ANNUAL REPORT 2002

HIGHLIGHTS IN BRIEF

Operating Result increased by 134% from USD 1,06 million to USD 2,47 millionNet Profit increased by 49% from USD 1,45 million to USD 2,16 millionPrecious Woods Pará achieved breakeven already in the second year of operationsPrecious Woods Amazon acquired Carolina and integrated the operations as Precious WoodsIndustries (veneer factory and small parts manufacturing)The BK Energia power plant located on the property of Precious Woods Amazon went on lineThe Information Centre at Precious Woods Amazon was openedPrecious Woods Costa Rica again reforested 400 hectares and exported the first teak harvestedfrom commercial thinnings to IndiaPrecious Woods Holding Ltd was listed on the SWX Swiss Exchange and raised CHF 10,8 million ofnew capitalIn the Spring of 2003 an additional 1230 square kilometres of forest were purchased in Brazil

5-Year Summary of Key Financial Data (USD Million)

1998 1999 2000 2001 2002Gross Turnover 4,27 4,71 5,05 9,21 9,76Net Turnover 3,16 3,47 4,47 8,66 9,09Production Cost 4,77 3,71 4,09 7,55 6,40Gross Margin –0,88 –0,25 0,38 1,12 2,68Net Increase in Value Costa Rica* 0 0 1,81 2,12 2,51Total Revenue* 4,27 4,71 6,87 11,32 12,27Operating Result* –4,65 –1,83 0,79 1,06 2,47Overall Result* –4,84 –1,65 0,55 1,45 2,16

*This table uses the figures which were published in each annual report. For the figures to be com-parable, the increase in fair value of biological assets in Costa Rica for 1998–1999 needs to be takeninto account. Calculated retrospectively this amounted to approximately USD 1,4 Mio in 1998 andUSD 1,59 Mio in 1999. Correspondingly, the operating result, the total revenue and the overall resultfor 1998 and 1999 would both be improved by these same amounts.

www.preciouswoods.com

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2 ADMINISTRATION OF PRECIOUS WOODS HOLDING AG

3 PRECIOUS WOODS-GROUP COMPANIES

5 CHAIRMAN’S STATEMENT

7 PRECIOUS WOODS AMAZON

11 PRECIOUS WOODS PARÁ

15 PRECIOUS WOODS COSTA RICA

19 GROUP NEWS

23 CORPORATE GOVERNANCE

27 CONSOLIDATED FINANCIAL STATEMENTS

32 NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

51 REPORT OF THE GROUP AUDITORS

52 FINANCIAL STATEMENTS AND NOTES PRECIOUS WOODS HOLDING

57 REPORT OF THE STATUTORY AUDITORS

Outside cover: view into the canopy. At Precious Woods forest remains forest.

INDEX

2

ADMINISTRATION OF PRECIOUS WOODS HOLDING AG

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The Board of Directors. F.l.t.r.: D.Girsberger, T.Scheidegger, H.Stout, A. Gut, M.Amstutz, R. Straub,E. Stürm, A. Schrafl, (not shown: A. André).

The Board of Directors of Precious Woods Holding AGChairman: Dr. Andres Gut* (born in 1945), Swiss citizen.Medical doctor with his own surgery from 1975 to 2001.Elected to the Board of Directors and the ExecutiveCommittee in January 1997. Appointed as Chairman inJune 1997. Currently works for Precious Woods in a70 % capacity and is responsible, among other things,for the company’s operations in Central America. Chair-man of Migros Ostschweiz and as a board member ofthe Migros-Genossenschaftsbundes. Spent 12 years inpolitics as a representative in the assembly of the cantonSt. Gallen. 2004

Vice-Chairman: Prof. Dr. Daniel Girsberger (born in1960), Swiss citizen. Professor at the University of Lucer-ne and partner in the law firm Wenger, Vieli, Belser inZurich. First became involved with Precious Woods asthe company’s legal adviser in 1994. Elected to theBoard of Directors in 1995 and appointed as Vice-Chair-man in 1996. Member of the Executive Committee from1996 to 1999. 2005

Dr. Max D. Amstutz (born in 1929), Swiss citizen. Mem-ber of the Board of Directors of Precious Woods since1993. Delegate of the board of directors of the HolcimGroup until 1994. Presided over the expansion of thisgroup into Latin America. From 1987 to 2002 Dr. Amstutzheld office as a board member or chairman of severalmajor Swiss groups (Holcim, Alusuisse-Lonza, SGS, VonRoll, etc.). Currently chairman of both Finter Bank Zurichand the public company RPM, Inc. in the United Statesand chairman of several trusts. 2005

Dr. Arnoldo André (born in 1961), citizen of Costa Rica.Owner of an eminent firm of lawyers in San José. Directorof the Chamber of Commerce of Costa Rica, NorwegianConsul. Has been a member of the Board of Directors ofPrecious Woods since the company was founded in1990. Chairman of the Board of Precious Woods CostaRica and responsible with Andres Gut for PreciousWoods’ operations in Central America. 2004

Dr. Ted Scheidegger*, (born in 1958), Citizen of Switzer-land and Canada. Managing Director of Invensys GlobalServices, Europe. Previously held various managementpositions in the finance and high-tech sectors, mostrecently that of CFO at Siemens Solar in California. Elec-ted to the Board of Directors and the Executive Commit-tee in June 2001. In 2002 Dr. Scheidegger filled the role ofCFO at Precious Woods. This was, on average, a 50%engagement. 2004

Dr. Anton E. Schrafl (born in 1932), Swiss Citizen, entre-preneur. Founding Chairman of Precious Woods in 1990.Since then he has served continuously on the Board ofDirectors. From 1985 to 2002 Vice-Chairman of Holcim.Now board member of the Schweizerische Cement-Industrie Gesellschaft and Francke Holding. Also a boardmember of the public company Organogenesis Inc. inthe United States. Spent 16 years in politics as a repre-sentative in the assembly of the canton of Zurich. 2004

Hans Stout*, (born in 1951), Dutch citizen. Director ofA. van den Berg B.V., Precious Woods’ master distributorin Benelux. Previously held managerial positions in theinsurance, banking and construction sectors. First cameinto contact with Precious Woods as a customer, in1996. Appointed as COO Brazil on a part-time basis inJuly 1998. Elected to the Board of Directors and to theExecutive Committee in 1999. Currently works for Pre-cious Woods on a 75 % basis with responsibility for thecompany’s operations in Brazil. 2005

Dr. Robert Straub (born in 1940), Swiss citizen. Financi-al consultant. Board member since 1995. For many yearswas head of the finance department of the canton ofZurich. The asset management department, whose res-ponsibilities included managing the capital assets of theBeamtenversicherungskasse, Precious Woods’ largestshareholder, reported to him. Among other thingsDr. Straub has a seat on the board of the public compa-nies, Belimo and Netinvest and is chairman of the boardof directors of ProgressNow! 2004

Eduard Stürm, (born in 1936), engineer, graduate of theETH (Swiss Federal Institute of Technology), Swiss citi-zen. Was elected in 1997 to serve on the Board of Direc-tors and the Executive Committee, to which he belongeduntil 2001. During his term of office on the ExecutiveCommittee he was responsible for analysing technicaland operational procedures. Professional background:career in the Hiag Group as head of various entities,including some in Latin America. Later he worked as afreelance engineer, primarily in the timber trade. Currentlya member of the board of directors of Starrag-Heckertand Eduard Stürm AG. 2003

* Members of the Executive Committee2003 = Date for re-election or expiry of the term of office

Secretary to the Board of DirectorsJuliana Campos, Mail: campos@preciouswoods.ch

AuditorsDeloitte & Touche, Zurich, Switzerland

3

PRECIOUS WOODS-GROUP COMPANIES

General information about the group as a whole can be obtained from Precious WoodsHolding Ltd. Information relating specifically to Costa Rica and Brazil can be obtainedfrom our offices in those countries.

www.preciouswoods.com

Pochote plantation inCosta Rica.

Transporting logs at PWAmazon.

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Companies Precious Woods Holding Ltd.Zug, SwitzerlandParent CompanyYear of foundation 19903 employees

Madeiras Preciosas de Amazônia Manejo Ltda. Manaus, BrazilSustainable Forestry,Sawmill, Small Parts ManufacturingYear of foundation 1995Aprox. 696 employees

Precious Woods do Pará S.A. Belém, BrazilSustainable ForestrySawmill, Small Parts ManufacturingYear of foundation 2001Aprox. 372 Employees

Maderas Preciosas de Costa Rica S.A. Liberia, Costa RicaReforestationYear of foundation 1990Aprox. 250 Employees

Precious Woods (Switzerland) Ltd. Zurich, SwitzerlandTrade4 Employees

Contact AddressesPrecious Woods Holding AGMilitärstrasse 90P.O. Box 2274CH-8021 ZurichPhone +41 1 245 80 10Fax +41 1 245 80 12E-Mail: office@preciouswoods.chInternet: www.preciouswoods.com

MIL Madeireira Itacoatiara Ltda.Estr. Torquoato Tapajós, Km 227P.O. Box 39BR-CEP 69100-000 Itacoatiara, AMPhone +55 92 521 3331/3323/3528Fax +55 92 521 3329/3526

Precious Woods Pará S.A.Quadra 1, Sector A, Lote 7Distrito Industrial de IcoaraciBR- CEP 66815-520 Belém, ParáPhone +55 91 227 1275Fax +55 91 227 2425

Maderas Preciosas de Costa Rica S.A.P.O. Box 63CR-Liberia., Provincia de GuanacastePhone +50 6 666 06 20Fax +50 6 666 23 33E-Mail: macorisa@sol.racsa.co.cr

Precious Woods (Switzerland) Ltd.Militärstrasse 90P.O. Box 2274CH-8021 ZurichPhone +41 1 245 80 14Fax +41 1 245 80 12E-Mail: info@preciouswoods.ch

▲

Andres Gut in a 11/2 year-oldalmendro plantation.

Dear ShareholdersLadies and Gentlemen

Shares of Precious Woods were traded on the stock exchange for the first time on 18 March2002. Since then Precious Woods has performed well. The operating result has more than dou-bled and net profits have risen by 49%. The future development of the company will also signifi-cantly benefit from the following milestones achieved in 2002:

• Precious Woods Pará completed a full FSC certified harvest for the first time. Capacity in thesawmill was doubled and a facility for the manufacture of small processed parts was installed,ideally complementing Precious Woods Pará’s existing activities.

• Precious Woods Amazon acquired a large factory which has subsequently become an integralpart of the company’s operations. The small-scale manufacture of small parts has been trans-formed into a true industrial operation. Precious Woods now also produces veneer.

• At Precious Woods Amazon the first power plant in Northern Brazil to use waste wood as itssole source of fuel began producing electricity. Our waste wood provides an ideal substitute forlarge quantities of diesel.

• In spring 2003 the area of forest owned by Precious Woods Amazon was more or less doubled.We are convinced that future requirements can now be met with timber from our own forests.

• Precious Woods Costa Rica exported timber obtained from thinnings for the first time. We havealso laid the foundations for expansion into Nicaragua.

So much for the economic developments in the past year. The ecological and social achieve-ments since Precious Woods was founded in 1990 are equally important:

• In Central America Precious Woods has planted nearly five million trees on former pastureland. • In Brazil we have introduced a universally acclaimed system for managing existing forests in a

sustainable manner. We have purchased over 3 000 km2 of forest, ensuring its long-term pro-tection from destruction due to clear cutting and burning.

• During the last 12 years we have created more than 1300 new jobs in rural areas of Latin Amer-ica.

These achievements would not have been possible without the joint effort of all those involvedwith the company: employees, management, the board of directors and shareholders. I wouldlike to take this opportunity to express my profound thanks to all concerned.

With my Best Wishes

Andres Gut

CHAIRMAN’S STATEMENT

▲Log yard at PW Amazon.

Acquisition of Carolina and the Founding

of Precious Woods Industries

The most important event for Precious Woods

Amazon in 2002 was the purchase of the

veneer mill, Carolina, from its former Malayan

owners. With Carolina Precious Woods Ama-

zon acquired a large industrial site and installa-

tions in Itacoatiara, located directly on the

Amazon river. The Malayan owners wished to

sell not only the factory and machines but the

entire equity of the company. The price was

very favourable as the purchase entailed the

assumption of complicated liabilities towards a

variety of government agencies. By means of

skilful negotiations Precious Woods Amazon

and their lawyers succeeded in reducing these

liabilities to such an extent that in the end it

was even possible to achieve a book profit. For

some time Precious Woods Amazon had been

considering setting up its own veneer produc-

tion facilities. Furthermore we were looking for

a solution to the lack of space resulting from

the rapidly expanding manufacture of small

processed parts. The purchase was concluded

in May, following a busy period of preparations.

The re-opening of the factory was celebrated,

to the delight of the whole town, with an event

which was attended by numerous prominent

politicians and broadcast on local television.

There is nothing Itacoatiara needs more than

new jobs. By September slice veneer was

already being manufactured and sold on a

commercial basis. The manufacture of small

processed parts was relocated from the

sawmill to the new, larger industrial facilities.

The move did entail some extra costs and also

a temporary fall in production but will prove to

be an excellent improvement to operations in

the long term.

Opening of the Power Plant and

Information Centre

After several years of preparations, planning

and construction, the nine megawatt electrical

capacity woodchip steam turbine combined

heat and power plant was opened in autumn

2002. Although it is located on the premises of

Precious Woods Amazon, the power plant is 7

PRECIOUS WOODS AMAZON Precious Woods Amazon

has been practising sustainable forest management on its own land since 1996. The

amount of land owned by the company has since risen to 1220 km2. The forest is managed

using methods which imitate nature and maintain its biodiversity. The amount of timber

that may be harvested is kept within strict limits. Over fifty different species of wood are

harvested. In 1997 Precious Woods Amazon was certified in accordance with the criteria

of the FSC (Forest Stewardship Council). The timber harvested is processed in the com-

pany’s own operations where sawnwood, finished products and veneer are produced,

mainly for export to Europe, the United States and Asia. The leftover wood is used as fuel

for a steam turbine combined heat and power plant in order to generate electricity for the

nearby town of Itacoatiara. For the last two years Precious Woods Amazon has been

profitable.

8

not owned by Precious Woods. It belongs

instead to BK-Energia with whom Precious

Woods Amazon has a contract valid for several

years to supply wood fuel, to purchase elec-

tricity for the company’s own use at a special

rate and to benefit from any future increases in

the price of electricity. Underground conveyor

belts carry sawdust and other left over wood

away from each machine directly to a chipper

and the woodchip warehouse. The construc-

tion of the tunnel for the conveyor belts dis-

rupted the production process in the sawmill

for several months but will lead to significant

long term benefits.

The information centre is the joint effort of

Precious Woods Amazon and ProManejo, an

organization which administers international

funds donated to save the Amazon forest from

destruction. Practical demonstrations in the

forest inform visitors about sustainable forestry.

Special attention is given to the regeneration of

the forest after harvesting operations. From

October 2002 to January 2003 the information

centre welcomed over 1000 visitors. The infor-

mation centre will also coordinate research

activities at Precious Woods Amazon and offer

courses.

Re-certification according to the criteria

of the Forest Stewardship Council

In the spring of 2002 the first major review of

the certificate awarded by the FSC was due.

Precious Woods Amazon was certified for the

first time five years ago. In the meantime sever-

al verifications had been carried out: at least

one with and one without advance warning

every year. A dialogue was maintained with the

certifiers and also with Greenpeace at all times.

As Precious Woods Amazon had assumed a

pioneering role in Brazil, certain standards

were developed jointly. Sometimes it was a

question of minor details but a range of impor-

tant problems were also addressed which, at

the time of the initial certification, were identi-

fied as being yet unresolved:

• The utilization of waste wood and sawdust:

An excellent solution has been found to this

problem in the form of the power plant which

commenced operations in 2002 and belongs

to BK Energia with whom Precious Woods

Amazon has signed a reciprocal long term

supply contract. This nine megawatt power

plant replaces more than twenty diesel gen-

erators.

• The legal relationship with the forty-eight

families living on Precious Woods Amazon’s

land: When Precious Woods purchased this

land forty-eight properties were included on

which claims were laid by third parties. These

comprised, in some cases, small holdings

supporting poor settlers and their families,

and in other cases, weekend homes used by

affluent citizens from Manaus. As the area in

question consisted entirely of cleared forest

Precious Woods was not at all interested in

this land. From the beginning it was intended

to sign over the incontestable right of use to

the settlers and weekend users. However, at

the same time Precious Woods Amazon

wanted to ensure that the clear cutting of the

forest would cease once and for all. The legal

procedures dragged on for much longer than

it was initially hoped because the surveyors

could not maintain the schedule. However,

since 2000 all forty-eight land users have

9

been provided with incontestable title deeds.

• The monitoring of the way the forest devel-

ops after harvesting, including monitoring its

biodiversity: Precious Woods Amazon works

together with research institutes and univer-

sities, observes numerous sample plots and

records encounters with key animal species

etc. This topic remains highly complex.

When revising the certification of Precious

Woods Amazon the most important topics for

consideration were as follows:

• The additional 420 km2 purchased in 2001

were incorporated into both the forest man-

agement plan and the certification. At the

same time it became clear that, in order to

guarantee present harvesting volumes in

future, Precious Woods Amazon would have

to purchase yet more forest. (Prior to going

to press with this report, a further 1230 km2

of forest were purchased in February and

March 2003, ensuring that the forested area

will suffice in the long-term.)

• A social report investigated the partnership

between employers and employees as well

as relations between Precious Woods and its

neighbourhood. On the whole the findings

were encouraging but one major shortcom-

ing was revealed. It turned out that the

inhabitants of Itacoatiara were scarcely

aware of the ways in which Precious Woods

Amazon differs from conventional timber

businesses. Since then Precious Woods has

welcomed hundreds of students and other

interest groups to the new information centre

where they can learn about sustainable wor-

king methods. In the past Precious Woods

Amazon chiefly received guests from abroad.

Overall Development and Results

In 2002 Precious Woods made tremendous

progress. This is clearly seen in the develop-

ments described above. The number of

employees increased from 442 at the end of

2001 to 696 at the end of 2002. This enor-

mous development, however, is only just

beginning to be reflected in the operating

results. 2002 was a transitional year which saw

a lot of changes which will bear fruit in the

future. The fact that Precious Woods Amazon

managed to achieve a profit for the second

time in 2002 is a very positive development,

particularly after several years of making a loss.

The negative operating cash flow in 2002 is

due to the fact that we have to deal with longer

throughput time and an associated increase in

current assets. In May and June 2002 Precious

Woods Amazon suffered from a shortage of

roundwood for many important species of

wood – unfortunately we were let down by our

partner in the log exchange programme. As a

result it was necessary to once again increase

our stock of roundwood. In Itacoatiara the

logistical situation has deteriorated. Fewer

shipping lines call at Itacoatiara and those that

do call less frequently. We can manage by

using our own barges to transport the finished

goods to Santarem or Belém but this takes

longer. From an operational point of view, 2003

has got off to a much better start than 2002.

We are confident that the favourable impact of

the changes and expansion undertaken in

2002 will be clearly visible in the way sales and

profits develop in the coming years.

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Management team of PWAmazon. F.l.t.r.: PepperStebbins (Sales), PaulWestbrook (COO Brazil),Hans Stout (CEO Brazil),Renato Scop (CFO Brazil),João Cruz (Forest Opera-tions), John Carpenter (PW Industries).

A good maintenancedepartment is vital in orderto minimize time lost tostoppages.

Since 2002 the town of Ita-coatiara has been providedwith electricity from a powerplant whose sole source offuel is waste wood from thesawmill at Precious WoodsAmazon. This arrangementreplaces 22 diesel genera-tors.

Employees removing sliceveneer from the drying kilns.

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Precious Woods’ main objectivein Brazil: to succeed, as acommercial enterprise, in con-serving the forest’s complexeco-system.

Forest

In 2001 only half a compartment was harvest-

ed. First of all we needed to set up the infra-

structure, train the personnel, test organiza-

tional procedures and lay the foundations for

FSC certification. It is well known that certifica-

tion is not awarded at the drawing board; the

forest management plan must be seen to work

in practice. The forest owned by Precious

Woods Pará was certified in line with the crite-

ria of the FSC in March 2002. The certificate

covered the entire harvest for 2002, therefore

increasing its value considerably. In 2002 we

completed a full harvest for the first time;

111 000 m3 of timber were harvested from

6 300 hectares of land. With a yield of 17.6 m3

per hectare the yield per lot is somewhat high-

er than at Precious Woods Amazon. On aver-

age the logs are larger in diameter and there

are fewer central holes. What is more, to a very

great extent it was possible to draw on the

experience of Precious Woods Amazon. All

stages of operations benefited from this know-

how. It was, for instance, particularly advanta-

geous when compiling inventories, planning

the harvest, applying special harvesting tech-

niques, administering the volumes of timber

harvested and transporting the logs to the har-

bour. Operations at Precious Woods Pará differ

from those at Precious Woods Amazon in so

far as the logs have to be transported several

hundred kilometres from the riverside harbour

to Belém. Another difference is that the opera-

tions in the forest take place some distance

from populated areas. Because of this the for-

est workers cannot commute to work on a

weekly, let alone a daily basis. They live in the

base camp for three weeks at a time before

having a few days off in a row. These are usual-

ly spent in Tucuruí where most of the forest

workers live. At both Precious Woods Amazon

and Precious Woods Pará the forest workers

work overtime during the harvesting (i.e. dry)

season; this is then compensated with time off

during the rainy season. The extra costs

involved in providing food and accommodation

to the staff and those arising from the more

expensive logistics are more than compensat-

ed for by the higher quality of the logs.

Recording of Animal Sightings

In line with specialists’ suggestions, the inven-

tory teams and drivers at Precious Woods Pará

have also begun to keep a record of their

PRECIOUS WOODS PARÁ Precious Woods Pará was estab-

lished in 2001 as a jointly owned subsidiary of Precious Woods (60%) and A. van den Berg

(40%). Since then 457 km2 of forest on the upper course of the Rio Pacajá have been

managed in a sustainable manner. In 2002 Precious Woods Pará purchased an additional

306 km2 of forest. The roundwood is transported along the Rio Pacajá to Belém, where

the sawmill and the facilities for the manufacture of small processed parts are located. In

March 2002 Precious Woods Pará was certified in accordance with the criteria of the For-

est Stewardship Council (FSC). The wood products are exported to Europe, the United

States and Asia. In 2002 Precious Woods Pará posted a profit for the first time.

11

encounters with certain key animal species.

Near the Rio Pacajá certain animals, such as

forest turtles, monkeys and jaguars, are ob-

served more frequently in proportion to the

forest area than at Precious Woods Amazon.

On the other hand, tapirs have never been

seen at Precious Woods Pará, unlike at Pre-

cious Woods Amazon where they have been

spotted. In 2002 the inventory teams observed

seventeen solitary monkeys, a large group of

howler monkeys, two trumpeter birds, three

stags, four agoutis and one paca. The invento-

ry teams have never seen a jaguar but a chauf-

feur has come across a jaguar on three occa-

sions; one of these encounters was with a

young animal. These records will enable valu-

able long-term comparisons to be made and

provide evidence of an increase or decrease in

the populations of certain key species.

Expansion of the Sawmill and Workshop

In spring the timber from the previous year’s

harvest was processed which had not yet been

certified by the FSC. Every FSC project is sub-

ject to a pre-certification phase. Prior to the

new harvest all the remaining timber was sold

so that the sawmill could be considered 100 %

FSC -certified from June onwards. A second

line was installed in the sawmill and production

commenced in summer 2002. This doubled

the sawing capacity per working shift. The

storeroom where the timber is sorted was also

extended. In spring work began on the con-

struction of an industrial workshop for the

manufacture of small processed parts. This

facility was ready to begin operations in

autumn. Here small parts are manufactured

which are similar, and in some cases identical

to those produced at Precious Woods Ama-

zon. The control system in the drying kilns has

been refurbished. A heavy planing machine

was ordered from Sweden so that large quanti-

ties of profiles for which there is regularly

strong demand can now be turned out in the

shortest possible time. To conclude, for Pre-

cious Woods Pará 2002 was a year of vibrant

expansion and the process is not necessarily

complete. Extra land has been purchased

between the sawmill and the harbour and is

being reserved to ensure there is enough

space for even further expansion of the com-

pany’s timber processing operations in future.

Financial Performance

Precious Woods Pará is justifiably proud of its

financial performance. In only the second year

of operations the company has achieved prof-

itability. The improvement in profit compared to

the figures for 2001 amounts to approximately

USD 1 million. As well as expanding the volume

of business Precious Woods Pará, like Pre-

cious Woods Amazon, will also need to

increase its current assets. One of the reasons

for this is that due to current market conditions

and the weak Brazilian Real it is no longer

worth selling sawn timber to local markets. It is

only possible to make money with species of

wood which cannot be exported as sawn tim-

ber if this wood is sawn, dried and processed

into small parts which fetch a good price in

export markets. However, these processes are

very time consuming and tie up more working

capital.

12

Acquisition of additional Forest

The purchase of land in the Federal State of

Pará is proving to be a much more complicat-

ed and delicate transaction than in the Itacoat-

iara area of the Federal State of Amazonas. As

a rule, vendors of land in the vicinity of Itacoa-

tiara usually hold rights of ownership (“property

rights”) for their land whereas in Pará they pos-

sess only rights of use (“possession rights”).

This is not uncommon in Brazil. In São Paolo,

for instance, the real estate trade is based

largely on possession rights. If nobody else

claims this possession right and if these rights

are registered with all the authorities they are,

for all intents and purposes, equivalent to

property rights; they can be bequeathed and

sold in the same way. Meanwhile, there are

some difficulties in establishing whether or not

anyone else is in a position to lodge a rival

claim to a possession right. In the area south-

west of Belém the population pressure arising

from the growing numbers of settlers and pres-

sure from both legal and illegal logging firms is

much higher than in the State of Amazonas.

This is the reason why Precious Woods Pará

has not yet bought all the land for which it has

actually had an option to buy since the end of

2001. Now the situation is proceeding step by

step. The purchase of another piece of land will

only be contemplated once all the official con-

firmations for the additional land purchased in

2002 and the Ibama permit, which allows us to

cultivate and make use of the forest, have been

obtained. In addition, Precious Woods is nego-

tiating further possible purchases of forest with

several potential vendors in the area. At the

same time we are evaluating offers to enter into

partnership with large forest owners. As this is

an arduous process it would be inappropriate

to predict when we will be able to announce

the successful signing of a contract in this

respect. Our trusted lawyer of many years

standing is a great help in these matters.

Ecoflorestal

In 2000 Tim van Eldik, who for many years was

responsible for forestry planning at Precious

Woods Amazon, started up his own business

by founding the consultancy firm for forestry

affairs, Ecoflorestal, in Belém. He primarily

worked on behalf of Precious Woods’ sub-

sidiaries but his client base also included some

third parties. In 2002 Precious Woods Pará

bought 50% of the company and signed an

exclusive contract with Ecoflorestal. Ecoflore-

stal deals with the forest management plans,

obtains permits, takes care of certification and

processes all the forest data for Precious

Woods Pará, besides attending to a lot of mat-

ters for Precious Woods Amazon as well, par-

ticularly in the field of certification.

13

▲ Management team of PWAmazon: from left to right:Manoel da Souza (sawmill),Rudibert Rückert (finances),Hans Stout (CEO Brazil),Leandro Guerra (sales), PaulWestbrook (COO Brazil).

At PW Pará more than 100forest workers are providedwith meals each day.

Directional felling: precisionwork.

Every tree is tagged.

Log yard in the forest.

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Three and a half year old teakplantation with dense groundvegetation at the end of therainy season in Sta. Cecilia.

Highlights of the Year

In spring 2002, following a period of intensive

preparations, Precious Woods Costa Rica

achieved FSC certification and was therefore

recognised as fulfilling international standards

for ecological, social and economic sustain-

ability. At the end of the dry season the first five

containers of teak obtained from the thinning

process were exported to India. With this Pre-

cious Woods entered a new stage of opera-

tions, namely harvesting, and an important

milestone had thus been reached. The logs in

question, however, were of the minimum diam-

eter acceptable for export. In 2002 all the

remaining uncultivated land owned by Precious

Woods in Costa Rica was replanted. In addi-

tion, the company was able to purchase the

Finca “Esperanza”. This new finca, with an

area of about 200 hectares, is adjacent to the

Finca Peñas Blancas, forming an ideal entity.

Those responsible for running the company

have been giving a great deal of thought to the

way in which Precious Woods’ reforestation

programme should develop. Costa Rica, Nica-

ragua and Panama were all included in the

evaluation. The high price of land and the fact

a large share of the workforce comes from

Nicaragua and the recent change in tax regula-

tions speak against Costa Rica. Panama was

rejected as being too far away from the opera-

tional centre of Precious Woods in Liberia. In

the end we decided upon Nicaragua, more

specifically the area near the border which can

be managed from Liberia. The other important

arguments in favour of Nicaragua may be sum-

marized as follows: a) there is a pressing need

to create new jobs in Nicaragua, b) reforesting

the country is a matter of urgency and c) the

prospect of obtaining CO2 credits for the entire

project is a decisive opportunity. The funda-

mental decision to expand into Nicaragua

presents the team in Central America with their

greatest challenge in 2003.

Monocultures embedded in Mosaics

Since 1989 Precious Woods has purchased

and replanted five fincas (former cattle ranch-

es) with a total area of 7950 hectares. In all,

58% of the land owned by the company has

been replanted with trees. 42% of the area

consists of existing secondary forest, gallery

forest (i.e. a forest on the fringes of water-

PRECIOUS WOODS COSTA RICA Precious Woods

Costa Rica has been planting valuable species of timber on former pastureland since

1990. First commercial thinning operations take place when the trees are between 8 and

14 years old. Final harvesting is scheduled for when the trees reach the age range of

25–30 years. The same land will subsequently be replanted. To date the plantations

include 3297 hectares of teak, 971 hectares of pochote and 328 hectares of various

indigenous species, totalling between four and five million trees. During the first few

years of life these plantations require a great deal of attention. Precious Woods estimates

that income from the future sale of timber from these plantations will provide a return of

10–11% (including compound interest) across the whole lifecycle of the capital invested.

15

ways), and large single trees. Rivers, pathways

and buildings make up half a percent. The mix-

ture of secondary and gallery forest, single

trees and new plantations consisting of various

tree species create the mosaic pattern which is

so characteristic of Precious Woods Costa

Rica. The fruit and flowering trees, which have

been interspersed for the benefit of the animal

life, reinforce this effect. However, the individ-

ual parcels are usually planted with only one

species of tree.

Precious Woods is often asked whether mono-

cultures such as these – although they may be

embedded in a multifarious mosaic – make

sense, and whether it wouldn’t be better to mix

different species. Our reply is as follows: Firstly,

planted forests will never be able to match the

biological diversity of primary forests. This is

one of the reasons why, in the mid nineteen-

nineties, Precious Woods was motivated not

only to create plantations on land that had

already been deforested, but also to save

Brazil’s natural forests from destruction due to

slashing and burning. Secondly, planting two

types of trees in the same area can lead to

problems as different species grow at different

rates during the first few years. The faster grow-

ing species dominates the other one whose

growth is then stunted. This does not mean

that it is impossible to plant mixed forests in the

Tropics. Whoever is guided purely by conserva-

tional as opposed to economic objectives will

always find a way to do this. It would, however,

be difficult to derive an attractive return from a

planted mixed forest. Precious Woods is a

commercial enterprise. Planting trees is a capi-

tal-intensive business. In our view the only way

to finance this is to concentrate on the intensive

cultivation of those species which attract high

market prices.

Biodiversity and Ground Vegetation

The normal comparison for Precious Woods

Costa Rica’s plantations is pastureland, not

other forests. All the plantations have been cre-

ated on former pastureland. Compared to a

meadow sown mostly with African grasses

which dominate the other vegetation, a planta-

tion of trees will always appear attractive. In this

case the ground vegetation is of great impor-

tance. Reforestations are considered to be

ideal when thriving trees co-exist with a flour-

ishing ground and scrub vegetation. Sufficient

light penetration is important for the develop-

ment of healthy ground vegetation. Young plan-

tations have to be thinned at the right moment

to enable the ground vegetation to grow and

survive. The ground vegetation is important not

only for reasons of biodiversity but also for the

role it plays in preventing erosion, especially in

teak plantations. Teak trees have large leaves.

These collect rainwater and act like little gutters

the water runs along before it falls to the ground

in concentrated streams.

Ground Vegetation and Tree Growth

The growth of the young trees is significantly

affected by the type of ground vegetation. Cer-

tain aggressive African species of grass, which

were once widely sown in Latin America, have

a particularly detrimental effect. Their roots

produce toxins which impair the growth of the

competing vegetation’s roots, especially tree

roots. For the grasses this is a survival strategy,

designed to harm their worst enemies, the16

trees, with which they must compete for light.

Where the trees are large enough to form a

canopy, the grasses disappear automatically.

Prior to this, grasses and young trees are

engaged in a struggle for life and death.

Among other things this explains why the

prospects for growth on more recently aban-

doned pastures are poorer than on meadows

which were deserted years ago and where a

bush vegetation has already established itself,

driving back the grasses.

Leguminous plants have a favourable impact

on tree growth as they enrich the earth with

nitrogen. Because of this, time and topograph-

ical considerations permitting, Precious Woods

ploughs up any land grown over with grasses

and sows beans instead. As far as possible

Precious Woods encourages simultaneous

agricultural use of the plantations in the first

year. Local farmers sow beans or plant maize,

rice or tequisque between the young teak

trees. Tequisque, a root vegetable, similar to a

large radish, is especially interesting. During

the first year the tequisque’s large leaves

appear to almost cover the young teak trees. In

the following year, however, teak trees often

experience almost explosive growth.

Quality of the Soil and Drainage

In a suitable environment teak grows very

quickly. Conversely, growth can be very poor if

conditions are not right. For example, teak

cannot thrive well on swampy ground. This is

why flat ground (which can otherwise be

extremely fertile) has to be thoroughly and sys-

tematically drained. Even sloping ground can

be swampy. We were not sufficiently aware of

this in 1995, 1996 and 1997. Since 2002 Pre-

cious Woods has belatedly been digging kilo-

metres of drainage trenches at the Peñas Blan-

cas and Sta. Cecilia Fincas. Acid soil is also

bad for teak. In 2002 we experimented with

spreading lime on the soil to counteract this.

The results were positive and in 2003 lime is

being applied extensively wherever growth is

insufficient.

Growth, Valuation and Financial Result

At the end of 2002 Precious Woods’ valuation

system underwent a thorough examination. A

number of new findings, most of them present-

ed by Catie, a prestigious institute for forestry

research, allowed us to revise the assumptions

we had been working from based on more

accurate estimates. The various changes,

whose effects more or less balance each other

out, are discussed in more detail in note Nr. 5

of the consolidated financial statements. We

are very satisfied with the growth in Garza and

Ostional. Rio Tabaco is recovering. Santa

Cecilia’s performance is mixed: in about three

quarters of the plantations created from 1995

to 1997 growth is poor and in one quarter

growth is good to very good. In the plantations

created in 1998 and after about three quarters

of the trees are growing well or very well and in

one quarter growth is below average. In Peñas

Blancas we are very satisfied with two thirds of

the plantations. Up to now one third has suf-

fered from insufficient drainage and hasn’t

grown well. The poor growth in some parts of

Santa Cecila has had a negative effect on the

overall result for 2002 but overall the general

trend continues steadily upwards.

17

▲▲ Some of PW Costa Rica’smanagement team investi-gating new land inNicaragua. F.l.t.r.: RonaldGuerrero, Eric Espinoza,Arnoldo André (who is also a member of the Board ofPW Holding), Erasmo Rocca,Wilberth Montoya.

Planting a teak tree.

11/2 year-old Chancho-Plantation in Sta. Cecilia.

One of PW Costa Rica’s best teak trees in Garza: 10 years old and already dis-playing a diameter of morethan 50 cm at chest level!

11 year-old teak obtainedfrom thinnings in Rio Tabaco.

The mosaic principle: teakplantations during the dryseason embedded amongstvegetation composed partlyof evergreen trees in PeñasBlancas.

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In the background, part of the factory belonging to PW Industries. Thiswas purchased closed-down and empty in May 2002. Meanwhile 200people have found employment here. In the foreground, dilapidatedAmazon riverboats which were acquired with the factory. In the mean-time they have been refurbished. Now they shuttle back and forthbetween Itacoatiara and Belém, pushing barges loaded with timber.

including stamp duty, amounted to almost CHF

900 000. The largest expenditures were by far

the bank commissions and charges of approx-

imately CHF 650 000 and the stamp duty of

around CHF 100 000.

A very positive development is that about 200

new shareholders participated, among them

two quite large pension funds and one German

and three Swiss funds with sustainable invest-

ment policies. Every month a few new share-

holders continue to join our company, whereby

departures are much rarer. We still do not

know who a lot of the new shareholders are

because there is often a long delay before we

receive the registration requests enabling us to

update the shareholder register and in some

cases these are not received at all. Precious

Woods has an exceptional shareholder base;

this became clear during the recent general

collapse in share prices. Whereas the SPI

(Swiss Performance Index) lost 40% from the

middle of March 2002 to the beginning of

March 2003 Precious Woods’ shares remained

close to the issue price of CHF 60. Here thanks

is due, not primarily to those responsible for

running the company, but rather to our loyal

shareholders who have remained faithfully

committed to their company. Alongside a few

private investors, two larger Swiss investors,

who informed us of their intentions in the

shareholder survey conducted before the list- 19

Stock Exchange Listing, Stock Exchange

Trading

In 2002, a memorably bad year for equity mar-

kets, Precious Woods was the only company

to obtain a listing on the SWX Swiss exchange

and to simultaneously raise new capital. Look-

ing back and considering all the effects of the

listing we find today that the benefits of the list-

ing far outweigh any downsides.

The costs involved in the listing and capital

increase were unavoidable. No money was

spent on PR agencies, advertising campaigns,

commercials or the like. Indeed, if we reflect

upon the technology bubble we see that it was

not least the PR campaigns that inflated the

bubble so damagingly. Of course, without

advertising many a potential investor may not

have been reached. We are almost certain,

however, that a company which presents itself

in a down-to-earth manner will find those

shareholders who genuinely wish to participate

in it. Moreover, to a large extent the listing

prospectus and presentation material were

compiled using internal resources and the

lion’s share of the presentations made to spe-

cially targeted investors – above all funds seek-

ing sustainable investment opportunities – was

handled by ourselves. Although we spent only

what was absolutely necessary, the costs of

obtaining a quotation on the stock exchange

and raising CHF 10.8 million of new capital,

PRECIOUS WOODS GROUP At the Annual General Meeting

Prof. Dr. Daniel Girsberger, Dr. Max D. Amstutz and Mr. Hans Stout were re-elected to serve a fur-

ther three-year term on the Board of Directors. The Annual General Meeting also created CHF 37

million of new authorized capital and CHF 3 million of new conditional capital.

ing, have disposed of their holdings, as have

two large investors from Latin America. The

commitment of Baloise Insurance had a very

positive effect when it launched a public cam-

paign promising to purchase two additional

shares of Precious Woods for every new motor

vehicle insurance policy sold.

The generally depressed market conditions do

not constitute a favourable climate for capital

increases. Hence, authorized capital could not

be issued prior to the copy deadline of this

report. Time and again, however, discussions

are held with large investors who are consider-

ing an involvement with Precious Woods but

some time is needed before the appropriate

decisions can be made. For Precious Woods,

a capital increase is not a matter of great

urgency; for the time being we can finance the

planned expansion projects with capital bor-

rowed at attractive rates and from operating

cash flow. In the medium term Precious Woods

would like to raise more own equity as – in

contrast to many other sectors – we have no

shortage of interesting projects to pursue.

TV-Films

On the occasion of the eco-summit in Johan-

nesburg, Arte, WDR and Deutsche Welle pro-

duced a film series entitled “Mit langem Atem”

(A long Breath) which devoted fifteen minutes

each to the portrayal of twelve people from all

five continents who work for organizations and

companies that play an active role in finding

solutions to global problems. Precious Woods

was among those selected for the series on

the basis of the company’s pioneering role in

Brazil. We considered this to be a great hon-

our. During the eco-summit in Johannesburg

the film was broadcast simultaneously in Ger-

many and France. Afterwards the series was

translated into English and Spanish and at the

beginning of 2003 it was offered to television

stations all over the world. In November

CashTV produced a film about our reforesta-

tion activities in Costa Rica. It was broadcast

on Swiss television at the beginning of 2003.

There was a very good response to this film

too. From our point of view we regret the fact

that the films focused sharply on one individ-

ual, Andres Gut. This goes against our philoso-

phy, namely that the whole company works as

a team. However we cannot change the cur-

rent tendency of business media to personalise

everything. We were faced with the choice to

proceed with the films on those terms or not at

all. Apart from our time and negligible expens-

es, these two films did not incur any cost.

20

Courtesy of Swissquote ©

Trading Company

Our own trading company trades exclusively in

FSC certified timber. The modest sales team in

Zürich deals with three main lines of business:

A) Pilings for Coastal Protection

We know that our main customer on the Baltic

Sea will require fewer pilings in the next few

years as most of the breakwaters destroyed by

mussel borers have now been replaced. We

are therefore actively seeking new customers.

Two seminars have been held with hydraulic

engineers and we have circulated a brochure

about marine timbers. Subsequently we did

indeed acquire a few new customers, including

our first customer from the North Sea, but the

market for pilings used in coastal protection is

limited.

B) Retail Sales in Germany and Switzerland

We sell timber from A. van den Berg’s ware-

house in Holland. This arrangement is much

simpler and faster than supplying directly from

Brazil and has proved its value. This depart-

ment also supplies FSC certified plywood from

Brazil. The sales volumes are gradually

increasing.

C) Market Development in Southern and

Northern Europe

In Mediterranean countries demand for tropical

timber from sustainable forests, as opposed to

timber resulting from total deforestation or

uncontrolled logging, is weaker than in Central

Europe but beginning to grow nevertheless.

Several public sector customers, such as the

city of Barcelona, are beginning to advocate

the use of FSC timber. Samples have been sent

for approval to several prospective customers

and the first orders resulting from these have

already been filled.

21

▲▲ Management of the HoldingCompany: Juliana Campos(Secretary to the BoD), TedScheidegger (CFO), RicardoAvendaño (Group Con-troller), Stefan Wellhöfer(Forestry Manager).

Cheerful employees: In 2002Precious Woods created360 new jobs.

In developing countries it isimportant that womenshould find jobs too. Here: in the shipping departmentat PW Industries.

Life is very hard for many ofthe employees. Nicaraguanmigrant worker cutting downthe competing vegetation ina young teak plantation atPeñas Blancas, Costa Rica.

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Precious Woods can only function when all areas of responsibility are clearlydefined and observed. Ronald Guerrero inspecting a 10 year-old pochoteplantation in Garza, Costa Rica.

Decision-making, Areas of Responsibility

and Control Mechanisms of Precious

Woods. Remuneration of Senior Execu-

tives.

The group’s operational management is embo-

died in the members of The Executive Com-

mittee of the Board of Directors (EC), i.e.

Messrs. Andres Gut, Hans Stout and Ted

Scheidegger. As CEO Brazil, Hans Stout man-

ages the company's operations in Brazil,

Andres Gut is responsible for operations in

Central America and Ted Scheidegger fills the

role of CFO, also overseeing the small trading

company in Switzerland. As a rule, the EC

meets once a month and all decisions are

made collectively. Usually matters are dis-

cussed so thoroughly that a consensus is

reached. The Chairman of the Board of Direc-

tors, Andres Gut, has no authority to issue

directives to the other members of the EC. This

collective responsibility is designed to filter out

crass mistakes and to preclude individual

members of the committee from acting without

authorization. In 2002 the members of the EC

each received a remuneration of USD 100 000

– USD 130 000 for their 50–75% involvement,

plus a bonus amounting to USD 30 000 for

2001. This is drawn to a greater or lesser

degree in cash, shares and/or share options.

Remuneration is granted either in the form of a

regular salary or is in some cases compensat-

ed in the form of a fee paid to related entities

(i.e. the companies employing the executives in

question). These compensations represent the

highest total sum of compensation conferred in

the PW Group. Up to now severance pay-

ments, pension fund provisions in excess of

the statutory minimum, or contracts of enga-

gement with long periods of notice have not

been granted at Precious Woods.

Strategic decisions are made by the Full Board

of Directors (BoD) (for members, please see

page 2) after thorough discussion of proposals

made by the EC. Operational matters upon

which no agreement could be reached by the

EC are also discussed by the BoD. The BoD

meets four to six times a year and also makes

decisions now and again by circulated resolu-

tions. The majority of the BoD are non-executive

members. Two members of the BoD used to be

members of the EC themselves (D.Girsberger

until 1998 and E.Stürm until June 2002) and are

therefore acquainted with many of the details of

the operations. The Vice Chairman, D.Girsberger,

who is not a member of the EC himself, can, even

against the will of the EC, add items to the agenda

of the BoD at any time or request that the EC or

individual members of the EC abstain on certain

issues. The BoD is provided with monthly reports

from the subsidiaries, extensive reports on visits

by the EC and comprehensive financial infor-

mation. The described involvement of the BoD

provides checks and balances to eliminate mis- 23

CORPORATE GOVERNANCE The introduction to this

chapter, in large print, contains information which we assume will be of interest to the

majority of our shareholders. This is followed, in small print, with information which we

are obliged to disclose in accordance with the Corporate Governance Directive of the

SWX Swiss Exchange.

guided decisions and to prevent the accumula-

tion of authority. The members of the BoD receive

an attendance fee of CHF 500 per meeting.

The Audit Committee of the BoD (M. Amstutz,

E. Stürm and T. Scheidegger) thoroughly exam-

ines the interim statements, the financial state-

ments for the year as a whole and the budget. It

also oversees relations with the auditors.

The Compensation Committee of the VR

(D. Girsberger and R. Straub) ensures correct

terms and conditions of engagement for the

EC and senior executives in the subsidiaries.

Without doubt the collective responsibility

assumed by three members of the EC who are

not engaged with the company in a full-time

capacity characterizes the special nature of

Precious Woods’ management structure. We

believe that this is the most appropriate struc-

ture for our medium sized, internationally active

company which plays a pioneering role in so

many fields and is expanding rapidly. The

demands made on senior management are

such that they require more seniority, greater

business experience, better communication

skills and more charisma that one full-time CEO

is likely to possess.

Disclosure according to the corporate governance

guidelines of the SWX Swiss Exchange dated April

17, 2002

1.Group Structure and Shareholders

For a description of the group operating structure of see

the sections reporting on the headquarter companies

and those operating in Brazil and Costa Rica (page 3 ff.).

For a list of and information about the group’s consoli-

dated companies, see note 1.a, page 32. None of the

group companies are publicly listed.

For a list of shareholders with over 5% of the voting

rights, see note 20, page 48.

2. Capital Structure

The Company’s share capital as of 31 December 2002

amounts to CHF 81 032 150.– and consists of CHF

1620 643 fully paid-in registered shares with a nominal

value of CHF 50.–. The shares rank equally as to voting

rights and dividends and the Articles of Association

include no restrictions on the transfer of the Company’s

shares. The authorized share capital amounting to CHF

37 million (740 000 shares with a nominal value of CHF

50.–) can be issued up to June 16, 2004 and is intend-

ed to be utilized for acquisitions and the purchase of

forest. The subscription rights of the shareholders can

be excluded in these cases as well as when increasing

capital to satisfy employee share purchase and stock

option plans or firm underwriting agreements. Per end

of 2002 the Company’s conditional share capital

amounted to CHF 11 967 850 (239 357 shares with a

nominal value of CHF 50.–). The conditional capital is

intended to cover the outstanding and future options of

employees and shareholders.

On 11 October 2001 the Company transferred its domi-

cile from Tortola, British Virgin Islands to Switzerland

and converted the authorized capital of USD 60 million

into CHF 72 million, and CHF 9 million each of authori-

zed and conditional share capital. The authorized capi-

tal was exhausted in the course of the initial listing on

the stock exchange and associated capital increase in

March 2002. Subsequently, at the Annual General

Meeting in June 2002, new authorized capital was cre-

ated and the conditional capital was increased by CHF 3

million.

For details of outstanding options see note 13, page 45.

3. Board of Directors

The members of the Board of Directors are elected pro-

gressively at the Annual General Meeting for a term of

three years. The General Meeting also appoints the

Chairman of the Board of Directors for whom there is no

time limit on the term of office. The Board of Directors

convenes itself and elects the members of the Execu-

tive Committee, the Audit Committee and the Compen-

sation Committee from its own ranks.24

For a list of the members of the Board of Directors, see

page 2.

4. Senior Management

The operational management of Precious Woods Hold-

ing is the responsibility of the Executive Committee (see

page 2). Ricardo Avendaño, Group Controller, is also a

member of senior management.

5a. Compensation

The compensation paid to members of the governing

bodies is stated in the introduction of the chapter on

Corporate Governance, page 23 and note 14.b on page

46 (options). No compensation is granted to persons

who retired from their function(s) in a governing body

during the year under review. All executives and

employees are insured according to the minimum legal

requirements of the countries where they are employed.

At the end of 2002 no loans or other benefits had been

granted to members of the governing bodies.

The compensation policy for the Executive Committee

is resolved by the Board of Directors upon recommen-

dation of the Compensation Committee.

5b. Shareholdings and options

The members of the Executive Committee collectively

hold a total 17 870 shares and the non-executive mem-

bers of the Board of Directors hold 11 299 shares.

These shares were purchased or subscribed to at the

same conditions available to all shareholders. Since

2002 all members of governing bodies, senior manage-

ment and employees may participate in an employee

share purchase plan which entitles them to subscribe to

a maximum of sixty shares per month at a preferential

rate. Shares purchased under this plan are subject to a

two year lock-up period. At the end of 2002 members

of the EC held a total of 107 877options; the non-exec-

utive members of the Board of Directors held a total of

45 030 options. These options were granted instead of

monetary compensation from 1996–2002. For details,

see note 13, page 45.

6. Shareholders’ Participation

Shareholders of Precious Woods enjoy all the rights to

which they are entitled and the Company’s Articles of

Association contain no voting-rights restrictions. There

are also no clauses differing from the legal provisions

regarding statutory quorums. All shareholders registered

in the share register are eligible to participate in the

Annual General Meeting. All alterations to the share reg-

ister are suspended 21 days before the General Meeting

is scheduled. Requests to add items to the agenda of

the General Meeting may be made up to thirty days

before the meeting by those legally entitled to do so.

7. Changes of Control

The agreements with the members of the Board of

Directors contain no statutory “opting-out” resp. “opting-

up” clauses, nor clauses on changes of control.

8. Auditors

The Company’s auditors, Deloitte & Touche AG, Zürich

followed Deloitte & Touche and Co., San José, Costa

Rica upon receiving a mandate to audit the accounts for

2001. The lead auditor took up office in 2001. In 2002

the auditing fees amounted CHF 72 500. The Company

paid no fees whatsoever to the auditors for consulting

services.

The subsidiary in Costa Rica is audited by Vindas

Assosiados, San José with an additional audit carried

out by Deloitte & Touche, San José. The subsidiary in

Brazil is audited by Deloitte & Touche, Belo Horizonte.

The effectiveness of the external auditors is monitored

by the Audit Committee.

9. Information Policy

Precious Woods pursues an active and open informa-

tion policy. Shareholders are kept up-to-date with the

Annual Report and at least three newsletters per year.

The August newsletter contains the half-year results.

The results for the first nine months are published in the

November or December newsletter. Furthermore, the

Company maintains an informative Website (www.pre-

ciouswoods.com) which is regularly updated. Precious

Woods also spontaneously publicises details of any

events which may affect the share price in compliance

with the SWX Swiss Stock Exchange’s regulations (“Ad-

hoc-publicity”).

25

▲▲ Communication is every-thing. Assunção Rodriguesda Costa, the telephoneswitchboard and “heart” ofPW Amazon.

For João Cruz, Head ofForest Operations in Brazil,it is extremely importantthat countless proceduresand occurrences are fullydocumented.

Erik Espinoza is responsiblefor the geographicalinformation system at PWCosta Rica.

The FSC label may only beused if there are no omis-sions in the documentationdemonstrating the origin ofthe timber.

Every piece of wood mustbe measured, counted andpriced.

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Waterfall at Sta. Cecilia,Costa Rica.

▲

CONSOLIDATED FINANCIAL STATEMENTS

27

28 CONSOLIDATED BALANCE SHEETS

29 CONSOLIDATED STATEMENTS OF INCOME

30 CONSOLIDATED STATEMENTS OF SHAREHOLDERS’ EQUITY

31 CONSOLIDATED STATEMENTS OF CASH FLOWS

32 NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

51 REPORT OF THE GROUP AUDITORS

28

Consolidated balance sheets, December 31, 2002 and 2001 ( in USD)

ASSETS Notes 2002 2001

Current assets

Cash and cash equivalents 1 202 522 503 518

Accounts receivable – net 2 3 101 119 2 314 740

Inventories – net 3 2 934 921 1 972 631

Prepaid expenses 653 265 252 608

Total current assets 7 891 827 5 043 497

Non-current assets

Property, plant and equipment – net 4 11 040 482 9 207 147

Biological assets – Costa Rica 5 29 020 233 25 086 364

Biological assets – Brazil 6 12 528 984 10 970 932

Investments 7 1 340 199 –

Deferred income taxes 21 257 024 –

Intangible assets 6 3 354 093 3 030 244

Other assets 8 693 412 478 894

Total non-current assets 58 234 427 48 773 581

TOTAL 66 126 254 53 817 078

LIABILITIES AND SHAREHOLDERS’ EQUITY

Current liabilities

Bank overdraft – 506 820

Notes payable 11 3 414 249 424 735

Accounts payable 9 1 613 665 981 548

Accrued expenses 10 1 763 535 833 861

Total current liabilities 6 791 449 2 746 964

Deferred income taxes 21 546 571 546 571

Minority interest 3 226 665 3 122 622

SHAREHOLDERS’ EQUITY

Share capital 12 52 850 734 47 650 401

Additional paid-in capital 914 405 130 909

Foreign currency translation –55 450 –68 068

General reserve 3 784 3 784

Accumulated profit (losses) 1 848 097 –316 105

Total shareholders’ equity 55 561 570 47 400 920

TOTAL 66 126 254 53 817 078

See notes to consolidated financial statements.

29

Consolidated statements of income, years ended December 31, 2002 und 2001( in USD)

Notes 2002 2001

Gross trading sales 16 9 757 156 9 208 505

Less: Sales deductions –669 857 –550 587

Net sales 9 087 299 8 657 918

Cost of sales –6 403 359 –7 545 696

Gross margin 2 683 940 1 112 223

Change in fair value Biological assets- Costa Rica 5 2 512 416 2 116 044

Operating expenses

General and administrative expenses –1 386 481 –1 310 627

Selling expenses –659 166 –393 338

Depreciation and amortization –813 928 –466 812

Other operating income 134 795

Total operating expenses 2 724 780 2 170 777

Profit from operating activities 2 471 576 1 057 490

Other income (expenses)

Financial expenses – net –255 781 –23 360

Gain on disposal of fixed assets 5 975 23 878

Exchange differences 118 838 37 346

Other – net 5 625 129 788

Net income before taxes 2 346 234 1 225 144

Income taxes 21 –77 990 –55 218

Income after taxes 2 268 244 1 169 926

Minority interest –104 043 277 764

Net income 2 164 201 1 447 690

Earnings per share

Basic 17 1.42 1.03

Diluted 17 1.27 0.92

See notes to consolidated financial statements.

Consolidated statements of shareholders’ equity, years ended December 31, 2002 and 2001 ( in USD)

Balance, Dec. 31, 2000 46 404 700 –61 725 1 991 –1 762 002 44 582 964

Capital increase 1 245 701 130 909 1 376 610

Transfer to general reserve 1 793 –1 793

Net income 1 447 690 1 447 690

Foreign currency translation –6 343 –6 343

Balance, Dec. 31, 2001 47 650 401 130 909 –68 068 3 784 –316 105 47 400 920

Capital increase 12 5 448 978 1 112 932 6 561 912

Capital increase cost –568 822 –568 823

Treasury shares 12 –248 645 –248 645

Profit from treasury shares 239 386 239 386

Net income 2 164 201 2 164 201

Foreign currency translation 12 618 12 618

Balance, Dec. 31, 2002 52 850 734 914 405 –55 450 3 784 1 848 097 55 561 570

See notes to consolidated financial statements.

30

Share Capital

Notes

AdditionalPaid-in-Capital

ForeignExchangeTranslation

Capital Reserve

AccumulatedProfit

(Losses)

Total

Consolidated statements of cash flows, years ended December 31, 2002 and 2001 ( in USD)

Cash flows from operating activities 2002 2001

Net income 2 164 201 1 447 690

Adjustments to reconcile net income to net cash used in operating activities:

Depreciation and amortization 1 804 136 1 247 386

Loss (gain) on disposal of fixed assets 97 338 –23 878

Allowance for doubtful accounts –177 463 –33 310

Change in fair value of biological assets – Costa Rica –2 512 416 –2 116 044

Minority interest 104 043 –277 764

Personnel expenses paid with shares 107 824 6 000

Op. cash flows net of effects from acquisitions before working cap. changes 1 587 663 250 080

Increase in accounts receivable –534 874 –710 104

(Increase)/decrease in inventories –994 258 284 651

(Increase)/decrease in other current assets 31 968 51 120

(Increase)/decrease in prepaid expenses –400 657 69 361

(Increase) in deferred income taxes 216 746 –

Increase in accounts payable 630 869 –96 056

Increase (decrease) in accrued expenses –1 434 456 369 177

Net cash (used in) provided by operating activities –896 999 218 229

Cash flows from investing activities

Additions to property, plant and equipment:

Costa Rica –114 007 –50 382

Brazil –1 303 543 –2 565 346

Others –34 210 –13 333

Investment in in biological assets – Costa Rica –1 442 681 –1 213 579

Purchase of Biological Assets- Brazil –2 332 361 –3 342 437

Proceeds on disposal of fixed assets – 27 366

Purchase of investments –1 340 199 –

Change in other assets –191 904 –7 574

Net cash used in investing activities –6 758 905 –7 165 285

Cash flows from financing activities

Change in notes payable and bank overdraft 2 466 285 582 008

Change in Treasury shares -net –248 645 –

Capital increase 6 124 650 950 610

Net cash provided by financing activities 8 342 290 1 532 618

Translation effect on cash 12 618 –6 342

Increase (decrease) in cash and cash equivalents 699 004 –5 420 770

Cash and cash equivalents, beginning of year 503 518 5 924 288

Cash and cash equivalents, end of year 1 202 522 503 518

Interest received 13 619 97 034

Interest paid 266 840 120 393

Income taxes paid 6 246 55 218 31

Notes to consolidated financial statements

1. BASIS OF PRESENTATION AND ACCOUNTING POLICIES

Basis of Presentation

Basis of Presentation – Precious Woods Holding AG (formerly Precious Woods Limited) (the

“Company”) was incorporated on December 17, 1990 under the Laws of British Virgin Islands as

an international business company. In 2001 the corporate domicile was changed from Tortola,

British Virgin Islands to Zug, Switzerland. Its subsidiaries are organized and operate under the

Laws of the Republic of Costa Rica, British Virgin Islands, Switzerland, Brazil and the United

States of America. The activities of the Company are divided into two main areas: the Costa

Rican operations, which are related to reforestation projects that are currently in a development

stage and the Brazilian operations, which commenced on October 1996 and are related to the

sustainable management and processing of tropical hardwoods. At December 31, 2002 the

Company had approximately 1 325 (2001: 956) employees.

Significant Accounting Policies

The Company follows International Financial Reporting Standards (IFRS previously International

Accounting Standards – IAS) in the preparation of its consolidated financial statements. The sig-

nificant accounting policies are the following:

a. Basis of Consolidation

The consolidated financial statements include the balances of Precious Woods Holding AG and

of the following direct and indirect subsidiaries:

Subsidiary Country Ownership

2002 2001

Precious Woods (Costa Rica), S.A. Costa Rica 100% 100%

Macori Las Playas, S.A. Costa Rica 100% 100%

Multiservicios Forestales de Guanacaste, S.A. Costa Rica 100% 100%

Precious Woods Management, Ltd. British Virgin Islands 100% 100%

Precious Woods (Switzerland) Ltd. Switzerland 100% 100%

Madeiras Preciosas da Amazônia Manejo, Ltda. Brazil 100% 100%

MIL Madeireira Itacoatiara, Ltda. Brazil 100% 100%

Carolina Indústria Ltda. Brazil 100% –

Precious Woods Pará, Ltd. and subsidiaries Brazil 60% 60%

Precious Woods Corporation (a dormant company) USA 100% 100%

During 2002 the Company acquired 100% of the capital of Carolina Indústria Ltda., Itacoatiara,

Brazil. All material intercompany balances and transactions have been eliminated in consolida-

tion. The proportional participation of the minority shareholder in Precious Woods Pará is recog-

nized as minority interest.32

33

b. Cash and Cash equivalents

Cash and cash equivalents comprise of cash at bank and in hand and short-term deposits with

an original maturity of three months or less. Trade receivables are stated at nominal value as

reduced by appropriate allowances for estimated irrecoverable amounts.

c. Inventories

Inventories are valued at the lower of cost or market. Roundwood and finished Products are

recorded at the average cost of production, less provision for losses, when applicable.

d. Property, Plant and Equipment

Property, plant and equipment are recorded at cost less accumulated depreciation and any

impairment in value.

e. Depreciation

Depreciation is provided on the straight-line method over the estimated useful life of the assets.

f. Biological Assets Costa Rica

The acquisition of land for the forest projects is originally recorded at cost. Biological assets are

stated at fair value less estimated point-of-sale costs. The fair value is determined using the pres-

ent value of expected net cash flows from the asset discounted at a market rate.

g. Biological Assets Brazil

The acquisition of land and forest in Precious Woods Brazil is recorded at cost or market,

whichever is lower. The forest investments made in sustainable management of tropical forest are

amortized according to the units-of-production method. The Company does not apply the fair

value less estimated point-of-sale costs as fair values can not be reliably measured in sustainable

management of existing tropical forest.

h. Intangible Assets

Intangible assets comprise mainly of project development costs and are only recorded when its

future recoverability can reasonably be regarded as assured. Project development costs are

amortized according to the units-of-production method. Project development costs are reviewed

annually for impairment.

i. Investments

Investments are initially measured at cost, including transaction costs. After initial recognition,

investments are measured at fair value. Gains or losses on investments are recognized as a sep-

arate component of equity until the investment is sold.

j. Net Sales

Net sales are determined by deducting from gross sales value-added taxes, discounts, returns

and allowances, freights, port expenses, and insurance.

k. Currency

As a majority of the sales and significant investment transactions are conducted in United States

Dollars, the accounting records of the Company are maintained in United States dollars. The

subsidiaries’ accounting records are maintained in the legal currency of the country in which they

operate (Costa Rican Colones, Swiss Francs, Brazilian Reais and U.S. Dollars).

l. Currency Remeasurement

The financial statements of the Costa Rican and the Brazilian subsidiaries have been remeasured

into the reporting currency (U.S. Dollars), considering them as foreign operations. Therefore,

monetary assets and liabilities are remeasured by using the current rate of exchange prevailing at

the balance sheet date and non-monetary assets and liabilities and shareholders’ equity

accounts are remeasured at historical exchange rates. Income and expenses are remeasured at

the average rate of exchange for the year, except for depreciation and amortization costs which

are remeasured at historical rates. Remeasurement adjustments are recorded as a component of

the biological assets and in the income statement, respectively.

m. Currency Translation

The financial statements of the Swiss subsidiary have been translated from its functional curren-

cy (Swiss Francs) to the reporting currency (U.S. Dollars), considering it as a foreign entity.

Therefore, all assets and liabilities are translated by using the current rate of exchange prevailing

at the balance sheet date and shareholders’ equity accounts are translated at historical

exchange rates. Income and expenses are translated at the average rate for the year. Translation

differences which result from the process of translating Swiss Francs financial statements into

U.S. Dollars are recorded as translation difference in shareholders’ equity account.

n. Taxation

The charge for current tax is based on the results for the year as adjusted for items, which are

non-assessable or disallowed. It is calculated using tax rates of the countries where the Company

has operations. Deferred tax is accounted for using the balance sheet liability method in respect of

temporary differences arising from differences between the carrying amount of assets and liabili-

ties in the financial statements and the correspondent tax basis used in the computation of taxable

profit. Deferred tax liabilities are generally recognized for all taxable temporary differences and

deferred tax assets are recognized to the extent that it can be reasonably expected that taxable

profits will be available against which deductible temporary differences can be utilized. Such

assets and liabilities are not recognized if the temporary difference arises from a goodwill (or neg-

ative goodwill) or from the initial recognition (other than in a business combination) of other assets

and liabilities in a transaction, which affects neither the tax profit nor the accounting profit. 34

o. Revenue Recognition

Sales of timber are recognized when the timber is delivered and title has passed.

p. Financial Instruments

Financial assets and financial liabilities are recognized on the Company’s consolidated balance

sheet when the Company has become a party to the contractual provisions of the instrument.

q. Employee Share and Option Plan

The group has an employee share purchase plan and an employee option plan for ec members

and senior employees. For both schemes, the group uses the intrinsic value accounting method

for share awards under which there is no charge to income statement for employee stock option

awards, and the dilutive effect of outstanding options is reflected as additional share dilution in

the computation of earnings per share.

r. Comperative Figures

Certain year 2001 figures where reclassified to conform to the 2002 presentation.

2. ACCOUNTS RECEIVABLE

note 2002 2001

Trade receivables third parties:

Trading company sales 81 172 305 324

Brazilian sales 2 416 197 1 354 108

Costa Rican sales 15 198 4 257

Allowance for doubtful accounts –7 264 –184 727

Trade receivable Related party 14 540 477 450 657

Employees 33 382 30 867

Other receivables 21 958 354 254

Total 3 101 119 2 314 740

3. INVENTORIES

2002 2001

Roundwood 992 530 723 514

In-process sawnwood 825 646 390 828

Finished sawnwood 594 463 390 214

Export products in transit 127 410 159 999

Consignment inventory 57 666 33 675

Advances to suppliers 25 965 138 551

Spare parts and others 311 241 135 850

Total 2 934 921 1 972 631

35

4. PROPERTY, PLANT AND EQUIPMENT (EXCLUDING LAND FOR FOREST PROJECTS)

Property, plant and equipment is detailed as follows (indicating the estimated useful lives):

Costa Rica 2002 2001

Buildings and improvements (10 to 50 years) 226 885 226 885

Furniture and equipment (5 to 10 years) 146 622 134 785

Machinery and equipment (10 years) 317 526 292 669

Vehicles (4 to 10 years) 195 881 156 610

Working animals (10 years) 16 024 15 978

Construction in process 37 977 –

Gross 940 935 826 927

Accumulated depreciation –597 448 –524 462

Net 343 487 302 465

Brazil 2002 2001

Property 336 878 252 542

Buildings and improvements (25 years) 6 274 786 3 715 580

Furniture and equipment (5 to 10 years) 705 077 548 090

Machinery and equipment (10 years) 11 199 419 7 909 456

Vehicles (4 to 5 years) 2 950 979 2 292 767

Construction in process 244 044 189 887

Gross 21 711 143 14 908 322

Accumulated depreciation –11 034 120 –6 015 492

Net 10 677 023 8 892 830

Others

Furniture and equipment (5 to 10 years ) 106 081 71 871

Accumulated depreciation –86 109 –60 019

Net 19 972 11 852

Total 11 040 482 9 207 147

Total depreciation expense during 2002 was USD 1 877 121 of which USD 72 985 was included

on historical forest investment cost for Costa Rica.

36

37

5. BIOLOGICAL ASSETS – COSTA RICA

Area planted annually (un-audited in hectares) Since 1990 the following areas of the various Fincas have been refor-

ested with the species shown (there were no new areas planted in 1994 and 2000):

PROJECT 1990 1991 1992 1993 1995 1996 1997 1998 1999 2001 2002 Total

GARZA

Teak 38 – 90 40 46 – 6 – – – – 220

Pochote 30 233 312 46 – – – – – – – 621

Native and others – 2 12 8 4 1 1 – – – – 28

Total 68 235 414 94 50 1 7 – – – – 869

RIO TABACO

Teak – 36 – – – – 14 – – – – 50

Pochote 71 103 35 29 – – – – – – – 238

Native and others 30 8 – – – – – – – – – 38

Total 101 147 35 29 – – 14 – – – – 326

OSTIONAL

Teak – – – – 141 1 – – – – – 142

Pochote – – – – 17 – – – – – – 17

Native and others – – – – 20 1 1 – 1 – – 23

Total – – – – 178 2 1 – 1 – – 182

SANTA CECILIA

Teak – – – – 379 380 300 257 294 247 149 2 006

Pochote – – – – – – – 17 43 – – 60

Native and others – – – – 56 5 30 23 22 32 2 170

Total – – – – 435 385 330 297 359 279 151 2 236

PEÑAS BLANCAS

Teak – – – – – 178 133 167 30 111 260 879

Pochote – – – – – – – 14 20 – – 34

Native and others – – – – – – 17 28 1 13 10 69

Total – – – – – 178 150 209 51 124 270 982

TOTAL

Teak 38 36 90 40 566 559 453 424 324 358 409 3 297

Pochote 101 336 347 75 17 – – 31 63 – – 970

Native and others 30 10 12 8 80 7 49 51 24 45 12 328

Total 169 382 449 123 663 566 502 506 411 403 421 4 595

38

Valuation according to IFRS Nr. 41

According to IFRS 41, biological assets with a life cycle of many years – in the case of Precious

Woods, plantations – are to be valued annually at fair value. The change in fair value of these

biological assets during a period are reported in the income statement. The measurement of bio-

logical growth in the field is an important element of this valuation. Initially, at the start of the plan-

tation cycle, the fair value is equal to the standard costs of preparing and maintaining a plan-

tation including appropriate cost of capital assuming efficient operations. Towards the end of the

plantation cycle the fair value depends solely on the discounted value of the expected harvest

less estimated point-of-sale cost.

Precious Woods has divided its plantations by species into five well defined “growth classes”.

Every year hundreds of representatively distributed sample plots are measured as the basis of

assigning all planted areas to one of these growth classes. Precious Woods has defined a cash

flow stream for each growth class and species (“profile”) estimating expected cost and income

for each species and growth class for each year of the total life cycle of the plantation. On the

one hand these estimates are based on the experience of Precious Woods, on the other hand

they are based on conservative outside estimates of future harvest volumes and prices. An inter-

nal rate of return (“IRR”) is calculated for profile which is applied as the rate to discount expect-

ed future income.

The following table shows as an example the fair value of biological assets (trees) without land

ranging from the lowest growth class at the low end to the highest growth class on the high end.

Examples of fair value of plantations in USD per hectare

Teak Teak Pochote Pochote minimum maximum minimum maximum

11/2-years 1900 2100 1600 1700

5-years 4400 5900 2900 4300

10-years 8500 12600 4200 8600

Change of valuation assumptions in 2002

Precious Woods introduced this valuation in 2000 based on knowledge available at the time.

Since then a large amount of new data relating to teak has been collected in Costa Rica leading

to important new recognitions. Hundreds of trees have been harvested and measured meter for

meter to obtain more exact volume calculations for as many diameters as possible. Older plan-

tations were measured all over Costa Rica to obtain more exact data for the height and diameter

of teak trees aged 15 to 30 years. Catie, a well known forestry research institute in Turrialba,

Costa Rica is the leading source of this data. The following refinements and revisions were

implemented in the valuation approach and assumptions in 2002:

39

A. Plots aged 4 to 8 years are assigned to growth classes based on volume per tree rather than

height: In 1999 no reliable calculation was available to allow a classification of younger trees

by volume – for trees up to an age of 8 years these were classified by height. Now more reli-

able calculations are available and trees aged four year and more can be classified by volume.

The result is that trees with good height growth tend to be reclassified as “excellent” and trees

previously classified as “low” or “average” must be reclassified as “marginal”. This became

especially evident in the poorly growing Sta. Cecilia plantations of 1995 to 1997 where a large

number of "low” and “average” lots moved down to the “marginal” growth class. This revision

led to a reduction in fair value.

B. Cost and revenue of commercial thinnings of teak: In 1999 these values were estimated. In

the mean time actual results from teak plantations older than those of Precious Woods have

become available. These allow a much more exact forecast and led to significant shifts

between the individual years. However, the overall impact on the fair value is minimal.

C. Until now Precious Woods assumed a planting to harvest cycle of 26 to 34 years. All other

companies in Central America with comparable operations assume a maximum cycle of 30

years. Precious Woods has reduced the maximum cycle to 30 years. This change increased

the fair value of the growth classes “low” and "marginal” and had a favourable impact on the

fair value.

D. In 1999 the calculation of future revenue was based on the trunk volume per tree multiplied

with a price dependant on the diameter measured at chest-height. The lower value of the

higher portion of the tree was accounted for by applying a 30% discount to the volume. A

newly developed program calculates the volume of all trunk segments which one can expect

to obtain from a given tree. Each trunk segment is then valued with a teak price specific to

the respective diameter leading to a much more exact valuation than the former calculation.

This revision led to an increase in the valuation of the lower growth classes and had a

favourable impact on the fair value.

E. In 1999 our forecast models and volume assumptions only had data available from teak plan-

tations in Costa Rica up to an age of a maximum of 12 years. Data for older trees originated

from Trinidad where teak rarely grows to a height of more than 25 meters. Now Catie (the a.m.

independent research institute in Costa Rica) has growth data available from Costa Rica for

up to 35 year old trees. The main recognition is that teak trees grow thicker and higher than in

Trinidad. Up to 35 meters high teak trees have been found in Costa Rica which are still grow-

ing. Precious Woods can today not quantify the additional volume which may be expected.

This could amount to an increased harvest volume of between 30% and 40%. An as interim

measure, Precious Woods will increase the expected harvest volume by 2% per year for pur-

poses of determining the fair value. The overall valuation was favourably impacted by this

revision in 2002.

F. Teak prices: In general, teak prices depend largely on the diameter, length, straightness, num-

ber of branches (knots) and age of the trunks as well as other quality criteria. The prices

achievable for logs from commercial thinnings are based on broad market data and well vali-

dated. For logs harvested at the end of the plantation cycle a broad range of market prices

from 300 USD to 1200 USD per m3 exist depending on the quality of the timber. Precious

Woods assumes a price of 450 USD minus 10% point-of-sale cost equalling USD 405 USD per

m3 for the bottom segment of a log from trees with a diameter of 50cm or more. For thinner

trees and higher log segments lower prices are assumed. The impact of this revision is mar-

ginal and included in the change in fair value described in section D. above.

The total effect of all the technical changes was a higher valuation in the amount of USD 482 088.

Similar data is not available for pochote. Overall one assumes that the forecast harvest volumes

for pochote are too low. However, the calculation has not been revised to reflect this as on the

other hand little information is available about market prices of pochote. The valuation of the var-

ious indigenous species is also subject to uncertainty as little data is available about their growth.

The relative share of teak of the overall valuation increases from year to year as Precious Woods

has been planting mainly teak since 1995.

The following table shows the distribution of the area planted (in hectares and percent) with teak

and pochote and their categorization in individual growth classes as well as the discount rate

resp. the IRR applied for each growth class, total valuation and species.

Distribution of the areas planted with teak in growth classes and their valuation

Growth Class excellent high average low marginal total

Hectares 471 459 1026 207 1133 3297

In percent 14,3 % 13,9 % 31,1 % 6,3 % 34,4 % 100%

IRR 14,6 % 13,0 % 11,8 % 10,6 % 9,3 % –

Value in Mio. USD 3,68 2,50 2,47 1,12 5,80 15,56

Average value per hectare Teak planted: 4721 USD. Average age of Teak plantations: 5,0 years.

Distribution of the areas planted with Pochote in growth classes and their valuation

Growth Class excellent high average low marginal total

Hectares 377 187 164 134 108 970

In percent 38,9 % 19,3 % 16,9 % 13,8 % 11,1 % 100%

IRR 10,4 % 7,5 % 6,1 % 4,5 % 2,9 % –

Value in Mio. USD 3,42 1,18 0,89 0,63 0,45 6,57

Average value per hectare Pochote planted: 6770 USD. Average age of the Pochote plantations:

10,8 years.

40

Areas planted with various indigenous species

Total value of the 327 hectares: 1,41 million USD. Average value per hectare: 4304 USD.

Average age: 6,1 years.

Balance sheet values

2002 2001

Carrying amount beginning of year 25 086 364 21 633 474

Purchase of Land 205 568 –

Carrying amount end of year 29 020 233 25 086 364

Change in fair value attributable to physical growth 3 728 301 3 452 890

Costs incurred during the year 1 215 885 1 336 846

Net gain arising from change in fair value of biological assets 2 512 416 2 116 044

Details of the change of fair value of the biological assets

Of the change in fair value of biological assets amounting to USD 3 728 301 which resulted in

2002, the major portion is based on the growth of plantations already existing at the end of

2001. USD 453 657 of the changes resulted from the 421 ha area newly planted in 2002 and

USD 482 088 resulted from the changes to the valuation assumptions described above. A reduc-

tion by USD 61 020 results from the write-off of 12 ha planted in 1996 due to poor growth.

2002 2001

Growth of existing plantations 2 853 669 3 024 822

Areas newly planted 453 564 428 068

Change in valuation assumptions 482 088 –

Write-off of poorly growing lots –61 020 –

Increase in biological assets 3 728 301 3 452 890

Comparison of the historical cost

The historical cost of the plantations are shown in the following table:

in USD 2002 2001

Forest investment costs 14 167 164 12 951 284

Land 5 481 291 5 275 723

Total historical costs 19 648 455 18 227 007

Accumulated changes in fair value 9 371 778 6 859 357

Total Biological Assets 29 020 233 25 086 364

Taxation of the plantations in Costa Rica

To encourage reforestation, Costa Rica granted tax subsidies which were withdrawn for new

reforestations in 2001. The plantations in the Fincas Garza, Ostional, Sta. Cecilia and Peñas 41

Blancas (as planted up to 2001) are therefore exempt from future income taxes. The plantations

in Rio Tabaco are not exempt from future taxes as upon inception other tax subsidies had been

utilized. Finca Rio Tabaco and Finca Esperanza located near Peñas Blancas which was pur-

chased in 2002 have been grouped in a special subsidiary (Multiservicios Forestales de Gua-

nacaste, S. A.) which will be subject to taxes on future profits.

6. BIOLOGICAL AND INTANGIBLE ASSETS – BRAZIL

The forests of Precious Woods in Brazil are managed in a sustainable manner, which means that

only incremental growth will be harvested and the substance of the forest will be preserved.

These forests and forest investments are valued at cost or market as described below. Due to

the lack of reliable measurement of biological growth in the field, the fair value approach as for

Costa Rica cannot be applied.

Precious Woods Amazon

In May, 1994 the Company acquired two companies that owned approximately 80 000 hectares

of tropical forests located near Itacoatiara, State of Amazonas in Brazil, for the main purpose of

establishing and operating a project to extract and industrialize wood. In 2001, the Company

acquired a new area of tropical forest of approximately 42 000 hectares also located near Itacoa-

tiara. The original planning and set-up costs were significant. In 1997 USD 5,83 million of these

intangible assets were written off as an extraordinary item. Additional expense was incurred to

achieve the FSC certification. In 2002 USD 746 627 of preoperational expense was incurred for

the set up of the veneer manufacturing and establishment of Precious Woods Industries.

Precious Woods Pará

In 2001, the Group acquired a participation in two companies that own an area of approximately

46 000 hectares of tropical forest in Portél, State of Pará.

Balance Sheet Valuation

The detail of the cumulative costs plus revaluation included in the biological assets is as follows:

Intangible assets

in USD 2002 2001

Forest planning, research and development costs 2 749 860 2 745 139

Production project development costs 2 558 556 1 811 928

Accumulated amortization intangible assets –1 954 323 –1 526 823

Net Intangible Assets 3 354 093 3 030 244

Land 9 616 792 8 887 062

Roads in forest 2 912 192 2 083 870

Biological assets-Brazil 12 528 984 10 970 932

Total 15 883 077 14 001 176

42

7. INVESTMENTS

In 2002, the Company acquired a minority interest in Nederlandse Internationale Bosbouw

Onderneming NV, a Dutch joint stock corporation with significant holdings in teak plantations

and processing facilities in Costa Rica. The Investment is recorded at cost including transaction

costs amounting to USD 1340 199, which approximates the fair value.

8. OTHER ASSETS

Other assets are mainly non-operational fixed assets and investments that are not being used in the

Company’s current operations as well as recoverable VAT. The detail of other assets is as follows:

in USD 2002 2001

Land for future industrialization site – Costa Rica 405 644 405 644

Information center and restaurant building – net, Costa Rica 60 043 63 865

Investment Ecoflorestal 50 000 –

VAT Recoverable – Precious Woods Pará 143 391 –

Other 35 835 9 385

Total 693 413 478 894

9. ACCOUNTS PAYABLE

in USD 2002 2001

Accounts payable trade – third parties 902 690 591 498

Advances from related party – 340 050

Loan from related party 710 975 50 000

Total 1 613 665 981 548

10. ACCRUED EXPENSES

in USD 2002 2001

Provision for employee indemnities 201 182 62 505

Provision for taxes 889 313 74 628

Other 673 040 696 728

Total 1 763 535 833 861

11. NOTES PAYABLE

in USD 2002 2001

Hollandische Bank-Unie NV 2 900 000 –

Other Brazilian banks 514 249 424 735

Total 3 414 249 424 735

The loan from Hollandische Bank-Unie NV represents the draw down per December 31, 2002 of

a USD 5,0 Mio roll-over loan agreement bearing interest at a rate of libor plus 2%.

43

The loans from other Brazilian banks are related to pre-export financing contracts in USD, to be

paid with receipts from the export and bear interest of 0.70% per month. These facilities are

secured by fiduciary guarantees.

12. SHARE CAPITAL

In 2002, the Company issued 180 000 new registered shares which were fully paid in during the

course of the initial listing on the SWX main exchange completed in conjunction with a capital

increase which was fully subscribed to. In order to cover the outstanding and future options

rights, new conditional share capital of CHF 3,0 million representing 60 000 registered shares of

a nominal value of CHF 50 each was also created. The Board of Directors is authorized to further

increase share capital by up to CHF 37 million by issuing maximal 740 000 new shares with a

nominal value of CHF 50.

During 2002, 643 options were exercised so that the share capital as of December 31, 2002 is

composed of 1 620 643 (2001: 1 440 000) fully paid-in registered shares of CHF 50, par value

each equaling CHF 81 032 150 (2001: CHF 72 000 000) share capital. Conditional share capital

per December 31, 2002 amounted to CHF 11 967 850 (2001: CHF 9 000 000) representing

239 357 (2001: 180 000) registered shares.

The Company holds 15 863 of its shares in treasury with a total value of USD 248 645. Of these

treasury shares, 7 403 were acquired during the Company’s re-domiciliation process which are

reserved for the employee stock purchase and option plans. As of December 31, 2001 the Com-

pany held 10 638 treasury shares with a value of CHF 1.

The development of the treasury shares is shown in the following table:

in USD Number of shares Average price Value

Balance per 31/12/01 10 638 1

+Purchases (42 transactions) 64 339 35,74 2 299 554

– Sales (99 transactions) 59 114 38,74 –2 290 295

Profit on transactions in own shares 239 386

Balance per 31/12/02 15 863 248 645

44

13. STOCK OPTIONS

The detail of the stock options granted and exercised is as follows:

1997 USD 46 2/3 31/12/2003 26 637 26 637

1998 USD 46 2/3 31/12/2003 27 447 27 447

1998 USD 33 1/3 31/12/2003 10 539 10 539

1999 USD 33 1/3 31/12/2005 33 246 33 246

2000 USD 33 1/3 31/12/2005 46 194 –643 45 551

2001 USD 33 1/3 31/12/2005 27500 27 500

2002 CHF 54 31/12/2007 15 458 15 458

Total 171 563 14 815 186 378

These options are freely transferable and divisible. These options have been granted to the

Executive Committee of the Board of Directors and to consultants as compensation for their

services. During 2000, 16542 options were granted to 95 shareholders which are related to the

capital increase of February 2000. As a consequence of the split of shares in 2001, the options

issued before the split were also adjusted accordingly. The strike price continued to be set in US

dollars for those options issued 2001 and earlier. For 2002 the strike price has been set in CHF.

Due to the erosion of the USD/CHF exchange rate in 2002, the strike price of certain options

issued 2001 and earlier – those with a strike price of USD 331/3 – translated into CHF per Dec.

31, 2002 has fallen below the statutory minimum issue price of new shares, representing the

nominal value of CHF 50.

The exercise of options granted as of December 31, 2002 is fully provided for by conditional cap-

ital (239 357 shares) and treasury shares acquired in the re-domiciliation process (7 403 shares).

14. RELATED PARTY BALANCES AND TRANSACTIONS

Related parties are all members of the board of directors, the operating management and the

minority shareholder A. Van den Berg BV.

a. Balances and Sales

The balances with related party A. Van den Berg BV as of December 31, 2002 and 2001 are

detailed below:

in USD 2002 2001

Accounts receivable 540 477 450 657

Accounts payable 710 975 340 050

Sale of sawnwood 3 204 121 2 796 762

Sale of know-how 80 000 45

Year ofIssuance

StrikePrice

ExpirationDate

Number ofShare Optionsat 31/12/01

Issued (Exercised) in 2002

Number ofShare Options

at 31/12/02

b. Compensation

During the ordinary course of business in 2002 and 2001, the Company granted compensation

to related parties as follows:

in USD 2002 2001

Executive committee

Remuneration and fees 284 941 159 631

Incentive compensation 80 160 60 000

Allowances and others 10 000

Total executive committee 375 101 219 631

Stock options 15 458 27 500

Board of Directors

Remuneration and fees Bord of Directors 3 000 4 500

Operating management

Remuneration and fees 492 841 409 301

Incentive compensation 81 762 10 000

Total operating management 574 603 419 301

Other 35 780 24 119

Total 988 484 667 551

15. EMPLOYEE BENEFITS

Employee Share Purchase Plan

In 2002, all employees of the company were granted the right to purchase up to 720 shares at a

preferential price being the higher of USD 33 1/3 per share or CHF 50 at date of purchase and

subject to a 24 month lock-up period. In total 3 235 shares were purchased by employees under

this program during 2002.

Employee Stock Option Plan

In 2002, the members of the Executive Committee were entitled – at their discretion – to receive

a portion of their compensation in the form of options with a strike price of CHF 54 and an expiry

date of December 31, 2007. The notional value of each such option was set at USD 5.00 per

option granted. A total of 15 458 options were awarded under this plan during 2002.

Other Employee Benefits

All group operating companies fully comply with local regulations governing employee benefits.

Beyond these regulatory requirements, the Company provides meals, housing, education and

access to medical care on a case by case basis according to the policy of the local operating

company.

46

16. SALES TO MAJOR CUSTOMERS

2002 2001

A. van den Berg NV 35% 30%

Staatliches Amt für Umwelt und Natur 17% 22%

International Specialties 11% N/A

17. EARNINGS PER SHARE

The calculation of the basic and diluted earnings per share is based on the following data:

in USD 2002 2001

Net income for the year 2 164 201 1 447 690

Number of shares, beginning of year 1 429 362 1 392 141

Number of shares, end of year 1 620 643 1 429 362

Average number of shares 1 525 003 1 410 752

Basic earnings per share 1.42 1.03

Number of options, beginning of year 171 563 144 063

Number of options, end of year 186 378 171 563

Average number of options 178 971 157 813

Average number of shares and options 1 703 973 1 568 565

Diluted earnings per share 1.27 0.92

18. CONTINGENCIES

Taxes

The Company and its subsidiaries’ financial statements are open for the examination of tax

authorities. Therefore, a possible liability may exist for interpretations of applicable laws by the tax

authorities, which may differ from those of the Company.

Assessment by Brazilian Authorities

In February 2002, a Brazilian subsidiary was assessed by IBAMA relating to certain procedures of

transporting of logs, which had been in place and approved informally by government agencies

for many years. The fines received by the Company amount to approximately USD 9 850 000 (at

the year-end exchange rate). IBAMA has not undertaken any efforts to actually collect this fine

which has not been registered as owed or due. Company’s management and its attorneys

believe that these fines are arbitrary in nature and not justified and consider no material loss will

occur as a result of the final decision on this process; consequently, no accrual was recorded in

the Company’s consolidated financial statement at December 31st, 2002.

19. FINANCIAL INFORMATION BY SEGMENT

The Company has only one product, which is tropical timber. The Company’s operations are

organized in geographical segments for 2002 as follows: 47

2002 Costa Rica Brazil Europe/BVI Total

Total assets 30 009 043 30 017 136 6 100 075 66 126 254

Total liabilities 83 060 7 310 541 3 171 084 10 564 685

Capital expenditures 1 421 452 3 585 502 34 210 5 041 164

Depreciation and amortization 72 986 1 727 646 26 090 1 826 722

Net revenue 2 512 416 7 335 135 1 752 164 11 599 715

Net income (loss) 2 512 416 425 364 –773 579 2 164 201

The financial information by geographical segment for 2001 is as follows:

2001 Costa Rica Brazil Europe/BVI Total

Total assets 26 012 951 23 765 103 4 039 024 53 817 078

Total liabilities 91 636 5 564 968 759 554 6 416 159

Capital expenditures 1 336 848 5 519 712 13 333 6 869 893

Depreciation and amortization 95 889 1 292 061 7 560 1 395 510

Net revenue 2 116 044 3 600 711 5 057 207 10 773 962

Net income (loss) 2 116 044 –457 312 –211 042 1 447 690

Brazilian inter-company sales of USD 1 069 139 and USD 3 611 496, and allocation of overhead

expenses to the business units of USD 1 011 659 and USD 766 736, for 2002 and 2001, respec-

tively, have been eliminated in consolidation.

20. MAJOR SHAREHOLDERS

At December 31, 2002 the shareholders holding more than 5% of Precious Woods Holding AG

registered shares are as follows:

Number of shares 2002 Number of shares 2001

Beamtenversicherungskasse des Kantons Zürich 270 000 16.66% 270 000 18.75%

Baloise Holding 236 500 14.59% 183 000 12.71%

Swiss Reinsurance Company 122 250 7.54% 122 250 8.49%

Pensionskasse II der F. Hoffmann-La Roche AG 90 000 5.55% 90 000 6.25%

21. INCOME TAXES

Tax Loss Carry-Forwards

Precious Woods Amazon has tax loss carry-forwards of approximately USD 5 600 000 (at year-

end rate) to offset future taxable income, which is limited to 30% of each year’s taxable income.

No benefit of this future tax loss carry-forwards has been recognized and such benefit will only be

recorded in the financial statements when realized, since is not possible to estimate the actual

amount that will be recovered in the foreseeable future.

48

49

A Costa Rican subsidiary has tax loss carry-forwards of approximately USD 170 000 (at year-end

rate) to offset future taxable income, which is limited to a five-year carry-forward period. No ben-

efit of future tax loss carry-forwards has been recognized and such benefit will only be recorded

in the financial statements when realized, since is not possible to estimate the actual amount that

will be recovered in the foreseeable future.

Deferred Tax Liability

During 2001, a subsidiary located in Brazil revalued its forest, based on an appraisal report pre-

pared by an independent valuation company, that resulted in a revaluation in the amount of USD

1656 286, of which USD 1109 712 were recorded as an increase of quotaholders’ equity and

USD 546 571 as deferred income taxes provision. The realization of the revaluation reserve will

occur when the assets are sold or used to increase capital.

Deferred Tax Asset

A deferred income tax asset in the amount of USD 257 024 was recognized at the Brazilian sub-

sidiary Carolina Indústria Ltda. related to provisions considered for inventories, taxes payable and

contingencies not registered in the fiscal books. This created temporary differences which will

reduce future taxable profits as the provisions registered for reporting purposes become

deductible in the fiscal books.

in USD 2002

Provision for losses on log – inventories 512 842

Taxes payable 192 057

Provision for contingencies 51 053

Total 755 952

Rate – income tax (25%) and social contribution (9%) 34%

Deferred income taxes 257 024

22. SUBSEQUENT EVENTS

Purchase of additional forest for Precious Woods Amazon

At the beginning of 2002 our subsidiary Precious Woods Amazon entered into two purchase

contracts for additional 123 000 ha of forest area in total. The purchase price will be paid in

installments over a period time ending in December 2004.

Roll over credit facility

In March 2003, the roll-over credit facility arranged with the Hollandische Bank-Unie NV (Note 12)

was expanded to USD 10,0 million and the interest rate adjusted to libor plus 1,6%.

23. APPROVAL OF FINANCIAL STATEMENTS

The financial statements were approved by the board of directors on April 9, 2003 and author-

ized for issue.

51

To the General Meeting of the Shareholders ofPrecious Woods Holding AG, Zug

As auditors of the Group we have audited the consolidated financial statements (balance sheet,income statement, statement of changes in shareholders’ equity, statement of cash flow andnotes) of Precious Woods Holding AG, Zug for the year ended December 31, 2002.

These consolidated financial statements are the responsibility of the Board of Directors. Ourresponsibility is to express an opinion on these consolidated financial statements based on ouraudit. We confirm that we meet the legal requirements concerning professional qualification andindependence.

Our audit was conducted in accordance with auditing standards recognised by the Swiss pro-fession and with the International Standards on Auditing issued by the International Federation ofAccountants, which require that an audit be planned and performed to obtain reasonable assur-ance about whether the consolidated financial statements are free from material misstatement.We have examined on a test basis evidence supporting the amounts and disclosures in the con-solidated financial statements. We have also assessed the accounting principles used, significantestimates made and the overall consolidated financial statement presentation. We believe thatour audit provides a reasonable basis for our opinion.

In our opinion, the consolidated financial statements give a true and fair view of the financial posi-tion, the results of operations and the cash flow in accordance with International FinancialReporting Standards and are in accordance with the provisions of the Swiss law.

We recommend that the consolidated financial statements submitted to you be approved.

Without qualifying our opinion we draw to your attention that the consolidated financial state-ments at December 31, 2002 and 2001 include biological assets and other project costs (exclud-ing land) amounting to USD 29 805 227 and USD 24 924 755 respectively. The ultimate recoveryof these costs is dependent upon the Company’s ability to complete the forest projects and togenerate future earnings.

DELOITTE & TOUCHE AG

David Wilson Christian HinzeAuditor in charge

Zurich, April 9, 2003

Enclosures:– Consolidated financial statements (balance sheet, income statement, statement of changes in

shareholders’ equity, statement of cash flow and notes)

REPORT OF THE GROUP AUDITORS

52

Balance sheet at December 31, 2002 and 2001 ( in CHF)

ASSETS Notes 2002 2001

Current assets

Cash 497 262 –

Securities 4 344 690 1

Trade accounts receivable – 209 150

Prepaid expenses 18 038 –

Total current assets 859 990 209 151

NON-CURRENT ASSETS

Loans to affiliates 39 364 853 51 458 726

Investments 3 42 887 113 28 672 397

Total non-current assets 82 251 966 80 131 123

TOTAL 83 111 955 80 340 274

LIABILITIES AND SHAREHOLDERS’ EQUITY

Current liabilities

Accounts payable to affiliated companies – 1 715 030

Short-term bank loan 4 023 750 –

Accrued expenses 87 808 –

Total current liabilities 4 111 558 1 715 030

Deferred foreign currency translation gain – 378 348

SHAREHOLDERS’ EQUITY

Share capital 1 81 032 150 72 000 000

General reserve 2 7 427 692 6 259 075

Reserve for own shares 344 690 –

Accumulated deficit –9 804 135 –12 179

Total shareholders’ equity 79 000 397 78 246 896

TOTAL 83 111 955 80 340 274

See notes to the financial statements

FINANCIAL STATEMENTS AND NOTES PRECIOUS WOODS HOLDING AG

53

Statements of income and available earnings for the years ended December31, 2002 and 2001 (in CHF)

OPERATIONAL EXPENSES 2002 2001

Personnel expenses –147 661 –

Administrative expenses –29 594 –

Audit fees –107 373 –

Total operating expenses –284 628 –

NON-OPERATING EXPENSES

Interest expense and bank charges –149 021 –12 179

Capital acquisition costs –887 365 –

Total non-operating expenses –1 036 385 –12 179

OTHER INCOME/(EXPENSES)

Foreign exchange loss –8 388 412 –

Profit from transactions with own shares 264 541 –

Other income (expenses) –2 381 –

Total other income/(expenses) –8 126 252 –

Net loss –9 447 266 –12 179

Accumulated loss, beginning of year –12 179 –

Allocation to reserve for own shares –344 690 –

Accumulated loss, end of year –9 804 135 –12 179

Notes to final statement of Precious Woods Holding Ltd.

1. GENERAL

The Company is the holding company of the Precious Woods Group.

The Precious Woods Group is active in the field of sustainable forest management in Latin Amer-

ica following the guidelines for sustainable forest management laid out by the Forest Stewardship

Council (FSC).

The company was founded on December 17, 1990 as Precious Wood Ltd., duly registered in

Tortola, British Virgin Islands.

On June 25, 2001 the Board of Directors and the ordinary shareholders’ meeting of the compa-

ny resolved to change the corporate domicile from Tortola, B.V.I. to Zug, Switzerland and to con-

tinue the incorporation of the Company under the laws of Switzerland. In its present form the

Company was registered on October 11, 2001 in the commercial register of the Canton of Zug,

Switzerland.

The share capital as of December 31, 2002 is composed of 1 620 643 fully paid-in registered

shares of CHF 50 nominal value each. As of December 31, 2001 the share capital was composed

of 1 440 000 fully paid-in registered shares of CHF 50 nominal value each.

2. SIGNIFICANT ACCOUNTING POLICIES

Translation of foreign currencies

The Company maintains its books in US Dollars, which are translated into Swiss Francs as

follows:

a) Current assets and liabilities year-end rate

b) Loans to affiliates lower of historic or year-end rate

c) Investments historic rate

d) Equity historic rate

e) Profit and loss account average rate

All translation differences are included in the determination of net equity.

54

3. INVESTMENTS IN SUBSIDIARIES

The Company holds the following direct investments:

Precious Woods Management Ltd. USD 20 000 100.00 USD 20 000 100.00

British Virgin Islands

(Group management)

Maderas Preciosas de CRC 3 216 000 000 100.00 CRC 50 000 000 100.00

Costa Rica S.A.

Costa Rica (Sub-holding

company and operations)

Madeiras Preciosas de BRL 4 400 000 99.97 BRL 4 400 000 99.97

Amazonia Manejo Ltda.

Brazil (Sub-holding company)0.03% of the shares are held by Precious Woods Management Ltd., BVI

MIL Madereira Itacoatiara Ltda. BRL 6 423 648 71.43 BRL 6 423 648 71.43

Brazil (Land and forest operations)28,57 % of the shares are held by Madeiras Preciosas de Amazonia Manejo Ltda., Brazil

Precious Woods do Pará S.A. BRL 1 003 60.00 BRL 1 003 60.00

Brazil (Sub-holding company

Land and forest operations)CRC – Costa Rican ColonesBRL – Brazilian Reais

4. TREASURY SHARES

The Company holds 15 863 of its shares in treasury with a total value of CHF 344 690. Of these

treasury shares, 7 403 were acquired during the Company’s redomiciliation process which are

reserved for the employee stock purchase and option plans. As per December 31st, 2001 the

Company held 10 638 own shares with value of CHF 1 pro memoria. The treasury shares are pre-

sented in the balance sheets as securities under current assets.

55

Company Nominal share capital

Participationin %

Nominal share capital

Participationin %

Dec. 31, 2002 Dec. 31, 2001

56

The transactions in own shares during 2002 are as follows:

in CHF Number of shares Average price Amount

Balance per 31/12/01 10 638 0 1

+ Purchases (42 transactions) 64 339 55,69 3 582859

– Sales (99 transactions) 59 114 59,25 –3 502710

Profit from transactions in own shares – – 264 541

Balance per 31/12/02 15 863 – 344 690

5. AUTHORIZED SHARE CAPITAL

The general ordinary shareholders’ meeting on June 25, 2001 resolved to create in addition to

the ordinary share capital an authorized share capital of CHF 9 000 000 by issuing up to 180 000

new registered shares of a nominal value of CHF 50 each.

On November 22, 2001 the Board of Directors resolved to increase the share capital of the com-

pany by CHF 9 000 000 by issuing up to 180 000 new shares. This increase of the share capital

took place on March 18, 2002.

On June 17th 2002 the general shareholders’ meeting authorized the Board of Directors to

increase share capital by up to CHF 37 000 000 by issuing maximal 740 0000 new shares with a

nominal value of CHF 50.

6. CONDITIONAL SHARE CAPITAL

In order to cover the outstanding and future option rights, the general shareholders’ meeting on

June 25, 2001 resolved to create conditional share capital of CHF 9 000 000 by issuing up to

180 000 registered shares of a nominal value of CHF 50 each. The general shareholders’ meeting

on June 17, 2002 authorized an increase in the conditional capital of 60 000 shares to CHF

12 000 000.

During 2002, 643 options were exercised so that the share capital as of December 31, 2002 is

composed of 1 620 643 fully paid-in registered shares of CHF 50, par value each (equaling CHF

81 032 150 share capital). Conditional share capital per December 31, 2002 amounted to CHF

11 967 850 representing 239 357 registered shares.

57

To the general meeting of the shareholders ofPrecious Woods Holding AG, Zug

As statutory auditors, we have audited the accounting records and the financial statements (bal-ance sheet, profit and loss account and notes) of Precious Woods Holding AG, Zug, for the yearended December 31, 2002.

These financial statements are the responsibility of the board of directors. Our responsibility is toexpress an opinion on these financial statements based on our audit. We confirm that we meetthe legal requirements concerning professional qualification and independence.

Our audit was conducted in accordance with auditing standards promulgated by the Swiss pro-fession, which require that an audit be planned and performed to obtain reasonable assuranceabout whether the financial statements are free from material misstatement. We have exa-minedon a test basis evidence supporting the amounts and disclosures in the financial statements. Wehave also assessed the accounting principles used, significant estimates made and the overallfinancial statement presentation. We believe that our audit provides a reasonable basis for ouropinion.

In our opinion, the accounting records and the financial statements comply with Swiss law andthe Company’s articles of incorpo-ration.

We recommend that the financial statements submitted to you be approved.

We draw your attention to the fact that the company has own shares despite it does not haveavailable free equity as required by art. 659 para. 2 of the Swiss code of obligations.

Without qualifying our opinion we draw to your attention the fact that the financial statements asat December 31, 2002 and 2001 include investments amounting to CHF 42 887 113 and CHF 28 672 397 respectively. The ultimate value of these investments isdependent upon the companies’ ability to accomplish the business plans.

DELOITTE & TOUCHE AG

David Wilson Christian HinzeAuditor in charge

Zurich, April 9, 2003

Enclosures:– Financial statements (balance sheets, profit and loss accounts and notes)

REPORT OF THE STATUTORY AUDITORS

Design and realizationBLEND, Büro für Gestaltung, Zurich

PicturesPhoto archive of Precious Woods

Printed byROPRESS Druckerei GenossenschaftBaslerstrasse 106, 8048 Zurich

PaperFSC certified by SGSSGS-CoC-0474FSC Trademark © 1996Forest Stewardship Council A.C.

INVESTOR RELATIONS

Data per Share

1999 2000 2001 2002Earnings per share (USD) –0,10 0,45 1,03 1,42Book Value per share (USD) 30,98 32,03 33,16 34,28Land & Forest area per share (m2)

Primary forest in Brazil* 744 575 1042 1036Plantations in Central America 35 27 30 28

Assets per share (in USD)Land in Central America 4,91 3,79 3,69 3,38Land in Brazil* 3,57 2,76 5,02 4,94Infrastructure in Brazil* 9,80 7,24 9,04 9,63

*This table takes 60% of the assets and surface area of Precious Woods Pará into account.

What does an investor acquire with 100 shares?Over 180 000 m2 of forest in the Amazon region which is then protected from deforestation (taking123 000 ha forest into account which was purchased in Spring 2003)2830 m2 of reforestations in Costa Rica which absorb almost the same amount of CO2 that isreleased by a car travelling a good 20 000 km.

Share CapitalThe share capital of Precious Woods Holding AG amounts to CHF 81 032 150 represented by1 620 643 registered shares with a nominal value of CHF 50. In addition CHF 11 967 850 conditionalcapital is available to cover options as is CHF 37 000 000 approved capital to enable future capitalincreases.

Stock Exchange ListingThe shares of Precious Woods Holding AG have been listed on the SWX Swiss Exchange in Zurichsince March 18, 2002. Details may be found in the electronic share price information systems underthe following ticker symbols:

Telekurs PRWNReuters PRWZn.SSecurity Number 1328336ISIN CH0013283368

Excursions for ShareholdersEvery year Precious Woods organizes trips for shareholders to visit our forests and operations inCosta Rica and Brazil. Details are available from our office in Zurich (office@preciouswoods.ch orphone +41 1 245 80 19).

www.preciouswoods.com

Shareholders’ trip to Costa Rica

Shareholders’ trip to Brazil

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www.preciouswoods.com