Unaudited Condensed Consolidated Interim Financial

Unaudited Condensed Consolidated Interim Financial Statements For the six months ended 30 June 2013 Company Number: 47338. ... NOTES TO THE UNAUDITED ...

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Unaudited Condensed Consolidated Interim Financial Statements For the six months ended 30 June 2013

Company Number: 47338

THE FOREST COMPANY LIMITED

TABLE OF CONTENTS

PAGE

GENERAL INFORMATION

3

HIGHLIGHTS

4

INVESTMENT MANAGER’S REPORT

6

INDEPENDENT REVIEW REPORT TO THE FOREST COMPANY LIMITED

13

UNAUDITED CONDENSED CONSOLIDATED STATEMENT OF FINANCIAL POSITION

15

UNAUDITED CONDENSED CONSOLIDATED INCOME STATEMENT

17

UNAUDITED CONDENSED CONSOLIDATED STATEMENT OF OTHER COMPREHENSIVE INCOME

18

UNAUDITED CONDENSED CONSOLIDATED STATEMENT OF CHANGES IN EQUITY

19

UNAUDITED CONDENSED CONSOLIDATED STATEMENT OF CASH FLOWS

20

NOTES TO THE UNAUDITED CONDENSED CONSOLIDATED INTERIM FINANCIAL STATEMENTS

22

2

THE FOREST COMPANY LIMITED GENERAL INFORMATION

Board of Directors Rainer Häggblom (Non-executive Chairman) Dr. Dermot Smurfit (Non-executive) Susan Lloyd (Non-executive) John Harald Örneberg (Non-executive) Dr. Panu Kallio (Non- executive) Joseph Ryan (Non-executive)

Registered Office Heritage Hall Po Box 225 Le Marchant Street St Peter Port GY1 4HY Guernsey

Guernsey Advocates to the Company Mourant Ozannes PO Box 186 1 Le Marchant Street St Peter Port GY1 4HP Guernsey

English Solicitors to the Company Lawrence Graham LLP 4 More London Riverside London SE1 2AU United Kingdom

Brazilian Solicitors to the Company Soriano & Woiler Advogados Avenida São Gabriel, 477 9° Andar, Jardim Paulista São Paulo CEP: 01435-001

Investment Manager Timber Capital Limited 2 Reid Street Hamilton HM11 Bermuda

Valuers Indufor Oy Töölönkatu 11A FI-00100, Helsinki Finland

CISX Sponsor Heritage Corporate Services Ltd Heritage Hall PO Box 225 Le Marchant Street St Peter Port GY1 4HY Guernsey

Guernsey Administrator and Company Secretary to the Company Heritage International Fund Managers Limited Heritage Hall PO Box 225 Le Marchant Street St Peter Port GY1 4HY Guernsey

Independent Auditor Deloitte LLP PO Box 137 Regency Court Glategny Esplanade St Peter Port GY1 3HW Guernsey

Secondary trading broker Pareto Öhman AB Berzelii Park 9 PO Box 7415 SE-103 91, Stockholm, Sweden

Tax advisors to the Company Grant Thornton UK LLP 30 Finsbury Square London EC2P 2YU United Kingdom

Identifiers ISIN: GG00B4TC8Z57 Sedol: B4TC8Z5 Ticker: FCO

Contact Information For more information, contact: Investor relations, +1 441 295 4736, [email protected] Website: www.theforestcompany.se

3

THE FOREST COMPANY LIMITED HIGHLIGHTS

FINANCIAL HIGHLIGHTS FOR THE SIX-MONTHS ENDED 30 JUNE 2013 

Revenue was USD 15.25 million and gross profit USD 4.00 million, an increase of 94 and 63 per cent respectively compared to the same period in 2012.



Net loss, after operating expenses, depletion and unrealised loss on biological assets, was USD 20.09 million, a reduction of 35 per cent compared with the same period in 2012.



The unrealised loss of USD 7.29 million represented Indufor’s valuation of forest assets, which took into account foreign exchange translation, harvesting, new planting, forestry costs and changes in wood prices. Foreign exchange translation, resulting from the strengthening of the US dollar against Brazilian and Colombian currencies by 10 per cent between December 2012 and June 2013, negatively affected the Company, causing a USD 26.99 million reduction in the underlying assets.



Net loss per share amounted to 52.27 US cents based on the weighted average number of shares in issue (2012: 88.73 US cents).

FINANCIAL POSITION  Total non-current assets were USD 323.33 million, 7 per cent lower compared with total non-current assets at 31 December 2012. The decrease was due to a number of factors, including changes in valuation assumptions related to the WACC and future wood prices with the main factor being the Brazilian Reais to United States Dollar exchange rate which changed from 2.0516 as at 31 December 2012 to 2.2317 as at 30 June 2013.  Cash balance increased to USD 52.67 million, from USD 23.69 million at 31 December 2012, as a result of private placements during the period.  The Company repaid a portion of its loan with Brazilian bank, Banco Rendimento, used to finance the Frondosa project. Interest bearing borrowings therefore reduced from USD 17.93 million at 31 December 2012 to USD 13.14 million at 30 June 2013.  Total liabilities reduced to USD 42.23 million, representing a 30 per cent decrease compared with the total liabilities at 31 December 2012.  The Adjusted NAV per share at 30 June 2013 was USD 8.91, which is 8 per cent lower than that on 31 December 2012. The IFRS NAV per share as at 30 June 2013 was USD 8.35 and the total IFRS NAV was USD 357.03 million. This represented a decrease of 7 per cent on the IFRS NAV per share over the period.  The Company issued 206,475 Ordinary Shares on 4 March 2013 for a gross consideration of USD 2 million. Subsequently on 28 May 2013 the Company issued 5,404,020 Ordinary Shares for a gross consideration of USD 52.36 million. Shares were allotted at a share price of USD 9.69 per share on both occasions. As at 30 June 2013, the Company had a total of 42.74 million shares in issue. POST PERIOD EVENTS 

On 16 August 2013 the Company spun-off the charcoal division in Frondosa, creating a new company BioCarbono. As of that date, Frondosa and BioCarbono are independent entities, with the first having its core business in silviculture and harvesting operations and the latter in charcoal production.



On 9 September 2013, following completion of Metlife’s due diligence process, the Company, through its subsidiaries, agreed to draw down the USD 15 million term loan. 4

THE FOREST COMPANY LIMITED HIGHLIGHTS (CONTINUED)



On 20 September 2013 the Directors declared an interim dividend of 3 per cent of the Adjusted Net Asset Value per share as at 31 December 2012 (29 US cents) to be paid on 31 October 2013 to investors at the record date of 25 September 2013. A scrip dividend alternative will be available to shareholders.

5

THE FOREST COMPANY LIMITED INVESTMENT MANAGER’S REPORT

I am pleased to present you with a summary of The Forest Company Limited’s (“The Forest Company” or the “Group” or the “Company”) activities for the six month period ended 30 June 2013. The IFRS NAV per share as at 30 June 2013 was USD 8.35 and the total IFRS NAV was USD 357.03 million. This represented a decrease of 7 per cent on the IFRS NAV per share over the period. The Adjusted NAV at 30 June 2013 was USD 380.82 million and the Adjusted NAV per share was USD 8.91. This represented a decrease of 8 per cent on the Adjusted NAV per share over the period. The decrease was due to a number of factors, including changes in valuation assumptions related to the WACC and future wood prices with the main factor being the Brazilian Reais to United States Dollar exchange rate which changed from 2.0516 as at 31 December 2012 to 2.2317 as at 30 June 2013. The Group’s forest assets and investment property were valued at 30 June 2013 by independent professionally qualified valuers, Indufor. HIGHLIGHTS FOR THE PERIOD During the six-month period ended 30 June 2013 the Company, together with the Investment Manager: 

successfully completed two private placements, raising gross proceeds of USD 54.36 million;



increased wood and charcoal sales in Brazil and Colombia;



completed a group Forest Stewardship Council (“FSC”) certification, combining the Aimara, Ibiraçú, Fondosa individual entities under a single accreditation – the Timber Capital Group Certification;



increased production capacity in Colombia and increased sales by 65 per cent compared to 2012 as a result of enhanced harvest management through Silvotecnia.

MACRO ENVIRONMENT IN THE INVESTMENT REGION Like most emerging markets, Brazil and Colombia saw their currencies fall in value relative to the US Dollar in the first half of 2013. This was mainly fuelled by the global markets’ response to the US Federal Reserve’s tapering of the QE3 programme, which led to the overall strengthening of the US dollar (particularly against currencies in emerging markets). One advantage, however, is that a weaker currency strengthens Brazil’s and Colombia’s competitiveness in the export markets, attracting more demand for some wood products. Overall, the emerging market growth started to take on a much slower rhythm. The first half of 2013 saw Brazil grow by only 1 per cent, although growth rates in the second quarter were slightly more positive than the first quarter. Inflation rose above the band set by the Central Bank and interest rates increased. Although this first half of 2013 has been rather turbulent – particularly with the sharp movements in FX and some social unrest in the region– the current picture is one of a more stable development compared with the (perhaps not so realistic) hype that was given to Brazil until last year. Colombia, on the other hand, continued to attract the focus of international investors seeking an exposure to South America, as the country showed steady growth, modest inflation and lower interest rates than its peers during the period. The government’s continued effort to finalise peace negotiations with the FARC further contributed to the positive sentiment about Colombia. BRAZILIAN WOOD PRODUCTS MARKET As reported by Wood Resource Quarterly in the 2Q/13 the Global Sawlog Price Index (GSPI) increased for the fourth consecutive quarter to reach USD 86.60/m3. The Index has gone up by 5.1 percent year-over-year, reaching its highest level since the 4Q/11. In Brazil it was no different. The Forest Company has experienced price increases in the local regions in which the Company operates, most notably in the Kaa project where sales of sawlog for export markets are significant. Prices for small logs or pulp logs also increased globally during the first half of 2013, especially within Asia. In Brazil, however, prices remained unchanged compared to Q4 2012.

6

THE FOREST COMPANY LIMITED

INVESTMENT MANAGER’S REPORT (CONTINUED) BRAZILIAN CHARCOAL MARKET The first half of 2013 saw a positive pickup in the charcoal market. The delayed on-set of the 2012 rainy season resulted in higher charcoal production which in turn resulted in lower prices. This delayed on-set of the rainy season has not been experienced in 2013 and as a result charcoal prices have increased. Early in the year charcoal prices averaged BRL 116 MDC, a 4 per cent increase compared to BRL 112 MDC in December 2012. Prices continued increasing with highest prices reaching BRL 135 MDC in the second quarter. As the dry season begins, charcoal prices will, as expected, fall slightly. COLOMBIAN WOOD PRODUCT MARKET In the first half of 2013 the Colombian wood market presented a fairly positive scenario with saw log and pulp log prices in a stable range, and small roundwood prices increasing. Small roundwood prices increased mainly because Tablemac, one of the country’s largest panel producers, started its new MDF mill, boosting demand for this type of wood. INVESTMENT PORTFOLIO The Company’s current portfolio is comprised of five investments, four of which are located in Brazil and one in Colombia. The portfolio combines both greenfield and standing plantation projects, providing capital return and immediate cash flow. With a mix of eucalyptus and pine at different age classes, the portfolio provides ample opportunity to serve more than one end-market. A summary of each project is provided in the following section. INVESTMENT PIPELINE AND OUTLOOK Timber Capital, on behalf of the Company, maintains relationships with a number of potential transaction partners. The Company’s investment pipeline comprises of a number of attractive investment opportunities in a number of locations, species and end user markets that will result in a balanced portfolio of standing and greenfield projects as the Company grows. In parallel to a variety of new investment opportunities, Timber Capital is working to expand and increase efficiencies within the current portfolio to continue to add value for the Company’s investors. OTHER UPDATES The Forest Company has appointed Eduardo Naum to the position of CFO, in place of Sally-Anne Baron, who left the Company after completing a three-month hand-over process with Mr Naum. He has over 20 years of experience in finance and accounting and prior to joining the team he was the Latin American Regional CFO of Cabot Corporation, a global petro-chemical company. Mr Naum is based in São Paulo. Having our CFO based in São Paulo addresses the need for a local approach to management, where the assets and finances can be monitored from a close perspective. Best regards, Harald Örneberg CEO and Founder Timber Capital Limited 20 September 2013

“THE RIGHT TREE, IN THE RIGHT REGION, FOR THE RIGHT CUSTOMER” 7

THE FOREST COMPANY LIMITED

THE FOREST COMPANY PROJECTS IN PARANA STATE, BRAZIL KAA PROJECT LOCATION

PARANA, BRAZIL

YEAR OF INVESTMENT

2011

OWNERSHIP

100 PER CENT

SPECIES

PINE

END-USE

PULPWOOD/ SAWLOGS

TOTAL AREA

2,020 HA

AIMARA PROJECT LOCATION

PARANA, BRAZIL

YEAR OF INVESTMENT

2008

OWNERSHIP

80 PER CENT

SPECIES

PINE AND EUCALYPTUS

END-USE

PULPWOOD/ SAWLOGS

TOTAL AREA

2,820 HA

KAA PROJECT DESCRIPTION In 2011 the Company acquired the Kaa existing pine plantations with a total area of 2,012 ha, of which 1,165 ha were mature pine plantations available for harvest. The plantations are located in Parańa state close to the border of Sao Paulo state in Brazil and approximately 100 km north of Curitiba, the state capital of Parańa. The region is a traditional pine growing area, with a significant cluster of saw and veneer mills and a range of service providers active in the forest industry, such as harvesting contractors, planting operators and forest consulting companies. The total harvestable volume of wood from the property was 716,000m 3 solid over-bark (sob), which is equivalent to a stocking of above 600m3sob/ha. The Investment Manager believes that the plantations have been well managed in the past and are of the highest saw and veneer log quality. HIGHLIGHTS FOR THE PERIOD The Company’s wood sales during the period increased to 93,599 m 3 from 54,302 m3 achieved in the comparable period for 2012. Kaa is now selling to a higher number of local buyers and exporters and is in negotiations for further wood sales. Wood is now predominantly being sold roadside, as opposed to on the stump, in order to increase the Company’s share of the value chain. Marketing of the remaining mature pine continues.

8

THE FOREST COMPANY LIMITED

THE FOREST COMPANY PROJECTS IN PARANA STATE, BRAZIL (CONTINUED) AIMARA PROJECT DESCRIPTION The Aimara Project is located in the Curitiba region of Parana state in south-western Brazil. The climate in the region is favourable for plantations. The annual precipitation is around 1,400mm and is relatively evenly distributed over the year, thus facilitating planting evenly over the year. The landscape in the region is characterised by valleys and rivers, which limits the average available land for planting to approximately 50%. The forest assets of the Aimara project are held by the Company's Brazilian SPV, Aimara Ltda, which has entered into a contractual partnership arrangement with Klabin S/A, a leading pulp producer in Brazil. At the outset Klabin contributed the harvesting rights to 538 ha of standing pine in return for a 20% stake in the project. The harvesting rights were not related to the biological growth of the standing pine and the rights were reflected as a financial receivable at fair value through profit and loss in the statements of the Company. The new plantations are all eucalyptus. A substantial part of the eucalyptus wood fibre produced by the Aimara project is being sold to Klabin for use in its local pulp and paper production facilities under a 28 year off-take agreement that is governed by a predetermined price mechanism. HIGHLIGHTS FOR THE PERIOD The Company included the Aimara FSC certification into the Timber Capital Group Certification. Projected growth according to plan.

9

THE FOREST COMPANY LIMITED

THE FOREST COMPANY PROJECTS IN MINAS GERAIS STATE, BRAZIL FRONDOSA PROJECT LOCATION

MINAS GERAIS, BRAZIL

YEAR OF INVESTMENT

2011

OWNERSHIP

100 PER CENT

SPECIES

EUCALYPTUS

END-USE

CHARCOAL/ BIOCARBON FOR PIGIRON PRODUCTION

TOTAL AREA

32,157 HA

IBIRACU PROJECT LOCATION

MINAS GERAIS, BRAZIL

YEAR OF INVESTMENT

2008

OWNERSHIP

100 PER CENT

SPECIES

EUCALYPTUS

END-USE

CHARCOAL/ BIOCARBON FOR PIG-IRON PRODUCTION

TOTAL AREA

11,478 HA

IBIRACU PROJECT DESCRIPTION The Ibiracu Project is located in the Pirapora region of Minas Gerais state in south-eastern Brazil. The region is characterised by high altitude, fertile soil and, like Parańa, relatively high rainfall (1,450mm annually). It is rugged with numerous gullies which limit the average available land for forest plantations to approximately 55% of the areas of the properties in the project, which is a typical area ratio for Minas Gerais state. The limited availability of area for forest plantations is to a large extent a result of the restrictions of the Brazilian Forest Code, which requires landowners to leave a buffer zone around valleys, rivers and gorges etc. The Ibiracu Project is an afforestation project relating to a land area of 11,478 ha of unplanted, mainly old cattle land. The total expected plantation area amounts to 6,095 ha, which will be planted with eucalyptus. All of the properties in the project are located in close proximity to each other in the Pirapora area and are managed as one unit of timberland. HIGHLIGHTS FOR THE PERIOD The Company included the Ibiraçú FSC certification into the Timber Capital Group Certification. During the period, the entire plantable area in Chapadinha farm in Ibiraçú was prepared and planted.

10

THE FOREST COMPANY LIMITED

THE FOREST COMPANY PROJECTS IN MINAS GERAIS STATE, BRAZIL (CONTINUED) FRONDOSA PROJECT DESCRIPTION In 2011 the Company acquired existing eucalyptus plantations covering a total plantable area of 20,034 ha in the Pirapora region of Minas Gerais in south-eastern Brazil. The plantations are located close to, and are managed in conjunction with, The Forest Company project of Ibiracu. As a part of the Frondosa transaction, the Company acquired the physical assets of a pig-iron mill, and the surface rights on which the pig-iron mill stands. There are on-going efforts to sell these assets. The Company has an off-take agreement to supply charcoal to the pig-iron facility. HIGHLIGHTS FOR THE PERIOD The Company increased the number of charcoal customers, and after the period, started to increase its charcoal capacity by building more kilns. Also, the Company initiated the certification process for its charcoal production, and passed government labour audit in June. Progress is being made on the continuing efforts to sell the pig-iron mill. On 16 August 2013 the Company spun-off the charcoal division in Frondosa, creating a new company BioCarbono. As of that date, Frondosa and BioCarbono are independent entities, with the first having its core business in silviculture and harvesting operations and the latter in charcoal production.

11

THE FOREST COMPANY LIMITED

THE FOREST COMPANY PROJECT IN COLOMBIA

MS TIMBERLAND PROJECT LOCATION

ANTIOQUIA REGION, COLOMBIA

YEAR OF INVESTMENT

2010

OWNERSHIP

90 PER CENT

SPECIES

PINE

END-USE TOTAL AREA

SAW LOGS / WOOD BASED PANELS

10,852 HA

MS TIMBERLAND PROJECT DESCRIPTION The Antioquia project consists of 10,852 ha of acquired land located in the Antioquia region near Medellin, Colombia, a pine growing area traditionally. The net plantation area is 6,976 ha, of which 6,461 ha is currently planted, primarily with existing pine plantations. The Company plans to harvest these plantations on a sustainable basis, replanting shortly after harvest. The plantation currently consists mainly of the P. patula pine species. There is potential to increase significantly the growth rate by introducing a pine species more suited to the region, P. maximinoii. In December 2010 the Company entered into a joint venture arrangement with Cotopaxi, an Ecuadorian woodbased panel manufacturer with existing plantation assets, through a jointly-owned project company, in which The Forest Company holds a 90% stake. The joint venture originally acquired 8,036 ha of land, and in June 2011, it acquired a further 2,569 ha of land, including 1,723 ha of high quality standing pine neighbouring the current El Guasimo property. The land and biological assets are managed with the El Guasimo property. In addition, the Company owns bare land for potential greenfield projects. HIGHLIGHTS FOR THE PERIOD The Company renewed FSC certification for the Antioquia project in accordance with the FSC audit conducted in November 2012. Antioquia continued to construct bridges and build roads to facilitate harvesting and replanting and ensure sustainability.

12

THE FOREST COMPANY LIMITED

INDEPENDENT REVIEW REPORT TO THE FOREST COMPANY LIMITED We have been engaged by the Company to review the Condensed Consolidated Interim Financial Statements for the half-year ended 30 June 2013 which comprises the Condensed Consolidated Statement of Financial Position, the Condensed Consolidated Statement of Comprehensive Income, the Condensed Consolidated Statement of Changes in Equity, the Condensed Consolidated Statement of Cash Flows and related notes 1 to 24. We have read the other information contained in the half-yearly financial report and considered whether it contains any apparent misstatements or material inconsistencies with the information in the condensed set of financial statements. This report is made solely to the company in accordance with International Standard on Review Engagements (UK and Ireland) 2410 "Review of Interim Financial Information Performed by the Independent Auditor of the Entity" issued by the Auditing Practices Board. Our work has been undertaken so that we might state to the Company those matters we are required to state to it in an independent review report and for no other purpose. To the fullest extent permitted by law, we do not accept or assume responsibility to anyone other than the company, for our review work, for this report, or for the conclusions we have formed. Directors' responsibilities The interim financial report is the responsibility of, and has been approved by, the Directors. The Directors are responsible for preparing the interim financial report in accordance with International Accounting Standard 34 “Interim Financial Reporting” as adopted by the European Union. Our responsibility Our responsibility is to express to the Company a conclusion on the condensed set of financial statements in the interim financial report based on our review. Scope of Review We conducted our review in accordance with International Standard on Review Engagements (UK and Ireland) 2410 "Review of Interim Financial Information Performed by the Independent Auditor of the Entity" issued by the Auditing Practices Board for use in the United Kingdom. A review of interim financial information consists of making inquiries, primarily of persons responsible for financial and accounting matters, and applying analytical and other review procedures. A review is substantially less in scope than an audit conducted in accordance with International Standards on Auditing (UK and Ireland) and consequently does not enable us to obtain assurance that we would become aware of all significant matters that might be identified in an audit. Accordingly, we do not express an audit opinion. Emphasis of matter - valuation of biological and land assets In forming our review conclusion on the Condensed Consolidated Interim Financial Statements, which is not modified, we have considered the adequacy of the disclosures made in notes 2, 8 and 9 to the Condensed Consolidated Interim Financial Statements regarding the critical judgements made in the valuation of biological and land assets. Biological and land assets are included in the Unaudited Condensed Consolidated Statement of Financial Position at fair value as estimated by independent professional valuers at USD 320 million (31 December 2012: USD 344 million). The valuations reflect the impact of key inputs in respect of future events, in particular the estimated future woodflow at current market prices; the effects of the elected Brazilian tax regime as discussed further below; and the estimated market discount rates applied to the cashflows. Notes 8 and 9 to the Condensed Consolidated Interim Financial Statements include a sensitivity analysis which illustrates the potential impact of a change in the inputs and assumptions and is not intended to imply the likelihood of change or that possible changes in value would be restricted to this range. 13

THE FOREST COMPANY LIMITED

INDEPENDENT REVIEW REPORT TO THE FOREST COMPANY LIMITED Emphasis of matter – taxation of unrealised gains in biological and land assets In forming our review conclusion on the Condensed Consolidated Interim Financial Statements, which is not modified, we have considered the adequacy of the disclosures made in notes 2, 8, 9 and 17 to the Condensed Consolidated Interim Financial Statements regarding the critical judgements made in respect of the evolution of the application of the Brazilian tax rules for the valuation of biological and land assets and calculation of deferred tax thereon. The accumulated deferred tax provisions in the Unaudited Condensed Consolidated Statement of Financial Position on the accumulated gains on biological and land assets of USD 174 million (31 December 2012: USD 168 million) are USD 9 million (31 December 2012: USD 10 million) reflecting the assumption that the tax system of Lucro Presumido (a revenue based tax) will remain available to the Company in the long term. Note 8 to the Condensed Consolidated Interim Financial Statements includes a sensitivity analysis which illustrates the potential impact of a full change in the Brazilian tax system to Lucro Real on the valuations of biological assets and the deferred tax provisions. Conclusion Based on our review, nothing has come to our attention that causes us to believe that the condensed set of financial statements in the interim financial report for the half-year ended 30 June 2013 is not prepared, in all material respects, in accordance with International Accounting Standard 34 “Interim Financial Reporting” as adopted by the European Union.

Deloitte LLP Chartered Accountants Guernsey, Channel Islands 20 September 2013

14

THE FOREST COMPANY LIMITED

UNAUDITED CONDENSED CONSOLIDATED STATEMENT OF FINANCIAL POSITION As at 30 June 2013 30 Jun 2013 USD'000

31 Dec 2012 USD'000

30 Jun 2012 USD'000

8 8 9 10 11 17

124,821 187,555 7,596 797 2,189 354 14 323,326

116,393 217,475 9,918 689 2,194 396 347,065

106,946 214,954 9,671 2,713 2,200 333 262 337,079

12 13 14

13,461 3,470 6,334

14,529 4,350 4,578

15,414 575 5,588

15 15

13,702 38,966 75,933

17,835 5,856 47,148

9,872 37,663 69,112

399,259

394,213

406,191

16 17 18

(5,713) (9,310) (9,521) (24,544)

(8,605) (10,215) (11,157) (29,977)

(697) (9,779) (8,831) (19,307)

16 19

(7,430) (9,409) (843) (17,682)

(9,329) (20,040) (690) (30,059)

(23,638) (40,391) (64,029)

(42,226) 357,033

(60,036) 334,177

(83,336) 322,855

Notes ASSETS: Non-current assets Forest assets Land Biological assets Investment property Property, plant and equipment Investment in associates Deferred tax asset Other non-current assets Total non-current assets Current assets Non-current assets held for sale Inventory Trade and other receivables Cash and cash equivalents - Restricted - Unrestricted Total current assets TOTAL ASSETS Non-current liabilities Interest bearing borrowings Deferred tax liability Other long term liability Total non-current liabilities Current liabilities Interest bearing borrowings Trade and other payables Provisions Total current liabilities TOTAL LIABILITIES Net assets

15

THE FOREST COMPANY LIMITED

UNAUDITED CONDENSED CONSOLIDATED STATEMENT OF FINANCIAL POSITION As at 30 June 2013 (CONTINUED) Notes Equity Share capital Revaluation reserve Foreign currency translation reserve Accumulated profit Equity attributable to holders of redeemable Ordinary Shares and Class A Ordinary Shares

21

Number of redeemable Ordinary Shares in issue at period end Number of redeemable Class A Ordinary Shares in issue at period end

Net asset value per redeemable Ordinary and Class A Ordinary Share

22

30 Jun 2013 USD'000

31 Dec 2012 USD'000

30 Jun 2012 USD'000

329,533 71,845 (79,776) 35,431

276,714 54,729 (52,784) 55,518

267,664 44,633 (44,648) 55,206

357,033

334,177

322,855

18,543,688

12,933,193

12,566,461

24,191,383 42,735,071

24,191,383 37,124,576

23,614,698 36,181,159

$8.35

$9.00

$8.92

The notes on pages 22 to 38 are an integral part of the condensed financial statements. The condensed consolidated interim financial statements were approved by the Board of Directors on 20 September 2013 and signed on their behalf by:

Susan Lloyd Director 20 September 2013

16

THE FOREST COMPANY LIMITED

UNAUDITED CONDENSED CONSOLIDATED INCOME STATEMENT For the six months ended 30 June 2013 Jan - Jun 2013 USD'000 15,245 (11,247) 3,998 (4,283) (285)

Jan - Jun 2012 USD'000 7,857 (5,408) 2,449 2,449

Jan-Dec 2012 USD'000 21,210 (12,444) 8,766 (7,286) 1,480

(7,287) (7,572)

(21,766) 49 577 (18,691)

266 (5,488) 238 362 (3,142)

6,068 2,649 227 8,944

6,515 2,793 1,612 10,920

13,550 6,320 3,170 23,040

(16,516) 206 (3,640) 9

(29,611) 570 (2,539) 27

(26,182) 984 (5,990) 21

(19,941)

(31,553)

(31,167)

(146)

490

(326)

Loss for the period/year

(20,087)

(31,063)

(31,493)

Loss attributable to: Holders of redeemable Ordinary Shares and Class A Ordinary Shares

(20,087)

(31,063)

(31,493)

(52.27)

(88.73)

(87.73)

Income Revenue Cost of sales Gross profit Depletion

Realised gain on disposal of planted land Unrealised loss on biological assets Unrealised gain on investment property Realised gain on financial receivable Operating expenses Administrative expenses Forestry operating expenses Revaluation of planted land Revaluation of property, plant and equipment Operating loss Interest income on bank deposits Interest expense Share of income from associate

Notes 3 3 3

8 9

4 5 8 10

11

Loss before tax Taxation (charge)/credit

Loss per share - Basic and Diluted (US cents)

6

7

17

THE FOREST COMPANY LIMITED UNAUDITED CONDENSED CONSOLIDATED STATEMENT OF OTHER COMPREHENSIVE INCOME For the six months ended 30 June 2013

Loss for the period/year Other comprehensive loss net of income tax Items that may be reclassified subsequently to profit or loss Foreign currency translation differences Deferred tax effect on other comprehensive income

17

Items that will not be reclassified subsequently to profit or loss Revaluation of planted land Revaluation of property, plant and equipment

8 10

Other comprehensive loss for the period/year Total comprehensive loss for the period/year

Jan - Jun 2013 USD'000

Jan - Jun 2012 USD'000

Jan-Dec 2012 USD'000

(20,087)

(31,063)

(31,493)

(26,992) (478) (27,470)

(15,032) (266) (15,298)

(23,168) (927) (24,095)

17,594 17,594

7,917 (2,111) 5,806

19,684 (2,379) 17,305

(9,876) (29,963)

(9,492) (40,555)

(6,790) (38,283)

(29,963)

(40,555)

(38,283)

Loss attributable to: Holders of redeemable Ordinary Shares and Class A Ordinary Shares

The results for the period relate to continuing operations. The notes on pages 22 to 38 are an integral part of the condensed financial statements.

18

THE FOREST COMPANY LIMITED

UNAUDITED CONDENSED CONSOLIDATED STATEMENT OF CHANGES IN EQUITY For the six months ended 30 June 2013 2013 Notes As at 1 January 2013 Total comprehensive loss for the period Loss for the period Other comprehensive income/(loss) Currency translation loss Revaluation of planted land Deferred tax on revaluation Total comprehensive loss for the period Transactions with owners Shares issued Issue costs Total transactions with owners As at 30 June 2013

2012 As at 1 January 2012 Total comprehensive income for the period Loss for the period Other comprehensive income Currency translation loss Revaluation of planted land Revaluation of property, plant and equipment Deferred tax on revaluation

8 17

21 21

Share capital USD'000 276,714

Revaluation reserve USD'000 54,729

Currency translation reserve USD'000 (52,784)

-

-

-

(20,087)

(20,087)

-

17,594 (478)

(26,992) -

-

(26,992) 17,594 (478)

-

17,116

(26,992)

(20,087)

(29,963)

54,365 (1,546) 52,819

-

-

-

54,365 (1,546) 52,819

329,533

71,845

(79,776)

35,431

357,033

Share capital USD'000 246,607

Revaluation reserve USD'000 39,093

Currency translation reserve USD'000 (29,616)

Accumulated profit USD'000 86,269

Total USD'000 342,353

-

-

-

(31,063)

(31,063)

-

7,917 (2,111) (266)

(15,032) -

-

(15,032) 7,917 (2,111) (266)

Accumulated profit USD'000 55,518

Total USD'000 334,177

Total comprehensive income for the period Transactions with owners Shares issued Issue costs Dividends payable Total transactions with owners

-

5,540

(15,032)

(31,063)

(40,555)

33,878 (751) (12,070) 21,057

-

-

-

33,878 (751) (12,070) 21,057

As at 30 June 2012

267,664

44,633

(44,648)

55,206

322,855

The notes on pages 22 to 38 are an integral part of the condensed financial statements.

19

THE FOREST COMPANY LIMITED

UNAUDITED CONDENSED CONSOLIDATED STATEMENT OF CASH FLOWS For the six months ended 30 June 2013

Notes Cash flows from operating activities Loss for the period/year Adjustments for: Original biological asset cost on sales Depletion Unrealised gain on investment property Unrealised loss on forest assets Unrealised gain on financial receivable Realised gain on financial receivable Realised gain on disposal of planted land Taxation Depreciation Revaluation of property, plant and equipment Revaluation of planted land Decrease in inventory Increase in trade receivables Decrease in trade payables Cashflow used in operating activities Tax paid Net cash used in operating activities

Cash flows from investing activities Purchase of property, plant and equipment Purchase of investment property Purchase of forest assets Purchase of investment in associate Proceeds from repayment of financial receivable at fair value through profit or loss Proceeds from sale of planted land Cost capitalised to forest assets Net cash used in investing activities

3 3 8

6 10 8

11

8

Jan - Jun 2013 USD'000

Jan - Jun 2012 USD'000

Jan - Dec 2012 USD'000

(20,087)

(31,063)

(31,493)

3,627 4,283 7,287 146 59 227 328 (1,756) (8,658) (14,544) (692) (15,236)

(49) 21,766 (577) (490) 1,612 1,209 (2,408) (2,617) (12,617) (429) (13,046)

3,850 7,286 (238) 5,488 (362) (266) 326 73 3,170 1,403 (1,398) (12,176) (24,337) (1,260) (25,597)

(650) -

(250) (2,863) (14,154) (2,173)

(624) (4,279) (7,786) (2,173)

(2,479) (3,129)

7,889 (11,551)

7,889 2,533 (12,714) (17,154)

20

THE FOREST COMPANY LIMITED

UNAUDITED CONDENSED CONSOLIDATED STATEMENT OF CASH FLOWS For the six months ended 30 June 2013 (CONTINUED) Jan - Jun 2013 USD'000

Jan - Jun 2012 USD'000

Jan - Dec 2012 USD'000

Cash flow from financing activities Proceeds from issue of shares Issue costs paid Proceeds from interest bearing borrowings Repayment of interest bearing borrowings Dividends paid Net cash from financing activities

54,365 (1,546) (4,539) 48,280

33,878 (751) 1,165 (4,035) 30,257

38,378 (841) 1,068 (8,279) (7,430) 22,896

Net increase/(decrease) in cash and cash equivalents during the period/year

29,915

5,660

(19,855)

Cash and cash equivalents at the beginning of the period/year

23,691

39,506

39,506

(938)

2,369

4,040

52,668

47,535

23,691

Notes

Effects of changes in foreign exchange rates Cash and cash equivalents at the end of the period/year

15

The notes on pages 22 to 38 are an integral part of the condensed financial statements.

21

THE FOREST COMPANY LIMITED

NOTES TO THE UNAUDITED CONDENSED CONSOLIDATED INTERIM FINANCIAL STATEMENTS For the six months ended 30 June 2013 1. GENERAL INFORMATION The information relating to the year ended 31 December 2012 included in these accounts does not constitute the full statutory accounts. The auditors reported on those accounts and their report contained emphasis of matter paragraphs in relation to the critical judgements made in the valuation of biological and land assets, and an emphasis noting the critical judgements made in the application of the Brazilian tax rules for the calculation of deferred tax on the valuation of biological and land assets. These critical judgements have been explained in the critical accounting judgements and estimation uncertainties section below.

2. ACCOUNTING POLICIES Basis of preparation The condensed consolidated interim financial statements have been prepared in accordance with International Accounting Standard (IAS) 34 “Interim Financial Reporting” as adopted by the European Union. The condensed consolidated interim financial statements do not include all the information and disclosures required in annual financial statements, and should be read in conjunction with the Company’s annual financial statements for the year ended 31 December 2012. The Company does not operate in an industry where significant or cyclical variations as a result of seasonal activity are experienced during the financial year. The same accounting policies, presentation and methods of computation are followed in these condensed consolidated interim financial statements as those followed in the preparation of the Company’s annual financial statements for the year ended 31 December 2012. The annual financial statements have been prepared in accordance with International Financial Reporting Standards (IFRS) as adopted by the European Union. Going concern The Board has made enquiries and examined the Group’s cash forecasts for the 18 month period to 31 December 2014, including restricted cash, borrowings and covenants under various scenarios and assumptions. Having previously acquired significant levels of mature plantations in 2011, the Company continues to develop markets for wood and wood products in order for sales to exceed the carefully managed on-going costs of the Group without recourse to the breadth of other cash generating options, including the reduction or deferral of scheduled silvicultural maintenance costs, that are available to the Group. The Board has a reasonable expectation that the Company and the Group have adequate resources to continue as a going concern. Accordingly, the Group continues to adopt the going concern basis in preparation of these financial statements. During the period the Company closed its sixth and seventh private placements raising a further USD 52.82 million (net of costs) bringing the total equity raised to USD 364.4 million. The Company also agreed terms for a loan of USD 15 million from Metropolitan Life Insurance Company ("Metlife") with an additional line of credit of the same amount.

22

THE FOREST COMPANY LIMITED

NOTES TO THE UNAUDITED CONDENSED CONSOLIDATED INTERIM FINANCIAL STATEMENTS For the six months ended 30 June 2013 2. ACCOUNTING POLICIES (CONTINUED) Critical accounting judgements and estimation uncertainties Management makes estimates and assumptions concerning the future. The resulting accounting estimates will, by definition, seldom equal the related actual results. The estimates and assumptions that have a significant risk of causing a material adjustment to the carrying amounts of assets and liabilities within the next six months are outlined below. a) Fair value of the investment property, planted land, forest assets and carbonisation assets are based on the current market valuation provided by Indufor Oy (“Indufor”), the independent valuers. Indufor are required to make assumptions on establishing the current market valuations. The valuations have been made on the assumption that the owner sells the assets in the open market without a deferred term contract, leaseback, joint venture, management agreement or any similar arrangement which could serve to affect the value of the assets. The valuations are based on certain assumptions concerning discount rate, growth rates, prices, forecast woodflow, market and market capacity to absorb the woodflow, costs and future eligibility for current tax rates of the Company, and are sensitive to changes in these assumptions (see sensitivity analysis in note 8). In determining these assumptions Indufor are required to consider that they are reasonable and that potential purchasers of the Company’s assets would make the same or similar assumptions by considering other current transactions in the market. Following the acquisition of the majority of the Company’s biological and land assets in 2011, management continue to work on establishing a customer base to meet the level of woodflow estimated in the valuations. b) The Group is subject to income and capital gains taxes in Brazil and Colombia. Significant judgment is required in determining the taxation assumed in the biological asset valuation and the total provision for income and deferred taxes. There are many transactions and calculations for which the ultimate tax determination and timing of payment are uncertain, in particular the Brazilian projects are assumed to be taxed under a favourable tax regime of Lucro Presumido which requires management of annual revenues within a fixed limit. The Group recognises liabilities for anticipated tax issues based on estimates of whether additional taxes will be due. Where the final tax outcome of these matters is different from the amounts that were initially recorded, such differences will impact the income and deferred tax provisions in the period in which the determination is made. c) The Company continues to market the pig iron mill acquired as part of the Frondosa assets. Whilst it is intended that the best price will be achieved on disposal there is a possibility that the sale proceeds will not equal the carrying value at 30 June 2013. Adoption of new and revised standards During the period the Group adopted all new and revised IFRS and International Accounting Standards (IAS) that are relevant to its operations and were also endorsed by the European Union for accounting periods commencing on or after 1 January 2013. The adoption of these new accounting standards had no impact on the condensed consolidated financial statements of the Group for the half-year ended 30 June 2013 with the exception of IFRS 13 which results in additional disclosures with regards to the sensitivity analysis as to significant inputs to the Group’s Forest Assets and Investment Property valuations which is included in notes 8 and 9.

23

THE FOREST COMPANY LIMITED

NOTES TO THE UNAUDITED CONDENSED CONSOLIDATED INTERIM FINANCIAL STATEMENTS For the six months ended 30 June 2013 2. ACCOUNTING POLICIES (CONTINUED) Segmental reporting The Board believe that the Company and the Group are engaged in a single segment of business of holding investments in timber and timberland, operating from Guernsey, Colombia and Brazil. The Board, as a whole, has been determined as constituting the chief operating decision maker of the Company. The key measure of performance used by the Board to assess the Company’s performance and to allocate resources is the total return on the Company’s net asset value, and therefore no reconciliation is required between the measure of profit or loss used by the Board and that contained in the condensed consolidated interim financial statements. The Group engaged in a single segment of business in the comparative period. Basis of consolidation The condensed consolidated interim financial statements incorporate the financial statements of The Forest Company Limited and its subsidiaries for the period ended 30 June 2013. Foreign exchange rates The exchange rates used in these financial statements relative to the USD are as follows: Jan - Jun 2013 Currency Brazilian Reais (BRL) Sterling (GBP) Colombian Pesos (COP)

Closing rate 2.2317 0.657 1,922.8

Average rate 2.0337 n/a 1,827.5

Jan - Jun 2012 Closing rate 2.0094 0.637 1,783.8

Average rate 1.8666 n/a 1,792.3

Jan - Dec 2012 Closing rate 2.0516 0.637 1,767.0

Average rate 1.9552 n/a 1,797.1

3. REVENUE Jan - Jun 2013

Sales Cost of sales Original biological asset cost Variable cost

Gross profit Depletion

Jan - Jun 2012 Sales Cost of sales Gross profit Depletion

Harvested timber USD'000

Standing trees USD'000

Charcoal USD'000

Lease income USD'000

Total USD'000

3,858

2,518

7,984

885

15,245

(1,135) (1,772) (2,907)

(1,508) (92) (1,600)

(984) (5,756) (6,740)

-

(3,627) (7,620) (11,247)

951 (958) (7)

918 (1,297) (379)

1,244 (2,028) (784)

885 885

3,998 (4,283) (285)

Harvested timber USD'000 3,299 (2,416) 883 883

Standing trees USD'000 154 (58) 96 96

Charcoal USD'000 3,419 (2,934) 485 485

Lease income USD'000 985 985 985

Total USD'000 7,857 (5,408) 2,449 2,449 24

THE FOREST COMPANY LIMITED

NOTES TO THE UNAUDITED CONDENSED CONSOLIDATED INTERIM FINANCIAL STATEMENTS For the six months ended 30 June 2013 3. REVENUE (CONTINUED) Revenue is recognised when it is probable that the economic benefits associated with the transaction will flow to the Group and the amount of revenue can be measured reliably. Revenues are accounted for on an accrual basis and are measured at the fair value of the consideration received net of discounts and other sales-related taxes. The Group’s depletion charged to the income statement represents the prior years unrealised gains on the biological assets sold or used in the production of charcoal sold during the period. For the period January to June 2012 this was included within the unrealised gains on biological assets.

4. ADMINISTRATIVE EXPENSES

Investment Management fees Legal and professional fees Consultancy fees Travel expenses Audit fees Administration fees Directors fees and expenses Bank charges

Jan - Jun 2013 USD'000 2,773 1,469 171 503 492 346 234 80 6,068

Jan - Jun 2012 USD'000 2,889 1,493 186 485 552 629 187 94 6,515

Jan - Jun 2013 USD'000 327 567 885 188 374 41 267 2,649

Jan - Jun 2012 USD'000 399 473 592 232 166 208 614 109 2,793

5. FORESTRY OPERATING EXPENSES

Project facilities Payroll Forestry services Irrecoverable tax inputs Insurance Valuation fees Repairs and maintenance Other general expenses

25

THE FOREST COMPANY LIMITED

NOTES TO THE UNAUDITED CONDENSED CONSOLIDATED INTERIM FINANCIAL STATEMENTS For the six months ended 30 June 2013 6. TAXATION Jan - Jun 2013 USD'000

Jan - Jun 2012 USD'000

566 (6) 560

295 (9) 286

(157) (257) (414) 146

(650) (126) (776) (490)

Jan - Jun 2013 USD'000 (20,087) (20,087)

Jan - Jun 2012 USD'000 (31,063) (31,063)

Jan - Dec 2012 USD'000 (31,493) (31,493)

38,432

35,008

35,898

US cents (52.27)

US cents (88.73)

US cents (87.73)

(52.27)

(88.73)

(87.73)

Current tax Brazil Colombia Deferred tax Brazil Colombia

7. BASIC AND DILUTED EARNINGS PER ORDINARY AND CLASS A ORDINARY SHARE Basic and diluted earnings per share is based on the following data:

Loss for the period/year From continuing operations

Average number of issued shares ('000s) Basic and diluted loss per share From continuing operations

26

THE FOREST COMPANY LIMITED

NOTES TO THE UNAUDITED CONDENSED CONSOLIDATED INTERIM FINANCIAL STATEMENTS For the six months ended 30 June 2013 8. FOREST ASSETS The table below details the movements in forest assets for the six months ended 30 June 2013.

2013 Cost: Opening balance Land and biological assets costs capitalised Biological assets harvested Transferred from Investment Property Closing balance Fair value movements: Opening balance Decrease in fair value of biological assets Biological assets harvested Transferred from Investment Property Revaluation loss recognised in income statement Revaluation surplus Closing balance Accumulated effect of foreign exchange movement on translation Fair value of forest assets *Includes leased and owned land

Land* USD'000

Biological assets USD'000

Total USD'000

74,813 501 1,065 76,379

143,122 1,978 (3,840) 141,260

217,935 2,479 (3,840) 1,065 217,639

59,075 602 (227) 17,594 77,044

108,523 (7,287) (4,283) 96,953

167,598 (7,287) (4,283) 602 (227) 17,594 173,997

(28,602) 124,821

(50,658) 187,555

(79,260) 312,376

The Group’s forest assets were valued at 30 June 2013 by independent professionally qualified valuers, Indufor. The Group’s biological assets consisted of eucalyptus and pinus plantations. Changes in valuation assumptions Real post-tax discount rate: The discount rates used range from 5.98% to 6.14% (31 December 2012: 5.46% to 5.81%). Biological assets sensitivity analysis The independent valuations of biological assets, in accordance with IFRS, are based on a number of valuation inputs and assumptions. The independent valuations of standing timber are sensitive to changes in these inputs, to varying degrees. The analysis below is provided in order to illustrate the sensitivity of the biological asset valuations to changes in the discount rate, wood volume assumptions, estimated wood prices and forestry costs. The analysis illustrates a range by which the valuations could vary if inputs and assumptions were to change and is not intended to imply the likelihood of change or that possible changes in value would be restricted to this range. For example, the discount rate might change by more than the 1% indicated below, as might wood prices.

27

THE FOREST COMPANY LIMITED

NOTES TO THE UNAUDITED CONDENSED CONSOLIDATED INTERIM FINANCIAL STATEMENTS For the six months ended 30 June 2013 8. FOREST ASSETS (CONTINUED)

Variable

Sensitivity of biological asset value to change in variable as a percentage

Total biological asset value sensitivity USD'000

Biological asset value USD'000

10,786 (9,804)

198,341 177,751

5.75% -5.23%

(2,676) 2,675

184,879 190,230

-1.43% 1.43%

(2,676) 2,675

184,879 190,230

-1.43% 1.43%

208 (208)

187,763 187,347

0.11% -0.11%

Discount rate 1% decrease in discount rate 1% increase in discount rate Forecast wood volume 1% decrease 1% increase Wood prices 1% decrease 1% increase Forestry costs 1% decrease 1% increase

For example, a decrease in the forecast wood volume of 1% would result in a decrease of the biological asset value from USD 187.6 million to USD 184.9 million, and an increase in the forecast wood volume of 1% would result in an increase in the biological asset value from USD 187.6 million to USD 190.2 million, when all the other variables are held constant. Brazilian tax sensitivity analysis Changes to tax regimes governing the Group and its assets, or changes to the eligibility of the Group to certain tax regimes, may adversely affect the Group’s financial performance. This risk is relevant to the Group’s assets in Brazil where the Lucro Presumido tax regime has been elected by all of the Group’s forestry operations. This tax regime allows eligible companies to pay a lower tax rate of 3.08% on operating revenue at a presumed rate of profitability, as opposed to a higher tax rate of 34% on actual profits under the Lucro Real regime. The Lucro Presumido tax regime is currently only available to companies with annual revenue of less than BRL 78 million. The limit for the Lucro Presumido tax regime has increased from BRL 48m to BRL 78m during the current period due to a change in Brazilian tax legislation. Whilst the revenues are managed to ensure the annual revenue stays below BRL 78 million, should the revenue of one of the Group’s Brazilian projects exceed BRL 78 million in any one calendar year, that project would be subject to Lucro Real the following year. The Directors are confident that they have the systems and controls in place to ensure that the turnover level of BRL 78 million is not exceeded but if that were to occur, there would be three consequences: Firstly, it may mean that current deferred tax provisions on land and biological assets would not equal eventual taxes payable on the realisation of an asset and the deferred tax provisions would need to increase going forward. Secondly, it would mean that the independent valuations of the biological assets, which are computed on a posttax cashflow basis, would be updated going forward to consider the tax cashflows under Lucro Real. Thirdly, it would mean that the current tax payable by the Group would increase, all else being equal. The Group’s project Frondosa, in Minas Gerais, Brazil, has the highest annual revenue. Forecast revenues are consistent with the criteria for Lucro Presumido. 28

THE FOREST COMPANY LIMITED

NOTES TO THE UNAUDITED CONDENSED CONSOLIDATED INTERIM FINANCIAL STATEMENTS For the six months ended 30 June 2013 8. FOREST ASSETS (CONTINUED) Brazilian tax sensitivity analysis (continued) The Group is in the process of separating out the charcoal activity of Frondosa into a separate company, which will elect to be taxed under the Lucro Real tax regime. Each of the Group’s Brazilian projects are treated separately for tax purposes in Brazil. In the event that all of the Group’s Brazilian projects were forced to elect for Lucro Real instead of Lucro Presumido, the deferred tax liability and biological asset valuation would be affected, on a worst case basis, as detailed below. Percentage change in Change in valuation Lucro value under under Lucro Presumido Lucro Real Lucro Real Real USD'000 USD'000 USD'000 Biological asset value sensitivity to tax election 151,850 127,975 (23,875) -15.72% Biological asset deferred tax provision sensitivity to tax election Total biological asset value and deferred tax sensitivity to tax election Net Asset Value sensitivity to tax election on biological asset and deferred tax

Land value deferred tax provision sensitivity to tax election

(4,651)

(22,907)

(18,255)

392.46%

147,199

105,068

(42,130)

-28.62%

312,376

270,146

(42,130)

-13.49%

(3,466)

(20,964)

(17,498)

504.92%

(59,628)

-41.49%

(59,628)

-19.09%

Total land, forest asset value and deferred tax sensitivity to tax election 143,733 84,105 Net Asset Value sensitivity to tax election 312,376 252,748 The above data has been compiled with the input of the Valuer and Tax Advisor.

The Directors, through their active management of the Company’s dual purpose of investing in real estate and forestry, believe that both the land and biological assets of the Brazilian subsidiaries will remain eligible for the Lucro Presumido tax regime. In the event that there is a change in the dual corporate purpose the land assets held by the Brazilian projects would be subject to an additional deferred tax provision of USD 7.4 million (31 December 2012: USD 6.3 million) as detailed above. Planted land price sensitivity analysis The following paragraph details the sensitivity of the Group’s reported planted land value to a 1% increase or decrease in the per hectare values of land. A 1% increase or decrease has been used in order to illustrate the effect that each one per cent movement in the value per hectare will have on the Group’s comprehensive income and is not intended to imply the likelihood of change or that possible changes in value would be restricted to this range. At 30 June 2013, if the per hectare values of land were to increase or decrease by 1%, with all other variables held constant, the planted land values would have increased or decreased by USD 1.2 million respectively. 29

THE FOREST COMPANY LIMITED

NOTES TO THE UNAUDITED CONDENSED CONSOLIDATED INTERIM FINANCIAL STATEMENTS For the six months ended 30 June 2013 8. FOREST ASSETS (CONTINUED) Forest assets foreign currency exchange rate sensitivity analysis The Group’s forest assets are held in currencies other than United States Dollar and therefore expose the Group to sensitivity as the value of the assets denominated in other currencies will fluctuate due to changes in exchange rate on translation. As at 30 June 2013, the Group forest assets were denominated in Brazilian Reais and Colombian Pesos. If the United States Dollar strengthened or weakened by 10% against the Brazilian Reais and all other variables held constant, the Group’s forest asset values for the period would have been USD 24.4 million lower or USD 29.8 million higher respectively as a result of the translation of Brazilian Reais denominated forest asset values. If the United States Dollar strengthened or weakened by 10% against the Colombian Peso and all other variables held constant, the Group’s forest asset values for the period would have been USD 4.9 million lower or USD 6.0 million higher respectively as a result of the translation of Colombian Peso denominated forest asset values. Fair value of forest assets All forest assets held by the Company during the period are classified under Level 3 of the fair value hierarchy under IFRS 13.

9. INVESTMENT PROPERTY The table below details the movements in investment property for the six months ended 30 June 2013.

Cost: Opening balance Additions Transfer to forest assets Closing balance Fair value movements: Opening balance Transfer to forest assets Increases in fair value of investment property Closing balance Accumulated effect of foreign exchange movement on translation Fair value of investment properties

30 Jun 2013 USD'000

31 Dec 2012 USD'000

7,486 (1,065) 6,421

4,639 2,847 7,486

417 (602) (185)

179 238 417

1,360 7,596

2,015 9,918

The Group’s investment properties were valued at 30 June 2013 by professional qualified valuers, Indufor. Investment property price sensitivity analysis The following paragraph details the sensitivity of the Group’s reported unplanted land (investment property) value to a 1% increase or decrease in the per hectare values of land.

30

THE FOREST COMPANY LIMITED

NOTES TO THE UNAUDITED CONDENSED CONSOLIDATED INTERIM FINANCIAL STATEMENTS For the six months ended 30 June 2013 9. INVESTMENT PROPERTY (CONTINUED) Investment property price sensitivity analysis (continued) A 1% increase or decrease has been used in order to illustrate the effect that each one per cent movement in the value per hectare will have on the Group’s comprehensive income and is not intended to imply the likelihood of change or that possible changes in value would be restricted to this range. At 30 June 2013, if the per hectare values of land were to increase or decrease by 1%, with all other variables held constant, the NAV would have increased or decreased by USD 75,960. Investment property foreign currency exchange rate sensitivity analysis The Group’s Investment property is also exposed to foreign exchange rate fluctuation in the same manner as the forest assets above. As at 30 June 2013, the Group forest assets were denominated in Brazilian Reais and Colombian Pesos. If the United States Dollar strengthened or weakened by 10% against the Colombian Peso and all other variables held constant, the Group’s Investment property values for the period would have been USD 689,481 lower or USD 842,433 higher as a result of the translation of Colombian Peso denominated Investment property values. Fair value of investment property All investment property held by the Company during the period is classified under Level 3 of the fair value hierarchy under IFRS 13. There has been no transfers in and out of this total.

10. PROPERTY, PLANT AND EQUIPMENT Buildings USD'000

Carbonisation assets USD'000

Equipment USD'000

Total USD'000

Cost: Opening balance as at 1 January Additions Disposals Closing balance as at 30 June

422 492 (383) 531

3,313 3,313

1,069 158 (3) 1,224

4,804 650 (386) 5,068

Depreciation / Fair Value: Opening balance as at 1 January Depreciation Revaluation Disposals Closing balance as at 30 June

(129) (35) (164)

(3,313) (3,313)

(106) (24) (130)

(3,548) (59) (3,607)

367

-

1,094

1,461

(209)

-

(455)

(664)

158

-

639

797

2013

Effect of foreign exchange movements Carrying value as at 30 June 2013

31

THE FOREST COMPANY LIMITED

NOTES TO THE UNAUDITED CONDENSED CONSOLIDATED INTERIM FINANCIAL STATEMENTS For the six months ended 30 June 2013 10. PROPERTY, PLANT AND EQUIPMENT (CONTINUED) The USD nil value attributable to the carbonisation assets is due to the fluctuations of valuation inputs relating to the price of wood and charcoal. Management believe that these fluctuations are short term and continue to monitor market conditions. In accordance with IAS 16 ‘Property, Plant and Equipment’ the revaluation loss in excess of the previously recognised revaluation surplus has been recognised in the consolidated income statement. There have been no such gains or losses during the period.

11. INVESTMENT IN ASSOCIATES

Opening balance Additions Share of income from associate Dividends received Closing balance

30 Jun 2013 USD'000 2,194 9 (14) 2,189

31 Dec 2012 USD'000 2,173 21 2,194

The Company holds 6,717,571 shares in Silvotecnia S.A. (“Silvotecnia”), a forestry industry service provider, as part of its Colombian operations, which were acquired on 26 April 2012.

12. DISPOSAL GROUP HELD FOR SALE

Property, plant and equipment Trade and other receivables Cash and cash equivalents Trade and other payables

30 Jun 2013 USD'000 13,641 135 (315)

31 Dec 2012 USD'000 14,839 12

13,461

14,529

9 (331)

The Company’s advisors continue to market the pig-iron mill assets held by Frondosa and it is anticipated that these will be disposed of within 12 months of the reporting date. The related assets and liabilities have been classified as non-current assets held for sale.

32

THE FOREST COMPANY LIMITED

NOTES TO THE UNAUDITED CONDENSED CONSOLIDATED INTERIM FINANCIAL STATEMENTS For the six months ended 30 June 2013 13. INVENTORY The table below summarises the Group's inventories valued at lower of cost and net realisable value. 30 Jun 2013

31 Dec 2012

USD'000

USD'000

51

381

Work in progress

3,417

3,969

Finished products

2

-

3,470

4,350

30 Jun 2013

31 Dec 2012

Seedlings and consumables

14. TRADE AND OTHER RECEIVABLES

USD'000

USD'000

Trade receivables

1,799

2,133

Advances to suppliers

2,040

323

Prepaid interest

1,723

206

772

1,916

6,334

4,578

Other receivables

15. CASH AND CASH EQUIVALENTS These comprise cash held by the Group and short-term deposits available on demand. The carrying amounts of these assets approximate their fair value. At the reporting date the Group had the following cash balances which are considered to be restricted and unrestricted at 30 June 2013. 30 June 2013

31 Dec 2012

USD'000

USD'000

1,666

4,235

12,036

13,600

13,702

17,835

38,966

5,856

52,668

23,691

Restricted Amounts pledged as collateral Amounts held in escrow accounts in respect of assets purchased Unrestricted

16. INTEREST BEARING BORROWINGS 2013 Lender Banco Rendimento SA ("Rendimento") Serfinco SA (see below) Other

Project Frondosa Antioquia Antioquia

Current USD'000 6,346 552 532 7,430

Noncurrent USD'000 5,713 5,713

Total USD'000 12,059 552 532 13,143 33

THE FOREST COMPANY LIMITED

NOTES TO THE UNAUDITED CONDENSED CONSOLIDATED INTERIM FINANCIAL STATEMENTS For the six months ended 30 June 2013 16. INTEREST BEARING BORROWINGS (CONTINUED) On 22 May 2012 the Company, through El Guasimo, entered into a factoring agreement with Serfinco S.A. Stockbrokers (“Serfinco”) for invoices relating to a three year timber sales contract with a total value of COP 2,218 million (approx. USD 1.19 million). As part of this agreement COP 1,688 million (approx. USD 852,000) was received from Serfinco and will be repaid by settlement of the timber invoices over a period of 34 months with an effective interest rate of 11% per year. Any default by the buyer will be settled by the Company. The Group, through Frondosa, drew down the facilities to complete the acquisition in November 2011, receiving BRL 35 million from Rendimento and BRL 15 million from Rodobens. The facility from Rendimento bears interest at the Brazilian interbank (“CDI”) rate plus 1.0% per month. As at 30 June 2013 the outstanding loan balance was BRL 26.91 million. The capital on the facility from Rodobens was fully repaid on 10 May 2013. On 6 September 2012 the repayment period of USD 16.21 million (BRL 32.57 million) Frondosa loan with Banco Rendimento was extended by 18 months, ending in November 2014, in order that the repayments will more closely match the income being generated by the project. The facility from Rendimento was initially secured by i) an assignment under a Fiduciary Lien by Aimara in favour of Rendimento, over a CDB deposited therewith, in the amount of USD 2.49 million (BRL 5 million); and ii) an Agricultural Pledge over standing trees valued at USD 19.41 million (BRL 39 million). The security in relation to the facilities is being released by Rendimento proportionally with the repayments of principal and interest to be made by Frondosa.

17. MOVEMENT IN DEFERRED TAX BALANCES The table below details the movements in deferred tax assets and liabilities for the six months to 30 June 2013.

Opening balance Credited to income statement on fair value adjustments on forest assets (Charged)/Credited to other comprehensive income on revaluation adjustments Other movements Exchange rate differences Closing balance

1 Jan to 30 Jun 2013 Liability Asset USD'000 USD'000 (10,215) 396 414 (478) 969 (9,310)

79 (90) (31) 354

34

THE FOREST COMPANY LIMITED

NOTES TO THE UNAUDITED CONDENSED CONSOLIDATED INTERIM FINANCIAL STATEMENTS For the six months ended 30 June 2013 17. MOVEMENT IN DEFERRED TAX BALANCES (CONTINUED) Deferred tax liabilities arise in relation to unrealised fair value adjustments on both forest assets and investment property. Unrealised fair value adjustments on planted land and their corresponding deferred tax liability are reflected in comprehensive income.

18. OTHER LONG TERM LIABILITY

Amounts owing on purchase of forest assets Deferred income on land sold

30 Jun 2013 USD'000 8,644 877

31 Dec 2012 USD'000 10,203 954

9,521

11,157

30 Jun 2013 USD'000 5,845 1,403 27 37 2,097 9,409

31 Dec 2012 USD'000 4,962 3,244 11,005 129 700 20,040

19. TRADE AND OTHER PAYABLES

Trade payables Amounts due on purchase of forest assets 2011 Investment management performance fees payable Dividends payable Taxes payable Accruals

The 2011 Investment management performance fee payable was paid in full on 3 June 2013 with an additional balance of USD 324,471 of interest accrued to that date.

20. CONTINGENT LIABILITIES The Company, via its Ibiracu subsidiary, has entered into an irrevocable agreement to purchase a farm but the public deed has not yet been issued in respect of this one farm. The contingent liability for this farm is USD 2.33 million (31 December 2012: USD 2.33 million) at the reporting date, being the purchase price yet to be paid. In addition, the Company, through Ibiracu, has entered into three law suits in Brazil in order to expedite and guarantee the transfer of full title of two properties relating to a farm purchased in 2008. The Company, through its Ibiracu subsidiary, has planted the properties after receiving all necessary permissions and has possession of the land, and rights to the biological assets on the land. The timing of the resolution is not certain, but is expected in 2014. The Company continues to hold guarantees and funds in escrow relating to assets purchased in 2011, and believes that these guarantees and funds deposited in escrow are sufficient in the event that a risk surfaces that has not previously been highlighted during the due diligence process (see note 15). Quantification of the liabilities has not been undertaken as the Company believes the risk to be remote.

35

THE FOREST COMPANY LIMITED

NOTES TO THE UNAUDITED CONDENSED CONSOLIDATED INTERIM FINANCIAL STATEMENTS For the six months ended 30 June 2013 21.

MOVEMENT IN SHARE CAPITAL

Share capital at 30 June 2013 amounted to USD 329.5 million (31 December 2012: USD 276.7 million). Transactions in the shares of the Company for the six months ended 30 June 2013 were as follows: 2013

Management Shares of USD 1 each

Redeemable Ordinary Shares of USD 0.10 each

Redeemable Class A Ordinary Shares of USD 0.10 each

Total Shares in issue

At 1 January 2013 Shares issued 26 February 2013 Shares issued 23 May 2013

2 -

12,933,193 206,475 5,404,020

24,191,383 -

37,124,578 206,475 5,404,020

As at 30 June 2013

2

18,543,688

24,191,383

42,735,073

On 26 February 2013, the Company accepted a subscription agreement for USD 2 million with 206,475 Ordinary shares being allotted on 4 March 2013 at a price of USD 9.69 per share. On 23 May 2013, the Company accepted a subscription agreement for USD 52.36 million with 5,404,020 Ordinary shares being allotted on 29 May 2013 at a price of USD 9.69 per share. Of this total, 5,400,557 Ordinary Shares were allotted by the Company to subscribers to its Offering Memorandum dated 20 July 2012 (as updated by the Supplement dated 17 December 2012). The remaining 3,463 Ordinary Shares (the “Bonus Award Shares”) were allotted to Mr Rainer Häggblom, the Chairman of the Board, in accordance with the terms of the Bonus Award Deed dated 9 July 2012. The Bonus Award Shares are held in escrow pending the satisfaction of the Vesting Condition of the Bonus Award Deed. As of 30 June 2013, all of these shares remain in escrow.

22. NET ASSET VALUE 30 Jun 2013

31 Dec 2012

USD

USD'000

USD

USD'000

per share

total

per share

total

IFRS net asset value attributable to holders of redeemable Ordinary and Class A Ordinary shares

8.35

Adjustment for deferred tax duplication Adjustment for notional land lease charge Adjustment for unamortised organisation expenses Adjusted net asset value attributable to redeemable Ordinary and Class A Ordinary shareholders

357,033

9.00

334,177

0.12

5,150

0.17

6,288

0.31

12,948

0.38

14,266

0.13

5,685

0.14

5,072

8.91

380,816

9.69

359,803

36

THE FOREST COMPANY LIMITED

NOTES TO THE UNAUDITED CONDENSED CONSOLIDATED INTERIM FINANCIAL STATEMENTS For the six months ended 30 June 2013 23. OPERATING SEGMENTS The information in this note has been prepared using the definition of an operating segment in IFRS 8: Operating Segments. The Group determines and presents the information that is provided internally to the Board, which has been identified as the chief operating decision maker. The Board reviews the Company’s internal reporting in order to enable them to assess performance and allocate resources and has determined the operating segments based on these reports. As an investment company, the Group’s primary focus is on the performance of its investment portfolio. Whilst there are a number of individual investments included in this portfolio, performance is reviewed for the portfolio as a whole on the basis of its fair value. The Directors believe that the Company and the Group are engaged in a single segment of business of holding investments in timber and timberland, operating from Guernsey, Colombia and Brazil. The information reviewed by the Board does include summarised financial information for each investment in the portfolio.

Segment income and results Sales of product Interest income Unrealised gain on Investment property Realised gain on Financial receivable at fair value through profit or loss Unrealised gain on Forest assets Total for continuing operations Operating expenses Interest expense Share of income from associate Loss before tax from continuing operations

Segment revenue Six months Six months ended ended 30 Jun 2013 30 Jun 2012 USD'000 USD'000

Segment loss/profit Six months Six months ended ended 30 Jun 2013 30 Jun 2012 USD'000 USD'000

15,245 206 -

7,857 570 49

(285) 206 -

2,449 570 49

(7,287)

577 (21,766)

(7,287)

577 (21,766)

8,164

(12,713)

(7,366) (8,944) (3,640) 9

(18,121) (10,920) (2,539) 27

(19,941)

(31,553)

37

THE FOREST COMPANY LIMITED

NOTES TO THE UNAUDITED CONDENSED CONSOLIDATED INTERIM FINANCIAL STATEMENTS For the six months ended 30 June 2013 23. OPERATING SEGMENTS (CONTINUED)

Segment assets Investment property Forest assets Property, plant and equipment Investment in associate Deferred tax assets Other non-current assets

Other assets Total segment and consolidated assets Segment liabilities Interest bearing borrowings Other long term liabilities Deferred tax liability Trade and other payables Provisions Total segment and consolidated liabilities

Guernsey Brazil Colombia Total

Income Period Period ended ended 30 Jun 2013 30 Jun 2012 USD'000 USD'000 2 3 11,589 5,125 3,860 3,299 15,451

8,427

As at 30 Jun 2013 USD'000

As at 31 Dec 2012 USD'000

7,596 312,376 797 2,189 354 14 323,326

9,918 333,868 689 2,194 396 347,065

75,933 399,259

47,148 394,213

13,143 9,521 9,310 9,409 843 42,226

17,934 11,157 10,215 20,040 690 60,036

Non-current assets As at 30 Jun 2013 USD'000 263,716 59,610

As at 31 Dec 2012 USD'000 279,424 67,641

323,326

347,065

24. SUBSEQUENT EVENTS On 16 August 2013 the Company spun-off the charcoal division in Frondosa, creating a new company BioCarbono. As of that date, Frondosa and BioCarbono are independent entities, with the first having its core business in silviculture and harvesting operations and the latter in charcoal production. On 9 September 2013, following completion of Metlife’s due diligence process, the Company, through its subsidiaries, agreed to draw down the USD 15 million term loan. On 20 September 2013 the Directors declared an interim dividend of 3 per cent of the Adjusted Net Asset Value per share as at 31 December 2012 (29 US cents) to be paid on 31 October 2013 to shareholders at the record date of 25 September 2013. A scrip dividend alternative will be available to shareholders. 38