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.
Forest Valuation
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.
Functional Currency
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.
Ends.
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 targeted delivery strategies.