1. Basis of presentation and general accounting policies
Basis of presentation
Precious Woods Group (hereinafter referred to as “Precious Woods” or “the Group”) is one of the leading companies in sustainable management of tropical forests globally. The parent company, Precious Woods Holding Ltd., has its registered office in Zug. The Group’s subsidiaries are organized and operate under the laws of Brazil, Gabon, Netherlands, British Virgin Islands and Luxembourg.
The consolidated financial statements for the Precious Woods Group have been prepared on a historical cost basis, except for leasing, biological assets and land, that have been measured at fair value, and in accordance with International Financial Reporting Standards (IFRS) as issued by the International Accounting Standards Board (IASB). Further changes in 2019 are explained below.
The consolidated financial statements are presented in euros, as the Group’s revenues, profits and cash flows are principally denominated in euros. All values are rounded to the nearest thousand (in thousand EUR), except when otherwise indicated. The functional currency of the parent company Precious Woods Holding Ltd. is swiss francs.
Due to rounding, numbers presented throughout this report may not add up precisely to the totals provided. All ratios and variances are calculated using the underlying amount rather than the presented rounded amount.
Changes in basis of preparation in 2019
The changes in the basis of preparation, implemented in 2019, are further explained below:
- Land has been revalued at fair value and not at cost anymore, according to the revaluation model of IAS 16 Property, Plant and Equipment. The change in accounting policy was applied prospectively, according to IAS 8.17. The increase as a result of the revaluation was recognized in other comprehensive income and accumulated in equity under revaluation surplus. For further explanation see Note 11.
- Forest has been remeasured at fair value less costs to sell instead at cost, according to IAS 41 Agriculture, since the fair value of these biological assets became reliably measurable. The changes in fair value were recognized in the consolidated statement of profit or loss. For detailed information see Note 12.
Significant accounting judgments, estimates and assumptions
The preparation of the consolidated financial statements requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and the reported amounts of revenues and expenses during the reporting period. The resulting accounting estimates will, by definition, rarely equal the related actual results.
The estimates and assumptions, which may have a significant risk of causing a material impact on the consolidated financial statements, relate primarily to
- Biological assets (see Note 10.2),
- Leasing and right-of-use assets (see Note 22),
- Deferred income tax assets (see Note 29),
- Land titles in Brazil (see Note 10),
- Provisions (see Note 27),
- Contingencies (see Note 28) and
- Defined benefit obligations (see Note 30)
New or revised IFRS standards, amendments and interpretations
Certain IFRS and interpretations were revised or introduced. The relevant ones for the Group are,
effective on or after 1 January 2019:
- IFRS 16 Leases The new standard replaces IAS 17 and requires lessees to recognize a lease liability reflecting future lease payments and a right-of-use asset for the right to use the underlying asset for the lease term. The Group adopted IFRS 16 using the modified retrospective method of adoption with the date of initial application of 1 January 2019, therefore the standard is applied retrospectively with the cumulative effect of initially applying the standard recognized at the date of initial application. Initial carrying amounts of recognized assets and liabilities of leases previously classified as finance leases applying IAS 17 remained unchanged. The requirements of IFRS 16 were applied to those leases as per 1 January 2019. For lease contracts previously classified as operating leases a right-of-use asset was recognized, at an amount equal to the lease liability, adjusted by the amount of any prepaid or accrued lease payment relating to that lease. The Group uses the recognition exemptions for lease contracts that, at the commencement date, have a lease term of 12 months or less and do not contain a purchase option (short-term leases), and lease contracts for which the underlying asset is of low value (low-value assets). Lease payments for these types of contracts are still recognized as operating expenses. Payments for lease liabilities are recognized as depreciations and interest expenses. The weighted average IBR applied on transition was 7.45 %. The quantitative impact on the transition to IFRS 16 on the consolidated statement of financial position as of 1 January 2019 is disclosed in Note 22 on a line by line basis. Precious Woods is not a lessor and also subleases do not occur within the Group.
- IFRIC 23 Uncertainty over tax treatment This amendment had no impact on the consolidated financial statements.
effective on or after 1 January 2020:
The Group does not expect any impact on its consolidated financial statements from new or revised IFRS standards and amendments effective for annual periods beginning on or after 1 January 2020.
The general accounting policies are as follows:
The subsidiaries’ accounting records are maintained in the legal currency of the country in which they operate and which is their functional currency. Foreign currency transactions are translated into the functional currency using the exchange rates prevailing at the transaction dates. Foreign exchange gains and losses resulting from the ¬settlement of such transactions and from the translation at year-end exchange rates of monetary assets and liabilities denominated in foreign currencies are recognized through profit or loss. The currency translations rates are presented in Note 31.
The financial statements of the subsidiaries have been translated from their functional currencies to the presentation currency (EUR). All assets and liabilities are translated by using the rate of exchange prevailing at the reporting date. Shareholders’ equity accounts are translated at historical exchange rates. The statement of profit or loss is translated at the average rate for the year. Translation differences are recognized as currency translation effects in other comprehensive income.
b. Impairment of non-financial assets
The Group assesses at each reporting date whether there is an indication that an asset may be impaired. Such assessment occurs on the basis of events or changes in circumstances, which indicate that the value of an asset may be impaired. If such indications exist, the recoverable amount will be determined for the respective asset. If the asset does not generate cash inflows that are largely independent from other assets, the recoverable amount is determined on the lowest group of assets for which cash inflows are separable. An impairment loss is recognized, if the carrying value exceeds the recoverable amount. The recoverable amount is the higher of value in use and fair value less costs of disposal. The impairment is recorded in the statement of profit or loss.
All specific accounting policies may be found adjacent to the corresponding note on the following pages.