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Note 12 Biological assets
Accounting principles
The biological assets of Stora Enso are standing trees to be used as raw material in pulp and mechanical wood production and as bio fuels.

IAS 41 Agriculture requires that biological assets are shown in the Consolidated Statement of Financial Position at fair value. Group forests are thus accounted for at level 3 fair value less estimated point-of-sale costs at harvest, there being a presumption that fair values can be measured for these assets.

The valuation of forest assets is based on discounted cash flow models whereby the fair value of the biological assets is calculated using cash flows from continuous operations, that is, based on sustainable forest management plans taking into account growth potential. The yearly harvest from the forecast tree growth is multiplied by wood prices and the cost of fertiliser and harvesting is then deducted. The fair value of the biological asset is measured as the present value of the harvest from one growth cycle based on the productive forestland, taking into consideration environmental restrictions and other reservations. Young standing timber less than two years old (less than three years in Montes del Plata) is considered to be immature assets and accounted at cost. At harvesting, biological assets are transferred to inventory.

Fair value is deemed to approximate the cost when little biological transformation has taken place or the impact of the transformation on price is not expected to be material, which varies according to the location and species of the assets.

Stora Enso also ensures that the group’s share of the valuation of forest holdings in equity accounted investments and joint operations are consistent with group accounting policies.
The group has biological assets in its own subsidiaries in China, Brazil and Laos, in joint operations in Brazil and Uruguay and in equity accounted investments in Finland, Sweden and Brazil.

The amount directly disclosed in the group Consolidated Statement of Financial Position from subsidiary companies and from joint operations amounts to EUR 489 (EUR 640) million as shown below. The group’s indirect share of biological assets held by equity accounted investments amounts to EUR 2 897 (EUR 2 841) million.
Biological assets
Year Ended 31 December
EUR million 2016 2015
Subsidiaries and Joint Operations
Fair Value at 1 January 640 643
Translation differences 17 7
Change in fair value -120 -13
Additions (cost based) 91 77
Harvesting -62 -51
Other operative changes -79 -5
Other changes - -20
Reclassification from Property, plant and equipment 2 2
Fair Value of biological assets at 31 December 489 640
Equity accounted investments
Bergvik Skog Ab (49%) 2 360 2 397
Tornator Oyj (41%) 515 428
Arauco Florestal Arapoti S.A. (20%) 22 16
Fair value of biological assets of Associated companies at 31 December 2 897 2 841
Subsidiaries and joint operations:

At the end of 2016, the fair value of the biological assets in Guangxi, China was EUR 174 (EUR 356) million, which included young standing timber with a value of EUR 36 (EUR 25) million. The decrease is mainly due to reduced inventory as a result of a higher than previously estimated portion of over mature areas with accumulated wood losses. The discount rate of 9.2% (9.6%) used in the DCF is determined using the weighted average cost of capital method. The amount of land area is 84 (86) thousand hectares. As announced on 19 January, Stora Enso is reconsidering its plans to build a chemical pulp mill in Beihai. As a consequence of the change in scope, Stora Enso would decrease the area of its leased forest lands in the Guangxi region. The scope and schedule for the reduction of fibre base will be decided later. As a part of this process, all contracts will be evaluated and Stora Enso aims to have only land leased that is free of contractual defects.

Veracel Celulose S.A. (Veracel), a 50% joint operation company in Brazil, had biological assets fair valued at EUR 202 (EUR 172) million, of which Stora Enso’s share was EUR 101 (EUR 86) million. The biological assets included young standing timber with a value of EUR 22 (EUR 0) million. The discount rate of 7.87% (7.6%) used in the DCF is determined using the weighted average cost of capital method. Stora Enso’s share (50%) of the land area is 114 (114) thousand hectares.

Montes del Plata (MdP), a 50% joint operation company in Uruguay, had biological assets with a fair value of EUR 380 (EUR 356) million, of which Stora Enso’s share was EUR 190 (EUR 178) million. The biological assets included young standing timber with a value of EUR 41 (EUR 39) million. The discount rate of 8.0% (8.0%) used in the DCF is determined using the weighted average cost of capital method. Stora Enso’s share (50%) of the land area is 123 (117) thousand hectares.
Sensitivities of significant assumptions of a +/- 10% movement
Wood market prices Growth rate
Guangxi +/-36 +/-17
Veracel +/-11 +/-11
Montes del Plata +18/-17 +/- 6
At 31 December 2016 biological assets were located by value, in China 36% (56%), Brazil 22% (14%), Uruguay 39% (28%) and other areas 3% (2%). The amount of land area is 366 (365) thousand hectares of which 30% (31%) of the land is leased and 5% (2%) restricted. The harvested wood amounted to 4 (4) million m3. The MdP and Veracel amounts are taken into account at ownership share and hectares.

Equity accounted investments:

The group has three equity accounted investments holding biological assets:
• Bergvik Skog Ab (Bergvik Skog), the 49% owned Swedish associate company, had biological assets with a fair value of EUR 4 816 (EUR 4 892) million, of which Stora Enso’s share was EUR 2 360 (EUR 2 397) million. The fair value change for Bergvik is due to a decrease in discount rate, an adjustment to the price curve, and a correction in the model from last year.
• Tornator Oyj (Tornator), a 41% owned Finnish associate company, had biological assets with a fair value of EUR 1 257 (EUR 1 045) million, of which Stora Enso’s share was EUR 515 (EUR 428) million. The change in Tornator’s fair value is due to an increase in felling plan and a decrease in the discount rate.
• Arauco Florestal Arapoti S.A., the 20% owned southern Brazilian associate company, had biological assets with a fair value of EUR 109 (EUR 79) million, of which Stora Enso’s share was EUR 22 (EUR 16) million.

For information about the amount of wood delivered to Stora Enso mills and share of wood sourced from plantations, please see Stora Enso Sustainability Report 2016, section Forests, plantations, and land use. Stora Enso Sustainability Report 2016 is available online at storaenso.com/annualreport .

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