Lenzing Group reports further improvement in operating result

Lenzing – The Lenzing Group, a leading supplier of regenerated cellulosic fibers for the textile and nonwovens industries, continued to gradually improve its business performance in the first three quarters of 2024. By contrast, the recovery of the markets relevant to Lenzing proved to be sluggish. While fiber sales volumes continued to rise during the reporting period, fiber prices remained at a low level. Raw material and energy costs remained high, and logistics costs also rose significantly.

Revenue grew by 5 percent year-on-year to EUR 2 bn in the first three quarters of 2024. This growth primarily reflects higher revenue from fibers (+10.9 percent).

The operating earnings trend was mainly characterized by positive effects deriving from the performance program. Earnings before interest, tax, depreciation and amortization (EBITDA) rose by 20.3 percent year-on-year to EUR 263.7 mn in the first three quarters of 2024. The EBITDA margin increased from 11.7 percent to 13.5 percent. The operating result (EBIT) amounted to EUR 38.3 mn (compared with minus EUR 10.5 mn in the first three quarters of 2023) and the EBIT margin was 2 percent (compared with minus 0.6 percent in the first three quarters of 2023). Earnings before tax (EBT) amounted to minus EUR 33.4 mn (compared with minus EUR 86.9 mn in the first three quarters of 2023).

“The Lenzing Group is continuing its recovery course”, says Rohit Aggarwal, Chief Executive Officer of the Lenzing Group. “We continue to ensure strict cost management and focus on strengthening our global sales activities. At the same time, we are adapting our corporate organization to the changed market conditions and thus strengthening the positioning of the Lenzing Group as a leading integrated fiber group.”

The net loss after tax decreased to minus EUR 111.1 mn (compared with minus EUR 96.7 mn in the first three quarters of 2023) due to a tax effect. The income tax expense amounted to EUR 77.7 mn in the first three quarters of 2024 (compared with EUR 9.8 mn in the first three quarters of 2023). This was especially attributable to the withdrawal from the Austrian tax group due to the participation rate of B&C Holding Österreich GmbH (group parent) decreasing to below 50 percent. As a consequence, the Lenzing Group is required to pay a tax transfer of EUR 25.8 mn to the group parent in accordance with the group tax allocation agreement, which was expensed in the third quarter. The income tax expense was also affected by the value adjustment of tax assets of individual Group companies and by currency effects due to the translation of tax items from the local currency into the functional currency[1].

Earnings per share amounted to minus EUR 3.50 (compared with minus EUR 4.90 in the first three quarters of 2023). The significantly improved cash flow from operating activities amounted to EUR 287 mn in the reporting period (compared with EUR 61.1 mn in the first three quarters of 2023). Free cash flow recorded a clearly positive trend with an increase to EUR 191.8 mn (compared with minus EUR 138.2 mn in the first three quarters of 2023).

Since the end of 2022, the Lenzing Group has been implementing measures to reduce costs and, building on this, has developed a comprehensive performance program with the overriding objective of significantly enhanced long-term resilience to crises and greater agility in the face of market changes.

Nico Reiner, Lenzing Group CFO, notes: “The implementation of our performance program is currently well ahead of schedule. The program initiatives are aimed at improving EBITDA and at generating free cash flow through enhanced profitability, as well as sustainable cost excellence. We expect annual cost savings in excess of EUR 100 mn, of which more than 50 percent will already be effective from this financial year onward.”

Capital expenditure on intangible assets, property, plant and equipment, and on biological assets (CAPEX) amounted to EUR 95.5 mn in the first three quarters of 2024 (compared with EUR 199.7 mn in the first three quarters of 2023), partly due to a reduced level of investment activities. Compared with December 31, 2023, liquid assets increased by 16.4 percent to EUR 851.2 mn as at September 30, 2024.

Successful green bond issue

In September, Lenzing announced the successful issuance of a USD 650 mn green bond by the Brazilian joint venture LD Celulose (LDC). The bond, which matures on January 25, 2032, and carries an annual coupon of 7.950 percent, encountered significant demand from institutional investors. A USD 350 mn syndicated loan forms part of LDC’s new USD 1 billion financing structure. LDC used the net proceeds from the bond issue and cash from the syndicated loan plus existing cash to repay the existing financing agreements, which enabled the construction of one of the world’s largest pulp plants, and to convert it into independent corporate financing. Lenzing holds 51 percent of the joint venture.

Changes on the Managing and Supervisory Boards

Lenzing also announced personnel changes on its Managing Board during the 2024 reporting period. Rohit Aggarwal assumed the CEO role as of September 1, 2024. Stephan Sielaff, the company’s previous CEO, left Lenzing AG by mutual agreement with the Supervisory Board as of the end of August 2024. Rohit Aggarwal is a graduate in business administration specializing in strategy and has decades of experience in management positions in the textile and chemical industries. Rohit Aggarwal possesses a deep understanding of the strategic development of international markets and of building effective management teams through global leadership positions in Europe, the USA, and Asia. Walter Bickel was appointed as a member of the Managing Board and as Chief Transformation Officer of Lenzing AG until December 31, 2025, with effect as of April 15, 2024.

On Thursday, October 10, 2024, the Extraordinary General Meeting of Lenzing AG elected the following individuals as new members of the Supervisory Board: Marcelo Feriozzi Bacci (until the Annual General Meeting passing resolutions relating to the 2028 financial year), Carlos Aníbal de Almeida Junior (until the AGM passing resolutions relating to the 2028 financial year), and Markus Fürst (until the AGM passing resolutions relating to the 2028 financial year). As a consequence, the Supervisory Board of Lenzing AG once again comprises ten members elected by the AGM. Christian Bruch stepped down as a member of the Supervisory Board after the last AGM. In addition, Nicole van der Elst Desai and Melody Harris-Jensbach resigned their Supervisory Board mandates early.

B&C Group and Brazilian pulp producer Suzano S.A. had signed a long-term partnership in connection with the majority interest in Lenzing. Under this agreement, Suzano S.A. had acquired a 15 percent interest in Lenzing AG from B&C Group. Suzano S.A. is the world’s largest pulp producer. It is based in São Paulo and recently posted annual revenue equivalent to more than EUR 7 billion.

Outlook

The IMF left its growth forecast for 2024 unchanged at 3.2 percent but slightly downgraded its 2025 forecast to 3.2 percent. The outlook is characterized by unusually high risks continuing to emanate from the Chinese real estate sector, as well as by increasing tendencies towards protectionism and economic isolation.

Forecasting future economic growth is rendered more difficult by smoldering global conflicts, trade disputes, and the uncertain outcome of elections in the USA.

Consumers are holding back on unnecessary purchases in an environment of rising prices, falling real wages in some cases, and concerns about economic growth. This is hampering a revival of the consumer apparel market, which is important for Lenzing.

The currency environment is expected to remain volatile in regions relevant to Lenzing.

In the trend-setting market for cotton, a slight reduction in stock levels and a moderate price recovery at a continued low level is expected for the remainder of the 2024/2025 harvest season. Initial cautious estimates for the coming 2024/2025 harvest season suggest a further build-up of stocks.

Earnings visibility remains limited overall.

Revenue and earnings in the first three quarters of 2024 were slightly above Lenzing’s expectations despite a persistently difficult market. Lenzing is ahead of schedule with the implementation of its performance program. The company expects that the measures will make a greater contribution to further improving earnings in the coming quarters.

Taking the above factors into consideration, the Lenzing Group confirms its guidance for the 2024 financial year of year-on-year higher EBITDA.

Structurally, Lenzing continues to anticipate growth in demand for environmentally responsible fibers for the textile and clothing industry as well as for the hygiene and medical sectors. As a consequence, Lenzing is very well positioned with its strategy and is pushing both profitable growth with specialty fibers and the further expansion of its market leadership in the sustainability area.

[1] Predominant currency of the primary economic environment of a subsidiary

_{^{1) Die Nettofinanzverschuldung wird seit dem zweiten Quartal des Geschäftsjahres 2023 ohne Leasingverbindlichkeiten dargestellt (siehe Beilage zum Lagebericht „Erläuterungen zu Finanzkennzahlen der Lenzing Gruppe“).}}

_{^{2) Die Anzahl der Mitarbeiter:innen wird seit dem dritten Quartal des Geschäftsjahres 2023 auf Basis von Vollzeitäquivalenten angegeben. Bis zum dritten Quartal des Geschäftsjahres 2023 erfolgte die Angabe auf Basis von Köpfen.}}