EANS-Adhoc: Lenzing AG Ongoing Difficult Market Situation in the First Half of
2014
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ad-hoc disclosure transmitted by euro adhoc with the aim of a Europe-wide
distribution. The issuer is solely responsible for the content of this
announcement.
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Mid Year Results/6-month report
21.08.2014
- New record half-year fiber sales volume with all plants operating at full
capacity
- Successful start-up of large-scale TENCEL® production plant in Lenzing
- Further intensification of the cost optimization program excelLENZ
- Significantly lower average fiber selling prices burden consolidated sales
and earnings
The business development of the Lenzing Group in the first half of 2014 was
impacted by the ongoing difficult market conditions featuring considerably lower
average fiber selling prices. The cost reduction program excelLENZ successfully
initiated in 2013 was only able to partially offset the decline in sales and
earnings in the first six months of 2014.
Consolidated sales in the first half-year 2014 declined by 9.1% to EUR 900.0 mn
from the prior-year level of EUR 989.9 mn. More than half of this sales decrease
can be attributed to the one-off effects relating to the divestment of the
Business Unit Plastics towards the end of the second quarter of 2013 (H1 2013
sales of Lenzing Plastics: EUR 49.9 mn). On a like-for-like basis involving a
year-to-year comparison of continuing operations, consolidated sales were down
by 4.3% to EUR 900.0 mn from EUR 940.0 mn in the previous year. The
significantly lower average fiber selling prices could not be offset by higher
fiber shipment volumes and an improved product mix. Average fiber selling prices
of the Lenzing Group in the first half of 2014 equaled EUR 1.54/kg, comprising a
drop of 12.5% from the level of EUR 1.76/kg in the first half of 2013.
Consolidated earnings before interest, taxes, depreciation and amortization
(EBITDA) from continuing operations in the first half-year totaled EUR 91.9 mn
(H1 2013: EUR 129.1 mn). This represents a decrease of 28.8% from the first half
of 2013. The consolidated half-year earnings before interest and taxes (EBIT)
from continuing operations amounted to EUR 32.4 mn, a drop of 56.1% from EUR
73.8 mn in the previous year.
Further intensification of the cost optimization program excelLENZ 2.0
Due to the continuing tense price development on the global market for viscose
fibers, additional cost savings were initiated within the context of the
efficiency enhancement program excelLENZ 2.0. In light of the current level of
fiber prices, the originally planned savings of about EUR 60 mn in 2014 are not
sufficient for Lenzing to be able to profitably manufacture fibers, especially
at its European sites. "The previously implemented measures have already proven
to be effective. Once again we were able to increase the savings generated in
the year 2014. In light of the continuing market weakness we have to further
sharpen the targeted annual cost savings of up to EUR 160 mn. Moreover, we want
to reach these targets more quickly", explains Chief Executive Officer Peter
Untersperger. Cost savings of up to EUR 90 mn are now expected for the current
financial year, one-third higher than originally budgeted.
"At the same time, in light of the current market distortions, we have cut back
investments to a minimum", adds Lenzing's Chief Financial Officer Finanzvorstand
Thomas Riegler. CAPEX totaledEUR 64.2 mn in the first half of 2014, below the
comparable figure of EUR EUR 134.4 mn in the prior-year period. The focal point
of the investment activity was the completion of the new TENCEL® production
plant in Lenzing as well as modernization work on existing fiber production
lines. "Another priority is proactive cash management in addition to a selective
investment policy. Accordingly, non-current liabilities could be reduced by 5.6%
to EUR 758.1 mn (H1 2013: EUR 803.0 mn). Trade working capital could be improved
thanks to a strict working capital management", Riegler says.
Specialty strategy to counter the price decline
Lenzing is counteracting the sharp drop in fiber selling prices by more
intensively focusing on specialty fibers and the more stable nonwovens business
at the expense of the more cyclically sensitive textile sector. BothLenzing
Modal® as well as TENCEL® reported ongoing high demand and very good sales
volumes throughout the entire first half of 2014, also generating attractive
price premiums at the same time.
The resolute optimization of the customer structure and sales regions ensures
that Lenzing will continue to obtain premium prices, even for its standard
viscose fibers, which are higher than the level for other viscose fiber
manufacturers. Other specialty fibers such as Lenzing Modal®have also profited
from an active shift towards sales markets with attractive contribution margins.
Successful start-up of the TENCEL® plant in Lenzing
In the first half of 2014 the Lenzing Group completed and successfully initiated
production at its new TENCEL® jumbo production facility, the largest in the
world, at the Lenzing site. The plant is in the midst of a stable ramp-up phase.
The feedback on the part of the market is very positive.Thanks to the new plant,
annual nominal TENCEL® production capacity of the Lenzing Group will rise from
155,000 tons p.a. to about 220,000 tons. In this way Lenzing will further expand
upon its global market leadership for TENCEL® fibers.
This facility comprises the first time in which a single production line with an
annual nominal capacity of 67,000 tons was installed. Previous TENCEL®
production lines were usually only one-quarter as large. The new plant design
incorporates lessons learned from the longstanding experience of the three
existing Lenzing Group TENCEL® production plants located in Austria, USA and
Great Britain. As a consequence, the new TENCEL® plant in Lenzing represents the
world's leading generation of TENCEL® technology.
Outlook
There are no perceptible signs of any easing of the situation on the global
fiber market in the second half of 2014. The expectation of a cotton harvest
which is lower than in the previous year but still exceeds annual consumption is
triggering further pressure on global cotton prices and thus on all fiber
prices.
In spite of good volume demand, a further price decline for man-made cellulose
fibers cannot be excluded. The excess supply of standard viscose fibers will
continue to prevail in the second half of the year. As a consequence of the high
world market share of Chinese cellulose fiber manufacturers (60%), the resulting
low fiber selling price levels impact other important sales markets and repeated
measures initiated to stabilize prices are bound to fail. Only a slight
improvement in price levels is expected during the course of the year 2015 at
the earliest. Lenzing is counteracting this situation by intensifying its
excelLENZ cost reduction and efficiency enhancement program, which should
enable higher savings to be achieved in 2015. The selective investment policy
and cash optimization measures will be further pursued.
In its operating business, Lenzing will continue to determinedly promote its
specialty fibers Lenzing Modal® and TENCEL®. In this case, the focus will be on
ramping up the new TENCEL® plant at the Lenzing site to achieve a production
volume of 30,000 tons in 2014, and to sell these additional fiber volumes.
Key Group indicators(IFRS) in EUR mn
Continuing operations("like for like")1)
1-6/2014 1-6/2013
Consolidated sales 900.0 940.0
EBITDA 91.9 129.1
EBITDA margin in % 10.2 13.7
EBIT 32.4 73.8
EBIT margin in % 3.6 7.9
Profit for the period 15.2 45.2
CAPEX2) 64.2 134.4
June 30, 2014 Dec. 31, 2013
Adjusted equity ratio3)in % 46.3 45.5
Number of employees at 6,392 6,675
period-end
1) Taking account of the Business Unit Plastics divested in the first half of
2013, consolidated sales declined 9.1%, EBITDA fell by 43.3% and EBIT was down
68.5%.
2) Relates to investments in intangible assets and property, plant and equipment
and non-controlling interests 01-06/2013 including the Business Unit Plastics.
3) Adjusted equity in relation to total assets.
Further inquiry note:
Lenzing AG
Mag. Angelika Guldt
Tel.: +43 (0) 7672-701-2713
Fax: +43 (0) 7672-918-2713
mailto:a.guldt@lenzing.com
end of announcement euro adhoc
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issuer: Lenzing AG
A-A-4860 Lenzing
phone: +43 7672-701-0
FAX: +43 7672-96301
mail: a.guldt@lenzing.com
WWW: http://www.lenzing.com
sector: Chemicals
ISIN: AT0000644505
indexes: WBI, ATX, Prime Market
stockmarkets: free trade: Berlin, official market: Wien
language: English