Lenzing Ag Ord

Thank you, Carmen. Ladies and gentlemen, welcome to the presentation of Lenzing's results of the first quarter 2025. With me today, as usual, is Nico Reiner, our CFO. Let's start with an overview of the key developments. Revenue and EBITDA continue to improve, also in the first quarter of this year, in a market environment that remains still challenging. Our revenue reached 690 million euros, an increase of 5% compared to the first quarter last year. EBITDA more than doubled compared to the first quarter 2024 and reached 156 million euros with an EBITDA margin increasing from 11 to 23%. Free cash flow was back to positive in the first quarter. However, not on the very high level we have seen in quarter one of 2024. Overall, our performance continues to show very positive developments despite the lack of market recovery. As I said, the markets remain challenging also in the beginning of 2025. Since the inauguration of Donald Trump and his first tariff announcements, market uncertainty has clearly increased However, the direct impact on the first quarter 2025 was still relatively limited, as the measures intensified in the beginning of the second quarter. Let's start with a brief overview on demand, prices, as well as input costs. On the demand side, global apparel markets developed mostly flat, while non-urban markets continue to remain more robust. With regards to market prices, we saw a slight decrease of selected generic fiber prices compared to Q4 2024, especially towards the end of the quarter. On the cost side, energy and caustic soda market prices remained elevated versus pre-crisis levels. Let's look at the relevant markets for lensing, textiles and nonwovens. When adjusted for inflation, global demand for apparel remained almost unchanged, with modest growth in the first quarter versus last year. However, there were slight differences in the regional comparison. While demand in China developed slightly positively, consumer confidence in the U.S. fell sharply over the quarter due to political uncertainty. This development was also reflected in falling US apparel retail sales in February. Demand recovered in March after the US consumers stocked up on apparel given the expected price increases due to the announced tariffs. Overall, US apparel retail sales grew marginally year-over-year in the first quarter. However, in Europe, demand for apparel fell due to increasing consumer uncertainty. Low consumer confidence and reduced spending appetite remains ongoing challenges in 2025. In addition, economic and geopolitical instability, considering the U.S.-China trade war, keeps the uncertainty high. Now, let's turn our attention to nonwovens. Also in nonwovens, tariffs play a major role, but particularly Chinese sellers are looking for alternative outlets for volumes so far going into the U.S. End markets show high resiliency with a relatively stable consumer demand. The trend towards less plastic is ongoing, and the carbon footprint and other sustainability credentials are increasing, becoming a differentiator for nonwoven manufacturers and brands, and driving interest for more sustainable fibers. Moving to looking at the prices. Now, these are fiber prices of the Chinese market, Please keep in mind that prices shown on this slide are generic market prices. Lensing prices are mainly traded at a premium, and the current share of specialities is at over 90%. However, the generic market prices shown here give an indication of the price development in the fiber market. Now, most of the first quarter, the Chinese viscous market performed stable. Chinese plants were running at high operating rates, and inventories remained relatively low. However, the spring peak season that traditionally emerges in March was overshadowed by macroeconomic developments. Demand and prices did not increase as expected. Instead, they started to gradually decline towards the end of the quarter. The price for medium-grade viscose fiber stood then at RMB ton 13,300 which is about 3% below beginning of the year. Now let's look at cotton prices. Cotton prices were already suffering from weak demand before the US-China trade intensified again. The United States is the second largest source of Chinese cotton imports. It is expected that China will source more cotton from other countries, probably Brazil and Australia in the future. The main concern is that a downturn in the global economy could have additional negative impact on demand. The pressure on dissolving pulp prices increased during the first quarter as downstream markets became weaker and paper pulp prices were on a very low level. Suppliers made some price concessions and the dissolving pulp prices came down a bit from the highs of 2024. Moving to input costs, energy and chemical costs are still significantly higher compared to historical levels and cost pressure partially increased compared to the previous quarter. Colder than expected weather and geopolitical developments drove European gas prices even higher while reduced demand weighed on Southeast Asian coal prices. Caustic soda prices slightly reduced in Europe due to weaker demand. but they increased in Asia as companies built up inventories ahead of Lunar New Year holidays. Hence, cost side remains a challenge for fiber markets. As we saw, the relevant markets for us still show 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 with the holistic performance program. The program initiatives are primarily aimed at generating free cash flow and improving EBITDA through strengthened sales and margin growth, as well as sustainable cost excellence. As a reminder, it consists of three pillars. Profitable top-line growth with full focus on margin improvements, 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. Now let's look at a second point of a program, which is cost excellence. In 2024, we already realized our Euro 130 millions in cost savings. Now we do expect cost savings to further increase to an annual cost savings of more than Euro 180 million for this year, and we are clearly well on track to meet this target as well. To make it clear, we are talking about a recurring target with an ongoing impact beyond this year as well. Progress continues to be good 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 performance 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 margins generation. We can certainly be satisfied with our success so far, but there are still improvement areas ahead of us in order to maximize our full potential. And with this, I hand over now to Nico Reiner for an update on financials.

Thank you, Rohit, and also a warm welcome from my side as well. Despite continuously challenging markets, we were able to increase both our revenues and our margins thanks to the measures that we have actively taken. Revenue increased by 32 million euros in the first quarter compared to quarter one in 2024 and reached 690 million euros. EBITDA more than doubled and increased by 85 million euros to 156 million euros. As the number of CO2 certificates helped continue to increase in 2024, we decided to sell some of them in the amount of 25.5 million euros, which positively impacted the EBITDA. Deprivation was at 82 million euros, leading to an EBIT of 74.3 million euros, which compares to 1.5 million euros in Q1 2024. Income taxes amounted to 3.3 million euros compared to 9.2 million euros in Q1 2024 and the financial result was 39.2 million euros compared to 19.2 million euros in Q1 2024. As a result, there was a profit of 4.7 million euros for Lensing shareholders. This is a clear improvement compared to the loss of 32 million euros in Q1 2024 And our target is clearly to continue to improve. Let's move to the next slide. Looking now at cash flow. Trading working capital increased by 16% to Q1 2024. Our objective is to have the right balance. I would say that levels at the end of March were a bit on the high side, and we aim to reduce it. With regards to CAPEX, Lensing continues to put a clear focus on maintenance and license to operate projects as part of its performance program, and CAPEX remained on low levels of 33 million euros in Q1, comparable to the first quarter last year. As a result, free cash flow was positive again at 15 million euros. that was not as high as in the first quarter 2024, partially impacted by one-offs. We clearly continue to have a very clear focus on free cash flow. Let's move to the balance sheet. On the left side of the slide, we show the development of net financial debt. It remained relatively stable at around 1.5 billion euros. On the right side, you see the development of our liquidity cushion. It decreased slightly by 14 million euros and reached 636 million euros at the end of the first quarter. With this, I hand back to you, Rohit.

Thank you, Niko. Let us now move to a topic which is probably keeping every company busy at the moment, which is the U.S. tariffs. While in Q1, the key focus was mainly on the dispute between the U.S. and its neighbors with Mexico, Canada, as well as the 10% and later 20% on all imports from China, we saw limited impact in our Q1 result. However, the actual escalation from reciprocal tariffs followed in early April. With the now ongoing 90-day pause, we have 10% additional import tariffs into the U.S. and 145% additional on Chinese imports imports into the U.S., while China levies 125% of import tariffs on U.S. goods. Now, this has led to both supply and demand shocks, a collapse of China-U.S. trade, and two, an impact of global value chains and supply chains. Now, as a globally active company, those tariffs do have an impact on Lenzen, as they make our imports of raw materials for our U.S. manufacturing site in Mobile Alabama more expensive. And they come with a lot of uncertainty from secondary effects, which today are hard to estimate. Let me just give you one example. U.S. tariffs will make goods more expensive for consumers, which might lead to hesitancy to spend and eventually lower demand volumetrically. All in all, everybody in the industry is scrambling to deal with the situation and plan in scenarios given the high uncertainty. Still, we believe lensing is better positioned than other fiber manufacturers given our global footprint. And needless to say, we are working on a set of mitigation measures which include switching supply routes for input materials such as dissolving pulp and chemicals, and shifting fiber volumes between a production size to optimize for existing and possible tariffs, and really supporting our customers. In general, We maintain very close contact to our customers in regional value chains to handle the situation in the best possible way with our partners. Let's move a little bit and talk about the outlook. I can clearly say that thanks to our performance program, the operational performance in the first quarter of 2025 was solid. We assume stable demand in bulk and have a cautious outlook on the generic fiber market development in 2025-2025. and we expect energy and raw material prices cost to remain on elevated levels. However, market visibility is low, and that is further intensified due to the current changes in global tariffs, the potential impact of which is continuously being evaluated. We have set up a task force to analyze the situation, and mitigation measures are being added or adjusted depending on the developments. While the market has not helped us so far, We are not waiting on tailwinds from the market. We continue to take the future in our own hands. And we expect operational results to continue to be positively impacted by the performance program. Therefore, we expect EBITDA for the 2035 financial year to be higher than in the previous year. With this, I will hand over back to the operator for the Q&A.

Thank you. We will now begin the question and answer session. Anyone who wishes to ask a question may press star and 1 on their telephone. You will hear a tone to confirm that you have entered the queue. If you wish to remove yourself from the question queue, you may press star and 2. Questioners on the phone are requested to disable the loudspeaker mode and eventually turn off the volume from the webcast while asking a question. Anyone who has a question may press star and one at this time. Please wait while we are taking the first question. The first question comes from the line of Christian Faith from Kepler. Please go ahead.

Yes, thank you. Good afternoon, everybody. Good morning, everybody, wherever you are. I have one question, please, in light of the current challenges you just described. Can you tell us a bit about the capacity utilization rates in your plans at present, possibly region by region, if any specific region is affected or whether all of your plans would be affected by the tariff discussions?

Thank you, Christian, for these questions. Give that to Roy, please.

Thank you, Christian. You know, the situation is still unfolding, and as we know, there are some specific regional impacts. But what we are looking to do, using and leveraging our global footprint to be able to work with our partners and customers to continuously to be able to adapt our supply chains. And therefore, at this stage, we're not seeing any material changes in our utilization of our plans. Now we are continuously monitoring the situation. As I mentioned, we have set up a task force and almost on a daily basis we are trying to get a better handle on how the situation will evolve, how the supply chains may adapt, how the customers may choose preferences in terms of locations of supply, and therefore we are ready to be able to deal with that change in a more agile manner. Now, in terms of specificities, that's a number that we don't generally hand out, but generally what we have is there's no material impact at this stage.

Okay, thanks. Very helpful.

We have now a question from the line of Mr. Patrick Steiner from Odoo. Please go ahead.

Good morning. It's Patrick Steiner speaking. Thank you very much for taking my questions. I would have a few and I would like to take them one by one if possible. Firstly, given the impacts from the US trade tariffs we just discussed, market prices for viscose cotton, dissolving wood pulp, having declined in Q1. Could you give us your view on the components going into the expected EBITDA increase in 2025 compared to 2024? I mean, is this mostly driven by cost savings, valuation effects and certificate sales? And how do you think about volume pricing components for 2025 compared to 2024?

Thank you, Patrick. Now, I think Roy will start with answering that question.

Yeah. Well, thank you, Patrick, for that question. I'll try and give some color to it and then hand over some time to Nico as well to kind of give some flavor in the way we have. I've been looking at 2025. So at this stage, as you know, our performance program has got, apart from the cash generation, we have got two components, which is really about driving growth, and growth has got two components. One is what we call premiumization of our portfolio, which is moving our portfolio towards more speciality, where we see a lesser competition. Those are more application, innovation-driven growth. And if you see what we have done in the last year, there has been a significant shift towards our specialization share of our portfolio. We talked about 90% last year. So we feel that the market that we are operating in is that we have some headroom for us to be able to continue to work with our partners and continue to grow in that environment, and that reflects also our ability to hold pricing to some extent. Now, the second lever, of course, is the cost excellence side, and we have been relentless about that ever since we started our performance program. And those are levers that we have in our hands, and those are, you know, self, driven and therefore we shall continue to execute those as what we have in the plan and we do not see any impact of that changing one way or the other to have an impact on our numbers for 2025. Now having said that, there are various other initiatives that we are exploring and looking at to take advantage of both on the market side as well as on the cost side. I'll give you an example. A plant in Mobile, Alabama, finds itself in a sweet spot right now with the tariff situation, where a lot of our non-woven customers see that as a great position to be in because it's the only fiber plant in North America. And therefore, that gives us some kind of a leg up there. Also, on the cost side, we're looking at what we can do on a raw material side, which you can take advantage of in terms of the currently softening demand and material situation. So there are various levers currently coming into play, but then I'm going to hand over to Nico to make any additional comments around this issue.

I just can confirm what you are saying. Basically, it's our holistic approach with our performance program that we are tackling all areas of the P&L to improve. Might it be the top line with the shift of the product mix, as you mentioned? Might it be also our pricing points? Might it be also the volume situation? And also going and trickling down the whole P&L, we are really tightly managing each cost position very intensively, and we are trying to get each opportunity to improve further knocking down our cost situation and getting profitability and free cash flow generation into the right spot. And so, therefore, I would say this is basically the summary of all these topics, yeah.

Okay, thank you very much. Very helpful. So should we think about flat volumes, flat prices, or some kind of deviations? I mean, of course, it's very hard to see at this point, given the uncertainty of the tariffs, but what's your feeling on that?

Patrick, at this stage, what we have is really scenarios that we are working with. And if anybody can tell me what's coming tomorrow, I can give you a precise answer. But I think at this stage, uncertainty, all what we can do is prepare the business and create conditions that can allow us to navigate this environment right now we are in. So, yeah, let's see how things evolve over the next days, weeks and months.

Understood. Thank you very much. Second question, auto operating income. was quite solid with $50.5 million in Q1. I think half of this is probably emission certificate sales, if I understood this correct. Can you give us a bit more detailed split on the other components, if possible?

Thank you, Patrick.

So this is also a question to Nikolaj. So I think there's The other operating income, which was high, mentioned 25.5 million in CO2 certificates. Any other components that you could share?

Basically, that's it. You mentioned it already. The key driver of the other operating income. The rest is relatively low topics. So therefore, I can only confirm what you said.

All right. Thank you. Two more questions. what in your view are the effects of the hybrid capital and debt refinancing this year on the financial expenses and coupon payments in total? Could you somehow quantify that compared to 2024?

So questions with regards to the financing costs, this is also for Nikolaj, please.

Yeah, so basically, Patrick, What we are doing, we are very cautiously and forward-looking managing our balance sheet, and we are doing that in a very professional way, and so therefore you have seen in the past that we have done a couple of actions, might it be the capital injection, might it be the maturity extension, or might it be the refinancing, which we did very professional and also very successfully for LDC. So overall, when it comes to debt refinancing topics, as you mentioned them, we will come to the market and to the community in due course when we have to tell something. So overall, I can only confirm you, we are on the topics and we do that very tightly, very professional and very forward looking.

Okay, thank you. So should we expect higher financing costs this year, like it?

Sorry to tell you, we are not guiding on the financing costs in our structure at Lansing. So I can only say that we are managing very intensively. So sorry, I'm not able to give you and provide you any number.

All right, understood. Thank you. Last question. Do you plan on selling more CO2 certificates this year and what would be a potential effect on EBITDA?

So overall, also in regard to the CO2 certificates, we are looking in this position also pretty closely. We accumulated over the last couple of years quite a lot of these CO2 certificates. And we are also watching and monitoring very tightly the overall development of the price of the CO2 certificates. And if it makes sense, then we are acting here in this way as we did also in Q1. So overall, this optionality is still on the table.

and so therefore we are doing that in the best way we can support lensing all right thank you very much i'll go back in line the next question comes from the line of sebastian bry from berenberg hello good afternoon and thank you for taking my questions i have two please the the first is on the trading that the company has seen thus far in April. I appreciate it is early and there are various different proxies for volume growth. But if I look at some of the more recent data from Shine and the Chinese fast fashion companies, they appear to be down between 15 and 25% year on year in April after a pretty decent Q1. Is that broadly consistent with the type of China-focused volume declines that Lensing has seen thus far in April? I appreciate you cannot give me a specific number, but is this in the right ballpark, the right direction? My second question is on financing. I appreciate several options are on the table, and I don't want to push you into one of them, but is convertible debt something which Lensing has not done historically yet? water on the table. Thank you.

Thank you, Sebastian. So let's start with the first question with regards to the start in the second quarter. Rohit, if you could answer that question, please.

Yeah, thanks, Sebastian, for the question. I think at the outset, let me kind of lay it this way. I think it's very difficult to correlate a company like Sheens with performance to a general market conditions because the value chains are pretty complex in textiles. And therefore, where we sit in the value chain, we are pretty much at the last stage of where everything else is downstream to us. So in terms of what an machine is in a particular part of the apparel market, which is in a fast fashion, they have a very large pivot to the US. in terms of market size. So I think it's not a conclusion you can draw easily as a basis to see how the industry is performing at the moment. Now, I wouldn't be able to give you any specific numbers for us, as you can understand that. But what I can say is that the way we sit, we are able to find opportunities as we are standing on different legs in the market from Turkey to India to Southeast Asia and China. And we do believe in the mid to long term, if the situation doesn't change, the supply chains will adapt to various other countries to overcome the current situation.

So, and the second question was with regards to the financing options, if we could also consider a convertible. This one for Nico, please.

Yeah, thank you very much. So look, basically for professional management of a company and this in our responsibility, we always have to think about in a holistic way on all tools which are generally available to manage the balance sheet. So in this regards also convertible is a tool which you can think of, but basically our thoughts at this point of time are clearly not on the equity side and so therefore I would comment in this way that we are not at this point focusing on a convertible or something like that.

That's helpful. Thank you. Can I just ask a follow-up on pricing? It was helpful to see the viscose pricing displayed in April and what's happened to it more recently because of a trade war pressures. Is Liocel and is Modal generally behaving in a similar manner over April? It's a little more difficult to track.

Now, this question is about prices. I would give this to you, Rohit, please.

Yeah, I mean, at the moment, the challenges that the other markets, the genetic FIBA market prices, which we have shown, have you know, shown a sudden weakness towards the end of quarter one as what we have been experiencing. But also, again, just as a reminder that, you know, Lenzing's portfolio has a more premium kind of portfolio. And therefore, the market that we are serving may or may not behave in a way that the genetic market price behaves. And therefore, as I mentioned earlier as well, that If Liocel is concerned, or Viscose is concerned, or Modal is concerned, the same factor would apply here in terms of Lenzig's portfolio. So in terms of specific numbers, I can't hand out to you, but I would say that for reasons of pricing, some of our portfolio may be slightly decoupled to what we see as the generic prices in the market. But yes, there is a general trend which you are seeing in the fiber market pricing, which is softening a bit.

That's helpful.

Thank you for taking my questions.

Ladies and gentlemen, that was the last question for today. I would like to turn the conference back over to Rohit Agarwal, CEO, for any closing remarks.

Well, thank you, Carmen. And I just want to say thank you to everyone. But as a preview, we will publish our results of the first half of 2025 on August 7th. And with this, I will close the call now. Thank you very much for your attention.