Lenzing Ag Ord

Good afternoon, ladies and gentlemen, and welcome to the Lensiq-AG analyst conference call and live webcast. My name is Yousef, the Coruscant operator. I would like to remind you that all participants will be in listen-only mode and that this conference is being recorded. The presentation will be followed by a question and answer session. You can register for questions at any time by pressing star followed by 1 on your telephone. For operator assistance, please press star and then 0. The conference must not be recorded for publication or for broadcast. At this time, it's my pleasure to hand over to Rohit Agrawal, CEO. Please go ahead.

Thank you, and good afternoon to everyone. Ladies and gentlemen, welcome to the presentation of Lenzing's results of first half 2025. With us today is also Nico Reiner, our CFO, whom you know well. But let's start with an overview of the key developments. Revenue and EBITDA continue to improve also in first half of this year. In a market environment that remains challenging and is marked by the rise, in geopolitical uncertainty, especially the aggressive customs policy that we are observing. Our revenue reached 1.34 billion euros, an increase of 2% compared to the first half of 2024. EBITDA increased by 63% and reached 269 million euros in the first six months, and the EBITDA margin increased from 13% to 20%. Unlevered free cash flow was at 89 million euros in the first half of 2025, with an increase in the second quarter compared to the first quarter this year. Overall, our performance continues to show positive developments. However, international debit measures and the resultant uncertainty led to tangible stress along the textile value chain and slowed our recovery. Now let us address a topic that has been very much characterized the last couple of months globally, international tariff measures and the resulting uncertainty. While in Q1, the key focus was mainly on the dispute between the US and its neighbors Mexico and Canada, as well as the 10% and later 20% on all imports from China, we saw only limited impact on our Q1 result. The actual escalation from reciprocal tariffs followed in early April, this led to both supply and demand shocks, a collapse of China-US trade, and to an impact of global value chains. Ongoing and repeatedly changing international tariff measures and the resulting uncertainty led to tangible stress on especially along the textile value chain, impacting also lending in Q2 2025. The second half of July and early August have brought some updates in U.S. data policy, impacting key countries in the value chains differently. However, the high uncertainty remains. All in all, everybody in the industry is scrambling to deal with the situation and planning 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 rules for input materials such as dissolving pulp and chemicals, and also shifting fiber volumes between our production sites to optimize the existing and possible garages to support our customers. In general, we maintain very close contact to our customers and regional value chains to handle the situation in the best possible way with our partners and pass on additional costs where possible. Let's look now in more detail how markets have developed. Let's start with a brief overview on demand, prices, as well as input costs. On the demand side, global apparel markets saw a slight increase, while non-woven markets continued to remain more robust. With regards to market prices, we saw a slight decrease of selected generic fiber prices in the second 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 non-wovens. When adjusted for inflation, demand for apparel worldwide was up by 2% in the first half of 2025 versus a year ago, based on the developments in the second quarter where the U.S. stood out. Sales spiked in April and May due to consumers in the U.S. pre-poning purchases since they feared higher clothing Prices were status-kicking. Also, the changes to de-minimalist tariff exemptions helped fuel regular retail sales. Sales in Europe were flat compared to last year. The cost of living environment remains challenging and consumer confidence is subdued. Chinese demand remained surprisingly resilient against the backdrop of overall cautious discretionary spend. Now let's turn our attention to nonwovens. Also in nonwovens tariffs play a major role where 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 plastics is ongoing and the carbon footprint and other sustainability credentials are increasing becoming a differentiator for nonwoven manufacturers in France, and also driving interest for more sustainable fibres. Now let's have a look at the fibre prices on the Chinese market. Again a reminder, the prices shown on this slide are generic market prices. Lensing prices are mainly created at a premium, and the current share of specialties is at over 90%. However, The generic market prices shown here do give an indication of the price development in the fiber market. Let's start with BISCOS. Generic BISCOS prices in China performed relatively stable in the first quarter. However, over the course of the full first half year, prices softened by about minus 7% in local currency or minus 6% in dollar terms as geopolitical uncertainties and protectionist measures particularly regarding the US trade policy affected export prospects of the Chinese textile and apparel industry. The situation of the cotton market was also challenging in the first half of 2025. For the ongoing 24-25 season, the worldwide harvest is expected somewhat above consumption, leading to a moderate increase in stocks. While prices were less volatile than last year, they remained under pressure due to macro effects. The pressure on dissolving pulp prices increased, and imported hardwood DWP prices declined by minus 18% in dollar terms. However, to note, we don't see this as a structural development, but more of a short-term reaction in the current environment. In the beginning of the third quarter, we already saw a reversal of the downward trend with TWB prices increasing back to about 800 USD per ton, mainly based on increase in Bisco's operating rates in China. Let's move to the cost side. Energy and chemical costs remain much higher than historical levels, but at least cost pressures for some input materials somewhat decreased in Q2 compared to Q1. Geopolitical developments around Russia and Ukraine as well as colder than expected weather in the beginning of the year drove European gas prices higher before the situation eased in the second quarter and reduced demand paid on Southeast Asian coal prices. Cost of soda prices remained high across regions and even increased in Europe but weakened somewhat in Asia. Even with a slight improvement in the second quarter, both energy and capital costs remain on high levels. Let's talk about our performance program, which you are quite familiar with. The relevant markets for us still show no signs of a sustainable recovery, with especially generic federal prices continuing to remain under pressure. It is therefore even more important that we continue to focus on this 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. Reminder, it 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 significant positive free cash flow going forward. And let's look at the second point of a program, cost excellence, which remains a key pillar of a performance program. In 2024, we already realized over €130 million in cost savings, and we expect cost savings to further increase to annual cost savings of more than €180 million for this year. We are clearly well on track to meet this target as well. To make it clear, we're talking about a recurring target with an ongoing impact beyond this year as well. Progress continues to be good in the areas of product costs and quality through intelligent efficiency improvement measures. Successes have also been achieved in purchasing through operational and strategic measures. And looking ahead, the holistic performance program is expected to continue to improve manufacturing costs and to leverage further cost potential, particularly 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. 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. A new colleague, Georg Kapokovic, took over the management of the company-wide fiber production site in Lenzing. He will also advance the ongoing performance program, and as a consequence, operational cost excellence and the transformation of the company as a whole. And with this, I hand over now to Nico Reiner for an update on financials.

Thank you, Rohit, and a warm welcome from my side as well. Despite continuously challenging markets, we were able to increase both our revenues and our margins in the first half of 2025 thanks to the measures that we have taken actively. Revenue increased by 30 million euros in the first six months compared to the first half of 2024 and reached 1.34 billion euros. EBITDA increased by 104 million euros to 269 million euros. As the number of CSU certificates held continued to increase in 2024, we decided to sell some of them in the amount of 30.6 million euros in the first six months of this year, which positively impacted the EBITDA. Debridation was at 160 million euros, leading to an EBIT of 109 million euros, which compares to 19 million euros in the first half of 2024. Income taxes amounted to 7 million euros compared to 43 million euros in the first half of 2024 and the financial result was minus 87 million euros compared to minus 41 million euros in the first half of 2024. As a result, there was a loss of 35 million euros for Lansing shareholders, which compares to a loss of 71 million euros in the first half of 2024. Let's move to the next slide. Looking now at cash flow. Trading working capital decreased by 2% compared to the end of the first quarter. Our objective is to have the right balance. I would say that levels at the end of June were a bit on the high side and we aim to further reduce it. 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 remained on low levels of 29 million in Q2, 11% down compared to Q1. As a result, unleveraged free cash flow increased by 24% to 49 million euros. That was not as high as in the second quarter 2024, particularly impacted on one-offs. We clearly continue to have a very clear focus on 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 came down by 4% to about 1.4 billion euros. On the right side, you see the development of our liquidity cushion. It increased by 335 million euros compared to the end of last quarter due to the successful refinancing with the syndicated loan. However, This does not include the impact of the new hybrid as the successful placement took place at the beginning of the third quarter. Let us look at the impact of the new hybrid on the next slide. The successful placement of the new hybrid bond marks another milestone in the professional and forward-looking management of our capital structure. following the 545 million syndicated loans secured in May this year. As you can see here, on a pro forma basis, the liquidity cushion, including the new hybrid, increased to over 1.1 billion euros. With this step, we have essentially secured our financing through 2027 and can continue to fully focus on executing and successful performance program aimed at improving margins and free cash flow. With this, I hand back to you, Rohit. Thank you.

Thank you, Nico. We now come to the outlook. I can clearly say that thanks to our performance program, the operational performance in the first half of 2025 was solid, despite the still challenging market environment in the second quarter. We assume relatively stable demand in bulk and have a cautious outlook on the generic cyber market development in the second half of 2025. And we expect energy and raw material costs to remain on elevated levels. However, market visibility remains very low. And this has further intensified due to the ongoing high uncertainties in global tariff situation. While the market has not helped so far, we are not waiting. on tailwinds from it. 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. And therefore, we keep the expectation for EBITDA in the 2025 financial year to be higher than in the previous year. With this, I will hand over back to the operator for the Q&A.

We will now begin the question and answer session. Anyone who wishes to ask a question may press star 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 1 at this time. Our first question comes from Kristen Feist, Kepler Chevrolet. Please go ahead. Yes, thanks.

Good afternoon. Two questions, please, if I may. First, your free cash flow is on a pretty good trajectory. Congrats on that. Would you be able to provide us a free cash flow guidance for the remainder of the year? And then my second question is, can you tell us a bit about the current capacity utilization in your plans? Thanks very much.

Thank you, Christian. So with regards to free cash flow, I will hand this to Nico, please.

Yeah. Hi, Christian. So on free cash flow, look, as you have rightly mentioned, we are on a very good trajectory when it comes to free cash flow development over the last quarters. And our key topic is that we want to continue quarter on quarter delivering positive free cash flows. And so, therefore, this is the only comment what I can give to you is to also know that we are not guiding on free cash flow development, but the ambition and the clear target, as I mentioned, is there. Okay, thanks.

Good. Then the next question is in regards to capacity utilization. This one is for you, Roy.

Yeah. Thank you, Krishan. I think, as you know, I will not be able to give you any specific answer on percentage of terms, but the way I would kind of give you a bit of a color to it is that for one, we were running pretty much at capacity. Starting April, through the data situation, we did see a dip in April on demand, and we have been adjusting our supply and capacity utilization to reflect that demand in quarter two. We did see May and June recovering to better levels, and therefore we continue to monitor the situation very closely in adjusting our demand and supply very closely to reflect the current market situation. What we have done, which I can share with you, is that our ability to now make decisions is on a weekly basis. than what would be a normal monthly basis cycle. So we are tracking and we've seen also, if I look at the industry capacity situation in China, we have seen that it dipped again in April, but we've seen a bit of recovery since then again. So I think hopefully if the market uncertainty would settle, we should start to see a further recovery in that sense. Thank you.

Thanks. Very helpful.

Our next question comes from Patrick Steiner, AutoBHF. Please go ahead.

Good afternoon. Thank you very much for taking my questions. Two from my side. Firstly, can you give us more information on current fiber volume demand development? Do you see a meaningful recovery from the tariff shock in April, or are volume levels still below Q1 at the moment? And the second one would be, when you see this all the wood part prices decline quite significantly. Do you see this as some kind of leading indicator for further price declines in standard viscose fibers? Thank you.

Thank you, Patrick, for your question. So the first one with regards to the development of the fiber sales, how we are there. Roy, please.

Yeah, Patrick, thank you for the question. And, again, the way I would describe it is that the quarter one for us was pretty strong, and we were ahead of our plans for quarter one in terms of volumetric sales. As we kind of discussed, the big change in quarter two because of tariff situation and uncertainty, led April to be a bit of a kind of a drop significantly. The industry went into a bit of a pause mode. But then since then, May and June, we have tried to see markets recover, and we have seen our volumes starting to get back up again. We still kind of, if you look at our change overall in the first half, if you look at quarter one being normal and strong, most of the impact has been in quarter two, so which is reflected around about a 5% deviation overall compared to last year. So, but I hope that would mean that we have seen the bottom of the cycle and if no further uncertainties happen, then that's where the level we hope to see improve going forward as well. As far as the prices are concerned, now we did see the dissolving wood pulp prices fall sharply in line with the demand and supply situation, particularly in China. But what we are seeing now is that the market has reached what we think is the bottom. We think the prices are stable at around 800, and therefore that bottom has been reached, which will start to then hopefully go further north from there as the demand situation starts to get better. So that would be characterization. Do we think the corresponding prices wouldn't be reflected in the FIBA prices. We're certainly hoping so.

Perfect. Thank you very much.

The next question comes from Sebastian Bray, Berenberg. Please go ahead.

Hello. Good afternoon, and thank you for taking my questions. Congratulations on the results in trying circumstances. I had two pleas. The first is on the longer-term tax rate for the group. From memory, the Thai Lyocell plant received quite favorable tax treatment for about 10, 12 years or so. I can't remember the exact rate. But it's been a while since the group was consistently printing profit before tax high enough to have a normalized tax rate. What would you think, if things go well, would be a figure for tax as we move into 26, 27? Are we talking mid to low 20s percent or – a little bit higher than that. And my second question is on the valuation adjustments on Brazilian forestry assets. These have started to ease now. They're not as significant as they have been in previous years. Is there any publicly available index of forestry or other assets that we can look to to see how this adjustment may develop in future? My thinking being it might not always remain positive. particularly if Brazilian exports come under some tariff pressure in coming years. Thank you.

Thank you, Sebastian. First question with regards to our assumption with regards to a normalized tax rate for the upcoming years. Nico, this one is for you.

Yeah, thank you, Sebastian. Yes, you are totally right. As I mentioned already in our last call, there have been quite some impacts in our tax rate, especially with the year ending 2024, which was, let's say, caused. by strong ethics impacts and also coming from the situation of our Brazilian joint venture. The topic you are mentioning here on the situation in Thailand is not so much impacting us, but overall the topic coming from Brazil had a higher influence in our tax rate, especially by the end of 2024. But when it comes to the picture, how it would look like The tax rate going forward into the future, your assumption that you have taken low 20s to mid 20s is probably going into the right direction.

Valuation of the biological assets in Brazil, if there's any kind of publicly available information that could help as a kind of a guideline for these valuations. Can you give us any?

Yeah, thank you. Also this question, what we see from a structural change in markets in Brazil, yes, you are right that there is some impact coming from the tariff situation, especially when it comes to export from pulp and so on. But overall, structurally, even which is deeper in the market is the overall situation when it comes to the demand for wood. And the demand for wood in Brazil itself is still relatively high, especially if you think about the projects that are going on. So therefore we are more than satisfied on the price structure of the forestry, but nevertheless, it is very difficult for us to give you an index which you have been requesting for on the price development of forestry and wood in Brazil. This is something what is very difficult to project, so therefore we cannot comment on this topic. But from a structural point of view, we still see a relatively high demand on wood. Yes, on a short-term basis, there's the impact from the tariffs, maybe, but also in regards to this topic, I think, or we think, the last word is not spoken, as Mr. Trump is changing his mind on a daily basis.

That's helpful. Thank you for taking my questions.

Our next question comes from Sebastian Grohe, BNB Paribas. Please go ahead.

Yeah, good afternoon. Hi, Robert. Hi, Nico. Hi, Sebastian. I was only able to join the call some minutes ago, so I apologize if my questions have already been answered. So I have two questions.

Can you come a little bit closer to the micro, please, Sebastian? That would be helpful. Thank you.

I'm trying hard. I'm speaking up. I'm speaking more slowly. Is it any better now?

Thank you. Yes, I appreciate it.

Okay, no worries. So I was just saying that I joined the call a little later, so apologies in advance should my questions have already been answered. The two questions I have are around the net financial results to start with. I do understand that you don't guide on financing costs, but considering really the material fluctuations between quarters that we have seen, and now it's almost 50 million in the second quarter, I guess investors would really appreciate if you could provide a certain update on the front, what to expect, what to model basically in the second half or then also going to 26. And the other question I have is on the market outlook vis-a-vis the countermeasures or the performance program. So we've seen apparently the uncertainty for fiber markets remaining high, the tariffs and whatever, but against the backdrop and the holistic performance program still being ongoing. I was a bit surprised to see staff levels going up a bit on the quarter-on-quarter comparison. So my question ultimately is, are you thinking about the need for further cost measures at this point?

So thank you, Sebastian. First question was with regards to the financial results, if we can give any kind of indication what to expect for the second half of this year and maybe also 2026. Nico, please.

Yeah, Sebastian, in regards to the financing cost, if you look into it, the trajectory is relatively clear. You have seen in 2024 high impacts coming from FX side, also impacts coming from the full refinancing of LDC. What you also see now in 2025 is still FX topics impacting the financing structure, but also what you can see the financing of our syndicated loan and also of the hybrid impacted that. So overall financing costs should go into normalized situations. over the next quarter as we are not doing on a quarterly or even yearly basis such heavy refinancing activities and so therefore it should normalize going forward.

And normalize, sorry for asking that question so straightforwardly, but normalize would mean anywhere around 30 million-ish on a quarterly basis or above likely above 100 million on annualized basis, just to get it right.

As you also rightly said, we are not guiding on financing costs, but look, your calculations might be in the right direction, so that would be the comment I could give to you.

Thank you for the comment. And on the other part of the question?

So the second question was with regards to the performance program, if there's more to come, or what our plan is with this regard, looking also at the development of staff levels.

Yeah, so Sebastian, thanks for the question. Clearly a performance program is an ongoing program to look at various levers that allow us to continue to expand our margins and create, you know, improving free cash flows. Now, we continue to assess and we continue to evaluate our delivery of the performance program as it's been running so far. And it's a constant process of looking at various other initiatives that we can bring on and add to the performance program as we go forward. Now, what is uncertain is how the world will shape up in the next six months to 18 months. and therefore to bring enough resilience in lending performance of financial stability is to ensure that we are not excluding any further developments on the cost side and further enhancing our efforts on the market side. So at this stage, what I would say is nothing is done and nothing is excluded and all options are currently being evaluated.

Thank you.

The next question comes from Lars von Kleff, Deutsche Bank. Please go ahead.

Yes, thank you very much. Good afternoon. Thanks for taking my questions, too, if I may. The first one is, I mean, I understand the demand fluctuations for textile markets, but are you seeing any difference in demand for viscose fibers versus other fiber types? What I'm trying to find out is whether our hope that oil-based fibers could markedly be replaced by environmentally friendly fibers rather shorter than later is currently endangered by the still muted demand and that customers rather take the cheaper fibers for the time being.

So, the line was not very clear. If I understood correctly, what we expect in terms of demand or if we see a difference in demand development between viscose fibers and the more premium kind of fiber types that we have in our portfolio.

Yes. Thank you for that question. And what we are seeing is obviously our speciality in premium fibers is where our focus is, where our expertise is. And that's where we are looking to continue to focus to develop the market and grow the market. Now, if you look at the development in quarter one and quarter two, we see that all fiber types have had a very similar trajectory from our portfolio standpoint. And therefore, in terms of the market changes in response to the tariff situation has been pretty much universal and across the board. However, the self-help efforts that we have and our focus on our commercial strategy is still very much on allowing us to grow our premium fibers. So I would say that it would be very difficult to differentiate if there's any deviation of demand between fiber types, and therefore that's not something that we're seeing in a material way.

Thank you. Yeah, that is a helpful answer as well, but maybe let me rephrase it. Not so much standard fibers versus your specialties, but rather your wood-based fibers versus oil-based fibers. What I'm hearing is that customers are trading down at the expense of slightly more expensive environmentally friendly fibers and that ESG rather is not playing such an important role anymore when it comes to new fashions.

There are always these short-term technical situations that emerge, and I can say that there would be some reactions in the market, in a particular segment of the market, which is maybe a market where the price points are much different. Maybe that market has got a different drive right now to ensure that consumers don't feel that the price pinched. But we would say that overall, the strategic and broad directional structural change in the industry, that does not seem to be changing. The sustainability-driven efforts by the brands across the chain remains pretty much intact. They may have been technically shifted in focus the last couple of weeks, but we're not seeing any significant discussion on whether there's a change of direction overall.

That is helpful. Thank you very much. Then maybe a question on dissolving wood pulp prices and your production capacity. I mean, Brazilian plant state-of-the-art low production costs with wood pulp prices coming down. Have you thought about closing some of your less productive plants and rather buy dissolving wood pulp from third parties? Would that help on the cost front?

Lars, we feel that we have a fairly good and a strong cost position as far as our DWP sites are concerned, and therefore we do not see any reason for any slowdown or stopping of the lines. In fact, we've been running pretty full, and therefore we do not expect any change in that strategy going forward.

Helpful.

Thank you very much. Ladies and gentlemen, that was our last question, and this concludes today's Q&A session. I would now like to turn the conference back over to CEO Rohit Agrawal for closing remarks.

Well, thank you very much again to everybody for joining us today, and we appreciate you having interest in Lensing's progression. Next time we're going to meet is for our quarter three results on November 6th, so look forward to seeing you all then. Thank you.