Fletcher Challenge Forests Changes to Accounting
STOCK EXCHANGE LISTINGS (FFS): NEW ZEALAND, AUSTRALIA, NEW YORK.
Fletcher Challenge Forests Announces
Changes to Accounting Policies
AUCKLAND, 29 June 2001 - Fletcher Challenge Forests Limited today announced changes to two accounting policies, taking effect at the end of the current financial year (30 June 2001). These changes result from a review by the new Board, as foreshadowed in the Information Memorandum released in March 2001 as part of the Fletcher Challenge Group separation documentation.
The company has previously accounted for its forest estate on the basis of historical cost, and will now move to a market valuation methodology. This uses discounted future cash flows as the basis for determining current value. “Our forests make up a large part of our asset base, and this change in the way they are valued and reported will provide investors with more relevant information with which to assess the worth of those forests,” said Mr Terry McFadgen, Chief Executive. “As part of the new policy we will provide full disclosure of the key assumptions underlying the market valuation. These will include product prices based on a 12 quarter historical average, a discount rate of 7.5% (real) and full provision for tax.”
He noted that market value accounting for regenerative assets such as plantation trees is the mandatory accounting standard in Australia. “This change brings us into line with the Australian standard, which we believe will achieve recognition internationally in the near future,“ said Mr McFadgen. “This will ensure that we are at the forefront of policy developments in this area, and at the same time enable us to improve our level of disclosure to investors.”
The change in accounting policy is expected to result in a new carrying value for the company’s forest estate in line with the December 2000 carrying value of NZ$1.1 billion recorded in the accounts of Fletcher Challenge Forests Division. The forest estate was recorded in the Fletcher Challenge Limited Group accounts at NZ$1.8 billion, the difference between the two values having arisen as a result of different interest capitalisation policies at the Group and Divisional levels.
The change in policy will not impact the carrying value of the company’s subordinated debt in the Central North Island Forest Partnership (in receivership) as this asset is carried at its estimated net recoverable amount, reflecting the likely sale of the partnership’s assets in the near future.
The company has previously accounted for its activities in US dollars (as the functional currency of its business), and provided NZ dollar accounts on a translation basis at each balance date. Following the separation of the Fletcher Challenge Group and the establishment of a stand-alone borrowing facility for Fletcher Challenge Forests, the company has reviewed treasury policy and will change the functional currency of the business from US dollars to NZ dollars with effect from 30 June 2001.
“Fletcher Challenge Forests has changed significantly over the past few years,” said Mr McFadgen. “Processing is now a much bigger part of our business. True US dollar activities have diminished in significance and the mix of currencies that impact on our cash flow means that it is now more appropriate that we adopt NZ dollars as the functional currency of our accounts.”
Mr McFadgen also noted that the company would progressively migrate its US dollar borrowings to NZ dollars over the next 12-18 months.
Fletcher Challenge Forests owns
or manages almost 300,000 hectares of fast growing
environmentally certified forest, and ten sawmilling and
re-manufacturing facilities, all in the Central North Island
of New Zealand. Fletcher Challenge Forests markets solid
wood products to all major markets in the Pacific Rim and
North America. The company's vision is to achieve global
leadership in the supply of softwood timber products,
sourced from renewable plantation forests, and servicing our
customers in the highest value end markets through carefully