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COVID-19 Slams Lenzing’s First Half Revenue and Earnings

The decline in demand after the coronavirus spread throughout the globe in the middle of the first half hit Lenzing’s top and bottom lines.

In a Nutshell: The Lenzing Group said Wednesday it faced a “historically difficult market environment” in the first half of the year, with increased pressure on prices and volumes resulting from the COVID-19 crisis.

As a countermeasure, the cellulosic fiber manufacturer said it intensified its cooperation with supply-chain partners and adjusted its production volume and sale prices to be in line with market realities. The disciplined implementation of the sCore Ten corporate strategy and the focus on specialty fibers continued to have a positive impact.

The negative effects of the coronavirus crisis put significant price pressure on textile fibers across its entire product range, the company said, leading to a falloff in revenue. Lenzing also saw a decline in demand for textile fibers in all regions. The slightly higher demand for fibers in the medical and hygiene segments reduced, but could not fully offset, the losses, the company said.

The implementation of measures for structural earnings improvements in all regions and making use of a short-time work model introduced by the Austrian federal government somewhat mitigated a negative impact on earnings.

Lenzing said Capex (expenditures for intangible assets and property, plant and equipment and biological assets) roughly tripled to 268.7 million euros ($319.10 million) in the first half. This was a result of the progress of major projects in Brazil and Thailand to strengthen internal pulp supply and to increase the share of specialty fibers.

In late March, the company suspended its forecast for the yearly event  as a consequence of the global pandemic At that time, Lenzing said it expected the result for 2020 to be below the level of 2019. Lenzing said while it remains difficult to give a precise outlook for 2020, it assumes that the revenue generation and operating performance of the remaining two quarters will exceed those of the second quarter.

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Sales: Revenue in the first half ended June 30 declined 25.6 percent to 810.2 million euros ($962.17 million).

Earnings: Net profit for the period was 1.5 million euros ($1.78 million) compared to 78.8 million euros ($93.58 million) in the first half-year of 2019. Earnings per share were 0.06 euros (7 cents) compared to 2.97 euros ($3.53) in the year-ago period.

Earnings before interest, tax, depreciation and amortization (EBITDA) fell 46.6 percent to 96.7 million euros ($114.84 million) in the half. The EBITDA margin decreased to 11.9 percent from 16.6 percent a year earlier.

CEO’s Take: Stefan Doboczky, CEO of the Lenzing Group, said: “The COVID-19 crisis has an impact on the entire textile and apparel industry and further increased the price and volume pressure on the global fiber market. Likewise, Lenzing was also confronted with this historically difficult market environment and focused on the health and safety of their employees, the continuation of long-term partnerships and ensuring their sustainable business development. Strategically, we are still fully on track and the implementation of our key projects in Thailand, and Brazil is progressing according to plan. The successful conclusion of the financing agreements for the construction of the pulp plant in Brazil was a highlight of the first half of the year.”