Report on the Consolidated Financial Statements
We have audited the consolidated financial statements of Lenzing Aktiengesellschaft, Lenzing, Austria, and its subsidiaries (the Group), which comprise the consolidated Statement of Financial Position as at 31 December 2022, and the Consolidated Income Statement and Consolidated Statement of Other Comprehensive Income, Consolidated Statement of Changes in Equity and Consolidated Statement of Cash Flows for the year then ended, and the Notes to the Consolidated Financial Statements.
In our opinion, the consolidated financial statements comply with the legal requirements and present fairly, in all material respects, the consolidated financial position of the Group as at 31 December 2022, and its consolidated financial performance and consolidated cash flows for the year then ended in accordance with International Financial Reporting Standards (IFRSs) as adopted by the EU, and the additional requirements pursuant to Section 245a UGB (Austrian Commercial Code).
Basis for our Opinion
We conducted our audit in accordance with the EU Regulation 537/2014 (“AP Regulation”) and Austrian Standards on Auditing. These standards require the audit to be conducted in accordance with International Standards on Auditing (ISA). Our responsibilities under those standards are further described in the “Auditor’s Responsibilities” section of our report. We are independent of the audited Group in accordance with Austrian company law and professional regulations, and we have fulfilled our other responsibilities under those relevant ethical requirements. We believe that the audit evidence we have obtained up to the date of the auditor’s report is sufficient and appropriate to provide a basis for our audit opinion on this date.
Key Audit Matters
Key audit matters are those matters that, in our professional judgment, were of most significance in our audit of the consolidated financial statements. These matters were addressed in the context of our audit of the consolidated financial statements as a whole, however, we do not provide a separate opinion thereon.
Impairment of Cash-Generating Units (“CGU”) “Fiber Site Heiligenkreuz”, “Fiber Site China” and “Fiber Site Indonesia”
Refer to note 11
Risk for the financial statements
In the financial year 2022 Lenzing Aktiengesellschaft asessed that there is an indication, that the cashgenerating units “Fiber Site Heiligenkreuz”, "Fiber Site China" and "Fiber Site Indonesia" may be impaired. The estimated recoverable amounts (impairment test) exceeded their carrying amounts.
The measurement of the recoverable amount of cash-generating units in accordance with IAS 36 requires assumptions and estimates, such as the estimated future cash flows, as well as the determination of the applicable discount rate.
There is a risk that inappropriate assumptions and estimates used to measure the recoverable amount could have a significant impact on the recoverable amount and therefore the carrying amounts of the cash-generating units in the consolidated statement of financial position, as well as the operating result in the consolidated income statement.
We assessed the impairment tests carried out by the company with support of our internal valuation experts as follows:
- To assess the adequacy of the cash flow projections used by management to measure recoverable amount, we have evaluated managements planning process and discussed the assumptions for growth rates and operating results with management. Additionally, we have compared these cash flow projections with the most recent budget approved by the supervisory board as well as the mid-term planning approved by the managing board.
- To assess managements historical planning accuracy we have compared actual financial figures with prior years cash flow projections.
- Our internal valuation experts have assessed the methodology used for impairment testing for compliance with the applicable standards. Our experts furthermore compared the assumptions, on which the determination of capital cost rates were based, with market- and industry-specific reference values and verified the mathematical accuracy of the calculation.
- Additionally, we have verified whether the descriptions in the notes to the financial statements on impairment testing of the CGUs “Fiber Site Heiligenkreuz”, "Fiber Site China" and "Fiber Site Indonesia" were appropriate.
Valuation of puttable non-controlling interests
Refer to note 3, note 27 and note 36
Risk for the Consolidated Financial Statements
The minority shareholder of LD Celulose S.A, Indianópolis, Brazil, has an option to sell its non-controlling interests to Lenzing Aktiengesellschaft upon the occurrence of contractually agreed events. As of December 31, 2022, Lenzing Aktiengesellschaft recognized a liability at a fair value of EUR 266,085 thousand for these puttable non-controlling interests. Subsequent measurement of the liability is carried out using the present access method via retained earnings.
The fair value of the liability for the puttable non-controlling interests is determined in accordance with the contractual agreement with the minority shareholder according to a discounted cash flow method. This requires assumptions and estimates, such as estimating future cash flows and determining the discount rate to be applied.
There is a risk for the consolidated financial statements that inappropriate assumptions and estimates could have a significant impact on the fair value and thus the valuation of the liability for the puttable non-controlling interests in the consolidated statement of financial position and equity.
We assessed the valuation of puttable non-controlling interests as follows:
- We assessed whether the chosen valuation model is consistent with the contractual agreements for determining the option exercise price.
- In order to assess the appropriateness of the cash flows used in the valuation model, we gained an understanding of the planning process and discussed the assumptions about growth rates and operating results with management.
- We compared the planning data assumed in the valuation model with the current budget figures approved by the Management Board and the Supervisory Board and the medium-term plan.
- Our internal valuation experts assessed the adequacy of the valuation model and verified the mathematical accuracy. Our experts compared the determined country and maturity- specific capital costs with market and industry-specific benchmarks.
- Finally, we assessed whether the explanations on the determination of the fair value for the liability for puttable non-controlling interests in the consolidated financial statements are appropriate.
Valuation of Biological Assets
Refer to note 20.
Risk for the Consolidated Financial Statements
Lenzing Aktiengesellschaft recognized biological assets (timber plantations) in Brazil amounting to EUR 127,735 thousand in the consolidated statement of financial position as at December 31, 2022. Timber plantations are measured at fair value less costs of disposal according to IAS 41 and IFRS 13. The fair value measurement is classified as Level 3 in the fair value measurement hierarchy under IFRS 13. The valuation of timber plantations requires assumptions and estimates that are subject to considerable uncertainty:
- Sales prices for mature timber
- Volume and growth assumption
- Discount rate for immature timber.
For the consolidated financial statements, there is a risk that inappropriate assumptions and estimates could have a material effect on the fair value of the timber plantations and thus on the valuation of biological assets in the consolidated statement of financial position and the valuation result in the consolidated income statement.
We assessed the valuation of plantations carried out by the company with support of specialists for forestry valuation in Brazil as follows:
- We have obtained an understanding of the valuation process and assessed management’s actions to monitor this process. We also evaluated the design and implementation of management’s controls.
- We have assessed whether the valuation model chosen to determine the fair value is consistent with the requirements of IAS 41 and IFRS 13
- We assessed the key assumptions and estimates used in determining fair value, including assumptions about selling prices, growth, costs and discount rates. To do so, we compared assumptions and estimates to externally observable data and considered management’s historical accuracy in determining those assumptions and estimates. Furthermore, we considered the adequacy and appropriateness of the Group’s disclosures in respect of the valuation of plantations in accordance with IAS 41 and IFRS 13.
Management is responsible for other information. Other information is all information provided in the annual report, other than the consolidated financial statements, the group management report, and the auditor’s report.
Our opinion on the consolidated financial statements does not cover other information and we do not provide any assurance thereon.
In conjunction with our audit, it is our responsibility to read this other information and to assess whether, based on knowledge gained during our audit, it contains any material inconsistencies with the consolidated financial statements or any apparent material misstatement of fact. If we conclude that there is a material misstatement of fact in other information, we must report that fact. We have nothing to report in this regard.
Responsibilities of Management and Audit Committee for the Consolidated Financial Statements
Management is responsible for the preparation and fair presentation of the consolidated financial statements in accordance with International Financial Reporting Standards (IFRSs) as adopted by the EU, the additional requirements pursuant to Section 245a UGB (Austrian Commercial Code) and for such internal controls as management determines are necessary to enable the preparation of consolidated financial statements that are free from material misstatement, whether due to fraud or error.
Management is also responsible for assessing the Group’s ability to continue as a going concern, disclosing, as applicable, matters related to going concern and using the going concern basis of accounting, unless management either intents to liquidate the Group or to cease operations, or has no realistic alternative but to do so.
The audit committee is responsible for overseeing the Group’s financial reporting process.
Our objectives are to obtain reasonable assurance about whether the consolidated financial statements as a whole are free from material misstatement, whether due to fraud or error, and to issue an auditor’s report that includes our audit opinion. Reasonable assurance represents a high level of assurance, but provides no guarantee that an audit conducted in accordance with the AP Regulation and Austrian Standards on Auditing (and therefore ISAs), will always detect a material misstatement, if any. Misstatements may result from fraud or error and are considered material if, individually or in aggregate, they could reasonably be expected to influence the economic decisions of users taken on the basis of these consolidated financial statements.
As part of an audit in accordance with the AP Regulation and Austrian Standards on Auditing, we exercise professional judgment and maintain professional skepticism throughout the audit.
- We identify and assess the risks of material misstatement in the consolidated financial statements, whether due to fraud or error, we design and perform audit procedures responsive to those risks and obtain sufficient and appropriate audit evidence to serve as a basis for our audit opinion. The risk of not detecting material misstatements resulting from fraud is higher than for one resulting from error, as fraud may involve collusion, forgery, intentional omissions, misprepresentations or override of internal control.
- We obtain an understanding of internal control relevant to the audit in order to design audit procedures that are appropriate in the circumstances, but not for the purpose of expressing an opinion on the effectiveness of the Group’s internal control.
- We evaluate the appropriateness of accounting policies used and the reasonableness of accounting estimates and related disclosures made by management.
- We conclude on the appropriateness of management’s use of the going concern basis of accounting and, based on the audit evidence obtained, whether a material uncertainty exists related to events or conditions that may cast significant doubt on the Group’s ability to continue as a going concern. If we conclude that a material uncertainty exists, we are required to draw attention in our audit report to the respective note in the consolidated financial statements. If such disclosures are not appropriate, we will modify our audit opinion. Our conclusions are based on the audit evidence obtained up to the date of our auditor’s report. However, future events or conditions may cause the Group to cease to continue as a going concern.
- We evaluate the overall presentation, structure and content of the consolidated financial statements, including the notes, and whether the consolidated financial statements represent the underlying transactions and events in a manner that achieves fair presentation.
- We obtain sufficient appropriate audit evidence regarding the financial information of the entities and business activities within the Group to express an opinion on the consolidated financial statements. We are responsible for the direction, supervision and performance of the group audit. We remain solely responsible for our audit opinion.
- We communicate with the audit committee regarding, amongst other matters, the planned scope and timing of our audit as well as significant findings, including any significant deficiencies in internal control that we identify during our audit.
- We communicate to the audit committee that we have complied with the relevant professional requirements in respect of our independence, that we will report any relationships and other events that could reasonably affect our independence and, where appropriate, the related safeguards.
- From the matters communicated with the audit committee, we determine those matters that were of most significance in the audit i.e. key audit matters. We describe these key audit matters in our auditor’s report unless laws or other legal regulations preclude public disclosure about the matter or when in very rare cases, we determine that a matter should not be included in our audit report because the negative consequences of doing so would reasonably be expected to outweigh the public benefits of such communication.
Report on Other Legal Requirements
Group Management Report
In accordance with Austrian company law, the group management report is to be audited as to whether it is consistent with the consolidated financial statements and prepared in accordance with legal requirements.
Management is responsible for the preparation of the group management report in accordance with Austrian company law and other legal or regulatory requirements.
We have conducted our audit in accordance with generally accepted standards on the audit of group management reports.
In our opinion, the group management report is consistent with the consolidated financial statements and has been prepared in accordance with legal requirements. The disclosures pursuant to Section 243a UGB (Austrian Commercial Code) are appropriate.
Based on our knowledge gained in the course of the audit of the consolidated financial statements and our understanding of the Group and its environment, we did not note any material misstatements in the group management report.
Additional Information in accordance with Article 10 AP Regulation
We were elected as auditors at the Annual General Meeting on April 26, 2022 and were appointed by the supervisory board on April 26, 2022 to audit the financial statements of Company for the financial year ending on December 31, 2022.
We have been auditors of the Company, without interruption, since the consolidated financial statements as at December 31, 2017.
We declare that our opinion expressed in the “Report on the Consolidated Financial Statements” section of our report is consistent with our additional report to the Audit Committee, in accordance with Article 11 AP Regulation.
We declare that we have not provided any prohibited non-audit services (Article 5 Paragraph 1 AP Regulation) and that we have ensured our independence throughout the course of the audit, from the audited Group.
The engagement partner is Ms Gabriele Lehner.
Linz, March 03, 2023
KPMG Austria GmbH
Wirtschaftsprüfungs- und Steuerberatungsgesellschaft
Austrian Chartered Accountant
This report is a translation of the original report in German, which is solely valid. The financial statements, together with our auditor’s opinion, may only be published if the financial statements and the management report are identical with the audited version attached to this report. Section 281 Paragraph 2 UGB (Austrian Commercial Code) applies.