Lenzing Ag · VIE:LNZ
Lenzing — H1 2014 Earnings Presentation
59 slides from Lenzing's earnings presentation, Aug 21, 2014
Slide 1: Leading Fiber Innovation
Leading Fiber Innovation LENZING INVESTOR PRESENTATION – HALF YEAR RESULTS 2014 August 21, 2014
Slide 2: Disclaimer
Disclaimer The information contained in this document has not been independently verified and no representation or warranty expressed or implied is made as to, and no reliance should be placed on, the fairness, accuracy, completeness or correctness of this information or opinions contained herein.
Slide 3: H1/2014: Executive summary
H1/2014: Executive summary Volumes on track, continued tough pricing, successful excelLENZ program New record sales volume of 474 k tons (H1/2013: 438.4 k tons) Successful start-up of TENCEL® jumbo line, 30 k tons in H2/2014e Average fiber price down 12.5% to EUR 1.54 per kg (H1/2013: EUR 1.76
Slide 4: Q2/2014: Executive summary
Q2/2014: Executive summary As expected New record sales volume of +7.7% to 239 k tons (Q2/2013: 222 k tons) Continuous decrease of average fiber price to EUR 1.52 per kg (Q2/2013: EUR 1.75 per kg) Sales of EUR 448.3 mn (Q2/2013: EUR 493.31 mn) EBITDA EUR 45.6 mn (Q2/2013: 95.72 mn), 10.2% ma
Slide 5: Q2/2014: Drop in cotton prices threatening fiber market
Q2/2014: Drop in cotton prices threatening fiber market Cotton production still higher than demand, stock on record level Cotton prices dropped after longer period of high/stable prices Cotton market1 Average Cotton A Index from 98.9 USct/Ibs (March 2014) mmt2 to 80 USct/Ibs (end of July 2014) 3
Slide 6: Q2/2014: Competitive viscose environment
Q2/2014: Competitive viscose environment No improvement in the second quarter Viscose currently with a ~35% price discount to cotton although viscose processing with 10% higher productivity gain for spinning industry Tough pricing to continue Chinese operate at higher capacity to earn out enou
Slide 7: Q2/2014: Successful start-up of worldwide biggest TENCEL jumbo line
Q2/2014: Successful start-up of worldwide biggest TENCEL® jumbo line First sales volumes already successfully marketed Positive feedback from many customers Technological milestone representing the world’s largest leading generation of TENCEL® technology New TENCEL® technology offers new expan
Slide 8: Q2/2014: Increased TENCEL marketing projects
Q2/2014: Increased TENCEL® marketing projects Core project “Natural Connection”: marketing of 30% TENCEL® in Denim/Jeans, shirting, home textiles (mattresses, bed linen, duvets) Launch of TENCEL® in knitted apparel TENCEL® with reduced flammability in mattresses Big success of facial mask TE
Slide 9: Q2/2014: Weak fiber prices negatively impact sales and earnings in H1
Q2/2014: Weak fiber prices negatively impact sales and earnings in H1 Only continuing operations 1-6/2014 1-6/2013 Change (“like for like“)1 in % Consolidated sales (EUR mn) 900.0 940.0 (4.3) Personnel expenses (EUR mn) 152.9 152.9 - Cost of material and purchased services (EUR mn) 600.2 577.2 4.0 O
Slide 10: Q2/2014: Financials
Q2/2014: Financials Improved cash flows and stable net financial debt Improved cash flows Cash flow from operating activities EUR 60.4 mn (Q2/2013: EUR 48.7 mn) Free cash flow EUR 33.1 mn (Q2/2013: EUR 44.2 mn incl. EUR 61.3 mn cash-in of Plastic’s sale) Net financial debt increase of EUR 11
Slide 11: H1/2014: Financials
H1/2014: Financials Liquid assets EUR EUR 42.8 mn (36.5) mn EUR EUR EUR EUR (28.3) mn 60.4 mn (27.3) mn 296.0 mn EUR EUR (0.1) mn EUR EUR (79.3) mn (2.9) mn 271.0 mn EUR EUR EUR 1.0 mn 1.4 mn 227.2 mn Currency Change Currency Change Liquid assets Operating Investment Financing translation Liquid ass
Slide 12: Increased excelLENZ program
Increased excelLENZ program 1/3 more cost savings than estimated (up to EUR 90 mn in 2014e) Additional cost savings necessary because of decreasing viscose prices ~EUR 60 mn not enough to secure a profitable production especially in Europe Up to EUR 90 mn planned cost savings in 2014 Thereof
Slide 13: excelLENZ: Effects on the timeline
excelLENZ: Effects on the timeline Structural cost savings from 2016 of EUR 160 mn p.a. 2014 2015 2016 (130) (90) (160) (160) pre-drawing (30) (30) from 2015 13
Slide 14: Outlook: Full Year 2014
Outlook: Full Year 2014 Focus on cost savings and specialties marketing No short-term improvement of global fiber market Good volume demand but tough pricing to continue Higher Chinese capacity utilization Cotton production surplus to increase pressure on all fiber prices Increased focus o
Slide 15: Q2/2014 – Financial information
Q2/2014 – Financial information
Slide 16: Q2/2014: Consolidated Group P&L
Q2/2014: Consolidated Group P&L (EUR mn) Q2/2014 Q2/20131 Total sales 448.3 493.3 Inventory change/work in progress 5.9 (9.2) Work performed by the group and capitalized 10.6 14.1 Cost of material and purchased services (298.5) (297.4) Personnel (78.3) (81.4) Other operating expenses/income (42.5) (
Slide 17: Q2/2014: Topline breakdown
Q2/2014: Topline breakdown Affected by low pricing and discontinued operations Change (EUR mn) Q2/2014 Q2/2013 y-o-y (%) Breakdown of fibers segment sales Textile fibers 244.3 270.6 (9.7) Nonwoven fibers 118.3 117.9 0.3 Others1 13.8 13.8 0.0 Total fibers only sales 376.4 402.3 (6.4) Other fibers seg
Slide 18: Q2/2014: Total Opex
Q2/2014: Total Opex Q2/2014 (Total Opex: EUR 429.8 mn) Q2/2013 (Total Opex: EUR 436.4 mn) = Cost of material and purchased services = Personnel expenses = Other operating expenses: QLENZING 18 LEADING FIBER INNOVATION
Slide 19: Q2/2014: Opex breakdown
Q2/2014: Opex breakdown Positive effects from excelLENZ Change (EUR mn) Q2/2014 Q2/20131 y-o-y (%) Total Opex (429.8) (436.4) (1.5) Total costs of material and purchased services (298.5) (297.4) 0.4 - Dissolving wood pulp2 (149.1) (137.7) 8.3 as % of total cost of material and purchased services 50.
Slide 20: Q2/2014: Opex as of total sales
Q2/2014: Opex as of total sales Change (EUR mn) Q2/2014 Q2/20131 y-o-y (%) Total sales 448.3 493.3 (9.1) Total Opex2 (429.8) (436.4) (1.5) Total cost of material and purchased services (298.5) (297.4) 0.4 as % of total sales 66.6 60.3 - Total personnel expenses (78.3) (81.4) (3.8) as % of total sale
Slide 21: Q2/2014: Cash flow by quarter
Q2/2014: Cash flow by quarter Change (EUR mn) Q2/2014 Q2/20131 y-o-y (%) Gross CF (before taxes and interest) 43.9 69.9 (37.2) Taxes and interest (4.6) (16.1) (71.4) Gross CF (after taxes and interest) 39.3 53.8 (27.0) Change in total working capital2 21.1 (5.7) n.m. CF from discontinued operations
Slide 22: H1/2014 – Financial information
H1/2014 – Financial information
Slide 23: H1/2014: Consolidated Group P&L
H1/2014: Consolidated Group P&L (EUR mn) H1/2014 H1/20131 Total sales 900.0 989.9 Inventory change/work in progress 5.9 (15.3) Work performed by the group and capitalized 23.2 29.6 Cost of material and purchased services (600.2) (607.2) Personnel (152.9) (163.9) Other operating expenses/income (84.2
Slide 24: H1/2014: Topline breakdown
H1/2014: Topline breakdown Affected by Nonwoven business (+), low pricing (-), discontinued operations (-) Change (EUR mn) H1/2014 H1/2013 y-o-y (%) Breakdown of fibers segment sales Textile fibers 491.7 541.9 (9.3) Nonwoven fibers 238.2 229.2 3.9 Others1 26.5 26.7 (0.7) Total fibers only sales 756.
Slide 25: H1/2014: Total Opex
H1/2014: Total Opex H1/2014 (Total Opex: EUR 860.4 mn) H1/2013 (Total Opex: EUR 887.3 mn) = Cost of material and purchased services = Personnel expenses = Other operating expenses: QLENZING 25 LEADING FIBER INNOVATION
Slide 26: H1/2014: Opex breakdown
H1/2014: Opex breakdown Positive effects from excelLENZ Change (EUR mn) H1/2014 H1/20131 y-o-y (%) Total Opex (860.4) (887.3) (3.0) Total costs of material and purchased services (600.2) (607.2) (1.2) - Dissolving wood pulp2 (289.9) (272.4) 6.4 as % of total cost of material and purchased services 4
Slide 27: H1/2014: Opex as of total sales
H1/2014: Opex as of total sales Change (EUR mn) H1/2014 H1/20131 y-o-y (%) Total sales 900.0 989.9 (9.1) Total Opex2 (860.4) (887.3) (3.0) Total cost of material and purchased services (600.2) (607.2) (1.2) as % of total sales 66.7 61.3 - Total personnel expenses (152.9) (163.8) (6.7) as % of total
Slide 28: H1/2014: Cash flow
H1/2014: Cash flow Improved cash flows Change (EUR mn) H1/2014 H1/20131 y-o-y (%) Gross CF (before taxes and interest) 86.0 136.0 (36.8) Taxes and interest (13.8) (56.1) (75.4) Gross CF (after taxes and interest) 72.2 79.9 (9.6) Change in total working capital2 31.0 (30.7) (n.m.) CF from discontinue
Slide 29: Appendix – Equity story
Appendix — Equity story QEENZING
Slide 30: Global fiber market at a glance
Global fiber market at a glance 2013 preliminary production numbers Wool Natural Fibers 1.3% & Natural Polymers Cotton 30.2% 85.4 mn tons man-made cellulose fibers Synthetic fibers Viscose/Rayon 61.8% MMC fibers Modal 6.8% TENCEL®/Lyocell Source: CIRFS, The Fiber Year, The Fiber Organon, Lenzi
Slide 31: Lenzing: years of innovation
Lenzing: 75 years of innovation Only producer of three fiber generations – increased share of TENCEL® sales Market Position % of and Market Share Unique Selling Proposition Key End Markets Fiber Sales in 20131 Q2/20142 #1 ...the new age fiber – outstanding sustainability Jeans, bed linen, Environ
Slide 32: Lenzing: Global market leader in VSF
Lenzing: Global market leader in VSF1 (2013e) Lenzing with 20% share of production2 Lenzing with 18% share of capacities3 Lenzing Lenzing 20% 18% Others Others 33% 35% Fulida Fulida 9% 9% 5.16 mn tons 4.43 mn tons Grasim4 Grasim4 Thai Rayon4 8% 8% 2% Thai Rayon4 Sateri Aoyang Aoyang 3% 6% 4% 6% Sate
Slide 33: Lenzing: Only global player
Lenzing: Only global player Sales volume by region1 – strong footprint in Asia RoW Americas 2% 8% Europe incl. Turkey 29% Asia 61% Source: Company information 1) fiber sales by volume in metric tons, H1/2014 33
Slide 34: Textile: Building barriers to entry
Textile: Building barriers to entry Global branded supplier to blue chip customer base Knitting & Dyeing & Spinning Yarn Garment Making Retail Weaving Finishing Fabric Manufacturer Blue Chip Customers – Textiles Push Pull Trusted, long-term partner for global consumer brands Global integrated ma
Slide 35: Nonwoven value chain
Nonwoven value chain Private label Roll-good Lenzing Converter or Retailer Consumer producer brand Direct customers Lenzing contribution Price Price per kg Price per m² Price per packs (wipe count) reference: Blue Chip Customers – Nonwoven Lenzing is very close to the customer due to short value c
Slide 36: Fiber strategy with focus on TENCEL
Fiber strategy with focus on TENCEL® Essential strategic review of site production, market positioning and innovation (till Q1/2015) Strategic measures Strategic direction Priority focus area of Lenzing’s growth strategy Gain market share in applications/regions by Tencel Scale scaling up Textil
Slide 37: Sales and marketing
Sales and marketing Customer concentration Textiles % of sales by customers Nonwoven % of sales by customers (H1/2014) (H1/2014) 70,0% 70,0% 59.6% 60,0% 60,0% 50,0% 44.7% 50,0% 40.1% 40,0% 40,0% 31.3% 30,0% 26.2% 30,0% 16.5% 20,0% 20,0% 10,0% 10,0% 0,0% 0,0% Top 5 Top 10 Top 20 Top 5 Top 10 Top
Slide 38: Lenzing is the innovation leader
Lenzing is the innovation leader Industry leading R&D spend (EUR 31.11 mn in 2013) R&D expenses (2000-2013) Intellectual property As of December 2013, Lenzing owned 35 3,5 approx. 1,400 patent applications and 30 3 patents in 63 countries belonging to 25 2,5 248 patent families All significant p
Slide 39: Innovation process adapted to new functional organization
Innovation process adapted to new functional organization Idea Feasibility Review New innovation Development Launch process „PRO² CCO CEO Central R&D Business Product Process New R&D Development Development Development organization Lenzing Lenzing Apparel Home Hygiene Technical TENCEL® Pulp Co-Produ
Slide 40: Lenzing has cost advantages
Lenzing has cost advantages Through pulp integration and long-term pulp supply contract Pulp is the main input factor with 50% share of total costs of material and purchased services 90+% of long-term pulp supply secured through own production (vertical integration) and long-term supply contract
Slide 41: Our production sites
Our production sites Lenzing AG – PT. South Pacific Viscose – Biocel Paskov a.s. – Austria (Fiber and pulp) Indonesia (Viscose) Czech Republic (Pulp) Grimsby – Heiligenkreuz – Mobile – Lenzing (Nanjing) Fibers Great Britain (TENCEL®) Austria (TENCEL®) USA (TENCEL®) Co. Ltd. – China (Viscose) 41
Slide 42: Capacity expansion to 2014
Capacity expansion to 20141 ~ 1 mn tons Successful start-up of TENCEL® plant (07/2014) Europe2 China CAGR 6.1% CAGR 22.1% 444 350 355 357 373 172 90 103 105 105 178 178 140 160 75 103 103 107 110 80 185 149 149 161 162 2010 2011 2012 2013 2014e 2010 2011 2012 2013 2014e USA CAGR 5.7% 40 50 50 50 40
Slide 43: Capacities by site and year
Capacities by site and year Result of significant investments over the past years Planned Capacity – Capacity – Capacity – capacity – YE 2011 YE 2012 YE 20131 YE 2014 Plant location (metric tons) (metric tons) (metric tons) (metric tons) Lenzing / Austria 252,000 252,000 268,000 339,000 Lenzing Visc
Slide 44: Capacity by site 2014
Capacity by site 2014 Capacity per Capacity per Capacity per Capacity per (metric tons) March 31, 2014 June 30, 2014 September 30, 2014 December 31, 2014 Lenzing 268,000 335,000 337,000 339,000 Indonesia 320,000 320,000 320,000 320,000 Nanjing 178,000 178,000 178,000 178,000 Heiligenkreuz 65,000 65,
Slide 45: Where our fibers end up
Where our fibers end up NORDSTROM Ge fol, SAD ACTA, Dactivuc zobha’ Lilies NEIL BOMTETI ans Splandith uy Grshan ke Spener QE + REVOLVE alo (Aepmcov’ TRUE RELIGION’ patagonia RALPH LAUREN seopeop Q GATHLETA bdia@mingdales SUNDRY ella moss) SOLOW CAP Neiman Mancu we toa e@°oe@ Y/OSEMITE € Jot JAMES PE
Slide 46: Where our fibers end up
Where our fibers end up Ladies’ wear – close to skin 100% TENCEL® 100% TENCEL® Jacket: 35% TENCEL® / 18% Ramie / 47% Organic cotton, Jumpsuit: 100% TENCEL® 46
Slide 47: Where our fibers end up
Where our fibers end up Ladies’ wear – close to skin Asymmetric Hem Dress 100% TENCEL® 65% TENCEL® / 35% Cotton EUR 29.95 100% TENCEL® 47
Slide 48: Where our fibers end up
Where our fibers end up Ladies’ wear – close to skin 100% TENCEL® T-shirt Dri-Fit Sprint Crew EUR 10.71 USD 90.00 43% Lenzing Modal® / 57% Cotton 53% TENCEL® / 39% Polyester / 8% Spandex 48
Slide 49: Where our fibers end up
Where our fibers end up Nonwoven applications Wipes Sustainable convenience Medical Naturally pure Hygiene Safety in sensitive areas Technical Leading fiber innovation 49
Slide 50: Our growth opportunity: Cellulose Gap
Our growth opportunity: Cellulose Gap MMC: Strong fiber demand through three megatrends Input factor Megatrends Input factor Supply trend Cellulosic fibers Population Arable land 1. Growth Cotton CAGR*) ‘11 – ’20: Water 1.1%1 Fiber Prosperity Consumption Man-made Cellulose 2. CAGR*) ‘112 – ’20
Slide 51: Cellulose Gap
Cellulose Gap Limited potential to increase cotton supply increases demand for MMC fibers Cotton planted area expected to remain Structural limitations in cotton production: within historical narrow band (1960-2014e) effects from yield expansion leveling out Million hectares Million metric tones 45
Slide 52: Cellulose Gap
Cellulose Gap 9% p.a. forecast for MMC over current decade The demand gap of cellulosic fibers opening due to limited cotton supply can best be filled by MMC fibers as substitute Fiber market growth by type of fiber (1960-2020e) % CAGR Million metric tons 2000 2005 2010 2011 2012 2013e 2015e 2020e
Slide 53: Mega-trend: Sustainability
Mega-trend: Sustainability Green footprint of MMC: Significantly more environmentally friendly than cotton More than 50% of Lenzing’s fuel consumption sourced from renewable resources Lenzing Group environmental impact of production relative to cotton only approx. 5.7% Required acreage for produ
Slide 54: Lenzing share information
Lenzing share information ISIN LNZ / AT0000644505 Oberbank AG Bloomberg LNZ:AV 5.0% Reuters LNZNF.PK ATX Prime, ATX Global Players, Indices VÖNIX Sustainability Index Number of shares 26,550,000 mn Share price June 30, 2014 EUR 47,11 Free float 27.4% Market capitalization 1,250.8 mn June 30, 2014 B&
Slide 55: Back-up
Back-up
Slide 56: Stock-to-use-ratio (%)
Fiber market environment Highest stock-to-use-ratio ever at approx. 88.4% (2013/2014) World cotton production of 26.13 mn tons, consumption of 23.29 mn tons and ending stocks of 20.60 mn tons Massive increase of Chinese national cotton reserve of estimated 11.97 mmt1 tons (>58% of world inventor
Slide 57: Viscose spot prices China with a discount to cotton prices since March 2013
Viscose spot prices China with a discount to cotton prices since March 2013 VSF spot China and cotton price development (in USct/Ibs) Q1/2012 Q2/2012 Q3/2012 Q4/2012 Q1/2013 Q2/2013 Q3/2013 Q4/2013 Q1/2014 Q2/2014 1 1) Cotton Future calculated on the basis of the most liquid next future compared wit
Slide 58: Lenzing Viscose textile prices compared to cotton price development
Lenzing Viscose® textile prices compared to cotton price development VSF-price lower than cotton price after end of reporting period1 EUR/kg 19.1% -33.0% 8.3% 3.5% 17.0% 17.6% 28.7% 5.4% -20.6% 16.4% 5.3% -24.6% -2.17% 15.1% 21.5% 16.8% 15.2% -4.5% -3.3% -7.0% -8.0% -10.1% 1) historically, standard
Slide 59: Contacts and financial calendar
Contacts and financial calendar Investor Relations contact Financial calendar Financial calendar 2014 Stephanie Kniep Full year results March 21, 2014 Head of Investor Relations 70th Annual General Meeting April 28, 2014 Phone: +43 7672 701 4032 Results 1st quarter May 15, 2014 Half year resul