INTERIM REPORT JAN-SEP 2019

INTERIM REPORT JAN-SEP 2019

• Equity amounts to EUR 0.604 (1,125) per share

• Profit after financial items 9,523.4 (2,020.5) TEUR
• Earnings per share EUR 0.464 (0.099)

(Parentheses data refer to the corresponding period last year)

About the Company

Latvian Forest Company AB (publ) is a Swedish listed company that invests in and conducts forestry on highly valued forest in Latvia. The three main grounds of the business are, in addition to forests 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 value growth through active forest management.
• to create value growth by building a larger property portfolio.

The expansion is financed by carrying out new issues in stages as properties are acquired and the business is developing. Through Latvian Forest Company, shareholders become partners in many properties instead of an individual, which provides a good risk spread. The activities carried out in current 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 accounting currency and all reporting takes place in EURO. Trading in the share at Spotlight takes place in Swedish kronor.

Annual report and results

The company management has concentrated on three main tracks during the third quarter. The first one was to close the deal with SCA, through a transfer of TEUR 100 in adjusted positive net operating capital according to the share transfer agreement signed between SCA and LFC. The company also made a dividend on Monday, July 4, 2019, as decided by the Annual General Meeting. Dividend to shareholders amounted to EUR 0.54 per share or a total of TEUR 11,076. The dividend was paid in Swedish kronor and corresponded to SEK 5.70 per share.

The second important task was to identify solutions for requirements for an intermediary relating to compensation for value increase in connection with the sale of all shares in the operating subsidiaries, by the former CEO and board member Fredrik Zetterström and Chairman Ted Alvenius. The company does not share their view about the legal interpretation of profit sharing. During the third quarter, the company has tried to reconcile with Fredrik Zetterström and Ted Alvenius.

On October 31, the Company was informed that Fredrik Zetterström had submitted to the Stockholm Chamber of Commerce Arbitration, notice where Fredrik Zetterström requires the company to pay TEUR 378 in profit share according to the employment contract. The company disputes Fredrik Zetterström's action and claims that it should be dismissed as the company considers that the CEO agreement signed by Fredrik Zetterström on February 18, 2011, replaces the previously signed employment contract.

In conjunction with the Board of Directors having agreed with former Chairman Ted Alvenius, the shareholders are called to a General Meeting on December 16 with proposal to approve the preliminary settlement with him. In conclusion, the settlement means that Ted Alvenius is dropping his future claims against LFC of just over EUR 464,000, together with interest, in respect of alleged entitlement under bonus agreements, against LFC paying to his individual firm 2,500,000 SEK excl. Vat.

Finally, the Company's Board of Directors has decided to continue its operations by investing in forest properties and conducting active forestry. During the third quarter, the company management has actively sought investment opportunities that have led to LFC acquiring 3,460 hectares of forest and agricultural land in Latvia after the end of the period. More about these investments can be found in the section on significant events after the end of the period. On August 19, LFC formed a subsidiary with the intention of investing in forest assets in Latvia - Baltijas Mezu Investicijas SIA.

The book result was TEUR 9,523.4 (2,020.5) for the first six months for the parent company. During the third quarter, the Group had a negative operating profit of TEUR 50,1.

According to previously disclosed information, the sale has resulted in a cost increase of approximately TEUR 670, of which TEUR 400 is a one-off cost for the settlement of the existing and previous forest management agreements, costs for legal advisers and increased personnel cost.  The company has not made any felling during the year. As a result, the Group had a negative operating profit equivalent to TEUR -806,6 (305.3). The company had TEUR 12,198 in liquid assets at the end of the third quarter and had paid down payments on properties under purchases equivalent to TEUR 211.8.

Financing

During the first nine months, no rights issues have been implemented. The company has no loans.

Financial strategy

Following comments from and probing among various shareholders and potential investors, the Board of Directors has decided that future financing in the form of rights issues primarily will be made with preference for existing shareholders, so-called preferential rights issues. However, this does not prevent targeted issues from being carried out, inter alia, at acquisition of property portfolios or in specific situations where a directed issue may be required. The total number of newly issued shares and the number of shares likely to be added by the exchange of convertible-bonds or new subscription of shares on the basis of warrants shall be equal to not more than the number in the highest number of shares according to the articles of association. However, the aim is that existing shareholders should not be disadvantaged if a directed issue is implemented.

In connection with the above, the Meeting decided to authorize the Board of Directors, that on one or more occasions before the next Annual General Meeting, with or without deviation from the shareholders' preferential rights, decide on a new issue of shares, issue of warrants and/or convertibles within the limits of the Articles of Association. Payment shall be possible in cash, by setting off, capital contributed in kind or otherwise subject to Chapter 2 (Paragraph 5) Section 1 to 3 and 5 of the Swedish Companies Act.

Shares

At the end of the period, the share capital amounted to EUR 2,297,307 divided into 80,000 Class A shares and 20,431,061 Class B shares. Class A shares represent ten votes and Class B shares one vote each. The so-called quota value of each share amounts to EUR 0,112 in share capital. According to the latest data, the five largest shareholders in voting value control 67.6% of the capital and 67.2% of the votes.

The Market

The company management of Latvian Forest Company thinks that it still is a favorable market for acquiring individual properties and property portfolios, despite record strong interest among investors in forest assets in Latvia in 2019. The company management has observed that many of the local logging companies suffer from liquidity shortages that lead them to divest their property holdings of felled forest in order to obtain funds for the acquisition of new properties. This is because the prices of timber and pulp have been reduced by 10 - 12% compared to last year, while demand has fallen. This also affects individuals who previously chose to sell properties instead of carrying out the felling themselves. Their net income from sales is reduced and therefore such properties are offered to a wider clientele. This gives LFC an opportunity to acquire properties at a favorable price since the company has available liquid assets.

In addition, some of the smaller forest owners in Scandinavia are probing opportunities to sell their property holdings, for two reasons mainly. Administrative operating costs related to forest ownership in foreign markets are increasing and the new generation of forest owners no longer want to invest in owning forest abroad. In such cases, LFC is open to acquiring such assets by paying partly by cash and partly by issuing new shares.

Significant events after the end of the period

Latvian Forest Company AB has signed a purchase agreement for the acquisition of 3,460 hectares of forest and agricultural land in Latvia. As a result, the company's holdings will consist of 1,874 hectares of woodland, 1,218 hectares of agricultural land and 368 hectares of other land. The timber storage is estimated at 306,000 cubic meters of growing forest, of which 90,700 cubic meters are immediately fellable. 763 hectares of agricultural land are leased to local farmers. An additional 500 hectares of agricultural land and other land is expected by the company management to be converted to woodland. In total, the company including these acquisitions has invested approximately MEUR 7. The largest part or 2,030 hectares of the newly acquired properties are close to Rezekne. A further 215 hectares of 48,000 cubic meters of timber stock have been acquired through auction from Nica municipality in Western Latvia. The company has bought 203 hectares near Rauna in Drusti parish and 540 hectares in other parts of Livonia.

On November 12, the Company's Board of Directors has called the shareholders of Latvian Forest Company AB (publ), to an Extraordinary General Meeting on Monday, December 16, 2019, at 10:00 A.m. in Galjaden Fastigheter's premises on Linnégatan 18 in Stockholm. Among other things, the Board of Directors proposes the following items to the agenda:

• to decide on the approval of settlement agreements with Ted Alvenius.
• to change the articles of association and decide to describe the company's direction of business as described below.
• to change the articles of association and decide on the re-stamping of Class A shares to Class B shares

The Board of Directors proposes that the Annual General Meeting decides to approve the preliminary settlement reached with LFC's former Chairman of the Board, Ted Alvenius. In conclusion, the settlement means that Ted Alvenius is dropping his claims against LFC of just over TEUR 464, plus interest, in respect of alleged entitlement under bonus agreements, against LFC paying to his individual firm SEK 2,500,000 excl. Vat.

The Board of Directors proposes that the Annual General Meeting decides to amend the business description in the articles of associations. The company shall carry out purchase and sale of land, preferably but not exclusively in Latvia. The company shall, directly or indirectly, carry out forestry operations including the granting of rights to the assets, marketing and sale of products derived from those assets. Furthermore, the company shall carry out the sale of consultancy services in respect of the above-mentioned industry, own and manage properties and carry out compatible activities. The company shall own and manage shares and other share certificates in industrial enterprises, operate industrial and commercial operations, preferably extensive forestry and forest industry, and other similar activities.

The Board of Directors also proposes that the Annual General Meeting decide to relabel 80,000 Class A shares into Class B shares. The share capital shall amount to EUR 2,297,307,432830 divided into 20,511,061 shares.

Next report

The interim report for the period January to December 2019 is scheduled to be published on February 20, 2020.

Accounting principles

The parent company's accounts are prepared in accordance with RFR 2 Accounting for Legal Persons and the Annual Accounts Act.

About this report

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

For further information contact

Aleksandrs Tralmaks, CEO

+37129203972

aleksandrs.tralmaks@latvianforest.se

Or visit our website: www.latvianforest.se