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Edited Transcript of LNZ.VA earnings conference call or presentation 7-Aug-19 8:00am GMT

Half Year 2019 Lenzing AG Earnings Call

Aug 11, 2019 (Thomson StreetEvents) -- Edited Transcript of Lenzing AG earnings conference call or presentation Wednesday, August 7, 2019 at 8:00:00am GMT

TEXT version of Transcript

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Corporate Participants

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* Stefan Doboczky

Lenzing Aktiengesellschaft - Chairman of Management Board & CEO

* Thomas Obendrauf

Lenzing Aktiengesellschaft - CFO & Member of Management Board

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Conference Call Participants

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* Laura Lopez Pineda

Baader-Helvea Equity Research - Analyst

* Matthias Pfeifenberger

Deutsche Bank AG, Research Division - Research Analyst

* Sebastian Christian Bray

Joh. Berenberg, Gossler & Co. KG, Research Division - Analyst

* Teresa Schinwald

Raiffeisen CENTROBANK AG, Research Division - Chief analyst

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Presentation

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Operator [1]

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Ladies and gentlemen, thank you for standing by. I am Franceska, your Chorus Call operator. Welcome, and thank you for joining the Lenzing Group Analyst Conference Call. (Operator Instructions) Your hosts today are Stefan Doboczky and Thomas Obendrauf.

I would now like to turn the conference over to Stefan Doboczky, CEO of Lenzing.

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Stefan Doboczky, Lenzing Aktiengesellschaft - Chairman of Management Board & CEO [2]

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Good morning. Thank you very much, operator. A warm welcome from my side. Thanks for joining the H1 2019 conference call.

First half 2019, pretty turbulent market but rather nonturbulent solid results, that's, in a nutshell, the way I would summarize I think the first half for the group. Group revenue were up 1.2% at EUR 1.088 billion and specifically pleased we were that the specialty ratio continues to increase in the region of 48.4%. That brings us, again, I said closer to our target of 2020 with 50%. EBITDA for the same period increased now to EUR 181.2 million compared to EUR 194.8 million a year ago.

An important milestone was, of course, the announcement to build a 100 kt line in Thailand that we intend to complete by 2021, and the fact that Lenzing is the first fiber producer who decided to follow the regime of Science Based Targets with respect to CO2 reduction, and that we intend to reach carbon neutrality by the year 2050.

Sustainability, carbon neutrality, environmental targets play a crucial role in the Lenzing strategy not that it's -- it is more than just a corporate value, it's a corporate value because we said we want to follow a Triple P concept of balancing the impact of the company on people, on planet whilst making sustainable profit. But it's more than that. It's the core growth driver of the company. It's a business driver in its own right. Pretty logical, if you take renewable raw material, wood, and you have end of life cycle, biodegradable, compostable products and you do this in a closed-loop process. I think that's pretty evident. But it's also the core innovation driver because everything that you see today in the R&D case of Lenzing in some sort of fashion has a positive impact on the environment.

I'm also personally pretty proud that we decided as the first player to commit to the Science Based Targets initiative. Lenzing joins a pretty impressive group of companies in other industry, such as Levi's, Nike, Chanel, IKEA, H&M, but also in specialty chemicals, of course, companies such as DSM and Croda and others.

We intend to reach carbon neutrality by 2050 and for us, an important milestone will be the year 2030 where we will reduce the CO2 emissions per metric ton of product by 50%. The key levers that we will use to accomplish this is on the one hand, of course, the product portfolio: that we're focusing increasingly more on carbon-light products; number two, that we revamp the energy mix in the group; that we are working also with the new investments, I think, on measures that the energy intensity at large is being reduced; and last but not least, we are orienting the total workforce to follow this, I think also emotionally a very important path.

Let's look at the business. Specialty business continues to do very well in a very challenging market environment. Cotton has been falling. Polyester has been falling. Viscose has been falling. Lenzing specialties continue to increase. Demand remains very strong. Prices remain very resilient. We could, I think, on a net basis further increase prices.

One of the things that helps us in this context as well, even though from a volume perspective, yet is small, is that it is not only the blending with viscose, with cotton, with polyester but it's increasingly also the way we bring TENCEL Luxe, the way we bring TENCEL into applications with other luxury fibers. And that gives us an increasing headroom on the price side, and I think that some people will continue to focus on. We see this in development both for menswear, but of course also in some of the indigenous applications in traditional wear, whether it's in India, whether it's in China, whether it's in Asia where blends with silk and TENCEL becomes increasingly popular.

Now specialty fiber is doing well. As already shared with you, we will invest in our 100 kt line in Thailand. Project team is now well on track. We're reviewing the project regularly. We have a great staff, great team over there. And by the year 2021, we intend to bring the volume up to the market, so in '21 we will have start-up. As already mentioned, we have there sufficient space for more lyocell line, so we see that Prachinburi could become the biggest lyocell hub for Lenzing but also for the world.

Now the basis for this investment decision was, of course, our conviction that the lycell market, in general, is very attractive, and from our point of view, nothing has changed over the last quarters. Nothing has changed. Everything that is announced in being new capacity was something that was in our strategic planning. Nothing has changed. We are very well set up for what is to come. We are the cost leader. We are the innovation leader. The market has been latently undersupplied. I said to some of you also individually, I actually wouldn't mind to have some of the development burden in the market to be shared amongst others. And last but not least, I think if you look at the scale of the assets, I think we probably can say we're at least, call it, a bit of a more aggressive scale pop that I think will help also our cost to develop very positively.

A major element both on the attack but also on the defense side, of course, is the TENCEL brand. We are convinced that on the long run, the ingredient brand is the most important shield that should help the attractiveness of our TENCEL franchise. And there, the branding is just crucial. And if we look since the launch of the new brand beginning of 2018, we just made significant progress.

Also, if we now take the results of the top 7 indicators that we use to track our branding success, all of them point in the right direction. Particularly pleased we are that the fabric certification application where customers want to know is TENCEL really in our product that, that went up by some good 20-plus percent on a full year basis. We are very, very pleased that the amount of branded textile products doubled. So in the first half of 2019, we had the same 91 million of branded textiles out there as we had in the full year of 2018, great success. And then, more and more customers joined co-branding agreement where they're using our TENCEL promises as a core differentiator in their own marketing pitch. We're now at 57 co-branding partners which is again very, very helpful.

In the first half of 2019, we had close to 9 billion PR impression of our product brands in the various social medias, print and the like. And awareness for TENCEL as an ingredient brand continues to go up. We're now at 28%. We were last at 25%. And dependent on the market, we are anywhere between the 4 and the 2nd most recognized ingredient brand in apparel and home application.

One of the things that's very helpful, we continue to upgrade also our TENCEL web page. Quite often in the past, consumers and people ask, where can I actually get your TENCEL product. But now we have a lot of the brands very happy to be named on our website. We have a click-through mechanism that if a consumer, for example, arrives at Mara Hoffman, at Levi's, you click on it, you're immediately directed to the specific page on the website of the brands that use TENCEL where their customers are in their web shops. So that is also strengthening the cooperation between the brands and Lenzing, and I think increases the stickiness of the TENCEL brand with consumers as well as with brands. So all in all, specialty fiber business continues to do well. And we're taking all the necessary strategic steps together in the right direction.

The market for standard fibers, pretty challenging, pretty challenging. I think we see on all fronts, I think, an effect of the geopolitical tensions. We see uncertainty on the demand side. We saw it go through cotton, we saw it in polyester, we saw it in viscose, and as a consequence, prices eroded. And in the second quarter of 2019, we also saw viscose at historic lows of just over RMB 11,000 per ton.

The major elements that contributed to that, number one, the capacity additions that we talked often about, that in '18 or in '19 entered the market, as the constant currency utilization rate continued to drop to just over 75% or 77% in comparison to an already pretty dull 81% that we had same period of last year.

So next to the seasonal demand patterns that you very often have around the Chinese New Year, we absolutely saw the effects now of the geopolitical tensions, where quite some of the downstream customers were uncertain when and how to ship their garments to the United States. And I think that caused uncertainty, increased inventory, and we did see viscose inventory further downstream at over 30 days. It's pretty unusual.

Now since then -- that was around the May/June time frame, inventories did come down. Prices also slightly recuperated. We are now at around 12,200-ish mark. Inventory down below 20, so it's going in the right direction. We are not super pessimistic that we would fall back where we are -- where we were in Q2. At the same time, we will also not see a bouncing back on the short run to the levels that we had in '17, '18.

What is pleasing, even so we don't see the full effect yet, is the dissolved wood pulp prices also started to come down, even saw a 14% price decline on dissolved wood pulp on a -- compared to last year, it is still quite a bit less than what we saw viscose prices falling. All in all, not an easy market.

Now focusing also a bit on the pulp project. We were pleased that we could end the debottlenecking project at the Lenzing site with some 20,000 tons of dissolved wood pulp are now at our disposal. The Paskov debottlenecking will be finalized in Q1 of next year with around 15,000 tons. And we have continued to make good progress on our Brazil project. We have a great team established by them by now, I think very experienced people who did similar kind of large-scale projects in Brazil already in the past. Our partner Duratex, also very committed, good close collaboration. I think it really feels good to have a partner like Duratex at our side there. By now, our joint venture secured the biomass, the water, the land, also the points where we take the water, the point where we then also cleaned wastewater we'll bring back. We have now received also a temporary production license and per August 1, we also start with the site leveling even though the final decision of course, we can only take once the basic engineering and the quotations of our -- the suppliers are in. And that will be in still this year, say, by the end of 2019.

Now with that, I think over to you, Thomas, to speak a bit on the financials.

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Thomas Obendrauf, Lenzing Aktiengesellschaft - CFO & Member of Management Board [3]

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Thank you, Stefan. Hello, and welcome also from my side. Let me guide you through the most important financials for Q2 and first half 2019. Overall, we are looking at a very solid performance in a market environment that was significantly more challenging than in the year before.

So let me start with revenues. Revenues in Q2 came in with EUR 528 million for Q2. So revenues almost unchanged compared to last year, with volume on a similar level than last year and also sales prices overall on, basically, on the same levels as the year before.

However, analyzing sales prices a bit more, actually you see that especially the prices for -- stand at least close to CCF price in China, actually dropped by almost 17% in RMB. On the positive side of course, our specialties continued the very positive development we saw over the last couple of quarters. And last but not least, also from the FX side of course, we had some tailwind, especially from the U.S. dollar. The U.S. dollar being on a level of $1.12 in Q2 2019 compared to an average of around $1.18 the year before.

Looking at the share of specialty fibers. Actually we are now already at 48.4% as compares to 44% the year before. So we are making a lot of progress there, and we are very confident to reach the 50% mark, as promised, by 2020.

Moving on to EBITDA. Actually, just looking at the chart, what you can see here is EBITDA stable on a level of around EUR 90 million per quarter. Also, EBITDA margin stable on the level of around 17%. Q2 came in with EUR 89 million compared to EUR 93 million the year before, and for the first 6 months, we are now at EUR 181 million compared to less than EUR 195 million the year before. The decrease is -- it's basically with 2 reasons for that. Actually, whilst pulp prices for the first half were on a similar level than the year before, of course, the stronger U.S. dollar actually resulted in an increase in cost of materials and supplies. And on the other hand, actually, also salaries and wages, of course, are increased compared to last year. On the positive side, we saw a bit of a relief actually on the caustic side and actually, I would hope for more to come over the next few quarters.

Moving on to EBIT. Of course, on EBIT level, we see basically the same development as for EBITDA. What comes in addition is, of course, that our depreciation increased by about EUR 10 million compared to last year. But half of the increase is a result of IFRS 16.

Moving on to net profit. Net profit for Q2 now is at EUR 34 million and for the first 6 months, we are close to EUR 77 million in terms of earnings per share. We are now at almost EUR 3 for the first 6 months and EUR 1.32 for Q2.

Moving on to balance sheet. Three things I would like to highlight there. Actually, net financial debt, still on a very solid level; adjusted equity, again, strong with EUR 1.5 billion; and then adjusted equity ratio of almost 57%. And with regards to our liquidity reserve, actually as per end of June, we have liquid assets of slightly more than EUR 200 million and in addition, unused credit lines of another almost EUR 300 million. So actually, liquidity reserve are almost EUR 500 million by the end of June.

Last but not least, a couple of words on cash flow and trading working capital. Gross cash flow actually increased by slightly more than 20%; operating cash flow, on a similar level in the year before and free cash flow basically close to zero. So that means that actually all the CapEx we did in Q2 were basically paid by the operating cash flow.

With regards to trading working capital, not too much to be mentioned there. Actually, very stable on a level of around EUR 400 million and EUR 440 million. So overall, I think solid performance in a market environment that was quite challenging.

And with that, I hand back to Stefan for the outlook.

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Stefan Doboczky, Lenzing Aktiengesellschaft - Chairman of Management Board & CEO [4]

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Thank you, Thomas. So yes, I think Thomas summarized it well. Solid performance in -- for a rather exciting turbulent environment and in a way that's also what we aim for with our strategy. I think we are on a good track transforming the group from a more commodity-oriented, more viscose-oriented company into more brand, sustainability and innovation-focused specialty fiber producer. We're on good track there.

If you look at the major initiatives that we have, let's say, targeted for ourselves to accomplish this year, 2 of them are behind us, I think behind us in terms of making a decision. The plant in Thailand, of course, there we're now in the project in full swing. We finalized the LENZING ECOVERO expansion in China, still a product that creates a lot of pride and excitement within the group, going well. We will finalize the TENCEL Luxe pilot plant at the site still this year. That's also going well and is well on track. And I already spoke about the Brazilian venture.

Now with 48.4%, I think we're also on good track to bring us to the 50% specialty share of next year. In any case, I think it is a target that is important for us as a pointer, as a vector rather than that 50% in its own right is what counts. Because over the years, we will continue to grow this percentage, well, above that.

Now if you put all of this together, we clearly see that in the fiber market, the geopolitical tension, the pretty tense relation between some of the big economical block plays a substantial role. We see that on one hand, on the demand side a lot of uncertainty. On the other hand, we also see it from an import tariff point of view. You remember the discussion we had around Mobile, Alabama. Some of you I think challenged us, look, why didn't you continue. Now I think it was a difficult decision but at least one thing we, in hindsight, got right, we were concerned about import duties from the U.S. to China. At that time it was 5% and since June, it's 30%. So that would have affected us. At the same time, now we see both viscose, viscose yarn and garment, with the new announcement of the White House, that we would see 10% import duty for those products into the U.S.

So all of those developments over the last weeks are difficult yet to put into one framework and analyze it and know exactly what is the outcome. The one thing that we can say, turbulent, limited visibility, but all in all, pointing more to a more tense direction rather than to more relief or easy direction. We clearly see that on cotton, on polyester, on viscose, there is no major improvement expected. Cotton, polyester, even we wouldn't be surprised if it's continues to be quite substantial on the pressure. Specialty fibers continues to do well.

Where we do see some relief is on raw materials. I think the pressure we see on end products, we also see on raw materials. And structurally, we should see some relief both on the caustic side as well as on DWP side in the months to come.

If we pull all of these together, we feel that the outlook that we gave a couple of months back for 2019 is still the right outlook. And we expect 2019 to come in at a similar level as 2018.

All in all, I think, as a group, we are -- we saw in 2015 pretty well what is now going on. Chosen our strategy at that time based on this insight. I think we're well set up, we're executing with great discipline our strategy. As you saw with Mobile, Alabama, we also don't shy away of taking decisions to adjust the pace if the environment goes in the one direction or goes into the other direction. And I think we are well set-up. And with that, I think we've got a lot of confidence in the quarters and years to come.

With that, we would like to end our elucidation and open the floor for questions. Operator, please.

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Questions and Answers

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Operator [1]

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(Operator Instructions) The first question is from the line of Matthias Pfeifenberger with Deutsche Bank.

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Matthias Pfeifenberger, Deutsche Bank AG, Research Division - Research Analyst [2]

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The first one would be on -- first off, congrats to holding on to the guidance in this environment. And the question's related to that. Can you maybe share the components of this implicit step-up in terms of H2 versus H2 last year for about EUR 20 million. And I think it also is a step-up from the first and second quarter. Is it fair to say this is a function of year-on-year higher specialty prices, maybe some tailwind from the raw material prices and maybe the pulp expansion?

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Stefan Doboczky, Lenzing Aktiengesellschaft - Chairman of Management Board & CEO [3]

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Okay. If you look at second half year, I think there is -- we don't expect on specialty prices anything spectacular. I think on the raw material side we, indeed, will see some relief because -- particularly on dissolved wood pulp and caustic, some of the prices that we currently have in our P&L are still the prices that were there when they were higher. So some of that effect we will see. And of course, we will also not have some of the extraordinary items in the result as we had last year. So I think, that are in essence the key components.

What I would, however, would like to stress, it's the part maybe that's also in our outlook, that always have in mind that the exchange rate don't do something dramatically. So if, for example, the Chinese RMB goes completely in another direction, now that's something of course, we also would feel. So that is the proviso that we're always using.

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Matthias Pfeifenberger, Deutsche Bank AG, Research Division - Research Analyst [4]

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Okay. Fair enough. And the second one would be on pricing. You mentioned additional net gains in the specialty prices. But looking at this chart, it seems to dip a bit, so why there are sequential declines in the specialty prices? And also, given the declines in caustic and dissolving pulp, I think you said you don't expect viscose -- standard viscose prices to fall back to the old levels. But do these guys that are expanding capacities have more leeway now to go even more price aggressive, again?

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Stefan Doboczky, Lenzing Aktiengesellschaft - Chairman of Management Board & CEO [5]

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Maybe I start on the specialty prices. Always bear in mind that this is a 6-month average that we are comparing here excluding -- ex FX. So that's something you always need to take into consideration. In actual terms, we did see an increase, a slight increase in the prices if you compare now on a point basis. So specialty prices continued to inch up. You don't see the full effects be back in the chart. Maybe, Thomas, some words on raw materials?

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Thomas Obendrauf, Lenzing Aktiengesellschaft - CFO & Member of Management Board [6]

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I mean actually, what we -- this cost a lot over the last couple of quarters was actually development on caustic. Actually, caustic came down quite a bit already in Asia. We haven't seen that development yet in Europe. I mean there were first reductions in prices. However, the European index price is still far above the Asian indices. And actually, we would expect prices to come down further, especially in Europe.

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Stefan Doboczky, Lenzing Aktiengesellschaft - Chairman of Management Board & CEO [7]

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So I think, Mr. Pfeifenberger, that means where we were the sole victim of caustic now for a while, we are now starting prices to decline Europe also the sole beneficiary. So there you don't see really affect for our peers that they could become more aggressive. Now again, if you take the level of converged margins today, we can only conclude where we were already in very difficult territory end of last year, we're in much more difficult territory now even after prices came back up at the RMB 1,000.

And of course, if DWP prices would continue to fall, for some, that would indeed offer the opportunity to lower prices. However, the overall sentiment in the market I would describe as people are pretty exhausted already, so I don't think that there is a lot of hunger for lowering prices. But I must also say we have seen various surprises in this market before. But overall, they're looking pretty relaxed but the visibility is just not fantastic.

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Matthias Pfeifenberger, Deutsche Bank AG, Research Division - Research Analyst [8]

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Okay. And the inventories are lower as well so that will provide some support?

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Stefan Doboczky, Lenzing Aktiengesellschaft - Chairman of Management Board & CEO [9]

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Exactly.

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Operator [10]

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The next question is from the line of Sebastian Bray with Berenberg.

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Sebastian Christian Bray, Joh. Berenberg, Gossler & Co. KG, Research Division - Analyst [11]

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I would have 2, please. The first, the technical one on FX. Implicit within the guidance for similar results of sales and EBITDA. How much FX is there at the EBITDA level? And could you give an idea of the size of the benefits in H1? This gets a bit difficult because of what's happened with the renminbi, and that's partly offset obviously by the U.S. dollar. But I don't know where you provide the sensitivity, but if you could provide some guidance for the full year, that will be helpful.

My second question is on your long-term assumption for lyocell pricing. When this Thai plant is brought online in late 2021, early 2022, do you assume lyocell prices will be in a similar place to where they are today, higher or lower?

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Thomas Obendrauf, Lenzing Aktiengesellschaft - CFO & Member of Management Board [12]

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Let me take your first question actually on FX. I think we mentioned that several times, our net exposure in U.S. dollar on an annual basis is in the range of around USD 450 million to USD 500 million. And then I guess, any way, you can do the math on the impact we saw in first half of 2019.

Just looking at, for example, Q2, we're an average rate, I mentioned this in the presentation, of around $1.12 compared to $1.18. So actually overall a strong U.S. dollar is of course, very helpful. We do also have some exposure to the RMB. However, it is significantly smaller compared to the U.S. dollar.

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Stefan Doboczky, Lenzing Aktiengesellschaft - Chairman of Management Board & CEO [13]

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And taking your second question, Mr. Bray, as you became a specialist now also in our lyocell outlook. Four elements, the first one is that if we go forward I think that you need to recognize a couple of different things. The first one is that we will have a plant over there that will allow us to grow in our modal product mix to more attractive product mix. Because we have at the moment, in Heiligenkreuz, in Grimsby, in part also here in Austria, we need to produce standard lyocell where we would like to produce other products that have higher premium. So we have a mix improvement.

Next to that, I think that the efficiency of the network is also quite strengthened with the investment in Thailand. And I would not be surprised if the price for standard lyocell might even slightly go down. But the mix or the average price for us as Lenzing, I think will be significantly less affected or not affected because there's also one development that I think we only see in the beginning yet. And that is actually impact of our brand. If you take some other products such as GORE-TEX, Lycra and so forth and compare what brand premium there is there in those products compared to standard, I think that we are yet at the very beginning of the development.

One of the reasons is also that it's not that there is a lyocell price out there and then we charge a premium but -- and that is something that we have seen also in modal already for many, many years. There's a price setter and others follow. Now that's our assumptions, but as I already said in the summary, I look very relaxed into the future for our lyocell franchise.

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Operator [14]

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The next question is from the line of Laura Lopez with Baader Bank.

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Laura Lopez Pineda, Baader-Helvea Equity Research - Analyst [15]

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I have 3 questions. So can you maybe give us a guidance on the impact that the TENCEL shutdown had in the first half? And is this already completely resolved? Also the ramp-up of the last line, it's already going to be producing, let's say, for -- in the full second half.

Secondly, you had higher operating expenses in the second quarter, can you maybe tell us a little bit what were those expenses for? And what can we expect, let's say, for the second half and going forward?

And thirdly, so this dissolved wood pulp prices, as mentioned, have come down significantly. Does this change at all, let's say, the attractiveness of your investment in the dissolved wood pulp mill in Brazil? If prices continue to be that low, then the returns so, let's say, the incentive not to buy on the spot market might be lower. Can you maybe comment a little bit about that?

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Thomas Obendrauf, Lenzing Aktiengesellschaft - CFO & Member of Management Board [16]

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Okay. Let me take questions #1 and 2. Actually, on the Heiligenkreuz incident we had actually at the beginning of February this year, actually, Heiligenkreuz was down basically all -- complete February. And from then onwards, actually, we could start up line 1, line 2, line 3. So now we are back at full capacity already.

With regard to the financial impact, actually, of course, we have insurance for property damage but also for business interruption. So basically, except for the deductible, there was no financial impact actually on the result. What of course remains is that we could not supply the volume to our customers. So that of course, that is something that an insurance cannot cover, of course. So -- but financially, except for the deductible, no impact actually on our result.

With regards to the operating expenses, what you have to keep in mind is that we are working on a couple of projects. And as a consequence, actually, of course, consulting expenses and related things are higher. That is something, which I would expect at least in the midterm, of course, to go down again on the levels we saw in the years before.

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Stefan Doboczky, Lenzing Aktiengesellschaft - Chairman of Management Board & CEO [17]

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Maybe last on dissolved wood pulp, these investment decisions you need to live with for the next 30-plus years. We, very diligently, looked at the overall outlook for dissolved wood pulp over the long run to look at our competitive economics. And we came to the conclusion, number one, that we will have, by far, the lowest cost on dissolved wood pulp mill in the world. I think both the wood economics, the logistic economics, the energy efficiency of the plant I think will be unmatched in the industry. And we also think that on the long run, dissolved wood pulp prices are not there where they are today. At the moment, indeed they are quite a bit lower. But equally, we wouldn't calculate with some of the highs that we had in the recent past. We spend a lot of time understanding both from a reinvestment economics, from a swing economics of paper pulp plant from historical averages. And historically, you did see, if you just take the last 20 years, prices were at around the USD 900, USD 920 average mark. And we don't think that is this is an absolutely bad assumption for the future as well.

Specifically, because we see wood become an increasingly scarce resource in the Eastern hemisphere, whether it's from Australia, whether it's from Indonesia or Thailand, we see that in essence, the supply of chips to some of the Asian pulp mill will become increasingly a burden. So we are more excited than ever about the choice that we have taken with our Brazilian pulp mill.

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Operator [18]

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(Operator Instructions) The next question is from the line of Teresa Schinwald with Raiffeisen CENTROBANK.

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Teresa Schinwald, Raiffeisen CENTROBANK AG, Research Division - Chief analyst [19]

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I have one question, maybe a bit longer one. So could you shed some light on the CO2 reduction measures. What you're planning to do? How you want to achieve it? And how the CapEx would be distributed over the next 10 years I guess? So I guess the EUR 100 million figure is until 2030.

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Stefan Doboczky, Lenzing Aktiengesellschaft - Chairman of Management Board & CEO [20]

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Okay. I think I mentioned already in my summary. There are 4 key elements that will help us there. Number one, if you look at the major investments that we are doing now, whether it's in Thailand, whether it's in Brazil, they're very energy efficient sites to start with. But they also have the potential to be actually carbon-neutral sites. Because if you look at Thailand, we have the opportunity there to operate with very CO2-light energy mix. We have mix -- a bioenergy source that we can tap into, and that will make it a very CO2-light or a CO2-neutral installation. The same holds true, of course, for our pulp plant in Brazil. So that will have a significant positive impact already on the mix.

Next to that, we are improving the energy mix at existing sites. We already communicated, for example, that our Nanjing site that has been historically been fired on coal will be in the future -- will be fired on more sustainable fuels, especially gas.

Number three, we have a specific task force that looks at new technologies and energy reduction measures that we will deploy also at our existing sites. And last but not least, we're making this a very visible target for all our employees. I think we will follow different measures as with safety to make it a very, let's say, emotional element for all our employees. And I think we will see also out of this initiative, quite a positive impact. Again, CO2 neutrality means that over the whole of Lenzing we will be carbon neutral not at all individual plants. So it is in its totality.

The EUR 100 million will be spread pretty equally over the next sort of 6 years. Specifically, again, these are not very high figures and are part, I think, of ongoing shutdowns, maintenance work and so on. But I think we want to indicate that we take this challenge very serious and that we, as Lenzing, also provide the leadership for the industry.

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Operator [21]

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There is a follow-up question from Matthias Pfeifenberger with Deutsche Bank.

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Matthias Pfeifenberger, Deutsche Bank AG, Research Division - Research Analyst [22]

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It's just this story about this start-up company, I think close to you, to Lenzing, I don't know. It's some ex-employees of yours building TENCEL equipment. Can you maybe elaborate?

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Stefan Doboczky, Lenzing Aktiengesellschaft - Chairman of Management Board & CEO [23]

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That is not a start-up company I think that you referred to. one-A has been an engineering company -- that is, rather a while (inaudible). Just to be clear Mr. Pfeifenberger, do you mean...

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Matthias Pfeifenberger, Deutsche Bank AG, Research Division - Research Analyst [24]

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I think it's the first one. The one-A.

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Stefan Doboczky, Lenzing Aktiengesellschaft - Chairman of Management Board & CEO [25]

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Yes, one-A. Okay. That is a small engineering company that I think emerged out of [Tima AG] from the past. The head of this some 20 years back indeed worked for Lenzing. They do their business, they have their -- a couple of patents in their own right. They are around for many, many years. So for example, 2 of the Chinese competitors with their 50-metric ton lines, they have been deploying this technology. There's nothing new about one-A. That's not a recent development, and I think that has been on our map for a very long period of time. We are not concerned at all.

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Operator [26]

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(Operator Instructions) There is a follow-up question from Laura Lopez with Baader Bank.

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Laura Lopez Pineda, Baader-Helvea Equity Research - Analyst [27]

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Just a small one on CapEx for the second half of this year. We already see some costs for the Thailand project in the second half. So should we expect significantly higher CapEx expenses compared to the first half which was around, I don't know, EUR 95 million?

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Thomas Obendrauf, Lenzing Aktiengesellschaft - CFO & Member of Management Board [28]

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Yes. First half was EUR 95 million. So actually based on the approval we have for the Thailand project, our CapEx is expected to increase. I would say for the second half probably a level of around EUR 150 million.

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Operator [29]

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There are no further question at this time, I would now like to hand back to Stefan Doboczky for closing remarks.

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Stefan Doboczky, Lenzing Aktiengesellschaft - Chairman of Management Board & CEO [30]

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Okay. Ladies and gentlemen, thank you very much for joining the half year call. In summary, turbulent environment, solid nonturbulent results of Lenzing. We are well set-up for the challenges that we are facing. We're very confident and very proud on our specialty business. And we will continue to transform the company into a more most stable, more robust specialty fiber company focused on branding, innovation and sustainability. I appreciate your interest in the company, and have a good day.

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Operator [31]

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Ladies and gentlemen, the conference has now concluded, and you may disconnect your telephone. Thank you for joining, and have a pleasant day. Goodbye.