annual report 2004...e-mail: offi [email protected] internet: mil madeireira itacoatiara ltda....
TRANSCRIPT
ANNUAL REPORT 2004
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www.preciouswoods.com
Where there is an opening, new life grows: A glade at Precious Woods Amazon
PicturesPhoto archive of Precious Woods
Realization and printing byROPRESS Druckerei GenossenschaftBaslerstrasse 106, 8048 Zürich
PaperFSC certifi ed by SGSSGS-CoC-0474FSC Trademark © 1996Forest Stewardship Council A.C.
HIGHLIGHTS IN BRIEF
› Net revenue from sales of timber and wood products increased by 40% from USD 11,1 mil-
lion to USD 15,5 million. Total revenue (including the gross increase in fair value of the plan-
tations in Central America) increased by 39%.› The operating profi t increased by 33%. Net profi t before taxes increased by 17% and total
net profi t by 99%. The application of important aspects of the fi nancial reporting had to be
corrected which is why some of the prior year’s fi gures have been adjusted. According to the
former accounting practices (without deferred taxes), net profi t would have increased by ap-
proximately 39%.› Strikes of public offi cials sometimes brought export activity to a complete halt. It was possi-
ble to sell pilings for coastal protection again and broaden the customer base for this prod-
uct. Precious Woods has signed fi rm letters of intent to acquire an 80% stake in the power
plant located on PWA’s land and to purchase a further 125 000 ha of forest.› In Costa Rica, Precious Woods’ fi rst own band saws were purchased. Timber obtained from
thinnings can now be processed into planks on site. Growth in the Central American planta-
tions was good. Parcels exhibiting poor growth in the past continued to recover. A CO2 se-
questration project developed by Precious Woods Nicaragua was selected for inclusion in
the World Bank’s BioCarbon Fund.› Precious Woods Switzerland, the Swiss trading company responsible for marketing and dis-
tribution in Europe, signifi cantly increased sales and posted a small profi t. Precious Woods
Switzerland was co-sponsor of the WWF Woodgroup competition held as a part of the FSC’s
2004 campaign in Switzerland.› Precious Woods Holding successfully completed two capital increases from authorized share
capital (private placements) raising a total of CHF 10,43 million (CHF 6,9 million nominal) of
new capital.
5-Year Summary of Key Financial Data (USD million)
2000 2001 2002 2003* 2003** 2004
Gross turnover 5,05 9,21 9,76 12,42 12,42 16,97
Net turnover 4,47 8,66 9,09 11,05 11,05 15,50
Production cost 4,09 7,55 6,40 7,85 7,65 11,30
Gross margin 0,38 1,12 2,68 3,20 3,40 4,20
Net increase in value Central America 1,81 2,12 2,51 2,67 2,67 3,62
Total revenue*** 6,87 11,32 12,27 15,06 15,06 20,87
Operating result 0,79 1,06 2,21 2,46 3,37 4,50
Overall result 0,55 1,45 2,16 2,40 1,67 3,33
* Figures which were published in the 2003 Annual Report** Restated*** Net trading sales and increase in the fair value of biological assets-Central America
00 01 02 03 04
Net turnover (million USD)
4
6
8
10
12
14
16
18
20
0400 01 02 03*0.0
Gross margin (million USD)
0.5
1.0
1.5
2.0
2.5
3.0
3.5
4.0
4.5
5.0
0400 01 02 03*0
Operating result (million USD)
1
2
3
4
5
6
7
8
0400 01 02 03*0
Overall result (million USD)
1
2
3
4
5
6
7
8
Companies Precious Woods Holding Ltd.Zug, SwitzerlandParent companyYear of foundation 19909 employees/ 5,8 FTEE
Madeiras Preciosas de Amazônia Manejo Ltda. Manaus, BrazilSustainable forestry,Sawmill, small parts manufacturingYear of foundation 1995752 employees
Precious Woods do Pará S.A. Belém, BrazilSustainable forestry, Sawmill, small parts manufacturingYear of foundation 2001475 employees
Maderas Preciosas de Costa Rica S.A. Liberia, Costa RicaReforestationYear of foundation 1990260 employees
Precious Woods (Nicaragua) S.A. Managua, NicaraguaReforestationYear of foundation 2003130 employees
Precious Woods (Switzerland) Ltd.Zurich, SwitzerlandTradeYear of foundation 19944 employees
Contact AddressesPrecious Woods Holding Ltd.Militärstrasse 90P.O. Box 2274CH-8021 ZurichPhone +41 44 245 80 10Fax +41 44 245 80 12E-Mail: offi [email protected]: www.preciouswoods.com
MIL Madeireira Itacoatiara Ltda.Estr. Torquato Tapajós, Km 227Caixa Postal 39BR-CEP 69100-000 Itacoatiara, AMPhone +55 92 521 3331/3323/3528Fax +55 92 521 3329/3526
Precious Woods Pará S.A.Quadra 1, Sector A, Lote 7Distrito Industrial de IcoaraciBR- CEP 66815-520 Belém, ParáPhone +55 91 214 73 73Fax +55 91 214 73 83
Maderas Preciosas de Costa Rica S.A. P.O. Box 63 CR-Liberia.Provincia de Guanacaste Phone +50 6 666 06 20 Fax +50 6 666 23 33 E-Mail: [email protected]
Maderas Preciosas Nicaragua S.A.P.O. Box 16 RivasNI-Sapoa, Rivas, NicaraguaPhone +50 5 837 05 60Fax +50 5 837 05 80E-Mail: [email protected]
Precious Woods (Switzerland) Ltd.Militärstrasse 90Postfach 2274CH-8021 ZurichPhone +41 44 245 80 14Fax +41 44 245 80 12E-Mail: [email protected]
PRECIOUS WOODS-GROUP COMPANIES
www.preciouswoods.com
▲
The offi ce at Precious Woods Pará
Precious Woods Costa Rica’s offi ce in Liberia
Conditions in Precious Woods Costa Rica’s offi ce are extremely cramped. A new offi ce is being planned.
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CONTENTS
Overview 3 Chairman’s Statement
4 Administration of Precious Woods Holding Ltd.
5 Investor Relations
Our Companies 7 Precious Woods Amazon
11 Precious Woods Pará
15 Precious Woods Costa Rica
21 Precious Woods Nicaragua
25 Precious Woods Group
Our Responsibility 29 Sustainability
35 Corporate Governance
Group Financial Report 40 Consolidated Financial Statements
44 Notes to Consolidated Financial Statements
66 Report of the Group Auditors
Holding Financial Report 68 Financial Statements and Notes Holding Company
72 Report of the Statutory Auditors
▲
2
The Executive Committee (EC). From left to right: Hans Stout, Andres Gut, Ted Scheidegger in front of teak trees in Costa Rica
3
CHAIRMAN’S STATEMENT
Dear Shareholders,
Once again we can refl ect with gratitude upon another year in which Precious Woods increased
both sales and profi ts. When one adds to this the strong performance of the share price and the
positive start to 2005, there really is reason for pride and joy!
Does the sun always shine at Precious Woods? Of course not. Like anywhere else, the manage-
rial staff at all levels mainly have to deal with challenges. When things are not running smooth-
ly, time and energy are required to put them right. And as in all dynamic organizations, many of
us suffer from a lack of time and repeatedly have the impression that the resources available are
barely adequate for the job. So the high degree of motivation and infectious enthusiasm, the “feu
sacré” that I continually encounter at every level of our company, from the ordinary worker to the
Board of Directors, is all the more gratifying. Thank you all very much indeed.
Precious Woods has not only made good progress from an economic point of view. We have
made a very important contribution towards the implementation of new, improved forestry prac-
tices in Brazil. Our activities have added signifi cantly to the momentum of the FSC. We have
saved a vast habitat for plants, animals and microorganisms from slash and burn destruction.
We have reconverted large tracts of pastureland to forest. We play a role in reducing levels of at-
mospheric carbon dioxide. We have created opportunities for employment in impoverished ru-
ral areas in Latin America and have thus given many people new hope. And by “we”, I explicitly
mean you, our valued shareholders, for it is your money that we are investing.
The course is already set for further growth: we are acquiring a majority stake in the power plant
at Itacoatiara and are expanding PW Amazon’s forest area. And if the integration of our long-
standing distribution partner, A. van den Berg, goes ahead as planned, Precious Woods will be-
come the largest supplier of FSC-certifi ed tropical timber to the European market. In order to
pursue all these projects (and possibly one more), we expect to convene an Extraordinary Gen-
eral Meeting and increase the share capital in the third quarter of 2005.
Yours sincerely
Andres Gut
4
▲ Board of Directors (BoD), F.l.t.r.: R. Straub, T. Hagen, E. Stürm, J. Campos (Secretary to the BoD), M. Amstutz, A. Gut, I. Jost, H. Stout, T. Scheidegger, E. Brugger, D. Girsberger
The Board of Directors of Precious Woods Holding AGChairman: Dr. Andres Gut (EC), born in 1945, Swiss citizen. Medical doctor with his own surgery from 1975 to 2001. Elected to the Board of Directors and the Exec-utive Committee in January 1997. Appointed Chairman of the Board in June 1997. Currently works for Precious Woods in a 70% capacity and is responsible, among oth-er things, for the company’s operations in Central Ameri-ca. Also Chairman of Migros Ostschweiz. 2007
Vice-Chairman: Prof. Dr. Daniel Girsberger (CC), born in 1960, Swiss citizen. Doctor of Law. Professor of Law at the University of Lucerne and Partner in the law fi rm Wenger & Vieli in Zurich. First became involved with Precious Woods as the company’s legal adviser in 1994. Elected to the Board of Directors in1995 and appointed Vice-Chairman in 1996. Member of the EC from 1996 to 1999. 2005
Dr. Max D. Amstutz (AC), born in 1929, Swiss citizen. Graduate in Business Administration and career as exec-utive and director of several listed companies. Member of the Board of Directors of Precious Woods since 1993. Member of the board of directors of both Finter Bank Zu-rich and the public company RPM Inc. in the United States. Chairman of several trusts. 2005
Prof. Dr. Ernst Brugger (RC), born in 1947, Swiss citi-zen. Ph.D (Science). Professor at the University of Zurich, Chairman of the Board of Directors and Manager of BHP - Brugger and Partner AG, Zurich. Elected to the Board of Precious Woods in 2004. 2006
Thomas Hagen (RC), born in 1957, Swiss citizen. Busi-nessman, member of senior management of Baloise In-surance, Basle. Elected to the Board of Precious Woods in 2004. 2006
Inge Jost (AC), born in 1960, Swiss citizen. Lawyer with postgraduate diploma in Business Administration from the University of St.Gallen (HSG). Director International Compli-ance at Zimmer GmbH, Switzerland. Elected to the Board of Precious Woods in 2004. 2006
Dr. Ted Scheidegger (EC), born in 1958, Swiss and Ca-nadian citizen. Graduate in Industrial Business Administra-tion and Computer Science. Director of Invensys, Europe. Member of the Board of the European Building Automa-tion and Controls Association. Elected to the Board of Di-rectors and the Executive Committee in June 2001. Re-sponsible as CFO at Precious Woods. 2007
Hans Stout (EC), born in 1951, Dutch citizen. Graduate in Business Administration, Director of A. van den Berg
B.V., Precious Woods’ master distributor. First came into contact with Precious Woods as a customer in 1996. Ap-pointed as CEO Brazil on a part-time basis in July 1998. Elected to the Board of Directors and the Executive Com-mittee in June 1999. Currently works for Precious Woods on a 75% basis with responsibility for the Brazilian oper-ations. President of the Board of Directors of Precious Woods Pará and General Manager of the trading compa-ny, Precious Woods (Switzerland) Ltd. in Zurich. 2005
Dr. Robert Straub (CC), born in 1940, Swiss Citizen. Financial Consultant. Elected to the Board of Precious Woods in 1995. For many years Dr. Straub was head of the fi nance department of the Canton of Zurich. The asset management department, whose responsibilities included managing the capital assets of the Beamtenversicherung-skasse, at that time Precious Woods’ largest sharehold-er, reported to him. Among other things, he currently has a seat on the board of the public companies, Belimo and Netinvest and is chairman of the board of directors of Pro-gressNow! 2007
Eduard Stürm (AC), born in 1936. Engineer (graduate of the Swiss Federal Institute of Technology, ETH). Elected to the Board of Directors and the Executive Committee (to which he belonged until 2001) in 1997. While serving on the Executive Committee he was responsible for ana-lysing technical and operational procedures. Profession-al background: career in the Hiag Group as head of vari-ous entities, including some in Latin America. Currently a member of the board of directors of Starrag-Heckert and Eduard Stürm AG. 2006
Brief CVs are also published on Precious Woods’ homepage under Corporate Governance.
Member of the Group ManagementRicardo Javier Avendaño, born in 1961, Graduate in Busi-ness Administration CPA, Swiss and Argentinian citizen. Possesses many years of experience in various fi nancial po-sitions. Group Controller of Precious Woods since 1999.
Secretary to the Board of DirectorsJuliana Campos E-mail: [email protected]
AuditorsPricewaterhouseCoopers AG, Zurich, Switzerland
AC = Audit CommitteeCC = Compensation CommitteeEC = Executive CommitteeRC = Responsibility Committee
2005 = Date for re-election or expiry of the term of offi ce
ADMINISTRATION OF PRECIOUS WOODS HOLDING LTD
5
Data per Share
2000 2001 2002 2003* 2004
Earnings per share (USD) 0,45 1,03 1,42 1,04 1,96
Book value per share ( USD) 32,03 33,16 34,28 31,52 36,31
Land & Forest area per share (m2)
Primary forest in Brazil (m2) 575 1 042 1 036 2 105 1 917
Plantations in Central America (m2) 27 30 28 29 29
* restated
Landholdings
PWA: 311 000 ha / PWP: 38 000 ha (On this page assets and land for forest projects are ac-
counted for at 60% up to 2002 and at 50% for 2003.) / PWCA: 5 284 ha reforested; 608 ha pas-
tureland for future reforestations; 3 886 ha existing forest.
What does an investor acquire with 100 shares?› Over 191 667 m2 of forest in the Amazon region which is then protected from deforestation.› 2 909 m2 of reforestations in Central America which absorb almost the same amount of CO2
as is released by a car travelling a good 20 000 km.
Share Capital
The share capital of Precious Woods Holding Ltd. amounts to CHF 91 043 000 as per
31 December 2004, represented by 1 820 860 registered shares with a nominal value of
CHF 50. In addition
CHF 8 861 750 conditional capital is available to cover options as is CHF 4 430 250 approved
capital to enable future capital increases.
Stock Exchange Listing
The shares of Precious Woods Holding Ltd. have been listed on the SWX Swiss Exchange in
Zurich since 18 March 2002. Details may be found in the electronic share price information sys-
tems under the following ticker symbols:
Telekurs: PRWN / Reuters: PRWZn.S / Security Number: 1328336 / ISIN CH0013283368
Excursions for Shareholders
Every year Precious Woods organizes trips for shareholders to visit the forests and operations in
Central America and Brazil. Details are available from our offi ce in Zurich (offi [email protected]
or phone +41 44 245 80 10).
www.preciouswoods.com
INVESTOR RELATIONS
Jules Hinze (3rd from left), the prizewinner of the WWF’s Wood Group competition in 2004; Precious Woods sponsored his stay at PWA
Shareholders’ trip to Precious Woods Central America in November 2004
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Francisca da Costa Cruz packing outdoor decking
7
PRECIOUS WOODS AMAZON Precious Woods Amazon
(PWA) has been practising sustainable forest management on its own land since 1996.
The amount of land owned by the company has since risen to more than 3 000 km2. The
forest is managed using methods which imitate nature and maintain its biodiversity. The
amount of timber that may be harvested is kept within strict limits. PWA sells over 70
different species of wood, thus playing an active role in the development of a market
for lesser known species. In 1997 PWA was certifi ed in accordance with the criteria of
the FSC (Forest Stewardship Council). At the company’s own sawmill and manufactur-
ing facilities the timber harvested is processed to sawnwood, fi nished products and ve-
neer, mainly for export to Europe, the United States and Asia. Recovery wood is used to
fuel a steam turbine power plant in order to generate electricity for the nearby town of
Itacoatiara. Delivering continuously improving results, PWA has been profi table for the
last four years. At 31 December 2004, PWA employed 752 people.
Financial Results and Operational
Development
Net sales increased by 30% from USD 5,88
million to USD 7,66 million. The retrospec-
tive recognition of deferred taxes according
to IFRS decreased the net result of PWA by
USD 933 000 in 2003 and USD 100 000 in
2004. These taxes would only be actually in-
curred if PWA were to be sold which is by no
means intended. Their nature is strictly hypo-
thetical. This signifi cant and other less materi-
al adjustments of accounting methods render
year over year comparisons more diffi cult. Ac-
cording to the revised recognition, PWA incurred
a loss of USD 175 000 in 2003 and achieved
a profi t of USD 953 000 in 2004. According to
the prior year recognition, the net result before
deferred taxes and other changes would have
improved from USD 551 000 in 2003 to USD
1 060 000 in 2004.
Therefore, the positive development of the past
few years has continued. In view of the large
amounts of capital invested in PWA, these re-
sults are still clearly failing to meet the targeted
return on capital employed. But the continuous
improvement in the results is an indication of a
stable upward trend. The Brazilian Real appre-
ciated against the US Dollar, accentuating the
impact of the expenditures incurred primarily in
BRL when these are expressed in US Dollars.
On the other hand, PWA also benefi ted from
positive translation differences during the re-
porting period.
Sales of sawnwood and industrialized products,
i.e. wheelbarrow handles, hammock parts, and
outdoor decking etc. developed particularly well.
Prices for sawnwood picked up somewhat com-
pared to the previous year. As for manufactured
products, prices for wheelbarrow handles re-
mained static but sales volumes increased sub-
stantially, whereas outdoor decking could be
sold at ever increasing prices. For some time we
had been seeking applications for two hard-to-
sell species which lacked a market on account
of the disagreeable odour of the one and the
poor drying properties of the other. These two
8
species have now been introduced to the mar-
ket for use as railway sleepers and use in bridge
construction. Once again Precious Woods was
able to sell pilings for coastal protection projects.
This is very important because the species of
wood suitable for pilings cannot be processed
into sawnwood. Furthermore, a series of com-
prehensive technical tests is underway to eval-
uate the suitability of our piling species for use
as utility poles in the United States – an appli-
cation with enormous potential. At the end of
2004 the fi rst containers of pilings were sup-
plied to a customer on the northern Adriatic
Sea where there is a huge market for pilings.
Sales of spliced veneer were disappointing. It
was possible to sell veneer produced from sev-
eral species of wood to Brazilian customers, but
only at very unattractive prices. Some European
customers have incorporated veneer into their
product range, which should lead to follow-up
orders. Meanwhile we must accept that build-
ing up this business is going to be a protracted
process. For this reason, production of spliced
veneer has been scaled down considerably. Ro-
tary veneer, on the other hand, is sold to the US
market on a regular basis.
In 2004 there was a steady increase in produc-
tion against the prior year along with a welcome
decline in seasonal fl uctuations. The roundwood
harvest takes place from June to December, so
that ample roundwood stocks are available in
the second semester. This enables us to opti-
mize machine capacity and manufacture a more
diverse range of products. Consequently, PWA
regularly posts better results in the second se-
mester. Up to now only very limited stocks had
been available from April to June and this factor
used to affect fi rst semester results signifi cant-
ly. During the fi rst semester of 2004 this effect
was less pronounced and at the end of 2004
the stocks of roundwood were higher than ever
– a good prerequisite for once again achieving
a new production record in the fi rst semester of
2005. Production facilities at the sawmill under-
went further improvements in 2004 and a fi fth
sawing line was installed. Drying capacity was
also increased and at Precious Woods Industries
large investments were made in the production
line for wheelbarrow handles, streamlining pro-
duction and rendering it more cost effective.
Power Plant
The 9 MWel steam turbine power plant inaugu-
rated in 2002 was built between 2000 and 2002
by Koblitz, a company possessing the neces-
sary technical expertise and experience, with
the backing of a fi nancial investor. Located on
land owned by PWA, the power plant is fully in-
tegrated into the company’s operations. Con-
veyor belts transport sawdust and other recov-
ery wood from each timber processing machine
directly to the shredder in the wood-chip ware-
house. Back in 2000 fi nancial constraints pre-
vented Precious Woods from investing its own
funds in the power plant. Replacing the 20 or so
diesel generators which had previously produced
electricity for the town of Itacoatiara, the pow-
er plant is a reliable provider of electricity and,
thanks to less frequent power cuts, the quality
of life in Itacoatiara has been improved. Mean-
while, the fi nancial backer has sold his stake to
Koblitz, which has in turn offered it to Precious
Woods. A fi rm letter of intent was signed at the
end of the year, according to which Precious
Woods will, under certain conditions, acquire
9
an 80% stake in this power plant. Up to now
generating electricity has not been an element
of Precious Woods’ core business. However,
one must bear in mind that timber processing
invariably generates sawdust and scrap wood
which can lead to signifi cant waste disposal
problems. A FSC-certifi ed forestry and timber
processing enterprise must fi nd a solution for
this waste. What could be more natural than to
use it as a sustainable source of carbon-neutral
electricity? The substitution of diesel with a re-
newable raw material could be a source of fu-
ture CO2 emission rights.
Social Initiatives
Working exclusively for Precious Woods, Eco-
fl orestal, the service company owned 50% by
Tim v. Eldik, PWA’s longstanding forestry man-
ager and 50% by PWP, has engaged a soci-
ologist and a social worker. These have sys-
tematically examined the working conditions of
Precious Woods’ employees with a view to iden-
tifying opportunities for improvement. In addition
they paid regular visits to the riverside settlers
in the vicinity of PWA’s forest in order to clari-
fy their needs. Finally they conducted a study
in Itacoatiara to obtain a clearer picture of how
PWA is perceived by its various stakeholders.
This has resulted in a wide-ranging social pro-
gramme which is now being implemented step
by step. As a large company PWA bears a cer-
tain share of the responsibility for the people liv-
ing in the immediate surroundings. However, we
must guard against raising excessive expecta-
tions and promoting a culture of unhealthy de-
pendency. PWA was actively concerned with
social issues before but the new social pro-
gramme is more systematic and comprehen-
sive, covering all the important aspects of so-
cial sustainability.
Centro Florestal
As planned from the beginning, PWA has taken
over the entire operation of Centro Florestal, a
project established jointly with ProManejo. We
still offer courses, chiefl y for our own staff but
sometimes for outsiders too. An interesting, il-
lustrated report about an internal course can
be found on our website. Since it was founded
eight years ago, PWA has received thousands
of visitors from Brazil and from all over world,
including politicians, entrepreneurs, civil serv-
ants, environmentalists, professors, students,
schoolchildren and ordinary people with an in-
terest in what we do. They have all been shown
– and continue to be shown – at fi rst hand how
sustainable forestry in the Amazonas region can
work in practice and how well the forest regen-
erates after low-impact harvesting. If sustaina-
ble forest management methods are to a great
extent prescribed by law in Brazil today, then
this is largely attributable to the example set by
Precious Woods. Of course Centro Florestal still
serves to provide information to customers vis-
iting PWA. It is important that retailers should
understand as much as possible about Pre-
cious Woods’ production methods so that they
in turn can inform their customers correctly. A
further valuable tool in achieving this is the in-
formative and entertaining fi lm about FSC made
by splicing together two television documenta-
ries. This new fi lm was jointly fi nanced by the
WWF and Migros, Switzerland, with additional
backing from a private foundation.
Public road (between Itacoatiara and Silves) inside PWA’s forest
The same road, just a few kilometres outside PWA’s forest
Julimara Oliveira Moteiro, Forestry engineer at PWA, by the Rio Caru, which fl ows through PWA’s land
José Rolim de Castro at the conveyor belt
Paulo Savedra Nunes marking the wood
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Sharpening a tool for the WACO high performance planing machine
11
PRECIOUS WOODS PARÁ Precious Woods Pará (PWP) was es-
tablished in 2001 as a jointly owned subsidiary of Precious Woods and A. van den Berg.
Both parties have a 50% stake in the company. The sawmill and timber processing fa-
cilities are situated in Belém (Precious Woods Belém / PWB) and the forestry operation
is located further south, about 500 km upstream from Belém, on the upper reaches of
the Rio Pacajá. Since 2001, 457 km2 of forest, for which Precious Woods has acquired
the possession rights (“rights of use”), have been managed here in a sustainable man-
ner. Possession rights for an additional 306 km2 of forest were acquired in 2002. In con-
trast to the region in which PWA operates, private forest ownership is virtually unknown
in Pará. The management of forests is mainly based on possession rights. In March 2002
PWP’s forestry and processing operations were certifi ed in accordance with the crite-
ria of the FSC. The roundwood is transported along the Rio Pacajá to Belém. At 31 De-
cember 2004 PWP employed 475 people, 151 in the forest and 324 in the processing op-
erations.
Financial Results and Operational
Development
Net sales increased by 28% from USD 5,0 mil-
lion to USD 6,4 million. The changes to ac-
counting recognition render the year over year
comparisons more complicated also at PWP.
According to the published results, the net re-
sult decreased from USD 788 000 to USD 610
000. According to prior accounting recognition,
the net result before deferred taxes and oth-
er changes would have decreased from USD
801 000 to USD 656 000.
The small decline in profi ts does not alter the fact
that, in comparison with the performance of the
past several years, PWP made good progress
in 2004. (From 2002 to 2003, the net profi t has
more than tripled.) In the last four months of
the year the appreciation of the Brazilian Real
against the US Dollar had a negative impact on
the results. On the other hand, somewhat higher
selling prices were achieved towards the end of
the year. Both the further processing of recov-
ery sizes into manufactured products and the
planing works underwent signifi cant expansion.
At PWB even large profi les can now be man-
ufactured at a relatively high speed. Since the
end of 2004 PWB has been manufacturing fi n-
ished wheelbarrow handles for the US market
whereas previously only semi-fi nished products
were produced and supplied to PWA.
Once again problems arose on account of strikes
of government employees. In autumn, offi cials
of the Brazilian environmental agency (IBAMA)
were on strike in connection with wage negoti-
ations. As no timber may be exported without
an IBAMA permit it was impossible to export
timber for several weeks. Once the strike was
over there was a shortage of ships in Belém be-
cause in the meantime this capacity had been
allocated elsewhere. The resumption of normal
12
business activities was hampered further by yet
more strikes at the customs and the national
bank. It was not possible to resume normal ex-
port business and reduce the backlog of goods
awaiting shipment until the end of the year. For
some length of time Precious Woods suffered a
lack of revenue and customers had to contend
with excessively long delivery times.
Sales
Demand for FSC-certifi ed hardwoods and hard-
wood products is generally high and rising all the
time. Precious Woods could sell the well-known,
easily processed species of timber many times
over. Lesser-known species, especially those
possessing troublesome or unusual properties,
are proving harder to market. During the past
eight years A. van den Berg has played an im-
portant role in introducing previously unknown
species of Brazilian hardwoods to the European
market. Precious Woods harvests 85 different
species of timber from the company’s two Bra-
zilian operations. Harvesting volumes of some
species are so minimal that they preclude the
development of an effective marketing strategy.
However, if the biologically diverse and heter-
ogeneous nature of the Amazon forest is to be
preserved, Precious Woods considers the har-
vesting and marketing of harder-to-sell species
to be indispensable.
A large portion of the sawnwood production is
sold to the Benelux states via A. van den Berg
but Precious Woods also supplies sawnwood
to customers in Brazil, the United States, oth-
er European countries and Asia. Semi-fi nished
or fi nished products are largely exported to the
United States but also to Brazil and Europe. Up
to now pilings have mainly been sold to cus-
tomers in Germany.
Problems with Land-Use Rights
When PWP acquired the rights of use (“pos-
session rights”) for the forest areas in the Rio
Pacajá region these rights were considered to
be equivalent in value to private forest owner-
ship. A few confl icts arose in connection with
the rights acquired for the fi rst 427 km2 of forest
because the possession rights were claimed by
another party. However, these misunderstand-
ings were quickly resolved. The situation con-
cerning the 306 km2 of forest acquired in 2002
is much more serious. Illegal loggers invaded
this area and clear cut two expanses of forest
amounting to approximately 15 km2. The people
who had hired them intended to use the land for
agricultural purposes. PWP was able to prove it
possessed rights of use by producing both land
titles and an offi cially approved forest manage-
ment plan, whereupon the illegal invaders were
prohibited from remaining in PWP’s forest. This
kind of situation is extremely delicate because in
the forests of the federal state of Pará the pro-
pensity to violence is very high. Furthermore,
towards the end of the year 97 landless fami-
lies threatened to occupy the forest owned by
PWP. A report has been published on our web-
site. There are good reasons for landless peas-
ants in Brazil to occupy abandoned agricultural
land but it makes no sense whatsoever to clear
cut yet more intact forest in order to convert it
into even more agricultural land. At present it is
unclear exactly who is behind this threat of oc-
cupation. In awkward situations such as these,
Precious Woods’ position is strengthened by the
fact that we never act without carefully clarifying
13
the legal implications and assuring ourselves of
the complete approval of the environmental au-
thorities beforehand.
As already pointed out in the 2003 annual re-
port, the trend in Brazil is to move away from
possession rights and towards state conces-
sions. It is hoped that this will diminish the vio-
lence often used to enforce what are sometimes
fi ercely disputed claims to land use rights. The
murder of an American nun in February 2005
has hastened this process and raised the gen-
eral public’s awareness of unresolved land con-
fl icts. President Lula himself has taken up the
issue and appeared on television condemning
the brute force employed by certain groups in
Pará. The federal government has sent additional
troops to the region and in large areas tree fell-
ing of any kind is now prohibited. At the same
time Lula explained on television that among
the forestry enterprises there are laudable ex-
ceptions which use the forest sustainably and
always respect the law. These sorts of state-
ments reinforce Precious Woods’ conviction that
sooner or later the land use problems will be re-
solved once and for all and that suffi cient forest
will become available for long-term, unhindered
sustainable management activities. Of course,
high priority must be given to the concerns of
the local population. Alongside the protection
of the forest this is one of the main objectives
of sustainable forest management according to
the criteria of the FSC.
Directional felling
Low impact extraction using a steel cable
Employees of PW Belém packing sawnwood for despatch to Europe
Ereunides Porchera, head of Industrialization, checks a turned pole
Maria ney de Sena Bitencourt, employee in the fi nance department, discusses details of an invoice with Santos de Souza who is responsible for procurement
▲ ▲▲
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14
Growth of the Pochote at the highest lying and driest Finca, Rio Tabaco, has accelerated and the trees have “caught up”▲
15
more highly than those in low classes. Moreo-
ver, the value of a plot rises the closer it is to fi -
nal harvest. The fair value of the trees is equal
to the discounted value of the estimated timber
harvest less the costs of maintaining the plan-
tation until then. Younger plantations are more
likely to be upgraded or downgraded into anoth-
er growth class. Older plantations tend to retain
their growth class. This type of valuation mod-
el, based on both the actual tree growth and
the future value of the harvest, is prescribed by
the International Financial Reporting Standards
(IFRS). For details please refer to Note 5 of the
consolidated fi nancial statements.
Compared to the prior year, the results of the
measurements taken in 2004 were good. Far
more parcels were upgraded into a higher growth
class than downgraded into a lower one. On the
other hand, at the Sta. Cecilia Finca a further
29 ha had to be written off due to insuffi cient
growth, and following the introduction of a glo-
bal positioning system to survey the fi nca, pre-
vious estimates of its total area had to be cor-
rected by 9 ha.
Consolidation of the Financial Results for
PW Central America
PWCR and Precious Woods Nicaragua’s (PWNI)
fi nancial accounts have been combined and pre-
sented as PW Centroamerica (PWCA). PWCA’s
contribution to profi ts increased from USD 2,72
million in 2003 to USD 3,62 million in 2004. The
expansion of the planted area and the increas-
ing age of the trees leeds to this signifi cant in-
crease. Profi ts were also up in 2004 as a result
of improved growth.
How is the biological growth defi ned and trans-
lated into a gain in fair value? Every year, dur-
ing the dry season, Precious Woods measures
the diameter and the height of the trees grow-
ing in hundreds of sample plots and compares
the results with standard growth curves. The
sample plots are then assigned to fi ve different
growth classes ranging from marginal to excel-
lent. A sophisticated valuation model is then
used to determine the value of individual plan-
tations according to the proportion of sample
plots assigned to the various growth classes.
Sample plots in high growth classes are valued
PRECIOUS WOODS COSTA RICA Precious Woods Cos-
ta Rica (PWCR) has been planting valuable species of timber on former pastureland in
Costa Rica since 1990. First commercial thinning operations take place when the trees
are between 8 and 14 years old. Final harvesting, from which the company will derive its
main revenue, is scheduled for when the trees reach the age range of 18 to 30 years. The
same land will subsequently be replanted. To date the plantations in Costa Rica include
3 375 ha of teak, 970 ha of pochote and 292 ha of various indigenous species, compris-
ing approximately fi ve million trees in total. Precious Woods estimates that income from
the future sale of timber from these plantations will provide an annual return of 10-11%
across the whole lifecycle of the capital invested. At 31 December 2004 PWCR employed
260 people. A map showing the locations of all the fi ncas owned by Precious Woods in
Northern Costa Rica and Southern Nicaragua can be found on page 21.
16
upgrade a sizeable number of parcels to a higher
growth class, and the results of the fi rst growth
measurements taken in 2005 confi rm this pos-
itive trend. At the Peñas Blancas Finca, where
measurement results have always been good,
there was a further increase in the proportion
of parcels classifi ed as “high” or “excellent”. At
the Garza Finca, where growth is usually good
to very good, proportionally fewer parcels were
upgraded, owing to the age and height of the
trees. However, there were hardly any cases
of parcels needing to be reassigned to lower
growth classes. At the Ostional Finca one en-
counters a two-fold situation. Without excep-
tion the trees on the fertile plain exhibit excel-
lent growth. In contrast, most of the parcels on
the steep hillsides fall into the “marginal” class
but some are now showing signs of accelerat-
ed growth. For years growth had been poorest
of all at the highest-lying fi nca with the short-
est rainy season: the Rio Tabaco Finca. In re-
cent years, however, growth has been acceler-
ating here too, which is refl ected in the results
for 2004.
Remeasurement using GPS Technology
Our plantations were originally surveyed using
a tape measure and simple triangulation. This
produced satisfactory but somewhat schematic
results. It was impossible to portray every single
detail of the intricate fi ligree-like edges of the sec-
ondary forest without incurring undue expense.
The latest GPS technology enables us to create
more detailed maps of our fi ncas and to meas-
ure the parcels much more accurately. Never-
theless, this remains a time-consuming under-
taking, requiring someone to walk along all the
edges of the forests and make countless de-
Growth at the individual Fincas
At the largest fi nca, Sta. Cecilia, there was a de-
cline in the proportion of parcels classifi ed as
“marginal”, whereas there was a modest rise in
the number of those classifi ed as “average” to
“excellent”. A large proportion of the teak plan-
tations at Sta. Cecilia dating from 1995, 1996
and 1997 are still classifi ed as “marginal”. We at-
tribute this poor growth mainly to the compact-
ing of the soil by the intensive livestock farming
practised here until shortly before the land was
planted. However, in the “Battle of Sta. Cecilia”
– referring to all the initiatives designed to pro-
mote growth at this fi nca – advances are be-
ing made. A year ago we reported that the slide
into poorer growth classes had been stopped.
In 2004, for the fi rst time ever, we were able to
17
amazing results: squirrels incorporate the fruit
of the teak tree into their diet; caterpillars, ants
and insects eat the leaves. A number of birds
nest in the teak trees during the rainy season
as the enormous leaves protect them from the
rain. Monkeys are also seen passing through
the plantations, using the teak as a biological
corridor between expanses of natural forest.
The fact that birds of prey and boas can be
observed among the teak indicates the pres-
ence of creatures that have made their home
among the biologically diverse ground vegeta-
tion in the plantations to prey on. An astonish-
ingly wide range of animals is spotted merely by
chance so there can be no doubt that system-
atic research using nets and traps and involving
the analysis of spoor and faeces would reveal
the existence of even more species. Occasion-
ally it is maintained that plantations with exot-
ic species of trees are “green deserts”. While
this may be true of gigantic monocultures with
no ground vegetation, this description cannot
in any way be applied to Precious Woods’ teak
plantations in Central America.
Revision of the Marketing Strategy and
Harvesting Cycles
Up to now Precious Woods had planned to sell
the teak obtained from thinnings and a large
portion of the fi nal harvest to India. This path
is still open to us. Indian buyers are very active
in Costa Rica, purchasing as much timber as
possible. However, there is also a shortage of
timber in Costa Rica. Measures to protect the
natural forests are being enforced so rigorously
and effi ciently that there is little more than plan-
tation-grown timber and short logs from willows
available to the local market. Since this can nev-
tailed drawings. Theoretically this could also be
accomplished photogrammetrically using aerial
photographs. However, in countries with emerg-
ing economies not everything that is technically
feasible can be implemented in a cost effective
manner. To a certain extent it is inevitable that
some of the data obtained from the remeasure-
ment would differ from that recorded under old
procedure. In 2004 the entire Sta. Cecilia Fin-
ca was remeasured. Many differences in area
measurements were revealed but these partial-
ly offset each other. It transpires that the total
planted area in Sta. Cecilia is 9 ha smaller than
hitherto assumed. Considering that this fi nca
comprises over 2200 ha of plantations within
a total area of 4 300 ha, this result shows that
even the old method produced very accurate
measurements. The new map of Sta. Cecilia is
reproduced on page 16. The other fi ncas will
be remeasured during the coming year. We ex-
pect the remeasurement to reveal further small
negative differences. As the edges of the natural
forest tend to grow more rapidly than the plan-
tations and extend over a vast area, one can-
not rule out the possibility that some additional
loss of planted area will be revealed.
Biodiversity and Ecological Value of the
Plantations
An agronomy student of the Swiss Federal In-
stitute of Technology (ETH) on internship with
Precious Woods has photographed indigenous
trees within or on the edges of the commer-
cial plantations. She counted 98 species. An-
other ETH student (of environmental science)
collected all the existing information about the
animal life known to be present on our fi ncas.
Focusing on the teak plantations, she obtained
A falcon in teak tree which has shed its leaves on the lookout for prey
Squirrels have incorporated the fruit of the teak trees into their diet
10-year-old Galinazo logs which are in demand for concrete formwork
Our fi rst portable bandsaw (a Woodmizer) in Garza
Isidro Salazar, the new manager of PWCA’s sawmill, with panelling samples
▲ ▲ ▲▲
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18
er satisfy domestic demand, wood and cellu-
lose products must be imported, including in-
creasing volumes of softwood from China. At
the same time a construction boom is under-
way, particularly on the Pacifi c Coast. This has
also contributed to the increased local demand
for timber. In view of these factors we have de-
cided to process the timber obtained from thin-
nings into planks and planed skirting boards
ourselves. Our fi rst mobile band saw was pur-
chased in the summer of 2004, followed by
three more in the winter of 2004/2005. These
compact machines are particularly suitable for
processing low diameter logs from thinnings. If
processing the company’s own timber contin-
ues to prove successful, this side of the busi-
ness will be rapidly expanded and decentralised
with small sawing machines installed in each of
the fi ncas. No large-scale thinning of teak plan-
tations took place in 2004. These operations
are only scheduled for 2005. However, selec-
tive cutting was carried out in the Garza and
Rio Tabaco pochote plantations. Owing to the
timber shortage, even young pochote consist-
ing of little more than sapwood can be easily
sold, albeit at lower prices than those achieved
for teak. PWCR generally used to assume har-
vesting cycles of 26-30 years. We were aware
that the volume increase rate of teak trees aged
about 18 years and over is much lower than
that of younger trees but we assumed that the
increase in quality observed after trees reach
the 18 to 26-30 age range would be refl ected
in markedly higher market prices. Nowadays
there are many indications that it is more prof-
itable to harvest teak trees when they are 18-20
years old. Precious Woods now plans to pursue
a more fl exible policy involving both shorter and
longer harvesting cycles. Our valuation model,
however, remains based on a 26-30 year har-
vesting cycle. If a parcel is harvested in advance
of this, the profi t or loss will depend on wheth-
er the net revenue from the harvest is above or
below the book value according to the valua-
tion model.
In plantations a representa-tive number of trees must be measured every year in order to reliably determine growth rates and fair value. The photos show particularly large 14 year-old pochote tree (diameter at breast height: 50cm).
▲▲▲
19
Area planted annually In Central America (in ha)
Since 1990 the following areas to the various Fincas have been reforested with the species shown (there were no new
areas planted in 1994 and 2000):
Project 1990 1991 1992 1993 1995 1996 1997 1998 1999 2001 2002 2003 2004 Total
Garza / Ostional / Rio Tabaco (Costa Rica)
Teak 38 36 90 40 187 1 20 412
Pochote 101 336 347 75 17 876
Other natives 30 10 12 8 24 2 2 1 89
Total 169 382 449 123 228 3 22 1 1 377 Santa Cecilia (Costa Rica)
Teak 358 318 300 265 312 252 152 57 2 2016
Pochote 20 40 60
Other natives 23 26 14 19 14 28 2 1 127
Total 381 344 314 304 366 280 154 58 2 2203
Peñas Blancas (Costa Rica)
Teak 178 133 167 30 111 260 53 15 947
Pochote 14 20 34
Other natives 17 28 1 13 10 7 76
Total 178 150 209 51 124 270 60 15 1 057
Region Sapoa (Nicaragua)
Teak 100 323 423
Pochote
Other natives 5 9 14
Total 105 332 437
Region San Juan (Nicaragua)
Teak 54 146 200
Pochote
Other natives 2 8 10
Total 56 154 210
TOTAL
Teak 38 36 90 40 545 497 453 432 342 363 412 264 486 3998
Pochote 101 336 347 75 17 34 60 970
Other natives 30 10 12 8 47 28 33 47 16 41 12 15 17 316
Total 169 382 449 123 609 525 486 513 418 404 424 279 503 5284
▲
20
Finca La Pimienta, Nicaragua: the large Ceiba tree depicted in the 2003 Annual Report, p. 26, is – a year later – surrounded by approx. 6 metre-high young teak
21
Precious Woods acquired it and in parts there
was already a well established scrub vegeta-
tion. However, Precious Woods benefi ted from
the experience of the managerial staff and nu-
merous other employees who, having worked
for PWCR for many years, were thoroughly ac-
quainted with the task in hand. This meant that
almost all the work was accomplished without
major hitches. 486 ha, entailing the cultivation of
530 000 seedlings, were freshly planted in 2004.
Adjoining the Peñas Blancas Finca, La Pimienta
covers undulating ground and has some steep
slopes but despite this, the trees planted here
last year are growing exceptionally well. One of
the main reasons for this is the fact that young
plants thrive better on former scrub land as op-
posed to land recently used for grazing. In sum-
mer 2004, an additional fi nca was purchased.
Comprising 600 ha, Finca Javalina, like La Pi-
mienta, is located in the district of Sota Cabal-
lo within the municipality of Cardenas (and part-
ly in an area within the municipality of Rivas).
Work has begun on preparing the land desig-
Western Fincas
At La Pimienta preparation of the land earmarked
for planting in 2004 proved to be a very ardu-
ous undertaking. Livestock levels at this fi nca
had been sharply reduced many years before
PRECIOUS WOODS NICARAGUA Like PWCR, Precious
Woods Nicaragua (PWNI) plants valuable species of timber on former pastureland, pre-
dominantly teak. Founded in 2003, PWNI’s operations have developed rapidly in two
distinct geographical areas: La Pimienta and Javalina Fincas in the western munici-
pality of Cardenas near the Interamericana Highway on the one hand and Esperanza in
the east on the Rio San Juan on the other hand. As with all subsidiaries of the Precious
Woods Group, PWNI strives to create threefold added value: economic, social and ec-
ological. Teak plantations with good growth and low operational costs generate a yield
of 9-14% and in future the sale of CO2 credits will improve the yield at least by approx-
imately one to two percentage points. At the end of 2004 PWNI employed 130 people.
The creation of new jobs in outlying rural areas of one of the poorest countries in Lat-
in America is of immense importance for the social development of the region. The re-
covery of pastureland for reforestation – while deliberately fostering biodiversity – cre-
ates ecological added value.
22
Eastern Fincas on the Rio San Juan
At Esperanza on the Rio San Juan PWNI was
confronted with major challenges. Although 56
ha had already been planted the previous year,
the relatively inexperienced managerial staff
and employees were overwhelmed by the task
of planting 200 ha with 220 000 seedlings and
consequently unable to meet the planting objec-
tive for the year. From the beginning problems
were experienced with the production of seed-
lings because the temperature in the seed beds
was too low, leading to an inferior germination
rate. It then became impossible to adhere to the
planting schedule which was based on the as-
sumption that 20 000 seeds would germinate
per week. A combination of both minor and ma-
jor errors made when planting and cultivating the
young plants also highlighted the difference be-
tween a well established team with years of ex-
perience and a less experienced crew. Further
problems arose in connection with the challeng-
ing logistics of Esperanza’s location. For 2005
we have made some key personnel changes.
Several reliable employees from Cardenas with
years of work experience in our Sta. Cecilia Fin-
ca, have been recruited to reinforce the team at
Esperanza as front line managers. PWNI is con-
fi dent that the problems have been properly ad-
dressed and will be resolved, enabling the little
village of Esperanza to become, in the medium
term, a centre for both sustainable timber pro-
duction and processing. By that time we hope
to see a marked improvement in the condition
of the roads. If this is not the case, water trans-
port is the only option. The centre of the fi nca,
formerly a simple peasant’s hut, was extended
during the course of the year. It now has elec-
tric lighting, running water, a shower, a fridge,
nated for planting in 2005. A simple but serv-
iceable offi ce has been set up in the Sapoa dis-
trict on the Interamericana Highway.
The municipality of Cardenas is easily accessi-
ble, thanks to a good transportation infrastruc-
ture and bus links to Rivas, Managua and Costa
Rica. The Interamericana is in perfect condition,
due to Danish and Taiwanese development aid. A
new medical centre (paid for by Japanese devel-
opment aid) provides a good standard of health
care. In all districts there are schools leading up
to secondary level. About 70% of children com-
plete primary education and about 20% fi nish
secondary education. The main reason cited
for not attending school is the lack of money
for school uniforms and equipment. 53% of the
population are aged 18 or under. Jobs are avail-
able with the local authorities, customs, the po-
lice and other border services. The vast majority
of those able to work do not have a permanent
job and must eke out a living through subsist-
ence farming or casual work which is mainly to
be found in Costa Rica. As far as the standard
of living is concerned, 19% of families have no
home of their own and have to live with rela-
tives. 19% of homes have a leaking roof, 64%
an earthen fl oor, and 59% no toilet. Only 29%
of households have running drinking water. The
rest have to fetch water from the communal well,
the lake or rivers. To summarize, a fairly good
public infrastructure coexists with great poverty
of the local population stemming mainly from a
lack of jobs. These facts were compiled by an
agronomy student of the Swiss Federal Institute
of Technology during her internship with Pre-
cious Woods. Seen in this context, every addi-
tional job – even if it is only temporary – repre-
sents important social added value.
23
outlying rural areas. All the members of Precious
Woods’ Executive Committee (EC) were also
present as the inauguration was timed to coin-
cide with an EC trip. Altogether Precious Woods
welcomed well over 100 visitors, including sev-
eral ministers, members of parliament, mayors,
high-ranking offi cials and, to our great delight,
the Swiss ambassadress in Central America,
Gabriela Nützi.
CO2 Sequestration Project for the World
Bank’s BioCarbon Fund
A crucial factor behind the decision to found
a company in Nicaragua was the prospect of
selling the carbon sequestered in the compa-
ny’s plantations. During the year our coopera-
tion with the BioCarbon Fund established by the
World Bank developed into a concrete proposal,
which confi rmed our resolve to play a pioneering
role in the trading of CO2 emission rights. PWNI’s
project is one of 21 selected from over 160 oth-
er project proposals for inclusion in the BioCar-
bon Fund. An agreement has been reached in
principle to sell the future carbon sequestration
from the fi rst 600 ha of reforestations at the La
Pimienta and Javalina Fincas. A due diligence
will be carried out in 2005 prior to signing the
actual contract. Amongst other things this will
settle the question of how the carbon will be ac-
curately measured and verifi ed by an independ-
ent third party. The problem with this type of pi-
oneer project is that all the processes involved
have to be agreed upon, approved and formu-
lated in writing for the fi rst time – a costly and
time consuming undertaking. We at Precious
Woods, however, consider it sensible to make
the effort now and devote some of our resourc-
es to creating a foundation upon which we can
base other, larger projects in the future.
a small offi ce, radio contact with the offi ce in
Sapoa and a sturdy boat dock.
The village of Esperanza has a population of
650, of whom 51% are aged 15 and under. Un-
til Precious Woods established itself there, the
only people with permanent jobs were teach-
ers, health-centre employees and a bus driver.
All the others make a meagre living from sub-
sistence farming and fi shing in the river. At har-
vest time temporary jobs are to be found on
the orange plantations on the other side of the
Rio San Juan, and from December to Febru-
ary many people earn some money as coffee
pickers in Costa Rica. On the whole the houses
here are in better condition and the differences
in quality less pronounced than in the munici-
pality of Cardenas. Most homes have a sound
roof and wooden boards on the fl oor. Thanks
to Spanish development aid, drinking water is
supplied to all homes. The biggest problem is
the lamentable state of the roads. Constructed
only of dirt, these are virtually impassable dur-
ing the rainy season, even on horseback. Be-
sides the bus, which takes between two and
four hours to reach San Carlos, there is only
one private car in the whole village. The school
gives the impression of being well organized
and has exceptionally well motivated teachers.
Primary school lessons are held during the day,
secondary school lessons at night.
Government Visit
The highlight of the year was the inauguration of
the Finca La Pimienta by the President of Nica-
ragua, Enrique Bolaños, accompanied by sev-
eral cabinet ministers. The presence of govern-
ment members clearly demonstrates the high
esteem enjoyed by a private enterprise that es-
tablishes itself in Nicaragua and creates jobs in
Caring for seedlings at the Finca Esperanza on the Rio San Juan (Ni)
The end of the planting season at Esperanza: everyone is invited to a meal. Mainly women are em-ployed for planting as they have smaller hands and are more dexterous
The President of Nicaragua, Enrique Bolaños, making a speech at the celebration to inaugurate the Finca La Pimienta
Marilena Talavera from Pro Nicaragua plants a tree at the celebration of inaugura-tion
▲▲▲
▲▲ ▲
24
▲
Heliconia, a fl ower related to the bananas
25
the meeting received a present: a cutting board
made of Amazon wood.
During the reporting year Precious Woods in-
creased the company’s share capital utilising au-
thorised capital, raising total funds of USD 8,4
million while incurring minimal external costs.
We gained over 200 net new shareholders. Our
website was visited about 300 times a day and
the administrative staff dealt with numerous en-
quiries from potential investors, environmental
organizations, prospective interns, students and
schoolchildren writing or giving a presentation
about Precious Woods, people conducting sur-
veys etc. A part-time job could be created just
to provide this information service. The WWF
competition, which aimed to raise awareness of
the FSC label and attracted more than 56 000
participants, was a great success. Precious
Woods played a prominent role as co-sponsor
of the fi rst prize. In autumn, the winner – a 13-
year-old schoolboy from Kreuzlingen – and his
family spent a week visiting Precious Woods
Amazon. A similar campaign is scheduled for
2005. Again Precious Woods will be co-spon-
sor of the fi rst prize, a trip for two to the refor-
estations in Costa Rica. Like last year the fl ight
and the supporting programme will be spon-
sored by a travel agency.
Holding Company Expenditures and Ac-
tivities
At the holding level expenditures increased once
again. The Compensation Committee granted
somewhat higher compensation to the Mem-
bers of the Executive Committee. Averaging USD
207 402 (this fi gure includes payments in cash,
shares and a bonus), the remuneration received
by the senior executives of the Precious Woods
Group is – compared to other listed companies
– still not excessive. At head offi ce staffi ng levels
in the administrative and fi nance departments
increased slightly. However, with the equivalent
of 2,3 and 2,2 full-time jobs respectively, these
two departments remain very small. At the end
of 2004 a new position was created to deal
with applications for CO2 emission rights and
to handle relations with the environmental or-
ganizations. At the end of the year we relocat-
ed to somewhat larger offi ces within the same
building. Higher interest rates resulting from an
increased use of credit facilities as well as the
lower USD exchange rate also had an impact
on expenditure. The printing and despatch of
information to numerous interested parties in-
curs more cost from year to year. Every year
more shareholders attend the General Meet-
ing. In 2004, as an exception, shareholders at
PRECIOUS WOODS GROUP At the Annual General Meeting
the retiring members of the Board of Directors, A. Schrafl and Arnoldo André were duly
thanked for their years of service. Both had been Board Members since Precious Woods
was founded. Anton Schrafl retired for reasons of age and Arnoldo André because of
the great distance between the venue of the board meetings and his place of residence.
Mrs. Inge Jost, Mr. Ernst A. Brugger and Mr. Thomas Hagen were elected as new mem-
bers of the Board. This small increase in the number of directors is warranted as all the
Board Committees must consist of Non-executive Directors. All statutory motions were
approved according to the proposals of the Board of Directors.
26
and particularly suitable for use in hydraulic en-
gineering projects. Venice could become an im-
portant market for pilings as the species of wood
used up to now are coming under increasing
attack by marine borers and will have to be re-
placed in a few years. Whereas we were unable
to sell any pilings for coastal protection projects
to our customer in Mecklenburg-Vorpommern in
2003, a large consignment of pilings was again
shipped to the Baltic Coast in 2004.
Development of the Share Price and Cap-
ital Increases
Since the end of 2004 the trading price of Pre-
cious Woods’ shares has once again developed
signifi cantly better than the benchmark index,
the SPI (Swiss Performance Index). On aver-
age the Precious Woods share price has out-
performed the SPI by approx. 80% since the
stock exchange listing. On the whole, few inves-
tors are willing to sell Precious Woods shares.
A considerable portion of the shares available
for purchase in 2004 resulted from the exer-
cise of options for a total of 25 520 shares.
Demand for the company’s shares originated
predominantly from private investors and pen-
sion funds wishing to allocate part of their as-
sets according to sustainability criteria or to re-
fl ect the sector weighting of the SPI. During the
fi rst six months of 2004 the number of share-
holders rose by about ten a week. In summer
2004 we welcomed the 1 000th sharehold-
er (see www.preciouswoods.com -> Investor
Relations). By the end of 2004 the share regis-
ter contained the names of 1 063 shareholders,
compared to 954 in the previous year. In addi-
tion, an indeterminate number of shareholders
are not recorded in the share register. Their hold-
Trading Company
The trading company made signifi cant progress
in 2004, posting a small profi t in contrast to
the substantial loss sustained in the prior year.
All business units contributed to this positive
development. Sales of sawnwood to German
speaking countries are improving constantly.
Our customers include manufacturers of par-
quet fl ooring, terraces, verandas and decking as
well as distributors of various ranges of wood-
en garden products. Although there is virtually
no tradition of using tropical timber in Switzer-
land, hardwoods for terrace fl oors, swimming
pool edges and other outdoor applications are
selling increasingly well. The trading company
supplied almost as many products to Switzerland
as it did to Germany. In Southern and Northern
Europe the number of customers regularly plac-
ing repeat orders is also growing. For the fi rst
time ever, FSC-certifi ed wood supplied by Pre-
cious Woods has been used in the construction
of a large bridge in Malmö (Sweden). An Italian
company has launched a range of veneer which
includes spliced veneer from PW Amazon. Rep-
resenting this company’s fi rst FSC-certifi ed prod-
uct, this veneer will be marketed worldwide. In
Spain and Italy markets for the manufacture of
park benches, fences and decking are devel-
oping well. Precious Woods profi ts from sup-
plying decking because short lengths of wood
can be utilized and this generates a compara-
tively high added value. The fi rst landing stag-
es along the canals in Venice have been built
with wood supplied by Precious Woods. A large
symposium in Venice under the auspices of the
FSC and Greenpeace drew attention to the fact
that besides coming from sustainable sources,
FSC-certifi ed tropical timber is also very durable
27
parties. It was an opportunity for new or ex-
isting shareholders to acquire sizeable hold-
ings, something that is diffi cult to achieve via
the stock exchange. The fresh capital enables
us to fi nance the ongoing expansion projects.
Precious Woods is currently planning to pursue
further strategic projects which will ensure that
the company continues to grow in future. We
will announce a further capital increase in due
course and explain what the additional capital
will be used for. Our guiding principle when se-
lecting new projects is our commitment to creat-
ing economic, ecological and social added val-
ue. On the capital markets one can observe both
a growing interest in forestry investments and a
concurrent lack of good, reasonably priced in-
vestment projects, especially where hardwoods
are concerned.
ings, however, amount to only a small percent-
age of the total shares. Precious Woods knows
who owns 96% of the company’s shares.
In spring 2004 we completed a private place-
ment of 26 700 shares from the authorized cap-
ital. This new capital was important for the com-
pany as Precious Woods had not increased the
share capital since the stock exchange listing
and had fi nanced investments with borrowed
capital. The General Meeting resolved to create
additional authorized capital and on the basis
of this, a further private placement was com-
pleted in autumn, this time comprising 111 395
shares. It is remarkable how quickly and easily
subscriptions for this private placement accu-
mulated. In the past we had to actively search
for new shareholders but this time we received
many spontaneous enquiries from interested
Leandro Guerra, the manager of PWP, in PW Belém’s showroom
Bridge in Malmö (Sweden) constructed from durable, FSC-certifi ed tropical timber supplied by Precious Woods
Coastal protection on the Baltic Sea using Precious Woods pilings
Mooring in Venice made from Precious Woods’ FSC-certifi ed timber
The landing stage of the Palazzo Franchetti in Venice, constructed with certifi ed timber from Precious Woods
▲ ▲▲
▲▲▲
▲▲▲
Precious Woods N (SWX)
50
75
100
125
150
175
200
60
80
100
120
140
160
180
200
Q22002
Q3 Q4 Q12003
Q2 Q3 Q4 Q12004
Q2 Q3 Q4 Q12005
Precious Woods N (SWX) rebased SPI Ges m.Div.Korr (IKR) rebased
▲
28
Every bundle of wood is marked with the PW and FSC labels.FSC = the Forest Stewardship Council;SW = Smart Wood, the independent Forestry Certifi er;The Chain of Custody (CoC) number enables the end user to retrace the fl ow of the wood back through the entire sequence of distribution and production processes to its origin in a sustainably managed forest.
29
area is surveyed by patrolling the edges and the
interior of the forest, by blocking access roads
with locked gates and by conducting occasional
fl ights. The mere physical presence of our em-
ployees also reduces the risk of unauthorized
persons trespassing in the forest. Second, all
illegal activities are reported to the relevant au-
thorities immediately after detection. If employ-
ees are involved they are given notice on the
spot. Third, good relations with local commu-
nities prevent the expansion of unchecked set-
tlement, uncontrolled hunting or illegal logging
within our forest management areas.
Principle 2: Tenure and use rights and responsi-
bilities. Long-term tenure and use rights to the
land and forest resources shall be clearly de-
fi ned, documented and legally established.
An unambiguous legal framework governing
long-term tenure and use rights to the land is
an indispensable prerequisite for the responsi-
ble and sustainable management of forest re-
sources. It is essential, for example, that PWP,
whose forest was threatened with occupation
by illegal settlers in November, can rely on clear-
ly defi ned and documented rights of ownership
and use. Precious Woods can only save intact
forest from slash and burn destruction and con-
FSC
Founded in 1993, the Forest Stewardship Coun-
cil (FSC) is an international non-profi t organiza-
tion with the goal of promoting environmentally
appropriate, socially responsible and econom-
ically viable management of the world’s forests.
The FSC’s members include environmental and
social groups, indigenous peoples’ organiza-
tions and representatives of the forestry profes-
sion and the timber trade. The FSC establish-
es international principles and criteria for forest
management and accredits certifi cation bod-
ies which assess forestry companies according
to their compliance with an agreed set of indi-
cators. The FSC standards consist of ten ba-
sic principles, the specifi c details of which vary
from country to country.
Principle 1: Compliance with laws and FSC Prin-
ciples. Forest Management shall respect all ap-
plicable laws of the country in which they oc-
cur, and international treaties and agreements
to which the country is a signatory, and comply
with all FSC Principles and Criteria.
In particular the forest must be protected from
illegal logging, settlement and other unauthor-
ized activities such as hunting. Precious Woods
protects its forest areas in several ways. First, the
SUSTAINABILITY Precious Woods’ corporate model is based on the
concept of economic, ecological and social sustainability. The implementation of this
central idea is regularly reviewed within the framework of the FSC certifi cation proc-
ess. In 1997 Precious Woods Amazon (PWA) was the fi rst company in the Amazon to be
certifi ed according to the criteria of the FSC. In the spring of 2002 Precious Woods Pará
(PWP) was also certifi ed. Precious Woods’ Costa Rican plantations were fi rst award-
ed the FSC certifi cate in 2000 and Precious Woods Nicaragua, which was founded two
years ago, is expected to achieve certifi cation in 2005. Taking PWA and PWP as exam-
ples, the following chapter demonstrates how the FSC Principles and Criteria for For-
est Stewardship work in practice.
30
year). All the jobs offered by Precious Woods
represent permanent, long-term employment.
In 2004, 8,9% of PWA’s workforce were wom-
en (12,1% in the prior year). Of PWP’s employ-
ees 3,7% were women (3,7% in the prior year).
The decline in the number of women working
for PWA can be attributed to the reduction in
veneer production where many women were
employed. In 2004, 41% of PWA’s and 38%
of PWP’s employees belonged to a trade un-
ion (21% and 41% in the prior year respective-
ly). PWA and PWP run various courses includ-
ing annual three week training courses for the
forestry personnel prior to harvesting. In 2004
a photo documentary was made of the course
held at PWA (see our website). The course
covered important topics relevant to specifi c
jobs such as equipment maintenance, safety
and waste disposal, and also dealt with gener-
al topics such as aggression and disease pre-
vention, including AIDS, communication skills,
drug and alcohol abuse and fi rst aid. In 2004
a special course was held for the local people
to inform them about the economic potential of
non-timber forest products and techniques for
extracting such products. Occupational health
and safety: Employees of PWA and PWP are
cared for by two medical doctors, one of whom
is specialized in the health aspects of forestry
work; the other is a general practitioner. PWA
and PWP both have a team of engineers and
technicians specialized in safety matters and a
health and safety programme which comprises
regular medical examinations, training courses
relating to health and safety at work, reviews of
safety aspects and a medical centre which is
open at all times.
version into agricultural land if it is able to pro-
duce the relevant rights of use. In the Federal
State of Amazonas Precious Woods has nev-
er had any problems with illegal settlers or log-
gers. In the Federal State of Pará, however, the
situation is much more diffi cult as here the in-
terests of agriculture, illegal logging companies,
and impoverished settlers come into severe and
direct confl ict with the interests of those who
wish to preserve the forest by managing it in a
sustainable manner.
Principle 3: Indigenous peoples’ rights. The le-
gal and customary rights of indigenous peo-
ples to own, use and manage their lands, ter-
ritories, and resources shall be recognized and
respected.
Precious Woods segregates the areas within its
property for which the local communities have
legal or customary rights of use. The bounda-
ries of these areas are established in consulta-
tion with the local communities involved. Their
rights of use are defi ned in written documents
and the areas in question are delineated on a
map. For many years Precious Woods has made
it a point of principle not to pursue forestry ac-
tivities in any areas inhabited by nomadic indig-
enous peoples.
Principle 4: Community relations and workers’
rights. Forest management operations shall
maintain or enhance the long-term social and
economic well-being of forest workers and lo-
cal communities.
Precious Woods provides the local population
with opportunities for employment, training and
other services. In 2004, 86,2% of PWA’s work-
force came from the immediate area (86,2% in
the prior year) and at PWP 97,5% of employ-
ees came from the region (94,5% in the prior
31
are employed to extract the timber, thus reduc-
ing the compaction of the soil, which occurs if
heavy machinery is used. Precious Woods de-
creases soil erosion by constructing bridges and
drainage systems. In order to prevent the pol-
lution of water resources, areas around water
courses are designated as buffer zones where
no forestry activities are allowed. To preserve
biological diversity, rare tree species are iden-
tifi ed and actively protected during harvesting
operations. Conservation zones (so-called ref-
erence areas), where the vegetation is repre-
sentative of the forest as a whole, are set aside
and recorded on maps. The FSC standard for
Brazil requires that protected reference areas
comprise at least 5% of the total area. The ref-
erence areas at PWA and PWP make up 5,8%
and 5,4% of the total forest area respectively.
Including the buffer zones around water cours-
es, approximately 25% of PWA’s and 20% of
PWP’s land consists of protected areas where
no operations whatsoever are permitted.
Principle 7: Management plan. A management
plan – appropriate to the scale and intensity of
the operations – shall be written, implemented,
and kept up to date. The long term objectives
of management, and the means of achieving
them, shall be clearly stated.
Among other things the forest management plan
establishes and documents the annual volume
of timber that can be harvested on a sustain-
able basis. Harvesting volumes must not ex-
ceed the natural incremental growth. In 2004
PWA harvested an average of 19,8 m3 / hectare
(18,3 m3 / hectare in the prior year). PWP har-
vested 17,9 m3 / hectare in 2004 (18,3 m3 / hec-
tare in the prior year). Up to now Precious Woods
has measured 0,9 m3 / hectare of growth per
Principle 5: Benefi ts from the forest. Forest man-
agement operations shall encourage the effi cient
use of the forest’s multiple products and servic-
es to ensure economic viability and a wide range
of environmental and social benefi ts.
Precious Woods strives to attain lasting eco-
nomic viability, while taking into account the full
environmental, social, and operational costs of
production. Forest management operations and
the marketing strategy encourage the optimal
use of resources and prevent consumers from
focusing on a small number of species of wood.
Together with its customers, Precious Woods
has introduced several dozen lesser known spe-
cies of wood to the market (see also pages 7
and 12 of this report) and seeks ways to devel-
op the commercial extraction of non-timber for-
est products such as plant extracts.
Principle 6: Environmental impact. Forest man-
agement shall conserve biological diversity and
its associated values, water resources, soils, and
unique and fragile ecosystems and landscapes,
and, by so doing, maintain the ecological func-
tions and the integrity of the forest.
Precious Woods minimizes unnecessary waste
associated with harvesting and on-site process-
ing operations. In 2003, 98,5% of the trees felled
at PWA were delivered to the sawmill. The cor-
responding fi gure for PWP is 96,1%. The wood
recovered from PWA’s sawmill is used to gener-
ate electricity in a woodchip fi red power plant.
We are currently seeking a similar solution for
PWP. Precious Woods assesses environmen-
tal impacts in advance and takes special meas-
ures to reduce damage to the environment dur-
ing operations. Directional felling techniques for
instance ensure that during felling, canopy open-
ings are kept to a minimum. Winching techniques
Inauguration party at Sta.Cecilia
Hans Stout and Paul Westbrook present Manoel Valdemir de Lira Paiva with a certifi cate to commemorate his ten years of service with the Company
An important objective of the FSC is to preserve, as far as possible, the integrity of the forest’s complex ecosystem.
An area of PWA’s forest which was harvested 4 years ago
▲▲▲
▲▲ ▲
32
annum after harvesting and anticipates an aver-
age growth rate of 0,8 m3 / hectare per annum
during one entire harvesting cycle. On the ba-
sis of currently assumed growth rates and the
present rate of harvesting, the long-term pres-
ervation of the forest will be ensured if 22 1/2 –
25 year harvesting cycles are maintained.
Principle 8: Monitoring and assessment. Mon-
itoring shall be conducted – appropriate to the
scale and intensity of forest management – to
assess the condition of the forest, yields of for-
est products, chain of custody, management
activities and their social and environmental
impacts.
The company’s internal monitoring records data
concerning (a) the yield of all forest products
harvested, (b) growth rates, regeneration and
condition of the forest, (c) composition and ob-
served changes in the fl ora and fauna, (d) envi-
ronmental and social impacts of harvesting and
other operations, (e) costs, productivity, and ef-
fi ciency of forest management. The results of
the evaluations are incorporated into the revision
and implementation of the management plan. It
is possible to trace every log back to its origin
and date of harvesting at any time.
Principle 9: Maintenance of high conservation
value forests. Management activities in high con-
servation value forests shall maintain or enhance
the attributes which defi ne such forests. Deci-
sions regarding high conservation value forests
shall always be considered in the context of a
precautionary approach.
Apart from the conservation areas and buffer
zones around water courses, Precious Woods’
management system considers the following ar-
eas or species worthy of protection: 1) areas of
great ecological signifi cance such as those with
particularly diverse vegetation and / or varied
landscapes, 2) areas of social and cultural sig-
nifi cance such as those where local communi-
ties meet their needs for forest products, 3) the
nesting trees of rare bird species such as the
royal eagle and the glaucous macaw, 4) pro-
tected tree species, rare tree species occurring
only in isolation, and tree species which are im-
portant providers of fruit for the fauna. These
tree species or areas are either totally exclud-
ed from management operations or managed
subject to certain restrictions.
Principle 10: Plantations. Plantations shall be
planned and managed in accordance with Prin-
ciples and Criteria 1 – 9, and Principle 10 and
its Criteria. While plantations can provide an ar-
ray of social and economic benefi ts, and can
contribute to satisfying the world’s needs for
forest products, they should complement the
management of, reduce pressures on, and pro-
mote the restoration and conservation of nat-
ural forests.
PWA and PWP manage only natural forests.
33
Continual training is an important aspect of every FSC-certifi ed forestry business.
GIS (Geographic Information System) training.
Meticulous planning is an important requirement for FSC certifi cation. Annual compartment at PWA.
Tasso Azevedo explains how the work of the FSC certifi ers is constantly checked and how they themselves continually undergo further training.
Tim van Eldik (on the right) introduces João Cruz (2nd from the right), head of forestry operations in Brazil, and a felling team to visitors.
▲▲▲
▲▲▲
▲▲ ▲ Short interview with Tim van Eldik who
for many years has been responsible for
forestry planning at PWA and PWP.
In 1997 Precious Woods Amazon was the fi rst
company in the Amazon region to achieve certi-
fi cation according to the criteria of the FSC. How
long did the original certifi cation process take
and which points took up the most time?
Certifi cation of PWA took 7 months. PWP was
certifi ed in only 5 1/2 months, thanks in part
to the experience gained during the certifying
of PWA. In PWA’s case a lot of time was spent
elaborating written guidelines relating to some
of the forest management practices. After that,
drawing up the plan of action to resolve the
question of the local population’s use rights to
the land and the devising of procedures to deal
with the concerns of the local population were
very time consuming. In the case of PWP the
central issues were the approval of the forest
management plan by the environmental author-
ities, Ibama, and the socio-economic study of
the communities living within, or adjacent to,
the management area.
Where in the certifi cation process did Precious
Woods achieve good marks?
First and foremost PWA received good marks
for the development and implementation of the
forest management plan. Our employee work-
ing conditions and the system to trace forest
products from their origin to the end user (Chain
of Custody Control) were also rated very highly.
PWP scored well on the accommodation and
meals provided to employees. This operation
also earned good marks for the training of for-
est workers and for the management plan and
its implementation.
What were the weak points?
The certifi ers found fault with PWA’s relations
with the local communities and were concerned
about economic viability. At PWP it was diffi cult
to reach agreement with employees regarding
company rules and working conditions. The for-
est management system had to be improved to
refl ect greater consideration of “high conserva-
tion value attributes”.
Which points could pose a problem today?
At PWA’s sawmills further improvements are nec-
essary to protect the environment. We must also
ensure that both manufacturing employees and
forest workers enjoy the same high standard
of working conditions. Internal monitoring pro-
cedures and quality control will also be revised
during the coming year. At PWP it is important
to improve quality control. A priority is also to
intensify the construction of bridges.
▲
34
A young teak plantation provides a habitat for biologically diverse fauna and fl ora
35
venes itself and elects the members of the Board
Committees from among its own ranks. Partic-
ulars of the members of the BoD, together with
their terms of offi ce and cross-involvements, are
laid out on page 4 of this report. Their CVs are
published on our website under About us -> Cor-
porate Governance.
The Audit Committee of the BoD (AC) (M. Am-
stutz, I. Jost and E. Stürm) thoroughly examines
the interim statements, the fi nancial statements
for the year as a whole and the budget. It also
oversees relations with the auditors. The Audit
Committee Charter, which is updated annually,
can be viewed on our website under Investor Re-
lations -> Company Reports.
The Compensation Committee of the BoD
(CC) (D. Girsberger and R. Straub) ensures cor-
rect terms and conditions of engagement for the
EC, the BoD and the Senior Executives in the
subsidiaries. Together with the Chairman of the
BoD, the members of the CC also comprise the
Nomination Committee.
The Responsibility Committee of the BoD (RC)
(E. Brugger and T. Hagen) oversees the activities
and reporting of the Company regarding the cre-
ation of ecological and social added value.
For information about the Executive Commit-
tee (EC) please refer to point 4 “Senior man-
agement”.
Strategic decisions are made by the Full Board
of Directors (BoD = executive and non-executive
members of the Board) after thorough discussion
1. Group Structure and Shareholders
For details about the Holding Company and the
Group’s consolidated subsidiaries (name, country
and ownership), please see note 3 to the Holding
Financial Statements. Precious Woods Holding
Ltd. is listed on the SWX Swiss Exchange. Fur-
ther details, including the security number, may
be found on page 5 or on our website under In-
vestor Relations. As of 31 December 2004 the
market capitalization of the Company amounted
to CHF 159,3 million. None of the subsidiaries is
listed on any stock exchange. For a list of share-
holders with over 5% of the voting rights (includ-
ing options) please see note 23 to the Consolidat-
ed Financial Statements (c.f.s.) and the diagram
on page 37. There are no cross shareholdings or
shareholders’ agreements.
2. Capital Structure
Full details of the Company’s share capital are set
out in note 12 (c.f.s.). Information about the com-
pany’s capital structure in 2002 may be found in
last year’s Annual Report under Corporate Gov-
ernance.
3. Board of Directors
The members of the Board of Directors (BoD) are
elected in a staggered manner at the Annual Gen-
eral Meeting for a maximum term of three years.
The General Meeting also appoints the Chair-
man of the Board of Directors for whom there is
no time limit on the term of offi ce. The BoD con-
CORPORATE GOVERNANCE Precious Woods is commit-
ted to transparent and open public reporting. The Board of Directors regularly discuss-
es the implementation of Corporate Governance principles and practices. The Company
is aware that the Triple Bottom Line – economic, ecological and social sustainabi-
lity – can only be achieved by pursuing well balanced Corporate Governance policies.
36
on our website under Investor Relations -> Com-
pany Reports.
4. Senior Management
The group’s operational management is embod-
ied in the members of the Executive Committee of
the Board of Directors (EC = executive members
of the Board of Directors), i.e. Messrs. Andres Gut
and Hans Stout in a full time and Ted Scheidegger
in a part time capacity. Andres Gut is President
of the EC, he is responsible for the operations in
Central America and he fi lls the role of Chairman
of the BoD. Ted Scheidegger serves as CFO. As
CEO Brazil, Hans Stout manages the Company’s
operations in Brazil, and he is also Managing Di-
rector of the Swiss Trading Company. Ricardo
Avendaño, Group Controller is also a member of
senior management. Brief particulars of the sen-
ior executives are set out on page 4.
The EC meets about once a month and all deci-
sions are made collectively. The President of the
EC, Andres Gut, has no authority to issue direc-
tives to the other members of the EC.
5. Compensation, Shareholdings and
Options, Loans
The Employee Share Purchase Plan, the Man-
agement Incentive Plan and an internal regula-
tion regarding the remuneration of the members
of the Board of Directors provide the framework
for the compensation (including share and stock
options) of the BoD, the EC and the senior man-
agers of the subsidiaries. Compensation is grant-
ed following recommendations and proposals of
the Compensation Committee and their approval
by the BoD. Compensation paid to the non-ex-
ecutive and executive directors totalled USD 25
397 and USD 622 205 respectively. The highest
of proposals made by the EC. Operational mat-
ters upon which no agreement could be reached
by the EC are also discussed by the BoD. The
majority of the Board Directors are non-execu-
tive members. Two members of the BoD used to
be members of the EC themselves (D. Girsberger
until 1998 and E. Stürm until June 2002) and are
therefore thoroughly acquainted with many de-
tails of the operations. The vice president (D. Girs-
berger), who is not a member of the EC himself,
can, even against the will of the EC, add items
to the agenda of the BoD at any time or request
that the EC or individual members of the EC ab-
stain on certain issues. Whereas the ultimate re-
sponsibility for the Company lies with the BoD,
responsibility for the entire day to day business
management has been delegated to the EC. How-
ever, certain fi nancially and structurally signifi cant
decisions, as well as those relating to strategic
matters which are likely to have a substantial im-
pact on the Company’s business, may only be
made by the BoD.
The Full Board of Directors met fi ve times in
2004 (the average length of the meetings was
3,5 hours) and made six circular resolutions. The
Board Committees met between two and fi ve
times in 2004.
The Management Information System of the BoD
comprises monthly reports from the subsidiaries,
extensive reports on visits undertaken by the mem-
bers of the EC and comprehensive fi nancial infor-
mation. All of this documentation is also available
to the members of the Board via a company in-
ternal intranet installed for this purpose.
Further details about the decision-making proc-
ess, areas of responsibility and control mecha-
nisms of Precious Woods are defi ned in the Com-
pany’s Rules of Organization which may be viewed
BoD and its sub-committees
BoD
ECCCAC NCRC
EC
President Andres Gut
CFO
Ted Scheidegger
Managing DirectorPWCA
Managing DirectorPW Brazil
PWCH
Andres Gut
Hans Stout
Organizationof the EC
BoD and its sub-committees Organization of the EC
37
to thirty days before the meeting by those legal-
ly entitled to do so.
7. Changes of Control and Defence Measures
The agreements with the members of the Board
of Directors contain no statutory “opting-out” or
“opting-up” clauses or clauses on changes of
control.
8. Auditors
Since 2004 the Company’s accounts have been
audited by PricewaterhouseCoopers, Zurich. The
lead auditor took up offi ce in 2004. The auditing
fees for 2004 amounted to USD 130 000. In 2004
the Company paid no fees whatsoever to the au-
ditors for consulting services. All the subsidiaries
are audited by PricewaterhouseCoopers. The ef-
fectiveness of the external auditors is monitored
by the Audit Committee. (See the Audit Commit-
tee Charter on our website: About us -> Corpo-
rate Governance.)
9. Information Policy
Precious Woods pursues an active and open in-
formation policy. Shareholders are kept up-to-date
with the Annual Report and at least two newslet-
ters per year. The August newsletter contains the
fi rst semester results according to IAS 34. Simpli-
fi ed results for the fi rst nine months are published
in the November or December newsletter. Further-
more, the Company maintains an informative web-
site (www.preciouswoods.com) which is regularly
updated. In compliance with the SWX Swiss Ex-
change’s regulations (“Ad-hoc-publicity”), Precious
Woods also publicizes details of any events which
may affect the share price. Further information can
be obtained from our Head Offi ce (+41 44 245 80 10/
E-mail: offi [email protected]).
paid Board member received USD 294 000. For
full details please refer to our website (About us ->
Corporate Governance) and to note 15 (c.f.s.). All
executives and employees are insured according
to the minimum legal requirements of the coun-
tries where they are employed. At the end of 2004
no material severance packages, loans or oth-
er benefi ts had been granted to members of the
governing bodies.
The longest agreed period of notice is 9 months.
Former members of the BoD or the EC were not
paid any compensation during the year under re-
view, neither in cash, shares, options, loans nor
in any other form.
Shareholdings and Options
A list of shares and options held by members of
the BoD / EC is published on our website under
About us -> Corporate Governance. See also
note 13 (c.f.s.)
Other Compensation
During the year under review, Daniel Girsberger
(BoD) charged CHF 8 581.00 in consultancy fees
to the Company.
6. Shareholders’ Participation
Shareholders of Precious Woods enjoy all the rights
to which they are entitled and the Company’s Arti-
cles of Association contain no voting rights restric-
tions. There are also no clauses differing from the
legal provisions regarding statutory quorums. All
shareholders registered in the share register four
weeks before the Annual General Meeting of the
Shareholders are eligible to participate in the An-
nual General Meeting. No changes affecting vot-
ing rights will be made to the shareholder regis-
ter after the mailing of invitations to the Annual
General Meeting. Requests to add items to the
agenda of the General Meeting may be made up
more than 90 000
10 001 – 90 000 shares
1 001 – 10 000 shares
101 – 1000 shares
1 – 100 shares
Dispo
Shareholders base (by shares held)31.12.2004
Shareholders base (by shareholders)31.12.2004
more than 90 000
10 001 – 90 000 shares
1 001 – 10 000 shares
101 – 1000 shares
1 – 100 shares
Precious Woods Corporate Governance Reporting – please also refer to our website www.preciouswoods.ch -> About us -> Corporate Governance
▲
38
Together, PW Industries and PW Belém produce 18 twenty-foot containers of these wheelbarrow handles and related products per month
39
GROUP AND HOLDING FINANCIAL REPORT
Group Financial Report 40 Consolidated Balance Sheet
41 Consolidated Statement of Income
42 Consolidated Statement of shareholders’ Equity
43 Consolidated Statement of Cash Flows
44 Notes to Consolidated Financial Statements
66 Report of the Group Auditors
Holding Financial Report 68 Financial Statements and Notes Holding Company
72 Report of the Statutory Auditors
40
Consolidated balance sheet, 31 December 2004 and 2003 (in USD)
ASSETS Notes 2004 2003 Restated
Current assets
Cash and cash equivalents 2 085 222 1 357 981
Accounts receivable – net 2 3 097 571 3 310 042
Inventories – net 3 7 937 968 6 004 614
Prepaid expenses 294 864 297 974
Other current assets 202 996 54 015
Total current assets 13 618 621 11 024 626
Non-current assets
Recoverable taxes 25 1 344 187 980 084
Deferred tax assets 24 46 036 50 591
Financial investments 8 1 454 290 1 454 060
Property, plant and equipment -net 4,6 38 142 162 34 687 938
Biological assets – Central America 5 32 919 820 27 544 062
Other non current assets 9 563 838 575 439
Total non – current assets 74 470 333 65 292 174
TOTAL 88 088 954 76 316 800
LIABILITIES AND SHAREHOLDERS' EQUITY
Current liabilities
Trade and other payables 10 4 497 905 5 218 488
Taxes payable 79 632 399 413
Short term loans 11 1 100 121 9 122 509
Total current liabilities 5 677 658 14 740 410
Non – current liabilities
Taxes payable 0 71 298
Accrued expenses 233 086 0
Deferred tax liabilities 24,26 6 008 672 5 761 211
Long term loans 11 6 243 950 0
Total non – current liabilities 12 485 708 5 832 509
Minority interest 3 805 215 3 500 023
SHAREHOLDERS› EQUITY
Share capital 12 61 297 001 54 478 766
Additional paid-in capital 5 166 837 1 172 810
Foreign currency translation -370 318 120 477
Treasury shares 12 0 -222 644
Retained earnings 26 26 853 -3 305 551
Total shareholders’ equity 66 120 373 52 243 858
TOTAL 88 088 954 76 316 800
The notes on pages 44 to 65 are an integral part of these consolidated fi nancial statements.
Precious Woods Annual Report 2004 – Consolidated Financial Statements – in USD
41
Consolidated statement of income 2004 and 2003 (in USD)
Notes 2004 2003 Restated
Net trading sales 16 15 498 340 11 052 180
Increase in fair value biological assets – Central America 5 5 375 756 4 005 121
Cost of sales 18 -12 899 012 -8 994 472
Operating expenses
Administrative expenses -3 509 043 -2 731 046
Selling expenses -577 606 -757 346
Other operating income 606 842 799 166
Total operating expenses -3 479 807 -2 689 226
Operating profi t 4 495 277 3 373 603
Finance costs – net 19 -575 460 -24 774
Net income before taxes 3 919 817 3 348 829
Income taxes 24 -282 251 -1 284 127
Income after taxes 3 637 566 2 064 702
Minority interest -305 162 -394 202
Net income 3 332 404 1 670 500
Earnings per share
Basic earnings per share 20 1,96 1,04
Diluted earnings per share 20 1,91 0,97
The notes on pages 44 to 65 are an integral part of these consolidated fi nancial statements.
Precious Woods Annual Report 2004 – Consolidated Financial Statements – in USD
42
Consolidated statement of shareholders' equity, years ended 31 December 2004 and 2003 Restated (in USD)
Notes Share capitalTreasury
shares
Additional
Paid-in-
Capital
Foreign
exchange
translation
Retained
earningsTotal
Balance 31 December 2002 53 099 378 -248 644 914 405 -55 450 1 851 882 55 561 571
Correction of fundamental error 26 -6 827 933 -6 827 933
Balance 31 December 2002 Restated 53 099 378 -248 644 914 405 -55 450 -4 976 051 48 733 638
Capital increase 12 1 379 388 207 394 1 586 782
Changes in treasury shares 26 000 26 000
Gains of treasury shares recognised in equity 51 011 51 011
Net income 1 670 500 1 670 500
Foreign currency translation 175 927 175 927
Balance 31 December 2003 Restated 54 478 766 -222 644 1 172 810 120 477 -3 305 551 52 243 858
Capital increase 12 6 818 235 3 802 998 10 621 233
Changes in treasury shares 222 644 222 644
Gains of treasury shares recognised in equity 191 029 191 029
Net income 3 332 404 3 332 404
Foreign currency translation -490 795 -490 795
Balance 31 December 2004 61 297 001 0 5 166 837 -370 318 26 853 66 120 373
Precious Woods Annual Report 2004 – Consolidated Financial Statements – in USD
43
Consolidated statement of cash fl ows 2004 and 2003 (in USD)
Cash fl ows from operating activities 2004 2003 Restated
Net income 3 332 404 1 670 500
Adjustments to reconcile net income to net cash used
in operating activities:
– Depreciation and amortisation 1 924 377 2 219 687
– Loss on disposals of fi xed assets 184 625 147 513
Interest received -11 755 -283 087
Interest paid 588 073 211 591
Change in allowance for doubtful accounts 73 061 29 978
Change in fair value of biological assets – Central America -3 772 339 -2 666 904
Minority interest 305 192 394 202
Personnel expenses paid in shares 191 029 64 006
Operating Cash fl ows before working capital changes 2 814 667 1 787 486
Decrease / (Increase) in accounts receivable 139 410 -292 916
(Increase) in inventories -1 933 354 -3 069 693
(Increase) in other assets -137 381 0
Decrease in prepaid expenses 3 110 372 400
(Decrease) in taxes payable -503 166 -81 583
(Decrease) / increase in trade and other payables -487 496 2 257 871
Increase in short term loans 433 202 472 730
Net cash provided by ( used in) operating activities 328 992 1 446 295
Cash fl ows from investing activities
Additions to property, plant and equipment:
Central America -1 142 982 -1 006 403
Brazil -4 266 858 -7 100 404
Others -153 386 -33 413
Invested in biological assets – Central America -1 603 419 -1 338 217
Proceeds on disposal of 10% participation PWP 0 850 000
Change in investments -230 -63 861
Change in other assets 0 -154 010
Interest received 11 755 283 087
Net cash used in investing activities -7 155 120 -8 563 221
Cash Flows from fi nancing activities
Interest paid -588 073 -211 591
Changes in notes payable -2 211 640 5 708 260
Changes in treasury shares 222 644 26 001
Capital increase 10 621 233 1 573 787
Net cash provided by fi nancing activities 8 044 164 7 096 457
Translation effect on cash -490 795 175 928
Increase in cash and cash equivalents 1 218 036 -20 469
Cash and cash equivalents, beginning of year 1 357 981 1 202 522
Cash and cash equivalents, end of year 2 085 222 1 357 981
Precious Woods Annual Report 2004 – Consolidated Financial Statements – in USD
44 Precious Woods Annual Report 2004 – Notes to Consolidated Financial Statements – in USD
Notes to consolidated Financial Statements
1. BASIS OF PRESENTATION AND ACCOUNTING POLICIES
Basis of Presentation
Precious Woods Holding Ltd. (formerly Precious Woods Limited) (the Group) was incorporated on 17 December 1990
under the laws of The British Virgin Islands as an international business group. In 2001 the corporate domicile was
changed to Zug, Switzerland. Its subsidiaries are organised and operate under the laws of the Republic of Costa Rica,
Nicaragua, Brazil, United States of America, British Virgin Islands and Switzerland. The activities of the Group are divid-
ed into two main areas: the Central American operations, which are related to reforestation projects that are currently
in a development stage and the Brazilian operations, which commenced on October 1996 and are related to the sus-
tainable management and processing of tropical hardwoods. At 31 December 2004 the Group employed 1 627 (2003:
1 773) employees.
Signifi cant Accounting Policies
The Group follows International Financial Reporting Standards (IFRS) in the preparation of its consolidated fi nancial state-
ments. The consolidated fi nancial statements have been prepared on a historical cost basis, except for the measure-
ment at fair value of biological assets. The preparation of fi nancial statements in conformity with IFRS requires the use of
certain critical accounting estimates. It also requires management to exercise its judgement in the process of applying
the Group’s accounting policies. The area where assumptions and estimates are signifi cant to the consolidated fi nancial
statements relate to the valuation of biological assets disclosed in note 5.
The signifi cant accounting policies are the following:
a. Basis of Consolidation
The consolidated fi nancial statements include the balances and transactions of Precious Woods Holding Ltd. and its
subsidiaries. Subsidiaries are entities over which the Group has the power to govern the fi nancial and operating policies.
Subsidiaries are consolidated from the date on which control is transferred to the Group and cease to be consolidated
from the date on which control is transferred out. The following direct and indirect subsidiaries are included in the con-
solidated fi nancial statements:
Subsidiary Country Ownership
2004 2003
Maderas Preciosas (Costa Rica) S.A. Costa Rica 100% 100%
Macori Las Playas S.A. Costa Rica 100% 100%
Multiservicios Forestales de Guanacaste S.A. Costa Rica 100% 100%
Maderas Preciosas Nicaragua S.A. Nicaragua 100% 100%
Precious Woods Management Ltd. British Virgin Islands 100% 100%
Precious Woods (Switzerland) Ltd. Switzerland 100% 100%
Madeiras Preciosas da Amazônia Manejo Ltda. Brazil 100% 100%
MIL Madeireira Itacoatiara Ltda. Brazil 100% 100%
Carolina Indústria Ltda. Brazil 100% 100%
Precious Woods Pará Ltd. and subsidiaries Brazil 50% 50%
Precious Woods Corporation (dormant company) USA 100% 100%
In March 2003 the Group founded a new wholly owned subsidiary in Nicaragua with an initial equity investment of 1,5
million Cordobas (USD 100 000). During the third quarter of 2003, the Group’s joint venture partner in Precious Woods
45Precious Woods Annual Report 2004 – Notes to Consolidated Financial Statements – in USD
Pará, A. van den Berg BV, fi nalised the exercise of its option to repurchase 10% of the joint subsidiary for a cash consid-
eration of USD 850 000. As the Group retains management, fi nancial and operational control of Precious Woods Pará,
this subsidiary is fully consolidated. The 50% participation of A. van den Berg BV in Precious Woods Pará is recognised
as minority interest. All material inter-group balances and transactions have been eliminated in consolidation.
b. Cash and Cash equivalents
Cash and cash equivalents comprises cash at bank and in hand and short-term deposits with an original maturity of
three months or less.
c. Trade Receivables
Trade receivables are stated at nominal value as reduced by appropriate allowances for estimated irrecoverable amounts,
which approximates fair value. Such provision for impairment of trade receivable is established when there is objective
evidence that the Group is not able to collect all amounts due according to the original terms of receivables or certain
maximum aging criteria are exceeded. The amount of the provision is recognised in the income statement.
d. Inventories
Inventories are valued at the lower of cost or net realisable value. Roundwood and fi nished products are recorded at the
average cost of production, less provision for losses, when applicable. Net realisable value is the estimated selling price
in the ordinary course of business, less estimated costs of completion and the estimated costs to make the sale.
e. Property, Plant and Equipment
Property, plant and equipment are recorded at cost less accumulated depreciation and any impairment in value. Depre-
ciation is provided on the straight-line method over the estimated useful life of the assets as follows:
– Land not depreciated
– Forest roads: 50 years (starting 2003)
– Buildings and improvements: 25 years
– Machinery and vehicles: 4 to 19 years (2003: 4 to 10 years)
– Furniture and fi xtures: 5 to 10 years
The assets’ residual values and useful lives are reviewed, and adjusted if appropriate, at each balance sheet date. The
effect of such change is recognised prospectively.
The acquisition of land and forest, construction of permanent roads and investments in silvicultural measures in Precious
Woods Brazil are recorded at cost or market, whichever is lower. The Group does not apply the fair value less estima-
ted point-of-sale cost in Brazil as fair values cannot be reliably measured in sustainable management of existing tropi-
cal forest.
Gain and losses on disposals are determined by comparing proceeds with carrying amount. These are included in the
income statement. When revalued assets are sold, the amounts included in other reserves are transferred to retained
earnings.
f. Biological Assets Central America
The acquisition of land for the forest projects is originally recorded at cost. Biological assets are stated at fair value less
estimated point-of-sale cost. The fair value is determined using the present value of expected net cash fl ows from the
asset discounted at a rate as described in note 5.
g. Intangible Assets
Intangible assets comprise mainly project development costs and are deferred to future periods when all of the follow-
ing can be demonstrated:
46 Precious Woods Annual Report 2004 – Notes to Consolidated Financial Statements – in USD
– the technical feasibility of completing the intangible asset so that it will be available for use or sale;
– the intention and ability to complete the intangible asset and use or sell it;
– how the intangible asset will generate probable future economic benefi ts;
– the availability of adequate technical, fi nancial and other resources to complete the development and to use or sell
the intangible asset; and
– the ability to measure the expenditure attributable to the intangible asset during its development reliably.
h. Financial Investments
The fi nancial investments of the Group are classifi ed as available for sale fi nancial assets. After initial recognition, fi nancial
investments are measured at fair value. The Group assesses at each balance sheet date whether there is objective evi-
dence that a fi nancial investment is impaired. If any such evidence of impairment exists, the impairment loss is removed
from equity and recognised through the income statement.
Gains or losses on fi nancial investments are recognised as a separate component of equity until the fi nancial investment
is sold or impaired.
i. Net Sales and Revenue Recognition
Net sales are determined by deducting from gross sales value-added taxes, discounts, returns and allowances, freight,
port expenses and insurance. Sales of timber are recognised when the timber is delivered and title has passed.
j. Currency
As a majority of the sales and signifi cant investment transactions are conducted in United States Dollars, the measure-
ment and reporting currency of the group is the United States Dollar (USD). The subsidiaries’ accounting records are
maintained in the legal currency of the country in which they operate (Costa Rican Colones, Swiss Francs, Brazilian Reais,
Nicaraguan Cordobas and USD).
Currency translation rates for the consolidated fi nancial statements
Currency Year end exchange rate Average rate
USD USD
1 CHF 0,8835 0,8064
1 BRL 0,3767 0,3424
1 EUR 1,3644 1,2422
1 CRC 0,0021 0,0022
1 NIO 0,0612 0,0627
k. Currency Remeasurement
The fi nancial statements of the Costa Rican, Nicaraguan and the Brazilian subsidiaries have been remeasured into the re-
porting currency (USD), considering them as foreign operations. Therefore, monetary assets and liabilities are remeasured
by using the rate of exchange prevailing at the balance sheet date and non-monetary assets and liabilities and sharehold-
ers’ equity accounts are remeasured at historical exchange rates. Income and expenses are remeasured at the average
rate of exchange for the year, except for depreciation and amortisation which are remeasured at historical rates.
l. Currency Translation
The fi nancial statements of the Swiss subsidiary have been translated from its functional currency (Swiss Francs) to the
reporting currency (USD), considering it as a foreign entity. Therefore, all assets and liabilities are translated by using the
rate of exchange prevailing at the balance sheet date and shareholders’ equity accounts are translated at historical ex-
change rates. Income and expenses are translated at the average rate for the year. Translation differences which result
from the process of translating Swiss Francs fi nancial statements into USD are recorded as foreign currency translation
in the consolidated statement of shareholders’ equity.
47Precious Woods Annual Report 2004 – Notes to Consolidated Financial Statements – in USD
m. Taxation
The charge for current income tax is based on the results for the year as adjusted for items, which are non-assessable
or disallowed. It is calculated using tax rates of the countries where the Group has operations. Deferred income taxes
are accounted for using the balance sheet liability method in respect of temporary differences arising from differences
between the carrying amount of assets and liabilities in the fi nancial statements and the corresponding tax basis used
in the computation of taxable profi t. Deferred income tax liabilities are generally recognised for all taxable temporary dif-
ferences and deferred income tax assets are recognised to the extent that it can be reasonably expected that taxable
profi ts will be available against which deductible temporary differences can be utilised. Such assets and liabilities are not
recognised if the temporary difference arises from a goodwill (or negative goodwill) or from the initial recognition (oth-
er than in a business combination) of other assets and liabilities in a transaction, which affects neither the taxable prof-
it nor the accounting profi t.
n. Impairment of Assets
At each balance sheet date, the group reviews the carrying amounts of its tangible and intangible assets to determine
whether they have suffered an impairment loss. If indications of impairment are present, the carrying value of the asset
is reduced to its recoverable value. Where it is not possible to estimate the recoverable amount of the individual asset,
the group estimates the recoverable amount of the cash-generating unit to which the asset belongs. The recoverable
amount of an asset is the greater of the net selling price and its value in use. The pre-tax estimated future cash fl ows are
discounted to their present value using a pre-tax discount rate that refl ects current market assessments of the time val-
ue of money and the risks specifi c to the asset. Impairment losses are recognised as an expense immediately. Where an
impairment loss subsequently reverses, the carrying amount of the asset or cash-generating unit is increased to the re-
vised estimate of its recoverable amount, but not in excess of the carrying amount that would have been recorded had
no impairment loss been recognised. A reversal of an impairment loss is recognised as income immediately.
o. Financial Instruments
Financial assets and fi nancial liabilities are recognised on the Group’s consolidated balance sheet when the Group has
become a party to the contractual provisions of the instrument (see note 7).
p. Employee Share Purchase and Stock Option Plans
The Group has an Employee Share Purchase Plan (ESPP) available to all employees and a Management Incentive Plan
(MIP) for members of the Executive Committee and senior employees. Under the ESPP, each employee may purchase
up to 720 shares per year at a discount of 20% to the weighted average market price on the SWX Swiss Exchange sub-
ject to a two year lock-up period. Of the shares purchased by employees under the ESPP, a portion has been settled
from available treasury shares. The remainder will be transferred from a reserved portion of a future capital increase. Both
types of settlement do not incur any charge to the income statement. Under the MIP (formerly ESOP), senior staff and
members of the Executive Committee have been awarded stock options valid for fi ve years with a strike price equivalent
to the weighted average market price on the SWX Swiss Exchange for the compensation period in question. These op-
tions may be immediately exercised. The Group applied the intrinsic value accounting method for option awards under
the MIP which values the stock options with the difference between the price of the underlying stock and the exercise
price. As the strike price is set equal to the market price at the time of award, this value is zero and there is no charge
to the income statement. The dilutive effect of outstanding options is refl ected as additional share dilution in the compu-
tation of earnings per share.
q. Pension Plans
The Group treats all pension plans as Defi ned Contribution Plan (DCP). Payments to defi ned contribution pension plans
are charged as an expense to the income statement as they fall due. Payments made to state-managed retirement ben-
efi t schemes are dealt with as payments to defi ned contribution plans where the Group’s obligations under the schemes
are equivalent to those arising in a defi ned contribution pension plan. There is a Defi ned Benefi t Plan (DBP) in Switzer-
48 Precious Woods Annual Report 2004 – Notes to Consolidated Financial Statements – in USD
land and the management is convinced that the impact of the treatment as a Defi ned Contribution Pension Plan (instead
of a DBP) would not be material in relation to the fi nancial statements.
r. Borrowings
Borrowings are recognised initially at fair value, net of transaction costs incurred. Borrowings are subsequently stated at
amortised cost, any difference between the proceeds (net of transactions costs) and the redemption value is recognised
in the statement over the period of the borrowings using the effective interest method.
Borrowings are classifi ed as current liabilities unless the Group has an unconditional right to defer settlement of the lia-
bility for at least 12 months after the balance sheet date.
s. Segment Reporting
A business segment is a group of assets and operations engaged in providing products or services that are subject to
risks and returns that are different from those of other business segments.
t. Comparative Figures
Certain year 2003 fi gures were reclassifi ed to conform to the 2004 presentation, in order to improve the quality, scope
and detail of the information provided.
2. ACCOUNTS RECEIVABLE
In USD 2004 2003
Trade receivables third parties:
Trading group sales 275 802 329 284
Brazilian sales 2 515 380 2 636 664
Costa Rican sales 0 2 565
Allowance for doubtful accounts -172 087 -37 242
Trade account receivables related parties 367 427 378 771
Other short term accounts receivable 111 049 0
Total 3 097 571 3 310 042
3. INVENTORIES
in USD 2004 2003 Restated
Roundwood 2 963 904 2 117 387
In-process sawnwood 1 898 516 1 594 500
Finished sawnwood 233 307 283 441
Finished veneers 622 710 243 375
Veneers in process 103 500 217 987
Industrialized products 573 873 615 062
Export products in transit 632 184 205 592
Consignment inventory 78 450 28 547
Prepaid forest inventory costs 242 672 286 147
Spare parts and others 588 852 412 576
Total 7 937 968 6 004 614
49Precious Woods Annual Report 2004 – Notes to Consolidated Financial Statements – in USD
4. PROPERTY, PLANT AND EQUIPMENT
in USD LandForest
roads
Buildings
and im-
provements
Machinery
and
vehicles
Furniture
and
fi xtures
Construc-
tion in
progress
Total
Cost
At 1 January 2004 19 439 077 4 287 634 7 096 060 16 077 851 1 056 283 42 613 47 999 518
Additions (transfers) 1 065 186 846 708 280 525 2 791 964 181 753 467 803 5 633 939
Disposals 0 0 -718 -387 208 0 -123 367 -511 293
At 31 December 2004 20 504 263 5 134 342 7 375 867 18 482 607 1 238 036 387 049 53 122 164
Accumulated Depreciation
At 1 January 2004 0 0 2 732 839 9 874 643 704 097 0 13 311 579
Charge for the year 0 86 164 334 028 1 405 264 116 040 0 1 941 496
Eliminated on disposals 0 0 0 -273 073 0 0 -273 073
At 31 December 2004 0 86 164 3 066 867 11 006 834 820 137 0 14 980 002
Carrying amount
At 31 December 2004 20 504 263 5 048 178 4 309 000 7 475 773 417 899 387 049 38 142 162
At 31 December 2003 19 439 077 4 287 634 4 363 221 6 203 208 352 186 42 613 34 687 938
It is noted that permanent forest roads are continuously maintained and kept in a conditional comparable to their original
construction. Permanent forest roads are depreciated in 50 years since 2003. The maintenance cost of these roads is
fully expensed. Land in Central America resp. Brazil was reclassifi ed from Biological Assets resp. Forest and Forest Im-
provements to Property, Plant and Equipment. Construction in progress does not include any borrowing costs.
During 2004, Precious Woods Amazon reviewed the useful lives of some machinery and adjusted them appropriately.
This adjustment was applied prospectively and compared to previous estimates reduces cost of goods sold by
USD 52 854 and inventories by USD 202 476 in 2004. The total annual effect in future periods will be similar.
5. BIOLOGICAL ASSETS CENTRAL AMERICA
General Valuation Principles according to IAS 41
According to IAS 41, biological assets – in the case of Precious Woods, tree plantations – are to be valued annually at
fair value. The gain or loss in fair value of these biological assets is reported in net profi t. The measurement of biological
growth in the fi eld is an important element of this valuation. Initially, at the start of the plantation cycle, the fair value is
equal to the standard costs of preparing and maintaining a plantation including the appropriate cost of capital, assum-
ing effi cient operations. Towards the end of the plantation cycle the fair value depends solely on the discounted value of
the expected harvest less estimated point-of-sale cost.
Precious Woods has divided its plantations by species into fi ve well defi ned growth classes. Every year hundreds of rep-
resentatively distributed sample plots are measured as the basis of assigning all planted areas to one of these growth
classes. With good growth, a plot may move up to a higher growth class or alternately be downgraded to a lower growth
class if growth is poor. Precious Woods has defi ned a cash fl ow stream for each growth class and species (profi le) esti-
mating expected cost and income for each species and growth class for each year of the total life cycle of the plantation.
On the one hand these estimates are based on the experience of Precious Woods, on the other hand they are based
on conservative outside estimates of future harvest volumes and prices. An internal rate of return (IRR) is calculated for
each profi le, which is applied as the discount rate of expected future income.
50 Precious Woods Annual Report 2004 – Notes to Consolidated Financial Statements – in USD
The following table shows as an example the fair value of biological assets (trees) without land ranging from the lowest
growth class at the low end to the highest growth class at the high end.
Range of fair value of plantations in USD per ha
Teak
Minimum
Teak
Maximum
Pochote
Minimum
Pochote
Maximum
11/2-years 1 800 2 100 1 600 1 700
5-years 4 200 6 100 2 900 4 300
10-years 7 700 14 100 4 200 8 600
Revision of valuation assumptions
Precious Woods introduced the valuation according to IAS 41 in fi scal year 2000 based on knowledge available at the
time. The standard was applied by the Group in its published fi nancial reports in 2002 before it became mandatory in
2003. The valuation model and its assumptions are annually reviewed and if necessary adjusted. Since the fi scal year
2000 important new information has been gained, much of which has already been described and taken into account in
the valuation for fi scal years 2002 and 2003. During year 2004 the Group made no changes in the assumptions in the
valuation model.
The share of the teak plantations of the total value of biological assets increases from year to year as Precious Woods
has predominantly planted teak since 1995. As such it is of primary importance that the valuation model for teak is espe-
cially well founded. Pochote lacks the reliable data available for teak. Overall one can assume that the harvest volumes
applied by the Group for pochote are conservative. So far this has not been corrected, as reliable market price informa-
tion is also not available for pochote timber. A revision of the valuation model for pochote will only be pursued once more
reliable information on market prices has become available. The valuation of the various indigenous species is subject
to certain insecurity as more than a dozen heterogeneous species are represented in this group. Reliable data is hard-
ly available for growth rates or achievable market prices. The average volume growth of 7m3/ha p.a. assumed by the
Group is however well within reason.
The following tables show the distribution of the area planted (in ha and percent) with teak and pochote and their catego-
risation in individual growth classes as well as the IRR applied for each growth class and species as well as the resulting
total valuation. For teak, the IRR is shown for plantations in Costa Rica as well as for those in the area of Rio San Juan
in Nicaragua. Concerning the various indigenous species (caoba, ronron, cocobolo, almendro, etc.), Precious Woods
currently applies a valuation model which does not differentiate between species or growth class. The value per ha de-
pends only on the age of the respective plantation.
Distribution of the areas planted with teak in growth classes and their valuation
Growth class excellent high average low marginal Total
Ha 735 439 1 552 435 837 3 998
In percent 18,4% 11,0% 38,8% 10,9% 20,9% 100%
IRR/ Costa Rica 14,9% 12,7% 11,3% 10,2% 8,1% -
IRR/ Nicaragua 16,6% 14,1% 12,5% 11,3% 9,1% -
Value in million USD 6,12 3,66 5,02 2,87 4,86 22,53
Average value per ha: USD 5 635. Average age of the teak plantations: 6,5 years.
51Precious Woods Annual Report 2004 – Notes to Consolidated Financial Statements – in USD
Distribution of the areas planted with pochote in growth classes and their valuation
Growth class excellent high average low marginal Total
Ha 493 239 107 87 45 970
In percent 50,8% 24,6% 11,0% 9,0% 4,6% 100%
IRR 10,0% 7,1% 5,7% 4,1% 2,1% -
Value in million USD 5,45 1,86 0,68 0,47 0,21 8,67
Average value per ha: USD 8 942. Average age of the pochote plantations: 12,8 years.
Areas planted with various indigenous species
Total value of 316 ha: USD 1,72 million value per ha: USD 5 457. Average age: 7,8 years.
Total project rate of return
The weighted average internal rate of return of the total plantation project in Central America inherent to the valuation of
biological assets as of 31 December 2004 is 10,6%.
The balance sheet values of the biological assets in Central America have developed as follows:
in USD 2004 2003
Carrying amount beginning of year 27 544 062 23 538 942
Net change in fair value of biological assets 3 772 339 2 666 904
Personnel costs incurred during the year 817 136 350 417
Depreciation expense 97 199 89 446
Other general costs incurred during the year 689 084 898 353
Carrying amount end of year 32 919 820 27 544 062
Details of the change in fair value attributable to biological growth
The change of fair value attributable to biological growth is summarised as follows:
in USD 2004 2003
Growth of previously existing plantations 5 125 081 4 247 687
New plantations in reporting period 486 715 252 985
Change of valuation assumptions 0 -227 112
Correction to areas planted with GPS meassures -79 315 0
Write-off of poorly growing plots -156 725 -268 439
Increase in biological assets 5 375 756 4 005 121
Costs incurred during the year -1 603 417 -1 338 217
Net increase of biological assets 3 772 339 2 666 904
Deferred Income Tax -153 000 0
Net result Central America 3 619 339 2 666 904
Harvest
The Group only considers the fi nal harvest – which takes place after completion of the full 26–30 year growth cycle – as
the relevant factor in valuing biological assets according to IAS 41. Interim thinnings represent necessary ongoing main-
tenance required to achieve the intended income from the biological assets at the end of the growth cycle. Growth of the
biological assets is calculated to be lower in those years when timber is commercially harvested in the course of the regu-
larly planned thinnings. In 2004, there were no sales of thinnings (2003: USD 81 263 with harvest cost of USD 27 485).
52 Precious Woods Annual Report 2004 – Notes to Consolidated Financial Statements – in USD
Comparison with historical cost
The historical cost of the plantations including land is shown in the following table:
in USD 2004 2003
Cost
Actual cost of planting and maintenance 17 108 798 15 505 381
Land 6 867 709 6 323 775
Total historical cost 23 976 507 21 829 156
Cumulative net gain from change in fair value 15 811 021 12 038 681
Total Biological Assets and Land 39 787 528 33 867 837
Risk management regarding biological assets
Management assesses the valuation of the teak plantations to be well founded and conservative. The increase in volume,
achievable market prices and inclusion of adjustments for infl ation are decisive for the determination of future income.
a) Increase in volume: Comprehensive comparative data is not available for growth periods spanning more than
20 years in Costa Rica. Precious Woods assumes an increase in commercially marketable timber volume of between
7 m3/ha/ p.a. for the “marginal” up to 17 m3/ha/ p.a. for the “excellent” growth class.
b) Prices: Precious Woods assumes prices between USD 63 and 162 per m3 for teak from commercial thinnings de-
pending on the age and diameter of the logs. These are net prices for logs loaded onto a container at the Finca. For
the fi nal harvest after 26-30 years of growth, Precious Woods assumes prices between USD 270 and 405 per m3 de-
pending on the diameter for the best (lower) logs and between USD 77 and 180 for the smaller (upper) logs. Current
prices actually paid in Costa Rica range from USD 300 to 1300 per m3.
c) Precious Woods does not take infl ation or real price increases into account to determine the fair value of the biologi-
cal assets. An assumed 2% rate of infl ation would lead to an approximate 20% increase in the valuation of the plan-
tations.
Assurance of Completion
Tree plantations only retain their value if the Group can provide the fi nancial resources required to maintain the planta-
tions through fi nal harvest on an ongoing basis. Depending on the rate of growth, teak plantations become fi nancial-
ly self suffi cient after a growth period of approximately ten years from which point in time the revenue from commercial
thinnings exceeds the cost of ongoing maintenance. If Precious Woods were to cease the creation of new plantations
effective 2005, cumulative maintenance expense of USD 3,4 million would need to be covered to carry all existing plan-
tations through the age of 10 years. On the other hand, cumulative net revenue from commercial thinnings of existing
plantations is expected to reach USD 3,7 million between 2005 and 2014. The cumulative cost of maintenance will ex-
ceed the cumulative net revenue from commercial thinnings in the initial years of such a scenario. Management is confi -
dent it will be able to raise the required bridge fi nancing to sustain and carry through the plantations in the case of such
a crisis scenario.
Management of biological risks (fi re, fl ooding, lightning)
During the dry season, the risk of damage from fi re is signifi cant for young plantations. The Group reduces this risk in
the best possible manner by implementing appropriate fi re prevention measures such as clearing underbrush ahead of
the dry season, construction of fi re breaks and 24 hour surveillance. Beyond a height of 4 to 6 meters, teak trees are
no longer damaged by fi re. In 1997, 7 ha of a young teak plantation in the Finca Garza were lost to fi re. This represents
0,12% of the area of all plantations created between 1990 and 2004.
Tropical hurricanes may cause windfall and signifi cant fl ooding. Since 1990, hurricane Mitch represented the one such
event which affected the North of Costa Rica and Nicaragua. Precious Woods did not suffer any material loss of trees
from windfall or fl ooding during that event. The undulating terrain of the plantations would very likely prevent signifi cant
53Precious Woods Annual Report 2004 – Notes to Consolidated Financial Statements – in USD
loss from fl ooding. However, signifi cant damage from a tropical hurricane cannot be totally excluded. A limited number
of trees are lost annually to local lightning strikes. These losses are included in the Group’s expectations for the natural
mortality of trees. The Group has not obtained insurance coverage for these risks as the premium would be excessive
in relation to the expected losses.
6. FOREST, FOREST IMPROVEMENTS
The forests of Precious Woods in Brazil are managed in a sustainable manner, which means that only incremental growth
will be harvested and the substance of the forest will be preserved. These forests and forest improvements are valued at
the lower of cost or market as described below. Due to the lack of reliable measurement of biological growth in the fi eld,
the fair value approach as for Central America cannot be applied.
Precious Woods Amazon
In May 1994 the Group acquired two companies that owned approximately 80 000 ha of tropical forests located near
Itacoatiara, State of Amazonas in Brazil, for the main purpose of establishing and operating a project to extract and in-
dustrialise wood in a sustainable manner. In 2001 the Group acquired a new area of tropical forest of approximately
42 000 ha also located near Itacoatiara. An additional forest area of 189 000 ha was purchased in 2003. Additional ex-
pense was incurred to achieve the FSC certifi cation. FSC certifi cation demonstrates fulfi lment of social and ecological
criteria while increasing the prices achievable for timber.
Precious Woods Pará
In 2001, the Group acquired a participation in two companies that possess an area of approximately 46 000 ha of trop-
ical forest in Portél, State of Pará. In 2003 an additional 30 000 ha of land were acquired and the processing facilities
expanded.
7. FINANCIAL RISK MANAGEMENT AND FINANCIAL INSTRUMENTS
The Group is exposed to changes in local currency exchange rates against the USD, fl uctuation of commodity prices, fi -
nancing risk, changes of interest rates and credit risk in the normal course of business.
Derivatives
The Group did not enter into any material derivative transactions in 2004 and 2003 as future markets were not available
for the commodity (FSC certifi ed timber) and the currency (Costa Rican Colones, Brazilian Reais) markets were not avail-
able for which hedging would have been most important to mitigate the impact of fl uctuations.
Currency Risk
As a majority of the Group’s export sales are invoiced in USD and a signifi cant share of the expenditures for capital ex-
penditures and operating supplies are also based in USD, the Group benefi ts from natural hedges in key business trans-
actions mitigating fl uctuations in the underlying currencies. However, as personnel cost is based in local currency, fur-
ther appreciation of the Brazilian Reais against the USD could lead to a signifi cant detrimental impact on gross margins
achievable for Precious Woods Brazil.
Commodity Risk
The prices for FSC certifi ed timber have proven to be less volatile than non certifi ed timber greatly mitigating the risk of
fl uctuating commodity prices.
54 Precious Woods Annual Report 2004 – Notes to Consolidated Financial Statements – in USD
Financing Risk
The Group employs two credit facilities (see note 11) for the fi nancing of operations and asset purchases in the nor-
mal course of business. The long term facility is rolled over on a two year basis and currently has a maturity of Decem-
ber 2006. The renewal of this facility in 2006 for a further 24 months will be subject to the fulfi lment of interest rate
cover, net asset and cash fl ow covenants. The management of the Group considers that these covenants will be fulfi lled
in the normal course of business.
Interest Rate Risk
The interest paid on the credit facility described (see note 11) is subject to fl uctuation of short term USD interest rates.
The Group currently does not hedge fl uctuation in these interest rates as management assesses the cost of such hedg-
ing to exceed potential benefi ts.
Credit Risk
The Group is exposed to credit risk in respect of trade receivables, however considering the geographic spread of the
Group’s customers and the credit management procedures in place, credit risk is believed to be limited and appropri-
ately provided for.
Guarantees and Pledging of Assets
As of 31 December 2004, the Costa Rican subsidiaries of the Group have issued an independent corporate guarantee in
favour of Precious Woods Holding Ltd. in the amount of USD 10,0 million as security for the two credit facilities described
in Note 11. No assets have been pledged as security for credit facilities, fi nancial instruments or other obligations.
8. FINANCIAL INVESTMENTS
In 2002 and 2003, the Group acquired a 7% minority interest in Nederlandse Internationale Bosbouw Onderneming NV,
a Dutch joint stock corporation with signifi cant holdings in teak plantations and processing facilities in Costa Rica which
is not listed. This fi nancial investment is recorded as a long term fi nancial asset at fair value. In 2004 the value was de-
termined through an analysis of the net book value of the Group. This determined that the original cost including trans-
action costs amounting to USD 1 401 464 approximates the net book value. This fi nancial investment is classifi ed as an
available for sale fi nancial asset.
In 2002, the Group’s subsidiary Precious Woods Pará (owned 50 %) acquired a 50% interest in Ecofl orestal, a Brazilian
joint stock corporation specialising in providing forest management services to forestry companies pursuing FSC cer-
tifi cation. The Group’s share is therefore 25% and it has no control or signifi cant infl uence on Ecofl orestal. This fi nan-
cial investment is recorded at cost including transaction costs amounting to USD 52 826, which approximates fair value
based on the net book value and profi tability known to management. This fi nancial investment is classifi ed as an availa-
ble for sale fi nancial asset.
55Precious Woods Annual Report 2004 – Notes to Consolidated Financial Statements – in USD
9. OTHER NON CURRENT ASSETS
Other non current assets are mainly non-operational fi xed assets and investments that are not being used in the Group’s
current operations. The detail of other non current assets is as follows:
in USD 2004 2003
Land for future industrialization site – Costa Rica 405 645 405 645
Long term loans to associated group Ecofl orestal and its Director 146 251 127 116
Judicial deposits 11 942 40 094
Other 0 2 584
Total 563 838 575 439
The loans to Ecofl orestal and its Director bear interest rates of between 3,2% and 7% and have terms between 1 and
10 years. In 2004 the interest due was accrued to the balance of the loans.
10. TRADE AND OTHER PAYABLES
in USD 2004 2003
Trade accounts payable third parties 1 740 247 2 245 432
Short term loans payable related parties 672 440 1 626 104
Salaries and social charges accrued 1 686 100 1 036 392
Payables to shareholders 69 022 17 374
Other current liabilities related parties 58 189 0
Other accrued liabilities 271 907 293 186
Total 4 497 905 5 218 488
11. LOANS
in USD 2004 2003
SHORT TERM
Hollandsche Bank-Unie N.V. Short Term Credit Facility 666 919 7 200 000
Payable for land purchases 0 1 922 509
Loans and fi nancing other banks in Brazil 433 202 0
Total short term loans 1 100 121 9 122 509
in USD 2004 2003
LONG TERM
Hollandsche Bank-Unie N.V. Long Term Credit Facility 4 500 000 0
Long term loans payable to related parties 1 743 950 0
Total long term loans 6 243 950 0
The loan from Hollandsche Bank-Unie N.V. represents the utilization per 31 December 2004 of a USD 4,5 million two year
roll-over loan agreement bearing interest at a rate of libor plus 1,6% (2003: libor plus 1,6%) as well as the partial draw
down in the amount of USD 666 919 of a permanent overdraft facility in the amount of USD 5,0 million bearing interest
at a rate of libor plus 2,0% (2003: libor plus 1,6%).
56 Precious Woods Annual Report 2004 – Notes to Consolidated Financial Statements – in USD
12. SHARE CAPITAL
Share Capital Overview Number of
shares 2004CHF 2004
Number of
shares 2003CHF 2003
Issued share capital (par value CHF 50)
Issued and fully paid in capital beginning of year 1 657 245 82 862 250 1 620 643 81 032 150
Shares issued during year 138 095 6 904 750 0 0
Options exercised during year (new shares) 25 520 1 276 000 36 602 1 830 100
Issued and fully paid in capital end of year 1 820 860 91 043 000 1 657 245 82 862 250
Authorised share capital authorized during year 200 000 10 000 000
Authorised share capital expired during year 713 300 35 665 000
Authorized share capital at end of the year 88 605 4 430 250 740 000 37 000 000
Conditional share capital authorized during year
Conditional share capital at end of the year 177 235 8 861 750 202 755 10 137 750
The shares rank equally as to voting rights and dividends and the Articles of Association include no restrictions on the
transfer of the Group’s shares. The authorized share capital is intended to be utilized for acquisitions, the purchase of for-
est or for reforestations. The subscription rights of the shareholders can be excluded in these cases as well as when in-
creasing capital to satisfy Employee Share Purchase and Stock Option Plans or fi rm underwriting agreements. The con-
ditional share capital is intended to cover the outstanding and future options of employees and shareholders.
The Group’s registered shares are not subject to any restriction of voting, distribution, transfer or other rights going be-
yond regulations which are unalienable under Swiss law.
As of 31 December 2004 the Group did not hold any treasury shares. As of 31 December 2003 the Group held 10 062
treasury shares with a value of USD 222 644.
The development of the treasury shares is shown in the following table:
in USD Number of shares Average price Value USD
Balance as of 31 December 2003 10 062 22,13 222 644
Purchases 21 492 65,54 1 408 559
Sales -31 554 62,74 -1 979 753
Profi t on transactions in own shares 348 550
Balance as of 31 December 2004 0 0
Sales to employees according to Employee Stock Purchase Plan are taken into account in these transactions.
57Precious Woods Annual Report 2004 – Notes to Consolidated Financial Statements – in USD
13. STOCK OPTIONS
The detail of the stock options granted, exercised and expired is as follows:
Year of
issue
Strike
price
Expiration
date
Number of
share
options at
31.12.2003
Options
awarded
Exercised
in 2004
Number of
share
options at
31.12.2004
Exe-
cutive
Com-
mittee
Board
of
Directors
2002 CHF 54 31.12.2007 15 458 0 0 15 458 13 458 0
2003 CHF 50 31.12.2004 2 277 0 -2 277 0 0 0
2003 CHF 50 30.06.2005 4 555 0 -3 511 1 044 0 1 044
2003 CHF 50 31.12.2005 42 919 0 -18 726 24 193 0 0
2003 CHF 50 31.12.2006 22 978 0 -52 22 926 15 017 7 194
2003 CHF 50 30.06.2007 45 958 0 -104 45 854 30 035 14 389
2003 CHF 54 31.12.2007 15 000 0 -850 14 150 8 000 0
2003 CHF 62 31.12.2008 10 556 0 0 10 556 10 556 0
2004 CHF 61,2 31.12.2009 0 8 572 0 8 572 6 500 0
2004 CHF 71 31.12.2009 0 2 827 0 2 827 2 827 0
2004 CHF 75 31.12.2009 0 2 827 0 2 827 2 827 0
2004 CHF 78 31.12.2009 0 2 827 0 2 827 2 827 0
2004 CHF 83 31.12.2009 0 2 828 0 2 828 2 828 0
Total 159 701 19 881 -25 520 154 062 94 875 22 627
Each option grants the right to purchase one share at any time before expiry date for the strike price specifi ed.
These options are freely transferable and divisible and have been granted to the Executive Committee of the Board of Di-
rectors and to consultants as compensation for their services. During 2000, 16 542 options were granted to 95 share-
holders which are related to the capital increase of February 2000. As a consequence of the split of shares in 2001, the
options issued before the split were adjusted accordingly. The strike price continued to be set in US dollars for those op-
tions issued in 2001 and earlier. From 2002 on, the strike price has been set in CHF.
Due to the erosion of the USD/CHF exchange rate in 2002, the strike price of certain options issued in 2001 and earli-
er with a strike price of USD 33 1/3 – translated into CHF per 31 December 2002 fell below the statutory minimum issue
price of new shares (CHF 50). In 2003, these options were replaced and substituted with new re-issued options with a
strike price of CHF 50.
The exercise of options granted as of 31 December 2004 is fully covered by conditional share capital.
25 520 options were exercised in 2004 (one option entitles the holder to subscribe to one share) and 25 520 new shares
were created from conditional share capital (2003: 36 602).
58 Precious Woods Annual Report 2004 – Notes to Consolidated Financial Statements – in USD
14. RELATED PARTY BALANCES AND TRANSACTIONS
Related parties are all members of the Board of Directors, the operating management and the minority shareholder
A. van den Berg BV.
a. Balances and Sales
The balances with related party, A. van den Berg BV, as of 31 December 2004 and 2003 are detailed below:
in USD 2004 2003
Accounts receivable 367 427 378 770
Short term loan payable 672 440 1 626 104
Other current liabilities 58 189 0
Long term loans payable 1 743 950 0
Sale of sawnwood 6 280 249 3 951 453
Purchases 862 785 345 114
Interest paid 133 407 21 250
b. Compensation
During the ordinary course of business in 2004 and 2003, the Group granted compensation to related parties as fol-
lows:
in USD 2004 2003
Executive Committee
Remuneration and fees 532 109 346 676
Incentive compensation 56 991 20 000
Allowances and others 33 106 18 750
Total Executive Committee 622 205 385 426
Number of stock options 17 809 20 556
Board of Directors
Total Remuneration and fees Board of Directors 25 397 10 667
Operating management
Remuneration and fees 726 184 571 961
Incentive compensation 117 611 77 703
Total operating management 843 795 649 664
Other 1 746 34 964
Total 1 493 143 1 080 721
15. EMPLOYEE BENEFITS
Employee Share Purchase Plan (ESPP)
The Group has an Employee Share Purchase Plan (ESPP) available to all employees under which each employee may
purchase up to 720 shares per year at a discount of 20% to the weighted average market price on the SWX Swiss Ex-
change subject to a two year lock-up period. In total 8 081 shares were purchased by employees under this program
during 2004 (2003: 3 475 shares).
Management Incentive Plan (MIP)
In 2004 the Board of Directors approved the MIP replacing the former Employee Stock Option Plan. According to the
MIP, the members the Executive Committee and Management were entitled to receive a portion of their compensation
59
either in the form of options or shares. The options bear a strike price equivalent to the weighted average market price
on the SWX Swiss Exchange for the compensation period in question (between CHF 61,2 and CHF 83) and with an ex-
piry date of 31 December 2009. The notional value of each such option awarded under the MIP was set at USD 5 per
option granted. A total of 17 809 options were awarded under this plan during 2004 (2003: 20 556 options). Shares of
the Group are awarded according to the conditions of the ESPP, however with a three year lock-up period. In total 1 012
shares were awarded.
Other Employee Benefi ts
All Group operating companies fully comply with local regulations governing employee benefi ts. Beyond these regulato-
ry requirements, the Group provides meals, housing, education and access to medical care according to the policy of
the local operating group.
Pension Plans
The Group supports only statutory defi ned contribution pension plans. The Group’s contribution to such plans amount-
ed to USD 91 927 (2003: USD 51 654). The Group has not entered into any agreements or commitments leading to
pension liabilities.
16. NET TRADING SALES
2004 2003 Change
Gross trading sales 16 970 073 12 417 896 37%
Sales deductions -1 471 733 -1 365 716 8%
Net trading sales 15 498 340 11 052 180 40%
17. SALES TO MAJOR CUSTOMERS
2004 2003
A. van den Berg BV, Holland 37% 30%
Staatliches Amt für Umwelt und Natur, Mecklenburg-Vorpommern* 7% 0%
International Specialties, USA 14% 15%
* fi nal customer
The sales to A. van den Berg BV, Holland – a related party, see note 14 – are priced at a 10% discount to market.
18. COST OF SALES
2004 2003 Restated Change
Personnel related expenses 4 467 372 3 321 911 34%
Depreciation and amortization 2 026 735 1 200 407 69%
General costs of production 6 404 905 4 472 154 43%
Cost of Sales 12 899 012 8 994 472 43%
Precious Woods Annual Report 2004 – Notes to Consolidated Financial Statements – in USD
60 Precious Woods Annual Report 2004 – Notes to Consolidated Financial Statements – in USD
19. FINANCIAL RESULT
in USD 2004 2003
FINANCIAL INCOME
Interest income 11 756 236 921
Foreign exchange gain 82 980 0
Translation gain 213 524 199 868
Total fi nancial income 308 260 436 789
FINANCIAL EXPENSE 2004 2003
Interest expense 617 377 211 591
Bank charges and commissions 160 112 241 122
Foreign exchange loss 106 231 8 850
Total fi nancial expense 883 720 461 563
Financial result -575 460 -24 774
20. EARNINGS PER SHARE
The calculation of the basic and diluted earnings per share is based on the following data:
in USD 2004 2003 Restated
Net income of the year 3 332 404 1 670 500
Weighted average number of shares 1 699 917 1 611 910
Basic earnings per share 1,96 1,04
Number of options, beginning of year 159 701 120 608
Weighted average number of shares and options 1 863 011 1 741 195
Diluted earnings per share 1,91 0,97
21. CONTINGENCIES
Taxes
The Group and its subsidiaries’ fi nancial statements are open for the examination of tax authorities. Therefore, a possible
liability may exist for interpretations of applicable laws by the tax authorities, which may differ from those of the Group.
In addition the Group may not be able to ultimately recover all tax credits.
Assessment by Brazilian Authorities
In February 2002, a Brazilian subsidiary was assessed by IBAMA, the Brazilian Ministry of Environment, relating to cer-
tain procedures for transporting of logs, which had been in place and approved informally by government agencies for
many years. The fi nes received by the Group amount to approximately USD 17,7 Million (at the year-end exchange rate).
During 2004 IBAMA has issued a payment order which is being formally contested by the Group. IBAMA has not under-
taken any efforts to actually collect this fi ne. The Group’s management and its attorneys believe that these fi nes are ar-
bitrary in nature and not justifi ed and consider no material loss will occur as a result of the fi nal decision on this process;
consequently, no accrual was recorded in the Group’s consolidated fi nancial statement at 31 December 2004.
61
22. FINANCIAL INFORMATION BY SEGMENT
The Group is active in reforestation with plantations in Central America, the sustainable management of existing forests
in Brazil and the trading of FSC certifi ed timber products in Europe. The Corporate activities include expenses for gen-
eral group management as well as new business development such as the monetization of carbon emission rights and
the development of new forest management projects.
2004
Plantations
(Central
America)
Sustainable
management
of existing
forests
(Brazil)
Timber
trading
in Europe
Corporate
activitiesTotal
Total assets 41 133 979 43 822 580 1 250 699 1 881 696 88 088 954
Total liabilities 265 578 12 024 187 278 308 5 595 293 18 163 366
Capital expenditures 2 746 401 4 213 680 58 089 82 781 7 100 951
Depreciation and amortisation 97 199 2 101 061 56 434 20 303 2 274 997
Change in biological assets 5 375 756 0 0 0 5 375 756
Segment net sales 0 12 861 409 2 636 931 0 15 498 340
Segment operating result 3 772 339 2 026 162 -12 562 -1 290 661 4 495 277
Segment result 3 619 339 1 258 005 14 515 -1 559 455 3 332 404
2003 RestatedPlantations
(Central
America)
Sustainable
management
of existing
forests
(Brazil)
Timber
trading
in Europe
Corporate
activitiesTotal
Total assets 34 748 809 39 273 774 751 553 1 542 664 76 316 800
Total liabilities 287 198 10 882 415 76 315 9 326 991 20 572 919
Capital expenditures 2 344 620 6 578 633 20 143 13 270 8 956 666
Depreciation and amortisation 89 446 1 997 779 13 735 7 824 2 088 784
Change in biological assets 4 005 121 0 0 0 4 005 121
Segment net sales 81 263 9 926 174 1 044 743 0 11 052 180
Segment operating result 2 720 682 1 985 037 -569 179 -762 937 3 373 603
Segment result 2 720 682 218 818 -523 513 -745 487 1 670 500
In 2004 the Group expanded the segment information reporting from geographical segmentation to segmentation by
type of business.
Brazilian inter-group sales of USD 1 195 489 and USD 947 488, and allocation of overhead expenses to the business
units of USD 1 195 057 and USD 999 765, for 2004 and 2003, respectively, have been eliminated in the consolidation.
Precious Woods Annual Report 2004 – Notes to Consolidated Financial Statements – in USD
62
23. MAJOR SHAREHOLDERS
At 31 December 2004 the shareholders holding 5% (rounded) or more of Precious Woods Holding Ltd. registered shares
are as follows:
Number of
shares 2004
Number of
shares 2003
Baloise Holding 304 000 16,70% 288 500 17,41%
Beamtenversicherungskasse des Kantons Zürich 270 000 14,83% 270 000 16,29%
Swiss Reinsurance Group 122 250 6,71% 122 250 7,38%
Pensionskasse II der F. Hoffmann-La Roche AG 90 000 4,94% 90 000 5,43%
24. INCOME TAXES
Major components of tax expense:
in USD 2004 2003 Restated
Current taxes 34 790 0
Deferred tax expense relating to the origination and reversal of temporary differences 247 461 1 281 313
Other 0 2 814
Total 282 251 1 284 127
Reconciliation of tax expense:
in USD 2004 2003 Restated
Income before taxes 3 919 817 3 348 829
Tax calculated at domestic tax rates in the respective countries 1 713 475 1 258 654
Income not subject to tax (Central America) -3 262 339 -2 720 682
Expenses not deductible for tax purposes 780 817 459 623
Tax losses for which no deferred income tax asset was recognised 1 050 298 2 286 532
Total at effective income tax rate of 7,2% (2003: 38,3%) 282 251 1 284 127
Taxation of the plantations in Costa Rica
To encourage reforestation, Costa Rica granted tax subsidies which were withdrawn for new reforestations in 2001. The
plantations in the Fincas Garza, Ostional, Sta. Cecilia and Peñas Blancas (as planted up to 2001) are therefore exempt
from future income taxes. The Group did not enter into any commitments such as employment or investment guarantees
to receive this exemption. The plantations in Rio Tabaco are not exempt from future taxes as upon inception other tax
subsidies had been utilized. Finca Rio Tabaco and areas located near Peñas Blancas which have been purchased since
2002 have been grouped in a special subsidiary (Multiservicios Forestales de Guanacaste, S. A.) which will be subject to
taxes on future profi ts. A respective deferred tax liability has been recognised in the balance sheet as shown in the sum-
mary of deferred tax liabilities below.
Taxation of the plantations in Nicaragua
To encourage reforestation, Nicaragua has effected tax legislation exempting reforestation companies from VAT on cap-
ital expenditures as well as reducing the corporate income tax by half. The Group does not expect any material level of
taxation during the initial phase of reforestation activities.
Precious Woods Annual Report 2004 – Notes to Consolidated Financial Statements – in USD
63
Tax Loss Carry-Forwards
Precious Woods Amazon has tax loss carry-forwards of approximately USD 9,1 million at year-end rate (2003: USD 6,5
million) to offset future taxable income, which is limited to 30% of each year’s taxable income. No benefi t of this future
tax loss carry-forwards has been recognised and such benefi t will only be recorded in the fi nancial statements when re-
alised, since it is not possible to estimate the actual amount that will be recovered in the foreseeable future. The tax loss
carry-forwards do not expire.
Deferred Tax Liabilities
Deferred income tax liabilities have been recognised for all taxable temporary differences and are summarized in the fol-
lowing table (see also note 26):
Summary of Deferred Tax LiabilitiesDeferred Tax
Liability 2004
Deferred Tax
Liability 2003
Changes of
the year
Multiservicios Forestales de Guanacaste 153 000 0 -153 000
Land Revaluation Monte Verde 477 800 438 970 -38 830
PW Amazon 4 409 329 4 309 003 -100 326
PW Pará 968 543 1 013 238 44 695
Total Deferred tax liabilities 6 008 672 5 761 211 -247 461
Deferred Tax Asset
A deferred income tax asset in the amount of USD 46 036 (2003: USD 50 591) was recognised at the Brazilian subsid-
iary Carolina Industria Ltda. related to valuation adjustments and accruals considered for inventories. This created tem-
porary differences which will reduce future taxable profi ts as the provisions registered for reporting purposes become
deductible in the fi scal books.
In USD 2004 2003
Valuation adjustments and accruals on log inventories 135 400 148 797
Tax rate 34% 34%
Deferred income taxes 46 036 50 591
25. RECOVERABLE TAXES
As of 31 December 2004 the Brazilian subsidiaries have recorded USD 1 344 187 of recoverable ICMS (value added
tax), which may be offset with ICMS payable on local sales. However, the volumes of local sales and, as a consequence,
payable ICMS have not been suffi cient to recover the tax credit in the normal course of Group’s operations. As a result,
the management decided to record recoverable ICMS as non-current assets.
26. CORRECTION OF FUNDAMENTAL ERRORS
Correction of Fundamental Error regarding Deferred Tax Liabilities
As part of the preparation of the current fi nancial year, it was noted that the Group has incorrectly applied the account-
ing standard on income taxes (IAS 12) in the past. This fundamental error has been recognised retrospectively as a re-
duction to retained earnings and increase of the deferred tax liability in the opening balance sheet 2003 in the amount of
USD 4 401 252. At the beginning of 2003, the deferred tax liability was restated by this amount to USD 4 947 823 from
Precious Woods Annual Report 2004 – Notes to Consolidated Financial Statements – in USD
64 Precious Woods Annual Report 2004 – Notes to Consolidated Financial Statements – in USD
USD 546 571 which was recognised as a change in equity. The effect in 2003 and 2004 on each fi nancial line item af-
fected in 2003 and 2004 by this correction is shown in the summary table below.
Correction of Fundamental Error regarding Intangible Assets
As part of the preparation of the current fi nancial year, it was noted that the Group has incorrectly applied the accounting
standard on intangible assets (IAS 38) in the past. This fundamental error has been recognised retrospectively as a re-
duction to retained earnings and intangible assets in the opening balance sheet 2003 in the amount of USD 3 354 093.
At the beginning of 2003, the intangible assets were restated by this amount to USD 0 from USD 3 354 093 which was
recognised as a change in equity. The effect in 2003 and 2004 on each fi nancial line item affected in 2003 and 2004 by
this correction is shown in the summary table below.
Summary of Restatements resulting from the Correction of Fundamental Errors
The following tables summarize the retrospective restatements resulting from the correction of fundamental er-
rors:
Summary of restatements
in opening Balance SheetClosing Balance 2002 Restatement Opening Balance 2003
Intangible assets 3 354 093 -3 354 093 0
Deferred tax liabilities -546 571 -4 401 252 -4 947 823
Minority interest -4 433 538 927 412 -3 506 126
Retained earnings 1 851 882 -6 827 933 -4 976 052
Summary of restatements in annual fi nancial statementsEffect deferred
taxes 2003
Effect intangible
assets 2003
Inventories 0 -168 082
Accumulated amortization intangible assets 0 521 771
Immaterial assets 0 -17 109
Deferred tax liabilities 1 074 880 0
Minority participation -71 014 64 910
Cost of goods sold 0 194 186
Administrative expense 0 142 394
Deferred income taxes -1 074 880 0
Minority interest 71 014 -64 910
Net income -1 003 866 271 670
27. SUBSEQUENT EVENTS
Acquisition of Power Plant and sale of Emission Rights
In 2005 the Group entered into an agreement to acquire 80% of BK Energia Itacoatiara Limitada (in future to be named
Precious Woods Energia) which owns and operates a 9MWel wood fi red power plant located on the premises of Pre-
cious Woods Amazon. In this conjunction, the Group entered into an agreement to sell a portion of the future associated
Carbon Emission rights to an international customer.
65Precious Woods Annual Report 2004 – Notes to Consolidated Financial Statements – in USD
28. APPROVAL OF FINANCIAL STATEMENTS AND DIVIDENDS
The fi nancial statements were approved by the Board of Directors on 14 April 2005 and authorized for issue. The Board
of Directors does not propose the payment of dividends for the year 2004 (2003: no dividends paid).
66
REPORT OF THE GROUP AUDITORS
To the General Meeting of
Precious Woods Holding Ltd., Zug
As auditors of the group, we have audited the consolidated fi nancial statements (consolidated
balance sheet, consolidated statement of income, consolidated statement of shareholders’ eq-
uity, consolidated statement of cash fl ows and notes to the fi nancial statements on pages 40 to
65) of Precious Woods Holding Ltd. for the year ended 31 December 2004. The prior year cor-
responding fi gures were audited by other auditors.
These consolidated fi nancial statements are the responsibility of the board of directors. Our re-
sponsibility is to express an opinion on these consolidated fi nancial statements based on our
audit. We confi rm that we meet the legal requirements concerning professional qualifi cation and
independence.
Our audit was conducted in accordance with auditing standards promulgated by the Swiss pro-
fession and with the International Standards on Auditing, which require that an audit be planned
and performed to obtain reasonable assurance about whether the consolidated fi nancial state-
ments are free from material misstatement. We have examined on a test basis evidence support-
ing the amounts and disclosures in the consolidated fi nancial statements. We have also assessed
the accounting principles used, signifi cant estimates made and the overall consolidated fi nancial
statement presentation. We believe that our audit provides a reasonable basis for our opinion.
In our opinion, the consolidated fi nancial statements give a true and fair view of the fi nancial po-
sition, the results of operations and the cash fl ows in accordance with the International Finan-
cial Reporting Standards (IFRS) and comply with Swiss law.
We recommend that the consolidated fi nancial statements submitted to you be approved.
Without qualifying our opinion, we draw attention to Note 5 to the consolidated fi nancial state-
ments. As indicated in Note 5, the consolidated fi nancial statements include biological assets
stated at it fair value of USD 8,67 million for pochote and USD 1,72 million for indigenous spe-
cies. Because of the inherent uncertainty associated with the valuation of such biological as-
sets and the absence of a suffi ciently liquid market, the carrying value may differ from its real-
izable value.
PricewaterhouseCoopers AG
Stefan Gerber Arno Frieser
Zurich, 14 April 2005
Precious Woods Annual Report 2004 – Consolidated Financial Statements – in USD
67
PERSONAL NOTES(This Page has been left intentionally blank)
68
Balance sheet at 31 December 2004 and 2003 (in CHF)
ASSETS Notes 2004 2003
CURRENT ASSETS
Cash 227 589 99 780
Securities 5 0 276 591
Short term receivables 31 059 0
Prepaid expenses 7 190 28 756
Total current assets 265 838 405 127
NON-CURRENT ASSETS
Fixed assets – net 7 763 10 323
Loans to affi liates 47 238 076 44 049 233
Subordinated loan to affi liate 1 600 000 1 500 000
Investments 3 40 710 331 40 865 192
Total non-current assets 89 556 170 86 424 748
TOTAL 89 822 008 86 829 875
LIABILITIES AND SHAREHOLDERS’ EQUITY
CURRENT LIABILITIES
Other accounts payable 941 114 2 437 837
Short-term bank loan 0 8 944 560
Due to shareholders 78 120 21 543
Accrued expenses/Provisions 101 982 99 009
Total current liabilities 1 121 216 11 502 949
Long term liabilities
Bank loan 5 093 100 0
Total long term liabilities 5 093 100 0
SHAREHOLDERS’ EQUITY
Share capital 1 91 043 000 82 862 250
General reserve 11 689 171 7 942 733
Reserve for own shares 0 276 591
Accumulated losses -19 124 479 -15 754 648
Total shareholders’ equity 83 607 692 75 326 926
TOTAL 89 822 008 86 829 875
See notes to Holding fi nancial statements
FINANCIAL STATEMENTS AND NOTESPRECIOUS WOODS HOLDING LTD.
Precious Woods Annual Report 2004 – Holding Financial Statements – in CHF
69
Statement of income and accumulated defi cit 2004 and 2003 (in CHF)
OPERATIONAL EXPENSES 2004 2003
Personnel expenses -946 849 -491 747
Administrative expenses -389 276 -60 451
Audit fees -79 879 - 104 699
Total operating expenses -1 416 004 -656 897
NON-OPERATING EXPENSES
Interest expense and bank charges -431 448 -50 968
Total non-operating expenses -431 448 -50 968
OTHER INCOME/(EXPENSES)
Commission income from related parties 317 316 187 055
Foreign exchange loss -2 133 475 -5 393 638
Other expenses 0 -108 120
Other income 27 189 23 491
Total other expenses, net -1 788 970 -5 291 212
Loss before taxes -3 636 422 -5 999 077
Taxes -10 000 -19 535
Net loss -3 646 422 -6 018 612
Accumulated losses, beginning of year -15 754 648 -9 804 135
Allocation to/from reserve for own shares 276 591 68 099
Accumulated losses, end of year -19 124 479 -15 754 648
Notes to fi nancial statements of Precious Woods Holding Ltd.
1. GENERAL
The Company is the holding company of the Precious Woods Group.
The Precious Woods Group is active in the fi eld of sustainable forest management in Latin America following the guide-
lines for sustainable forest management laid out by the Forest Stewardship Council (FSC).
The company was founded on 17 December 1990 as Precious Wood Ltd., duly registered in Tortola, British Virgin Is-
lands. On 23 March 1992 the company was renamed Precious Woods Ltd.
On 25 June 2001 the Board of Directors and the ordinary shareholders’ meeting of the company resolved to change the
corporate domicile from Tortola, B.V.I. to Zug, Switzerland and to continue the incorporation of the Company under the
laws of Switzerland. In its present form the Company was registered on 11 October 2001 in the commercial register of
the Canton of Zug, Switzerland.
The share capital as of 31 December 2004 is composed of 1 820 860 fully paid-in registered shares of CHF 50 nomi-
nal value each.
Precious Woods Annual Report 2004 – Holding Financial Statements – in CHF
70
2. SIGNIFICIANT ACCOUNTING POLICIES
Until 2002 the company maintained its books in US Dollars, which were translated into Swiss Francs as follows:
a) Current Assets and Current Liabilities Year-end rate
b) Loans to affi liates lower of historic or year-end rate
c) Investments historic rate
d) Equity historic rate
e) Profi t and Loss statement Average rate of the year
All translation differences will be recognised in the equity.
During the year 2003 the company changed its accounting currency from USD to CHF.
3. INVESTMENTS IN SUBSIDIARIES
The Company holds the following direct investments:
31 December 2004 31 December 2003
Company Nominal Participation Nominal Participation
share capital in % share capital in %
Precious Woods Management Ltd. USD 20 000 100,00 USD 20 000 100,00
British Virgin Islands
(Group Management)
Maderas Preciosas de CRC 3 216 000 000 100,00 CRC 3 216 000 000 100,00
Costa Rica S.A.
Costa Rica (Sub-holding
company and operations)
Madeiras Preciosas NIO 1 500 000 99,00 NIO 1 500 000 99,00
Nicaragua S.A.
Nicaragua (Forest operations)1% of the shares are held by Maderas Preciosas de Costa Rica S.A.
Madeiras Preciosas de BRL 4 400 000 99,97 BRL 4 400 000 99,97
Amazonia Manejo Ltda.
Brazil (Sub-holding company)0,03% of the shares are held by Precious Woods Management Ltd., BVI
MIL Madereira Itacoatiara Ltda. BRL 6 423 648 71,43 BRL 6 423 648 71,43
Brazil (Land and forest operations)28,57% of the shares are held by Madeiras Preciosas de Amazonia Manejo Ltda., Brazil)
Precious Woods do Pará S.A. BRL 1 003 50,00 BRL 1 003 50,00
Brazil (Sub-holding company,
Land and forest operations)
CRC – Costa Rican ColonesBRL – Brazilian ReaisNIO – Nicaraguan Córdobas
Precious Woods Annual Report 2004 – Notes to Holding Financial Statements – in CHF
71
4. GUARANTEES
Guarantees in favour of third parties at 31 December 2004 amounted to USD 500 000 (2003: USD 400 000).
5. TREASURY SHARES
The Company does not hold any shares in treasury as per 31 December 2004. As of 31 December 2003 the Company
held 10 062 own shares with a nominal value of CHF 276 591. The treasury shares are presented in the balance sheet
as securities under current assets.
The transactions in own shares are as follows:
in CHF Number of shares Average price (CHF) Amount
Balance as per 31.December 2003 10 062 21,73 276 591
Purchases 21 492 79,19 1 701 854
Sales - 31 554 76,35 - 2 409 162
Profi t from transactions with own shares 430 717
Balance as per 31.December 2004 0 0
6. AUTHORIZED SHARE CAPITAL
The general ordinary shareholders’ meeting on 17 June 2002 resolved to create in addition to the ordinary share capi-
tal an authorized share capital of CHF 37 000 000 by issuing up to 740 000 new registered shares at a nominal value of
CHF 50 each. An increase of capital took place in the amount of nominal CHF 1 335 000 at the 22 April 2004. The au-
thorized capital of CHF 35 665 000 expired as per 16 June 2004.
The general ordinary shareholders’ authorized the Board of Directors to increase the share capital of the company by
CHF 10 000 000 by issuing up to 200 000 new shares at a nominal value of CHF 50 each on 26 May 2004. An increase
of the share capital in the amount of CHF 5 569 750 took place on 16 November 2004. Pleas see note 12 of the con-
solidated fi nancial statements.
7. CONDITIONAL SHARE CAPITAL
In order to cover the outstanding and future option rights, the general ordinary shareholders’ meeting on 25 June 2001
resolved to create conditional share capital of CHF 9 000 000 by issuing up to 180 000 registered shares at a nominal
value of CHF 50 each. The general shareholders’ meeting on 17 June 2002 authorized an increase in the conditional
capital of 60 000 shares to CHF 12 000 000.
During 2004, 25 520 options (2003: 36 602) had been exercised so that the share capital as of 31 December 2004
is composed of 1 820 860 (2003: 1 657 245) fully paid-in registered shares of CHF 50, par value each totalling
CHF 91 043 000 (2003: CHF 82 862 250). The conditional capital amounts to CHF 8 861 750 (2003: 10 137 750) as per
31 December 2004, this corresponds to 177 235 registered shares (2003: 202 755).
Precious Woods Annual Report 2004 – Notes to Holding Financial Statements – in CHF
72
To the general meeting of
Precious Woods Holding Ltd., Zug
As statutory auditors, we have audited the accounting records and the fi nancial statements (bal-
ance sheet, statement of income and notes to fi nancial statements on pages 68 to 71) of Pre-
cious Woods Holding Ltd. for the year ended 31 December 2004. The prior year corresponding
fi gures were audited by other auditors.
These fi nancial statements are the responsibility of the board of directors. Our responsibility is to
express an opinion on these fi nancial statements based on our audit. We confi rm that we meet
the legal requirements concerning professional qualifi cation and independence.
Our audit was conducted in accordance with auditing standards promulgated by the Swiss
profession, which require that an audit be planned and performed to obtain reasonable assur-
ance about whether the fi nancial statements are free from material misstatement. We have ex-
amined on a test basis evidence supporting the amounts and disclosures in the fi nancial state-
ments. We have also assessed the accounting principles used, signifi cant estimates made and
the overall fi nancial statement presentation. We believe that our audit provides a reasonable ba-
sis for our opinion.
In our opinion, the accounting records and fi nancial statements and the proposed appropriation
of available earnings comply with Swiss law and the company’s articles of incorporation.
We recommend that the fi nancial statements submitted to you be approved.
PricewaterhouseCoopers AG
Stefan Gerber Arno Frieser
Zurich, 14 April 2005
REPORT OF THE STATUTORY AUDITORS
Precious Woods Annual Report 2004 – Holding Financial Statements – in CHF