Lenzing Aktiengesellschaft (LNZ) Earnings Call Transcript & Summary

Ladies and gentlemen, thank you for standing by. I'm Nairobi, 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. I would like now to turn the conference over to Stefan Doboczky, CEO of Lenzing. Please go ahead.

Good morning, good afternoon, good evening, everybody. Thanks for joining the First Half Year Investor and Analyst Call of the Lenzing Group. Lenzing is now for half a decade in its transformation journey from a volume-oriented commodity player to a more innovation-driven sustainability-focused players in wood-based specialty fibers with a pretty ambitious vision of turning our industry into a carbon-neutral one. And I believe that the first half of 2021 I think underlines that we are not only strategically, but also operationally, I think, well on track of making our mid-year targets of 2024 come true. Looking at the first half at a glance, we came in with revenues just north of EUR 1 billion, some good 28% up versus the same period of last year. Specialty share at a healthy rate of 73%, close to our target. EBITDA, very pleasing at more than double of the same period last year, but also some good 25% higher than what we had in 28 -- sorry, in 2018/2019. And I think we see here both the effects of solid pricing but also the efficiency measures that we implemented over the last quarter. Thomas will then speak in more depth about net results and earning per share. Strategically, we're in the biggest expansion program in the history of the group, both projects, on which we will speak in more depth, are on time and in budget. But also I think our commitment in investing in our sustainability program to reach our targets is gaining sufficient momentum. Outlook guidance, we will discuss. We upped it, as you saw from our ad hoc release. And we will end the session today reconfirming our 2024 targets. Let's start looking at a couple of highlights. And it's not often, but I will start with organization. Here you see the 5 board members of the group. And you will see later back in the financial section that we decided to alter organizational setup, and so far that we have two fully P&L responsible entities, Division Fiber as well as Division Pulp. We then will have some on the results. Others, Thomas will speak in more depth about that. But our goal is really that with the strong investment that we have both in fibers as well as in pulp that we give investors and analysts more granularity in understanding our investment cycle, on the profitability of the business. But I think also to set the point that our ambition is to become more transparent, not just in sustainability factors but also in the financial indicators. At the same time, we believe that this new organizational setup will further help us to strengthen bottom line responsibility and strengthen accountability and ownership for all the continuous improvement programs. Strategically, over the last 5 years we are shaping as Lenzing our industry and also what is happening from the outside is playing into our field. If you look into what, for example, even in the first half of this year has been published in terms of NGO reports, putting pressure on fashion brands with respect to fossil fashion, that turning the PET bottles into fibers is not really circular. The call for prompt and radical legislative action blaming brands that they actually dragged their heels in addressing their fiber footprint are again symptoms that amplify why we are in the right spot. Now we are in the right spot and we are doing a lot to retain global leadership when it comes to credibility, when it comes to placing our fibers in this right spot. And we have in the first half of 2021 launched some good EUR 220 million of investments to further improve our CO2 footprint, to reduce sulfur emissions. But at the same time, in Nanjing and Indonesia to reach full EU Ecolabel compliance by the end of '22. And then we will have in all our Asian viscose plants only specialty fibers. So we actually should reach by the year 2023 already 100% specialty fiber content based on our current definition. In Grimsby we are investing in a waste treatment plant so that we are not only compliant with law, but actually also up to standards to our internal Lenzing standards. And at our site in Lenzing we have completed a sulfur recovery plant to produce sulfuric acid, which on the one hand saves cost, next reduce the sulfur emission, but also helps us to reduce CO2 emissions by more than 40,000 tons. So were putting a lot of money where our mouth is. But all of those sustainability investments have a very attractive business case at the same token. So next to investing in hardware. We are putting also lot of efforts in actually strengthening our ties and cooperation in the value chain. If you look at some of the more innovative examples, we have tied up with the Italian company, Orange Fiber, to launch, we call it TENCEL Limited Edition where we mix traditional wood-based pulp with pulp based on the residues of citrus fruits of orange and lemons to come up with new creative ways of reducing, in this case, organic waste and address I think some of the needs of high-end fashion. Very prominent, very important is the whole theme of textile recycling. We have teamed up with Sodra with the goal by the year 2025 to have an installation to convert 25,000 tons of post-consumer textile waste into sustainable fibers. We will use there again our wood-based fiber technologies. And I think with Sodra we have a very competent partner also with the right installations. So in that, I think in this cooperation we will get a lot of things done. I think you're well aware of our cooperation more on the digital front with TextileGenesis, an Asian tech company. By now we have more 1,000 value chain partners, spinners, fabric makers, garments, houses and so on, on this platform. And big groups such as H&M and Bestseller are now using increasingly this tool where we can track from our raw materials, by our fibers to the final garment, by providing some kind of fiber coin or digital token. We can create full transparency in the value chain. And as now also U.S. cotton has joined, some recycled polyester groups have joined. We are increasingly creating a uniform where responsible, I think high end or let's say responsible brands will find ways to create the necessary transparency to really, I think, comply with the wishes of consumer to know where their garments are coming from. Next to the corporations, more on the innovation side, we are also pushing corporations on the sustainability awareness in textiles. On end-consumer front we have been again present with TENCEL looks at the Oscars. And the moderator wore a dress, was dressed in TENCEL looks. And that was also by the respective mode, fashion labels and Vogue heavily publicized. And we reached more than 340 million media impressions. We launched an Earth Month campaign where I think we encouraged consumers to tell us what they are doing well when it comes to environment with the commitment to plant a tree for every photo that we would receive. We've planted more than 15,000 trees, by the way, also for VEOCEL, that I will speak later on, another 2000 trees. So increasingly getting into direct engagement with consumers. And last but not least, I think the TENCEL E-shop that I also presented last time increasingly allows the curious shopper to reach TENCEL garments or to buy TENCEL garments going by our tencel.com webpage. All in all we are investing in plants, in corporations as well as in brands to I think push our textile universe. On the non-woven side, we reached an important milestone with the EU committing to the Single-Use Plastic Directive, that by July 3 every wipe and feminine hygiene products provide a need to label if there's a plastic in there, wood-based cellulosic fibers, both viscose as well as lyocell that are typically used in those applications does not fall under this category. And we have already for a year now positioning VEOCEL as a sustainable alternative. And from the reactions that we have been receiving now for a good 2 years even in the run-up to the Single-Use Plastic Directive, we see the enormous interest from the Procter & Gambles and other big FMCG companies in those products. That will provide a lasting boost also to VEOCEL and our product. Also in VEOCEL where the brand launch was about a year after TENCEL. We're making very good progress. Here a couple of things what we're doing on the VEOCEL front. Number one, again, innovation. We came now with a very interesting product into the market as part of this whole Single-Use Plastic Directive with the so-called VEOCEL Dry technology. For those of you more technical, normally cellulosic fibers are hydrophilic. So they absorb very well water. But in this case, we have treated the fiber in a way that it's hydrophobic. So you can actually use it in top sheets and different applications. And so you have sorry, there's some noise in the line. I don't know whether this is the operator, but somebody is un-muted. Now in -- so the dry technology is hydrophobic. And it allows you to provide for top sheets and other sustainable products now, that it actually also allow you to always repel water. The collaborations with One Tree Planted, I already mentioned, the same initiative as we had on TENCEL. And the German channel too, ZDF, brought a very interesting I think part about VEOCEL where they were featuring a school that was using our VEOCEL, burying it to the earth, showing the pupils on how fast our product biodegrades versus other alternatives. Now, other schools jumped on this bandwagon. We are providing kids, that those kids can experiment. Second, we are investing not necessarily large sums of money, but a lot of effort into educating consumers and making sure the TENCEL and VEOCEL in their respective fields capture as an ingredient brand this virgin territory of sustainable fibers. We spoke end of last year and beginning of this year a lot about CDP, the AA listing where we have been the first-time submitter and received the AA listing on CDP. Now we received the rating of EcoVadis where we have been upped from Gold Standard to Platinum Standard which means that now from 75,000 rated companies in 160 countries we are in the top 1% of all those companies. EcoVadis specifically strengthened -- sorry, underlined the way we have phrased our climate targets, the way the roadmaps behind the climate targets are very credible, are responsible, procurement of raw material and everything that we do, about the upstream part of our industry, but also that Lenzing engagement with different environmental initiatives, way beyond this direct business is seen [ exemplatory ]. We believe that those ratings increasingly will become important for those investors looking for green -- more greener sustainable ESG-linked investments. And as a consequence, we feel very positive about it. Let's now switch gears and look at the market. Now first looking a bit outside. Now retail sales for apparel is starting to come back. In the U.S. and in China we are already well above the level that we saw in the pre-COVID period. Europe, Southeast Asia, due to COVID remains a bit sort of below. All in all, we have figures up until May. We feel that now in this third quarter we are now going to get globally on average above the level that we saw in 2019. But it remains an uncertain environment in which we operate. Sometimes receiving positive, sometimes negative surprises. In this period the prices for the different fibers have been doing overall quite well. Cotton remains very solid. And that's, as you know, very important for our industry. It's most sort of the bedrock fiber that is an important indicator for others. Supply and demand, a bit out of whack. We -- again, the season is just about to end, but I think indications are that we will have a somewhat under-supplied market. We have strong prices with cotton A in the $0.96, $0.97 a pound range, being solidly above the viscose. And I think that's overall helpful. Now looking at polyester. Polyester also on a reasonably good level after the peak that we had at the beginning of the year. Now again below $1 per kilogram, but just about that level. We're not unhappy with that. Viscose, after the peak that we saw end of first quarter, beginning second quarter, we did see some good 15%, 20% price reduction. We ended the quarter at around RMB 12,700. Since then it creeped up a little bit again, but hovering around the RMB 13,000 mark, a level that in itself is not a bad level. And I will get to that in -- on the next slide. But also dissolved wood pulp prices has been high. So as a consequence, you see that many of the pure commodity viscose players are actually back in loss-making territory. We see that the utilization rate in the industry has dropped again to just below 70%. We were already up in the 80s. This is in part as capacity I think came back into the market. But also what we saw after the stock building that we observed in the first part of the year I think we saw a little bit less bullish demand, particularly of course also driven by the COVID situation that we saw in Southeast Asia, there and notably India. Now viscose conversion margin. You see we are now back at the level of around USD 800 per ton. So this is the delta between viscose and dissolved wood pulp prices, which is somewhat on the lower end. So all in all, despite viscose prices being around the RMB 13,000 level, profitability not that great. Our specialty fibers continue to sail well after we had to take down some of the prices of -- in line with, let's say driven also by the erosion in prices of other fibers in 2020. We could book some solid price increases across the spectrum. And again, here you see always the 6 months trailing average. We are very pleased with our ability to push through prices. All in all, I think in the environment we are not completely unhappy with, even though we have quite some headwind. And Thomas will speak about this. Also on the raw materials side. Energy is high; logistics, very difficult; pulp, high. Also there logistics is difficult. So the whole market has been pretty terrible and pretty difficult. But I think all in all I think it has been so far pretty pleasing first half. Let's now look at the big expansion projects. I will briefly speak about Brazil and then Thomas will take on from there for Thailand. Now our dissolved wood pulp mill in Brazil continues to take shape. On the left side you see here all the key parameters that we have shared with you several times, 500,000 ton, USD 1.38 billion industrial CapEx. Cash cost of around $300 per ton. As such it will be the cost leader in the industry. And we will in time ramp up the site in the first half of next year, expecting to have full run rate by the end of the year. Now on the left -- on the right side you see sort of kind of arrow picture of the whole construction site. Those of you who have ever been -- here in more detail, who have been to Lenzing site, this is significantly bigger than the whole Lenzing site. So we speak 3 square kilometers. If you now sort of drill in on the highest point, the stack and the recovery boiler you see here, that's 75-meter high. We have in total close to 7,000 people at the construction site. You can imagine the logistic challenge now in times of COVID that is to keep the site operational at all times. And of course alternate environment with a difficult Brazilian real, with different not easy economy, lot of challenges. But I think so far we are well on budget and well on time. Next picture. Again, just to get a couple of images here on the very sophisticated effluent treatment plant, the 3-stage treatment that we have invested in. And on the next page you see the wood handling part, the two lay down areas as well as the biomass silo. So this is where we will store the feed then of the biomass boiler. All in all, difficult environment, difficult time to run a major construction site, but we are on time and in budget. Thomas, Thailand.

Thank you, Stefan. Hello and welcome also from my side. Now let me continue with our lyocell expansion project in Thailand. In a nutshell, the project is fully on track. With regards to the key facts, no change actually compared to our last call. So we are talking about a 100,000 kilotons lyocell plant. It will be of course the largest of its kind. It will of course significantly boost our specialty exposure with regards to the project. And the timeline actually we are fully on track, including the recruiting and onboarding. There is probably one thing of course we need to monitor very closely, which is the COVID-19 pandemic in Thailand is, as you might be aware, actually COVID-19 numbers have increased significantly over the last couple of weeks. And the vaccination program actually in Thailand is still, let's say, in very early stages. So this is something we are watching very closely and of course making sure that our employees but our contactors as well are always safe. We still expect actually to start ramp up by the end of 2021 and plan to be fully ramped up in the second half of 2022. Now let me continue with the overview slide. Actually I think we shared this picture also the last time, and I think it's obvious to you, to see then the progress we made over the last couple of weeks. So let me start from the right side. Actually there you can see the wastewater treatment plant followed by the pipe warehouse, then there is the production building, and then the fiber warehouse. In front of the fiber warehouse the utilities plant. And in front of the production building you have to technically warehouse, laboratory and workshop. And on the next picture, actually you can see a more detailed picture of our production building. I think it's obvious the tremendous progress we made over the last couple of weeks. The next picture actually the technical warehouse and laboratory. I mean as you see here, I mean some of the buildings are already finished and the same of course is true for the utilities plant on the next page. So all in all, I think we are very well on track. And of course the COVID-19 is something we will need to closely monitor. With that, actually let me switch gears and let me continue with our Q2 financials. And let me start with revenue. They are, revenue came in with EUR 544 million compared to the EUR 344 million the year before. That's an increase of almost 60%, of course driven by a significantly stronger demand as already elaborated by Stefan, and of course by significantly higher prices. If you just take a look at CCF prices. CCF prices in the first half of 2021 were on an average level of slightly above RMB 14,000 while actually in the first half of 2020 actually the level was below RMB 10,000. For the first 6 months we are now at EUR 1.033 billion compared to EUR 810 million the year before. Again, a massive increase. Of course last year was massively impacted by the COVID-19 pandemic. With regards to fiber revenue by application, you might remember from previous calls actually that in the past actually the share was around 70% to 30%. And as you can see here, we are basically back on the precrisis level leverage with textile fibers now accounting for 69% and the non-woven fibers accounting for 31% in Q2. With regards to our specialty fiber share, actually so far in '21 we are at 73%. That compares to 72% the year before. Now let me move on to earnings and let me start with EBITDA. There actually EBITDA for Q2 came in with EUR 123 million compared to EUR 26 million the year before. Again of course driven by the significant increase in revenues. EBITDA margin now at almost 23% compared to 8% the year before. On the cost side, actually there are a couple of things I think you need to keep in mind. One is actually on pulp costs. Actually it probably takes almost two quarters before pulp price change becomes noticeable in our profit and loss statement. So that is one thing you need to be aware of. The other thing I would like to mention is on caustic. Caustic was actually in the first half of '21 on a fairly low level. However actually we now saw prices actually increasing quite a bit actually now already in July. Energy costs actually have already been mentioned by Stefan. And last but not least, of course transportation costs or logistics costs also on a significantly higher level than on the year -- that in the year before. For the first 6 months now we are looking at an EBITDA of EUR 218 million compared to EUR 96 million the year before. EBITDA margin now at 21% for the first half compared to 12% the year before. Moving on to EBIT actually of course we see the same development as we saw for EBITDA. EBIT for Q2 came in with EUR 83 million compared to a negative EUR 13 million the year before. So also there I think it is obvious to see the improvement in the market. We hit bottom actually in the second quarter of 2020. And from then on was actually, we now saw for 4 consecutive quarters actually an improvement. For the first 6 months we are now at EUR 139 million compared to EUR 16 million the year before. Moving on to our profit and loss for our both divisions actually as already elaborated by Stefan actually, we have changed the organizational setup and as a consequence of course we need to adopt the segment reporting. However the organizational setup was only changed by the end of 2020. Actually we only have these numbers available effective from 1st of January '21 onwards. However I think it provides quite significant insights in where actually earnings are coming from. And as you can see here from this slide actually the fiber division actually contributed EUR 171 million in EBITDA, pulp another EUR 79 million. And what is left in others is basically all the headquarter functions that of course need to remain there, and quite a significant portion of our R&D activities, bringing us then to a total of EUR 218 million in EBITDA as you saw on the previous slide. Moving on to net profit and earnings per share. Net profit actually came in with EUR 53 million compared to a negative EUR 20 million the year before. And again of course the same development as we saw before. For the first 6 months we are now at EUR 81 million compared to, let's say, flat 0 the year before. Earnings per share now at EUR 3.06 compared to EUR 0.06 in 2020. Let me continue with cash flow and trading working capital. Again, at the same pattern as we saw for EBITDA and so on with hitting bottom actually in Q2 2020, and since then actually a significant improvement in our operating cash flow. Free cash flow remains negative. That is of course driven by the massive investment program. It is currently on its way. As you can see here from the numbers actually we have now 3 consecutive quarters with CapEx being above EUR 200 million. Nevertheless, I think in Q1 and Q2 a significant portion of our investments could be paid by our operating cash flow. With regards to trading working capital in absolute numbers, I think no big changes. It's hovering around the level of, let's say, plus minus EUR 400 million. However, in terms of trading working capital in -- as a percent -- in percent of annualized group revenues, of course a significant improvement over the last couple of quarters and bringing in Q2 with 19%. Last but not least, couple of words on our balance sheet. I mean total assets of course increased, driven by the massive CapEx program, increased by almost 13%. Our adjusted equity increased of course in line with the good result of the first 6 months. Now in absolute numbers it's almost EUR 2.1 billion. Adjusted equity ratio, slightly down at now 44.3%. It is of course cost by total assets increasing a bit stronger than actually adjusted equity. With regards to net financial debt, I mean, driven of course by the negative free cash flow, net financial debt increased accordingly. The reported net financial debt now stands at slightly above EUR 700 million compared to an economic net financial debt of slightly below EUR 500 million. What you have to keep in mind, I think we mentioned that in all the previous calls is that our Brazilian joint venture is fully consolidated in the financial statements of Lenzing. However, if we adjust the portion that is being guaranteed by our joint venture partner Duratex, then we end up with the so-called economic net financial debt that is of course now significantly lower than the reported a net financial debt. And last but not least actually on our liquidity cushion, actually still at the level of EUR 1.2 billion -- EUR 1.8 billion consisting of slightly more than EUR 1 billion in liquid assets and then another EUR 700 million plus in unused credit facilities. So all in all, I think also myself I'm quite pleased actually with the numbers of our second quarter. And with that actually I hand back to Stefan for the outlook.

Thank you. Let's look a little bit for the, first, at the remainder of the year. So if you add all the different ingredients up, you come to the conclusion that the first half of the year should give us the confidence to up our guidance. However, given the uncertainty still around the COVID 19 pandemic, some of the logistic hassle that I think is there in the world, we decided to only guide quantitatively on the lower end of the spectrum to, so at least EUR 360 million. Now all the things that we mentioned throughout the call I think should give you a feel of why. And I think with EUR 218 million in the first half we feel comfortable that indeed this should be the, at least of EUR 360 million. The key focus points will be next to our big projects, of course, the continued improvement in operational excellence initiatives in the group. Now if you look at the strategic milestones that we have set for ourselves, in the first half we could tick off 3. This is the 35,000 for Modal expansion in Nanjing. The conversion of all commodity viscose now, the remaining line in Nanjing, but then all the lines in Indonesia over the next 2 years. And then the steps to further decarbonize our portfolio. Again be reminded of the minus 40% CO2 commitment that we gave until 2024. And as Thomas mentioned, we are confident that in the last quarter of this year, towards the end of the year, we will be starting up our Thailand plant. So strategically I'm well on track. Now if you look sort of at the bigger picture, we actually come out of a pandemic that I think stressed us, stressed the organization, but I think we lived up to the challenge of increasing efficiency on many fronts, executing with precision on our big project. At the same time and maybe even fueled by the pandemic, the whole drive towards sustainability in textiles, fashions and increasingly now in non-woven is gaining further speed. And we are excellently positioned with our strategy, with our product portfolio, increasingly with the brands and the way the brands are recognized in this field. We are excellently positioned. Now we are moving closer and closer to the start-up of the big investments, the USD 2 billion, close to, major investments. One will be finalized end of this year. The other one in the next half year, then in H1 2022. So we're moving increasingly close. And I think also on the ready-to-operate side the teams now get well-trained, and I think we are very confident. And given the fact that we have a much better year than what we could anticipate still a year back, also our balance sheet looks in excellent shape. So all in all, I think we are very confident. And that gives us -- or that's why we also feel that we can solidly reiterate our belief and our commitment to the 2024 targets on specialization, vertical integration as well as sustainability. EUR 800 million EBITDA being above 10% ROCE, keep leverage low. Specialty share, as I mentioned, we will far exceed already earlier. As well as the DWP backward integration. And we are in excellent track to get our CO2 emissions further down by investing into value-adding projects. Good. With that I would like to close our elucidation and open up the floor for questions. Operator, please.

[Operator Instructions] The first question is from the line of Christian Faitz from Kepler Cheuvreux.

Three questions, if I may. The first one would be, in your presentation you point to an attractive tax incentive scheme for your project in Thailand. Can you please elucidate this a bit? Second question, on your new divisional setup. From here on, how detailed will your reporting be for these 2 divisions, i.e., will we be able to see divisional profits such as EBITDA? And then third and last question, the recent renewed lockdowns in Asia, namely China, do you see this impacting the viscose value chain in any way up to demand as well?

Okay. I would suggest, Thomas, that you take the tax incentive as well as the divisional reporting, and I will speak about the lockdown.

Yes. Let me start with your first question on the tax incentive scheme. I mean actually, what we agreed with the so-called BOI, Board of Investment in Thailand is that actually for the first 8 years actually we will not pay any corporate income taxes. And then there is also quite some support for the next 5 years. So actually in total I would dare to say it is a very attractive scheme we have there. So that's with regard to your first question on the divisional setup and the reporting, actually, we are going to do from now onwards. I mean, basically what we will do is actually we will basically be following of course IFRS rules. And whatever is necessary to be reported there, we will do. So actually for EBITDA and that kind of stuff of course you will see.

On -- with respect to the lockdown, that is specifically in China now centering around Nanjing. At that moment in time, we not -- we don't see an impact on consumption, but what we do see is an impact on logistics, as well as frankly even the challenge in part for the workforce because we don't have any COVID cases ourselves, but with all the intense contract tracing and Nanjing is now a bit of a hotspot. There were a couple of people who were actually asked to stay for 2 weeks in quarantine at home. So we don't see an impact on demand, but we do see an impact on, let's say, on supply. So far we are not impacted ourselves yet, but the challenges are growing.

The next question is from the line of Markus Mayer from Baader-Helvea.

Three questions as well. Coming back to this new divisional structure. Maybe can you shed some light how this fiber pulp split would be when both plants are fully ramped up, let's say, in 2024? What would be the potential split of the EUR 800 million into this EUR 500 million pulp part? That would be my first question. Second question would be on your trading working capital to sales ratio. Should we expect to worsen this again in the second half and also in the first half of next year given the 2 planned ramp-ups? And then a last question is on the guidance. You gave some quite confident comments and also said that [ this wood pulp prices will only affect this ] delay. Maybe can you give us some kind of moving parts where you would go to this just EUR 360 million, i.e., EUR 142 million EBITDA for the second half? And what must happen that you would achieve basically the same result as you have achieved in the first half?

So again, let me kick it off with your question on the numbers on the divisions. Maybe let me go back one step. I mean at this point in time Lenzing does have two dissolving wood pulp plants, one in Paskov and one here actually at the site at Lenzing, bringing our total capacity for dissolving wood pulp to slightly above 600,000 tons. And actually we will be adding 500,000 tons once the Brazilian project is up and running. So bringing the total number to 1.1 million tons for dissolving wood pulp. In comparison, actually our fiber capacity is, let's say, at this point in time, roughly at the level of close to 1 million tons. However, we will -- now with T3 we will, let's say, only be adding 100,000 tons. So we will be bringing it to 1.1 million tons as well. So actually that is something I think that you need to keep in mind. And the other thing I think you need to be aware of when you take a look at the numbers here in the presentation but also please have a look at our notes for the half year report. Actually there you can find of course more details on our segment reporting. What you have to keep in mind is, I mean, dissolving wood pulp prices started fairly low and increased then actually as the year progressed. And with that actually I would already stop my elucidations. I would now shy away from giving a split of the divisional profitability for 2024.

Now taking your last question, Mr. Mayer, on guidance. Indeed I think if you look at the current environment and run rate of Q3. I think the EUR 360 million is indeed, as we said, it will be at least EUR 360 million. The reason why we haven't committed to an upper end is because at the moment the level of uncertainty, particularly in India, Indonesia, Bangladesh is very difficult actually to get your arms around. And that paired with a lot of logistic challenges. I think what we would like to accomplish and I think that's also what Thomas mentioned with his results, please bear in mind that with the trailing of dissolved wood pulp in the P&L we will get some -- even so wood pulp prices at the moment are pretty stable, we actually will get some of the price increases that we saw in the first half of this year, they will work themselves through the P&L only in the second half of the year. And also caustic will be a little bit of headwind, as Thomas explained. At the same time, we don't see this impossible to further increase prices in some areas, but that will be highly dependent on some of those uncertainties around the pandemic play out. I think from the fact that we now, I think, upped the guidance to timely and I hope also from the way Thomas and I speak, please take away that we are not completely unoptimistic about the year. But I think in line also with our tradition, we want to make sure that you know what, let's say, that there remains a high degree of uncertainty out there.

Okay. Understood. And the question on the trade working capital to sales ratio...

Yes, sorry. Sorry. We skipped the second question. On the trading working capital, actually my expectation would be that in absolute numbers I think we will be hovering around this EUR 400 million mark.

The next question is from the line of Matteo Cataldi from Exane BNP Paribas.

Congratulation on a nice quarter. I think that the first 100 kilotons line for the Thailand plant is full on track and will be starting operating in Q4. I was wondering if you could provide us with an update of the remaining 3 lines. Wanted to check if you will be going ahead and what will be the timing and the associated level of CapEx to extended further your lyocell production.

Mr. Cataldi, I think the next lines for lyocell, we are indeed discussing already now when to go ahead. We would like to see that the lines is first I think solidly in -- the project is completed. But I think to do the one or the other preparation for a next line, that's something that you could expect us to do. However, I think the next line, we will communicate only after the line 3, now we call it T3, will be up and running. Overall, we feel that the world easily can digest every 1.5 years maybe even less than 1.5 years of a lyocell plant of 100 kiloton nature from Lenzing. And that's more or less also I think something that we will model in our strategic plan. Having said so, the level of volatility that we at the moment see in the overall industry given the drive for sustainability and so forth is something where we can always accelerate or decelerate our investment plans. In terms of CapEx guidance, please take 2 things into consideration. We do learn. At the same time, there is inflation out there. At the moment I think every construction might be more expensive than something that you have started 2 years back. And when we will communicate about the next plan we will of course also communicate the CapEx amount, but that's just in terms of modeling 2 pointers that you should take into consideration.

The next question is from the line of Sebastian Bray from Berenberg.

I would have 2, please. The first is any update on viscose capacity outlook for the next 18 months to 24 months? Has there been any supply response to the increase in price? I see there's been some consolidation in the industry recently. My second question is on dissolving wood pulp. Just as far as modeling, the ramp-up of the facility for 2022 and 2023 is concerned, does Lenzing just get spot? Or is there some type of precontracting that will insulate any pricing volatility?

In terms of viscose competition, I think there will be a somewhat muted level of capacity increase that we will still see in '21 and '22. I think if you take for both years, some 400,000 tons, I think that sort of makes it. It will not be more than that. So I think overall I think we will see a similar picture as what we saw after 2013 and '14 than in '15 and '16 where I think the amount of capacity expansions will be rather low. And indeed, as you said, that is even then I would say exacerbated by the fact that we see a couple of players of smaller lines still in the process of moving out that have -- started now that happened in '21. So again, net addition will not be significant. In terms of DWP, our plan is indeed to start up in the first half of the year. We also had it in our slides that by end of 2022 we expect that we will get very close to nameplate capacity. And the way I think you should model it in -- is that it will be on a CCF basis. We are at Lenzing the biggest consumer of the pulp. So there a slight discount to it. But I think if you model it based on CCF dissolved wood pulp, you will hit it pretty well.

That is helpful. Given we've touched on the viscose capacity outlook, is there any update relative to your comments of 3 or 4 months ago on lyocell? Or is it pretty much unchanged as far as planned supply additions are concerned?

Pretty much unchanged. What we have seen over the last month is that some of our lyocell competitors have been struggling a bit to place the volumes, to run it at rates that are competitive. And of course at current dissolved wood pulp prices and particularly the grades they need, it is not necessarily easy. But all in all, I think what I said 3, 4 month back still holds true. But a bit less steam maybe than what we saw a year back.

The next question is from the line of Nhlakanipho Mncwabe from 36ONE Asset Management.

Well done for the very good results. Most of my questions have been asked. I just wanted to get a sense of if you could comment on capacity utilization rates. I know you have it in your presentation, but what they are for the industry and yourselves and how you see those evolving to the end of the year. And then the other thing, could you just talk more about the inventory levels now being higher than historical levels?

Okay. So utilization rate in the industry are now at around 69%, ending the second quarter. Historically they have been more in the very low 80s, high 70s. If you just look back some 4, 5 months, so end of first quarter, we did see actually utilization rates at that level. Now what we -- in the second quarter and second quarter so was of course that some of the major markets were due to COVID really struggling, Indonesia, Thailand, very big India and Pakistan. So that was a bit triggering that. That is then also one of the reasons why the inventory rates came higher. We're now at an inventory level, just somewhat below 30 days, so 25 days, if I'm not mistaken. And that is somewhat higher than the historic average that we have seen. But again, not abnormal. If you look back just a year where we were in the COVID crisis, we actually saw levels of north of 40 days of inventory. So -- and we -- I think overall we expect this industry to sail relatively smooth if the environment stays where it is. As I mentioned before, there is not a lot of capacity coming in the next 1.5 years to 2 years. I think that with all the sustainability consideration, wood-based cellulose will do -- in general do very well.

The next question is from the line of Teresa Schinwald from Raiffeisen Bank International.

I still have 3 questions. A quick one. There was a significant increase in other operating income in the second quarter. Could you tell us a bit more about that and especially if this was onetime? And second one is regarding the potential demand in the wake of the Single-Use Plastics Directive. Your non-woven sales were pretty resilient in the past 2 quarters. I'm assuming the capacities are fully booked. So am I right to assume that the next steps would include capacity increases in non-woven? And the third one is regarding the EU Commission's Fit for 55% packet. It includes also regulations on forestry, increasing carbon sinks and planned stocks of the use of biomass for pure electricity generation. Do you already have a view on the potential impact on wood supply and what procurement management for lending?

Okay. Let me first take question 2 and 3, and then I will give it to Thomas for the other operating income. The Single-Use Plastic Directive as it stands now can trigger in Europe and the U.S. up to 1 million tons of additional demand for cellulosics. And that will be a mix both lyocell as well as viscose. And the assumption is correct. We are at the moment, sold out on our lines for non-woven. And as part of our ambition to serve this industry more, we think that with the Thailand plant coming on stream that we will dedicate our lending operations for lyocell increasingly [ towers ] for non-woven sector to also reflect fully their needs. The EU directive 55%, it is not yet clear in all aspects what it means for us. Now the use of biomass for our fibers and the respective use then of the byproducts, the waste product that we have as a consequence for our boilers will remain unattacked or will remain fully there. What it exactly means is indirect consequences from the restriction on biomass and on carbon sinks, it's too early to tell yet. Thomas, other operating income.

On the other operating income, yes. Basically you have to regard the increase as a one-off. It is mostly coming from positive FX effects. That's the major portion, actually. And there is a minor portion, which is a refarm from a supplier for actually services already provided in previous years. So that is also of course again a one-off.

The next question is from the line of Isha Sharma from Stifel Europe.

I have a few questions around the Division Pulp. I assume that inter-segment sales are largely your production at Lenzing and Paskov, where the revenue implies a price of around EUR 700, that is 15% lower than the average market price for the first half. How should we think about your internal pricing of pulp in that respect? And related to that, is it fair to say that the pulp external sales have pinned margins and therefore the pulp EBITDA margin is probably north of 30% despite the lower-than-market pricing. And then the last one, if I may. If you compare your average selling price, including the increasing share of specialties to the pre-COVID level, would you say that you -- there is a decoupling, which is meaningful from the spot price trend that we see in the market?

Okay. Maybe let me start with the Division Pulp. Actually what you have to keep in mind is actually the Division Pulp comprises basically 2 activities. One is operating the 2 dissolving wood pulp plants that are within Lenzing group at this point in time, which is the one in Paskov and the one in Lenzing. This is one thing. However, the pulp division is also sourcing all the external pulp from external sources and then basically distributing all the pulp within, let's say, all our fiber sites. So that is something what you have to keep in mind when you have a look at, let's say, internal and external sales for the division. And at the end of the day actually, the trading of the pulp as such of course does not generate, as you can imagine, a lot of income. And almost all the income is of course generated at the production sites that is currently in Lenzing and in the Czech Republic. Situation will of course then change once Brazil starts operation. Then of course we will have 3 plants up and running. And as a consequence, I would expect then of course the EBITDA contribution of the pulp division to increase accordingly. I hope this answers your question.

Actually I just wanted a clarification between the internal sales. So is that then fair to say that that is Lenzing and Paskov? Or does that also include your long-term supply? I assume the trading parts to be in the external sales. Is that not the right way to think about it?

Fair point. Actually what we are also doing is that we are selling to external parties. So actually especially the pulp from Paskov, which is softwood pulp, is being sold to external parties. So actually it's 3 components. Yes, you're definitely right, yes.

On the other question in terms of uncoupling, what we do see is that we are setting in many markets the prices and competition follows, with one exception under this viscose. Standard viscose, we command a small premium over CCF high. But there we speak of very low single percentage points. With ECOVERO our sustainable on viscose, we command a brand premium that is dependent on where we are in the cycle, anywhere between 10% and 20%, very healthy premiums. And in TENCEL, lyocell and TENCEL model, we're also commanding very notably premiums. But both -- in both of those cases, it's not -- there is a market and we have a premium. We set a price and other price at a discount. And as I mentioned before, at the moment I think competition is I think more struggling than finding it easy when it comes to lyocell with their cost position, and we feel it's an excellent business. So all in all, yes, we have reached significant premiums, but it's not that we have uncoupled ourselves. But what we don't see anymore is that our total business is kind of a viscose-plus business what we still had 5 years back.

[Operator Instructions] There are no more questions at this time. I would like to hand back to Stefan Doboczky for closing comments.

So all, thanks a lot for your interest in the company. We are well on track with our transformation journey, as I mentioned, for the long-term outlook. I think many of the stars on the big picture horizon are starting to align with our position. We're executing our strategy well. Our big projects are well on track. Our balance sheet is in good order. And operational business is doing well. We keep a keen eye on cost and a keen eye on accountability for performance with the new divisions. We will step-by-step increase transparency, not only on the ESG side but also on the financial side, as we have started to do today, to make sure, I think, that investors and analysts can appreciate the journey we are on and the progress we are making. Thanks a lot for your and participation. Have a good day.