Ontex Group Nv Ord

And welcome, everyone, for joining us today. I'm Jeff Ruskin from Investor Relations, and I'm pleased to have with me Gustavo, our CEO, and Peter, our CFO, to present our first half and second quarter results. Before that, let me remind you of the safe harbor regarding forward-looking statements. I'm not going to read them out loud, but I assume you will have duly noted them. Gustavo, over to you.

Thank you, Geoff. Good afternoon, everyone. I'm very pleased to report the continuous turnaround being delivered since mid-2022. We have continued to grow our top line over the past year, delivering healthy volumes and positive pricing. This improved activity has allowed us to drive the structural cost savings in a meaningful way. The full extent of the turnaround momentum is shown by the profit from continued operations, this one from a loss in the first half of 2022, to a profit of 2 million this year. We also ended cash burn from last year, generating 4 million in cash in H1. I would like to thank all our teams for their efforts, dedication, and hard work. Now moving on to page 4, we have delivered a strong 50% like-for-like revenue growth, bringing the first half total revenue to 1.2 billion euros. Our EBITDA margin more than doubled year-on-year to 8.7%, bringing adjusted EBITDA for the total group to €107 million. This includes a €23 million contribution from discontinued emerging markets, whose margin almost tripled to 6.7% in the first half. We have reduced our net debt by 24% over the period, and the EBITDA improvement dropped leverage down to 4.5 times, a strong improvement by 2 points, tracking towards our objective to be below 3. Since the finalization of the sales of Mexico to Softis, we have now divested half of our emerging markets, and we are making good progress on the other divestments as well. Therefore, continued operations of core markets represents more than 80% of our total business now. So, let's look at its performance in the first half in more detail. As you see on slide five, we delivered 15% year-on-year growth in core markets as well, maintaining the momentum we delivered at the end of last year. Volumes were overall stable in an overall software market environment, showing resilience of on-text positions. Within a European decreased total market demand, retail brands keep on gaining volume and value share, while on-tech keeps the retail brand market growth in Europe. In North America, within a declining demand as well, branded business is doing relatively better versus retail brands. On-tech's volumes are down versus a year ago, but more specifically linked to customer stocking in lifestyle brands. especially in the first quarter. Important to note, North America, although still a small part of our portfolio, represents a significant growth opportunity for us, and our new management in place are making strong progress on our growth ambitions. On top of the overall resilient volumes, our mix is improving by stronger sales in selective product categories where we can make a difference, including adult care in continence, That allows us to grow revenue, but has an even stronger effect in EBITDA. Pricing was the main revenue driver, of course, responsible for 14% of the growth, resulting largely from the successful pricing initiative rolled out during 2022. Additional pricing has continued at the beginning of this year, especially in certain healthcare contracts, as it took more time to implement. These price increases were needed to offset the commodity inflation and which is still increased sequentially in the first half. While pricing has covered the additional inflation incurred over the past 12 months, it has not been sufficient to offset the commodity inflation since 2021. As commodity prices are gradually turning as well, pricing actions will be very selective. Moving to slide six now, our cost reduction initiatives have accelerated during the first half. In the green bars, you can see the gross delivery every quarter, which has increased from some 25 million euros in the first half of 2022 to 35 million this year, representing a 40% increase in cost savings. This is the result of the strict application of cost efficiency measures, which we have implemented. The effective output from our machines continues to improve, and scrap rate has been reduced compared to the 22 levels. While our cost-saving plans required some additional inventory buffer, service levels improved by close to 3% points, which has been very beneficial impact in our distribution costs. The orange line on the top shows the gross cost savings impact on the cost base. And while reaching the highest ever percentage of 5.6, we are highly committed to unleash all opportunities in this area in order to achieve our competitive aspirations. Revenue growth and cost reduction measures resulted in a strong recovery of EBITDA as shown in slide 7. We have delivered consistent sequential improvement over the last four quarters in both Absolute adjusted EBITDA and adjusted EBITDA margin. The adjusted EBITDA for this first half year was €84 million, 2.1 times the EBITDA of a year ago. This was driven by the mixed improvement and the cost reduction delivery. The pricing was crucial to offset the continued additional cost inflation compared to a year ago, but as I explained before, it has not been sufficient to recover the cost inflation incurred since 2021. This can be seen in the EBITDA margin. While we are making good progress with our efforts to consistently rebuild the margin, we are still some way off the level we aspire to be at. To get there, we will maintain relentless focus on the execution of our strategy, optimizing business, targeted growth in those selected product categories and geographies where we make a difference, and discipline on our expenses. As well as they all know, the recovery in operating profitability and margins is absolutely key to improving our financial structure and making our balance sheet healthier as can be seen on slide eight. The leverage in the orange line has come down consistently from close to the eight times peak in September last year to a standard 4.5 times at the end of H1. The net financial debt of the total group in the green bars has been reduced by 24% since the start of the year, thanks to the cash proceeds from the Mexican divestments. Our expectation is to bring leverage down further to below 3.75 times by the end of the year, and further improve our balance sheet beyond that. With that, let me hand over to Peter for a more detailed financial review.

Thank you, Gustavo, and good afternoon to all. Let me dive into the different moving parts of the P&L and the cash flow now. On slide 10, you can see the year-on-year revenue bridge for core operations in the second quarter, shown on top, and the first half, shown below. Both show consistent 15% like-for-like growth. This was mainly driven by pricing, 13% in the second quarter, 14% year-to-date. And while the increase largely comes from the pricing actions in 2022, we have implemented further pricing in the first and second quarter of this year. In a softer overall market, OnTex's volume mix is up 1% for H1 and 2% for quarter 2, comparing to a strong first half last year. Gustavo already explained that we're outperforming both the overall and retail brand market in Europe. And in North America, customer destocking was more pronounced, especially in the first quarter, but still impacting the beginning of the second quarter as well. This year's revenue growth has been positively driven by continued strong growth in priority product categories in adult confidence, especially in healthcare and in banks. Note that we also see some Forex headwinds. with the year-on-year depreciation of the British pounds and the Australian dollar in the first half, and also the US dollar and Russian ruble in the second quarter. On slide 11, you can see the year-on-year bridge of adjusted EBITDA of our core markets, the second quarter on top, the first quarter at the bottom. Both of these show that we more than doubled the adjusted EBITDA. This was entirely driven by volume mix and the cost-saving measures, as you can see from the orange circle box. As we talked in earlier result calls, one of our priorities is to focus on driving growth in products and channels that create better value. And that positive mix effect led to respectively 2 and 7 million euro EBITDA contribution in Q2 and H1. Another priority is to accelerate operating cost reduction measures, and they deliver 20 and 35 million euro in quarter two and half year one, respectively. Acquiring actions allow to offset inflation and adverse forex, as seen in the yellow boxes. But as said before, while these offset the year-on-year increase, so versus 2022, it does not cover yet the inflation incurred since the beginning of the inflation wave in 2021. Therefore, continuing our margin recovery momentum is a key priority. Raw material and other operating costs were up versus the end of last year, with inflation year-on-year adding 16% in the first quarter and 11% in the second. While some raw material prices are coming down, some others, like fluff and sub, are still up. And although logistics costs are also reducing, wage inflation impacts costs gradually, directly in our operations and indirectly through services or purchase goods. All in all, there is no meaningful sequential commodity cost increase from the first quarter to the second quarter, leading us to believe that we have reached the peak. SG&A was slightly up with wage inflation, but remains at 9% of revenue thanks to strict cost control, and despite the absorption of corporate costs previously allocated to the divested businesses. And the Forex impact on EBITDA was negative due to adverse Forex impact of revenue. And this was in the first quarter further impacted by the appreciation of the dollar, which for us impacts costs more than revenue. Now moving below the adjusted EBITDA line for the first half on slide 12. In the middle of the table, you see that profit from continued operations strongly improved and turned positive to €2 million versus €100 million negative last year. Depreciation was up with investments in growth. EBITDA adjustments contains €13 million of mostly restructuring costs to further optimize our business in Europe. And the number of last year includes large impairments we took at that time. Financial costs were up, reflecting the rate increase for the floating part of our debt, as well as some bank costs related to the refinancing. So with all of that, EPS of continuing operations returned to positive territory, strongly improving versus the previous half years. The negative profit on discontinued operations is mainly driven by impairments. We took on some of our Middle Eastern assets, divestment costs, and impact of hyperinflation. And that offsets the 23 million positive EBITDA from these emerging markets. Turning to cash on slide 13. We turned to positive free cash flow thanks to more than doubling our adjusted EBITDA in both continuing and discontinued operations. In continuing operations, we generated 84 million, as I just discussed. But we certainly also step changed discontinued operations where we generated 23 million, as you can see in the light blue bar to the left of the chart. This represents a very strong recovery compared to the first half of last year where margins have improved from 2.6 to 6.7% and positive cash generation. While the majority of EBITDA is still from the Mexican business, the majority of the improvement is coming from our emerging markets outside Mexico. which were loss-making in 2022. And that improvement will continue. Our EBITDA margins are not yet where we are targeting them to be, so driving those will further improve our cash generation, of course. But we have now progressed to a level of operational cash generation that allows us to fund a ramp-up of investments into our transformation. We are increasing our CapEx investments in growth and cost savings at €44 million in H1. And that's a strong increase from 2.3% of revenue a year ago to 3.6% this half year. We indicated before that we would increase the base in the framework of our strategic transformation. And this will bring the cutbacks back to around 4% for the year. Next to that, we also invested 14 million euro in restructuring projects to reset our cost structure. Working capital needs were up. as a reflection of the impact of the further inflation and pricing on inventories and receivables. And we also saw a slight increase of inventory days. There's always a bit of a push and pull between service levels and stock levels, but this temporary effect will turn into an opportunity as the ongoing simplification and complexity reduction will allow to bring inventory days down again over time. Nets, still work to do. But we have made significant progress on our free cash flow, turning back to positive, coming from 59 million negative in H1 last year. This brings us to debts on slide 14. On the left, you can see that our net debt reduced by 24% over the first half of 2023, thanks to the proceeds of the Mexican divestment that was used to pay back our term loan. There were 33 million costs related to financing, 26 million of net interest cash outs, which increased with the higher interest rates, and 7 million other financing costs related to hedging and capital transaction costs. This brought the net financial debt to 658 million euro. And as already explained by Gustavo, the leverage ratio thereby came down from 7.7 times at the peak in Q3 last year to 4.5 times now. Turning to the gross debt on the right of the chart, when we exclude the leases, 80% of our gross debt is covered now by our bonds, with a fixed rate coupon of 3.5% and maturing in mid-2026. A very sound situation to be in, considering the current volatility in financial markets and interest rates. The remainder of that gross debt essentially consists of the utilized portion of our revolving credit facility. at 160 million at the same level as we had at the start of the year, for which we have recently extended the majority. So, this RCF is now the only portion of our debt that really holds maintenance governance, and this facility has been renegotiated in quarter two, resulting in an extension of the term to end 2025 and allowing some more margin on the governance thresholds. We have more work to do in our journey. But the repayment of the term loan, the extension of the revolving credit facility, the strongly improving leverage ratio, and the free cash turning positive are major steps forward in improving our financial profile. And on that note, I'll hand back to Gustavo.