The Lenzing Group, a major provider of specialty fibres to the textile and nonwovens sectors, performed well commercially during the first quarter of 2023, mostly reflecting market trends. However, after the market environment had significantly deteriorated in the third and fourth quarters of the previous year, signs of recovery in terms of demand as well as raw material and energy costs appeared during the first quarter. Demand for textile fibres increased gradually but moderately. Business with nonwoven fibres and wood pulp that dissolves succeeded better than anticipated. Despite declining, the cost of energy and raw materials was still high.
To reach EUR 623.1 mn, revenues climbed by 1.3 percent when compared to the same quarter last year. Higher pulp was the main cause of this growth. whereas fibre revenues were declining. As a result, in the first quarter of 2023, profits before interest, tax, depreciation, and amortisation (EBITDA) fell by 66.2 percent year over year to EUR 29.7 mn. Earnings per share were negative EUR 3.03 (vs. negative EUR 0.87 in the first quarter of 2022) and the net result for the reporting period was negative EUR 64.9 mn (vs. negative EUR 34.1 mn in the first quarter of 2022).
In the third quarter of 2022, Lenzing began a reorganisation and cost-cutting programme, and its execution is proceeding according to plan. Once the programme is fully implemented, annual cost savings of more than EUR 70 million are anticipated. Additionally, new initiatives were started to improve free cash flow. This was significantly affected by the poor outcome and the completion of strategic investment projects, amounting to minus EUR 132.3 million in the first quarter of 2023 (compared to minus EUR 102.9 mn in the first quarter of 2022). Additional measures to reduce working capital are currently being implemented, along with reorganised currency and energy price hedging, in addition to the cost-cutting programme. A strong liquidity reserve of EUR 639.5 million is the backdrop against which all actions are being put into action.
“The bad impacts of the crisis year of 2022 were still quite noticeable in the first quarter of 2023. The demand, energy, and raw material costs all showed signs of improvement during the quarter, though. Lenzing has achieved significant progress. According to Lenzing Group CEO Stephan Sielaff, the company is competitive in terms of costs and liquidity and is well-equipped for an increase in demand. “We continue to predict a significant increase in demand for Lenzing’s sustainable products over the long run. We are confident that our two investment projects in Indonesia and China will improve our standing in this area.The “Better Growth” corporate strategy’s implementation was advanced in the first quarter of 2023 in addition to the ongoing implementation of the reorganisation and cost-cutting programme. Under the TENCELTM, LENZINGTM, ECOVEROTM, and VEOCELTM brands, the corporate strategy aims to better meet the structurally strong growth in demand for biodegradable and ethically produced specialty fibres. Following the plan and in compliance with Lenzing will maintain its profitable growth trajectory, increase its focus on sustainable and high-quality premium textile and nonwoven fibres, and simultaneously advance the shift from a linear to a circular economy model upon the successful completion of the two key projects in Thailand and Brazil.
Lenzing has invested more than EUR 200 million in manufacturing facilities in China and Indonesia since 2021 to transform existing capacity for generic viscose into capacities for specialty fibres with low environmental impact.
In the first quarter of 2023, a production line in Nanjing, China, was successfully converted to use TENCELTM brand modal fibres for textiles and garments. Lenzing can now, for the first time, provide its Chinese customers with TENCELTM fibres made locally. and subsequently provide an even better basis for serving structurally growing demand. The 35,000 tonnes per year nameplate capacity line was converted, and as a result, the production site’s fibre portfolio now only comprises of specialty fibres that are environmentally friendly. Lenzing is also persistently working to gradually switch the Chinese plant over to green energy in order to cut carbon emissions.
Lenzing is expanding the capacity for LENZINGTM ECOVEROTM fibres as part of the developments at the Purwakarta (Indonesia) location. Lenzing is making investments in the neighbourhood to lower carbon, air, and water emissions. The conversion process is going as planned, and by the end the plant will be transformed into a 100% specialised viscose supplier. that year.
Modifications to the Managing Board
Additionally, Lenzing recently disclosed staff changes on its Managing Board. The Supervisory Board was told by Robert van de Kerkhof, Chief Commercial Officer Fibre and a member of the Managing Board since 2014, that he would not be available for a further extension of his contract, which is currently set to expire on December 31, 2023. As Chief Sustainability Officer, he will continue to advance sustainability initiatives, such as the Carbon Roadmap, until the end of his current time in office. Stephan Sielaff, CEO, will effectively be in charge of the Fibres Division’s sales. starting a result, starting of January 1, 2024, the Lenzing Managing Board will have three as opposed to its previous four members.
Outlook
the ongoing conflict in Ukraine and the more stringent monetary policy adopted by numerous central banks to fight inflation are anticipated to keep having an impact on worldwide economic activity. Risks are still high overall, the IMF warns, and it projects growth of 2.8 and 3 percent for 2023 and 2024, respectively. In the geographic areas that affect Lenzing, the exchange rate situation is anticipated to continue unstable.
The consumer climate and mood in the industries that concern Lenzing continue to be negatively impacted by this market situation. The situation has recently improved, though.
After Chinese New Year, there was a noticeable increase in demand. As a result, both at viscose producers and later stages of the value chain, capacity utilisation improved and stockpiles were further decreased.
There are indications of a further accumulation of inventories in the cotton market, which sets trends, as stocks in the current harvest year 2022–2023. Initial projections for 2023–2024 indicate that supply and demand will be more evenly balanced.
Nevertheless, despite indications of a recovery in demand, raw material and energy costs, overall earnings visibility remains constrained.
Lenzing’s programme for reorganising and cutting costs is going just as planned. Lenzing wants to be in the best possible position for the anticipated market rebound, so these and other actions are taken.
Lenzing continues to predict structural increase in the demand for eco-friendly fibres for the textile and apparel industries, as well as for the hygiene and medical sectors. As a result, Lenzing is in a very strong position with its “Better Growth” strategy and intends to keep fostering growth through both specialised fibres and its circular economy ambitions, which include moving away from a linear economy model.
Lenzing’s position in this regard will be further strengthened by the effective completion of the major projects in Thailand and Brazil as well as the investment projects in China and Indonesia.
The Lenzing Group continues to forecast EBITDA for 2023 in a range between EUR 320 million and EUR 420 million, taking into consideration the aforementioned reasons and assuming a further market recovery in the current fiscal year.
