Ladies and gentlemen, welcome to the Lenzing AG Third Quarter Results 2026 Conference Call and Live Webcast. I'm Moritz, the call's operator. I would like to remind you that all participants will be in a listen-only mode and the conference is being recorded. The presentation will be followed by a question-and-answer session.
You can register for questions at any time by pressing star and one 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 Mathias Breuer, CFO. Please go ahead, sir.
Perfect. Thank you, Moritz, and good afternoon, everyone, from the Lenzing office, together with my colleague, Georg Kasperkovitz. I'm very pleased to present today Lenzing's results for the third quarter and the first nine months of 2026, following the successful completion of our recent capital increase. I will begin with the key highlights. Georg will then take you through the market environment and discuss the main operational developments before I will provide a more detailed review of the financial results.
Looking into the key highlights, the headline for the first nine months of 2026 is the clear improvement of our underlying operational performance. Revenue, as you can see, pretty stable and remained resilient despite the deliberate exit from unprofitable business, validating the strength of our value-focused strategy. Our profitability continued to improve.
The EBITDA adjusted for restructuring costs increased to EUR 114 million in quarter three, corresponding to a 17% margin, or up 35% compared to quarter three in 2025. This completely reflects the impact of our operational excellence initiatives, our cost discipline, and our pricing measures. Cash flow remains positive, while below the exceptionally strong prior year comparison, which benefited from significant working capital optimization in 2025. But within quarter three 2026, also here, underlying cash generation remained solid.
The leverage ratio stood at 3.3 times EBITDA at quarter end. It came down from end of June 2026, as you remember, and including the successfully completed capital increase in October, the pro forma leverage would be approximately 2.6 times adjusted EBITDA, highlighting the significant strengthening of our balance sheet. Following our guidance for the full year, further improvement is to be expected for the end of the year.
Overall, quarter three confirms that the transformation measures are gaining traction, that we're driving higher profitability, and that we are creating a stronger financial profile for our company. Let me briefly update you on the successful execution of the comprehensive refinancing package. In October, we completed the capital increase of approximately EUR 300 million, issuing around 34.8 million of new shares. The new shares started trading on October 23rd.
The transaction was well supported by the shareholder base, with a subscription rate of more than 99%, including full participation from our core shareholders and Oberbank. We're also pleased that Suzano Holding S.A., who is the controlling shareholder of Suzano, has invested separately. In parallel, we are securing approximately EUR 300 million of additional debt financing, including an upsizing of our syndicated loan and a new promotional financing facility.
Around EUR 150 million, this is the syndicated loan, has already been signed and extended. Together, these measures significantly strengthen our balance sheet, improve the liquidity, and provide the financial flexibility required to further execute our strategy and our transformation. Looking at the shareholder structure following the successful capital increase, not much changed. The core shareholders demonstrated strong support for the transaction, with B&C and Suzano Syndicate and Oberbank fully exercising their rights.
As a result, the shareholder structure remains highly stable, only minor changes to the ownership split, and an additional 0.8% investment by Suzano Holding S.A., as I mentioned in the prior slide. Suzano's option to acquire an additional 15% stake from B&C until 2028 remains unchanged. Together with the agreed six-month lockup, this underscores the long-term commitment of our anchor shareholders and the stability to the ownership structure also going forward.
Alongside the capital increase, we have made significant progress in strengthening the financial profile and the liquidity position. We successfully upsized and extended our core financing facilities, including the EUR 500 million syndicated loan and EUR 200 million revolving credit facility, both now maturing into 2030.
In addition, we are progressing the planned EUR 150 million Vorratsinvest facility, which will further enhance the liquidity and our funding flexibility. As the pro forma maturity profile on the right illustrates, these measures materially reduce the near-term refinancing needs as the maturity wall in 2028 and provide a significantly stronger financial foundation for the execution of our strategy. Now handing over to Georg for the market update.
Thank you, Mathias, and good afternoon from my side as well. Looking at the market, the key message of this slide remains that increasing prices of oil-based fibers and cotton continue to be supportive for wood-based fibers. Back in August, viscose prices were up around 15% year to date, supported by price increases of polyester by roughly 20% and by cotton of roughly 17%. Since then, this trend has accelerated.
Polyester prices are now up 43% year to date, and cotton prices 23%, while viscose prices have increased by 21%. As cotton markets remain constrained and polyester continues to face structurally higher feedstock and energy costs, we expect elevated competing fiber prices to persist, providing continued support for both demand and pricing in cellulosic fibers over the medium term. Let me also briefly address the impact of the Middle East conflict on our cost base.
As expected, the conflict has led to higher input and energy prices, particularly for our caustic soda procurement in Austria and sulfur and carbon disulfide generally, as well as higher electricity and natural gas prices. As you can see, sulfur experienced the most significant increase. However, it accounts for less than 20% of our total chemical costs. So, the message here is that despite the headwinds, the overall impact on Lenzing has remained manageable.
This reflects our strong energy efficiency, particularly at the Lenzing site, as well as our active cost management and hedging activities. In addition, we have been able to pass a large part of the cost inflation onto customers in the fibers division. Turning to fiber sales, volumes were, as expected, slightly lower at 211 kilotons, reflecting our continued focus on value over volume.
At the same time, pricing continued to improve, with average selling prices reaching $2.6 per kilo and EUR 2.3 per kilo, up both quarter-on-quarter and year-on-year. This positive pricing and mix effects more than offset the lower volumes. This demonstrates the strength of our commercial strategy and contributed to improved profitability in the quarter. Concerning pulp, production volumes remained stable at 306,000 tons, both compared to Q2 and the prior year.
External dissolving wood pulp sales volumes were also stable quarter-on-quarter, while lower year-on-year due to greater share of internal consumption. Pricing continued to improve, with average DWP prices reaching EUR 0.76 per kilogram, up 3% versus Q2 and up 7% versus Q3 2025. This reflects the continued tightness in the dissolving wood pulp market and provides additional support to our earnings development.
Let us now turn to our Grow Nonwovens, Reset Textiles initiative. Let me briefly reiterate the strategy we communicated end of July, because everything we do from here serves it. We remain firmly focused on executing Grow Nonwovens and Reset Textiles, reducing costs, and optimizing capital employed. Together with innovation and collaboration with customers, this is what creates a more focused, more profitable, and more resilient business, moving forward towards a balanced portfolio, a leaner cost base, and fewer stronger sites.
This slide highlights the strong progress we are making in executing our Grow Nonwovens, Reset Textiles strategy. On the commercial side, incentives are now fully aligned with our value over volume approach. We continue to see strong growth in strategic segments, particularly hygiene applications, while further converting textile viscose capacity to higher value products.
TENCEL branded lyocell has now reached 100% of capacity and continues to operate at full utilization. We have also strengthened our commercial organization with new leadership in both the textiles and the nonwovens business. These actions are reflected in the improved fiber adjusted EBITDA contribution, which increased by almost EUR 100 million from EUR 70 million in the first nine months of 2025 to EUR 160 million this year.
At the same time, we continue to make good progress on our EUR 120 million performance program. Personal measures representing annual savings of EUR 27 million have already been contractually agreed, covering more than 260 full-time equivalents. In addition, we have implemented EUR 31 million of energy and operational cost savings, representing almost 90% of our target in this area, and initiated EUR 32 million of non-personnel SG&A savings.
Looking ahead, we've identified a further EUR 21 million of personal cost reductions to be implemented through 2027, in line with the planned consolidation of our production network. Let me also update you on the implementation of our production footprint optimization, which is a key pillar of our Grow Nonwovens, Reset Textiles strategy. Our current footprint reflects years of expansion, but profitability across sites is not uniform.
We're therefore focusing our resources on our strongest assets while simplifying the portfolio elsewhere. This includes the divestment of our Indonesian viscose site, where we are currently in exclusive negotiations with a strategic bidder. A decision is expected before year-end. In addition, we have progressed with the preparations of the wind-down of our Heiligenkreuz site by the end of Q1 2027, and Grimsby by the end of 2027.
Customer communication and product transfers are progressing according to plan, with no disruptions to operations. For Heiligenkreuz, the production phase-out remains on track, with final production scheduled for March 31, 2027. We have agreed the social plan with the works council and notified the National Employment Service, AMS. At the same time, we are assessing a potential value-accretive divestment. Due diligence is ongoing, and subject to a satisfactory binding offer, we aim to reach a decision before year-end.
These actions will strengthen the competitiveness of our production network and support the next step of profitability improvement from 2027 onwards. As disclosed, the decisions result in restructuring expenses of EUR 36 million in quarter three and additional non-cash impairments of EUR 136 million related to the affected sites. While these are significant one-time charges, they are necessary steps to improve returns and create a stronger, more focused Lenzing going forward.
To complete the picture, let me briefly touch on the fourth pillar of our "Grow Nonwovens, Reset Textiles" strategy: innovation. Here, we are sharpening our focus on the most attractive growth opportunities. We continue to strengthen our innovation pipeline. This includes a recently signed joint development agreement for biodegradable cigarette filters with a global industry leader and the recent acquisition of hygiene fiber patents from Kelheim Fibres.
At the same time, we are seeing growing market traction for our specialty product system, TENCEL™ Modal Micro Air, now nominated by several leading apparel brands and retailers. Together with the industry recognition we have received, including the ITMF Award and inclusion in Time's Best Inventions of 2026, this reinforces our confidence in the long-term growth outlook. With this, let me now hand back to Mathias and the financials.
Thank you, Georg. On the first slide, with regard to revenues and adjusted EBITDA, not much words needed for the chart on the left. Revenue rather flattish, higher fiber and dissolving wood pulp prices more than compensated for the lower sales volumes, reflecting the continued improvement in our pricing environment, but also our resilience in the current geopolitical landscape. The adjusted EBITDA, and to remind everyone again, this is adjusted for restructuring expenses in the amount of EUR 36.6 million in quarter three, increased 35% year-on-year to EUR 114 million.
This improvement was heavily driven by the implementation of our strategy, higher fiber prices, favorable product mix, continued progress in our cost excellence initiatives. As a result, the adjusted EBITDA margin expanded by 4 percentage points to 17%, demonstrating the increased operational performance of the business and the effectiveness of the measures implemented over the past quarters.
What makes me extremely proud and what you cannot see on that slide, just as a voiceover, and what perfectly underlines that we are well on track, the operational EBITDA, so excluding non-operational one-offs, improved to approximately EUR 107 million in quarter three. There was limited impact from non-operational items, largest being the sale of CO2 certificates with EUR 8 million in quarter three.
The bioasset valuation, with a positive impact in quarter one and quarter two 2026, even turned into a negative impact in quarter three 2026. So, a very strong operational performance, operational EBITDA at EUR 107 million, continuous improvement of our underlying operational performance. On the next slide, to explain the quarter-on-quarter bridge, we see some of the effects that I have just mentioned. The bridge shows what drove the improvement.
Positive contributions from price, volume, and mix across the fiber division supported the quarter and has offset the cost inflation of EUR 15 million. As mentioned, valuation of the bioasset with an adverse effect to quarter two, you can see a negative effect of EUR 14 million compared to quarter two in quarter three.
In summary, we were able to successfully pass through cost inflation in energy, chemicals, and personnel expenses to customers, which represented the main driver of the improvement in our fiber EBITDA. In addition, the earnings benefited from the continued execution of production efficiency measures and the personnel reduction implemented under our performance program. Turning now into cash flow, we maintained a disciplined approach to both working capital and CapEx.
The trading working capital decreased by EUR 17 million year-on-year to EUR 538 million, mainly driven by lower inventory levels, while remaining at around 20% of annualized revenue. CapEx remained tightly controlled at EUR 35 million, also broadly in line with the previous quarter. The unlevered free cash flow amounted to EUR 12 million in quarter three.
While this compares to EUR 103 million in the prior year quarter, the year-on-year decline is largely due to an exceptionally strong quarter three 2025 operating cash flow, which benefited from a substantial working capital optimization. The operating cash flow in the quarter reached EUR 46 million, reflected continued positive earnings generation and disciplined cash management. Overall, we continue to focus on preserving liquidity and converting the improvement in profitability into sustainable cash generation going forward.
Deep diving into our working capital, the working capital management remained disciplined throughout the quarter and, in principle, is reflecting the pricing adjustments that we are seeing both in our costs and in our sales. Inventory optimization continued, with inventories reduced by EUR 64 million, or 11% year-on-year. This reflects ongoing efforts across both fibers and dissolving wood pulp, despite increased prices.
At the same time, trade receivables increased by EUR 46 million, driven by the improved pricing levels. Trade payables remains broadly stable within the quarters. As a result, trade working capital declined year-on-year and remained around 20% of annualized revenue. However, compared to the exceptional working capital release achieved in the prior year period, the cash contribution from working capital was lower, which explains the lower operating cash flow and free cash flow in the quarter. Turning over to the balance sheet.
Net financial debt was roughly at EUR 1.4 billion, almost unchanged compared with the prior year period, despite ongoing investments, restructuring activities, and foreign exchange effects. This figure does not yet reflect the capital increase completed after the reporting date. So on a pro forma basis, taking into account the approximately EUR 300 million equity inflow, net financial debt would have been reduced to around EUR 1.1 billion.
This development reflects, on the one hand, disciplined balance sheet management, the continued focus on financial stability, as well as the recent equity transaction. The liquidity cushion, so cash on hand plus the revolving credit facilities that are not used, amounted to EUR 764 million at the end of September. Including the recent completed capital increase, the pro forma liquidity would have been around EUR 1.1 billion.
This continues to represent a substantial liquidity reserve consisting of cash, liquid assets, and available committed credit facilities. Together with the successful capital increase and the remaining financing measures planned for the completion by year-end, we are creating a solid financial foundation to support the next phase of our transformation and strategic portfolio decisions. Moving now into the outlook and looking ahead, pricing remains constructive across both fiber and pulp.
We see in pulp even a U-turn now into a level of $930 into Q4, so a level that we have seen at the start, at the beginning of the year 2025 at the last time. So a very strong momentum that we see also in Q4, and that potentially also continues into 2027. At the same time, we continue to face higher energy and raw material costs, which represent a headwind to us.
However, especially in the fiber division, we are in the position to largely pass these costs through to customers, mitigating a significant part of the impact. Based on the current market condition and our year-to-date performance, we expect full-year adjusted EBITDA above the prior year level in a range of EUR 430 million-EUR 460 million to be achieved.
In addition, the portfolio and site decisions to be taken by year-end will further sharpen our industrial footprint and resource allocation going forward. The benefits of our Grow Nonwovens, Reset Textiles strategy are expected to become more and increasingly visible from 2027 onwards, supporting a return to revenue growth, an EBITDA margin of 20%-25%, and a sustainable leverage below 2.5 times. This concludes my speech, and I would like to hand over to Georg before we move to the Q&A.
Thank you very much for your attention, and we are now very much looking forward to your questions.
Ladies and gentlemen, 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 entered 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.
In the interest of time, please limit yourself to two questions and rejoin the queue for any further ones. Anyone who has a question may press star and one at this time. One moment for the first question, please. The first question comes from Christian Faitz from Kepler Cheuvreux. Please go ahead.
Yes, thanks. Good afternoon, everyone, and congrats on the results. Two questions, please. First of all, on the nonwovens. How much growth is, in your view, commercially secured? I do acknowledge you mentioned the cigarette filters, for example, but can you be a bit more specific? Because I believe you are envisaging 30% of sales coming from nonwovens.
So what absolute revenue growth and textile to nonwoven capacity conversions are required to achieve this? My second question would essentially be on your cash conversion. Why did working capital deteriorate sequentially? Can you elucidate this a little bit? Would you see a reversal of that trend in Q4, i.e., a significant positive free cash flow in the fourth quarter? Thanks very much.
Thank you for your questions. I will cover the questions about growth in nonwovens. First of all, what to expect for this year and next year is growth with existing nonwoven products. Here, I am very confident about profitable volume growth exceeding GDP growth. We have gained substantial market share, and we have secured a couple of contracts. So this includes existing-product solutions for nonwovens, in particular hygiene applications.
We have also, and I mentioned that in the presentation, secured IP rights from Kelheim Fibres. We have secured a joint development agreement for tobacco cigarette filter applications, et cetera. But these are not yet commercialized. So, they will add additional growth, or they have the potential to add additional growth, but this growth you will see in the financial numbers 2028 onwards.
Okay, thanks.
I will cover the second question on trade working capital and the cash conversion. In principle, if you look in quarter three numbers, there were several effects that contributed to a weaker-than-expected cash generation. One, on the inventories, I mean, we see at the moment higher impact from input costs hitting also the valuation of our inventories. This is one effect. The other effect is that we had some gradual shifts from September into October with regard to goods shipments.
So this will be catched up. In terms of trade receivables, it is a consequence or function of our ongoing price initiatives. What did not turn out well was our management of trade payables in quarter three, and here we can clearly expect a reverse trend into the year-end. Yes, we will reverse that into year-end, and we will focus again on DIO, DSO, DPO, as you were used from the last quarters.
Okay. Great. Thanks very much.
The next question comes from Patrick Steiner from ODDO BHF. Please go ahead.
Good afternoon. Patrick speaking. I will take my questions one by one, if I may. Firstly, if you could give us more info on to what degree this kind of strong rise in sulfur prices, especially in China, over the last two quarters, is already reflected in your P&L, and what is still to come? That would be the first one.
I take that immediately. And hi, Patrick. What we see, and I mean, we have a pretty short, let's say, reach out of our inventories. Typically, we are running on below half a month in order to very efficiently steer that. The price hike is fully in our September numbers already. We see at the moment decreasing prices in China, so we do not expect the full impact now also to float into Q4. There is a certain release with that regard now that happens in China over the month of October. So it will never peak on that level in total through the moving average price consideration.
That is very helpful.
No further hits expected.
All right, perfect. That is very helpful. Thanks. Second question is, can you give us more information on your free cash flow expectation for the full year 2026? Maybe separate this a bit into operating cash flow and CapEx outlays for the fourth quarter. Thank you.
You know that so far we did not guide on free cash flow. If you combine now my EBITDA guidance for the year, which is, I have to admit, a range, you combine it with our CapEx guidance of approximately EUR 150 million, and my message to trade working capital to continue back to DSO, DIO, DPO levels that we have seen, I think that should in principle answer your question. I cannot get more precise because this would contradict our EBITDA range guidance.
That's all right. Thank you. Thank you. Last one. I mean, you already indicated this during the presentation, but could I ask maybe again about the current price negotiations with customers for Q4 for the beginning of 2027? What do you see in the fiber space? Maybe also give us, maybe if you could, a bit more information about the separation between textile and nonwovens, what you see in terms of pricing development, customer mood. Thank you.
More than happy to answer that question. First of all, let me start with demand. Demand is very strong. We are sold out. We are supply constrained. This is good news, not only for Q4, but also looking forward. Second, in terms of prices, right?
When we look at the nonwovens business, in the nonwovens business, we have part of the business covered with long-term agreements with price mechanism that adjust the underlying factor costs and raw material prices. Part of it is negotiated. In textile, it's more a spot business, but the purchase orders and the prices for Q4 are more or less already finalized. I am very confident that we will have a strong Q4.
Thank you. Sounds very encouraging. I will get back in line. Thank you very much.
It looks like there are no further questions at this time. I would like to turn the conference back over to Georg Kasperkovitz for any closing remarks.
Thank you, everyone, for taking your time, for your interest in Lenzing, and I hope we see each other soon for the next update call. Thank you very much and goodbye.
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