Despite reaching a record 235,000 tons in fiber sales and implementation of a cost-optimization program, an erosion of selling prices for man-made cellulose fibers and difficult global fiber conditions led Lenzing Group to steep declines in sales and earnings in the first quarter.
Net profits for the quarter ended March 31 fell 63.1 percent to 7.7 million euros, or $10.6 million at current exchange, from 20.9 million euros, or $28.7 million, in the same period a year earlier. Consolidated earnings before interest, tax, depreciation and amortization amounted to 46.3 million euros, or $63.5 million at current exchange, in the first quarter, down 30.2 percent from 66.3 million euros, or $90.9 million, in the previous year.
Sales in the period dropped 9 percent to 451.7 million euros, or $619.3 million, from 496.5 million euros, or $680.7 million.
“Market headwinds remain strong, but we are making every effort to vigorously stand up against these unfavorable conditions with a broad range of countermeasures,” said chief executive officer Peter Untersperger. “Our comprehensive cost-optimization program ‘excelLENZ’ is having a positive impact and already became fully effective in the course of the first quarter of the year. In spite of the latest round of wage and salary increases, personal expenses could be pruned by 9.5 percent in the first three months of the year. Material costs were significantly reduced on the basis of process-optimization steps and efficiency improvements. In the future, we will be more streamlined and in a position to act more quickly and react more effectively to market developments, and thus be positioned as a considerably more cost-optimized company thanks to a large number of organizational and operational improvements.”
Lenzing has targeted cost savings from the excelLENZ program of 160 million euros, or $219.35 million, from 2013 through 2015.
The Austria-based company succeeded in operating all its fiber production facilities at full capacity, achieving a new quarterly record sales volume of 235,000 tons in the first three months of 2014, a 9 percent rise from the prior-year quarter. However, average fiber selling prices equaled 1.56 euros per kilogram in the quarter, almost 12 percent lower than the comparable level of 1.77 euros per kilogram, the company said.
Lenzing said its strategy initiated in the previous year featuring a greater focus on specialty fibers proved to be successful. In the first quarter, Lenzing generated strong sales for its specialty fiber Modal, along with an ongoing attractive price premium compared with standard viscose fibers. A stable price premium at the same level as in 2013 was also achieved for Tencel.
As scheduled, the “jumbo” production facility for Tencel at the Lenzing site entered its final construction phase at the end of the quarter. Trial runs in the fiber production process were carried out and the first Tencel fibers were shipped.
The company said no fundamental change in the current situation on the man-made cellulose fiber market is expected in the upcoming months of 2014. The historically high cotton inventories in China and the unclear Chinese cotton policy have led to considerable uncertainties on the fiber market, Lenzing noted. For these reasons, a reduction and further weakening of global viscose fiber selling prices is anticipated. It is likely to take several quarters until the existing surplus production capacities for viscose fibers are reduced by growing volume demand, it said.