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Viscose Dampens Lenzing Results as Specialty Fibers Rise

Lenzing continues to invest in capacity expansion of specialty fibers–a standout in an otherwise challenging environment for textiles.

In a Nutshell: Despite a generally difficult demand environment for textile fibers and a drastic drop in prices for standard viscose, the Lenzing Group characterized its financial results for 2019 as “a solid business development.”

Lenzing said the disciplined implementation of its sCore TEN corporate strategy and the accompanying focus on specialty fibers helped to mitigate the effect of historically low standard viscose prices. The company’s capital expenditure was 244 million euros ($272.07 million) in 2019, reflecting its investment activities on increasing internal pulp production and raising the share of specialty fibers. Major projects in Brazil and Thailand will have an increased impact on capex volume in 2020.

The expansion and modernization of the dissolving wood pulp plants in Lenzing, Austria, and Paskov, Czech Republic, which started in 2017, will increase pulp production capacities by roughly 35,000 tons annually. The expansion in Lenzing was successfully implemented in the second half of 2019. At around the same time, the new capacities at the Paskov plant gradually ramped up. This process will be completed in the first quarter of 2020.

Based on the decision to build a dissolving wood pulp plant in Brazil with its partner Duratex, Lenzing will increase its self-supply by 500,000 tons annually, thus strongly enhancing backwards integration. The plant is expected to start operations in the first half of 2022.

In 2019, Lenzing also started construction of a state-of-the-art lyocell production facility in Thailand. The investment for the new plant with a capacity of 100,000 tons amounts to roughly 400 million euros ($446.02 million). Construction completion is scheduled for the end of 2021.

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In addition, the conversion of production capacities from standard viscose to Lenzing Ecovero branded specialty viscose fibers progressed well during the reporting period.

Lenzing said demand on the global fiber markets is currently difficult to predict due to the coronavirus (Covid-19) pandemic, which is paralyzing large parts of the textile value chain, especially in China. The price levels for cotton and polyester are expected to remain subdued.

Capacity expansions for standard viscose are expected to be lower than 2019, but will still lead to an increase in surplus capacity. The pressure on prices, which have been at a historic low for a considerable period of time, should persist in 2020, the company said.

Driven by the challenging situation in standard viscose and low paper-pulp prices, prices for dissolving wood pulp are expected to remain at low levels. These factors are expected to “significantly impact earnings visibility for 2020,” Lenzing said, with the company forecasting results for 2020 to be below the level of 2019.

Sales: Revenue for the year ended Dec. 31 dropped 3.3 percent to 2.11 billion euros ($2.35 billion) from 2.18 billion euros ($2.43 billion) in 2018, driven by lower selling prices and standard fiber volumes. Due to more resilient specialty fiber prices, the share of specialty fibers increased to 51.6 percent from 45.5 percent.

Earnings: Earnings before interest, taxes, depreciation and amortization (EBITDA) fell 14.4 percent to 326.9 million euros ($364.51 million) in 2019 from 382 million euros ($425.95 million) the prior year. Lenzing said the earnings development was largely influenced by the decline in revenue, but also by negative currency effects on material and personnel costs.

The EBITDA margin declined to 15.5 percent from 17.6 percent year over year. Net profit, at 114.9 million euros ($128.12 million), was 22.4 percent lower than in the previous year at 148.2 million euros ($165.25 million).

CEO’s Take: Stefan Doboczky, CEO of the Lenzing Group, said: “Lenzing and the entire textile value chain operated in a historically difficult market environment in 2019, which had a negative impact on our revenue and earnings development. The focus on specialty fibers has been contributing to the company’s resilience in the reporting period and we feel very well positioned with our corporate strategy.

“The implementation of the key projects in Thailand and Brazil plays a central role in further strengthening our market position and in accomplishing our ambitious climate targets,” Doboczky added. “We are very satisfied with the progress of both projects.”