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Lenzing Profits Slump Even as Specialty Fibers Gain Traction

The Lenzing Group said trade-related uncertainty in the textile value chain has contributed to sluggish demand and has negatively impacted its business.

In a Nutshell: Citing historically low standard viscose prices, the Lenzing Group experienced a decline in revenue and earnings in the first three quarters of 2019. But the company said it was able to somewhat mitigate the difficulties in this product segment by consistent implementation of its sCore TEN efficiency strategy and the focus on specialty fibers.

To this end, the conversion of the production capacities from standard viscose to Lenzing Ecovero branded specialty viscose fibers continued during the reporting period. The Ecovero line has been well received in the market, the company said, thanks to its strong ecological footprint and identification technology.

The Tencel brand’s visibility increased through co-branding in the nine months. Compared to the same period of 2018, the number of end products labeled with the Tencel brand increased to 102 million from 41 million. The digital marketing concept “Where to buy” was introduced, allowing products made from the fiber to be presented on the tencel.com website and linked to the online shops of more than 110 partners, including H&M, Levi’s, Allbirds, Victoria Secret, Esprit, Pottery Barn and Asos.

Increasing the self-supply of dissolving wood pulp is another key element of the sCore TEN strategy, with Lenzing and the Brazilian company Duratex continue to advance the construction of a 450,000-ton dissolving wood pulp plant in Brazil. In addition, a 60 million euros ($66.47 million) expansion and modernization of the pulp plant in Lenzing, Austria, was recently completed, increasing capacity to 320,000 tons per year.

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Lenzing said the challenging and volatile market environment, paired with erratic developments in the trade disputes between the major economic blocs and the high level of uncertainty in the textile value chain, significantly impacts earnings visibility. Based on these conditions, Lenzing expects the result for 2019 to be slightly below the level of 2018.

Sales: Revenue for the nine months ended Sept. 30 dipped 1.1 percent to 1.62 billion euros ($1.79 billion). Lenzing said product mix optimization and higher prices for specialty fibers staved off more severe declines. The share of specialty fibers in revenue, at 49.8 percent, significantly exceeded the prior-year value of 44.1 percent.

Earnings: Earnings before interest, tax, depreciation and amortization (EBITDA) dropped 8.1 percent to 266.9 million euros ($295.66 million), primarily due to the market environment for standard viscose, leading to a lower EBITDA margin of 16.5 percent compared with 17.8 percent in the first three quarters of the previous year.

Earnings before interest and tax (EBIT) fell 19.3 percent to 153.5 million euros ($170.04 million). The EBIT margin dropped to 9.5 percent from 11.6 percent in the comparative period. Net profit decreased 15.6 percent to 112.9 million euros ($125.07 million).

CEO’s Take: Stefan Doboczky, CEO of the Lenzing Group, said: “Lenzing is very well positioned due to its strategic orientation and its strong focus on specialty fibers. This is reflected, more than ever, in the current market environment, which is marked by trade conflicts and historically low prices for standard viscose. This uncertainty can be felt throughout the textile value chain and leads to significantly more sluggish demand. Thanks to the performance of our specialty fibers, we have nevertheless been able to achieve a solid result.”