Note 1. Basic information

Description of the company and its business activities

Lenzing Aktiengesellschaft (Lenzing AG), which maintains its registered headquarters in 4860 Lenzing, Werkstrasse 2, Austria, is the parent company of the Lenzing Group (the “Group”). The shares of Lenzing AG are listed in the Prime Market Segment (since April 18, 2011) and in the ATX benchmark index (since September 19, 2011) of the Vienna Stock Exchange in Vienna, Austria.

The core shareholder of Lenzing AG as at December 31, 2023 is the B&C Group, which directly and indirectly holds an investment of around 52.25 percent (December 31, 2022: around 52.25 percent) in the share capital of Lenzing AG. The direct majority shareholder of Lenzing AG is B&C KB Holding GmbH, Vienna. The indirect majority shareholder of Lenzing AG, which prepares and publishes consolidated financial statements that include the Lenzing Group, is B&C Holding Österreich GmbH, Vienna. The ultimate parent company of the B&C Group, and therefore also of Lenzing AG, is B&C Privatstiftung, Vienna.

The core business of the Lenzing Group is the production and marketing of wood-based cellulosic fibers. The pulp required for production is manufactured for the most part in the Group’s own plants and is supplemented by external purchases.

Basis of Reporting

The consolidated financial statements for the period from January 1 to December 31, 2023 were prepared in accordance with the International Financial Reporting Standards (IFRSs) and interpretations which were endorsed in the EU and required mandatory application as of the reporting date. The additional requirements of Section 245a Para. 1 of the Austrian Commercial Code (“Unternehmensgesetzbuch”) were also met.

The reporting currency is the euro (EUR), which is also the functional currency of Lenzing AG. The functional currency of the majority of the subsidiaries is the euro (EUR) or US-Dollar (USD). The figures shown in these consolidated financial statements and notes were rounded to the next thousand, unless indicated otherwise (“EUR ‘000”). The use of automatic data processing tools can lead to rounding differences in the addition of rounded amounts and percentage rates.

Measurement

Assets and liabilities are principally measured at amortized or depreciated cost. In contrast, other measurement methods are used for the following material positions:

• Biological assets are measured at their fair value.
• Provisions are measured at the present value of the expected settlement amount.
• Deferred tax assets and deferred tax liabilities are recognized at their nominal value. They are measured on the basis of the temporary differences existing as at the reporting date and the effective tax rate expected when the differences are realized.
• Derivative financial instruments and financial assets measured at fair value through profit or loss and at fair value through other comprehensive income are measured at their fair value.
• Puttable non-controlling interests are measured at fair value directly through retained earnings.

Estimation uncertainty and judgments

The Managing Board of Lenzing AG uses estimates, assumptions and judgments in preparing the IFRS consolidated financial statements. These estimates, assumptions and judgments are based on the circumstances as at the reporting date and have to some extent a significant effect on the presentation of the Group’s financial position and financial performance. They involve the recognition and measurement of assets and liabilities, contingent receivables and liabilities, the reporting of cash flows and income and expenses (including other comprehensive income) as well as the presentation of disclosures in the notes.

Assumptions and estimates

The following forward-looking assumptions and other major sources of estimation uncertainty as of the reporting date have a significant effect on these consolidated financial statements of the Lenzing Group:

• Intangible assets, property, plant and equipment and right-of-use assets (see note 10): determination of the recoverable amount in connection with impairment testing as defined in IAS 36 (impairment).
• Biological assets (see note 19): determination of fair value less costs to sell.
• Financial instruments (see note 35 and note 37): determination of fair values and expected credit losses.
• Provisions (see note 30): determination of the expected settlement amount and the net liability of the defined benefit pension and severance payment plans.
• Puttable non-controlling interests (see note 35): determination of fair value less costs to sell.
• Deferred taxes and receivables from current taxes (see note 29): assessment of the extent to which deferred tax assets (in particular, from loss carryforwards) can be utilized and assessment of the recoverability of receivables from current taxes.
• Research and development expenses (see note 17): assessment of eligibility for capitalization and impairment of development expenses.

Assumptions and estimates are based on experience and other factors that are considered relevant by the Managing Board. However, the amounts actually realized can deviate from these assumptions and estimates if general conditions develop in a different way than the expectations as at the reporting date.

Judgments when applying accounting policies

The application of accounting policies by the Lenzing Group included the following major judgments that have a material effect on these consolidated financial statements:

• Receivables under factoring agreements (see note 35, section “Transfer of financial assets (sale of receivables/factoring)”): assessment of the requirements for derecognition as defined in IFRS 9.
• Liabilities under reverse factoring agreements (see note 31): assessment of the requirements for derecognition as defined in IFRS 9 (financial instruments).
• Full consolidation and equity method (see note 3, note 35 and note 41): assessment of the existence of control over subsidiaries and assessment of the existence of joint control or significant influence. Application of the present access method to puttable non-controlling interests.
• Receivables from the sale of and measurement of investments accounted for using the equity method (see note 21): Assessment of the recoverability of the receivables from the partial disposal and the interest in EQUI-Fibres Beteiligungsgesellschaft mbH (EFB), Kelheim, Germany.
• Evidence of impairment (see note 10): evaluation of indications of impairment resp. for impaired cash-generating units evaluation of the occurrence of material changes in comparison with the previous year.

Impact of climate change on estimation uncertainties and judgments

The Lenzing Group is committed to the ecologically responsible production of fibers from the renewable raw material wood. Innovation, sustainability and the circular economy lie at the core of Lenzing’s corporate strategy. The implementation of climate targets in line with the corporate strategy was one of the focus areas of the Lenzing Group’s investment activities in the 2023 financial year. In this context, the Lenzing Group is continuously working on utilizing raw materials more efficiently, improving production processes and making recycled used textiles usable for fiber production. Current developments and measures relating to climate change and sustainability do not lead to fundamental changes to assumptions and estimates in terms of financial accounting. The Managing Board estimates the potential impact of climate-related opportunities and risks on the IFRS consolidated financial statements as follows:

• Useful lives of assets (see note 18): The Lenzing Group has evaluated the extent to which the useful lives of property, plant and equipment could be affected by climate-related risks. In particular, an assessment was made as to whether, on the basis of existing and announced legal and regulatory requirements, the potential pollution from individual industrial plants (for example, by exceeding emission limits) poses a risk for the granting of operating permits. No influence of external or internal obligations on useful lives was derived.
• Impairment of assets (see note 10, section “Impairment tests of intangible assets, property, plant and equipment, right-of-use assets and cash-generating units (CGUs)”): The short- and medium-term financial planning and consequently the impairment tests are based on the Lenzing Group’s sustainable strategy and the sustainable business model. The short- and medium-term financial plans of the individual CGUs take appropriate account of assumptions regarding climate-related factors in capital expenditure programs (CAPEX), technologies and production processes for achieving the Group’s internal climate targets, and the ecologically sustainable product mix based upon these.
• Provisions and contingent liabilities (see note 30 und note 40): In the 2023 financial year, no new obligations arose in the Lenzing Group from climate protection laws and/or climate regulations that would have required the formation of a provision or the disclosure of a contingent liability. No obligations exist to recultivate existing properties.
• Biological assets (see note 19): The measurement of the biological asset requires assumptions relating to the growth rates of mature timber. The growth rates are in turn dependent on the climatic conditions in the Minas Gerais region of Brazil. Climate change may lead to changes in the growth behavior of mature timber (e.g. accelerated or slowed growth), and thereby to the adjustment of growth assumptions in the valuation of the biological asset.