The main idea behind the Latvian Forest Company is that as much of investor money as possible will be invested directly into property and that operations will generate the cash flow necessary to finance on-going activities. This means that the company’s holdings will generate enough income in order to cover costs associated with the daily operations.
The acquisition of properties is financed by new share issues. These new issues are made in stages as property purchases progress. The rate of, and how large the share issues are, is largely dependent on the rate at which suitable properties can be purchased.
Turnover is directly related to the size of property holdings. Each property generates a varying degree of income in the form of harvesting and thinning. In addition, farm land that was part of the purchases, generates revenue in the form of EU-subsidies and / or leases. These subsidies are expected to rise in future as a harmonization with levels in other EU countries progresses.
The costs involved in daily operations are largely variable. The Latvian management team is renumerated per managed hectare in combination with the activities performed. The remuneration structure is designed to motivate a high level of activity while at the same time providing for a long-term shareholder interest. The purpose being to favor activities that create maximum long term returns for shareholders.
Costs related to the Swedish organization primarily consist of costs related to management, administration, accounting and advisory services to the Latvian organization, etc. The overall principle is that compensation is to be based on the company's ability to generate cash flow and value growth.
The primary goal is to generate returns for shareholders through appreciation of property values. Since the on-going activities are to be self-financing to the largest extent possible, this will result in profits from operations, under current development plan, to be modest. Any profits will, if possible, be reinvested through the purchase of more forest land.
Most costs incurred in connection with the acquisition of property are not charged to the income statement. They become part of the balance sheet as part of the purchase price. In addition, various brokerage fees, stamp duties and registration fees, etc are included in the actual purchase price.
Performance based renumeration
The founders and management as well as the Latvian organization with responsibility for purchasing and forest management, are entitled to a total of 10 percent of profits generated from the sale of parts of, or all of the property. The renumeration is to be an incentive for making purchasing and management decisions that will maximize the long term growth in value for share holders.
All shares entitle the owner to equal share of the company’s assets and profit. When considering future payment of dividend, the Board of Directors will consider several factors. These will include the operations, EBIT and general financial situation, present and expected cash needs, expansion plans, limitations posed by agreements and other relevant factors. In Swedish companies, the Board of Directors makes a suggestion to the Annual General Meeting as concerns dividends to be paid to the shareholders. The Annual General Meeting then makes the decision according to the Swedish Companies Act and the articles of association.
According to the present plan, no income from the sale of property is anticipated within the first five years of operations. The intention is, however, to have an opportunistic approach should offers be made to purchase Latvian Forest Company holdings on favorable terms. These offers could constitute part of or all of the holdings. When larger changes in total holding are pending, an extra shareholders meeting will be asked to make the necessary decisions as well as deciding whether the proceeds are to be reinvested or not. Smaller divestments will be handled by the Board of Directors.