Risk Report

Current risk environment

The global risk landscape is becoming increasingly fractured as a result of geopolitical, environmental, societal, economic, and technological developments.

State armed conflicts are considered to pose one of the greatest risks in 2025. As a result, national security considerations are increasingly dominating government agendas. This harbors the risk of a geopolitical recession and an escalation of tariffs and global trade-related protectionism.

Key countries are increasingly focusing on growing economic or social domestic concerns rather than on trying to strengthen multi-lateral relationships to tackle global challenges.

Economic downturn, inflation, and debt are considered the main risks relating to inequality, which in turn promotes social and political instability.

The role of technology in cyber espionage and warfare is a growing concern. The spread of false or misleading content, including the role of generative AI (GenAI), is increasingly seen as a threat that influences geopolitical narratives and leads to social polarization.

The effects of climate change are becoming more evident every year, with more frequent and more severe extreme weather events worldwide leading to increasing damage to property and interruptions to business.

A detailed analysis of the global fiber market development in the reporting year and the associated risks for the Lenzing Group are presented in the “General Market Environment” chapter.

Lenzing risk outlook for 2025

Developments in the global risk landscape, particularly with regard to the prevailing geopolitical hotspots, influence Lenzing’s risk environment to varying degrees.

For 2025, the IMF forecasts global economic growth of 3.2 percent. Global headline inflation is expected to decrease to 4.2 percent in 2025, and to 3.5 percent in 2026.¹

An escalation of global trade-related protectionism, particularly stemming from the newly elected US administration, and the associated tightening of global trade sanctions harbors the risk of increasing import restrictions or other logistical or sales-related consequences in the markets relevant to Lenzing.

Risks to earnings arise primarily from persistently weak demand for regenerated cellulose fibers and correspondingly low fiber prices, as well as from unforeseen price scenarios for important raw materials and energy.

Lenzing proactively counters these risks by consistently executing its “Better Growth” strategy and by focusing on sustainable growth with low-emission premium products.

The supply of high-quality dissolving wood pulp to the fiber production sites is secured by the company’s own pulp supply and sufficient market capacities.

The liquidity risk for 2025 is classified as moderate due to the cash position, undrawn credit lines with banks, and expected free cash flow development. Lenzing has significantly strengthened its balance sheet and liquidity position with the capital increase of around EUR 400 mn and the extension of credit lines in 2023, and again recorded a significant increase in free cash flow in in the reporting period. A persistently high interest rate level, rising interest rates or an unexpectedly negative development of the operating business and the resulting free cash flow would pose a risk to the available liquidity. The availability of credit and capital markets for refinancing activities is important for Lenzing in 2025 and represent risk-mitigating factors for liquidity management.

In terms of currencies, the US dollar fluctuated against the euro in a range of around 7.8 percent, while the Chinese yuan fluctuated against the euro in a range of around 5.4 percent. A devaluation of both currencies would have a negative impact on Lenzing’s open currency volumes.

No significant losses were incurred from operational, environmental, or product liability risks in the reporting year. Among non-operational risks, cyber security, data protection, and other compliance-related risks are of key relevance to Lenzing due to their potential impact in terms of business disruption or damage to reputation. Lenzing addresses these risks through targeted preventive measures such as state-of-the-art technological infrastructure, Group-wide guidelines, training and development programs, and a global organizational structure.

1 Source: IMF, World Economic Outlook, January 2025

Risk management objectives

The main purpose of risk management in the Lenzing Group is to safeguard and strengthen the company through an adequate, objective, and transparent assessment of financial, operational, and strategic risks, including those related to ESG issues. The Lenzing Group’s Managing Board, together with the heads of the reporting departments, conducts extensive coordinating and controlling operations as part of a comprehensive integrated internal control system that covers all locations. The timely identification, evaluation, and response to strategic and operational risks form essential components of these management activities and make a significant contribution to the company’s value. This approach is based on a standardized reporting system and the ongoing monitoring of strategic and operational plans.

Lenzing uses an established, holistic, and company-wide risk management process that ensures the central coordination of risks and their monitoring in a comprehensive risk management system for the entire Group. Together with the operating units, significant risks are identified and assessed and then communicated and transparently presented to the Managing Board and other stakeholders. Proactive analysis of potential risks is just as much the aim of risk management as the task of actively controlling risks and evaluating appropriate measures with the business units concerned. In connection with climate change, climate-related risks and opportunities, and their short-, medium- and long-term effects on the Lenzing Group, are identified and evaluated as part of risk management, and appropriate risk mitigation measures are derived. This takes into account the requirements of the TCFD (Task Force on Climate-Related Financial Disclosures) as well as the EU Taxonomy and associated obligations to report climate-related risks and opportunities. The Enterprise Risk Management (ERM) approach, which integrates Environmental, Social, and Governance (ESG) risks and opportunities, also meets the disclosure requirements outlined in European Sustainability Reporting Standards (ESRS), specifically ESRS 2 GOV-1, paragraph 22(c)(iii).

Risk management strategy & process

Lenzing’s risk management strategy is closely linked to the corporate strategy and follows a multi-step approach: Lenzing’s risk appetite defines a general attitude towards taking risks and realizing opportunities and is determined at various levels. Risks that are unacceptable or not in line with Lenzing’s strategy are avoided, mitigated, or transferred. Lenzing’s risk appetite therefore also defines the Group’s risk transfer strategy, which in turn determines the retention level of the individual production sites. Corporate Risk Management conducts semiannual risk interviews with all operational units and global corporate functions. The focus is on a short and medium-term risk assessment, while the analysis of climate-related risks and opportunities also includes a long-term view (see also the chapter “E1 Climate change” in the non-financial statement of the Annual and Sustainability Report). The main risks, as well as an increasing number of opportunities, are recorded and quantitatively assessed in Lenzing’s Enterprise Risk Management (ERM) system. The risks are simulated against planned EBITDA, and the range of potential deviations from the respective budget is determined. Lenzing uses sophisticated simulation software for this purpose, and for calculating risk KPIs such as Value at Risk (VaR), risk-adjusted EBITDA, and the net-debt-to-EBITDA ratio. Risks that cannot be measured in monetary terms are recorded qualitatively.

Depending on the impact on the company, efforts are made to avoid, minimize, or transfer risks through appropriate measures or, in certain cases, and if necessary and reasonable, to intentionally assume them.

Lenzing’s ERM organization specifies rules, rights, and responsibilities within the Lenzing Group that have to be fulfilled by all relevant stakeholders. Each production site has a nominated risk manager to coordinate and communicate all site-specific risks and opportunities and report these as part of the half-yearly risk interviews. Risks are allocated in accordance with the respective corporate organization, with each risk being assigned a “risk owner”.

The effectiveness of the risk management system used by the Lenzing Group was evaluated and confirmed by KPMG Austria GmbH pursuant to Rule 83 of the Austrian Corporate Governance Code (ACGC) as part of a special audit with limited assurance in the reporting year.

The main risks and opportunities are presented to the Managing Board and to the Supervisory Board’s Audit Committee on a half-yearly basis.

Market environment risks

Market risk

As an international corporation, the Lenzing Group is exposed to a variety of risks. Price trends for textile fibers and, to a lesser extent, nonwoven fibers are cyclical, as they depend on global and regional economic conditions. Lenzing fibers compete with cotton, regenerated cellulose, and synthetic fibers in many submarkets. The price trends of these products, driven among other factors by overall demand and market saturation, consequently also exert an influence on the revenue and sales volumes trends of Lenzing fibers.

The Lenzing Group counteracts this risk through the continuous premiumization of its global product portfolio, and a consistent sustainability and innovation strategy. In addition to developing premium products and services, the aim is to further expand the company’s role as a leader in terms of sustainability and the circular economy in the fiber sector.

The Lenzing Group relies on a strong international market presence, especially in Asia, combined with a first-class regional support network for customers, as well as a high level of customer-oriented product diversification.

Sales risk

The Lenzing Group generates around 50 percent of its fiber revenues with a mid-double-digit number of customers. Customer concentration in the pulp sector is comparatively higher than in the fiber sector. A decrease in sales to these major customers, or the loss of one or more major customers without an immediate replacement, poses a certain risk. The company counteracts such risk with its global presence and the continuous broadening of its client base and sales segments. Potential default on trade receivables is covered by clear receivables management and global credit insurance.

Competitive and innovation risks

The Lenzing Group is exposed to the risk of losing its position on the fiber market due to greater competition or new technologies developed by competitors. In particular, the Lenzing Group could lose its market position if it were no longer able to offer its products at competitive prices, if its products were to fail to comply with customer specifications and quality standards, or if its customer service were to fail to meet customer expectations. Lenzing counteracts this risk with research and development activities that exceed the average for the sector, and by a high level of product innovation and steady cost optimization. The Lenzing Group – similar to other producers – is exposed to the risk that acceptable or superior alternative products may become available and at more favorable prices than regenerated cellulose fibers.

Laws and regulations

The Lenzing Group is confronted with different legal systems and regulations in its global markets. A change in laws or other regulations (e.g. import duties, product classifications, environmental requirements etc.), as well as a more stringent interpretation of existing regulations and laws, could lead to significant additional costs or competitive disadvantages. The Lenzing Group maintains certified management systems for quality management according to ISO 9001, for environmental management according to ISO 14001, and for safety management according to ISO 45001. Legal compliance in connection with these management systems is regularly audited both internally and externally.

With its own in-house legal and compliance experts, the Lenzing Group has a corporate area that performs corresponding consulting services and risk assessments. Due to the progressive effects of climate change on society and ecosystems, more stringent legislation and regulations on the part of governments and other stakeholders are to be expected. For example, in addition to reducing carbon credits issued in the EU, additional taxes on carbon dioxide emissions could be introduced, among other measures, such as Carbon Border-Adjusted Mechanism (CBAM). Other regions and countries are currently also implementing similar steps. The implementation of regionally differing measures could have a negative impact on the Lenzing Group’s performance and success. The Lenzing Group is implementing a number of measures to reduce climate-related physical and transition risks, and to further enhance resilience in this area.

Intellectual property risks

Lenzing is exposed to the risk that its intellectual property may be infringed or incompletely protected. The Lenzing Group counters such risks by means of a dedicated intellectual property protection department.

ESG-related risks and opportunities

As part of a double materiality analysis, Lenzing surveyed material issues in relation to its sustainably oriented business model in 2024 using a multi-stage and holistic approach. Relevant risks and opportunities are assigned to the respective ESG topics, which are successively integrated in the Enterprise Risk Management System and taken into account in Lenzing’s long-term strategic business planning.

In the environmental responsibility area (Environment), the main focus topics in the risk matrix comprise climate-related issues in connection with global warming (carbon dioxide reduction) as well as sustainable raw material procurement (wood, chemicals) and growing water shortages in certain regions. Increasing regulation, particularly in relation to the taxation of greenhouse gases and the pricing of carbon, represents a significant risk for Lenzing. Regulations concerning greenhouse gas emissions have already been introduced in countries where Lenzing operates carbon-intensive processes. Lenzing is consistently working on the implementation of energy efficiency measures and the reduction of carbon emissions in order to take account of environmental protection and reduce exposure through eco taxes.

For Lenzing, wood is the most important natural resource for the production of its biodegradable cellulosic fibers. Despite sustainable sourcing policies and backward-integrated production, a risk exists that wood prices will rise further due to climate change, increasing global demand for biomass, and alternative land use.

The global textile industry, especially the fashion industry in which Lenzing’s products are frequently deployed, is regarded in a critical light due to its sometimes resource-intensive consumption of raw materials and its production processes. Lenzing sees this development as an opportunity due to its business model with responsibly produced fibers. In addition, Lenzing sees significant business opportunities through access to new and emerging markets with innovative new products and technologies. Innovation, sustainability, and the circular economy lie at the core of Lenzing’s corporate strategy.

The production of pulp and fibers is associated with high levels of water consumption as well as air and water emissions. Lenzing operates a careful global water management system that ensures compliance with both local laws and global standards. Lenzing is counteracting the increasing scarcity of water by continuously improving resource utilization.

In the area of social responsibility, the main risks in relation to the physical and mental long-term health and safety of employees at our own sites and along the value chain as well as in society should be highlighted, which Lenzing is increasingly countering with targeted surveys and focus programs.

In the area of corporate governance (Governance), risks such as cyber security incidents (see “IT risks”) as well as poor compliance with corporate governance and resulting risks are material. Lenzing is continuously tightening its internal rules and expanding its compliance organization accordingly.

Operational risks

Procurement risk (including pulp supplies)

The Lenzing Group purchases large volumes of raw materials (wood, pulp, chemicals) and energy for the manufacture of its cellulosic fibers. Fiber production and related margins are exposed to risks arising from the availability and prices of these raw materials, which can fluctuate to the Lenzing Group’s disadvantage and may increase as a consequence of climate change. Such risks are countered through the careful selection of suppliers based on price, reliability and quality criteria, EcoVadis-based sustainability assessments, the Together for Sustainability (TfS) audit program, Lenzing-specific audits, as well as the establishment of long-standing, stable supplier-customer partnerships, in some cases with multi-year or long-term supply agreements. In addition, all suppliers must comply with Lenzing’s Global Code of Conduct for Suppliers. Nevertheless, a risk exists of violations of this code, which may have a negative impact on the Lenzing Group and its stakeholders along the value chain. Supply chain risks may also result from disruptions caused by natural disasters.

Lenzing has also entered into long-term contractual relationships with selected raw material suppliers and service partners. These agreements require Lenzing to purchase specified quantities of raw materials on standardized terms and conditions, which may also include price adjustment clauses. Lenzing may consequently not be able to adjust prices, purchase volumes, or other contract conditions over the short term in order to respond to market changes.

Operating and environmental risks

The production of regenerated cellulosic fibers involves complex chemical and physical processes that entail certain environmental risks. These risks are very well controlled thanks to proactive and sustainable environmental management, closed production cycles, ongoing emissions monitoring, state-of-the-art production techniques, and the monitoring of production processes by highly qualified personnel. Lenzing continuously works on increasing safety and environmental standards through voluntary references such as the EU Ecolabel. As the Lenzing Group has operated production facilities at several locations for decades, risks arising from environmental damage in earlier periods cannot be ruled out entirely.

Although the Lenzing Group has set very high technological and safety standards for the construction, operation, and maintenance of its production sites, the risk of breakdowns, disruptions, and accidents cannot be completely excluded. Such disruptions may also result from external factors beyond the company’s control. Direct protection against certain natural hazards, such as cyclones, earthquakes, and floods, beyond existing natural hazard insurance is not feasible. Moreover, a risk exists that not only personal injury but also material and environmental damage, both within and outside the production facilities, could result in substantial claims for damages and even criminal liability.

The Lenzing Group’s production activities are concentrated at a small number of locations. Any disruption at one of these facilities has a negative impact on the Group’s business operations and its goals.

Plant risk

Lenzing is an asset-capital-intensive company that is exposed to the risk of aging plants or aging plant components. Ongoing investments are required to keep these plants or plant components at the leading edge of technology. Lenzing continuously takes measures to counter this risk by asset maintenance initiatives and productivity enhancements.

Product liability risk

The Lenzing Group markets and sells its products and services to customers worldwide. These business activities can lead to damage to customers, or along the value chain, through the delivery of a defective product by Lenzing or one of its subsidiaries. Moreover, product safety can be jeopardized by pollution, which may cause problems in the value chain, such as potential health implications for employees and customers. Lenzing is also subject to local laws in the countries where its products are delivered. Especially in the USA, the potential implications are considered to be severe. Such risk is countered by a specialized department focusing exclusively on customers’ potential problems in processing Lenzing products and on handling complaints. Appropriate precautions in the production process and regular quality inspections have been implemented. Third party damages caused by Lenzing are covered by a global liability insurance program.

Financial risks

For a detailed description of financial risks refer to notes 34 to 37 to the consolidated financial statements.

Tax risk

The Lenzing Group’s production sites are subject to local tax regulations in their respective countries and are required to pay corporation tax as well as other taxes. Changes in tax legislation or different interpretations of prevailing regulations could lead to subsequent tax liabilities.

Compliance

Increasingly stringent international codes of conduct and legal regulations are placing additional demands on Lenzing in terms of compliance and monitoring. Inadequate controls in business processes or a lack of documentation can lead to the violation of applicable laws or regulations, and significantly jeopardize reputation and commercial success. Lenzing addresses this risk by, among other measures, continuously developing its Group-wide compliance organization, the corporate code of conduct that is valid throughout the Group, as well as directives addressing the areas of bribery and corruption, money laundering and antitrust practices. Further information on compliance is provided in the Corporate Governance Report.

IT risks

Lenzing depends on sophisticated information technology (IT) systems for its daily operations, both in its own production facilities and throughout the supply chain. IT systems are vulnerable to a range of problems, including software and hardware malfunctions, malicious hacking and cyberattacks, physical damage to key IT centers, and computer virus infections. Consequently, any major damage, disruption and/or circumvention of its existing IT systems may hamper business operations. These risks are addressed through comprehensive technical and organizational measures as well as additional cyber insurance.

Personnel risks

Personnel risks may arise through the turnover of key staff as well as the recruiting of new staff at all global sites. The Lenzing Group has established a Human Resources Department which operates internationally and coordinates personnel planning with the respective sites, and centrally manages and controls all personnel issues. These include global management and training programs for potential managers, which are organized by the Human Resources Department.

At the production facilities, both employees of the Lenzing Group and workers and employees of external companies are potentially exposed to a risk of injury. Lenzing’s Safety & Health program takes such risk into consideration and includes a strategic approach to risk reduction, precautionary measures, and extensive training. For more information, see the non-financial statement of the Lenzing Group’s Annual and Sustainability Report.

Risks relating to major projects

The Lenzing Group is continuously expanding its capacities in numerous projects. Major projects entail the inherent risk of cost and time overruns, which Lenzing counters with a standardized planning process, consistent project management, ongoing cost controls as well as insurance solutions and risk transfer. In addition to the ongoing risk management process, Monte Carlo simulations are used for projects of this size to model the sensitivity of the key financial indicators.

Risks from an external perspective and for other stakeholders

As a globally operating company, the Lenzing Group is aware of its social responsibility. The risks described in the risk report refer primarily to the effect on the Lenzing Group’s assets and earnings. As one of the sustainability leaders in its sector, the Lenzing Group seeks a balance between the needs of society, the environment, and the economy. The company assumes such responsibility, particularly also with respect to potential effects of its operations on neighbors of the production sites as well as in relation to society as a whole. Active stakeholder work to mitigate risks (partnerships for systemic change) and to create additional benefits for people and the environment is a clear goal of the Lenzing Group’s innovation and operating activities. The Lenzing Group was once again awarded platinum status in EcoVadis’ CSR rating in the reporting year. This evaluation covers the most important practices in the Corporate Social Responsibility (CSR) area. In cooperation with its partners, the Lenzing Group is working on understanding the risks for stakeholders and on finding solutions to mitigate such risks. This work is based on open communication and transparency as well as continuous improvement of technologies and sustainable practices.