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Lenzing Revenue and Profits Fell in 2018 on Higher Material and Energy Costs

Higher costs and a challenging environment for standard viscose led the Lenzing Group to a decline in revenue and earnings in the 2018 fiscal year.

In a nutshell: The Austria-based fiber company said the main causes for the downturn in 2018 were lower selling prices for standard viscose, currency exchange rate effects and higher raw material and energy costs. On the plus side, Lenzing said the specialty fiber business led by its Tencel master brand performed, with market share exceeding 45 percent.

Lenzing said the textile and nonwoven industries are faced with fundamental ecological challenges, and as a leading producer of wood-based specialty fibers, the company accepts a special responsibility. In 2018, the company decided to continue along its ambitious path and invest approximately 100 million euros ($113 million) in sustainable manufacturing technologies and production facilities by 2022 to further strengthen its closed-loop model and support its customers in replacing resource-intensive and environmentally harmful solutions.

With its most recent innovations, Lenzing said it has taken important steps in this direction. Following the introduction of Refribra technology that incorporates recycled materials, Lenzing Ecovero branded high-performance and identifiable viscose fibers and Tencel Luxe lyocell filament yarn, Lenzing announced the successful development of Web Technology in 2018. This new technology platform focuses on sustainable nonwoven products that will open up new market opportunities for the industry.

Also in 2018, the decision was made to temporarily mothball the lyocell capacity expansion project in Mobile, Ala. Based on high labor costs in the U.S. and the economic tensions between the U.S. and China, Lenzing said the implementation of the plan for specialty fiber growth will be slowed down. The company will adjust its growth plan accordingly to meet strong market demand for its lyocell fibers. This includes an increased focus on the lyocell expansion project in Prachinburi, Thailand.

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Looking at the global fiber market, Lenzing said demand is still positive. According to preliminary calculations, cotton inventory levels should decline slightly again in 2019, while the polyester market has started to recover from slower growth at the beginning of the reporting year. The company projects price levels for cotton and polyester to remain stable.

Capacity expansions for standard viscose should remain at a similar level in 2019 from the prior year. Despite strong demand, this will result in growing oversupply that will cause even higher pressure on prices, Lenzing said. The company expects the positive development of its specialty fiber business to continue.

Sales: Revenue for the year declined 3.7 percent to 2.18 billion euro ($2.46 billion) compared with 2.26 billion euro ($2.55 billion) the previous year.

Earnings: Earnings before interest, tax, depreciation and amortization (EBITDA) fell 24 percent to 382 million euros ($432 million), which the company attributed to price increases for key raw materials and higher energy and personnel costs. The EBITDA margin dropped to 17.6 percent from 22.2 percent in 2017. Net profit for the year after one-off effects dropped 47.4 percent 148.2 million euros ($167.6 million) from 281.7 million euros ($318.5 million) the previous year.

CEO’s Take: Stefan Doboczky, CEO, said: “Although 2018 proved to be more challenging than the preceding years, it was, nevertheless, the fourth best year in the company’s history. We consistently worked on the strategic imperatives of our sCore TEN corporate strategy in order to raise our pulp integration, enhance customer intimacy, increase the share of specialty fibers in revenue and to invest in new technologies and business areas. The very positive development of our specialty business in an expected challenging market environment for standard viscose confirms our strategic direction and our ambitious plans.

“Thanks to its specialty strategy and its strong brands based on innovation and sustainability, the Lenzing Group is significantly more resilient today than only a few years ago,” he continued. “However, we are not immune to global developments, and further efforts and investments in specialty fibers are required to become even more resistant to market fluctuations.”