Home NewsInterim report Jan-Sept. 2023

Interim report Jan-Sept. 2023

Written by Oksana Kirilova• November 22, 2023

Interim report Jan-Sept. 2023

Book value of land and forest amounts to 41,859 (37,817) TEUR
Equity amounts to EUR 0.931 (0.928) per share
Earnings per share EUR 0.026 (0.059)
Property holdings amounts to 8,094 (7,417) hectares
Timber volume is estimated at 1,155,000 (1,104,255) cubic meters
Net sales were 1,095 (1,958) TEUR
Operating profit was 77.1 (1,174) TEUR
Changes in value, forest 1,309 (836) TEUR
Net profit amounted to 944.6 (2,181) 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 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 through a phased implementation of 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 Markets takes place in Swedish kronor.

Status & property holdings

Investments in forest properties have been made continuously, and holdings totalled 8,094 (7,417) hectares at the end of the period. Of these, 6,637 (6,099) were forest and 1,458 (1,319) other land, including 953 (866) hectares of agricultural land. At the same time, the total growing stock was estimated at 1,155,000 (1,104,255) cubic meters after felling, property purchases and sales. Of the total of 8,094 hectares and 1,155,000 cubic meters of growing stock, the company owned 6,387 (5,964) hectares with 810,000 (786,000) cubic meters in Latvia, and 1,708 (1,453) hectares with 346,000 (318,000) cubic meters in Lithuania at the end of the third quarter.

On the total of 6,637 (6,099) hectares of forest land owned by the company at the end of this period, the growing stock is estimated at 1,155,000 cubic meters. The company’s management estimates that 280,000 cubic meters can be harvested today. The growing stock that can be felled over the next 10 years is estimated at approx. 415,000 cubic meters. In total, the company estimates that there are 174 m3 of growing forest per hectare. Almost 72% of the company’s holdings consist of land types corresponding to bonity classes IA (G36), I (G32) and II (G28). On only 1.2% of the company’s holdings, management measures are prohibited due to nature conservation restrictions. More than 78% of the growing stock consists of the three most important industrial wood species: birch, pine, and spruce.

(Map of the existing property holdings)

During the third quarter, a total of approximately 617 TEUR was invested in 12 individual properties of 174 hectares, with a growing stock of approximately 17,133 cubic meters. The average growing stock was approx. 199 cubic meters per hectare of forest land. The company’s management has assessed that there are still favourable terms for the acquisition of individual properties, since some foreign property owners consider the conditions to be favourable for exiting the Latvian market.

Felling and clearing

The company has felled 18,358 cubic meters by the end of the third quarter. The average felling price was EUR 40.6 per cubic meter with an income of 745 TEUR. The company has cleared 90.7 hectares and planted 18 hectares by the end of the third quarter.

(Results of mechanical clearing of aspen stands in Latvia)

Sales and earnings

Sales in the third quarter amounted to 619.2 (493.0) TEUR and refers to revenue from felling, i.e., the sale of root items, as well as rental income from agricultural land. Total revenue for the first nine months was 1,095.6 (1,943.1) TEUR. Operating expenses continued to develop satisfactorily, even considering the high inflation rate. The increase in external costs is explained by the fact that the company’s management has changed the accounting principles for how costs for felling in the Lithuanian operations are reported. Operating profit was 77.1 (1,173.7) TEUR for the nine months. Operating profit was 240.2 (216.1) TEUR for the third quarter. Net profit for the nine months was 944.6 (2,181.1) TEUR.

The estimated fair value of forest assets totalled TEUR 41,859 (37,817.6). The increase in value is attributable to the company’s acquisition of new properties, as well as the average long-term price level for sawlogs and pulpwood. The fair value of growing forest has been calculated on the assets that were in the company as of September 30, 2023. The value is calculated by discounting a 100-year series of estimated felling volumes/sales revenues and forest management costs at a discount rate of 7.25%.

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). In addition, the company records the value of fellings for its Lithuanian operations under raw materials and supplies. This has a limited impact on the company’s cash flow.

Timber and forest property market

The timber and pulpwood market has been affected by an expected weakening of the market cycle. The full impact of the sharp rise on financing costs cannot yet be observed in the timber market. This can largely be explained by the effects of sanctions that impede global trade, and which have a particularly large effect on the timber and pulpwood market around the Baltic Sea. The sanctions have been introduced against the two states of aggression, Russia, and Belarus, as a consequence of their attack on Ukraine in 2022.

In the US, too, the market is showing some contradictory signals about the direction the economy will take. For example, the number of building permits increased in August, but then fell in September. Timber is one of the basic commodities for the construction industry. This led to the rise and subsequent decline in the price of timber trading on the NASDAQ stock exchange, which has fluctuated between approx. USD 479/1000 MBFT (approx. 2.36 m3) in September 2023 and USD 510/1000 MBFT in October. This corresponds to the price level of timber on the NASDAQ before the coronavirus pandemic.

The purchase price of premium softwood timber has stabilised at around 100 EUR/m3 in Latvia and Lithuania. This price level is still around 20% higher than the purchase price before the corona pandemic.

During the first nine months 2023, purchase prices for hardwood pulpwood have also stabilised at around EUR 55 per cubic meter. For example, the price for this range was EUR 37 per cubic meter in September 2019. This corresponds to the adjustment for inflation in the Baltics over the same period.

The price of birch veneer logs has also had a constant decline from record levels corresponding to EUR 232 per cubic meter of premium class range at the end of 2022, to EUR 180 per cubic meter in September 2023.

The geopolitical turmoil has been most reflected in the price level of energy wood, including raw materials for wood chips. After the price rose to a peak of EUR 30 per cubic meter, it dropped down to EUR 18 per cubic meter in September 2023.

The company’s management observes that the weak Swedish krona has led to a decrease in interest from Swedish investors and an increase in the supply of properties for sale in both Latvia and Lithuania. The price levels expected by sellers are still at a high level, but the company’s management is observant of the first signs of a turnaround. This will enable LFC to carry out more acquisitions of forest properties in the coming year at a favourable price.

Financing

The company has borrowed TEUR 1,800 from Swedbank on market terms during the period. Borrowed funds will be used to finance future expansion through the acquisition of real estate in Latvia.

Financing strategy

The Board of Directors has, following comments from and sounding out among shareholders and potential investors, 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 will 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 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.

Significant events after the end of the period

Property holdings at the time of this report amounted to 8,225 hectares. At the same time, the total growing stock was estimated at about 1,160,000 cubic meters after felling, property purchases and sales.