During the 2013 financial year Lenzing will be celebrating its 75th anniversary. This event represents a good opportunity to consider the development of our Group from a long-term perspective. If one takes this into account when looking back at the 2012 financial year, then it can be considered to be a successful year against the backdrop of a market environment which has become increasingly difficult. Lenzing has had to master such a challenge several times over the past 75 years. Lenzing was able to actively shape and further develop the market for man-made cellulose fibers in 2012 as in previous years, thanks to its innovative strength, high quality products, global presence and dynamic growth. In 2012 a key rule applied once again: short-term market or cyclical fluctuations will not influence the fundamental strategy of the Lenzing Group in its role as a successful producer of cellulose fibers.
Lenzing is pursuing a growth strategy geared to the long-term expansion of its core business of man-made cellulose fibers. A series of socio-economic megatrends suggest that demand for our fibers will continue to increase in the coming years. Population growth, rising prosperity in the emerging markets and increasing demand for fibers produced from natural, renewable raw materials in an environmentally compatible manner remain the most important growth drivers of our business. The temporary weaker growth rates in the emerging markets will not alter this, as shown in 2012.
The past 2012 financial year showed a significant oversupply of cotton, the most important cellulosic fiber for textile applications. This excess supply could potentially persist due to the high inventories. However, this should not conceal the fact that in the long run there are many arguments in favor of man-made cellulose fibers. The competition for the limited fertile land under cultivation between cotton on the one hand and the food and feed industry and biofuels on the other hand continued in 2012. Man-made cellulose fibers are made of the renewable raw material wood. Wood does not compete with the cultivation of food or animal feed. Water consumption in the production of cotton is many times higher than for man-made cellulose fibers. The environmental burden of cotton production over the entire life cycle is considerably higher than for our fiber products.
Accordingly, it comes as no surprise that global production of man-made cellulose fiber rose 6.8 percent in 2012, expanding much faster than the fiber market as a whole and increasing almost twice as fast as the production volume for all man-made fibers. In 2012 the market development proved that our strategy is well secured, even in a very difficult economic environment. Lenzing is profiting from the sustainable effects of the “cellulose gap” which foresees a growing shortfall in the supply of cellulosic fibers in the future.
In 2012 we achieved three important milestones while implementing our growth strategy: the start of construction on our new TENCEL® production facility at the Lenzing site, the expansion of TENCEL® capacities in the USA and the successful start-up of the fifth production line at our Indonesian subsidiary PT. South Pacific Viscose (SPV). The fact that SPV is not only the largest fiber production plant in the Lenzing Group but also the biggest viscose factory in the world is more than just symbolic. It is the result of many years of our clearly focusing on the dynamic Asian growth market. This focus on Asia does not preclude us from continuing to produce and market specialties and attractive niche products in the Western industrialized countries. In particular, this applies to fibers for the nonwovens sector, but also for technical applications.
We also succeeded in achieving important interim goals in 2012 designed to safeguard our pulp supply. The conversion of our pulp plant in Paskov (Czech Republic) to dissolving wood pulp production has been largely completed. Moreover, we intensified our cooperation with our longstanding partners. Our level of self-sufficiency with respect to pulp production is about 50%, and we feel well positioned thanks to the long-term supply contracts we have concluded. For this reason, taking account of the availability of a sufficient quantity of dissolving wood pulp on the world market at the present time, our short-term investment priority will be on our fiber operations. In the long-term, our objective is to reach a degree of self-sufficiency of two-thirds for pulp, depending on the cost efficiency of such plants.
On the occasion of our 75th anniversary, I would like to take this opportunity to thank all the people who have served as the basis for the success of our company. Let me begin by thanking our customers and partners. We have been working together with many of them for long years. If you look around the world, there are few companies like Lenzing where this type of cooperation goes back decades. Many of Lenzing’s customers are family-owned firms whose second or third generation business owners still work together with our company. I would also like to express my thanks to all our employees – those who worked for Lenzing in the past, those who are still employed by Lenzing and above all the many “Lenzingers” who recently found their way to our company. We could not have mastered the challenges posed by the past 75 years without the “Lenzing Spirit”, I mean our team spirit and unique dedication. Our thanks also go to the many executives, former board members and works council representatives, who enabled Lenzing in its present form to emerge in the first place due to their foresight, vision and ability to cooperate. Allow me to also sincerely thank all our partners in the world of politics and public administration in Austria, especially in Upper Austria, for the good spirit of cooperation and their understanding of our concerns over the past decades. These working relationships were not always easy and conflict-free. I am well aware of the fact that as a large company in the chemical and pulp industry we have demanded a great deal of attention over all these years. Finally, I would like to thank our core shareholder, the B & C Group as well as the many shareholders, investors and lenders involved in our company. The high level of confidence in our company which they have all displayed serves as the basis for a successful future, and enables Lenzing to determinedly and sustainably implement its long-term strategy.