From the Sector

• Decline in revenue due to volatile standard viscose prices and currencies
• Prices for key raw materials still high
• New production line in Heiligenkreuz in start-up phase
• Backward integration into dissolving wood pulp to be strengthened via joint venture in Brazil

Lenzing – The Lenzing Group generated solid results in a challenging market environment in the first half of 2018. The decline in revenue and earnings compared with the first half of the previous year, which was the best half-year in the company’s history, was based on a mix of volatile prices for standard viscose and price increases for key raw materials, coupled with currency effects. The Lenzing Group’s strategic orientation with a focus on specialty fibers had a positive impact in this environment and is increasingly bearing fruit. The corporate strategy sCore TEN is being implemented with great discipline in order to expand the company’s offering of specialty fibers and even more extensively support customers and business partners.

Revenue declined by 6.4 percent compared with the first half of the previous year to EUR 1,075.4 mn. This decrease is primarily attributable to less favorable currency exchange rates. EBITDA (earnings before interest, tax, depreciation and amortization) decreased by 28.1 percent to EUR 194.8 mn, especially due to price increases for key raw materials and higher energy prices. The EBITDA margin fell from 23.6 percent in the first half of 2017 to 18.1 percent in the first half of 2018. EBIT (earnings before interest and tax) declined by 37 percent to EUR 128.7 mn, leading to a lower EBIT margin of 12 percent (H1 2017: 17.8 percent). The net profit for the period dropped by 39.3 percent from EUR 150.3 mn in the previous year to EUR 91.3 mn. Earnings per share equaled EUR 3.44 (H1 2017: EUR 5.55).

“So far, the financial year 2018 proved to be as challenging as expected, and market headwinds were clearly noticeable. In this market environment, we are satisfied with the solid results we report. We are proud that with our corporate strategy sCore TEN and the focus on growth with specialty fibers we show big steps in the right direction. The recently announced joint venture with Duratex is another important step in executing this corporate strategy,” says Stefan Doboczky, Chief Executive Officer of the Lenzing Group. “We will continue to implement our strategy with great discipline and are convinced that this will steadily improve the long-term profitability of Lenzing,” Doboczky adds.

Largest dissolving wood pulp line worldwide

In June, the Lenzing Group and Duratex, the largest producer of industrialized wood panels of the southern hemisphere, announced that they had agreed on the terms and conditions to form a joint venture to investigate building the largest dissolving wood pulp plant (single line concept) in the state of Minas Gerais, (Brazil). This decision supports the self-supply with dissolving wood pulp and the growth in specialty fibers, defined in Lenzing’s sCore TEN strategy. The joint venture will investigate the construction of a 450,000 t dissolving wood pulp plant, which is expected to become the largest and most competitive single line dissolving wood pulp plant in the world. The final investment decision to build the dissolving wood pulp plant is subject to the outcome of the basic engineering studies and the approval by the respective supervisory boards.

Even stronger focus on sustainable products

As a pioneer in sustainable fiber solutions, the Lenzing Group is committed to higher standards in the textile and nonwoven sectors. More than EUR 100 mn will be invested in sustainable manufacturing technologies and production facilities by 2022 in order to realize this vision. In line with the Group’s specialty strategy, another two milestones were set in the first half of 2018: Lenzing announced an investment of up to EUR 30 mn in another pilot line for the production of TENCEL™ Luxe filaments at the Lenzing site. In addition, the company also introduced the environmentally friendly process for the production of LENZING™ ECOVERO™ branded viscose fibers at its Chinese site. Both decisions contribute to better meeting the strong demand for environmentally compatible products.

Expansion of capacities

CAPEX (investments in intangible assets and property, plant and equipment) rose by 60.8 percent year-on-year to EUR 117.2 mn in the first half of 2018. This is primarily attributable to the capacity expansions in Heiligenkreuz (Austria) and Mobile, Alabama (USA) and the expansion of the existing dissolving wood pulp plant in Lenzing. The company is pressing ahead with these projects as well as with planning work on the construction of the next state-of-the-art lyocell production facility in Prachinburi (Thailand).

New brand identity

With the new positioning of its master brand and its product brands, the Lenzing Group started a new phase of branding and brand communication in the first half of 2018. Lenzing decided to carry out a new brand strategy in order to sharpen its company and product profile as a sustainable innovation leader for customers and partners along the value chain as well as for consumers. The most important pillar of this new brand strategy is a brand architecture with a focus on fewer brands and a strong message to consumers. With the TENCEL™ brand as an umbrella brand for all specialty products in the textile segment and the VEOCEL™ brand as the umbrella brand for all specialty fibers in the nonwoven segment as well as the new master brand, which was presented in March, Lenzing showcases its strengths in a targeted manner.

Outlook

The International Monetary Fund expects a further acceleration in global economic growth to 3.9 percent for 2018. However, growing protectionist tendencies in the political arena represent a source of uncertainty. Export-oriented companies in the Eurozone are faced with additional challenges from the currency environment.

Developments on the fiber markets should remain positive, but with continuing volatility. The rising demand for cotton should support prices despite the increase in production. Polyester fiber prices have stabilized after the increase in previous years.

The wood-based cellulosic fiber segment, which is relevant for Lenzing, should see further strong demand. After years of moderate capacity expansion in the viscose sector, significant additional volumes will enter the market in 2018 and 2019. As a result, standard viscose prices will remain under pressure. The Lenzing Group is very well positioned in this market environment with its corporate strategy sCore TEN and will continue its consistent focus on growth with specialty fibers.

The Lenzing Group still sees challenging market conditions for the second half of 2018. In addition to the price pressure on standard viscose, the prices of some key raw materials such as caustic soda are still at a very high level and exchange rates continue to be volatile. Our specialty fibers are expected to continue their very positive development. In this context, the Lenzing Group is satisfied with the earnings development to date, but underlines its estimate that the results for the year 2018 will be lower than the outstanding results in the last two years.

• Lenzing will hold 51 percent in a future joint venture
• Largest single line dissolving wood pulp plant in the world
• Basic engineering and permitting process to be kicked off
• 43,000 hectares FSC® certified plantation secured
• Final investment decision subject to outcome of basic engineering expected in 2019

Lenzing Group, world market leader in specialty cellulosic fibers and Duratex, the largest producer of industrialized wood panels of the Southern Hemisphere, announce that they agreed on the terms and conditions to form a joint venture to investigate building the largest single line dissolving wood pulp (DWP) plant in the state of Minas Gerais, close to Sao Paulo, Brazil. This decision supports the backward integration and the growth in specialty fibers, defined in Lenzing’s corporate strategy sCore TEN.

The joint venture will investigate the construction of a 450,000 t DWP plant, which is expected to become the largest and most competitive single line DWP plant in the world. Dissolving wood pulp is the key raw material for the production of Lenzing’s bio-based fibers. For the future operation, the two companies have secured a plantation of 43,000 hectares that will provide the FSC® certified biomass. The plantation is fully in line with Lenzing’s wood and pulp sourcing policy. The basic engineering and the application for required permits and merger clearances will now be started.

Lenzing will hold 51 percent of the joint venture which will operate the mill, while Duratex’s share will be 49 percent. The estimated cash investment by the joint venture for the construction of the DWP mill is expected to be somewhat above USD 1 bn (based on current FX rates, net of generic tax refunds and the outcome of the basic engineering study). The joint venture will supply the entire volume of dissolving wood pulp to the Lenzing Group. This step is an essential milestone in the group’s ambition to grow its specialty fibers business.

“Specialty cellulosic fibers are an important contribution to make the global textile industry more sustainable. In line with our corporate strategy sCore TEN we are committed to strong organic growth in this field. We are pleased that with Duratex, a recognized leader in sustainable forestry management, we have a strong partner in this joint venture. Together we will create a very sustainable and competitive raw material base for Lenzing’s global expansion plans”, says Stefan Doboczky, Chief Executive Officer of Lenzing Group.

“Projects of this nature are the result of our strategic plan and of our team’s effort towards drawing Duratex’s future. The Company is known for its financial solidity, high quality, innovation and sustainability; the results of a history spanning over six decades. The partnership with Lenzing for the construction of the largest single line dissolving wood pulp plant in the world is an honor for Duratex. Working with Lenzing, a global benchmark in technology, high quality and corporate governance makes us very proud. We are sure that this joint venture is going to be successful”, affirms Duratex’s Chief Executive Officer Antonio Joaquim de Oliveira.

The final investment decision to build the dissolving wood pulp plant is subject to the outcome of the basic engineering studies and the approval by the respective supervisory boards.

• Clean Green Certified Companies Commemorate Earth Day 2018

U.S. Clean Green certified laundries are marking Earth Day 2018 (April 22) by commending the 250,000+ businesses across the nation that use such certified operations for linen, uniform and facility services.

Selecting a Clean Green certified company reflects concern for maximizing sustainability in a business supply chain. Private- and public-sector organizations who choose such a provider are learning that how their reusable textiles are supplied, laundered and maintained is a factor in their environmental impact.
Clean Green operations use a third party (TRSA) to verify their conservation practices and quantify their compliance with water and energy use thresholds.

Laundered, reusable linens, uniforms, towels, mats and other products provided by the linen, uniform and facility services industry to enhance businesses’ image and provide clean, safe environments for their employees and patrons. Most Americans benefit from the industry at least once per week, either at work or by patronizing restaurants, healthcare facilities, hotels and other retail and service establishments.

Nearly 50 of the industry’s companies are Clean Green certified, serving business customers from more than 150 locations combined nationwide. These launderers work with customers to connect the certification to their efforts to minimize their carbon footprint. Certified operators report to TRSA that customers and prospects ask them about green laundry initiatives. These include environmentally friendly wash chemistry, water reuse and recycling, recapturing heat from hot water headed down the drain and operating efficient delivery routes.

“They are far more likely to inquire about the sum of environmentally friendly practices as opposed to the parts,” observes TRSA President and CEO Joseph Ricci of the industry’s customers. Many document their justification of purchase decisions, though, such as government agencies that profile the winners of contract bids. “Clean Green companies bidding for their work mention the certification in their sales promotion and these profiles reflect it.”

Linen and uniform services conserve water and energy best by using high-capacity, high-efficiency equipment, he pointed out, controlling expenses and thereby aiding efforts to keep service pricing under control. “It is the perfect sustainable business model. Business interests and environmental concerns align. Improving efficiencies reduces costs and reduces the impact on the environment,” Ricci says.

Based on the U.S. Census of the industry’s sales and a TRSA survey of member financial data, the association estimates that nearly 3 million businesses use the industry’s services. Clean Green companies are challenged to capture more of these industry customers. Their collective Earth Day 2018 campaign gives them an opportunity to highlight the extent to which their individual efficiencies have contributed to a nationwide movement. Publicizing their own gains around Earth Day can better qualify and quantify their environmental virtues to encourage detailed comparison with competitors’ efficiencies, Ricci noted.

• Visit Archroma at China Interdye 2018, Booth A100, April 11-13, 2018, at the ShanghaiWorld Expo Exhibition & Convention Center, Shanghai, China

Archroma, a global leader in color and specialty chemicals, will present at China Interdye 2018 its latest technologies, under the motto: “Enhanced solutions for color and performance, it's our nature”.
With a heritage of more than 130 years, Archroma provides solutions that combine performance, safety and low impact on resources. The company can draw on its extensive formulation and technical know-how to offer a constant flow of eco-advanced and innovative new in dyestuff and pigments, as well as process and functional chemicals.
Solution packages for innovation

Visitors at Archroma’s Booth A100. will be able to ‘experience’ Archroma's innovative solutions, in particular:

• EarthColors, traceable from nature to fashion
  The EarthColors patented range of “biosynthetic” dyes for cotton and cellulose-based fabrics, which are made from waste left over by the agricultural and herbal industry after extraction, such as almond shells, saw palmetto, or rosemary leaves. The latest NFC technology used on the end-product hangtags enables transparency and traceability through the supply chain to consumers.
  The EarthColors have been adopted by brands such as Patagonia, Kathmandu and G-Star, and won an OutDoor Industry Award 2017.
   
• Color Atlas, a game-changing system for fashion design
  The Color Atlas by Archroma® is a groundbreaking platform specially devised to address the needs of designers, brands, retailers, and manufacturers, enhancing creative possibilities for the industry as well as manageability and time to market through key complementary tools: The six-volume ‘Color Atlas Library’ with 4,320 color swatches and cotton poplin samples, the ‘Color Atlas Compact’ in two volumes for increased portability, and the ‘Color Atlas Online’ allowing to capture an inspiring image using a smartphone and immediately identify the closest Color Atlas shade palette, with the possibility to purchase a color sample instantly.
   
• ‘Zero add-on’ formaldehyde finishing and coloring solutions
  Since January 1, 2016, formaldehyde is classified by ECHA5 as “may cause cancer” (Carc. 1B). Archroma offers a unique proposition combining: Fixapret® Resin WFF, a “zero add-on” formaldehyde anti-wrinkle finishing system and Helizarin® EcoSafe a “zero add-on”4 formaldehyde printing system. With Fixapret® Resin WFF, and Helizarin® EcoSafe, consumers can enjoy end-products that look good, whilst saving on precious resources and being gentler on the skin.
   
• Sanitized® Odoractiv 10, active odor control function for polyester textiles
  Visitors at the booth will be able to experience a new unique dimension of odor control function for functional polyester textiles. The newly developed wash-resistant Sanitized® Odoractiv 10 has a dual-action effect: on the one hand it prevents the bacteria from docking on the textile, and on the other, it adsorbs odors whilst the garment is being worn.

Spotlight on automotive solutions
Having acquired a 75% stake in the M. Dohmen group, a specialist in textile dyes and chemicals for automotive, carpet and apparel, Archroma is now in the position to extend its offer in expert products and services. M. Dohmen will be present at the show at Booth A118.

Solution packages for sustainability
Brand owners and retailers around the world are taking action to evaluate the environmental impact of textile treatment, dyeing and finishing processes in response to consumer concerns.
Archroma recently introduced the ONE WAY Process Simulator, the last update of a calculation tool that supports its ONE WAY Sustainability Service introduced back in 2012. The new, online software can be used to mimic and compare products and processes, and thus calculate the ecological and economical profile of the final end-product.