Lenzing Sales Reach Record in 2012 Despite Falling Rayon Prices

Lenzing attributed its record sales results in 2012 to fiber sales volumes and the good performance of Lenzings specialty fiber Tencel, which is gaining popularity among many active lifestyle brands. Lenzing embarked on a  major expansion program in 2012 to meet growing demand for cellulosic fiber, which it attributed to population growth, growing incomes and the search for sustainable materials.

Consolidated sales of the Lenzing Group were down slightly from the previous year, declining by 2.3 percent to €2.09 billion compared to €2.14 billion in 2011. The decline is due to the fact that more dissolving wood pulp from the Paskov pulp plant was used internally than in 2011. Adjusted for this consolidation effect, consolidated sales remained constant. The significant lower average fiber selling prices compared to the boom year 2011 could be compensated by the strong rise in fiber sales volumes, which climbed by close to 14 percent year-on-year, from 712,000 tons to 810,000 tons.

Consolidated earnings before interest, tax, depreciation and amortization (EBITDA) amounted to € 358.7 mn1, a decline of 25.3 percent from the record EBITDA of € 480.3 million achieved in 2011, but above the comparable level of € 330.6 million generated in the year 2010. The EBITDA margin amounted to 17.2 percent (2011: 22.4 percent). Earnings before interest and tax (EBIT) of the Lenzing Group amounted to € 255.0 million in the 2012 financial year, comprising a decline of 29.9 percent from the prior-year level of € 364.0 million. The EBIT margin was 12.2 percent (17.0 percent in the record year 2011).

We performed quite well in 2012 despite a very difficult market environment, says Lenzings Chief Executive Officer Peter Untersperger. Naturally, our operating margins were below those in the boom year 2011 but still at a good level. We fully utilized our new production capacities, and were sold out throughout the entire year. This success proves the long-term correctness of our growth strategy in our core business of manufacturing man-made cellulose fibers, CEO Untersperger adds.

The one-off decommissioning costs for European Precursor (EPG), the joint venture with SGL Carbon and Kelheim Fibres, amounted to € 23.5 million (2011: € 0). Accordingly, consolidated EBITDA after restructuring amounted to € 352.4 million, corresponding to an EBITDA margin after restructuring costs of 16.9 percent of sales.

Record investment program
CAPEX (investments in property, plant and equipment, intangible assets and non-controlling interest) rose to the record level of € 346.2 million in the 2012 financial year (2011: € 196.3 million). Lenzings investment activity focused on the completion of the fifth production line at the Indonesian subsidiary PT. South Pacific Viscose (SPV), a debottlenecking program at the plant in Nanjing (China), the capacity expansion drive at the Tencel factory in Mobile/Alabama (USA), expansion investments at the Lenzing site as well as the commencement of construction of the new large-scale Tencel plant in Lenzing. These investments were complemented by the further remodeling and upgrading of the Paskov plant (Czech Republic) and the acquisition of the remaining shares.

The record year 2011 must not obscure the view on the second-best result in the companys history. As planned, 2012 represented the peak year of investments when it comes to the implementation of our growth strategy, says Lenzings Chief Financial Officer Thomas G. Winkler. Due to Lenzings stable financial position and low debt we can afford this investment into the future without touching on our strategic liquidity reserve of more than half a billion euro.

Segment Fibers
Initial estimates 2 conclude that the rise in world fiber production only amounted to 1.2 percent during the reporting year, with total volume up only slightly from 81.0 million tons to 82.0 million tons. This was in contrast to the 6.4 percent increase generated in 2011 and owing to the continued slow economic development. Worldwide production of man-made cellulose staple fibers, the core business of the Lenzing Group, climbed 9.2 percent in 2012 to 3.66 million tons, thus expanding at a considerably faster rate than the global fiber market as a whole.

The fiber market in 2012 was dominated by a significant decrease in selling prices for all fibers. The average price of cotton, the benchmark for the entire fiber industry, fell more than 40 percent below the prior-year level. Cotton inventories further increased, and the global stock-to-use ratio reached a record level of more than 70 percent. Spot prices for rayon, or viscose fibers, were down by about 15 percent in China, the worlds largest fiber market.

Lenzing achieved a new sales record in 2012 against the backdrop of a very difficult market environment. The average fiber selling prices of the Lenzing Group fell by 12 percent, decreasing from € 2.22 per kilogram to € 1.96 per kilogram.

The fiber market rewarded Lenzing for its high product and service quality as well as its close cooperation with and integration in the textile chain, said Friedrich Weninger, member of the management board and chief operating officer. In particular, our specialty fibers Lenzing Modal and Tencel enabled us to successfully differentiate ourselves from standard products manufactured by Asian producers. In addition, we successfully attracted new customers and opened up new markets while launching new innovative fiber applications on the marketplace, COO Weninger says.

Lenzing Modal and Tencel achieved price premiums of 40 percent – 60 percent in 2012 compared to standard viscose fibers. Specialty fibers accounted for approximately 35 percent of fiber sales in 2012. However, in the course of the year, selling prices for Lenzings specialty fibers had to be continually adjusted downwards in line with general price levels as a result of the significant drop in 

Outlook Lenzing Group
The current market situation featuring much uncertainty only allows for low visibility with respect to further developments in the year 2013. From Lenzings perspective the most likely scenario is a sideways trend, with 2013 considered to be a transitional period.

The additional production capacities which will be available to the Lenzing Group for an entire year for the first time will serve as the basis for an increase in sales volumes by about 13.5 percent to 920,000 tons. As a result, sales are expected to climb to a range between € 2.15 billion and € 2.25 billion. This includes the decline in the external sales of the Business Unit Pulp totaling a further € 50 million, which in turn is the consequence of the full-scale conversion of the Paskov pulp plant to manufacturing dissolving wood pulp for the Groups internal requirements.

The anticipated decrease in average fiber selling prices in a year-on-year comparison to € 1.80 to € 1.90 per kilogram (2012: € 1.96/kg) will impact earnings directly. The earnings contribution achieved by the additional sales volumes is expected to be largely offset by cost increases for personnel, chemicals and other input factors.

Lenzing will respond to the low market visibility in 2013 by optimizations of market activities, cost structures as well as replacement and maintenance investments. The targeted volume growth of the Lenzing Group reaching the threshold of about one million tons of annual fiber capacity by the year 2014 remains unchanged. However, new investment projects will be subject to scrutiny with respect to the planned timeline. In the medium- and long-term, all three megatrends on the fiber market (population growth, increasing wealth and sustainability) driving growth of the man-made cellulose fiber industry will continue uninterrupted. However, we intend to flexibly adapt our pace of growth to current market conditions and place additional emphasis on cash management, says Lenzing CEO Peter Untersperger.