Ontex Group Nv Ord

Good afternoon, everyone, and thank you for joining us today. I'm Jeff Raskin from Investor Relations, and I'm pleased to have with us Gustavo, our CEO, to present the third quarter results. Before that, let me remind you of the safe harbor regarding forward-looking statements, which I will not read out loud, but which I assume you will have duly noted. Gustavo, over to you.

Thank you. Thank you, Geoff. Good afternoon, everyone. I'm here on my own, but I'm relieved that next time I will be accompanied by our new CFO, Gil Peters, who will join us in December, as you most likely have read in yesterday's press release. Meanwhile, I'm very pleased to report our quarter three figures, demonstrating continued improvement in our operations and confirming the turnaround of the company's performance and improved financial structure. Moving now to slide four is the summary of our main achievements. In our core markets, we delivered 10% like-for-like revenue growth, delivering an adjusted EBITDA margin of 9.5%, a full percentage points increase compared to the third quarter of 2022, strengthening the year-to-date performance of 9.4%, driven by sustained prices and operational efficiencies, where our cost transformation program continues delivering cost savings. The strong EBITDA generation, including also a strong contribution from our work of discontinued emerging markets, drove our group leverage down to 3.6 times, less than half the peak of 7.7 times we recorded exactly a year ago. Moving now to slide five, providing details of the revenue of our core markets evolution from quarter three last year to this year. Volumes grew by 3% this quarter in both business units, Europe and North America. In Europe, retail brands continue to gain share. The main driver this time was adult care where we see more market demand for retail brands. On-text sales benefited from this trend by continuing to grow volumes in priority categories, where we can differentiate more from the competition. The growth was most pronounced in adult care and baby pants. In North America, which constitutes our biggest growth opportunity, we are reconnecting with double digit growth again. The de-stocking of lifestyle brands customers in the first half is over. And more importantly, our new leadership teams initiative are starting to delivering new business for Ontex North America, seeing the result of new retail brand contracts wins. Prices were up 8% overall. While these are largely based on the pricing gradually implemented throughout last year, we're managing them closely, resulting in sustaining the price level of the first half of the year. Finally, we recorded a 5% adverse forex impact. Now on slide six, we are comparing our quarter three core adjusted EBITDA versus last year with a strong increase of 81%, reaching 44 million euro driven by volume growth and continued cost transformation program contributing with 20 million euro and our pricing momentum supported by our goal to provide our customers with value through product innovation. Cost inflation continues to have a negative impact by 12 million euro, but it has reduced significantly compared to the impact on the previous quarters. Raw material prices decreases versus the start of the year as indices came down. Year on year, however, the raw material cost is still higher by 5 million euro. The impact of index changes takes some time to feed through the P&L, and these indices are only a part of the price equation, being also subject to other cost factors, as is the case for our own operating costs, which were up by 7 million, reflecting wage inflation and energy costs, among others. Forex had a highly negative impact of €21 million on the result. Even though these external elements were significant, similarly to last quarter, they are almost fully offset by pricing, contributing €33 million. But as you know, these do not cover the full inflation we observed since the beginning of the inflation spike starting in 2021. On slide seven, You can see the evolution of our core adjusted EBITDA by quarters since 2022. Since mid-2022 now, four or five consecutive quarters, we have been growing our core adjusted EBITDA, recovering gradually but steadily from the cost inflation spike. Our delivery so far this year is double that of the last year. This is also reflected by the margin which has doubled compared to the first half of 2022 to more than 9% consistently this year, and in line with the high end of our initial guidance. The margin came down slightly in Q3 compared to Q2, and this is mainly due to some exceptional one-off energy costs in North America following the carving of the Tijuana operations. These costs are temporary and will have ended by 2024. Moving now on to slide eight, our cost information program is an important driver for the EBITDA improvement and critical pillar of our value creation model. The program was initiated towards the end of 2021. And in 2022, we deliver operating efficiencies in our core operations of close to 5%. And now in 2023, it's reaching levels above 5%. This is the result of the acceleration of our strategy execution with continuous improvement in all fronts, procurement, supply chain, manufacturing efficiencies like OEE, as well as from R&D on its new innovation program. On slide nine, you can see the evolution of the net debt and leverage of the whole group, including the contribution of our emerging markets division, which has been very strong in the quarter. We have meaningful reduced our net debt in the year so far, mostly with the divestment proceeds from the sale of the Mexican business receiving quarter two, which combined with a strong EBITDA from both our core and emerging markets, have significantly reduced our leverage ratio to 3.6 times at the end of September. This is less than half of the 7.7 times peak we recorded exactly a year ago, and the best level achieved since 2020. And we have the firm ambition to bring this farther down. Our working capital needs stabilized in the quarter, despite the still growing sales. we successfully managed to improve our cash conversion cycle efficiency, especially through inventory management. This created room for our capital investment program, now at the level above 4% of revenue in the quarter, increasing then consistently since quarter one. Our capital investment program is the enabler to our value creation plan. By strengthening our innovation pipeline, gradually expanding the capacity in North America to support our high growth ambitions as we continue to increase our market penetration and transforming our European operations to become the most efficient in Europe, boosting our competitiveness. The initial benefits are already visible in our results, and this gives me high confidence to continue to improve our EBITDA margin in line with our ambitions. Now moving to slide 10, we confirm our outlook for 2023. Revenue of core markets is still expected to grow high single digits like for like. The adjusted EBITDA margin of our core market is expected at the high end of our initial eight to 10 range. And quarter four is to deliver the strongest margin in the year, around 10. Emerging markets are expected to continue to contribute positively to our group EBITDA and free cash flow. We have already beaten our initial leverage outlook of four times set at the start of the year, as well as the new one of 3.75 times set in July. We now intended to improve further from the 3.6 times we realized in September. At the same time, We ensure our continuous investment level of close to 5% of revenue, which will allow us to continue to improve our margins as per our plans to create shareholder value. This to support our innovation program, new business development in North America, and more efficient operations through our cost transformation program. On the slide 11, to sum up, Our Q3 results and 2023 delivery so far have been very, very encouraging. They show that the turnaround strategy at Ontex is delivering in all fronts, growing revenues, improving margins, and overall profitability, and rebuilding our financial structure with significant reduced leverage. We continue the momentum on refocusing the portfolio After the investment of the Mexican business, we reached agreements on the small Algeria and Pakistan business, and the profitability recovery in Brazil and Turkey is promising trigger to relaunch their divestment process. The acceleration of our strategy is well underway, and the positive momentum motivates us all to continue with this journey as we still have much more to do. Finally, I would like to thank all Ontex employees for embracing the accelerated execution of our strategic plans. I would also like to thank all other stakeholders for the support and confidence they have shown in Ontex's ability to deliver its turnaround. I'm now available to answer your questions.

Now, before we move to Q&A, can I ask all participants to clearly state their name and company? and also try to limit yourself to two questions to keep it manageable. Thanks a lot. Operator, over to you.