2023-11-03 14:17:02 ET
Lenzing Aktiengesellschaft (LNZNF)
Q3 2023 Earnings Conference Call
November 03, 2023, 10:00 ET
Company Participants
Stephan Sielaff - CEO & Chairman
Christian Skilich - Chief Pulp & Technology Officer
Sebastien Knus - VP, Capital Markets & Investor Relation
Nico Reiner - CFO
Conference Call Participants
Isha Sharma - Stifel
Brigitte Friedrich - BNP Paribas Exane
Christian Faitz - Kepler Cheuvreux
James Twyman - Catie
Teresa Schinwald - Raiffeisen Bank International
Presentation
Operator
Ladies and gentlemen, thank you for standing by. I'm Moretto your Chorus Call operator. Welcome, and thank you for joining Lenzing Group's Analyst Call. Throughout today's recorded presentation, all participants will be in a listen Presentation will be followed by a question-and-answer session. [Operator Instructions]. Your hosts today are Stephan Sielaff, Nico Reiner and Christian Skilich. I would now like to turn the conference over to Stefan Sielaff, CEO of Lenzing.
Stephan Sielaff
Thank you, operator. Also from my side, a very warm welcome to the presentation of Lenzing's results of the first 9 months 2023. With me today is Nico Reiner, our CFO; and Christian Skilich, our CPO. Let's go through our agenda for today. We will start with the executive summary followed by an update on market developments by Christian and myself afterwards, Nico Reiner will guide you through the financials, and I will talk about our new holistic performance program. The completion of our expansion conversion program and how we expect the next quarter. We will end this session, as always, with the Q&A.
Let's start with an overview of the key developments and strategic highlights. The markets relevant to Lenzing continue to be weak, and this keeps demand, especially for our fiber products under pressure. Raw materials, such as chemicals and energy costs remain volatile on elevated levels. In the light of the continued weak market environment, we took action and are implementing a new holistic performance program. This program will increase our resilience by strengthening the top line, enhancing our cost excellence as well as full focus on free cash flow generation. As we have announced just recently, we successfully concluded our strategic investment projects as our site in Indonesia has received the EU Ecolabel for environmental friend play fiber production. With that move, all of Lenzing fiber sites are now 100% converted for specialty fiber production.
Let's move quickly to the financial results. Revenue in the first 9 months decreased to €1.9 billion, which compares to €2.0 billion in the first 3 quarters of 2022. The EBITDA reached €219 million compared to €263 million in the first 9 months of 2022. The net results after minorities and hybrid bonds was negative at €149 million in the first 9 months, which compares to plus €57 million in the same period 2022. The free cash flow significantly increased again in Q3 to positive €27 million, which compares to minus €33 million in the second quarter and minus €132 million in quarter 1 of this year. Looking at our guidance, we confirm that we expect EBITDA in 2023 to be in the range of €270 million to €330 million. With this, I would like to hand over to Christian Skilich, for an update on some of our key cost elements.
Christian Skilich
Thank you, Stephan. Good morning, good afternoon from my side as well. In the first quarter of 2023, both energy and chemicals costs came further down compared to the last quarters. However, if you compare those costs to the previous years, prices are still elevated. On the left-hand side, you can see the decline in energy costs. European natural gas prices were just above €30 per megawatt hour in the third quarter. However, what you don't see yet in the chart in the wake of the Israel Hamas war, they started to rise again and even exceeded €50 per megawatt hour in mid of October, levels last seen in April of that year. Remember that in the first quarter of 2020, the price was below €10 per megawatt hour. In the U.S., gas prices started to rise already in the third quarter, as you can see in the chart.
On the right-hand side, you see the price development of caustic order prices normalized further in Europe and China, but increased slightly in Southeast Asia. Prices in all regions are still 30% to 50% above the levels seen in early 2020. Also, keep in mind, those are quarterly average market prices, which means the price increase in China following a hurricane in September is not yet fully reflected. These can it mind that those developments of market prices do not fully reflect the impact for Lenzing as we are sourcing at better conditions in Europe, and we partially source from Asia if the price delta is very high and benefit thereby from our import and storage facilities in Italy. By that, I hand back to Stephan Sielaff the development of the demand side.
Stephan Sielaff
Thank you, Christian. If we are looking into our markets, then one of the very important market is our apparel retail sales. So when we look there in the third quarter of 2023, we see a softening of apparel and retail sales trend globally. With the exception of the U.S., spending fell clearly compared to previous quarter. Apparel retail sales dropped by minus 5% in Europe and minus 3% in China. This softening demand weighs heavily on a global average, down at minus 3% compared to last quarter. Consumers remain cautious about spending their limited discretionary budget in the third quarter due to cost pressure. In addition, in Europe, unusually hot weather delayed the start of the autumn/winter season, which was highlighted by several brands and retailers. With the new geopolitical conflicts and the economic uncertainty, no immediate turnaround is in sun.
I'm sure we've shown this slide before. In this example for the U.S., you can see the U.S. closing inventory. You can see that although closing inventories are now lower than at their peak in the second half of 2022, they are still higher than in the first half of 2022 and higher than in the long-term average. Since June, inventories even increased slightly, which is a typical seasonal effect with inventories building up for the holiday season. However, this seasonal increase is less pronounced than in an average year. This year, cost pressure on consumers have resulted in weaker sales outpacing inventory reductions. Inventories will need to fall further to align with weaker sales. Brand and retailers are expected to significantly increase promotional activities to clear inventories in the coming months.
Looking at the fiber prices. Chinese generic biscuit market prices improved somewhat in the third quarter, particularly in August, mostly driven by increases in cost of chemicals. Also the typical seasonal effect played a role where September and October are the peak buying season in the textile industry supporting prices. Operating rates in Chinese viscus industry were high throughout the quarter, ending at 86% and inventories reduced further below 10 days based on repeated sales promotion. Cotton prices were much less volatile recently, as you can see in the chart, but remained in a rather narrow band of $2 to $2.20 with an upward trend even though the fundamentals in the cotton market are less positive. For example, inventories are expected to continue to build up in the new season, which started in August of this year.
Polyester prices not shown here, continue to largely follow the development of prices of intermediate polyester staple fiber prices advanced 9% in the third quarter of 2023. And DWP prices ended the quarter slightly negative, having boomed out in August, price recovered then supported by healthy demand production outages at some mills and a rise in paper pulp front. Let's talk about our specialty pricing. Lenzing had more than 75% of its fiber revenues from specialty fibers in the third quarter of this year. On the left chart, you can see how our specialty prices develop compared to commodity viscose prices on an index basis. Since 2017, Lenzing could increase the premium of the specialty fibers compared to commodity fibers until 2019, 2020, and it could largely keep this premium at solid Level 6.
This was supported by our strong branding activities. As you are aware, we are not a classical B2B supplier that is always in danger to be commoditized. We are actively driving our B2B2B model through our coal branding programs and are highly successful with this approach. We operate a successful push and pull strategy in particular in textile built around blue chip customers through involvement in their value chain decision process early on. This resulted in numerous partnerships with sold after brands in the textile industry. As part of the push and pull strategy, Lenzing engaged in several gold branding programs in both Textile and Novogen end markets through its strong and renown brands TENCEL and Veocel as well as Ecobee. And with this, I hand over to Nico Reiner for an update on the financials.
Nico Reiner
Thank you, Stephan, and a warm welcome also from my side. Let's start with revenues. They decreased in the third quarter by 9% to €660 million compared to the same period last year. Looking at the full 9 months, revenue decreased by 5% to €1.87 billion from €1.97 billion in the same period last year. This development is mainly due to the decrease in fiber revenues while pulp revenues increased. Fiber prices continue to remain under pressure. EBITDA reached €83 million, an increase of 11% compared to Q3 2022. This includes a positive impact from the valuation of biological assets of €16 million. Looking at the figures for the first 9 months. EBITDA decreased by 17% from €263 million last year to €219 million this year.
Let's move to the next slide. Looking at EBIT. It came out slightly positive again and reached about €1 million or roughly €15 million less than in the third quarter 2022. Depreciation and amortization were at €81 million and at similar levels as in the last quarter. For the 9 months of 2023, EBIT was negative at minus €11 million. And for group net profit attributable to Lenzing shareholders in Q3 2023, we reported a net loss of €44 million, which compares to a loss of €5 million in the same period last year. Quarter 9 -- for the first 9 months, net loss amounted to €149 million. Looking now at cash flow. Lenzing significantly increased its operating cash flows to €90 million, which compares to €18 million in the second quarter or to minus €48 million in the first quarter of this year. CapEx was on similar levels as in Q2 at minus €63 million and on much lower levels than in the 3 quarters before that.
As a result, free cash flow increased by roughly €150 million compared to Q3 2022. Free cash flows have steadily improved since Q4 2022, and we are quite happy with the result in this quarter in the life of the current weak market environment. Going forward, in 2023, we are confident that CapEx levels are further normalizing and investments will be focused on license to operate and maintenance CapEx as we have completed the conversion of our sites in China and Indonesia. Great working capital slightly decreased in the third quarter again from the peak levels in Q1 2023. Trade receivables, slightly increased in trade payables decreased compared to the second quarter. Inventories went down by €42 million compared to Q2 2023. Due to ongoing working capital improvement measures, we are confident in our ability to further optimize our working capital, which will benefit our free cash flows going forward.
Let's move now to the balance sheet. On the left side of the slide, we show historically net financial debt quarterly evolution. Net financial debt significantly decreased by 19% compared to the second quarter and reached €1.57 billion. Lenzing has raised €392 million of net proceeds via a rights issue to strengthen the balance sheet and the liquidity position and to provide sufficient flexibility to further support better growth strategy. It is important to also consider the maturity extension of €249 million. So in total, it was a package of about €650 million supporting Lenzing's balance sheet. The liquidity cushion reached a solid €1 billion at the end of September. With this, I hand back to you, Stephan, who will share some details on Lansing's new holistic performance program.
Stephan Sielaff
Thank you, Nico Reiner. As you know, the perfect storm hit us in the second half of 2022. And we have seen a continued weak market environment since also during half year 2 of 2023 with still low demand and negative pricing dynamics in global fiber markets. The market recovery initially expected by market observers in the second half of 2023 is taking more time than expected. As a consequence, Lenzing continues to take action and initiated a new performance program. They successfully executed cost reduction program of €70 million Launched in 2022 was simply not sufficient to support adequate profitability and cash flow generation in current weak market environment.
The objective of the new performance program is to increase the resilient and competitive position of Lenzing in a continued stagnant market environment. It would have relentless focus on profitability and cash flow generation. And we will improve our performance levels based on a lensing fully invested asset base.
Let's look more in detail of what this program exists. We have set up a holistic performance program, which integrates ongoing performance initiatives and projects. The program addresses all divisions, fibers and pulp as well as our overheads. And it is built on 3 key pillars. The first pillar is all about our top line growth. As strength in top line and margin growth is prerequisite to our profitability and free cash flow generation. We will strengthen the top line growth with defined sales initiatives in both push and pull. The second pillar is all about cost excellence, enhanced cost excellence will be leading to sustainable profitability levels across pulp and fiber operations as well as overhead functions. And the third pillar is about the generation of free cash flow. We will give full focus on generating positive free cash flows.
Let's look about some of the measures that, that program will include and about the impact it is expected to have on our financials. Let's start with the top line. In order to strengthen our top line growth, we have defined a number of measures and initiatives. They consist of probably the most thorough commercial undertaking for Lenzing in at least many years. We will enhance both our push sales organization with direct customers such as pinners as well as our full sales of business development organization with key global brands. We have defined dedicated sales initiative to grab growth opportunities in relevant markets for Lenzing in existing and new. We aim for higher share of wallet and strengthening collaboration with global brands. We will strengthen our sales processes to fully leverage the potential of Lenzing's product also in demanding market conditions.
The second pillar, to enhance cost excellence, we will make significant operational improvement and further strengthen our process excellence and have already identified detailed initiatives per site. We will further optimize our direct as well as our indirect spend. And we will make our overhead structure leaner and will further organize it around delivering value to our customers. The 2 first pillars by themselves will have positive impact on free cash flow. Beyond that, we will make our supply chain more stringent and tighten working capital management by further optimizing DSO, DIO and DPO. On the CapEx side, as mentioned by Nico already, we will be restrictive with a clear focus on license to operate and maintenance CapEx based on the fact that we are a fully invested asset base. We target cost savings of at least €100 million per annum with a full run rate in the year 2025, and we expect to achieve at least 50% of it already in 2024. The overall program impact should result in significant positive free cash flow in the subsequent quarters.
Let's turn our attention now to the conclusion of our strategic investments. Fully invested operations. That is the right heading for this objective. Even in a challenging market environment, our 2 new plants were delivered on time and in budget in 2022, and they are now fully operational. Additionally, especially in the year 2023, we converted 2 plants in China and in Indonesia towards specialty production. We have already spoken of the successful conversion of the production of one line in China to [indiscernible]. In Indonesia, we have now received in the third quarter the EU Ecolabel certification for the viscose fiber product. This allows us to upgrade the product portfolio to include specialty fibers as of Lenzing, ECOVERO and VEOCEL brands. The invested CapEx of over €100 million enables us to reduce emissions and allows for higher margin potential of specialty fiber. With this, all of the Lenzing fiber sites are now 100% converted for specialty fiber production.
Let's move to the outlook. This is a chart we have shown to you in the past. The International Textile Manufacturing Federation, ITMF, conducts a bimonthly survey among close to 300 executives in the global textile industry, which we believe is a helpful pulse check of the textile industry. The satisfaction with the current situation has declined since November 2021. So since 2 years, yes, it improved slightly for the first time in the July survey but remained on that level in September. Minus 27% is, of course, still a very negative read, mostly driven by the weak demand, which is on top of mind of almost 70% of the responders. However, you can also see the visibility along the textile supply chain is still low. As you can see in the indicator for the expectation in 6 months, many industry participants already at the beginning of the year had expected a recovery and continue to do so. However, it has not yet materialized and timing remains unclear.
Here is an overview of some of the latest quotes from company's Q3 earnings calls. While apparel brands and retailers are seeing softening demand before of not going companies was more stable in Q3. Weakening consumer demand was particularly highlighted in the earnings calls of Columbia Sportswear, Puma and Divas. Colombia talks about weak consumer demand for apparel and footwear, so they continue to take a cautious approach on ordering. Puma stated that consumers choose different leisure activities and shopping in September, also due to the warm weather. [indiscernible] highlighted the negative impact of the hot weather. In contrast, nonwoven players such as Snow women spoke of positive signs for the business environment in 2024.
So let's see now what potential impact this has for lens. To remind you, 2022 was an unprecedented year, and we call the second half of 2022, the perfect store. Costs in Chemicals and Energy were at unprecedented level, demand for fibers in the textile industry declined, which led to a decline of fiber sales and sales prices for Lenzing. Free cash flows were significantly affected by the CapEx for our 2 new plants and inventories built up as well as by the resulting negative operating cash flow. In the first 9 months of 2023, costs declined but were still elevated as explained by Christian. Non-woven sales and pulp, including co-products, remained solid, while textile started to increase compared to Q4 2022. Fiber prices, however, remained under pressure. DWP prices were relatively stable. Due to the completion of our new sites in Brazil and Thailand in '22, CapEx decreased by more than 60% compared to the first 9 months in 2022.
In the remaining quarter of '23, costs are expected to continue to remain volatile on elevated levels. We expect stable demand in pulp, including coal products and relatively solid in non . While demand in textile fiber is expected to stabilize on relatively low levels. On free cash flow, we expect positive impact from the focus on maintenance CapEx and the expected decrease of trading working capital. Let's look now at our guidance for the full year. The outlook is characterized by a market environment which maintains to be massively interest. We expect that the weak market conditions continue weighing on EBITDA. Demand is expected to remain on low levels due to the continued weak market relevant to Lenzing in Q4 of 2023. Prices are expected to remain under pressure and costs are expected to continue to remain volatile on an elevated level. Our holistic performance program, which is being implemented now is expected to have already an initial impact in Q4 2023.
As a result, the Lenzing Group confirms that they expect EBIT in 2023 to be in the range of €270 million to €330 million. Despite the current weak market environment, we think that Lenzing is in a great position given we are well placed to do full advantage of market rebound after recovery. And let me quickly take you through the eight elements of our strong positioning. We cover the megatrends within the overarching framework of sustainability and circularity directly through our products and brands. Our market has structural growth drivers, including population growth and the improving middle-class income globally. And in addition, we are the #1 in the fastest-growing subsegment of textile market with specialty fibers. Number three, we are shifting towards specialties. As mentioned, all Lenzing fiber sites are now 100% converted for specialty fiber products. Number four, we have a competitive cost and innovation advantage through our backward integration in DWP, further complemented by the recently completed investment in Brazil.
Number five, with TENCEL, VEOCEL and ECOVERO, we have by far the strongest ingredient brand portfolio in the cellulosic industry. Number six, we have launched our performance program with 3 pillars on top line growth, cost excellence and cash flow generation. Our enhanced cost excellence will be leading to sustainable profitability levels across those pulp and fiber operations. Number 7 with Thailand, we have added 100,000 tonnes capacity in the fastest-growing fiber market, Lyos. And number 8, we are now fully invested with the 2 new plants ramped up in 2022 and the 2 plants fully converted in 2023. With this, I would end our presentation and would hand over to the operator for the Q&A.
Question-and-Answer Session
Operator
[Operator Instructions]. And the first question comes from Isha Sharma from Stifel Europe.
Isha Sharma
I have a number of questions, but I will ask first 3 and then queue back and ask the rest later. On free cash flow, so on the gross cash flow, could you please help us with the bridge from Q2 to Q3? It seems like there is a sizable improvement in other noncash items sequentially? If you could help us with that piece. And the second question also relates to cash flow. If we look at the working capital, you showed an improvement of around €35 million. Where is this coming from? Because we don't see this in the trading working capital at either of the 3 lines. And related to that, also on inventory side, we are still 50% above the normalized levels with basically no improvement versus last quarter. Is the low demand not allowing you to reduce inventories as you would like? And what kind of progress can we expect going forward here.
Stephan Sielaff
Thanks, Isha. So I will give these questions to Nico Reiner. So first on the development of the growth free cash flow -- the gross cash flow from Q3 to Q2, is this correct, Isha?
Isha Sharma
From Q2 to Q3, we saw an improvement in other noncash items. I just wanted to understand what are the moving parts here, please.
Nico Reiner
So thank you for your questions. I mean we need to look into the topics here, what have been the real moving topics on that gross cash flow because gross cash flow, I think this is something we need to check on later. But let's postpone that question and we will come to you in a later stage on the gross cash flow as this is not one of our key KPIs, managing the companies.
Isha Sharma
It was important for the free cash flow. But anyway, maybe we can talk about the working capital then. And if you could tell us about inventories and why are we still at such an elevated level? And when can we expect progress there?
Nico Reiner
Yes, happy to do that. As we mentioned already, inventories went down by €42 million in this quarter 3. And if you look at the situation here, we have a clear program improving working capital going forward. We mentioned that already with our results in Q2. So we see a clear improvement and programs are running on, and we will see also further positive sites coming from this development.
Isha Sharma
I just wanted to understand what magnitude can we expect? Because if we look at where it is from historic levels, and we are still quite high, and we have seen this at other companies that there has been working capital release already throughout the year, but Lenzing we've just started to see it. So I'm just wondering if it is more difficult for you to place or reduce your inventories because the demand is so low and if that is something that will change going forward.
Nico Reiner
Yes. We are intensively working on the improvement of inventory. Yes, that's correct. And we see here first positive signs. Overall, in the first going out of the fourth quarter, you will see here further improvement, as we mentioned already that our key focus is on the generation of free cash flow and to manage the working capital inventory receivables and payables is one of our key elements, and this is a key target which we follow on for the rest of the year and also in next year as we want to achieve positive free cash flow going into the future.
Operator
And the next question comes from Brigitte Friedrich from BNP Pariba.
Brigitte Friedrich
I have three questions in total. First, can you please comment on the cost savings program that was announced in 2022. So could you please give us more color on the potential contribution for the fiscal year '23 by when you expect to achieve the end result as €70 million in entirety. Second, cost for the cost savings program already reflected in past expenses? Or is there more to come? And can you please comment on the cash outflow related to any such charges in '23, '24? And the last one, based on the midpoint of the '23 guidance that you announced in September implied Q4 EBITDA stands at €80 million roughly at the midpoint. Unless the market environment has deteriorated further, could you regard the quarterly €80 million or annualized like €300 million as a good yardstick for 24 to which we then should add the tailwind from the cost savings.
Sebastien Knus
Thank you, Brigitte. So those questions also for Nico Reiner.
Christian Skilich
The first one, I take the cost-saving question I take, if you don't mind, Brigitte.The cost-saving program, which we announced of around €70 million, we will over achieve both in timing and impact. What are the components you -- we had a full year impact, for example, on the personnel costs of €40 million, of which €20 million will be contributed already in the year 2022. The other elements are mainly process cost savings, discretionary cost savings was in the range of €15 million, and we have a special procurement or purchasing program in the order of magnitude of €20 million. I hope that answers your question. And then the handover, as we said, the full -- the programs are now closed, and we have this type the holistic performance program, and that will be the umbrella project umbrella program taking out all these initiatives on board as, for example, on the operational improvement side, you can imagine there, a couple of initiatives which is take time to implement. And they are all part now of this new target of the €100 million run rate in the year '25, of which, again, 50% will be delivered in the year '24 already.
Nico Reiner
Now the next question, please, did I understand well was that with regard to the costs, also or implicating the cost of this program? Or what was the question? Sorry. Can you repeat, please?
Brigitte Friedrich
Yes, sure. I just wanted to know what about the cash outflow that is related to the charges in 2023, '24 for the cost savings program, so what is the cash outflow? Because we're implementing all the measures like cost money.
Stephan Sielaff
You mean cost for the people side and...
Nico Reiner
So let me elaborate a little bit on that one. As we are saying that we are now in the implementation of this program, we are still clearly and closely watching all the developments here. And you might know that to be able to have all these costs being posted, you need to be in a situation where the documentation is very clear, very strict and available. So what I can tell you at this point of time is that we, as a company, are targeting to take care about these costs within our financial year 2023. So the whole evaluation of the total volume of cost is still ongoing, and this is the reason why I cannot mention any number at this point of time. And the last question was with regards to the EBITDA going forward. Am I correct Brigitte?
Brigitte Friedrich
Yes. That's correct.
Stephan Sielaff
That was about the guidance, Reiner. Now what we said is the outlook is characterized by the very cautious market expectation for Q4 '23. We expect in Q4 that the weak market conditions continue and they will weigh on EBITDA. Demand is expected to remain on low level, especially on textile fibers and that will put pressure on prices as well. On the cost side, as Christian elucidated, we expect a volatile market on the cost side with an elevated level. And our -- on the opposite side, our performance program will deliver a first impact in Q4 2023. And if you take all of that, that makes us confirming the guidance between €270 million and €330 million.
Brigitte Friedrich
Yes. Just like the backdrop of my question was that your current guidance for Q2 -- like for '23 implies Q4 EBITDA of €80 million. And if we annualize that, it will be €300 million EBITDA. So if I add €100 million from cost savings, that would take me to €400 million. And however, consensus is at close to €500 million for 2024. So should we take this €300 million as the yardstick and then at the tailwind from the cost savings? Or should we interpret differently?
Christian Skilich
Look, it's -- I mean you made there some very individual calculations on your side, but please understand that we are not able to give any guidance now for 2024. And therefore, I'm not able to comment on what your calculations are.
Operator
And the next question comes from Christian Faitz from Kepler Cheuvreux.
Christian Faitz
One question remaining actually a 24 question. Sorry for that. But do you have any early view into 2024 in terms of demand, i.e., textile industry prepping for the summer collection or something like that. That will be very helpful.
Stephan Sielaff
Well, as I elucidated and you have seen maybe the graph, which we have shown in our presentation, we see that the expected recovery of the textile market, in particular, is simply taking more. And that is how much I can tell you at this point in time also about '24 and I hope you understand that we are not giving any guidance on 2024 results. So you've seen the outlook of the textile community. You see how wrong they were in the past, and we are simply saying that recovery will take longer than expected by market observers so far.
Operator
And the next question comes from James Twyman from Catie.
James Twyman
Yes. Thank you very much. I've got 3 questions, please. The first one is, given that you've been broadly unprofitable this year and you are selling the majority of your products at premium prices, why aren't we seeing substantial closures in the commodity grades, mainly in China or are we? The second question was you talked about very weak sales in Q3, which is continuing into Q4, but you mentioned that DWP demand has been quite strong. And I was wondering how we square the differences between the 2? And then the third one is just understanding your -- a big part of your business now is pulp sales, but you also say that you are a small net buyer of pulp. Just trying to understand the dynamics there as well.
Nico Reiner
Thank you, James. Now for the first question, I will hand that over to Stephan Sielaff please.
Stephan Sielaff
Yes. Thank you, James, for the question. And actually, there are companies at the moment, really struggling and mainly the small players, mainly those which are not backward integrated, and we see the one or other operation, which had to close down. And for your second question, that was about pulp demand. I guess we would hand over that to Christian.
Christian Skilich
Yes, I will do that, Stephan, for sure. Yes, we have seen between volatile hot markets that at least pricing for dissolving wood pulp could be kept on a relatively stable level as some of market players had been taking downtime during the year, which supported prices on a stable base day.
Operator
Was there one more question? I remember, James, said had three questions.
James Twyman
Also with regards to DWP. As usual, there were 3 questions. The third one was 1/4 of your sales were pulp in the quarter, but I think you say that your sufficient or maybe a net buyer of pulp. So just wondering how that works and how you see that going in the future.
Sebastien Knus
Yes. This -- I would see that also for you, Christian Skilich.
Christian Skilich
Can you repeat it once more?
James Twyman
Yes, sorry, 1/4 of your sales are pulp and you're not a net seller of pulp. So I was wondering how that works out.
Christian Skilich
Look, we have both purchasing agreements that we are buying at quite favorable prices from third-party suppliers pulp, especially those grades, we are not capable of producing ourselves. And that brings us into the position selling market pulp as an access to third parties. I hope that answers your question.
Unidentified Analyst
And the next question comes from [indiscernible] from Deutsche Bank. Two remaining. The first one is, I'm wondering your other operating income in Q3 was extraordinarily high. Could you give us the reason for that?
Sebastien Knus
Nico Reiner, think that's a question for you.
Nico Reiner
Yes. Thank you. I mean other operating income includes a number of positions. And I'm sure that you understand that we do not disclose more level of detail here. However, if you look back a few quarters, you can see that the level of this position can fluctuate quite substantially.
Unidentified Analyst
Okay. And then with regards to your financial results, it was more or less minus €12 million in the third quarter. And in Q1, Q2, it was rather minus €30 million per quarter. I mean, I completely understand that in between, there was a capital increase. The leverage came down, but that is a significant reduction. It's minus 10%, minus 15%, the new normal we should expect for the upcoming quarters?
Nico Reiner
I mean, that's a little bit the same topic we are tackling here. But let me phrase it in the following way. My overall the financial result also includes a number of positions, and we are not disclosing any level of detail here. But if you look at the FX development, you can assume that it also impacted this position, yes? So giving you probably this directional answer to your question.
Operator
And the next question comes from Teresa Schinwald from Raiffeisen Bank International.
Teresa Schinwald
Can you hear me now?
Operator
Yes, we can hear you.
Teresa Schinwald
Great. First question we also around the cost savings program. Could you help us with getting a split on the variable, the cost of goods sold part of the program and the fixed cost part because so far, we know it's about the €30 million target for the personnel side -- staff cost side. So if you could help us with that? Second one, also on the revenue pillar of the program. If you could give us a feeling on what you think is the potential you could either volume-wise or revenue-wise or? And the last one is coming back to the other operating income. It was at the level not seen in any quarter in the past 10 years. So I wonder if you could give us a share of what has been one-off. Yes, that's all.
Christian Skilich
Okay. Let me comment on your first question, which is around the cost savings program. As we mentioned, it is a holistic program impacting the full P&L. So impacting all positions, what you mentioned. But at this point of time, we do not give a split on fixed and variable costs. So overall, we are tackling the €100 million of cost reduction and having an impact in 2024 already of 50% of that volume and the full impact in 2025.
Stephan Sielaff
Maybe one additional information we can disclose that we also disclosed today in Townhall meetings. The personnel cost part of it is around about €20 million to €30 million, which is equivalent of €5 million FTE. And if you look at the personnel cost side, most of it is -- will be in the overhead part... Yes? On the second part of your question was on the top line. Here, we also don't disclose details yet. However, you can assume that we are expecting, especially in the fiber segment, a significant growth in revenue and margin. And your third question was, again, to Nico, right?
Nico Reiner
Yes. Thank you, Stephan. So around the operating income. I mean you heard the answer, which I gave already and but clear to say that there's nothing else to add on this answer.
Operator
And we have a follow-up question from Isha Sharma from Stifel Europe.
Isha Sharma
Two left, please. One on the dissolving wood pulp prices. Christian, you mentioned that there were some supply issues there and the market is kind of stable. Do you also expect this to continue going forward? Because in the last update, you told us that there might be pressure on devolving book pulp pricing because of the extra supply that is coming in? And the second question, just very simply, if we look at the range of your EBITDA guidance, it's still quite huge, around €50 million for Q4. What needs to happen for you to achieve either the upper end or the lower end? So how should we think about the drivers for both ends of the guidance, please?
Sebastien Knus
So for the first question with regards to the DWP prices since I would hand over to Christian Sielaff.
Christian Skilich
Yes, I'll take it, Sebastian. For dissolving wood pulp, we do see a rather stable market development over the next coming months. So talking about next 2 quarters, quarter 4, quarter 1 of next year, we see a rather stable pace there as well supported by price increases on the paper pulp side.
Stephan Sielaff
So what needs to happen to reach the one or the other side of the guidance. Well, basically, you have the 2 key levers either on the top line, the market developed better than we expected in the medium. And for the cost, as Christian elucidated are still volatile, it's not coming in better or if you want to think about the lower end of the guidance coming inward. So yes, it's these 2 main drivers, which we see for having the guidance still that right. And as you can see from the fibers market, the response time is much, much shorter in these days. And therefore, we have to keep the guidance on that level as the market is much more on short notice than it was in the past.
Isha Sharma
Just to confirm then the midpoint of the guidance is when the environment remains unchanged.
Stephan Sielaff
Yes. Well, that is your interpretation. We are guiding the range, and I explained to you, Isha, what is our background on that guidance, right? And yes, I think that is enough said on the guidance. Yes.
Operator
So there are no further questions at this time, and I would like to hand back to Stefan Sielaff for closing comments.
Stephan Sielaff
Yes. Thank you very much. I think clearly, we have seen a quarter with still a weak market environment. At the same token, I think we have proven as a management team that we are taking in action, and you have seen that in the results of the positive free cash flow development. And going forward, this management team is taking the right action proactively. That's why we launched the holistic performance program. We have shown to you why we still believe that when the market comes back, Lenzing is in a great position to capture that growth. With that, thanks a lot for your attention. Thanks a lot for your questions, and have a good rest of the day.
Operator
Ladies and gentlemen, the conference has now concluded, and you may disconnect your telephone. Thank you for joining, and have a pleasant day. Goodbye.
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Lenzing Aktiengesellschaft (LNZNF) Q3 2023 Earnings Call Transcript