August 21, 2014 / 6:26 AM / in 3 years

UPDATE 2-Lenzing ups savings targets as profits tumble

* Q2 EBIT 16 mln euros vs Reuters poll average 18 mln euros

* 2014 cost savings target raised to 90 mln euros from 60 mln

* Shares up more than 5 percent (Adds shares, analyst quote, Q2 numbers, details, background)

VIENNA, Aug 21 (Reuters) - Austrian viscose fibre maker Lenzing announced higher savings targets after second-quarter operating profit tumbled on weak viscose prices with no improvement in sight this year.

The company, the world’s biggest maker of cellulose fibres including its trademark Tencel, said it now expected cost savings of up to 90 million euros ($119 million) this year, half as much again as originally planned.

Lenzing shares rose 5.3 percent to 46.48 euros by 0929 GMT, compared with a flat European chemicals index.

Baader Bank analyst Christian Weiz said he had anticipated the savings increase and kept his “hold” rating and 48 euro target price, “given there is currently not much chance that we will see a significant and sustainable recovery”.

Quarterly earnings before interest and tax (EBIT) were 16 million euros, less than a quarter of what they were in the year-earlier period, on sales down 9 percent at 448 million.

Analysts had expected EBIT of 18 million and sales of 447 million on average, according to a Reuters poll.

Lenzing said viscose staple fibre (VSF) prices, which are driven by the Chinese market and closely linked to cotton prices, were down 13 percent due to record high inventories and weak demand, and were set to improve in 2015 at the earliest.

“There are no perceptible signs of any easing of the situation on the global fibre market in the second half of 2014,” it said. “Repeated measures initiated to stabilise prices are bound to fail.”

A sluggish textile industry has pulled down viscose fibre prices over the past few years, and although demand has recently picked up, capacity expansions by Chinese manufacturers have kept prices low.

Lenzing said it more than halved capital expenditure to 64 million euros in the first half, and would concentrate on promoting its higher-margin specialty fibres Tencel and Modal.

Lenzing still makes about two-thirds of its sales from viscose, although it is increasingly promoting the newer-generation fibres, which can be blended with cotton and feel soft next to the skin.

Its customers for textiles include H&M and Victoria’s Secret, while users of its non-woven fibres for hygiene and medical purposes include Johnson & Johnson and P&G.

Lenzing is the only large non-Chinese player still in the viscose business apart from India’s Aditya Birla. Their competitors include China’s Fulida Group, Tangshan Sanyou Chemical and Aoyang. ($1 = 0.7549 euro) (Reporting by Georgina Prodhan; Editing by Miral Fahmy, Michael Shields and David Evans)

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