Lenzing Aktiengesellschaft (OTCPK:LNZNF ) Q4 2021 Earnings Conference Call March 10, 2022 9:00 AM ET

Cord Prinzhorn – Chief Executive Officer

Thomas Obendrauf – Chief Financial Officer

Robert van de Kerkhof – Chief Commercial Officer

Stephan Sielaff – Chief Technology Officer

Christian Skilich – Pulp and Wood Raw Materials

Ladies and gentlemen, thank you for standing by. Welcome and thank you for joining Lenzing's Group Analyst Call. Throughout today's recorded presentation, all participants will be in a listen-only mode. The presentation will be followed by a question and answer session. [Operator Instructions] Your hosts today are Cord Prinzhorn, Thomas Obendrauf, Robert van de Kerkhof, Stefan Sielaff, and Christian Skilich. I would now like to turn the conference over to Cord Prinzhorn, CEO of Lenzing.

Thank you very much and welcome to our investor call. We are pleased to have you online or via voice connected with us. As you can see, we're presenting our investor presentation for the year 2021 under the title of Linear to Circular. A topic, which has been constantly driving us the last few years. And so we put it on the top-line for what we're talking about today also. Let me jump into the first topic of recent events. We have had our supervisory board meeting yesterday in which we also announced some management changes.

We are happy and proud to announce that Stephan Sielaff will be taking over as CEO as of April 1st. Mr. Sielaff has been with us for almost two years developing the fiber business very successfully. And we are happy to have an interim candidate who will lead Lenzing in the future. At the same time, we are sad to announce that Thomas Obendrauf will not extend his contract with us. He will be with us to help us structure the buildup of the next CFO.

And at the same time, our chairman of the supervisory board, Mr. Edelman, announced that with the upcoming Annual Shareholder Meeting, he will be stepping down from the supervisory board. And as I will return to the sub-supervisory board myself, I will take over the Chairmanship. With that said, let me jump into the major topic of today, which is, of course, the -- next slide, please. The glance at where we are. From 2021, the revenue increase was quite tremendous after the year of 2020 when of course the first year of COVID hit, we had a very successful year and we're proud to say that we have achieved almost $2 billion in revenues.

And also our EBITDA has increased from €192 million to €363 million in 2021. Also our net results after minorities has increased from 6 million to a 110 million. And that gives us the strength to also propose a dividend of four years 35 to our upcoming general assembly. What are key development and strategic highlights which we will also go through today in more detail of course, it is our successful startup of production of the 100 thousand tons lyocell plant in Thailand were in the course of the ramp up and where we show some key figures to this project. We will also talk about our 500 thousand tons. Dissolving wood plant in Brazil, which is also scheduled for the first half year of 2020.

And of course, as Lenzing, we're quite proud of our achievements in terms of sustainability, where we were awarded a AAA rating in CDP. Our outlook at a glance for 2022, we see ourselves in quite a positive market environment when it comes to demand of our products, natural fiber is in the use, and increasing appreciation of end customer -- customers. Of course, there is a high level of uncertainty when it comes to raw material, energy, and logistics costs. Taking all the above into account, and due to the first margin contribution from the two new production sites in Thailand and Brazil, we expect EBITDA, 2022, significantly above 2021.

Overall, and I think that is quite important, again, to emphasize, our targets for 2024 remain unchanged. Even in times of ambiguity and difficulty, we have done great projects, and we target to increase our EBITDA to $800 million. We will achieve a return on capital employed above 10%, focused on a financial leverage below 2.5, have a specialty share integration of about 75%, have a backwards integration in dissolving wood-pulp of at least 75%, and beyond target, to reduce our emissions by 40%.

With that said, let me move onto the highlights. The highlights, of course, start with something that is somewhat of a reward after many years of development. Lenzing has been a leader and an inspiring producer for sustainable products in the natural fiber sector. You do not achieve this by just starting it in 2021. This has been a process that has been going on for several years. Lenzing has had a great foresight in where the market needs to go, so we're not just driven by end consumers, we are driving the market to become more sustainable.

That said CDP rating of AAA is of course something that distinguishes us far above many of other companies and makes us exclusive to only 14 companies that have achieved that rating. Also, MFCI with AA and EcoVadis rating in platinum speak for itself that we are basically getting rewarded for what we have done over many years. That said, let's jump into some other projects, and I hand over to Stephan Sielaff to kick us off into Thailand.

Thank you, Cord. Indeed, the true highlight is the successful startup of our lyocell plant in Thailand. On the 19th of Feb, we were successful in producing our first sprayer out of the state-of-the-art factory. The project was delivered on schedule, on budget, and without any loss-time accidents. I think a great achievement in time-flight leads where COVID certainly impacted the project, and still the team managed to be on budget, on schedule, and with zero accidents. The plant itself is state-of-the-art. It will have, ultimately, a capacity of 100,000 tons, and this is the capacity we need.

We see a strong demand from our customer base, and I'm also happy to announce that we last week had our first shipments out of this factory. And therefore, this factory with its setup, being a carbon neutral lyocell plant, is an important step for our carbon-free future as we move on on our agenda. Having said so, let me pass on to the next highlight. And here, I would ask Christian to talk a bit about Amadeus.

Thank you, Stefan. And good morning. Good afternoon as well from my side here. Stefan created excitement. We are excited here in Brazil as well because we are about to kick-off starting our new dissolving wood [Indiscernible] here in Brazil. We're doing that as a joint venture called LDC [Indiscernible]. Were Lenzing holds the majority with 51%, [Indiscernible] Brazilian company is the joint venture partner owning 49% of the joint venture. Lenzing is fully consolidating this joint venture in its books.

What are we going to build there? And what are we going to start here, it's a 500,000 ton single line dissolving wood pulp mill, which will be the largest of its kind. The related CapEx to that is amounting to $1.38 billion. And we're building the mill in Brazil with favorable wood costs that should give us a costs leading position for a bet you know. As having said, we're ready and prepared, to start up the mill within half year 2022 and expecting to have a full rate -- run rate already at the end of 2022.

By that, I would like to give some more highlights on two initiatives that we're doing on decreasing our environmental footprint in supporting the circular clarity approach of our products. Number 1, we have teamed up with Sodra, a Swedish-based pulp company, on our efforts to recycle textiles. Both Sodra and Lenzing have a lot of knowledge in that area, and we are going to exploit that now in a way that by the end of 2025 we will be able to have 25,000 tons per year of textile waste recycled, which will then be used as a feedstock to our fiber operations.

Number 2, we had experiments conducted by the scripts institution, which clearly provides evidence that the length fibers has a very high degree of fuel degradability. We are comparing here with different types of fibers and commencing wood based fibers will biodegrade within 30 days, where others, like polyester, will need up to 200 days to get fully biodegraded. By that, I'm handing you over to Robert for some insights on the market.

Thank you, Christian. And a warm welcome from my side. The market is quite turbulent. However, improving if you compare it to COVID. On this slide, you can clearly see that the huge deep that we had after the total lock downs early 2020 had a consistent recovery where actually in the roughly second quarter of 2021, we really were globally at the pre -COVID levels and we have been performing at that pre -COVID level since. But it has been slightly different from region to region. We see the United States being performing extremely strong.

Europe just recovering a little bit later. And China now being initially over pre - Covid levels now at the same level as before. If I look at the current situation, the COVID situation is considering to help the consumer confidence. But I don't need to tell you the geopolitical situation, of course, could definitely have a negative influence on this consumer demand in the near future. What is happening on the prices? You can see here the main product for the fiber industry. Again, these are the Chinese prices as we continue to see the report, where you can see that the polyester prices they're lying at the bottom are continuing to perform fairly flat around the $1 as they were pre -COVID levels.

You can see that we have actually exceeded for the viscose right now the pre -COVID levels. But what you definitely can see is the very steep increase of the cotton prices. This cotton prices are raising a lot of questions. Why is this the case? And to what extent is this sustainable? And a lot of that is driven actually by a speculation. Of course, the logistics challenges that we are confronted with are also to be felt in the cotton industry. You had some disappoints on harvest, for instance, in the Indian market by the end of last year, which drove the prices up.

But even there, right now, for the cotton in China, there are some concerns as China was importing quite a lot of food from the Ukraine, and it is now putting some pressure on the cotton market. So we expect that cotton will come down a little bit, but will remain at a very high level. On the Viscose side, as I mentioned, prices are at a higher level and they need to be at a higher level considering the higher costs. What you can see clearly on the left side is that this theoretic profits, the light green bars, are still negative.

That means that despite the fairly healthy price level, a standout Chinese producer with the current cost position of energy and [Indiscernible] is at this moment still loss-making. And what we also see in the last couple of days is that the coal prices in China also increasing. So we do expect that these theoretical losses will increase, which gives me again a little bit of hope that the CCF prices will come up that over the price level of Viscose will slightly increase. What does it mean on the prices?

If you look at our Lenzing specialty prices, if you then look at VSF and if you look at then the Chinese cotton index, you can see here and this is a 6 months moving average, the Chinese cotton continues to see this very steep increase I just referred to. You can see the Viscose Staple Fiber price bouncing back to a level 3 [Indiscernible] on 2019. And it's fairly flat right now, but you can see you small increase over the Lenzing specialty prices. And this is something that this increase of course, going back to a more difficult, let's say, situation in Q3, the trend is definitely upwards here.

If you now look at the price -- the markets environment, I talked a little bit about all the commodities, but as you know, with our specialty prices going up, we can only have this pricing power in the market if we have a good innovation pipeline. And here you can see several of the innovations we have launched in 2021, and I'm really proud of the team because to launch new products in the market where you're very limited in meeting actually customers and industry partners, the team did a super job.

We continue to innovate in Modal. It's a very strong business. It was the first product that came back after COVID. Very proud with the launch of the Indigo Modal. On the non-woven side, as all of our moisture management, and I think the long-awaited hydrophobic lyocell was launched also in 2021. Two very unique innovations for the textile market include a short-term special launch of an Orange Fiber, a corporation with Italian organization that is providing a very nice niche opportunity to differentiate ourselves, but also the launch of lyocell matt, which I believe will be a game changer in application like denim, but also could go into other applications like shirting, etc.

These are specific innovations that we have done. On the more structural basis, we're really making good progress with actually identifying our specialty fibers all the way from our fiber production to the finished garment. We used to do it only with REFIBRA, but we are rolling this kind of unique identification technology out to all the specialty fibers and textiles. But also our carbon neutral offering, you heard Stephan saying we're very proud that our plant in Thailand will be a carbon neutral production facility.

We are really making good progress with this as well where we have launched now also in the nonwovens industry, a carbon neutral VEOCEL fiber. And we have now created the ultimate sustainable product offering with combining our circle economy, i.e. the REFIBRA technology with a carbon-zero TENCEL. So these are game changers that just got launched in 2021, and it really keep Lenzing at the forefront of the innovation aspect in the overall fiber industry. Now, that innovation is really one of the key drivers for our brand. A brand creates strength.

The brand creates confidence level that is going from us as a producer all the way ultimately to the consumer, and on the right side, you can see here the number of 35% of overall awareness. Now, this is a number that we've published already a little bit earlier in 2021. I will have the updated number for you available, I believe, for the General Assembly. Normally, we get this data as we're doing the various systematic study in the same countries everywhere, normally around April.

But if you can already see the very concrete [Indiscernible] coal branding programs, we've made a step -- change in coal branding. So despite the limit to travel to our business partners, we've gone up from 168 coal branding agreements to 567. And these are people that are using our branding combination with our own brands. And this is, I think, something that we can all be very proud of, and it is definitely a vote of confidence in our brand's architecture, in our brand strategy, but this is also what really creates the hopeful branded programs going forward. Now, part of the brand is of course, the education aspect. What is behind the brand?

How can we educate consumers, but also brands and retailers themselves and all this information can be found on [Indiscernible]? And here you can see that we've almost doubled again the amount of visits with about 2.5 million in 2021. So I believe great progress on a still fairly recent brand positioning of the TENCEL brands. But it makes me even more proud of them for the VEOCEL brand. The VEOCEL brand was a brand new brand for the industry for [Indiscernible] industry was completely different change.

It was only introduced in 2018. We have eight programs in 2019. It has definitely some difficulties due to COVID to have more co-branding programs in 2020 where we already mentioned an increase. But look at the difference to go from nine brand programs to 25 co-branding brokers. 25 people are now actually using the VEOCEL brand in some of their collections or in their various products.

Mainly it's in hygiene wipes, of course. In this area, the clear definition of the European Union, that our Viscose and our Eliasof fibers are not considered as a plastic on a single use. [Indiscernible] really helps us and helps our brands and retailers in this area to have our VEOCEL brands on their packaging and different shade for as the plastic ingredients and as you also can see, the aided brand awareness of VEOCEL has acquired an impressive 33% already. But again, a number that I will update in the next few weeks. And with his overview on the market, I will have to hand over to Thomas.

Thank you, Robert. Hello and welcome also from my side. Let me get you through the most important financials for 2021. In a nutshell, we're looking at a strong operating result overall. Let me start with revenues. Revenues came in with $2.2 billion compared to $1.6 billion the year before. It is an increase of 34%. Roughly half the increase is coming from higher volume and the other half is coming from higher prices. Looking at the fiber revenue by application, you can see that we are now back at the 70/30 split as we were actually back in 2017 and 2018. Actually, in 2020 driven by the COVID-19 pandemic, actually we saw the share of non-woven fibers going up to even 50 -- even more than 50% in the second quarter of 2020.

However, as you can see now, we are back at the usual 70/30 split. With regards to specialties share of fiber sales, 2021 came in with 72% that compares to roughly the same number the year before. Moving on to EBITDA. EBITDA increased by 89%. Of course, the increase is in line with higher revenues, however, actually, especially in the second half, we also [Indiscernible] the cost pressure, especially coming from energy, chemicals, and logistics. For EBITDA, of course, we see the same development also there.

Actually, we peaked in Quarter 2. In total, we ended the year with slightly above €200 million compared to €34 million in the year before. EBIT margin now at 9% compared to 2% the year before. Moving on to net profit. Net profit actually came in at the level of €110 million of -- that is actually after minorities and hybrid bond, earnings per share at the level of €4.16 compared to €24 the year before. With regards to dividend, Cord already mentioned we will propose, at the AGM, to pay out a dividend of €4.35. Moving on to operating cash flow. Actually, operating cash flow was very strong, reaching almost €400 million. Last year, actually, we also spend record high CapEx with €844 million.

That's even in quite a bit higher than the year before. We have €669 million. With operating cash flow at the level of almost €400 million records, almost a half of the CapEx number by cash flow. So therefore, of course, mitigating the impact on net financial debt. With regards to trading working capital, actually, as you can see here in the last couple of years, always hovering around the level of [Indiscernible] minus €400 million, trading working capital in percent of annualized group revenue came down to 16% high, but it is, of course, driven by the very high revenues we saw in Q4. Going forward, I would expect this percentage to go up to a range of 18% to 19%.

Last but not least, a couple of words on our balance sheet. And let me start there with net financial debt. [Indiscernible] net financial debt came in with €977 million, economic net financial debt at the level of slightly above €600 million economic net financial debt shell of course, means that we adjust for the amount that is being guaranteed by our joint venture partner in Brazil. Our equity at very strong leverage of 2.1 billion compared to €1.9 million -- billion, sorry, the year before. Adjusted equity ratio slightly below 40% compared to slightly less than 46% a year before.

So, actually, even though equity increased quite a bit, equity ratio -- adjusted equity ratio came down. That is of course driven by the huge investments we made, especially in Brazil and in Thailand as well. With regards to our liquidity cushion, as per balance sheet stayed close to 1.6 billion consisting of liquid assets of more than 1.1 billion. And on top of that, actually unused credit lines of more than 450 million. So definitely, for sure good enough actually to finish now, as always indicated from our side the huge expansion projects in Brazil and Thailand. Overall, I think it's fair to say that we're pleased with the operating result in 2021. And with that, I hand back to Cord for the outlook.

Thank you, Thomas. As we mentioned here, on top line, we expect EBITDA 2022 significant above 2021 based on and these are our principles here. Already what Robert said, we see a high and consistent demand and increasing demand in sustainable products based on natural fibers. And this counts as well in the textile and apparel industry and also in the hygiene and medical sector, where the fundamental needs, which needs to be filled from end consumers, but also from FMCGs and others to go down that path of natural fiber products.

The market environment of course, continues to be characterized by high level of uncertainty, not just regarding COVID, but as well as the political conflict which results in partially higher raw material, but especially energy, also logistics costs. So visibility as we say, remains limited here. But we're very optimistic. And this is also what's underlying the top message. The launch of the new production sites in Thailand and Brazil will contribute with first margins in 2022.

So also now, already seeing the progress we have made in the beginning of this year, we're very optimistic that here we are on time and in budget. Operational, we do have a focus on the commercialization after this. Of course, these volumes that are coming into the market, we have heard from Robert the demand and also the branding, which supports the placement of these capacities in the market. The branding continues to be extremely important and successful. The continuous improvement, of course, operationally on our production level with operational excellence programs and cost management are unnatural to Lenzing.

So with that said, I conclude our investor presentation from our side. Let me thank everybody here in the room, but also the group of Lenzing for their excellent work in 2021, and we're quite proud of what we have achieved. With that said, thank you very much from our side.

Ladies and gentlemen, at this time, we will begin the question-and-answer session. Please, note that questions are only possible via telephone. [Operator Instructions] One moment for the first question, please. The first question is from the line of Christian Faitz from Kepler Cheuvreux. Please, go ahead.

Thank you for taking my question. I just have a question on your 2022 cost composition. Could you give us an idea of your energy costs and what it does, that would be to 2021? Thank you very much.

On energy cost of course, it remains to be seen how the overall development will be over the next couple of weeks and months. Of course, it's of course elucidated earlier. I mean, the uncertainty at this point in time is very high and visibility is basically not there [Indiscernible] Maybe let me go back one step. As I think we already elucidated, you need to really distinguish the different sites we have.

[Indiscernible] And therefore, actually the overall impact is probably very limited. Then at the biggest site here in Lenzing, we are -- this is an integrated site. Therefore, actually the overall increase is, let's say, relatively small. And the biggest effect we've seen so far is actually at the sites in [Indiscernible], which is a lyocell site in Austria and another lyocell site in Grimsby, which are run by gas. And last but not least, we have a smaller lyocell site also in the U.S. So it will of course, highly depend on the gas price development in comparison to 2021.

Okay. Thank you. But as a follow up, you are not hedged in any way -- in any mentionable way, I guess?

As a follow-up, you're -- you are no hedged in any mentionable way, in terms of energy cost hedging?

We don't do any energy cost hedging, so everything we buy is bought.

Okay. Thank you very much.

The next question is from the line of Isha Sharma from Stifel Europe. Please, go ahead.

Hi. Good afternoon. Thanks for the presentation and for taking my questions. The first one is, again, related to energy. How do you account for the surplus energy at your dissolving wood pulp mill? Are you selling it to your own fiber division at the market prices? And just related to that, in Europe, because of the natural gas price, how is the profitability effective, especially at your European sides? And the third one would be on the segments split. The segments split between fiber and pulp indicates that you're transferring the market price is of dissolving wood pulp for inter-segment sales. Is that the correct assumption?

Let me start with your -- with last question first. Yes, any transfer of pulp from the pulp division to the fiber division takes place at arm's-length. So actually -- anyway, that is the concept we use.

So that's it on your third question. Your first question was actually on the transfer of energy actually for the integrated side, if I understood your question correctly, right?

Right, correct. Just want to understand because also with the Brazil wood pulp plant, you will have energy as a byproduct. Just want to understand if you consider it as at-cost or do you take the market price for the fibers then?

Let me go back one step. Actually, here at the Lenzing side, we have an integrated side, so we do have a pipe production and fiber production. And of course, the energy surplus is being used by the fiber production. Actually, cost wise, how we deal with it is that actually the site service is treated as a cost center. So that's it for the Lenzing side. For the site, we [Indiscernible] production site there.

There are no fiber productions. Actually, we are selling the energy surplus to the grid, and the same we will do in Brazil. Once Brazil is up and running, there will also be a huge energy surplus, which will be sold to the grid. Your other third question? Sorry, can you repeat that question?

The natural gas prices are 2.5 times of what we have seen in 2021 at this point so if we just extrapolated and as the unit for '22, how will the profitability at the European sides be affected as you mentioned there are three sites where you are still buying exports.

Of course, we feel the impact of the gas price increase. However, the impact on profitability will highly remain on how much we can pass on to our customers so of course we are now in constant discussions with our customer base and trying to mitigate actuality impact overall on profitability however with the current price levels of course we are seeing the impacts, especially on the three sites I mentioned before which is [Indiscernible] in Australia [Indiscernible] in the UK and in the U.S. is of course, material.

Thank you very much. [Indiscernible]

The next question is from the line of Marcos Maya from BARDA healthy, please go ahead.

Good afternoon, gentlemen. Three questions from my side. First of all, the question on your exposure to Russia and Ukraine, the direct exposure I guess is limited but is still also indirect exposure from any kind of raw materials, in particular chemicals, that would be my first question. Then the second question is on the significant price gap of standard viscose versus cotton. This 40% price cut I think it's -- is a historic one.

And here, my question is, do you already feel that large brands like HMEM, are switching away from cotton to viscous just due to cost reasons? Is this something which you see or expect? And then the last question is also on the inflationary effects. How do you think -- what kind of pricing power do we have in specialty fibers to pass on this inflationary effects? And by what kind of delay you think you might be able to pass it on.

Okay. Let me take the question on the raw materials or the indirect impact you asked for. Here we are having a very small exposure which we can cover through other supply chains within Western European countries.

And then, let me bring light on the two remaining questions. Cotton viscose, in deed, it's an absolute record price gap. Like I said, a lot of the cotton price increases are being triggered through the traders and the speculation of them -- from them. So this held back, a little bit, some of the big buyers. But what you clearly see is there is -- definitely a shift taking place. Now, unfortunately, the shift is going to blend in polyester. As you could see on my slide, polyester continues to move a little bit around the one.

So you see, unfortunately, a little more cotton polyester blends. The overall viscose situation is at this moment quite balanced. So we're running at fairly good operating rates. In China, right now, it's a little bit over the 80%, which is very good for them. And inventories have definitely come down in the last weeks, and we're currently at about 18 days inventory. So that is a fairly well-balanced situation, but I think that increase in viscose demand the last couple of weeks as really being driven by purely viscose demand, not by replacing cotton.

Second question regarding the pricing power. Of course we are definitely passing on a lot of the price increases. We talk about energy price increase, we're talking about continuous high logistics costs and we are also talking about the chemical increases. So we're continuously adjusting our prices to reflect those. As you can see in our results through logic sense we're able to pass this on, but unfortunately not completely.

That's why the EBITDA per quarter has come down a little bit while revenues continue to steeply increase. And of course, we will continue to do this but the low viscose price compared to the cost, but also that limits ourselves a little bit. But the high risk -- the high cotton price, sorry, helps us a little bit. And we're continuously fighting that balance. But overall, the price trend is definitely upwards.

And maybe can I sneak in another question, another add-on. Also, the sensitivity of U.S. dollar. Maybe you can update us here as well on your sensitivity and what kind of price change of U.S. dollar versus euro means for you in terms of costs, but also earnings development.

I mean historically, actually, we had an U.S. dollar net exposure roughly amounting to 400 million. So actually I think the math, then you can do yourself. Please keep in mind that actually this net exposure probably will increase in the future. Because actually the operation in Brazil, we are using the U.S. dollar there as well of course, is a function of currency in any way, dissolving wood fiber is being traded in U.S. dollar. So actually our U.S. dollar net exposure is supposed to increase with the ramp up of the Brazilian project.

Okay. Helpful. Thank you so much.

The next question is from the line of Sebastian Bray from Birenberg, please go ahead.

Hello. Good afternoon and thank you for taking my questions. Congratulations, Stefan, on your new role. My first one is on CapEx. What is the reasonable figure for the next few years because depending about how much the modal capacity the addition costs is another 100 kilo tons of lyocell is coming in and in Thailand and general CapEx inflation? I can get to a number between $200 and $500 million for the next few years. Is somewhere in the middle of that reasonable assumption moving on from 2022? That's my first question.

Let's look at 2022, actually, what you will have to keep in mind in 2022 is that we still have to finish the project in Brazil that will -- the CapEx to finish the project will be roughly in the range of €200 million. Then actually, we also have to finish, of course, the conversion of the sites in China and in Indonesia that will add another 100 million or slightly above 100 million. And then last but not least, of course, you have to add quite some operational CapEx. Please keep in mind at this point in time, depreciation already amounts to roughly €165, €170 million, and if you add all that up, you end up around, let's say €500 million for 2022 based on the projects that are currently ongoing.

And thereafter for 2023 onwards [Indiscernible] what normal Brazil and then you've got the, I don't know if -- has the modal expansion started yet or is that something for 2023? Because what I'm getting at here is for 2023 onwards, depending on the growth project and if there's enough Eliasof facility, the CapEx can be anything from let's say 220, 230 to 450, and I just want to see which end of that range you're comfortable with at the moment.

For 2023, what do you have to keep in mind is, I mean, depreciation will, of course, increase accordingly. I would not expect, of course, operational CapEx to increase to the same amount because actually the increase in depreciation will come from brand new plants like in Brazil and in Thailand. Therefore, actually, the investment there or the CapEx there should be marginal, except for some, let's say, debottlenecking, which we might go for also in 2023. So actually, operational CapEx will be slightly above €200 million, I would say. The modal project you mentioned before, it should -- that should be completed in 2022. There shouldn't be any spillover from that. There's maybe from the conversion in Indonesia. That could also keep us busy in the first half of 2023. And then, of course, it depends on whatever decision for any other projects.

That is helpful. Thank you. And any updates on how much capacity you expect to come to the lyocell market this year and over the next few years? And a quick reminder, what is the current market size on your estimates in kilotons at the moment?

For the lyocell market, you mean in total?

At this moment, we as Lenzing are of course now over to 300,000 with the new capacity that we've not reached yet, but that essentially we'll deliver on very soon. With [Indiscernible] we'll get to the mid 350s. We expect that our overall competitive capacity is roughly the same. We need to, however, also consider the fact that they are normally on Chinese capacity, they are running a lower operating rate. So I'm talking about what we then can see in the market. We do expect that the Chinese and the [Indiscernible] will continue.

We are aware of several of these projects that will be adding quite some additional capacities potentially, but some of these projects are now delayed because they are really struggling with bringing the existing capacities into the market. That quality is simply not up to our level yet, and they are really struggling also to get the prices. So there will be new capacity coming in the next few years.

That is helpful. Thank you for taking my questions.

[Operator instructions]. The next question is from the line of Teresa Schinwald from Raiffeisen Bank International. Please go ahead.

Good afternoon. Thanks for taking my questions. Two remain, and apologies if I've missed your comments on the first one. Can you tell us a bit more about the marketing of the first line of the plant in Thailand, if -- how many of the quantities have already been sold, what do you expect on that? And the second one, as an energy analyst as well, I have to ask, could you give us your definition of spot conditions because it can be really, a day ahead, weekly, monthly, or do you buy the electricity and the gas on annual forward basis?

So let me [Indiscernible] the first question on Thailand. Look, we've just started to create the first bails. The first containers have only -- have only left to really at very early stages, and as you can imagine, the start-off quantities are limited with also a low quality. So what we are expecting is that as the startup completes to increase, also quality increase. The key targets that we're currently selling into is really the cotton enhancement market where we can sell very low qualities. And then, we will slowly move, as the quality grows, into the real high-quality end-uses and applications. Bit we expect that we can see these kind of higher quality numbers only in several months from now. Does that answer your question on Thailand?

And then on energy, I would -- Christian, can you just give the numbers for or the ideas around Lenzing.

Yes. The Lenzing side. We're doing it in a way [Indiscernible].

For the other locations, Asia and the U.S. if you really, we can give you that detail, maybe separately because right now, I wouldn't want to make that assumption. There are regulated market which works a little bit different in Asia, Thailand, Singapore, and the U.S. So I know for Europe, this is the way that Christian said, but for the rest, we're happy to give you a separate answer.

We have a follow-up question from Isha Sharma from Stifel. Please go ahead.

Thank you for the opportunity again. As you also mentioned, and I've understood this also from your comments and annual reports and you started your lyocell plant -- the first lyocell plant, you said that it takes some time to achieve the kind of quality that you are looking for. Is it also the case for the dissolving wood-pulp plant, and how -- what is the timeframe in which we can expect the quality to be at the level as where you want to see it. And just quickly on the follow-up on energy again, sorry. But the increase in energy prices in 2022 -- 2021 compared to '20, it shows an increase of only around 45%. Is it does it makes sense to extrapolate this correlation for the next year as well, looking at the landscape where we are right now, according to different regions?

Christian here. Let me start on the -- sorry, Thomas.

Let me start with the first part of your questions on dissolving wood-pulp. What we are aiming for is that the various [Indiscernible] bails coming out of on new Brazilian plant will be sent to internal customers, and that will be the key advantage of having a downstream integration there, having test runs there, trying to improve quality, then -- and then, only going to the open markets. But we're expecting to be on-quality rather quickly, talking in weeks rather than months.

Okay. And on your second question, actually, I think what we have to keep in mind here is on the absolute level of energy cost I think this is pretty much crystal ball gazing. The question that remains for us is how much in energy cost increase we can pass on to our customers, and that of course remains to be seen how things will develop over the next couple of weeks and months. And of course, if you triangulate it, it also depends how energy-dependent competition is, and this is one of our I would call it benefits with our backwards integration. In comparison to the rest of the market, we have a positive situation among our competitors, but of course, we are also under the same ambiguous situation when it comes to gas price development.

Very helpful. Thanks a lot.

Our final question is from the line of Ite Gunta (ph) from [Indiscernible]. Please go ahead.

Thanks for the presentation about your brand strategy. You spoke that the awareness is 35% and you spoke that it is a very Important that education of consumers has to go on. [Indiscernible] or my wife bought for me, [Indiscernible] nobody was mentioning that it tends to, for instance, your brands inside. And second question is about many years ago. [Indiscernible] Zurich for presentation. And you mentioned that in Australia or not [Indiscernible] you have a big [Indiscernible] of which has you I assume there can you get wood or did you sell it? Thank you.

Okay. Let me -- the brand question, I think -- thank you very much, first of all, for mentioning it and sharing the experience. I think you've touched on a very sensitive point, and that is about the consumer education, but also the brands and retailers. I can tell you if you go in certain part of Switzerland where I'm frequent, everybody will tell you, because simply every time ask the questions and I help with that education, that certain brands and retailers are really setting up with us together these kind of education, how they can educate their own sales staff. But that pretty much depends on their internal program. So we are working with several brands and retailers. They take this very serious. We're helping them in developing their internal training programs, actually go beyond our TENCEL and ECOVERO brand of products. We helped them -- to educate them on the overall sustainable fibers. So from that perspective, I think it's work in progress, but I'm very happy to share my experience, then also when I talk to [Indiscernible] and Support and making sure that this is improving in the near future. And then, the second point, I think you referred to in deed [Indiscernible] we had. I think it was, referring them to our full facility and Paskov in the Czech Republic.

Christian, do you want to comment on that?

Yeah. I will take that. We had a situation in Central Europe that due to back [Indiscernible], there was very high amount of whoops available. And with having less back beat outbreaks over the last six to 12 months. We are getting back to a normal, purchasing situation, where we need to buy also from abroad. And so I would say for the time being, we have a steady state that we had before the [Indiscernible] diseases. So beginning 2010 till 2016-17. Hope that answers your questions?

They are no more questions at this time. I hand back to Cord Prinzhorn for closing comments.

Well thank you again for your questions. And thanks again to the management team for all the preparation and the work in 2021. We are happy, of course, if there are further questions, we have me stick notes here on the side of our Investor Relations team. We are looking forward to a challenging and interesting year 2022 were especially we look forward to our two big projects -- projects to take off, to occur, realization. And again, we look forward to seeing you for our review of the Q1 in this constellation or a different one than but anyhow. Thank you very much for attending the call today.

Ladies and gentlemen, [Indiscernible]. You may disconnect your telephone. Thank you for joining and have a pleasant day. Good bye.