Home NewsInterim Report January-June 2024

Interim Report January-June 2024

Written by Oksana Kirilova• August 22, 2024

Book value of land and forest amounts to TEUR 40,928.6 (41,909.1)
Equity amounts to EUR 0.874 (0.941) per share
Earnings per share EUR -0.020 (0.035)
Property holdings amount to 8,284 (7,992) hectares
Timber volume is estimated at 1,150,000 (1,150,000) cubic meters
Net sales were TEUR 421.8 (447.3)
Operating EBIT was TEUR -112.2 (-163.1)
Change in value, forest TEUR -488.0 (1,577.9)
Net result amounted to TEUR -803.2 (1,287.7)
(Data in brackets refer to the corresponding period last 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 Latvia and Lithuania. The three main foundations of the business are, in addition to the fact that forest is a sought-after real asset that grows on its own power.
an expected increase in the price levels of Latvian and Lithuanian forest and agricultural properties.
value creation through active forest management.
to create value by building up a larger property portfolio.
The expansion is financed by carrying out new issues in stages as properties are acquired and the business develops. Through Latvian Forest Company, shareholders become owners in many properties instead of an individual one, which provides a good spread of risk. The operations conducted in the day-to-day forestry create the turnover needed to cover the company’s costs over time and in the long term 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 Nordic Growth Market (NGM) takes place in Swedish kronor.

Status & property holdings

Investments in forest properties have been made continuously and the holdings at the end of the period totalled 8,284 (7,992) hectares. Of these, 6,714 (6,534) were forest and 1,568 (1,458) other land, including 1,093 (953) hectares of agricultural land. At the same time, the total growing stock was estimated at 1,150,000 (1,150,000) cubic meters after felling, property purchases and sales. Proportionally, the company owns 6,576 (6,285) hectares of land with 811,000 (800,000) m3 of timber in Latvia, and 1,708 (1,707) hectares with 330,000 (350,000) m3 of timber in Lithuania.

On the total of 6,714 hectares of forest land owned by the company at the end of this period, the existing growing stock is estimated at 1,150,000 m3. Of these, approx. 246,000 m3 will be immediately harvestable. The company’s management intends to be able to harvest 393,000 m3 within 10 years. In total, the company estimates that there are 171 m3 of growing forest per hectare of forest land. Almost 70% of the company’s holdings consist of land types corresponding to bonity classes IA, I and II (site indexes G34/G36, G32, G28). Only approx. 2% of the company’s holdings have management measures prohibited due to nature conservation restrictions. Almost 85% of the growing stock consists of the three most important industrial woods: birch, pine and spruce.

The company has acquired 9.30 hectares with a growing stock corresponding to approx. 307 cubic meters in the second quarter. The company has not completed any sales of properties during the second quarter.

(Map of the existing property holdings)

Felling and clearing

The company has felled 10,710 cubic meters, of which 10,038 m3 in Latvia and 673 m3 in Lithuania during the first half of the year. The average felling price was EUR 34 per cubic meter.

The company has carried out planting of spruce seedlings on 57.68 hectares and cleared 168 hectares during the first half of the year.

Sales and earnings

The total net sales for the first half of the year were TEUR 421.8 (447.3) and refers to income from felling, i.e. the sales of root items. Operating costs have continued to develop satisfactorily. Operating EBIT was negative, TEUR

-112.2(-163,1) for the first half of the year and TEUR -16 (-42.7) in the second quarter. The negative operating result is due to the company’s management decision to reduce the felling volume, with the expectation of a more positive price development in the second half of the year. Net result for the year amounted to TEUR -803.2 (1,287.7) for the first half of the year.

The estimated value of the fixed assets amounted to TEUR 40,928.6 (41,056.8). The change in value is mainly due to the fact that the company has acquired or divested properties, as well as the average estimate of the long-term price level of sawlogs and pulpwood. The fair value of growing forest has been calculated on the assets that were in the company as of June 30, 2024. 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 associated 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 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).

(This year’s spruce plantations in Latvia)

Timber and forest property market

The company’s management has not noticed any significant changes in the timber market over the past twelve months. After Russia launched its aggression against Ukraine, there was a shortage of almost 10 million m3 of timber products that disappeared from the timber market around the Baltic Sea. This led to a sharp rise in prices. After that, the market went down to a level that corresponds to about a third more than it was before the corona pandemic. This is supported by the fact that the North American timber market has remained unchanged since the end of 2022. The price of timber futures on the NASDAQ stock exchange has been around 500 USD/MBFT.

During the first half of 2024, delivery timber prices for both sawlogs and pulpwood increased compared to the fourth quarter of 2023, according to the Swedish Forest Agency. The price of sawlogs increased by eight per cent and pulpwood by three per cent. The average price of spruce sawlogs was SEK 830 for m3fub. The price for hardwood pulpwood was equivalent to SEK 539 for m3fub. This is approximately EUR 3-5 per m3fub more than how comparable assortment is priced in the Baltics.

The price level of birch veneer logs has remained fairly stable at around EUR 160 cubic meters for the last twelve months after reaching its peak of EUR 220 per cubic meter at the end of 2022. At the end of June, it fell by almost 30% to approx. EUR 170 per cubic meter and has remained around this level since. This is still a significantly higher purchase price, as the average price was EUR 120 per cubic meter in 2019, before the coronavirus pandemic. International demand for veneer boards has been very strong in recent months, but now the economy seems to have turned downwards.

Pulpwood prices have been going up since the beginning of 2024, from EUR 55 per cubic meter at the beginning of the year to EUR 61 per cubic meter. At the end of 2022, the market price was around EUR 120 for one cubic meter of hardwood pulpwood. Prices for hardwood chips are at a level equivalent to EUR 15.05 per cubic meter and are the lowest level since 2021. It can be expected that the price will rise, as the price of natural gas will increase as a result of a more intense war by Russia in Ukraine.

(Thinning felling in eastern Latvia)

The company’s management notes that the economic downturn and a continued high cost of capital are leading to an increased supply of preferentially priced forest assets in the region. LFC will actively use its experience and knowledge to identify and acquire forest properties at a favourable price both in Latvia and Lithuania.

Financing

Latvian Forest Company AB (publ) has completed, and on June 11 registered with the Swedish Companies Registration Office a rights issue of MSEK 27.3, which was carried out with the support of a resolution by the Board of Directors and was authorized by the Annual General Meeting.

As previously reported, the Board of Directors resolved on a directed share issue of 3,333,047 new Class B shares at an issue price of SEK 8.20 per share. Shares outstanding are now 39,996,568, of which 80,000 are Class A shares. The share capital is now EUR 4,479,749.387614.

The new share issue, which Latvian Forest Company AB carried out at the end of April, was oversubscribed by a coverage ratio of 238 percent and raised MSEK 27.3. The purpose of the new share issue was to finance continued expansion through the acquisition of additional forest properties and to repay debts of approximately MSEK 15. The liabilities refer to loans from existing shareholders that have been used to finance acquisitions in 2023. The company has repaid these debts in June 2024.

Financing strategy

The Board of Directors has, following comments from and sounding 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 priority for existing shareholders. However, this does not prevent directed issues from being carried out, for example, in connection with acquisitions 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 4,479,749 divided into 80,000 Class A shares and 39,916,568 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, the five largest shareholders in terms of voting rights control 67.6% of the capital and 67.2% of the votes.

Significant events after the end of the period

At the time of this report, the property holdings amount to 8,331 hectares. At the same time, the total growing stock is estimated to be about 1,150,000 cubic meters after felling, property purchases and sales.