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Lenzing Cites Overcapacity in 16% Q1 Revenue Slide

Lenzing’s specialty fiber strength helped limit the damage from the COVID-19 economic slowdown in the first quarter, as sales and profits slumped.

In a Nutshell: In a historically difficult market environment that saw increased pressure on prices and volumes resulting from the coronavirus crisis, the Lenzing Group held its ground in the first quarter of 2020, the Austrian fiber company said Wednesday.

Lenzing credited its diversified business model and global footprint, as well as the disciplined implementation of its sCore TEN corporate operating strategy, in helping to limit the negative effects of the global pandemic on revenue and earnings development in the period.

The impact of the coronavirus outbreak further increased pressure on prices and volumes. The price for standard viscose dropped to a new all-time low of 9,150 yuan ($1,288.22) per ton by March 31, 33 percent lower than in the prior-year quarter. The comparatively positive development of the specialty fiber business and slightly higher demand for fibers in the medical and hygiene segments partially offset the decline in revenue. The share of specialty fibers increased from 47.3 percent in the first quarter of the previous year to 60.9 percent.

Capital expenditures (capex) more than tripled to 138.6 million euros ($149.99 million) in the first quarter. The increase was a consequence of the progress of major manufacturing projects in Brazil and Thailand to strengthen internal pulp supply and increase the share of specialty fibers.

After the decision to build the dissolving wood pulp plant in Brazil with a capacity of 500,000 tons, during the quarter the Duratex Group acquired a 49 percent share in the joint venture LD Celulose. Lenzing holds 51 percent of the shares.

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Also in the first quarter, Lenzing completed the second pilot production plant for its Tencel Luxe branded filament yarn. The new facility at the Lenzing, Austria, site with a total investment of 30 million euros ($32.47 million) provides sufficient capacity for the development of commercial programs and further fiber applications.

On March 24, the Lenzing Group suspended its result forecast for 2020 as a consequence of the COVID-19 crisis. The impact of the crisis on the company’s business still cannot be reliably estimated and strongly depends on the duration of the crisis and its impact on the global economy and textile markets, Lenzing said.

“Lenzing will continue to implement its strategy with great discipline with a particular focus on the strategic investment projects which both will yield to a significant contribution to earnings starting from 2022,” the company said.

Sales: Revenue in the first quarter ended March 31 declined by 16.7 percent in comparison with the prior-year quarter to 466.3 million euros ($504.62 million) from $569 million euros ($615.76 million). The main reason was significant overcapacity in standard viscose that led to historically low selling prices.

Earnings: Earnings before interest, tax, depreciation and amortization (EBITDA) decreased by 24.3 percent to 69.6 million euros ($75.32 million) from 92 million euros ($99.56 million) a year earlier, reflecting the decline in revenue. The EBITDA margin declined to 14.9 percent from 16.4 percent.

Net profit for the period was down 58.6 percent to 17.7 million euros ($19.15 million) from 42.8 million euros ($46.32 million) in the year-ago period.

CEO’s Take: Stefan Doboczky, CEO of the Lenzing Group, said: “The COVID-19 crisis has [had] a severe impact on the entire textile and apparel industry and has further increased the pressure on prices and volumes in the global fiber market. Lenzing held its ground in this extremely difficult market environment and continues to drive the implementation of its key projects in Brazil and Thailand. To meet the strong demand for hygiene and protective products for the population and for medical personnel, we intensified the collaboration with partners along the value chain in the first quarter of 2020. Today we are proud that we have achieved our goal of an industrial production of high-quality protective masks together with our partner Palmers and have therefore been able to support Austria and Europe in combating the pandemic as best possible.”