EANS-Adhoc: Lenzing AG / Ongoing Difficult Market Situation in the First Half of 2014

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Mid Year Results/6-month report
21.08.2014

- New record half-year fiber sales volume with all plants operating
at full capacity - Successful start-up of large-scale TENCEL®
production plant in Lenzing - Further intensification of the cost
optimization program excelLENZ - Significantly lower average fiber
selling prices burden consolidated sales and earnings

The business development of the Lenzing Group in the first half of
2014 was impacted by the ongoing difficult market conditions
featuring considerably lower average fiber selling prices. The cost
reduction program excelLENZ successfully initiated in 2013 was only
able to partially offset the decline in sales and earnings in the
first six months of 2014.

Consolidated sales in the first half-year 2014 declined by 9.1% to
EUR 900.0 mn from the prior-year level of EUR 989.9 mn. More than
half of this sales decrease can be attributed to the one-off effects
relating to the divestment of the Business Unit Plastics towards the
end of the second quarter of 2013 (H1 2013 sales of Lenzing
Plastics: EUR 49.9 mn). On a like-for-like basis involving a
year-to-year comparison of continuing operations, consolidated sales
were down by 4.3% to EUR 900.0 mn from EUR 940.0 mn in the previous
year. The significantly lower average fiber selling prices could not
be offset by higher fiber shipment volumes and an improved product
mix. Average fiber selling prices of the Lenzing Group in the first
half of 2014 equaled EUR 1.54/kg, comprising a drop of 12.5% from the
level of EUR 1.76/kg in the first half of 2013.

Consolidated earnings before interest, taxes, depreciation and
amortization (EBITDA) from continuing operations in the first
half-year totaled EUR 91.9 mn (H1 2013: EUR 129.1 mn). This
represents a decrease of 28.8% from the first half of 2013. The
consolidated half-year earnings before interest and taxes (EBIT) from
continuing operations amounted to EUR 32.4 mn, a drop of 56.1% from
EUR 73.8 mn in the previous year.

Further intensification of the cost optimization program excelLENZ
2.0 Due to the continuing tense price development on the global
market for viscose fibers, additional cost savings were initiated
within the context of the efficiency enhancement program excelLENZ
2.0. In light of the current level of fiber prices, the originally
planned savings of about EUR 60 mn in 2014 are not sufficient for
Lenzing to be able to profitably manufacture fibers, especially at
its European sites. "The previously implemented measures have already
proven to be effective. Once again we were able to increase the
savings generated in the year 2014. In light of the continuing market
weakness we have to further sharpen the targeted annual cost savings
of up to EUR 160 mn. Moreover, we want to reach these targets more
quickly", explains Chief Executive Officer Peter Untersperger. Cost
savings of up to EUR 90 mn are now expected for the current financial
year, one-third higher than originally budgeted.

"At the same time, in light of the current market distortions, we
have cut back investments to a minimum", adds Lenzing's Chief
Financial Officer Finanzvorstand Thomas Riegler. CAPEX totaledEUR
64.2 mn in the first half of 2014, below the comparable figure of EUR
EUR 134.4 mn in the prior-year period. The focal point of the
investment activity was the completion of the new TENCEL® production
plant in Lenzing as well as modernization work on existing fiber
production lines. "Another priority is proactive cash management in
addition to a selective investment policy. Accordingly, non-current
liabilities could be reduced by 5.6% to EUR 758.1 mn (H1 2013: EUR
803.0 mn). Trade working capital could be improved thanks to a strict
working capital management", Riegler says.

Specialty strategy to counter the price decline Lenzing is
counteracting the sharp drop in fiber selling prices by more
intensively focusing on specialty fibers and the more stable
nonwovens business at the expense of the more cyclically sensitive
textile sector. BothLenzing Modal® as well as TENCEL® reported
ongoing high demand and very good sales volumes throughout the entire
first half of 2014, also generating attractive price premiums at the
same time.

The resolute optimization of the customer structure and sales regions
ensures that Lenzing will continue to obtain premium prices, even for
its standard viscose fibers, which are higher than the level for
other viscose fiber manufacturers. Other specialty fibers such as
Lenzing Modal®have also profited from an active shift towards sales
markets with attractive contribution margins.

Successful start-up of the TENCEL® plant in Lenzing In the first half
of 2014 the Lenzing Group completed and successfully initiated
production at its new TENCEL® jumbo production facility, the largest
in the world, at the Lenzing site. The plant is in the midst of a
stable ramp-up phase. The feedback on the part of the market is very
positive.Thanks to the new plant, annual nominal TENCEL® production
capacity of the Lenzing Group will rise from 155,000 tons p.a. to
about 220,000 tons. In this way Lenzing will further expand upon its
global market leadership for TENCEL® fibers.

This facility comprises the first time in which a single production
line with an annual nominal capacity of 67,000 tons was installed.
Previous TENCEL® production lines were usually only one-quarter as
large. The new plant design incorporates lessons learned from the
longstanding experience of the three existing Lenzing Group TENCEL®
production plants located in Austria, USA and Great Britain. As a
consequence, the new TENCEL® plant in Lenzing represents the world's
leading generation of TENCEL® technology.

Outlook There are no perceptible signs of any easing of the situation
on the global fiber market in the second half of 2014. The
expectation of a cotton harvest which is lower than in the previous
year but still exceeds annual consumption is triggering further
pressure on global cotton prices and thus on all fiber prices.

In spite of good volume demand, a further price decline for man-made
cellulose fibers cannot be excluded. The excess supply of standard
viscose fibers will continue to prevail in the second half of the
year. As a consequence of the high world market share of Chinese
cellulose fiber manufacturers (60%), the resulting low fiber selling
price levels impact other important sales markets and repeated
measures initiated to stabilize prices are bound to fail. Only a
slight improvement in price levels is expected during the course of
the year 2015 at the earliest. Lenzing is counteracting this
situation by intensifying its excelLENZ cost reduction and efficiency
enhancement program, which should enable higher savings to be
achieved in 2015. The selective investment policy and cash
optimization measures will be further pursued.

In its operating business, Lenzing will continue to determinedly
promote its specialty fibers Lenzing Modal® and TENCEL®. In this
case, the focus will be on ramping up the new TENCEL® plant at the
Lenzing site to achieve a production volume of 30,000 tons in 2014,
and to sell these additional fiber volumes.

Key Group indicators(IFRS) in EUR mn

Continuing operations("like for like")1)
1-6/2014 1-6/2013
Consolidated sales 900.0 940.0
EBITDA 91.9 129.1
EBITDA margin in % 10.2 13.7
EBIT 32.4 73.8
EBIT margin in % 3.6 7.9
Profit for the period 15.2 45.2
CAPEX2) 64.2 134.4

June 30, 2014 Dec. 31, 2013
Adjusted equity ratio3)in % 46.3 45.5
Number of employees at 6,392 6,675
period-end

1) Taking account of the Business Unit Plastics divested in the first
half of 2013, consolidated sales declined 9.1%, EBITDA fell by 43.3%
and EBIT was down 68.5%. 2) Relates to investments in intangible
assets and property, plant and equipment and non-controlling
interests 01-06/2013 including the Business Unit Plastics. 3)
Adjusted equity in relation to total assets.

Further inquiry note:
Lenzing AG
Mag. Angelika Guldt
Tel.: +43 (0) 7672-701-2713
Fax: +43 (0) 7672-918-2713
mailto:a.guldt@lenzing.com

end of announcement euro adhoc
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issuer: Lenzing AG

A-A-4860 Lenzing
phone: +43 7672-701-0
FAX: +43 7672-96301
mail: a.guldt@lenzing.com
WWW: http://www.lenzing.com
sector: Chemicals
ISIN: AT0000644505
indexes: WBI, ATX, Prime Market
stockmarkets: free trade: Berlin, official market: Wien
language: English