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, 2022.

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

A list of the group companies as at December 31, 2022 is provided in note 42. The most important group companies produce and market wood-based cellulosic fibers (Segment Division Fiber) and, in some cases, pulp (Segment Division Pulp).

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

In March 2021, the interest in the joint venture Hygiene Austria LP GmbH, Wiener Neudorf, Austria, which was previously accounted for using the equity method (see note 22), was divested and deconsolidated.

In October 2021, the subsidiary Nanjing Fabor Waste Water Treatment Co., Ltd, Nanjing, China, was merged with Lenzing (Nanjing) Fibers Co., Ltd, Nanjing, China.

In November 2021, the previously fully consolidated subsidiaries Avit Investments Limited, Providenciales, Turks & Caicos, and Penique S.A., Panama, Panama, were liquidated and deconsolidated.

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 36). The initial recognition and subsequent measurement of the liability is at fair value through retained earnings (not affecting net income).

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

In January 2021, the Lenzing Group acquired 100 percent of the shares in 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. As of the acquisition date, the insurance cell did not have any significant assets or liabilities. It is classified as a structured entity from acquisition date and fully consolidated.

Until March 2021, Lenzing AG controlled assets in the GF 82 wholesale fund, a special fund pursuant to Section 20a of the Austrian Investment Fund Act (öInvFG), on the basis of its comprehensive co-determination rights. The fund was classified as a structured entity and fully consolidated. The securities held by the fund were intended, above all, to fulfill the securities coverage requirements for the pension provisions related to Austrian pension plans as required by Section 14 of the Austrian Income Tax Act (öEStG). The material risks to which the fund wass exposed were unchanged and represented traditional investment risks (especially default and market price risks). In March 2021, the shares in wholesale fund GF 82 were sold and deconsolidated.

The 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 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: