From the Sector

OCSiAl, a leader in graphene nanotube technologies, has been granted a construction permit for a nanotube production facility near Belgrade, Serbia. The new nanotube synthesis plant will be launched in 2024 and will have an initial annual capacity of 60 tonnes of graphene nanotubes. Over the next two years, the capacity of this plant will be increased to 120 tonnes per year. “The project will facilitate logistics and lower supply chain costs. European-produced nanotubes and nanotube derivatives will be primarily supplied to our customers in central and western Europe, North America, and Asia,” said OCSiAl Group Senior Vice President Gregory Gurevich.
 
In addition to synthesizing nanotubes, the facility will manufacture nanotube suspensions for lithium-ion battery manufacturers in Europe, the US, and Asia – enough to enhance the performance of more than 1 mln electric cars with an average battery capacity of 75 kWh per car. OCSiAl nanotubes create long and robust electrical networks between active material particles, improving key battery characteristics, including cycle life, lower DCR, C-rate performance, and cohesion between active battery material particles, making the battery electrodes more durable. Graphene nanotubes unlock new battery technologies, including high-silicon content anodes, thick LFP cathodes, fast-charging graphite anodes, and more. They can be applied in both conventional and emerging battery tech, such as a dry battery electrode coating process, and solid-state batteries.
 
As well as synthesizing nanotubes and producing suspensions, OCSiAl project includes manufacturing of nanotube concentrates for high-performance polymers. The project has passed environmental impact assessment and it is 100% powered by green energy. It enjoys support from Serbian municipal and national governments. The plant is planned to be certified in accordance with ISO 9001, ISO 14001, and ISO 45001, and to be compliant with the IATF 16949 automotive industry standard. The project will create more than 200 job opportunities for engineers, scientists, managers, operators, and administrative staff.
 
Currently, OCSiAl has an extensive manufacturing system of nanotube-based products in the regions of highest market demand, such as China, Japan, Sri Lanka, Brazil, Malaysia, and other countries. The Serbia nanotube hub will operate in conjunction with the company’s operational R&D center and planned graphene nanotube synthesis facility in Luxembourg.

• Currency-neutral revenues flat versus the prior-year level
• Top-line development reflects improved sell-out trends and conservative sell-in strategy
• Gross margin up 0.6pp to 50.9%; strong improvement compared to Q1 reflecting better sell-through and less discounting
• Operating profit of € 176 million includes extraordinary expenses of around € 160 million related to one-off costs, donations and accruals for future donations
• Inventory position improves substantially versus Q1 level to € 5.5 billion; now up only 1% year-over-year

In the second quarter of 2023, currency-neutral revenues were flat versus the prior-year level. The top-line development continued to be impacted by the company’s conservative sell-in approach in order to reduce high inventory levels, particularly in North America and Greater China. At the same time, adidas second quarter revenues benefited from the first sale of some of its Yeezy inventory. The initial product drop in June generated revenues of around € 400 million in Q2, which is largely in line with the Yeezy sales generated in the prior year’s quarter.

Footwear revenues grew 1% during the quarter, reflecting strong growth in football, basketball, tennis and US sports. Apparel sales declined 3% in the second quarter. As the apparel market continues to be particularly overstocked, the company continued its conservative sell-in strategy to improve sell-through and margins in the medium term. Accessories grew 8% during the quarter driven by growth in football.  

Lifestyle revenues were down during the quarter despite extraordinary demand for the company’s Samba, Gazelle and Campus franchises. While adidas slowly started to scale its offering for these product families during the second quarter, the total volume still only represents a small portion of the company’s overall business. Sales in the adidas Performance categories continued to show positive momentum. This reflects strong demand for new product introductions such as the latest iterations of its Predator, X and Copa football boots, as well as jerseys for both the FIFA Women’s World Cup 2023 and the company’s unique portfolio of football teams ahead of the start of the European club season. In addition, the Adizero product family in running continued to gain a lot of attention around marathon races across the world, translating into higher demand. At the same time, the brand’s Barricade tennis franchise grew strongly, leveraging the excitement around major tournaments.

In euro terms, the company’s revenues declined 5% to € 5.343 billion in the second quarter (2022: € 5.596 billion).

Stronger sell-out trends and conservative sell-in
As a result of the company’s initiatives to reduce high inventory levels, currency-neutral sales in wholesale declined 10% despite double-digit growth in Greater China and Latin America. At the same time, direct-to-consumer (DTC) revenues grew 16% versus the prior year. This development was driven by strong growth in both the company’s e-commerce business (+14%) as well as own retail stores (+19%), reflecting continued strong sell-out trends across most regions. The outperformance of the company’s DTC channel versus the wholesale business was also related to the first sale of the Yeezy inventory, which was done exclusively through adidas’ own e-commerce channel.

Double-digit growth in Greater China and Latin America
Currency-neutral sales in North America declined 16% during the quarter. The region is particularly affected by elevated inventory levels in the market and – in response to this – the company’s significantly reduced sell-in. Revenues in Greater China grew 16% in Q2, reflecting double-digit sell-out growth in both wholesale and own retail. Sales in EMEA were down slightly (-1%) despite double-digit DTC growth. While the company’s initiatives to reduce inventory levels and discounting weighed on the overall top-line development in the region, adidas recorded significantly improving full-price trends during the quarter. Revenues in Asia-Pacific increased 7% during the quarter, driven by strong double-digit growth in DTC. Latin America continued to increase at a double-digit rate (+30%), reflecting strong growth in both wholesale and DTC.

Gross margin improves to 50.9%
The company’s second quarter gross margin increased 0.6 percentage points to 50.9% (2022: 50.3%). This improvement was mainly driven by price increases the company has implemented as well as by an improved channel mix. At the same time, higher supply chain costs and unfavorable currency movements continued to strongly weigh on the gross margin development. While still adversely impacting the company’s gross margin in the quarter, discounting levels significantly improved compared to the first quarter of the year.  

Operating profit of € 176 million, resulting in an operating margin of 3.3%
Other operating expenses were up 3% to € 2.582 billion (2022: € 2.501 billion). As a percentage of sales, other operating expenses increased 3.6 percentage points to 48.3% (2022: 44.7%). Marketing and point-of-sale expenses decreased 7% to € 617 million (2022: € 663 million). As a percentage of sales, marketing and point-of-sale expenses slightly decreased by 0.3 percentage points to 11.5% (2022: 11.8%). Operating overhead expenses were up 7% to € 1.965 billion (2022: € 1.838 billion), reflecting higher logistics expenses. In addition, the company recorded one-off costs of around € 50 million related to the strategic review the company is currently conducting as well as donations and accruals for further donations in an amount of around € 110 million. As a percentage of sales, operating overhead expenses increased 3.9 percentage points to 36.8% (2022: 32.8%). The company’s operating profit amounted to € 176 million (2022: € 392 million) in the quarter. This amount includes the extraordinary expenses of in total around € 160 million reflecting the one-off costs related to the strategic review as well as the donations and accruals for further donations. The sale of the Yeezy product positively impacted adidas’ operating profit by an incremental amount of around € 150 million in Q2. The operating margin reached 3.3% in the quarter (2022: 7.0%).

Net income from continuing operations of € 96 million
After taxes, the company’s net income from continuing operations amounted to € 96 million (2022: € 360 million), while basic EPS from continuing operations decreased to € 0.48 (2022: € 1.88).

Outlook

adidas expects revenues to decline at a mid-single-digit rate
On July 24, adidas had adjusted its full year financial guidance to reflect the positive impact of the first sale of some of its Yeezy inventory and a slightly better-than-expected development of the adidas business in the first half of the year. At the same time, macroeconomic challenges and geopolitical tensions persist. Elevated recession risks in North America and Europe as well as uncertainty around the recovery in Greater China continue to exist. In addition, the company’s revenue development will continue to be impacted by the initiatives to significantly reduce high inventory levels. As a result, adidas now expects currency-neutral revenues to decline at a mid-single-digit rate in 2023 (previously: decline at a high-single-digit rate).

Underlying operating profit anticipated to be around the break-even level
The company’s underlying operating profit – excluding any one-offs related to Yeezy and the ongoing strategic review – is still anticipated to be around the break-even level. Including the positive impact from the first Yeezy drop of around € 150 million, the potential write-off of the remaining Yeezy inventory of now € 400 million (previously: € 500 million) and one-off costs related to the strategic review of up to € 200 million (unchanged), the company now expects to report an operating loss of € 450 million in 2023 (previously: loss of € 700 million).

On August 2, the company launched a second drop of Yeezy inventory. Throughout the month of August, adidas is making a range of existing products available through both its own e-commerce channel as well as the digital platforms of selected wholesale partners. If successful, this second drop would further improve the company’s results. However, as the results of this drop are yet unknown, it is not accounted for in the company’s current top- and bottom-line outlook for 2023.

Freudenberg Performance Materials (Freudenberg), a global supplier of high-performance technical textiles has begun operating a new 3D entangled mat production line in Changzhou (China). It enables Freudenberg to supply customers in the APAC region with Enka®Solutions made in China for building, industrial and civil engineering applications. Freudenberg now is also able to serve customers in diverse technical markets with finished and semi-finished products.

This investment in China will significantly increase Enka®Solutions production capacity and will play a fundamental role in the development of Enka business with customers in the APAC region. Freudenberg inaugurated the new line in Changzhou at an opening ceremony on July 13th.

The new production line in Changzhou complements the manufacturing operations in Obernburg (Germany) and Asheville (North Carolina, USA). With a global manufacturing presence on the three different continents Europe, Asia and America, Freudenberg can now serve markets locally and deliver Enka®Solutions products faster and efficiently. This will not only help to better meet customer needs, but also reducing the company's environmental footprint by increasing local production.

After nearly 30 years with the company, Matthew North, Commercial Director at the viscose specialty fibre manufacturer Kelheim Fibres, will retire on July 1, 2023. Throughout his long and successful career, he has played a significant role in transforming Kelheim Fibres from a supplier of standard fibres to the European textile industry into a supplier of predominantly customized specialty fibres for the hygiene, specialty paper, and textile industries.

Mark von der Becke will assume the position of Sales Director and become part of the management team at Kelheim Fibres. The 48-year-old brings extensive experience in sales, marketing, and key account management. He has held various leadership positions in renowned companies such as Hoechst, Clariant, and DS Smith in Germany, Switzerland, and China. He is known for successfully developing and implementing strategy and change programs.

Dr. Marina Crnoja-Cosic, who has been serving as Director of New Business Development and a member of the management team at Kelheim Fibres since 2020, will take on the responsibility for marketing and communications. She will now drive the further development of the marketing strategy and communication with customers and partners.

Freudenberg Performance Materials Apparel (Freudenberg) announces the 37xx PES Series – a range of interlinings that offer the classic feel of cotton combined with the modern features of enhanced durability, increased yields, and low-temperature fusing. With a 100% PES base and special finish, these OEKO-TEX® STANDARD 100 Class I certified products open new possibilities for the business and smart casual segments.

Crafted from a 100% PES base with a special finish, these new interlinings boast enhanced durability and better resilience and recovery over traditional cotton interlinings. The 37xx PES Series interlinings offer the added advantages of no visible impurities or foreign fibers, along with low temperature fusing, reducing the risk of yellowing in the finished product. Compared with cotton interlinings, the 37xx PES Series also offers increased yields of up to 150 cm in width and are more cost effective than traditional cotton interlinings, allowing for easier and more efficient manufacturing.

Apart from the material qualities, the 37xx PES Series offers unmatched consumer safety. Produced at its Nantong, China factory, Freudenberg ensures optimal quality control of the 37xx Series. Furthermore, the interlinings are OEKO-TEX® STANDARD 100 Class I certified, making them safe for even the most sensitive skin types, including for babies.

The 37xx PES Series currently includes the 3738 and 3755 products, offered in 115 g/m2 and 165 g/m2 weights, respectively. These can be fused with other fabrics and interlinings to create the precise hand feel for garments.

• 1Q23 Performance Summary
• Revenue of US$4B, an increase of 3% QoQ and a decline of 9% YoY
• Reported EBITDA of US$301M, an increase of 269% QoQ and decrease of 62% YOY
• Operating cash flows of US$201M
• Net Operating Debt to Equity of 1.00x
• Reported EPS of THB 0.14

Indorama Ventures Public Company Limited (IVL), a global sustainable chemical producer, reported improved quarterly earnings as headwinds continue to ease from the previous quarter’s peaks, although still below normalized levels. The company continues to focus on enhancing its global competitiveness as the full benefit of China’s reopening spurs volumes through the year, and as volatile energy costs and the destocking trend by customers begin to normalize.

Indorama Ventures achieved Reported EBITDA of $301 million in 1Q23, an increase of 269% QoQ and a decline of 62% YoY. Sales volumes dropped 8% YoY amid the heavy destocking trend that is impacting the chemical industry globally, although volumes rose 5% QoQ as the pace of destocking begins to slow from the peak in 4Q22. With China reopening from pandemic lockdowns and economic activity increasing, there has been marginal improvement in benchmark spreads, albeit below historical levels. In Europe, the warmer-than-expected winter contributed to lower energy prices and alleviated the cost pressures faced last year.

The Group reported an overall decline in Q1 earnings on a year-on-year basis as continued destocking by customers kept sales volumes below consumer consumption levels. CPET posted Reported EBITDA of $142 million, a 74% decrease YoY as sales volumes dropped 9%. Fibers segment achieved Reported EBITDA of $32 million, a decrease of 69% YoY as all three verticals reported declining sales. Integrated Oxides and Derivatives (IOD) segment posted a 4.4% growth in YoY Reported EBITDA to $128 million as volumes rose 4.4% YoY.

• Revenue grows to EUR 623.1 mn – fiber sales recovered over the course of the quarter
• EBITDA and net result for the period down compared with the first quarter of 2022
• Cost reduction program of more than EUR 70 mn being implemented according to plan
• Production of TENCEL™ brand modal fibers successfully launched in China
• Lenzing confirms guidance for 2023

The business performance of the Lenzing Group during the first quarter of 2023 largely reflected market trends. However, after the market environment had deteriorated significantly in the third and fourth quarters of the previous year, signs of recovery emerged during the first quarter in terms of demand as well as raw material and energy costs. Textile fibers recorded moderate but steadily improving demand. Business with fibers for nonwovens and with dissolving wood pulp performed better than expected. Raw material and energy costs were still at an elevated albeit decreasing level.

Outlook
The war in Ukraine and the more restrictive monetary policy pursued by many central banks in order to combat inflation are expected to continue to influence global economic activity. The IMF warns that risks remain elevated overall and forecasts growth of 2.8 and 3 percent for 2023 and 2024 respectively. The currency environment is expected to remain volatile in the regions relevant to Lenzing.

This market environment continues to weigh on the consumer climate and on sentiment in the industries relevant to Lenzing. However, the outlook has brightened somewhat recently.

Demand picked up tangibly after the Chinese New Year. As a consequence, capacity utilization improved and stocks were further reduced both at viscose producers and at downstream stages of the value chain.

In the trend-setting market for cotton, signs are emerging of a further buildup of stocks in the current 2022/23 crop season. Initial forecasts for 2023/24 anticipate a more balanced relationship between supply and demand.

However, despite signs of recovery in both demand and raw material and energy costs, earnings visibility remains limited overall.

Lenzing is fully on track with the implementation of the reorganization and cost reduction program. These and other measures are aimed at positioning Lenzing in the best possible way for the expected market recovery.

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 “Better Growth” strategy and plans to continue driving growth with specialty fibers as well as its sustainability goals, including the transformation from a linear to a circular economy model.

The successful implementation of the key projects in Thailand and Brazil as well as the investment projects in China and Indonesia will further strengthen Lenzing’s positioning in this respect.

Taking into account the aforementioned factors and assuming a further market recovery in the current financial year, the Lenzing Group continues to expect EBITDA in a range between EUR 320 mn and EUR 420 mn for 2023.

Fibre Extrusion Technology Ltd (FET) of Leeds, UK participated in the “Green Textile and Innovation Technology Forum and Exhibition” in Hong Kong, taking a small booth to support the event and FET’s official agent in the region, Chemtax. This was the first in a series of international exhibitions that FET will be attending in 2023.

The interactive exhibition was organised by the Hong Kong General Chambers of Textiles, with over 20 industrial experts and 300 guests in discussion forums and meetings. The major themes explored were sustainable solutions, new technologies and future trends in green textiles. The region is committed to improved sustainability in textiles, with China in particular setting ambitious targets for high performance fibre self-sufficiency, developments in biodegradable material and increased production capacity in recycled fibre.

This fits perfectly with FET’s ethos, having long been a leading exponent of sustainability in fibre technology. The FET range of laboratory and pilot Melt Spinning extrusion lines is suited for both process and end product development of sustainable materials, enabling customers to undertake process development in-house. All FET systems are designed to be material efficient, can be bespoke designed and offer both flexibility and a high level of processing capability.

SHIMA SEIKI MFG., LTD. of Wakayama, Japan, together with its Hong Kong subsidiary SHIMA SEIKI (HONG KONG) LTD., will participate in the 40th Session of SPINEXPO in Shanghai, China from 12th - 14th April 2023.

At SPINEXPO, SHIMA SEIKI will offer visitors a choice between its "SDS®-ONE APEX4" apparel design system and its "APEXFiz®" subscription-based design software. Whereas SDS®-ONE APEX4 is offered as an all-in-one proprietary hardware + software package, APEXFiz® is subscription-based design software that can be installed on customers' individual computers. Both SDS®-ONE APEX4 and APEXFiz® software support the creative side of fashion from planning and design to colorway evaluation, realistic fabric simulation and 3D virtual sampling. Virtual samples are a digitized version of sample making that are accurate enough to be used effectively as prototypes, replacing physical sampling and consequently reducing time, cost and material that otherwise go to waste. When a design is approved for production, knitting data is automatically generated for converting to machine data, allowing smooth communication for digitally bridging the gap between studio and factory. APEXFiz® thereby helps to realize sustainability while digitally transforming the fashion supply chain.

Also on display at SPINEXPO will be SHIMA SEIKI's "yarnbank®," an online web service for searching and viewing the latest yarns, developed with cooperation from yarn companies from around the world. Registered users can download yarn data for free, for use in fabric simulation and virtual sampling on APEXFiz®, avoiding the need to scan yarn on their own. By using yarn that is used in actual production, designers and apparel companies can furthermore rest assured that the simulations created using yarn from yarnbank® are not merely realistic images but accurate representations using yarn that can actually be purchased and used in production. With yarnbank®, the entire supply chain from yarn companies and apparel companies to knit manufacturers can be connected digitally.

SHIMA SEIKI will also display the latest collection of its knit samples, including WHOLEGARMENT® knitwear that is knit in its entirety on the machine without the need for linking or sewing afterward. Together with virtual sampling performed on APEXFiz®, WHOLEGARMENT® offers smart production for realizing a sustainable fashion supply chain.

Major developments FY 2022

• Currency-neutral revenues up 1% reflecting growth in all markets except Greater China
• Double-digit increases in North America and Latin America, EMEA up high single digits
• Gross margin declines to 47.3% due to strong increase in supply chain costs and discounting  
• Operating profit at € 669 million, including one-off costs of € 312 million
• Operating margin decreases to 3.0%  
• Net income (continuing operations) of € 254 million includes € 350 million one-off costs
• Executive and Supervisory Boards propose dividend of € 0.70 per share

Major developments Q4 2022

• Currency-neutral revenues decline 1% impacted by termination of Yeezy partnership
• Gross margin at 39.1% reflecting increased supply chain costs and higher discounting
• Operating loss of € 724 million
• Net loss from continuing operations of € 482 million

Outlook for 2023
Underlying operating profit expected to be around break-even level
In 2023, adidas expects currency-neutral revenues to decline at a high-single-digit rate as macroeconomic challenges and geopolitical tensions persist. Elevated recession risks in Europe and North America as well as uncertainty around the recovery in Greater China continue to exist. The company’s revenue development will also be impacted by the initiatives to significantly reduce high inventory levels. In addition, while the company continues to review future options for the utilization of its Yeezy inventory, the guidance already reflects the revenue loss of around € 1.2 billion from potentially not selling the existing stock. Accounting for the corresponding negative operating profit impact of around € 500 million, the company’s underlying operating profit is projected to be around the break-even level in 2023.

Reported operating loss of € 700 million projected
Should the company irrevocably decide not to repurpose any of the existing Yeezy product going forward, this would result in the potential write-off of the existing Yeezy inventory and would lower the company’s operating profit by an additional € 500 million this year. In addition, adidas expects one-off costs of up to € 200 million in 2023. These costs are part of a strategic review the company is currently conducting aimed at reigniting profitable growth as of 2024. If all these effects were to materialize, the company expects to report an operating loss of € 700 million in 2023.