Annual Report • May 3, 2007
Annual Report
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Annual Report 2006 Lenzing Group
A day like any other day and Lenzing is part of your life without your even noticing. First of all, cellulose fibers made from the natural raw material wood – there is hardly a household, hardly a wardrobe without products made of Lenzing fibers. Then there are many other areas covered by Lenzing: Medicine or the food industry, your domestic or your professional life – products by Lenzing stand for excellent performance and highest demands. The pursuit of quality has been driving us for now seven decades and made us what we are – part of your life.
| Business results | 2004 | 2005 | 2006 |
|---|---|---|---|
| EUR mill. | |||
| Sales | 871.1 | 942.6 | 1,100.5 |
| EBIT | 104.3 | 81.8 | 107.1 |
| EBIT margin in % | 12.0 | 8.7 | 9.7 |
| EBITDA | 160.4 | 141.6 | 170.1 |
| EBITDA margin in % | 18.4 | 15.0 | 15.5 |
| EBT | 103.5 | 79.3 | 98.6 |
| Share of net income of shareholders of Lenzing AG |
67.7 | 56.9 | 83.9 |
| Financing structure | 2004 | 2005 | 2006 |
|---|---|---|---|
| EUR mill. | |||
| Cash | 59.6 | 85.1 | 97.0 |
| Inventories | 116.9 | 124.1 | 123.9 |
| Receivables | 155.1 | 159.4 | 171.9 |
| Liabilities | 246.2 | 271.3 | 275.9 |
| Net debt | 179.7 | 169.0 | 145.9 |
| Retained earnings | 329.7 | 343.8 | 402.7 |
| Net Gearing in % | 39.2 | 34.9 | 26.9 |
| Capital expenditure | 2004 | 2005 | 2006 |
|---|---|---|---|
| EUR mill. | |||
| Capital expenditure | |||
| Lenzing AG | 43.7 | 63.5 | 41.1 |
| Group total | 60.9 | 82.4 | 105.3 |
| Group depreciation and amortization |
59.9 | 64.1 | 67.2 |
| Cash flow | 2004 | 2005 | 2006 |
|---|---|---|---|
| EUR mill. | |||
| Gross cash flow | 128.5 | 120.4 | 147.9 |
| Net cash from operating activities | 95.3 | 124.3 | 146.1 |
| Net increase (+) / decrease (-) in cash |
-59.0 | 14.9 | 13.0 |
| Cash and current investments | 59.6 | 85.1 | 97.0 |
| Capital structure | 2004 | 2005 | 2006 |
|---|---|---|---|
| EUR mill. | |||
| Liabilities (excl. of post employment benefits) |
421.7 | 452.3 | 444.4 |
| Post employment benefits | 63.8 | 73.0 | 74.4 |
| Equity adjusted | 460.5 | 484.8 | 542.9 |
| ROCE in % | 12.2 | 9.0 | 11.9 |
| ROE in % | 17.9 | 12.8 | 17.2 |
| Stock exchange | 2004 | 2005 | 2006 |
|---|---|---|---|
| EUR | |||
| Common stock in mill. | 26.7 | 26.7 | 26.7 |
| Market capitalization in mill. | 683.2 | 648.6 | 930.3 |
| Share price as at 31 Dec. | 185.9 | 176.5 | 253.1 |
| Earnings per share | 18.41 | 15.48 | 22.83 |
| Production | 2004 | 2005 | 2006 |
|---|---|---|---|
| in 1,000 tons | |||
| Fibers (total) | 414.2 | 453.8 | 478.1 |
| Paper | 73.3 | 74.7 | 78.9 |
| Plastics | 17.8 | 17.4 | 20.0 |
| Key Data | Cover |
|---|---|
| About Us | 04 |
| Textile Fibers | 06 |
| Nonwoven Fibers | 07 |
| Our Locations | 08 |
| The Management Board | 10 |
| Editorial | 12 |
| Life with Lenzing | 14 |
| Management Report General Market Environment Development of the Lenzing Group Segment Fibers Segment Engineering Segment Plastics Segment Paper Risk Report Financial Situation and Liquidity Research and Development Environment and Sustainability Human Resources Corporate Communications Outlook Lenzing Group |
34 36 37 40 49 52 54 56 59 59 60 63 66 68 |
| Consolidated Financial Statements Income Statement Balance Sheet Cash Flow Statement Statement of Recognized Income and Expense |
70 72 73 74 75 |
| Notes | 76 |
| Development of Fixed Assets Auditor's Report Report of the Supervisory Board Long-term Comparison |
124 126 128 130 |
| Addresses | Cover |
The Lenzing Group is an international corporate group with headquarters in Upper Austria. We are present on all important world markets and we set standards in the field of man-made cellulose fibers with our quality and our innovations. Lenzing fibers are made of wood, the renewable raw material. They are used by the textile industry – for garments, home textiles and technical textiles – as well as by the nonwovens industry.
70 years of experience in fiber production make us the only manufacturer world-wide uniting all three generations of man-made cellulose fibers – viscose, modal and lyocell. The success of our group is based on the combination of consistent customer focus with technology and quality leadership.
Our economic strength is secured both by our focus on fiber specialties and our cost-competitiveness. Lenzing is committed to the principles of sustainable management with very high environmental standards. In addition to our core business fibers, we are active in business sectors engineering, plastics and paper.
| Business Unit Textile Fibers |
Fibers for textile applications Shirts / blouses / outerwear / lingerie / home textiles |
|---|---|
| Business Unit Nonwoven Fibers |
Fibers for the nonwovens industry Sanitary / medical / cosmetics / home |
| Business Unit Pulp |
Pulp The primary material for fiber production at the Lenzing site |
| Chemicals Acetic acid for the food industry and industrial applications Furfural for the production of furfural alcohol and as a selective solvent for the crude oil industry Magnesium lignin sulfonate for the animal food industry, for the ceramics and construction materials industry Sodium sulfate for the detergent and cleaning agents industry, for the glass, textile and chemical industry Xylose – basis of sugar substitutes (for example caries-inhibiting chewing gum) |
|
| Business Unit Engineering |
Fiber and Pulp Technology Viscose technology / pulp technology / separation technology / environmental technology Mechanical Construction and Automation Mechanical construction / industrial services / automation Mechatronics Electronics / marking systems / robotics |
| Business Unit Plastics |
Thermoplastics Films, tapes and yarns / technical fabrics and laminates PTFE (polytetrafluoroethylene) Fibers and yarns for filtration / filaments for compression packings |
| Business Unit Paper |
Recycled paper Poster paper Envelope paper FSC paper |
| Business Unit Energy |
Electricity Heat Utilities Disposal management |
TENCEL® – the breakthrough innovation in modern fiber technology. The unique nanofibrillar structure of TENCEL® creates its natural properties: soft as silk, strong as polyester, cool as linen, warm as wool and more absorbent than cotton.
Areas of application: Home textiles: quilts and bed linen Clothing: shirts, blouses, sportswear, outerwear
Softness through and through. Lenzing Modal® has been unrivaled for more than 40 years – the embodiment of softness on skin. The fiber retains its marvelous softness, brightness and brilliance even after many washings.
Areas of application: Home textiles: terry products Clothing: homewear and lingerie, fashionable knit tops
70 years of experience in manufacturing viscose fibers set the international processing quality standard.
Areas of application: Apparel in knitted or woven fabrics
The extraordinary properties of this special fiber, its thermal insulation and moisture management, reduce the risk of heat stress and heat stroke and improve protection against second-degree and third-degree burns.
Highly flame-retardant protective clothing, textiles for public transport, fire blockers and nonwovens
Lenzing fibers made from the raw material wood are exceptionally absorbent and pure. That makes them the ideal material for demanding nonwovens applications.
Nonwovens made of Lenzing fibers are used in sensitive areas of sanitary, medical and cosmetics applications. Well-known products are wet wipes for infant care, make-up removal and refreshing. Medical applications include wound care pads, surgical swabs and components of surgical scrubs. Domestic and personal hygiene applications are other areas of strong growth.
Lenzing with six production sites in Europe, Asia and America is the unique global and flexible provider of nonwoven cellulose fibers. Our world-leading position is emphasized by the globally most advanced fiber production line at the Lenzing site and the steady expansion of the nonwovens business at all locations.
TENCEL®, the lyocell fiber with the prestigious European Environmental Award, is perfectly suited for nonwovens and shows great potential for opening new product markets. The new generation of specialty medical dressings made of TENCEL® fibers meets the continuously rising standards of health care product quality.
April 2007
Product development, production planning, marketing and logistics of business sector fibers are geared to maximum customer service. The cooperation of project-focused and translocal teams challenges the flexibility and the responsibility of our staff. Lenzing's involvement in a multitude of fairs each year shows our commitment to both global presence and local proximity to the customer.
Chairman (image left)
Business Unit Textile Fibers Business Unit Nonwoven Fibers Business Unit Pulp
Human Resources Business Development Innovation and Patents Corporate Communications Corporate Compliance Internal Group Auditing
Pulp Trading GmbH Lenzing Fibers GmbH Lenzing Fibers (Grimsby) GmbH Lenzing Fibers Inc. PT. South Pacific Viscose Lenzing (Nanjing) Fibers Co., Ltd. Lenzing Fibers (Hong Kong) Ltd. Lenzing Fibers (Shanghai) Co., Ltd. BZL – Bildungszentrum Lenzing GmbH
(image right)
Business Unit Plastics
Business Unit
Business Unit
Paper
Energy
Safety and Security Environment Infrastructure
Lenzing Technik GmbH RVL Reststoffverwertung Lenzing GmbH Leno Electronics GmbH
(image center)
Responsibilities Finance, Controlling and IT Wood Purchasing Purchasing Legal Services Risk Management
Lenzing Plastics GmbH
German-born Thomas Fahnemann completed an apprenticeship program for industrial management before studying business management in Mainz. He started his career at Hoechst AG, followed by ten years in the United States with his last assignment as general manager und vice president of one of the largest US polyester manufacturers. He joined Lenzing in March 2003 and stands for the active dynamic expansion of the Lenzing Group. "Heading this excellent corporation towards expansion and growth is the finest challenge of my professional life."
Ladies and Gentlemen,
2006 was the most successful year in the corporate history of Lenzing. Not only did we improve all relevant key figures to all-time record levels, but we also set important milestones on our road to future success.
Our strategic position as the global market and technology leader in our core business cellulose fibers allowed us to make the most of the good economic conditions of 2006. Material to this result were: our focus on the customer, successful development of new applications in the textile business, ever increasing focus on high-quality specialty products and new developments and applications in the nonwovens sector with its highly attractive future.
But 2006 has also been a year of laying the tracks for the continuous optimization of our production costs. Project "Fit for the Future", started at the beginning of 2006, has already resulted in measurable cost optimization which will continue throughout the coming years. This project has sharpened the awareness of our staff to identify improvement opportunities, however small they may be, and will be continued. These are the instruments with which we will counter the development of energy and raw material prices. As a consequence, we will be able to realize savings in the double-digit million euro range. We also reorganized our research and development activities and brought innovation even closer to our operating units. This will enable us to respond much faster with new developments to future market demands.
But even if the fiber market has regained some of its stability after a very difficult year 2005, we must not forget that the future growth of our industry will take place in Asia. This trend is unbroken and will be irreversible. However, Europe has proven in 2006 that innovation, creativity, quality and design can create competitive products for the market. But the Asian textile industry continues to gain global market share with export growth in the double-digit range. Projections that every other textile product will be labeled "Made in China" at the end of this development are becoming more and more realistic and Asia is also becoming more and more attractive as an end consumer market for textiles and nonwovens. Growing prosperity and an aspiring middle class are additional factors in the long-term growth of our industry in this region.
Our regional strategic goal, therefore, is further specialization and continuous growth in Europe, and above average growth in Asia. Lenzing today already derives considerable benefit from the Asian textile industry. Our exports of specialty fibers from Europe to Asia in 2006 reached new record levels. We will be able to make even more of this dynamic expansion in the years to come. The construction of our viscose fiber plant at Nanjing / China made good progress in 2006. 2007 will see the start of production. Moreover, we entered the important Indian fiber market by establishing a branch office.
In 2006, Lenzing also scored in the non-fiber sectors Plastics and Engineering. Lenzing Plastics asserted itself as a supplier of specialty products in Europe and its expansion rate is remarkable. In the engineering sector we are known worldwide as a competent partner of the cellulose and fiber industry with great expertise in mechanical engineering and attractive growth potential.
The strategic position we have achieved therefore gives us confidence for 2007. We will secure our market leadership by continued expansion and our ambitious development program will extend our lead in technology. It is our goal to derive above-average benefit from the upswing of the cellulose fiber industry.
On behalf of our staff and our shareholders I want to sincerely thank our customers for their cooperation in the past year. My special thanks go to all our staff members for the enormous dedication that made 2006 such a successful year.
Lenzing, March 2007
Thomas Fahnemann
| 5:10 am | Lenzing Never Sleeps |
|---|---|
| 6:50 am | Made by Lenzing – Naturally |
| 7:40 am | Breakfast with Lenzing |
| 8:10 am | Lenzing Goes Fashion |
| 8:40 am | Lenzing Protects |
| 10:30 am | Lenzing – Success by Design |
| 12:45 am | Lenzing Covers all Angles |
| 5:20 pm | Work Out with Lenzing |
| 7:40 pm | Lenzing – Rely on it |
Lenzing's biggest production site for cellulose and viscose fibers has now been working for seven decades: around the clock, day in day out. Innovations in cellulose fibers, made from the natural raw material wood, originate from Lenzing – the world's unique competence center for fiber research.
Lenzing never sleeps, but it is your sleep and your relaxation that are constantly on the minds of Lenzing's innovators. They created the revolutionary TENCEL® fiber that unfolds its strengths to enfold you: Smooth to the touch, cool on the skin, silky gloss and natural moisture management: TENCEL® quilts and bed linen are well-being pure for people with sensitive skin.
Business Unit Textile Fibers
Tencel® for bed-linen
Business Unit Textile Fibers
Tencel® for quilt fillings
Business Unit Textile Fibers Tencel® for high-quality lingerie
Business Unit Plastics Lenzing Profilen® for dental floss
Lenzing Modal® – the essence of softness in your bathroom. Supple and tender, subtle look and brilliant sheen: Lenzing Modal®, the attractive material of choice for high-quality domestic textiles, such as terry products, and for soft body wear. MicroModal®: cellulose fibers' finest. Spin out an ounce to 180 miles – that is microfiber fineness you can touch.
Lenzing Modal® is made from beech wood: that means 100% nature. Cellulose made at Lenzing is cellulose from European forests under sustainable care. Lenzing is the world champion of closed production cycles. Over the years we optimized the complicated production process to full ecological soundness.
Fiber Nonwovens Lenzing Viscose® for cosmetic wipes
The raw material's contribution to the quality of Lenzing Modal® is proven, its beech wood is credited with providing the characteristic properties that make the fiber so unique.
Lenzing Modal® for terry products
The natural raw material wood has made sustainability a lived reality at Lenzing.
Cellulose is only one resource that Lenzing extracts from wood, while at the same time minimizing environment load and maximizing resource utility: Acetic acid is the natural preservative for pickling gherkins and curing herring. Xylose (wood sugar) is the basis of caries-inhibiting sweeteners and sodium sulfate is used in glass production. The remaining biomass goes to thermal utilization and is a major contributor to the energy supply of the company.
Apart from its core business fibers, Lenzing is successful in other business fields as well, such as in engineering, plastics and paper, providing goods and services to a broad spectrum of international customers from a wide range of industries, such as automotive, cosmetics, medical and food. Many of the products that you meet in your day are made by Lenzing.
Business Unit
Pulp
Acetic acid for the food industry
Business Unit Plastics
Special films for labels
Business Unit Textile Fibers
Tencel® for designer jeans
Successful designers use brand fibers by Lenzing.
TENCEL® is the function fiber of the future, cool and light, for jeans, for high-quality home textiles, for lifestyle sportswear. Nike, Adidas or Löffler are but a few of the well-known brands that opt for future's fiber.
Lenzing Modal® has been the first choice of many brands for years: Diesel, Just Cavalli, Versace, Emanuel Ungaro, Mango or Lacoste – their fine collections display the luxury values of Lenzing Modal®.
Lenzing Viscose® is the classic all-rounder of the Lenzing cellulose fiber family: High-quality T-shirts, blouses, trendy dresses – Lenzing Viscose® is the basis of fashionable ease-of-wear that comes in many styles.
Business Unit Textile Fibers Lenzing Modal® for high-quality lingerie
Business Unit Textile Fibers Lenzing Viscose® for women's outerwear
Business Unit Paper Paper for billboard advertising
Dangerous jobs and hot spots, that is where you find Lenzing FR® – the heat protection fiber made by Lenzing. Lenzing FR® combines unique heat insulation with lasting low flammability. Apart from its protective function, Lenzing FR® guarantees greatest ease-of-wear as it is made from the natural raw material wood. Its breathability as well as its excellent skin properties make Lenzing FR® the indispensable fiber for a wide range of applications: industrial workers, firemen and firewomen, police officers and gas station attendants, they all rely on the unique protective properties of Lenzing FR®. It is one of the fastest growing fiber specialties of the Lenzing Group and is marketed worldwide.
By the by, the top quality poster paper for outdoor advertising on the billboard in the background is made by Lenzing, too – just as the paper of your hard copy of this annual report.
Business Unit Textile Fibers
Lenzing FR® for protective wear
Business Unit Engineering High tech for the automotive industry
Our position as the international innovation leader is not just a result of our unique products. It is the technological accomplishments of the Lenzing Group that are trendsetting and unsurpassed in many areas. The independent player Lenzing Technik is an engineering company that supports its industrial partners with globally respected performance in plant engineering, automation, environmental technology and, of course, fiber and pulp technology. Major companies from a variety of industries rely on our services and expertise. From customer-specific development to turnkey delivery on time: years of experience and the steady pursuit of perfection stand for excellent performance and quality.
And by the way: the envelopes on the table are made by Lenzing, too. The committed team at our small but fine paper factory is dedicated to generating niche success: we manufacture fine poster paper for outdoor advertising, superior envelopes and high-quality recycled paper.
Business Unit Engineering Engineering for industrial applications
Business Unit Plastics Special films for the cable industry
Business Unit Paper
Special paper for envelopes
Business Unit Plastics Lenzing Profilen® for textile architecture
Innovative niche solutions for highly demanding requirements and short development times: that is Lenzing Plastics, another Lenzing Group subsidiary. More than half of the sales generated by this innovation hotbed result from products that are no older than three years. All of them are leaders in a total of fifteen product groups, from artificial turf to medical technology. Lenzing and its PTFE membrane architecture cover all angles, from aesthetics to durability: highest weather resistance, flexibility even at lowest ambient temperatures and optimum protection from ultraviolet radiation make every Lenzing PROFILEN® product the perfect high-end material for awnings and outdoor textile membrane structures.
Business Unit Pulp Acetic acid for the food industry
Business Unit Pulp Sodium sulfate for the glass industry
Business Unit Textile Fibers Tencel® for sportswear
Treadmill or marathon – sports enthusiasts all over the world work out with Lenzing, their important and future-oriented partner for innovative function wear. The perfect sports fiber is TENCEL®. Its natural intelligence makes it unique: sub-microscopic channels between the nanofibrils regulate absorption and release of moisture. TENCEL® moisture management surpasses synthetic fibers and enables natural excellence in sports. But more: perfect skin properties and a number of other characteristics, such as reduced bacterial growth and natural purity make this fiber the fiber of the future.
Lenzing nonwoven fibers expand from their original field of sensitive applications in hygiene, medical and cosmetics into sports: for example as fleece materials for hygienic and absorbent inserts for runners' shoes.
Business Unit Plastics Lenzing Profilen® for runners' socks
Business Unit Fiber Nonwovens Tencel® for inserts of runners' shoes
Lenzing fibers made of the natural raw material wood are exceptionally absorbent and pure – characteristics that make them the ideal materials for meeting the demanding requirements expected from nonwovens.
Therefore you find Lenzing fibers wherever absolute cleanness and absorbency are a must. Among these areas are cosmetics products, such as cleaning pads, wipes for makeup removal, as well as women's personal care, but also general domestic cleaning products, such as all-purpose wipes and cloths.
The most important job of Lenzing nonwoven fibers, however, is in medical applications: they serve in swabs, pads and disposable clothing to save lives and to maintain health.
Business Unit Fiber Nonwovens Lenzing Viscose® for domestic products
Business Unit Pulp
Sodium sulfate for detergents
Lenzing Group
Sales: EUR 1.1 bill. (+ 16.8%)
EBIT: EUR 107.1 mill. (+ 31.0%)
EBT: EUR 98.6 mill.(+ 24.3%)
Net income after minority interests: EUR 83.9 mill. (+ 47.5%)
The market environment for the Lenzing Group in business year 2006 was characterized by improved general economic conditions, as compared to those of the difficult year 2005. Economic recovery in the euro zone continued with a growth in GDP of 2.6%1 (2005: 1.5%), in particular in Germany where private consumption showed clear signs of picking up. The Asian business engine showed no signs of wear, despite high energy and raw material prices. GDP growth in China, the world's most important market for textile fibers, again reached a record level of an estimated 10.6% (2005: 10.2%). Other important Asian economies, such as India, Korea and Japan also developed very well. Even with economic growth in the United States stagnating at a high level in 2006, private consumption remained the driving force.
The adverse raw material price development that had started in 2004 continued in most markets relevant to the Lenzing Group (wood, pulp, chemicals, plastics raw materials). Thus the Dow Jones AIG commodity index rose by 18.6% between the beginning of 2004 and the end of 2006. Energy prices continued to rise as well.
The sales market for cellulose fibers, the most important segment of the Group, developed well in all global economic regions due to generally favorable economic conditions. The global demand for services of Business Unit Engineering was gratifying, too. Business Unit Plastics benefited from the economic recovery in Europe. The market for Business Unit Paper showed signs of recovery in the course of 2006.
Synthetic fibers Cellulose fibers Wool Cotton
1 all economic data source OECD
The Lenzing Group made optimum use of the positive general economic conditions in 2006 and reached new, all-time record levels in all relevant business key indicators. Consolidated sales of the Lenzing Group for the first time exceeded the billion euro mark with EUR 1.1 bill. (2005: EUR 942.6 mill.), corresponding to a growth in sales by 16.8%. This dynamic growth was based on the further expansion of production capacity in business sector fibers, price adaptations to rising raw material costs and the further improvement of the product portfolio towards more attractive margins. Core business Fibers generated 80.9% of consolidated sales, followed by Plastics 8.3%, Paper 5.3% and Engineering 5.4% (external sales only).
The increase in cost of material and purchased services for the Group by 21.3% was significantly higher than the sales increase, reflecting the strong rise in raw material and energy costs. Energy alone, with natural gas as a major contributor, cost about EUR 10 mill. more in business year 2006 than in 2005.
Other operating expenses increased due to the intensive activity in various fields by 9.6% to EUR 126.4 mill. EBITDA improved by 20.1% to EUR 170.1 mill. (2005: EUR 141.6 mill.). EBIT came to EUR 107.1 mill., corresponding to an increase of 31.0% over 2005 (EUR 81.8 mill.). EBT at EUR 98.6 mill. (2005: EUR 79.3 mill.) was 24.3% higher than in business year 2005. As in 2005, all business sectors, with the exception of Paper, provided positive contributions to results.
Due to less taxes on income, annual net income improved by 45.6% to EUR 88.4 mill. (2005: EUR 60.7 mill.). The share of shareholders of Lenzing AG of EUR 83.9 mill. yielded earnings per share of EUR 22.83 (2005: EUR 15.48), corresponding to an increase of 47.5%. In view of this new record result, the management board will propose to the general shareholders' meeting the distribution of a dividend of EUR 10 per share (2005: EUR 8 per share).
Investments of the Lenzing Group in property, plant and equipment and intangible assets in business year 2006 were at EUR 105.3 mill. (2005: EUR 82.4 mill.) The focus, as in previous years, was on the continuous expansion and modernization of production capacity and infrastructure in business sector fibers and on the extension of extraction of chemicals as by-products of pulp production at the Lenzing site. The continued intensive construction activity at the new viscose fiber plant at Nanjing in China was another significant activity. In addition, Business Unit Engineering expanded into the field of sheet metal processing.
The key indicators of the Group's balance sheet remain solid, despite the dynamic expansion of the last few years. The increase of the balance sheet total of 5.1% to EUR 1.1 bill. was kept significantly below the increase in sales. Equity increased by 13.3% to EUR 516.0 mill., corresponding to an equity ratio, based on equity adjusted2 , of 51.1% (2005: 48.0%) of the balance sheet total. Long-term liabilities were lowered to EUR 308.9 mill. (2005: EUR 314.2 mill.). Due to the strong cash flow, net debt was lowered by 13.7% from EUR 169.0 mill to EUR 145.9 mill.
2 equity incl. investment grants less proportionate deferred taxes
Good market environment
After the difficult general conditions of 2005, business year 2006 saw stabilization and improvement in the global market environment of the fiber business. Several factors contributed to this development:
Against these positive macroeconomic conditions, however, stood considerable challenges:
First estimates rate the global 2006 fiber production (cotton, wool, chemical fibers) at 68.2 mill. tons – an increase of 2.9% over 2005. The individual fiber shares are: cotton 25.3 mill. tons (up 2.5%), wool 1.2 mill. tons (down 1.2%) and chemical fibers 41.7 mill. tons (up 3.3%).
Growth in man-made cellulose fiber production by about 5% to 3.4 mill. tons was above average, as in 2005. The share of viscose staple fibers (including modal, excluding lyocell), Lenzing's core business, grew by 9% to 2.2 mill. tons. The major part of this expansion again took place in Asia. Chinese viscose staple fiber production grew by an estimated 13% to 968,000 tons, followed by Indonesia 13%, Taiwan, 15%, and India, 7%. Western Europe saw an increase of 7%. Eastern European production, however, fell by 18% due to the closure of one manufacturer. Production in America was lower as well, with the last viscose fiber production plant in the USA closing production. Global viscose fiber consumption in 2006 increased strongly, just as in 2005. This affected textile and nonwoven fibers, rising by 10% and 7% respectively, with Asian demand for textile fiber specialties at an unchanged high.
Growth in chemical fibers in 2006 focused exclusively on China, with an increase of 13% to an estimated 20.3 mill. tons, and India with an increase of 12% to 2.4 mill. tons. China further extended its dominant position (to almost half of the global production) as the world's biggest producer of chemical fibers by far. The country is now almost self-sufficient in the production of standard fibers. Production in all other major regions declined, such as in the USA, 8%, and Europe, 1%. As opposed to the positive trend in China and India, production in other Asian countries declined as well, such as in Taiwan, 7%, Korea 12% and Thailand 10%.
Cotton prices slightly recovered, polyester and viscose prices slightly higher
After their 2005 decline by 11%, cotton prices slightly recovered from their all-year low in May 2006 of 55 USD cts/lb to 61 USD cts/lb at year-end. The rise was carried by the strong demand in China and India, while cotton processing in Western Europe, the USA and Japan declined. No major change in current US cotton subsidies is to be expected for the time being.
Prices for polyester staple fibers in 2006 rose due to higher raw material prices by 3% in Europe and in the USA, the corresponding price increase in Asia of 7% was significantly more pronounced.
Prices for viscose staple fibers in Western Europe were increased in the course of 2006, the annual average price, however, was only slightly above that of 2005.
Lenzing Fibers continues dynamic expansion
In business year 2006 the Lenzing Group continued its dynamic expansion of segment Fibers.
Sales by segment reporting were at EUR 902.8 mill. (2005: 779.6 mill.) The consolidated segment EBIT reached a new all-time high of EUR 89.6 mill. (2005: EUR 66.6 mill.), corresponding to an EBIT margin in segment Fibers of 9.9% (2005: 8.5%).
This very good segment result was mainly due to the dynamic development of Business Unit Textile Fibers, but Business Unit Nonwoven Fibers showed significant improvement in the course of the year as well. Production capacity in business year 2006 was again fully utilized and new production records were set at all sites, partly even exceeding targets.
Global market development was expanded by the establishment of a new branch office in India. Further concentration on hard-to-substitute products with high margins and on innovative product applications proved successful.
Further investment in the optimization and increased flexibility of fiber production enabled the annual production capacity at the Lenzing site to be raised to about 230,000 tons (2005: 225,000 tons). As a result, the share of high-value fiber specialities with good margins was increased again. The Indonesian subsidiary PT. South Pacific Viscose achieved a new production record by the consistent elimination of bottlenecks. The TENCEL® sites at Mobile / USA, Grimsby / UK and Heiligenkreuz / Austria also generated very good production results.
Stocks in 2006 were greatly reduced across the Group due to strong demand.
Production in the Lenzing Group reached its highest level ever with 480,000 tons of cellulose fibers, again proving Lenzing to be the world market leader in cellulose staple fibers.
Standard fibers
The raw material supply for the Lenzing Group was well secured despite severe market shortages of wood and pulp. The snowy winter of 2005/06 and strong demand for wood by cogeneration plants and private households led to an undersupply of beech wood in Central Europe. Weather prevented felling to meet industrial demand, even leading to the temporary closure of saw mills and other wood processing enterprises in Austria.
These adverse general conditions for the European timber industry as a consequence led to an average price increase for timber in 2006 of about 11% over 2005. Global pulp prices (NBSK), too, rose by about 10%. The continued rise in energy prices, especially for natural gas, led to considerable additional costs of EUR 10 mill. Despite the very high degree of self-sufficiency in energy production at the Group's biggest production site, Lenzing, additional costs of about 15% for the provision of energy over 2005 had to be absorbed group-wide.
The stabilization of the European textile industry in 2006 after the dramatic changes in the market of 2005 should not hide the fact that the long-term shift in production capacity to Asia will continue.
Lenzing therefore in business year 2006 continued to implement its strategy of consistent globalization of its market presence and expansion into Asia, the market of the future.
The construction of the viscose fiber plant at Nanjing (China) jointly with the listed Nanjing Chemical Fibre Co., Ltd. (NCFC) continued on schedule. The plant with an initial capacity of 60,000 tons will enter the start-up phase within the first six months of 2007. Capital expenditure (without start-up cost) will be as scheduled at RMB 650 mill. (equivalent to EUR 63 mill. as at 31/12/2006). Lenzing (Nanjing) Fibers Co., Ltd. will produce fibers for both the textile and the nonwovens sector. If market conditions permit, further expansion of capacity is possible. First long-term supply contracts for fibers from Nanjing have already been agreed with one important European customer who intends to set up a spinning mill in China. This market is to be the main target.
The development of the Chinese market was further intensified by the Lenzing trading company for textile and nonwoven fibers in Shanghai. China today is one of the most important sales markets for high-value Lenzing specialty fibers. Moreover, corresponding efforts in 2006 were made in new markets for specialties, such as Indonesia, India, Syria and Brazil.
The opening of a branch office in India in 2006 marked the successful entry into this important and promising market.
Business Unit Textile Fibers looks back on its best business year in corporate history. Shipments to textile processing customers reached a new high with over 320,000 tons of fibers.
Several reasons were responsible for this very good result, apart from the generally good condition of the textile economy:
The successful positioning of Lenzing fibers as high-value natural fibers optimized for specific applications resulted in further improvement of the product mix towards specialties with high margins. Lenzing thereby managed to gain further market share for Lenzing Modal® and MicroModal® fibers, despite growing competition. This position in the top quality segment is also reflected by more than 100 million hang tags marketed to end customers.
New areas of application for TENCEL® fibers, such as in technical textiles, round off the picture.
All in all, the activities of Business Unit Textile Fibers in 2006 were put on a broader foundation by developing new customer groups and new application segments.
The demand for Lenzing textile fibers at the start of business year 2007 developed very well. The Asian textile economy has so far shown no signs of weakening. There has been no essential change in the price levels of cotton and polyester fibers. The weak US dollar, however, puts significant pressure on the European customers of Business Unit Textile Fibers, compared to their Asian competitors. Moreover, the competitive pressure in specialty fibers exerted by Asian suppliers is growing. The currently very high sales volume can be expected to lead to a certain amount of saturation in the textile chain during the second half of 2007.
The unchanged strategy of Lenzing Business Unit Textile Fibers is to focus on specialty fibers with high margins and on special applications. It can be expected to produce a good business development in 2007 as well.
Lenzing Business Unit Nonwoven Fibers continued to develop well, in terms of demand for Lenzing products and in terms of realized sales. The satisfactory development was caused by improved market conditions on one hand, and by new strategic measures, such as broadening the geographical base and sales activities with specific customer focus, on the other hand. The significant increase in distribution as compared to 2005 and several price increases jointly contributed to a corresponding rise in sales.
While demand in Europe was carried by sector spunlace (wipes), North America showed broad growth across all segments. The development of demand in Asia was positive, although with only slow growth in China.
In business year 2006 Lenzing Nonwovens further expanded its global market position. Its flexibility as supplier of high-quality products was significantly improved as a result of increased delivery to Lenzing key customers from different production sites of the Group. This resulted in increased security of supply for customers and even better utilization of production capacity for Lenzing.
The implementation of cost saving measures as part of the program "Fit for the Future" significantly contributed to the increased earning power of Business Unit Nonwoven Fibers helping to offset the negative impact of increased raw material costs. Moreover, the restructuring of the Group's innovation activities contributed to a greater market focus, as did the newly established group for business development and the reinforced sales team.
The adverse development of costs in 2006, in particular for pulp, was compensated by internal measures and good market development.
The first weeks of business year 2007 saw the continuation of strong demand for Lenzing nonwoven fibers. This trend is expected to continue throughout the first half of 2007, followed by slight weakening in the second half that should lead to a more balanced supply and demand situation.
In Europe, Lenzing Nonwoven Fibers will expand its sound position as market leader by further optimizing its product mix and its customer base. Moreover, the newly established group for business development and reorganized research and development can be expected to provide stimulating input.
Lenzing Nonwoven Fibers will further consolidate its position as the market leader in North America, as Lenzing is now the only US-based producer of cellulose nonwoven fibers.
In 2007 Lenzing will further expand its global position by the introduction of non-fibrillating TENCEL® fibers which will open new areas of application for TENCEL®. The optimization of quality and global implementation of exacting Lenzing quality standards will accelerate. Business Unit Nonwoven Fibers can therefore expect the continued expansion of sales and results for 2007.
Business Unit Pulp
Business Unit Pulp is responsible for the key task of supplying the Group's fiber production with pulp. The Business Unit also manages the sales of by-products from pulp and fiber production, such as acetic acid and furfural.
Pulp production at the Lenzing site was raised by another 9,000 tons to the new record level of 225,000 tons, despite a difficult supply situation for beech wood in 2006. This increase was required to secure raised fiber production and was achieved by further debottlenecking of production. Raised costs due to increased wood prices were largely headed off by the considerable expansion of production capacity for resources such as xylose, furfural and acetic acid. These chemicals are extracted from raw material wood as by-products on the basis of proprietary processes. The development of the market for these products in business year 2006 was satisfactory. Furfural, acetic acid and by-product sodium sulfate are distributed Europe-wide by a sales division managed by the Business Unit.
2006 saw a dramatic increase in the demand for dissolving pulp. This led to a significant price increase of 10%. Lenzing, however, managed to secure supply for the non-integrated sites of the Group on the basis of long-term contracts with established suppliers.
The continued organic growth of the Group will be a considerable challenge for the Business Unit to provide pulp in a difficult market environment to the Group's companies. The supply situation for wood is not expected to ease. The increased radius of wood suppliers will generate higher transportation costs.
The 2007 pulp supply for non-integrated sites has been secured by concluded long-term agreements.
The expansion of pulp production by consistent debottlenecking at the Lenzing site will continue in 2007, in order to ensure the full integration of the site. Besides, production capacity for the extraction of chemicals from the by-products of pulp production will be consistently expanded over the coming months and years, which will further improve results from the middle of 2007.
The production of pulp and cellulose fibers are energy-intensive processes. The importance of Business Unit Energy in providing steam, electricity, process cooling, water and other media for production processes, is correspondingly great.
The energy situation in 2006 was characterized by price increases for electricity, oil, natural gas and biogenic fuels. The increased production of pulp and fibers at the Lenzing site led to a growth of fuel consumption by about 4%. Energy supply by RVL Reststoffverwertung Lenzing was increased by 2% over 2005. The contribution to Lenzing AG's ecologically optimized energy supply was consistently high throughout the year.
Due to the shortage of biogenic fuels and the increase in production capacity at the Lenzing site, more coal had to be used. The thermal utilization of waste and the use of alternative fuel was increased as well. Energy self-sufficiency of the Lenzing site for electrical power at 93% remained on a high level. The reconditioned hydroelectric power plants on the Ager river contributed by fully providing the expected increase in performance.
All sites had to cope with gas price increases which were partly considerable. As part of energy cost optimization measures, the Group largely centralized natural gas purchasing from the middle of 2006. For the first time risks concerning the price development of natural gas were partly hedged by corresponding financial instruments.
The Indonesian subsidiary PT. South Pacific Viscose replaced the cost-intensive production of electricity by diesel-powered generators with production by a new additional steam turbine.
Total annual fuel input 2006: 12,506,727 GJ
Outlook Business Unit Energy
The construction of a new thick liquor combustion unit at the Lenzing site continues on schedule. The new facility will start operation in 2007, securing the continuous thermal utilization of thick liquor from pulp production in the long term. The energy supply of the other sites, in particular of the new site at Nanjing, is well secured from today's perspective, even taking into account the difficult general situation in the energy market that is expected to continue. Despite lower crude oil prices due to general weather conditions in the fourth quarter of 2006, a sustained relaxation of the energy market situation is not to be expected in the medium term. Therefore all possibilities for saving energy will be used to secure the energy supply to the Group in terms of optimized consumption and in terms of optimized costs. The Lenzing site at the beginning of 2007 has started a comprehensive energy saving project with all of its staff participating.
Lenzing's Business Unit Engineering provides products and services in the fields of fiber and pulp technology, mechanical construction and automation, as well as mechatronics. Lenzing Technik markets its products worldwide and looks back on another very successful business year. In particular the conditions in the fiber and pulp industry continued to be favorable and therefore the high readiness to invest remained unbroken, within the Lenzing Group as well as with external customers. Total sales in 2006 grew to EUR 103.6 mill. (2005: EUR 88.6 mill.), with sales of EUR 59.0 mill. (2005: EUR 41.2 mill.) to customers outside the Lenzing Group. Positive project completions and the successful development of newly established business sectors resulted in an EBIT of EUR 10.1 mill (2005: EUR 9.4 mill.) and another highly gratifying annual result for this segment. Lenzing Technik in 2006 had an average staff of 500.
Fiber and Pulp Technology consists of the divisions viscose technology, pulp technology and separation technology.
The economic situation of the industry has been favorable for several years. This resulted in a corresponding readiness to invest in production facilities for cellulose fibers and leading to an attractive volume of order bookings and good results. The business development of division separation technology was gratifying as well. The good results of division viscose technology were mainly due to sales generated by capacity expansion within the Lenzing Group, but also to external orders from Europe and Asia.
The high level of expertise in the production of dissolving pulp and pulp for the paper industry again led to a high volume of order bookings from Southeastern Europe and Russia.
Lenzing's division mechanical construction is a supplier in traditional production system construction and successfully markets its comprehensive expertise resulting from decades of experience as a contract manufacturer.
The division is an established partner for maintenance projects of clients in diverse industries. High-quality maintenance work, such as the revision of complete production facilities or of individual components like pumps, gearboxes, fans, controls, instruments, and blowers forms the core of the services offered.
Division automation specializes in electrical systems, measuring and control technology, and automation of production facilities. Sales and results grew in 2006.
The policy decision to set up a new product group engaging in high-tech sheet metal processing was made in 2006 as well. The ground-breaking ceremony for the construction of the new plant at Lenzing took place already in the December of the same year. Operation will start in the middle of 2007 with a staff of 60. Lenzing's sheet metal technology will use laser cutting, punching, bending and robot-welding applications to provide customers from a variety of industries, such as plant engineering, automotive and medical, with high-quality sheet metal products.
Mechatronics focuses on the manufacture of high level mechanical and electronic components. It covers the divisions electronics, robotics and marking systems.
Apart from the production of electronic and electromechanical devices and component groups to customer specifications, division electronics offers fully automated SMT production including optional manual assembly of electronic component groups through its joint venture partner LENO Electronics.
Although division robotics is limited to the Austrian market it increased its sales level above that of 2005.
Division marking systems has acquired a good global market position over recent years and almost doubled sales. Increased product innovation expediture, however, burdened the result in 2006. Order bookings continue to develop satisfactorily.
Year 2006 saw the start of a project that will optimize the cost structure and business organization, and will revise the strategic orientation of Lenzing Technik as well as that of its divisions. Innovation potential is being identified, with the intention to develop new business fields. First results from this project can be expected in 2007.
High order bookings across all areas and gratifying high demand across almost all product groups point to a good development of sales and results in the new business year. The share of external customers in sales is scheduled to increase. Consistent product development and expansion of the product range will secure the successful development in 2007 as in previous years.
Lenzing's strategy in Business Unit Plastics is to supply high-quality niche products based on a variety of polymers. Lenzing Plastics has successfully asserted itself in the market as a leading Austrian plastics processing enterprise, focusing on thermoplastics and polytetrafluoroethylene (PTFE) for specific applications.
The market environment for Business Unit Plastics in business year 2006 was basically positive. The economic upturn in Germany and Austria, strong demand for insulating materials (caused by rising energy prices) and the mild winter of 2006 /2007 in Central Europe favored in particular sales of laminates for roofs and semi-finished materials for the insulation industry. Asian competitors, however, continued to put pressure on prices for PTFE fibers and filaments for hot gas filtration. The price of polyolefine raw materials reached a record high, resulting in additional costs of about EUR 5 mill. over 2005.
The 2006 EBIT of segment Plastics at EUR 8.9 mill. was on par with the excellent result of 2005 (also EUR 8.9 mill.) Sales grew significantly by 14.6% from EUR 81.6 mill. (2005) to EUR 93.5 mill. due to increased volumes and price increases for raw materials that were partly passed on to customers.
In 2006, Business Unit Plastics clearly laid the tracks for its further expansion. A monofil extrusion line for artificial turf yarns of the latest generation took up production and new yarn types were successfully developed.
Specific investments enabled the production start-up of multi-layer packaging film with superior surface properties.
The cable film business expanded with aluminium laminates for data cable shielding. New yarn grades for compression packings were developed and marketed successfully. Sales of PTFE yarns for dirt-repellent architectural membrane structures and shading systems started with great success.
There was good progress in the preparation of the takeover of German plastics producer Hahl Group GmbH. The agreements concerning this acquisition were signed in January 2007 and the closing is expected for the end of the first quarter. Hahl Group GmbH, located at Munderkingen / Germany, is a major European producer of cut plastic filaments for the production of synthetic bristles, brushes and fabrics. These semi-finished products are used for industrial brushes for tool making, abrasive filaments for the surface treatment of steel, stone and flooring, as well as tooth brushes and industrial filtration purposes. The company with a staff of 240 realized sales of EUR 35 mill. in 2006. Its main markets are Europe and Asia, with North America to be targeted in the future.
The acquisition of Hahl Group GmbH provides Lenzing Plastics with an excellent basis for entering into new and promising markets and applications. The acquisition of Hahl Group has been the biggest step in the growth of Business Unit Plastics in recent years. Hahl, as the second operative unit of Business Unit Plastics, will continue its activities with an independent market identity.
Expansion will continue in 2007. The focus will be on the extension of the artificial turf business and PTFE yarns for medical applications. The strategic orientation as a supplier of niche products is expected to produce good results, despite continued volatility of raw material prices. Considerable increase in sales is expected from organic growth and the acquisition of Hahl.
Lenzing's strategy of niche orientation in its non-fiber business sectors is consistently implemented at Lenzing Paper as well. Lenzing Paper specializes in high-quality niche products on the basis of wood-free uncoated paper, such as envelope paper, high-bright recycled paper and poster paper.
Business year 2006 was another difficult year for the European paper industry. It tried to improve its results by cost optimization programs and restructuring measures including capacity adjustment. In the course of the year the market showed first signs of a trend reversal. Hesitant recovery was carried by improved demand resulting from the recovering German economy and by better capacity utilization in the European paper processing industry. The third quarter showed the beginning of a clear increase of demand in market segment envelope paper and a corresponding trend reversal in price development.
Lenzing Paper in 2006 continued to consistently implement measures for the optimization of production and work flows by allocating appropriate investment. This resulted in a production record for 2006 of 78,000 tons which were produced at full capacity. Shipping by volume peaked to a new all-time high as well. Annual sales reached EUR 57.9 mill., (2005: EUR 53.1 mill.), the annual result of minus EUR 0.6 mill. (2005: EUR 1.2 mill.) was still unsatisfactory, but significantly less so than the year before. Improved results in production were contrasted by considerable cost increase for raw materials, energy and transport.
A perceptible trend reversal in 2007 can be expected, due to good general economic conditions. Lenzing Paper expects the good demand situation to continue. It should be supported in 2007 by the continuing market adjustment for uncoated paper. To be considered is the adverse development of prices for pulp, secondary fiber materials, energy and raw and auxiliary materials. Further price increases will therefore be unavoidable. The success of Lenzing Paper will very much depend on whether the market will accept these.
The Lenzing management board as the top management of the Group and its corporate centers carry out extensive coordination and controlling operations for the operating units of the Lenzing Group, the Business Units, within the framework of a comprehensive internal management and monitoring system including all sites. Timely detection and evaluation of operative and strategic risks and the formulation of countermeasures are essential parts of the leadership activities of these entities. A standardized and group-wide reporting system on a monthly basis and the continuous updating of plans form the basis of this approach.
Function "Risk Management" was created in 2005. Active cooperation in the early detection of strategic, operative and latent risks and the implementation of risk minimization measures in the affected departments are key tasks.
Lenzing in-house market research globally monitors and analyzes strategic market risks. Moreover, risks are discussed with the business unit heads at annual medium-term planning sessions.
The global Lenzing Group is exposed to a multitude of general macroeconomic risks. The development of product price and product quantity for Business Units Textile Fibers and Plastics, and to a lesser degree for Nonwoven Fibers, is cyclical. It depends on global and regional economic conditions. The prominent role of the dynamic development in Asia and in particular China and India has recently been growing.
The economic cycles of industry sectors and regions are not always synchronized. Lenzing therefore strives to minimize the attached risks by increasing its international market presence and its product diversity.
Contingency plans and a group wide emergency communication procedure were introduced in 2005. The focus in 2006 was on technical improvements of production facilities.
Lenzing fibers compete with cotton and synthetics on some markets. Their price development can affect Lenzing fiber sales and quantities. Lenzing counters this risk by continuously increasing the portfolio share of specialty products with lower substitution potential.
Lenzing purchases large amounts of raw materials (wood, pulp, chemicals, plastics) and energy. Fiber production and fiber business margins are subject to risks of raw material availability and pricing. Lenzing counters these risks by carefully selecting its suppliers according to specified criteria, such as price, reliability, financial strength, and quality, as well as by stable partnerships, partly with contractual commitments covering several years. Lenzing's energy strategy is directed at maintaining a maximum degree of self-sufficiency combined with hedging against price volatility.
The production of cellulose fibers is a complex series of physical and chemical processes which entail environmental risks. These are minimized to the greatest possible extent by highly efficient, state-of-the-art environmental protection facilities. Dedicated, proactive and sustainable management of the environment, closed production cycles and continuous monitoring of emissions are some of the strategies to contain these risks.
Lenzing is a niche player in all its fields of activity. Sales loss caused by major clients constitutes a risk which Lenzing counters by global positioning and the continuous broadening of its client base, its sales segments and its sales markets. The majority of receivables are covered by credit insurance.
There is a risk of adverse exchange rate fluctuations of the euro versus the US dollar and the British pound. This risk is largely contained by prospective hedging of the expected net exposure on an annual basis. Please refer to notes 33 and 34 for details.
Lenzing is a technology leader and therefore exposed to the risk of losing its fiber market position due to imitators or new technologies developed by its competitors. Lenzing contains this risk by continuously monitoring its competitors, by above-average research and development efforts and by a consistently high product innovation rate.
Clearly documented guidelines have been developed and implemented by the board of management on how to handle financial risks. These guidelines are continuously monitored. Lenzing employs derivatives to protect itself against exchange rate risks associated with business operations, mainly resulting from sales in US dollars. These derivatives are forward rate agreements and foreign exchange options. The objective of exchange rate risk management is to protect payment flow from business operations against adverse exchange rate fluctuations. Hedging activity as well as the correlation between risk and hedging instrument are continuously monitored and reported.
The risk of loss with regard to these instruments is small, taking into account the financial strength of the contractual partners.
Allowances are made for identifiable risk of loss related to primary financial instruments, such as loans, securities, receivables and cash by way of value adjustments. The balance sheet book values of these financial instruments represent the maximum risk entailed. In addition, Lenzing AG accepted liability for associates (please refer to note 30). This liability is of a subsidiary nature as it becomes effective only if these companies fail to meet their payment obligations. The risk is considered to be small.
The risk of changes in the market value of primary financial instruments and their derivatives is rated small. Exchange rate risks are covered by foreign currency forward contracts and options. No major fluctuations until maturity are to be expected for short-term financial instruments either. Long-term liabilities are essentially linked to variable interest rates. Therefore significant changes in value are not to be expected.
Liquidity risk, namely the risk of insufficient funds for meeting obligations resulting from primary financial instruments and their derivatives, does not exist. Derivatives are exclusively employed for hedging. The resulting obligations are therefore covered by the hedged business operations. Obligations resulting from primary financial instruments are covered by liquid funds and if needed by internal financing.
Cash flow risks related to financial instruments arise from fluctuations in their respective payment streams. These are essentially limited to variable interest rate liabilities. Corresponding hedges ensure that exchange rate fluctuations will not affect payment streams.
Lenzing AG meets its payment obligations timely. Current payments are covered by cash flow from operations. Liquidity and equity of the company are sound.
As at 31 December 2006 the management board of Lenzing AG in its capacity as the top management of the Lenzing Group is not aware of any risks that could endanger the continued existence of the Group during the business period 2007.
The Lenzing Group's technological leadership is based on the continuous further development of viscose, lyocell and pulp technology. It provides the Group with a secure lead of several years over its competitors.
The innovation center of the Lenzing Group is located at Lenzing. It is the global leader in cellulose chemistry and cellulose fibers. Moreover, Lenzing cooperates with well-known international research institutes and academic institutions in the fields of wood and cellulose chemistry. Several pilot plants are in operation at the Lenzing site for process research and ongoing development of specific fiber types. Smaller development projects are managed at other production sites as well.
Expenses for research and development (calculated by the Frascati method) in business year 2006 came to EUR 16.1 mill. (2005: EUR 16.5 mill.).
The emphasis in 2006 was on the improvement and optimization of pulp production and of the viscose process. Nanofiltration was successfully applied to viscose production, a breakthrough in the efficient separation of hemicellulose from press lye. Another research goal is the optimization of recovery of chemicals from the by-products of pulp production.
The research focus in improving the viscose process was on reducing input of chemicals, decreasing emission levels and on developing new fiber types, fiber blends and textile fiber applications. New TENCEL® fiber types were successfully developed for application in technical textiles, as well as new types for the nonwovens industry.
As part of reorganization, research and development activities are now directly assigned to the individual business units to provide more closeness to the market and to generate greater efficiency. All future research and development activity will therefore be conducted in very close communication with business unit management to ensure clear market orientation. A new strategy board for innovation that includes operative managers of the business units and the chairman of the management board will ensure even more focus on activities and an even clearer perspective on results. This reorganization clearly gives the Lenzing Group more impact in research and development.
Sustainability in the Lenzing Group The Lenzing Group is a company that acts globally and has a long-term economic perspective. The Group's goal is sustainable development at all its sites – in economic, in ecological and in social terms. Lenzing is the world's biggest producer of cellulose fibers with six production sites as well as seven offices and trading companies. An integral part of the Group's success therefore is a good working climate in which a modern corporate culture can prosper.
An essential element of sustainability in the Lenzing Group is the use of renewable raw material wood. Continuous innovation and process optimization in terms of environmental engineering are an important part of our efforts towards an environmentally sound production. To this end the Lenzing Group sets important standards that to a large extent have already been implemented in various parts of the company or that will be gradually introduced over the next few years. The impact of our products and processes on the environment is continuously monitored and assessed by internal and external measurements. Decisions concerning the improvement of environmental sustainability are made and implemented on the basis of these studies. New materials are first tested for their ecological impact and only approved for production after positive evaluation.
Lenzing's management of quality and environment are ISO certified (ISO 9001 and ISO 14001), its safety standards by OHSAS 18001.
Human Resources is committed to a corporate management system that puts people at the center and it believes that our staff members and their personal commitment are the key to our innovation drive. We offer our staff members a clear corporate structure, a multicultural work environment that fosters mutual understanding, continuous basic and advanced training, and the opportunity for self-realization in an international and successful group.
To achieve the set sustainability goals, the Lenzing Group implemented a variety of measures in 2006, and more have been targeted and scheduled for the next few years.
| ISO 9001 | ISO 14001 | OHSAS 18001 | |
|---|---|---|---|
| Lenzing | ¸ | ¸ | ¸ |
| Heiligenkreuz | ¸ | 2007 | 2007 |
| Grimsby | ¸ | ¸ | ¸ |
| Mobile | ¸ | planned | planned |
| SPV | ¸ | ¸ | ¸ |
| Nanjing | planned | planned | planned |
Environmental protection at the Lenzing site in business year 2006 was characterized by the significant production increase in pulp and fiber at unchanged emission levels. The above-average production increase is an ongoing challenge: Lenzing fiber production in the last six years alone rose by 48% and pulp production increased by 39%. This challenge was mastered by continuously increasing the performance of existing environmental protection facilities. Biological anaerobic sulfate recovery was introduced to viscose production at Lenzing in 2004. This globally unique process, together with the increased precipitation of gypsum contained the rising sulfate load of process water discharged into river Ager without jeopardizing the agreed limits.
In addition, the construction of a facility for the recovery of zinc from waste water treatment sludge was started in 2006. Zinc which is contained in the precipitated sludge from anaerobic purification is extracted as zinc sulfate which is then recycled to the spinning bath. Apart from saving resources, the load on the environment is reduced by distinctly lower zinc levels in the ashes of combusted sludge.
The activities of Prüfstelle Umweltanalytik Lenzing (UAL), Lenzing's environmental testing laboratory, were expanded in 2006, offering a variety of analytical services in sectors water, discharge water and waste products to external customers. The management of internal environmental issues benefits from the derived gains in environmental competence.
Water permits concerning waste water treatment facilities and the discharge of cooling and process water into river Ager had been issued for a period of ten years and had expired on 31 December 2005. Wasserreinhaltungsverband Lenzing – Lenzing AG (WRHV), the Lenzing association for the purification of waste water, and the plants at the site applied in due time for the re-issue of these permits at the responsible agency on 30 June 2005.
The applications were discussed during six days of negotiation in the summer of 2006 which confirmed that the facilities of Lenzing AG and WRHV fully comply with state-of-the-art standards. After the positive conclusion of negotiations, the waste water permits were reissued by the water rights agency of the state government of Upper Austria on 6 September 2006. WRHV was granted the permission to operate facilities and discharge purified process water into the Ager until 31 December 2015. The level of permitted thermal emission by cooling water into the Ager has been fixed until 30 June 2010.
The environmental management system of Lenzing AG successfully passed the re-certification audit according to ISO 14001. Some of the points highlighted were the further development of IT-based management systems, the high level of competence of staff, contact persons and agents, and the professional and efficient execution of the audit. Successful re-certifications were concluded at Grimsby / UK and at PT. South Pacific Viscose / Indonesia as well.
Lenzing Fibers GmbH was recognized by the R.I.O. jury for its innovative performance in environmental protection in 2006. The R.I.O. award is offered in competition in Germany, Austria and Switzerland to companies which excel in sound resource management and the implementation of innovations in environmental technology along with the optimization of output.
Lenzing's staff members and teams provide decisive contributions to the Group's business success. To safeguard and improve this aspect, Lenzing's management continuously promotes measures that assist and train our staff members and improve our working atmosphere.
A shared understanding and commitment about what we want to achieve and about how we want to reach our goals is as important as staff members who are given the opportunity to prove themselves at what they are best at and who receive regular feedback. This kind of active performance management promotes the development of the Group and improves the capability and productivity of its people.
Lenzing is an international company. It wants to develop its staff relations through respect for and appreciation of the diverse cultural backgrounds of its staff members as the basis for a productive working climate and constructive cooperation. These values were defined for the whole Group in 2006 in a process lasting several months. They reflect the development of the Group over the past years and as a result form the new Lenzing Principles, a future-oriented guideline that will serve as a binding code of conduct. The Lenzing Principles will be communicated to all Lenzing staff members by a variety of activities in order to secure the further improvement of our working climate and to support our staff members in their daily work environment that confronts them with ever greater challenges.
As at 31 December 2006, the Lenzing Group employed 5,044 people worldwide (2005: 4,860).
At Lenzing, the Group's biggest site, Lenzing AG and its subsidiaries i.e. Lenzing Technik and Lenzing Plastics, had a staff of 3,142 at the end of 2006, including contract workers (unchanged from 2005). 141 (2005: 142) of these were trainees. Lenzing is serious about its commitment to develop these into skilled workers. The quality of Lenzing's training program was commended by the Upper Austrian Chamber of Commerce at a trainee competition of 140 Upper Austrian companies with a total of 750 participants, Lenzing Plastics emerged as the most successful plastics producer.
The training center at the Lenzing site successfully continued its range of programs for internal and external staff members.
The number of staff members at the Nanjing / China site was increased to over 200 as part of preparations for the start of production in 2007. The number was again raised to 500 by the end of the first quarter of 2007. Preparatory training of the staff members at Nanjing for the start of production is on schedule.
During 2006 a new group-wide education program was initiated with a meeting in Indonesia that was attended by staff members from all the Group's locations in Asia as well as from Europe.
The continued expansion of the Group, particularly in Asia, has led to the introduction of a global recruitment system that enables staff members to apply for job opportunities anywhere in the Group.
Lenzing Group staff at 31 December 2006: 5,044
The number of injuries reached an all-time low in 2006. It, moreover, was significantly below the industry average.
Program "Top in Safety" has been running since 2004, the motto of 2006 was "Learning from Experience". Special attention was given to near-accidents and their reporting, with the intention to improve preventive measures.
Safety management according to OHSAS 18001 or to equivalent standards was successfully concluded at PT. South Pacific Viscose and at all other sites and business units.
The safety of production equipment was further improved across the Group. Additional safety features and more state-of-the-art fire protection equipment were installed to further increase staff safety.
Health groups were started at the Lenzing site that are based on the results of the Human Work Index© 2006. A life crisis management system was set up for staff members who are going through difficult periods in their lives and health checks for those above 40 were introduced. The measures that were introduced over the past years resulted in a continuous decline of inactive periods due to sick leave.
A global company with a strong commitment to local responsibility needs a modern information policy for public as well as intra-company relations. Continuous and transparent communication activity for all interest groups, as well as openness to staff and others are firmly rooted in Lenzing's policy.
Corporate Communications is responsible for communication with investors and the general public.
The Lenzing share is quoted at the Standard Market Continuous of the Vienna stock exchange and at over-the-counter markets of some regional German stock exchanges. In 2006 the official quotation at the Frankfurt and Munich stock exchanges was discontinued for reasons of economy, as the trading systems of Deutsche Börse AG and the Viennese stock exchange are identical, and because the trade volume of Lenzing shares at German stock exchanges had been very small.
The common stock of Lenzing AG is EUR 26,717,250.00, divided into 3,675,000 individual share certificates. B & C Holding GmbH, the majority shareholder with a share of more than 75% is an Austrian financial holding company with investments in a variety of sectors. B & C Holding sees itself as an Austrian core shareholder with long-term investment interests.
The Lenzing share has been listed on the VÖNIX Nachhaltigkeitsindex since 2005. VÖNIX (VBV-Österreichischer Nachhaltigkeitsindex) is an Austrian sustainability index of quoted Austrian companies with lead performance in social and ecological issues.
The Lenzing share price continued its rise in 2006. Improved business perspectives contributed to this development. Rumors regarding the sale of an equity stake by B & C Holding were rejected by the chairman of the supervisory board of Lenzing AG and managing director of B & C Holding, Karl Schmutzer.
Sector investor relations provided comprehensive information to Lenzing's shareholders by regular press releases, detailed Letters to the Shareholders, as well as by individual discussions. The management board of Lenzing AG held numerous talks with institutional investors in the course of the reporting year. Several guided tours of production facilities for investors complemented these activities.
Corporate Communications ensures efficient and competent communication with the general public and with Lenzing's staff. As in previous years, press releases and press meetings provided the general public with up-to-date information on business developments, current events and market trends.
Apart from regular press relations, Corporate Communications supplies staff and other stakeholders with a steady flow of information in the form of in-house magazines, newsletters, appearances at trade fairs and a regular TV feature on local television in the Lenzing region.
Innovations in staff communication introduced in 2005 were continued in 2006. The fourth edition of semi-annual international quality magazine "Lenzing Inside" was published, providing information on latest developments, special achievements, new production sites and on the general market environment. This magazine is distributed to Lenzing customers world-wide.
TV magazine Lenzing Aktuell has been broadcast by local TV station Bezirks TV on a fortnightly basis for now eight years. It features news, current events, general matters of interest and background information on the Lenzing Group. It was recognized in 2006 as Europe's best in-house audiovisual medium by FEIEA (Federation of European Industrial Editors Association).
Numerous appearances at fairs provided an interested international audience with the opportunity to get to know the Lenzing Group, for example at the prestigious Texworld where Lenzing presented its expertise and its innovative products to thousands of visitors.
The global economic environment in the first weeks of 2007 has been gratifying. In particular the economic development of the industry in Asia showed no signs of slowing down. A further decline of the US dollar against the euro, as in these first weeks, could however further weaken the competitiveness of the European textile industry and have negative impact on the European fiber industry. There are also signs that the textile pipeline in Asia is beginning to fill up, with potential negative consequences for global fiber sales.
The demand for Lenzing fibers in the first quarter of 2007 continued to be good. Current order bookings point to a continuation of the good business development in the second quarter.
Lenzing in 2007 will continue to expand its production capacity. The Lenzing site will increase capacity both in terms of quantity and quality by further modernization and flexibility, thereby enabling the expansion of specialty fiber production. Moreover, the new viscose production plant at Nanjing / China will start operation at the end of the first quarter.
The good strategic position of Business Units Textile Fibers and Nonwoven Fibers provides confidence for the development of the year. The expansion of our Business Unit Plastics will continue to gain momentum. Business Unit Engineering, too, will provide additional impulse with its entry into the business field of sheet metal processing from the middle of the year on. All in all, another gratifying business year can therefore be expected for 2007.
The Management Board
Lenzing Group Annual Report 2006 69
| Note | EUR '000 | EUR '000 | |
|---|---|---|---|
| Sales | (5) | 1,100,533 | 942,620 |
| Changes in inventories of finished goods and work in progress | (6) | (3,019) | 679 |
| Work performed by the Group and capitalized | (7) | 27,877 | 29,250 |
| Other operating income | (8) | 17,660 | 18,195 |
| Cost of material and purchased services | (633,714) | (522,560) | |
| Personnel expenses | (9) | (208,676) | (206,916) |
| Amortization of intangible assets and depreciation of property, plant and equipment | (10) | (67,150) | (64,123) |
| Other operating expenses | (11) | (126,380) | (115,337) |
| Income from operations (EBIT) | (12) | 107,131 | 81,808 |
| Income from investments in associates | (13) | 278 | 631 |
| Other investment income | (14) | 696 | 5,827 |
| Finance costs | (9,509) | (8,970) | |
| Income before taxes (EBT) | 98,596 | 79,296 | |
| Income taxes | (15) | (10,233) | (18,627) |
| Net income | 88,363 | 60,669 | |
| Attributable to Shareholders of Lenzing AG | 83,889 | 56,875 | |
| Attributable to Minority shareholders | (25) | 4,474 | 3,794 |
| Earnings per share | (16) | EUR 22.83 |
EUR 15.48 |
| Assets | 31/12/2006 | 31/12/2005 |
|---|---|---|
| Note | EUR '000 | EUR '000 |
| Intangible assets (17) |
10,919 | 12,659 |
| Property, plant and equipment (18) |
625,977 | 596,358 |
| Investments in associates (19) |
9,774 | 10,646 |
| Other financial assets (20) |
17,796 | 19,194 |
| Deferred taxes (28) |
1,441 | 1,033 |
| Other non-current assets (21) |
3,053 | 1,706 |
| Non-current assets | 668,960 | 641,596 |
| Inventories (22) |
123,906 | 124,070 |
| Trade receivables (23) |
119,435 | 110,745 |
| Current taxes | 6,742 | 6,901 |
| Other receivables and assets (23) |
45,686 | 41,723 |
| Investments (24) |
8,199 | 8,007 |
| Cash and cash equivalents (31) |
88,807 | 77,097 |
| Current assets | 392,775 | 368,543 |
| 1,061,735 | 1,010,139 |
| Equity and Liabilities | 31/12/2006 | 31/12/2005 |
|---|---|---|
| Note | EUR '000 | EUR '000 |
| Common stock | 26,717 | 26,717 |
| Capital reserves | 63,600 | 63,600 |
| Currency translation reserves | (2,686) | 1,632 |
| Retained earnings and other reserves | 402,657 | 343,835 |
| Share of shareholders of Lenzing AG | 490,288 | 435,784 |
| Minority interests | 25,728 | 19,694 |
| Equity (25) |
516,016 | 455,478 |
| Government grants (26) |
33,953 | 37,005 |
| Bank loans (27) |
173,845 | 155,858 |
| Other loans (27) |
40,608 | 44,073 |
| Trade payables | 579 | 4,093 |
| Deferred taxes (28) |
8,094 | 16,724 |
| Provisions (29) |
82,445 | 88,912 |
| Other liabilities | 3,339 | 4,495 |
| Non-current liabilities | 308,910 | 314,155 |
| Bank loans and overdrafts (27) |
17,173 | 40,496 |
| Other loans (27) |
11,246 | 13,646 |
| Trade payables | 71,879 | 63,769 |
| Provisions for current income tax | 14,520 | 8,969 |
| Other provisions (29) |
61,126 | 52,865 |
| Other liabilities | 26,912 | 23,756 |
| Current liabilities | 202,856 | 203,501 |
| 1,061,735 | 1,010,139 |
| For the year from 1 January to 31 December | 2006 | 2005 | |
|---|---|---|---|
| Note | EUR '000 | EUR '000 | |
| Gross cash flow | (31) | 147,891 | 120,351 |
| Change in working capital | (31) | (1,742) | 3,982 |
| Operating cash flow | 146,149 | 124,333 | |
| - Acquisition of non-current assets |
(31) | (105,657) | (84,044) |
| - Acquisition of investments held as current assets |
0 | (7,995) | |
| + Proceeds from the disposal / redemption of non-current assets |
(31) | 3,192 | 2,850 |
| Net cash used in investing activities | (102,465) | (89,189) | |
| + Payments of other shareholders |
(31) | 5,974 | 3,040 |
| - Dividends paid to shareholders |
(25) | (31,401) | (32,187) |
| + Receipts from financing activities |
(31) | 58,295 | 60,572 |
| - Redemption of loans |
(63,567) | (51,695) | |
| Net cash used in (-) / provided by (+) financing activities | (30,699) | (20,270) | |
| Change in cash and cash equivalents | 12,985 | 14,874 | |
| Cash and cash equivalents at beginning of the year | 77,097 | 59,621 | |
| Currency translation adjustment relating to cash and cash equivalents | (1,275) | 2,602 | |
| Cash and cash equivalents at the end of the year | (31) | 88,807 | 77,097 |
| For the year from 1 January to 31 December | 2006 | 2005 |
|---|---|---|
| Note | EUR '000 | EUR '000 |
| Net income | 88,363 | 60,669 |
| Income and expense recognized directly in equity: | ||
| Gains on revaluation of available-for-sale investments: | ||
| taken directly to equity | (111) | 117 |
| transferred to profit or loss on sale | 0 | 0 |
| Gains / (losses) on revaluation of cash flow hedges: | ||
| taken directly to equity | 3,126 | (2,541) |
| transferred to profit or loss for the period | 2,288 | (6,098) |
| Exchange differences on translation of financial statements presented in foreign currencies | (6,519) | 7,924 |
| Actuarial gains / (losses) on defined benefit plans | ||
| taken directly to equity (29) |
(213) | (9,098) |
| Tax on items taken directly to equity | (1,018) | 4,289 |
| Net income / (loss) recognized directly in equity | (2,447) | (5,407) |
| Total recognized income and expense for the period | 85,916 | 55,262 |
| Attributable to | ||
| Shareholders of Lenzing AG | 83,855 | 49,212 |
| Minority shareholders | 2,061 | 6,050 |
| 85,916 | 55,262 |
The following Notes form an integral part of the consolidated financial statements.
The Lenzing Group ("the Group") consists of the Lenzing Aktiengesellschaft (Lenzing AG) and its subsidiaries. Lenzing AG is a public corporation under Austrian law and has its registered office at Lenzing, Austria. The majority shareholder of Lenzing AG is B & C Holding GmbH of Vienna, which in turn is a full subsidiary of B & C Privatstiftung. The Group's main activities are fiber and pulp production. Its production sites are located in Austria, the UK, the USA and Indonesia. A plant in China is under construction. In addition, the Group is involved in engineering and in the production of plastics and paper. The global sales network includes trading companies in Shanghai and Hong Kong, a representative office in Beijing, as well as a sales office in New York and also from 2006 a branch office in Coimbatore, India.
The consolidated financial statements have been prepared in accordance with International Financial Reporting Standards (IFRS) as adopted by the European Union.
The financial statements are presented in euro (EUR) which is the functional currency of Lenzing AG and most of its subsidiaries. The figures provided in the financial statements and in these notes are rounded to the nearest thousand (EUR '000), unless specified otherwise.
The consolidated financial statements of the Group comprise the parent company, Lenzing AG, and its subsidiaries. They incorporate the financial statements of the individual companies as at 31 December 2006. Note 36 provides a list of the fully consolidated entities.
Subsidiaries are defined as entities whose financial and operating policies can be governed by Lenzing AG in a way that allows it to obtain economic benefit from their activities. This is assumed to be the case if the parent holds more than 50% of the voting rights of all shareholders entitled to vote. Lenzing AG owns only 41.98% of the voting power of PT. South Pacific Viscose; however, this company is fully consolidated because a number of contractual agreements enable Lenzing AG to exercise a controlling influence over the management of the company.
There were no changes in the scope of consolidation during the reporting year which had any appreciable effect on the consolidated financial statements.
The acquisition of subsidiaries is accounted for in accordance with IFRS 3 by applying the purchase method. According to this method, on acquisition all assets acquired and liabilities assumed are measured at their fair values as at the date of acquisition. The difference between the cost of acquisition and the fair values of the identifiable net assets acquired is recognized as goodwill.
Major intra-group balances, both in the balance sheet and in the income statement, which result from transactions between consolidated companies, are eliminated upon consolidation.
Differences between intra-group balances resulting from the application of different exchange rates to amounts denominated in foreign currencies are eliminated through profit and loss within either the heading "Other operating income" or the heading "Other operating expenses".
Unrealized gains arising from intra-group deliveries are eliminated if the assets concerned are still in possession of the Group at the balance sheet date.
Interests in the net assets of consolidated companies that are not attributable to Lenzing AG are shown separately as part of shareholders' equity under the heading "Minority Interest".
Intangible assets, property, plant and equipment, loans receivable by the Group, inventories, receivables and liabilities are all valued at historical cost.
Available-for-sale investments and derivative financial instruments are valued at their fair value at the reporting date.
Subsidiaries prepare their financial statements in their respective functional currency. The functional currency is the currency governing the business activities of the respective company.
The functional currency is the currency of the country where the respective subsidiary is located, the only exception being PT. South Pacific Viscose. The functional currency of PT. South Pacific Viscose is the US dollar. Assets and liabilities of subsidiaries are translated from functional currency to the reporting currency using the exchange rate prevailing on the balance sheet date.
Sales and other income as well as expenses are translated at the average exchange rates of the month during which the transactions occurred. These exchange rates approximate the actual rates at the date of transaction. Translation differences resulting from the use of different exchange rates are recognized in equity under a separate heading.
Fair value adjustments of acquired assets and liabilities and goodwill arising on the acquisition of foreign subsidiaries are treated as assets and liabilities of the acquired subsidiary and are therefore subject to currency translation.
Exchange rate gains or losses which result from transactions carried out by Group companies in a currency other than the functional currency are recognized in profit or loss of the reporting period. Monetary assets and liabilities of subsidiaries that are denominated in currencies other than the functional currency are translated at the middle rate, based on the buying and selling rates published by Oberbank AG, Linz, Austria, for 31 December 2006 and 2005, respectively.
| Unit | Currency | Middle Rate | |
|---|---|---|---|
| 1 | EUR / USD US Dollar |
31/12/2006 | 1.3180 |
| 1 | EUR / USD US Dollar |
31/12/2005 | 1.1830 |
| 1 | EUR / GBP GB Pound |
31/12/2006 | 0.6715 |
| 1 | EUR / GBP GB Pound |
31/12/2005 | 0.6810 |
| 1 | EUR / CNY Renminbi Yuan |
31/12/2006 | 10.2734 |
| 1 | EUR / CNY Renminbi Yuan |
31/12/2005 | 9.5463 |
| 1 | EUR / HKD Hong Kong Dollar |
31/12/2006 | 10.2400 |
| 1 | EUR / HKD Hong Kong Dollar |
31/12/2005 | 9.1865 |
Intangible assets are stated at cost less any accumulated amortization at the balance sheet date. Amortization is determined on the basis of the estimated useful life of the asset, using the straight-line method. The estimated useful lives of these assets are as follows:
| Years | |
|---|---|
| Licenses, trade-marks and similar rights | |
| purchased | 3 to 25 |
| internally generated | 5 to 15 |
| Software | 4 to 5 |
The amortization charge for the year is shown in the income statement under the heading "Amortization of intangible assets and depreciation of property, plant and equipment".
If long lasting impairments are identified, the respective intangible assets are written down to their fair value. Where an impairment loss subsequently reverses, the intangible assets are written up to their fair value, but only to the extent that the increased carrying amount does not exceed the carrying amount that would have been determined by applying the systematic amortization to original cost.
Goodwill is stated at cost and is written off only if an impairment test identifies a reduction in value.
Property plant and equipment are stated at cost less any accumulated depreciation at the balance sheet date. Depreciation is determined on the basis of the estimated useful life of the asset, using the straight-line method. The estimated useful lives of these assets are as follows:
| Years | |
|---|---|
| Land-use rights | 30 to 50 |
| Residential buildings | 25 to 50 |
| Office and factory buildings | 15 to 50 |
| Other buildings | 20 to 33 |
| Fiber production lines | 7 to 15 |
| Boiler stations, transformer stations, turbines | 12 to 25 |
| Other machinery and equipment | 7 to 20 |
| Vehicles | 4 to 8 |
| Office equipment and fixtures | 2 to 10 |
| IT hardware | 3 to 10 |
Fiber production lines and other machinery and equipment purchased or constructed up to the year 1997 are written off over 7 years. Items purchased after 1997 are written off consistently over 15 years.
If long lasting impairments are identified, the assets are written down to their fair value. Where an impairment loss subsequently reverses, the assets are written up to their attributable fair value, but only to the extent that the increased carrying amount does not exceed the carrying amount that would have been determined applying the normal depreciation to original cost. Major rebuilding is capitalized, whereas maintenance or repair work, as well as minor rebuilding, is recognized in profit or loss as incurred.
Loans receivable are carried at cost or in the case of impairment at a lower fair value.
Securities held as fixed assets serve as partial funding for the pension provision and, until the end of 2005, also for the provision for severance payments as regulated by section 14 of the Austrian Income Tax Act (öEStG). Securities consist primarily of shares in the large-scale investor fund GF 82. This fund was set up as a special fund, as regulated by section 20 of the Austrian Investment Fund Act (InvFG), and has been designated as a fund for severance and pension provisions as detailed in section 14 of the Austrian Income Tax Act. The fund's investments consist mainly of euro bonds (individual shares and funds) and, up to a limit of 20%, of company shares quoted on the MSCI EMU-NR index. The securities are readily available for sale. However, there is no intention to sell these within a year. The securities are therefore stated at market value. Realized gains and losses are recognized in profit or loss under the heading "Other investment income", unrealized gains and losses are recognized directly in equity.
Investments in associates are accounted for by applying the equity method.
On the basis of its voting rights the Group applies the equity method to investments in four companies. These are EQUI-Fibres Beteiligungsgesellschaft mbH (EQUI) (35%) and its subsidiaries, WWE Wohn- und Wirtschaftspark Entwicklungsgesellschaft m.b.H. (WWE) (25%), LKF Tekstil Boya Sanayi Ve Ticaret A.S. (LKF) (33.34%) and RVL Reststoffverwertung Lenzing GmbH (RVL) (50%). Under this method of accounting, investments in associates are initially recognized at cost. Thereafter the carrying amount of the investment is either increased by the Group's share of the associate's profit or reduced by its share of the associate's loss. Losses are only recognized to the extent that the carrying amount of the investment is written down to zero. In table "Development of fixed assets" on pages 124 and 125 these gains or losses are presented either as write-ups or as depreciation respectively. According to IFRS 3, acquired goodwill is not normally written down except in the event of a reduction in value identified by an impairment test. If the acquisition cost of the investment is less than the investor's share in the fair value of the associate's net assets, the difference is credited to income on acquisition.
Deferred tax assets or liabilities are recognized for all differences between the carrying amounts of assets and liabilities in the balance sheet and the corresponding amount recognized for tax purposes. Deferred tax is calculated at the tax rates that are expected to apply, under current legislation, in the period when the liability is settled or the asset is realized.
Where the outcome of a construction contract can be estimated reliably, revenue and costs are recognized according to the degree of completion of the contract activity at the balance sheet date. This is measured by estimating the ratio of work performed to date in relation to the estimated total work to be performed on the construction contract. Project progress is continuously monitored and deviations of any kind from the initial scope and outcome of the project will be included in the assessment.
If the outcome of a construction contract cannot be estimated reliably, contract revenue is recognized to the extent of contract costs incurred which are likely to be recoverable. Contract costs are recognized as expenses in the period in which they occur.
When it is probable that total contract costs will exceed total contract revenue, the expected loss is recognized as an expense immediately.
Raw materials and supplies are stated at the lower of cost or net realizable value. The cost of inventories is determined by applying the weighted average method.
Work in progress and finished goods as well as services rendered but not yet chargeable are also stated under the principle "lower of cost and net realizable value". Cost of production includes direct costs as well as fixed and variable overhead expenses.
Bad debt provisions are made for those items that are considered uncollectible or only partially collectible.
Emission certificates are capitalized at their fair value at the time of assignment. The difference between fair value and the amount paid by the Group is recognized under the heading "Government grants". Provisions are recognized at each reporting date for the obligation to surrender certificates representing the Group's actual emissions up to that date. The provision is measured at the fair value of the certificates capitalized, provided the certificates to surrender are covered by the certificates held at the respective reporting date. To the extent that the certificates to surrender exceed the certificates held, the provision for that part of certificates is valued at the additional fair value of certificates needed to settle the obligation. The government grant for emission certificates used up to that date is recognized as income.
Short-term investments readily available for sale are valued at their market value. The difference between market value and acquisition cost is recognized directly in equity and transferred to profit or loss on sale. Purchased or sold investments are recognized on the settlement date.
Government grants are initially recognized as deferred income and credited to "Other operating income" systematically on a straight-line basis over the expected useful life of the subsidized asset. Recognition and valuation of emission certificates are detailed in section "Accounts receivable and current assets".
Almost all staff members of the Group are covered by defined benefit or defined contribution pension plans.
The pension payments under defined benefit pension plans are determined by the salary on retirement and by the duration of service.
The pension commitments under the defined benefit plans of Lenzing Fibers Inc. and Lenzing Fibers (Hong Kong) are financed by contributions to a retirement fund. The pension commitments of Lenzing AG are in part covered by qualifying insurance policies which are recognized as pension assets.
Under its defined contribution plans the Group makes payments to external pension fund.
In addition, staff members with employment contracts under Austrian law with a starting date up to 31 December 2002 are entitled to severance payments. Payment is due for any type of termination of contract when the employee has reached retirement age and the employment contract at that time has had a minimum duration of ten years. The amount of severance payment depends on the remuneration level at termination time and the number of years of service. These claims of staff members must therefore be treated as if they were claims under defined benefit pension plans. The obligations arising from defined benefit pension plans and severance payment obligations are determined in accordance with IAS 19.
For those staff members with employment contracts under Austrian law with a starting date from 1 January 2003 the Group is required by law to contribute 0.53% of remuneration to an external pension fund.
In accordance with IAS 19.93A actuarial gains and losses are recognized in full in the period in which they occur. They are recognized outside profit or loss in accordance with IAS 19 paragraphs 93B to 93D.
Please refer to note 29 for the recognition and measurement of entitlement of staff members to defined benefit pension plans and their claims to severance payments.
Collective bargaining agreements stipulate that Lenzing AG and its Austrian subsidiaries are obliged to pay anniversary bonuses to staff members who are in the service of the company for a specified number of years. The payments are based on the remuneration at the time of the respective anniversary. No company assets were segregated and no contributions were paid to any separate pension funds to finance these commitments.
Please refer to note 29 for the recognition and measurement of these obligations.
Borrowing costs are recognized in profit or loss in the period in which they arise, even if they are directly attributable to financing an asset and arise during the construction period.
Sales are recognized at the time when the risks and rewards of product ownership pass to the customer, taking into account agreed delivery terms.
The preparation of financial statements in accordance with IFRS requires that the Management Board makes estimates and assumptions that affect the recognition and valuation of assets and liabilities at the reporting date and of revenues and expenses of the period, as well as the assessment of contingent assets and liabilities. The amounts ultimately realized may differ from these estimates.
In accordance with IAS 33 earnings per share are calculated by dividing net income for the year attributable to ordinary shareholders of the parent company by the average number of ordinary shares outstanding during the period. There are no effects of dilution. Please refer to note 16 for details of the calculation.
The Group uses foreign currency forward contracts and options to hedge currency risks arising in the course of business operations. Such derivative financial instruments serve to balance the variability of cash flows from future transactions that are carried out in a currency other than the respective functional currency of a company. Hedging transactions are determined annually in advance on the basis of anticipated sales in the respective foreign currency.
In the reporting year, due to the strong rise of energy prices over the last year and high price volatility the Group for the first time employed future contracts traded at the respective commodity exchange to control and cover price-related risks. This approach was based on a detailed analysis of the individual market risks, and in particular the comparison of suitable derivatives, and was then defined in the respective currency on the basis of scheduled gas consumption. Monthly market to market evaluations were made.
The Group applies the rules of hedge accounting as set out in IAS 39. If the conditions for the application of hedge accounting are met the result from changes in the market value of derivative financial instruments is either recognized in profit or loss or directly in equity. This depends on whether the hedging transaction is a fair value hedge or a cash flow hedge. In the case of a fair value hedge the gain or loss from re-measuring the fair value of the hedging transaction and the result of the corresponding underlying transaction are both recognized in profit or loss as part of the income from operations. In the case of changes in the fair value of cash flow hedges, which serve to hedge the risk concerning the variability of cash flows in the functional currency from a planned transaction denominated in a foreign currency, unrealized gains and losses are initially recognized directly in equity and affect profit or loss of the period at the time when the hedged transactions are realized.
The Group applies the new and revised standards and interpretations that are relevant to the Group and which are to be applied to business years starting on 1 January 2006. The application of these new and revised standards and interpretations has no effect on the valuation or the presentation of the balance sheet items.
The following standards and interpretations had already been issued at the time of preparation of the consolidated financial statements. Their application to business years beginning on or before 1 January 2006 was not mandatory, and the Group has not applied them early on a voluntary basis.
This standard requires the application of a management approach to reporting on the economic development of the segments. Segment information is intended to correspond to internal reporting provided to the chief operating decision makers. IFRS 8 replaces IAS 14 and is to be applied to business years beginning on or after 1 January 2009.
This interpretation contains guidance on how an entity would restate its financial statements in the first year it identifies the existence of hyperinflation in the economy of its functional currency and consequently has to apply IAS 29. This interpretation is to be applied to business years starting on or after 1 March 2006.
IFRIC 8 clarifies that IFRS 2 Share-based Payment applies to arrangements where an entity makes share-based payments for apparently nil or inadequate consideration. This interpretation is to be applied to business years starting on or after 1 May 2006.
This interpretation is about the accounting treatment of embedded derivatives in accordance with IAS 39. An assessment according to IAS 39.11 is to answer the question whether an embedded derivative is to be separated from the host contract and accounted for as if it is a stand-alone derivative. IFRIC 9 addresses the question when such an assessment is to be made, either only once when the entity first becomes a party to such a hybrid contract, or repeatedly throughout the life of the contract. IFRIC 9 details that an assessment of whether an embedded derivative is required to be separated from the host contract is to be made only once, at the conclusion of the contract. IFRIC 9 is to be applied to all business years starting on or after 1 June 2006.
IFRIC 10 addresses the interaction between IAS 34 Interim Financial Reporting and the requirements on the recognition of impairment losses. It states that an entity shall not reverse an impairment loss that was recognized in a previous interim period and which shall not be reversed according to IAS 36 or IAS 39, in subsequent interim or annual financial reports or consolidated financial statements. IFRIC 10 is to be applied to all business years starting on or after 1 November 2006.
This interpretation provides guidance on how IFRS 2 is to be applied to share-based gratuity agreements when an entity grants its own equity instruments or the equity instruments of another group company to settle the share-based payment obligation. IFRIC 11 is to be applied to all business years starting on or after 1 March 2007.
This interpretation focuses on the recognition of service agreements in the books of private operators who provide public services, such as the construction of roads and airports or the provision of utility infrastructure, to governments and other governing bodies. In such agreements, the title to these assets remains with the public whereas the public operator is obliged to construct, to operate and to maintain the contract assets. IFRIC 12 is to be applied to all business years starting on or after 1 January 2008.
The application of these standards and interpretations in future reporting periods is not expected to have any material financial impact on accounting and the consolidated financial statements of the Group.
For internal reporting to management the following business segments are used in the Lenzing Group:
Segment Fibers comprises Business Units Textile Fibers, Nonwoven Fibers, Pulp and Energy, as well as by-products and trading in wood. It constitutes the core business of the Group.
Segment Engineering (= Business Unit Engineering) is the technical competence center of the Group and consists of three sectors:
Segment Plastics (= Business Unit Plastics) produces plastics specialties for processing and finishing.
Segment Paper (= Business Unit Paper) produces poster paper, envelope paper and recycled paper.
| 2006 | Fibers | Paper | Plastics | Engi neering |
Other | Con solidation |
Total |
|---|---|---|---|---|---|---|---|
| EUR '000 | EUR '000 | EUR '000 | EUR '000 | EUR '000 | EUR '000 | EUR '000 | |
| Sales to external customers | 890,865 | 57,914 | 91,768 | 58,971 | 1,015 | 0 | 1,100,533 |
| Inter-segment sales | 11,959 | 0 | 1,685 | 44,584 | 1,480 | (59,708) | 0 |
| Total sales | 902,824 | 57,914 | 93,453 | 103,555 | 2,495 | (59,708) | 1,100,533 |
| Segment result (EBIT) | 89,605 | (643) | 8,851 | 10,136 | 459 | (1,277) | 107,131 |
| Amortization / depreciation | 61,175 | 3,862 | 2,641 | 768 | 33 | (1,329) | 67,150 |
| Share in the result of | |||||||
| associated companies | 281 | 0 | 0 | 0 | (3) | 0 | 278 |
| Segment assets | 834,278 | 23,692 | 53,682 | 38,314 | 379 | (22,519) | 927,826 |
| Segment liabilities | 200,095 | 8,957 | 11,075 | 32,776 | 764 | (7,387) | 246,280 |
| Additions to property, plant and | |||||||
| equipment and intangible assets | 93,326 | 1,362 | 9,825 | 946 | 39 | (157) | 105,341 |
| Investments in associated companies | 9,029 | 0 | 0 | 0 | 745 | 0 | 9,774 |
| 2005 | Fibers | Paper | Plastics | Engi neering |
Other | Con solidation |
Total |
|---|---|---|---|---|---|---|---|
| EUR '000 | EUR '000 | EUR '000 | EUR '000 | EUR '000 | EUR '000 | EUR '000 | |
| Sales to external customers | 767,625 | 53,108 | 79,912 | 41,238 | 737 | 0 | 942,620 |
| Inter-segment sales | 11,978 | 0 | 1,662 | 47,331 | 1,581 | (62,552) | 0 |
| Total sales | 779,603 | 53,108 | 81,574 | 88,569 | 2,318 | (62,552) | 942,620 |
| Segment result (EBIT) | 66,634 | (1,159) | 8,863 | 9,362 | 323 | (2,215) | 81,808 |
| Amortization / depreciation | 60,121 | 1,782 | 2,585 | 849 | 32 | (1,246) | 64,123 |
| Share in the result of associated companies |
633 | 0 | 0 | 0 | (2) | 0 | 631 |
| Segment assets | 813,816 | 25,503 | 43,603 | 27,154 | 228 | (24,193) | 886,111 |
| Segment liabilities | 198,596 | 6,435 | 9,916 | 29,638 | 712 | (7,407) | 237,890 |
| Additions to property, plant and equipment and intangible assets |
81,228 | 2,932 | 3,032 | 768 | 76 | (5,642) | 82,394 |
| Investments in associated companies | 9,898 | 0 | 0 | 0 | 748 | 0 | 10,646 |
Segment assets essentially comprise intangible assets and property, plant and equipment, inventories, trade receivables and other receivables and assets, except income tax receivables. Segment liabilities relate to trade payables, provisions and other liabilities, except income tax provisions and income tax liabilities. The prices for inter-segment deliveries are essentially determined on the same basis as for external customers.
Sales presented by geographical markets and assets and capital expenditure analyzed by the geographical area in which the assets are located were as follows:
| Sales | Assets | Capital expenditure | |||||
|---|---|---|---|---|---|---|---|
| 2006 | 2005 | 2006 | 2005 | 2006 | 2005 | ||
| EUR '000 | EUR '000 | EUR '000 | EUR '000 | EUR '000 | EUR '000 | ||
| Austria | 157,969 | 134,771 | 693,483 | 679,987 | 48,756 | 65,180 | |
| EU ex Austria | 399,159 | 336,913 | 58,333 | 56,106 | 7,176 | 995 | |
| Europe ex EU | 62,248 | 45,725 | 0 | 0 | 0 | 0 | |
| Asia | 397,686 | 359,981 | 149,459 | 118,710 | 48,491 | 15,569 | |
| America | 73,922 | 56,177 | 26,551 | 31,308 | 918 | 650 | |
| Other | 9,549 | 9,053 | 0 | 0 | 0 | 0 | |
| 1,100,533 | 942,620 | 927,826 | 886,111 | 105,341 | 82,394 |
The products of the Group are marketed globally. The production lines for segment Fibers are located in Austria, UK, USA and Indonesia. The main site, Lenzing, has an annual capacity of 230,000 tons. Its production focus is on fiber specialties such as modal and nonwovens. Lyocell production sites include Heiligenkreuz, Austria,
Grimsby, UK, and Mobile, USA, with annual capacities of 40,000 tons each. A viscose fiber production plant is located in Purwakarta, Indonesia, with an annual capacity of 150,000 tons serving the Indonesian market and providing fiber for export. In addition, a viscose fiber production plant in Nanjing, China, with a scheduled annual capacity of 60,000 tons is under construction.
The production facilities of all other segments are mainly located in the Lenzing area.
The sales increase of 16.8% to EUR 1,100,533 thousand was based above all on the good global fiber business which enabled an increase in sales from an increase in production and from selling price increases over 2005. Sales by segment and geographical markets are presented in Note 04.
This heading represents the credit / charge required to reflect the manufacturing costs for goods produced by the Group that were still in stock at the reporting date.
This heading represents expenses of the Group that were capitalized as part of the production costs of fixed assets.
This heading comprises:
| 2005 | |
|---|---|
| EUR '000 | EUR '000 |
| 4,227 | 4,321 |
| 4,386 | 1,931 |
| 2,192 | 0 |
| 1,986 | 2,623 |
| 0 | 2,536 |
| 2,891 | 2,167 |
| 1,110 | 1,099 |
| 248 | 260 |
| 0 | 207 |
| 620 | 3,051 |
| 17,660 | 18,195 |
| 2006 |
This heading comprises:
| 2006 | 2005 | |
|---|---|---|
| EUR '000 | EUR '000 | |
| Wages and salaries | 159,295 | 155,736 |
| Expenses for severance payments | 4,100 | 7,688 |
| Pension expenses | 3,811 | 3,220 |
| Statutory social security contributions | 38,124 | 36,751 |
| Voluntary social spending | 3,346 | 3,521 |
| 208,676 | 206,916 |
Collective bargaining agreements for the Austrian sites resulted in an increase of 2.6% as of 1 May 2006. Similar agreements at the subsidiaries resulted in increases of 2.7% in the UK and 6.6% in Indonesia. There were no corresponding, generally binding agreements in other countries. Expenses for severance payments comprise expenses for statutory commitments of Lenzing AG and its Austrian subsidiaries to its staff members (see note 29) as well as voluntary severance payments and in 2005 provisions for payments in connection with restructuring amounting to EUR 2,630 thousand.
The Lenzing Group employed:
| Headcount | 2006 | 2005 |
|---|---|---|
| Average | 4,886 | 4,836 |
| As at 31 December | 5,044 | 4,860 |
Amortization of intangible assets and depreciation of property, plant and equipment amounting to EUR 67,150 thousand (2005: EUR 64,123 thousand) comprises systematic amortization and depreciation.
This heading comprises expenses related to operating activities that do not fall under another heading.
| 2006 | 2005 | |
|---|---|---|
| EUR '000 | EUR '000 | |
| Freight outward | 39,993 | 38,800 |
| Commissions and advertising costs | 16,827 | 18,250 |
| Service and maintenance and other purchased services | 20,860 | 18,718 |
| Insurance | 6,974 | 6,864 |
| Travel expenses | 6,135 | 6,035 |
| Legal, audit, and consultancy fees | 7,398 | 5,427 |
| Rentals and leases | 2,684 | 3,194 |
| Waste disposal | 2,855 | 2,100 |
| Emission certificates | 4,386 | 1,931 |
| Foreign currency losses | 1,335 | 823 |
| Other | 16,933 | 13,195 |
| 126,380 | 115,337 |
EBIT was improved by 31.0% to EUR 107,131 thousand in 2006 over the good but clearly weaker year 2005, despite high pressure from rising raw material and energy prices and the continuing weakness of the US Dollar. Segment Fibers provided a considerable contribution to this increase by higher volume production sold at higher prices and due to further improvement of its product portfolio which lead to better profit margins.
In 2006 research and development costs of EUR 16,081 thousand (2005: EUR 16,531 thousand) were recognized in the operating result.
In both 2005 and 2006, the income of EUR 278 thousand (2005: EUR 631 thousand) represents the Group's share in the current income of the associates.
| 2006 | 2005 | |
|---|---|---|
| EUR '000 | EUR '000 | |
| Expenses for financial assets and investments held as current assets | (2,975) | (49) |
| Interest and similar income from financial assets | 715 | 1,121 |
| Other interest and similar income | 2,953 | 1,442 |
| Income from the disposal of and write-ups to financial assets and investments held as current assets |
3 | 3,313 |
| 696 | 5,827 |
Income taxes comprise current and deferred tax expenses of the companies included in the consolidated financial statements.
| 2006 | 2005 | |
|---|---|---|
| EUR '000 | EUR '000 | |
| Current tax expense: | ||
| current year | 20,132 | 18,910 |
| over- / underprovided in previous years | (121) | 613 |
| 20,011 | 19,523 | |
| Deferred taxes: | ||
| relating to current year | 1,112 | (1,900) |
| relating to prior periods | 1,658 | 0 |
| losses incurred during the business year with no deferred tax asset recognized | 4 | 1,004 |
| change in valuation allowance on deferred tax assets | (12,552) | 0 |
| (9,778) | (896) | |
| 10,233 | 18,627 |
The reconciliation of taxes at the statutory corporate income tax rate compared with actual tax expense is as follows:
| 2006 | 2005 | |
|---|---|---|
| EUR '000 | EUR '000 | |
| Income before taxes | 98,596 | 79,296 |
| Tax at Austrian tax rate (25%) | 24,649 | 19,824 |
| Tax-free income and tax allowances (in particular allowances for research and development) | (1,086) | (1,323) |
| Non-deductible expenses and withholding taxes | 585 | (1,698) |
| Income from investments in associates | (69) | (158) |
| Write-down relating to subsidiaries | (3,625) | 0 |
| Differences in tax rates | 873 | (34) |
| Tax expense relating to previous periods | 1,538 | 1,012 |
| Effect of changes in tax losses and other temporary differences | ||
| not recognized as deferred tax asset | (12,632) | 1,004 |
| Actual tax expenses | 10,233 | 18,627 |
As at 31 December 2006 the Tencel companies have tax loss carry-forwards amounting to EUR 61,481 thousand (2005: EUR 60,071 thousand). In accordance with IAS 12.35 no deferred tax asset was recognized for some part of the unused losses (EUR 6,056 thousand; 2005: EUR 55,257 thousand). Part of the increase of tax loss carry-forwards (EUR 83 thousand; 2005: EUR 2,179 thousand) is due to foreign currency translation. The losses may be carried forward indefinitely against future profits.
Earnings per share are calculated as follows:
| 2006 | 2005 | |
|---|---|---|
| Share of Lenzing AG shareholders in net income (in EUR '000) | 83,889 | 56,875 |
| Number of shares | 3,675,000 | 3,675,000 |
| Earnings per share in EUR | 22.83 | 15.48 |
Please refer to the table "Development of Fixed Assets" on pages 124 and 125 for a breakdown and the development of intangible assets.
The total carrying amount for item "Concessions, industrial property rights, licenses and similar rights" of EUR 7,043 thousand as at 31 December 2006 (31 December 2005: EUR 8,668 thousand) includes EUR 4,678 thousand (31 December 2005: EUR 5,650 thousand) for items developed internally.
Please refer to schedule "Development of Fixed Assets" on pages 124 and 125 for a breakdown of item "Property, plant and equipment" and their development.
Agreements exist on the reconditioning of small water power stations which require the lessor to build, operate and maintain power stations. Lenzing AG purchases all energy generated at the price stipulated. Part of this price covers investment costs and therefore qualifies as contingent rent. At the end of the lease term the lease transfers ownership of the power stations to Lenzing AG against payment of a transfer fee. The book value of leased assets is EUR 797 thousand as at 31 December 2006 (31 December 2005: EUR 813 thousand) and is shown under item "Plant and machinery" in the fixed assets schedule.
Beyond that there are no agreements of substance that would qualify as finance leases.
| Minimum lease payments | 2006 | 2005 |
|---|---|---|
| EUR '000 | EUR '000 | |
| Payable after five years | 2,167 | 2,167 |
| Less: future finance charges |
(1,322) | (1,354) |
| Present value of lease obligation | 845 | 813 |
Contingent rent in the amount of EUR 494 thousand was recognized as an expense in 2006.
The Group has commitments under operating leases of property, plant and equipment that are not presented in the balance sheet. Operating expenses for 2006 include leasing and rental expenses of EUR 2,992 thousand (2005: EUR 3,417 thousand).
Future minimum lease payments for the non-cancellable term of these leases that mainly relate to IT equipment, vehicles and office premises will be due as follows:
| 2006 | 2005 | |
|---|---|---|
| EUR '000 | EUR '000 | |
| Within one year | 2,227 | 2,304 |
| In the following 2 to 5 years | 3,711 | 5,088 |
| Thereafter | 460 | 650 |
| Total | 6,398 | 8,042 |
The plant in Mobile has been leased and is therefore not legally held by the Group. The Group may therefore sell, mortgage or dispose of the plant only with formal consent of the lessor.
In addition, the Group has pledged property, plant and equipment to secure loans taken out by the Group. Please refer to note 27 for details. For the loans taken up to finance the viscose fiber production plant at Nanjing physical securities are to be provided to the lending banks once production is started. During construction plant and equipment must be insured for the benefit of the banks. Sale or lease of plant or equipment is not admissible without the banks' prior consent.
Open purchase orders for the delivery of property, plant and equipment as at 31 December 2006 came to EUR 58,375 thousand (31 December 2005: EUR 50,558 thousand). The further increase over the high pre-year figure is as in 2005 due to the construction in progress of the viscose fiber production plant at Nanjing, China, and investment projects at the Lenzing site.
Annual impairment tests were carried out on plant and equipment for which an indication exists that the asset may be impaired. In these tests, assumptions, in particular on the future development of production and sales volumes, have to be made which may or may not prove to be accurate. Management made these assumptions by cautious extrapolation of previous developments.
Investments in the following companies are valued at equity in the consolidated financial statements:
| 31/12/2006 | 31/12/2005 | |
|---|---|---|
| EUR '000 | EUR '000 | |
| EQUI-Fibres Beteiligungsgesellschaft mbH, Krefeld, Germany | 8,919 | 8,392 |
| LKF Tekstil Boya Sanayi ve Tikaret A.S., Istanbul, Turkey | 70 | 1,468 |
| WWE Wohn- und Wirtschaftspark Entwicklungsgesellschaft m.b.H., Vienna, Austria | 745 | 748 |
| RVL Reststoffverwertung Lenzing GmbH, Lenzing, Austria | 40 | 38 |
| 9,774 | 10,646 |
The Group's share in the income of these companies is shown in table "Development of Fixed Assets" on pages 124 and 125 as either write-up or depreciation. The reduction of the share in LKF is a result of a capital reduction in year 2006.
The financial position and the financial performance of these associates are as follows:
| EQUI | LKF | WWE* | RVL | |
|---|---|---|---|---|
| EUR '000 | EUR '000 | EUR '000 | EUR '000 | |
| Sales | 162,597 | 0 | 0 | 8,714 |
| Net income | 2,014 | (544) | (11) | 3 |
| Non-current assets | 50,878 | 2 | 0 | 0 |
| Current assets | 59,222 | 1,977 | 3,011 | 200 |
| Non-current liabilities | 46,187 | 1,768 | 0 | 0 |
| Current liabilities | 37,304 | 2 | 30 | 120 |
| Equity | 26,609 | 209 | 2,981 | 80 |
* preliminary
Please refer to schedule "Development of Fixed Assets" on pages 124 and 125 for a breakdown and the development of other financial assets.
Securities are valued at market prices.
| 2006 | Market value | Average effective interest rate |
Income for business year |
|---|---|---|---|
| EUR '000 | in % | EUR '000 | |
| Austrian federal bonds | 10,590 | ||
| Bonds by other issuers | 2,225 | ||
| Shares and equity funds | 2,622 | ||
| Other securities | 1,717 | ||
| 17,154 | 4 | 715 |
| 2005 | Market value | Average effective interest rate |
Income for business year |
|---|---|---|---|
| EUR '000 | in % | EUR '000 | |
| Austrian federal bonds | 11,900 | ||
| Bonds by other issuers | 2,195 | ||
| Shares and equity funds | 2,902 | ||
| Other securities | 1,717 | ||
| 18,714 | 6 | 1,106 |
Securities were valued individually in order to determine exchange rate gains and losses.
The loans of EUR 642 thousand (2005: EUR 480 thousand) included under this heading are granted to third parties.
This item represents the share held in a non-profit housing society (EUR 1,150 thousand), long-term receivables and accruals and the pension asset relating to the defined benefit plan of Lenzing Fibers (Hong Kong) Ltd. (see note 29).
| 31/12/2006 | 31/12/2005 | |
|---|---|---|
| EUR '000 | EUR '000 | |
| Raw materials and supplies | 61,640 | 62,135 |
| Work in progress | 9,722 | 10,784 |
| Finished goods produced and merchandise held for resale | 46,389 | 48,569 |
| Prepayments | 6,155 | 2,582 |
| 123,906 | 124,070 |
Raw materials and supplies essentially comprise beech wood for pulp production, pulp, chemicals, small parts and replacement parts.
Headings "Work in progress" and "Finished goods produced and merchandise held for resale" comprise viscose and lyocell fibers, sodium sulfate, acetic acid, furfural, paper and plastics products, as well as products of Business Unit Engineering.
This item comprises short-term receivables and deferred items as well as construction work in progress valued at EUR 2,273 thousand.
At 31 December 2006 aggregate costs incurred under open construction contracts and unrealized recognized profits, less recognized losses, amounted to EUR 8,321 thousand. Progress billings and advances received from customers under open construction contracts amounted to EUR 12,220 thousand.
Advances for which related work has not started, and billings in excess of costs incurred are presented as "Other liabilities" and came to EUR 6,172 thousand at 31 December 2006.
Moreover, this item includes emission rights granted to the Group with a book value of EUR 2,103 thousand (31 December 2005: EUR 3,100 thousand).
At 31 December 2006 provisions for doubtful accounts receivable amounted to EUR 11,872 thousand (31 December 2005: EUR 4,847 thousand). Receivables were assigned or pledged as collateral for liabilities (please refer to Note 27).
Investments held as current assets represent marketable securities available for immediate sale. They are stated at their fair value as at 31 December and comprise:
| Market value | Average yield | |||
|---|---|---|---|---|
| 2006 | 2005 | 2006 | 2005 | |
| EUR '000 | EUR '000 | in % | in % | |
| Bonds | 8,199 | 8,007 | 3.1% | 3.2% |
Investments were valued individually in order to determine exchange rate gains and losses.
The common stock of Lenzing AG comprises 3,675,000 of no par value (unchanged from 31 December 2005) with each share being of equal value and holding equal rights and duties. The share capital is fully paid.
The capital reserve is a restricted reserve of Lenzing AG which may only be used to offset accumulated losses of Lenzing AG.
Retained earnings comprise:
| Total | 402,657 |
|---|---|
| Retained earnings of the subsidiaries and effects of adjusting the financial statements of Lenzing AG and its subsidiaries to IFRS |
164,955 |
| Accumulated profit of Lenzing AG | 36,775 |
| Revenue reserve of Lenzing AG | 200,927 |
| EUR '000 |
The revenue reserve of Lenzing AG may be released at any time and distributed to shareholders as part of accumulated profits.
Under Austrian law only the accumulated profit of the parent company as stated in the parent's approved individual financial statements is available for distribution to the shareholders. As at 31 December 2006 the parent's accumulated profit was EUR 36,775 thousand.
| Total accumulated profit | 36,775 |
|---|---|
| Add: accumulated profit brought forward from 2005 | 18 |
| After transfers to reserves, the profit for 2006 of Lenzing AG amounted to | 36,757 |
| EUR '000 |
The Management Board proposes that:
| EUR | |
|---|---|
| A dividend of EUR 10.00 per share be paid for the 3,675,000 shares which in total would amount to | 36,750,000.00 |
| The balance be carried forward to next year | 24,916.69 |
Dividends are subject to the deduction of capital gains tax of 25%. This covers income tax for individuals with unlimited tax liability (Austrian final taxation). Corporations with unlimited tax liability holding at least 25% of common stock are exempt from capital gains tax. Double taxation agreements must be observed in the event of limited tax liability.
Minority interests represent the share of other shareholders in the equity of the consolidated subsidiaries. Third parties hold significant interests in PT. South Pacific Viscose and Lenzing (Nanjing) Fibers Co., Ltd.
The development of equity is as set out on the following page:
| Development of Equity | Share of Lenzing AG shareholders | Minority interests |
Equity Total |
||||
|---|---|---|---|---|---|---|---|
| Common stock |
Capital reserves |
Currency translation reserves |
Retained earnings and other reserves |
Total | |||
| EUR '000 | EUR '000 | EUR '000 | EUR '000 | EUR '000 | EUR '000 | EUR '000 | |
| As at 1/1/2005 | 26,717 | 63,600 | (4,001) | 329,656 | 415,972 | 13,022 | 428,994 |
| Recognized income and expense | |||||||
| taken directly to equity | 5,633 | (11,473) | (5,840) | 2,242 | (3,598) | ||
| transferred to profit or loss | (6,098) | (6,098) | 0 | (6,098) | |||
| Tax on items taken directly to or transferred from equity |
4,275 | 4,275 | 14 | 4,289 | |||
| Net income / loss recognized directly in equity |
0 | 0 | 5,633 | (13,296) | (7,663) | 2,256 | (5,407) |
| Net income | 56,875 | 56,875 | 3,794 | 60,669 | |||
| Total recognized income and expense for 2005 |
0 | 0 | 5,633 | 43,579 | 49,212 | 6,050 | 55,262 |
| Contribution to capital | 3,409 | 3,409 | |||||
| Dividends | (29,400)* | (29,400) | (2,787) | (32,187) | |||
| As at 31/12/2005 | 26,717 | 63,600 | 1,632 | 343,835 | 435,784 | 19,694 | 455,478 |
| Recognized income and expense | |||||||
| taken directly to equity | (4,318) | 3,105 | (1,213) | (2,504) | (3,717) | ||
| transferred to profit or loss | 2,288 | 2,288 | 0 | 2,288 | |||
| Tax on items taken directly to or transferred from equity |
(1,109) | (1,109) | 91 | (1,018) | |||
| Net income/loss recognized directly in equity |
0 | 0 | (4,318) | 4,284 | (34) | (2,413) | (2,447) |
| Net income | 83,889 | 83,889 | 4,474 | 88,363 | |||
| Total recognized income and expense for 2006 |
0 | 0 | (4,318) | 88,173 | 83,855 | 2,061 | 85,916 |
| Contribution to capital | 5,974 | 5,974 | |||||
| Dividends | (29,400)* | (29,400) | (2,001) | (31,401) | |||
| Other | 49 | 49 | 49 | ||||
| As at 31/12/2006 | 26,717 | 63,600 | (2,686) | 402,657 | 490,288 | 25,728 | 516,016 |
* The dividend per share was EUR 8.
The amount reported under this heading essentially represents grants received from the public sector to promote investment in economically underdeveloped regions, grants for investment in environmental protection projects and other grants aimed at promoting capital expenditure, such as investment tax grants. To a lesser degree, research projects are also supported by direct public-sector grants and loans at favorable interest rates.
As the conditions attached to these grants are being adhered to, it is considered unlikely that even part of the grants received will become repayable.
Moreover, this heading comprises the remaining government grants for emission certificates of EUR 184 thousand (31 December 2005: EUR 1,169 thousand) representing the value of emission certificates at the date of assignment less the amount recognized as income.
| 2006 | Currency | Nominal amount |
Carrying amount |
Average effective interest rate |
|---|---|---|---|---|
| EUR '000 | EUR '000 | in % | ||
| Liabilities with banks | ||||
| Loans: | ||||
| Fixed interest | EUR | 78,466 | 78,462 | 3.96 |
| Fixed and variable interest | EUR | 5,526 | 5,526 | 1.12 |
| Variable interest | EUR | 19,802 | 19,802 | 3.69 |
| USD | 34,312 | 26,049 | 8.10 | |
| CNY | 40,000 | 3,894 | 6.84 | |
| Working capital loans*, variable interest | EUR | 54,868 | 54,868 | 2.95 |
| USD | 1,217 | 924 | 5.75 | |
| GBP | 1,000 | 1,493 | 5.35 | |
| 191,018 | ||||
| Other loans | ||||
| Fixed interest | EUR | 5,513 | 5,513 | 2.27 |
| USD | 16 | 12 | 6.91 | |
| Fixed and variable interest | EUR | 31,316 | 31,316 | 3.01 |
| Variable interest | EUR | 1,703 | 1,703 | 2.96 |
| USD | 17,542 | 13,310 | 7.90 | |
| 51,854 | ||||
| Total financial liabilities | 242,872 | |||
| Short-term | 28,419 | |||
| Long-term | 214,453 |
Financial liabilities are liabilities with banks and other loans. They comprise the following as at 31 December:
* Revolving credits and current accounts
| 2005 | Currency | Nominal amount |
Carrying amount |
Average effective interest rate |
|---|---|---|---|---|
| EUR '000 | EUR '000 | in % | ||
| Liabilities with banks | ||||
| Loans: | ||||
| Fixed interest | EUR | 68,443 | 68,443 | 3.91 |
| Fixed and variable interest | EUR | 5,784 | 5,784 | 1.25 |
| Variable interest | EUR | 38,069 | 38,072 | 3.83 |
| USD | 22,671 | 19,164 | 6.76 | |
| Working capital loans*, variable interest | EUR | 61,833 | 61,833 | 2.54 |
| USD | 205 | 174 | 5.00 | |
| GBP | 1,962 | 2,884 | 5.36 | |
| 196,354 | ||||
| Other loans | ||||
| Fixed interest | EUR | 4,403 | 4,403 | 2.00 |
| Fixed and variable interest | EUR | 36,223 | 36,223 | 3.41 |
| Variable interest | EUR | 2,894 | 2,894 | 2.92 |
| USD | 16,797 | 14,199 | 5.99 | |
| 57,719 | ||||
| Total financial liabilities | 254,073 | |||
| Short-term | 54,142 | |||
| Long-term | 199,931 |
* Revolving credits and current accounts
Liabilities with banks and other loans will be due as follows:
| 31/12/2006 | Variable interest | Fixed and variable interest |
Fixed interest | Total |
|---|---|---|---|---|
| EUR '000 | EUR '000 | EUR '000 | EUR '000 | |
| On demand or within one year | 13,936 | 10,768 | 3,715 | 28,419 |
| More than one to two years | 61,966 | 9,478 | 3,203 | 74,647 |
| More than two to three years | 10,660 | 6,729 | 52,484 | 69,873 |
| More than three to four years | 6,936 | 5,317 | 16,476 | 28,729 |
| More than four to five years | 3,632 | 3,383 | 1,745 | 8,760 |
| More than five years | 24,913 | 1,167 | 6,364 | 32,444 |
| 122,043 | 36,842 | 83,987 | 242,872 | |
| Less amounts due for settlement within 12 months |
(13,936) | (10,768) | (3,715) | (28,419) |
| Amounts due for settlement in more than 12 months |
108,107 | 26,074 | 80,272 | 214,453 |
| 31/12/2005 | Variable interest | Fixed and variable interest |
Fixed interest | Total |
|---|---|---|---|---|
| EUR '000 | EUR '000 | EUR '000 | EUR '000 | |
| On demand or within one year | 39,159 | 12,165 | 2,818 | 54,142 |
| More than one to two years | 20,586 | 10,768 | 2,548 | 33,902 |
| More than two to three years | 59,816 | 9,478 | 2,266 | 71,560 |
| More than three to four years | 3,907 | 5,562 | 52,337 | 61,806 |
| More than four to five years | 3,450 | 2,984 | 1,649 | 8,083 |
| More than five years | 12,302 | 1,050 | 11,228 | 24,580 |
| 139,220 | 42,007 | 72,846 | 254,073 | |
| Less amounts due for settlement within 12 months |
(39,159) | (12,165) | (2,818) | (54,142) |
| Amounts due for settlement in more than 12 months |
100,061 | 29,842 | 70,028 | 199,931 |
The next adjustment of interest rates for variable interest loans and loans combining fixed and variable interest will take place within the next six months, as detailed in the credit agreement.
The terms of these loans under revolving lines of credit are fixed for a definite period of time and are subject to variable interest rates.
"Other loans" comprise mainly loans by the Austrian Research Promotion Fund and the ERP Fund as well as loans from other shareholders.
The table below shows the various types of collateral given for bank loans as at 31 December. The amounts stated represent the lower of amounts outstanding and the carrying amount of the asset that is provided as collateral.
| 2006 | 2005 | |
|---|---|---|
| EUR '000 | EUR '000 | |
| Liabilities with banks | 74,578 | 77,835 |
| Assignment of receivables | 53,193 | 49,627 |
| Mortgages, movable fixed assets pledged as collateral | 21,385 | 28,208 |
| Other loans | 797 | 814 |
| Assets leased under a finance lease | 797 | 813 |
| Mortgages | 0 | 1 |
In accordance with IAS 12 deferred tax assets or liabilities generally have to be recognized for all differences between the carrying amounts of assets and liabilities in the balance sheet and the corresponding amounts recognized for tax purposes. Temporary differences arising from goodwill not deductible for tax purposes are not provided for. In addition, a deferred tax asset arising from unused tax losses carried forward is to be recognized only to the extent that it is probable that future taxable profit will be available against which the unused tax losses can be utilized.
Deferred tax assets and liabilities are offset if they relate to the same taxable entity.
Deferred tax assets and liabilities relate to the following balance sheet items:
| 31/12/2006 | 31/12/2005 | |
|---|---|---|
| EUR '000 | EUR '000 | |
| Deferred tax assets: | ||
| Property, plant and equipment | 2,683 | 0 |
| Financial assets | 0 | 326 |
| Current assets | 4,964 | 686 |
| Provisions | 9,652 | 12,258 |
| Liabilities | 159 | 0 |
| Loss carry-forwards | 15,985 | 17,994 |
| 33,443 | 31,264 | |
| Valuation allowance | (5,256) | (14,812) |
| Total deferred tax assets | 28,187 | 16,452 |
| Offset against deferred tax liabilities | (26,746) | (15,419) |
| Net deferred tax assets | 1,441 | 1,033 |
| Deferred tax liabilities: | ||
| Intangible fixed assets | 701 | 779 |
| Property, plant and equipment | 19,041 | 20,908 |
| Financial assets | 258 | 0 |
| Current assets | 3,408 | 0 |
| Provisions | 0 | 112 |
| Special depreciation for taxation purposes | 1,371 | 1,609 |
| Government grants | 1,083 | 3,685 |
| Liabilities | 8,978 | 5,050 |
| Total deferred tax liabilities | 34,840 | 32,143 |
| Offset against deferred tax assets | (26,746) | (15,419) |
| Net deferred tax liabilities | 8,094 | 16,724 |
| 31/12/2006 | 31/12/2005 | Change | |
|---|---|---|---|
| EUR '000 | EUR '000 | EUR '000 | |
| Deferred tax assets | 1,441 | 1,033 | 408 |
| Deferred tax liabilities | (8,094) | (16,724) | 8,630 |
| Net | (6,653) | (15,691) | 9,038 |
| Thereof: | |||
| directly debited to equity | (1,018) | ||
| exchange differences | 278 | ||
| recognized as income in the income statement | 9,778 | ||
| 9,038 |
At both 31 December 2006 and 31 December 2005, deferred tax assets were only recognized to the extent that it is probable that sufficient future taxable profit will be available against which the assets can be utilized.
The Group's provisions comprise:
| 2006 | Balance | Currency | Reclas | Con | Re | Period | Balance | Short | Long |
|---|---|---|---|---|---|---|---|---|---|
| as at | translation | sifica | sumption | versal | Charge | as at | term | term | |
| 1/1 | adjustment | tion | 31/12 | ||||||
| EUR '000 | EUR '000 | EUR '000 | EUR '000 | EUR '000 | EUR '000 | EUR '000 | EUR '000 | EUR '000 | |
| Severance payments | 48,364 | 0 | 0 | (2,081) | 0 | 4,437 | 50,720 | 1,815 | 48,905 |
| Pensions | 24,618 | (128) | 0 | (2,382) | (102) | 1,692 | 23,698 | 1,954 | 21,744 |
| Anniversary bonuses | 12,921 | 0 | 0 | (550) | 0 | 1,034 | 13,405 | 1,609 | 11,796 |
| Unconsumed vacation | 6,142 | (52) | 0 | (6,086) | 0 | 6,053 | 6,057 | 6,057 | 0 |
| Restructuring | 3,107 | 3 | 0 | (2,507) | (103) | 265 | 765 | 765 | 0 |
| Other personnel costs | 17,557 | (216) | 0 | (16,821) | (42) | 18,848 | 19,326 | 19,326 | 0 |
| Guarantees and warranties | 1,063 | (38) | 0 | (55) | (242) | 596 | 1,324 | 1,324 | 0 |
| Anticipated losses | |||||||||
| and other risks | 7,679 | 0 | 380 | (78) | (916) | 290 | 7,355 | 7,355 | 0 |
| Impending losses from | |||||||||
| derivative financial instruments | 3,932 | 1 | 0 | (3,933) | 0 | 85 | 85 | 85 | 0 |
| Emission certificates | 1,931 | 0 | 0 | (1,931) | 0 | 1,918 | 1,918 | 1,918 | 0 |
| Other | 14,463 | (561) | (380) | (8,393) | (968) | 14,757 | 18,918 | 18,918 | 0 |
| Provisions | 141,777 | (991) | 0 | (44,817) | (2,373) | 49,975 | 143,571 | 61,126 | 82,445 |
Provisions for personnel costs essentially include accruals for vacation and Christmas allowances, performance bonuses, accrued flextime and overtime.
Other provisions essentially include those for services rendered but not invoiced, discounts and rebates yet to be granted, obligatory maintenance costs, legal, auditing and consultancy fees.
Lenzing AG, Lenzing Fibers Inc. and Lenzing Fibers (Hong Kong) Ltd. have defined benefit pension plans providing retirement benefits based on the number of years of service and on remuneration received by eligible employees. These pension plans are essentially unfunded or only partly covered by pension plan assets.
The Lenzing AG pension plan comprises mainly retired staff members. The assumed retirement age of eligible staff members ranges from 58 to 63 years, depending on gender and position in the company. Life expectancy calculations are based on Austrian actuarial mortality tables "AVÖ – P 99 mixed sample". The pension commitments are partly covered by reinsurance contracts which were recognized as pension assets according to IAS 19.
Lenzing Fibers Inc. sponsors defined benefit pension plans for its eligible salaried staff and for employees who belong to the Bargaining Unit. The latter receive staggered pension payments for each year of service based on the employee's compensation in the year. The scheduled retirement age is 65. Staff members with 20 years of service are entitled to early retirement at age 55. Both defined benefit plans described were frozen, which means that no new pension entitlements may be created under these plans.
The projected unit credit method is the actuarial valuation method that was used to measure the present value of defined benefit obligations accruing under defined benefit plans.
The principal actuarial assumptions are:
| Actuarial assumptions | 2006 | 2005 |
|---|---|---|
| Discount rate p.a. in % | ||
| Austria | 4.0 | 4.0 |
| USA | 5.8 | 5.5 |
| Indonesia | 10.5 | 12.0 |
| Hong Kong | 3.8 | 4.3 |
| Estimated future salary and pension increases p.a. in % | ||
| Austria | 2.0 - 2.5 | 2.0 - 2.5 |
| USA | 0.0 | 0.0 |
| Indonesia | 9.0 | 10.0 |
| Hong Kong | 3.0 | 3.3 |
| Expected rate of return on plan assets p.a. in % | ||
| Austria | 7.7 | 7.7 |
| USA | 7.5 | 7.2 |
| Indonesia | N / A | N / A |
| Hong Kong | 7.0 | 7.0 |
The Group recognized the following amounts relating to these plans as pension expense in the income statement:
| 2006 | 2005 | |
|---|---|---|
| EUR '000 | EUR '000 | |
| Interest cost | 1,482 | 1,541 |
| Current service cost | 339 | 226 |
| Past service cost | 55 | 52 |
| Administrative and other costs | 1 | 1 |
| Expected return on plan assets | (417) | (514) |
| Effect of plan curtailments | 0 | (485) |
| Effect of plan settlements | 39 | 0 |
| Total expense | 1,499 | 821 |
Expenses are presented in the income statement under the heading "Personnel expenses", namely under "Pension expenses". The actual return on plan assets was EUR 524 thousand (2005: EUR 509 thousand).
Actuarial losses recognized directly in equity in 2006 came to EUR 44 thousand (2005: EUR 3,142 thousand). Accumulated actuarial losses as at 31 December 2006 came to EUR 3,947 thousand (31 December 2005: EUR 3.903 thousand).
The amounts presented in the balance sheet for obligations from defined benefit pension plans (DBO) are derived as follows:
| 31/12/2006 | 31/12/2005 | |
|---|---|---|
| EUR '000 | EUR '000 | |
| Present value of obligation (DBO) | 31,100 | 32,249 |
| Fair value of plan assets | (7,265) | (7,315) |
| Deficit in plan | 23,835 | 24,934 |
| Unrecognized past service cost | (353) | (413) |
| Net amount recognized in the balance sheet | 23,482 | 24,521 |
| Presented as: | ||
| Non-current assets | (216) | (97) |
| Long-term provision | 21,744 | 22,934 |
| Short-term provision | 1,954 | 1,684 |
| 23,482 | 24,521 |
The present value of obligations from defined benefit pension plans and the fair value of plan assets developed as follows:
| 2006 | 2005 | |
|---|---|---|
| EUR '000 | EUR '000 | |
| Present value of obligation (DBO) as at 1/1 | 32,249 | 29,487 |
| Interest cost | 1,482 | 1,541 |
| Current service cost | 339 | 226 |
| Actuarial losses | 113 | 3,073 |
| Currency translation adjustment | (446) | 720 |
| Benefits paid | (2,677) | (2,313) |
| Plan settlements | 40 | 0 |
| Plan curtailments | 0 | (485) |
| Present value of obligation (DBO) as at 31/12 | 31,100 | 32,249 |
| Fair value of plan assets as at 1/1 | 7,315 | 6,431 |
| Contributions | 287 | 284 |
| Administration and other costs | (1) | (1) |
| Expected return on plan assets | 417 | 514 |
| Actuarial gains/losses | 69 | (69) |
| Benefits paid | (500) | (222) |
| Currency translation adjustment | (322) | 378 |
| Fair value of plan assets as at 31/12 | 7,265 | 7,315 |
The fair value of plan assets is constituted by the following asset categories:
| 2006 | 2005 | |
|---|---|---|
| EUR '000 | EUR '000 | |
| Equity instruments | 1,954 | 1,904 |
| Debt instruments | 673 | 973 |
| Insurance policies qualifying as plan assets | 4,241 | 4,295 |
| Other assets | 397 | 143 |
| Balance as at 31/12 | 7,265 | 7,315 |
The history of pension obligations and assets and experience adjustments is as follows:
| 2006 | 2005 | |
|---|---|---|
| EUR '000 | EUR '000 | |
| Present value of defined benefit obligation (DBO) | 31,100 | 32,249 |
| Fair value of plan assets | (7,265) | (7,315) |
| Deficit | 23,835 | 24,934 |
| Experience adjustments [(+) gain / (-) loss]: | ||
| on defined benefit obligation (DBO) | (18) | (917) |
| on plan assets | 44 | (69) |
The Group expects to make contributions of EUR 108 thousand to the defined benefit plans during the next business year.
The Group operates defined contribution pension plans for nearly all staff members not covered by defined benefit pension plans. The expense recognized in the income statement for these plans in 2006 came to EUR 2,312 thousand (2005: EUR 2,521 thousand).
The provisions for severance payments for staff members of Lenzing AG and its Austrian subsidiaries which become due with the beginning of statutory retirement age are considered as post-retirement benefits similar to pensions and are therefore calculated in accordance with the regulations of IAS 19.
| 2006 | 2005 | |
|---|---|---|
| EUR '000 | EUR '000 | |
| Present value of obligation (DBO) as at 1/1 | 48,364 | 41,185 |
| Interest cost | 1,935 | 2,059 |
| Current service cost | 2,334 | 2,447 |
| Total expense | 4,269 | 4,506 |
| Benefits paid | (2,082) | (3,283) |
| Actuarial gain (-) / loss (+) | 169 | 5,956 |
| Present value of obligation (DBO) as at 31/12 | 50,720 | 48,364 |
| Number of eligible persons | 2,596 | 2,690 |
| Actuarial assumptions | ||
| Discount rate in % p.a. | 4.0 | 4.0 |
| Estimated future salary increases in % p.a. | 3.0 | 3.0 |
The following table shows the development of provisions for severance payments:
Employee turnover is determined company by company based on the composition of staff and duration of job tenure.
Expenses are presented in the income statement under the heading "Personnel expenses", namely under "Expenses for severance payments". Actuarial losses recognized directly in equity in the statement of recognized income and expense came to EUR 169 thousand (31 December 2005: EUR 5,956 thousand). Accumulated actuarial losses as at 31 December 2006 came to EUR 3,250 thousand (31 December 2005: EUR 3,081 thousand).
The history of obligations for severance payments and experience adjustments is as follows:
| 2006 | 2005 | |
|---|---|---|
| EUR '000 | EUR '000 | |
| Present value of defined benefit obligation (DBO) | 50,720 | 48,364 |
| Experience adjustments [(+) gain / (-) loss)] on present value of obligation (DBO) | (169) | (582) |
Staff members with employment contracts under Austrian law with a commencement date later than 31 December 2002 acquire no severance payment claims. Contributions in the form of 0.53% of the respective wage or salary are paid in to a separate precautionary fund for employees ("Mitarbeitervorsorgekasse"). In 2006 contributions of EUR 247 thousand (2005: EUR 185 thousand) were paid.
In accordance with collective bargaining agreements, Lenzing AG and its Austrian subsidiaries are required to pay anniversary bonuses to employees on the occasion of specific service anniversaries. The provisions for anniversary bonuses were measured in accordance with the regulations of IAS 19. The amounts due on the respective anniversaries are accrued evenly over the service period up to the anniversary date and the amounts attributable to the service period at the valuation date are discounted.
The following table shows the development of the provision for anniversary bonuses:
| 2006 | 2005 | |
|---|---|---|
| EUR '000 | EUR '000 | |
| Present value of the obligation (DBO) as at 1/1 | 12,921 | 11,510 |
| Interest cost | 517 | 595 |
| Current service cost | 355 | 751 |
| Actuarial losses | 162 | 920 |
| Total expense | 1,034 | 2,266 |
| Benefits paid | (550) | (855) |
| Present value of obligation (DBO) as at 31/12 | 13,405 | 12,921 |
| Number of eligible persons | 2,628 | 2,634 |
| Actuarial assumptions | ||
| Discount rate in % p.a. | 4.0 | 4.0 |
| Estimated future salary increases in % p.a. | 3.0 | 3.0 |
Employee turnover is determined company by company based on the composition of staff and duration of job tenure.
The following table shows the commitments and contingent liabilities of the Group as at 31 December:
| 2006 | 2005 | |
|---|---|---|
| EUR '000 | EUR '000 | |
| Cumulative assumption of debt in favor of Businesspark Heiligenkreuz GmbH | 0 | 3.597 |
| Assumption of liability for associated companies | 9.330 | 6.472 |
| Assumption of liability for third parties | 1.989 | 0 |
Lenzing Fibers GmbH, as the legal successor to Energie- und Medienzentrale Heiligenkreuz GmbH & Co KG, and Businesspark Heiligenkreuz GmbH guaranteed the repayment of grants received by Businesspark Heiligenkreuz GmbH in the event that Businesspark Heiligenkreuz GmbH would not meet its obligations. This liability expired in 2006.
It is considered unlikely that the group will be held liable as a result of these commitments. At the reporting date the fair value of these is nil, thus no liability was recognized in the balance sheet.
The Management Board is not aware of any other commitments with any material effect on the financial position and performance of the Group.
Various legal proceedings resulting from the ordinary course of business are pending. The Management Board believes that these proceedings will not have material adverse effect on the present and future earnings of the Group.
The cash flow statement shows the change in liquid funds over the year as a result of cash receipts and payments. Liquid funds comprise cash and cash equivalents. The principles used in translating income and expenses for the income statement as set out in note 2 also apply to the translation of cash flows.
Gross cash flow is calculated as follows:
| 2006 | 2005 | |
|---|---|---|
| EUR '000 | EUR '000 | |
| Net income | 88,363 | 60,669 |
| + Depreciation of |
||
| property, plant and equipment and amortization of intangible assets | 67,150 | 64,123 |
| financial assets | 14 | 4 |
| - Release of investment grants previously recognized as deferred income |
(4,227) | (4,321) |
| - Write-ups of financial assets |
(2) | (28) |
| + Period change / - Consumption or reversal of long-term provisions |
1,611 | 1,225 |
| - Gains / + Losses on the disposal of |
||
| Intangible assets, property, plant and equipment | 2,549 | 724 |
| Financial assets | 0 | 1 |
| - Deferred tax income / + deferred tax expense |
(9,778) | (896) |
| - Non-cash income from associated companies |
(278) | (631) |
| - Other non-cash income / + expenses |
2,489 | (519) |
| Gross cash flow | 147,891 | 120,351 |
The change in working capital comprises:
| 2006 | 2005 | |
|---|---|---|
| EUR '000 | EUR '000 | |
| + Decrease / - increase in inventories |
(3,912) | (332) |
| + Decrease / - increase in accounts receivable |
(15,935) | (2,659) |
| - Decrease / + increase in accounts payable |
18,105 | 6,973 |
| Change in working capital | (1,742) | 3,982 |
Cash flow from investing activities comprises:
| 2006 | 2005 | |
|---|---|---|
| EUR '000 | EUR '000 | |
| - Acquisition of non-current assets |
||
| Intangible assets, property, plant and equipment | (105,341) | (82,394) |
| Financial assets and other non-current assets | (316) | (1,650) |
| (105,657) | (84,044) | |
| Acquisition of investments held as current assets | 0 | (7,995) |
| + Proceeds from the disposal / redemption of non-current assets |
||
| Intangible assets and property, plant and equipment | 571 | 1,472 |
| Financial assets | 2,621 | 1,378 |
| 3,192 | 2,850 | |
| Net cash used in investing activities | (102,465) | (89,189) |
The payments of other shareholders in the amount of EUR 5,974 thousand concern the payments of the minority shareholders of (Nanjing) Fibers Co., Ltd and European Precursor GmbH for their share in common stock.
Receipts from financing activities comprise:
| 2006 | 2005 | ||
|---|---|---|---|
| EUR '000 | EUR '000 | ||
| + | Investment grants | 2,160 | 989 |
| + | Receipts from long-term loans and borrowings | 56,135 | 59,583 |
| Receipts from financing activities | 58,295 | 60,572 |
The Group's liquid funds comprise:
| 31/12/2006 | 31/12/2005 | |
|---|---|---|
| EUR '000 | EUR '000 | |
| Cash | 83,526 | 72,312 |
| Cash equivalents | 5,281 | 4,785 |
| Total | 88,807 | 77,097 |
Cash comprises cash in hand and cash at banks, sight deposits and short-term time deposits at banks. Cash equivalents, which are subject to only insignificant risks of changes in value, comprise securities with a maturity of less than three months at the time of purchase.
Cash flow from operating activities includes the following interest and dividend payments and receipts:
| 2006 | 2005 | |
|---|---|---|
| EUR '000 | EUR '000 | |
| Interest received | 2,998 | 1,970 |
| Interest paid | 8,124 | 8,736 |
| Taxes paid | 13,859 | 23,527 |
Related parties (companies and persons) of the Group comprise all subsidiaries and associated companies, as well as the members of the corporate bodies (Management and Supervisory boards) of Lenzing AG, B & C Holding GmbH and B & C Privatstiftung. B & C Holding GmbH and its subsidiaries are also considered related parties. Other shareholders of Lenzing AG or its subsidiaries are considered related parties if they are in a position to exercise significant influence on the operating policies of the company.
Management fees paid by subsidiaries to minority shareholders amounted to EUR 2,371 thousand (2005: EUR 2,918 thousand).
Lenzing AG provided loans to minority shareholders of subsidiaries, the outstanding balance being EUR 310 thousand as at 31 December 2006 (31 December 2005: EUR 292 thousand). The balance of the provision for doubtful debt relating to these loans is EUR 141 thousand (31 December 2005: EUR 105 thousand).
Liabilities include loans of minority shareholders amounting to EUR 13,310 thousand (31 December 2005: EUR 14,199 thousand). These are subordinated loans at variable interest. The interest rate is based on LIBOR plus a surcharge and is adjusted every six months.
These transactions were essentially with:
EQUI-Fibres Beteiligungsgesellschaft mbH and its subsidiaries: Supply of pulp, machinery and equipment
RVL Reststoffverwertung Lenzing GmbH: Operation of a recycling facility and purchase of generated steam The volume of transactions and outstanding balances with associated companies are:
| 2006 | EQUI | LKF | RVL |
|---|---|---|---|
| EUR '000 | EUR '000 | EUR '000 | |
| Sales | 42,503 | 0 | 8,414 |
| Other operating income | 74 | 0 | 0 |
| Cost of material | 655 | 0 | 0 |
| Cost of purchased services | 0 | 0 | 8,414 |
| Other operating expenses | 0 | 0 | 38 |
| Interest income | 213 | 0 | 0 |
| Trade receivables | 3,528 | 0 | 0 |
| Other receivables | 100 | 589 | 0 |
| Advances received under open construction contracts (less costs incurred and recognized profits) |
1,615 | 0 | 0 |
| 2005 | EQUI | LKF | RVL |
|---|---|---|---|
| EUR '000 | EUR '000 | EUR '000 | |
| Sales | 696 | 0 | 7,939 |
| Cost of purchased services | 0 | 0 | 7,939 |
| Other operating expenses | 0 | 0 | 42 |
| Interest income | 0 | 5 | 0 |
| Trade receivables | 4 | 5 | 0 |
| Advances received | 3,500 | 0 | 9 |
Lenzing AG assumed proportionate liability for loans to a subsidiary of EQUI-Fibres Beteiligungsgesellschaft mbH and in 2005 Lenzing AG took over a claim of uncertain amount for EUR 1,500 thousand from an associated company. The claim is against the vendor of a company acquired in 2004 about the reduction of the purchase price.
The remuneration of the members of the Management and Supervisory boards was as follows:
| 2006 | 2005 | |
|---|---|---|
| EUR '000 | EUR '000 | |
| Short-term employee benefits | 1,820 | 1,813 |
| Post-employment benefits | 124 | 106 |
| 1,944 | 1,919 |
Payments to former members of the Management board or their dependants came to EUR 794 thousand in 2006 (2005: EUR 816 thousand).
The Group is exposed to various financial risks such as risks from foreign-currency fluctuations (primarily from the US dollar), from changes in interest rates and market values as well as liquidity, credit and cash flow risks. There are clearly defined policies for handling financial risks, which are continuously monitored and documented by the Management Board. The objective of risk management is the minimization of financial risks. Maximum risk transparency and information quality is achieved by means of precise and up-to-date presentation and quantification of all risk categories.
The companies of the Group have receivables, liabilities and bank balances denominated in a foreign currency resulting from their operating activities. The Group uses derivative financial instruments, namely foreign currency forward contracts and options, to hedge its foreign currency risk.
Interest rate changes affect the Group's financing, investing and cash-management activities. The Group has fixed-interest securities and loans receivable with a carrying amount close to their market or fair value amounting to EUR 17,796 thousand (2005: EUR 19,194 thousand) and securities held as current assets with a carrying amount equalling their market value of EUR 8,199 (2005: EUR 8,007 thousand). The fair value of these assets is subject to fluctuations because of changes in market interest rates.
The Group also has fixed-interest liabilities and liabilities combining fixed and floating interest rates with banks and other lenders amounting to EUR 120,829 thousand. The fair value of these liabilities is subject to fluctuations because of changes in market interest rates. As at 31 December 2006 such liabilities had a fair value of approximately EUR 118,184 thousand.
Some sites had to cope with considerable gas price increases during the year. As part of the measures to optimize energy cost the Group largely centralized natural gas purchasing from the middle of 2006 on and for the first time used future contracts traded at the respective commodity exchange to control and cover price-related risks.
Beyond that, the company is exposed to price risk usual in the line of business which is not provided for.
Liquidity risk is defined as the risk of not being able to obtain funds at any time, in order to meet liabilities incurred. Corporate guidelines require uniform and anticipatory liquidity planning throughout the Group. As part of the budgeting process, all Group data is consolidated in a short-term (one-year) and a medium-term (four-year) liquidity plan. As at 31 December 2006 the Group had at its disposal open credit lines confirmed in writing of EUR 217,667 thousand (31 December 2005: 193,696 thousand) for financing required operating resources, as well as for covering potential shortfall caused by economic cycles.
Credit risk describes the risk of incurring a loss due to individual business partners not meeting their contractual obligations. The risk of non payment inherent in the Group's operating activities is largely covered by credit insurance and bank collaterals (guarantees, letters of credit).
The maximum credit risk is equivalent to the carrying amount of monetary assets. These are loans receivable (EUR 642 thousand), securities held as fixed and current assets (EUR 25,353 thousand), receivables (EUR 170,133 thousand) and liquid funds (EUR 88,807 thousand). In addition, the Group has assumed liability for other companies amounting to EUR 11,319 thousand of which EUR 9,330 thousand relate to associated companies. The Group will be charged if these companies do not meet their commitments.
The maximum credit risk exposure involving one single bank consists of time deposits and bonds issued by that bank of approximately EUR 32 mill. Apart from this there are no concentrations of credit risk.
It is the policy of the Group to secure cash flow risk resulting from expected future transactions in foreign currencies by utilizing foreign currency forward contracts and options. These hedging transactions are carried out with the aim to ensure that changes in exchange rates do not affect cash flows resulting from transactions in foreign currencies translated into euro.
Liabilities at variable interest rates with banks and other lenders of EUR 122,043 thousand as at 31 December 2006 lead to fluctuations in cash flows related to these liabilities, that is, interest cost, whenever there are changes in the market interest rate.
The market values of cash and cash equivalents and investments held as fixed and current assets correspond to the carrying amount. The carrying amount of loans receivable approximates to their market value.
The market value of receivables also approximates to their carrying amount, as they are short-term and credit risk is covered by adequate allowances.
The carrying amount of short-term and long-term liabilities with banks and other lenders amounted to EUR 242,872 thousand as at 31 December 2006 (31 December 2005: EUR 254,073 thousand). This compares to a market value of EUR 240,227 thousand as at 31 December 2006 (31 December 2005: EUR 254,880 thousand). The market value of other liabilities corresponds to their carrying amount due to their short-term maturity. The market value was derived by discounting future cash flows related to these liabilities by applying the market interest rate at the reporting date.
The Group utilizes foreign currency forward contracts and options to hedge currency risks related to foreign currency exposures and expected future transactions of companies having the euro, British pound or the US dollar as functional currencies. Such contracts are stated at their market value.
Gains or losses from fair value hedges as well as gains or losses from hedged items are recognized as income or expense in the operating result. At the balance sheet dates the nominal values and market values of these hedging instruments were as follows:
| as at 31 December 2006 | as at 31 December 2005 | ||||
|---|---|---|---|---|---|
| Type of derivative financial instrument | Nominal | Gain (+) / loss (-) |
Nominal | Gain (+) / loss (-) |
|
| Functional currency / foreign currency | in '000 foreign curr. | EUR '000 | in '000 foreign curr. | EUR '000 | |
| Forward contracts | |||||
| EUR purchase / USD sale | 29,149 | 1,339.1 | 21,050 | (1,346.5) | |
| EUR sale / USD purchase | 131 | (5.6) | 0 | 0.0 | |
| EUR purchase / JPY sale | 9,045 | 2.1 | 0 | 0.0 | |
| EUR purchase / GBP sale | 0 | 0.0 | 150 | (8.9) | |
| EUR purchase / SEK sale | 0 | 0.0 | 530 | (0.2) | |
| GBP purchase / EUR sale | 1,100 | 45.2 | 0 | 0 | |
| GBP purchase / JPY sale | 20,000 | 29.4 | 0 | 0 | |
| GBP purchase / USD sale | 2,300 | 126.4 | 0 | 0 | |
| GBP sale / JPY purchase | 14,000 | (0.4) | 0 | 0 | |
| GBP sale / USD purchase | 1,000 | 0.6 | 0 | 0 | |
| USD purchase / EUR sale | 601 | (25.5) | 210 | 10.4 | |
| USD sale / EUR purchase | 0 | 0.0 | 210 | (27.2) | |
| USD purchase / JPY sale | 0 | 0.0 | 18,000 | 12.4 | |
| USD sale / JPY purchase | 0 | 0.0 | 18,000 | (17.8) | |
| Total | 1,511.3 | (1,377.8) | |||
| Options | |||||
| GBP purchase / USD sale | 0 | 0.0 | 1,000 | (6.8) | |
| EUR purchase / USD sale | 5,000 | 243.4 | 3,500 | 12.3 | |
| Total | 243.4 | 5.5 |
For companies with the same functional currency, the respective net exposures in foreign currencies for the next business year are determined in the course of preparing the budget. Purchases in a specific foreign currency and sales in the same foreign currency are aggregated and hedged as a group. Approximately 80% of the budgeted net exposure for business year 2007 was hedged as at 31 December 2006 with contracts having maturities of up to 14 months.
Gains or losses from measuring cash flow hedges are recognized directly in equity and reclassified into operating profit or loss when the hedged transactions affect profit or loss. The market value of open cash flow hedges recognized directly in equity amounted to EUR 3,892 thousand as at 31 December 2006 and to EUR -2,547 thousand as at 31 December 2005.
At the balance sheet dates the nominal values and market values of these hedging instruments were as follows:
| as at 31 December 2006 | as at 31 December 2005 | |||
|---|---|---|---|---|
| Type of derivative financial instrument | Nominal | Gain (+) / loss (-) |
Nominal | Gain (+) / loss (-) |
| Functional currency / foreign currency | in '000 foreign curr. | EUR '000 | in '000 foreign curr. | EUR '000 |
| Forward contracts | ||||
| EUR purchase / USD sale | 122,166 | 2,432.0 | 108,499 | (1,988.8) |
| EUR purchase / GBP sale | 900 | (10.1) | 875 | (12.2) |
| EUR sale / USD purchase | 25,057 | (51.0) | 0 | 0.0 |
| EUR sale / GBP purchase | 288 | 16.1 | 0 | 0.0 |
| GBP purchase / EUR sale | 0 | 0.0 | 11,500 | 107.8 |
| GBP purchase / USD sale | 17,550 | 581.0 | 18,000 | (208.9) |
| GBP purchase / JPY sale | 0 | 0.0 | 185,000 | 45.7 |
| USD purchase / EUR sale | 0 | 0.0 | 10,206 | 418.6 |
| Total | 2,968.0 | (1,637.8) | ||
| Options | ||||
| EUR purchase / USD sale | 40,000 | 923.6 | 45,000 | (911.4) |
| EUR purchase / CHF sale | 0 | 0.0 | 8,000 | 2.3 |
| Total | 923.6 | (909.1) |
The involved risks are hedged by purchasing future contracts covering gas purchases. Before the end of the month that precedes the month when the hedged gas deliveries take place, the future contracts are sold and at the same time the prices for the gas purchases of the next month are determined. The hedges at 31 December 2006 have maturities of up to 12 months. Unrealized losses from the valuation of open contracts and the sale of closed future contracts at the reporting date came to EUR -1,019 thousand. They were recognized directly in equity and will be transferred to the operating result as soon as the delivered gas is recognized as cost.
Business Unit Plastics will take over 100% of the German plastics producer Hahl Group GmbH. In addition to the main production site in Germany, a production site in Plana, Czech Republic, and a sales office in Great Britain form part of the enterprise. Its main markets are Europe and Asia, with North America to be targeted in the future. This transaction is pending the approval of the national cartel authorities of Germany and Austria and is expected to be completed by the end of the first quarter of 2007. The company with a staff of 240 realized sales of EUR 35 mill. in 2006.
Business Unit Plastics, moreover, expands into the production of carbon fibers by a joint venture with SGL Carbon AG in Wiesbaden, Germany and Kelheim Fibres GmbH in Kelheim, Germany. The venture is pending the approval of the cartel offices. Operations at Kelheim are to start in 2007, with a scheduled medium-term investment volume of EUR 50 mill.
| Investment | Currency | Common stock | Ownership interest |
|---|---|---|---|
| in % | |||
| Fully consolidated companies: | |||
| Beech Investment s.r.o., Zlaté Moravce, Slovakia | SKK | 200,000 | 100.00 |
| BZL-Bildungszentrum Lenzing GmbH, Lenzing, Austria | EUR | 43,604 | 75.00 |
| Energie- und Medienzentrale Heiligenkreuz GmbH, Heiligenkreuz, Austria |
EUR | 72,673 | 100.00 |
| European Precursor GmbH, Kelheim, Germany | EUR | 25,000 | 95.00 |
| LENO Electronics GmbH, Lenzing, Austria | EUR | 40,000 | 55.00 |
| Lenzing Beteiligungs GmbH, Lenzing, Austria | EUR | 35,000 | 100.00 |
| Lenzing Deutschland Syncell GmbH, Ditzingen, Germany (in liquidation) |
EUR | 30,000 | 100.00 |
| Lenzing Fibers (Shanghai) Co., Ltd., Shanghai, China | USD | 200,000 | 100.00 |
| Lenzing Fibers GmbH, Heiligenkreuz, Austria | EUR | 363,364 | 100.00 |
| Lenzing Fibers (Grimsby) GmbH, Lenzing, Austria | EUR | 36,000 | 100.00 |
| Lenzing Fibers Holding GmbH, Lenzing, Austria | EUR | 35,000 | 100.00 |
| Lenzing Fibers (Hong Kong) Ltd., Hong Kong | HKD | 16,000,000 | 100.00 |
| Lenzing Fibers Inc., New York, USA | USD | 10 | 100.00 |
| Lenzing Fibers Ltd., Nottingham, UK | GBP | 130,233,265 | 100.00 |
| Lenzing Holding GmbH, Lenzing, Austria | EUR | 35,000 | 100.00 |
| Lenzing (Nanjing) Fibers Co., Ltd., Nanjing, China | USD | 37,000,000 | 70.00 |
| Lenzing Plastics GmbH, Lenzing, Austria | EUR | 35,000 | 100.00 |
| Lenzing Services Ltd., Nottingham, UK | GBP | 1,000 | 100.00 |
| Lenzing Technik GmbH, Lenzing, Austria | EUR | 35,000 | 100.00 |
| Lyocell Holding Ltd., Nottingham, UK | GBP | 1,000 | 100.00 |
| PT. South Pacific Viscose, Purwakarta, Indonesia | IDR | 72,500,000,000 | 41.98 |
| Pulp Trading GmbH, Lenzing, Austria | EUR | 40,000 | 100.00 |
| Tencel Holding Ltd., Nottingham, UK | GBP | 1 | 100.00 |
| Tencel Holding Overseas Ltd., Jersey, Channel Islands | GBP | 1,001 | 100.00 |
| Companies accounted for at equity-method: | |||
| RVL Reststoffverwertung Lenzing GmbH, Lenzing, Austria | EUR | 36,336 | 50.00 |
| WWE Wohn- und Wirtschaftspark Entwicklungsgesellschaft m.b.H., Vienna, Austria |
EUR | 36,336 | 25.00 |
| EQUI-Fibres Beteiligungsgesellschaft mbH, Krefeld, Germany | EUR | 2,000,000 | 35.00 |
| LKF Tekstil Boya Sanayi ve Ticaret A.S., Istanbul, Turkey | TRL | 200,000 | 33.34 |
Karl Schmutzer, Vienna Chairman
Walter Lederer, Vienna Deputy Chairman
Horst Bednar, Vienna
Hermann Bell, Linz
Veit Sorger, Vienna
Franz Zwickl, Vienna (until 14 June 2006)
Chairman of the Company's Works Committee Chairman of the Blue-Collar Workers' Council
Deputy Chairman of the Company's Works Committee Chairman of the White-Collar Workers' Council
Johann Schernberger Deputy Chairman of the Blue-Collar Workers' Council
Thomas Fahnemann Chairman
Christian Reisinger
Peter Untersperger
The present consolidated financial statements were released on 12 March 2007 by the Management Board for examination by the Supervisory Board, for submission to the Shareholders' Meeting and for subsequent publication. The Supervisory Board is entitled to initiate changes to the consolidated financial statements within the framework of its supervisory duty.
Lenzing, 12 March 2007
Thomas Fahnemann
Christian Reisinger
Peter Untersperger
| Costs | ||||||
|---|---|---|---|---|---|---|
| as at 1/1/2006 |
Currency translation adjustment |
Additions 2006 |
Disposals 2006 |
Reclassi fications 2006 |
as at 31/12/2006 |
|
| EUR '000 | EUR '000 | EUR '000 | EUR '000 | EUR '000 | EUR '000 | |
| Development of intangible assets | ||||||
| 1. Concessions, industrial property rights and similar rights |
28,874 | -42 | 1,192 | 5,285 | 31 | 24,770 |
| thereof: internally generated | 13,180 | 0 | 974 | 1,235 | 0 | 12,919 |
| 2. Goodwill |
3,960 | -100 | 0 | 0 | 0 | 3,860 |
| 3. Prepayments |
31 | 0 | 16 | 0 | -31 | 16 |
| Total for intangible assets | 32,865 | -142 | 1,208 | 5,285 | 0 | 28,646 |
| Development of property, plant and equipment | ||||||
| 1. Land and buildings |
212,325 | -1,738 | 3,056 | 1,168 | 1,791 | 214,266 |
| 2. Plant and machinery, fixtures, fittings and other assets | 1,246,517 | -10,608 | 23,899 | 24,628 | 12,693 | 1,247,873 |
| 3. Prepayments and work under construction |
24,240 | -1,922 | 77,178 | 0 | -14,484 | 85,012 |
| Total for property, plant and equipment | 1,483,082 | -14,268 | 104,133 | 25,796 | 0 | 1,547,151 |
| Development of financial assets | ||||||
| 1. Investments in associates |
3,330 | 0 | 0 | 1,063 | 0 | 2,267 |
| 2. Loans |
896 | 0 | 216 | 193 | 281 | 1,200 |
| 3. Securities |
46,840 | 0 | 100 | 1,361 | 0 | 45,579 |
| Total for financial assets | 51,066 | 0 | 316 | 2,617 | 281 | 49,046 |
| Accumulated depreciation and amortization | ||||||||
|---|---|---|---|---|---|---|---|---|
| Carrying amount as at 31/12/2005 |
Carrying amount as at 31/12/2006 |
as at 31/12/2006 |
Reclassi fications 2006 |
Disposals 2006 |
Write-ups 2006 |
Depreciation 2006 |
Currency translation adjustment |
as at 1/1/2006 |
| EUR '000 | EUR '000 | EUR '000 | EUR '000 | EUR '000 | EUR '000 | EUR '000 | EUR '000 | EUR '000 |
| 8,668 | 7,043 | 17,727 | 0 | 4,024 | 0 | 1,565 | -20 | 20,206 |
| 5,650 | 4,678 | 8,241 | 0 | 0 | 0 | 711 | 0 | 7,530 |
| 3,960 | 3,860 | 0 | 0 | 0 | 0 | 0 | 0 | 0 |
| 16 | 0 | 0 | 0 | 0 | 0 | 0 | 0 | |
| 12,659 | 10,919 | 17,727 | 0 | 4,024 | 0 | 1,565 | -20 | 20,206 |
| 90,518 | 87,391 | 126,875 | 0 | 915 | 0 | 6,495 | -512 | 121,807 |
| 481,600 | 453,563 | 794,310 | 0 | 23,021 | 0 | 59,090 | -6,676 | 764,917 |
| 24,240 | 85,023 | -11 | 0 | 0 | 11 | 0 | 0 | 0 |
| 596,358 | 625,977 | 921,174 | 0 | 23,936 | 11 | 65,585 | -7,188 | 886,724 |
| 10,646 | 9,774 | -7,507 | 0 | 0 | 529 | 135 | 203 | -7,316 |
| 642 | 558 | 105 | 0 | 3 | 40 | 0 | 416 | |
| 18,714 | 17,154 | 28,425 | 0 | 0 | 0 | 299 | 0 | 28,126 |
| 29,840 | 27,570 | 21,476 | 105 | 0 | 532 | 474 | 203 | 21,226 |
We have audited the accompanying consolidated financial statements of Lenzing Aktiengesellschaft, Lenzing, for the financial year from 1 January 2006 to 31 December 2006. These consolidated financial statements comprise the balance sheet as at 31 December 2006, and the income statement, the statement of changes in equity and cash flow statement for the year ended 31 December 2006, and a summary of significant accounting policies and other explanatory notes.
Management is responsible for the preparation and fair presentation of these consolidated financial statements in accordance with International Financial Reporting Standards as adopted by the EU. This responsibility includes: designing, implementing and maintaining internal control relevant to the preparation and fair presentation of financial statements that are free from material misstatement, whether due to fraud or error; selecting and applying appropriate accounting policies; and making accounting estimates that are reasonable in the circumstances.
Our responsibility is to express an opinion on these consolidated financial statements based on our audit. We conducted our audit in accordance with laws and regulations applicable in Austria and in accordance with International Standards on Auditing, issued by the International Auditing and Assurance Standards Board (IAASB) of the International Federation of Accountants (IFAC). Those standards require that we comply with ethical requirements and plan and perform the audit to obtain reasonable assurance whether the financial statements are free from material misstatement.
An audit involves performing procedures to obtain audit evidence about the amounts and disclosures in the consolidated financial statements. The procedures selected depend on the auditor's judgment, including the assessment of the risks of material misstatement of the financial statements, whether due to fraud or error. In making those risk assessments, the auditor considers internal control relevant to the entity's preparation and fair presentation of the consolidated financial statements 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 entity's internal control. An audit also includes evaluating the appropriateness of accounting policies used and the reasonableness of accounting estimates made by management, as well as evaluating the overall presentation of the consolidated financial statements.
We believe that the audit evidence we have obtained is sufficient and appropriate to provide a basis for our audit opinion.
Our audit did not give rise to any objections. Based on the results of our audit in our opinion, the consolidated financial statements present fairly, in all material respects, the financial position of the group as of 31 December 2006, and of its financial performance and its cash flows for the financial year from 1 January 2006 to 31 December 2006 in accordance with International Financial Reporting Standards as adopted by the EU.
Laws and regulations applicable in Austria require us to perform audit procedures whether the consolidated management report is consistent with the consolidated financial statements and whether the other disclosures made in the consolidated management report do not give rise to misconception of the position of the group. In our opinion, the consolidated management report for the group is consistent with the consolidated financial statements.
Vienna, 12 March 2007
Eidos Deloitte Chartered Accountants and Tax Consultants
Nikolaus Schaffer Harald Breit Chartered Accountant Chartered Accountant
In the course of business year 2006, the Supervisory Board of Lenzing AG was informed by the Management Board on the company's activities on the occasion of four meetings. The further strategic development of the company, as well as major business transactions and measures were discussed with the Management Board and the required decisions were made. In the course of these meetings, the Management Board informed the Supervisory Board on the financial position of Lenzing AG and the Lenzing Group by means of detailed written reports. Moreover, the Chairman of the Supervisory Board and his deputy had the Management Board provide them with information on a regular basis. The Financial Audit Committee met once.
The financial statement and the management report of Lenzing AG for 31 December 2006 were audited by Eidos Deloitte Wirtschaftsprüfungs- und Steuerberatungsgesellschaft mbH, Vienna, under the inclusion of accounting. The auditor confirmed that the financial statement is in accordance with legal regulations and presents fairly, in all material respects, the financial position of Lenzing AG as of 31 December 2006. The auditor further confirmed that the financial statement presents fairly, in all material respects, the financial performance of the business year from 1 January 2006 to 31 December 2006 in accordance with the generally accepted accounting practices of Austria, and that the management report is consistent with the financial statement.
Eidos Deloitte Wirtschaftsprüfungs- und Steuerberatungsgesellschaft mbH, Vienna, audited the consolidated financial statements for business year 2006 that were compiled in accordance with International Financial Reporting Standards as adopted by the EU. It came to the opinion that the consolidated financial statements present fairly, in all material respects, the financial position of the Group as of 31 December 2006, and its financial performance and its cash flows for the financial year from 1 January 2006 to 31 December 2006 and that the management report is consistent with the consolidated financial statements.
The Financial Audit Committee at its meeting of 30 March 2007 gave its detailed attention to the audit reports and exhaustively discussed the audit results with the auditor. The Financial Audit Committee advised the Supervisory Board to recommend to the 63rd Regular Shareholders' Meeting the reappointment of Eidos Deloitte Wirtschaftsprüfungs- und Steuerberatungsgesellschaft mbH, Vienna as auditors for the 2007 accounts.
In keeping with section 127 of the Austrian Stock Corporations Act, the Supervisory Board accepts the management report and approves the consolidated financial statements for 2006 which have thereby been established in keeping with section 125 (2) of the Austrian Stock Corporations Act. Moreover, the Supervisory Board accepts the consolidated financial statements and the management report of the Group prepared in accordance with sections 244 and 245a of the Austrian Commercial Law Code.
The Supervisory Board also agrees to the distribution of profit as proposed by the Management Board. Accordingly, a dividend of EUR 36,750,000.00 will be distributed from the recognized net profit of EUR 36,774,916.69. This corresponds to EUR 10.00 per no-par share. The remaining profit of EUR 24,916.69 will be carried forward.
The Supervisory Board follows the advice of the Financial Audit Committee and will recommend to the 63rd Regular Shareholders' Meeting to appoint Eidos Deloitte Wirtschaftsprüfungs- und Steuerberatungsgesellschaft mbH, Vienna as auditors for the 2007 accounts.
The Supervisory Board thanks the Management Board and all staff members for their commitment and for the very good results achieved for the business year under review.
Vienna, 20 April 2007
Chairman of the Supervisory Board
| under IFRS | under US GAAP | ||||||||||
|---|---|---|---|---|---|---|---|---|---|---|---|
| 2006 | 2005 | 2004 | 2003 | 2003 | 2002 | 2001 | 2000 | 1999* | 1998* | ||
| Sales and results | |||||||||||
| Sales | EUR mill. | 1,100.5 | 942.6 | 871.1 | 747.2 | 622.0 | 625.6 | 622.7 | 599.4 | 550.2 | 547.5 |
| Sales outside of Austria | % | 85.6 | 85.0 | 83.7 | 83.6 | 79.2 | 78.9 | 79.3 | 80.5 | 81.9 | 80.6 |
| Income from operations / Operating result | EUR mill. | 107.1 | 81.8 | 104.3 | 89.7 | 74.0 | 78.4 | 64.6 | 69.8 | 9.2 | 17.1 |
| Financial result | EUR mill. | -8.5 | -2.5 | -0.8 | -5.1 | 4.0 | -6.2 | 0.8 | -0.5 | -5.3 | -8.8 |
| Income before taxes and minority interest | EUR mill. | 98.6 | 79.3 | 103.5 | 84.6 | 78.0 | 72.1 | 65.5 | 69.3 | 3.9 | 8.3 |
| Income taxes | EUR mill. | -10.2 | -18.6 | -26.0 | -20.8 | -17.0 | -23.0 | -19.9 | -23.0 | 0.5 | -2.7 |
| Profit / loss for the year** | EUR mill. | 88.4 | 60.7 | 77.5 | 63.7 | 60.5 | 49.2 | 45.6 | 46.7 | 4.3 | 5.6 |
| Net income | EUR mill. | 83.9 | 56.9 | 67.7 | 58.8 | 59.0 | 48.0 | 54.2 | 42.3 | 4.3 | 5.6 |
| Cash flow | |||||||||||
| Gross cash flow | EUR mill. | 147.9 | 120.4 | 128.5 | 115.9 | 104.0 | 101.9 | 86.5 | 37.1 | 60.9 | 70.1 |
| Gross cash flow as percent of sales | % | 13.4 | 12.8 | 14.7 | 15.5 | 16.8 | 16.3 | 13.9 | 6.2 | 11.1 | 12.8 |
| Net cash from operating activities | EUR mill. | 146.1 | 124.3 | 95.3 | 127.1 | 109.0 | 127.4 | 81.6 | 28.3 | 61.0 | 50.4 |
| Free cash flow | EUR mill. | 43.7 | 35.1 | -36.2 | -11.3 | -16.0 | 85.2 | 59.1 | -9.4 | 22.4 | 47.8 |
| Capital expenditure | EUR mill. | 105.3 | 82.4 | 60.9 | 139.2 | 131.0 | 42.0 | 66.7 | 41.0 | 39.0 | 38.6 |
| Assets structure*** | |||||||||||
| Non-current assets | % | 63.0 | 63.5 | 64.9 | 60.8 | 63.1 | 63.6 | 65.0 | 59.4 | 62.0 | 63.2 |
| Current assets | % | 37.0 | 36.5 | 35.1 | 39.2 | 36.9 | 36.4 | 35.0 | 40.6 | 38.0 | 36.8 |
| Total assets | EUR mill. | 1,061.7 | 1,010.1 | 946.1 | 897.1 | 809.0 | 688.7 | 685.9 | 690.5 | 687.7 | 689.3 |
| Capital structure*** | |||||||||||
| Adjusted Equity1 / Equity | % | 51.1 | 48.0 | 48.7 | 45.1 | 49.6 | 51.1 | 45.6 | 39.3 | 33.7 | 33.3 |
| Post employment benefits | % | 7.0 | 7.2 | 6.7 | 7.4 | 7.5 | 8.7 | 8.6 | 8.3 | 19.1 | 19.0 |
| Liabilities (excl. post employment benefits) | % | 41.9 | 44.8 | 44.5 | 47.5 | 42.9 | 40.2 | 45.8 | 52.4 | 47.2 | 47.7 |
| Key data | |||||||||||
| Return on sales (ROS)2 | % | 7.8 | 6.5 | 8.8 | 10.3 | 10.0 | 8.8 | 7.7 | 10.5 | 1.5 | 3.1 |
| Return on capital employed (ROCE)3 | % | 11.9 | 9.0 | 12.2 | 14.3 | 13.7 | 13.1 | 11.7 | 15.5 | 2.0 | 3.9 |
| Return on equity (ROE) | % | 17.2 | 12.8 | 17.9 | 17.0 | 15.8 | 14.5 | 18.6 | 16.8 | 1.9 | 2.5 |
| EBIT4 | EUR mill. | 107.1 | 81.8 | 104.3 | 89.7 | 74.0 | 78.4 | 64.6 | 69.8 | 9. | 17.1 |
| EBIT margin | % | 9.7 | 8.7 | 12.0 | 12.0 | 11.9 | 12.5 | 10.4 | 11.6 | 1.7 | 3.1 |
| EBITDA5 | EUR mill. | 170.1 | 141.6 | 160.4 | 134.8 | 116.0 | 121.4 | 102.0 | 107.6 | 61.3 | 65.6 |
| EBITDA margin | % | 15.5 | 15.0 | 18.4 | 18.0 | 18.6 | 19.4 | 16.4 | 18.0 | 11.1 | 12.0 |
| Earnings per share | EUR mill. | 22.8 | 15.5 | 18.4 | 16.0 | 16.2 | 13.1 | 14.8 | 11.5 | 1.2 | 1.5 |
| Number of employees at year-end | 5,044 | 4,860 | 4,845 | 4,523 | 3,058 | 3,365 | 3,282 | 3,216 | 3,166 | 3,226 |
= Equity incl. grants less prop. deferred taxes
= NOPAT (= Income from operations [EBIT] less proportional income taxes)
sales = NOPAT
4
5
The average of stockholders' equity and minority interests
Interest bearing debt
Cash
Investments - Current and non-current securities and loans
= Income before taxes and financial result
= EBIT plus depreciation and amortization of intangible fixed assets and property, plant and equipment
* LUSAC Group shown as continuing operation
** Net income from continuing operations
*** Offsetting out deferred taxes in fiscal year 2001 resulted in an adjustment of the comparable figures 1998-2000.
= NOPAT (= Income from operations [EBIT] less proportional income taxes)
sales = NOPAT
4 = Income before taxes, minority interest and financial result
5 = EBIT plus depreciation and amortization of intangible fixed assets and property, plant and equipment
| Production Sites | Address | Contact |
|---|---|---|
| Lenzing Aktiengesellschaft | Werkstraße 2 | Phone: +43 (0)7672 701-0 |
| 4860 Lenzing | Fax: +43 (0)7672 701-3880 |
|
| Austria | E-mail: [email protected] | |
| Lenzing Technik GmbH | Werkstraße 2 | Phone: +43 (0)7672 701-2202 |
| 4860 Lenzing | Fax: +43 (0)7672 96858 |
|
| Austria | E-mail: [email protected] | |
| Lenzing Plastics GmbH | Werkstraße 2 | Phone: +43 (0)7672 701-2851 |
| 4860 Lenzing | Fax: +43 (0)7672 918-2851 |
|
| Austria | E-mail: [email protected] | |
| Lenzing Fibers GmbH | Industriegelände 1 | Phone: +43 (0)3325 4100 |
| 7561 Heiligenkreuz | Fax: +43 (0)3325 4100-400 |
|
| Austria | E-mail: [email protected] | |
| Others | Address | Contact |
| LENO Electronics GmbH | Photo-Play-Straße 1 | Phone: +43 (0)7672 701-3050 |
| 4860 Lenzing | Fax: +43 (0)7672 701-3745 |
|
| Austria | E-mail: [email protected] | |
| BZL – Bildungszentrum | Werkstraße 2 | Phone: +43 (0)7672 701-3531 |
| Lenzing GmbH | 4860 Lenzing | Fax: +43 (0)7672 96866 |
| Austria | E-mail: [email protected] | |
| RVL Reststoffverwertung | 4860 Lenzing | Phone: +43 (0)7672 701-2750 |
| Lenzing GmbH | Austria | Fax: +43 (0)7672 918-2750 |
| E-mail: [email protected] | ||
| Gemeinnützige | 4860 Lenzing | Phone: +43 (0)7672 701-2308 |
| Siedlungsgesellschaft m.b.H. | Austria | Fax: +43 (0)7672 701-3704 |
| für den Bezirk Vöcklabruck | E-mail: [email protected] | |
| Pulp Trading GmbH | 4860 Lenzing | Phone: +43 (0)7672 701-2892 |
| Austria | Fax: +43 (0)7672 918-2892 |
|
| E-mail: [email protected] | ||
| Wasserreinhaltungsverband Lenzing – | 4860 Lenzing | Phone: +43 (0)7672 701-3361 |
| Lenzing AG | Austria | Fax: +43 (0)7672 918-3361 |
| E-mail: [email protected] |
| Production Site | Address | Contact | |||||
|---|---|---|---|---|---|---|---|
| Lenzing Fibers Grimsby | P.O. Box 462 | Phone: +44 (0)1472 244-777 | |||||
| South Humberside Industrial Estate | Fax: +44 (0)1472 244-708 |
||||||
| Great Coates, Grimsby, N E Lincolnshire | E-mail: [email protected] | ||||||
| DN31 2ZT | |||||||
| United Kingdom | |||||||
| Office | Address | Contact | |||||
| Lenzing Fibers Ltd. | 1 Pride Point Drive | Phone: +44 (0)1332 546-740 | |||||
| Pride Park, Derby, Derbyshire | Fax: +44 (0)1332 546-741 |
||||||
| DE24 8BX | E-mail: [email protected] | ||||||
| United Kingdom |
| Production Site | Address | Contact |
|---|---|---|
| Lenzing Fibers Inc. | P.O. Box 171 | Phone: +1 (0)251 679-2811 |
| 12950 US Highway 43 North | Fax: +1 (0)251 679-2880 |
|
| Axis, Alabama, 36505 | E-mail: [email protected] | |
| USA | ||
| Office | ||
| Lenzing Fibers Inc. | 1411 Broadway, Suite 1665 | Phone: +1 (0)212 944-7400 |
| New York, New York 10018 | Fax: +1 (0)212 944-7816 |
|
| USA | E-mail: [email protected] |
| Address | Contact |
|---|---|
| Desa Cicadas, P.O.Box 11 PWK | Phone: +62 (0)264 200-636 |
| Purwakarta 41101 | Fax: +62 (0)264 206 432 |
| West Java | E-mail: [email protected] |
| Indonesia | |
| Phone: +62 (0)21 577-1630 | |
| Tower B, 16th Floor | Fax: +62 (0)21 577-1640 |
| Jl. Jend. Sudirman Kav. 45–46 | E-mail: [email protected] |
| Jakarta 12930 | |
| Indonesia | |
| Sampoerna Strategic Square |
| Production Site | Address | Contact | ||
|---|---|---|---|---|
| Lenzing (Nanjing) Fibers Co., Ltd. | Hongshan Fine Chemical Industry Park | Phone: +86 (0)25 5763-9888 | ||
| Guabu, Luhe District | Fax: +86 (0)25 8559 7302 |
|||
| Nanjing 211511, Jiangsu | E-mail: [email protected] | |||
| China |
| Offices | ||
|---|---|---|
| Lenzing Fibers | Room 2302, 23rd Floor, | Phone: +852 (0)2827 7883 |
| (Hong Kong) Ltd. | China Resources Building | Fax: +852 (0)2827 9591 |
| 26 Harbour Road, Wanchai, Hong Kong | E-mail: [email protected] | |
| Lenzing Fibers | Unit 2312 | Phone: +86 (0)21 6341 0030-0 |
| (Shanghai) Co. Ltd. | 689 Guangdong Road | Fax: +86 (0)21 6341 00-07 |
| 200001 Shanghai | E-mail: [email protected] | |
| China | ||
| Lenzing Technik Beijing | Liang Ma Tower No. 8, Unit 1410 | Phone: +86 (0)10 6590 0946-8 |
| Representative Office | North Dongsanhuan Road, Chaoyang District | Fax: +86 (0)10 6590 0949 |
| 100026 Beijing | E-mail: [email protected] | |
| China |
This English translation of the financial statement for the year ended 31 December 2006 was prepared for the company's convenience only. It is not a binding legal translation of the German financial statements for the year ended 31 December 2006. In the event of discrepancies between the English translation and the German original the latter shall prevail.
Lenzing Aktiengesellschaft 4860 Lenzing, Austria Phone: +43 (0)7672 701-0 Fax: +43 (0)7672 701-3880 E-mail: [email protected] www.lenzing.com Trade Register: reg. LG Wels FN 96499k
Lenzing Aktiengesellschaft Corporate Communications Angelika Guldt Phone: +43 (0)7672 701-2696 Fax: +43 (0)7672 918-2696 E-mail: [email protected]
Hochegger Financials, Vienna
Idea and design by Rahofer Advertising Agency, Salzburg
Translation semiogeny, England
Printed by kb-offset, Regau
Photography by Vienna Paint, Vienna
4860 Lenzing, Austria Phone: +43 (0)7672 701-0 Fax: +43 (0)7672 701-3880 E-mail: [email protected] www.lenzing.com
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