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THE LENZING GROUP: EXCELLENT FIRST SEMESTER 2000

1. Earnings before taxes (EBT) rose from EUR 2.7 million to EUR 21.1 million
2. Operating result increased sixfold from EUR 3.4 million to EUR 19.6 million 
3. EBITDA grew by 41% to EUR 41.8 million
4. Sales increased by 21%
5. Strong demand for Lenzing fibers continues
6. Price increases launched successfully
7. Positive outlook continues

The Lenzing Group can look back on a very successful first semester 2000. The cyclical high in fiber markets has resulted in full utilization of capacity and (in connection with the structural improvements of recent years) in considerable increases in sales and earnings.

The Lenzing Group's consolidated sales went up by 20.5% to EUR 311.8 million (first semester 1999: EUR 258.8 million) during the first semester 2000. The operating result of the Group increased almost sixfold, from EUR 3.4 million to EUR 19.6 million at present! It was also possible to clearly boost earnings before taxes and minority interest from EUR 2.7 million to EUR 21.1 million. EBITDA grew by 40.7% to EUR 41.8 million (first semester 1999: EUR 29.7 million).

Successful Revised Strategic Direction 

Growing sales volumes for special fibers validate the marketing strategy that the Lenzing Management has been pursuing. Says Jochen Werz, Spokesman of the Board of Management: "Our new branding strategy, whereby fibers are positioned on the market as independent brands, has proved highly successful. With 'ProViscose', which is a blend of viscose and Lyocell, we were able to set a new quality standard for textile applications of viscose."

The company's revised strategic direction and improved cost structure have created a sound basis, which reinforces the positive repercussions of the cyclical high. At the same time, the Lenzing Group is well prepared to meet any future cyclical downturn.

THE FIBERS SECTOR 

Lenzing AG at Full Capacity

The production lines at Lenzing AG are working at top speed, sales are clearly above the comparable figures for the previous year. The demand for special fibers has developed exceedingly well. Almost 60% of the capacities at Lenzing AG are already used for these technology-intensive products.

In coordination with the staff, the decision was taken to introduce a new system for the company pensions of active Lenzing AG staff members. Existing entitlements will be settled during the second semester 2000, and a new umbrella pension fund will be launched.

Lenzing Lyocell Expands its Capacity

There is a growing demand worldwide for Lyocell fibers. In June 2000 the production capacity of the Lyocell plant at Heiligenkreuz was therefore expanded to 20,000 tonnes per year instead of the originally installed 12,000 tonnes per year. The company is already considering a further increase in capacity. As compared to the first semester 1999, the result of Lenzing Lyocell has clearly improved, but it is still negative. The combination of the successful implementation of our marketing strategy, the introduction of new products and the favorable market development should make it possible to achieve our earnings targets at a faster pace.

After a nearly two-year audit by the EU Commission, every single item of the whole package of grants to the Lyocell plant at Heiligenkreuz was approved as being in full conformity with EU competition rules.

Lenzing Fibers Corporation Increased Emphasis on Nonwovens

LFC, our US subsidiary, is counteracting the structural crisis of the US textile industry by concentrating more on nonwovens (fibers for medical applications as well as hygiene and household products). The successful implementation of the niche strategy is reflected in the increase in sales, volumes and earnings, as compared to the first semester 1999.

Favorable Development at South Pacific Viscose

South Pacific Viscose (SPV), Indonesia, also improved its performance between January and June 2000. Capacities were fully utilized, volumes were above those of the previous year. In spite of the generally poor price situation, SPV was able to increase prices in Indonesia and to expand its local market share. The company's results have clearly improved and are again positive.

THE SECTORS FILMS, ENGINEERING & SYSTEMS-CONSTRUCTION, PAPER

Lenzing Plastics Boasts Record Level of Orders

The plastic films division, which was divested as of 1 April 2000 from Lenzing AG, was off to a very successful start as an independent company within the Lenzing Group. On account of the continuously good demand, Lenzing Plastics GmbH & Co KG registered a record level of orders. This 100% subsidiary in the field of thermoplastics and PTFE achieved earnings which are also highly satisfactory.

Lenzing Technik: Joint Venture for Integrated Automation Systems

By the end of June, Lenzing Technik, the engineering and systems-construction company, had twice as many orders as it had recorded at the beginning of the year. Whilst the result for the first semester is below target, due to accounting reasons, the target for the entire year will be achieved due to the strong order book position.

During the second quarter, a joint venture was established with automationX, which is a subsidiary of M&R Automation, a Styrian company. Lenzing Automation Systems GmbH & Co KG is a 50% subsidiary of Lenzing Technik, which will develop integrated process automation systems for worldwide distribution.

Good Demand for Lenzing Paper

During the period under review, the demand for the niche products of the Lenzing paper division developed positively. Volumes were significantly increased compared to 1999. The paper market continues to experience a cyclical high. However, passing on the major price increases in raw materials proves extremely difficult, and further price increases are necessary.

OUTLOOK: POSITIVE DEVELOPMENT OF SALES AND EARNINGS 

The Lenzing Group is confident of a strong performance also in the second semester 2000. The high level of economic activity in the European fiber market is expected to continue and will have a positive effect on the sales and earnings of both Lenzing AG and Lenzing Lyocell. LFC and SPV should also benefit from the cyclical high. Plans are under way to expand the capacity of LFC in the coming months. However, these Lenzing subsidiaries continue to face rising raw material costs. Lenzing Technik and Lenzing Plastics will also provide positive earnings contributions during the second semester.

The outlook for 2000 as a whole continues to be positive. In the first semester 2000 alone, we were able to generate a fivefold increase in earnings before taxes on the entire previous year (1999). The profit and cash flow for the full year 2000 will therefore be significantly better than the previous year.