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Currencies Woes and Raw Material Costs Get Lenzing Off to Tough Start in 2018

Hit by unfavorable currency exchange rates and increases in raw materials costs, the Lenzing Group’s top and bottom lines took a hit in the first quarter.

In a Nutshell: The Lenzing Group reported decreases in revenue and earnings in the first quarter, noting a challenging market environment for standard viscose combined currency exchange rate fluctuations between the strong euro and deflated dollar.

The fiber producer said capital expenditures more than doubled in the quarter to 58.9 million euros ($69.78 million), primarily focused on the expansion of production capacities for specialty fibers in facilities in Austria and Mobile, Ala., as well as the expansion and modernization of dissolving pulp plants in Austria and Paskov, Czech Republic. In line with the corporate strategy sCore TEN, the company said it’s forging ahead with these projects, as well as with planning work on construction of the next state-of-the-art lyocell production facility in Prachinburi, Thailand.

Lenzing noted that during the quarter it launched a new marketing plan by repositioning Tencel as the umbrella brand for the textile applications of all specialty fibers. The strategy is meant to sharpen the company and product profile as a sustainable innovation leader. The most important pillar of the new brand strategy is a brand architecture with a focus on fewer brands and a strong message to consumers.

Sales: Revenue in the first quarter ended March 31 fell 6.1% to 550.3 million euros ($651.94 million) from 586.2 million euros ($694.47 million) in the prior-year period. Lenzing attributed the drop mainly to less favorable currency exchange rates. The dollar was trading at 84.4 euros on Tuesday compared to 91.9 euros a year ago.

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Earnings: Earnings before interest, tax, depreciation and amortization (EBITDA) fell 24.8% to 101.6 million euros ($120.37 million) mainly due to softening prices for commodity viscose and increasing costs for key raw materials. The EBITDA margin decreased to 18.5% in the quarter compared to 23 percent in the first quarter of 2017. Earnings before interest and tax (EBIT) declined 32.7% to 68.9 million euros ($81.63 million), which resulted in a lower EBIT margin of 12.5% compared to 17.5% in last year’s quarter. Net profit for the period dropped 33.3% to 50 million euros ($59.24 million) from 75 million euros ($88.85 million) in the year-ago quarter.

CEO’s Take: Stefan Doboczky, CE, said: “Following the record year of 2017, Lenzing began the expected challenging 2018 financial year with a decline in revenue and earnings. Market headwinds were clearly noticeable in the first quarter, but still we are pleased with the solid results given the more demanding market environment. At the same time, we are forging ahead with implementation of our corporate strategy sCore TEN. Expansion of production capacities for our specialty fibers is also progressing. We are convinced of the merits of our chosen strategy, which will help us to be more resilient in the upcoming quarters.”