Dear Reader,
Behind us lies a challenging year with escalating geopolitical tensions and devastating natural disasters. The Israel-Gaza war, the ongoing war against Ukraine and the crisis in the Red Sea, as well as high inflation and the economic downturn, are having an impact on economic activity and have posed major challenges for the sector. The expected recovery in markets relevant for the Lenzing Group has failed to materialize to date. The continued sharp increase in raw material and energy costs on the one hand and very subdued demand on the other had a negative impact on Lenzing’s business trends in the reporting year, as well as on the entire sector. A full return to pre-pandemic growth rates appears increasingly out of reach over the coming quarters, according to the IMF.
All of these factors ultimately led to an unsatisfactory result in the 2023 financial year. This makes the measures we took decisively and at an early stage all the more appropriate. We launched an ambitious cost-cutting program back in 2022, which delivered the expected results earlier than planned. Building on this, we are currently implementing a comprehensive performance program with a focus on positive free cash flow, stronger revenue and margin growth, and sustainable cost excellence. The overarching goal is to position Lenzing on an even stronger foundation and to further enhance its crisis resilience.
The consequences of the ongoing political crises are increasing the urgency to make our business as independent as possible from global upheavals. The best contribution we can make to a liveable present and future is to lead the way with our innovative strengths and to operate successfully and sustainably. Profitable and affordable sustainability on a large scale is the challenge facing our industry. In this context, Lenzing took a big step forward during the past financial year. With the completion of the conversion of the production line for modal fibers in Nanjing (China), we are now able to offer our Chinese customers locally produced TENCEL™ brand fibers for the first time. In Purwakarta (Indonesia), we successfully completed the conversion to a state-of-the-art production facility. The investment significantly reduces emissions and transforms the site into a specialty viscose supplier of the brands LENZING™ ECOVERO™, including the innovative LENZING™ ECOVERO™ Black fibers, and VEOCEL™, which meet the high environmental standards of the internationally recognized EU Ecolabel. Both projects help us to meet the structurally growing demand for our specialty fibers even better.
Is it possible to produce sustainably for the whole world or is there a new limit to growth that is slowing down this development? This is the question that arises for us, for you, and for policymakers who are pushing for economic and ecological change. Lenzing is working tirelessly to make the industries where it is active even more sustainable, and to advance the transition of the textile business model from a linear to a circular economy model. For this transition to be successful, further efforts by the entire sector and a policy designed to ensure a level playing field for sustainability pioneers are required.
“Profitable and affordable sustainability on a large scale is the challenge facing our industry. In this context, Lenzing took a big step forward during the past financial year.”
As a consequence, this Annual and Sustainability Report is also an invitation to find answers together. We would like to invite all our partners to join us in renewing the textile and nonwovens industries and in bringing about positive change. To achieve this, we need changes in behavior and a proactive, dynamic process at all levels: new approaches in research and development, technologically brilliant solution concepts, and concentrated implementation power paired with operational excellence in order to scale sustainability to previously unattainable dimensions. Let’s rethink structures and shape a positive future together!
The capital increase we implemented will help us to achieve this. It affords us the latitude to enhance efficiency and resilience, as well as the financial flexibility that forms the foundation for future growth. In addition to expertise, Lenzing also has capacities on a scale that enables the sustainable transformation of large business areas. As a pioneer in the optimized utilization and recovery of all raw materials, we have extended REFIBRA™ technology to the range of LENZING™ ECOVERO™ fibers with recycled content. This gives our partners in the value chain the opportunity to work together to advance the transition to a circular economy in the textile sector.
In recent years, Lenzing has invested
mn
in the successful modernization of its production sites in China and Indonesia
We have also made progress in decarbonizing our company. At the Heiligenkreuz site, we acquired a biomass power plant to supply the lyocell plant in Burgenland. This strategic investment ensures greater energy independence and a further reduction in carbon dioxide and strengthens not only our environmentally responsible specialty fiber range but also site security. In Purwakarta, Indonesia, we recently started to source electricity from renewable energy sources and are driving the transition to biomass in line with Lenzing’s targets to reduce carbon emissions per tonne of product by 50 percent by 2030 and to achieve carbon neutrality by 2050.
We have also made progress in the transparency of our production and management: certifications from the Higg Facility Environmental Module (FEM), the Higg Facility Social Labor Module (FSLM), and the ZDHC Foundation also reflect our leading position in this area. Diversity, inclusion, and employee engagement are key topics for us to continue to improve and promote talent. We consistently include the achievement of sustainability targets in the performance and remuneration of senior managers.
Our many discussions with our investors and shareholders have not only shown that the challenging fiber market has been recognized, but we have also received a lot of encouragement for our strategic and operational steps. As a consequence, the capital increase was perceived and supported as a forward-looking measure to strengthen our equity position. A total of 99.5 percent of our shareholders exercised their subscription rights. This is a clear signal that we are focusing on the right measures with our strategy.
In the medium and long term, we expect continued strong demand growth for Lenzing’s sustainable products. We are convinced that the two investment projects in China and Indonesia will further reinforce our positioning in this context and that we will pursue a profitable growth track with the key projects in Thailand and Brazil that have been implemented successfully.
We would also like to thank our customers and partners, who value our sustainable products and services, and not least the approximately 8,000 Lenzing Group employees, who have done a fantastic job and continue to give of their best every day, including during challenging times such as these, to strengthen our leading innovation and market position and bring about a turnaround.
Yours sincerely,
Stephan Sielaff
Chief Executive Officer