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To our shareholders

Dear Shareholders

2018 was a demanding year in many ways. Shipping problems, first in Brazil and then in Gabon, put a heavy strain on our liquidity and also led to additional expenses. In addition, various adversities had a negative impact on our infrastructure, hampering logistics and also our production possibilities. Last but not least, we were confronted with legal decisions in cases from the years 2008-2013, which cost us about EUR 1 million. Taking all these special effects into account, I consider the achieved result to be satisfactory. And I can say that Precious Woods has been successful in mastering the challenges of the past months.

Positive developments as well as setbacks

The operating result suffered due to the events mentioned above, and the net result was a loss. Detailed explanations of the special effects can be found in the following segment reports. In summary, I am able to state: If we had been able to conclude the fiscal year without these impediments, the Group would at least have been able to report a net break-even result. Therefore, the figures presented do not adequately reflect the operational progress of the operations in Gabon, Brazil, as well as the sales, trading, and holding activities. Without special effects and currency effects, we would have attained at least the previous year's level.

The development in Brazil is particularly gratifying. The steady improvement of our processes, the increase in the processing volumes, and the increase of the yield led to a positive result. Our trading activities are also making increasing contributions. The result in Gabon was adversely affected by an extraordinary interruption of operations and an unplanned inventory build-up due to shipping delays. The consequence is somewhat lower production volumes and unrealized margins in the reported fiscal year. Both of these factors have a negative impact on our result. Although we know that we still have a lot of potential for improvement, I feel very positive overall about the development of the Group.

More difficult access to financing

The fact that external debt is still too high makes it more difficult and very expensive for us to secure financing for our projects. But we want to expand the activities and impact of the Group and make the necessary investments. Precious Woods still has no access to bank loans or conventional financing options. Even sustainability funds usually expect a double-digit return on their investment, which we are unable to offer in our sector. Increasingly, we are asking ourselves why our exceptional environmental and social performance is not an integral part of a sustainable financial return, or why the so-called return even of sustainability funds cannot be reflected, evaluated, and recognized in a more multidimensional way. It seems that only you as our company shareholders and creditors appreciate our uncompromising commitment to sustainability. For this and for continuing to place your trust in us, we would like to thank you from the bottom of our hearts.

Investments in sustainability, concession areas, service provision, and markets

Precious Woods not only manages about 7% of the world's certified tropical forest area and has been committed in that way to the protection of tropical forests for about 25 years – we also contribute a significant impact to achieving the UN's defined sustainability goals. For example, we contribute to improving the quality of life of residents in and around our cultivated forest areas. Together with our employees and their families, we reach more than 10 000 people who benefit indirectly and directly from our work. We want to strengthen these cycles of impact and at the same time expand our operating activities. This also includes an expansion of our concession areas. In the field of sustainable tropical forestry, there are fewer and fewer companies willing to take on the personnel and financial risks and face the more difficult conditions. Precious Woods intends to assume responsibility in this field, contributing expertise and experience and thus sustainably securing an even larger forest area.

Apart from additional land that we want to cultivate, we are also relying on targeted investments in the provision of services and value creation. In both Brazil and Gabon, projects are planned to strengthen the earning power of the Group and to make further contributions to the social security and safeguarding of our activities in our regions. Last but not least, we will strengthen our market and customer development activities. We trust that with our variety of products and our credibility, we can continue to count on loyal customers and partners.

Outlook and thanks

Despite the negative result for 2018, we are confident for fiscal year 2019. We intend to increase processing volumes and yield at both production sites and in that way achieve a marked increase in profitability. In addition, we are making targeted investments to further increase our productivity. We are convinced that the planned measures will lay the foundations for a successful fiscal year. The new sawmill for hardwood in Gabon will be completed by the end of 2019, and production will start in 2020. We anticipate that this investment will enable us to sustainably produce and process additional volumes of hardwood timber in the future.

Precious Woods can count on highly motivated and committed employees who have worked at our three locations in Brazil, Gabon, and Switzerland for many years. They are the most important components and at the same time the guarantors of our success. Because without the enormous dedication of the entire team, including all the experts and managers, we would not be able to handle the demanding task of our company. On behalf of the Board of Directors, I would therefore like to thank all of our 1 400 employees and the Group Management in sales, staff units, and operations for their great commitment to the benefit of our Group.

Special thanks to our CEO, CFO, and at the same time Delegate of the Board of Directors, Markus Brütsch. Not only does he work tirelessly for our local companies and in Switzerland – he directs, guides, develops, and shapes our company, and we are very grateful to be able to continue to count on his dedication. I would also like to thank my other colleagues on the Board of Directors, Jürgen Blaser and Robert Hunink. I am very grateful for all the valuable, knowledgeable, critical, and constructive contributions that not only I appreciate, but also the Group Management. All of us, as well as our employees in Gabon and Brazil, benefit from your expertise, your active support, and your dedication.

My greatest thanks go to our shareholders. Precious Woods and I personally would like to thank you from the bottom of our hearts for your loyalty, for your support, and for your goodwill in promoting our multidimensional activities. Without you, the present and future of our mission and operation would not be possible. And we trust that you will continue to accompany us on our path as a pioneering company that is able to set standards in terms of sustainability – both economically as well as environmentally and socially.

Yours faithfully,

WSGE_DP_GR_Unterschrift_Chairman

Katharina Lehmann

Chairwoman of the Board of Directors