Lenzing Group, a leading producer of man-made cellulose fibres, reports that it has achieved business results in line with expectations in the first three quarters of 2013 in spite of unfavourable market conditions. However, the company now plans to cut costs following record results over the past few years.

“The difficult market situation will continue in 2014 and possibly well into 2015. We will resolutely counteract this unfavourable situation and adjust our cost structures to the new circumstances as quickly as possible,” commented Peter Untersperger, Chief Executive Officer of Lenzing AG.

“Our aim must not only be to expand our quality leadership and innovative strength on a sustainable basis, but also to regain the cost leadership in our industry. We continue to see attractive growth potential for our products, but we are already preparing ourselves today as optimally as possible for the increasingly tough competition. Cost discipline and cash generation will be our targets over the coming years.”

Figures

Consolidated sales amounted to EUR 1,447 million, a decline of 7.7% from the same period last year. EBITDA continued to be at a good level, amounting to EUR 223.8 m in the first nine months of 2013, a drop of 20.5% from the prior-year figure.

This comprised an EBITDA margin of 15.5%. Earnings before interest and tax (EBIT) in the first nine months of the year fell by 33.0% to EUR 136.4 million.

Fibre selling prices

Fibre production facilities were operating at full capacity during the first three quarters of the year. Fibre shipment volumes increased to approximately 660,000 tons, up by 12% from the prior-year level. However, average fibre selling prices of the Lenzing Group were at EUR 1.73 per kilogram, about 14% lower than in the previous year. The underlying reason was the price and margin pressure in China, as a consequence of surplus production capacities.

The company believes the downward pressure on selling prices could at least be partially offset by significantly higher fibre shipment volumes, cost savings and a marketing drive for specialty fibres Lenzing Modal and Tencel.

Cost optimisation programme

In the light of the ongoing difficult market situation, Lenzing has decided to proactively implement a massive, far-reaching cost optimisation programme. The initiative is expected to enable cost savings of EUR 120 million until 2015.

In particular, the sales and marketing organisation will be strengthened as part of the current reorganisation project. The entire organisation is to sharpen its focus to more strongly orient its activities to the important fibre markets of Asia and Turkey. Sales efforts in China especially will be expanded on the basis of additional technical experts and market development capabilities.

Lenzing will continue to invest, particularly in developing Tencel for high quality textile applications and sustainable nonwoven applications. Demand for Lenzing Modal remains strong, the company reports.

Massive reductions

The expanded cost optimisation programme ‘excelLENZ 2.0’ is a further, comprehensive step to sustainably safeguard earnings and future investment projects. It complements the initial ‘excelLENZ’ cost-saving programme, which has been underway since the beginning of the year as well as the organisational restructuring of the Group.

Improvement potential for all cost modules encompassing all operating units has been defined over the past weeks. The measures to be implemented on this basis are expected to not only result in savings in material costs, but also massive reductions in operating expenses and overhead, extensive increases in operating efficiency as well as a reduction in the total number of employees. All global sites will be affected.

Outlook for 2013

Lenzing expects price pressure to remain strong in the fourth quarter of 2013. For this reason, Lenzing has revised its guidance for the entire year 2013.

Accordingly, consolidated sales are expected to total about EUR 1,9 billion for 2013 as a whole, shifting from the last guidance of EUR 2 billion.

EBITDA is expected to amount between EUR 220 - 230 million, due to restructuring costs for operational restructuring measures, whereas EBIT will total approximately EUR 75 – 85 million, compared with last guidance of EUR 160 million.

www.lenzing.com