First half year influenced by global recession – revival of demand in cellulose fibres core business

The Lenzing Group was not able to evade the impact of the global recession of the first half year of 2009 but the company clearly reversed the trend by generating a profit for the period of EUR 11.3 million in the second quarter, after a period net loss of EUR 5.4 million in the first quarter.

Consolidated sales dropped by 14.4% from EUR 689.5 million to EUR 589.9 million compared to the first half year of 2008. Responsible for this result were lower fibre production at the non-integrated sites in the first quarter, markedly lower fibre prices and significantly lower sales in segment Plastics.

EBIT for the first half year declined from EUR 72.1 million to EUR 15.4 million. Quarterly earnings significantly improved from minus EUR 1.9 million in the first quarter to plus EUR 17.3 million in the second. The profit for the period came to EUR 5.9 million (2008: EUR 46.8 mill.).

Peter Untersperger, chairman of the management board comments on the current business development: “After the sharp collapse at the turn of the year we are now witnessing a certain firming of the global fibre market. Quantity demand has picked up recently, but prices are still unsatisfactory despite adaptations and far below the levels of the past record year.“ According to Peter Untersperger Lenzing again benefits from its strategic focus on special fibres and the fact that the company has reliably supplied its customers with fibres throughout the difficult first quarter. Both factors allowed Lenzing to run fibre production at full capacity in the second quarter, resulting in improved second quarter results.

Cost saving measures implemented at the turn of the year already contributed to the recent improvement of results as well.

As at 30 June 2009 the Lenzing Group employed a staff of 5,775 (31 December 2009: 5,945) with the decline mainly due to inevitable capacity adaptation in the wake of overall economic developments.

Volatile business development in segment Fibers

The development of Lenzing’s core business fibres in the first half of 2009 was, in line with the market trend, highly volatile. Business Unit Textile Fibers focused on pushing high-quality special fibres in order to counter the price pressure exerted on standard fibres. The development of Business Unit Nonwoven Fibers, especially in the first quarter, was affected by the generally weak economy. But here, too, demand for cellulose nonwovens began to continuously rise in the second quarter.

The fibre production facilities were operating at almost full capacity by mid-year.

After the strong decline of pulp prices in 2008 prices recovered slightly over the first six months of 2009. This was a consequence of low pulp stock in the industry and a certain calming of the economy.

Decline in demand for Plastics, high level of order bookings for Engineering

The business development of segment Plastics was affected by a marked decline in demand due to the general economic situation. The trend was slowed down in the second quarter but prices and produced quantity are still at unsatisfactory levels with the exception of niche products. The more favourable prices for precursor materials could not compensate price pressure and weak quantity demand.

Segment Engineering in the first six months benefited from good order bookings, with ongoing intra-group investment as a major contributing factor.

 Outlook

The Lenzing Group expects a tentative stabilization of sales and results for the second half of the year. This expectation is based on the recent recovery of quantity demand in business units Textile Fibers and Nonwoven Fibers, as well as on the positive effect of ongoing cost reduction measures. Unsatisfactory prices in segments Fibers and Plastics will, however, result in a significant decline of consolidated annual sales compared to previous year’s. The annual result will be markedly below that of 2008.