• Lenzing reported Q3 21A results this morning: Nine-months ending 30 September paints a pretty picture but Q3 earnings came under pressure. Q3 21A revenue increased by 44% y/y and by 2% q/q. EBIT increased by 956% y/y but declined by 53% q/q. The EBIT margin of 7.1% more than halved q/q (Q2 21A: 15.4%). EPS declined by 65% q/q to EUR 0.71/share. FCF improved q/q but remained in the red due to large projects still under way. Accordingly, net debt increased by 14% q/q to EUR 806mn, with net debt/EBITDA now 2.3x.
  • Lenzing’s 500ktpa (single line, largest globally) DWP plant in Brazil is still expected to start-up in H1 22E: Full run rate expected by the end of 2022. Lenzing continues to assume a LT average DWP price of USD 900/t.
  • Revenue from Speciality VSF reached 73%: Their EUR 400mn project will boost Lenzing’s specialty exposure with a 100kt lyocell plant in Thailand. The ramp-up is expected to start in Q1 22E, with full ramp-up expected by H2 22E. Lenzing is also investing more than EUR 200mn in its production sites in Purwakarta (Indonesia) and Nanjing (China). Once these investments have been completed, Lenzing will boost specialty fibers as a percentage of its fiber revenues to well above the targeted 75% by as early as 2023.
  • Global apparel retail sales still at 2019 levels, but outlook for the next months remains highly uncertain: YTD demand is in the red at -3% (2020: -19%). In June, average retail sales for the sector exceeded
    pre-crisis levels for the first time, with the strongest growth in textile sales registered in the US, while many European markets lagged due to the delayed opening of businesses. Q3 has been impacted by restrictions reintroduced, particularly in China. Consumer demand slightly declined across the retail sector in all major markets.
  • Cotton market appears to be supportive of VSF prices: Based on current estimates, global consumption of raw cotton (25.9mt) will be 0.4% lower this season than in the 2018/19 pre-crisis season. Cotton production is expected to be c.25.8mt. Aside from surplus demand, high freight rates are also continuing to drive prices higher. The current 2020/2021 harvest points to a tightening in production volume and, consequently, a slight decrease in inventory levels.
  • FY 21e EBITDA guidance re-affirmed: Despite significant cost increases YTD and further cost pressure expected on energy, raw materials, and logistics in the coming quarters, Lenzing continues to expect EBITDA in 2021 to reach at least a level of EUR 360mn (Q4 21E: EUR 62.4mn). By FY 24e, Lenzing is targeting EBITDA of EUR 800mn, ROCE >10%; net debt/EBITDA <2.5x; speciality share >75% of revenue and DWP backward integration of >75%.

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