PARIS — Textile recycler Renewcell confirmed Tuesday that third-quarter sales were slower than expected as it seeks to up capacity at its Swedish factory.
Interim chief executive officer Magnus Håkansson said the company is producing below its financial breakeven point, and while it has the capacity to increase production, it needs brands to be on the receiving end.
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The third-quarter results were in line with a profit warning issued Oct. 12. Håkansson took the helm of the company Oct. 16 following the profit warning and subsequent departure of longtime CEO Patrik Lundstrom.
Renewcell produces Circulose, a textile pulp made from chemically recycled cotton waste. It’s one of the world’s first commercial scale textile-to-textile recycling plants in the world.
Overall sales in the three-month period totaled 84.4 million Swedish kronor, or 7.23 million euros at current exchange. The company produced 6,498 tons of its pulp product in the third quarter, with nearly all of it being sold.
Still, that is just “a little bit more than half of what we need to achieve breakeven point,” Håkansson said.
October numbers were down, with 2,043 tons being produced, but only 129 tons being delivered to customers. The company said November numbers are continuing that downward trend.
“This is not sustainable,” Håkansson said. The executive said the company is now negotiating additional offtake and sales agreements with fiber producers, but those middlemen also need to know they can sell Circulose-based materials on to brands.
“The real demand has to come from the big brands and for the big brands to take leadership in buying sufficient volume for this to hold all the way to become sustainable,” he said.
Renewcell’s factory came online last November, with a capacity to produce about 60,000 tons of pulp annually, with a target of 360,000 tons per year by 2030.
Håkansson noted the company has sold more than 14,200 tons to trading house Ekman, but only 4,000 tons have made their way through the supply chain and into the hands of brands.
He said the purchase agreements from fast-fashion behemoths including H&M Group, which owns about an 11.5 percent stake in Renewcell, and Inditex have been helpful but are not enough.
“We have the production capacity, we have ramped up sufficiently to serve the market, we have the commitment from the fiber producers, but we need more commitment and the clearer stance from the brands and the higher pace of sales from the fiber producers to the brands to actually be able to break even,” he said.
So far H&M and Inditex, as well as Levi’s, are among the brands that have developed small capsule collections but he said the fiber needed to be integrated into main collections at scale to make an impact.
“Many of the other brands are looking at Inditex and H&M to see if they make it happen, then they will follow their lead,” he said. The company underestimated what it would take for wider acceptance and the communication it takes with the brands “to make it actually happen” on the demand side, he added.
Håkansson said that while overall economic trends may slow consumer spending in the coming months, it comes down to long-term commitment from companies.
“We believe firmly that the determinant factor is if the brands want to take a stance in circularity or not, because our volumes in total is a very, very small part of the big business of the global brands,” he said.
For instance, Inditex produced a total of 621,244 tons worth of products across its brands last year, and the company has said that it intends to source 25 percent of its textiles from “next generation” materials by 2030.
Following the warning and change of executive last month, Renewcell saw increased interest from other producers and brands that now “feel a sense of urgency.”
While they are still in the early stages of the five-year offtake agreement announced earlier this year with Tangshan Sanyou, Håkansson indicated they are in advanced discussions about how to move forward on volumes and sell-through.
Håkansson stated the company has the liquidity to fund two more quarters of losses if sales do not improve in the fourth quarter.
The company is tightening its belt, including reducing energy costs, and does not anticipate staff cuts. Håkansson added that if Renewcell wants to build a long-term business, it cannot lower the price of the material in order to sell more volume.
“It’s also a cost game out there, and so that is not benefiting our case,” he said. “So there has to be a stance taken for circularity, and for the environmental issue.”
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