Unaudited)Condensed)Consolidated)Interim)Financial

Jun 30, 2012 · Unaudited)Condensed)Consolidated)Interim)Financial)Statements) For)thesixmonths)ended)30)June)2012! Company)Number:)47338!)))))...

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Unaudited  Condensed  Consolidated  Interim  Financial  Statements   For  the  six  months  ended  30  June  2012                                             Company  Number:  47338                      

THE  FOREST  COMPANY  LIMITED    

    TABLE  OF  CONTENTS     GENERAL  INFORMATION     HIGHLIGHTS     INVESTMENT  MANAGER’S  REPORT     INDEPENDENT  REVIEW  REPORT  TO  THE  DIRECTORS  OF  THE  FOREST   COMPANY  LIMITED     UNAUDITED  CONDENSED  CONSOLIDATED  STATEMENT  OF  FINANCIAL   POSITION     UNAUDITED  CONDENSED  CONSOLIDATED  INCOME  STATEMENT       UNAUDITED  CONDENSED  CONSOLIDATED  STATEMENT  OF   COMPREHENSIVE  INCOME     UNAUDITED  CONDENSED  CONSOLIDATED  STATEMENT  OF  CHANGES  IN   EQUITY     UNAUDITED  CONDENSED  CONSOLIDATED  STATEMENT  OF  CASH   FLOWS     NOTES  TO  THE  UNAUDITED  CONDENSED  CONSOLIDATED  INTERIM   FINANCIAL  STATEMENTS  

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THE  FOREST  COMPANY  LIMITED   GENERAL  INFORMATION    

 

 

 

 

Board  of  Directors           Rainer  Häggblom  (Chairman)     Dr.  Dermot  Smurfit  (non-­‐executive)     Susan  Lloyd  (non-­‐executive)     John  Harald  Örneberg  (non-­‐executive)     Birgitta  Johansson  –  Hedberg  (non-­‐executive)  (retired  6  June  2012)     Dr.  Panu  Kallio  (non-­‐  executive)     Joseph  Ryan  (non-­‐executive)  (appointed  9  July  2012)     Guernsey  Advocates  to  the  Company   Mourant  Ozannes   PO  Box  186   1  Le  Marchant  Street   St  Peter  Port   Guernsey   GY1  4HP       Valuers   Indufor  Oy     Töölönkatu  11A   FI-­‐00100,  Helsinki   Finland       Guernsey  Administrator  and  Company  Secretary  to  the  Company   Heritage  International  Fund  Managers  Limited   Heritage  Hall   PO  Box  225   Le  Marchant  Street   St  Peter  Port   Guernsey   GY1  4HY     Secondary  trading  broker   Pareto  Öhman  AB   Berzelii  Park  9   PO  Box  7415   SE-­‐103  91,  Stockholm,   Sweden         Identifiers:     ISIN:  GG00B4TC8Z57   Sedol:  B4TC8Z5   Ticker:  FCO    

Registered  Office   Heritage  Hall   Po  Box  225   Le  Marchant  Street   St  Peter  Port   Guernsey   GY1  4HY       English  Solicitors  to  the  Company   Lawrence  Graham  LLP   4  More  London  Riverside   London   SE1  2AU     United  Kingdom                                                                                                                     Investment  Manager   Timber  Capital  Limited   2  Reid  Street   Hamilton     HM11   Bermuda     CISX  Sponsor   Heritage  Corporate  Services  Ltd   Heritage  Hall   PO  Box  225   Le  Marchant  Street   St  Peter  Port     Guernsey   GY1  4HY     Independent  Auditor   Deloitte  LLP   PO  Box  137   Regency  Court   Glategny  Esplanade   St  Peter  Port   Guernsey   GY1  3HW     Tax  advisors  to  the  Company     Grant  Thornton  UK  LLP   30  Finsbury  Square   London   EC2P  2YU   United  Kingdom    

Contact  Information   For  more  information,  contact:   Sally-­‐Anne  Baron,  CFO  Timber  Capital  Ltd,  +1  441  295  4737,  [email protected]   Website:  www.theforestcompany.se 3

THE  FOREST  COMPANY  LIMITED   HIGHLIGHTS  

 

FINANCIAL  HIGHLIGHTS  FOR  THE  SIX  MONTHS  ENDED  30  JUNE  2012   •    Revenue   from   continuing   sales   for   the   six   month   period   ended   30   June   2012   was   USD   7.86   million   (2011:  USD  2.86  million),  representing  an  increase  of  175%.    

•  Net   loss   for   the   six   month   period   ended   30   June   2012   amounted   to   USD   31.06   million   (2011:   profit  

USD   12.78   million).       This   includes   an   unrealised   loss   of   USD   21.77   million   on   the   revaluation   of   forest   assets,  of  which  USD  10.27  million  was  a  result  of  a  change  in  the  methodology  used  for  the  calculation   of   the   notional   land   lease   charge   applied   to   the   IFRS   Net   Asset   Value. Other factors such as acquisitions, harvesting, changes in age class structure and costs also contributed to the unrealised loss figure.   Interest   expenses  were  USD  2.54  million  for  the  current  period,  after  drawing  down  on  the  Frondosa  loans late   in  2011.    

•    Gross   profit   for   the   six   month   period   was   USD   2.45   million,   up   44%   compared   to   the   same   period   last   year,   and   operating   expenses   were   USD   10.92   million,   down   28.5%   compared   to   the   same   period   last   year.      

•    Loss   per   share   amounted   to   88.73   cents   based   on   the   weighted   average   number   of   shares   in   issue   over  the  six  month  period  (2011  earnings  per  share:  54.03  cents).  

 

•    On  24  April  2012  The  Forest  Company  declared  a  dividend  of  33.36  cents  per  share  to  be  paid  on  31  

October  2012.     FINANCIAL  POSITION   • The  Adjusted  NAV  as  at  30  June  2012  was  USD  10.02  per  share  cum-­‐dividend  and  USD  9.69  per  share   ex-­‐dividend.  This  is  a  decrease  of   9.9%  on  the  31  December  2012  Adjusted  NAV.    The  IFRS  NAV  as  at   30  June  2012  was  USD  8.92  (31  December  2011:  USD  10.56).     • Total   non-­‐current   assets   fell   to   USD   337.08   million   at   30   June   2012   from   USD   360.28   million   at   31   December   2011,   as   calculated   in   accordance   with   IFRS.   This   drop   was   partly   as   a   result   of   the   increased   notional   land   lease   accrual   as   explained   on   page   7   and   partly   due   to   the   weakening   Brazilian  Reais.       • The   cash   balance   as   at   30   June   2012   was   USD   47.54   million,   up   from   USD   39.51   million   at   31   December  2011.       • The   Company,   through   a   Brazilian   subsidiary,   borrowed   USD   27.21   million   (BRL   50.00   million)   in   November   2011   in   order   to   part   finance   the   Frondosa   project.   These   interest   bearing   borrowings   account  for  USD  23.17  million  of  liabilities.       • The   Company   issued   3,772,549   shares   (2,783,964   Ordinary   Shares   and   988,585   Class   A   Ordinary         Shares)  on  17  February  2012  for  a  gross  consideration  of  USD  33.88  million.  As  at  30  June  2012,  the   Company  had  a  total  of  36,181,159  Ordinary  and  Class  A  Ordinary  Shares  in  issue.  

  POST  BALANCE  SHEET  EVENTS   • On   6   September   2012,   the   repayment   period   of   the   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.     • On   9   July   2012,   the   Company   put   in   place   an   incentive   plan   for   Mr.   Häggblom   in   his   capacity   as   Chairman   of   the   Company   so   that   part   of   the   Chairman’s   compensation   is   structured   as   a   multi-­‐year   retention   package.   It   has   an   effective   monetary   value   of   USD   70,000   per   annum   and   it   is   at   the   Company’s  discretion  as  to  whether  this  is  paid  in  cash  or  shares.  The  Chairman’s  additional  incentive   package  remains  within  the  maximum  annual  expenditure  on  Directors’  fees  as  set  out  in  the  articles  of   the  Company.   4

THE  FOREST  COMPANY  LIMITED   HIGHLIGHTS  (CONTINUED)     POST  BALANCE  SHEET  EVENTS  (CONTINUED)   • On  20  September  2012,  the  Company  entered  into  a  public  deed  to  sell  3,313  ha  of  rural  land  located  in   Minas  Gerais  at  an  agreed  price  of  USD  8.47  million.  A  down  payment  of  USD  2.54  million  (30%)  has   been   received   by   the   Company   with   the   remainder,   less   adjustments   for   use   of   the   remaining   unharvested  land,  to  be  paid  over  a  five  year  period.  Possession  of  the  land  will  transfer  to  the  buyer   over  this  period  as  the  Company  harvests  and  receives  further  payments.  Legal  title  will  be  transferred   at  the  end  of  the  five  years  after  final  payment  has  been  received.    

 



On   24   September   2012,   the   Company   accepted   Subscription   Agreements   totalling   USD   4.5   million   with   shares  to  be  issued  on  27  September  2012  at  a  price  of  USD  9.69  per  share.  

 

INVESTMENT  MANAGER’S  REPORT     I   am   happy   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  2012.       The   IFRS   NAV   per   share   as   at   30   June   2012   was   USD   8.92   and   the   total   IFRS   NAV   was   USD   322.86   million.   This   represents  a  decrease  of  15.53%  on  the  IFRS  NAV  per  share  over  the  period.  The  Adjusted  NAV  of  The  Forest   Company  as  at  30  June  2012  was  USD  350.54  million  (USD  362.61  million  cum-­‐dividend)  and  the  Adjusted  NAV   per   share   was   USD   9.69   (USD   10.02   cum-­‐dividend)   following   accrual   of   the   dividend   declared   on   24   April   2012   and   to   be   paid   on   31   October   2012.   This   represents   a   decrease   of   12.86%   (9.89%   cum-­‐dividend)   on   the   Adjusted  NAV  per  share  over  the  period.       HIGHLIGHTS  FOR  THE  PERIOD     During  the  six  month  period  ended  30  June  2012  the  Company,  with  the  assistance  of  the  Investment  Manager:         • declared  a  third  dividend  to  Shareholders  of  33.36  cents  per  share  payable  on  31  October  2012;       • successfully  completed  another  private  placement,  raising  gross  proceeds  of  USD  33.88  million;       • increased  sales  of  standing  wood  and  charcoal;       • increased  charcoal  production  capacity;     • purchased  further  bare  land  in  Colombia  for  a  potential  future  greenfield  project  and  to  improve  access   to  current  standing  wood  owned  by  the  Company;       • received   FSC   certification   for   the   Colombian   plantations   in   March   2012,   further   demonstrating   our   commitment   to   enhancing   the   environment   that   the   Company   is   operating   in   and   the   product   we   deliver;     • enhanced   the   management   capacity   in   Colombia   through   a   minority   investment   in   Silvotecnia,   the   leading  forest  service  and  management  company  in  Colombia;  and     • further  strengthened  the  financial  expertise  in  the  Company  and  the  Investment  Manager  through  the   appointment  of  Joseph  Ryan  to  the  Board  as  the  Chairman  of  the  Audit  Committee,  in  addition  to  the   expansion   of   the   Investment   Manager’s   finance   team   through   the   hiring   of   an   additional   financial   controller.             5

THE  FOREST  COMPANY  LIMITED   INVESTMENT  MANAGER’S  REPORT  (CONTINUED)     MACRO  ENVIRONMENT  IN  THE  INVESTMENT  REGION     Borrowing  rates  in  Brazil  were  again  trimmed  in  July,  with  some  commentators  expecting  further  cuts  this  year.   Inflation  is  in  general  falling  or  steady,  but  recent  price  surges  for  agricultural  products,  particularly  soy,  may   drive  general  inflation  rates  up  over  the  coming  months.  Record  low  unemployment  is  supporting  domestic       demand,  although  confidence  may  be  waning  due  to  fears  that  Brazil,  like  other  countries,  may  not  be  immune   to  global  economic  problems.  For  now,  it  seems  as  if  some  authorities  may  be  getting  more  comfortable  with  a   weaker   Real   and   the   associated   benefits   of   domestic   competitiveness.   The   current   picture   is   one   of   a   more   balanced,   steady,   development   and   also   of   gradually   increasing   reform   and   privatisations   (such   as   airports),   which,  though  late,  will  serve  to  bring  increased  competitiveness  to  the  country.     Colombia  continues  to  attract  the  focus  of  international  investors  in  South  America  as  the  country  shows  steady   growth,  modest  inflation,  and  lower  interest  rates  than  its  peers.    The  Colombian  Monetary  Policy  Committee   surprised   markets   with   a   25   basis   point   rate   cut   at   the   end   of   July,   showing   a   willingness   to   react   early   to   signs   that   domestic   growth   may   decelerate   as   a   result   of   global   economic   problems.   All   three   core   inflation   measures   improved,   with   average   inflation   now   around   3%,   a   trend   that   is   expected   to   continue.   The   Colombian   government   works   closely   with   businesses   in   creating   and   maintaining   a   good   investment   climate.     Environmental  regulation  is  strong  and  overall  legislation  relatively  predictable.         THE  WOOD  PRODUCT  MARKET   THE  BRAZILIAN  WOOD  PRODUCT  MARKET   Wood   prices   decreased   globally   during   the   first   half   of   2012.   Wood   Resource   Quarterly   reported   the   Global   Sawlog  Price  index  at  USD  82.90/  m3  in  the  second  quarter  of  2012,  which  was  down  6  percent  since  December   2011.  Despite  this,  The  Forest  Company  has  not  experienced  price  reductions  in  the  local  regions  in  which  the   Company  operates,  most  notably  in  the  Kaa  project  where  sales  of  sawlogs  are  significant.  It  is  likely  that  this  is   as  a  result  of  the  change  in  marketing  strategy  to  sell  directly  to  the  end  user  (sawmills)  rather  than  to  wood   traders.  This  has  enabled  the  Company  to  retain  a  large  share  of  the  value  in  the  value  chain.  Prices  for  small   logs  or  pulp  logs  fell  globally  during  the  first  half  of  2012,  especially  within  Europe.  In  Brazil,  however,  prices   remain   unchanged   compared   to   Q4   2011,   except   for   in   Minas   Gerais   where   a   decrease   in   the   charcoal   price   has   also  caused  a  decrease  in  the  small  round  wood  price.     THE  BRAZILIAN  CHARCOAL  MARKET   The  Forest  Company  and  the  Investment  Manager  have  market  charcoal  prices  reported  to  them  on  a  monthly   basis  from  Pöyry.  The  reported  prices  decreased  from  138  BRL/MDC  in  January  to  130  BRL/MDC  in  June.  The   price  decrease  was  mainly  due  to  an  increased  volume  of  plantation-­‐based  charcoal  coming  onto  the  market  at   the   same   time   as   demand   has   been   stabilising   or   decreasing.   The   slow   demand   is   driven   by   the   challenging   European  market  for  pig-­‐iron  producers,  whilst  the  demand  from  the  US  market  is  yet  to  pick  up.  However,  it  is   worth  noting  that  the  price  for  pig-­‐iron,  as  reported  by  Pöyry,  has  increased  since  January  from  442  USD/ton  to   480  USD/ton.  We  believe  that  the  increases  in  pig-­‐iron  prices  during  the  first  half  of  2012  will  trickle  down  and   positively  impact  charcoal  prices.  This,  coupled  with  additional  pig-­‐iron  demand  due  to  come  on  line  in  Minas   Gerais,  will  have  a  positive  impact  on  the  price  as  supply  and  demand  for  plantation-­‐based  charcoal  realigns.    

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THE  FOREST  COMPANY  LIMITED   INVESTMENT  MANAGER’S  REPORT  (CONTINUED)     THE  WOOD  PRODUCT  MARKET  (CONTINUED)   THE  COLOMBIAN  WOOD  PRODUCT  MARKET       In  Colombia  both  sawlog  and  pulplog  prices  were  stable  during  the  first  half  of  2012.  One  of  the  region’s  largest   wood   panel   producers,   Tablemac,   is   now   starting   up   its   new   medium-­‐density   fiberboard   (“MDF”)   mill   and   prices  are  likely  to  increase,  especially  on  small  round  wood.  Some  of  this  price  increase  is  transmitting  to  the   sawlog  prices  as  some  substitution  occurs  between  assortments.  The  price  for  small  roundwood  is  still  around   88,000   COP/m3.   The   packaging   industry,   which   is   the   main   consumer   of   the   saw   wood   in   Colombia,   had   a   difficult  start  to  2012.  This  industry  is  currently  the  main  client  of  the  sawmill  which  the  Company  is  supplying     with  logs.    Despite  this,  the  Company  has  still  managed  to  maintain,  or  slightly  increase,  the  sawlog  price  so  far   this  year  to  152,000  COP/m3.     30  JUNE  2012  FINANCIAL  POSITION     Equity   attributable   to   holders   of   redeemable   Ordinary   Shares   and   Class   A   Ordinary   Shares   decreased   to   USD   322.86   million   (USD   8.92   per   share)   (2011:   USD   342.35   million   (USD   10.56   per   share)).   The   decrease   was   a   result  of  two  main  factors.  Firstly,  it  was  due  to  the  foreign  currency  translation  into  USD.  Secondly,  the  IFRS   NAV  was  reduced  as  a  result  of  a  change  in  the  methodology  of  accounting  for  a  notional  land  lease  accrual  to   ensure  the  accrual  is  reflective  of  market  rents  in  each  location  in  which  the  Company  operates.  The  Company,   in  compliance  with  IFRS,  accrues  for  a  notional  land  lease  charge  where  biological  assets  are  grown  on  owned   land   as   opposed   to   leased   land.   This   accrual   impacts   the   IFRS   NAV   only,   not   the   Adjusted   NAV.   The   Adjusted   NAV   per   share   decreased   to   USD   9.69   (2011:   USD   11.12)   primarily   in   line   with   the   aforementioned   foreign   exchange  movements.  Investors  will  receive  a  dividend  of  33.36  cents  per  share,  as  declared  on  24  April  2012.     Total  non-­‐current  assets  fell  to  USD  337.08  million  at  30  June  2012  from  USD  360.28  million  at  31  December   2011,  with  forest  assets  (land  and  biological  assets)  accounting  for  USD  321.90  million,  of  this.     The  Company  issued  3,772,549  shares  (2,783,964  Ordinary  Shares  and  988,585  Class  A  Ordinary  Shares)  on  17   February  2012  for  a  gross  consideration  of  USD  33.88  million.  As  at  30  June  2012,  the  Company  had  a  total  of   36,181,159  Class  A  Ordinary  Shares  and  Ordinary  Shares  in  issue.     INVESTMENT  PORTFOLIO       The   Company   now   has   five   main   investments,   four   in   Brazil   and   one   in   Colombia.   Following,   you   will   find   details   on   each   of   these   investments.   The   Company   has   made   no   principal   acquisitions   in   the   period,   but   has   made  a  number  of  smaller  strategic  additions  to  its  current  investments  in  Colombia.       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.                       7

THE  FOREST  COMPANY  LIMITED   INVESTMENT  MANAGER’S  REPORT  (CONTINUED)     OTHER  UPDATES     During  the  period  the  Investment  Manager  hired  an  additional  financial  controller  to  the  finance  team.  With  the   current  team,  current  investments  and  pipeline,  we  at  Timber  Capital  remain  confident  in  our  ability  to  deliver   attractive  returns  to  investors.         The  Board  of  The  Forest  Company  has  decided  that  an  Adjusted  NAV  will  be  calculated  semi-­‐annually  as  at  31   December   and   30   June   of   each   year   going   forward.   Full   audited   financial   statements   will   also   continue   to   be   published  as  at  31  December,  and  reviewed  interim  financial  statements  as  at  30  June.  However  the  Company   will  no  longer  publish  an  Adjusted  NAV  as  at  31  March  and  30  September  of  each  year.         Best  regards,           Harald  Örneberg     Chief  Executive  Officer   Timber  Capital  Limited                   28  September  2012                                                                   “THE  RIGHT  TREE,  IN  THE  RIGHT  REGION,  FOR  THE  RIGHT  CUSTOMER”   8

THE  FOREST  COMPANY  LIMITED     AIMARA  PROJECT  

   

 

AIMARA  PROJECT    

Aimara  Project,   Parańa  

 

LOCATION    

PARAŃA  ,  BRAZIL    

YEAR  OF  INVESTMENT    

2008    

OWNERSHIP    

80%    

TOTAL  PROJECT  INVESTMENT    

USD  20  MILLION    

SPECIES    

EUCALYPTUS    

END-­‐USE    

PULPWOOD/  SAWLOGS    

TOTAL  AREA    

2,820  HA  

                                         

PROJECT  DESCRIPTION     The  Aimara  Project  is  located  in  the  Curitiba  region  of  Parańa  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  will  be  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.       The  Company  is  in  the  process  of  applying  for  FSC  certification  in  relation  to  the  Aimara  project.     HIGHLIGHTS  FOR  THE  PERIOD     The   Company   triggered   the   financial   asset   receivable   for   the   sale   of   standing   pine   trees   back   to   Klabin   and   consequently  received  the  amount  of  USD  7.89  million  (BRL  14.73  million)  on  15  April  2012.    

 

                    9

THE  FOREST  COMPANY  LIMITED   IBIRACU  PROJECT         IBIRACU  PROJECT  

Ibiracu  Project,   Minas  Gerais  

 

 

LOCATION    

MINAS  GERAIS,  BRAZIL    

YEAR  OF  INVESTMENT    

2008    

OWNERSHIP    

100%    

TOTAL  PROJECT  INVESTMENT    

USD  42  MILLION    

SPECIES    

 EUCALYPTUS    

END-­‐USE    

BIOCARBON  FOR  PIG-­‐IRON   PRODUCTION    

TOTAL  AREA    

11,478  HA    

    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.       The  Company  has  obtained  FSC  certification  for  Ibiracu.       HIGHLIGHTS  FOR  THE  PERIOD     The  Company  replanted  an  area  of  Compostela  in  the  six  month  period  as  a  result  of  below  standard  planting  by   a  prior  service  provider.  The  replanted  area  will  ensure  the  maintenance  of  the  growth  yield  expected  by  the   Company  and  a  higher  quality  wood  product.      

                   

10

THE  FOREST  COMPANY  LIMITED   ANTIOQUIA  PROJECT   VENEZUELA

ANTIOQUIA    PROJECT    

PANAMA

VENEZUELA

Antioquia  Project  

OCEANA  PACIFICA

BOGOTA

ECUDADOR

LOCATION    

ANTIOQUIA  REGION,   COLOMBIA  

YEAR  OF  INVESTMENT    

2010  

OWNERSHIP    

90%    

TOTAL  PROJECT  INVESTMENT    

USD  34.6  MILLION    

SPECIES    

 PINE    

END-­‐USE    

SAW  LOGS  /  WOOD  BASED   PANELS  

BRAZIL

  PERU   TOTAL  AREA     10,852  HA       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   wood-­‐ based  panel  manufacturer  with  existing  plantation  assets,  through  a  jointly-­‐owned  project  company,  in  which   The   Forest   Company   holds   a   90%   stake.   The   Forest   Company   initially   contributed   USD   16.88   million   and   the   joint   venture   acquired   a   99.83%   equity   interest   in   Reforestadora   el   Guasimo   S.A.   (“El   Guasimo”),   an   existing   Colombian  forestry  company.       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   Forest   Company   contributed   USD   17.69   million   towards   this   expansion.   The   land   and   biological   assets   are   managed   with  the  El  Guasimo  property.       HIGHLIGHTS  FOR  THE  PERIOD     The  Company  received  FSC  certification  for  the  Antioquia  project  in  March  2012.         The  Company  purchased  a  small  farm  of  247  ha  in  the  region  that  is  key  to  providing  improved  access  to  the   Angostura  plantations.  The  Company’s  long  term  supply  off-­‐take  agreement  with  Cotopaxi  is  now  in  effect  and   the   Company   is   negotiating   with   the   principal   client   to   start   supplying   round   logs   with   bark   instead   of   de-­‐ barked  logs,  which  will  decrease  production  costs  significantly.       The   Company   continued   to   construct   bridges   and   build   roads   steadily   to   facilitate   harvesting   and   replanting   on   a  sustainable  basis.       During   the   period   the   Company   purchased   a   further   4,256   ha   of   bare   land   in   the   Vichada   region   of   eastern   Colombia.  This  land  will  potentially  be  used  for  a  future  greenfield  project  in  the  region  and  it  is  not  included  in   the  summary  statistics  above.    

     

11

THE  FOREST  COMPANY  LIMITED     KAA  PROJECT  

   

 

KAA  PROJECT    

Kaa  Project,   Parańa  

 

LOCATION    

PARAŃA  ,  BRAZIL    

YEAR  OF  INVESTMENT    

2011    

OWNERSHIP    

100%    

TOTAL  PROJECT  INVESTMENT    

USD  20  MILLION    

SPECIES    

PINE    

END-­‐USE    

PULPWOOD/  SAWLOGS    

TOTAL  AREA    

2,012  HA  

                                         

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   Company   acquired   concessions   over   the   land   and   an   option   to   acquire   the   underlying   land,   should   legal   restrictions  on  foreign  ownership  be  lifted.  The  total  investment  in  the  project  is  approximately  USD  20  million.   The   total   harvestable   volume   of   wood   from   the   property   was   716,000m3solid   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   has   expanded   the   wood   sales   made   in   2011   and   is   now   selling   to   a   number   of   local   buyers   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.    

   

12

THE  FOREST  COMPANY  LIMITED     FRONDOSA  PROJECT  

   

 

FRONDOSA  PROJECT    

Frondosa   Project,  Minas   Gerais  

 

LOCATION    

MINAS  GERAIS,  BRAZIL    

YEAR  OF  INVESTMENT    

2011    

OWNERSHIP    

100%    

TOTAL  PROJECT  INVESTMENT    

USD  155  MILLION    

SPECIES    

EUCALYPTUS    

END-­‐USE    

CHARCOAL/  BIOCARBON    

TOTAL  AREA    

32,157  HA  

                                         

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.       The   Company   agreed   to   acquire   concessions   over   the   land   and   an   option   to   acquire   the   underlying   land,   should   legal  restrictions  on  foreign  ownership  be  lifted,  with  a  total  land  area  of  32,157  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.  The  Company,  through  Frondosa,  drew  down  on  a  credit  facility  for  a  total  amount  of  BRL  50.00  million   to  part  finance  the  second  close.     As  a  part  of  the  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  also  entered  into   an  industrial  facility  lease  agreement  with  the  sellers  to  lease  back  the  pig-­‐iron  mill  for  a  period  of  two  years.   The  Company  paid  60%  of  the  appraised  value  of  the  pig-­‐iron  mill  assets  and  surface  rights  assets,  and  a  share   of  any  profit  on  disposal  will  go  to  the  original  seller,  if  the  assets  can  be  disposed  of  by  November  2013.  The   Company’s  off-­‐take  agreement  to  supply  charcoal  to  the  pig-­‐iron  facility  is  now  in  effect.         HIGHLIGHTS  FOR  THE  PERIOD     In   January   2012   the   Company   began   to   supply   charcoal   to   the   Frondosa   pig-­‐iron   mill.   During   the   period   the   Company,  through  Frondosa,  has  also  been  contracted  to  supply  two  other  regional  parties  with  charcoal  and  is   currently  negotiating  further  sales  and  increasing  the  volume  of  current  contracts.       Charcoal   production   capacity   is   currently   being   increased   and   production   efficiencies   are   being   reviewed.   Planning  work  for  FSC  certification  has  begun.  Negotiations  and  efforts  to  sell  the  pig-­‐iron  mill  continue.           The   total   reported   hectares   of   the   Frondosa   project   increased   by   216   ha   in   the   period   as   a   result   of   final   georeferencing  results,  despite  no  acquisitions.    

13

THE  FOREST  COMPANY  LIMITED   INDEPENDENT  REVIEW  REPORT  TO  THE  DIRECTORS  OF  THE  FOREST  COMPANY  LIMITED       We   have   been   engaged   by   the   Company   to   review   the   unaudited   condensed   consolidated   interim   financial   statements  (the  “Interim  Financial  Report”)  for  the  six  month  period  ended  30  June  2012  which  comprise  the   unaudited   condensed   consolidated   statement   of   financial   position,   income   statement,   statement   of   comprehensive  income,  statement  of  changes  in  equity,  and  statement  of  cash  flows  and  the  related  notes  1  to   25.   We   have   read   the   other   information   contained   in   the   Interim   Financial   Report   and   considered   whether   it   contains  any  apparent  misstatements  or  material  inconsistencies  with  the  information  therein.     This  report  is  made  solely  to  the  Company  in  accordance  with  International  Standard  on  Review  Engagements   2410  (UK  &  Ireland)  “Review    of  Interim  Financial  Information  Performed  by  the  Independent  Auditor  of  the   Company”  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   them   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”.     Our  responsibility   Our   responsibility   is   to   express   to   the   Company   a   conclusion   on   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  Interim  Financial  Report,  which  is  not  modified,  we  draw  attention  to   the  critical  judgements  made  in  the  valuation  of  biological  and  land  assets  as  disclosed  in  note  2  to  the  Interim   Financial  Report.     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  331.57  million  (31   December  2011:  USD  352.62  million).       The   valuations   reflect   the   impact   of   key   inputs   in   respect   of   future   events,   in   particular   the   estimated   future   woodflow   at   current   market   prices;   and   including   the   effects   of   the   elected   Brazilian   tax   regime   as   discussed   further  below.   Note  2  to  the  Interim  Financial  Report  explains  the  progress  the  Company  has  made  during  the  period  to  help   mitigate   this   risk   by   establishing   a   customer   base   for   the   estimated   woodflow   assumed   in   the   valuations   for   projects  acquired  in  2011.   It  is  not  possible  to  quantify  a  realistic  range  of  any  changes  in  the  estimated  woodflow  and  the  consequential   impact  on  the  valuation  of  biological  and  land  assets.  

14

THE  FOREST  COMPANY  LIMITED   INDEPENDENT  REVIEW  REPORT  TO  THE  DIRECTORS  OF  THE  FOREST  COMPANY  LIMITED   Emphasis  of  matter  –  taxation  of  unrealised  gains  in  biological  and  land  assets   In  forming  our  review  conclusion  on  the  Interim  Financial  Report,  which  is  not  modified,  we  draw  attention  to   the  critical  judgements  made  in  regards  to  the  future  evolution  of  the  application  of  the  Brazilian  tax  rules  for   the  valuation  of  biological  and  land  assets  and  calculation  of  deferred  tax  thereon  as  explained  in  note  2  to  the   Interim   Financial   Report.   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  150.71  million   (31   December   2011:   USD   164.56   million)   are   USD   9.78   million   (31   December   2011:   USD   10.77   million)   reflecting  the  uncertain  assumption  that  the  tax  system  of  Lucro  Presumido  (a  revenue  based  tax)  will  remain   available  to  the  Company  and  potential  purchasers  for  all  Brazilian  projects.   It  is  not  possible  to  quantify  a  realistic  estimate  of  the  consequences  of  any  change  in  the  assumption  of  taxation   in  Brazil.   Conclusion   Based   on   our   review,   nothing   has   come   to   our   attention   that   causes   us   to   believe   that   the   Interim   Financial   Report  for  the  six  month  period  ended  30  June  2012  is  not  prepared,  in  all  material  respects,  in  accordance  with   International  Accounting  Standard  34  “Interim  Financial  Reporting”.         Deloitte  LLP   Chartered  Accountants   Guernsey  

15

THE  FOREST  COMPANY  LIMITED   UNAUDITED  CONDENSED  CONSOLIDATED  STATEMENT  OF  FINANCIAL  POSITION   As at 30 June 2012         ASSETS:   Non-­‐current  assets   Forest  assets   Land   Biological  assets   Investment  property   Property,  plant  and  equipment   Investment  in  associates   Financial  receivable  at  fair  value  through  profit  or  loss   Deferred  tax  asset   Other  non-­‐current  assets   Total  non-­‐current  assets     Current   assets   Non-­‐current  assets  held  for  sale   Financial  receivable  at  fair  value  through  profit  or  loss   Inventory   Trade  and  other  receivables   Cash  and  cash  equivalents   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   Total  current  liabilities    TOTAL  LIABILITIES   Net  assets    

  Notes                               6       6       7       8       9       11       16                               10       11       12       13       14                                           15       16       17                        

      15   18          

                       

30  Jun  2012   USD'000               106,946     214,954     9,671     2,713     2,200     -­‐     333     262     337,079           15,414       -­‐     575     5,588     47,535     69,112       406,191         (697)     (9,779)     (8,831)     (19,307)    

(23,638)   (40,391)   (64,029)   (83,336)   322,855  

 

     

                       

31  Dec  2011   USD'000               104,311     241,895     6,411     6,774     -­‐     -­‐     444     442     360,277           16,248       7,589     1,784     3,180     39,506     68,307       428,584         (11,335)     (10,773)     (17,989)     (40,097)    

(15,870)   (30,264)   (46,134)   (86,231)   342,353  

30  Jun  2011   USD'000  

 

    47,827   98,229   1,759   1,113   -­‐   7,487   579   -­‐   156,994     -­‐     -­‐   1,763   7,725   133,685   143,173  

     

                       

300,167  

-­‐   (8,177)   (2,864)   (11,041)  

-­‐   (14,464)   (14,464)   (25,505)   274,662  

           

16

THE  FOREST  COMPANY  LIMITED   UNAUDITED  CONDENSED  CONSOLIDATED  STATEMENT  OF  FINANCIAL  POSITION   As at 30 June 2012   (CONTINUED)         Equity   Share  capital   Share  premium   Revaluation  reserve   Foreign  currency  translation  reserve   Accumulated  profit   Equity  attributable  to  holders  of  redeemable   Ordinary  Shares  and  Class  A  Ordinary  Shares    Number  of  redeemable  Ordinary  Shares  in  issue  at   period  end   Number  of  redeemable  Class  A  Ordinary  Shares  in   issue  at  period  end    

  Notes                   20                              

30  Jun  2012   31  Dec  2011   USD'000     USD'000     3,618       3,241     264,046   243,366   44,633     39,093   (44,648)     (29,616)   55,206     86,269     322,855  

   

   

     

 

 

 

   

    21  

   

30  June  2011     USD'000         3,016     230,285     4,316     15,871     21,174    

342,353        

12,566,461  

274,662        

9,782,497  

10,157,012  

 

 

23,614,698   36,181,159       $8.92      

22,626,113   32,408,610       $10.56      

20,000,000   30,157,012  

Net  asset  value  per  redeemable  Ordinary  and  Class  A   Ordinary  Share   $9.11                 The   condensed   consolidated   interim   financial   statements   were   approved   by   the   Board   of   Directors   on   28   September   2012  and  signed  on  their  behalf  by:             Director   28  September  2012

17

THE  FOREST  COMPANY  LIMITED   UNAUDITED  CONDENSED  CONSOLIDATED  INCOME  STATEMENT   For  the  period  ended  30  June  2012         Income   Revenue   Cost  of  sales   Gross  profit    Unrealised  gain  on  investment  property   Unrealised  (loss)/gain  on  forest  assets   Unrealised  gain  on  financial  receivable  at  fair  value  through   profit  or  loss   Realised  gain  on  financial  receivable  at  fair  value  through  profit   or  loss       Operating   expenses   Investment  management  fees   Investment  management  performance  fees  accrued   Legal  and  professional  expenses   Fundraising  costs  written  off   Administration  fees   Revaluation  loss  on  property,  plant  and  equipment   Directors'  fees  and  expenses   Other  taxes  not  on  income   Other  fees  and  expenses   Total  expenses     Operating   (loss)/profit   Interest  income  on  bank  deposits   Interest  expense   Share  of  income    from  associate   (Loss)/Profit  before  tax     Taxation   credit/(charge)    (Loss)/Profit  for  the  period/year  from  continuing   operations     Profit   for  the  period/year  from  discontinued  operations     (Loss)/Profit   for  the  period/year    (Loss)/Profit  attributable  to:   Holders  of  redeemable  Ordinary  Shares  and  Class  A  Ordinary   Shares     (Loss)/Earnings   per  share  -­‐  Basic  and  Diluted  (US  cents)   From  continuing  operations   From  discontinued  operations    

                 

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

    Notes   3       7     6   11  

  11                                        

          22       8       23             9  

       

    4  

             

             

 

 

         

    5   5  

 

 

   

Jan  -­‐  Jun   Jan  -­‐  Dec     2011     2011     USD'000     USD'000     2,858     3,854       (1,163)   (2,408)     1,695     1,446         49       612       552       (21,766)   21,085   112,720       -­‐   56   1,472       577   -­‐   -­‐       (18,691)   23,448   116,190                  2,889           1,536   3,751   -­‐     3,315     16,851   2,439     3,934     6,712   -­‐     1,061     3,664   629     515     837   1,612     -­‐     -­‐   187     226     387   232     776     3,263     2,932   3,911     3,345   10,920     15,274     38,810                 (29,611)   8,174   77,380       570   1,048   3,042   (2,539)     -­‐     (530)   27     -­‐     -­‐       (31,553)   9,222   79,892         490           3,560   (2,181)               (31,063)   12,782   77,711       -­‐       -­‐       166         (31,063)             (31,063)    

      12,782             12,782    

    (88.73)   -­‐   (88.73)  

    54.03   -­‐   54.03  

         

         

  77,877       77,877       281.29   0.60   281.89  

18

THE  FOREST  COMPANY  LIMITED   UNAUDITED  CONDENSED  CONSOLIDATED  STATEMENT  OF  COMPREHENSIVE  INCOME   For  the  period  ended  30  June  2012               (Loss)/Profit   for  the  period/year     Other   comprehensive  (loss)/income  net  of  income  tax   Foreign  currency  translation  differences   Revaluation  of  property,  plant  and  equipment     Total   comprehensive  (loss)/income  for  the  period/year      Total  comprehensive  (loss)/income  attributable  to:   Holders  of  redeemable  Ordinary  Shares  and  Class  A   Ordinary  Shares  

                           

    Notes  

 

 

                     

Jan  -­‐  Jun   2012     USD'000       (31,063)                 (15,032)     5,540         (40,555)                 (40,555)    

Jan  -­‐  Jun   2011     USD'000       12,782              8,258     3,668           24,708                 24,708    

Jan  -­‐  Dec   2011   USD'000   77,877         (37,229)   38,445     79,093         79,093  

19

THE  FOREST  COMPANY  LIMITED   UNAUDITED  CONDENSED  CONSOLIDATED  STATEMENT  OF  CHANGES  IN  EQUITY   For  the  period  ended  30  June  2012         Share       capital   Notes   USD'000     3,241    

   2012    As  at  1  January  2012   Total  comprehensive  income  for   the  period   Loss  for  the  period   Other  comprehensive  income   Currency  translation  loss   Revaluation  surplus   Deferred  tax  on  revaluation  

 

-­‐    

             

-­‐     -­‐   -­‐       -­‐  

     

-­‐    

-­‐    

(31,063)    (31,063)  

-­‐     -­‐   -­‐      

-­‐     (15,032)     5,806   -­‐   (266)   -­‐          

-­‐    (15,032)   -­‐   5,806   -­‐   (266)      

-­‐  

5,540  

377     33,501     -­‐   (751)   -­‐   (12,070)   377   20,680  

18        

   

   

 

(15,032)  

(31,063)  

(40,555)  

-­‐     -­‐   -­‐   -­‐  

-­‐     -­‐   -­‐   -­‐  

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

   

   

    55,206   322,855  

   

3,618  

264,046  

    Share       capital     USD'000     2,214  

   2011  

44,633  

(44,648)  

Currency     Share     Revaluation     translation   Accumulated     premium   reserve   reserve   deficit   Total     USD'000   USD'000   USD'000   USD'000   USD'000   166,640   648   7,613   8,392   185,507  

     

-­‐    

-­‐    

-­‐    

-­‐    

12,782     12,782  

             

-­‐     -­‐   -­‐      

-­‐     -­‐   -­‐      

-­‐     7,057   (3,389)      

8,258     -­‐   -­‐      

-­‐     8,258   -­‐   7,057   -­‐   (3,389)      

-­‐  

-­‐  

 

 

3,668  

8,258  

12,782  

24,708  

 

Total  transactions  with  owners       at  30  June  2011   As  

-­‐    

 

   As  at  30  June  2012    

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

     

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

 As  at  1  January  2011   Total  comprehensive  income   for  the  period   Profit  for  the  period   Other  comprehensive  income   Currency  translation  loss   Revaluation  surplus   Deferred  tax  on  revaluation  

Currency       Revaluation   translation   Accumulated     reserve   reserve   profit   Total     USD'000   USD'000   USD'000   USD'000   39,093   (29,616)   86,269   342,353  

Share     premium   USD'000   243,366  

       

802      -­‐  

65,942     (2,297)  

-­‐     -­‐  

-­‐     -­‐  

-­‐     66,744   -­‐   (2,297)  

802  

63,645  

-­‐  

-­‐  

-­‐  

   

   

     

3,016  

    230,285  

    4,316  

    15,871  

64,447  

    21,174   274,662   20

THE  FOREST  COMPANY  LIMITED   UNAUDITED  CONDENSED  CONSOLIDATED  STATEMENT  OF  CASH  FLOWS   For  the  period  ended  30  June  2012          Cash  flows  from  operating  activities  

        (Loss)/Profit  for  the  period/year     Adjustments  for:     Unrealised  gain  on  investment  property     Unrealised  loss/(gain)  on  forest  assets   Unrealised  gain  on  financial  receivable  at  fair  value  through  profit  or  loss     Taxation   Revaluation  loss  on  property,  plant  and  equipment   Decrease/(Increase)  in  inventory   (Increase)/Decrease  in  trade  receivables   (Decrease)/Increase  in  trade  payables   Cashflow  from  operating  activities  before  tax   Tax  paid   Net  cash  from  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   Cost  capitalised  to  forest  assets   Net  cash  used  in  investing  activities     Cash   flow  from  financing  activities   Proceeds  from  issue  of  shares   Issue  costs  paid   Future  fundraising  costs  paid   Proceeds  from  interest  bearing  borrowings   Repayment  of  interest  bearing  borrowings   Dividends  paid   Net  cash  from  financing  activities    Net  increase/(decrease)  in  cash  and  cash  equivalents  during  the   period/year    Cash  and  cash  equivalents  at  the  beginning  of  the  period/year    Effects  of  changes  in  foreign  currency    Cash  and  cash  equivalents  at  the  end  of  the  period/year        

                           

                                       

 

   

   

         

Jan  -­‐  Jun   2012     USD'000             (31,063)     (49)     21,766     (577)     (490)     1,612     1,209     (2,408)     (2,617)     (12,617)     (429)     (13,046)         (250)     (2,863)     (14,154)     (2,173)      

Jan  -­‐  Jun   2011     USD'000       12,782       (612)     (21,141)     -   (3,560)     -   (436)     951     7,737     (4,279)     (273)     (4,552)         -­‐     (5,190)     (29,424)     -­‐      

7,889   -­‐     (11,551)         33,878     (751)     -­‐     1,165     (4,035)     -­‐     30,257         5,660   39,506      

-­‐   (3,511)     (38,125)         66,744     (1,661)     (425)     -­‐     -­‐     -­‐     64,658         21,981   112,335      

  2,369       47,535      

Jan  -­‐  Dec   2011   USD'000    

77,877  

 

(552)   (112,720)   (1,472)   2,181   (457)   2,701   24,159   (8,283)   (1,080)   (9,363)  

   

(20,129)   (7,754)   (132,399)   -­‐   -­‐   (8,856)   (169,138)  

   

85,259   (2,123)   (3,042)   27,205   -­‐   (5,012)   102,287  

  (76,214)    

112,335  

  (631)             133,685      

3,385   39,506  

21

THE  FOREST  COMPANY  LIMITED   NOTES  TO  THE  UNAUDITED  CONDENSED  CONSOLIDATED  INTERIM  FINANCIAL  STATEMENTS   For  the  period  ended  30  June  2012   1. GENERAL  INFORMATION     The  information  relating  to  the  year  ended  31  December  2011  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  2011.       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   2011.   The   annual   financial   statements   have   been   prepared  in  accordance  with  International  Financial  Reporting  Standards  (IFRS).     Going  concern   During  the  prior  year  the  Company  successfully  raised  gross  proceeds  of  USD  85.26  million  through  two  private   placements   and   to   date   the   Investment   Manager   has   committed   a   significant   portion   of   the   proceeds,   with   a   focus   on   investing   in   standing   timber   to   build   the   Group’s   free,   short-­‐term   cash   flow.   During   the   period   the   Company  closed  its  fourth  private  placement  raising  a  further  USD  33.88  million.     The  Board  has  made  enquiries  and  examined  the  Group’s  cash  forecasts,  including  restricted  cash,  borrowings   and   covenants   under   various   scenarios   and   assumptions.   Having   acquired   significant   levels   of   mature   plantations  during  the  prior  year,  the  Company  will  continue  to  develop  markets  for  wood  and  wood  products   in   order   for   sales   to   meet   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.    

22

THE  FOREST  COMPANY  LIMITED   NOTES  TO  THE  UNAUDITED  CONDENSED  CONSOLIDATED  INTERIM  FINANCIAL  STATEMENTS   For  the  period  ended  30  June  2012   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  financial  year   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   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   properties.   The   valuations   are   based   on   certain   assumptions   concerning   growth   rates,   prices,   forecast   woodflow   realizations   and   costs,   and   future   eligibility   for   current  tax  rates  of  the  Company  and  potential  purchasers  of  the  Company’s  assets,  and  are  sensitive   to  changes  in  these  assumptions.   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  2012.     Following  the  acquisition  of  the  majority  of  the  Company’s  biological  and  land  assets  in  2011,  progress  has  been   made   in   2012   to   establish   customers   for   the   woodflow.   Management   continue   to   work   on   establishing   a   customer  base  to  meet  the  level  of  woodflow  estimated  in  the  valuations.        

23

THE  FOREST  COMPANY  LIMITED   NOTES  TO  THE  UNAUDITED  CONDENSED  CONSOLIDATED  INTERIM  FINANCIAL  STATEMENTS   For  the  period  ended  30  June  2012    

2. ACCOUNTING  POLICIES  (CONTINUED)     Critical  accounting  judgements  and  estimation  uncertainties  (continued)     Key  sources  of  estimation  uncertainties   Changes   in   exchange   rates   can   impact   the   financial   results   as   the   Company   has   operations   and   assets   in   jurisdictions  which  use  currencies  other  than  the  United  States  Dollar  (“USD”).         The   Company   is   also   exposed   to   the   risk   of   fluctuations   in   the   value   of   investment   properties,   forestry   assets   and  plant  held  at  fair  value.       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  2012.     Foreign  exchange  rates   The  exchange  rates  used  in  these  financial  statements  relative  to  the  USD  are  as  follows:   Jan  -­‐  Jun  2012   Jan  -­‐  Jun  2011   Jan  -­‐  Dec  2011     Closing   Average       Closing   Average       Closing   Average       Currency   rate   rate   rate   rate   rate   rate   Brazilian  Reais  (BRL)   2.0094   1.8666   1.5633   1.6311   1.8669   1.6742   Euro  (EUR)   0.789   n/a   0.689   n/a   0.717   n/a   Sterling  (GBP)   0.637   n/a   0.622   n/a   0.623   n/a   Colombian  Pesos  (COP)   1,783.8   1,792.3   1,770.8   1,836.8   1,938.5   1,847.5     Accounting  policies  adopted  during  the  period     Investment  in  associates   The  Group’s  investments  in  associates  are  accounted  for  using  the  equity  method  of  accounting.  Associates  are   entities  in  which  the  Group  exercises  significant  influence  and  which  are  neither  subsidiaries  nor  joint  ventures.   Under   the   equity   method,   investments   in   associates   are   initially   carried   in   the   statement   of   financial   position   at   cost.   Subsequently,   the   investments   in   associates   are   carried   at   cost   plus   post-­‐acquisition   changes   in   the   Group’s   share   of   the   reserves   of   the   associates   less   dividends   received   from   the   associates.   The   statement   of   comprehensive  income  reflects  the  share  of  the  results  of  operations  of  the  associates  attributable  to  the  Group.       Where  there  has  been  a  change  recognised  directly  in  the  equity  of  the  associate,  the  Group  recognises  its  share   of  any  changes  and  discloses  this,  when  applicable,  in  the  statement  of  changes  in  equity.  Unrealised  gains  and   losses   resulting   from   transactions   between   the   Group   and   the   associate   are   eliminated   to   the   extent   of   the   interest  in  the  associate.    

24

THE  FOREST  COMPANY  LIMITED   NOTES  TO  THE  UNAUDITED  CONDENSED  CONSOLIDATED  INTERIM  FINANCIAL  STATEMENTS   For  the  period  ended  30  June  2012    

3. ACCOUNTING  POLICIES  (CONTINUED)     Accounting  policies  adopted  during  the  period  (continued)     Investment  in  associates  (continued)   After  application  of  the  equity  method,  the  Group  determines  whether  it  is  necessary  to  recognise  an  additional   impairment   loss   on   the   Group’s   investment   in   its   associates.   The   Group   determines   at   each   reporting   date   whether  there  is  any  objective  evidence  that  the  investment  in  the  associate  is  impaired.  If  this  is  the  case  the   Group  calculates  the  amount  of  impairment  as  the  difference  between  the  recoverable  amount  of  the  associate   and  its  carrying  value  and  recognises  the  amount  in  profit  or  loss.     Upon   loss   of   significant   influence   over   the   associate,   the   Group   measures   and   recognises   any   retaining   investment  at  its  fair  value.  Any  difference  between  the  carrying  amount  of  the  associate  upon  loss  of  significant   influence,  and  the  fair  value  of  the  retaining  investment  and  proceeds  from  disposal,  is  recognised  in  profit  or   loss.     Debt  factoring     During  the  period  the  Group  entered  into  a  debt  factoring  agreement  for  invoices  relating  to  a  three  year  timber   sales  contract  from  its  Colombian  operations.  As  part  of  this  agreement  the  Group  received  an  advance  on  the   sales  contract  from  the  factoring  agent  which  will  be  repaid  by  settlement  of  the  timber  invoices  over  a  period   of  34  months.     Revenue  relating  to  these  invoices  will  be  recognised  in  accordance  with  the  Group’s  revenue  accounting  policy   whilst   the   advance   received   has   been   classified   as   an   interest   bearing   borrowing   and   accounted   for   in   accordance  with  the  Group’s  policy  on  interest  bearing  borrowings.    

  3.   REVENUE  

      Sales  -­‐  harvested  timber   Sales  -­‐  standing  trees   Sales  -­‐  charcoal   Lease  income    

Jan  -­‐  Jun   2012   USD'000   3,299   154   3,419   985   7,857  

               

Jan  -­‐  Jun   2011   USD'000   2,858   -­‐   -­‐   -­‐   2,858  

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.     In   January   2012   the   Company   began   to   supply   charcoal   to   the   Frondosa   pig-­‐iron   mill.   During   the   period   the   Company,  through  Frondosa,  has  also  been  contracted  to  supply  two  other  regional  parties  with  charcoal  and  is   currently  negotiating  further  sales  and  increasing  the  volume  of  current  contracts.  

25

THE  FOREST  COMPANY  LIMITED   NOTES  TO  THE  UNAUDITED  CONDENSED  CONSOLIDATED  INTERIM  FINANCIAL  STATEMENTS   For  the  period  ended  30  June  2012  

  4.   TAXATION

Current  tax   Brazil   Colombia  

     

                       

  Deferred  tax   Brazil   Colombia      

Jan  -­‐  Jun   2012     USD'000       295     (9)     286    

Jan  -­‐  Jun   2011   USD'000  

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

(2,830)   (1,079)   (3,909)   (3,560)  

  5.   BASIC  AND  DILUTED  EARNINGS  PER  ORDINARY  AND  CLASS  A  ORDINARY  SHARE     Basic  and  diluted  earnings  per  share  is  based  on  the  following  data:       Jan  -­‐  Jun     2012       (Loss)/Profit   for  the  period/year     USD'000     From  continuing  operations     (31,063)     From  discontinuing  operations                                                -­‐               (31,063)             Average  number  of  issued  shares  ('000s)       Basic   and  diluted  (loss)/earnings  per  share     From  continuing  operations   From  discontinuing  operations      

               

35,008         Jan  -­‐  Jun     US  cents     (88.73)                                                -­‐           (88.73)    

Jan  -­‐  Jun   2011   USD'000   12,782   -­‐   12,782    

308   41   349  

         

Jan  -­‐  Dec   2011   USD'000   77,711   166   77,877  

23,658     Jan  -­‐  Jun   US  cents   54.03   -­‐  

    27,627         Jan  -­‐  Dec     US  cents     281.29   0.60     54.03   281.89    

26

THE  FOREST  COMPANY  LIMITED   NOTES  TO  THE  UNAUDITED  CONDENSED  CONSOLIDATED  INTERIM  FINANCIAL  STATEMENTS   For  the  period  ended  30  June  2012  

  6.     FOREST  ASSETS  

  The  table  below  details  the  movements  in  forest  assets  for  the  six  months  ended  30  June  2012.   Land*   Plantations    2012       USD'000   USD'000       Cost:       Opening  balance   73,278       137,369     Land  and  Plantation  costs  capitalised   575     2,989       Closing  balance   73,853   140,358   Fair  value  movements:   Opening  balance   Decrease  in  fair  value  of  plantations   Revaluation  surplus    

           

40,157   -­‐   7,917  

           

124,222   (21,766)   -­‐  

Total     USD'000         210,647     3,564     214,211         164,379     (21,766)     7,917     150,530  

Closing  balance   48,074   102,456         Accumulated  effect  of  foreign  exchange  movement  on   translation   (14,981)   (27,860)   (42,841)         Fair  value  of  forest  assets   106,946   214,954   321,900         *Includes  leased  and  owned  land     The   Group’s   forest   assets   were   revalued   at   30   June   2012   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  5.67%  to  6.30%  (31  December  2011:  5.83%  to   5.93%).  

  7.     INVESTMENT  PROPERTY  

  The  table  below  details  the  movements  in  investment  property  for  the  six  months  ended  30  June  2012.   30  Jun  2012   31  Dec  2011         USD'000   USD'000    Cost:         Opening  balance   4,639       4,802         Additions   2,863   6,474     Transfer  to  forest  assets   -­‐     (6,130)     Reclassification  to    Property  plant  and  equipment   -­‐     (507)       Closing  balance   7,502   4,639       Fair  value  movements:       Opening  balance   179       (181)     Transfer  to  forest  assets   -­‐     (192)       Increases  in  fair  value  of  investment  property   49   552     Closing  balance   228     179       Accumulated  effect  of  foreign  exchange  movement  of  translation   1,941   1,593     Fair  value  of  investment  properties   9,671     6,411         The  Group’s  investment  properties  were  valued  at  30  June  2012  by  professional  qualified  valuers,  Indufor.       27

THE  FOREST  COMPANY  LIMITED   NOTES  TO  THE  UNAUDITED  CONDENSED  CONSOLIDATED  INTERIM  FINANCIAL  STATEMENTS   For  the  period  ended  30  June  2012  

  8.     MOVEMENT  IN  PROPERTY,  PLANT  AND  EQUIPMENT  BALANCES    

   Cost/Valuation   Accumulated  Depreciation   Balance  as  at  1  January  2012   Movements   Assets  acquired  in  the  year   Depreciation  for  the  year   Revaluation  reversal   Revaluation  loss  charged  to  the  income   statement   Foreign  exchange  effect   Balance  as  at  30  June  2012  

Buildings   USD'000   864   (59)  

Carbonisation  assets   Equipment   Total   USD'000   USD'000   USD'000   5,689   375   6,928   -­‐   (95)   (154)  

805  

5,689  

280  

6,774  

  218   (86)   -­‐  

  -­‐   -­‐   (2,111)  

  32   (3)   -­‐  

  250   (89)   (2,111)  

-­‐   (6)  

(1,612)   (493)  

-­‐   -­‐  

(1,612)   (499)  

931  

1,473  

309  

2,713  

 

The   impairment   of   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  will  reassess  at  the  year-­‐end   date.     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.  

  9.    INVESTMENT  IN  ASSOCIATES    

30  Jun  2012   31  Dec  2011     USD'000     USD'000       -­‐   -­‐     Additions   2,173     -­‐       Share  of  income  from  associate   27   -­‐     Effect  of  foreign  exchange  movements   -­‐     -­‐       Closing  balance   2,200   -­‐         On   26   April   2012   the   Company   entered   into   a   Share   Purchase   Agreement   to   purchase   3,700,071   shares   of   capital   stock   of   Silvotecnia   S.A.   (“Silvotecnia”),   a   forestry   industry   service   provider,   as   part   of   its   Colombian   operations.   On   the   same   date   the   Company   entered   into   a   Subscription   Agreement   to   subscribe   to   3,017,500   of   newly   issued   shares,   giving   the   Company   a   33.56%   interest   in   Silvotecnia.     The   purchase   price   paid   for   the   acquired  shares  was  USD  2.17  million.                            Opening  balance  

28

THE  FOREST  COMPANY  LIMITED   NOTES  TO  THE  UNAUDITED  CONDENSED  CONSOLIDATED  INTERIM  FINANCIAL  STATEMENTS   For  the  period  ended  30  June  2012    

10.    NON-­‐CURRENT  ASSETS  HELD  FOR  SALE        Property,  plant  and  equipment   Trade  and  other  receivables   Trade  and  other  payables   Total  

           

30  Jun  2012   USD'000                                    15,151                                                  621                                            (358)                                    15,414    

           

31  Dec  2011   USD'000   16,307   262   (321)   16,248  

    The  Company’s  advisors  are  currently  marketing  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.     11.    FINANCIAL  RECEIVABLE  AT  FAIR  VALUE  THROUGH  PROFIT  OR  LOSS     30  Jun  2012   31  Dec  2011       USD'000     USD'000       Opening   balance   7,589     -­‐       Reclassified  from  forest  assets   -­‐   7,487     Fair  value  adjustments   577     1,472       Repayment  of  financial  receivable   (7,889)   -­‐     Effect  of  foreign  exchange  movements   (277)     (1,370)     Closing  balance   -­‐     7,589         As   at   31   March   2012   the   Company,   through   the   Aimara   project,   returned   the   538   ha   of   pine   originally   contributed   by   Klabin.   The   Company   agreed   a   fixed   rate   of   return   from   the   biological   asset   and   it   has   been   reflected  as  a  financial  asset  receivable  in  the  condensed  consolidated  interim  financial  statements.  Accordingly,   on  15  April  2012  the  Company  received  USD  7.89  million  (BRL  14.73  million).  

  12.    INVENTORY     The  table  below  summarises  the  Group's  inventories  valued  at  lower  of  cost  and  net  realisable  value.

  2012      Seedlings  and  consumables   Work  in  progress   Finished  products  

USD'000  

USD'000  

575  

 

1,651  

                                           -­‐                                                      -­‐          

110  

 

1,784  

575  

   

2011    

23  

 

            29

THE  FOREST  COMPANY  LIMITED   NOTES  TO  THE  UNAUDITED  CONDENSED  CONSOLIDATED  INTERIM  FINANCIAL  STATEMENTS   For  the  period  ended  30  June  2012  

13.    TRADE  AND  OTHER  RECEIVABLES    

30  Jun  2012  

 

31  Dec  2011  

USD'000     2,774    

  Trade   receivables  

USD'000   1,416  

564     248    

Advances  to  suppliers   Prepayments  

272   -­‐  

2,002     5,588    

Other  receivables    

1,492   3,180  

 

14.    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  2012.     30  June  2012    

31  Dec  2011  

USD'000    

 Restricted  

USD'000    

9,301    

Aimara  Joint  venture  cash  and  cash  equivalents   Amounts  held  in  escrow  accounts     Unrestricted      

 

12,084    

9,872     19,173    

20,662  

28,362     47,535    

6,760  

32,746   39,506    

15.   INTEREST  BEARING  BORROWINGS     Lender   Banco  Rodobens  SA   Banco  Rendimento  SA   Serfinco  SA  (see  below)   Other    

Project         Frondosa     Frondosa     Antioquia     Antioquia        

Current   USD'000   6,963   16,207   346   122   23,638  

             

Non-­‐  current   USD'000   -­‐   -­‐   506   191   697  

             

Total   USD'000   6,963   16,207   852   313   24,335  

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   and   that   from   Rodobens   bears   interest   at   the   rate   of   CDI   plus   3.0%   per   year.   As   at   30   June   2012   the   outstanding   loan   balances   were   BRL   13.99   million   and   BRL   32.57   million   for   the   Rodobens   and   Rendimento   loans   respectively.   30

THE  FOREST  COMPANY  LIMITED   NOTES  TO  THE  UNAUDITED  CONDENSED  CONSOLIDATED  INTERIM  FINANCIAL  STATEMENTS   For  the  period  ended  30  June  2012  

  15.   INTEREST  BEARING  BORROWINGS  (CONTINUED)  

  The  capital  on  the  facility  from  Rodobens  will  be  repaid  in  14  instalments  of  principal  and  interest,  with  the  first   paid  on  6  February  2012  and  the  last  due  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   facility   from   Rodobens   was   initially   secured   by   a   fiduciary   assignment   over   a   CDB   owned   by   Aimara,   in   the   amount  of  USD  7.47  million  (BRL  15  million).     The   security   in   relation   to   the   facilities   is   being   released   by   Rendimento   and   Rodobens   proportionally   with   the   repayments  of  principal  and  interest  to  be  made  by  Frondosa.  

  16.   MOVEMENT  IN  DEFERRED  TAX  BALANCES  

  The  table  below  details  the  movements  in  deferred  tax  assets  and  liabilities  for  the  six  months  to  30  June  2012.     1  Jan  2012  to  30  Jun  2012       Liability   Asset       USD'000     USD'000       Opening  balance   (10,773)     444       (Credited)/charged  to  income  statement  on  fair  value  adjustments  on   776   -­‐   forest  assets       Charged  to  other  comprehensive  income  on  revaluation  adjustments   (266)   -­‐       Other  movements   -­‐   (165)       Exchange  rate  differences   484   54       Closing  balance   (9,779)   333         Deferred  tax  liabilities  rise  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.      

  17.    OTHER  LONG  TERM  LIABILITY  

  The  Group’s  long  term  liabilities  of  USD  8.83  million  (31  December  2011:  USD  17.99  million)  consist  of  amounts   owed  by  Kaa  Empreendimentos  Imobiliários  e  Participações  Ltda  and  Frondosa  Empreendimentos  Imobiliários   e  Participações  Ltda  on  forest  assets  previously  purchased.  The  amounts  owing  on  these  liabilities  have  been   deposited  into  escrow  accounts  (see  note  14)  and  will  be  disbursed  as  and  when  the  liabilities  become  due.    

31

THE  FOREST  COMPANY  LIMITED   NOTES  TO  THE  UNAUDITED  CONDENSED  CONSOLIDATED  INTERIM  FINANCIAL  STATEMENTS   For  the  period  ended  30  June  2012  

  18.    TRADE  AND  OTHER  PAYABLES        Trade  payables  

Amounts  due  on  purchase  of  forest  assets   2011  Investment  management  performance  fees  payable  (see  note  25)   Dividends  payable   Accruals   Amounts  due  on  purchase  of  investment  property  

    19.   CONTINGENT  LIABILITIES  

30  Jun  2012   USD'000   10,491   2,249   15,151   12,070   430                                              -­‐         40,391  

                 

31  Dec  2011   USD'000   11,699                                            -­‐         16,851                                            -­‐         282   1,432   30,264  

  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  2011:  USD  2.50  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  within  the  next  year.     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  14).       Quantification  of  the  liabilities  has  not  been  undertaken  as  the  Company  believes  the  risk  to  be  remote.  

32

THE  FOREST  COMPANY  LIMITED   NOTES  TO  THE  UNAUDITED  CONDENSED  CONSOLIDATED  INTERIM  FINANCIAL  STATEMENTS   For  the  period  ended  30  June  2012  

20.  

SHARE  CAPITAL     Share  capital  at  30  June  2012  amounted  to  USD  3.62  million  (31  December  2011:  USD  3.24  million).     Transactions  in  the  shares  of  the  Company  for  the  six  months  ended  30  June  2012  were  as  follows:       2012   Management   Redeemable   Redeemable   Total   Shares  of   Ordinary   Class  A   Shares  in   USD  1  each   Shares  or  USD   Ordinary  Shares   issue   0.10  each   of  USD  0.10   each   At  1  January  2012   2   9,782,497   22,626,113   32,408,612   Shares  issued  17  February  2012   -­‐   2,783,964   988,585   3,772,549   As  at  30  June  2012   2011  

2  

 

Management     Shares  of   USD  1  each  

12,566,461  

23,614,698   36,181,161  

Redeemable   Redeemable        Total   Ordinary   Class  A   Shares  in   Shares  or  USD   Ordinary  Shares   issue   0.10  each   of  USD  0.10   each   8,738,558   13,406,031   22,144,591  

At  1  January  2011   Fractional  shares  issued  31  January   2011   Shares  issued  27  May  2011   Shares  redesignated  on  28  July  2011  

2   -­‐   -­‐   -­‐  

3   1,418,451   (486,939)  

1   6,593,968   486,939  

4   8,012,419   -­‐  

Shares  issued  26  August  2011  

-­‐  

-­‐  

2,115,996  

2,115,996  

Shares  issued  1  October  2011  

-­‐  

56,745  

23,178  

79,923  

-­‐  

55,679  

Shares  issued  22  December  2011  

-­‐  

55,679  

As  at  31  December  2011  

2  

9,782,497  

22,626,113   32,408,612  

  On   17   February   2012,   the   Company   completed   the   final   close   of   its   fourth   private   placement.   Subscription   Agreements   were   accepted   totaling   USD   33.88   million   in   respect   of   988,585   Class   A   Ordinary   Shares   and   2,783,964   Ordinary   Shares.     Following   this   close,   988,585   Class   A   Ordinary   Shares   and   2,783,964   Ordinary   Shares  were  issued  and  allotted  by  the  Board  at  a  price  of  USD  8.98  per  share  on  the  same  date.       On   30   April   2012,   the   Directors   declared   an   interim   dividend   of   3%   of   the   Adjusted   Net   Asset   Value   as   at   31   December  2011  (USD  0.3336  per  share),  payable  on  31  October  2012  to  investors  at  the  record  date  of  1  May   2012.  Shareholders  eligible  to  receive  the  dividend  have  the  option  to  elect  to  receive  the  dividend  payment  in   cash  or  to  have  their  dividend  entitlement  applied  to  fully  paid  shares  of  the  Company  (either  Ordinary  Shares   or  Class  A  Ordinary  Shares).            

33

THE  FOREST  COMPANY  LIMITED   NOTES  TO  THE  UNAUDITED  CONDENSED  CONSOLIDATED  INTERIM  FINANCIAL  STATEMENTS   For  the  period  ended  30  June  2012  

  21.    NET  ASSET  VALUE  

30  Jun  2012    

USD  

    IFRS   net  asset  value  attributable  to  holders  of  redeemable   Ordinary  and  Class  A  Ordinary  shares   Adjustment  for  deferred  tax  duplication  

per  share       8.92   0.20     0.40     0.17    

Adjustment  for  notional  land  lease  charge   Adjustment  for  unamortised  organisation  expenses   Adjusted  net  asset  value  attributable  to  redeemable  Ordinary   and  Class  A  Ordinary  shareholders    -­‐  ex-­‐dividend   Dividend  payable   Adjusted  net  asset  value  attributable  to  redeemable  Ordinary   and  Class  A  Ordinary  shareholders    -­‐  cum-­‐dividend     22.   LEGAL  AND  PROFESSIONAL  EXPENSES           Lawyer   and    other  professional  fees   Audit  fees   Valuation  fees   Consultancy  fees    

31  Dec  2011  

USD'000  

 

total  

 

322,855   7,186  

 

14,485  

 

6,010  

0.33       10.02    

               

350,536   12,070  

 

0.14     0.19    

 

  11.12  

 

-­‐       11.12    

  362,606  

Jan  -­‐  Jun   2012   USD'000                                  1,493                                          552                                          208                                          186     2,439  

USD'000    

per  share       10.56   0.23    

 

  9.69  

USD  

 

               

total   342,353   7,471   4,220   6,260   360,304   -­‐   360,304  

Jan  -­‐  Jun   2011   USD'000                                    2,393                                              418                                                  17                                      1,106     3,934  

23.   OTHER  FEES  AND  EXPENSES    

     Agricultural  services   Office  expenses   Payroll  expenses   Travel  expenses   Property  insurance  premiums   Directors  and  officers  insurance  premiums   Bank  charges   Repairs  and  maintenance   Other  general  expenses  

   

Jan  -­‐  Jun   2012   USD'000                                        592                                          399                                          473                                          485                                          125                                              41                                              94                                          614                                          109     2,932  

                         

Jan  -­‐  Jun   2011   USD'000                                                92                                              183                                              469                                              384                                                    -­‐                                                      40                                              112                                                    -­‐                                          2,631     3,911  

34

THE  FOREST  COMPANY  LIMITED   NOTES  TO  THE  UNAUDITED  CONDENSED  CONSOLIDATED  INTERIM  FINANCIAL  STATEMENTS   For  the  period  ended  30  June  2012  

  24.   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  revenue   Segment  profit     Six  months   Six  months     Six  months   Six  months   ended   ended   ended   ended     30  Jun  2012   30  Jun  2011     30  Jun  2012   30  Jun  2011    Segment  revenues  and  results   USD'000   USD'000       USD'000   USD'000     Sales   of  product   Interest  income   Unrealised  gain  on  investment  property   Unrealised  gain  on  financial  receivable   at  fair  value  through  profit  or  loss   Unrealised  (loss)/gain  on  Forest  assets  

 

 Total  for  continuing  operations   Operating  expenses   Interest  expense   Share  of  profit  of  associate  

 

(12,713)    

           

           

  Profit   before  tax  from  continuing   operations  

7,857     570   49   577   (21,766)  

2,858       1,048     612       56   21,085       25,659                        

2,449     570   49   577   (21,766)   (18,121)     (10,920)   (2,539)   27       (31,553)  

1,695   1,048   612   56   21,085   24,496   (15,274)   -­‐   -­‐  

9,222  

 

35

THE  FOREST  COMPANY  LIMITED   NOTES  TO  THE  UNAUDITED  CONDENSED  CONSOLIDATED  INTERIM  FINANCIAL  STATEMENTS   For  the  period  ended  30  June  2012  

  24.   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   Total  segment  and  consolidated   liabilities      

  25.   SUBSEQUENT  EVENTS  

As  at   31  Dec  2011   USD'000  

     

     

                                     

                                     

                                     

 

9,671     321,900   2,713   2,200   333   262   337,079  

6,411   346,206   6,774   -­‐   444   442   360,277  

 

69,112     406,191  

68,307   428,584  

   

  24,335     8,831   9,779   40,391  

27,205   19,421   10,773   28,832  

83,336  

86,231  

 

  Income   Six  months   Six  months   ended   ended   30  Jun  2012   30  Jun  2011   USD'000   USD'000   3   71   5,125   977   3,299   2,858  

   

 

    Geographical   segments   Guernsey   Brazil   Colombia    Total  

As  at   30  Jun  2012   USD'000  

     

 

8,427    

      3,906      

  assets   Non-­‐current   As  at   30  Jun  2012   USD'000   -­‐   266,174   70,905  

     

 

337,079    

As  at   31  Dec  2011   USD'000   -­‐   293,156   67,121   360,277  

  On   6   September   2012,   the   repayment   period   of   the   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.     On  9  July  2012,  the  Company  put  in  place  an  incentive  plan  for  Mr.   Häggblom  in  his  capacity  as  Chairman  of  the   Company  so  that  part  of  the  Chairman’s  compensation  is  structured  as  a  multi-­‐year  retention  package.  It  has  an   effective  monetary  value  of  USD  70,000  per  annum  and  it  is  at  the  Company’s  discretion  as  to  whether  this  is   paid   in   cash   or   shares.   The   Chairman’s   additional   incentive   package   remains   within   the   maximum   annual   expenditure  on  Directors’  fees  as  set  out  in  the  articles  of  the  Company.         36

THE  FOREST  COMPANY  LIMITED   NOTES  TO  THE  UNAUDITED  CONDENSED  CONSOLIDATED  INTERIM  FINANCIAL  STATEMENTS   For  the  period  ended  30  June  2012    

25.   SUBSEQUENT  EVENTS  (CONTINUED)     On  11  September  2012,  The  Company  and  the  Manager  formalised  an  agreement  for  the  Company  to  pay  the   performance   fees   in   respect   of   the   financial   year   ended   31   December   2011   over   a   mutually   agreed   period   of   time,   allowing   the   Company   to   utilise  the  funds.  The  Company  will  pay  interest  to  the  Manager  on  the  deferred   amount  at  USD  3  month  LIBOR  plus  4%  per  annum.     On  20  September  2012,  the  Company  entered  into  a  public  deed  to  sell  3,313  ha  of  rural  land  located  in  Minas   Gerais   at   an   agreed   price   of   USD   8.47   million.   A   down   payment   of   USD   2.54   million   (30%)   has   been   received   by   the  Company  with  the  remainder,  less  adjustments  for  use  of  the  remaining  unharvested  land,  to  be  paid  over  a   five   year   period.   Possession   of   the   land   will   transfer   to   the   buyer   over   this   period   as   the   Company   harvests   and   receives   further   payments.   Legal   title   will   be   transferred   at   the   end   of   the   five   years   after   final   payment   has   been  received.       On  24  September  2012,  the  Company  accepted  Subscription  Agreements  totalling  USD  4.5  million  with  shares   to  be  issued  on  27  September  2012  at  a  price  of  USD  9.69  per  share.  

37