Stefan Doboczky wants to bring Lenzing out of the Austrian woods and onto the global playing field.
Given the cellulosic fiber giant’s recent performance and actions, the chief executive officer, who just finished his first year on the job, seems to be on the right path.
“When I joined Lenzing, and what attracted me to the company, was that its wood-based cellulosic fibers had a position that was either number one or two in the market,” Doboczky said in an interview from the firm’s scenic headquarters in Lenzing, Austria.
When he looked at the $2 billion company, he saw a strong technology portfolio and history of innovation.
“It was also a European company that early on had successfully branched out into Asia,” said Doboczky, who had spent extensive time there. “The culture of Lenzing is that we have traditionally been an Austrian company, from the Upper Austria region, with international offerings. We’ve been working on internationalizing the management and converting the company into an international company with Austrian roots. That is not something that is done overnight, but we now have a very international management team — nine managers with six different nationalities from six continents.”
Before joining Lenzing, the ceo lived in China for 10 years, in Beijing, and Singapore.
“One of the things you recognize living there is that if you’re not close to the pulse in your decisions, it becomes very difficult to feel the speed and to understand the consumer requirements — not only intellectually, but emotionally,” Doboczky said. “One of the things we’ve now changed is to move decision power to the region — we have an Indian national heading Lenzing for Europe and America, a head of global manufacturing based in Grimsby, England, in our U.K. facility.”
Besides Austria, Lenzing has manufacturing facilities in Mobile, Ala.; the Czech Republic, Indonesia and China.
“We will continue to expand and build our manufacturing footprints in all the regions over time,” he said. “Very often, manufacturing is linked to product development, as well.”
This month, Lenzing said it was investing $112 million toward expanding its production capacity for specialty fibers. The focus for the expansion is at the company’s manufacturing facilities in Heiligenkreuz and Lenzing, Austria.
The major part of investments will be carried out this year and next. The Lenzing Group will utilize its in-house engineering competence, supported by local construction companies and suppliers for these projects.
Lenzing said its investment in Heiligenkreuz will create 25 jobs. Lenzing AG decided to start its investment program for specialty fibers at its existing sites in Austria and the U.K., as it allows fast capacity ramp-up.
As part of its group strategy sCore Ten, Lenzing set the target of increasing the share of specialty fibers as a proportion of its total revenue to 50 percent by 2020. Specialty fibers account for 41.7 percent of revenue.
“Over the last 14 months, what we worked on as a management team was three major pillars,” Doboczky said. “The first was clarifying the strategy. First we said we will never be the supermass volume producer and cheapest in the world. Our focus needs to be on creating value for our customers by focusing on special products and as a consequence we put a special focus on innovation, on brand-building and on quality.”
Last month, Lenzing struck a deal with Inditex in which it will manufacture premium textile raw materials from textile waste generated by Inditex.
The Spanish company will provide Lenzing with around 500 tons of textile waste for recycling into new materials and hopes to raise this to around 3,000 tons within a few years.
“There is a lot of cotton waste out there and we have developed a process to create Tencel fiber from it,” Doboczky said. “We will have cotton waste as part of our cellulose mix and make a virgin Tencel fiber out of it from pre-consumer waste. Inditex will then use it as a recyclable collection.”
Noting that Tencel has the most ecological footprint of all the cellulosic fibers, and that cotton has problems with high water usage, this combination will benefit both fibers — cotton’s moisture management and comfort, with Tencel’s durability and luxurious quality.
He noted that manufacturing wood-based cellulosic fibers compared to cotton requires 20 times less water and significantly less land.
“But the consumer will only be convinced about the concept if the quality of the end product continues to be very high,” he added.
As for the bottom line, the ceo said, “We have benefited financially and after one year, I would say it’s been a very positive ride. The company has been growing organically, in the fiber business in double digits, and our profitability has done very well.”
Consolidated earnings, or earnings before interest, taxes, depreciation and amortization, rose 54.7 percent to 92.2 million euros, or $105.2 million, in the first quarter ended March 31. Earnings before interest and taxes 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 to 512.8 million euros, or $585.1 million, compared to the first quarter.
In 2015, EBITDA improved 20.7 percent to 290.1 million euros, or $324.2 million. Revenue rose 6 percent to 1.98 billion euros or $2.2 billion for the year, with a fiber volume of 965,000 tons.
Sustainability and environmental concerns have long been at the forefront for Lenzing, and that is only increasing.
“The way we conduct our business, we’re in an Alpine environment sourcing a lot of the trees in close vicinity from here and all the trees are certified,” he said, referring to certification from the Forest Stewardship Council.
“That’s important not only for ourselves, but for our partners in the value chain to have a level of comfort that, yes, it is a wood-based fiber, but the wood is coming from a very sustainable and long-term strategy. Then when we produce the fiber at the site, we find ways to use all the elements of the wood and don’t throw anything away. We create bioenergy and we make other biochemicals from it. Everything that comes in in some way goes out as a value-added product. It’s our closed-loop, integrated approach. That way, we bring this as an attribute, we help the brands make a story out of it and the consumer attaches an emotional value to it.”
Last year, Lenzing was listed in the VBV Austrian Sustainability Index for the 10th straight year. The annual index analyzes Austrian companies on the basis of about 100 environmental and social criteria.
Of Lenzing’s specialty fibers, viscose is the largest in volume, has many iterations and is more price- and supply-and-demand driven.
“Overall, we feel viscose is a very important product, but it will not be a major growth driver,” Doboczky said. “The major growth drivers will be Tencel and modal. Modal is a premium fiber where its softness and moisture absorption capabilities make it a rather unique product, particularly in innerwear. It’s a product that sees continued growth, particularly in innerwear.”
The biggest growth potential comes from Tencel.
“It’s a unique product from its physical capabilities, from the way it’s used downstream, from its tenacity, great absorption and softness,” he said. “It’s not competing with viscose, it’s not a better viscose. We see it as a product in its own right.”
A key growth segment for Tencel is the denim market.
“Denim for us is a very important area,” he noted, praising the way producers have used it in the women’s and men’s markets.
While a fiber maker is in the early stages of the supply chain, Doboczky said, “If we don’t help the brands to communicate the intrinsic value proposition of our fibers to the consumers, then we will lose out in the long run. It’s also important to work with yarn and fabric makers to help them use the fibers at their best.”
Key brands for Lenzing are Levi’s, Level 99, AG Jeans Adriano Goldschmied and Inditex. The Lenzing Pavilion at Texworld USA typically includes more than a dozen mills that use its fibers, including many U.S. yarn spinners and knitters.
“We are the market leader in the space and we work with all the major retailers and brands,” he said.
David Roshan, president of Laguna Fabrics, said, “I call the U.S. team my rock-star team. They’re amazing people to deal with. They do a great job of pulling the whole supply chain together, from technical support to marketing to educating the consumer.”
Roshan said Lenzing fibers Tence and modal work well for the Los Angeles-based vertical knitter “from a sustainability and eco-friendly point of view,” adding “It’s an easy sell for us because it’s a wonderful product.”
Doboczky said, “The challenges we face at the moment — given that there are a lot of opportunities out there to grow the business — are to be very disciplined in execution, make sure there are no compromises in safety and quality, continue to innovate and build brands and communicate with our customers. We are as much or as little effected by some of the macroeconomic situations as others. In an industry that intrinsically is growing, we try to not be too concerned about issues like Brexit, or whether China is growing at 6 percent or at 7 percent.”
He added, “In the end, there’s a good fundamental growth story for our product. World fiber consumption continues to go up, the world population is growing, and we should do this with fewer resources rather than more. Water plays a very important role, arable land plays a very important role and we believe we have a very important role.”