Impact of the war against Ukraine on the Lenzing Group

In addition to unspeakable humanitarian suffering, the war against Ukraine has led to severe economic turmoil, which has since had an impact on all regions of the world and has also had an adverse effect on the Lenzing Group as well as manufacturing industry as a whole. The European energy crisis and high inflation in large parts of the world as a result of the Russian invasion of Ukraine had a significantly negative impact on global economic events during the year under review. Consumer confidence, initially in Europe and the USA, and subsequently also in China, fell to long-term lows and has since been slow to recover.

The International Monetary Fund (IMF) revised down its growth forecasts several times in the course of the year. According to the latest calculations, global growth is expected to be 3.4 percent in 2022. For 2023, the IMF assumes growth of 2.9 percent due to the ongoing multiple crises.

Sentiment in the textile and nonwovens industry deteriorated from August of the previous year onward, and satisfaction with the business situation steadily dropped to new historic lows. More recently, the outlook brightened again, although market players remained concerned about subdued demand.

Like the manufacturing industry as a whole, the Lenzing Group was increasingly affected by the extreme developments on the global energy and raw material markets in 2022. The market environment deteriorated significantly, particularly in the course of the third quarter, and the deteriorating consumer climate put additional pressure on Lenzing’s business performance.

In addition to the decline in demand, the trend in earnings reflects the increase in energy and raw material costs in particular. Against the back of these developments and the significant deterioration in the market environment, the Lenzing Managing Board established a reorganization and cost reduction program. The program is already being implemented and is expected to save at least EUR 70 million in annualized costs after full implementation.

The savings will largely come from the reorganization and reduction in material costs, but personnel measures will also have to contribute to the target and will result in savings across three areas. One-third will be realized from reductions in working hours and the implementation of flexible working time models, one-third from not filling positions that become vacant due to retirement and natural fluctuations, and one-third from job cuts.

The social plan was negotiated with the Works Council in a highly constructive spirit and agreed as soon as possible. The Managing Board and the Works Council of Lenzing AG consider it part of their responsibility to make provision for cases where job losses cannot be avoided. The social plan assures those affected that negative consequences will be cushioned in the best possible way.

Structurally, Lenzing continues to anticipate increasing demand for environmentally friendly fibers for the textile and clothing industry as well as the hygiene and medical sectors. Lenzing is therefore very well positioned with its “Better Growth” strategy, and will continue to drive both specialty growth and its sustainability goals, including the transformation from a linear to a circular economy model.

The war against Ukraine and its economic impact also affected the achievement of the Lenzing Group’s ambitious climate targets. CO2 emissions of the Lenzing Group decreased significantly compared to the previous year. However, this came about due to lower production volumes as a result of the deterioration in the market situation and the planned measures taken to reduce CO2 emissions.

The war against Ukraine increased public awareness of the need for an energy supply that is independent of fossil fuels. In order to make itself less dependent on global energy markets, Lenzing is increasingly reliant on electricity generation from renewable energies, especially at its Austrian sites, thus accelerating the decarbonization path it embarked on some considerable time ago in line with its strategic targets.

In line with our social responsibility, employee benefits remained unaffected by market developments. No changes in this context are expected in 2023 either.

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