Lenzing tops all preceding results in first half year of 2017
Lenzing Group achieves preceding half-year results in its history
- Revenue up 11 percent to EUR 1149.1 million
- EBITDA increase of 38.8 % to EUR 270.7 million
- Detailed planning for new production plant for TENCEL® fibres in Thailand in progress
- New sales offices opened in Turkey and Korea
- New EcoVeroTM branded viscose fibres with very favoirable ecological footprint launched
General Market environment
The global economy1 was characterized by dynamic momentum during the first half of 2017. Forecasts by the International Monetary Fund (IMF) point to an increase in worldwide growth from 3.1 % in 2016 to 3.5 % in 2017 and 3.6 % in 2018. Significantly stronger growth is projected for the emerging and developing countries, in particular due to the partial recovery of raw material prices. The developed economies are also expected to accelerate – supported, above all, by higher forecasted growth in the USA. The outlook for Europe and Japan has also improved. This positive development is based on the cyclical recovery of global manufacturing and trade that began in the second half of 2016.
Other factors of special note are the developments on interest rate markets and changed exchange rate relations, especially with regards to the US Dollar.
Global fibre market
The global fibre market experienced volatile development during the first half of 2017. Worldwide cotton production rose by 7.7 % to 22.9 million tons in 2016/17 – for the first increase after several years of declines. However, worldwide consumption stabilized and outpaced production levels. Cotton supplies therefore fell by 7 % to 17.3 million tons. According to the Cotlook A Index, the average price for cotton started 2017 at USD 69.8 cents per pound, rose to a high of USD 94.9 cents per pound in May and subsequently fell to USD 83.3 cents per pound at the end of June.
Polyester prices rose during the first half of the first quarter of 2017, but then declined due to the drop in oil and raw material prices. The first half-year nevertheless brought an average increase of 7 % over the first half of 2016.
The prices for standard viscose rose quickly at the beginning of the first quarter, especially after the Chinese New Year, due to environmentally-related production stops by competitors. This increase was followed by a roughly three-month decline in the viscose price as a result of higher stocks along the supply chain. A further increase in prices was only noted towards the end of the first half of 2017 due to strong demand. The demand and prices for wood-based specialty fibres like Modal and Lyocell continued to show very positive development.
With its new sCore TEN strategy, the Lenzing Group is placing a consistent focus on high-quality specialty fibres. The success of this concept was also clearly demonstrated during the first half of 2017 by a further increase in Lenzing’s leading market position in specialty fibres. The expansion of production capacity for TENCEL® branded fibres in Europe and the USA and the planned expansion of production for TENCEL® fibres in Thailand will strengthen this development in the future. These comprehensive construction projects have been combined in an own Management Board position and transferred to the recently appointed Chief Technology Officer Heiko Arnold.
The demand for all three fibre groups – TENCEL® fibres, Lenzing Modal® fibres and Lenzing Viscose® fibres – was high during the first six months of 2017. Revenue in the Segment Fibres rose by a sound 11 % to EUR 1144.1 million in the first half of 2017. EBITDA increased by 35.7 % to EUR 268.1 million and EBIT by 52.9 % to EUR 200 million.
The development of the wood market in Central Europe during the first half of 2017 was influenced by the long, severe winter and by the Ukrainian ban on round timber exports that was introduced at the end of 2015. Strong demand by electricity and heat producers as well as the reduced availability of wood led, in part, to destocking. These factors were reflected in a slight year-on-year increase in market prices.
The wood storage facilities in the Lenzing Group’s pulp plants (Lenzing and Paskov) were well filled at the beginning of the winter and have prevented shortages and price increases to date. All of the wood used in the Group’s production comes from PEFCTM and FSC® certified or controlled sources.
Energy & Chemicals
The decline in energy prices in recent years was followed by a substantial year-on-year increase on the spot market during the first half of 2017. The oil price was 9 % higher on average, with prices coming under pressure once again towards the end of the first six months. The spot market price for coal was also 9 % higher. Gas prices recorded the largest increase over the previous half-year with a plus of 14 %, in part due to the cold winter in Europe. Average electricity prices in Austria were roughly 8 % higher.
Most of the key chemicals, like sulfur, remained stable during the first half-year in line with the moderate development of the oil price. However, there was a substantial rise in the price of caustic soda which has a strong influence on raw material costs. The increase reflected widespread supply and demand distortions in Asia which were driven by market developments in China.
Lenzing experienced strong global demand for all fashion label applications across all three generations of wood-based cellulose fibres – viscose, modal and lyocell – during the first half of 2017. The strong demand for Lenzing Modal® and TENCEL® specialty fibres was reinforced by retail-focused marketing campaigns and business development measures.
The demand for specialty fibres on the end customer market for the most important textile applications – denim (jeans), home textiles (bed linen, towels), activewear & outerwear (sportswear, shirts, dresses etc.) and innerwear (underwear, nightwear, T-shirts and tops) – remained strong and prices were stable. TENCEL® fibres were also introduced in new segments like carpets and increasingly combined with high-quality fibres like wool, silk and cashmere to improve their functionality. The demand for Lenzing Modal® fibres was also strong in the innerwear clothing segment, with these fibres finding increasing use in activewear.
The viscose market remained volatile with continuing sound demand during the first half of 2017. There was substantial fluctuation in prices, above all because of supply-related uncertainty (e.g. due to the environmentally-related shutdown of production facilities and expected new capacity on the market).
Two product innovations assure Lenzing’s role as a pioneer for the development of particularly sustainable botanic cellulose fibres: RefibraTM branded fibres and EcoVeroTM branded fibres.
The introduction of RefibraTM fibres at the Première Vision trade fair in Paris attracted great interest. This new fiber allows the fashion sector to enter the circular economy and establish a position in the booming segment of particularly sustainable products. It com- bines pulp from two sources – scraps from the production of cotton clothing and wood – to create a new lyocell fiber. Lenzing is currently working with 25 fashion brands which plan to launch collections made with RefibraTM fibres beginning next year.
With the introduction of EcoVeroTM branded viscose fibres in May 2017, Lenzing is addressing the growing demand by partners along the value chain for products from ecologically sustainable fiber production. EcoVeroTM fibres include a special identification system that supports the trend in the fashion industry towards greater transparency by making these fibres identifiable in finished clothing. There are no comparable products on the market at the present time. EcoVeroTM fibres are therefore marketed as specialty fibres which stand out from the mass of conventional viscose fibres.
The sound development in the nonwovens sector continued during the first half of 2017. Massive investments in additional capacity were made by the Lenzing Group’s customers in all regions. Non- woven production capacity increased significantly not only in Tur- key and China, but also in Western Europe and the USA.
The Lenzing Group grew with its customers in this sector and further expanded its technically oriented hygiene business. In line with the sCore TEN strategy, a particular focus was placed on special applications like the use of TENCEL® SKIN fibres for facemasks and TENCEL® shortcut fibres for filtration or battery separators.
TENCEL® fibres are now also used in agricultural applications, for example to support strings and ropes in the fruit and vegetable production. One special benefit of TENCEL® fibres is that they are 100 percent biologically degradable and compostable, which eliminates the disposal issues associated with synthetic products.
In summary, Lenzing continued to focus on the specialization and customer-oriented aspects of the sCore TEN strategy in the textile and nonwovens businesses during the first half of 2017 and made significant progress in the implementation of this strategy.
Outlook for the Lenzing Group
The wood-based cellulose fibre segment, which is relevant for Lenzing, should again outpace the overall fibre market. The demand for these cellulose fibres was very good in the first half year of 2017, with the long-term trend pointing towards further growth in viscose and, above all, wood-based cellulose specialty fibres. On the supply side, the market is not expected to see the entry of any notable new production capacity in 2017.
Lenzing is very well positioned in this environment. In 2017 we will continue to focus on the disciplined implementation of the sCore TEN strategy and, specifically, on specialization and sustainability-driven innovation. The steady expansion of the specialty fibre capacities and the intensification of our brand management will be essential to increasing consumers’ aware- ness for the unique selling proposition of our fibre products.
The Lenzing Group had an excellent half year 2017 and registered strong demand for its fibres during the first two quarters which, in turn, led to continued very high capacity utilization in all product groups. The market price index for viscose fibres was substantially higher than in the comparable prior year period. Under the assumption of unchanged conditions in the fibre market and stable exchange rates, Lenzing expects a considerable improvement in results in the fiscal year 2017 compared to 2016.