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Lenzing fights price pressure

September 3, 2013

Viscose fiber leader reports first half results.

The Lenzing Group was not immune to the continuous downward price development on the marketplace in the first half-year 2013. Nevertheless, against the backdrop of declining sales, Lenzing generated earnings in line with expectations but considerably below the first half of 2012.

Consolidated sales declined by 6.8% in the first half of 2013 to €989.9 million, down from €1,061.8 million in the previous year. The significantly lower average fiber selling prices compared to the first half of 2012 could not be compensated by the higher fiber shipment volumes says the company. Furthermore, there was a loss of external sales of about €42.5 million at the Paskov pulp plant compared to the first half of 2012. The comparability of the performance indicators in the first half of 2013 with those in the prior-year period is limited due to Lenzing’s sale of its Business Unit Plastics (Lenzing Plastics).

Consolidated earnings before interest, tax, depreciation and amortization (EBITDA) amounted to €162 million, down 16.3% from €193.6 million in the first half of 2012. The EBITDA margin was 16.4% in contrast to the prior-year figure of 18.2%. Earnings before interest and tax (EBIT) in the first half-year totaled €103.0 million, a decrease of 27% from the previous year’s EBIT of €141.1 million.

In the first half-year 2013, the market was characterized by ongoing high inventories of cotton and surplus production capacities for viscose fibers in China, the most important sales market, and thus globally declining prices for man-made cellulose fibers. The average fiber selling prices of the Lenzing Group totaled €1.76/kg (H1 2012: €2.03/kg).

“We have reacted and already initiated a cost optimization program at the beginning of the year. In addition, we have adjusted our short- and medium-term strategy to the changed market environment. We will more strongly focus on our specialty fibers Tencel and Modal in the future. Viscose fibers will remain an important pillar of our business, but further expansion projects for viscose fibers will only be implemented if correspondingly high profitability is achieved," says Lenzing’s CEO Peter Untersperger. "Current large-scale strategic investments such as the new Tencel production plant located at the Lenzing site will continue as planned. Moreover, Lenzing will rapidly press ahead with scaling Tencel to ensure more widespread use.

Lenzing successfully increased fiber production and shipment volumes in its core Segment Fibers in the first half of 2013, and also reported ongoing attractive price premiums for Modal and Tencel. Lenzing achieved a new record level of fiber sales, which amounted to 438,000 tons in the first half of 2013. However, the price development for viscose fibers was less favorable than previously expected.

The Business Unit Textile Fibers carried out a large number of measures in the first half-year 2013 which were designed to promote the sales of the specialty fibers Lenzing Modal and Tencel. The comparatively high cotton price in China, the most important sales market for Modal, also helped support demand for Lenzing Modal as a fiber blend.

The global nonwovens fiber market developed robustly in the first half of 2013 against the backdrop of very good volume demand. However, the declining textile fiber selling prices also led to some price pressure in the nonwovens sector, even if this was to a moderate extent.

“Our specialty strategy and quality leadership proved their value in this difficult market environment. The volume demand for our fibers continues unabatedly. Lenzing’s inventories are low, even if the achievable selling prices for standard viscose fibers are currently disappointing," says Friedrich Weninger, member of Lenzing’s management board with responsibility for the fiber business. “Modal, Tencel and all nonwoven products made a significant contribution to stabilizing our business in the first half-year. Furthermore, we moved ahead with increasing our capacities to produce our own pulp thanks to the conversion of the Paskov plant from paper pulp to dissolving pulp. The targeted monthly production level could already be achieved six months ahead of schedule."

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