Note 31. Provisions

The Lenzing Group’s provisions are classified as follows:

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.

In the 2022 financial year, parts of provisions for accrued defined benefit severance plans were reclassified to other provisions for restructuring measures (see the section “Other 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 2,469 thousand (December 31, 2021: EUR 2,598 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 aforementioned 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 155 thousand in 2022 (2021: EUR 152 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:

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:

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) and before reclassification to other provisions for restructuring measures.

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

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 and of the amount reclassified to other provisions for restructuring will lead to a further reduction of the effects.

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

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:

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:

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

Other provisions

Other provisions developed as follows:

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 restructuring measures relate, in particular, to provisions due to the reduction in personnel as part of the reorganization and cost optimization program. All Lenzing Group sites worldwide are affected by the staff reduction, of which 200 employees are expected to be at the Lenzing site. The provisions were formed particularly for resultant severance payments and termination benefits. In this context, previously formed provisions (in particular from the regular severance payment provision; see the section “Defined benefit plans”) in the amount of EUR 5,732 thousand (2021: EUR 0 thousand) were utilized and are now reported in provisions for restructuring measures. The remaining amount of the necessary provisions of EUR 15,394 thousand was allocated mainly to personnel expenses. The total provisions of EUR 21,125 thousand are expected to be fully utilized within the next 12 months.

Other provisions for anticipated losses and other risks include, in particular, provisions for onerous procurement contracts of EUR 23,300 thousand (December 31, 2021: EUR 21,200 thousand), provisions for obligations from infrastructure services to be performed of EUR 0 thousand (December 31, 2021: EUR 4,553 thousand) and for other onerous contracts. Other provisions for emission certificates comprise the equivalent value of the emission certificates used.

Miscellaneous other provisions mainly relate to obligations for litigation in the amount of EUR 3,940 thousand (December 31, 2021: EUR 0 thousand) and include, in particular, provisions for legal defense costs in connection with a lawsuit in which, among other matters, Lenzing AG is being sued for damages (see note 41). The anticipated cash outflow is expected in the 2024 financial year.

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 other provisions for anticipated losses and other risks are expected to lead to an outflow of funds as follows: