Note 21. Right-of-use assets

The Lenzing Group as the lessee

The Lenzing Group has obligations from rental and lease agreements for property, plant and equipment, which are recognized as right-of-use-assets in the consolidated statement of financial position. The corresponding lease liabilities are reported as part of financial liabilities (see note 29).

The following table shows the development of right-of-use assets classified by type of asset:

In the 2022 financial year, right-of-use assets amounting to EUR 4,861 thousand from the index increase for land use rights, EUR 4,213 thousand for machinery, EUR 3,894 thousand for forklifts, cars and other vehicles, and EUR 434 thousand for rail cars were recognized. The disposals mainly relate to right-of-use assets amounting to EUR 3,788 thousand for warehouse premises and EUR 1,269 thousand for rail cars.

In the 2021 financial year, right-of-use assets relating to leases amounting to EUR 4,014 thousand for building rentals, EUR 2,927 thousand for rail cars and EUR 2,217 thousand from the index increase for the land use rights were recognized.

The terms and conditions of the main leases can be summarized as follows:

• Land use rights: The biological assets (see note 20) are located on land which is not owned by the Lenzing Group. Land use rights are in place for this land. The lease has a term of 30 years, with an option to extend the lease by 19 years after 30 years. This extension option was not taken into account in estimating the expected term of the lease because the use of the biological assets in 30 years is not sufficiently certain from today’s perspective. Price adjustment clauses exist.
• Office and storage premises: The leases have a term of up to five years and some contracts have an indefinite term. Ordinary useful lives were applied to office and storage premises with indefinite useful lives where economic exit barriers exist. These leases do not include an option to purchase the office and storage premises at the end of the contract term. Some of the leases include extension options and price adjustment clauses.
• Rail cars: The leases have a term of up to ten years and can be canceled after a minimum period. Some of the leases have price adjustment clauses.
• Wastewater treatment plant: The Lenzing Group has concluded finance leases for an industrial primary clarifier and related expansion investments. The ownership of the plant, including the land, can be transferred to Lenzing AG after the agreements expire in exchange for the payment of a transfer fee. This lease has a term of up to 16 years.

Termination and extension options are taken into account when estimating the expected term of the leases if it is sufficiently certain that they will or will not be exercised. The Lenzing Group estimates that possible future cash outflows from extension options which were not taken into account in the measurement of the lease liability could result in an increase in the lease liability and the related future cash outflows by EUR 1,189 thousand (December 31, 2021: EUR 1,286 thousand).

The following expenses relating to leases were recognized in the consolidated income statement in the 2022 financial year.

Short-term leases are leases with a term of less than one year. Where contracts have no term, leases are considered short-term leases if both parties have a right to terminate the contract, which can be exercised without the consent of the counterparty and no termination penalties or economic barriers exist. Leases for which only variable lease payments that are not coupled to an index or (interest) rate have been agreed are not capitalized as right-of-use assets.

Expenses relating to variable leases mainly include variable rental payments for warehouses based on monthly storage quantities.

In order to achieve its climate targets and hedge against fluctuating prices, the Lenzing Group has concluded several long-term power purchase agreements for electricity generated from renewable energy sources. As the payments are entirely variable and no favorable purchase options exist, they are included in the variable lease payments.

Cash outflows for leases total EUR 36,983 thousand (2021: EUR 28,592 thousand). They include expenses relating to short-term and variable leases and to leases of low-value assets.

The rental and leasing expenses are fully cash-effective and included in cash flow from operating activities. The cash flows incurred in connection with the repayment of lease liabilities are explained in note 34.

All right-of-use assets are tested for impairment in accordance with IAS 36 if there are any indications that these assets may be impaired (see note 11).

The Lenzing Group as the lessor

The future undiscounted minimum lease payments during the non-cancellable term of the leases relate primarily to land and buildings and are as follows, classified by year:

The most important lease involves land on which a recycling plant is operated. The lease payments are indexed. The lease was concluded for an indefinite term and can be canceled at the earliest as at December 31, 2029, subject to a six-year notice period.

Rental income for the 2022 financial year is shown in note 7.

The Lenzing Group classifies these leases as operating leases since the main risks and opportunities associated with ownership are retained.