FOCUS ON PROFITABLE GROWTH ANNUAL FINANCIAL REPORT 2015 www.lenzing.com 2 CONTENTS A. Group 1 Consolidated Financial Statements 2015 66 Contents 66 Contents 2 Consolidated Income Statement 67 Management Report 2015 4 Consolidated Statement of Comprehensive Income 68 General Market Environment 4 Consolidated Statement of Financial Position as at December 31, 2015 69 Development of the Lenzing Group 7 Consolidated Statement of Changes in Equity 70 Segment Fibers 11 Consolidated Statement of Cash Flows 72 General development 11 Notes to the Consolidated Financial Statements 73 Textile Fibers 12 Nonwoven Fibers 13 Auditor´s Report 174 Global Technical Customer Service 13 Lenzing Group Five-Year Overview 176 Chemicals 15 Energy 15 Financial Calendar 2016 177 Operational Excellence (OPEX) 17 Segment Lenzing Technik 18 Risk Report 19 Report on Essential Elements of the Internal Control System (Section 243a para 2 of the Austrian Stock Corporation Act) 26 Balance Sheet Structure and Liquidity 28 Research and Development 28 Environment and Sustainability 30 Human Resources 35 Safety, Health and Environment 38 Corporate Communications 39 Investor Relations 41 Outlook Lenzing Group 2016 45 Events after the Reporting Period 46 Appendix: Notes on the Financial Performance Indicators of the Lenzing Group 47 Corporate Governance Report 2015 52 Report of the Supervisory Board 2015 64 annUal Financial Report 2015 . LenZIng GROUP | 3 B. Einzelabschluss 178 Jahresabschluss 2015 213 Bilanz zum 31. Dezember 2015 215 Inhalt 179 Gewinn- und Verlustrechnung für den Zeitraum 01. Jänner 2015 bis 31. Dezember 2015 217 Lagebericht 2015 181 Anhang zum Jahresabschluss Allgemeines Marktumfeld 181 für das Geschäftsjahr 2015 219 Entwicklung der Lenzing AG 184 Anwendung der unternehmensrechtlichen Vorschriften und allgemeine Angaben 219 Bilanzstruktur und Liquidität 185 Bilanzierungs- und Bewertungsmethoden 220 Kennzahlen der Lenzing AG 186 Erläuterungen zur Bilanz 224 Die Lenzing Aktie 196 Aktiva 224 Risikobericht 199 Passiva 228 Bericht über wesentliche Merkmale des Internen Kontrollsystems (§ 243a Abs. 2 AktG) 206 Haftungsverhältnisse 236 Forschung und Entwicklung 208 Erläuterungen zur Gewinn- und Verlustrechnung 237 Umwelt und Nachhaltigkeit 209 Sonstige Angaben 241 Mitarbeiter/innen 209 Organe der Gesellschaft 253 Ausblick 210 Entwicklung des Anlagevermögens für den Zeitraum 01. Jänner 2015 bis 31. Dezember 2015 255 Ereignisse nach dem Bilanzstichtag 211 Entwicklung der Zuschüsse der öffentlichen Hand und der Unversteuerten Rücklagen für den Zeitraum 01. Jänner 2015 bis 31. Dezember 2015 257 Bestätigungsvermerk 259 C. Declaration of the Management Board 262 Declaration of the Management Board 262 4 MANAGEMENT REPORT 2015 General Market Environment Global economy1 In 2015, the global economy grew at a slower pace than in the previous year in the light of a weaker economic development in the developing and emerging markets. According to the latest estimates of the International Monetary Fund (IMF), global economic growth reached a level of 3.1% in 2015, compared to 3.4% in 2014. The industrialized nations continued their moderate recovery, generating average growth of 1.9% (2014: 1.8%), whereas the developing and emerging markets posted growth of 4.0% in a year-on-year comparison, considerably lower than the 4.6% growth rate in 2014. Economic growth by region 2013 2014 2015 Worldwide 3.3% 3.4% 3.1% Industrialized countries 1.1% 1.8% 1.9% Eurozone (0.3%) 0.9% 1.5% Emerging and developing countries 5.0% 4.6% 4.0% The IMF reported that the Chinese economy expanded by 6.9% in 2015, down from the prior- year level of 7.3%. Brazil and Russia slid into a recession, with their economies contracting by 3.8% and 3.7% respectively. India was the only one of the BRIC countries (Brazil, Russia, India and China) whose economic growth rate of 7.3% matched its performance of the previous year (2014: 7.3%). The US economy expanded by 2.5% in 2015 (2014: 2.4%). GDP in the eurozone increased by 1.5%, an improvement from 0.9% growth in the year 2014. Global fiber market2 Decline of worldwide production, global fiber consumption up 2.7% According to initial estimates, for the first time in many years world fiber production actually declined in the 2015 financial year, falling slightly by 0.9% to 94.0 mn tons, compared to 2.1% growth in 2014. This drop was in contrast to the expected 2.7% rise in fiber consumption in 2015 (2014: 2.8%) to 95.6 mn tons. The main reason for the production decline was the sharp drop in worldwide cotton produc- tion, which contracted by 14.0% in 2015 to 22.5 mn tons. This can be attributed to the fact that cotton production lost some of its attractiveness compared to other crops due to shrinking margins. Production decreases were also reported for wool (minus 0.6% to 1.2 mn tons) and other natural fibers (minus 3.7% to 4.9 mn tons). 1) Source: IMF, World Economic Outlook Update, January 19, 2016 2) All production figures in this section were updated to the currently accepted values in comparison to the estimates published in Lenzing’s Annual Report 2014. Sources: International Cotton Advisory Committee (ICAC), IMF, Cotton Outlook, CCF Group (China Chemical Fibers and Textiles Consulting), Food and Agriculture Organization (FAO) ANNUAL FINANCIAL REPORT 2015 . LENZING GROUP | 5 Fibers on the world market Fibers From From Protein-based Cellulose-based synthetic anorganic polymers substances Wool Cotton Wood- Polyester Carbon and based Silk bast fibers Polyamide Ceramics Angora Polypropylene Glass Cashmere Cotton Viscose Polyurethane Metal Casein Flax Modal (Elastan) Collagen Hemp Lyocell Acrylic Ardein Jute Cupro Polytetrafluor- ethylene Zein etc. Acetate etc. etc. In contrast, production of the group of synthetic and anorganic fi bers as well as wood-based and cotton linter-based cellulose fi bers continued to expand in line with the upward trend prevailing in recent years. Output increased by 4.8% in 2015 to an estimated 65.5 mn tons in comparison to 3.8% growth in 2014. Production of synthetic fi bers rose 5.1% from the prior- year level, whereas the production of cellulose fi bers was up 1.5% according to preliminary forecasts. Global fi ber market Global fi ber consumption 2015 Ce llu lo se - Wool & Cotton p r 1.2% o 25.2% t e i n - b a Other s e d natural fibers fi b 5.1% e Synthetic fibers r 62.1% s Wood-based cellulose fibers1 6.4% 1) Wood-based and cotton linter-based cellulose fi bers Source: ICAC, CIFRS, TFY, FEB, Lenzing estimates 6 MANAGEMENT REPORT 2015 Demand for cotton exceeds production, inventories remain high3 Based on the latest market assessments, demand is expected to exceed supply in the cur- rent 2015/16 cotton season (as of the end of July) for the first time in five years. Accordingly, cotton production volumes will fall significantly due to a reduction in the land under cultiva- tion in China, the USA and Pakistan. The area devoted to growing cotton around the world is expected to decline by 8.7%. However, demand for cotton is predicted to remain constant at about 24 mn tons. Worldwide cotton inventories of more than 20 mn tons continue to cover a good 80% of cur- rent annual consumption. More than half of all cotton reserves are in China, which triggers a certain degree of uncertainty with respect to sales markets. Little is known at the present time about the quality of these stored quantities and the attainable sales prices for the stockpiled cotton. The average on the Cotton A Index in 2015 was 70.4 US cents/pound, or 15.1% below the comparable prior-year level. The difference between the highest and lowest selling prices for cotton was as minimal as at any time since the year 2006. Positive price development of viscose fibers in 2015 Market prices for viscose fibers significantly recovered in 2015, rising by an annual average of about 5%, whereas cotton and polyester selling prices each dropped by more than 20% on average. Starting in the middle of July 2015, viscose fibers were once again more expensive than cotton, the first time this has been the case since 2010. In the first half of 2015, considerable production capacities in China were temporarily shut down due to more stringent environmental regulations. In turn, this led to a scarcity of viscose fibers and a steady rise in prices on the Chinese spot market. Once these production facilities gradually came on stream again, a strong downswing in prices was evident as of the beginning of November 2015. In contrast, selling prices for polyester, which competes with viscose on the marketplace, continuously declined in 2015 due to the sharp drop in crude oil prices. 3) Source: ICAC, February 2016 ANNUAL FINANCIAL REPORT 2015 . LENZING GROUP | 7 Staple fi ber prices – Development in China In USD/kg Viscose Cotton Polyester 5.0 4.5 4.0 3.5 3.0 2.5 2.0 1.5 1.0 01/2010 01/2011 01/2012 01/2013 01/2014 01/2015 12/2015 Source: CCFG, Cotton Outlook Development of the Lenzing Group In the 2015 fi nancial year, the Lenzing Group succeeded in improving just about all relevant economic and balance sheet indicators compared to its performance in 2014. In addition to the general recovery of viscose fi ber selling prices, the Lenzing Group especially profi ted from the increasing share of high-quality specialty fi bers in its product mix and the ongoing strong demand for Lenzing products. In particular, sales of the specialty fi ber TENCEL® increased signifi cantly. EBITDA* (consolidated earnings before interest, tax, depreciation and amortization) increased by 20.7% to EUR 290.1 mn. The EBITDA margin* improved from 12.9% in the 2014 fi nancial year to 14.7% in the year under review.