forest land and other land amounted to TEUR 39,397 (35,883).

Otherwise, earnings are 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 associated with felling.

External costs consist largely 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 cost 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). Total costs in the first quarter were TEUR 200.4 (194.7).

Timber and forest property market

The company management notes that before a hypothetical improvement in demand for wood products, the market will weaken. Company management has difficulty assessing, but it is likely that prices for the most important timber groups will be adjusted by 15-20% downwards compared to where they were at the beginning of 2022. In addition, it can be predicted that sanctions imposed on Russian and Belarusian wood imports will continue for the next twelve months. This means that part of up to 15 million cubic meters that Russia exported in 2021 will not be available to producers in Europe. The economic constraints on buying Russian crude oil and gas will lead to continued higher energy prices for consumers. Consequently, this will mean still high prices and good demand for wood chips and firewood.

The company's management still assumes that the long-term outlook for forest owners is positive given that underlying demand in Europe is positively driven by wood construction, the need for packaging materials and the drive towards a sustainable energy sector.

In early December 2022, the European Parliament and the Council reached a provisional agreement on the regulation covering the new EU Forest Strategy. Parliament adopted the regulation in April 2023 and the Council is expected to do the same before the summer. In short, the strategy aims to move towards ever higher demands in terms of sustainable forest management and consideration for biodiversity. Biodiversity is also an issue that has generally climbed higher up the agenda, both for investors and political decision-makers. In addition, the importance of the forest's role as a carbon sink is highlighted. Issues that could mean lower felling levels and less influence for the forest owner. Subsequently, companies that import forest-related products into the EU from other countries are also recommended to carry out audits that deforestation and depletion have not occurred. It can be seen as a positive trend for forest owners in EU countries that they are preserved against competition from countries where there is a more dormant attitude towards sustainable forest management. 

The global timber market has been very volatile in recent years and especially in 2022. Trading in timber on the NASDAQ stock exchange began with approx. 1,330 USD/1,000 MBFT in January 2022. By early 2023, the price had stabilized around just below $400/MBFT. This corresponds to the price level of timber on the NASDAQ before the corona pandemic.

The same trends can also be observed in the Latvian and Lithuanian markets with the purchase price of softwood lumber 155 EUR/m3 in mid-June 2022 with a rapid decline to the equivalent of 86 EUR/m3 at the beginning of 2023.

The development of the pulpwood market has been incredibly volatile. An example, while the purchase price for one cubic meter of birch pulpwood was approx. 125 EUR per cubic meter in October 2022, by the beginning of 2023 it had been reduced to below 74 EUR per cubic meter.

Demand for birch veneer logs, and therefore also the price, has reached record levels corresponding to EUR 232 per cubic meter of the premium class range at the end of 2022 and changed slightly until the end of the third quarter. However, it can be predicted that even here prices will be adjusted downwards in line with prices on other assortment classes.

The geopolitical turmoil has mostly been reflected in the price level of energy wood, including raw material for wood chips. When in 2021 the price for branches was around 8 EUR/cubic meter, it rose to the peak figure of 25 EUR per cubic meter, correcting to 18.4 EUR/cubic meter.

Taking all the above into account, the prices of forest properties have been affected and sellers are starting to expect more aggressive valuations for properties. This can be observed in Latvia as well as in Lithuania. However, LFC has succeeded in acquiring new properties, as the company management actively uses its experience and knowledge to identify and acquire forest properties at a favourable price.

(Timber removal in Lithuania)

Financing

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

Financing strategy 

Following comments from and probing among 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 new share issues with preferential rights for existing shareholders. However, this does not prevent directed issues from being carried out, for example, in connection with acquisition of property portfolios or in special situations where a directed issue may be required. The objective is that existing shareholders shall not be disadvantaged if a directed share issue is carried out. 

Share 

At the end of the period, the share capital amounted to EUR 4,106,436, divided into 80,000 Class A shares and 36,583,521 Class B shares. Class A shares represent ten votes and Class B shares one vote each. Each share has a quota value of 0.112 Euro 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.

Significant events after the end of the period

On February 15, 2023, Latvian Forest Company AB entered a letter of intent to sell its two Latvian subsidiaries to a Sweden-based well-established company active in the forest industry. On April 29, the buyer announced that they do not intend to complete the contemplated transaction. The stakeholder has informed that the decision was taken considering the rapidly changing market and a related adjustment in the buyer's strategy in relation to the acquisition opportunity. The company management, with the support of the Board of Directors, has decided that Latvian Forest Company does not intend to seek other opportunities to sell the assets for the time being, but instead plans to continue operations in line with the previously established strategy, i.e., to manage and refine the assets to increase their value.

Property holdings at the time of this report amount to 7,165 hectares. At the same time, the total growing stock was estimated at about 1,076,000 cubic meters after felling and property purchases and sales. The company has sold 476 hectares of agricultural and other land for EUR 1,340,410 in accordance with the previous efficiency plan. 

Next report

The half-year report for the period January to June 2023 is scheduled to be published on August 22, 2023. 

Annual Report and Annual General Meeting

Notice of the Annual General Meeting on June 26, 2023, will be made and the Annual report and related material will be available no later than two weeks before the meeting. 

About this report

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

Stockholm, 2023-05-24

Board

For further information, please contact:

Aleksandrs Tralmaks, CEO

+37129203972

info@latvianforest.se

Or visit our website: www.latvianforest.se