Lenzing Aktiengesellschaft (LNZ) Earnings Call Transcript & Summary

Ladies and gentlemen, thank you for standing by. Welcome, and thank you for joining Lenzing's Group Analyst Call. [Operator Instructions] Your hosts today are Cord Prinzhorn, Thomas Obendrauf, Robert van de Kerkhof, Stephan Sielaff and Christian Skilich. I would now like to turn the conference over to Cord Prinzhorn, CEO of Lenzing.

Thank you very much, and welcome to our investor call. We are pleased to have you online or via voice connected with us. As you can see, we're presenting our investor presentation for the year 2021 under the title of Linear to Circular, a topic which has been constantly driving us the last few years. And so we put it on the top line for what we are talking about today also. Let me jump into the first topic of recent events. We have had our Supervisory Board meeting yesterday, in which we also then announced some management changes. We are happy and proud to announce that Stephan Sielaff will be taking over as CEO as of April 1. Mr. Sielaff has been with us for almost 2 years, developing the fiber business very successfully and we are happy to have an internal candidate who will lead Lenzing in the future. At the same time, we are sad to announce that Thomas Obendrauf will not extend his contract with us. He will be with us to help us structure the buildup of the next CFO. And at the same time, our Chairman of the Supervisory Board, Mr. Edelmann announced that with the upcoming Annual Shareholder Meeting, he will be stepping down from the Supervisory Board. And as I will return to the Supervisory Board, myself, I will take over the Chairmanship. With that said, let me jump into the major topic of today, which is, of course, the -- next slide please, the glance at where we are. From 2021, the revenue increase was quite tremendous after the year of 2020 when, of course, the first year of COVID hit, we've had a very successful year, and we are proud to say that we have achieved almost EUR 2 billion in revenues. And also our EBITDA has increased from EUR 192 million to EUR 363 million in 2021. Also, our net results after minorities has increased from EUR 6 million to EUR 110 million, and that gives us the strength to also propose a dividend of EUR 4.35 to our upcoming general assembly. What are key development and strategic highlights, which we'll also go through today in more detail. Of course, it is our successful start-up of production of the 100,000 tonnes lyocell plant in Thailand, we're in the course of the ramp-up, and we will show some key figures to this project. We will also talk about our 500,000 tonnes dissolving wood plant in Brazil, which is also scheduled for the first half year of 2020. And of course, as Lenzing, we are quite proud of our achievement in terms of sustainability where we were awarded a AAA rating in CDP. Our outlook at a glance for 2022. We see ourselves in quite a positive market environment when it comes to demand of our products, natural fibers in the use and increasing appreciation of end customers. Of course, there is a high level of uncertainty when it comes to raw material, energy and logistics costs. Taking all the above into account, and due to the first margin contribution from the 2 new production sites in Thailand and Brazil, we expect EBITDA 2022 significantly above 2021. Overall, and I think that is quite important, again, to emphasize our targets for 2024 remain unchanged. Even in times of ambiguity and difficulty, we have done great projects and we target to increase our EBITDA to EUR 800 million. We will achieve a return on capital employed above 10%, focus on the financial leverage below 2.5x, have a specialty share integration of above 75%, have a backward integration in solving wood pub of at least 75% and be on target to reduce our emissions by 40%. With that said, let me move on to the highlights. The highlights, of course, start with something that is somewhat of a reward after many years of development. Lenzing has been a leader and an inspiring producer for sustainable products in the natural fiber sector. You do not achieve this by just starting it in 2021. This has been a process that has been going on for several years. Lenzing has had a great foresight in where the market needs to go. So we're not just driven by end consumers. We are driving the market to become more sustainable. That said, CDP rating of AAA is, of course, something that distinguishes us far above many of other companies and makes us exclusive to only 14 companies that have achieved that rating. After MSCI with AA and EcoVadis rating in platinum speak for itself that we are basically getting rewarded for what we have done over many years. That said, let's jump into some other projects, and I hand over to Stephan Sielaff to kick us off into Thailand.

Yes. Thank you, Cord. Indeed, a true highlight is the successful start-up of our lyocell plant in Thailand. On the 19th of Feb, we were successful in producing our first rail out of the state-of-the-art factory. The project was delivered on schedule, on budget and without any lost time accident. I think a great achievement in times like these where COVID certainly impacted the project and still the team managed to be on budget, on schedule with 0 accidents. The plant itself is state-of-the-art. It will have ultimately a capacity of 100,000 tonnes, and this is the capacity we need. We see a strong demand from our customer base, and I'm also happy to announce that we last week had our first shipment out of this factory. And therefore, this factory with a setup being a carbon-neutral lyocell plant is an important step for our carbon-free future as we move on our agenda. Having said so, let me pass on to the next highlight. And here, I would ask Christian to talk a bit about Amadeus.

Thank you, Stephan. Good morning, good afternoon as well from my side here. Yes, Stephan created excitement. We are excited here in Brazil as well because we are about to kick off and starting our new dissolving wood pulp mill here in Brazil. We are doing that as a joint venture called LD Cellulose where Lenzing holds the majority with 51%; Dexco, a Brazilian company is the joint venture partner owning 49% of the joint venture. Lenzing is fully consolidating that joint venture in its books. What are we going to build there? And what are we going to start here? It's a 500,000 tonnes single-line dissolving wood pulp mill, which will be the largest of its kind. The related CapEx to that is amounting to $1.38 billion, and we are building the mill in Brazil as with favorable wood costs that should give us a cost-leading position for that new mill. As having said, we are ready and prepared to start up the mill within half year 1 2022 and expecting to have a full run rate already at the end of 2022. By that, I would like to give some more highlights on 2 initiatives that we are doing on decreasing our environmental footprint and supporting the circularity approach of our products. Number one, we have a team up with Södra, a Swedish-based pulp company on our efforts to recycle textiles. Both Södra and Lenzing has a lot of knowledge in that area, and we are going to exploit it now in a way that by the end of 2025, we will be able to have 25,000 tons per year of textile waste recycled, which will then be used as a feedstock to our fiber operations. Number two, we had an experience conducted by the Scripps Institution, which clearly provides evidence that the Lenzing fibers has a very high degree of biodegradability. We are comparing here with different types of fibers and demand in wood-based fibers will biodegrade within 30 days, where others like polyester will need up to 200 days to get fully biodegraded. By that, I'm handing over to Robert for some insights on the market.

Thank you, Christian, and a warm welcome from my side. The market is quite turbulent, however, improving if you compare it to COVID. On this slide, you can clearly see that the huge debt that we had after the total lockdown early 2020 had a consistent recovery, where actually in the roughly second quarter of 2021, we really were globally at the pre-COVID levels. And we have been performing at that pre-COVID level since, but it has been slightly different from region to region. We see the United States being performing extremely strong. Europe just recovering a little bit later. And China now being initially over pre-COVID levels now at the same level as before. If I look at the current situation, the COVID situation is considering to help the consumer confidence, but I don't need to tell you the geopolitical situation, of course, could definitely have a negative influence on this consumer demand in the near future. What is happening on the prices? You can see here the main product for the fiber industry. Again, these are the Chinese prices as we continue to see the report, where you can see that the polyester prices, the line at the bottom, are continuing to perform fairly flat around the $1 as they were pre-COVID levels. You can see that we have actually exceeded for the viscose right now, the pre-COVID levels. But what you definitely can see is a very steep increase of the cotton prices. This cotton price is raising a lot of questions. Why is this the case? And to what extent is this sustainable? And a lot of that is driven actually by speculations. Of course, the logistics challenges that we are confronted with are also to be filed in the cotton industry. You had some disappointed harvest, for instance, in the Indian market by the end of last year, which drove the prices up. But even there, right now for the cotton in China, there are some concerns as China was importing quite a lot of food from the Ukraine, and that is now putting some pressure on the cotton market. So we expect that cotton will come down a little bit, but will remain at a very high level. On the viscose side, as I mentioned, prices are at a higher level, and they need to be at a higher level, considering the higher costs. What you can see clearly on the left side is that the theoretic profit, the light green bars are still negative. That means that despite the fairly healthy price level, a standard Chinese producer with the current cost position of energy and caustic soda is, at this moment, still loss-making. And what we also see in the last couple of days is that the coal prices in China are also increasing. So we do expect that these theoretical losses will increase, which gives me, again, a little bit of hope that the CCF prices will come up, but overall the price level of viscose will slightly increase. What does it mean on the prices? If you look at our Lenzing specialty prices, if you then look at VSF and if you look at then the Chinese Cotton Index, you can see here, and this is a 6-month moving average. The Chinese cotton continues to see this very steep increase I just referred to. You can see the viscose staple fiber price bouncing back to a level that was really there around 2019, and it's fairly flat right now. But you can see a small increase of the Lenzing specialty prices. And this is something that -- this increase, of course, going back to a more difficult, let's say, situation in Q3. The trend is definitely upwards here. If you now look at the price at the market environment, I talked a little bit about all the commodities. But as you know, with our specialty prices going up, we can only have this pricing power in the market if we have a good innovation pipeline. And here, you can see several of the innovations we have launched in 2021. And I'm really proud of the team because to launch new products in a market where you're very limited and meeting actually customers and industry partners, the team did a super job. We continue to innovate in modal. It's a very strong business. It was the first product that came back after COVID, very proud with the launch of the Indigo modal. On the nonwoven side, it's all about merchant management. And I think the long awaited hydrophobic lyocell was launched also in 2021. Two very unique innovations for the textile market, including short-term special launch of an Orange Fiber Cooperation with the Italian organization that is providing a very nice niche opportunity to differentiate ourselves, but also the launch of lyocell matte, which I believe will be a game changer in application like denim, but also could go into other applications like searching, et cetera. Now these are specific innovations that we have done. On a more structural basis, we are really making good progress with actually identifying our specialty fibers, all the way from our fiber production to the finish garment. We used to do that only with REFIBRA, but we are rolling this kind of unique identification technology out to all the specialty fibers in textiles. But also our carbon neutral offering. I mean, you heard Stephan saying we are very proud that our plant in Thailand will be a carbon-neutral production facility. But we are really making good progress with this as well, where we have launched now also in the nonwovens industry, a carbon-neutral VEOCEL fiber. And we have now created the ultimate sustainable product offering with combining our circular economy, i.e., the REFIBRA technology with a carbon 0 TENCEL. So these are game changers that just got launched in 2021 and then really keep Lenzing at the forefront of the innovation aspect in the overall fiber industry. Now that innovation is really one of the key drivers for our brand. A brand creates stress. The brand creates a confidence level that is going from us as a producer, all the way ultimately to the consumer. And on the right side, you can see here the number of 35% of overall awareness. Now this is a number that we published already a little bit earlier in 2021. I will have the updated number for you available, I believe, for the general assembly. Normally, we get this data as we're doing the very systematic study in the same countries everywhere normally around April. But if you can already see the very concrete KPIs like the co-branding programs, we've made a step-changing co-branding. So despite the limited travel to our business partners, we've gone up from 168 co-branding agreements to 567. And these are people that are using our brand in combination with their own brands. And this is, I think, something that we can all be very proud of. And it is definitely a vote of confidence in our brand architecture and our brand strategy, but this is also what really creates the hope for branded programs going forward. Now part of the brand is, of course, the education aspect, what is behind the brand, how can we educate consumers, but also brand and retailers themselves. And all this information can be found on the tencel.com. And here, you can see that we have almost doubled again amount of visits with now about EUR 2.5 million in 2021. So I believe great progress on a still fairly recent brand positioning of the TENCEL brand. But that makes me even more proud of than for the VEOCEL brand. The VEOCEL brand was a brand-new brand for the industry for a nonwoven industry. It was a completely different change. It was only introduced in 2018. We had 8 programs in 2019, have definitely some difficulties due to COVID to have more co-branding programs in 2020, where we only mentioned the increase. But look at the difference to go from 9 brand programs to 25 co-branding programs, 25 people are now actually using the VEOCEL brand in some of their collections or in their various products, mainly it's in hygiene wipes, of course. In this area, the clear definition of the European Union that our viscose and our lyocell fibers are not considered as a plastic on a single-use plastic directive really helps us and helps our brands and retailers in this area to have our VEOCEL brands on their packaging and differentiate versus the plastic ingredients. And as you also can see, the aided brand awareness of VEOCEL is a quite impressive 33% already, but again, a number that I will update in the next few weeks. And with this overview on the market, I would like to hand over to Thomas.

Thank you, Robert. Hello, and welcome also from my side. Let me guide you through the most important financials for 2021. In a nutshell, we are looking at a strong operating result overall. Let me start with revenues. Revenues came in with EUR 2.2 billion compared to EUR 1.6 billion the year before. There is an increase of 34%, roughly half the increase is coming from higher volume and the other half is coming from higher prices. Looking at the fiber revenue by application, you can see that we are now back at the 70-30 split as we were actually back in 2017 and 2018 -- actually, in 2020, driven by the COVID-19 pandemic actually, we saw the share of nonwoven fibers going up to even 50% -- or even more than 50% in the second quarter of 2020. However, as you can see now, we are back at the usual 70-30 split. With regards to specialty share of fiber sales, 2021 came in with 72%. That compares to roughly the same number the year before. Moving on to EBITDA. EBITDA increased by 89%. Of course, the increase is in line with higher revenues. However, actually, especially in the second half, we also felt the cost pressure, especially coming from energy, raw materials and logistics. For EBIT, of course, we see the same development also there. Actually, we peak in quarter 2. In total, we ended the year with slightly above EUR 200 million compared to EUR 34 million the year before. EBIT margin now at 9% compared to 2% the year before. Moving on to net profit. Net profit actually came in at the level of EUR 110 million. So that is actually after minorities and hybrid bond. Earnings per share are at a level of EUR 4.16 compared to EUR 0.24 the year before. With regards to dividend, Cord already mentioned, we will propose at the AGM to pay out a dividend of EUR 4.35 million. Moving on to operating cash flow. Actual operating cash flow was very strong, reaching almost EUR 400 million. Last year, actually, we also spent a record high CapEx with EUR 844 million. That's even quite a bit higher than the year before with EUR 669 million. With operating cash flow at the level of almost EUR 400 million, we could almost pay half of the CapEx number by cash flow. So, therefore, of course, mitigating the impact on net financial debt. With regards to trading working capital, actually, as you can see here in the last couple of years, always hovering around the level of plus/minus EUR 400 million. Trading working capital in percent of annualized group revenue came down to 16%. However, that is, of course, driven by the very high revenues we saw in Q4. Going forward, I would rather expect this percentage to go up to a range of 18% to 19%. Last but not least, a couple of words on our balance sheet, and let me start there with net financial debt. With all the net financial debt came in with EUR 977 million, economic net financial debt at the level of slightly above EUR 600 million. Economic net financial debt shall, of course, mean that we adjust for the amount that is being guaranteed by our joint venture partner in Brazil. Our equity at a very strong level of EUR 2.1 billion compared to EUR 1.9 million -- billion, sorry, the year before. Adjusted equity ratio slightly below 40% compared to slightly less than 46% the year before. So actually, even though equity increased quite a bit equity ratio -- adjusted equity ratio came down. That is, of course, driven by the huge investments we made, especially in Brazil and in Thailand as well. With regards to our liquidity cushion, balance sheet date close to EUR 1.6 billion consisting of liquid assets of more than EUR 1.1 billion and on top of that, actually, unused credit lines of more than EUR 450 million. So definitely, for sure, good enough actually to finish as always indicated from our side, the huge expansion projects in Brazil and Thailand. So overall, I think it's fair to say that we are pleased with the operating results in 2021. And with that, I hand back to Cord for the outlook.

Thank you, Thomas. As we mentioned here on top line, we expect EBITDA 2022 significant above 2021 and based on, and these are our principles here. Already what Robert said, we see a high and consistent demand and increasing demand in sustainable products based on natural fibers. And this counts as well in the textile and apparel industry and also in the hygiene and medical sector, where the fundamental needs, which needs to be filled from end consumers, but also from FMCGs and others to go down that path of natural fiber products. The market environment, of course, continues to be characterized by a high level of uncertainty, not just regarding COVID, but as well as the political conflict, which results in partially higher raw material, but especially energy, also logistics costs. So visibility, as we say, remains limited here, but we are very optimistic and this is also what underlines the top message. The launch of the new production sites in Thailand and Brazil will contribute with first margins in 2022. So also now already seeing the progress we have made in the beginning of this year, we are very optimistic that here we are on time and in budget. Operational. We do have a focus on the commercialization after this. Of course, these volumes that are coming into the market, we have heard from Robert the demand and also the branding, which supports the placement of these capacities in the market. The branding continues to be extremely important and successful. The continuous improvement, of course, operationally on a production level with operational excellence programs and cost management are unnatural to Lenzing. So with that said, I conclude our investor presentation from our side. Let me thank everybody here in the room, but also the group of Lenzing for the excellent work in 2021, and we are quite proud of what we have achieved. With that said, thank you very much from our side.

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

I just have a question on your 2022 cost composition. Could you give us an idea of your energy costs and what the delta would be to 2021?

On energy costs, of course, it remains to be seen how the overall development will be over the next couple of weeks and months. Of course, as Cord elucidated earlier, I mean the uncertainty at this point in time is very high and visibility is basically not there as. Maybe let me go back once that. I think we always elucidated to really distinguish different sites we have. In Asia, we are also. And there, actually, the overall impact is probably fairly limited. Then at the biggest site here in Lenzing, we are -- this is an integrated site. Therefore, actually, the overall impact is, let's say, relatively small. And the biggest impact we see so far is actually at the sites in Heiligenkreuz, which is the lyocell site in Austria and another lyocell site in Grimsby, which are run by gas. And last but not least, we have a smaller lyocell site also in the U.S. So it, of course, highly depend on the gas price development in comparison to 2021.

Okay. But as a follow-up, you are not attached in anyway -- in any mentionable way, I guess?

Sorry, again?

As a follow-up, you are not attached in any mentionable way in terms of energy cost hedging?

No. We don't do any energy cost hedging. So everything we buy is spot.

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

The first one is, again, related to energy. How do you account for the surplus energy at your dissolving wood pulp mill? Are you selling it to your own fiber decision -- division at market prices? And just related to that, in Europe, because of the natural gas price, how is the profitability affected especially at your European sites? And the third one would be on the segment split. The segment split between fiber and pulp indicates that you are transferring the market prices of dissolving wood pulp for intersegment sales as well. Is that the correct assumption?

Then let me start with the last question first. Yes, any transfer of pulp -- from the pulp division to the fiber division takes place at arm's land. So actually, anyway, that is the concept we use.

Right.

So that's it on your third question. Your first question was actually on the transfer of energy actually, for the integrated side, if I understood your question correctly, right?

Right, correct. So just want to understand because also with the Brazil wood pulp plant, you will have energy by product. Just want to understand if you consider it at cost? Or do you take the market price for the fibers then?

Let me go back on that. Actually, here at the Lenzing side, we have an integrated site, so we do have a pulp production and fiber production. And of course, the energy surplus is being used by the production. And actually, the cost-wise, how we deal with it is that actually the site service is treated as a cost center. So that's it for the Lenzing side. For the site we have in the Czech Republic, there is only at the soybean wood pipe production site there. There is no fiber production. Actually, we are selling the energy surplus to the grid. And the same we will do in Brazil. Once Brazil is up and running, there will also be a huge energy surplus, which will be sold to the grid. You also had that question -- sorry, can you repeat your third question?

The natural gas prices are 2.5x of what we have seen in 2021 at this point. So if we just extrapolated and assume it for '22, how will the profitability at the European sites be affected, as you mentioned, there are 3 sites where you are still buying at spot?

Of course, we feel the impact of the gas price increase. However, the impact on profitability will highly remain on how much we can pass on to our customers. So of course, we are now in constant discussions with our customer base and trying to mitigate actually the impact overall on profitability. However, with the current price levels, of course, we are seeing, yes, the impact, especially on the 3 sites I mentioned before, which is Heiligenkreuz in Austria; in Grimsby, in the U.K. and in the U.S. as well is, of course, material.

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

Three questions from my side. First of all, the question on your exposure to Russia and Ukraine. The direct exposure, I guess, is limited, but is there also indirect exposure from any kind of raw materials, in particular chemicals? That would be my first question. Then the second question is on the significant price gap of standard viscose versus cotton. This 40% price gap, I think, it's a historic one. And here, my question is, do you already feel that large brands like H&M switching away from cotton to viscose just due to cost reasons? Is this something which you see or expect? And then the last question is also on the inflationary effects. How do you think -- what kind of pricing power do you have in specialty fibers to pass on this inflationary effects and by what kind of delay you think you might be able to pass it on?

Okay. Let me take the question on the raw materials or the indirect impact you asked for here we are having a very small exposure which we can cover through other supply chains within Western European countries.

And then let me talk, Markus, the 2 remaining questions. Cotton, viscose, yes, indeed, it's an absolute record price gap. Like I said, a lot of the cotton price increases are being triggered through the traders and speculation of them -- from them. So this held back a little bit some of the big buyers. But what you clearly see is there is definitely a shift taking place. Now unfortunately, the shift is going to blend in polyester. As you could see on my slide, polyester continues to move a little bit around the 1. So you see, unfortunately, a little bit more cotton polyester plants. The overall viscose situation is at this moment quite balanced. So we are running at fairly good operating rates. In China right now, it's a little bit over 80%, which is very good for them. And inventories have definitely come down in the last weeks, and we're currently at about 18 days inventory. So that is a fairly well-balanced situation. But I think that increase in viscose demand in the last couple of weeks has really been driven by purely viscose demand, not by replacing cotton. So I hope that I'll -- second question, regarding the pricing power, of course, we are definitely passing on a lot of the price increases. We talk about energy price increase, we're talking about continuous high logistics cost, and we're also talking about then the chemical increases. So we are continuously adjusting our prices to reflect those. As you can see in our results, to a large extent, we are able to pass this on, but unfortunately not completely. That's why the EBITDA per quarter has come down a little bit while revenues continue to steeply increase. And of course, we will continue to do this. But the low viscose price compared to the cost, but also the -- that limit ourselves a little bit, but the high risk -- the high cotton price, sorry, helps us a little bit. And we're continuously fighting that balance, but overall, the price trend is definitely upwards.

Okay. And maybe can I sneak in another question, another add-on. Also the sensitivity of U.S. dollar, maybe you can update us here as well on your sensitivity and what kind of price change of U.S. dollar versus Europe means for you in terms of costs, but also earnings development?

I mean, historically, actually, we had a U.S. dollar net exposure roughly amounting to EUR 400 million. So actually, I think the math that you can do yourself. Please keep in mind that actually this net exposure probably will increase in the future because actually, the operation in Brazil, we are using the U.S. dollar there as well, of course, is a functional currency in any way, dissolving wood pulp is being traded in U.S. dollar. So actually our U.S. dollar net exposure is supposed to increase with the ramp-up of the Brazilian project.

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

Congratulations, Stephan, on your new role. My first one is on CapEx. What is a reasonable figure for the next few years? Because depending about how much of a modal capacity addition costs even another 100 kilotonnes of lyocell coming in and in Thailand and general CapEx inflation. I can get to a number between EUR 200 million and EUR 500 million for the next few years. Is somewhere in the middle of that reasonable assumption moving on from 2022? That's my first question.

Well, I mean, let's look at 2022. Actually, what you will have to keep in mind in 2022 is that we still have to finish project in Brazil that will -- the CapEx to finish the project will be roughly in the range of EUR 200 million. Then actually, we also have to finish, of course, the conversion of the sites in China and in Indonesia. That will add another EUR 100 million or slightly above EUR 100 million. And then last but not least, of course, you have to add quite some operational CapEx. Please keep in mind, at this point in time, depreciation already amounts to roughly EUR 165 million, EUR 170 million. And if you add all that up, you end up around, let's say, EUR 500 million for 2022 based on the projects that are currently ongoing.

And thereafter for 2023 onwards, I assume, okay, no more Brazil and then you've got the -- I don't know -- has the modal expansion started yet? Or is that something for 2023? Because what I'm guessing at here is for 2023 onwards, depending on the growth projects and if there's another lyocell facility, the CapEx can be anything from, let's say, EUR 220 million, EUR 230 million to EUR 450 million. And I just want to see which end of that range you're comfortable with at the moment.

I mean for 2023, I mean what you have to keep in mind is, I mean, depreciation will, of course, increase accordingly. I would not expect, of course, operational CapEx to increase to the same amount. Because actually, the increase in depreciation will come from brand new plants like in Brazil and in Thailand, therefore, actually the investment there or the CapEx there should be marginal, except for some, let's say, debottlenecking, which we might go for also in 2023. So actually, operational CapEx, probably slightly above EUR 200 million, I would say. The modal project you mentioned before, actually, that should be completed in 2022. There shouldn't be any spillover from that. There's maybe from the conversion in Indonesia, that would also keep us busy in the first half of 2023. And then, of course, it depends on whatever decision for any other projects.

That is helpful. And any update on how much capacity you expect to come to the lyocell market this year and over the next few years? And a quick reminder, what is the current market size on your estimates in kilotonnes at the moment?

For the lyocell market, you mean in total?

Yes.

So at this moment, we are lending, of course, now over the 300,000 with the new capacity that we have not reached yet, but that Stephan will deliver on very soon. [With these 3], we'll get to the mid-350s. We expect that our overall competitive capacity is roughly the same. We need to, however, also consider the fact that they are normally on Chinese capacity, they are running at lower operating rates. So I'm talking about what we then can see in the market. We do expect that the Chinese and the next few years will continue. We are aware of several of these projects that will be adding quite some additional capacities potentially, but some of these projects are now delayed because they're really struggling with bringing their existing capacities into the market. The quality is simply not up to our level yet. And they are really struggling also to get the prices. So there will be new capacity coming in the next few years.

[Operator Instructions] The next question is from the line of Teresa Schinwald from Raiffeisen Bank International.

2 remain. And apologies, if I've missed your comments on the first one. Can you tell a little bit more about the marketing of the first line of the plant in Thailand? If -- how many of the quantities have already been sold? What do you expect on that? And the second one, as an energy analyst as well, I have to ask, could you give us your definition of spot conditions because it can be really day ahead, weekly, monthly? Or do you buy the electricity and the gas on annual forward basis?

So let me then first take the first question on Thailand. Look, we just started to create the first bill. The first containers only have only left or really at very early stages. As you can imagine, the start-up quantities are limited, but also at low quality. So what we are expecting is that as the start-up continues to increase also quality increase. The key target that we're going to be selling into is really the cotton enhancement market where we can sell very low qualities. And then we will slowly move as the quality got into the real high-quality end users and applications, but we expect that we can see these kind of higher quality numbers only in several months from now. Does that answer your question on Thailand?

Yes.

And then on energy, I would -- Christian, can you give the numbers for -- or the ideas around Lenzing?

Yes, for Lenzing side, we are doing it in a way as we are there almost fully self-sufficient that it's on a daily spot rate what we are needing in addition to what we produce ourselves.

And similar I mean for the other locations, Asia and the U.S., if you really -- we can give you that detail maybe separately because right now, I wouldn't want to make that assumption there. Our regulated market, which works a little bit different in Asia, Thailand, Singapore and the U.S. So I know for Europe, this is the way that Christian said, but for the rest, we are happy to give you a separate answer.

We have a follow-up question from Isha Sharma from Stifel.

As you also mentioned, and I've understood this also from your comments in our annual report you started your lyocell plant -- the first lyocell plant. You said that it takes some time to achieve the kind of quality that you're looking for. Is it also the case for the dissolving wood pulp plant? And how -- what is the time frame in which we can expect the quality to be at the level as where you want to see it? And just quickly on the follow-up on energy, again, sorry. But the increase in energy prices in 2022 compared -- 2021 compared '20, it shows an increase of only around 45%. Is it -- does it make sense to extrapolate this correlation for the next year as well, looking at the landscape where we are right now according to different regions?

Christian here. Let me start on the -- sorry, Thomas.

No, please, Christian go ahead.

Yes. Let me start with the first part of your questions on dissolving wood pulp. What we are aiming for is that the very first bales coming out of our new Brazilian plant, will be send to internal customers and that will be the key advantage of having a downstream integration there, having test runs there trying to improve quality and then only go into the open market. But we are expecting to be on quality rather quickly talk in weeks rather than months.

Okay. And on your second question, actually, I think what we have to keep in mind here is, I mean, on the absolute level of energy costs, I think this is pretty much crystal ball gazing. The question that remains for us is rather I mean how much of an energy cost increase, we can pass on to our customers. And that is, of course -- that, of course, remains to be seen how things will develop over the next couple of weeks and months. And of course, if you triangulate it, it also depends how energy-dependent competition is. And this is one of our I would call it, benefits with our backwards integration. In comparison to the rest of the market, we have a positive situation among our competitors. But of course, we are also under the same ambiguous situation when it comes to gas price development.

Our final question is from the line of [indiscernible] from Ecotrade.

Yes. Thanks for the presentation about your brand strategy. You spoke that the awareness is 35%. And you spoke that it is very important that the education of consumers has to go on. When I bought pajamas -- my wife bought for me at Calida here in Zurich, nobody was mentioning that it is TENCEL's [indiscernible] brand insight. And second question is about many years ago, you have been in Zurich for a presentation and you mentioned that in [indiscernible], you have a big area of wood -- have you -- are you still there? Can you still get wood or did you sell it?

Okay. Let me -- the Brian's question, I think thank you very much, first of all, for mentioning it and sharing the experience. I think you touched on a very sensitive point and that is about the consumer education but also the brands and retailers. I can tell you if you go in certain part of Switzerland, where I'm frequent, everybody will tell you because simply, every time I ask the questions and I help with that education. But certain brands and retailers are really setting up with us together these kind of education, how they can educate their own sales staff but that pretty much depends on their internal program. So we are working with several brands and retailers that take this very serious. We're helping them in developing their internal training programs actually go beyond our TENCEL and ECOVERO branded products, we help them to educate them on the overall sustainable fibers. So from that perspective, I think it's work in progress, but I'm very happy to share my experience then also when I talk to Calida and support them, making sure that this is improving in the near future. And then the second point, I think you referred to, indeed, the lunch we had, I think it was referring them to our pulp facility in Paskov in Czech Republic. Christian, do you want to come on that?

Yes, I will take that. We had a situation in Central Europe that due to bark beetle, there was a very high amount of woods available. And with having less bark beetle outbreaks over the last 6 to 12 months, we are getting back to a normal purchasing situation where we need to buy also from abroad. And so I would say, for the time being, we have a steady state that we had before the bark beetle diseases so beginning 2010 until 2016, '17. Hope that answers your question.

There are no more questions at this time. I hand back to Cord for closing comments.

Well, thank you again for your questions. And thanks again to the management team here for other preparation and the work in 2021. We are happy, of course, if there are further questions. We have Mr. Knus here on the side of our Investor Relations team. We're looking forward to a challenging and interesting year 2022, where especially we look forward to our 2 big projects to take off to our commercialization. And again, we look forward to seeing you for our review of the Q1 in this constellation or a different one then. But anyhow, thank you very much for attending the call today.

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