Ontex Group Nv Ord

Good afternoon, everyone, and thank you for joining us today. I'm Jeff Raskin from IR. Unfortunately, Gustavo, our CEO, could not make it today. He is recovering from a medical procedure and is expected back soon. Peter, our CFO, will take the whole presentation this time. Before that, let me remind you of the safe harbor regarding a forward-looking statement. It will not read out loud, but I assume you will have duly noted them. Also, as you may know by now, we are in the process of divesting our emerging market division, so these have been accounted for as asset held for sale and discontinued operations since 2022. When presenting continued operations, this consists solely of core markets. When we refer to total group, this also includes the discontinued emerging market division. So, Peter, with that, over to you.

Thank you, Joff. And good afternoon, everyone. Gustavo passes you his greetings. He regrets he can't join us to share the strong progress that we're making. And to kick off first, we are delighted to have announced the closure of the Mexican divestment on Tuesday. The regulatory process has been long, but €225 million of cash is now in the bank, giving us an immediate 25% reduction on our net debt. This allows us to pay back the €220 million term loan without delay. The total net receipts of the divestments is about €265 million, including the deferred payment of approximately €40 million, which we will receive within the next five years. Important to note, this is not an earn-out. It's linked to a receivable that Softies will have to collect for us and transfer once received. If not collected and transferred fully or partly within the next five years, the remaining amount will have to be paid by them. On the operational side, as you know, we have retained the Tijuana plant and the North America partner brand business, which form part of our core business and are key to our coast-to-coast manufacturing footprint that we now have in the US. While this is only one step in our portfolio transformation process, it's an important one. As this business represents half of the emerging markets scope, we are set to divest. We continue to make progress with the remaining emerging markets divestments, and we expect to tell you more in the coming updates. Turning now to the Q1 results on slide four. First, at the total group level, including the discontinued emerging markets division and so also Mexico, we have delivered a significant increase in our results in quarter 1-23, despite continued cost inflation. Revenue is 652 million, up 16% like for like compared to last year, driven by the impact of the positive pricing actions we took in 22 and continue to take in quarter one, together with overall stable volumes, which saw little more of a seasonal impact than quarter one last year. Total group EBITDA recovery was even stronger, more than doubling versus last year, and the margin at 8.5%, nearly doubled as well, growing by four percentage points year on year and one percentage point versus Q4. It is worth noting that the recovery of emerging markets was also important in this, with margin up more than five percentage points year on year to 7.3%. Net debt was largely stable at the end of the quarter prior to proceeds from the Mexican assets. The leverage ratio improved significantly, coming down from 6.4 times at the start of the quarter to 5.3 times at the end, thanks to the significant recovery of the adjusted EBITDA. Focusing on our continued core markets, revenue is up a similar 15% like-for-like to $446 million, and the adjusted EBITDA margin stepped up strongly to 9.1%. This represents an increase of close to four percentage points versus Q1 last year and 0.4 percentage point versus Q4, demonstrating the strong momentum on Texas recovery. More detail on this in the following slides. On slide five, let's now look at the year-on-year revenue bridge for core operations in quarter one. The 15% like-for-like revenue increase I was talking about was mainly driven by the impact of pricing. As we said before, with the massive increase in raw material and other input costs, pricing was and is an absolute necessity to rebuild profitability and our balance sheets. And this could never have been achieved just through cost savings. So here we see in the quarter the full impact of continued pricing actions. Around one quarter of the impact has been generated from the most recent pricing, taking effect in quarter one and three quarters of it over the course of the pricing we took over the course of last year. On the volume mix front, we are comparing to a strong quarter last year that was helped by forward buying in baby and femcare and anticipation of higher prices. This year's quarter one volume mix has been positively driven by continued strong growth in baby pants and in adult care, where we see an acceleration to 22% growth in the quarter. This was upset by a slightly slower U.S. market with inventory reduction in the lifestyle segments. The underlying trends remain favorable for our growth drivers, including in the U.S., where we are continuing to build our operations following the car route of Tijuana and the ramp up of the new plants in North Carolina. We also benefited from a small positive impact from Forex of 1%, mainly 3%. to the year-on-year appreciation of the US dollar and the Russian ruble, which offsets UK sterling. On slide six, the year-on-year bridge of adjusted EBITDA of our core markets shows how we nearly doubled adjusted EBITDA to 41 million euro, thanks to the following. First, improved focus on driving growth in products and channels that create better value, which has generated a 5 million mixed benefit. Second, operating cost reduction measures that continue to deliver consistent additional savings. The 60 million euro savings brings operating costs down by more than 4% year on year, as in 2022, with delivery across procurement, design to value, and manufacturing efficiency initiatives. Third, our pricing actions. In quarter one, pricing has delivered 58 million euro to adjusted EBITDA. This offsets the continuous increase in input cost inflation, notably €38 million of higher raw material prices and €17 million of higher operating costs, especially driven by fluff, energy and wage inflation, both in our operations and at our suppliers. The increasing year-on-year cost reflects the cost inflation we saw throughout last year, but also a further increase versus Q4, more specifically on certain raw materials, energy, and wages. Importantly, this is the first quarter where the benefits from pricing have offset the impact of inflation on a year-on-year basis. However, while we are making good progress against cost inflation, pricing has not offset the full hike of inflation that started in 2021. You can see that in the table on the right-hand side of the slide. The net impact of pricing and cost inflation since 2021 remains in negative territory, so we're not there yet. SG&A costs were up slightly with inflation, but remained firmly below 10% of sales. The Forex impact was negative as the positive impact on revenue was more than offset by the US dollar impact on raw materials. So turning to the momentum of the EBITDA turnaround on slide seven. On this slide, you see in the blue bars the evolution of adjusted EBITDA with core markets in dark blue and the emerging markets in the light blue above that. As of the second half of last year, you can see the steady recovery in adjusted EBITDA since the low point in the first half that was hit hard by the unprecedented cost inflation. The adjusted EBITDA progress in quarter 1.23 confirms the recovery process we set in motion, both for core and emerging markets. On the margins, that's the orange lines, you can see core markets on top at 9.1%, steadily improving quarter over quarter since Q2 last year. In light orange at the bottom, you can see emerging markets where cost inflation hit earlier, but also where price implementation could be implemented faster. The margin has been steadily improving here since the start of 2022. So across divisions, we have been recovering over the last three quarters as we continue to generate cost savings to drive our margins up and caught up on the additional inflation with gradual pricing. But we're not yet at our historic margin levels, and we strongly believe we can do better. And this picture also illustrates that further potential. So turning now to our financial structure on slide eight. This slide illustrates the net debt and leverage ratio evolution of the total group. The strong increase in EBITDA in the last quarters has been the driving factor in the reduction of the leverage. That's the orange line. From its peak at the end of September of 7.7 times down to 5.3 times end March. And we are on track to meet covenant tests in June. At the same time, net debt has been remaining largely stable at €880 million, as shown in the green bars on the charts, on the following moving parts, starting from a strong EBITDA, including €10 million restructuring costs, of which half is cash. And our Q1 CAPEX was slightly above 3% of revenue, going up, as we indicated before, ensuring we capture future growth and make our manufacturing operations more efficient. Working capital in Q1 increased slightly, impacted by higher input costs versus the end of 2022. And we paid slightly higher interest rates on the floating part of our debts. And remember that the semi-annual bond coupon for about 10 million Euro falls in quarter one and quarter three, so not Q2 and Q4. So this brings me to the positive impact of the Mexican divestment on our overall debt profile. On the next slide, nine. The proceeds from the Mexican divestment will obviously reduce net financial debt immediately by about €225 million and €265 million over time, as I said earlier. The positive impact on the leverage ratio will be more limited, as the divestment also includes an EBITDA reduction. As I said earlier, the proceeds from the divestment will be used to pay back the €220 million term loan. That means that pro forma, the majority of our gross debt, about 75%, excluding the leases, will now be in the bonds we issued back in 2021 with a fixed rate coupon of 3.5%. A very sound situation to be in, given the current volatility in financial markets and interest rates. The remainder consists of the utilized portion of our revolving credit facility and some local debt. And only that revolving credit facility will be carrying leveraged governance going forward. So to conclude, a key important step forward in our financial profile. And important to note, of course, that further deleveraging remains a core priority for Antec Centrally. So turning now to our outlook on the next page. With still a volatile macroeconomic environment and Strengthened by a good start of 2023, we confirm our outlook with revenue of our core markets to grow high single digits like for like. Adjusted EBITDA margin of the core to improve from 6.2% in 22 to around 9% in 23, with a higher cost base to be offset by cost reduction measures and pricing as seen in the first quarter. Note that the cost base might still increase further in Q2 as we still partly benefited in Q1 of inventory from before. While there could be potential for less tension on selected raw material prices in the rest of the year, be aware that this would only impact P&L with up to two quarters lack. On emerging markets, excluding the Mexican business as of now, we expect these to continue to contribute positively to EBITDA and free cash flow while we continue to work on their divestments. Including these elements, we expect the leverage ratio of the total group to come down by year end to below four times. So, in closing my presentation on these encouraging set of first quarter results, we are very pleased to report that the recovery of OMTEX is firmly underway. We've also passed an important milestone with the closing of the Mexican divestment, improving the balance sheets, and we continue with the other defined emerging market divestments. In short, the EBITDA recovery and reduced net debt gives us more space and allows more focus on accelerating our turnaround strategy, drive cost transformation to a drastic reduction in complexity, driving growth, profitability, and strong cash generation. I am now available to answer your questions you might have.

Now, before going over to Q&A, can I ask you for practical reasons to limit yourself to two questions only, please, and come back at the end of the queue if there is need for more. Operator, over to you.