Trailblazers | September 2019
Lenzing weathers tough times to stand solid
Lenzing puts the focus on a stable and profitable growth as well as an improvement of the ecological footprint of the textile and nonwovens industries by expanding the production of speciality fibres.
The Lenzing Group continued its solid business development in the first half of 2019. Despite a significantly more challenging market environment with historically low prices for standard viscose, Lenzing recorded a slight increase in revenue. The disciplined implementation of the sCore TEN strategy and the focus on speciality fibres continue to have a positive impact. Thanks to ongoing high demand for sustainably-produced speciality fibres and positive currency effects, the impact of low standard viscose prices was largely offset in earnings.
Revenue of the Lenzing Group increased by 1.2 per cent in the first half of 2019 and amounted to EUR 1.09 billion. In addition to more favourable currency relations, this was primarily attributable to a further product mix optimisation and higher prices for speciality fibres. The share of speciality fibres in revenue, at 48.4 per cent, significantly exceeded the prior-year value of 44.1 per cent. EBITDA (earnings before interest, tax, depreciation and amortisation) dropped by 7 per cent to EUR 181.2 million.
This decline primarily resulted from higher production volumes and currency effects which led to an increase in pulp costs, from an increase in personnel expenses and the market environment for standard viscose. The EBITDA margin declined from 18.1 per cent in the first half of 2018 to 16.6 per cent in the reporting period. EBIT (earnings before interest and tax) fell by 17.9 per cent to EUR 105.6 million, resulting in a lower EBIT margin of 9.7 per cent (H1 2018: 12 per cent). Net profit for the period decreased by 15.9 per cent from EUR 91.3 million to EUR 76.8 million. Earnings per share amounted to EUR 2.97 (H1 2018: EUR 3.44).
“Fully in line with our sCore TEN strategy, our speciality fibre business is developing very positively, which has made us significantly more resilient today than a few years back. The investment in new production capacities for lyocell fibres and the focus on our TENCEL and VEOCEL product brands will make us even more resistant to market fluctuations and strengthen our position as a leading supplier of speciality fibres. The first phase of this ambitious growth plan is the construction of a state-of-the-art lyocell plant in Thailand”, says Stefan Doboczky, Chief Executive Officer of the Lenzing Group. “The escalating trade conflict between the largest economies confirm our decision to temporarily mothball the Mobile, Alabama project. Lenzing will continue to monitor these developments closely and review this decision on a regular basis”, says Doboczky.
Capital expenditures dropped by 18.9 per cent to EUR 95.1 mn in the first half of 2019. This decline is temporary, primarily attributable to the completion of the expansion project in Heiligenkreuz (Austria) in 2018. Going forward, the planning for major projects in Brazil and Thailand will have a significant effect on the investment volume in the coming quarters.
Expansion of speciality fibre capacities
The Lenzing Group is substantially increasing its production of lyocell fibres to meet the strong demand for these products. Lenzing puts the focus on stable and profitable growth as well as an improvement of the ecological footprint of the textile and nonwovens industries by expanding the production of speciality fibres. The first expansion phase of this ambitious growth plan, the construction of a state-of-the-art production plant for lyocell fibres in Prachinburi (Thailand), was approved in the second quarter of 2019. The investment volume for the new plant, which has a capacity of 1,00,000 tonne, totals approximately EUR 400 million. The conversion of production capacities from standard viscose to LENZING ECOVERO fibres in China was also completed during the reporting period.
Expansion of pulp capacities
An increased backward integration into dissolving wood pulp is another important step in the implementation of the sCore TEN strategy. Lenzing and its Brazilian partner Duratex continue to advance the planned construction of a dissolving wood pulp plant in the state of Minas Gerais (Brazil). The basic engineering, site preparation and the applications for the required permits are proceeding according to plan. The final investment decision is expected for the end of 2019. The expansion and modernisation of the production capacities for dissolving wood pulp at the Lenzing site was successfully completed in the first half of 2019.
Transparency from wood to garment
Lenzing will use blockchain technology to support its TENCEL™ branded fibre business, ensuring complete transparency and traceability for brands and consumers of its fibres in the finished garment. In the second quarter of 2019 Lenzing announced a cooperation with the Hong Kong based technology company TextileGenesis to accomplish this ambition. Lenzing will carry out several pilot tests involving partners along the entire value chain and expects the platform to be operational as of 2020.
Ambitious climate targets
The Lenzing Group aims to strengthen its position as a sustainability front runner in the fibre industry, by investing over EUR 100 million in energy-saving measures, in the continued conversion to renewable energies and in new technologies. In the planning of new pulp and Lyocell facilities such as the plant in Thailand, Lenzing also puts a strong focus on low-carbon energy sources and production processes. The goal of its climate strategy is to reduce net emissions of greenhouse gases to zero by 2050. An important milestone on the way to becoming climate-neutral is set for the year 2030. By then, Lenzing commits to reduce emissions per ton of fibres and pulp by 50 per cent compared with 2017.
The International Monetary Fund expects a slowdown of global economic growth to 3.2 per cent in 2019, mainly driven by increasing protectionist tendencies and growing geopolitical tensions. The currency environment in the regions relevant to Lenzing will remain volatile. Global fibre demand remains strong. According to preliminary calculations, cotton inventory levels should nevertheless increase in the 2019/20 season. Towards the end of the second quarter 2019, the polyester market recovered from slower growth in the preceding months. The price levels for cotton and polyester are expected to decline slightly. Despite continued strong demand, capacity expansions for standard viscose caused higher pressure on prices, which fell to a historic low in the first half of 2019. The Lenzing Group expects the positive development of its speciality fibre business to continue.
Driven by the challenging situation in standard viscose, prices for dissolving wood pulp show a downward trend. Caustic soda prices in Asia have already declined significantly over the past months; this development has now become noticeable also in Europe.
In a challenging market environment for standard viscose with prices at historic lows, the Lenzing Group continues to expect its results for 2019 to reach a similar level as in 2018 based on the current exchange rates. Above developments reassure the Lenzing Group in its chosen strategy sCore TEN. Lenzing is very well positioned in this market environment and will continue to focus growth with speciality fibres.
The Lenzing Group stands for ecologically responsible production of speciality fibres made from the renewable raw material wood. As an innovation leader, Lenzing is a partner of global textile and nonwoven manufacturers and drives many new technological developments.
The Lenzing Group’s high-quality fibres form the basis for a variety of textile applications ranging from elegant ladies clothing to versatile denims and high-performance sports clothing. Due to their consistent high quality, their biodegradability and compostability Lenzing fibres are also highly suitable for hygiene products and agricultural applications.
The business model of the Lenzing Group goes far beyond that of a traditional fibre producer. Together with its customers and partners, Lenzing develops innovative products along the value chain, creating added value for consumers. The Lenzing Group strives for the efficient utilization and processing of all raw materials and offers solutions to help redirect the textile sector towards a closed-loop economy.
The Lenzing Group stands for ecologically responsible production of speciality fibres made from the renewable raw material wood.