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BM2C_Timberland_Appraisals October 2017
TIMBERLAND APPRAISALS QUESTIONS & ANSWERS
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TIMBERLAND APPRAISALS
QUESTIONS & ANSWERS
What is a timberland asset?
What is a timberland appraisal?
Why appraising timberland assets?
Are there standards to appraise timberland assets?
How to estimate the timberland market value?
Is there a champion appraisal approach?
What information comes from timberland appraisals?
What are the main drivers of value?
How do define the discount rate?
As result, a specific opinion or a range of values?
What are the steps to appraise a timberland asset?
BM2C – BUSINESS MANAGEMENT CONSULTING
WHAT IS A TIMBERLAND ASSET?
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It can be a forest plantation, … a native forest, … a forestry land, … or a combination of them
BM2C – BUSINESS MANAGEMENT CONSULTING
WHAT IS A TIMBERLAND APPRAISAL?
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It is a fair opinion about the market value of a forest asset.
“The most probable price which a property should bring in a competitive and open market under all conditions requisite to a fair sale, the buyer and seller each acting prudently and knowledgeably, and assuming the price is not affected by undue stimulus. Implicit in this definition is the consummation of a sale as of the specified date and the passing of title from seller to buyer under conditions whereby:
• Buyer and seller are typically motivated;
• Both parties are well informed or well advised, and acting in what they consider their best interests;
• Reasonable time is allowed for exposure in the open market;
• Payment is made in cash, in the currency of the country in which the property is located, or in terms of financial arrangements comparable thereto; and
• The price represents the normal consideration for the property sold unaffected by special or creative financing or sales concessions granted by anyone associated with the sale.”
MARKET VALUE
BM2C – BUSINESS MANAGEMENT CONSULTING
WHY APPRAISING TIMBERLAND ASSETS?
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Timberland assets are usually appraised to:
• Inform the investors
• Advise Merger & Acquisitions
• Account the asset value
• Arbitrate disputes
• Define the management fees
BM2C – BUSINESS MANAGEMENT CONSULTING
ARE THERE STANDARDS TO APPRAISE TIMBERLAND ASSETS?
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The most important appraisal standards are provided by…
• USPAP - The Uniform Standards of Professional Appraisal Practice
• IFRS - International Financial Reporting Standards (IAS 41, IAS 16, IFRS 13)
• IVCS - International Valuation Standards Council
BM2C – BUSINESS MANAGEMENT CONSULTING
HOW TO ESTIMATE THE TIMBERLAND MARKET VALUE
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Three non-exclusive methods are available...
Method Estimate the Asset Value based on... Applicability
Forest Land
Cost Approach … the current costs to replace/reproduce the asset Yes No
Income Approach … the expectation about the future cash flow (DCF) Yes Possible
Sales Comparisons … comparison with evidences provided by sales transactions Yes Yes
BM2C – BUSINESS MANAGEMENT CONSULTING
IS THERE A CHAMPION APPRAISAL APPROACH?
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It depends on the characteristics of the timberland asset and of the wood market
METHOD APPLICABLE WHEN… PROS CONS
INCOME APPROACH
• Practically in all market contexts • Flexibility • Based on future
• Many “guess variables”
SALES COMPARISON
• When “facts of market” are available • Facts of Market • Usually facts are partially available • Based on past
COST APPROACH • Young plantations (non-comercial) • Frontier market
• Simplicity • It is poor estimate of the market value
Value conciliation tries to minimize the cons and maximize the pros
BM2C – BUSINESS MANAGEMENT CONSULTING
WHAT ARE THE STEPS TO APPRAISE A TIMBERLAND ASSET?
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Context & Trend Analysis
Timberland Asset
• Market positioning• Total and planted area• Forest Profile• Wood stock• Forest management• Production and cash flows• Actual and potential liabilities• Other assets
Business Environment External Environment
• Economic Aspects• Legal aspects• Government policies• Environmental aspects• Tax regime• Infrastructure & Logistics• Other involving aspects
• Structure & Geography• Constraint forces• Relative positioning• Supply & Demand• Wood Prices• Major players• Timberland Transactions• Land Prices
Appraisal Modelling
Appraisal Assumptions
• Business Model• Strategic positioning• Wood and cash flows• Capital structure• Tax regime• Business Risks
Appraisal Approach
• Evaluation methods• Wood Production Planning• Risk Analysis• Discount Rates• Sensitivity analysis
TimberlandAsset Appraisal
Fair Market Value
• Appraisal Assumptions• Market Characterization• Economic evaluation• Sensitivity analysis• Risk Analysis
BM2C – BUSINESS MANAGEMENT CONSULTING
WHAT INFORMATION COMES FROM TIMBERLAND APPRAISALS?
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FOREST ANALYSIS
APPRAISAL
MARKET ANALYSIS
• Management regime • Forest inventory • Forestry Capex & Opex • Long term wood flow • Wood sales • Tax regime • Risk analysis
• Market structure • Market size and stage • Dynamic wood balance • Wood price forecast • Risk analysis • Land price • Asset Transactions
• Business plan • Appraisal approach • Appraisal assumptions • Long term cash flow • Risk analysis • Market value opinion • Sensitivity analysis • Change analysis
BM2C – BUSINESS MANAGEMENT CONSULTING
WHAT ARE THE MAIN DRIVERS OF VALUE?
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WOOD PRICE
DISCOUNT RATE
FOREST PRODUCTIVITY CAPEX
MANAGEMENT COST
MARKET WOOD
BALANCE
MARKET STRUCTURE/ SIZE/STAGE
GROWTH RATE
LAND COST
MANAGEMENT REGIME
The appraisal results basically from the following drivers
BM2C – BUSINESS MANAGEMENT CONSULTING
HOW DO DEFINE THE DISCOUNT RATE?
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Depending on the context, the Discount Rate can be defined by the following no-exclusive approaches:
RE = ((1+(Rf+ (ß x Pm) + Pp + RMe)) / (1+ CPI)) - 1 where:
Re = Return required by equity (real discount rate) Rf = Return achieved in risk-free securities ß = Beta Pm = Market risk premium Pp = Country risk premium RMe = Regional market expectation CPI = Consumer Price Index (US Inflation rate)
• CAPM – Capital Asset Pricing Method
• WACC - Weighted Average Cost of Capital
CAPM
Timberland Transaction
Survey WACC
WACC = we . ke + wd . kd . (1-t) where:
we = percentage of financing from equity ke = cost of equity wd = percentage of financing from debt kd = cost of debt t = corporate tax rate
BM2C – BUSINESS MANAGEMENT CONSULTING
AS RESULT, A SPECIFIC OPINION OR A RANGE OF VALUES?
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Although the appraisal has as target to estimate the “market value”, the appraiser must provide analyses of sensitivity, elasticity, and risk
-25%
-20%
-15%
-10%
-5%
0%
5%
10%
15%
20%
25%
-20% -15% -10% -5% 0% 5% 10% 15% 20%
IRR
Chan
ge (%
)
Variable Change (%)
IRR Elasticity
Price/Productivity Forestry Land Overhead
6%
7%
8%
9%
10%
11%
12%
-20% -15% -10% -5% 0% 5% 10% 15% 20%
IRR
-Int
erna
l Rat
e of
Ret
urn
Variable Change (%)
IRR Sensitivity
Price/Productivity Forestry Land Overhead
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TIMBERLAND APPRAISALS
QUESTIONS & ANSWERS
Thank you for your attention
BM2C – BUSINESS MANAGEMENT CONSULTING
BM2C – PORTFOLIO OF CONSULTING SERVICES
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A high value portfolio of solutions …. through a sharp consulting approach
Providing high-value business and management solutions for the forest-based industry
APPRAISALS
BUSINESS MODELING AND PLANNING
DUE DILIGENCES
FEASIBILITY STUDIES
FINANCIAL MODELING
MARKET ANALYSIS
MERGER & ACQUISITIONS
OPEX & CAPEX OPTIMIZATION
INNOVATION
POST MERGING INTEGRATION
RANKING INVESTMENTS OPPORTUNITIES
RISK ANALYSIS AND MANAGEMENT
SUPPLY CHAIN ANALYSIS
SITE LOCATION
OPERATIONAL EXCELLENCE
ACCOUNTABILITY DEL
EGAT
ION
ENGAGEMENT
INNOVATION
FEEDBACKTEAM WORK
STRATEGY
PRODUCTIVITY
MILESTONES
MEGATRENDSACCOMPLISHMENT
VALUE CREATION FOLLOW-THROUGHLEADERSHIP
COMPETITIVENESS
CO
MM
ITM
ENT
EMPOWERMENT
4X4 SMART GOALS
CLIENT DRIVEN
TIMELINESS
ENTREPRENEURSHIP
RESULTS-ORIENTED
VUCA
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BM2C – MEMBER OF THE GLOBAL CONSULTING ALLIANCE
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• BM2C CONSULTORIA EM GESTÃO E NEGÓCIOS Av. Cândido de Abreu 70, Sala 1301 80.530-000 - Curitiba - Paraná - Brasil Phone: +55(41) 4042.0053 or +55 (41) 98893.7338 E-mail: [email protected]
• HÄGGBLOOM & PARTNERS Purjeentekijänkuja 1 B 14, 00210 Helsinki, Finland Phone:+358(40) 5559567 E-mail:[email protected]
• MARGULES GROOME CONSULTING PO Box 246, Mount Gambier SA 5290, Victoria, Australia - +61(3) 8199 7937 Southern Cross Building, 59 – 67 High Street, Auckland 101, New Zealand - Phone: +64 9 918 1100 Email: [email protected]
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BM2C – CONSULTORIA EM GESTÃO E NEGÓCIOS
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Jefferson B. Mendes Director
Cell: +55 (41) 98893.7338
Av. Cândido Abreu, 70 - Sala 1301 CEP 80.530-000 - Curitiba - Paraná - Brasil