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Lenzing Cutting Millions of Euros in Costs

Thanks to higher fiber prices, Lenzing’s revenue for the first nine months of the year rose 24 percent to 1.97 billion euros ($1.92 billion).

In a Nutshell: The Lenzing Group, a supplier of specialty fibers for the textile and nonwovens industries, said Thursday it was increasingly affected by the extreme developments in global energy and raw material markets in the first three quarters of 2022, in line with the impact on the whole of manufacturing industry.

The market environment deteriorated sharply, especially during the third quarter, and the worsening consumer climate placed additional pressure on Lenzing’s business performance. The earnings trend and the significant deterioration in the market environment led the Lenzing managing board to launch a reorganization and cost reduction program that is already being implemented and is expected to save at least 70 million euros ($68.19 million) in costs annualized once fully implemented.

As a consequence, Lenzing said it will continue on its profitable growth trajectory following the successful implementation of the two key projects in Thailand and Brazil, sharpen its focus on sustainable and high-quality premium textile fibers and nonwoven fibers, and further advance the transition from a linear to a circular economy model. Lenzing also adjusted its financial targets and, assuming that a healthy economic environment prevails, will significantly increase its Earnings before interest, tax, depreciation and amortization (EBITDA) to more than 1 billion euros ($970 million) by 2027.

The successful commissioning of the two key projects, in Thailand and Brazil, as well as the implementation of projects at existing sites in China and Indonesia formed the focus of Lenzing’s investment activities in the first three quarters of 2022. The opening of the lyocell plant in Thailand in the first quarter enables Lenzing to significantly boost its share of specialties and better serve structurally growing demand for Tencel branded lyocell fibers. Despite the pandemic-related challenges, the project was realized on time and within the planned budget, and the volumes produced to date were successfully placed on the market, the company said. With a nameplate capacity of 100,000 tons per year, the company noted that the production plant is the largest of its kind in the world.

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Lenzing is currently investing more than 200 million euros ($194.83 million) in China and Indonesia to convert existing standard viscose capacities into capacities for environmentally responsible specialty fibers. In Nanjing, Lenzing is working on converting a line to modal fiber production. The Chinese location’s product portfolio will consist entirely of specialty fibers by the end of 2022. In Purwakarta, Lenzing is creating additional capacity for Lenzing Ecovero branded fibers. The Indonesian site will become a pure specialty viscose supplier in 2023.

As part of these investments, both sites will be gradually converted to renewable energy. Conversion to green electricity was realized in the third quarter of 2022 in China and in Indonesia. Both the new lyocell plant in Thailand, which will be operated in a carbon-neutral manner, and the investments in existing sites will help Lenzing achieve its ambitious climate targets. Lenzing aims to reduce its carbon emissions 50 percent by 2030 and achieve net zero by 2050.

Lenzing said the war in Ukraine, China’s zero-Covid policy and the sharp rise in inflation have had a significant impact on the global economy. This deterioration in the market environment is also increasingly affecting the consumer climate, as well as sentiment in industries relevant for Lenzing. As a consequence, business prospects worsened significantly in the third quarter.

Sales: Revenue for the nine months through Sept. 30 grew 24 percent year-on-year to reach 1.97 billion euros ($1.92 billion) in the period, primarily due to higher fiber prices.

Earnings: EBITDA in the period decreased 11.6 percent year-on-year to 263 million euros ($256.21 million). In addition to lower demand, the earnings trend particularly reflects the sharp rise in energy and raw material costs, the company noted.

Net profit for the period fell 33.9 percent to 74.9 million euros ($72.97 million), while earnings per share amounted to 2.16 euros ($2.10) in the first three quarters compared to 3.77 euros ($3.67) in the first three quarters of 2021.

CEO’s Take: Stephan Sielaff Lenzing Group CEO, said: “We are experiencing distortions in energy and commodity markets, which are weighing on consumer sentiment and significantly limiting our view of short- to medium-term business trends. This is prompting us to step up our efforts to cope with this situation and further extend Lenzing’s international competitiveness. For this reason, we have launched a global program that will already lead to initial cost savings in the short term and also strengthens Lenzing for the long term.”