Lenzing Aktiengesellschaft (LNZ) Earnings Call Transcript & Summary

Ladies and gentlemen, thank you for standing by. I'm Nikola, your Chorus Call operator. Welcome, and thank you for joining Lenzing Group's analyst call. [Operator Instructions] Your hosts today are Thomas Obendrauf and Robert van de Kerkhof. I would now like to turn the conference over to Thomas Obendrauf.

Thank you very much. Ladies and gentlemen, a warm welcome from my side. Thank you for joining us for the third quarter results call. In the line, we also have Robert van de Kerkhof, our Chief Commercial Officer. He will provide us with a market update. And next to me is also Cord Prinzhorn, our Interim CEO, he will briefly introduce himself in a minute. Now 2021, in a nutshell, so far, we see a strong operating result, despite the continued rise in costs, especially for energy, raw materials and logistics. Revenues for the first 9 months came in with -- close to EUR 1.6 billion compared to EUR 1.2 billion in the year before. Our specialty share is now at 73% that is basically unchanged compared to 2020. Our EBITDA actually more than doubled due to the positive market development. We are now at close to EUR 300 million compared to EUR 139 million the year before. Our net result after minorities and the interest for the hybrid bond is now at exactly EUR 100 million compared to minus EUR 3 million the year before, and earnings per share came in at EUR 3.77 compared to EUR 0.1 the year before. With regards to the key developments and the strategic highlights, actually, as you all know, our largest project in the expansion program on the way is the largest in our corporate history, and it is basically on track, despite a challenging COVID-19 situation. The project in Thailand actually largely proceeded according to schedule, despite those challenges from the pandemic. The high infection numbers actually we saw in July and in August, however, they did slow down our progress a bit. And we have now started with the commissioning phase for the plant that will keep us busy actually for the rest of the year and also in January 2022. And once the commissioning phase is finished, we will then start-up the plan. With regards to our construction side in Brazil, actually, everything is still on schedule to start-up in the first half of 2022. And Cord Prinzhorn, as I briefly mentioned, he was appointed our Interim CEO after Stefan Doboczky stepped down at the end of Q3 2021. Now with regards to outlook and guidance, actually, like we are generally in a positive market environment, this environment, of course, remains characterized by a very high level of uncertainty and low visibility. And we also see quite some pressure on the cost side, especially from raw materials and energy and logistical as well. But due to the very positive development in the first 9 months for the year, and taking into the account the factors I just mentioned actually, we continue to expect EBITDA in 2021 to reach a level of minimum EUR 360 million. With regards to our 2024 targets, actually, no change compared to our last presentation, of course. So just to repeat it EBITDA for 2024, you expect it to come in at the level of EUR 800 million, ROCE about 10%, leverage below 2.5x, EBITDA, specialty share above 75% of fiber revenue and backward integration above 75%. And last but not least, CO2 emissions to be reduced by 40%. Now let me hand over to Cord Prinzhorn for a short introduction.

Thank you very much, and thank you for inviting me to this call. Let me introduce myself for 2 minutes. I've been managing fiber-based and wood business in the past 15 years and since I'm also on the Board of the Supervisory Board of Lenzing, I was asked to step in with the change of management. I hold this interim position to facilitate the search for a new CEO and focus on the further development of Lenzing. Since I will continue as a supervisory board after I hand over to a new CEO, I can then also build on the deeper relationship with the current strong team. In the meantime, that may take several months, a maximum up to 1 year. My focus in this time will be strong on the current strategy execution, especially on running the projects in Brazil and Thailand and completing them in the scheduled time, but also on all multiple smaller essential projects. Further I’m on focusing on sustainability development within the ESG framework and also to focus on continued operational improvement and HR development as both build the long-term success of this business. Today, I have to say, I'm here as a guest to familiarize myself with the stakeholders within this community. And I take part as a guest as I'm taking over all agendas in the course of this week. So for today, I would like to hand over to this excellent management team, especially for the first part, I would like to ask Robert to take us through the highlights of the market development and the update for that. Thank you very much for this time and introduction.

Thank you very much, Cord. First of all, of course, also from my side, a warm welcome to all the analysts on the call. I'm very excited to give you an update on where do we stand in the market. And before we talk a little bit about the numbers, the prices in the market, we'll be talking also a little bit about how do we want to make shape the market with our brand strategy. Branding, as such, is something that we introduced in 2018, but branding can only come hand-in-hand with product innovation. The innovations we launched very successfully in the last couple of months are going into some of our key segments. On the left side, you can see the new denim offering. Denim is still one of the biggest open segments in our textile industry, growing very fast, where Lyocell initially was kind of a niche application. Meanwhile, it's a standard component of almost every jeans. But the problem that we had with Lyocell that we heard from the trade is that it's a bit shiny. So we have raised the bar. We've developed a much TENCEL Lyocell fiber and with much fiber the original look of the jeans is being restored, if I may recall it like that. At the same time, still all the other sustainable and physical performance of the fibers, they maintain, very exciting developments for a very important segment. Now our commitment to science-based target goes beyond just what we do as a corporation, it also goes offering new innovative products to our customers down in the value chain. And we launched a true carbon zero fiber a year ago. We are very excited that we have now been able to launch new carbon zero fiber that actually contains our RefiBra technology. And as you recall, Refibra technology is a product in which we reduce the amount of virgin wood content and then complement it with the circular cotton content of up to 30%. So this is a true circle of product that now can be offered to our customers with a carbon zero footprint. That is very exciting. We get a lot of positive reaction from our loyal value chain partners, for instance, Jack & Jones is now using this carbon zero Tencel fiber in their collection. So great innovation at the right time but also very clear indications from the market. On the VEOCEL side, nonwoven side, we've seen a continuous growth throughout the year of COVID. Of course, the personal care aspect, the hygiene aspect became very visible in the COVID pandemic, and that has definitely boosted overall use of nonwovens. Our VEOCEL brand is fairly new. We only launched it in 2018 as a brand-new plan. We then actually activated quite aggressively only in the last 1.5, 2 years. The decision from the European Union, as we communicated already during the last quarter regarding the Single-Use Plastics where VEOCEL and Lyocell were clearly not defined as a plastic, gave us really a great opportunity to educate consumers that our VEOCEL branded wise would be completely sustained or plastic free. Also, other segments for VEOCEL, where we see significant growth would be in the beauty care segments. In Asia, it's, at this moment, extremely popular to use facial masks, and they are branded with our VEOCEL. We have just signed a new contract in Hong Kong with a big retailer there, and you'll see the VEOCEL brand. Therefore, in the wide spread in Europe and Americas, which also see increasingly in Asia on premium products like VEOCEL. So great progress on the branding side. Now if you look on the next slide, besides the work that we do internally, we also, of course, work with scientists, external and saying, are our fibers as good as we planned they are? And they are doing their research to really address the major concerns that the current world is facing. And one of the major concerns is all the plastic, the microplastic that can be found in the oceans. In San Diego, there is the Scripps Institute of Oceanography, which is one of the most reputational universities in the world that has done an extensive study on the various products that are contained [indiscernible] and how these products behave over time in a marine environment. And what is very clear that after 30 days, our Lenzing wood-based fibers [indiscernible] but also the lyocell products have completely biograde in 30 days in marine conditions. If you compare this to a wipe that is based on fossil fibers, here we're talking mainly, of course, about polyester and polyprop, these fibers are after more than 200 days, still there. In fact, the condition of these fibers has not even changed. So that is a major advantage that our fibers have 4 applications such as wipes and I think to have this confirmed by organization script is something that we can be very proud of. This will also boost the further, of course, introduction of the VEOCEL brand name. On the corporate level, on the next slide, you'll see that also there, our performance continues very strong. And if I look at some of the most important ratings, MSCI, I'm sure you have already seen it has now given us a AA rating. This is something we are very proud of. It puts us in the top 6% of the peers, and this is quite a big group, which includes corporations right now, but to be in the top 6% or something that I think we can be very proud of. This MSCI rating has a positive impact, as you know, also for our bond alone of the EUR 500 million that is actually linked to the rating. So by this improvement rating, my dear colleague, Mr. Obendrauf, doesn't need to pay as much interest. And what we have committed is that interest will not go in our pocket, but we will donate this slight reduction in interest free bonus to a good foundation that we will announce shortly. Now that, of course, is something that we are very proud of. Also because if you look at why did MSCI rate us with a AA rating this time is because it truly recognize our ambitious climate targets that we're making very good progress on. The fact that we, as a corporation, both in our product innovation, like with Refibra technology, but also in other commitments are really strengthening the circular economy. And we also have exceptionally good governance structure, which are, let's say, the 3 main reasons, therefore, for the upgrade to AA. In the past, I could always report to you that from an EcoVadis perspective, we were gold I'm very proud that we can now say we are in the top 1% of the EcoVadis rating with platinum status for the first time. So this is really also something that I think is increasingly important for the growth that we have ahead of us. Now considering all these very positive news on the market from a rating perspective, from branding perspective, how does the market actually look like? And on the next slide, you can see that the retail market and this is now the textile retail sales are continuing to be quite volatile. You’ve seen of course huge collapse in April last year when more than 6% of the retail sales dropped to the pandemic, the lockdowns. We recovered. We then started off the year with significantly better performance than 2019. And as you can see now, we are roughly at the level just before the COVID crisis started. So we are still roughly at 2019 level. It came down a little bit in the last couple of months because consumer confidence is also impacted by the ongoing impact of COVID; delta variant, of course, is creating quite some concerns. The stimulus payments in some of the key economies are currently running out, but we also see some tightening government measures in some countries. So all of these factors contribute to a lower consumer confidence. We can see that this moment that the apparel retail sales, which is reflected here is slowing down, but of course, exactly the same trends you can see in a much broader retail sector. If you can then see what happens in the textile fibers world. The textile fibers world have gone through a very bumpy road, if you can go to the next slide. The textile fibers world’s gone through a very bumpy road. If I look at cotton, cotton came from an extreme low from May 2020, the lowest point since a long time and has now skyrocketed to an extremely high level. Overall, the cotton price is supported by the very good fundamentals. Production is firm. At this moment, we can see that overall demand for the cotton products is very strong. Some speculative buyers and traders are buying at this moment, more cotton products because they expect that what they buy today, they can sell at a higher price later. So all these factors currently contribute to a very strong cotton price. On the viscose, Thomas mentioned already in his introduction, you can see the viscose price really taking off after the main markets in Europe and the United States, open again, post-COVID. Viscose prices rocketed at the time that the market started to normalize a little bit, prices actually came down to a fairly low level just a couple of weeks ago. And in the recent period, it's run-up very steep because of the adjustments in China that we’ll elaborate on in a few minutes. If you look at the overall dissolving wood pulp prices, they've seen its peak early this year, specifically around May. And at this moment, they are slowly coming down, but still, as already mentioned, at a fairly good level. The polyester prices, of course, the biggest fiber in our industry has also gone up mainly driven by high oil prices. This is expected to come down a little bit in the next couple of months, but polyester as you can see, is still at a fairly good level. Now what happened with the viscose market, you can see on the next slide that the viscose prices have gone up very steep. Profitability, as the light green bar, I think you're very familiar with it, I've shown that most of the standard viscose producers in China made a very nice profit after a very long period of loss making. The boom came because inventory value chain were extremely low. At that time, also quite some capacities were still a little bit shutdown post-COVID. Demand was strong. Meanwhile, most of the production started to go up again. We saw inventories throughout the Chinese market that our viscose competitors increasing to over the 35 days, which is very high. Inventories now have come down, mainly driven by ongoing demand and, of course, a significant production in China because of the energy restrictions. So various viscose fiber producers had to reduce or even shut down complete lines. And that, in combination with also the higher raw material costs resulted in even lower production. The current operating rating in China is at around 56%. If you compare this to the last 5-year average of 80%, you can see that this is something that is not sustainable for the Chinese industry. What happens is that inventory level is coming down. We are currently talking about it. What you can see here over the longer period because this slide is going back to 2017, that the cotton prices start to drop in 2019. Of course, continued in 2020 to its lowest point due to COVID. But then certainly, because of the points I mentioned earlier now is an extreme high level, the cotton point. At the same time, you can see that the viscose prices dropped very fast, then because of the peak that we saw earlier in this year, it skyrocketed again, but now you get the normalization again on a 6-month moving average. The lending specialties, overall, they remain very high. We managed to keep the prices higher when the cotton prices start to drop in 2019 because we have a fairly stable price policy, which our value stream partners, so the [indiscernible] fabric producer, but specific brands and retailers, they really appreciate our stable pricing strategy. We, of course, follow still the trend of the industry, but with a certain delay. So you can see that we've not increased as far as cotton, but we are very well on track to increase the prices further. And I think that is a trend that we'll all be able to continue. If you look at now the overall market, I feel, therefore, very confident as consumer demand is there. The trends for consumers to sustainable products is definitely in our favor, but also then combines with branding and with some sustainability strength, I think we are very well positioned. Here with now I hand back over to Thomas to give us an update on the projects and the financials.

Thank you, Robert. Let me now continue with our big projects, and let me start with the project in Brazil. In a nutshell, the project actually remains on time and in budget. For all those who were in the call also 3 months ago or 6 months ago, I think it is obvious when you look at the picture that we made tremendous progress over the last couple of months. So actually, everything according to schedule. There's just one thing I would like to highlight, our joint venture partner, formally called Duratex changed its name. The company is now called Dexco. So that is the only major change on the key facts here. All the other key facts, of course, unchanged compared to last quarter. Moving on to the project in Thailand. I think I mentioned already the most important topics there. We have already started with the commissioning process and the commissioning process will keep us busy for the rest of the year and also in January 2022. And once completed, actually, we will then, of course, start-up the plant accordingly. The key facts is such all remain unchanged. CapEx actually unchanged with EUR 400 million. Now let's switch gears and move on to the financials. And let me start, as always, with revenues. Revenues in Q3 came in with EUR 555 million, that is a 44% increase compared to the quarter -- the Q3 in 2020. The increase, of course, driven by significantly higher volume, but also by higher prices. Year-to-date, we are now at EUR 1.6 billion compared to EUR 1.2 billion the year before. Our fiber revenue by application is now back at the level that you saw before or COVID-19 actually hit us. So we were always in the range of 70% for textile fibers and around 30% for nonwoven fibers. And basically, we are now back at that range. With regards to our specialty share of fiber sales, actually, we are basically still above the 70% threshold with 72%, slightly below the quarter before but well within our target. Moving on to earnings, and let me start with EBITDA. The EBITDA for Q3 came in with EUR 80 million -- or close to EUR 80 million compared to EUR 43 million the year before. That is, of course, a significant increase year-over-year. However, it becomes obvious actually comparing to Q2 2021, of course, a drop compared to last quarter. EBITDA margin for Q3 came in at 14.4% compared to 11.1% the year before. Year-to-date, we are now at close to EUR 300 million compared to EUR 138 million the year before. EBITDA margin year-to-date close to 19% compared to 11.6% the year before. Of course, the drop in Q3, basically driven by higher raw material prices, higher energy costs and last but not least, higher logistic costs. Moving on to EBIT. And of course, we see the same development there as we saw for EBITDA. EBIT came in for Q3 with EUR 39.3 million compared to EUR 3.7 million the year before. Again, a significant increase, of course, year-over-year. However, sequentially, of course, a drop compared to the second quarter 2021. EBIT margin for Q3, slightly above 7%. Year-to-date, we are now at 11.2% compared to less than 2% the year before. Moving on to net profit and earnings per share. Net profit for the quarter came in with close to EUR 19 million compared to a negative EUR 4.3 million last year. Earnings per share at EUR 0.71 compared to a negative EUR 0.16 the year before. Of course, those numbers are all after minorities and interest expense for a hybrid bond. Year-to-date, we are now exactly at EUR 100 million compared to a negative EUR 2.8 million the year before. Moving on to cash flow and trading working capital. As you can see here on this chart, our gross cash flow and operating cash flow for the last 3 quarters, actually hovering around the level of around, let's say, EUR 100 million. Free cash flow, of course, still negative in all those quarters by EUR 100 million or even more. What is the driver for that, of course, the huge CapEx program we are implementing now in Brazil and in Thailand. At the bottom of the slide, you can see the CapEx number per quarter. So actually, we now have 4 quarters in a row with CapEx exceeding EUR 200 million. With regards to trading working capital, also here, no big changes actually. In absolute numbers, we are, as always, actually hovering around the level of around EUR 400 million. And in terms of -- in percent of annualized group revenue, we are slightly above 19%. Last but not least, some numbers, some key numbers from the balance sheet. Let me start with net financial debt. Net financial debt for Q3 came in with EUR 806 million. That is, of course, reported net financial debt according to IFRS. If we adjust for the guarantee from our joint venture partner for the Brazilian project, we would end up with the so-called economic net financial debt, which is now at EUR 510 million. Of course, in total, an increase. However, that is the result, of course, of the negative free cash flow we saw on the chart before. With regards to total assets actually increased by more than 20% compared to last December. So more than EUR 900 million or actually around EUR 900 million in increase that, of course, all comes from the CapEx. Liquid assets still very high with slightly more than EUR 1.2 billion. And our adjusted equity, very strong with EUR 2.1 billion compared to EUR 1.9 billion the year before. Adjusted equity ratio is slightly down, of course, as a result of significantly higher total assets. With regards to our liquidity cushion, we are at the level of EUR 1.7 billion by the end of September. That is, of course, slightly less than by the end of December. But that, of course, is the result of the huge investments we are doing in Brazil and in Thailand. Now let's have a look at the remainder of the year. Given the very positive performance during the first 9 months, we continue to expect EBITDA to reach at least a level of EUR 360 million. Of course, market environment remains to be characterized by a very high level of uncertainty regarding the COVID-19 pandemic. And of course, it remains to be seen how input costs actually will be developed over the next couple of weeks and months. Actually, we saw quite some increase in energy. However, since the peaks we saw back in October, of course, price level has come down quite a bit. Nevertheless, it remains on a higher level so far as before. Logistic costs anyway, that is something that we see for several quarters now. And probably, we will have to live with higher logistic costs for another 2 or 3 quarters. With regards to commodity fiber pricing, actually, those prices actually peak back in March. Thereafter, we saw a phase of lower prices. However, actually, as Robert elucidated, they are now back at higher levels. And with regards to the dissolving wood pulp, actually, they have declined a bit. However, they are still on a relatively high level. Overall, actually, we expect continued increase in demand for sustainably produced fibers for the textile and the apparel industry as well as for the hygiene and medical industry. And with regards to our focus, of course, the strategic focus is now on finalizing the projects in Thailand and in Brazil. As elucidated before, it's now about commissioning and then starting up the plant in Thailand. And then, of course, the same is true for the project in Brazil. And with regards to our operational focal points, actually unchanged also compared to a quarter ago. So we will focus on pool marketing. We will focus on continuous improvement, operational excellence and cost management. With regards to our strategic milestones, actually, all the major decisions have already been taken. I think that we already communicated when we presented our half year number. So decision on the fibers extension was taken already, then also the conversion of commodity viscose into Lenzing Ecovero fibers that decision also was made and also the further steps to decarbonize the portfolio, I think we communicated already a quarter ago. The only thing that remains now open is the commissioning of the lyocell fiber plant in Thailand and the that is already on its way. And as I said before, it will keep us busy for the rest of the year and probably also in January 2022. With that, actually, we are at the end of our elucidations and we open the floor for questions.

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

Yes. I have 3 questions, if I may, please. One, certainly to Cord as the interim CEO, if you can answer that, if he has time to answer that. What are your key priorities during your interim phase as CEO? That would be helpful to know. Then can you quickly comment on the COVID-related issues you have been facing with the Thailand project? Is that still ongoing or is everything basically on schedule again? And then third question, sorry, I noticed looking at CCF, that the current lyocell price is rather close to the VSF price. Can you elucidate that a bit?

So to your first question, of course, I can reiterate those key points. In short, the main priority is to finish the current ongoing projects which we have shown, not just the big ones, but also multiple other projects, which we have dire need of finishing. The second priority is for sure to reconfirm and also execute the strategic process of continuing where we're going. So confirming the strategy. And the third one is to focus on operational excellence, which shouldn't be just limited on the word operational. It touches all areas, which is an ongoing process. Anyhow, we have projects in purchasing, in sales optimization and to give support to those. So these 3 priorities, all the way to HR are key for the next few months. But of course, as also pointed out in the presentation, the key projects in Brazil and Thailand have absolute priority. And we have to balance still running the rest of the business as profitable as we can. So don't take it as one or the other. It is a major effort, and this is why I'm here to support the search for a management structure of the future.

Thanks and all the best for your tenure as CEO.

Then I will take care of your second question. It was related to the COVID-19 situation in Thailand. Actually, as you all might know from media reports, Thailand saw actually a huge increase in COVID-19 infections starting in July and actually peaked in back in August. So actually, with very high infection rates. Of course, it also has implications on our construction side because we also -- we did a lot of testing, of course, or we still do a lot of testing at the construction side. So we also saw a high number of infections for our construction workers. However, we always manage with the authorities to continue on the project. Nevertheless, actually, we had to implement a so-called bubble and zeal concept that had to be applied for exactly 28 days, and that actually ended somewhere around mid of September and since then everything is back to normal. So actually, we are very grateful to the authorities for allowing us to continue our work, even though, of course, the public field concept did slow down the overall progress, of course, because priority #1 is, of course, the safety of our people and of our workers.

And then let me take the last question, Christian. When you mentioned the 2 products that are coming close together now that this -- both have a certain reason why they are closed. Number one, the VSF price is fairly high, as mentioned in the presentation. It's high because larger cost was of course, was pulp. Pulp came down a little bit, but still at a healthy, high level. We've further seen increases of certain other raw material costs. And as a consequence, the VSF price is fairly high. On the lyocell price -- the lyocell price in China is driven, I think, still by few producers. So it's not so representative yet as viscose. It is driven by, let's say, companies that have just entered the market, they are really struggling to commercialize. So what we've seen with the Chinese lyocell competitors is their projects have been, to some extent, delayed. But specifically, when you look at them, the commercialization are struggling when it comes down to quality. So in the past couple of months, while Lenzing lyocell is an extremely strong demand. We see weaker demads for the local domestic competitive lyocell, and they are currently trying to reduce their inventory levels by extremely aggressive pricing. So that's the reason why the delta between the 2 products is fairly small at this moment.

The next question is coming from Isha Sharma from Stifel Europe.

What is the impact of the current developments in China on your operations? And what are your expectations going forward? The second would be, is it fair to say that the VSF prices are right now supported at least partially by these developments? And if so, to what extent can Lenzing increase the charity portfolio offset any normalization during the next year?

Let me take the first question. I mean, as you all know, actually, China has implemented a couple of measures over the last couple of weeks, aiming actually at those industries that consume a lot of energy. So far, the overall impact for us has been, let's say, fairly limited. Of course, we are in constant discussions with the authorities. However, so far, the overall impact is really, really small. And how this thing will continue. Of course, let me just add one more sentence. Of course, this remains to be seen that is difficult to predict. But so far, the impact can be, what I said, is fairly small.

Is this because of your location -- sorry, just following up on that. Is it because of the location of the plant because the particular province is not impacted because there have been several VSF producers that had to reduce operations, just trying to understand the dynamics here?

Look, I mean, I think there are a lot of factors, a lot of parameters that play a role if you're impacted or not. I mean, of course, we are in exchange with many other companies as well. And what we hear is from, let's say, complete shutdown to no impact at all. So the range is very big. And what we also see is that actually, it doesn't -- it's not necessarily linked to the size of the company. And there is also no difference between, let's say, wholly foreign-owned enterprises and Chinese enterprises. So actually, the rationale behind, I think, is probably very much dependent on your location. And yes, that's it probably.

Yes. And let me build on that when you say to what extent the current GSF prices are impacted by that. That uncertainty, as Thomas described, which company is infected, to what extent that is not clear. Of course, it's creating some concerns in the market. And as a consequence, the viscose demand is at least by the downstream traders and players is increasing. So the uncertainty is definitely driving of the viscose prices. Inventories are still fairly high, but nobody knows how long this will take the energy concerns that, let's say, the world was confronted with is fairly better at this moment, and which is still ahead of the winter. So therefore, prices are boosted by this. From our portfolio perspective, we are very well on track. We have at this moment in China, a very healthy product portfolio already. Our ECOVERO production are really going extremely strong. We are producing as much as we can based on the current asset part. And of course, also the other quite profitable business that we had from viscose perspective in China is in a wovens industry. Also that product at this moment is strong in the mount and very well produced. I think from a product optimization, we are very well underway.

Right. And just last, maybe just a follow-up on this one. So on the specialties portfolio, you will probably reach even closer to 100% by the end of 2022, given the change in your operations in China and Indonesia. Just trying to understand what kind of impact that might have on the pricing? And if you will be able to offset certain normalization if it might occur at the VSF price?

If you're now talking about specifically China, it's -- we are very well on track. We, of course, have also there the modal project. So from a corporate perspective, we will not achieve the 100% specialization, of course. One big site that we are really investing in for greening up the production is, of course, in Indonesia. And there we are also well on track with our overall project. But there, we still have some standard products and there, we expect only in the next 2 years of 2023 to have the ECOVERO production starting.

The next question is coming from Sebastian Bray of Berenberg.

My first one is a minor one, but on Thailand, is this a delay to the start-up by a few weeks relative to the expectations set out in H1? My feeling is the answer is probably yes, but I just want to double check. My second question is on the 2024 guidance of EUR 800 million of EBITDA. I'd like to probe this a bit further. I assume that Lenzing is assuming a DWP price in line with the USD 900 per ton. Is that assuming a viscose price and lyocell price approximately equal to where market levels are at the moment? And is there any additional lyocell capacity baked in for 2024, beyond the 100 kilotonnes for you to start making commercial sales in Thailand at the start of 2022. I'll pause there, and I have one follow-up.

Okay. Then let me start with your first question on Thailand. Yes, okay. In fact, we are -- there is a small delay compared to the original expectations. However, we are talking here weeks, not months or quarters. So actually, and as I elucidated before, the reason for the delay being the COVID-19 impact we saw mostly in July and in August. There was a smaller one also in May. However, actually, that one actually we could so far, at that point in time, we could digest relatively easily. So yes, if we shift to the right by a couple of [indiscernible] basically. Does this answer your question?

Yes.

Then on your question on 2024, the overall target of the EUR 800 million, I think we mentioned that a couple of times, the overall target of EUR 800 million. I mean, where does it come from? Of course, we expect a significant contribution out of the project in Brazil. And with the numbers we have mentioned over the last couple of quarters, I think it is relatively easy to figure out what our expectation is versus the Brazilian project. That is number one. Number 2, actually, of course, there are specific assumptions behind that with regards to our viscose industry. And what you have to keep in mind is all the steps that we have already taken so far, be it now, especially the project that has been initiated at the beginning of the year already in Indonesia. And the same, of course, is true for our plant in China. So actually, in 2024, there will be hardly any commodity viscose left because according to our timeline in 2023, actually, we should be able to finish the conversion of the -- of our Indonesian side to 100% actually, specialty viscose. And the same is true actually early already for China. So there should be hardly any commodity viscose left and therefore, actually, we also would expect, let's say, our viscose side contribute accordingly. And last but not least, of course, we also expect quite a contribution, of course, out of our specialties, be it now with T3 or with our modal conversion in China.

Just to clarify, though, to get to EUR 800 million, you don't need an incremental 100 kilotonne expansion in Thailand beyond what is coming at the end of this year, start of next year?

That is not included actually in our numbers now.

That's understood. And a final question, just as a lyocell market update. What is on your estimate of the current market capacity? And how much do you expect this to go up by, including Lenzing’s own 100 kiloton addition over the next 2 years.

If you look at our overall lyocell capacity, we expect that our competitors will, of course, continue to invest. We have -- I mean I'm looking also at Thomas much to what extent we call the detailed numbers about our competitive capacities. Because what we've seen in the past, our competitors have announced quite a lot of expansions and not actually, how shall I say, being able to deliver on time and also, as I mentioned, not being able to deliver on what has been promised to the market from a quality perspective. But we expected another 120 tonnes roughly to come into the market in this time period.

Just to clarify, if let's say, lensing at the moment, I can't remember the exact number, I think it's about 30, maybe 260 kilotons of capacity? And the market, if you add up all the other producers as a rough guess, 350 to 400, what you're saying is that over the next 2 years, you'd expect 100 kilotons from Lenzing to come to market and about 120 kilotonnes from assorted other peers. Is that fair or…

Yes. Thomas?

Let me just clarify. I mean, the capacity that it will come from lending is, of course, our project in Thailand that actually has a nameplate capacity of 100 kilotons. And that, of course, we will reach over time with debottlenecking. However, besides the capacity that Lenzing will bring to the market, competition will bring, of course, capacity to the market as well. So for '21, we would expect roughly 100 kilotons coming from our competitors and probably for '22 hundred or slightly above debt average. However, actually, what you have to keep in mind is, I think Robert mentioned that in his earlier elucidation, that is capacity. That does not necessarily mean market demand.

That is understood. And just to ask, on your earlier point, Thomas, related to debottlenecking capacity. When I think about modeling this plant, when you turn it on at the end of this year, it has 100 kilotons of capacity or it doesn't quite have that much and you need to debottleneck to get there?

It will be close to that actually. I mean, look, I mean, whenever you set up a new site, actually, you need to twist and turn here and there and then just to make it happen. There might be, I don't know, 1 of the other incremental smaller CapEx necessary for that. However, we are not talking here a big money also. That's understood.

The next question is coming from Matteo Cataldi from Exane BNPP.

I have 2 questions, please. The first one is I wanted to check regarding the expansion project in Brazil. I've noticed that you have moved the guidance for the cash cost. And you just mentioned that the vertical integration was a big part of your bridge to EUR 800 million EBITDA in 2024. So I wanted to chief the higher energy and logistics costs are impacting the estimated cash costs? And what are your current expectation? And the second question I have is -- if you could provide an update on the CEO search. If you have already started an interviewing people and if you're focusing just on internal or external dates as well?

So let me start with question #1 on the project in Brazil. I mean, I hope I fully understood your question. I mean, your question was about if we foresee any impact on the profitability of the project, out of, let's say, maybe a higher logistic costs and/or other cost increases. Is that correct?

Exactly.

Look, I remember as I elucidated different cash cost being around the presentation. I mean the logistic cost actually is not a landing specific phenomenon. That is something that we see actually what is probably you have come across, actually for all the companies you are dealing with. And it's only a question on what is the degree of impact you see? And actually, what we, for example, see as Lenzing, as a group at this point in time, we see, let's say, huge impact for our logistic costs in Asia. However, we see less of it, of course, still an impact. However, the impact is small for, let's say, from Europe to Asia. So that is one thing I would like to mention. The other thing is the Brazilian project will go live next year in the first half of 2022. As I mentioned in my presentation, yes, we would expect logistic costs to be high, at least for the next 3 quarters. So Q4, Q1, Q2 and Q4 this year and Q1, Q2 next year. However, at least in the mid to long run, our expectation would still be that logistic costs come back to a level, maybe not as low as we saw before the crisis, however, at least significantly down from what we see at this point in time. So that's it on the Brazilian project. On the CEO search, I'm just now looking at Cord. Cord, you want to…

It's very simple. We are in the process. We started immediately when we finalized the negotiation with the former CEO. The search is ongoing. Yes, we are searching internal external, any qualified candidates on a wide-scale and the process is ongoing. Further any comment I cannot give right now since we expect the time line -- maximum, of course, within the year to finish. I hope that we can finish, perhaps even within the next 6 months and conclude at least and finalize who it will be, but more we cannot give in terms of information right now. I hope that's okay?

The next question is coming from Bartek Pastwa of Schroders.

Can I ask you to comment on your cost pressures at the moment in Q4. What areas are you seeing? Because obviously, Q3 was affected by that to a large extent? What sort of hedging have you got for this quarter or next year? And more importantly, and in which parts, please?

With regards to the cost pressure, I think there are 2 things, I think you need to keep in mind. I mean, on the energy costs, I think you have access to a lot of data that show the development of gas prices, power prices, coal prices. And depending now on the plant, we are looking at, of course, we see a different degree of impact. So for example, in our site in Indonesia it's dependent on coal. And of course, the Asian coal price increase, of course, had an impact on that side. We have 2 smaller plants in Europe that highly depend on gas. So of course, they are impacted by those price increases, respectively. Our largest site, actually, at this point of time, largest site, which is at Lenzing is an integrated side. So actually, we do have a pipe mill here and therefore, also an energy surplus, which is used as a cyber plant. So actually, the largest site, as such, is only impacted to a fairly small amount. So that is one thing you need to keep in mind. And the other thing, I think what you also need to reflect on is -- actually, we are, at this point in time, still a net buyer of dissolving wood pulp. And we, I think, elucidated a couple of times that actually there is a time lag for higher pipe prices to become visible actually in our P&L statement. So actually, at the end of the day, there is a time lag of around, I would guess, 4, 5 months actually, until you see an increase in dissolving wood pulp prices in our P&L. That is one major contributor in Q3. And next to pipe, it would then be energy, then it would be probably some other raw materials like CS2 and -- and that kind of stuff. And of course, last but not least, logistics, the logistics topic is anyway already pending for -- since the crisis started offer since the crisis started.

Okay. So I'd say -- but at this way, what sort of hedging have you got in place for next year for DWP, for energy or the other way around I mean if you answer that, but also on top of that, at current DWP pricing, what sort of margin would we get at current pricing of your fibers and DWP or what sort of margin and EBITDA level will we get?

We are not guiding now on margins or our expectations for 2020. We will only do so as usual, actually, once we release our yearly numbers for 2021. However, actually what we are doing, of course, I mean, that is the hedging strategy we have with regards to dissolving wood parties, our backward integration, of course. At this point in time, we do have a pipe capacity of around 600,000 tons, so it is slightly more than 300,000 tons here at the Lenzing side and slightly less than 300,000 tonnes at our -- sale. However, let the nameplate capacity for fibers of around 1 million tons, actually, we are a net buyer. However, with the project in Brazil, we will be adding 500,000 tons in the sowing wood pipe. So actually, next year, once Brazil is up and running, we will be actually a 100% backward integrated. We will still be buying in the market. So, we still do have long-term contracts in place with our major suppliers. However, at the same time, we will be selling softwood pipe to the market. So that means once Brazil is up and running, well, except for, let's say, some minor timing differences, we will be 100% hedged with regard to exposure to dissolving wood pulp prices.

Right. The 500,000 tonnes in Brazil, that is -- that's a 100% basis. And that's not your share or is that your share?

Sorry, again?

The 500,000 tonnes capacity in Brazil, that is on a 100% basis. That is for the project itself, not your share of the projects.

Yes, that is correct. Of course, I mean we only own 51% -- but of course, we will -- as the project is fully consolidated in our financial statements. Of course, you will see the full impact of the EBITDA on our group financials.

No, sure. Financials, but the economic interest is out there. I mean, it's only there to 55%, 51% as well, sort of saying.

The economic interest, and of course, you have to deduct ordinary income that we allocate to minority share. What you have…

Any hedging you've got on energy side for next year, please?

On energy, we historically do not hedge because actually, we -- our view on energy cost is, it is not a Lenzing specific topic. So if energy costs go up, they usually do so on a global basis or in most cases on a global basis. It's actually, there are no hedges in place at this point in time.

[Operator Instructions] The next question is coming from Teresa Schinwald of Raiffeisen Bank International. It seems like she don't have a question anymore. There are no further questions at this time. [Operator Instructions] There are no further questions at this time. I would like to hand back to Thomas Obendrauf for closing remarks.

Then thanks a lot for your participation in this call. Stay safe, stay healthy, and we are very much looking forward to talking to you then once we release our full year financials for 2021. Thank you very much.

Thank you all.

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