Ladies and gentlemen, welcome to the Analysts Conference Call and Live Webcast. I am Alice, the conference operator. I would like to remind you that all participants will be in listen-only mode, and the conference is being recorded. The presentation will be followed by a Q&A session. You can register for questions at any time by pressing Star and 1 on your telephone. For operator assistance, please press Star and 0. The conference must not be recorded for publication or broadcast. At this time, it's my pleasure to hand over to Rohit Aggarwal, CEO. Please go ahead.
Thank you very much. Ladies and gentlemen, welcome to the presentation of LENZING's results for the first nine months of 2024. Before we begin, I would just like to introduce myself. My name is Rohit Aggarwal, and I'm the new CEO of LENZING since the 1st of September. I'm a strategic business economist and global manager with several decades of experience in leading positions in textile, nonwovens, the chemical industry, and I've held positions in Europe, America, and Asia. Thanks to my broad experience, I'm quite well-versed with LENZING's core business in all its facets, both in terms of content and geography. I'm very excited about the start. I've had some impressions that have been extremely positive. I had the opportunity to already meet many of LENZING's employees, and I've been impressed with the quality of people at LENZING.
In these first weeks at LENZING, I also met with a great number of customers and partners across textiles and the nonwoven industry. What struck me was the loyalty that LENZING enjoys with customers across the globe. Coming from outside, I knew about LENZING's excellent standing in the industry. Talking to our customers clearly confirmed this. LENZING is being very much appreciated and seen as a pioneer in the industry. I'm therefore convinced that there are still many opportunities out there that can be tapped as LENZING has a unique position in the industry. With today's presentation of the first nine months of this year, I'm also starting the dialogue with you all, which I'm very much looking forward to. With me today is Nico Reiner, our CFO, whom you are quite familiar with. Let's start with an overview of the key developments.
Our revenue increased by 5% to reach EUR 647 million in the third quarter and almost EUR 2 billion for the first nine months. We still had little support on the market side as generic markets have not really recovered, and especially the prices for generic fibers continue to remain on relatively low levels. However, we see further increasing positive impacts from our holistic performance program on the top line, which is reflected in the revenue increase. EBITDA significantly increased by 20% and reached EUR 99 million in the third quarter and EUR 264 million in the first nine months. The increase in EBITDA adjusted is even higher, as adjusted EBITDA increased by 80% in the first nine months compared to the same period in 2023. EBITDA margins continue to increase and were at 15% in the third quarter and 13% in the first nine months.
The positive development of EBITDA is supported by the steadily improving progress of the performance program on cost excellence, where we are well ahead of plan. Free cash flow was at EUR 50 million in the third quarter and thereby positive for the fifth time in a row, leading to a further decrease of our net financial debt. Overall, our performance continues to show positive developments despite the lack of market recovery. More needs to come and will come.
Ladies and gentlemen, let's look at the developments of our markets. According to preliminary calculations, in the third quarter, global apparel retail sales were slightly below both the same period last year and the previous quarter. Chinese consumers, in particular, were reluctant to buy clothing, especially high-priced clothing, in a challenging economic environment. In Europe, demand for autumn and winter goods increased slightly towards the end of the quarter.
In contrast, in the U.S., the beginning of a slowdown in the labor market and the end of uncertainty before the presidential elections initially resulted in a slight decline in consumer spending. Looking at non-wovens, we see a much more stable consumer demand, especially for hygiene products in developed markets. Coming to pricing, prices remained under pressure. Cotton prices fell to a level last seen in December 2020, and the Chinese price of polyester staple fiber fell by 7% over the course of the quarter. The market for viscose in China was characterized by good demand, high capacity utilization of factories across the industry, and inventory levels that were well below the long-term average.
The market price for viscose in China increased slightly in July and again in early September and was 2% higher at the end of the third quarter than the beginning of the quarter, but still on low levels. Please be aware that we are talking here about generic market prices in China, not LENZING fiber prices, which are mainly traded at a premium as we have further increased our share of specialty fibers. The price premium for fibers for TENCEL, LENZING, ECOVERO and VEOCEL brands proved to be comparatively resilient. Coming to input cost, we saw energy and chemical costs show a mixed picture in the third quarter. However, what remains unchanged, if you compare those costs of the previous years, is that most prices are still elevated.
Natural gas prices in Europe were almost four times as high in quarter three 2024 compared to 2020, and coal prices in Indonesia were 65% higher compared to 2020. Prices for caustic soda decreased in Europe in the third quarter, but increased in China and Southeast Asia, and remained up to 70% higher compared to 2020.
Looking now at the performance program, we saw that the relevant markets for us still show little signs of a sustainable recovery, with especially generic fiber prices continuing to remain under pressure, and input costs are still on elevated levels compared to 2020. It is therefore even more important that we took swift action last year and are implementing the holistic performance program. The program initiatives are primarily aimed at generating free cash flow and improving our EBITDA through strengthened sales and margin growth, as well as sustainable cost excellence.
Its costs consist of three pillars: profitable top-line growth with full focus on margin improvement, cost excellence in all we do, and free cash flow generation. The overall impact of the program should result in a significant positive free cash flow. Looking at our commercial activities, as previously mentioned, we've had many changes here. We have updated our commercial processes, strengthened our performance culture and commercial teams, upgraded compensation schemes, and introduced new sales management tools, just to name a few. As one of the outcomes, we have identified hundreds of new fiber sales leads in all regions in textiles and non-wovens to strengthen our top-line growth and increase our margins. One key element to increase the margins is to shift our product mix towards premium fibers. In quarter three, we successfully increased the share of specialty fibers by 14 percentage points, up to now 94%.
Looking at pricing, we strengthened our fiber sales pricing with new customers and markets and diversified into higher margin segments. As a result of our performance program, we increased our average fiber sales price in quarter three by 8% compared to quarter four 2023. The price premium for fibers of TENCEL, LENZING, ECOVERO, and VEOCEL brands proved to be comparatively resilient in the same period as generic market prices increased by only 2%. Cost savings, in addition to the positive effects of our commercial results. The management board expects annual cost savings of more than EUR 100 million, of which over 50% will be effective this year. To make it very clear, we are talking about recurring targets with an ongoing impact beyond 2025 as well.
Very good progress has been made in the area of product costs and quality through intelligent efficiency improvement measures.
Successes have also been achieved in purchasing through operational and strategic measures. Looking ahead, the holistic program is expected to continue to improve manufacturing costs and to leverage further cost potential, particularly in the area of overhead functions. At the same time, the structural and process improvements addressed will lead to positive effects on sales and margin generation. Performance program is currently well above plan. We can certainly be satisfied with our success so far, but there are still major improvement areas ahead of us in order to maximize our full potential. From an organizational perspective, we continue to focus on strengthening our global sales. At the same time, we are adapting our corporate organization to the changed market conditions and thereby strengthening the position of the LENZING Group as a leading integrated fiber group.
With this, I would like to hand over to Nico Reiner for an update on financials.
Thank you, Rohit, and a warm welcome from my side as well. As Rohit mentioned, the markets, especially textile markets, did not help us on the demand side. However, the measures taken in our Holistic performance program are driving our revenues and margins. Revenue increased by EUR 32 million in Q3 compared to Q3 2023. Looking at the first three quarters in total, revenues increased by 5% to close to EUR 2 billion. EBITDA increased by EUR 17 million in Q3 compared to Q3 2023 and significantly increased by EUR 45 million to EUR 264 million in the first three quarters. Looking at adjusted figures, EBITDA increased by even EUR 110 million in the first three quarters. Tax expenses amounted to EUR 78 million in the first three quarters of 2024, after EUR 9.8 million in the first three quarters of 2023. This increase was partially due to the withdrawal from the Austrian tax group.
As a result, net loss attributable to LENZING shareholders amounted to EUR 135.1 million. Let's move to the next slide. Looking now at cash flow, LENZING reduced trade working capital by EUR 110 million from the levels in Q3 2023, and it reached EUR 507 million. With regards to CapEx, LENZING continues to put a clear focus on maintenance and license-to-operate projects as part of its performance program, and CapEx significantly decreased to EUR 34 million. This compares to EUR 63 million in Q3 2023. As a result, free cash flow increased by 85% compared to Q3 2023 to EUR 50 million. With this, free cash flow has been positive now for five quarters in a row. In the first nine months, total free cash flow increased by EUR 330 million to EUR 192 million. This development shows clearly a positive impact from the measures defined in our performance program.
However, looking at assumptions with regards to the fourth quarter, it needs to be considered that seasonal effects such as the 14th monthly salary, as well as interest and taxes, will have their impact. Let's move to the balance sheet. On the left side of the slide, we show the development of net financial debt. Net financial debt further decreased by EUR 217 million, or 14% compared to Q3 2023, and was at EUR 1.4 billion at the end of the third quarter. Just as a reminder, Q3 2023 already included the impact of the rights issue. On the right side, you see the development of our liquidity cushion. It increased by EUR 52 million, or 5% compared to Q3 2023, and reached over EUR 1 billion at the end of the third quarter 2024, which is a result of our clear focus on free cash flow generation.
In September, we announced the successful issuance of a $650 million US dollar green bond by the Brazilian joint venture LDC. The bond, which matures on January 25, 2025, and carries a coupon of 7.95% per year. This bond met strong demand from institutional investors. Part of LDC's new financing structure, with a total volume of $1 billion US dollar, is also a $350 million syndicated loan. With this, LDC converts the existing project financing, which enables the erection of one of the world's largest dissolving wood pulp plants, into a standalone corporate finance structure. It is another milestone for the joint venture after having surpassed expectations in respect of its nominal design capacity of 500,000 tons per year. As you know, LENZING has a 51% share of the JV and is fully consolidating LDC.
Based on the maturity of the bond as well as the terms of the loan, the refinancing led to a positive shift of debt maturity. What you see here are the maturities after the refinancing as of October 31 and not September 30. Please note that the EUR 500 million hybrid bond is not included in the numbers on this slide as it is treated as equity in our balance sheet. With this, I hand back now to Rohit for the outlook.
Thank you, Nico. I can clearly say that thanks to our performance program, the operational performance in the first three quarters of 2024 was much better compared to the first nine months in 2023. Market visibility remains low, and we cannot predict when a full market recovery will occur. But so far, we assume stable demand in bulk and have a cautious outlook on the generic fiber market development for the remaining of the year. However, we are not relying on tailwinds from the market. We continue to take the future in our own hands. As a result of the performance program, we expect ongoing improvements of our margins, and on the cost side, we expect positive impacts from our cost excellence activities to continue. We therefore clearly confirm our expectation for the EBITDA in 2024 to be higher than in the previous year.
With this, I will hand over back to the operator for the Q&A.
We will now begin the question and answer session. Anyone who wishes to ask a question may press star and one on their telephone. You will hear a tone to confirm that you have answered the queue. If you wish to remove yourself from the question queue, you may press star and two. Questioners on the phone are requested to disable the loudspeaker mode and eventually turn off the volume from the webcast while asking a question. Anyone who has a question may press star and one at this time. Our first question comes from the line of Christian Faitz, Kepler Cheuvreux. Please go ahead.
Yes, good afternoon, gentlemen. Thanks very much. One question, please. Why is it so difficult at this point in time to get a premium for a lyocell versus standard viscose, at least looking at the usual market information letters? Is it the price-conscious consumer? Thanks very much.
So thank you, Christian. I will hand over this question with regards to the price difference of lyocell versus Viscose to Rohit.
Yeah, so Christian, thank you for the question. I mean, the price premiums do depend on the fiber types and grades of specialty. And however, as I'm sure you understand, it's very difficult to comment on the lyocell pricing in the market right now. It dictates on two counts. One is the overall market conditions, which we have spoken about earlier, and also in terms of what we see as the landscape in the market from a supply standpoint. So again, our focus remains very much on helping to increase the premium of our specialty fibers. And that's where we are focused right now to make sure that we are looking to push price development into quarter four. And we see clearly that we are focused on our specialty products to improve irrespective of where the market prices and market price developments go.
Okay, understood. Thanks very much.
The next question comes from the line of Sebastian Bray, Berenberg. Please go ahead.
Hello, hello, and thank you for taking my questions. Rohit, good to have our first call. I'd have a few, please. My first one is on the use of revaluation adjustments and their incorporation into EBITDA. My understanding is that this was worth about EUR 90 million or so in 2020, EUR 20 million or so in the first nine months of the year. Can this work the other way in 2025 if timber prices come down? Namely, could we have a year where, let's say, EBITDA is weighed upon by EUR 50 million or so? This is how many implications for the covenants the company has. My second question is on financing. Depending on your definition of net debt to EBITDA and the extent of consolidation, it looks as if LENZING is going to finish the year between four and five times net debt to EBITDA.
Is equity financing still an option that is on the table? And my third one is on working capital. Is there any factoring or any other debt-like instrument that is not included in the net debt that is used to keep the level of working capital down because the performance has been very strong? Thank you.
Thank you, Sebastian. So we will take one question after the other. So the first question with regards to the revaluation of our biological assets. So if it is possible that it will also go the other way around, is that correct, Sebastian?
Yes.
So I will hand over this one to Nico Reiner.
Yeah, thank you, Sebastian. So if you are relying here on the valuation of the biological asset, which we do have in Brazil, yes, for sure. We are based on IFRS, and we have to value this asset on market prices. And basically, there is also a possibility to go in another direction if market prices are coming down, as you were speaking about that. But on the other side, we are feeling quite well with our asset over there and the valuation of the asset. So that would be my answer to this question.
Now, with regards to the second question, Sebastian, with regards to the financing, can you repeat the actual question at the end? I couldn't understand that clearly.
If the company looks, depending on your definition of net debt to EBITDA, as if it's going to finish this year at four-to-five times, that's quite high. Is equity financing, namely raising equity to cut debt, still an option?
Okay, thanks. So I will hand over this question as well again to Nico Reiner, please.
Yeah. Look, basically, we are very forward-looking and professionally managing our capital structure. And with this regard, we are always looking at all available tools. But basically, at this point of time, I cannot comment on any potential equity, what you are talking about. So it's absolutely normal business that we are managing our balance sheet in a professional and forward-looking way.
Thank you. My last question, just to clarify, was on the working capital. So is there any factoring or any debt-like instrument like that that could mean that the actual net debt is understated? So does the company use factoring? And if so, what's the quantum? Because the working capital performance has been very strong.
Yeah. So basically, factoring is a very common and in multiple companies used tool. Yes, we use it also partially for managing our receivables. Yes, that I can confirm. But overall, I have clearly to highlight that our Holistic performance program, which we brought into place, is significantly supporting the development of the working capital. So therefore, I think that's also very important to take this into consideration. And we are also intensively working on the development of our working capital going forward. But on the other side, we need to be realistic. EUR 1 billion is received on the working capital side. I would not see much more room to maneuver just to tell that also here clearly.
That's helpful. Thank you for taking my questions.
The next question comes from the line of Isha Sharma, Stifel. Please go ahead.
Hi, good afternoon. I would like to follow up on Sebastian's question, please. So if we look at your hybrid bond, which matures next year, and then the €500 million debt maturing this year and next, it's just about covered by our current liquidity. If equity raise is not something you can comment on, could you maybe give us a timeline? When do you have to take this decision? Because looking at your free cash flow, it was helped a lot this year by net working capital, and that might not be something that you can repeat next year. So if you could please help us with the moving parts of how we should think about your refinancing from this year to next, that would be my first question. And the second one is on interest expenses. We saw a step up here in Q3.
Is that a good benchmark that we should consider for the coming quarters? You also mentioned some seasonality. If you could please clarify what we should think about there. And then the last one is just a remark. You have removed a few slides from the presentation which showed price development of different fibers and also LENZING specialties pricing versus generic fibers. These are very helpful always. Can we expect them to reappear in the next quarters, or is this the new set that you are going to be using going forward? Thank you.
Thank you, Isha. So again, we will go one question after the other. The first one I would give to Nico Reiner with regards to the potential or timing with regards to financing decisions that will need to be taken next year.
Yeah, thank you, Isha. And look, when I think about the capital structure of LENZING, first of all, we are very proactively and professionally managing our capital structure. Secondly, if you think about the development over the last, let's say, 21 months, you can see clearly that we have taken always very substantial action when necessary, so when it comes for the capital injection in 2023 of € 400 million, we have done the maturity extension of € 250 million. We have brought in place a very well-delivering value creation program. We have now done very successfully with the high demand from investors, the refinancing of LDC. So I can comment we are doing this proven and evidenced professional management of our balance sheet going forward. So that would be my comment to your question.
Good. Then the second question was with regards to the financing costs. If what we see now in the third quarter of the financing cost can see as a benchmark for the next quarters to come? Again, Nico Reiner?
Yeah. If you look into the financing costs at this point of time, there's always a little bit of a fluctuation over the quarters. It would be probably better for you not only to look on a quarterly basis, but also to look on a nine-month basis for your assumptions. That would be my comment in this regard.
Good. And then with regards to your remarks on the content of the presentation, as always, I mean, we are looking at the presentation each quarter, what makes sense. Also, we are adapting that. But Nico, Rohit, any additional comments to that?
Yeah, well, I think thanks, Isha and thanks, Sebastian. I think the comment is clear. We continue to look at that set to see how best we can communicate where the company is and how we are moving forward and therefore, to bring out the key elements that would allow you all to get a better feel on how we are steering the group going forward. At the right time, if we have more in-depth discussions on our strategy and then on our path going forward, we'll be happy at the right time to share more content as needed that gives you a little bit more insight and granularity to how we are moving forward with our pricing or other elements of the business.
If you are taking requests on the content, it would be great to have a better view on the pulp section going forward, also quarterly, something that we calculate ourselves, but it would be great to have more details on, only if you are taking requests there. Thank you.
Yeah, yeah. Thank you, Isha. We'll keep that in mind. But what we continue to kind of mention that LENZING as an integrated fiber producer, that's where we are really focused. Pulp is a critical strategic backward integration for us, as well as we use that for part of that volumes to trade effectively. But really speaking, we are very focused on ensuring that our position as an integrated fiber producer remains in focus.
Thank you.
The next question comes from the line of Sebastian Growe, BNP Paribas Exane. Please go ahead.
Yes, good afternoon, everybody. Thanks for taking my questions and welcome, Rohit. Good speaking to you in this format and the second question I have is around the cost savings program and you said in the presentation that this is well above target. The year is almost done, so I would be interested if you could specify in more detail what greater 50% of the more than EUR 100 million target run rate might ultimately be and against the backdrop, apparently, I'm interested in what savings we might expect from the program going into 2025 and Rohit, if I may ask one question specifically to you.
As you have only joined the company recently, I would appreciate. I understand it's still relatively early days, but I would be interested whether you have spotted obvious things you would do differently and whatever comes to your mind that you want to share at this point. I'm happy to take it.
Thank you. Thank you, Sebastian. Now, first question with regards to the performance program, how we call it. So what we've seen this year already as a saving and what we expect for the next year, this one I would give to Nico Reiner, please.
Yeah, thank you, Sebastian. When you look, we have communicated that we want to achieve a EUR 50 million improvement in 2024, and we want to have an improvement of EUR 100 million in 2025, always compared to the basis in 2023. And what I can communicate here is that we are very positive on our performance program, that we will not only deliver these numbers, we will overachieve these numbers going forward, not only in 2024, but also in 2025. So therefore, we are very confident about the program, and we are intensively continuing it to shape and strengthen the competitiveness of LENZING going forward into the future.
If I may quickly come in here, wouldn't this require at some point in time, and why not now, raising that very EUR 100 million target to a new number?
Look, I think we have a very precise communication to the capital market, and we do guide only on EBITDA. That's our key number, what we guide to the market. And so therefore, I think we want to deliver, first of all, 2024 and get our homework done. And then we can talk about probably any adjustment to this topic when we move into 2025. But that's a discussion which we need to take internally.
Right.
Good. Then the next question was addressed to Rohit. Some insights from your first, a bit more than two months now, LENZING.
Yeah. Thank you, Sebastian, for the question. Let me share with you for the last eight to 12 weeks that I've been around here, and I've taken the opportunity to actually go out and get a 360-degree view on where the group sits today. Both talking to people outside the company, but also discussions internally to understand where we see further opportunities for the group to move forward. Here I can confirm that what pleases me with two things. One, the fundamentals are pretty much intact in which LENZING plays in. I mean, the growth of the wood-based cellulosic fiber market growth will remain, and that growth will remain quite strong for two factors. One is the overall cellulosic gap that you may be aware of, which is cotton is flat, but the world still needs more cellulosic fiber.
But also what is interesting, talking to CEOs of our customers and non-wovens and some of the clients and brands in textiles, it's clear that the sustainability is now front and center on everybody's mind, and it's a big topic in most of the boardrooms today. And therefore, for us to be able to partner with our customers to help them achieve their goals would be a way that LENZING could see tremendous opportunity for further development of this premium specialty fibers. So from where I kind of sit, it's early days still, but I see a lot of opportunity for us as to be able to continue to position ourselves at the forefront. Second thing is we are committed to ensure that we are spending efforts and resources on innovation and on what's the next big thing.
For that, both internally and externally, we have a radar to be able to invest and bring out and scale technologies that could be the next generation. Therefore, you've seen the announcements we have made where we have kind of gone pre-competitive textiles participation, and things like that are going to be part of LENZING's next stage of its journey. So again, for me, it's still early days, but I feel excited about what's coming ahead and where LENZING Group can shape for the future.
Sounds good. Thank you very much.
Ladies and gentlemen, that was the last question. I would like to turn the conference back over to Rohit Aggarwal for any closing remarks.
Thank you very much. Just to sum it all up, I mean, you heard today that the markets are not getting enough support, a little support from the relevant markets. However, we see a positive impact coming from our own self-help on our performance program, both on our margins and our costs in third quarter. As a result, EBITDA developed further in the right direction, and free cash flows have been positive now for five quarters in a row. We'll be giving you the next update with the full year figures on March 14th. And at this stage, then I would like to just thank everyone and would like to close the call. Again, thank you very much, ladies and gentlemen, for joining the call.