Lenzing Ag Ord

Ladies and gentlemen, welcome to the presentation of Lenzing's results of the first nine months of 2024. Before we begin, I would just like to introduce myself. My name is Rohit Agarwal, and I'm the new CEO of Lenzing since 1st of September. I'm a strategic business economist and global manager with several decades of experience in leading positions in textile, nonwovens, the chemical industry, and I've held positions in Europe, America, and Asia. Thanks to my broad experience, I'm quite well versed with Lensing's core business in all its facets, both in terms of content and geography. I'm very excited about the start. I've had some impressions that have been extremely positive. I had the opportunity to already meet many of Lensing's employees, and I've been impressed with the quality of people at Lensing. In these first weeks at Lensing, I also met with a great number of customers and partners across textiles and nonwoven industries. What struck me was the loyalty that Lensing enjoys with customers across the globe. Coming from outside, I knew about Lensing's excellent standing in the industry. Talking to our customers clearly confirmed this. Lensing is being very much appreciated and seen as a pioneer in the industry. I'm therefore convinced that there are still many opportunities out there that can be tapped as Lensing has a unique position in the industry. With today's presentation of the first nine months of this year, I'm also starting the dialogue with you all, which I'm very much looking forward to. With me today is Nico Reiner, our CFO, whom you are quite familiar with. Let's start with an overview of the key developments. Revenue increased by 5% to reach 647 million euros in the third quarter and almost 2 billion euros for the first nine months. We still had little support from the market side, as genetic markets have not really recovered, and especially the prices for genetic fibers continue to remain on relatively low levels. However, we see further increasing positive impacts from our holistic performance program on the top line, which is reflected in the revenue increase. EBITDA significantly increased by 20% and reached 99 million euros in the third quarter, and €264 million in the first nine months. The increase in EBITDA adjusted is even higher, as adjusted EBITDA increased by 80% in the first nine months compared to the same period in 2023. EBITDA margins continue to increase and were at 15% in third quarter and 13% in first nine months. The positive development of EBITDA is supported by the steadily improving progress of the performance program on cost excellence, where we are well ahead of plan. Free cash flow was at 50 million euros in third quarter, and thereby positive for fifth time in a row, leading to a further decrease of our net financial debt. Overall, our performance continues to show positive developments, despite the lack of market recovery. More needs to come, and will come. Ladies and gentlemen, let's look at the developments of our markets. According to preliminary calculations, in the third quarter, global apparel retail sales were slightly below both the same period last year and the previous quarter. Chinese consumers, in particular, were reluctant to buy clothing, especially high-priced clothing, in a challenging economic environment. In Europe, demand for autumn and winter goods increased slightly towards the end of the quarter. In contrast, in the U.S., the beginning of a slowdown in the labor market and the end of uncertainty before the presidential elections initially resulted in a slight decline in consumer spending. Looking at nonwovens, we see a much more stable consumer demand, especially for hygiene products in developed markets. Coming to pricing, prices remained under pressure. Cotton prices fell to a level last seen in December 2020, and the Chinese price of polyester-stable fiber fell by 7% over the course of a quarter. The market for viscose in China was characterized by good demand, high-capacity utilization of factories across the industry, and inventory levels that were well below the long-term average. The market price for viscose in China increased slightly in July and again in early September and was 2% higher at the end of the third quarter than the beginning of the quarter, but still on low levels. Please be aware that we are talking here about generic market prices in China, not Lensing fiber prices, which are mainly traded at a premium as we have further increased our share of specialty fibers. The price premium for fibers for Tencel, Lensing, EcoVero, and VeoCell brands proved to be comparatively resilient. Coming to input cost, we saw energy and chemical cost show mixed picture in third quarter. However, what remains unchanged if you compare those costs of the previous years, most prices are still elevated. Natural gas prices in Europe were almost four times as high in quarter three, 2024, compared to 2020, and coal prices in Indonesia are 65% higher compared to 2020. Price for caustic soda decreased in Europe in the third quarter, but increased in China and Southeast Asia and remained up to 70% higher compared to 2020. Looking at now the performance program, we saw the relevant markets for us still no or little signs of a sustainable recovery, with especially generic fiber prices continuing to remain under pressure, and input costs are still on elevated levels compared to 2020. It is therefore even more important that we took swift action last year and are implementing the holistic performance program. The program initiatives are primarily aimed at generating free cash flow and improving our EBITDA to strengthen sales and margin growth as well as sustainable cost excellence. Its cost consists of three pillars. Profitable top-line growth with full focus on margin improvement, cost excellence in all we do, and free cash flow generation. The overall impact of the program should result in a significant positive free cash flow. Looking at our commercial activities, as previously mentioned, we've had many changes here. We have updated our commercial processes, strengthened our performance culture and commercial teams, upgraded compensation schemes, and introduced new sales management tools, just to name a few. As one of the outcomes, we have identified hundreds of new fiber sales leads in all regions in textiles and nonwovens to strengthen our top line growth and increase our margins. One key element to increase the margins is to shift our product mix towards premium fibers. In quarter three, we successfully increased the share of specialty fibers by 14 percentage points, up to now 94%. Looking at pricing, we strengthened our fiber sales pricing with new customers and markets, and diversified into higher-margin segments. As a result of our performance program, we increased our average fiber sales price in quarter three by 8 percent compared to Q4 2023. The price premium for fibers of Densyl, Lenzing, EcoVero, and Vercel brands proved to be competitively resilient in the same period as generic market prices increased by only 2 percent. Cost savings, in addition to the positive effects of our commercial results, the management board expects annual cost savings of more than Euro 100 million of which over 50% will be affected this year. And to make it very clear, we are talking about a recurring target with an ongoing impact beyond 2025 as well. Very good progress has been made in the area of product cost and quality through intelligent efficiency improvement measures. Successes have also been achieved in purchasing through operational and strategic measures. Looking ahead, the holistic program is expected to continue to improve manufacturing costs and to leverage further cost potential, particularly in the area of overhead functions. At the same time, the structural and process improvements addressed will lead to positive effects on sales and margin generation. The performance program is currently well above plan. We can certainly be satisfied with our success so far, but there are still major improvement areas ahead of us in order to maximize our full potential. From an organizational perspective, we continue to focus on strengthening our global sales. At the same time, we are adapting our corporate organization to the changed market conditions and thereby strengthening the position of the Lensing Group as a leading integrated fiber group. And with this, I would like to hand over to Nico Reiner for an update on financials.

Thank you, Rohit, and a warm welcome from my side as well. As Rohit mentioned, the markets, especially textile markets, did not help us on the demand side. However, the measures taken in our holistic performance program are driving our revenues and margins. Revenue increased by 32 million euros in Q3 compared to Q3 2023. Looking at the first three quarters in total, revenues increased by 5% to close to 2 billion euros. EBITDA increased by 17 million euros in Q3 compared to Q3 2023, and significantly increased by 45 million euros to 264 million euros in the first three quarters. Looking at adjusted figures, EBITDA increased by even 110 million euros in the first three quarters. Tax expenses amounted to 78 million euros in the first three quarters of 2024, after 9.8 million euros in the first three quarters of 2023. This increase was partially due to the withdrawal from the Austrian tax group. As a result, net loss attributable to Lensing shareholders amounted to 135.1 million euros. Let's move to the next slide. Looking now at cash flow, Lensing reduced trade working capital by 110 million euros from the levels in Q3 2023, and it reached 507 million euros. With regards to capex, Lansing continues to put a clear focus on maintenance and license to operate projects as part of its performance program, and CAPEX significantly decreased to 34 million euros. This compares to 63 million euros in Q3 2023. As a result, free cash flow increased by 85% compared to Q3 2023 to 50 million euros. With this, free cash flow has been positive now for five quarters in a row. In the first nine months, total free cash flow increased by 330 million euros to 192 million euros. This development shows clearly a positive impact from the measures defined in our performance program. However, looking at assumptions with regard to the fourth quarter, it needs to be considered that seasonal effects such as the 14th monthly salary as well as interest and taxes will have their impact. Let's move to the balance sheet. On the left side of the slide, we show the development of net financial debt. Net financial debt further decreased by 217 million, or 14%, compared to Q3 2023, and was at 1.4 billion euros at the end of the third quarter. Just as a reminder, Q3 2023 already included the impact of the rights issue. On the right side, you see the development of our liquidity cushion. It increased by 52 million of 5% compared to Q3 2023 and reached over a billion euros at the end of the third quarter 2024, which is a result of our clear focus on free cash flow generation. In September, we announced the successful issuance of a $650 million U.S. dollar green bond by the Brazilian joint venture, LDC. The bond, which matures on January 25, 2032, and carries a coupon of 7.95% per year. This bond met strong demand from institutional investors. Part of LDC's new financing structure with a total volume of $1 billion is also a $350 million syndicated loan. With this, LDC converts the existing project financing which enables the erection of one of the world's largest dissolving wood pulp plants into a standalone corporate finance structure. It is another milestone for the joint venture after having surpassed expectations in respect of its nominal design capacity of 500,000 tons per year. As you know, Lansing has a 51% share of the JV, and is fully consolidating LDC. Based on the maturity of the bond as well as the terms of the loan, the refinancing led to a positive shift of debt maturities. What you see here are the maturities after the refinancing as of October 31st. and not September 30th. Please note that the 500 million euro hybrid bond is not included in the numbers on this slide, as it is treated as equity in our balance sheet. With this, I hand back now to Rohit for the outlook.

Thank you, Nico. I can clearly say that thanks to our performance program, the operational performance in the first three quarters of 2024 was much better compared to the first nine months in 2023. Market visibility remains low, and we cannot predict when a full market recovery will occur. But so far, we assume stable demand in bulk and have a cautious outlook on the generic cyber market development for the remaining of the year. However, we are not relying on tailwinds from the market. we continue to take the future in our own hands. As a result of the performance program, we expect ongoing improvement of our margins, and on the cost side, we expect positive impacts from our cost excellence activities to continue. We therefore clearly confirm our expectation for the EBITDA in 2024 to be higher than in the previous year. With this, I will hand over back to the operator for the Q&A.