Lenzing Group reported consolidated sales fell by 8.7 percent in 2013 from € 2.09 billion ($2.77bb) to € 1.91 billion due to falling prices for its fiber and divestitures.



The Austrian textile company said fiber selling prices declined by 13 percent year-on-year to €1.70 ($2.25) per kilogram. Also contributing to the decline was the divestment of its Plastics business unit. The company also lost external sales totaling € 61.8 million after completing the conversion of its Paskov pulp plant in 2013 from paper to dissolving pulp, which is used within the Lenzing Group.
 

Consolidated earnings before interest, taxes, depreciation on property, plant and equipment and amortization (EBITDA) totaled €225.4 million ($300mm), down from the adjusted figure of €352.4 million in 2012, but in line with the most recently published guidance for the year. The EBITDA margin amounted to 11.8 percent, compared to the adjusted level of 16.9 percent in the previous year. Consolidated earnings before interest and taxes (EBIT) amounted to €86.4 million ($115mm)  in the 2013 financial year, compared to the prior-year level of €231.5 million (adjusted). The EBIT margin was 4.5 percent, down from the adjusted figure of 11.1 percent in 2012.

 

 

Lenzing said the results reflected sustained demand, new record shipment volumes and full capacity utilization against the backdrop of extremely weak fiber selling prices. Lenzing has moved to counteract this situation with an extensive cost cutting program, increased marketing of its specialty fibers and tweaking its business strategy to minimize risk.

 

“We assume that the difficult market environment will continue in 2014 and perhaps far into the year 2015,” said CEO Peter Untersperger. “For this reason, we have implemented timely and comprehensive countermeasures. We are massively reducing costs at the same time adding impetus to the marketplace by promoting our specialty fibers Tencel and Lenzing Modal. “

 

Shooting for €120 million in potential costs savings

A cost cutting campaign launched in the beginning of 2013 generating savings of approximately €40 million and was  followed last November by a second program which is expected to take costs down by €60 million in 2014. The company has identified a total of €120 million in potential costs savings that can be made in time to affect results in 2015 and 2016. Two-thirds of the cost savings will be derived from cutting material costs, overhead, massively reducing operating expenses and increasing operating efficiency. About one-third of the cost reductions will be related to lower personnel costs. Lenzing set aside €19.7 million in late 2013 to pay severance and other costs it anticipates as part of layoffs.
To manage risks, Lenzing is also further promoting highly profitable specialty fibers. It has shelved plans for a viscose fiber facility in India and is moving ahead with construction of a new Tencel production plant in Lenzing, Austria in a bid to expand the share of specialty fibers in relation to total sales volumes.

 

“In 2013 our specialty fibers Lenzing Modal and Tencel achieved an unchanged and attractive price premium of 50 percent vis-à-vis standard viscose fibers against the backdrop of good volume demand,“ said Friedrich Weninger, Member of the Management Board with responsibility for fiber production. “Moreover, we have opened up new sales markets and regions for Tencel in preparation for the start-up of production at the new Tencel plant in Lenzing, and have further expanded our innovation pipeline.”


 Weninger added Lenzing was only able to partially counteract the weak price development for standard viscose fibers by increasing total sales volumes. On balance, fiber sales volumes reached a new record level of about 890,000 tons in 2013, a rise of 10 percent from the comparable level of 810,000 tons in 2012.
 
Lenzing said it ended the year with assets of €2.63 billion compared with €2.44 billion at the end of 2013. The decline was attributed to lower cash and cash equivalents, which were expended to complete current investment projects. The adjusted equity ratio rose from 43.8 percent to 45.5 percent of the balance sheet total. Net financial debt of the Lenzing Group climbed to €504.7 million at the end of 2013 (2012: € 346.3 million).
 
Investments in property, plant and equipment, intangible assets and non-controlling interests (cash-CAPEX)5 were significantly cut back in the 2013 financial year to € 252.2 million from the prior-year figure of €346.2 million. The focal point of the investment activity carried out by the Lenzing Group was construction of the new Tencel production plant, urgently needed infrastructure investments at the Lenzing site and completion of the conversion project at the Paskov pulp plant.
 
Outlook 2014
 
Lenzing’s earning statement noted that it does not foresee any improvement in global fiber prices due to historically high cotton inventories, high cotton production and surplus capacities in China for manufacturing man-made cellulose fibers. Still, volume demand for fibers remained strong at the turn of the year 2013/14.