- Note 1 Accounting principles
- Note 2 Critical accounting estimates and judgements
- Note 3 Segment information
- Note 4 Acquisitions and disposals
- Note 5 Other operating income and expense
- Note 6 Personnel expenses
- Note 7 Board and executive remuneration
- Note 8 Net financial items
- Note 9 Income taxes
- Note 10 Depreciation, amortisation and impairment charges
- Note 11 Intangible assets and property, plant and equipment
- Note 12 Biological assets
- Note 13 Equity accounted investments
- Note 14 Available-for-sale investments
- Note 15 Other non-current assets
- Note 16 Inventories
- Note 17 Receivables
- Note 18 Shareholders’ equity
- Note 19 Non-controlling interests
- Note 20 Post-employment benefits
- Note 21 Employee variable compensation and equity incentive schemes
- Note 22 Other provisions
- Note 23 Operative liabilities
- Note 24 Financial risk management
- Note 25 Fair values
- Note 26 Debt
- Note 27 Derivatives
- Note 28 Cumulative translation adjustment and equity hedging
- Note 29 Commitments and contingencies
- Note 30 Principal subsidiaries and joint operations
- Note 31 Related party transactions
- Note 32 Earnings per share and equity per share
Note 12 Biological assets
The biological assets of Stora Enso consist of standing trees to be used as raw material in pulp and mechanical wood production and as bio fuels.
IAS 41 Agriculture standard 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 of fair value less the 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 forecasted tree growth is multiplied by wood prices and the cost of fertiliser and harvesting is then deducted. The fair value of the biological assets are 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 an immature asset and is 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 the 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, as well as in joint operations in Brazil and Uruguay and in equity accounted investments in Finland, Sweden and Brazil.
The value of biological assets disclosed in the group Consolidated statement of financial position from subsidiary companies and from joint operations amounts to EUR 448 (EUR 489) million as shown below. The Group’s indirect share of biological assets held by equity accounted investments amounts to EUR 2 906 (EUR 2 897) million.
|Year Ended 31 December|
|Subsidiaries and Joint Operations|
|Fair Value at 1 January||489||640|
|Change in fair value||-6||-120|
|Additions (cost based)||80||91|
|Other operative changes||-9||-79|
|Reclassification from Property, plant and equipment||2||2|
|Fair Value of biological assets at 31 December||448||489|
|Equity accounted investments|
|Bergvik Skog Ab (49.28%)||2 326||2 360|
|Tornator Oyj (41%)||562||515|
|Arauco Florestal Arapoti S.A. (20%)||18||22|
|Fair value of biological assets of Associated companies at 31 December||2 906||2 897|
Subsidiaries and joint operations:
At the end of 2017, the fair value of the biological assets in Guangxi, China amounted to EUR 168 (EUR 174) million, which included young standing timber with a value of EUR 33 (EUR 36) million. The decrease is driven by FX movement, the local value increased by 3%. The discount rate of 8.6% (9.2%) used in the discounted cash flows (DCF) is determined using the weighted average cost of capital method. The amount of the land area is 80 (84) thousand hectares. As announced on 19 January 2017, Stora Enso is reconsidering its plans to build a chemical pulp mill in Beihai, China. As a consequence of this change in the scope of operations, Stora Enso would reduce 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 164 (EUR 202) million, of which Stora Enso’s share was EUR 82 (EUR 101) million. The biological assets included young standing timber with a value of EUR 31 (EUR 22) million. The discount rate of 7.3% (7.9%) used in the DCF is determined using the weighted average cost of capital method. Stora Enso’s share (50%) of the land area is 113 (114) thousand hectares.
Montes del Plata (MdP), a 50% joint operation company in Uruguay, had biological assets with a fair value of EUR 354 (EUR 380) million, of which Stora Enso’s share was EUR 177 (EUR 190) million. The biological assets included young standing timber with a value of EUR 43 (EUR 41) 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 (123) thousand hectares.
|Sensitivities of significant assumptions of a +/- 10% movement|
|Wood market prices||Growth rate|
|Montes del Plata||+18/-17||+/-6|
At 31 December 2017 biological assets by value were located in China 38% (36%), Brazil 20% (22%), Uruguay 39% (39%) and other areas 3% (3%). The land area comes to 363 (366) thousand hectares of which 31% (30%) of the land is leased and 4% (5%) restricted. The harvested wood amounted to 4 (4) million m3. The MdP and Veracel amounts are taken into account in the ownership share and number of hectares.
Equity accounted investments:
The Group has three equity accounted investments holding biological assets:
- Bergvik Skog Ab (Bergvik Skog), a 49.28% (49.00%) owned Swedish associate company, had biological assets with a fair value of EUR 4 719 (EUR 4 816) million, of which Stora Enso’s share was EUR 2 326 (EUR 2 360) million. The fair value change of Bergvik is mainly due to FX effect. Wood sales margin had a slight, ordinary increasing effect on the fair value.
- Tornator Oyj (Tornator), a 41% owned Finnish associate company, had biological assets with a fair value of EUR 1 371 (EUR 1 257) million, of which Stora Enso’s share was EUR 562 (EUR 515) million. The increase in fair value is due to a forest land purchases and within fair valuation increased harvesting volume had a positive impact. Sales prices and growing costs had a slight reducing impact on fair value.
- Arauco Florestal Arapoti S.A., the 20% owned southern Brazilian associate company, had biological assets with a fair value of EUR 90 (EUR 109) million, of which Stora Enso’s share was EUR 18 (EUR 22) million.
For information about the amount of wood delivered to Stora Enso mills and share of wood sourced from plantations, please see Stora Enso's Sustainability Report 2017, section Forests, plantations, and land use. Sustainability Report 2017 will be published during week 9.