Annual Report

(1)

(2)

Shareholder

information

Annual General Meeting 20 May 2010

The Annual General Meeting of shareholders in

RusForest AB (publ) will be held at 3 p.m. on Thursday

20 May 2009, at 7A Konferens, Strandvägen 7A,

Stockholm.

Participation

To be entitled to participate at the Annual General

Meeting, shareholders must be registered in the share

register maintained by Euroclear Sweden AB no later

than 14 May 2010 and notify the company of their

inten-tion to attend the Annual General Meeting by 4 p.m. on

14 May 2009.

Notification

Notification of participation may be made:

By post to RusForest AB (publ),

Hovslagargatan 5, SE-111 48 Stockholm

By e-mail to [email protected]

By telephone to +46 8 771 85 00

Notification should include name, personal identification

number (corporate registration number), address and

daytime telephone number.

Trustee-registered shares

Shareholders whose shares are held in the name of a

trustee must temporarily re-register the shares in their

own name to be entitled to participate in and exercise

their voting rights at the Meeting. Such registration must

be completed with Euroclear no later than 14 May 2010.

This means that the shareholder must request such

regis-tration prior to this date.

Dividend

The Board of Directors proposes that no dividend be paid

for the 2009 financial year.

(4)

(5)

The net result amounted to SEK 119.5 million

⦁

(SEK –102.3 million for the same period 2008), in large

part due to the significant acquisition gain which arose

from the acquisition of 50 per cent of RusForest Limited

from Vostok Nafta Investment Ltd on June 1, 2009. The

acquisition gain has been restated from the amount

reported in the Interim Report for the six months

ended June 30, 2009, as fixed assets were then taken

up at cost. As per May 31st, 2009, the fixed assets have

been re-valued at fair market value, by an independent

appraiser, in accordance with IFRS 3. The acquisition

gain was largely offset by the goodwill impairment,

amounting to SEK 142.6 million, recorded on

acquisi-tion of the subsidiaries between 2006 and 2008.

RusForest AB became a pure play forestry company

⦁

through the acquisition of 50 per cent of RusForest Ltd

from Vostok Nafta.

– On June 1st Varyag Resources AB, a listed

com-pany making investments primarily in unlisted

natural resource related companies in Russia and

the rest of the CIS, acquired 50 per cent of RusForest

Limited from its joint venture partner Vostok Nafta

Investment Ltd. The acquisition was made through

an issue in kind of 8,537,640 shares in Varyag to

a wholly owned subsidiary of Vostok Nafta in

exchange for, inter alia, 50 per cent of the shares in

RusForest Ltd and claims of SEK 212.2 million on

RusForest. The acquisition gave Varyag Resources

AB 100 per cent ownership of the shares and votes in

RusForest Limited (Bermuda), the parent company

of the RusForest Group, and was part of Varyag

Resources AB’s transition from a private equity

com-pany to a forestry comcom-pany.

– Aleksandr Williams was appointed as new board

member and CEO of the Company on June 2, 2009.

– After a decision taken at the EGM held on August 5,

2009, Varyag Resources AB changed its name to

RusForest AB (publ).

The Company achieved significant growth in both

⦁

harvesting operations (20.8 per cent growth compared

to 2008) and in sawmilling (37.9 per cent growth

com-pared to 2008) during the year.

Record production reached at the Boguchansky

saw-⦁

mill in December 2009, with 6,000 m

3

_{of output and}

cash positive result.

A settlement agreement was signed with the 20 per

⦁

cent shareholder of PIK-89 under which RUB 42.5

mil-lion (SEK 9.9 milmil-lion) of debt owed by PIK-89 to the

minority shareholder was transferred to RusForest AB

for a consideration of RUB 30,000 (SEK 6,971), resulting

in a financial gain of RUB 44.2 million (SEK 10.3 million

including accrued interest).

RusForest signed an agreement whereby the Russian

⦁

shareholders of Russian Gravel Co transferred 41.7

per cent of their shares to RusForest. Following this

completion RusForest’s ownership has increased from

51 per cent to 92.7 per cent.

– Russian Gravel Co. received certification from

Russian State Railways for fraction 25–60 mm, and is

as a result the sole certified producer in Karelia.

– At the end of the third quarter of 2009, the decision

was taken to stop production at Russian Gravel Co

until market conditions improve as it is less

expen-sive to close down, as opposed to running at well

below break-even volumes over winter and spring.

Rus

⦁

Forest AB has amended the interim reported

year-end financial information by making a deferred tax

liability accrual in the amount of SEK 50.5 million

origi-nated from fair valuing the property plant and

equip-ment acquired through the business combination with

Vostok Nafta Investments Limited on June 1, 2009.

The deferred tax charge has not affected the

consoli-dated statement of comprehensive income, however,

it had an effect of SEK 50.5 million on the Group’s

retained earnings.

Significant events after the end of the period

For the purpose of guaranteeing a steady log supply

⦁

and continuing its expansion programme including

continuing work at the new sawmill in Magistralny,

RusForest has carried out a bond issue with a 12 month

maturity and a volume of SEK 50 million. The bond

can be redeemed early, at the option of RusForest, after

6 months and runs with a fixed interest rate of 15.00 per

cent. E. Öhman J:or Fondkommission AB has placed the

bond.

All sawmill operations stopped at Tuba, assets

⦁

were

sold to other group companies and Tuba-Les applied

for creditor restructuring.

Extreme cold weather from December 2009 to February

⦁

2010 disrupted harvesting operations throughout

East Siberia, the Company’s harvesting operations

lost about 300 working hours in each of January and

February 2010. As a result winter stock targets have

been missed at PIK-89, but met at Bogouchan and

Lesprom. The lower than planned stock levels at PIK-89

mean that sawmilling will be slower than planned until

summer harvesting begins around June.

(6)

Developments in Russia

Russia was greatly affected by the economic crisis in

2008–2009. The fall in oil prices had a major impact on

the Russian economy and, consequently, Russian state

finances. Previous GDP growth turned into a fall in GDP

of 8 per cent in 2009, budget surpluses turned into

defi-cits, and the rouble initially fell by 30 per cent against the

dollar, while the unemployment rate rose to nearly 10 per

cent.

The government introduced powerful

counter-meas-ures and, wise from the experience of the economic crisis

in 1998, utilized the large currency reserves that they

had saved during the high growth years of 2000–2007.

Naturally, the situation was helped by the surge in oil

prices in 2009 from 30 dollars per barrel to the current

80 dollars, with Russia exporting around 160 million

tonnes of oil per year. The government currently levies

an export duty of 270 dollars per tonne, which yields the

Russian state budget around 40 billion dollars; this is

equivalent to the size of the defence budget.

As with the economic crisis of 1998, the Russian

economy recovered quickly. The fourth quarter of 2009

and the first quarter of 2010 showed growth, and GDP

is projected to increase by 3–5 per cent in the current

year. Inflation fell during 2009 to just below 9 per cent

and is estimated to decline further this year. The rouble

exchange-rate has stabilized at around 29–30 against the

dollar. Despite the large withdrawals from the foreign

exchange reserve and the oil stabilization funds during

2008 and 2009, the total Russian foreign exchange reserve

remains at 450 billion dollars and is still the third largest in

the world after China and Japan.

In the short term, the economic outlook looks good for

Russia. Nevertheless, Russia has serious structural

prob-lems with an outdated infrastructure, a one-way bet on the

energy sector, a poorly functioning credit system and a

ter-rifying bureaucracy and corruption culture. The political

leadership recognizes these problems, as well as the

neces-sity to modernize trade and industry. Actions are now

being taken to facilitate foreign investments in Russia,

for example by accepting Western technology standards

without re-trial. The deregulation of all permits, that

plagues the Russian economy and contributes to

corrup-tion, continues. The government is devoting significant

resources to technological innovations, where

nanotech-nology is one example.

While Vladimir Putin as prime minister, along with

Finance Minister Kudrin, has responsibility for the

eco-nomic policy (which continues to be governed top-down),

President Medvedev is looking to extend the

moderniza-tion policy to include civil society, particularly the

judi-ciary, but to some extent also the political life in terms of

the influence of political parties and citizens. It is clear that

the economic crisis has made the political leadership in

Moscow more responsive to public demands and wishes.

Russia and the rest of the world

Foreign policy has seen a certain rapprochement between

Russia and the United States after President Obama’s

inauguration. The two countries have, thus, recently

signed a new agreement on reduction of strategic nuclear

weapons. Fundamental disagreements remain on several

other issues, not least in relation to several of Russia’s

neighbours. After the presidential elections in the Ukraine,

relations between Russia and the Ukraine should become

more relaxed, which are in their mutual economic interest.

Relations between Russia and the EU have not evolved

greatly over the past year. It is interesting to see the

impor-tance that Russia attaches to the development of bilateral

relations with countries like Germany, Italy and France

and what response they will receive.

From Sweden’s point of view, it was a success that

the Russia–EU summit took place in Sweden during the

Swedish EU Presidency in the autumn of 2009 and that

Prime Minister Reinfeldt paid an official visit to Moscow

in March 2010. With the economic crisis retreating in

Russia and growth rates once again increasing, there is

great potential for continued lively trade between Sweden

and Russia.

RusForest welcomes the future

For RusForest, as a large Russian forestry company, it is

essential that modernization and liberalization is

actu-ally implemented in the Russian economy. We feel that

we enjoy strong support from the Russian authorities for

our industrial activities. We have, when needed, been able

to solve encountered problems at the highest level with

federal and regional authorities. With our strong resource

base, we therefore face the future with confidence and are

studying interesting acquisition opportunities

Sven Hirdman

Chairman

(7)

Message from the CEO

Forestry

2009 was certainly a tough year as RusForest contended

with weak market conditions at the same time as bringing

two major production facilities (the Boguchansky

saw-mill and the Belomorsk quarrying business) on stream.

The completion of both investments represents a major

milestone in that the shareholders now own two new

production facilities, which won’t require any material

capital expenditure in the foreseeable future. Furthermore,

Boguchansky was cash positive in December with a record

production volume of 6,000 m

3

_{. The gravel business was}

cash negative in 2009 due to a collapse in the Russian

gravel market.

The Company achieved significant growth in both

harvesting operations (20.8 per cent growth compared to

2008) and in sawmilling (37.9 per cent growth compared

to 2008) during the year. Although there was a reduction

in sawnwood prices, the Company was never in a

posi-tion where volume demand was significantly reduced,

and the Company was able to expand sales even at a

time when most competitors were closing down capacity.

The Company’s ability to sell is firstly a function of the

quality of the forest holdings, where the Company

argu-ably has the best quality softwood resources anywhere

in the world. Secondly, the Company’s location allows it

to access Far East, Central Asian and European markets.

During 2009, our ability to switch volumes from Northern

Africa to Central Asia has been critical to maintaining

sales volumes.

Cash was clearly the main focus for 2009 and whilst in

absolute terms the cash result for 2009 was not inspiring

(cash balance fell by SEK 29.6 million during the year) this

has to be seen within the context of two large start-ups

and weak external conditions. The Company was partially

able to offset cash outflows by taking on a USD 4 million

credit facility at the Boguchansky sawmill. It is important

to remember that credit conditions were extremely tight

in Russia during 2009; specifically PIK-89 was required to

repay all of its bank debt in 2009, which was successfully

achieved. Accordingly, although PIK-89 took on new debt

in December, PIK-89 actually repaid a net of SEK 8.3

mil-lion in debt during the year.

Although the company has overcome some very

sig-nificant operational risks in building two new facilities,

there is still a huge amount of work to do on improving

the existing operations. PIK-89, Lesprom (a logging

opera-tion) and the Trade House were all operating cash flow

positive for 2009 but the result does not yet fully reflect the

Company’s inherent competitive advantage, principally

the low cost access to high quality timber. The process

of improving operations never finishes and in 2009 it

was decided to stop sawmilling operations at Tuba and

move the resulting logs to PIK-89 in order to increase

working on the three initiatives described in the Q3 report,

in summary these are;

1. To build a significant “snow stock” of logs and stems

over the winter period to guarantee the smooth supply

of logs over the summer months.

2. The Company is working to reduce the range of

sawn-wood that it sells in order to simplify product flow

through the sawmills.

3. The Company is working to secure funding to complete

the third sawmill at Magistralny to expand the earnings

base without increasing overhead.

Even though sawnwood prices are increasing, it is

critically important that the Company makes material

progress in all three of these areas, in particular item 2

is just one of several initiatives aimed at reducing costs

at PIK-89. Failure to address these issues will leave the

Company exposed to weather patterns and will result in

erratic cash earnings over the summer months.

Beyond 2010, it is important that value added sectors

develop around RusForest; this will allow the Company

to sell by-products (particularly pulpwood) to the pulp

and paper and related industries. So far the Russian

Government’s attempts to force investment in value

added processing by increasing log export duties have not

been particularly successful. However over time the

pros-pect of increased export duties coupled with Russia’s large

forest holdings and low costs will likely spur development

of pulp and related industries. The Company will stick to

its core harvesting and sawmilling operations, but it can

also act as a catalyst to encourage this process by seeking

investors to establish value-added operations in our

geo-graphic area of operation in order to boost local pulpwood

demand.

Gravel

(8)

Clearly 2009 was not the year to begin major

infrastruc-ture projects given the unexpected pressure on Federal

and regional budgets. Going forward the Russian

govern-ment still has significant savings planned, but the road

building programme should never the less be restarted

in the near term. However, it is not certain that this will

happen in 2010.

The gravel business was shut over winter in order to

avoid operating at below break-even levels, and given

prevailing external conditions RusForest has decided

to extend the closure of operations until the market

improves, while taking all available measures to reduce

the cash burn. This includes the restructuring of lease

pay-ment schedules for the crushing equippay-ment, the

introduc-tion of a “forced shutdown” regime to reduce payroll and

arranging of short-term leases of the equipment.

Cash and Liquidity

The Group’s closing net cash position was SEK 26.1

mil-lion compared to SEK 55.7 at December 31, 2008. The

opening cash position relates to cash held at Varyag AB as

at December 31, 2008. Following the 1st June 2009

acquisi-tion of assets from Vostok Nafta Investment Limited, cash

balances are consolidated across all group companies.

The total net cash outflow for the twelve months ending

December 31, 2009 was SEK 29.6 million in respect of cash

held by Varyag Resources AB as compared to the closing

consolidated group cash position.

The result reflects the fact that we started up two new

facilities in 2009 as well as dealing with very weak external

markets. The fully developed operating businesses at

PIK-89 and our logging business at OOO Lesprom and

the Trade House partially cross-subsidised operating cash

outflows at the Boguchansky sawmill. The Boguchansky

sawmill secured a SEK 28.6 million (USD 4 million) credit

line in September 2009 in order to finance log purchases

and start-up completion. Accordingly, the forestry

divi-sion showed positive net cash movement of SEK 24.4

mil-lion. In addition to taking up debt, PIK-89 was required to

repay in full all outstanding credit lines during 2009, and

the company repaid SEK 19.8 million (RUB 83.3 million)

in bank debt during the year. Even though PIK-89 took on

some new debt in December 2009, there was a significant

net debt reduction at PIK-89 during 2009 of SEK 8.3

mil-lion (RUB 34.9 milmil-lion).

Alex Williams

(9)

RusForest is a company active within the forestry sector in

Eastern Siberia, Russia. The company was established in

2006 through the acquisitions of Tuba-Les and PIK-89 in

the Ust Ilimsk region. Since then, RusForest has reached

a considerable scale, both in terms of forest resources and

sawmilling capacity, through strategic acquisitions and

“brown field” development projects.

The company currently controls over 850,000 hectares

of forest land with an annual allowable cut (AAC) of

1,443,200 m

3

_{. The Group’s current sawmilling capacity}

of approximately 200,000 m

3

_{is expected to increase to}

around 300,000 m

3

_{within the near future as a result}

of the completion of the Boguchansky sawmill, which

is approaching full capacity, and the assembly of the

RusForest Magistralny sawmill.

Russia has the world’s largest timber reserves by a

significant margin, and Eastern Siberia is known for its

high quality Angarsk Pine and Siberian Larch. The forest

resources in this area are of high density and therefore

well suited to produce sawnwood of exceptional quality.

RusForest’s operations are favourably positioned, in the

southern part of Eastern Siberia, to effectively reach the

rapidly growing Asian markets. Subsequently, most of

the company’s production is currently directed at

cus-tomers in Central Asia, the Middle East, Northern Africa,

Japan and China (the world’s largest importer of wood

and wood products). All of RusForest’s products are sold

through the wholly owned trading company, RusForest

Trading.

RusForest is the sixth largest forestry company in

Russia in terms of harvest volumes according to data

col-lated by Lesprom.ru.

Overview

Forest Area by Country, thousand Hectares

0 100,000 200,000 300,000 400,000 500,000 600,000 700,000 800,000 900,000 Indonesia Australia China USA Canada Brazil Russia H ec tar es

Forest Land Owned or Controlled, thousand Hectares

0 500 1,000 1,500 2,000 2,500 3,000 3,500 Bergs Timmer Sino-Forest* Tornator RusForest* Holmen Bergvik Skog SCA Södra UPM* Svea skog

Source: Company Data for 2007, rusForest: Total forest land under long term lease on December 31, 2009

(10)

Aims and strategy

Business concept

RusForest’s business concept is to be an efficient

sup-plier of high quality sawn timber. The Company’s aim

is to utilise its access to high quality forest land and low

input costs to produce high quality sawnwood in order to

generate a return for its shareholders. The Company has

achieved its first aim of acquiring and consolidating

sig-nificant forestry and sawmilling assets. Going forward the

Company will focus on improving existing operations and

completing its investment programme.

Overall objective

RusForest’s long term objective is to continue to monetise

its significant forestry resource by increasing its

saw-milling capacity and value-added activities whilst

gener-ating an acceptable return on capital.

Strategy

To fully utilize the competitive advantage over western

competitors, of having access to an abundance of cheap

raw material, low power and personnel costs, RusForest

seeks to increase productivity and efficiency throughout

its value chain. The Company has achieved its first target

of achieving management control over a significant forest

resource base and sawmilling capacity. Going forward it is

important to improve operational efficiency and increase

the Company’s scale by completing the investment

pro-gramme by bringing the Magistralny sawmill on stream.

In the longer term RusForest seeks to be a catalyst

for domestic investment in value-added processing in

the geographical areas where the Company is active.

RusForest’s core business will remain harvesting and

saw-milling operations, but the Company aims to encourage

vertical integration and modernisation by seeking

inves-tors to establish value-added operations in conjunction

with RusForest’s operations.

Operational and Financial targets

RusForest has reached a scale where focus can shift from

acquisitions and land bank growth towards finalising

projects and improving operational efficiency. During

2009 the company utilized 49.7 per cent of its consolidated

AAC and the intention is to steadily increase this figure

to around 65 per cent or approximately 1 million m

3

going forward. Sawnwood production is also planned to

increase to approximately 300,000 m

3

_{, on an annual basis}

over time. The planned increase in harvesting volumes

will allow for a larger internal supply of raw material,

which decreases costs and supply related risks. Achieving

these production capacity increases is important in order

for RusForest to match its sawnwood production with

Russia’s implementation of export duties on roundwood,

which should be enforced in the medium term. The duties

were originally planned to come into effect on 1 January

2009, but have since been postponed. The Russian

Govern ment confirms its long term intention to stimulate

domestic wood processing through the introduction of a

prohibitively high export duty, but has agreed to delay the

planned export duty increase for 2010 and possibly longer.

In order to fully utilize the competitive advantage, over

western competitors, of having access to cheap raw

mate-rial and lower power costs, RusForest seeks to increase

productivity and efficiency throughout its value chain.

This is a never ending task and the Company is still in the

early stages of this process at the older PIK-89 facilities.

In the nearest future, the Company is focused on the

fol-lowing key initiatives;

1. To build a significant “snow stock” of logs and stems

over the winter period to guarantee the smooth supply

of logs over the summer months.

2. The Company is working to reduce the range of

sawn-wood that it sells in order to simplify product flow

through the sawmills.

3. The Company is working to secure funding to complete

the third sawmill at Magistralny to expand the earnings

base without increasing overhead.

The key to achieving these objectives is to have a highly

motivated and competent management team; this is a

major challenge in the Company’s areas of operations

which tend to rural and semi-rural. Some of the

manage-ment group members have achieved outstanding results

in 2009 by completing two major investments and

particu-larly bringing the Bogouchan sawmill up to full capacity.

Having said that, a lot of work remains to be done

par-ticularly at PIK-89. Although PIK-89 achieved record

sawmilling volumes in summer 2009 a lot of work remains

to be done to increase operating efficiency. This involves a

major programme of cost control and cost reduction which

will be implemented in Q2 2010.

In the medium term, the Company’s aim is to generate

a cash return which reflects the amount of capital invested

in the business and the risks taken on by shareholders. Our

logging business has been consistently cash positive and

PIK-89 has shown erratic cash results, Bogouchan is now

becoming cash positive as volumes increase. The Company

has worked its way through a lot of operational risks in

2009 by completing two effectively new production

facili-ties. Going forward it is critical that working capital is

man-aged more effectively and that costs are controlled at

PIK-89. The exposure to weather cycles makes working capital

a major issue and failure to secure logs over winter means

that summer production volumes are subject to the risk

of bad weather over the summer months. The Company

needs to overcome this seasonal volatility firstly through

building winter stocks and in the long term by improving

access to the forest through road building.

Dividend policy

Dividend payments to shareholders are dependent on

RusForest’s results, financial position and investment

needs. Considering RusForest’s current investment and

growth prospects, in addition to the Company’s liquidity

and financial position in general, dividends are not

expected to be paid in the foreseeable future. RusForest

currently intends to retain future earnings to fund the

development and growth of the Company.

(11)

Organisation

RusForest AB is the Group’s Parent Company, with its

reg-istered office in Stockholm. Operations began on 1 August

2006 and the company has been listed on the First North

list of the Stockholm Stock Exchange since 7 August 2006.

A change of name from Varyag Resources AB to RusForest

AB was made effective in August 2009.

Since the date of incorporation the Company has been

investing and further managing the unlisted natural

resources companies in Russia in forestry and mining

segments. The investments into forestry segment were

made under the partnership agreement with Vostok Nafta

Investment Ltd on the equilibrium basis. The investments

were made via RusForest Ltd (Bermuda) for the purpose

of operating under U.K., rather than Cyprus law.

On June 1, 2009 RusForest AB exchanged 8,537,640

newly issued RusForest AB shares for the 50 per cent

shareholding in RusForest Limited, 1 share in RusForest

(Cyprus) Limited, 10 per cent in Tuba-Les LLC, 10 per cent

in Tublesprom PLC and 50 per cent in RusForest Angara

LLC (formerly TSLKK LLC). Additionally, the loans issued

to RusForest (Cyprus) Limited of SEK 212 205 thousand

were assigned to RusForest AB. As a result of the

transac-tion, consideration paid totalled SEK 156,239 thousand

(calculated as 8,537,640 shares at the share price at First

North on June 1, 2009 of SEK 18.3 per share).

In addition to the Parent Company, the Group consists

of the subsidiary RusForest Ltd (Bermuda). RusForest

Ltd was incorporated in Bermuda on 8 March 2005 as a

private company with limited liability under the Bermuda

Companies Act 1981. Initially the Company was

incor-porated under the name Vostok Caspian Oil Limited and

on 29 March 2006, it changed its name to RusForest Ltd.

The Russian subsidiaries are owned via RusForest Ltd’s

wholly owned subsidiaries RusForest (Cyprus) Ltd and

Varyag Capital (Cyprus) Ltd with registered offices in

Nicosia, Cyprus. RusForest AB also owns Varyag Finance

GmbH with its registered office in Zug, Switzerland.

Varyag Capital (Cyprus) Ltd had, between July 31, 2006

and June 1, 2009 a management agreement with Taiga

Capital Ltd, which managed the company’s investments.

As part of the restructuring of RusForest, the

manage-ment agreemanage-ment with the managemanage-ment company, Taiga

Capital Ltd, was terminated. As consideration for the

performance based compensation relating to future

dis-posals within forestry-related business the management

company received 1,987,834 warrants in Varyag in

accord-ance with the decision taken at the extraordinary general

meeting held on May 25, 2009. These warrants will entitle

the holder to subscribe for 1,987,834 new shares at a

sub-scription price of SEK 63 per share during the period 1 July

2009 up to and including 1 January 2012. The management

company will retain the right to performance based

com-pensation upon a disposal of Russian Gravel Co.

Investment decisions are made by Varyag Capital

(Cyprus) Ltd on the basis of proposals made by the

Management Company and advice from the Investment

Advisory Committee; see next page.

PIK-89 was renamed to RusForest Ust-Ilimsk on

April 1st, 2010.

Simplified legal structure, 31 December 2009

Organisation and legal structure

PIK 89 Tuba-Les Bogouchanski LPK RusForest Magistralny OOO Lesprom

Ust Ilimsk, Irkutsk AAC

734 700 m3

Sawmilling

105 700 m3

Ust Ilimsk, Irkutsk AAC 235 000 m3 Sawmilling 26 000 m3 Bogouchan, Krasnoyarsk Sawmilling 100 000 m3 RusForest Limited Bermuda Russian Gravel Co.

Cyprus Ltd

RusForest AB

RusForest Cyprus Limited

Magistralny, Irkutsk Sawmilling (planned) 100 000 m3 Magistralny, Irkutsk AAC 128 100 m3

OOO Belomorski Karier Tuba-Lesprom ZAO Bamlesstroi

(12)

Investment Advisory Committee

The Group has an Investment Advisory Committee

con-sisting of three members. All investment and divestment

proposals from the Management Company are reviewed

by the Investment Advisory Committee, with the aim of

receiving advice and recommendations. Accordingly, the

Investment Advisory Committee is a key resource in

con-nection with RusForest’s considerations ahead of

invest-ments and exits. The following is a brief presentation

of the members of the Investment Advisory Committee

during 2009.

MIKHAIL M. ZADORNOV

Moscow, born 1963

Member since 2007

Education: Graduate of the

Plekhanov Russian Academy of

Economics and post-graduate

stud-ies at the Institute of the Academy

of Science of the USSR.

Holding in RusForest AB: None

Mikhail M. Zadornov is currently President of VTB24

(ZAO), a subsidiary of Vneshtorgbank focused on serving

retail banking customers and small businesses. Zadornov

held a number of important positions in Government of

the Russian Federation, including: from November 1997 to

May 1999 – Minister of Finance of the Russian Federation,

in May 1999 he was appointed the First Deputy Prime

Minister of the Russian Federation, June–October 1999

Zadornov was Special Representative of the President

of the Russian Federation on International Finance

Institutions Relations being in position of the First Deputy

Prime Minister, he was also appointed Special Adviser

of the President of the Sberbank of the RF in October

1999. In 1997 Zadornov was a Member of the Board of the

Sberbank of the RF and acted as Deputy Chairman of the

Sberbank’s Supervisory Board.

SERGEI VASILIEV

Moscow, born 1957

Member since 2006

Education: Doctor of economics and

graduate of the Leningrad finance

economics institute

N.A. Voznesenskovo (1979).

Holding in RusForest AB: None

Sergei Vasiliev is senator and represents the St. Petersburg

Region in the Federation Council; He is Chairman of the

Federation Council’s committee on the Securities Market.

Prior to being appointed a senator, Vasiliev held a number

of important posts in the Russian Government; in

particu-lar he was Deputy Minister of the Economy between 1994

and 1997. Vasiliev was a key architect of reforms in today’s

Russia and formed part of the core team that designed

and implemented Russia’s transformation to a market

economy.

ALEXANDER JAMES STEWART

London, born 1950

Member since 2006

Education: Stewart is a graduate of

Oriel College Oxford and speaks

four foreign languages.

Holding in RusForest AB: None

Alexander James Stewart has over 20 years of capital

markets experience with an emphasis on emerging

mar-kets. Stewart has been involved in both equity sales and

research. He has held a number of positions in leading

investment banks working out of the City of London.

Stewart’s previous responsibilities included Head of

Equities at RZB; Head of Equities at Banco do Brasil

and Head of Emerging Market Equity Sales at Deutsche

Morgan Grenfell. He is currently Head of Institutional

Research at Eden Financial, a specialist firm providing

independent research to institutional investors.

Alexander James Stewart left the Investment Advisory

Committee in September 2009.

(13)

External environment

Macro and Market

The effects of the global financial crisis on industrial

output, and sawmilling in particular, have been widely

documented. The forest products market is global, and

exceptionally sensitive to the economic cycle on the back

of its close links to the construction sector. As a result,

our industry has been fundamentally affected during the

reporting period in focus.

What happened?

The US housing market began to see significant increases

in foreclosure rates during 2006 and 2007, which lead to

escalating problems with, among others, the subprime

mortgage markets.

Key benchmarks, housing sales and construction rates

in the US, plummeted between 2006 and the end of 2008,

and on December 30, 2008, the Case-Shiller home price

index reported the largest drop in its history – a

devel-opment which did not bode well for the sector in 2009.

This was true for the first half of the year, when US

Con-struction rates fell to the lowest rates recorded since the

great depression. US Housing Starts and US Housing Sales

had decreased by as much as 79 per cent (April 09) and

81 per cent (Feb 09) respectively, in comparison with their

peaks in 2005 and 2006.

In the Euro zone the construction industry has been one

of the hardest hit sectors of the economy, and the decrease

in construction activity during the 3rd quarter of 2009

totalled 9.6 per cent according to the ECB. The area has

witnessed a large decline in housing supply, partially due

to declining real housing investments since the middle of

2007. Real residential investment decreased by 8.3 per cent

year-on-year in Q3 2009 and building permit issuance in

the region remains at low levels, indicating that the

weak-ness could persist for some time longer.

The Japanese economy bottomed out in the middle of

2009, and most projections point towards mild recovery

in 2010. The IMF is projecting that the Japanese economy

will grow by 1.7 per cent in 2010 after a significant

contrac-tion of 5.7 per cent in 2009. Construccontrac-tion levels in Japan

were around 30 per cent lower in 2009 compared to the

previous year, but the country enjoyed relatively stable

construction levels during the latter part of the year with

increases in dwelling starts of 16 per cent between August

and December 2009. Wooden house construction was also

less affected, and “only” decreased around 20 per cent

year-on-year, which increased the market share to

approx-imately 55 per cent, and supported domestic sawnwood

demand.

Effect on the forestry sector

In North America, around half of the sawmilling capacity

has been closed or mothballed since the industry peak

in 2007. In Europe, sawnwood consumption declined by

around 10 per cent in 2009 compared to 2008 and

pre-liminary production volumes, of approximately 100

mil-lion m

3

_{, are 25 per cent lower than in 2007. In Sweden}

sawnwood production dropped by 9 per cent during

the year, while sawn softwood production in Finland

decreased by 22 per cent, to 7.6 million m

3

_.

Even though production decreased, Swedish sawn

and planed softwood exports remained stable in 2009

(an increase of 2 per cent compared to 2008). However, the

sales destinations of Scandinavian timber have changed.

Swedish exports to other European markets decreased

when these markets collapsed during 2009, and to make

up for this producers redirected more of their exports to

some of RusForest’s main markets; Northern Africa (Egypt

+13 per cent, other northern Africa +33 per cent), Japan

(+9 per cent) and the Middle East (+3 per cent).

Operational development

Housing Data, 2004 to 2009 (April 04 = 100)

Source: u.S. Census Bureau

(14)

RusForest’s main markets are located in Northern Africa,

the Middle East, Central Asia, Japan and Korea. During

2009 the company’s sales destinations remained

rela-tively unchanged in contrast to most other suppliers.

This clearly reflects the consistency in demand which the

Company experienced and shows the relative stability

enjoyed by the Northern African and Middle Eastern

mar-kets throughout the financial crisis even with significant

increases in mainly Scandinavian and Canadian supply.

RusForest has long standing, significant, log sales into

China and during December 2009 deliveries to this market

exceeded 8,000 m

3

_.

Pricing

On the back of market improvements during the second

half of 2009, and increasing confidence regarding the

future, global sawnwood production and pricing started

to increase once more during that period. For RusForest,

average sawnwood prices stabilised during the second

quarter, and increased during the third, after a sharp

downturn at the beginning of the year. These increases

were fuelled by supply side pressure forcing customers

to accept higher prices. The price appreciation continued

in most markets during the fourth quarter, and RusForest

witnessed continuing increases in contract pricing and

demand.

After positive developments in the third quarter the

increases in weighted average prices levelled out during

Q4 2009 in spite of stronger demand and increases in

negotiated prices. This was the result of two main factors.

The Company had to supply under “old” pricing in order

to clear out an order backlog. In addition, the quality

dis-tribution in the sawmills fell during the fourth quarter due

to log shortages.

2010

Economic growth returned and solidified during the

second half of 2009, in large part fuelled by an

unprec-edented amount of policy stimulus in western economies.

Even slow moving advanced economies like Germany

and Great Britain came out of recession during this period,

while some emerging markets even achieved meaningful

growth over the year – in particular China which steamed

on reaching a growth rate of 8.7 per cent according to the

IMF.

In most advanced economies recovery should prove

to be relatively slow. In 2010 the IMF is projecting that

the output in advanced economies will increase by just

2 per cent, from already depreciated levels. But in most

emerging markets the upturn should prove to be more

forceful, with consolidated growth expectations of around

6 per cent and with double digit growth rates once more

expected in China for 2010 – backed by the country’s

extraordinary internal demand.

Europe, 2% Northern Africa, 39% Middle East, 21% Japan and Korea, 12% Domestic1)_{, 9%} China, 3% Central Asia, 13%

RusForest’s Sawnwood Sales Geography, 2009

Source: rusForest Trading

1) predominantly volumes delivered domestically but for further processing to Japanese specifications. USD/m 3 0 50 100 150 200 250 300 Jan 2010 Nov Sep Jul May Mar Jan 2009 Nov Sep Jul May Mar Jan 2008 Nov Sep Jul May Mar Jan 2007 Nov Sep Jul 2006

Sawnwood Export Prices, delivered to port, 2006–2009

(15)

In the US, housing industry analysts predict a recovery

in housing starts during 2010 backed by a growing

under-lying need for investments in the sector. US construction

of privately owned housing units amounted to 794,000

units during 2009 and the seasonally adjusted annual rate

of housing starts is currently only around 600,000 units.

Long term sustainable construction rates, based on the

demographics of the country, are approximately 1.5

mil-lion units per year. The North American softwood markets

have seen two years of severe downturns, and 2010 is

con-sequently expected to be the year when growth returns.

The Japanese construction sector shrank by 30 per

cent in 2009, but wooden house construction decreased

less – by around 20 per cent year-on-year – which helped

to keep sawnwood demand up. The reduction of imports

of Russian logs to the Japanese market is expected to

continue in light of the export duties already in place.

This supports sawnwood imports from Russia, which are

expected to remain stable during 2010, even though we

expect to see increases of predominantly North American

supply on the market.

The Russian economy was one of the most severely

affected by the global financial crisis with a GDP

contrac-tion of 9 per cent in 2009 according to IMF. Fears of a debt

crisis in the west, US recovery and uncertainty regarding

global oil price developments make projections difficult

in the near term regarding the rate of Russia’s recovery.

However, for 2010 growth is most likely to be somewhat

muted and most analysts and businesses look to 2011 for a

return to higher growth rates in Russia once more.

The crisis has led to the stagnation of domestic bank

lending, and the Russian credit market was frozen during

the most part of 2009. However, in an effort to fuel

eco-nomic recovery by jump starting bank lending (and to

mitigate the rouble appreciation seen in recent time) the

Central Bank of Russia (CBR) cut the refinancing rate by a

further 25 basis points, to 8.50 per cent, during February

2010. This is a post Soviet era low, but seeing as inflation is

still decreasing – on account of the crisis – new cuts seem

likely going forward. The Russian credit market needs a

boost to get out of the doldrums, and the CBR is still under

pressure to stimulate economic growth. As a result,

con-tinued easing by the CBR during the first half of the year is

probable, and with pressure on domestic banks to follow

suit, the credit markets should steadily improve during

the course of the year.

(16)

Location of the subsidiaries

RusForest’s forestry subsidiaries are located in eastern

Siberia, an area dense in high-quality Angarsk pine and

Siberian larch, and also well-situated for reaching the

rap-idly growing Asian markets, and especially China.

Karelia in north-western Russia, where RusForests’

gravel company, OOO Belomorsky Karyer is located, is

the region in Russia with the largest aggregates reserves

totalling upwards of 1,700 billion m

3

_{. The region also has a}

well-developed transport infrastructure, linking it to

end-users of aggregates in the construction and road-building

sectors.

Forestry

RusForest operational data 2009 Actuals

unit pIK Group

Tuba

Group lesprom Boguchansky Bamlesstroi

Consolidated

12M 2009 12M 2008 %

rusForest ownership interest 31-Dec-09 90% 100% 100% 100% 100%

Annual Allowable Cut (AAC) m3 _{734,700 235,000 128,100} _112,400 _233,000 _1,443,200 _{1,654,100 (12.8%)}

utilised AAC m3 _460,373 _92,932 _69,317 _94,204 _– _716,826 _593,529 _20,8%

utilistion of AAC (annualised) % 62.7% 39.5% 54.1% 83.8% – 49.7% 35.9% 38.4% Sawnwood volumes m3 _105,688 _15,971 _1,526 _43,149 _– _166,333 _120,617 _37.9%

Forest area Hectares 436,033 117,514 30,988 48,695 231,554 864,784 1,005,020 (14.0%)

1) The figures shown above are given for reference purposes only to make possible comparisons between the Group companies’ operational performance in 2009 versus 2008, and do not constitute part of the rusForest AB financial statements for the twelve months ending December 31, 2009. pIK Group includes pIK-89, pIK 2005 and TD rusForest; TuBA Group includes Tuba-les and Tublesprom; Boguchansky includes Boguchansky lpK and rusForest Angara. physical harvesting and sawmilling vol-umes, and forest resources, for 12M 2008 are adjusted for volumes attributable to nebelsky lpH. Boguchansky lpK harvesting volumes 2009 have been restated from log equivalent to stem equivalent.

Operations

(17)

Operationally, 2009 was an eventful year. The start of

oper-ations at the greenfield sawmill in Boguchan, and the

asso-ciated harvesting enterprise RusForest Angara (formerly

TSLKK), contributed to the significant increase in output

RusForest has achieved. As a result of these assets going

online, and thanks to general operational improvements

in the Company’s other subsidiaries, RusForest achieved

volume increases in harvesting and sawmilling of 20.8 per

cent and 37.9 per cent respectively. Not a bad achievement,

given the weak market conditions which were

preva-lent for the most part of the year. The fact that RusForest

achieved such increases in output without waning

cus-tomer demand, once more highlights the strength, and

quality of our products.

However, disruption of summer harvesting

opera-tions, and consequently in sawmilling output, due to

rain remains a perennial problem. On a long term basis,

this problem will only be fully solved once we are able to

build adequate log stocks, which can be drawn down over

summer, to ensure uninterrupted sawmilling operations.

Forestry Operations

On a consolidated basis RusForest has increased its

har-vested volume by 20.8 per cent, to 716,826 m

3

_{, during}

2009 compared to the previous year (593,529 m

3

_{). This}

increase is in large part due to the start of forestry

opera-tions at RusForest Angara (formerly TSLKK) contributing

94,204 m

3

_{(0), in addition to a volume increase of 17.5 per}

cent at the PIK Group.

RusForest saw increases in harvesting volumes during

each quarter of 2009 when compared to the same periods

the previous year. In Q4 2009 the company’s combined

harvesting output was 16.4 per cent higher than for the

same period in 2008, and a record harvesting output was

achieved in December 2009 with just under 86,000 m

3

_of

stem equivalents. These increases came in spite of

temper-atures below -40 Celsius as early in the harvesting season

as November and December.

The log flow at Boguchansky LPK was erratic

throughout the summer as RusForest Angara did not

gain access to summer harvesting plots until August, and

external suppliers delivered only a small fraction of their

contracted volumes. As a result of the lack of reliable log

suppliers, the management team started negotiations to

acquire standing timber and is also looking to acquire

additional AAC in the Boguchan region.

Sawmilling

RusForest’s consolidated sawnwood output increased

by 37.9 per cent, to 166,333 m

3

_{, in 2009 compared to 2008}

(120,617 m

3

_{). The Company’s major sawmilling}

subsidi-aries posted significant increases in production compared

to the corresponding period in 2008, despite weak market

conditions prevailing throughout most of the year.

The PIK Group has been producing stable volumes

throughout 2009 and achieved an average production

rate of 9,100 m

3

_{per month during the second half of 2009}

which was a year on year increase of 10 per cent (from

8,300 m

3

_{). Overall the PIK Group increased its sawnwood}

output by 6 per cent during 2009.

Production at Boguchansky LPK was constrained,

mainly during summer and early autumn, by log

short-ages from RusForest Angara and the absence of reliable

external suppliers. However, the company has still shown

steady increases in sawnwood output, and produced over

6,000 m

3

_{in December for the first time in the history of the}

plant.

Harvesting – stem equivalent m³ 0 20,000 40,000 60,000 80,000 100,000 Dec Nov Oct Sep Aug Jul Jun May Apr Mar Feb Jan 2009 Dec Nov Oct Sep 2008

RusForest Group Harvesting, Sep 08 – Dec 09

Source: rusForest

Sawmilling – stem equivalent m³ 6,000 8,000 10,000 12,000 14,000 16,000 18,000 Dec Nov Oct Sep Aug Jul Jun May Apr Mar Feb Jan 2009 Dec Nov Oct Sep 2008

RusForest Group Sawmilling, Sep 08 – Dec 09

(18)

Subsidiary Developments

PIK Group

In March 2009, RusForest removed the entire

manage-ment of PIK-89. This step was taken after several months

of underperformance and negative cash flows. Although

these developments were largely due to external

fac-tors, RusForest felt that the management had not taken

adequate steps to insure PIK against the perennial

prob-lems in raw material sourcing during the summer period.

In addition to removing the management, certain claims

were presented to the 20 per cent minority shareholder of

PIK-89. Subsequently, a settlement agreement was signed

which resulted in RUB 42.5 million (SEK 9.9 million) of

debt owed by PIK-89 to the minority shareholder being

transferred to RusForest AB for a consideration of RUB

30,000 (SEK 6,971). This resulted in a financial gain of RUB

44.2 million (SEK 10.3 million including accrued interest).

RusForest also increased its shareholding in PIK-89 from

80 per cent to 90 per cent, in December 2009, as part of an

associated shareholder agreement.

In absence of these organisational steps it was likely

that 2009 would have shown a repeat of PIK’s poor

per-formance in 2008. However, PIK’s new management

immediately took steps to buy sawlogs from external

sup-pliers, and as a result the PIK Group was able to produce

stable volumes of approximately 10,000 m

3

_{per month}

throughout the three month period ended September

2009 (an increase of 12.6 per cent compared to the same

period in 2008). Furthermore, a record production level of

10,346 m

3

_{was reached in August 2009.}

Boguchansky LPK

Following production trials in November and December

2008, the Boguchansky sawmill and the associated

har-vesting operations (RusForest Angara) went into full

oper-ation during 2009. In the period March through to May

2009, Boguchansky LPK was producing steady volumes

of around 5,000 m

3

_{of sawnwood per month. This was}

fol-lowed by a significant reduction over summer as the

com-pany cleared inventories and was inhibited by log

short-ages from RusForest Angara together with the absence of

reliable external suppliers. The sawmill only produced

approximately 3,500 m

3

_{per month during July–September}

2009, which was approximately half of the potential sales

that the company could have made during the period.

Major initiatives have been taken in the sawmill (also at

the PIK Group) in order to dramatically reduce the range

of products being produced, and thereby ensuring larger

batches and longer run-times. The aim of the changes

was to make product flow much less complex and

con-sequently increase operational efficiency. Boguchansky

LPK showed steady increases in sawnwood output during

the fourth quarter of 2009, and produced over 6,000 m

3

_in

December for the first time in the history of the plant. We

are now confident that the operational initiatives taken

will continue to positively impact output volumes in 2010.

On the financing side, OOO Boguchansky LPK received

a credit line, amounting to USD 4 million, from Unicredit

for working capital in Q2 2009. This facility was intended

to be used to acquire sawlogs from third party suppliers to

cover the slowdown in in-house harvesting at TSLKK in

May and June 2009.

Tuba Group

In 2009 the decision was taken to stop sawmilling

opera-tions at the small scale sawmill in Tuba and move the logs

to the PIK Group, in order to increase throughput at the

main sawmilling operations there.

The Tuba operations are run from two legal entities,

OOO Tuba-Les and ZAO Tublesprom. During the year

all of Tuba-Les’ moveable fixed assets were sold to other

Group companies and all employees were transferred

from OOO Tuba-Les to ZAO Tublesprom.

At the beginning of 2010, OOO Tuba-Les applied for

creditor restructuring in respect of unpaid taxes and

other payables and the initial petition was granted.

OOO Tuba-Les now has approximately three months to

come up with a creditor restructuring plan which will then

be presented to an external judge. These developments

are not expected to have a material effect on the Group

apart from the impaired goodwill attributable to the initial

acquisition of OOO Tuba-Les.

RusForest Magistralny, Lesprom

and Bamlesstroi

A new sawmill with a base capacity of 100,000 m

3

_of

kiln dried sawnwood is under construction at RusForest

Magistralny. RusForest has however stopped work at

the site until suitably priced debt funding is available.

Negotiations with banks were broken off during 2009 as

a result of the ongoing credit crisis. Credit conditions are

still tight in Russia but significantly better than they have

been during the past year, and the Group has therefore

once more entered into discussions with various banks in

order to secure funding.

Almost all necessary capital expenditure investments

have been made at RusForest Magistralny, with the mill

foundations ready and all equipment delivered from

Italy. The sawmilling site is on a skeleton operation until

suitably priced working capital is available to fund

pro-duction start-up, which in the case of Boguchansky took

6 months.

(19)

Key Financial Data

Item 2009 2008 In thousands of SEK 1/1 – 31/12 1/1 – 31/12 Turnover 207,526 – Costs of Sales (201,101) – EBITDA (79,163) (91,744)

Income from rusForest acquisition 380,009 –

Goodwill impairment (142,570) –

net profit 119,522 (102,317)

Cash Flow During period (29,019) (253,977)

per Share Data

SEK 31-Dec 31-Dec

Earnings 6.53 (7.69)

Shareholders Equity1) _32.46 _41.06

Share price 19.00 11.00

Equity/Assets ratio 74.2% 93.2%

1) Shareholders equity per share for 2008 is calculated from the shareholders’ equity and number of shares as per December 31, 2008.

Annual Report

Contents

Shareholder

information

Annual General Meeting 20 May 2010

The Annual General Meeting of shareholders in

RusForest AB (publ) will be held at 3 p.m. on Thursday

20 May 2009, at 7A Konferens, Strandvägen 7A,

Stockholm.

Participation

To be entitled to participate at the Annual General

Meeting, shareholders must be registered in the share

register maintained by Euroclear Sweden AB no later

than 14 May 2010 and notify the company of their

inten-tion to attend the Annual General Meeting by 4 p.m. on

14 May 2009.

Notification

Notification of participation may be made:

By post to RusForest AB (publ),

Hovslagargatan 5, SE-111 48 Stockholm

By e-mail to [email protected]

By telephone to +46 8 771 85 00

Notification should include name, personal identification

number (corporate registration number), address and

daytime telephone number.

Trustee-registered shares

Shareholders whose shares are held in the name of a

trustee must temporarily re-register the shares in their

own name to be entitled to participate in and exercise

their voting rights at the Meeting. Such registration must

be completed with Euroclear no later than 14 May 2010.

This means that the shareholder must request such

regis-tration prior to this date.

Dividend

The Board of Directors proposes that no dividend be paid

for the 2009 financial year.

The net result amounted to SEK 119.5 million

⦁

(SEK –102.3 million for the same period 2008), in large

part due to the significant acquisition gain which arose

from the acquisition of 50 per cent of RusForest Limited

from Vostok Nafta Investment Ltd on June 1, 2009. The

acquisition gain has been restated from the amount

reported in the Interim Report for the six months

ended June 30, 2009, as fixed assets were then taken

up at cost. As per May 31st, 2009, the fixed assets have

been re-valued at fair market value, by an independent

appraiser, in accordance with IFRS 3. The acquisition

gain was largely offset by the goodwill impairment,

amounting to SEK 142.6 million, recorded on

acquisi-tion of the subsidiaries between 2006 and 2008.

RusForest AB became a pure play forestry company

⦁

through the acquisition of 50 per cent of RusForest Ltd

from Vostok Nafta.

– On June 1st Varyag Resources AB, a listed

com-pany making investments primarily in unlisted

natural resource related companies in Russia and

the rest of the CIS, acquired 50 per cent of RusForest

Limited from its joint venture partner Vostok Nafta

Investment Ltd. The acquisition was made through

an issue in kind of 8,537,640 shares in Varyag to

a wholly owned subsidiary of Vostok Nafta in

exchange for, inter alia, 50 per cent of the shares in

RusForest Ltd and claims of SEK 212.2 million on

RusForest. The acquisition gave Varyag Resources

AB 100 per cent ownership of the shares and votes in

RusForest Limited (Bermuda), the parent company

of the RusForest Group, and was part of Varyag

Resources AB’s transition from a private equity

com-pany to a forestry comcom-pany.

– Aleksandr Williams was appointed as new board

member and CEO of the Company on June 2, 2009.

– After a decision taken at the EGM held on August 5,

2009, Varyag Resources AB changed its name to

RusForest AB (publ).

The Company achieved significant growth in both

⦁

harvesting operations (20.8 per cent growth compared

to 2008) and in sawmilling (37.9 per cent growth

_{of output and}