Fiber business expansion in 2005 was generated by organic growth (60%) and by consolidation effects (40%) resulting from the acquisition of the Tencel Group in 2004. Lenzing increased production in its cellulose fiber core business by 9.5% to about 454,000 tons. This means that Lenzing fiber production in 2005 grew twice as fast as the global viscose staple fiber market at only 4%. Dynamic growth of the Lenzing Group continues to be strong, as indicated by the production increase of 54% since 1999.

Good quantity demand but falling prices and rising costs

In 2005 the core business fibers was characterized by good demand but falling fiber prices and rising production costs. It was the European textile market that was affected most. Sales there collapsed with the opening of the market as a consequence of the WTO agreement. The rise in raw material and energy prices in 2005 burdened the business with additional EUR 35 mill.
“In front of this background, our successful countersteering strategy produced a satisfactory result for Lenzing in 2005. We again succeeded in improving our textile market position in 2005 by developing new fields of application and markets for our fibers, by product innovation, and by our intensive global marketing efforts” says Thomas Fahnemann, Chairman of the Management Board. He named the example of TENCEL®ACTIVE, the new product for sportswear, and the cooperation with high-profile textile brands, such as Asics, Adidas or Nike initiated last year.

Nonwovens saw an increase in market share as well and new products for medical and technical applications were introduced successfully. Lenzing is the only supplier of nonwovens with a production presence in Europe, Asia and the United States where Lenzing became market leader in cellulose-based nonwovens in 2005.

The contribution of core business fiber and pulp to company group sales was 81%.

Once again: Good development of Lenzing Technik and Lenzing Plastics

Engineering and systems construction company Lenzing Technik once again produced a good result. High booking of orders from the viscose and pulp industry and new products and services were the decisive factors.

Lenzing Plastics, the successful producer of plastics niche applications, achieved a good result as well, despite the highly volatile raw material price situation. Production capacity for the artificial turf developed by Lenzing was expanded due to good demand.

There was no change in the poor economic conditions of the paper industry. The result of Lenzing Paper was therefore not satisfactory, despite extensive cost savings.

Outlook: Good prospects for continued growth

Demand for Lenzing fibers, in particular fiber specialties, at the beginning of the year has been good. The price structure, however, is still far from satisfactory. Low cotton prices and high cotton stock keep fiber prices down. Structural changes (raw materials, the market shift from Europe to Asia) are being countered with a comprehensive cost optimization program. The first measures in 2006 have already been implemented.

All in all, growth prospects for business year 2006 are considered to be good. The next major advance will take place at the turn of 2006/07 with the scheduled completion of the viscose fiber plant at Nanjing/China. Results will depend on successful internal measures and price adaptations to reduce the cost-price squeeze.

Company group key figures (IFRS) in EUR mill.	2004*	2005 prel.
Sales	871.1	942.6
EBITDA	160.4	141.6
EBIT	104.3	81.8
Share of net income of shareholders	67.7	56.9
EBITDA-margin in %	18.4	15.0
EBIT-margin in %	12.0	8.7
EBT	103.5	79.3
Equity ratio in %	48.7	48.0
Staff	4,845	4,860
Capital expenditures	60.9	82.4
Net cash flow from operating activities	95.3	124.3

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