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Lenzing Earnings Fall on Market Challenges, but Revenue Rises

Volatility in the standard viscose market and in currency exchanges hindered profits for Lenzing in the first quarter, but strength in specialty fibers lifted sales.

In a Nutshell: Despite a more demanding market environment, the Lenzing Group was able to squeeze out a slight increase in revenue, which the fiber manufacturer said confirmed it sCore TEN corporate strategy was on the right path.

Lenzing launched the sCore TEN strategy in 2016 to strengthen its core business, intensify cooperation with customers along the value chain, increase the share of specialty fibers to 50 percent of total revenue by 2020, expand its quality and technological leadership for man-made cellulose fibers and open new business areas.

The company said the market environment for standard viscose remained highly competitive, with declining prices cutting into earnings. However, Lenzing said it didn’t expect volatility in raw material prices to have an adverse effect on future earnings.

Lenzing said it continued to expand its wood pulp and lyocell capacities, even though CapEx dropped 22.4 percent to 45.7 million euros ($51.21 million) in the first quarter. The decline was attributed to the completion of an expansion project in Heiligenkreuz, Austria, in 2018 and the ongoing planning for major projects in Brazil and Thailand that will only have an effect on the investment volume in the coming quarters.

The basic engineering for the construction of a new lyocell plant in Prachinburi, Thailand, is making good progress as is the planned establishment of the pulp plant in Minas Gerais, Brazil, the company noted.

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At the company’s site in Heiligenkreuz, a fire occurred on Feb. 1, causing a shutdown of the lyocell production for several weeks. Material damage and the damage resulting from the interruption of operations are covered by insurance, and production at the site is now running at full capacity again, Lenzing said.

At the same time, Lenzing continues to intensify its collaboration with fashion designers in Asia. Recently, with Tencel Studio, a design center featuring fashion from Tencel fibers was opened in Singapore. The center is the next step in the effort to give consumers an insight into innovations and new applications.

Sales: Group revenue for the first quarter ended March 31 rose 1.8 percent to 560 million euros ($627.54 million) compared with the same quarter of 2018. The increase was primarily attributed to a better product mix, as the share of specialty fibers rose to 47.3 percent from the prior-year 42.1 percent.

Earnings: Earnings before interest, tax, depreciation and amortization (EBITDA) dropped 9.5 percent to 92 million euros ($103.10 million) in the quarter from a year earlier. In addition to the market environment for standard viscose, Lenzing said this was primarily caused by currency effects that burdened material and personnel costs. The EBITDA margin dropped to 16.4 percent in the quarter from 18.5 percent in the prior-year period.

Net profit for the period fell 14.5 percent to 42.8 million euros ($47.96 million) from 50 million ($56.03 million) in the previous year.

CEO’s Take: Stefan Doboczky, CEO, said: “Our specialty fiber business is still developing very well, which has made us significantly more resilient today than only a few years ago. In order to become even more resistant to market fluctuations, we continue to advance the implementation of the sCore TEN strategy and the planned major projects in Brazil and Thailand with great discipline.”