Lenzing Aktiengesellschaft (LNZ) Earnings Call Transcript & Summary

Ladies and gentlemen, thank you for standing by. I'm Stuart, your Chorus Call operator. Welcome, and thank you for joining Lenzing Group's Full Year Investor and Analyst Call. [Operator Instructions] Your hosts today are Stefan Doboczky and Thomas Obendrauf. I would now like to turn the conference over to Stefan Doboczky, CEO of Lenzing. Please go ahead.

Thank you very much, operator. Warm welcome from my side. Thank you for joining the annual results conference call for analysts and investors. 2019, I think, a year not without challenges, but as we feel, a year in which the performance of the company was strongly impacted by viscose and viscose prices. However, the underlying, I think, strategic directions, operational performance very solid. Thomas will dive into more detail into the numbers later on, I think most of the figures you know from the preliminary figures. On the strategic highlights, we -- in essence, we did what we had set out to do. Some words also in the subsequent pages on that. End of last year, we then went through a strategy revisiting exercise, and we came out of this exercise also revisiting our targets. I will cover that also at the end of today's conference call. But I think the one thing that I would like to stress is we feel confident that by the year 2024, we will achieve an EUR 800 million EBITDA, given by the organic growth measures that we are taking. ROCE financial leverage will remain unchanged. We will turn the company more and more into a specialty fiber company with way over 75% and by 2024, backward integration, also well above 74 -- 75%. And CO2 emissions reductions we target by the year 2024, already 40% on a per ton of sold products. Stephan Sielaff, who joins us from Archroma, a textile coloring company, joined us by March 1. He will succeed Heiko Arnold as the CTO. And Christian Skilich, who is today responsible for pulp in Mondi, will join us by June 1 and will take the leadership for our pulp activities. Strategy execution, we delivered on those things that we have set out to deliver in 2019, whether it is our Brazil investment dissolved wood pulp that we decided on in December, progressing on our lyocell plant in Thailand that we decided to build in June of last year. We finalized our TENCEL Luxe filament pilot plant. We expanded our capacity for ECOVERO at our production site in China, and we were very proud that we already over accomplished our specialty target for 2020. Increasingly, Lenzing gets chosen but also recognized due to our sustainability focus. We are clearly recognized as a sustainability leader within the industry. We increasingly translate this recognition in the industry in very positive ratings and will also I think get more focused in the months and quarters ahead. We were very pleased with the success of our green ESG-linked bonded loan of EUR 500 million. And the fact that we not only have a very clear climate mission, climate journey, sustainability strategy, but that we also, with our climate target, have been the first one in our industry to get recognized by the Science Based Target initiatives. So our targets, our activities contribute to the Paris Agreement as per the SBT initiatives definition. Next, our sustainability focus 2019 was also the year of brands. We continue to strongly focus on pushing TENCEL, but also, we did a lot on the nonwoven side. Lyocell as a brand was very successfully launched. You remember that our total share in nonwoven is 30%. And in times like this, where hygiene and so on is at the forefront of people's attention, we see this part of the business doing particularly well. And we are very pleased that we have, next to the textile business, also a very solid second leg, the nonwoven business. And our brands there make a difference, and we see both viscose as well as lyocell to be well placed in this market. Here, you see a couple of KPIs that we continue to track in order to evaluate our branding performance. Fabric certification up on an all-time high at above 10,000 certifications. That is always a good vector also for the new collections that will be launched, including our branded fibers. Particularly pleased with the co-branding programs, where brands use our TENCEL, in this case, also lyocell, as a strong endorsement for their brand. And by doing that, it strengthens the credibility of our brand. We had 109 of those co-branding agreements already in the course of last year. And the brand awareness of TENCEL continues to go up. I already said in previous call, we are dependent on the region anywhere between #2 and #4 position as the most recognized ingredient and the only ingredient that is recognized as a sustainability promise. I'm personally not one of those Oscar night watchers on television, but this year, I was particularly pleased that we had 3 nominees, if I would call it that way. There were 3 dresses using TENCEL Luxe at the Oscars. And we were particularly pleased not only to have one of the Oscar winners, but to have Louis Vuitton to make a lot of media and social media coverage, mentioning, on all channels, the TENCEL Luxe was the basis of the dresses. They brought us more than 2.4 billion PR reaches and more than 40 million digital reaches via those various social posts. And I think the spillover for the total TENCEL brand franchise was very noticeable. A second product that I would like to mention on the strategic initiatives was ECOVERO. You remember ECOVERO is, in essence, our viscose with a different sustainability promise, earmarked with a marker, which is a physical identification system as of this year, second half, it will then also have a digital identification system. Sales last year were already some good 7% of our total viscose capacity, and we see a very, very strong growth momentum. And we are very positive that this year, we will well overachieve on 10% of our total capacity. Price premiums in this -- for this product continued to do very well. You remember, I always guided it is somewhere around to 10% to 15% price premium over viscose. At times like this, in part, even achieve higher premiums for these very special products, but demand in all parts of the world, but particularly in Asia, even at times like this, remains to be very, very solid. Looking at the market, I think medium term, no different picture to what we showed you already in the previous call, wood-based cellulosic fibers going to do well in the overall fiber basket. We don't see there changes going forward, some 4% to 6% growth rate. However, short term, we see on the commodity front a very difficult environment. It started with the U.S.-China trade conflict. We saw significantly more capacity coming into the market, specifically in viscose, but also in some of the other fibers. We saw decreased utilization rate. And as a consequence, we saw polyester at very low prices, we saw viscose at historic low prices. And despite the slight uptick on cotton, we also saw cotton prices to be on the very low side. In contrast, our specialty fiber business remained comparatively resilient. You see here also a slight downtick on the specialty curve. Please do not forget that the success we have with viscose specialties, which are priced on a viscose-plus basis, have in the mix effect, of course, an effect and that is why you see this curve also bending downward. Overall, we were very pleased with the pricing performance of our specialty fibers in this very difficult market. Looking a bit, a deep dive now into viscose. The capacity additions that we projected did come in. As a consequence, we saw utilization rate drop over the year, 77%, towards the end of the year, we were even just in the low 70s with it. The standard viscose prices have declined some good 30% throughout 2019. We ended the year at around RMB 9,400 per ton. Since then, prices have moved sideways. You see on both the upper and the lower chart is that the margin -- the profit margins as well as the conversion margins over dissolved wood pulp are at a very difficult level. The industry is making today substantial losses in viscose and also the contribution margin over pulp is at an all-time low, which means also for integrated players, this is a very difficult environment. What -- so also, dissolved wood pulp prices had a similar situation. We saw 630 tons on the dissolved wood pulp front. And all in all, I think the viscose industry is, at the moment, grim. However, I would also say it is unlikely to get worse because there is very little air left in dissolved wood pulp, there is negative air left in the viscose conversion. So I think that will indicate it will not get much worse. However, I think we all need to look at that in the current COVID-19 scenario, and we will get to that in the outlook. On the capacity side, we do expect that some of the projects that are going on still will be finalized this year. This will be anywhere between 300 to 500 kilotons. So we will not see a big relief on utilization rates in 2020. However, as of 2021, next to some spillovers that we still might see of some up to 200 kiloton, if at all, we then do not see any further projects at the current -- at the moment currently in the making. And we do then expect to have a similar situation as we had in 2015, '16, '17, where very little capacity was being added. On the lyocell market side, the industry develops as we, I think, projected, as expected. After having been the only market developer for years, having been, in essence, also the bottleneck for growth in the industry due to supply constraints, we had in 2019, companies entering the market with some 50,000 tons. And over the next 2 years, we expect each year, some 130,000 tons in terms of capacity which might get added. That is in line with our strategic planning. It's some 2 years later than what we had expected when we launched the strategy in 2015, and we feel we are well positioned. Number one, we do expect this development will help further market growth. From our setup and our cost position, we feel very comfortable. And we are not having one lyocell, we have around 50 different SKUs targeted for different applications, different functionalities. And by doing that, I think we are well suited to serve our customers. Last, also the ecological footprint from our product continues to draw attention because contrary to our competition, we're the only noncoal-based company with lyocell and that gets with an energy-intense product also important. And so all in all, on the lyocell sale market is developing as expected, and we feel we are well set up for this development. On the expansion projects, we were very happy with the decision that we could start dissolved wood pulp project in Brazil in December. Since then, we not only have all the licenses, we have the biomass secured, we have all the engineering finalized, we have set up a company now with Duratex. We also, I think, made good progress with all the suppliers. We have signed the agreements with the various EPC suppliers for the different islands. All in all, the project is well on track. And maybe then later in the question, Thomas will also focus some of the financing detail that you -- he mentioned here in the slide. All in all, we are very pleased with the progress of this project, and we are fully on track. Startup is planned for mid-2022. Lyocell, same story. We are well on track. The project is running in time, in budget, bioenergy at the site is secured. So Thailand has the potential to become our first fully carbon-neutral fiber site in the world. And we will also benefit strongly from the significant tax benefit that those strategic investments in Thailand are being awarded with. With that, I would like to hand over to Thomas to focus on the financials.

Thank you, Stefan. Hello, and welcome also from my side. Let me guide you through the most important financials of 2019. And let me start with revenues. Actually, revenues came in with EUR 2.1 billion for 2019 compared to EUR 2.17 billion the year before. So we are looking at a decrease of slightly more than 3% or EUR 70 million. The main driver, of course, of the decrease was the significantly lower prices for standard viscose. However, we could largely offset the effect by further mix improvements and also by our specialty prices, which were slightly up compared to last year. With regards to our share of specialty fibers, we are now slightly above 51%. That compares to 45% the year before. So actually, we also made very good progress in this regard. Moving on to operating results, and starting with EBITDA. EBITDA came in with EUR 327 million, that compares to EUR 382 million the year before. So that's a drop of EUR 55 million. So that's less than actually the price impact we saw on the revenue slide. So actually, we were in a position to compensate a bit. Looking at EBIT, actually EBIT came in with EUR 162 million compared to EUR 238 million. So that's a difference of 31% or EUR 75 million. So compared to the delta we saw on EBITDA level, what we have to add, of course, is higher depreciation. The higher depreciation was caused, on the one side by the higher CapEx spend of the last 2 years. This is one reason. The other reason is actually, of course, the first-time application of IFRS 16. And last, but not least, actually, we impaired some intangible assets at our [ modal ] site in the U.S. Moving on to net earnings. Actually, net earnings came in with EUR 115 million compared to EUR 148 million the year before. So actually, looking at the difference there, actually, please keep in mind that, in 2018, we had a one-off impact included that was reciting all of the acquisition of a 30% share at our Chinese site that did cost EUR 22 million on a consolidated basis. With regards to dividends, actually, we will propose at the Shareholder Meeting a dividend of EUR 1 for 2019. Moving on to cash flow and trading working capital. As you can see here, actually, operating cash flow fairly stable over the last 3 years. Free cash flow basically a 0. So that means that, actually, we could pay for all our CapEx in 2019 with our operating cash flow. Trading working capital, as in the past years, actually always hovering around the level of EUR 400 million to EUR 450 million. Last, but not least, a couple of balance sheet metrics. Actually, equity very, very strong still, of course, with EUR 1.55 billion. That's almost unchanged compared to last year. Equity ratio went down a couple of percentage points from 59% to 50%. That was, of course, driven by the significant increase of our total assets. Total assets increased by almost 20% on the one side, of course, driven by the investment in fixed assets. This was one reason. And the other reason was, of course, that in Q4, we placed [ Schuldscheindarlehen ] with an amount of EUR 500 million. And that, of course, is also reflected here in the liquid assets. Liquid assets actually went up from EUR 250 million to almost EUR 600 million by end of 2019. Net financial debt came in with EUR 400 million. I mentioned before that actually we could pay for our CapEx, basically, with our operating cash flow. What we then still need to add is, of course, the dividend we paid in 2019 and then, of course, the impact out of IFRS 16. So overall, from my perspective, I think a very solid year, especially when you keep in mind the very challenging market environment we were in. And with that, I hand back to Stefan for the outlook.

Thank you very much. I would like to structure the outlook a bit in 2 parts. The first one, more on the short term; the second one, more on the medium term. Outlook 2020, limited visibility at this moment in time. I think the situation around COVID-19 does not provide the basis for, I think, solid precise outlooks. We do expect that the challenging market environment will persist. We do expect that commodity prices, viscose, polyesters and so forth, are likely to remain subdued. Viscose and dissolved wood pulp prices are at historic lows and moved sideways over the last weeks. We don't expect them to really get worse. However, we also don't expect a fast rebound. Caustic prices are, in the meanwhile, very supportive for us because now also in Europe, prices came substantially down. But all in all, I think the market environment will remain challenging for us. On the specialty fiber business, we continue to do comparatively very well. I think all of the fundamentals we discussed in the outlook, and I think we still see that this pillar will be, not only, I think, make our company much more resilient, but also it will provide a positive momentum. In this market environment, we think the 2020 results will be below 2019 levels. And I think more precise, I think, color to that, we would give then during the Q1 call, when maybe we get some more clarity on the environment of COVID-19 around us. Now as I mentioned in my introduction, the strategic review that we undertook underpinned that we are in the right business, we are setting on the right horses. We will continue the transformation into a specialty fiber company focused on wood-based cellulosic fibers. We will stay the course. The focus areas will remain the backward integration to dissolved wood pulp. The specialization next to Thailand, we will continue to convert line by line in Asia into specialty viscose lines. And by doing that, reducing our exposure to the commodity cycles. Next to innovation, it will be branding and sustainability that will sort of dominate our promise to our customers, to the downstream value chain, and we believe that this is a very solid way to go forward. I don't want to sound like a broken record, but in the textile industry, the fiber industry, the strategy of profitable purpose-led growth makes Lenzing a unique company. We have chosen sustainability, not only as the core value, but as the key business driver and innovation driver in the way we green up the value chain by getting customers to choose our fibers versus other fibers. The way now by the World Economic Forum, by different industry association, community activities, bring our gospel and have others to sing the song as well, we are structurally influencing change, partnering for change. And our operating model, whether it's in lyocell, but also increasingly on viscose, to keep things in circle, minimizing environmental footprint, I think, is a key argument why I think brand Lenzing and our product brands, lyocell, TENCEL, ECOVERO and Lenzing as a product brand are going to continue to do well. We reviewed, as we are now in 2020, also our targets. I think the sCore TEN value driver will remain the same, specialization, vertical integration, sustainability. And we decided that -- we communicated a target of EUR 800 million of EBITDA. ROCE targets and leverage targets remain unchanged. So by 2024, we will again be well above 10% on the return on capital employed. Leverage net financial debt over EBITDA below 2.5%. But also, we communicated 3 strategic targets. Specialty share will be way above 75% by 2020. For the backward integration will, for a period of time, but even will become a slight net seller into the market. However, it's not our strategic intent to be a net seller, our strategic intent is to be a net buyer. But with our lyocell growth, we will eat up this extra capacity, and our target is to be above 75% in dissolved wood pulp integration. And on our road to carbon neutrality, we have set ourselves a target by 2024, we will reduce the CO2 emission per ton of product by 40%. If you compare what we have done in the previous strategy cycle and what we set out to do now, you see that the current EBITDA is well below the mid-cycle levels that I have the expansion projects that we are working on will provide a substantial lift in the earnings profile, EBITDA quality, but also reduce the amount of volatility that we have in our earnings because areas that we focus are more resilient, the areas that we focus in the end support each other. And as a consequence, we see ourselves in 2024 at the end of the transformation cycle and on having concluded what we have set out to do in 2015. With that, we would like to finalize our presentation and open the floor for questions. Operator, please.

[Operator Instructions] First question comes from the line of Matthias Pfeifenberger from DB.

Yes. Congrats to the Oscars and to the recent hirings. A couple of questions from my side. First, I'll ask them one by one. So firstly, on the -- on 2020, are you fine with the EUR 280 million, EUR 290 million EBITDA consensus in terms of -- in the light of COVID and also the supply chain disruptions?

Okay. We will not give more quality to that. I think that at this moment in time, we are -- I think we really need to see what we get back from the various segments in China. We are fully back on stream. Our plants run at -- run full. However, I think we need to interpret the situation day by day. The consensus today with 200 -- I think it is around EUR 274 million out there, I think, overall, you guys do a good job.

Okay. Second one is apparently on the EUR 800 million target. First of all, I think it's appreciated that you have basically a long-term target and a vision, I think it's very important for a company also in quantitative terms. I would just dig in a little, how much of price recovery in viscose? And how much of potentially some price declines in TENCEL are baked into the guidance? And what is the included D&A level for this EUR 800 million?

It sort of would deviate a bit up the EUR 800 million target and use, again, in rough terms a bit sort of 2019. I think to be at around EUR 150 million-ish on the viscose portfolio mix from viscose to more specialty grades, continuous improvement. And yet, there is also some price recovery included in there because the level that we have now, I think, is what -- let's say, is at the trough of a cycle. But I think mid-cycle, this is not the level that we will see. We would see another EUR 200 million-ish on the dissolved wood pulp side and then EUR 100 million to EUR 150 million range for our specialty growth that brings in both the capacity additions, I think, reflects that indeed, we have margin improvement, programs on the cost side. We will see some, I think, competition in this market. So all in all, I think this is the way we would break the EUR 800 million up.

Okay. And then also on the standard viscose pricing, now we've seen a 9,500 floor for quite some time. Now it's really not meant in a cynical way, but previously, you called 12,500 floor. And then, obviously, the world has changed again. I see your point on dissolving wood pulp, but then again, you will be launching a vast amount of dissolving wood pulp into the open market as well. And also, we are just looking at supply chain disruptions and potentially a global recession. So why can't viscose drop further? I mean it's a bit of a black box. I see the arguments on the losses and on the conversion margins. But right now, it's like another big black swan event in the market, right?

I think it's the type that -- my comment really, I think, is focused on what is the commercial logic if you just look at conversion margins, how much air is still on the dissolved wood pulp side. And I think that in basic drives this statement. I cannot disagree with you that if you just look at the last couple of days, the different scenarios are also possible. But -- and that's why I think we also refrained from giving too detailed guidance now on the very short run. At the same time, we -- I still -- at that time, it was not yet with Lenzing, but there were similar discussions around viscose when it came down, came down, came down. Only this time, we feel, yes, look, we have the market that we have. We are not doing any structural mistake in this market. I think we are, from a competitive position, both in the pulp side, pulp sourcing side, well set up. And I think that if you look at the input cost for textiles going forward, we historically have seen those low prices, demand and suddenly picks also strongly up in new collections. But this applies now in the next quarters, I think that we both can have a heated debate about, I think that we just need to wait.

Okay. And then a couple of technical follow-ups. Maybe you or Mr. Obendrauf can come back on the D&A related to the EUR 800 million. And then also, since '24 is kind of some time away, maybe you want to also update us on '21, which is going to be the CapEx peak. And I keep coming back to this, what is the leverage you expect when the CapEx is basically at the peak? Or what's the rocky level you would accept as a minimum level? Or what's even the EBITDA budget in that year? Can you give us some light there? And I really appreciate all the transparency here.

I mean actually, with regards to CapEx level for '20 and '21, actually, we expect a CapEx level around EUR 750 million for both years. Of course, this will be highly subject to progress we are making with both the big projects, the one in Brazil, of course, but also with the project in Thailand.

I think on the -- to give more granularity on 2021 EBITDA, I think that is not something that we would provide at this time. I think on the financing side, I think we are in the middle of finalizing the agreement. And I think you will need to wait a little bit until we can give you more color on that.

And maybe on the D&A, what's the D&A going to look like when you are basically done with the investments depreciation?

Mr. Pfeifenberger, I'm not 100% sure if I understood your question. You mean the depreciation once we are done with the big projects and you are now referring to the years '23, '24 is my understanding.

Something like that. Exactly.

Look, I mean, we are currently, on the level of depreciation, around EUR 160 million. Actually, if we do go for all the things we have actually currently in mind. And this is not just actually the big projects, there's a couple of other topics we have in our mind. Actually, depreciation could also double from today's level. But that, again, is subject to all the projects. I mean actually and so far, we are only committed to the Thailand project but also to the Brazil project. There are a couple of other things that we have in our pipeline. However, those things have not yet been decided or approved yet.

Next question comes from the line of Sebastian Bray from Berenberg.

I would have 2, please. The first is on the drivers of the EBITDA bridge. Thank you, Mr. Doboczky, for breaking out the different components. I had 2 questions on the components, in particular. The first was, is the EUR 200 million contribution from the DWP facility the fully consolidated amount that is expected and then you pay out the JV in minorities? Or if you were just to take the contribution applicable to Lenzing? Is it about EUR 100 million? The second is on the growth in specialty fibers. A number of EUR 100 million to EUR 150 million was mentioned. And if I assume that this is a facility that spits out on lyocell at current prices of about EUR 3 per kilogram or so, you've got about EUR 270 million of sales, maybe a bit more close to EUR 300 million. Is it really going to generate EBITDA margins in excess of 30%? Or is there something else that I'm missing there, TENCEL Luxe or some of the other projects? The second question that I have is on financing. Is the financing for the CapEx beyond 2020 secured? And if it's not, would you consider raising equity? Or would you try and finance it through debt?

Okay. The first question, I will take, and then I will hand over to Thomas for the financing questions. On the EBITDA side for dissolved wood pulp, everything that we are discussing here is always on the basis of full consolidation, whether it is CapEx, whether it is debt, whether it is EBITDA, it is all on the basis of full consolidation. And indeed, we would then more or less below the EBIT line than have on the interest of our JV partner to be deducted. On the margins in TENCEL, we will not give more color to that. Please bear in mind, with the range that I have provided, we have not only TENCEL, we also have modal in our pipelines. And so it is a mix out of both our lyocell expansions, on our modal programs and everything else that we count to specialty fibers.

Let me then take your second question on the financing. Actually, with regards to financing when -- the Thailand project anyway that was secured -- the financing for the Thailand project was secured a couple of months ago already. With regards to the financing of the Brazil project, we are fully on track according to our time line. As indicated in the slides, the project will be supported by multilaterals. What do we mean by that, actually, we are talking to institutions like the International Finance Corporation, but also the Inter-American Development Bank. If you just would Google the project actually, anyway, you will find the project on their website. It's just that recently the environmental report has been published on both those websites, which is a prerequisite, of course, for the approval. So we are fully on track on that -- for that. And actually, we expect closing of financing in Q2.

Can I ask a quick follow-up on modal? Is there a capacity expansion in the work spend? Or is this referring to something different?

No, our conversion of our viscose sites in Asia includes conversions from standard viscose to ECOVERO, includes conversion into more specialty fiber grades, but it also includes our plans that we will strengthen our modal footprint also in Asia. Maybe the last comment, there is no plan that we would raise equity. We think that with the way we are set up, the way the whole financing discussions are going and the quality of our financing is such that we do not see ourselves in a need to raise equity over this strategy cycle.

[Operator Instructions] Next question comes from the line of Laura Lopez from Baader Bank.

I have 2 questions. So I understand that now the visibility is very short, but can you maybe describe to us a little bit how was the situation in the first quarter when the coronavirus crisis was strong in China and in other countries in Asia? And then on the dissolved wood pulp project, can you remind us in the total amount of the project, are you planning to have any hedges on currency, where currently the Brazilian real has significantly devalued? So that should be a little bit on the positive side from you. But I don't know how that works. So maybe explain a little bit that if you have some hedges or some support coming actually from that side. And then can you also help us maybe quantifying what is your expected calculation on interest cost for 2020 and 2021? How will that step up once the financing costs are completed, the financing projects are completed and you start getting the inflow from that?

Okay. Maybe let me start, actually, with your question on China, actually what Lenzing does is actually we keep our site up and running even throughout Chinese New Year. So you might have heard from other companies that were -- that closed down operations throughout Chinese New Year. When then workers actually return to your home province, a lot of those people got stuck, actually were not allowed to travel back to the factories. That is an issue we did not face actually as we kept our site up and running throughout the Chinese New Year. However, what happened right after Chinese New Year was that actually due to road restrictions and travel restrictions, actually, we had some issues, actually, with inbound logistics that lasted for about, let's say, 2 weeks roughly. And for those 2 weeks actually, we had to shut down 2 of our 3 production lines in China. However, since 3 weeks, actually all the lines are back up and running and actually running at capacity. So actually, the impact in China on our viscose side there was, let's say, a short-lived one that just lasted basically 2 weeks roughly. As per today, everything back up and running and no issues actually in China with -- neither with inbound nor with outbound logistics.

Okay. And then very shortly on that in terms of demand. So you're producing good, but are you still getting, let's say, all of the demand that you normally get or you were expecting?

I think in quarter one, we, of course, did see that demand was impacted in China, I mean, simply because I think the operating rates and our customers and the downstream was significantly impacted. We now see that this -- our direct customers are back up at around 80% and sort of the weaving and further downstream is also getting back up and running. We did see, outside of China, quite healthy demand, even some uptick on prices on the viscose side. However, the question, I think, that many industries, including ourselves, have now is how will the last couple of days translate themselves into the demand in the coming weeks and months. And I think that is yet too early to, I think, comment on. Overall, I think if people do not go to shops, this -- we will see that. I think on the online side, we, at the moment, see no substantially different demand than before. But I think this industry, the textile industry, will also not be left without marks from this whole COVID-19 situation.

Next question is from the line of Teresa Schinwald from Raiffeisen CENTROBANK.

The first one is actually a follow-up on the 2024 target. Am I right that you're accounting for one line at the Thailand plant?

Our plan is that by end of 2021, we will be up and running with the lyocell plant. We have always guided that we seek a need for capacity every 2 years or so. And as a consequence, towards the end of the planning cycle, we do see that also more lyocell capacity will be needed. How this exactly will be phased in, I think, that's something that we still need to see.

Okay. And my second one is regarding CapEx flexibility. So in light of the current situation, and I appreciate that you gave some indication on the plans for the next 2 years, how much flexibility do you have built in these CapEx plans?

I think on the CapEx side, the 2 big projects we are aiming to execute as speedily as we can because it gives the lowest CapEx, and I think also, the way we have -- the way we are structuring our financing will give us sufficient, I think, room to do that. We are, however, very, let's say, conservative on other projects that we approve, including whatever we have on maintenance CapEx and so on. I think there, we will be pretty conservative over the months and quarters to come because given the visibility we have, these are sort of the knobs and levers that we can turn and pull. However, the big projects we will execute is full-fledged.

[Operator Instructions] We have a follow-up question from the line of Sebastian Bray from Berenberg.

I just had a question on how the competitor lyocell that has entered the market has been pitched and if there is any chance of Lenzing having to make pricing adjustments. Is it still very much, this is commodity lyocell and our product is much better? Has there been a feeling that Lenzing needs to be a bit softer in protecting its pricing? Or is everything business as usual? And we'll wait and see what happens when larger amounts of capacity come to market?

I think we haven't seen yet really any serious impact on our business from the capacity that so far came on stream. However, going forward, I would also assume that we will get some price sheets presented by customers from competition that will, I think, ask us, how do you respond to that? And I think as such, we feel well equipped. It will not be just business as usual, I think it will clearly also asks from us that we are even closer with customers. However, all in all, as I mentioned in my previous slide, the effect that this will have on building market versus the effect it has on just having more competition at the same customer, I think, in total balance, we look at that, I think, with a lot of confidence.

Is the quality of the new capacity comparable to what Lenzing is producing? Or are there problems with it?

From the samples that we have seen, we see a mixed picture. Some we feel are of good quality. Others, I think of so-so quality. However, all in all, China has mastered other challenges than lyocell, so our base assumption is that the quality that our competition will have from a pure product features will be comparable, whether it is then from a product -- from the degree of conformity over many batches whether it is the same, we will need to see. But the overall package with different SKUs, brand, ecological footprint and I think the long tradition we have in this business on the downstream market, I think, will at least provide a very solid base that we can operate from. And then on the margin side, of course, the cost side and the scale side, I think, gives us a lot of protection.

Okay. And apologies for outstaying my welcome but a final one. How much of the -- what is the -- I cannot remember if the company provided quantitative guidance on how much new modal it was going to convert. Is there any guidance available on that? Or is it too early?

We did not provide any guidance. That, I think, will come once we are done with this project in execution.

There are no further questions at this time. And I would like to hand back to Stefan Doboczky for closing remarks. Please go ahead.

Yes. I think I would like to thank you all for participating in this call on a day that, I think, is very intense for all of us, given the news flow. I would also like to take the opportunity and welcome Stephan Trubrich as Vice President, Capital Markets and Investor Relations within Lenzing. He is here with us in the room. Typically, I think he was used to sit on the other side on this -- in those calls. But it's great to have him on board. And I think he will also be the one that -- who will support you going forward to get more color and more insight on the various questions that you might have. Thank you very much for your interest in Lenzing, and looking forward to be in contact with you soon. Thank you.

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