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Lenzing’s Sales and Profits Fall on Volatile Costs and Fiber Prices

In a first half marked by high raw material costs and cellulosic fiber price volatility, Lenzing Group posted declines in sales and earnings in the period.

In a Nutshell: Impacted by what it called “a challenging market environment” in the first half of 2018, the Lenzing Group saw revenue and earnings drop compared to the same period the previous year. The falloff from last year’s record first-half performance, the company said, was the result of a mix of volatile prices for standard viscose and price increases for key raw materials, combined with currency effects.

Lenzing noted that its strategic refocus on specialty fibers had a positive effect in the difficult business environment, and is “increasingly bearing fruit.” The corporate sCore TEN strategy is being implemented in an effort to expand the company’s offering of specialty fibers and more extensively support customers and business partners.

Lenzing noted that it has committed to investing more than 100 million euros ($115.87 million) in sustainable manufacturing technologies and production facilities by 2022 to meet greater sustainability goals. In the first half, the company also said it would invest up to 30 million euros ($34.76 million) in another pilot line for the production of Tencel Luxe filaments at the Lenzing site in Austria. In addition, the company also introduced the environmentally friendly process for the production of Lenzing Ecovero branded viscose fibers at its Chinese site.

Also in the period, Lenzing repositioned its master brand, Tencel, to sharpen its profile as a leader in sustainable innovation. With the Tencel brand as an umbrella brand for all specialty products in the textile segment and the Veocel brand serving the same function for the nonwoven segment, Lenzing aims to present its strengths in a targeted manner.

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Sales: Revenue in the first half ended June 1 declined 6.4% to 1.08 billion euros ($1.25 billion) compared to 1.15 billion euros a year earlier. Lenzing attributed the decrease primarily to less favorable currency exchange rates with the euro. On Wednesday, the euro was trading at 0.86 to the dollar, compared to a rate of 0.84 to the dollar six months earlier and 0.88 on June 1, 2017. The euro has remained unchanged against the Chinese yuan in the past year.

Earnings: Net profit for the period declined 39.3% to 91.3 million euros ($105.81 million) from 150.3 million euros ($174.18 million) a year earlier. Earnings before interest, taxes, depreciation and amortization (EBITDA) fell 28.1% to 194.8 million euros ($225.75 million), mainly due to price increases for key raw materials and higher energy prices. The EBITDA margin fell to 18.1% in the half, from 23.6% in the first half of 2017.

CEO’s Take: Stefan Doboczky, CEO, said: “So far, the financial year 2018 proved to be as challenging as expected and market headwinds were clearly noticeable. In this market environment, we are satisfied with the solid results we report. We are proud that with our corporate strategy sCore TEN and the focus on growth with specialty fibers we show big steps in the right direction. The recently announced joint venture with Duratex is another important step in executing this corporate strategy. We will continue to implement our strategy with great discipline and are convinced that this will steadily improve the long-term profitability of Lenzing.”