Like many other pulp producers, in the first half of 2020, the Lenzing Group (Austria) faced a historically difficult market environment with increased pressure on prices and volumes resulting from the COVID-19 crisis. To counteract that, Lenzing intensified its cooperation with partners along the value chains and adjusted its production volumes and sales prices to market reality. The disciplined implementation of the sCore TEN corporate strategy and the focus on specialty fibers continued to have a positive impact.
The immediate effects of the COVID-19 crisis further increased price pressure on textile fibers across the entire product range. As a result, revenue declined by 25.6 percent from EUR 1.09 bn to EUR 810.2 mn in the first half of 2020. In addition to price effects, Lenzing also felt the decline in demand for textile fibers in all regions. The slightly higher demand for fibers in the medical and hygiene segments reduced the losses, but could not offset them. The earnings development essentially reflects the decline in revenue. The implementation of measures for structural earnings improvements in all regions and making use of the short-time work model, which was temporarily introduced by the Austrian Federal Government, mitigated this negative effect. EBITDA (earnings before interest, tax, depreciation and amortization) fell by 46.6 percent to EUR 96.7 mn in the first half of 2020.
“The COVID-19 crisis has an impact on the entire textile and apparel industry and further increased the price and volume pressure on the global fiber market. Likewise, Lenzing was also confronted with this historically difficult market environment and focused on the health and safety of their employees, the continuation of long-term partnerships and ensuring their sustainable business development”, says Stefan Doboczky, Chief Executive Officer of the Lenzing Group. “Strategically, we are still fully on track and the implementation of our key projects in Thailand and Brazil is progressing according to plan. The successful conclusion of the financing agreements for the construction of the pulp plant in Brazil was a highlight of the first half of the year”, says Doboczky.
Strengthening specialty fiber growth
CAPEX (expenditures for intangible assets and property, plant and equipment and biological assets) roughly tripled to EUR 268.7 mn in the first half of 2020. This increase is a consequence of the progress of the major projects in Brazil and Thailand. The implementation of the two most important long-term investment projects to strengthen internal pulp supply and to increase the share of specialty fibers in line with the sCore TEN corporate strategy is progressing according to plan.
After the decision to build the dissolving wood pulp plant in Brazil with a capacity of 500,000 tons was made in December, the Duratex Group acquired a 49 percent share in the joint venture LD Celulose as agreed in the first quarter of 2020. Lenzing holds 51 percent of the shares. The expected Industrial CAPEX will be USD 1.38 bn. The project is predominantly financed through long-term debt. The corresponding financing contracts were concluded in the second quarter of 2020 as planned. IFC, a member of the World Bank Group, and IDB Invest, a member of the IDB Group, are co-leading a USD 1.1 billion financing to the joint venture LD Celulose. The export credit agency Finnvera and seven commercial banks are participating in the financing.
Virtual Annual General Meeting on June 18, 2020
The 76th Annual General Meeting of Lenzing AG, which was held in a virtual form via livestream due to the COVID-19 pandemic, followed the proposal of the Management Board and resolved on June 18, 2020, not to distribute a dividend for the 2019 financial year.
The Lenzing Group suspended on March 24 its result forecast for 2020 as a consequence of the global COVID-19 crisis and the resulting very limited visibility; at that time, Lenzing expected the result for 2020 to be below the level of 2019.
For 2020, the International Monetary Fund currently projects the greatest recession of the global economy in the course of a century. Global economic output is expected to contract by 4.9 percent in 2020.
Whilst it remains difficult to give a precise outlook for 2020, Lenzing assumes from today’s perspective that the revenue generation and operating performance of the remaining two quarters will exceed those of the second quarter.
The comparatively solid business development in the first half of the year reassures the Lenzing Group in its chosen corporate strategy sCore TEN. Lenzing will continue to implement its strategy with great discipline with a particular focus on the strategic investment projects which both will yield a significant contribution to earnings starting from 2022.