Stora Enso will start using a valuation method based on market transactions for its forest assets in the Nordics in Q4/2020.
Preliminary estimations indicate that the value of the Group's forest assets, including leased land, will be EUR 6.5-7.0 billion, compared with a fair value of EUR 5.4 billion at the end of Q3/2020.
CFO Seppo Parvi, why is Stora Enso changing the valuation method now
We are one of the largest private forest owners globally. We have over 2 million hectares of forest land, out of which 1.6 million is productive land. Our annual forest growth is exceeding harvesting by more than 1 million cubic metres.
Why change The importance of forests as a valuation driver for Stora Enso has increased. Forests form a big part of our balance sheet, and there has been a significant difference between the market and balance sheet values. Also, the market practice for forest valuation is changing in the Nordic countries. Many companies have already changed their forest valuation to a transaction-based method. We believe that reliable market transaction data provides a more transparent valuation basis for our forests.
How will the forest valuation methodology change
Forest assets are defined as standing growing trees and the related forest land. As of Q4/2020, our forest asset value will be based on market transactions. This applies to Nordic forest assets, especially in Sweden. The methodology will be based on market transactions in the regions where Stora Enso's forests are located, on standing stock and price data of the traded forest, and also on average prices per region from external sources.
For the Finnish forest assets (through Stora Enso's 41% ownership in Tornator), the market approach is not considered a reliable valuation method as the market data is not available in enough detail, for example in terms of forest cubic meters of the traded estates. As a result, there is no change in valuation method for biological assets. However, Stora Enso's share of the forest land, currently accounted at historical cost, will be revaluated in Stora Enso's books by using the DCF method. Also, income from hunting rights and soil sales, for example, are included in the land valuation.
The valuation of our plantations in Uruguay, Brazil and China will not change, due to lack of sufficient market transaction data and shorter harvesting cycles of 6-12 years versus the long-term growing cycle of 60-100 years in the Nordics. Plantation forest land will continue to be accounted at historical cost and will be classified as a separate asset class, as compared to Nordic forest land, to reflect the different nature, usage and characteristics.
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