Note 3. Consolidation

Scope of consolidation

The consolidated financial statements of the Lenzing Group include Lenzing AG, as the parent company, and its subsidiaries, all on the basis of financial statements as at December 31, 2023.

The number of companies included in the scope of consolidation developed as follows:

A list of the group companies as at December 31, 2023 is provided in note 41. The most important group companies produce and market wood-based cellulosic fibers (Segment Division Fiber) and, in some cases, pulp (Segment Division Pulp).

The previously fully consolidated subsidiary Lenzing E-commerce (Shanghai) Co, Ltd, Shanghai, China, was liquidated and deconsolidated in March 2023.

With effect as at June 1, 2023, the Lenzing Group acquired a biomass power plant to supply the Heiligenkreuz production site. This strategic investment reduces dependence on fossil fuels and strengthens the Heiligenkreuz site as an industrial location. With the acquisition of this biomass power plant, the Lenzing Group is accelerating its transition to renewable energies and thereby also speeds up the achievement of its climate targets in accordance with its sustainability strategy.

The goodwill of EUR 719 thousand arising from the transaction reflects the expected strategic benefits from energy independence at the Heiligenkreuz production site and its contribution to carbon reduction, as anchored within the corporate strategy.

The output of the biomass power plant is harnessed internally and consequently does not generate any additional revenue for the Lenzing Group. In addition, the biomass power plant is fully integrated with the operational production site in Heiligenkreuz. As a consequence, it does not generate separate earnings.

The consideration transferred comprises the purchase price of EUR 17,731 thousand and a contingent consideration whose fair value on the acquisition date amounted to EUR 934 thousand. Of the purchase price in the amount of EUR 17,731 thousand, EUR 15,731 thousand was paid in cash in 2023. The remaining amount of EUR 2,000 thousand is due in more than one year.

Under the contingent consideration agreement, the Lenzing Group is obligated to pay a capped amount to the former owner of the biomass power plant until 2026, depending on the future trend in the average gas price (TTF ICE). A minimum amount was not set, although the maximum amount was fixed at EUR 12,500 thousand. The fair value of the contingent consideration was estimated by means of option valuation using an arbitrage-free Monte Carlo model approach. The calculated fair value would increase (decrease) particularly if the gas price (TTF ICE) increases (decreases).

As of December 31, 2023, a reduction in the contingent consideration of EUR 57 thousand was recognized in profit and loss under income from non-current and current financial assets and liabilities, as the fair value of the contingent consideration decreased by this amount (see note 13). The contingent consideration is recognized on the consolidated balance sheet under other liabilities.

In June 2023, the subsidiary Lenzing Germany GmbH, Münchberg, Germany, was founded and included in the scope of consolidation.

In July 2023, the subsidiary Lenzing Italy S.r.l., Rome, Italy, was founded and included in the scope of consolidation.

In January 2022, the subsidiary Reality Paskov s.r.o., Paskov, Czech Republic, was merged with Lenzing Biocel Paskov a.s., Paskov, Czech Republic.

Basis of consolidation

Subsidiaries are companies controlled by the parent company. The Lenzing Group decides individually for each acquisition whether the non-controlling interests in the acquired subsidiary will be recognized at fair value or based on the proportional share of the acquired net assets. On acquisition, non-controlling interests are measured at fair value or the corresponding share of recognized net assets and are reported under equity and comprehensive income as “non-controlling interests”.

Lenzing AG holds a majority interest of 51 percent and thereby controls LD Celulose S.A., Indianópolis, Brazil. The Dexco Group holds a 49 percent interest in LD Celulose S.A. and a put option to sell its shares (puttable non-controlling interests). Lenzing AG applies the present access method for the accounting of the liability deriving from puttable non-controlling interests. Accordingly, the Dexco Group’s non-controlling interest in LD Celulose S.A. continues to be recognized in equity, and additionally a financial liability for puttable non-controlling interests is recognized (see note 35). The liability is subsequently measured at fair value directly in retained earnings.

The investments in associates and joint ventures are accounted for by applying the equity method.

The Lenzing Group wholly owns an insurance cell of White Rock Insurance (Europe) Protected Cell Company Limited, La Valletta, Malta. This company has an insurance concession and enables the Lenzing Group to administer its operationally necessary insurance policies more effectively. The insurance cell essentially holds cash and cash equivalents. It is classified as a structured entity, and fully consolidated.

Structured entities include those assets and liabilities that are held by the Lenzing Group

The reporting currency of Lenzing AG and the Lenzing Group is the euro. The subsidiaries prepare the annual financial statements in their functional currency. The functional currency is the currency of the primary economic environment in which the respective company operates. With the exception of the subsidiaries mentioned below, the functional currency is the currency of the country or region where the subsidiary is located. The US dollar is the functional currency for LD Celulose S.A., Indianópolis, Brazil, Lenzing (Thailand) Co., Ltd, Prachinburi, Thailand, Lenzing Singapore Pte. Ltd, Singapore, Republic of Singapore, and PT. South Pacific Viscose, Purwakarta, Indonesia.

The following key exchange rates were used for translation into the reporting currency euro:

For the sales company Lenzing Elyaf Anonim Şirketi, Istanbul, Turkey, hyperinflation accounting in accordance with IAS 29 was applied for the first time for the 2023 financial year. The first-time adjustment of the carrying amounts of non-monetary assets and liabilities based on a general price index was recognized directly in retained earnings and amounts to EUR 31 thousand. Gains and losses deriving from ongoing hyperinflation effects on non-monetary assets and liabilities as well as equity are recognized in other operating income or expenses in the income statement. The financial statements are based on the historical cost concept. The price index in Turkey as at December 31, 2023, amounted to 2,915.02 (December 31, 2022: 2,021.19).