1. Basis of presentation, consolidation and general accounting policies

Basis of presentation

Precious Woods Group (hereinafter referred to as “the Group” or “Precious Woods”) 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 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 IFRS Accounting Standards as issued by the International Accounting Standards Board (IASB).

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.

Significant accounting judgments, estimates and assumptions

The preparation of the consolidated financial statements requires Group Management to make estimates and assumptions that affect the reported amounts of assets and liabilities and 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 11),
Leasing and right-of-use assets (see Note 21),
Deferred income tax assets (see Note 28),
Land titles in Brazil (see Note 10),
Provisions (see Note 26),
Contingencies (see Note 27),
Defined benefit obligations (see Note 29) and
Goodwill (see Note 12)

Going concern – Debt restructuring / refinancing

The company has significant financial liabilities that are due and payable until the end of 2024. The company is convinced to find a solution to restructure its financial situation and as such to fulfil all obligations with the existing lenders who are at the same time important shareholders with whom the company maintains close contact and regular exchange. Nevertheless, the liquidity of the Group is currently under pressure until having solved these obligations.

Based on the liquidity plan prepared by the Board of Directors and Group Management, the company is expected to generate sufficient cash to be able to operate for the next twelve months until 31 May 2025. However, based on the liquidity plan, the company will face difficulties in fulfilling its obligations from financing activities. Therefore, the Board of Directors is closely monitoring the company’s solvency situation as well as assessing its liquidity position to take necessary actions to mitigate these risks. The Board of Directors is committed to act with the required urgency and will provide updates to stakeholders as appropriate.

After having successfully restructured the business in 2023 to the extent possible, the Group is taking further steps to address the uncertainties and improve its liquidity position, including exploring additional sources of financing, and seeking to refinance its current debt obligations. Measures that have been initiated but are not all fully completed yet include:

Signed standstill agreement is in place with the current lenders until the end of 2024, a termination of the agreement as of 30 September 2024 is possible however Group Management does not have any indication of such intent by any lender.
Board of Directors and Group Management developed a financial restructuring plan, which foresees to reduce the financial indebtedness and increase capital. A term sheet has been drafted and shared with lenders. There is ongoing discussion with lenders and the company is convinced to find a consensus with lenders.
Group Management has started a project with the goal of divesting non-essential assets. For that purpose, mandates to external parties have been given and discussion with potential buyers have been initiated.
Group Management has prepared a detailed 10-years business plan which is used to approach potential new investors.

The company’s ability to continue as a going concern is dependent on its ability to generate sufficient cash flows from operations, ensure refinancing and/or restructuring of existing finance obligations and obtain additional financing to meet its obligations as they come due. The Board of Directors has not yet been able to raise sufficient additional financing to meet the financial obligations that will be due in 2024. Consequently, there is a material uncertainty that raises significant doubts about the company’s ability to continue as a going concern. If the company is unable to address these material uncertainties and to secure its liquidity position, it may be unable to continue as a going concern. If such a situation arises, the financial statements would need to be prepared based on liquidation values.

The Board of Directors and Group Management expects that the proposed measures will be successful, and their effects will be to strengthen the liquidity of the Group and assure its financial stability in the long term. Therefore, the Board of Directors and Group Management believe the going concern assumption of the Precious Woods Group is given.

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 2023:

IFRS 17 Insurance contracts – The new standard had no impact on the consolidated financial statements.
IAS 1 Presentation of financial statements: Disclosure of accounting policies (amendments and IFRS practice statement 2) This amendment had no impact on the consolidated financial statements.
IAS 8 Accounting policies, changes in accounting estimates and errors: Definition of accounting estimates (amendments) These amendments had no impact on the consolidated financial statements.
IAS 12 Income taxes: Deferred tax related to assets and liabilities arising from a single transaction (amendments) This amendment had no impact on the consolidated financial statements.
IAS 12 Income taxes: International tax reform - Pillar two model rules (amendments) This amendment had no impact on the consolidated financial statements.

effective on or after 1 January 2024:

IFRS 16 Lease (amendments) – effective on or after 1 January 2024 – no material impact expected
IAS 7 Statement of cash flows and IFRS 7 Financial instruments (narrow-scope amendments) – effective on or after 1 January 2024 – no material impact expected
IAS 1 Presentation of financial statements (narrow-scope amendments) – effective on or after 1 January 2024 – no material impact expected
IAS 21 The effects of changes in foreign exchange rates (amendments) – effective on or after 1 January 2025 – no material impact expected
IFRS 18 Presentation and disclosure in financial statements – effective on or after 1 January 2027 – no material impact expected

The material general accounting policies are as follows:

a. Currency

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 30.

The financial statements of the subsidiaries have been translated from their functional currencies to the presentation currency (EUR).

b. Impairment of non-financial assets

The Group assesses at each year-end 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 comprehensive income.

All specific accounting policies may be found adjacent to the corresponding note on the following pages.