Lenzing Posts Record 1H on Booming Demand for Cellulose Fiber

Lenzing Group reported its best first half ever as rising cotton prices and demand for sustainable fibers allowed it to pass through price increases for its wood-based fibers to customers, including yarns makers serving the outdoor, activewear and sportwear markets.

In the core Fibers Segment that supplies the outdoor activewear and sportwear markets, sales reached EUR 967.9 million ($1.36 bb) in the first half, up 30.6 percent from EUR 741.1 million in the first half of 2010. EBITDA rose 64.7 percent to EUR 235.8 million ($331 mm) while operating profits rose 84.3 percent to EUR 189.9 million ($266 mm). The strong performance prompted the Austrian company to reset its guidance for the year at a the upper end of range it provided in the first quarter, or EBITDA of EUR 470 million to EUR 500 million and consolidated sales between EUR 2.1 billion and EUR 2.2 billion.

On a consolidated basis, Lenzing repoted second quarter consolidated sales of EUR 544.1 million ($783 mm), while EBITDA reached EUR 132.9 million ($191 mm) for a margin of 24.4%. The EBIT of EUR 108.5 million, or 19.9% of revenue, also represents a new all-time high for Lenzing. Lenzing did not break out second quarter figures by its three segments, which include Fibers, Plastics and Products and Engineering.  

“Our global growth strategy together with our intensified specialization in high value fibers such as Lenzing Modal and Tencel, for which we have a unique position on the market, has really paid off,” says Lenzing's CEO Peter Untersperger. “In any case, the long-term positive development in the form of excess demand for cellulose fibers (“cellulose gap“) will continue and will not be seriously impeded by the latest decline in cotton prices to a realistic price level again.”

Lenzing has successfully promoted Tencel as a more eco-friendly alternative to polyester and other synthetic fabrics in the outdoor, activewear and sportswear markets. The fabric is derived from rapidly growing eucalyptus trees, has good wicking properties, is biodegradable and uses fewer solvents during manufacturing than synthetics. Lenzing's Modal fabric, meanwhile, has been used by sock makers looking for more sustainable fibers. Modal is made from beech wood.

Lenzing Group, which also produces fibers, plastics and filaments for nonwoven uses, plans to increase its total capacity from 710,000 tons at the beginning of 2010 to over 1.1 million tons by 2015. This step by Lenzing comes in reaction to the growing demand for high-quality fibers as a consequence of the massive trends of population growth and rising prosperity as well as the trend towards sustainability.

In its core Segment Fibers unit, Lenzing was able to carry out several selling price increases in the first half-year, most recently for its specialty fibers, against the backdrop of the full utilization of its production capacities. These price hikes more than compensated for the expected price consolidation for standard viscose fibers for the Asian textile industry which took place in the second quarter. Thus Lenzing’s average fiber prices for textile applications in the second quarter of 2011 were higher than in the first quarter. Volume demand for textile fibers remained strong throughout the entire half-year.

On average business development for Q3 and Q4 2011 is expected to be similar to the first quarter’s performance. The additional production volumes resulting from the capacity expansion of Lenzing Nanjing (China) should have a positive effect. An ongoing high price level along with good demand is anticipated for the specialty fibers Lenzing Modal and Tencel also in the second half-year. In contrast, the continuation of the short-term price consolidation trend for standard viscose fibers in Asia which is still taking place along with the resulting “pipeline effect” should have a dampening effect.

Even against the backdrop of a very good cotton harvest 2011/2012, the structural influencing factors underlying the “cellulose gap” – population growth, increasing prosperity and sustainability – will continue to apply fully