Note 10. Amortization of intangible assets, depreciation of property, plant and equipment and right-of-use assets and depletion of biological assets

Amortization of intangible assets and depreciation of property, plant and equipment, right-of-use assets and depletion of biological assets include the following:

Of the impairment losses of EUR 464,906 thousand, EUR 413,583 thousand are recognized in the cost of sales, EUR 2,847 thousand in selling expenses, EUR 641 thousand in administrative expenses and EUR 47,835 thousand in research and development expenses.

Impairment tests of intangible assets, property, plant and equipment, right-of-use assets and cash-generating units (CGUs)

If there is an indication of impairment in accordance with IAS 36, intangible assets, property, plant and equipment and right-of-use assets as well as cash-generating units (CGUs) are tested for impairment. A qualitative and quantitative analysis is performed at the reporting dates for all consolidated financial statements and interim consolidated financial statements to determine whether there are any indications of impairment or any material year-on-year changes in impaired CGUs. This analysis is based on criteria defined by the management of Lenzing AG. Intangible assets, property, plant and equipment and right-of-use assets allocated to a CGU that includes goodwill are tested during the annual impairment testing of goodwill. The CGUs in the Lenzing Group represent, above all, the individual production sites.

The Lenzing Group initially determines the recoverable amount based on the applicable fair value less costs of disposal. The budget is approved by the Management Board and the Supervisory Board. The medium-term plans for the subsequent four years are approved by the Management Board and acknowledged by the Supervisory Board. These plans are the starting point for the cash flow projections on a post-tax basis to determine the fair value less costs of disposal. As a matter of principle, the management prepares planning accounts over a detailed planning period of five years. If the steady state is not already achieved at the end of the five-year detailed planning period, this period will be extended until a steady state of cash flows can be assumed. Subsequently, a perpetuity growth rate reflecting a sustainable long-term growth rate is applied after the detailed planning period. The estimate for the sustainable long-term growth rate generally equals half of the inflation rate expected in the relevant country during the next few years, as projected by an international economic research agency. This value usually tends to offset general inflation. A growth-related retention of financial surpluses in the perpetual annuity is taken into consideration in the planning calculations. The planned/projected cash flows are discounted to their present value with a discounted cash flow method. Fair value measurement is classified in full as level 3 of the fair value hierarchy because key input factors (in particular, cash flows) cannot be observed on the market. The applied discount rate is calculated on an individual basis using the capital asset pricing model (CAPM) and represents a composite figure (weighted average cost of capital – WACC) that combines the average interest rate for debt and the anticipated return on equity employed. After-tax WACCs ranging from 8.8 percent to 9.8 percent were used in 2023 (2022: 7.6 percent to 9.4 percent).

The WACCs were, for the most part, determined on the basis of externally available capital market data for comparable companies (in particular, to determine the risk premium). The planning and forecasts of free cash flows are based, above all, on internal and external assumptions for the expected development of selling prices and volumes (especially for fibers and cellulose) and the related costs (in particular, raw materials like cellulose, wood and energy plus labor and taxes), including the expected market environment and market positioning. Other input factors include anticipated investments and the changes in working capital. These internal assumptions are based on past experience, current operating results and the assessment of future developments. They are supplemented by external market assumptions such as sector-specific market studies and economic outlooks.

Due to capital markets trends, the fair value of the equity reduced to below its carrying amount in the fourth quarter of 2023 as well as in the previous year, triggering an indication of impairment for all cash-generating units. 

In the financial year under review, a total of EUR 464,906 of impairment losses in accordance with IAS 36 were recognized for individual CGUs. No impairments of CGUs in accordance with IAS 36 were recognized in the 2022 financial year. 

Impairment test of the CGU Fiber Site China

CGU Fiber Site China produces viscose and modal fibers in Nanjing, China. The carrying amounts of the intangible assets, property, plant and equipment and right-of-use assets of the CGU Fiber Site China impaired in previous years totaled EUR 147,691 thousand at December 31, 2023 (December 31, 2022: EUR 59,159 thousand). This amount includes accumulated impairment losses of EUR 6,212 thousand (December 31, 2022: EUR 9,386 thousand) from the previous impairment tests.

The deterioration of the market environment has led to substantial losses for the Fiber Site China CGU. The recoverable amount (EUR 129,021 thousand) resulted in an impairment requirement of EUR 22,605 thousand for the CGU. Land and buildings of EUR 8,353 thousand and technical equipment, machinery, operating and office equipment of EUR 14,252 thousand were impaired. All assets are allocated to the Fiber Division segment.

The carrying amounts would increase/decrease in particular if planned EBITDA or the weighted average cost of capital (WACC) decreases (increases). A discount rate (WACC) of 9.2 percent (2022: 8.9 percent) is applied in order to calculate fair value less costs of disposal. In the event of an increase (decrease) in planned EBITDA by 1 percent, the calculated recoverable amount would increase (decrease) by EUR 3,444 thousand. If the weighted average cost of capital (WACC) decreases (increases) by 0.25 percentage points, the recoverable amount will increase by EUR 5,481 thousand or decrease by EUR 5,190 thousand.

Impairment test of the CGU Fiber Site Indonesia

CGU Fiber Site Indonesia produces viscose fibers in Purwakarta, Indonesia. The deterioration of the market environment has led to substantial losses for the Fiber Site Indonesia CGU. The recoverable amount (EUR 149,480 thousand) resulted in an impairment requirement of EUR 209,591 thousand for the CGU. Land and buildings of EUR 64,708 thousand and technical equipment, machinery, operating and office equipment of EUR 144,885 thousand were impaired. All assets are allocated to the Fiber Division segment. 

The carrying amounts would increase/decrease in particular if planned EBITDA or the weighted average cost of capital (WACC) decreases (increases). A discount rate (WACC) of 10.4 percent (2022: 10.2 percent) is applied in order to calculate fair value less costs of disposal. In the event of an increase (decrease) in planned EBITDA by 1 percent, the calculated recoverable amount would increase (decrease) by EUR 5,309 thousand. If the weighted average cost of capital (WACC) decreases (increases) by 0.25 percentage points, the recoverable amount will increase by EUR 6,768 thousand or decrease by EUR 6,422 thousand.

Impairment test of the CGU Fiber Site Lenzing

The CGU Fiber Site Lenzing produces viscose, modal, and lyocell fibers in Lenzing, Austria. The deterioration of the market environment has led to substantial losses for the Fiber Site Lenzing CGU. The recoverable amount (EUR 845,315 thousand) resulted in an impairment requirement of EUR 70,883 thousand for the CGU.

The carrying amounts would increase/decrease in particular if planned EBITDA or the weighted average cost of capital (WACC) decreases (increases). A discount rate (WACC) of 8.8 percent (2022: 8.3 percent) is applied in order to calculate fair value less costs of disposal. In the event of an increase (decrease) in planned EBITDA by 1 percent, the calculated recoverable amount would increase (decrease) by EUR 17,569 thousand. If the weighted average cost of capital (WACC) decreases (increases) by 0.25 percentage points, the recoverable amount will increase by EUR 37,164 thousand or decrease by EUR 35,045 thousand. 

As the further development of additional lyocell fiber applications is no longer considered highly probable in the near future, an additional impairment requirement was identified for the internally generated intangible assets and property, plant and equipment recognized in this context. This is also the key assumption when determining the recoverable amount. As both the fair value less costs to sell and the value in use are estimated at EUR 0 thousand for these assets, an impairment loss of EUR 95,469 thousand was recognized. 

In total, at the CGU Fiber Site Lenzing, internally generated intangible assets of EUR 21,204 thousand, concessions and rights of EUR 116 thousand, land and buildings of EUR 1,578 thousand, technical equipment, machinery, operating, and office equipment of EUR 126,438 thousand, and advance payments and assets under construction of EUR 17,016 thousand, were impaired. All assets are allocated to the Fiber Division segment. 

Impairment test of the CGU Fiber Site Thailand

CGU Fiber Site Thailand produces lyocell fibers in Prachinburi, Thailand. The deterioration of the market environment has led to substantial losses for the Fiber Site Thailand CGU. Furthermore, the expansion of additional lyocell fiber capacities in the near future was no longer considered highly probable. The recoverable amount (EUR 398,516 thousand) led to a shortfall of EUR 25,916 thousand in relation to carrying amounts. 

The carrying amounts would increase/decrease in particular if planned EBITDA or the weighted average cost of capital (WACC) decreases (increases). A discount rate (WACC) of 9.2 percent (2022: 8.9 percent) is applied in order to calculate fair value less costs of disposal. In the event of an increase (decrease) in planned EBITDA by 1 percent, the calculated recoverable amount would increase (decrease) by EUR 5,429 thousand. If the weighted average cost of capital (WACC) decreases (increases) by 0.25 percentage points, the recoverable amount will increase by EUR 9,548 thousand or decrease by EUR 9,114 thousand. 

Moreover, an impairment requirement was identified in relation to down payments rendered and assets under construction, which were intended for the expansion of additional lyocell fiber capacities, which is however no longer considered highly probable in the near future. This is also the key assumption when determining the recoverable amount. As both the fair value less costs of disposal and the value in use are estimated at EUR 0 thousand for these assets, an impairment loss of EUR 19,927 thousand was recognized. 

In total, land and buildings of EUR 19,489 thousand, technical equipment, machinery, operating, and office equipment of EUR 6,426 thousand, and advance payments and assets under construction of EUR 19,927 thousand were impaired. All assets are allocated to the Fiber Division segment. 

Impairment test of the CGU Fiber Site USA

Since the temporary halt to the construction of additional lyocell capacities in Mobile, Alabama, USA, in the 2018 financial year, the Managing Board has regularly evaluated whether any uncertainties exist regarding the future usability of the assets when the project is resumed. As the expansion of additional lyocell fiber capacities is no longer considered highly probable in the near future, an impairment requirement was identified in relation to the assets under construction of the CGU Fiber Site USA, which were intended for this expansion. This is also the key assumption when determining the recoverable amount. As both the fair value less costs of disposal and the value in use are estimated at EUR 0 thousand for these assets, an impairment loss of EUR 20,516 thousand was recognized. All assets are allocated to the Fiber Division segment. 

Impairment test of CGUs to which goodwill is allocated

Goodwill was allocated to the following segments/cash-generating units (CGUs) as at the reporting date:

The recoverable amount of the largest CGU with goodwill in 2023 – the CGU Pulp Site Czech Republic – was determined on the basis of fair value less costs of disposal. The measurement of fair value is classified in full under level 3 of the fair value hierarchy. The following individual assumptions from the most recent impairment tests were used for annual testing:

The average revenue growth of the Pulp Site Czech Republic during the detailed planning period equals 2.3 percent per year (2022: 2.2 percent per year).

The estimated fair value less costs of disposal of the CGU Pulp Site Czech Republic exceeds the carrying amount by EUR 112,504 thousand (2022: EUR 33,504 thousand). The following table shows a sensitivity analysis with hypothetical scenarios for the key assumptions as well as the possible changes in value as at the reporting date which, if they occurred, would result in the recoverable amount equaling the carrying amount of the CGU plus goodwill.

A long-term growth rate of 1.0 percent to 1.2 percent (2022: of 1.2 percent to 1.8 percent) was taken into account as perpetual yield for the other CGUs with goodwill.