1. FORESCOM Lessons Learned in Central America 31 January – 2 February 2012. Carlos Natareno Country Manager Guatemala

2. Mayan Biosphere Reserve In 1990, Guatemalan Government established the Maya Biosphere Reserve (MBR) in Petén. It was created with the purpose of protecting natural resources from harmful agricultural practices illegal logging, such as “slash-and-burn”, illegal logging (mahogany) and intensive farming/livestock. The MBR covers 2,113,000 ha and is divided into three zones with different functions: core zone, multiple use zone and buffer zone.

4. FORESCOM Between 1998 and 2002, thirteen concessions were granted to eleven community organizations and two private enterprises. Thus, FORESCOM was created to support the communities and cooperatives in managing their forests concessions and market their products. Main activities of FORESCOM: FSC certifications, technical assistance, “add value” to timber products (drying and moulding) and market access services.

5. FORESCOM FORESCOM has a cooperative structure and its members are the communities that hold concession rights.

9. Loan from Oikocredit… Oikocredit approved a USD 300,000 loan, 5 year term, on August 10 2006. Due to management changes the disbursements were postponed until 2007, and reoriented to the acquisition of machinery, construction of kilns, construction of storage facility and working capital. These new fund destinations were essential to the implementation of a business plan developed in part by RA. Forescom was able to comply with its first interest payment in March 2008 (USD 10,862) and its first capital payment in September 2008 (USD 52,582 including interests). Existing guarantees include a mortgage on Forescom’s main production facility and a guarantee from ICCO (70% of financial exposure).

10. History General Manager was replaced shortly after the approval of the Oikocredit loan, by an interim representative from RA during the first semester of 2007. Huge pressure by cooperating agencies to achieve sustainability: USAID, ICCO, Oikocredit, Rainforest Alliance, IUCN, ACOFOP and. Agexport. The management team and board of Forescom lacked of a “business” approach.

11. Inability to Meet Financial Obligations. Several changes on the General Management position. Lack of management generated inadequate strategic decisions: Forescom became a trader instead of a service provider. The “new business model” demanded huge quantities of working capital and a fast cash conversion cycle to pay on time to the communities. Increasing liquidity gap.

12. Adjustments to the loan from Oikocredit Oikocredit approved a CB to develop the strategic and operative plans (2008). A rescheduling of the loan, in order to reduce the pressure over liquidity position. The payment schedule was changed, from 6 month payment to quarterly payments (2009). After a 2 year intervention, the consultants were fired because of lack of results (2010).

13. More Problems Emerge There was a make up on the financial statements by the Financial Manager. All the data from 2007, 2008 and 2009 was not real. In a period of 3 years, 3 General Managers resigned from the position. More debt was acquired with energy providers (gasoline and electricity), suppliers (shareholders) and transportation companies.

14. New Solution Forescom reached “technical bankruptcy”: no equity, huge debts and no internal control. In March 2010, a new general manager was hired (Mario Reynoso): Review and adjustment of financial statements Reduction of staff. New business model: service provider. Reduce liabilities. Rebuilt trust and business relationships. Mitigate pressure from RA. Improve quality of operations.

15. New Solution Oikocredit approved a new rescheduling of the loan: monthly payments during the last for months of the year. A CB (technical assistance) was approved, in order to assure the continuity of the management team (RA, Oikocredit, Heidehof and Acofop). The CB support was conditioned: good performance and sale of unused assets.

16. Current Status of the Loan Outstanding: USD 115,827 Installments in 2011: USD 126,856 Interest Payments in 2011: USD 32,647 Penalties paid in 2011: USD 8,379

17. The Main Causes FORESCOM was created as an initiative of the cooperating agencies (RA), as a respond of a market opportunity for timber products. The enterprise was designed by the cooperating agencies, and not by the communities. This triggered and evidenced several weaknesses in terms of governability, internal control, accounting and management. Lack of commitment and know how in management and entrepreneurial skills.

18. The Main Causes Mission Drift: the original idea was to create a service provider enterprise, not a commercial intermediary. Weak monitoring from Oikocredit, resulted in inaccurate measures to mitigate credit risk (first CB and rescheduling). To much intervention by RA, which affected the governability and decision making oriented to sustainability

19. Follow up & lessons learned Close monitoring and constant communication with General Manager. Promote the continuity of current management team. Include the securities into a guarantee trust fund. Constant communication with RA and Acofop, in order to promote the autonomy of Forescom. New rescheduling of the loan in 2012, given the excellent credit history of Forescom during 2011. Coordination with Agexport for commercialization strategy and market access.

20. Thank you for your attention Q&A