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COVID-19 impacts first half 2020 at Lenzing

In the first half of 2020, the Lenzing Group faced a historically difficult market environment with increased pressure on prices and volumes resulting from the COVID-19 crisis

5th August 2020

Innovation in Textiles
 |  Lenzing

Clothing/​Footwear, Medical/Hygiene

In the first half of 2020, the Lenzing Group faced a historically difficult market environment with increased pressure on prices and volumes resulting from the COVID-19 crisis, the company revealed in a statement today. To counteract this, 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 fibres continued to have a positive impact, the company says.

The immediate effects of the COVID-19 crisis further increased price pressure on textile fibres across the entire product range, Lenzing says. As a result, revenue declined by 25.6% from EUR 1.09 billion to EUR 810.2 million in the first half of 2020. In addition to price effects, Lenzing also felt the decline in demand for textile fibres in all regions. The slightly higher demand for fibres 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% to EUR 96.7 million in the first half of 2020. The EBITDA margin decreased from 16.6% to 11.9%. Net profit for the period amounted to EUR

1.5 million (compared to EUR 78.8 million in the first half-year of 2019) and earnings per share to EUR 0.06 (compared to EUR 2.97 in the first half-year of 2019).

“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 fibre 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 fibre growth

CAPEX (expenditures for intangible assets and property, plant and equipment and biological assets) roughly tripled to EUR 268.7 million in the first half of 2020. This increase is a consequence of the progress of the major projects in Brazil and Thailand, Lenzing reports. The implementation of the two most important long-term investment projects to strengthen internal pulp supply and to increase the share of specialty fibres 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% share in the joint venture LD Celulose as agreed in the first quarter of 2020. Lenzing holds 51% of the shares. The expected Industrial CAPEX will be USD 1.38 billion. 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.

Stand up! Against business as usual

On 21 March, Lenzing presented its Sustainability Report 2019, which was also the International Day of Forests. The report sets out how the company is actively dealing with the global challenges, Lenzing adds. Under the motto Stand up! Against business as usual, Lenzing emphasizes its wider responsibilities over and above its products, the company says.

“With the implementation of the science-based target, Lenzing actively contributes to mastering the problems caused by climate change. The Lenzing Group is committed to reducing its greenhouse gas emissions per ton of product by 50% by 2030 (baseline: 2017) and to become climate-neutral by 2050,” Lenzing explains.

Production of high-quality protective masks: Hygiene Austria LP GmbH

To meet the increased demand for high-quality hygiene and protective equipment, Lenzing AG and Palmers Textil AG founded Hygiene Austria LP GmbH in late April, in which Lenzing AG holds 50.1% and Palmers Textil AG 49.9%. The company started producing and selling mouth-nose and FFP2 masks from May 2020. In a next step, the product range was extended to include masks for children. In July, Hygiene Austria LP GmbH launched an online shop, thus making another contribution to the security of Austrian supply. Based on its modern production infrastructure, the company can currently produce up to 12 million masks per month.

Virtual Annual General Meeting

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.

Guidance 2020

The Lenzing Group suspended on 24 March 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% 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,” Lenzing says.

“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,” the company concludes.

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