Lenzing AG, the global leader in sustainable fibers, has reported a 6% increase in revenue to €658 million during the first quarter of 2024. The company's earnings before interest, taxes, depreciation, and amortization (EBITDA) also saw a significant rise to €71 million. Although the net result was a loss of €32 million, it marked a substantial improvement from the €80 million loss in the same period the previous year.
The improvement in financial performance is attributed to Lenzing's comprehensive performance program, which is expected to continue driving gains in the upcoming quarters. Despite the current market stagnation in textile apparel, Lenzing's sustainable fiber sales, especially the ECOVERO brand, have experienced strong growth.
Key Takeaways
- Lenzing's revenue increased by 6% to €658 million in Q1 2024.
- EBITDA rose significantly to €71 million, while net loss improved to minus €32 million.
- Free cash flow was positive at €87 million, contributing to a reduction in net financial debt.
- The company's holistic performance program is credited for the positive financial results.
- Strong growth in sustainable fiber sales, particularly Lenzing ECOVERO.
- Lenzing expects continued improvements and a higher EBITDA in 2024 compared to 2023.
Company Outlook
- Lenzing confirms its expectation for higher EBITDA in 2024 relative to the previous year.
- The company's performance program is set to drive further improvements in subsequent quarters.
- Lenzing is focused on generating free cash flow, improving EBITDA, and increasing resilience through its performance program.
- A stable demand for pulp is anticipated, with a cautious outlook on the generic fiber market for 2024.
Bearish Highlights
- The market for textile apparel has shown little positive development, with global demand remaining slightly negative.
- Viscous prices are under pressure, and cotton prices have seen volatility, rallying in February but subsequently decreasing.
Bullish Highlights
- Dissolving pulp prices have increased due to tight supply and favorable demand.
- Costs for energy and chemicals have decreased from the previous quarter, though still higher than 2020 levels.
- Lenzing has identified over 500 new fiber sales leads and is working on operational improvements and cost reductions.
Misses
- Net result still in the negative at minus €32 million, albeit an improvement from the previous year.
Q&A Highlights
- Lenzing is optimistic about improved operational results in the second, third, and fourth quarters of 2024.
- The company will provide a further update on August 7th with its half-year results.
- Lenzing's Thailand plant operates with regular shutdown periods, which are factored into the company's operational strategy.
- The demand outlook for dissolved wood pulp is expected to remain stable.
Lenzing (LZAGY), through its effective performance program, has managed to navigate a challenging market environment to deliver improved financial results in the first quarter of 2024. The company's strategic focus on sustainable fiber sales, cost efficiency, and inventory optimization has paid off, with significant growth in its ECOVERO brand and a positive free cash flow. Lenzing's ongoing initiatives and a robust performance culture suggest a promising outlook for the remainder of the year, despite the current lack of recovery in the global textile market.
Full transcript - None (LNZNF) Q1 2024:
Operator: Ladies and gentlemen, welcome to the Lenzing Analyst Call. I'm [indiscernible] the Chorus Call operator. I would like to remind you that all participants will be in a listen-only mode, and the conference is being recorded. The presentation will be followed by a question-and-answer session. [Operator Instructions] At this time, it's my pleasure to hand over to Stephan Sielaff, CEO. Please go ahead, sir.
Stephan Sielaff: Thanks a lot, operator. Ladies and gentlemen, a very warm welcome to the presentation of Lenzing's results for the first quarter 2024. With me today is Nico Reiner, our CFO. Let's go through our agenda for today. We will start, as you know, from former calls with the executive summary, followed by a market update. Nico Reiner will guide you through the financials afterwards, and I will share an update on our holistic performance program as well as the outlook. We will end, as always, with a Q&A. Let's start with an overview of the key developments. To sum it up, the market recovery is still lacking. But we, as Lenzing, see continued and increasing positive impact from our holistic performance program, both on top line and bottom line. In a nutshell, the market doesn't help, so we have taken our fate into our own hands by executing the performance program. The generic market relevance for us still shows little signs of recovery and especially prices continue to remain under pressure. On a positive note, we see a good start of our performance program in 2024 with further increase in fiber sales volumes and cost savings ahead of plan. The program had a strong start. And Walter Bickel joined us a couple of weeks ago to further advance and accelerate it, which will allow Nico Reiner, Christian Skilich and myself to focus more on the core tasks, particularly on sales growth, operations and strategic direction. Let's look now at our financial results, which I clearly consider showing positive developments. Revenue increased by 6% versus quarter 1, 2023 to €658 million. EBITDA significantly increased by €42 million compared to €30 million in Q1, 2023 to €71 million. Net result reached minus €32 million, which compares to minus €80 million in quarter 1, 2023. On a truly positive note, free cash flow was at plus €87 million or more than €200 million higher compared to the first quarter 2023. It was for the third time in a row that a quarter has shown positive free cash flow, leading to a further decrease of our net financial debt. So overall, our financials did clearly beat our initial assumptions for quarter 1 despite the lack of market recovery. Looking at the outlook. We continue to have a laser focus on exploiting the full potential of the performance program and further drive both top and bottom line. Q1 2024 delivered better than expected for us even though we have a cautious outlook on the generic fiber market development, we see for ourselves a good and healthy order book in the beginning of quarter 2 of this year. With regards to pricing, we expect ourselves to increase-- sorry, average prices driven by performance programs and our specialization strategy. All in all, we are well on track with the performance program and also with our strengthened order book, we expect to further improve our operational results in Q2, in Q3 and Q4 compared to Q1, 2024. With Q1 in our books and our positive view on the next quarters, we therefore, clearly confirm our expectation for EBITDA for 2024 to be higher than in the previous year. Previous year, to be precise. Ladies and gentlemen, let's have together a look at our markets. Our supply markets of key ingredients and energy and the markets of our customers on the example of textile apparel. As mentioned, we saw no or very little positive development from a market perspective. Let's start with the development of apparel retail sales in quarter 1, 2024. And as you know, the textile apparel market is very important to us. According to our preliminary estimates, global demand for apparel remained slightly negative in the first quarter, minus 1%. Whilst China came out slightly positive, reflecting overall muted local demand, Europe saw a decrease of minus 4%, likely partially based on challenging macro conditions as well as overall soft consumer sentiment. That was compensated on a global level by a positive development in the U.S., which, as you might remember, saw small decline overall in 2023. These are overall textile market development. We will look at our own figures in a bit, but I can already say that we saw much more positive development for our sustainable fiber. Let's look at the prices. And let's look at viscous, cotton and dissolving pulp prices. And please be aware, we are looking here at generic market prices in China, not Lenzing fiber prices, which are mainly traded at a premium. Viscous prices stepped up in the middle of the quarter due to good demand directly after Chinese New Year holidays. But then started to soften again and ended the quarter only a little higher than in Q4, 2023. Looking at the levels in Q1, 2023 or even further back, current levels are lower and generic viscose prices, therefore, continue to remain under pressure. International cotton prices rallied in February. We see this development rather pushed by speculation than based on market fundamentals. Since then, prices came down towards previous levels. Dissolving pulp prices increased throughout the first quarter supported by both tight supply and favorable demand from stable downstream operations. Let's look at Energy & Chemicals. Energy & Chemicals costs came mainly down in the first quarter compared to the fourth quarter of 2023. However, if you compare those costs to the previous years, most prices are still elevated. Natural gas prices in Europe were still almost 3x as high in quarter 1, 2024 compared to 2020. And coal prices in China were still higher by 57% and in Indonesia by 78% compared to 2020. Prices for caustic soda remained stable in Europe in the first quarter and decreased slightly in China. Prices in Southeast Asia, however, continued to increase in the first quarter 2024. Compared to 2020, those market prices were still 28% to 63% higher in quarter 1, 2024. So, to sum it up, we saw still no sustainable recovery on the fiber market side with especially prices remaining under pressure and input costs, but energy and chemicals are still on elevated levels compared to 2020. And with this, I hand over now to Nico Reiner for an update on financials.
Nico Reiner: Thank you, Stephan, and a warm welcome from my side as well. Let's start with the development of our fiber sales volume. As Stephan mentioned, the market did not help us on the demand side. However, the measures taken in our holistic program is driving sales volumes. They increased by 24% in Q1 2024 compared to the first quarter of 2023. We saw a clear outperformance of our sustainable fibers. I would like to especially highlight the development of our Lenzing ECOVERO fiber sales. They increased by more than 50% since Q1 2023. Let's look at our revenues. They increased in the fourth quarter compared to the same period last year by 6% to €658 million. The revenue from the fiber division increased by 8.5% to €502 million, while pulp revenues decreased by 2.5% to €155 million. To remind you, the level of pulp revenues also depends on the share of pulp we use for our own production and the share that we sell externally. Pulp revenues accounted for 24% of our revenue. EBITDA significantly increased by €42 million to €71 million. This figure includes positive impact from the valuation of biological assets of €7 million, which is less than the previous quarters. We show here also the development of our EBITDA, excluding the positive impact from biological asset valuation and the sale of CO2 certificates where you see steadily improving numbers reaching €64 million in Q1, 2024. Let's move to the next slide. Looking at EBIT. It reached positive €1.5 million with depreciation and amortization being at slightly below €70 million. To remind you, the strongly negative EBIT in Q4, 2023 was heavily affected by the impairment of €465 million, with the impairment, EBIT would have been at minus €1 million. Financial result was at minus €19 million in Q1, 2024 and income taxes were at €9 million. As a result, for net profit after minorities and hybrid bond, we reported still a net loss of €32 million in Q1 2024, which compares to minus €80 million in Q1, 2023. This is an improvement of €49 million, but our ambition, of course, is to become positive here as well. Let's move to the next slide. Looking now at cash flow. Lenzing further increased its operating cash flow to €121 million, which compares to minus €48 million in Q1, 2023. With regards to CapEx, Lenzing is putting a clear focus on maintenance and license to operate projects as part of its performance program and CapEx significantly decreased to €33 million. This compares to €85 million in Q1, 2023. As a result, free cash flow increased by €220 million compared to Q1, 2023 to €87 million. Free cash flow has steadily improved and has been positive now for 3 quarters in a row. This development shows clearly a positive impact from the measures defined in our performance program. Trade working capital continued to decrease in the first quarter and was down a solid €115 million from the peak levels in Q1, 2023. Let's move to the balance sheet. On the left side of the slide, we show the development of net financial debt. Net financial debt significantly decreased by €438 million or 23% compared to Q1, 2023 and was below €1.5 billion at the end of the first quarter. On the right side, you see the development of our liquidity cushion. It increased by €406 million or 63% compared to Q1 2023 and reached a solid €1.05 billion at the end of the first quarter 2024, which is a result of our clear focus on free cash flow generation. I hand back now to Stephan, who will share an update on Lenzing's holistic performance program.
Stephan Sielaff: Thanks a lot, Nico. Let's share a little bit of insight about our performance program after we stressed its importance. As mentioned, the relevant market for us still show no or little signs of sustainable recovery with especially prices continuing to remain under pressure. Therefore, it is even more important that we took swift action last year and are executing the holistic performance program with the overarching goal to significantly increase long-term resilience in crisis and greater agility in the face of market changes and market challenges. The program initiatives are primarily aimed at generating free cash flow and improving EBITDA through strengthened sales and margin growth as well as sustainable cost excellence. As you can see on the slide, it contains our 3 pillars: profitable top line growth with defined sales initiatives, cost excellence in everything we do and free cash flow generation. The overall impact of the program should result in a significant positive free cash flow. Now let's look a little bit more in detail what this program really consists of. And here, you can see some examples of the program. More than 500 new fiber sales leads have been identified in all regions in textiles and nonwoven to strengthen our top line growth. As an example, in lyocell, we have new developments for curtains and upholstery at European brands. To become more cost efficient, we are making significant operational improvements and are further strengthening our process expertise. To reduce our process costs around 375 initiatives have been identified and are in execution already. One example here, we are above plan to significantly reduce heavy oil fuels consumption in Brazil with a potential to save up to €5 million on an annualized basis. We will continue to optimize our direct spending, including spending on raw materials, other production materials, energy and wood as well as our indirect spending. With around 200 initiatives in direct and indirect spend, I would just highlight one example, the comprehensive logistics tender led to price reductions for logistics across our networks. In addition, we are streamlining our overhead structure and reducing global personnel costs by eliminating up to 500 full-time positions. This is achieved by not filling positions that become vacant due to retirements and natural fluctuations and by reducing staff. We are already well advanced in implementing those reductions. To increase the free cash flow generation even further, around 80 initiative buckets have been defined and inventories, for example, have been released by more than €130 million since the start of the project in 2023. As you can see, with these selected examples mentioned, the scope of the initiative is very wide. There are today more than 500 new leads and over 600 initiatives, and it is driven by everyone in Lenzing. So in a nutshell, we are using close to 8,000 brains to drive the efficiency of our company. Let's look a little bit more in detail in our top line approach. In order to drive sales growth, we have set up a global program with around 150 employees involved in all locations and functions. As a key measure, we have set up a new sales approach, introduced a sales funnel for direct customers, for example, spinners, which we call the push and the indirect customers like brands and retailers who qualify our product in their products and that we call pull. We also especially strengthen ourselves in new markets and also with new customers. There is a strong focus on strengthening our performance culture. This also includes an upgrade in structure, leadership and personnel levels. We did so by strengthening the textile management team by hiring additional frontline employees in key markets such as Turkey and China, and we drove this cultural change by installing new leadership in two of our 3 regions. Thanks to this significant upgrading, we now really have a very good mix of collectives and hunters in sales. And we upgraded our compensation scheme with a state-of-the-art individual sales incentive system, plus digital tools serve as support, for example, sales cockpits and sales funnels are in real time with a connection on mobile telephones and tablet of our sales force. When it comes to prices, we have completely redefined the pricing process for all products and regions and optimize the product mix to increase our margins. The preliminary results since the start of the program and as of March, we have already defined over 337 new leads in the push area and over 177 new leads in the pull area. And the good news for us, the leads are increasing day-by-day. Let's take now a closer look at the cost excellence pillar of the performance program. Overall, we are aiming for a cost reduction of at least €100 million from 2025, and we expect to achieve at least 50% of this in 2024 already. And as you can see, we are ahead of our plan with regards to the savings. However, important to note, the full impact of our savings is not yet fully reflected in the P&L of Q1 as some of the savings go through the net working capital before finally hitting the P&L. What we show here in the green bar on the right-hand side is only what is already included in the P&L. Our actuals are among others, also driven by accelerated ramp-up of the program. We can rightly be satisfied with our success so far. And that is important to note is there are still major improvements ahead of us in order to maximize our full potential. Ladies and gentlemen, the performance program is of crucial importance for Lenzing. It serves to deal with the current crisis. In addition, we must be able to make our company fit again for the future. The clear goal is profitable growth. That's why strengthening the Board here is important and right. The Chief Transformation Officer has been appointed on a temporary basis. Together with the existing Board, we can leverage the already identified and new potentials even more quickly. With Walter Bickel, we are able to gain a very competent and experienced manager. This frees up Niko Reiner, Christian Skilich and myself for our core tasks, particularly sales growth, operations improvement and giving the right strategic direction. Let's turn to the outlook. Let us begin the outlook with looking at what players in the value chains have communicated this year so far. You see here some quotes from brands active in the textile sector with a focus on what they expect from this year and as an indicator about expected upcoming market demand development. Adidas (OTC:ADDYY) stated that they built solid growth for this year and are more optimistic about 2025 and beyond than the results for this year. Columbia Sportswear (NASDAQ:COLM) also sees the current environment as challenging and expect growth to come back at a later stage in the year. And Levi Strauss (NYSE:LEVI) feels improvement on the consumer side supported by evidence with also positive wholesale pro-book orders in second half of this year. To sum it up, apparel brands remain cautious for at least the first half of this year, but more optimistic for the longer term. But let's switch now to us and our own expectations for the quarters to come. I can clearly say that we started 2024 better than originally expected. That is a good basis. We cannot predict when and to what extent a full market recovery will occur. However, it will come. So it is up to us what we made out of the upcoming quarters. And one thing is certain. We are not relying on tailwinds from the market. We take swift action. We assume stable demand in pulp and have a cautious outlook on the generic fiber market development in 2024. We continue to have a laser focus on exploiting the full potential of the performance program and to further drive our operational results. As a result, we expect further improvement of our top line, which is also reflected in a good and healthy order book in the beginning of Q2. With regards to pricing, we expect ourselves to increase average prices compared to Q1, driven by our performance program and our specialization strategy. On the cost side, we expect increasing positive impact in the course of the year with the full potential clearly not included in the Q1 figures yet. Ladies and gentlemen, Q1 was already better than expected at the start of the year despite a weak market, and we definitely see further upside on our operational results in Q2, in Q3 and Q4 of 2024 compared to Q1, 2024. We, therefore, clearly confirm our expectation for the EBITDA in 2024 to be higher than in the previous year. And how do we increase now further our performance of the company? Very simple through 3 directions. We will master the crisis through cost excellence. We strengthened the core by improving the quality of our margins, and we will be shaping the future further by increasing our innovation leadership. As a result, we will emerge stronger from the crisis and will be fit for the future. I would like to thank you on behalf of the Board for your attention, and we are looking forward to your questions. With this, I will hand over back to the operator for the Q&A.
Operator: [Operator Instructions]. And the first question comes from Christian Faitz from Kepler Cheuvreux.
Christian Faitz: Yes. 2 questions, if I may. First of all, the spread between lyocell and standard viscose is relatively small at present. When would you expect this to change for the better, obviously? And then second, the Thailand Lyocell plant is in its second year of operation now. When do you expect the first larger maintenance shutdown, if necessary?
Unidentified Company Representative : Thank you for the question. First question with regard to the spread between lyocell and viscose price, I assume this is market prices. So when do we expect that to change? I would hand it over to Stephan Sielaff.
Stephan Sielaff: Thanks a lot for the question. So I think, first of all, there is nothing like the lyocell price. Even in the lyocell segment, we have specialty products, which has indeed quite a spread versus viscose. And there are what we call our TENCEL Lyocell classic. And here, the price development depends for sure, also on a stronger demand from the upside market as well as our efforts on branding our products and driving the specialty strategy further.
Nico Reiner: And I take immediately your second question. The Thailand plant is in normal operation and it has, as any of our plants a normal regular schedule for shutdown. And we did also a shutdown in '23, and we will do again in every year, a shutdown, the shutdown period varies between the years depending on the program we have to do as an overall.
Operator: And the next question comes from Sean from Chronux Research.
Sean Ungerer: The first question is just around dissolving wood pulp dynamics. I think in your outlook statement, you sort of flagged a stable demand outlook. I think it would be useful if you could perhaps provide a little bit more color on-- I don't know how you sort of see the dynamics in the next sort of 3 to 6 months, bringing in the supply side? That's my first question.
Stephan Sielaff: Yes. As you can see, our pulp, which we produce is mainly our own consumption on the external market. If you look at the market there, we forecast a pretty stable development of the demand in the dissolved wood pulp market.
Sean Ungerer: Okay. That's great. And then just on the energy front. Obviously, you calling out as quite a significant headwind in [indiscernible]. Could you just remind us your level of backward in energy integration? And then just sort of linked to that, sort of what percentage of cash cost energy perhaps was during the quarter?
Sean Ungerer: Let me take the first part of the question, which is the backward integration. And here it depends on the site. And you have seen that maybe in former publications in our Lenzing site. So our headquarter and largest site here, we have a backward integration, which is well above 90%, and we have added to our energy mix, photovoltaic, et cetera. But we have other plants where we are in a kind of a chemical plant set up. So we are getting energy from local sources. In terms of giving details on energy cost per site, we don't do that.
Sean Ungerer: That's fine. Just going back to the energy integration, so at a group level, roughly what is that as a percentage of total?
Nico Reiner: Yes, I got your question. To give you a number, I would have to come back to you. As I said, we have various levels on the various sites and Sebastien Knus will come back to you with an correct numbers.
Operator: So it seems that there are no further questions at this time. So I would like to turn the conference back over to Stephan Sielaff for any closing remarks.
Stephan Sielaff: Yes. Thank you, operator. Thanks a lot, ladies and gentlemen, for joining the call and giving attention to Lenzing. To sum it up, the market recovery is still lacking. But we, at Lenzing saw continued and increasing positive impact from our holistic performance program, both on top line and bottom line in the first quarter. Therefore, Q1 was already better than expected despite a weak market, and we definitely see further upside on the operational results in Q2, Q3 and Q4 compared to Q1, 2024. So stay tuned. We will give you the next update on the 7th of August with our half-year results. With that, I close the call. Thanks a lot for your attention.
Operator: Ladies and gentlemen, the conference is now over. Thank you for choosing Chorus Call, and thank you for participating in the conference. You may now disconnect your lines. Goodbye.
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