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Risk factors

Latvian Forest Company AB was founded relatively recently and can be affected by a number of factors. The effect that these factors can or may have on the company, its operations and financial situation can be controlled or affected by the company to varying degrees. When evaluating Latvian Forest Company’s future development it is of importance to consider a number of risk factors. Listed below are, without any internal ranking of importance, and without any claims of being complete, some of the risk factors and important issues that are deemed to be of importance for the future development of the company. The risk factors described below are not the only risks facing the company and its shareholders. An evaluation therefore also has to include other information presented in this document as well as a general appraisal of other external factors that could affect the outcome of such an evaluation.

Young company

Operations were initiated only recently and the company therefore has little track-record. It is the opinion of the founders as well as the Board that operations can generate returns for the shareholders. There is always a risk, however, that unexpected events may affect the development in ways that cannot be anticipated in the initial planning and early stages. There is also a risk that planned activities and development stages cannot be executed within the assumed time frame, or in the same order as planned or described in this document.

Operational risks

Operations mainly consist of purchasing forest property as well as activities related to forest management. Company assets will almost exclusively consist of forest property in Latvia as well as cash and cash equivalents in Sweden. The most prominent risk, as concerns operations and the potential return for shareholders, is assumed to be that the value of property holdings does not develop in a favorable manner or decrease in value. The risk of this occurring is, however, assumed to be small since present price levels are generally considered to be low.

Another risk factor is that the forest properties are affected negatively by insect attacks, other pests or fire. The company has made the assessment that the risks are limited since the different properties will scattered over a geographic area. Should one or a few properties be affected negatively the affect on the total holdings will be limited. Risks are therefore the highest for those properties adjacent to others.

Risks associated with the business model

The business model is based on the assumption that operations are financed by the income generated from activities carried out. This means that income from thinning and cutting have to be sufficient and in line with the budget. Assumptions regarding income have been made based on previous experience as well as on information provided by persons with practical knowledge of the forestry industry in Latvia. It cannot be excluded that the assumptions are incorrect or that factors outside the control of the company can affect them.

Financing risks

The expansion of operations is dependent on future financing in order to purchase further properties and thereby increasing the total holdings. The present development plan is based on the assumption that the company can secure additional financing. It cannot be guaranteed that the company can secure this financing on favorable terms. There is therefore a risk that the company cannot expand holdings to the extent planned and described in this document.

Key personnel

The company is dependent on its ability to retain the services of qualified personnel. Primarily this concerns the Latvian purchasing and management organization. If one or more key persons leaves the company this could have a negative impact on operations, income and long term results. The company, however, has come to the conclusion that the risks are limited and that no fixed, long term agreements will be made as concerns personnel in Latvia and that the system for renumeration will ensure that key personnel continue to provide their services to the company.

Timber market

The company is dependent on the development of prices on the timber market. Turnover is directly related to the prices for which timber can be sold. If prices should fall operations could be affected negatively. In the present budget, assumptions concerning income have been made conservatively, but it cannot be ruled out that income is smaller than assumed.

Corruption

The Baltic States have, since the collapse of the Soviet Union, developed somewhat differently as concerns to which degree corruption has penetrated the business community and public administration. The company is aware of the problems posed by corruption in the Baltic States but has made the assessment that the forest property market in Latvia is relatively free from any large scale corruption that could affect operations. No specific measures have been taken in order to address this issue.

Risks associated with the shares

The B-share is listed on a Multilateral Trading Facility (MTF) Aktietorget and traded publicly.  It is, however, not possible to predict the interest for trading in the share or whether there will be a sufficient number of buyers and sellers at any given time. The market price can deviate significantly from the subscription price and there is no guarantee that investors can sell their shares on, for them, acceptable price levels.