The Lenzing Group generated a substantial increase in first-quarter earnings, turning in what it said Thursday was the best results for the three-month period since 2012, while reporting solid revenues, as well.
The Austria-based fiber producer credited its new group strategy sCore TEN that targets growing markets, efficiencies and cost-improvement measures for the strong operating performance.
At the same time, Lenzing launched Carved in Blue, a blog that delves into the inner workings and innovations of the denim industry, as specialty fibers become a stronger focus.
Consolidated earnings before interest, tax, depreciation and amortization rose 54.7 percent to 92.2 million euros, or $105.2 million at current exchange. This corresponds to an EBITDA margin of 18 percent, up from 12.6 percent in the previous year’s first quarter. Earnings before interest and tax of the Lenzing Group more than doubled to 59.5 million euros, or $67.9 million.
Consolidated revenue rose 8.1 percent in the quarter ended March 31 to 512.8 million euros, or $585.1, compared to the first quarter of 2015. Lenzing said the increase was mainly attributable to the strong demand for Lenzing fibers and higher fiber-selling prices.
EBIT margin climbed to 11.6 percent from the 5.7 percent of the prior-year quarter. Net profit for the period and earnings per share increased almost threefold to 44.1 million euros, or $50.3 million, from 16.6 million euros, or $18.9 million, and to 1.63 euros, or $1.86 a share, from 0.66 euros, or 75 cents a share.
Lenzing also achieved close to a threefold improvement in its cash-flow position. The free cash flow was up to 88.4 million euros, or $100.86 million, from 26.5 million euros, or $30.23 million, whereas operating cash flow rose to 104.3 million euros, or $119 million, from 37.6 million euros, or $42.9 million.
“We are proud that we have got off to a very good start in the year 2016,” said Stefan Doboczky, chief executive officer of Lenzing AG. “The new group strategy sCore TEN, with its clear focus on profitable growth is taking hold. We are implementing the strategy very disciplined, which is having a noticeable effect on earnings already. Initial progress has also been made in managing our trading working capital. Assuming that the overall business environment remains unchanged, I continue to expect a substantial improvement in earnings for the entire financial year 2016.”
A new organizational structure was introduced effective March 1 to ensure the optimal implementation of sCore TEN. Three regional, performance-responsible business units were created to more intensively focus on the fiber business in their respective regions — Europe & Americas; North Asia, including China, Japan, South Korea, Taiwan and Vietnam, and AMEA, which is the rest of Asia, the Middle East and Africa.
These regional business units are complemented by the new global Pulp & Wood business area. This new organizational structure gives the regions greater management responsibility and further increases customer proximity, Lenzing said.
Lenzing also plans to expand its production capacities for specialty fibers. Various existing and new sites around the world are currently being examined to add new capacities. Initial decisions are to be made in the third quarter of 2016.
Lenzing said the macroeconomic situation around the globe is expected to remain volatile. In the global fiber markets, high cotton inventories and the ongoing low oil prices continue to put downward pressure on cotton and polyester selling prices. However, a balance between supply and demand should prevail in the market segment of wood-based cellulose fibers.
In particular, Lenzing expects a strong increase in demand for its specialty fibers. Assuming unchanged conditions on the fiber market and currency exchange rates, Lenzing feels confident to confirm a substantial improvement in earnings for the entire financial year 2016 compared to 2015.
Tricia Carey, Lenzing’s director of global business development for denim, said as a leader in wood-based cellulose fibers, the company has long been a pioneer in sustainability, and now, with environmental responsibility at the forefront of consumer consciousness and denim’s popularity back in full force, the company thought it was a perfect time to launch Carved in Blue.
From creative coverage on mills that make some of the world’s most-wanted denim to key insights from brands bringing novel denim made with Tencel and Lenzing modal to the market, Carved in Blue will serve as a prime platform to share the stories of those whose roots run deep with denim.
“We have been telling our denim stories for years and recently observed an increasing development of Tencel and Lenzing Modal in the denim market,” said Carey. “It has been amazing to reminisce on the early days of Tencel and our evolution in denim fashion trends and core collections. We built Carved in Blue to have a digital platform to tell our tales and those of our customers while capturing the vigor our fibers bring to the denim market.”
Demand for man-made cellulose fibers is expected to increase 5 to 6 percent year on year to 2020 — nearly twice as fast as the global fiber market — and Lenzing wants to meet that demand in the most sustainable way. Lenzing’s branded fibers, Tencel and modal, made from the renewable raw material of wood pulp, are being used in denim more as brands look to not only improve the comfort and feel of their jeans, but leave a smaller footprint on the environment.
Adding Carved in Blue to its portfolio is the latest endeavor in Lenzing’s broader business aims of increasing its share of revenue generated by eco-friendly specialty fibers to 50 percent by 2020 and getting closer to its customers.
“The future vision of Carved in Blue is that it will grow with the denim market and inspire new ideas as we continue to build our blue history,” Carey said. “Our fibers are woven into the global denim tales that Carved in Blue will tell.”