Lenzing Aktiengesellschaft (LNZ) Earnings Call Transcript & Summary

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

Thank you, operator. A warm good day. Good morning, good afternoon, good evening, which ever timezone. Thank you for joining in for the call concerning the annual results 2020. 2020 in a nutshell dominated by warn theme and it was COVID and it's impact on people, on operations and the business. And I think it not an exaggeration that it was for the total textile industry at least the most challenging years for decades. Highlight for the year I think Lenzing is sort of did reasonably well given the industry context which we'll elucidate in more detail. Revenue came in at EUR 1.63 billion, some EUR 0.5 billion down compared to the year before. Specialty sales increased to 62% of revenue, which is significantly above the target that we had for 2020, if you remember, 50%. EBITDA came in at EUR 197 million, if you bear in mind that this was a year of record low prices at all commodity fibers, also impacting specialty fibers and commodity fibers in viscose there were times you couldn't even earn raw material costs by any standard. I think it shows how well the company pushed back by our efficiency measures, but also the resilience of our more specialty driven portfolio. Net results after minority, slightly positive. And the Managing Board will, in alignment with the Supervisory Board, proposed in the annual shareholder meeting not to pay out the dividend in 2020. The next to COVID, however, we also managed to progress on a couple of really big things to determine our future as Lenzing, most notably, of course, the big expansion projects in Thailand and Brazil. We were fully on time and schedule. I think we made excellent progress on branding our sustainability, decarbonization strategy as well as creating transparency our next steps to create transparency throughout the whole textile industry. I think we also got recognition from the different ESG agencies with very attractive ratings. We will speak about the outlook later and the reconfirmation of our 2024 targets. Let's look at a couple of highlights already in my introduction. COVID, you need to refocus on it after such a year even though we had it, I think, in each of the calls, it was just such a dominating theme. We protected our people well. But it was with the measures that we take on the sites, whether it was the close cooperation authorities. We are now rolling out our own vaccination scheme. Measures we have taken to ensure operational flexibility. We never had a situation where we couldn't fulfill customer requirements as a consequence of outages of raw materials and the like. We managed our liquidity position very well as Thomas later on will elucidate. We -- I think we're pretty -- I think, rigorous in our cost management. But still -- and then I'm on bucket 3, the impact on the business were just strong because we were seeing demand just eroding at a very fast pace, particularly in Q2, Q3. On the nonwoven side, some silver lining, of course, throughout the year, strong demand and, I think, very good performance. Sustainability is not just the core value of the group. It's also the essential business driver and innovation driver. With the business model of Lenzing that's somehow almost innate. You have renewable raw material. You make compostable biodegradable products. The way you do it is via circular processes. It's pretty logical that you go down the revenue. 2020 was, however, the year where we also increasingly worked on the agencies to give us credit for what we are doing. And I think the way Lenzing did at the CDP ratings. As a first-time submitter, we received a AA rating, AA listing. I think this was the first time ever in the history of CDP, MSCI rating an A, EcoVadis, a gold, Canopy, again, top ranked. We updated our sustainability targets. We have now a total of 18 sustainability targets. And we remain the only player with a science-based targets, and the commitment to reduce carbon by 50% in 2030 and to become carbon-neutral by 2050. And now this whole drive for innovation, as I said, is also an innovation driver. And Robert van de Kerkhof and his team just launched in the fourth quarter, another very interesting set of products, true carbon 0 TENCEL, both for modal and lyocell, where we really use the energy mix that we can do better than anybody else in the industry. The fact that we need less, by the way, we make our processes and the efforts of our suppliers to substantially reduced the carbon footprint already, and then we use very well-defined ways to, let's say, get rid of the remaining carbon buyer offsets. Those are verified global carbon projects that, by all standards, count accordingly. I have expectations in those new products that are ambitious. And after the, I think, the excellent results of ECOVERO, Robert and his team are very positive. The next really holy grail in textiles will be recycling. And with REFIBRA, and the way we integrate up to 30% recycled raw material content, we feel we are very well placed. When we launched the fiber, we feel we're a bit ahead of the time, but now when we look at the Renewcell IPO, we are very happy to see others joining or coming into the market, paving with us the way. Because I believe that for this industry, it's unacceptable that we don't have proper recycling solutions. Some are a bit more comparable towards paper, steel, aluminum have. Now when you have sustainability as one of your core business drivers, you come with new products, then transparency is absolutely vital. And I'm very proud on how our teams, together with the tech company named TextileGenesis continue to bulldozer the way. We now have 400 value chain on the partners. And again, for those who haven't sort of dug deep in the story. In essence, you need to imagine this like we take a kilo of TENCEL and we twin it with a digital token with a TENCEL bitcoin, if you wanted. And that TENCEL bitcoin always goes with the product throughout the value chain until it reaches the brand. And it gives the brands the confidence that if they order a product of Lenzing, they know it's genuine. And it gives the consumer the opportunity to understand which steps did actually my garment passed. And this is a major initiative. It takes a lot of effort to get all those partners on it, but I think we will still make a big contribution to transparency in the industry by this step. Our brands, and I think you're very familiar with that, are, of course, critical for us then to harvest all what we are doing by getting the brands to specified. TENCEL is now in most markets, #2 or #3, most recognized brand. And I think also ECOVERO. We are very proud. Almost all of our ECOVERO sales are today under co-branding agreements. And on the next page, you actually see that despite COVID, despite all the lockdowns on the most important branding KPIs, we continued to make progress. The fabric certification were up despite lockdowns, the license application, the new e-branding system, up again by a solid 79% despite COVID. If you look at the amount of co-branding programs, even despite limitations on traveling, we were up by close to 50 -- even slightly more than 50% compared to the year before. All in all, I think that this whole branding story is very important, and the team is making good progress. On the next slide, you simply see, I think, a bit more visibly how we make progress on our specialization over the last 5 years, since we started to introduce the strategy. And I think that gives us a very good rationale, a very good support and we make good progress. Let's now go a bit into the market. On this page, you see the update of what we showed you last time that the markets do come back, but retail sales textiles in Europe still a bit dull, clothing sales in the U.S., slightly better. But frankly, Q3, Q4 with increases again in COVID cases, not so strong. China doing very well. Now demand started to come back in September. First, China, then the rest. And the more we saw confidence in vaccination than more we saw robust confidence that particularly in autumn of '21 people will need to spend again more on textiles. They want to spend more in textiles. We see a very bullish demand at that moment in time, and we saw already in Q4. That was paired with a general commodity price trend. I think across the board, you see that. As a consequence, polyester was substantially higher. Cotton was higher. There was also another element that I will speak about later, that supports structural cotton prices. And on the back also of that -- and that the inventories were low. Viscose came really roaring back. And we now stand at a level that is close to 2x the price that we had back in July, August. We're now at RMB 15,600 and slightly above by now RMB per ton and the operating rates in the industry are solid, even slightly more than the 5 years average. And if you just think back, 3, 4 quarters, you heard me saying, we were just in the high 60s. I think what we saw now coming back is clearly not something that we did expect and yes, we take it's pleasure notice, but it was not that this was on the horizon. You also see that by now, viscose margin actually reached, again, a point that are close to the level of '17. Specialty prices tremendously helped us in 2020. Helped us in our resilience. It helped us that we were a bit more niche there. And now I think we also see that specialty prices, even though, of course, much lower than the commodity prices. Also there, we can see potential for pricing increases. We are very positive about wood-based cellulosic, why? Because we believe that those cotton and synthetics have a couple of real structural issues to fight. Cotton, limited growth potential, just competing with food crops, high water demand, high demand of pesticides specifically insecticides. And on the synthetics, low-cost but by the gradability issues, microplastic issues. And I think there's increasing scrutiny on the definition of recycling polyesters and what to do with the bottles that never really became scrap in the first place because they were just used to claim this -- that it's recycled polyester. So there is the used single plastic directive pending, and that's why we will see Wood based cellulosic fibers to be, I think, attractive winners in this market and specifically lyocell, of course, with a water footprint and the chemical footprint that is unmatched. What quite recently adds to that are 2 developments. The first one is that the U.S., the U.K. and I think other countries are looking into that banned, Xinjiang cotton due to force labor. Now the Xinjiang cotton -- Xinjiang region is not a small reason in cotton. It's 20% of global cotton, 30% of organic cotton and what makes it so difficult is that the retailers and on the border in the U.S. need to prove that this is not Xinjiang cotton, which is in their textiles. And maybe -- I reminded back to my elucidation before on our blockchain initiative, but this is missing, an industry that makes it very difficult for retailers at the moment. How they should deal with this challenge? On the polyester side, there recently, a report came out with, I think, the easy-to-remember titled Fossil Fashion. Again, the report by changing markets. You remember the same group of NGOs that clustered to look at the practices in the viscose industry. And it is an interesting read, and I think you don't need to be a rocket scientist to interpret this as good news for our industry and maybe not so good news for some of the polyester players, and it asks for prompt and radical legislative actions. Now we know this organization from our industry, and they are very tenacious. And I think so structurally, we get from this side, support. Let's then switch gears and look at the big projects. I think we can cut this relatively short. Our Brazil project remains on time, in budget, and I think very little else to say. We manage very disciplined, very rigorous the whole COVID crisis there. And it is difficult, but our team is doing a phenomenal job there. The suppliers do a phenomenal job. We have now more than -- far more than 5,000 players at the site -- people at the site, but the progress is well. Here, you see a couple of pictures. Now for those of you who have ever been at the Lenzing side, the site in Brazil is bigger in square acreage, in square meters than actually the Lenzing site. So this is a real big, big site. The site will be carbon positive and will go on stream in April 2020 -- April 2022, and our plan is to have it fully loaded by the end of 2022. Now let's go East. Our lyocell project in Thailand also fully on track, on time, in budget, also there, we managed the whole COVID with very well. It will be a big boost to our specialty exposure. We will start-up the plant as planned in November of this year. We have a great tax incentive scheme there. And it will be the first site for Lenzing that is completely carbon neutral. With that, I would like to hand it over to Thomas to take us through the financials.

Thank you, Stefan. Hello, and welcome also from my side. Let me guide you through the most important financial numbers for our Q4 and fiscal year 2020. And let me start with revenues. Actually, revenues came in with EUR 1.6 billion compared to EUR 2.1 billion the year before. There is a top of almost EUR 500 million, which is, of course, caused by the COVID-19 pandemic, and which hit us, especially in Q2. Now when you look at the quarterly development, what we can clearly see is that revenues recovered after hitting bottom in the second quarter. And in Q4, actually, we already ended up with EUR 438 million in terms of revenues. And that is already quite close actually to the level we saw before the crisis. Looking at the revenues by application, actually, we can clearly see a very stable ratio of about 70% textile and 30% nonwoven fibers over the last couple of years. Now of course, due to the pandemic, that ratio has shifted strongly. Revenues with nonwoven fibers actually increased in the pandemic. However, that was not good enough actually to compensate the drop in demand of textile fibers. In the second half of 2020, actually, textile fiber revenues recovered, bringing the ratio really very close to the 70-30 ratio of the previous years. And with regarding to our shares of specialty fibers, actually, we reached 62% compared to 52% the year before. Now not surprisingly, actually, of course, in 2020, we had a huge focus on cost efficiency, and there's for sure more to come in the years 2021 and '22. Back in Q4 2019, actually, we launched our so-called Heartbeat for Endurance efficiency program with the intention to come up with a high double-digit euro million cost saving in 2020 already. And as you can see here from the OpEx development, I think we have been quite successful. So for example, looking at personnel costs, personnel costs decreased from EUR 396 million to EUR 356 million. So we saw a reduction of EUR 40 million. And that was basically due to selective hiring. And of course, I mean, no doubt, there is also a positive impact out of short-term work. However, I think there was a lot of contribution from our employees with selective hiring, I already mentioned. And last but not least, a reduction of over time. With regards to other operating costs, actually, we could bring it down by almost EUR 30 million. That was due to optimized repair and maintenance activities, but -- as well as to discretionary spending being significantly down. We also reduced marketing, and consultancy as well. And no doubt, I mean, this will be a focus point also in '21 and 22 with the target to come up with EUR 50 million in EBITDA contribution by 2022. Now moving on to earnings. And let me start with EBITDA there, first -- sorry, EBITDA came in with EUR 197 million compared to EUR 327 million the year before. The decrease, of course, caused by significantly lower revenues. However, as I think, it became obvious on the slide we just discussed before, we have been quite successful also in cost reductions. And similar to our revenue development, EBITDA hit bottom in our Q2 with EUR 27 million. Since then, actually, EBITDA rebounded in line with better revenues. In Q4, actually we already ended up with EUR 56 million, and bringing us already within reach of the pre-crisis level. With regards to EBIT, we, of course, saw the same development as for EBITDA. We ended up with EUR 40 million, which means that even in the biggest crisis of the last few decades, we were able to come up with a positive operating result. Now moving on to net earnings. Actually, net profit after minorities came in with EUR 6 million. So actually, let's call it, a black 0. Here again, of course, we saw the same development as before. We hit bottom in Q2. And since then, actually are not -- net profit improved in line with better revenues. With regards to dividends, actually, as already mentioned by Stefan, we will propose to the shareholders not to pay any dividend for 2020, same as we did for year 2019. Moving on to cash flow and trading working capital. Of course, operating cash flow decreased in line with lower net profit. Our capital expenditure, of course, increased sharply due to the expansion projects in Brazil and in Thailand. And as a consequence, of course, free cash flow is highly negative. With regards to trading working capital, I would say the situation has improved quite a bit. I mean just think back, actually, back in Q1 2020, we rather had a situation where we had to secure raw material, then actually, we started preproducing several thousands of tons to be in a position to shut down our lines for a longer period of time. And only by the end of the year, actually, I think, we announced -- let's say, basically, by end of the year, already back to normal with total trading working capital of EUR 384 million. So I think, yes, I dare to say we did a decent job with reducing our trading working capital. Moving on to some balance sheet numbers. And let me start actually with liquidity. By the end of December 2020, we had liquid assets of more than EUR 1 billion. And in a -- on top of that, actually, we had unused credit facilities of, again, more than EUR 1 billion. So bringing the total liquidity cushion to EUR 2.1 billion. So I think, yes, we are well prepared to bring our expansion projects -- to finalize our expansion projects. With regards to equity, actually, equity came in with EUR 1.9 billion. So also there, actually, I think, very strong position. What you have to keep in mind here is that we issued a hybrid bond at the end of 2020, which, of course, according to IFRS, is classified as equity. And with regards to net financial debt, net financial debt according to IFRS came in with EUR 471 million. The increase, of course, due by the highly negative free cash flow. However, almost the whole effect are compensated by the hybrid bond that was issued basically in December 2020. Now maybe one more word actually on our net financial debt. I mean as I elucidated before, the IFRS number is EUR 471 million. That, of course, includes all the financial debt out of our Brazilian joint venture. Using the net financial debt according to IFRS in relation to EBITDA, we come up with a ratio of 2.4x. However, from our perspective, I think, it makes much more sense to look at the economic net financial debt, which reflects actually the 51% economic share of our Brazilian joint venture as the 49% are being guaranteed by our joint venture partner, Duratex. And then, of course, we end up with a lower ratio than being 2x EBITDA. Moving on to liquidity. Actually, what you see here again is a summary of what I showed already before, in the arm drawn credit lines with more than EUR 1 billion. Cash and cash equivalents of -- again, also more than EUR 1 billion. And actually, with only very limited debt maturities over the next 2 to 3 years. So it's '21, '22 and '23, only relatively small amounts coming due. So overall, I think in a nutshell, I would say, really a comfortable liquidity position and maturity profile. And last but not least, I mean, just some -- the summary of the transaction with regards to the hybrid bond. I mean at the end of the day, this is the 2020 fiscal year analyst call. But I guess you are all aware of the details. I mean we issued EUR 500 million unweighted hybrid bond. It's a market standard perpetual, non-called 5-year bond listed at the Luxembourg Stock Exchange with a fixed rate of 5.75%. And the rationale behind was, of course, to maintain Lenzing's balance sheet -- our flexibility and to have sufficient liquidity caution. So that's it, basically, from my side, I mean, just in a nutshell, at least from my perspective. I think we can be quite pleased with the numbers we just looked at for fiscal year 2020. For sure, of course, having in mind the COVID-19 pandemic. And with that, actually, I hand back to Stefan for the outlook.

Thanks, Thomas. As you know, Thomas, when he says, it was a good year, then it was a good year. Now let me sort of take a bit of crystal ball for 2021. I think you probably get from my -- maybe from my language about the market that we don't look optimistically now at the short term, our guidance for the year is that operating results will be a pre-crisis level. Why this guidance? We still struggle, frankly, to understand this massive bull run on viscose at this moment in time. It does come as a surprise. I don't fully get it, yet. Why we have -- with all the capacity that came in that we are where we are. The data are yet not to be conclusive, but we enjoy the moment. But at the same time, a bit worry with the overall push of commodity prices up, what this might do also to inflationary pressure. But at least short term, I think we enjoy a much stronger demand for fibers in general. And for our fibers in particular, both for textile as well as the nonwoven industry. What I'm very convinced about is this focus on transparent and traceable fibers and recycling solution will be a megatrend. We will be very much focused to close Thailand and Brazil. That is the must-win battles. And as Thomas mentioned, we did not miss the opportunity to use a good crisis to learn to become more efficient. And we also found that there are a couple of things that we would put in more structurally to drive continuous improvement and operational excellence. Schuldscheindarlehen and the Board drives this with great rigor and as a consequence, also the targets that Thomas shared with you. Overall, Lenzing stays the course. We are on the middle of the transformation. We have weathered a very difficult crisis for the textile industry, the most dramatic one, I think, for decades. We did this without a big employment reduction program, without stopping our project. We stayed cool, calm and collected. We will focus this year on further driving the Lenzing story organically, sustainability focused, supported by innovation and brand, investing heavily in excellent equipment and excellent cost competitive sites across the world, and we believe there is a wave building up for the Lenzing story out of all the pieces in the macro story, where we feel proud on what we are and the way we're going to actually shape this industry going forward. As a consequence, we reiterate the 2024 target to be communicated a year ago, EBITDA, EUR 800 million, above 10% ROCE. Fast leveraging, you already saw from the way we structured the balance sheet, we will be solidly below 2.5 in due course. The strategic target 75% up on specialties, backward integration above 75%, and to reduce our carbon footprint per ton of product by above 40%. For 2021, 4 strategic milestones that we continue to track with you while we go quarter-by-quarter. We will expand modal this year. We will expand ECOVERO this year. We will start-up lyocell in Thailand. And we will take 3 substantial step in further decarbonizing our portfolio by changing the energy mix in part in Prachinburi, Nanjing. We will be the first noncoal-based plant in China this year, and we will take steps in Lenzing to further improve our carbon footprint. That's all our core business but given the last 9 days and the news flow, particularly in Austria, on the joint-controlled venture. In Hygiene Austria, I would like to give you a couple of updates, and that will lead us then into the Q&A. The Hygiene Austria project was formed between Palmers us with the vision to support the Austrian public during the pandemic. And Austrian supply chain and Austrian production of facemask in Austria for Austria. The joint venture was a joint-controlled entity, as a consequence also accounted at equity. And until 9 days ago, it was a proud story that all Lenzing has shared amongst each other. We were proud wearing the masks, recommending it to our French families, and more than 3,000 people in Lenzing wear it daily. On March 3, we had a house searched that took place at Hygiene Austria by the authorities there were suspected violations of the law, particularly of 2 things: I think that the labor law was not fully stuck to; and second, that the promise made in Austria was obviously not guaranteed. Now we communicated on Monday that after we submitted a task force led by one of our Board members, was unable to execute the management control that we actually -- since March 3 have, and communicated then an approach that we proposed to generate the clarity that we need. However, without sound data without sound records and doubts about the integrity of information that we were looking at, we felt unable to conduct this fast forensic that would be in line with the values of Lenzing. We will fully cooperate with the authorities. We feel we owe this cooperation to everybody who relied on the brand Hygiene Austria. And once we have facts, once we have the analysis, then we take the respective steps and communicate the consequences. With that, I would propose we stop our elucidations and open the floor for Q&A.

[Operator Instructions] The first question comes from Christian Faitz with Kepler Cheuvreux.

Yes. I have 2 questions, please. First, on the dividend, given that we are in the phase of much more robust earnings this year, will Lenzing consider paying a dividend for fiscal 2021, again, assuming that the situation -- the nice positive situation persists. And then second, on input costs, such as DWP, caustic -- we saw wood pulp. They have both been up and also, obviously, eating into margins? Or do you see the higher wood pulp prices and certainly also caustic prices as helping you in your price discussions with your customers.

Thank you, Mr. Faitz, for your questions. First, on the dividend. So we communicated just now on the dividend for 2020. Let me phrase it carefully. The way the year develops, the way the balance sheet looks like, the way the projects look like on their excellent execution, I would not exclude it. I would not exclude it. But I would also leave it at that. Because in my outlook, you also heard me being rather cautious yet on just relying on the current situation as we have it. But I think with the steps that we have taken with the excellent management at the project, there might be a good rationale to restart dividend payments. Because in our capital allocation priorities, it is #2 after CapEx for growth. And we also know that those were 2 let's say very special year, I'll put it mildly. Now if I look at the raw material input costs, I will do DWP, and Thomas will do caustic. DWP is how should I phrase it? It's a difficult one. DWP prices have rocketed up as well. And we are now at -- well above USD 1,000 per ton. And that's -- we look half -- now a bit more half smiling and half, not so much smiling. Because we, of course, backward integrated. But we have also a merchant exposure. The merchant exposure, we will experience cost increases. But typically, high DWP prices are excellent news for Lenzing because they set the floor for viscose prices. So -- and we -- and then I think we mentioned on many calls, please bear in mind that in Lenzing, we always have about a 4-month delay in DWP pricing. So if you have a spot price today that will be unimportant, you need to take a couple of months then together, will be the price and for the coming quarter. So in Q1 we will still look more at prices that were typical on average Q4. And then in Q2, we will have more the Q1 prices. Thomas, a couple of words on caustic?

Yes. With regards to caustic, actually, by the end of 2020, in Asia, caustic prices were already low, and they are still low. However, what we saw is that actually in Europe, where since basically back in 2017, caustic prices remained on a fairly high level. Now prices have also come down, but significantly come down. And actually, we do have roughly -- half of our caustic demand we do have in Europe.

Our next question will come from Isha Sharma with Stifel Europe Bank.

I just have 3 questions, if that's okay. The first one is with the VSF price now more than 95% higher than the average of 2019 and higher capacity utilization levels of 83% versus 77% in '19 as well. I do appreciate your cautiousness, but do you currently see any evidence of change in the price trend? Or any reason to believe that the underlying demand is artificially high? Or if you have in the past experience, anything similar where demand just quickly normalized. If it's okay, I would like to ask the questions step by step.

Let us phrase it this way. We are careful because there are a couple of indicators that look like a one-off -- let's say, a first-time, but have a kind of a structural sentiment to it. One is cotton, as I said. If cotton indeed structure will hold up due to Xinjiang, there is an argument to be made that this supports viscose structurally. But I think this is, for me, too early to say, yes, this will hold because it depends on how China and the U.S. deal with it. The second one is we still need to see what level of inventory effect in the end we will have. Because the inventory was pretty dried up in Q4. And this sudden change in sentiment, I think, also has a certain amount of restocking to it. The third is that I think the general pressure on the wood base -- on the pulp market puts particular pressure for the nonintegrated player that also would be semi-structural. Because I believe that many feel that also the fortunes of paper and paper pulp are simply driving. So all in all, I think there are a couple of very positive pointers. But the reason we are cautious, and maybe there's a bit of our nature of Thomas and myself, we feel it is good to wait until we have the Q1 behind us, and then look on whether those pointers seem to be a bit more structural. Because just some 4 weeks back, the industry was saying, after Chinese New Year, we will see a drop in prices. Chinese New Year went, prices went up. So again, we like higher prices more than low prices. But as long as I can't explain it structurally, I would still call it intransparent.

Right. Understood. The next one would be that you -- basically, when I look at the specialties price trend, it seems to be lagging quite a bit despite the fact that a sizable portion in there is of ECOVERO that is sold on BSF-plus basis. Could you explain that, please?

Sure. First of all, I think the definition, you're right, specialties include viscose specialties. However, we have a 6-month average in there. So you see always a buffering effect. That's one. And the third one, in specialties, you have more often than not prices that are 3 months or 1-month price. There's hardly anything that is real spot market. But next to that, frankly, this doesn't irritate me. We have solid prices in specialties. ECOVERO goes up and down with viscose, that's great. But the others, we go much more on value-based pricing. And we look into what are the other fibers doing, what is the value in use and then we price we very consciously don't want to drive this as a commodity. This is not a viscose plus business. So if viscose prices fall sharply, specialties are very high in comparison. Now viscose might be at one stage surpassing a specialty that's just fine. It's not that this is a viscose just related business.

Fair enough. And the last one. Just wanted to get an indication if it is also an area of concern for your customers, especially the retail partners with whom you have initiated co-branding efforts? How are you handling that situation?

At this moment in time, we have no impact on our core business.

Our next question will come from Markus Mayer with Baader-Helvea.

I also will ask my 2 questions one by one. If it's okay. The first question is again on the guidance to get more grip on potential steps for my EBITDA or free cash flow bridge. Could you, a, remind us what are the capacity additions for the modal and ECOVERO expansions in this year, and when they would come? And also other effects like higher freight rates or currency effects, et cetera. And for the free cash flow bridge, then also the expectations how much net form capital -- how much net capital outflow might impact your cash flow and also indication on CapEx guidance or interesting costs for this year?

Okay. I think if we -- do you want to start?

So let me -- one question actually. If my notes are correct. But let me start with the last question. You raised actually the guidance on CapEx. I would say we expect EUR 800 million plus/minus for 2021 on the CapEx. On the net working capital, actually, I think -- I mean I think we did a good job last year. But I would dare to say, actually, we can do even better. But of course, this will also be highly subject to how this pandemic evolves. I mean as I elucidated, actually, during the presentation, if you just think back last year, we had Q1, actually, where it was about securing raw materials. So raw material inventory increased. Then actually, due to the lockdown, actually, we decided to preproduce. So finished goods actually increased sharply however, that allowed us actually to shut down the lines and also to benefit also from a short time work here in Austria. So actually, that will highly depend on how this whole thing evolves. However, overall, I would say, on net working capital, we should be able to do even better.

Okay. On modal and ECOVERO, we don't communicate yet the expansion plans, but you should expect this still before the Q1 announcement, on both cases.

Okay. And then I have a question on this Xinjiang area issue. Can you remind us if there are other competitors or viscose plants of competitors in this area? And if so, what would be then the magnitude of the market -- of the viscose market, which is impact by this?

Good question, Mr. Mayer. I think in Xinjiang, there's, indeed, the #4 biggest competitor. This Zhongtai who has, I think, installations of, I think, close to 800,000 tons, if my memory serves me well, that are standing over there. However, they are not impacted by this. This has much more to do. I think it's a U.S.-China issue. And I think -- yes, it's not just that everything from Xinjiang is banned. It is just cotton that it's banned. But I'm not a politician. But it's not impacting Zhongtai.

And maybe as and-on question because in other chemical value chains, if it's polysilicon whatsoever in the solar industry, this kind of products are impacted. Does this mean that the Zhongtai is selling their capacity to the local market only. So not exporting that.

Yes. That's absolutely correct. Zhongtai is 100% Chinese-oriented seller.

Our next question will come from Sean Ungerer with Chronux Research.

Just specifically focusing on, I guess, on the asset supply, as you go into 2021 and '22 globally. I mean could you maybe sort of impact your key thoughts how you see that playing out this year and next? And I guess, specifically, the commodity versus more specialty grades. And then I've got one follow-up.

No. We did not see a lot of capacity coming in, in '20. Now to our knowledge, some 300,000, 400,000 tons are in the making. These are 2 lines from Bella, something from Tangshan, and I think still a line of Satori. To our knowledge, there are no other big projects at the moment under construction. So we expect both '21 as well as '22, not to be -- we don't expect the viscose swamp that will come on top of what is there.

Okay. Great. So that mean sort of on that basis, then it looks like supply is going to be pretty tight then -- current run rate for the demand recovery persists.

Correct.

Okay. Excellent. And then just my last one, with on demand. I mean, obviously, had quite a robust return. I mean outside of any risk factors associated with COVID, I mean, what other factors do you -- could you see derailing the assets demand in the coming year?

I think viscose demand has one thing where we need to wait how it will pan out, and that is the single-use plastic directive in Europe. Does it play a major role for global viscose? No. If -- because we had until December, it was very clear, viscose will not be specified as a plastic. If it would change, and the last draft we have seen, there is a potential that could be even a risk. However, that would be an enormous upside for lyocell. Now that is 1 risk. I think the other risk, and that is, I think, more long term for the industry at large, is how will the world look at forest as part of carbon capture. You follow the whole discussions in ESG forms on, okay, what can count to offset. How should we treat forest at large. I think to be in control of your own forests and to be very close to sustainable forestry will be absolutely critical. And that is one of the things that I see structural risks in some part of Asia.

Our next question will come from Sebastian Bray with Berenberg.

I have 2 steps, please. The first arch is technical. There's a lot of plants coming online over the course of 2021 and 2022. Could you give an idea of the ramp-up costs that Lenzing will experience in both of these years? My other related question refers to the biological adjustment that now sits with an EBITDA for Lenzing. Am I right in saying that at current pulp prices, this would be something in the region of EUR 30 million to EUR 40 million, and that's quite significant to the EBITDA for 2021? And my final question is on Hygiene Austria. This doesn't seem to be financially very significant what has happened there. But what is potentially the worst-case scenario in the -- is it defined? Is there something else that happens? Just some color on that.

Ramp-up cost...

Yes. I mean with regards to the ramp-up costs, I mean the plan is actually that we start production this year in Thailand with our lyocell plant. However, actually, we -- the cost of ramp-up will just be a couple of millions. When we have to fill, let's say, the production lines for the first time. And of course, the first couple of bases will, of course, be of very low grade. And it remains to be seen if they can really be sold or not. So actually, there is a bit talk just about a couple of millions. It's not a huge number.

I'm not sure Mr. Bray, whether I fully got your biological asset adjustment question. Do you, Thomas?

Maybe I'll start with some elucidations, and please let me know if they are helpful or not. Actually, back in -- at the beginning of 2020 when actually -- when Duratex actually contributed the plantation. Since then, actually, we have this plantation in our balance sheet. And at the end of the day, what we have to do is that we have to take a look at the fair value of the plantation when -- at each and any balance sheet date. So the calculation is fairly simple, you take the amount of wood that is on the plantation, times wood price, and then you translate it. And the wood price actually is in Brazilian reals, of course. And actually, the drop in the value of the plantation, actually -- basically purely coming out of the real, becoming weaker in 2020. So actually -- of course, the plantation is still there. There's still basically the same amount of wood, and it still would have the same, let's say, value to Lenzing. However, the calculation, as said, is fairly easy. Wood volume times would price in real and then you translate into U.S. dollar first because we are using U.S. dollar as the functional currency in Brazil, and then we translate into euro. However, the drop in fair value actually is basically coming out of the real becoming weaker.

Understood. And to perhaps getting the idea, if you were to apply spot wood prices, which in dollar terms have gone up and net that off against the effect of the BRL, do you get something that is broadly neutral at current spot for 2021?

[indiscernible], we wouldn't know precisely. I think we could ask that IR delivers this answer to that or do you know by heart, spot wood price at the moment.

But wood prices are relatively stable.

The Brazil item.

The -- but I already -- actually let us -- before we say [indiscernible]

Let us come back, Mr. Bray, I think, it's a...

Let me come back on this question.

Yes.

Understood.

Good. Then on Hygiene Austria, as I mentioned in my elucidations, it's very difficult without facts to speak about consequences. Now the one thing that I can tell you that I think from an -- what is [Foreign Language] in good English? Corporate law?

Corporate law.

Corporate law. This was a joint-controlled entity. So Lenzing did not exercise joint control. And in a joint-control entity, it's very difficult that the shareholders per se, that things pushed through. But frankly, before we don't even know at all, what is the degree of the irregularity, whose thought it is? What are the impact at customers financially, and so on. it's very difficult to say what is your worst case. Now do we feel comfortable that we will find result in not to distant future, yes. But first, we need a couple of more facts.

Understood. Congratulations on the results.

Our next question will come from Florent Bouteiller with Amiral Gestion.

I've got only one, and it's on CapEx on the ongoing projects in Brazil and Thailand. So I understood Thailand is almost finished, but okay, can you give us some numbers on how much CapEx is remaining in Thailand? And how much CapEx is remaining on Brazil Lenzing economical share? And as well, maybe a focal for the improvements you aim to make in your plans in Lenzing and China. And also the conversion to modal? How much will it cost roughly.

No. Actually, on the CapEx guidance I just mentioned before. I mean, overall, I would expect CapEx to come in roughly at the level of around, let's say, EUR 800 million plus/minus. Of course, the majority of it will come from our project in Brazil. So Brazil probably will be in the range of probably EUR 500 million. And the project in Thailand, I would guess it will be around EUR 150 million.

Now Brazil -- with respect to...

For '21? Or '21 and '22?

'21. This is all '21.

This is all '21. I mean Thailand will be finished by the end of -- and go live in '21. That does not necessarily mean that all CapEx is also spent. So -- but we will start our production -- or the plan is to start our production in November this year. So there might be still some CapEx -- some spending actually also in 2022. I mean, usually, when you finish a project, I mean, the last 10%, actually, you only pay when everything is really spot on. And the project in Brazil anyway will take us until April 2022. So there, for sure, there will also be some CapEx in 2022.

Okay. On the improvements for the other plants.

Yes. Again, I mentioned before, we will come out with these figures in due course. So this will be before the Q1 call in mid-May, but you need to be patient for another couple of weeks.

Our next question will come from Alexander Walsh with Verition.

All my questions have already been asked and answered.

Our next question will come from Teresa Schinwald with Raiffeisen Bank International.

Only my bookkeeping questions remain. Out of the high double-digit cost savings amount, how much can we look at as sustainable as they probably also include some onetime state support? This would be my first one.

Indeed, I mean, a portion of the savings we saw in 2020 is, let's say, to a certain extent, a win for [indiscernible] just think about travel expenses. Even so I would have liked to visit our site in Thailand, it was simply not possible. And therefore, actually, a lot of travel activities, actually, were not realized. However, once, let's say, life goes back to normal then, of course, those expenses would also more or less come back to normal. However, from the savings we saw in 2020, I would guess probably around EUR 20 million roughly to be sustainable.

And my second one is regarding the wood sourcing actually in Europe. Was there an impact actually from the very low wood prices in the region following all the disruption that last winter snow -- the 2019 to '20 snow has on the forest? And do you expect any reversal for this year?

The issue in Europe is that calamity wood, which is typically a mix out of wind, snow, but particularly bark beetle has been pretty devastating for forest owner over the last good 3 years. We have seen over the last 3 years, very low prices for spruce. Even some 30%, 40% lower than what would be a normal price where, I think, many farmers were just actually trying to get the damaged wood out of the forest. Beach, which is the source for the Lenzing site, there, you hardly have any real calamity wood. They are not so susceptible to winter snow breakage, and also, there is no big pest. Now structurally, the question is very meaningful because I believe that we should expect, in Europe, wood prices over the long run to come back. And I would not be surprised if at least from the ultra-low level that we saw in '20, we will see a gradual shift pike up starting this year. But at this moment in time, we feel everything well under control.

Our next question is a follow-up from Markus Mayer with Baader-Helvea.

I have a last question on this unsatisfying -- for your unsatisfying Hygiene Austria topic. ESG to understand this magnitude better. So ESG is such an integral part of your investment story. And that basically we as analyst can assess what it would mean for you to sell few masks for a few euros more versus than this huge value, ESG value for your core business? It would be helpful if you could give us a kind of indication how many masks have been sold in May? What is basically the size if you would close down this business immediately? Or -- yes, that would be helpful.

Maybe number one, the business at the moment, this will not start selling until everything is solved. We might -- and so that is a precondition. So operationally, we will not do anything as of now in selling mask until we are absolutely certain what is what. Why is it? The thing that we do know already that there was no quality issue. It was indeed a source of origin issue. But that is only because we have done all those tests ourselves. So second thing concerning ESG. That is indeed something that we will watch very carefully. But -- and I think that is a judgment that people will need to make over time or have made over time. Because it -- we talked about good governance. I'm convinced Lenzing is a very solidly run company. And in all the operations we have, we have the highest standards of integrity, code of business conduct and so forth. Now I mentioned this in my introduction, Mr. Mayer. This was a joint-controlled entity. And I think we also should be reflective then this entity wasn't -- was founded last, I think, May 2020. It was close to nothing until around September. Then suddenly, we had this FFP2 mask run. And whilst the company was already preparing for its own ERP, it was still running on the ERP of our partner, at least parts of it. We have a quality management system in preparation. But again, this is a very young company with very few employees. And I think in itself, I personally do not question the good governance of Lenzing. However, the impression the whole thing leaves is anything but pretty -- and that's why it is so important that we get our arms around it fast. And I'm -- that's why we have one of our most senior managers, a Board member to really take care that we get our arms around this soonest.

Our next question will come from Dominik Winnicki with Jefferies.

I just had one, also a follow-up, relating to Hygiene Austria. Just would you be able to describe this business a little bit in terms of the kind of size of investment already made, any cash commitments there and kind of earnings contribution to Lenzing?

Actually, I mean, for all those who would not mind, I mean, we made very detailed disclosures in our notes. So in Note 21 and 38, actually, all that information can be found. I mean it's -- but let me just briefly summarize. I mean, actually, the company was consolidated at equity. We originally -- that you can all find in the notes, we originally injected EUR 1.6 million. The company was profitable in 2020. Therefore, actually the investment at equity, the value of the investment and equity went up to about EUR 4.5 million by end of 2020. And in addition, actually -- so that is what you find in the balance sheet of Lenzing Group as per end of December. And on top of that, there was a loan from Lenzing to this joint venture amounting to EUR 2 million. So if you add everything up, and if you exactly find, in a worst case, okay, fine, it is 0, then we talk about EUR 6.5 million.

Our next question will come from Michael Schulz with JMS Invest AG.

This is Michael Schulz. And just one question regarding the capacity utilization, could you say what the capacity utilization was through the year 2020, and also in Q4? And how the asset is now, say, for Q1? I mean are you running again at full capacity levels now? I understand you had reduced capacity levels at least until Q3 in 2020.

Right. We don't guide on precise output. So we don't disclose this. But I think if you take the EUR 500 million rough revenue drop, it was a good mix out of volume as well as prices, about half-half. Now if we look at Q1, I think it is good to assume that we run at 100% utilization.

Okay. And maybe just on your guidance. I mean I understand that you say pre-crisis level, you -- I mean we should understand back to 2019 levels in sales and in EBITDA margins. Is that correct?

Actually, when we speak about operating results, we always mean EBITDA.

EBITDA, yes.

EBITDA. D A?

EBITDA. [indiscernible]

EBITDA. So back to around EUR 320 million, EUR 330 million, basically.

Correct.

Thank there are no further questions at this time. I would like to hand back to Stefan Doboczky for closing remarks.

Ladies and gentlemen, thanks for your interest in our company. As said, I think we are on a solid way in transforming the company. 2020 was a year of crisis. We manage through it. We stay the course. We are optimistic about '21. And a couple of big milestones in our strategic transformation are just around the corner. All the best, stay safe. Talk to you soon.

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