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Edited Transcript of LNZ.VA earnings conference call or presentation 6-Nov-19 8:00am GMT

Q3 2019 Lenzing AG Earnings Call

Nov 7, 2019 (Thomson StreetEvents) -- Edited Transcript of Lenzing AG earnings conference call or presentation Wednesday, November 6, 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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* Christian Faitz

Kepler Cheuvreux, Research Division - Equity Analyst

* Laura Lopez Pineda

Baader-Helvea Equity Research - Analyst

* Sebastian Christian Bray

Joh. Berenberg, Gossler & Co. KG, Research Division - 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 Haley, your Chorus Call operator. Welcome, and thank you for joining the Lenzing Group Analyst Conference Call. (Operator Instructions) You 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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Thank you very much, operator. Good morning, good afternoon. Thank you for joining the conference call of Lenzing focusing on the third quarter results.

Lenzing delivered another quarter of solid results. However, this time, in a very difficult market environment. Group revenue almost stable at EUR 1.617 billion compared to around the same level the year before. EBITDA, slightly down at EUR 267 million compared to EUR 291 million for the same period of last year.

What we are very positive about is the ongoing development of our specialty business. We have now reached a specialty ratio after 3 quarters of close to 50%. You remember, our target is 50% by the year 2020, and that compares to 44% for the same period of last year.

The thing that has overshadowed, I think, for the last 1.5 quarters, I think, a lot were market prices for standard viscose, they were at historic low now also in the third quarter. And specifically, in this environment, we are very pleased with the results that we can show.

Lenzing, in its transformation from a commodity-oriented player to a specialty company, continues to make very good progress on the strategic projects. Our lyocell project is well on track in Thailand. Our Amadeus project, that's the code name for our dissolving wood pulp greenfield project in Brazil, developed as per plan. Thomas will speak later on about the private placement that we have announced, and we have very recently, beginning of October, announced a EUR 40 million investment, on the one hand, to reduce our sulfuric acid costs here at the site, but at the same time, creating a very positive ecological impact for the site here at Lenzing.

Let's look at the market. The market environment, I already said in my introduction, is challenging, and that is not an exaggeration. What we see across the textile value chain is that fiber demand has been impacted across the board. The major trigger there is the conflict between the U.S. and China and the triggered nervousness across the textile value chain. And people are just insecure. They don't know what the container will be taxed or dutied at, at the arrival in the U.S. As a consequence, we see different order patterns, different offtake patterns and shorter orders.

We also see, as a consequence, a drop in utilization rate of our customers at fibers, spinners and their downstream customers, and in certain areas, also destocking effects. One of the things specifically our Chinese downstream customers reported were the consumers in certain parts of China has become more conservative in the buying behavior. So all in all, on the fiber demand side, not an easy environment.

Not easier, by any standard, however, is the price side. Price side, we have seen on all the commodity products, substantial reduction in prices. If you look at the polyester development over the last 12 months, it's almost a delta of 40%. If you look at cotton, north of 20%, and viscose compared to the same period of last year is down also 30%. So all in all, I think, a difficult environment.

Cotton impact, in part by demand, but also by the cotton harvest that has been good. We see cotton inventories now also in China going up for the first time in 5 years, and the viscose capacity expansions have hit the market at the same time when actually demand has been relatively sluggish.

Then our specialty fiber business. The specialty fiber business has been remaining like a stronghold in a very turbulent sea. You see the developments of viscose and cotton, but you also see over the last month that the average specialty prices are slightly down. However, please do not forget the definition of the Lenzing specialties does include specialty viscose made by Lenzing. For example, ECOVERO, for example, some of the spun-dyed fibers that are priced with a substantial premium over and above viscose, but not like lyocell or modal. More on the constant basis.

So overall, the message is our price policy on the specialties remains fully intact. We have been very, very successful over the last month. However, at that moment in time, we just see across the board, also our customers having a very difficult time. But specialty fibers remains very resilient.

Two things at the moment are very important in our specialty business is, on the one hand, the whole development around sustainability; and the second one is the continued progress that we make on our brand building. On sustainability, next to the overall theme and the increasing awareness, it is the increased focus of the value chain on transparency and circular business models, recycled models that, I think, make an impact and I think put our company in a particularly favorable position. We are seen in the industry as a sustainability leader, as such, well positioned. Yes, I think it starts, of course, because all the products that we make are -- come from renewable resources, and they're biodegradable and compostable at the end of the life cycle.

We have been again ranked by the very influential Canopy Hot Button report in the textile industry as the #1. We have been the first player now in the beginning of the summer to commit to science-based targets and to also announce carbon neutrality by 2015 (sic) [2050]. We have also announced to reduce the total CO2 emissions per ton of product by 50% by the year 2030. And we also see that many very influential bodies, like eco supporters or our brand supporters, are actively supporting the TENCEL make it feel right campaign. And I think that gives us, with a total now 86 million targeted audience, a very good level of recognition.

As I mentioned before, it is now increasingly also transparency that is in the focus of retailers. We get very regular the question, "Lenzing, how do you make sure that we actually can guarantee that the products that we receive is genuine TENCEL or is genuine ECOVERO or is genuine REFIBRA?" And we are answering in 4 different ways. The first one is we're increasingly linking consumers that are interested in TENCEL, for example, to the landing pages of our partners. So there's a click-through to our web page that they immediately come on also the online web shops of our customers.

The second one is our branding system and textile certification system. We are testing every year thousands of elements -- or thousands of samples of different garment collections to prove to the downstream customers, yes, it is genuinely our product. And we are making it even easier for the very eco-focused product, REFIBRA and ECOVERO, where we also have specific tracers in the fiber that allows the brand with a very easy technology to identify, almost like with a scanner, yes, ECOVERO, yes, REFIBRA is in there.

We are particularly pleased with the success of our -- with the speed of our digital identification system. We have announced a partnership with TextileGenesis. We have now, in the first quarter, successfully tested our blockchain technology system with value chain partners. So the beta version was well taken up, and this project is progressing and planned and will be further brought to a broader audience already in the course of next year. All of that focus and transparency supports our circular business model, and I think, products such as TENCEL, such as REFIBRA and so forth.

In this context, at the Dornbirn conference on September 11, a new study was published or presented by the University San Diego, the Scripps institute that focus on oceanography. The institute looked at the different behavior of tissues made from different fiber classes in maritime environment. Here, you see the samples at day 0., so our fibers, but then also blends as well as polyester and poly-prop. Then after 14 days, you see that for modal, viscose and lyocell, not a lot is left; and after 35 days, everything that is cellulosic, all our fibers, you still see a little bit of nonorganic cotton being there. But even a product like polylactic acid is -- will not decompose and poly-prop and polyester, of course, there. In the combination, the lyocell matrix in a lyocell-polyester mix is biodegraded, whereas, of course, the polyester matrix is still there.

So again, results that help us in the positioning of our products. And I think, specifically, with the younger generation, that is more and more, I think, very acutely aware in terms of maritime littering. This, I think, our results did create, I think, a certain buzz for our brands.

I already mentioned that we have stepped up our branding efforts. We have now, from 3 last year, we have now more than 100 partners on our web page on the where to buy, where we have co-branding agreements where you can click through and immediately arrive at the landing page.

The new results for our branding efforts we will get by the end of the year, so those are the figures -- the officially published figures still for half year. But in the meanwhile, we have made a lot of progress in the co-branding agreement I already mentioned. We are now above 100, the total PR impressions. We are really skyrocketing. And in the TENCEL awareness, we are now in quite a number of markets, by now already #2 behind GORE-TEX. So all in all, our sustainability efforts, our branding efforts, I think, are closely linked with the success of our specialty business.

Brief look at our big projects. The lyocell expansion project in Thailand is fully on track. The site leveling, everything has been completed. Since October, now we have all the permits in place. The factory license was received also ahead of schedule, and we have decided to use Wood, Wood Plc, as the general contractor for the project.

We are particularly happy that over the last month, we also could secure the bioenergy for the site to an extent that can make our Thailand facility a carbon-neutral lyocell plant. And we are still reconfirming that we are well on track to complete the project by end 2021.

Let's turn the page now to the pulp side. The code name of our pulp project internally is Amadeus. We're doing this together with our Brazilian joint venture partners so we are using our -- Amadeus I think the globally recognizable code name also in this project. So Amadeus project progresses as planned. We are very pleased. We have received by now the installation license. That means we can start digging. We have received the basic engineering. We have -- we're in the middle of the site leveling, you see this also on some of the pictures. It's an enormous plot of some 300 hectares on which the site will be based. We have, in the meanwhile, negotiated with all the relevant EPC partners the letter of intent that can then be, I think, also finalized, after the Supervisory Board approval, put into contract. And we still expect to take a final decision by the end of 2019.

Now let's take a step back. And when we take decision, of course, we will give significantly more color on this important project. But a couple of things that I would like to mention already in this call. Number one, Amadeus will substantially transform Lenzing's cost position. We are today with Lenzing and Paskov in a very favorable cost position in the total cost curve. With our Amadeus project, we will be the absolute cost leader in this industry. So we are on the very last part of the cost curve, and I think that will be an absolute flywheel for the profitability of the group.

Very important it is, also looking at the current dissolved wood pulp prices to understand, the dissolved wood pulp is influenced by 2 major factors: The first one is the paper pulp market. In comparison to paper pulp, dissolved wood pulp is a very small business. However, there are some swing mills out there that can do either the one or the other. So that is an influencing factor, and we see at the moment, of course, paper pulp prices also at a very low level.

The second one are viscose prices. And both of those realities I already mentioned. Viscose was still some 40% down versus the same period of last year. Both of those factors put pressure on dissolved wood pulp at the market. But long term, I think this is a very solid and very stable business.

Important in the share of dissolved backward integration that the dimension of backward integration is increasing. We see this both from Sateri, but of course, also now from us. So it is more and more becoming the norm rather than the exception to be backward integrated. And the share of swing capacity as a total of dissolved wood pulp is also increasing.

So summing it up, I think it's not an easy environment. I think our projects are well on track. And with that, I would like to hand over to Thomas.

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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. So let me guide you through the most important financial numbers for Q3 and the first 9 months of 2019. And let me start with revenues. Revenues came in with EUR 530 million compared to EUR 560 million the year before. That is a decrease of slightly more than 5%. The main driver, of course, was that standard viscose prices are significantly low. If we just compare the CCF reference price from last year Q3 to this year, actually, this -- in U.S. dollar terms, almost down by 30%, slightly less in RMB terms. However, we have been able to largely offset the effect by further product mix optimizations, and also our prices for specialty fibers has been higher compared to last year.

And last but not least, of course, as you all know, we have a relatively high U.S. dollar exposure. It was, of course, helpful that the U.S. dollar in Q3 was an average on a level of $1.11 compared to $1.16 the year before.

Looking at the 9 months, our numbers actually almost unchanged with revenues being on a level of slightly above EUR 1.6 billion. So actually, the same holds true as said before, and regarding the details, as said before.

With regard to the share of our specialty fibers. This came in with 50%. That compares to 44% the year before. So we are very confident to reach our 50% target by 2020.

Moving on to earnings, and let me start with EBITDA there. Actually, what -- in addition to the reasons mentioned already on the revenue slide, there are a couple of things I would like to highlight. Let me start with cost of materials and supplies. Actually, as you probably all know, pulp prices are down significantly from a level above USD 900 to below USD 700 per ton. However, it takes some time for this effect to trickle down our P&L. And as we are a net buyer of pulp, and you all probably know that actually the -- our purchases of pulp denominated in U.S. dollar, therefore, actually what was helpful on the revenue side is, of course, less helpful on the cost side.

Second thing I would like to mention is on caustic soda. Actually, caustic soda prices in Asia are down significantly. They also decreased a bit in Europe, however, to a smaller extent. And this is also the reason actually why we started importing caustic from Asia into Europe, and we will definitely further ramp up our import capacities over the next couple of weeks to come.

And last, but not least, actually, salaries and wages slightly up due to higher FTE numbers. And also, of course, salary adjustments and other expenses also up a bit, mostly driven actually by higher expenses for marketing, but also higher freight costs.

With regards to the 9 months numbers, actually, we are now at EUR 267 million compared to EUR 290 million, and again, the same holds true, as I said before, for the quarter. Taking a look at salaries and wages, actually, they are up by EUR 17 million compared to the 9-month period the year before; other expenses, up by EUR 9 million. And again, here, the main contributor being freight costs and marketing costs.

Moving on to EBIT. Of course, we see basically the same development as for EBITDA. What comes on top, of course, is depreciation. Depreciation is up by slightly more than EUR 3 million. I would guess, I would say, about 2/3 of that coming from higher CapEx over the last 2.5 years, and the remainder actually being attributable to IFRS 16. For the 9-month period now, we are at an EBIT level of EUR 153 million compared to EUR 190 million the year before.

Moving on to net profit and earnings per share. As you can see here from this slide, actually, net profit, fairly stable on the level of around EUR 35 million to EUR 40 million. Earnings per share for Q3 now on the level of EUR 1.45 compared to EUR 1.62 the year before. For the 9-month period, actually, we are currently at EUR 113 million compared to EUR 133 million the year before.

Moving on to the balance sheet. Actually, let me start there with net financial debt. Net financial debt, slightly up as you will see from the cash flow statement. And actually, with free cash flow slightly negative, so we are now at the level of EUR 372 million with regards to net financial debt. Our balance sheet total actually increased by slightly more than 6%. Our adjusted equity, of course, still very strong with the level of EUR 1.55 billion. Adjusted equity ratio climbed down a little bit. Of course, that is due to the increase in our balance sheet total. Our total liquidity cushion, actually, almost EUR 500 million consisting of liquid assets of more than EUR 260 million and unused credit lines of about EUR 220 million.

Moving on to cash flow and trading working capital. Actually, gross cash flow, fairly stable on the level of around EUR 80 million; operating cash flow, around EUR 50 million mark for the quarter; and actually, free cash flow slightly negative, of course, driven by the higher CapEx number in Q3.

Looking at the trading working capital. Actually, trading working capital is up quite a bit by 8%. However, actually, the biggest chunk of this increase comes out of raw materials. Actually, at this point in time, at least from what I can remember, I think we have the highest inventory in wood, especially in Paskov, because spruce prices are currently on a extremely low level and in addition, comes, of course, our caustic soda imports from Asia.

Last but not least, actually, just a week ago, actually, we announced an ESG-linked Schuldscheindarlehen fiber placement. ESG, of course, standing for environmental, social and governance-linked Schuldscheindarlehen, based on our MSCI rating. Actually, the use of proceeds actually will be -- I mean, they will be used for general corporate purposes and refinancing of our existing Schuldscheindarlehen but also for capital expenditure. The amount we are aiming for is EUR 200 million. Of course, depending on demand, a demand-driven increase is possible. Currencies actually will be euro and U.S. dollar. As I said before, I mean, the interest rates will be linked to Lenzing's MSCI rating. Actually, our current rating is an A rating. And actually, in case, actually, our rating would be lowered, actually, then, of course, a sustainability step up would kick in. And the same, of course, would apply in case our rating would increase.

Placement will take place in Q4 2019. And as you can see here from this slide, actually, I think the reoffer spreads are indeed attractive. So overall, to sum it up, I think, a very solid performance in Q3.

And with that, actually, 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 very much, Thomas. Looking a little bit into the crystal ball, let's start a bit from a more big-picture view. Lenzing has been at, since 2015, on a transformational journey. And what we're seeing today in the market is what we expected to see back in 2015. And this insight at the time was more of this foundation of the strategy that we have chosen. As a consequence, Lenzing will stay the course.

We have set ourselves up for this year to take 4 major decisions: 2 of them already taken, Thailand as well as the expansion of LENZING ECOVERO in China; with the other 2 projects, we are very well on track and will execute as per plan. This is the greenfield dissolved wood pulp project in 2019 in Brazil as well as finalization of the second TENCEL Luxe filament line here in Lenzing. And we are on track, of course, with our specialty share of revenue because already, this quarter, we have reached almost the target of 50%.

Now looking a bit into the crystal ball. The macro environment is not easy. The IMF has lowered its forecast, mainly driven by protectionist tendencies, geopolitical tension. And also those currencies that are relevant for us. I just mentioned the RMB for example, remain volatile.

Those global tensions has specific impact, as I mentioned before, on the fiber demand and on the fiber textile value chain. We see nervousness. We don't see this going away on the short run. And as a consequence, we have seen declining demand throughout the value chain.

We see cotton, up -- cotton inventory, up; cotton prices, down; polyester, down. I already mentioned, of course, viscose being under substantial pressure. In specialty fibers, we expect, however, a comparatively positive development in the same period because we don't see a lot of those pressures on the commodity fiber going away over the next couple of weeks.

Driven by the challenging environment for viscose, however, on the upside, we see pulp prices to be quite a bit lower, and they will remain there for some time. And the caustic soda prices, we also expect now to come more down in Europe. In Asia, they have been already down.

Now visibility, however, at the moment is poor. This very challenging and volatile market environment, erratic development in the trade disputes between the major economic blocks and the uncertainty in the textile value chain don't make it easy to read what is happening short term. We expect, given this economic environment, the Lenzing Group expects the results for 2019 to be slightly below the level of 2018.

Now let me give you some color to this outlook. As I mentioned before, we are in a market that we assumed we would be in when we started to set the course. We have seen in our polyester prices, down 40%; viscose price, down 30%; cotton, down more than 20%, and we report relatively solid, relatively stable figures, very solid figures in this environment. Frankly, I'm absolutely pleased with the performance of our specialty business, the way we are holding up in this market and in a market that has -- where the commodity cycle has been eroding quite a bit how we stand there today.

Now I also like more the peaks rather than the trough, but at the same time, going forward, I think we see a very healthy situation for the Lenzing Group. As a consequence, we will continue to forge ahead with the 2 big projects in lyocell and dissolved wood pulp. Those 2 projects are transformative for the group. We invest in 2 absolute cost leaders in their respective industry, and those 2 projects have the potential to increase the EBITDA run rate they're a factor to.

We are very positive. We don't like the trough, but we feel we have sailed extremely well in an environment that hardly could have been more difficult.

Thank you very much. With that, operator, we would like to open the floor for question and answers.

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Questions and Answers

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Operator [1]

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(Operator Instructions) The first question comes from the line of Christian Faitz of Kepler Cheuvreux.

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Christian Faitz, Kepler Cheuvreux, Research Division - Equity Analyst [2]

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Two questions, if I may. First of all, can you please elucidate a bit, again, the financial results in Q3? And then second question, more long term, going into 2020, how do you see the fibers market, not necessarily the Lenzing market, but the fibers market in general going? Do you see an easing of trade conflicts? Or is there just no visibility that things might improve on the, let's say, more mass market side?

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

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On the financial result, actually, what you have to keep in mind is that last year, actually, we had some negative one-offs actually in Q3. And this year, actually, we had some positive citing out of FX, and that basically explains the difference.

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

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Looking forward at 2020, we are -- we're not today giving guidance for 2020. The one thing that I already mentioned in my summary, we don't see any short-term relief on viscose and polyester. What might be helpful for us, at least the cotton industry also thinks they should see a bit more upside towards mid of next year than downside. But I think short term, the visibility is really poor. A lot of that hangs -- or is dependent on how China and the U.S. will settle their trade dispute. And now be all my guess to give guess -- estimate for that. We just think we don't know. As a consequence, poor visibility.

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Operator [5]

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

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Laura Lopez Pineda, Baader-Helvea Equity Research - Analyst [6]

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So I have a couple of questions. First, on the cost position for 2020. So you mentioned the lower raw material prices, which we are not yet seeing fully reflected in your, let's say, P&L results at the moment. And so with this increased imports from China and also lower dissolved wood pulp prices, because I also think you see that with a delay because of your contract prices, and then should we expect in 2020 and also because of the inventories that you have built, then a decrease in material cost for 2020?

And also, together with that, so your personnel costs have been going up more than 7% each year over the last 3 years. Is this a run rate which is also expected for 2020?

And then for the project in Brazil, for the Amadeus project, I will be interested to know if the project will be denominated in U.S. dollars. Or would you be exposed to the Brazilian real because it's also very volatile? So that would be interesting to know. That will be all for now.

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Thomas Obendrauf, Lenzing Aktiengesellschaft - CFO & Member of Management Board [7]

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Okay. I mean, let me start with your first question on cost of materials and supplies. Of course, I mean, actually, as there is a delay in the lower -- or any price change to become effective, actually, in our P&L statement, actually, because the -- we are a net buyer of dissolving wood pulp. However, actually, whatever price we are getting invoiced this quarter, it actually depends on the average price of last quarter. So actually, there is a delay of a quarter. And as you could see probably from the development of dissolved wood pulp, dissolving wood pulp came down significantly. At least my personal guess is actually, I don't think it will come down any further or if not, maybe a couple of dollars, however, not much. And once we are stable on this level, of course, this will then take 1 or 2 -- actually, 2 quarters roughly to trickle down our D&A statement. So that probably will then be seen starting from 2020 onwards.

With regards to the personnel costs, actually, of course, I mean, if you take a look at our headcount number, actually, headcount actually increased by around 1,000 FTEs, starting back in December 2015. That is, of course, mostly driven by all the projects we are doing. As Stefan elucidated before, we are currently working on Thailand. We are working on the Brazilian project. We also did a lot of other projects in Austria, but also on the selling and administrative side. Overall, of course, headcount increase will highly depend on the number of projects we are doing. However, I would care to say that besides the 2 projects we elucidated, actually, there's no major other topic to be on our plate for the next 2, 3 years.

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Stefan Doboczky, Lenzing Aktiengesellschaft - Chairman of Management Board & CEO [8]

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Now with respect to Amadeus and denominated currencies, I think the invoicing side will be a U.S. dollar business. But of course, a substantial part of the project in itself will be in Brazilian real.

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Operator [9]

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(Operator Instructions) The next question comes from the line of Sebastian Bray of Berenberg.

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Sebastian Christian Bray, Joh. Berenberg, Gossler & Co. KG, Research Division - Analyst [10]

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My first one would be on the supply-demand balance expected for lyocell and for viscose moving into 2020. I appreciate demand may be uncertain, but could you please tell us what you are expecting in terms of capacity additions in the viscose market and in the lyocell market for 2020?

My second question is on the change in specialty fiber pricing shown in the slide. Is this just the case that specialty fiber pricing, by which I'm referring to lyocell and modal, is still relatively stable, and the viscose-linked grades have started to drop? Or has there been a wider -- has there been some sort of wider decline?

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Stefan Doboczky, Lenzing Aktiengesellschaft - Chairman of Management Board & CEO [11]

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Okay. Mr. Bray, I think first, maybe your second question, your interpretation is correct. Lyocell and modal remained, in this period, stable. And I think in -- you see the viscose prices to be linked -- or the specialty viscose to be linked to standard viscose, and that was taking the average down.

At the same time, what we are watching very carefully is where do we need to support also customers who are particularly under pressure now. Because at the moment, the life for spinners is very, very difficult. So I think we are very close with customers to what -- where support is being needed. But I think the lyocell and -- so the lyocell and modal prices have held up as in the previous quarters.

For supply and demand for lyocell and viscose, we still see additional viscose capacity coming into the market. But in comparison to what we had last year, this will be in the low 100,000 of tons. I think when we give them the full year outlook for next year, we will again create there more visibility.

On the lyocell side, we will see capacity coming next year into the market. We are speaking of several tens of thousands of tons that will come. Also there, we will give more visibility when we speak about next year.

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Operator [12]

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(Operator Instructions) And there are no further questions at this time. I hand back to Stefan Doboczky for closing remarks.

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

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Thank you very much, everybody.

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Operator [14]

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Sorry, we have a last-minute question from the line of Laura Lopez of Baader Bank.

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

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Sorry. Thanks for taking my other 2 questions. The other one is, on the Schuldscheindarlehen, can you -- you mentioned that part of it is to repay another one. So can you remind us how much is that? And would that improve also the interest rate that you're currently paying, so a decrease in the net financial results? How much is that? And when will you repay that? Is that already in 2020, I guess?

And then secondly, on the TENCEL Luxe project, I see that, that is going on track. So is that expected already for this year? And are you already discussing on a potential bigger capacity for that new product? Or how has the customer perception has been and feedback from the product?

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

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To your first question on the Schuldscheindarlehen, of course, we want to take advantage of the very favorable market conditions. Actually, once we have successfully placed the Schuldscheindarlehen, of course, the average cost will go down.

With regards to the refinancing of the existing Schuldscheindarlehen, that is still something, I think, that is too early to call of how much actually will be repaid. We are currently approaching the existing investors one by one and entering discussions with them. But then anyway, once we have placed the Schuldscheindarlehen, we will come up with a statement accordingly.

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

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Concerning TENCEL Luxe, we will finalize the investment still this year. We will start up in the new line in the first quarter of next year, and this will also then hit the market. The reception is very positive.

However, we always need to remember we're speaking of a new fiber class where we're operating in the silk segment. So in itself, it will remain a product that will continuously grow. But I think for a large-scale facility, we have said now that we want to focus on the 2 major projects, dissolved wood pulp and the T3 project. And I think everything that then with TENCEL Luxe will come after those 2 projects.

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Laura Lopez Pineda, Baader-Helvea Equity Research - Analyst [18]

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Okay, great. And just a very short one on the net working capital. Can we expect you already to decrease that in the fourth quarter? Or you will continue to take advantage of the low raw material price environment to maybe even increase it a little bit more?

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Thomas Obendrauf, Lenzing Aktiengesellschaft - CFO & Member of Management Board [19]

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I mean, actually, with regards to wood, I mean, we are -- our inventories are filled up to the roof. I mean, there is actually, I think we have gone to 100% of our storage capacity. So actually, at least on the raw material side, I don't think we can -- we will see any further significant increase. The only thing that you should keep in mind is, as I said before, with regards to caustic, we are still ramping up our import capacities. And with regards to caustic, there, I would foresee that there will be at least a minor increase still in Q4. However, that is rather -- it is rather, of course, driven by the price gap between Asia and Europe. And we also see it as a, let's say, as a strategic topic to have in place, which is important when you sit down and discuss prices with the European suppliers.

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Operator [20]

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We have a follow-up question from Sebastian Bray of Berenberg.

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Sebastian Christian Bray, Joh. Berenberg, Gossler & Co. KG, Research Division - Analyst [21]

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I just had a question on the moving parts of the EBITDA bridge for 2020. Now I appreciate it would be perhaps premature to give more explicit guidance, but am I right in saying that a reasonable set of assumptions would involve continued weakness in viscose, roughly flat specialties pricing, a bit of help from TENCEL Luxe, although I don't know how big that would be. Is there anything else that I'm missing within there, that would be helpful or unhelpful for the EBITDA next year?

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Stefan Doboczky, Lenzing Aktiengesellschaft - Chairman of Management Board & CEO [22]

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I think the set of assumptions you have chosen is correct. Don't overestimate the impact of TENCEL Luxe. I think the one thing that Thomas already also elucidated, the trickling down of raw material prices, specifically of dissolved wood pulp as well as on caustic.

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Sebastian Christian Bray, Joh. Berenberg, Gossler & Co. KG, Research Division - Analyst [23]

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Just to clarify, there is, in all likelihood, still going to be a substantial tailwind from -- or the opposite. Sorry.

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Stefan Doboczky, Lenzing Aktiengesellschaft - Chairman of Management Board & CEO [24]

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No, no, no. What we see is that the dissolved wood pulp prices, they're now at a very low level, but they have not trickled down to our P&L at that stage yet.

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Sebastian Christian Bray, Joh. Berenberg, Gossler & Co. KG, Research Division - Analyst [25]

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Okay. So that will, in all likelihood, come next year. Understood.

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Operator [26]

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And there are no more questions at this time. I hand back to Stefan Doboczky.

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Stefan Doboczky, Lenzing Aktiengesellschaft - Chairman of Management Board & CEO [27]

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So again, thank you very much for joining the Q3 call, and I wish everybody still a good day. Thank you very much for being interested in Lenzing.

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Operator [28]

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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.