Thursday, March 24, 2016

Cellulosics and Nonwovens: Update since 2000

The following update was prepared at the request of Bruce Townsend for his after-lunch speech at the Courtaulds Coventry Senior Pensioners Luncheon on 17th March.  Here's a lightly edited version:

The decline in man-made Cellulosics output during the last third of the 20th C was reversed and since 2000 the production of viscose staple has more than doubled.  It is now between 5.5 and 6 million tonnes/year with more capacity planned. The vast majority of the growth has been in Asia.

Courtaulds had hoped that environmental considerations would mean Tencel would get the lion’s share of the growth* but this did not happen under Lenzing.  Apparently they didn’t want to lose control of their Tencel know-how and the rate of expansion required in Asia meant a rate of Tencel plant scale-up greater than Lenzing were comfortable with.  

So, viscose was the beneficiary of rapidly increasing demand for rayon and the scale of the new viscose investments proved surprising to anyone involved with the old Courtaulds plants. (3x-5x the productivity of Courtaulds Mobile).

Tencel  stagnated for 10 years after Grimsby SL3 started.  Mobile SL1 was closed down.  Then the Mobile, Grimsby and Heiligenkreuz plants were debottlenecked.  SL1 was restarted with a viscose wash belt to make wet-cut staple.  Lenzing’s first new Tencel plant – a 67,000 tonner built on the Lenzing site in 2013-14 is now fully operational although its output is apparently being sold into pre-blends with cotton and viscose.

Of the world 2016 fibre capacity of about 100,000,000 tpa, Tencel is now around 220,000 tpa, viscose around 6,000,000 tpa, cotton around 25,000,000 tpa and polyester around 60,000,000 tpa.  Further growth in polyester and cellulosics is expected, but new comfortable polyesters will probably mean the cellulosics proportion will be lower.
Overall, in the absence of any hard information from Lenzing, we guess about a third of the pre-2000 Tencel capacity goes into Nonwovens if A100 production is excluded.  Apparel remains the main market with Home Textiles also doing well.

The main Tencel nonwoven market is disposable wipes: Tencel/PP or PET blends are hydroentangled into baby wipes but also made flushable via the wet-laid route.  One major US supermarket chain uses 1000’s of tonnes of  100% Tencel in wet-wipes.  Electrical papers, which like the wipes, Courtaulds Research started to develop in the late 80’s, are now successful in battery separators and energy recovery systems for hybrid  and electric cars.

World nonwoven production growth since 2000 has continued as expected, reaching 10 million tonnes last year, a million tonnes of this being viscose.  Spun-laid processes remain the most important technology thanks to polypropylene’s continued dominance of the diaper component market.  Carded nonwovens – the sector where rayon predominated but was losing share last century – has been transformed by fast cards and low-cost hydroentanglement bonding machines and has grown to be comparable in size with spun-laid.  The technology continues to be a major user of viscose for wipes, viscose usage in Europe having trebled since 2000 (to 150,000 tonnes/year)

Kelheim Fibres, the sole survivor of Courtaulds Viscose operations, has been expanded to about 80,000 tpy capacity and concentrates on specialities for nonwovens (Galaxy and Viloft).  It continues to dominate the US and EU tampon fibre market and has good prospects in Latin America and (longer term) in Asia.  It recently underlined its “Speciality Fibre Producer” status by experimentally introducing a series of special viscose fibres to the market – most of which would be instantly recognised by anyone who happened to be in Courtaulds Viscose Research during the 70’s and 80’s.  (SI fibre, Hollow Viloft, PM1, PM2, alloy fibres etc.)

Lenzing will soon have a million tonne/year rayon staple capacity – up from 300,000 tonnes in 2000.

The world production of dissolving pulp is now around 6.5 million tonnes/year. SAPPI, who bought Courtaulds SAICCOR dissolving pulp business in 1989 now produces around 1.4 million tonnes of dissolving pulp, and China produces a similar amount, some of this from bamboo and some from cotton.

Calvin Woodings
March 2016

  The growth was broadly in line with Tim Johnson’s expectations based on his 1989 Comfort Gap scenario.  This predicted that global demographic and personal wealth trends would drive an increase in demand for textiles which could only be met by rapid expansion of synthetic and man-made cellulosic fibres in unison.  (Comfortable Cotton's ability to expand would be restricted due to land/food shortages and the absence of further prospects for cotton yield increases.)

Lenzing's results for 2015

Wednesday, 23 March 2016

Revenue rose by 6% to EUR 1.98 bn
EBITDA increase of 20.7% to EUR 290.1 mn
Dividend proposal: doubling to EUR 2.00 per share
Share of specialty fibers up to 40.5%
Further earnings improvement expected in 2016
Thanks to a strong operational performance, the Lenzing Group significantly improved just about all relevant economic and balance sheet indicators in the 2015 financial year compared to its business results in 2014.
Consolidated revenue climbed by 6.0% to EUR 1.98 bn. This increase is particularly due to higher fiber selling prices, the growing share of specialty fibers in its product mix and positive exchange rate effects. EBITDA (earnings before interest, tax, depreciation and amortization) improved by 20.7% to EUR 290.1 mn, up from the prior-year figure of EUR 240.3 mn. Lenzing’s performance in 2015 corresponded to an EBITDA margin of 14.7% (2014: 12.9%). EBIT (earnings before interest and tax) of the Lenzing Group increased to EUR 151.1 mn from EUR 21.9 mn, corresponding to an EBIT margin of 7.6% (2014: 1.2%). Earnings before tax (EBT) amounted to 149.1 mn, substantially higher than EUR 7.3 mn in 2014. The group net profit for the year totaled EUR 124 mn, compared to a loss of EUR 14.2 mn in the previous year. Earnings per share in the 2015 financial year rose to EUR 4.63, up from minus EUR 0.51 per share in 2014. On the basis of this good financial performance, the Management Board and Supervisory Board will propose that the upcoming Annual General Meeting approve the distribution of a dividend of EUR 2.00 per share for the 2015 financial year, double the dividend for 2014.
“We made substantial progress in 2015, and delivered the promised improvements to our business operations,” says Stefan Doboczky, Chief Executive Officer of Lenzing AG. “We strategically realigned the company, improved the earnings and cost structure and enhanced our financial strength. We also expect a considerable rise in earnings once again in 2016 provided that the underlying business framework does not significantly change.”

Solid balance sheet structure, clear improvement of ROCE to 8%

Lenzing boasts a solid balance sheet structure which was further optimized in the course of the 2015 financial year. Adjusted equity increased by 15% to EUR 1.23 bn (2014: EUR 1.07 bn). The adjusted equity ratio amounted to 50.6%, the highest level since the year 2006 (2014: 44.9%). Net financial debt was sharply reduced by 27.0% to EUR 327.9 mn (December 31, 2014: EUR 449.5 mn). Accordingly, the ratio of net financial debt to EBITDA declined from 1.9 at the end of 2014 to 1.1 at the end of 2015. The return on capital generated by the Lenzing Group improved thanks to the positive earnings development. As a result, the return on capital employed (ROCE) increased to 8.0%, compared to minus 0.1% in the previous year. At the same time, the return on equity (ROE) rose to 13.0% (2014: 0.7%).
Investments in intangible assets, property, plant and equipment (CAPEX) of the Lenzing Group totaled EUR 70.9 mn in the 2015 financial year, compared to the prior-year level of EUR 104.3 mn. Following completion of the TENCEL® fiber production plant at the Lenzing site in 2014, the focus of Lenzing’s capital expenditures in 2015 was on maintenance work as well as the implementation of quality and optimization measures. The excelLENZ cost optimization initiative was concluded in 2015. The new strategy sCore TEN was developed by the Lenzing team and is already in implementation.

Share of specialty fibers up to 40.5% of group revenue

Demand for high-quality Lenzing fibers was strong in 2015, encompassing all regions and product groups. For this reason, the pulp and fiber production capacities of the Lenzing Group were well utilized against the backdrop of high production output. In particular, sales of the specialty fiber TENCEL® increased significantly. The share of specialty fibers as a percentage of total group revenue was 40.5% in the 2015 financial year, compared to the 35.0% in the previous year. Expenditures for research and development were increased by 47% to EUR 29.8 mn, in line with the company’s strategy of focusing on the development, production and marketing of innovative specialty fibers.

Outlook for 2016

The volatile development prevailing on the global fiber market is expected to continue. High cotton inventories and low polyester selling prices intensify price competition on the market i.e. inter-fiber competition. However, the market segment of wood-based cellulose fibers, which is of relevance to Lenzing, is showing signs of developing more positively than the overall fiber market. Demand for cellulose fibers remains strong, and the ratio of supply to demand is favorable. Assuming unchanged conditions on the fiber market and currency exchange rates, Lenzing expects further improvements in earnings in the current 2016 financial year compared to 2015.