Lenzing Ag Ord

Also from our side, a very warm welcome to the presentation of Lansing's 2023 Annual Results. With me today is Nico Reiner, our CFO, and Christian Skillig, our Chief Pulse and Technology Officer. Let's go through our agenda for today. We will start with the executive summary, followed by a market update by Christian Skillig and myself. Nico Reiner will guide you through the financials afterwards, and I will share an update on our holistic performance program, talk about some of the highlights in 2023, as well as the outlook. We will end, as always, with the Q&A. Let's start with an overview of the key developments. The recovery expected for the second half of 2023 in the markets relevant to us has not occurred. Weak demand in the fiber market as well as still elevated raw material and energy costs heavily affected our results. We took swift action in summer 2023 and introduced our holistic performance program. We lead the entire organization on strengthening the top line enhancing our cost excellence and generating free cash flows with a clear objective to increase our resilience. We are very satisfied with the progress of this program so far. It is ahead of plan with the first ultimate impact resulting in free positive cash flow in both Q3 and Q4 2023. Let's now look at our financial results. Revenue in 2023 stagnated at around 2.5 billion in 2023 with a growing share from HALT. The EBITDA increased to 303 million compared to 242 in 22. This led to a net result after minorities and hybrid bonds of Euros 469 million minus, of which a large part is coming from the non-cash impacted impairment of around about 465 million in 2023. As already mentioned, free cash flow in Q3 and Q4 2023 were positive and significantly increased for the full year to minus 103 million euros compared to minus 741 in the year 2022. Looking at our guidance, we expect EBITDA for the 2024 fiscal year to be higher than the previous year. With this, I hand over to Christian Skilly for an update on some of our key costs.

Thank you, Stefan. Good afternoon from my side as well. In 2023, energy and chemical costs came down compared to 2022. However, if you compare those costs to the previous years, prices are still elevated. On the left-hand side, you can see the decline in energy costs. While European natural gas prices were just above 30 euro per megawatt hour in the third quarter, they started to rise again and even exceeded 50 euro per megawatt hour in mid-October, levels last seen in April. Remember that in the first quarter of 2020, the price was below 10 euro per megawatt hour. In the U.S., gas prices started to rise already in the third quarter and continued to increase in quarter four. Also, energy costs in Asia increased in quarter four, as you can see in the chart. On the right-hand side, you can see the price development of caustic soda. Prices normalized further in Europe but increased slightly in Southeast Asia and China in the fourth quarter. Even though prices in all regions significantly decreased in 2023, they are still 30 to 50% above the level seen in early 2020. Let's look now how that impacted our production costs. The share of energy costs in our production costs, including depreciation, increased by 7% compared to 2021. To make numbers comparable, We excluded costs of the new pulp mill in Brazil and as well the new Lyocell plant in Thailand as those sites started operations only in the course of 2022. The increase of chemical costs was even higher, and here we are mainly talking about cost-exhaust, where market prices remain elevated as just seen on the last slide. Costs for chemicals increased by 35% in 2023 compared to 2021. As already mentioned by Stefan, these elevated costs negatively affected our results in 2023. With this, I hand back to Stefan for the developments on the demand side.

Thank you, Christian. So after looking at the cost side, let's look at the revenue side. And let's start with the development of apparel retail sales in the last year. This is an important market for us. as 65% of our fiber sales revenue came from textile fibers in 2023, and the biggest part of that ends up in apparel. For the full year 2023, we saw a slightly positive trend in global apparel retail sales compared to the previous year. These figures are, by the way, adjusted for inflation. According to preliminary estimates, global apparel retail sales in 2023 were plus 4% higher than in the previous year. While sales in U.S. and Europe were largely unchanged in real terms, China made a strong contribution to global sales growth with an increase of plus 12%. When looking at sales in the US, it needs to be considered that 2021 saw a strong increase, so the baseline in 2022 was already higher. The high growth in China was driven by local demand and reflects a reduced prior year level due to COVID-related measures in 2022. What is, in our view, even more relevant than the relatively stable end market demand in 2023 is the development of the inventories. Let us look now at the development of inventories in the U.S. in particular. The green shaded area is the range where inventory levels have been normally in the past. The green line on top shows the clear increase of inventories in the year 2022, and the red line shows the development in 2023. You can see that the inventory level stayed relatively stable through the course of the year and dropped significantly in the fourth quarter of 2023. We hear from brands that reducing inventories was a top priority last year, and many are in a much better position with healthy inventory levels now. In November 2022, inventory levels were 30% higher than the average levels between 2012 and 2019, and they came down to plus 17% in December last year. Holiday promotions have helped to reduce inventories and move towards normalization. In a nutshell, the very low level of apparel sales in the U.S. in 2023 was served through inventory reduction, which explains that the demand for fibers was poor in 2023. As you can read in the quote on the right side, many brands and retailers remain cautious about ordering to avoid being caught in a further overstocking situation again. And here are new slides. On this new slide, we are looking at the inventory levels along the global textile value chain. On the y-axis, we plotted the steps of the value chain, starting with fibers on the top. And on the x-axis, you see the quarterly development on the inventory from 2021 to 2023. The color codes stand for the level of inventories compared to the same quarter of 2019. As you can see, in 2022, brands and retailer inventory increased significantly following high ordering in anticipation of demand recovery and supply chain issues. Note that spinning and fabric mating, garmenting, et cetera, kept inventories low while they increased somewhat on the fiber stage. In the first quarter of 2023, inventory levels at brands and retailers started to decrease as the new orders were placed only cautiously. In quarter four of 2023, inventories fell for the fourth consecutive quarter, approaching pre-COVID levels, also helped by increased promotional activities during the holiday season in November and December. So we might now approach the end of this destocking cycle where brands and retailers are at inventory levels, which at some point require some more active ordering. We expect to see a resulting upcoming amplification of higher demand out of this, of which we already see. some first signs so far in the early weeks of 2024, where fiber sales and volumes are increasing. If we now look, what did that do to our fiber sales volume? As just mentioned, the overall decline in demand for fibers, especially in the textile industry in the second half of 2022, you remember we quoted it as the perfect storm led to a steep decline of fiber sales for Lensing. Since the second half of 2022, fiber sales volumes have continuously increased again and reached around 430,000 tons in the second half of 2023, which is already 20% above the levels of the second half of 2022. Yes, this is still below pre-crisis levels, but we are very positive to further increase our fiber sales volume this year. If I look at the fiber sales volume and order book for the year 2024 so far, I would say that the trajectory is definitely going in the right direction. Now, after having looked at the volume development, now let's look at the prices. Let's look at viscous cotton and dissolving pulp prices, and here we are looking at the market prices in China for generic products. The first thing you will notice on this chart is that the price volatility in 2023 was quite a bit lower than in 2022. Viscous prices remain under pressure after a slight rebound in the first quarter. Looking especially at quarter four 2023, you will notice somewhat higher prices at the beginning of the quarter, driven by higher chemical costs and a seasonally higher demand. During the course of the quarter, prices in the Chinese market declined, again driven by seasonal effects. Cotton prices reached their highest price point for 2023 already in January, based on the high expectation after the Chinese reopening. Since the hopes for a quick recovery of the Chinese demand only materialized partially, prices were declining and relatively flat during the rest of the year. Dissolving pulp prices were also in a relatively narrow bend in 2023. Having bottomed out in August, prices have recovered to some extent and ended the year slightly down at $880 per ton. When you compare viscous and dissolving pulp prices, you will see that the conversion margin was only $77 cents on average in the year 2023, which was relatively low. Years pre-COVID, that margin was at 96 cents. So, generic viscous manufacturers are quite a bit under pressure at these viscous and DWP price levels. Now, these were the generic prices. Now, let us look at the development of Lansing specialty fiber prices compared to commodity viscous. Lensing had more than 75% of its fiber revenues from specialty fibers in the fourth quarter of 2023. Since 2017, Lensing could increase the premium of these specialty fibers compared to commodity fibers until 2019, and it could largely keep this premium at solid level since. Even in challenging market environments, Lansing could successfully defend its premium for specialty fibers compared to the commodity fibers. Also thanks to our partnership with brands and retailers in both textiles and nonwoven through our very strong brand portfolio. And with this, I hand over now to Nico Reiner for an update on the financials for the fiscal year 2023.