To our shareholders

Dear Shareholders

It was a great honour for me to take over as Chairman of the Board of Directors of Precious Woods from Katharina Lehmann in May 2023. In July 2023, I handed over the executive responsibilities I had held since 2014 to our two co-CEOs, Fabian Leu and Markus Pfannkuch. Both have been with Precious Woods for many years, most recently as Chief Technical Officer and Chief Sustainability Officer. It was a privilege to be able to build up the succession within our organization and to transfer the function of CEO into responsible hands. Our new CFO, Richard Meister, took over that role from me in October 2023. His expertise is an ideal complement for the management team, a team I am delighted to be able to continue to support.

It was not an easy task for the new management team, which assumed responsibility right at the beginning of the economic downturn. The abrupt decline in orders and the poor outlook for the following year required immediate action. Comprehensive restructuring at all our sites was necessary to ensure the continuation of operations. Unfortunately, this also meant that we had to cut about a third of our workforce. This decision pains us deeply, since we take our social responsibility very seriously and are aware of the impact on our employees in these regions. But only with a solid financial basis will we be able to grow again.

Decline in sales and large losses

Because of the current global economic situation, in particular the situation in the European construction sector, sales fell by 14.4 % from the previous year to EUR 56.4 million. Our customers still had inventories – and some of them even still do – which means that orders were not placed and we had to reduce our production volumes. This challenge affected all companies in our sector and, as a supplier of the first processing stage, we were hit first. Our segment reporting in the following chapters provides more information about the restructuring measures we are undertaking and their consequences.

Future timber demand

The World Bank estimates that timber demand, especially in the construction industry, will multiply in future. This growing demand cannot be met by plantation timber alone, which makes our task all the more important. We continue to strive to expand our activities. Contracting new concession areas with intact tropical forest areas, and in that way contributing to the protection of larger areas, is at the very top of our list of priorities. Equally important for our value creation is the further processing of timber products. The more we process, the higher the margins we can achieve.

The European Union has enacted the European Deforestation Regulation (EUDR), which will enter into force on 29 December 2024 with the aim of combatting deforestation. Given that Precious Woods practises sustainable forestry and has dual certification, this regulation is an advantage for us, since we already comply with the guidelines while others have yet to follow suit.

More difficult access to financing

The current economic situation has further exacerbated our liquidity situation. Because of our high level of debt and negative result, we have been negotiating with our lenders to suspend interest payments and examine refinancing options. Only by successfully reducing our current debt will we be able to generate new funds for value creation projects and expand our business activities. Already 10 years ago, it was recommended that we increase our own funds and have more sustainable debt on our balance sheet, but doing so was not feasible at the time. After the setback in 2023, however, this has now become absolutely necessary. Fortunately, our existing lenders – almost all of which are also significant shareholders of Precious Woods – are offering their support for such a solution. At the same time, we are working on selling non-essential fixed assets to reduce our debt burden. We are also actively looking for new potential financial backers who are prepared to join us in developing our business. Only with a sound financial basis will we be able to develop further.

Outlook and thanks

The 2024 fiscal year will remain difficult, but the restructuring measures are bearing fruit and we will overcome the downturn albeit at a lower production level.

On behalf of the entire Board of Directors, I would like to take this opportunity to thank our management teams in Switzerland, Brazil, and Gabon for their tremendous dedication and outstanding performance. The tasks and the business environment have been particularly challenging, requiring rapid implementation of restructuring measures, which the teams have managed exceptionally well. I would also like to thank our former and current employees for their enormous commitment and team spirit in this challenging situation.

I would especially like to thank my colleagues on the Board of Directors for their constructive and close cooperation, given the extra work that has been necessary for the committee, as well as for the full board.

Last but not least, on behalf of the entire Board of Directors and our employees, I would like to thank you, our shareholders and financial backers, for your loyalty and commitment to our enterprise. You motivate us to continue to fight for success and to fulfil our important environmental and social responsibilities. We look forward to welcoming as many of you as possible to our Annual General Meeting.

Yours faithfully

Markus Brütsch

Chairman of the Board of Directors