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Note 32. Provisions

The Lenzing Group’s provisions are classified as follows:

Provisions
EUR '000

 

Total

Thereof current

Thereof non-current

 

31/12/2021

31/12/2020

31/12/2021

31/12/2020

31/12/2021

31/12/2020

Provisions for pensions and similar obligations

 

 

 

 

 

 

Pensions and severance payments

102,220

103,669

6,945

6,750

95,275

96,919

Jubilee benefits

18,812

17,420

1,314

939

17,498

16,481

 

121,032

121,089

8,259

7,688

112,773

113,400

 

 

 

 

 

 

 

Other provisions

 

 

 

 

 

 

Anticipated losses and other risks

25,978

19,925

22,231

12,943

3,746

6,983

Emission certificates

6,508

4,362

6,508

4,362

0

0

Sundry

3,750

663

2,089

663

1,661

0

 

36,236

24,951

30,829

17,968

5,407

6,983

 

 

 

 

 

 

 

Total

157,268

146,040

39,088

25,657

118,180

120,383

Provisions for pensions and similar obligations

Pensions and severance payments

The Lenzing Group has entered into obligations for pensions and severance payments from defined benefit plans, which are reported under provisions for pensions and severance payments, and from defined contribution plans.

Defined benefit plans (for pensions and severance payments)

The benefits resulting from the defined benefit plans for pensions and severance payments are dependent on the final salary or wage and the length of service. They do not require any contributions by employees.

The defined benefit pension plans are based on contractual obligations. The Lenzing Group’s most important defined benefit pension plan is located in Austria. It applies to employees who joined the Group before January 1, 2000 and decided to remain in the plan. The claims generally arose after a vesting period of at least 10 or 15 service years. A retirement age of 58 to 63 years is assumed for the beneficiaries, depending on their gender. At present, the plan primarily covers employees who have already retired. Qualifying insurance policies were recognized as plan assets in some cases, while coverage for these obligations is also provided by securities that do not qualify as plan assets.

The defined benefit severance plans are based on statutory obligations and obligations under collective agreements. The Lenzing Group’s most important defined benefit severance plan is located in Austria. This plan entitles employees whose employment relationship is governed by Austrian law and started before January 1, 2003 to a severance payment in specific cases, in particular when they reach the statutory retirement age and in the event of termination by the employer (“old severance payment system”). The amount of the severance payment depends on the employee’s salary or wage at the termination of employment and on the length of the employment relationship. There are similar major defined benefit severance plans in Indonesia and the Czech Republic, which apply to all employees irrespective of when they joined the respective company. The defined benefit severance plans are not covered by assets, but are financed entirely through provisions.

The defined benefit pension and severance plans are principally connected with the following risks that influence the amount of the obligations to be recognized:

  • Investment risk: A decline in the income from plan assets below the discount rate will result in a plan deficit and an increase in the obligations.
  • Interest rate risk: A decrease in the discount rate due to lower bond interest rates on the capital market will result in an increase in the obligations.
  • Salary and pension trend: An increase in the actual salary and pension trends over the expected future levels will result in an increase in the obligations.
  • Personnel turnover and departure risk: A decline in the expected personnel turnover rates will result in an increase in the obligations.
  • Longevity risk: An increase in the life expectancy of the beneficiaries will result in an increase in the obligations.

The Lenzing Group is also exposed to currency risks in connection with these plans.

The Lenzing Group takes various steps to reduce the risks from defined benefit plans. The related measures include, in particular, the external financing of defined benefit plans with plan assets or the coverage of obligations with securities that do not qualify as plan assets and the settlement of existing defined benefit plans with lump sum payments. In addition, pension and similar commitments are now only concluded as defined contribution commitments where possible and legally permissible.

The objectives of the investment policy are to create an optimal composition of plan assets and to ensure sufficient coverage for the existing claims of participating employees. The investment strategies (asset allocations) for the plan assets are contractually regulated. A reinsurance policy was concluded for part of the claims from the Austrian pension plan. It is reported as plan asset in the amount of EUR 2,598 thousand (December 31, 2020: EUR 2,730 thousand). This policy is a conventional life insurance policy which invests primarily in debt instruments that reflect the maturity profile of the underlying claims and are intended to maintain a high degree of investment security. The Lenzing Group makes no further contributions to this insurance policy.

The fair values of the abovementioned equity and debt instruments were based on price quotations on an active market. The plan assets do not include any financial instruments issued by or assets used by the Lenzing Group. The actual return on plan assets totaled EUR 152 thousand in 2021 (2020: EUR 149 thousand). The net interest expense from the defined benefit plans (expenses from the accrued interest on the obligations and the return on plan assets) is reported under financing costs.

The most important actuarial parameters applied to the defined benefit pension and severance plans are as follows:

Actuarial assumptions for defined benefit pension and severance plans p. a. in %

31/12/2021

Discount rate

Salary increase

Pension increase

Staff turnover deductions

Austria – pensions

0.9

2.5

0.0-3.0

0.0

Austria – severance payments

0.9

2.5

N/A

0.0

Indonesia

6.8

7.5

N/A

1.0-5.0

Czech Republic

0.9

4.0

N/A

1.3

 

 

 

 

 

 

 

 

 

 

31/12/2020

Discount rate

Salary increase

Pension increase

Staff turnover deductions

Austria – pensions

0.7

2.3

0.0-3.0

0.0

Austria – severance payments

0.7

2.3

N/A

0.0

Indonesia

6.3

3.5-7.5

N/A

1.0-5.0

Czech Republic

0.7

3.6

N/A

1.0

The major obligations from the defined benefit plans are the obligations for pensions and severance payments in the Lenzing Group‘s Austrian companies. The discount rate for these obligations was derived from high-quality fixed-income corporate bonds with at least an AA rating based on an international actuary’s standards. Bonds with significantly higher or lower interest rates than the other bonds in their risk class (“statistical outliers”) were not included in the calculation. The currency and terms of the bonds used to derive the discount rate are based on the currency and expected terms of the obligations to be settled. The estimated salary and pension increases, which are also considered realistic for the future, were derived from the averages of recent years. Separate employee turnover rates were applied for each company depending on the composition of the workforce and the employees’ length of service. The retirement age used for the calculation is based on the applicable legal regulations. Individual, country-specific assumptions were made for each of the other countries to determine the discount rate, salary increases, employee turnover rates and retirement age.

The parameters used to calculate the defined benefit pension plans in Austria included the biometric data from AVÖ 2018 P – the calculation base for pension insurance for salaried employees

The following biometric data and assumptions are used in other countries:

  • Indonesia: Tabel Mortalita Indonesia (TMI 2019)
  • Czech Republic: AVÖ 2018-P
  • Other: No biometric assumptions were made because of the low number of beneficiaries.

The obligations (carrying amounts) from defined benefit pension and severance plans incl. restructuring measures reported in the consolidated statement of financial position comprise the following:

Development of defined benefit plans
EUR '000

 

Present value of pension and severance payment obligation (DBO)

Fair value of plan assets

Carrying amounts of defined benefit pension and severance plans

 

2021

2020

2021

2020

2021

2020

As at 01/01

106,398

113,621

2,730

2,863

103,669

110,757

 

 

 

 

 

 

 

Service cost

 

 

 

 

 

 

Current service cost

3,777

4,066

0

0

3,777

4,066

Past service cost

0

0

0

0

0

0

Gain/loss on curtailments of plan

588

800

0

0

588

800

Net interest

1,590

1,979

18

26

1,572

1,953

Income and expenses from defined benefit plans recognized on the income statement

5,955

6,845

18

26

5,936

6,819

 

 

 

 

 

 

 

Remeasurement during the reporting period

 

 

 

 

 

 

On the basis of demographic assumptions

(77)

366

0

0

(77)

366

On the basis of financial assumptions

(918)

515

0

0

(918)

515

On the basis of experience adjustments

2,821

(1,391)

0

0

2,821

(1,391)

On the basis of income from plan assets, excl. amounts included in interest income

0

0

134

124

(134)

(124)

Remeasurement of defined benefit plans included in other comprehensive income

1,825

(509)

134

124

1,691

(633)

 

 

 

 

 

 

 

Cash flows

 

 

 

 

 

 

Payments made from the plan

(283)

(283)

(283)

(283)

0

0

Direct payments and contributions by the employer

(10,378)

(11,549)

0

0

(10,378)

(11,549)

Currency translation adjustment

1,302

(1,725)

0

0

1,302

(1,725)

Other reconciliation items

(9,360)

(13,558)

(283)

(283)

(9,076)

(13,275)

 

 

 

 

 

 

 

As at 31/12

104,818

106,398

2,598

2,730

102,220

103,669

Thereof pensions in Austria

23,413

25,336

2,598

2,730

20,815

22,607

Thereof severance payments in Austria

58,583

61,573

0

0

58,583

61,573

Thereof pensions and severance payments in other countries

22,822

19,489

0

0

22,822

19,489

Sensitivity analyses are performed to evaluate the risk of changes in the actuarial parameters used to measure the present value of the obligations from defined benefit plans. These sensitivity analyses show the effects on the present value of the obligations from hypothetical changes in key parameters that could have reasonably changed as at the reporting date. One parameter was changed for each analysis, while all other parameters were kept constant. The sensitivity analyses are based on the present values of the obligations as at the reporting date before the deduction of plan assets (gross obligation/DBO).

The sensitivities of the parameters as at the reporting dates are as follows:

Sensitivity analysis of the defined benefit pension and severance payment obligations

31/12/2021

Change in parameters (percentage points)

Decrease in parameter/change in present value of obligation in EUR ‘000

Increase in parameter/change in present value of obligation in EUR ‘000

Discount rate

1.0

9,703

(8,370)

Salary increase

1.0

(6,524)

7,395

Pension increase

1.0

(1,689)

1,915

Sensitivity analysis of the defined benefit pension and severance payment obligations (previous year)

31/12/2020

Change in parameters (percentage points)

Decrease in parameter/change in present value of obligation in EUR ‘000

Increase in parameter/change in present value of obligation in EUR ‘000

Discount rate

1.0

10,171

(8,748)

Salary increase

1.0

(6,660)

7,570

Pension increase

1.0

(1,908)

2,174

The above sensitivity analyses represent hypothetical changes based on assumptions. Actual deviations from these assumptions will result in other effects. In particular, the parameters changed individually for the analysis may actually correlate with each other. The deduction of plan assets will lead to a further reduction of the effects.

The Lenzing Group expects that in the following financial year, contributions of EUR 7,003 thousand (2020: EUR 6,488 thousand) will fall due for payment into the defined benefit plans.

The weighted average terms (durations) of the defined benefit pension and severance payment obligations in years are as follows:

Weighted average durations of the defined benefit pension and severance payment obligations
Years

 

31/12/2021

31/12/2020

Austria – pensions

9

9

Austria – severance payments

9-15

9-13

Indonesia

9

9

Czech Republic

10

10

Defined contribution plans (for pensions and severance payments)

The Lenzing Group makes payments to pension funds and similar external funds for defined contribution pension and severance plans. The most significant defined contribution pension and severance plans for the Lenzing Group are located in Austria (“new severance payment system” and individual contractual commitments).

The expenses for defined contribution plans are as follows:

Expenses for defined contribution plans
EUR '000

 

2021

2020

Austria – pensions

1,804

1,786

Austria – severance payments

2,340

2,266

Other countries

4,784

4,202

Total

8,927

8,254

Provisions for jubilee benefits

Collective agreements require Lenzing AG and certain subsidiaries, particularly in Austria and the Czech Republic, to pay jubilee benefits to employees who have been with the company for a certain length of time. In the Austrian companies employees have the option to convert the jubilee benefits into time credits. No assets were segregated from the company and no contributions were made to a pension fund or any other external fund to cover these obligations. The jubilee benefits do not require any contributions by employees.

The obligations from jubilee benefits for employees (long-service bonuses) are considered other long-term employee benefits under IFRS. The net interest expense from jubilee benefits (expenses from the accrued interest on the obligations) is recorded under financing costs. The discount rate applied to the Austrian obligations is similar to the discount rate used for the other defined benefit plans. Employee turnover rates were determined separately for each company depending on the composition of the workforce and employees’ length of service. Individual, country-specific assumptions were made for the discount rate, employee turnover rates and salary increases in the other countries.

The main actuarial parameters applied to the obligations for jubilee benefits are as follows:

Actuarial assumptions for the jubilee benefit obligations p. a. in %

31/12/2021

Discount rate

Salary increase

Staff turnover deductions

Austria

1.1

2.5

0.0-6.8

Czech Republic

0.6

4.0

1.3

 

 

 

 

 

 

 

 

31/12/2020

Discount rate

Salary increase

Staff turnover deductions

Austria

1.0

2.3

0.5-3.4

Czech Republic

0.3

3.6

1.0

The following table shows the development of the obligation (provision) for jubilee benefits:

Development of the jubilee benefit obligation (provision)
EUR '000

 

2021

2020

As at 01/01

17,420

18,117

 

 

 

Service cost

 

 

Current service cost

1,212

1,164

Net interest

169

191

Remeasurement during the reporting period

 

 

On the basis of demographic assumptions

(349)

(312)

On the basis of financial assumptions

327

461

On the basis of experience adjustments

1,451

(423)

Income and expenses from defined benefit plans recognized on the income statement

2,810

1,081

 

 

 

Cash flows

 

 

Direct payments by employer

(1,422)

(1,777)

Currency translation adjustment

4

(1)

Other reconciliation items

(1,418)

(1,778)

 

 

 

As at 31/12

18,812

17,420

Other provisions and accruals

Other provisions and accruals developed as follows:

Development of other provisions
EUR '000

2021

As at 01/01

Currency translation adjustment

Reclassi­fication

Utilization

Reversal

Addition

As at 31/12

Thereof current

Thereof non-current

Anticipated losses and other risks

19,925

0

0

0

(3,420)

9,4721

25,978

22,231

3,746

Emission certificates

4,362

7

0

(4,290)

0

6,429

6,508

6,508

0

Sundry

663

94

0

(35)

(99)

3,127

3,750

2,089

1,661

Total

24,951

101

0

(4,326)

(3,519)

19,028

36,236

30,829

5,407

1)

Incl. accrued interest EUR 0 thousand.

Development of other provisions (previous year)
EUR '000

2020

As at 01/01

Currency translation adjustment

Reclassi­fication

Utilization

Reversal

Addition

As at 31/12

Thereof current

Thereof non-current

Anticipated losses and other risks

8,874

0

0

(327)

(718)

12,0971

19,925

12,943

6,983

Emission certificates

4,058

0

0

(3,119)

0

3,423

4,362

4,362

0

Sundry

823

(58)

0

(252)

(261)

411

663

663

0

Total

13,755

(58)

0

(3,699)

(979)

15,931

24,951

17,968

6,983

1)

Incl. accrued interest EUR 144 thousand.

The measurement of provisions is based on past experience, current cost and price information and estimates/appraisals by internal and external experts. The assumptions underlying the provisions are reviewed regularly. The actual values may differ from these assumptions if general conditions develop in contrast to expectations as at the reporting date. Changes are recognized in profit or loss when better information is available and the premises are adjusted accordingly.

Other provisions for anticipated losses and other risks include, in particular, provisions for obligations from infrastructure services to be performed of EUR 4,553 thousand (December 31, 2020: EUR 7,973 thousand) and provisions for additional claims from procurement contracts of EUR 21,200 thousand (December 31, 2020: EUR 11,800 thousand) and for other onerous contracts. Other provisions for emission certificates comprise the equivalent value of the emission certificates used.

The other current provisions and accruals are expected to lead to an outflow of funds within the next twelve months. The outflow of funds arising from the long-term portion of other provisions is dependent on various factors (in particular, guarantee and warranty periods, contract terms and other events):

  • The outflow of funds related to the other provisions for guarantees and warranties is expected within the next twelve months.
  • The other provisions for anticipated losses and other risks are expected to lead to an outflow of funds as follows:
Expected outflow of funds in connection with other provisions (non-current) for anticipated losses and other risks (estimated as of the reporting date)
EUR '000

 

31/12/2021

31/12/2020

In the 2nd year

571

992

In the 3rd to 5th year

1,926

2,987

In the 6th to 10th year

1,250

3,004

Total

3,746

6,983

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