The Lenzing Group generated earnings in line with expectations in the first half of 2013, but considerably below the first half of 2012 as a global surplus of cotton suppressed prices for its wood-based, or cellulosic fibers fell.
The Austrian company reported consolidated sales declined by 6.8 percent in the first half of 2013 to EUR 989.9 million ($1.30 bn), down from EUR 1,061.8 million in the previous year. The significantly lower average fiber selling prices compared to the first half of 2012 could not be compensated by the higher fiber shipment volumes. Furthermore, there was a loss of external sales of about EUR 42.5 million at the Paskov pulp plant compared to the first half of 2012. The comparability of the performance indicators in the first half of 2013 with those in the prior-year period is limited due to Lenzing’s sale of its Business Unit Plastics (Lenzing Plastics).
Consolidated earnings before interest, tax, depreciation and amortization (EBITDA) amounted to EUR 162.0 million ($213 mm), down 16.3% from EUR 193.6 million in the first half of 2012. The EBITDA margin was 16.4% in contrast to the prior-year figure of 18.2%. Earnings before interest and tax (EBIT) in the first half-year totaled EUR 103.0 million, a decrease of 27.0% from the previous year’s EBIT of EUR 141.1 million. This corresponded to an EBIT margin of 10.4% in the first half of 2013 (H1 2012: 13.3%). The disposal of the Business Unit Plastics by the Lenzing Group resulted in a cash inflow of EUR 61.7 million and a gain on disposal before taxes (affecting EBITDA and EBIT) of EUR 25.9 million at the half-year reporting date.
In the first half-year 2013, the market was characterized by ongoing high inventories of cotton and surplus production capacities for viscose fibers in China, the most important sales market, and thus globally declining prices for man-made cellulose fibers. The average fiber selling prices of the Lenzing Group totaled EUR 1.76/kg (H1 2012: EUR 2.03/kg).
“We have reacted and already initiated a cost optimization program at the beginning of the year. In addition, we have adjusted our short- and medium-term strategy to the changed market environment. We will more strongly focus on our specialty fibers Tencel and Modal in the future. Viscose fibers will remain an important pillar of our business, but further expansion projects for viscose fibers will only be implemented if correspondingly high profitability is achieved” reports Lenzing’s Chief Executive Officer Peter Untersperger. Current large-scale strategic investments such as the new Tencel production plant located at the Lenzing site will continue as planned. Moreover, Lenzing will rapidly press ahead with scaling Tencel to ensure more widespread use.
Lenzing successfully increased fiber production and shipment volumes in its core Segment Fibers in the first half of 2013, and also reported ongoing attractive price premiums for Modal and Tencel. Lenzing achieved a new record level of fiber sales, which amounted to 438,000 tons in the first half of 2013. However, the price development for viscose fibers was less favorable than previously expected.
The Business Unit Textile Fibers carried out a large number of measures in the first half-year 2013 which were designed to promote the sales of the specialty fibers Lenzing Modal and Tencel. The comparatively high cotton price in China, the most important sales market for Modal, also helped support demand for Lenzing Modal as a fiber blend.
The global nonwovens fiber market developed robustly in the first half of 2013 against the backdrop of very good volume demand. However, the declining textile fiber selling prices also led to some price pressure in the nonwovens sector, even if this was to a moderate extent.
“Our specialty strategy and quality leadership proved their value in this difficult market environment. The volume demand for our fibers continues unabatedly. Lenzing’s inventories are low, even if the achievable selling prices for standard viscose fibers are currently disappointing”, explains Friedrich Weninger, Member of Lenzing’s Management Board with responsibility for the fiber business. “Modal, Tencel and all nonwoven products made a significant contribution to stabilizing our business in the first half-year. Furthermore, we moved ahead with increasing our capacities to produce our own pulp thanks to the conversion of the Paskov plant from paper pulp to dissolving pulp. The targeted monthly production level could already be achieved six months ahead of schedule“.
Outlook for the global fiber market
The state of the global economy will not substantially change in the second half of 2013 compared to the first half of the year. This is likely to lead to a largely stable volume demand for the world’s fiber industry in relation to the first half-year. However, the high ongoing cotton inventories will prevent any further increase of cotton prices and thus of all other fibers.
Excess production capacities in the man-made cellulose fiber industry are expected to continue although expansion projects planned by competitors have already been delayed. This situation is accompanied by lower prices for dissolving pulp, the most important raw material for fiber production. Accordingly, a further price adjustment for viscose fibers cannot be excluded in the coming months.
The company said it does not expect its fiber prices to increase until the market absorbs current excess production capacities in the fiber and pulp industries. Until that time, Lenzing will adjust its investment policy to revenue and counteract market developments on the basis of further internal optimization measures. Lenzing will place additional emphasis on enhancing innovation and intensifying its marketing and sales efforts on behalf of the specialty fibers Lenzing Modal and Tencel as well as nonwovens.