The Lenzing Group expects average prices for its cellulosic, or wood-based fibers, to decline in the back half of the year as textile companies work through a surplus of cotton.
The Austrian company reported consolidated sales reached €1.06 billion($1.4 bb) in the first half of 2012, down 1.3 percent from the €1.08 billion reported for the same period a year ago. Consolidated EBITDA (earnings before interest, tax, depreciation and amortization) in the first half of 2012 totaled €193.6 million ($251 mm), down from the all-time high of €247.8 million in the first six months of 2011. Accordingly, the EBITDA margin continued to be at an attractive level of 18.2 percent (H1 2011: 23.0 percent). EBIT (earnings before interest and tax) in the first half-year 2012 also amounted to €141.1 million ($183 mm), a drop of 29.2 percent from the EBIT of €199.2 million generated in the first six months of 2011. This corresponded to an EBIT margin of 13.3 percent (H1 2011: 18.5 percent). Thus the EBITDA and EBIT margins in the first half of 2012 were at about the same level as in the 2010 financial year, a year featuring a top performance in a comparison of the last ten years.
“We managed to successfully counteract the weak market conditions throughout the entire first half of 2012,” said Peter Untersperger, Chief Executive Officer of Lenzing. “Demand for Lenzing fibers continued unabatedly and all our fiber and pulp production plants were operating at full capacity. We even managed to achieve a new record in the first half-year with a fiber shipment volume of 390,000 tons.”
Lenzing said textile demand for its Tencel fibers was particularly strong for soft denim applications, sportswear and home textiles.
The average fiber selling price of the Lenzing Group bottomed out at €2.03 per kilogram in the first half of 2012, which represents a decline of about 12 percent from the very strong first half of 2011 with all-time high prices in the entire fiber industry. However, compared to the fourth quarter of 2011, the average fiber selling price in the second quarter only dropped by 5 percent, and remained unchanged compared to the first quarter of 2012.
“The first half of 2012 demonstrated that Lenzing fiber prices develop much less cyclically than cotton prices and spot market prices for viscose fibers produced by our competitors,” said Friedrich Weninger, member of the management board and chief operating officer responsible for the fiber business. “This is the result of our consistent quality orientation, the high share of specialty fibers and the above-average level of service provided by Lenzing.”
The maker of Tencel and Modal fibers predicted that declining demand means it will take longer than previously anticipated to work off high cotton inventories. As a result, Lenzing now expects global fiber prices to decline slightly in the third quarter of 2012. Accordingly, the average selling prices for Lenzing fibers should be lower in the third quarter than in the second quarter, and end up ranging between €1.95 and €2.00 per kilogram.
To reflect those new expectations, Lenzing lowered its guidance and now expects consolidated sales will approach prior-year levels, or €2.1 to 2.15 billion. Fiber shipment volumes are expected to reach about 810,000 tons, an increase of 14 percent. On the basis of the early completion of a fifth production line at its Indonesian subsidiary SPV, Lenzing is confident of already achieving initial sales revenue from this new production facility in the fourth quarter of 2012. Additional fiber volumes will also be derived from the plant optimization program and expansion of the Tencel site in Mobile/Alabama (USA).
“As a consequence of this ongoing dynamic development, Lenzing now forecasts a new EBITDA range of between €350 million and €400 million (previous guidance: €400 480 million),” reads the company's earnings release. “In addition, Lenzing expects EBIT in 2012 to be within a range of €240 290 million (previous guidance: €285 365 million). Capital expenditure in 2012 will likely total approximately €325 million.”
Longer-term, Lenzing remains confident that textile makers will continue to shift toward man-made cellulosic fibers and away from other natural fibers. The company cited as evidence the nascent rally in agricultural raw material prices since June 2012. It noted that cotton prices have remained significantly higher than in past years despite the temporary surplus in the cotton supply. For this reason, Lenzing will continue moving ahead with its aggressive plans to expand its production capacity.