The International Financial Reporting Standards (IFRS) as ...1209429/ATTACHMENT01.pdf · Forest...
Transcript of The International Financial Reporting Standards (IFRS) as ...1209429/ATTACHMENT01.pdf · Forest...
The International Financial Reporting Standards (IFRS) as implemented into the forestry accounting
Markku Penttinen & Walter Sekot
International IUFRO Symposium Advances and Challenges in Managerial Economics and Accounting, 9 May 2016 Vienna, Austria
Contents
• Forestry accounting traditions and theoretical bases
of IFRS
• Pros and cost of IAS41
• Stumpage prices
• Forest regeneration and other costs
• The discount rate
• The disclosure
• The Scandinavian forest industries
Forestry accounting traditions
& theoretical bases of IFRS •Traditionally: Historical cost accounting (HCA): planned cut vs. actual cut
Real business transaction based (Riahi-Belkaoui 2000) => “lazy capital” cf. StoraEnso • Chart of accounts
IUFRO (1966), Wentzer (1972), Deutscher Forstwirtschaftsrat (1980)
• Forestry accounting developments
Brabänder (1996), Jöbst & Hogg (1997), (2008), Jöbstl (2005), Hyder,
Lönnstedt, Penttinen (1994,1997, 1999), Sekot (1998, 2000, 2001)
• German/Austrian and Australian schools (Herbohn etc.)
• European Farm Accountancy Data Network (FADN) uses market valuation
(Argilés 2011, 108) is a quasi-standard (Poppe & Beers 1996) and
even measures profitability for the forest sector (Marongiu et al. 2012)
* Fair value accounting (FVA) US Financial Accounting Standards Board 1976)
• Financial statement users at the focus (Barlev & Haddad 2003, IASC 2000)
=> risks & lenders ignored
* IFRS property value calculations à la USA => optimal allocation of assets??
Pros and cons of IAS 41- a furious discussion
+ IAS 41 apropriate to assets with long production cycles e.g. forest (Herbohn &
Herbohn 2006)
+ Forest holders support the standard: eight of ten (Helborn 2006)
+ Fair value (FV) does not mean volatility or manipulation (Argilés et al. 2010)
- FV increases volatility of earnings (Dowling & Godfrey 2001)
the coefficient of variation of gain and loss 91% in four years (Herbohn 2006)
- Unrealistic expectations of distributable profits (Herbohn & Herbohn 2006)
- Large profit in the first period (Ettenauer et al. 2009)
- The costs outweigh the benefits (Elad & Herbohn 2011)
- FV vague and will not generate comparable valuations (Billingby&Billemse 2004)
- FV creates potential for manipulation and yields distorted results (Herbohn 2009)
- IAS 41 too academic and not focused on practicalities (Herbohn& Herbohn 2006)
- Ignores social and environmental relations underlying market exchanges (Elad 2007)
Stumpage prices
* Closing of the books: +1.5% annual nominell increase (Sveaskog)
2% (SCA), 2% Holmen, 2% Södra, after 10 y. 0% (Tornator)
• External experts: Indufor, Pöyrys indices and LRFKonsult (land)
NIPF prices from research institutes as a source
• Current prices adjusted by the management’s estimates up to 100 years (UPM)
• Price sensitivity: - price level change by 1 % unit: FV +1% (Bergvik skog)
+ 1,7% (Södra), +2.2 (Holmen)
- price forecast +10%: FV + 12% (Tornator)
- price increase from 1.5% to 2%: FV -8.8% (Sveaskog)
• NOT a price of some day e.g. December 31, but a long term price model (Tornator,
Bergvik skog, …)
• Prices of pine and spruce (Bergvik skog) and birch (Tornator): logs and pulpwood, final
felling and thinning – not first thinning (Bergvik skog)
** BUYER PICKS STANDS FOR FELLING WITH GIVEN CRITERIA (Bergvik skog)
Forest regeneration and other costs
• Silvicultural costs ~ 10-15% annually (Tornator etc.)
• Regeneration and other costs expensed (against IAS 41)
• The impact of cost development change from 2%
to 1.5% would increase the FV by 13% (Sveaskog)
• One per cent increase in cutting costs decrease FV 0.4%
Bergvik skog, 0.3% SCA
• Own cost accounting, statistics of reseach institutes
for comparison (Tornator)
** Young seedling stands are valued at cost (UPM)
The discount rate
• Rates 2015: 4% (after tax) Tornator, 5.5% Holmen, 5.95%
Sveaskog, 6.25% Bergvik Skog, SCA, 7% UPM, 10%Uruguay
•The discount rate includes typically inflation 2%
• Riskless interest rate: 50 years euroswap interest rate
• WACC: own capital e.g. 35% loans 65%
• Own capital: Capital asset pricing model & beta factor
• Debts: interest protected interest rate of long term loans
* One per cent unit increase causes FV value decrease:
11% UPM, 16% Tornator, 19% Sveaskog, Bergvik skog,
20% Holmen, 25% SCA, 26% Södra
SELECTION OF SCANDINAVIAN FOREST INDUSTRIES
COMPANY/Land # IN THE WORLD Hectar/M TURNOVER/MILLION
Svenska Cellulosa SCA 335 2.0 $ 13 460
StoraEnso / SE&FI 357 - $ 12 618
with affiliated (forests only) companies
- Bergvik Skog/SE 49% 1.9 $ 240
- Tornator/FI 41% 0.7 $ 130
UPM Kymmene / FI 376 1.1 $ 12 105
[Metsä (=forest) Group 651 $ 6 070 ]
cooperative => no IFRS
Södra SE ~ 2000 0.04 $ 2 133
Holmen / SE ~ 2500 1.3 $ 1 571
Sveaskog (forests only) 3.1 $ 710
Compare: The biggest in the world
International Paper / US 181 $ 23 617
http://www.industryweek.com/resources/iw1000/2015?page=6
The disclosure of the Scandinavian forest industries
• Bare land reported by Sveaskog €75/ha, Bergvik skog
€118/ha and Tornato €131/ha, mostly in a lump sum
• Biological asset €1300/ha Sveaskog, UPM, €1600/ha SCA,
Tornator, €1800/ha Holmen, Bergvik skog, but market
prices €6000/ha (SE) and €2400 (FI)
* Rotation: 70 y. FI, 80 ES, 100 SE,120 RO, 10 Uruguay
• Split: mature (allowable cut) and immature not disclosed
• Sensitivities reported with respect to changes in price,
discount rate, cost and even felling volumes
• Some open e.g. Tornator, some are closed e.g. UPM
Summarising comments
• Hardly any manipulation – as claimed by many papers
• Some companies reluctant to disclose their practices
• Scientific base: growth models, optimal rotation, forest
management planning, e.g. all are using MELA of the FFRI in FI
• Even WACC, CAPM etc. methods in use, up to date know how
• Risk inclusion limited but discounting rate slackens
• Biological asset €1300/ha Sveaskog, UPM, €1600/ha SCA, Tornator,
€1800/ha Holmen; markets €6000/ha (SE) and €2400 (FI)
* Calculations: 70 years FI, 80 ES, 100 SE,120 RO, 10 Uruguay
• Split: mature (allowable cut) and immature not disclosed
• Sensitivies with respect to changes in price, discount rate,
silvicultural and felling cost and even felling volumes
•
University of Gävle