Balance sheet
Assets
109.4
EUR million
Total assets amounted to EUR 109.4 million, EUR 21.7 million lower than in the previous year. Biomass and the value of our forest area in Brazil are valued in Brazilian real, and the 24 % lower exchange rate results in a corresponding devaluation, which reduces equity and accordingly also total assets.
Equity
39.3
EUR million
Equity amounted to EUR 39.3 million (previous year: EUR 55.1 million). The equity ratio as of the balance sheet date was 35.9 % (previous year: 42.0 %). This reduction is mostly due to exchange rate effects, given that the loss was EUR 2.2 million.
Operating cash flow
5.9
EUR million
Cash flow from operating activities increased by EUR 2.1 million to EUR 5.9 million. The change in working capital was EUR 1.3 million. Investments in tangible fixed assets amounted to EUR 4.0 million. Cash flow from financing activities was EUR -1.6 million.
Brazil
Precious Woods Amazon – operational progress despite pandemic and restrictions
PW Amazon achieved net sales of EUR 13.4 million, the same as the previous year. Export sales decreased by 8.3 %, revenues in the local market increased by 21.9 %, and sales from deliveries of biomass to the energy plant were 7.3 % lower than in the previous year. Earnings before interest, taxes, depreciation and amortization (EBITDA) amounted to EUR 4.2 million (previous year: EUR 2.8 million), corresponding to a margin of 31.5 % (previous year: 22.3 %). Earnings before interest and taxes (EBIT) amounted to EUR 3.5 million (previous year: EUR 1.7 million). This corresponds to an increase of EUR 1.8 million over the previous year. All figures are compared with the normalized previous-year figures, given that one-time effects in connection with the initial valuation of biomass influenced the result in 2019.
in EUR million | 2020 | 2019 | Index | Change | ||||
---|---|---|---|---|---|---|---|---|
in EUR millionNet Sales | 202013.4 | 201913.4 | Index100.1% | Change+0.0 | ||||
in EUR millionEBITDA | 20204.2 | 201916.4 | Index25.8% | Change-12.2 | ||||
in EUR millionEBIT | 20203.5 | 201915.3 | Index22.9% | Change-11.8 |
Higher harvest volume, increased production volumes, higher yield
The harvest volume for logs was 184 200 m3, 18 % higher than in the previous year. The sawmill processed 164 400 m3 of wood, 5.8 % more than in the previous year. PW Amazon was once again able to increase yield. This resulted in an 11.5 % higher sawn timber production of 38 300 m3 in total (previous year: 34 350 m3). The production year began in mid-January. The annual maintenance work was carried out in stages, and no sawmill operations were interrupted at any time.
In 2020, harvest activities were impeded in several ways. The permit for the second part of our forest areas came 2½ months late. This was due to the switch from IBAMA to IPAAM (both Brazilian forestry authorities) and their lack of personnel due to the pandemic. This meant that we first had to put the harvesting teams on leave and then reinforce them in October, which meant additional costs. In addition, early heavy rains starting in November prevented us from transporting the harvested logs out of the forest in a timely manner. Of the total harvest volume, about 30 000 m3 is still in the forest and cannot be evacuated until June 2021. As a consequence, we will reduce production capacity somewhat in the first half of the year and then make up for it in the second half.
At the sawmill, the measures to increase capacity had a positive impact, and we were able to use the increased capacity for cutting products for the local market. A follow-up action by the environmental authorities together with the federal police brought the illegal timber trade in our region to a halt. This situation gave us the opportunity to process and sell timber species that are not suitable for export. This also accounts for the shift from export to local sales. The average prices for the local market are far below the export prices. However, we were partly able to make up for this because of higher yields. Thanks to the additional harvest of other tree species, we exceeded our planned harvest volume by 7 000 m3.
The negotiations on private concessions to expand the harvest areas were intensified and partially concluded. The gaps until the second rotation, which will start in 2029, have accordingly been closed. In the second half of 2021, we expect state concessions to be auctioned. We are interested in acquiring additional concessions and increasing capacities in timber processing. In the past fiscal year, we were also able to settle minor legal disputes with alleged landowners in our favour.
Over the past fiscal year, we were largely able to keep our Covid situation under control. But while most of the cases were mild, we unfortunately had two serious cases resulting in fatalities. We extend our deepest condolences to the family members. In the Amazon region in particular, there is a lack of medical care, and PW Amazon has accordingly in several cases supplied the hospitals with relief materials, including urgently needed oxygen.
Being able to increase productivity and profitability in such an exceptional situation demands everything from the management and staff. We are very grateful to have this team in Itacoatiara and thank them all for their tremendous dedication, especially during this challenging and difficult time.
The investment volume in Brazil was only about EUR 0.3 million. This was spent on renovation measures at the sawmill, including additional buildings and transport equipment.
The local currency (BRL) fell in value by about 24 % against the euro. 75 % of sales were made in EUR, 10 % in USD, and 15 % in BRL, while nearly 100 % of costs are in BRL. This had a positive currency impact overall on the consolidated income statement. The sales and costs development at PW Amazon must be interpreted in this context.
Legal rules and our commitment to the sustainable use of tropical forests require our company in Brazil to harvest many different species of timber. This continues to be a great challenge and also entails greater complexity for our operational activity. Our ongoing task is to establish and promote lesser-known and lesser-used timber species on the export markets, to examine their areas of application and to increase their familiarity. On the local market, prices remain very low, and transport costs to the populated areas in the south of the country are high. There is also a lack of awareness in regard to legally produced timber, and we are competing in the domestic market with illegally harvested and therefore cheaper sawn timber. As a consequence, our competitiveness on the local sales market remains limited, but it improved thanks to actions taken against the illegal timber trade. We regularly gain new customers for use of lesser-known wood species in Europe, the United States, and Asia. Increasingly, we are successful in educating customers, persuading them to buy these timber species, entering into promising partnerships, and opening up markets for products with specific applications or in connection with the special features of the wood species.
Continued high resources for legacies and special factors
About 420 000 hectares of forests (own forest and smaller concessions) are currently available for harvest. We have made further efforts to legalize the land titles that have not yet been secured and to evaluate and secure new concessions. We are also trying to exchange land areas located in protected zones (around 45 000 ha) against productive, usable areas. We are currently negotiating with the government in this regard.
Already in fiscal year 2019, value adjustments were made on about 60 000 ha of land that had previously been only partially depreciated, because we had expected to lose the legal dispute. The titles to the land were transferred at the beginning of 2021, and we were at the same time able to conclude the concession agreement.
The recertification audits according to the FSC and PEFC standards were passed successfully and without any comments in 2020. We also received additional certifications for carbon sequestration and water conservation (Ecosystem Services).
In the reporting year, there was no new information concerning the pending threat of two major fines dating back to 2002 and 2007. The threatened fine by the Brazilian environmental protection agency IBAMA and a threatened property tax fine continue to be legal cases that our lawyers are working on, and we expect that the matter can be resolved within the scope of provisions already set aside.
Precious Woods Amazon in brief
Precious Woods has been operating in the state of Amazonas, Brazil, since 1996. PW Amazon runs sustainable forestry operations on 506 699 hectares of its own land and concessions (as of the end of 2020) near Itacoatiara, 170 kilometres east of Manaus. PW Amazon has been certified according to FSC criteria since 1997. In December 2017, PW Amazon was additionally certified according to PEFC guidelines. Certified forests are managed sustainably on the basis of an audited harvesting plan under which only two or three trees per hectare of forest are harvested in a 35-year cycle. At the same time, this gentle and sustainable use generates a source of income for the local population, which in turn contributes further to the protection of the forest. The harvested timber is processed into sawn timber, planed timber, construction piles, and finished products at the company’s own factory. The wood products are exported to Europe, the United States, and Asia as well as being sold on the local market.
Social and environmental sustainability continues to be at high level
Once again in 2020, Precious Woods Amazon passed the recertification audits for FSC and PEFC with excellent results. Both the PEFC and FSC audits were carried out completely online, which meant additional difficulties for our team and the auditors. We continue to work on several scientific projects to obtain information on forest ecology and to optimize and document our resource-preserving forestry operations. We are also in close and intensive contact with the regional communities, allowing us to undertake useful joint projects. Supporting the local population and businesses through a wide range of development projects continues to be a focus of our social engagement.
In the reporting year we can provide information on the following activities:
- As only the second company in the world to do so, we successfully passed the new FSC Ecosystem Services certification for carbon sequestration. The certificate confirms that the carbon stock in our forests has been stable since 2007 and that about 81 million tonnes of carbon are permanently stored. The certificate proves once again that sustainable forest management is one of the solutions to protect our world’s carbon sinks, and we are proud to be part of that solution.
- Together with the military police of Itacoatiara, several operations were again carried out against poaching and illegal logging. This also includes raising awareness in the communities and the training of local scouts who recognise violations and report them directly.
- In cooperation with EMBRAPA (Brazilian Agricultural Research Corporation), we continue to work on projects measuring tree growth and the dynamics of the tree population. This project is being continued, providing valuable analysis data over time for scientific purposes.
- We support various research projects in the field of environment and sustainability in collaboration with INPA (National Institute of Amazonian Research), UFAM (Federal University of Amazonas), EMBRAPA (Brazilian Agricultural Research Corporation), and UEA (Amazonas State University). In addition to ecological aspects, such as a wildlife inventory or the contribution of trees to the water cycle, economic issues to optimise the use of wood are researched. Certain projects combine both perspectives, for example when road planning is improved and, as a result, less forest area is impacted.
- It continues to be a major priority and endeavour to support and promote the agricultural production of the communities in our region. Last year, we were able to establish a 2-hectare coffee plantation, maintained by the local population with our support.
- Also in Brazil, many training courses had to be postponed due to the pandemic. Nevertheless, thanks to our own trainers and external assistance, we were able to conduct various safety training sessions in the sawmills and in the forest.
- We continue to be active in offering internships and courses for vocational training and development. These programmes are done in partnership with CETAM (Center for Technological Education of Amazonas) and SENAI (National Industrial Learning Service). 35 interns have been able to gain their first work experience with us thanks to these programmes.
Outlook for 2021
We expect a log harvest volume of about 175 000 m3. The aim is to further increase production and sales volume. New financing options are being explored to enable the modernisation and subsequent expansion of our sawmill and harvesting area. As a consequence, we expect cost reductions and increased yield. Our ambition is, and remains, to gain a foothold in the local Brazilian market as well with sustainably produced sawn wood products, and we are taking the opportunity to establish ourselves. At the same time, we want to cultivate our long-standing clients and partnerships and intensify and expand our activities in our traditional European, North American, and Asian markets.
Key figures Environmental in 2020 (2019)
Energy consumption in GJ
54 900 (56 600)
Direct CO₂ emissions in t
2 600 (2 800)
FSC share for timber production sold in %
100 (100)
Key figures Economic in m3 2020 (2019)
Sales sawn and industrialized wood
36 800 (31 800)
whereof export
20 000 (22 800)
Sales logs and piles
400 (500)
Sales biomass
89 200 (94 800)
Harvest volume
188 500 (156 100)
Key figures Social in 2020 (2019)
Employees
676 (591)
Women in %
8.5 % (11.0 %)
Men in %
91.5 % (89.0 %)
Accidents at work
19 (29)
Days lost per accident
10.8 (7.5)
Gabon
Precious Woods Gabon – major infrastructural obstacles – new partnership
PW Gabon generated net sales of EUR 31.0 million (previous year: EUR 27.1 million). While this represented an increase of 14.5 % over the previous year, it was below expectations. Earnings before interest, taxes, depreciation and amortization (EBITDA) reached EUR 4.2 million (previous year: EUR 5.0 million). The EBITDA margin was 13.6 % (previous year: 18.5 %). Earnings before interest and taxes (EBIT) amounted to EUR 1.2 million (previous year: EUR 1.7 million). This corresponds to a margin of 3.7 % (previous year: 6.2 %). The decrease in profitability is caused due to a delay in the construction of the new sawmill, price decreases especially in the veneer business and in difficulties in shipments. The increase in sales is in part due to the fact that the internal log sales to our veneer plant are counted as external sales starting in October 2020.
in EUR million | 2020 | 2019 | Index | Change | ||||
---|---|---|---|---|---|---|---|---|
in EUR millionNet Sales | 202031.0 | 201927.1 | Index114.5% | Change+3.9 | ||||
in EUR millionEBITDA | 20204.2 | 20195.0 | Index84.4% | Change-0.8 | ||||
in EUR millionEBIT | 20201.2 | 20191.7 | Index68.9% | Change-0.5 |
Increase in productivity
The harvest volume in 2020 was 250 100 m3, an increase of 5.5 % over the previous year (237 100 m3). The sawmills in Bambidie processed 129 900 m3 of logs, an increase of 8.1 %. Sawn timber production amounted to 44 600 m3 (previous year: 42 300 m3). These positive figures show that we had only few outages due to the Covid pandemic. The safety measures implemented and the inspections carried out by public authorities helped to keep the impact on our operations low. We did, however, suffer from obstacles beyond our control. Firstly, the condition of the roads and the lack of rail capacity prevented us from delivering sawn timber on time. Secondly, a lack of containers, strikes by the public authorities, and the low frequency of container ships with limited capacity impeded handling at the port. This again led to an excessively high inventory of sawn timber at the end of the year. The pandemic and logistics problems also led to delays in the launch of the new hardwood sawmill. Machine parts could not be delivered on time, and travel restrictions prevented the entry of technicians and specialists for an extended period of time. The maintenance work on the existing sawmills could be carried out on schedule, given that we had procured spare parts in time before the lockdown.
In the past, our veneer plant (TGI) repeatedly suffered from the difficult market environment and also from technical problems affecting yield. For these reasons and also because major investments have to be made, we decided to enter into a partnership with the French Groupe Arbor. Groupe Arbor also has veneer production in Gabon and operates plywood board production in France. It is one of the leading suppliers of these products on the European market. Precious Woods is able to ensure the supply of certified logs in Okoumé, and Groupe Arbor complements this with optimal processing and distribution. For this purpose, the two companies in Gabon have merged, and Precious Woods retains a 49 % stake in the new company called «Compagnie des placages de la Lowé» (CPL). Notarisation took place at the end of the year but with retroactive effect from 1 October 2020. All sales of CPL are made through the central office of Precious Woods Holding Ltd.
Veneer prices came under strong pressure in 2020 – more than sawn timber prices – due to high inventories of our customers. This, combined with the decrease in yield by 3.3 percentage points in the first nine months of 2020, resulted in a major loss. The merger with our joint venture partner is already showing positive effects, and we are very optimistic for the future.
PW Gabon’s total investments in the amount of EUR 4.1 million were used for buildings (EUR 1.3 million), forestry machinery (EUR 0.7 million), homes for employees and their families in Bambidie (EUR 0.5 million), vehicles (EUR 0.6 million), and the sawmills (EUR 1.0 million). Construction of the new sawmill for Azobé sawn timber started in 2019. Operations began with a delay in spring 2020. At the beginning of 2021, we moved to two-shift operations, which will strengthen profitability.
There were some changes in our expatriate management in Bambidie. Overall, however, our employee situation has been very stable. The conditions made more difficult by the lockdown were mastered well, but demanded a lot from our management, especially given that some employees were not able to travel home for months. We would like to take this opportunity to express our warmest thanks to our local management and all our employees for their great dedication.
The VAT credit with the Gabonese government increased again, given that not much could be repaid. The amount is lower overall, because most of the credit relates to the veneer plant. Our investments could be financed with bank loans from local institutions. However, the delays in sales and the increased costs from interruptions in operations again led to a tense liquidity situation. Inventory increased again and tied up cash. We expect the situation to ease but it remains uncertain when this will happen. The various ministries are now working together more closely and trying to find solutions. However, implementation of the measures is facing delays, also due to the pandemic. The fight against corruption continues, which led to individual authorities becoming unable to act or being understaffed in the short term.
Improvement of profitability despite adversity in the forest and sawmill activities
Although infrastructure problems increased again compared to the previous year, which already massively affected the operation, we did manage to grow profitability in the sawmills. We have learned a lot from our painful experiences in the past and we are now able to react more quickly to these events. The organisation is flexible and can make situational decisions if plans or implementation strategies have to be changed. That we are able to work profitably even in very difficult times makes us look to the future with optimism.
Because of the spin-off of TGI, this section only compares the CEB sawmill – not PW Gabon as a whole – with the previous year’s figures. Working capital increased again by EUR 1.9 million, which is due to inventory build-up. Accounts receivable increased by about EUR 0.5 million and accounts payable by EUR 1.1 million. This means that we now have a record amount of tied-up capital in relation to net sales, which puts a heavy strain on liquidity in Gabon. Net debt increased by EUR 3.0 million over the previous year.
Many activities despite major challenges
FSC and PAFC recertification audits for forestry management and for chain of custody (CoC) were carried out successfully at our two sites in Bambidie and Owendo. The CoC audit was performed online due to travel restrictions, which was a particular challenge for both our team and the auditors. With this continued high level and our dual certification, we remain the pioneering company in sustainable forest management in the tropics.
In addition to our certification activities, our projects in the past year included the following:
- At the beginning of the school year, we carried out another school supplies campaign. School supplies procured in large quantities were given to the children of our employees at reduced prices, enabling them to start school successfully.
- In cooperation with the ministry responsible for forestry and the NGO Conservation Justice, a joint wildlife protection project was implemented. Forestry ministry employees stationed in Bambidie regularly patrol our forest to prevent poaching and to protect wildlife. The project has already had considerable success, underscoring the importance of this partnership.
- The launch of our new sawmill created 50 new jobs. To accommodate this increase, we have also expanded the infrastructure in Bambidie and built a new neighbourhood with 50 homes for these employees and their families in our camp. We have also enlarged our health clinic and built additional classrooms for the primary school and kindergarten, as well as homes for additional teachers.
- The P3FAC-AFRITIMB research project was continued. The goal of this project is to study forest dynamics in the Congo Basin and to better understand those dynamics in the context of sustainable forest management. In order to provide researchers with reliable reference data, we have excluded one zone from forest management for this purpose. We also actively supported more than 10 other research projects.
- Again in 2020, permanent test areas also provided data to the AfriTRON and RAINFOR projects, which research forest dynamics and forests as carbon reservoirs at the global level.
- We had the pleasure of welcoming a delegation from the ministry responsible for forestry, which is working on implementation of a nationwide project to reduce carbon emissions and preserve carbon reservoirs in the forest. Due to our experience in resource-preserving forest management, Precious Woods-CEB was chosen to test the new system for the first time.
- Because of the pandemic, external training had to be reduced to a minimum. Nevertheless, we were able to conduct numerous training sessions for our logging teams with internal experts. The goal is to perfect the knowledge and skills of our employees in reduced impact logging.
- The cultural offerings and activities of the Centre Culturel were also impaired, but some activities could still be carried out. For example, volunteers made a variety of cloth face masks for our employees.
Precious Woods Gabon in brief
PW Gabon consists of two companies: CEB (Compagnie Equatoriale des Bois) and TGI (Tropical Gabon Industrie). Since 2007, PW Gabon has been managing a tropical forest in Eastern Gabon across a concession area of 596 800 hectares. In 2014, a protected area of 19 900 hectares was separated out. Starting in October 2020, the veneer company (TGI) was spun off and TGI now holds a stake of 49 % in Compagnie des placages de la Lowé (CPL). CEB employs 858 persons and CPL about 200. Each year, approximately 240 000 cubic meters of logs are harvested. The company operates according to a sustainable forest management plan that ensures that no more timber is harvested per hectare than will grow back within a harvest cycle of 25 years. PW Gabon runs two sawmills and a small moulding plant in Bambidie, the centre base of PW Gabon’s forestry operation. The CPL rotary veneer factories for Okoumé veneer and selected hardwoods are located in Owendo, a suburb of the port city Libreville. The main export markets for PW Gabon’s manufactured timber products are Europe, South Africa, and Asia. PW Gabon’s forestry operation has been FSC-certified since October 2008 and the veneer chain of custody since January 2010. The forestry operation has also been PAFC-certified since 2017. Both operations were PAFC-certified for CoC in 2018.
Outlook for 2021
The new sawmill for hardwood began two-shift operations, which will lead to an increase in production at the same fixed costs. Further improvements in production processes are being made, which will reduce costs. Harvest volumes are likely to be similar to 2020, but yields are expected to be significantly higher. We expect the delivery situation to improve, which will then increase liquidity. Market prices have improved significantly since February 2021, and we can take advantage of the effects early thanks to a low order backlog. The use and further processing of biomass continues to be a major priority and will receive even more attention in the longer term. We have received assurances that we can continue the next rotation in our concessions starting in 2025. We are therefore starting to focus on an energy plant and other alternative uses of waste wood from the sawmill.
We expect higher margins, provided that no further setbacks or delivery delays occur due to the pandemic or other unexpected events. The new forestry law is expected to be passed in the second half of the year 2021 at the latest. Investments in the value chain are being considered and, where appropriate, cooperation arrangements with other local companies are being formed. The government of Gabon has decided that only certified companies will be allowed to acquire concessions in the future, which will certainly offer us further opportunities to expand our business model.
Key figures Environmental in 2020 (2019)
Energy consumption in GJ
167 400 (161 100)
Direct CO₂ emissions in t
14 200 (14 900)
FSC share of timber
Production sold in %
96 (100)
Key figures Economic in m3 2020 (2019)
Sales sawn and industrialized wood
39 000 (32 100)
Sales logs
53 900 (67 900)
Sales rotary veneer
20 000 (20 900)
Harvest volume
250 100 (237 100)
Key figures Social in 2020 (2019)
Employees
858 (893)
Women in %
7.2 % (8.1 %)
Men in %
92.8 % (91.9 %)
Accidents at work
96 (99)
Days lost per accident
9.1 (7.8)
Trading
Precious Woods Trading – Decline in demand and sales
Trading in logs and sawn timber from Europe complements the current product range of Precious Woods and expands our knowledge in the sales and procurement market. It supplements our core business, namely the processing and trading of tropical sawn timber and veneer from Brazil and Gabon.
Net sales from the trading business in the 2020 reporting year amounted to EUR 2.5 million, corresponding to a decrease of 36.6 % from the previous year (2019: EUR 3.9 million).
in EUR million | 2020 | 2019 | Index | Change | ||||
---|---|---|---|---|---|---|---|---|
in EUR millionNet Sales | 20202.5 | 20193.9 | Index63.4% | Change-1.4 | ||||
in EUR millionEBITDA | 2020–0.4 | 20190.1 | Index–426.5% | Change-0.5 | ||||
in EUR millionEBIT | 2020–0.4 | 20190.1 | Index–426.5% | Change-0.5 |
The main sales market for our traded products is China. The demand for our products reduced sharply in 2020. The oversupply put pressure on prices, so that this business was no longer profitable for us. Even though it is difficult to assess future developments, we did notice at the beginning of 2021 an increased demand, which can offer us some opportunities. Earnings before interest, taxes, depreciation and amortization (EBITDA) amounted to EUR -0.4 million. The EBITDA margin was -16.9 % (previous year: 2.5 %).
For Precious Woods, trading activities in Europe are strategically important, because this activity secures expertise in the sales and procurement market and creates synergies with our other business areas in production. The challenge will be to apply the insights specifically to our operations in Africa and Brazil and to use them for the benefit of our customers or of product developments. In future, the range of products will also be supplemented by the sale of tropical timber from other FSC-certified operations in Central and South America. Some of these projects are carried out by local communities, in which cooperation with the environmental organization Rainforest Alliance is sought or already in the implementation phase.
Precious Woods Trading in brief
After the decision to close PW Europe, the administration of that company was taken over by PW Holding in Zug from 2014, and goods were delivered directly from the production plants in Brazil and Gabon.
In 2014, activities were expanded to include the trading of certified European logs and sawn timber. This now complements our diverse range of products.