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The market environment deteriorated sharply, especially during the third quarter, and the worsening consumer climate placed additional pressure on Lenzing’s business performance. In addition to lower demand, the earnings trend particularly reflects the sharp rise in energy and raw material costs. Both the earnings trend and the significant deterioration in the market environment led the Lenzing managing board to launch a reorganisation and cost reduction programme.
Lenzing Group 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. Its revenue grew by 24 per cent year-on-year to reach €1.97 billion in the reporting period, primarily due to higher fibre prices.
The programme is already being implemented and is expected to save at least €70 million in costs annualised once fully implemented, according to a press release by Lenzing Group.
The company’s earnings before interest, tax, depreciation, and amortisation (EBITDA) decreased by 11.6 per cent year-on-year to €263 million. Net profit for the period decreased by 33.9 per cent to €74.9 million, while earnings per share amounted to €2.16 in the first three quarters (compared to €3.77 in the first three quarters of 2021).
Adjusted equity grew by 6.9 per cent to €2.26 billion because of the operating profit trend as well as positive currency effects. As a consequence, the adjusted equity ratio is at 37.7 per cent.
“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 programme that will already lead to initial cost savings in the short term and also strengthens Lenzing for the long term,” commented Stephan Sielaff, Lenzing Group CEO.
Gross cash flow reduced by 17.6 per cent to €248.2 million in the first three quarters of 2022, mainly reflecting the cost developments. Due to the higher level of working capital, cash flow from operating activities amounted to €34.8 million (compared to €307.8 million in the first three quarters of 2021). Free cash flow amounted to minus €495.8 million (compared to minus €317.9 million in the first three quarters of 2021), which especially reflected the investment activities related to the pulp project in Brazil. Capital expenditure on intangible assets; on property, plant, and equipment; and on biological assets (CAPEX) decreased by 15.7 per cent to €532 million. The continued high level of investment volume primarily reflects the completion of the pulp project in Brazil.
The successful commissioning of the two key projects in Thailand and Brazil as well as the implementation of projects at the 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 of 2022 enables Lenzing to significantly boost its share of specialties and thereby better serve structurally growing demand for Tencel branded lyocell fibres. Despite the pandemic-related challenges, the project was realised on time and within the planned budget, and the volumes produced to date were successfully placed on the market.
With a nameplate capacity of 100,000 tonnes per year, the production plant is the largest of its kind in the world.
Lenzing is currently investing more than €200 million in China and Indonesia in order to convert existing standard viscose capacities into capacities for environmentally responsible specialty fibres. In Nanjing, Lenzing is working on converting a line to modal fibre production. The Chinese location’s product portfolio will thereby consist entirely of specialty fibres by the end of 2022. In Purwakarta, Lenzing is creating additional capacity for Lenzing Ecovero branded fibres. 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 realised 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 by 50 per cent by 2030 and achieve net zero by 2050. In 2019, Lenzing became the world’s first manufacturer of wood-based cellulosic fibres to have its climate targets scientifically confirmed.
With the new pulp plant in Brazil, Lenzing is strengthening its own supply of dissolving wood pulp and thereby also growth in specialty fibres. It will rank as one of the world’s most productive and energy-efficient plants and feed more than 50 per cent of the electricity generated into the public grid as renewable energy. With the successful start-up on schedule, Lenzing, which holds a 51 per cent interest in the LD Celulose joint venture, reached a further important milestone. The plant ramp-up phase is running to schedule and will prospectively be completed by the end of 2022. The first volumes produced have already been successfully placed on the market.
To become less dependent on global energy markets and to further reduce carbon emissions in line with its strategic targets, Lenzing is also focusing to an even greater extent on electricity generated from renewable energies in Austria. During the reporting period, Lenzing constructed several photovoltaic plants at the Lenzing site in Upper Austria together with Austrian energy utility Verbund. With a capacity of 5.6 MWp, the ground-mounted plant is the largest of its kind in this entire federal state. The output of the three roof systems amounts to 1.5 MWp.
Lenzing also announced the signing of a long-term electricity supply agreement with green power producer Enery and Energie Steiermark. Once commissioned, the photovoltaic plant that has thereby been financed will supply the fibre and pulp plant at the Lenzing site with further green electricity from the fourth quarter of 2023. The plant’s output will amount to 5.5 MWp.
The Lenzing supervisory board also appointed Nico Reiner as the new chief financial officer with effect as of January 1, 2023. In this position he succeeds Thomas Obendrauf, who informed the supervisory board in March that he would not be available for a further extension of his contract, which expires in June 2022. Until Reiner joins the company, Sielaff will continue to perform the duties of the CFO on an interim basis, while Obendrauf will support the company in an advisory capacity, added the release.
Lenzing 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 fibres and nonwoven fibres, and further advance the transition from a linear to a circular economy model. On the basis of this further development of the corporate strategy, Lenzing also adjusted its financial targets and, assuming that a healthy economic environment prevails, will significantly increase its EBITDA to over €1 billion by 2027, with a ROCE of over 12 per cent.
In 2022, Lenzing is celebrating the 30th anniversary of its premium textile brand, which today stands for high-quality, sustainable fibres, digital technologies, and transparency in the supply chain worldwide, and is the fastest growing ingredient brand on the market.
For the second time, Lenzing was awarded platinum status for its sustainability performance by EcoVadis, a leading international provider of corporate sustainability ratings. Already during the first quarter, Lenzing had received the prestigious OGUT Environmental Award 2022 in the ‘World Without Waste’ category.
The Austrian Society for Environment and Technology (OGUT) thereby recognised Lenzing’s contribution to transforming the textile industry into a model of the circular economy. In 2021, Lenzing was recognised on several occasions for its achievements as a ‘sustainability champion,’ including top ratings by Carbon Disclosure Project (CDP) and Morgan Stanley Capital International (MSCI).
Given the deterioration in the market environment, Lenzing suspended its earnings guidance for the 2022 financial year on September 19, 2022. The Lenzing Group anticipates earnings in the 2022 financial year in line with current market expectations.
Fibre2Fashion News Desk (NB)
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