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Specialty Fiber Focus Lifts Lenzing Revenue, as Viscose Woes Hit Bottom Line

Higher raw material costs and a tough climate for viscose led to a decline in first-half earnings for Lenzing, but specialty fibers helped revenue rise.

In a Nutshell: Despite historically low prices for standard viscose, Lenzing recorded a slight increase in revenue amid what it described as “solid business development” in the first half of 2019.

The disciplined implementation of its sCore TEN operations strategy and the focus on specialty fibers continue to have a positive impact, the company noted, adding that ongoing high demand for sustainably produced specialty fibers and positive currency effects largely counteracted the impact of low standard viscose prices in earnings.

The Austria-based company is substantially increasing its production of lyocell fibers to meet strong demand. The first expansion phase of its growth plan–construction of a state-of-the-art production plant for lyocell fibers in Prachinburi, Thailand–was approved in the second quarter. The investment volume for the new plant, which has a capacity of 100,000 tons, is approximately 400 million euros ($449.50 million).

The conversion of production capacities from standard viscose to Ecovero fibers in China was also completed during the period. In addition, Lenzing and Brazilian partner Duratex continue to advance the planned construction of a dissolving wood pulp plant in Brazil. The basic engineering, site preparation and applications for the required permits are proceeding according to plan, with the final investment decision expected by the end of 2019.

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The company also aims to strengthen its position in sustainability by investing 100 million euros ($112.37 million) in energy-saving measures, with continued conversion to renewable energies and in new technologies. In the planning of new pulp and lyocell facilities, such as the plant in Thailand, Lenzing also puts a strong focus on low-carbon energy sources and production processes. The goal of its climate strategy is to reduce net emissions of greenhouse gases to zero by 2050. An important milestone on the way to becoming climate-neutral is set for the year 2030.

Sales: Revenue in the first half increased 1.2 percent to 1.09 billion euros ($1.22 billion) compared to the year-ago period. In addition to more favorable currency relations, Lenzing said this was mainly thanks to product mix optimization and higher prices for specialty fibers. The share of specialty fibers in revenue reached 48.4 percent compared to 44.1 percent in the prior-year period.

Earnings: Earnings before interest, tax, depreciation and amortization (EBITDA) fell 7 percent to 181.2 million euros ($203.62 million). The company said the decline mainly resulted from currency effects that led to an increase in pulp costs, an increase in personnel expenses and the market environment for standard viscose.

EBITDA margin declined to 16.6 percent in the period from 18.1 percent in the first half of 2018. Net profit for the period decreased 15.9 percent to 76.8 million ($86.30 million).

CEO’s Take: Stefan Doboczky, CEO of the Lenzing Group, said: “Our specialty fiber business is developing very positively, which has made us significantly more resilient today than a few years back. The investment in new production capacities for lyocell fibers and the focus on our Tencel and Veocel product brands will make us even more resistant to market fluctuations and strengthen our position as a leading supplier of specialty fibers…The escalating trade conflict between the largest economies confirm our decision to temporarily mothball the Mobile, Ala., project. Lenzing will continue to monitor these developments closely and review this decision on a regular basis.”