Ontex Group Nv Ord

Good afternoon, everyone, and thank you for joining us today. I'm Jeff Graskin from Investor Relations, and I'm pleased to have Gustavo, our CEO, and Geert Peters, our CFO, with us today to present the first quarter results. Before that, let me remind you of the safe harbor regarding forward-looking statements. I will not read them out loud, but I will assume you will have duly noted it. You are well aware that since 2012, Our P&L is based on continuing operations, which consists of our core market activities only. The emerging markets are reported as discontinued operations and widened the process of being gradually divested. These do still contribute to total debt and cash flow figures. Please note that we have slightly adjusted the definition of savings in our EBITDA bridge as to better reflect net savings, netting them with the implementation costs, whereas we previously reported growth savings. With that cleared up, Gustavo, over to you.

Thanks, Geoff, and hello, everyone. It is definitely good to start the year delivering a strong quarter one. This gives us confidence in the outlook we provided you in February and bring us further on our transformation path. Our results are summarized on the next slide. Let's continue expanding our business. 4% like-for-like revenue growth in the quarter. While last year our growth was largely price-driven, now it is based on volumes, especially North America being our main source of growth. And in Europe, we continue growing in selective categories such as adult care and baby banks, leveraging our competitive advantages. The adjusted dividend margin rose to 11.5%, 2.4 points higher than a year ago, and 1.1 higher than the previous quarter. Again, strong delivery of the cost information program was at the base, while we were managing prices in function of input cost and market dynamics. The strong EBITDA delivery in the quarter allowed to further reduce the net financial debt and increase the last 12 months adjusted EBITDA, which brought our leverage ratio to drop to 2.8 times. This is already below the three times we guided to be reached by year end. Our financial position is thereby continuously strengthening. Our delivery in Core 1 is largely the effect of our strategic roadmap that we are implementing starting 2023 and enabling value creation. Moving to next slide five now. As we have expressed multiple times, our vision is to be the number one trusted partner for our retail and healthcare customers. Our leadership position in Europe is well established in baby, feminine, and adult care categories, and we know it is not a given, so we need to work every day to nurture that. In North America, we are rapidly building this position, focusing first in baby care. To create value equity, We have identified three main drivers, and in each of these we have made further progress this quarter. First, by competitive and sustainable innovation, bringing value to our portfolio. We have rolled out new products like our new line of swimming pants and satin-sense tampons, among others. It feels good to also receive recognition to our efforts with the carbon disclosure project awarding us as an A- rating for leadership in climate change and B for forest disclosure, and thereby also listing us on the supplier engagement leaderboard. Awesome innovation will remind a leader and have now been listed for the second year in a row among top 10 applicants in Belgium. Second value driver, business expansion. With the biggest opportunity being in North America, where we envision a strong double-digit growth this year and beyond. The growth will come from existing and new customers, already delivering a strong quarter one. This will contribute more in the coming quarters as we are preparing for new launches in quarter two and quarter three of this year. And third, best-in-class operations. With further implementation of our cost transformation program, innovation, manufacturing, supply chain, and procurement, gradually transforming our European operations into a best-in-class. The operating cost base reduced by 5%, as we did in the last two years, enabling us to regain competitiveness. And finally, let's not forget that we have further progress on the portfolio refocusing with the finalization of the Algerian divestment early April. With that, I hand over to Geert for a more detailed analysis on our financial results. Thanks a lot, Gustavo, and also from my side, hello to everyone. Let me go into more detail in the elements that drove our results. Revenue grew 4% like for like in the first quarter of 2024, mostly driven by volume growth. Volumes grew strong double digits in North America, which currently focuses on baby care products. And as Gustavo explained, growth came from additional contracts secured in the second half of last year, and new contracts have kicked in this quarter and are ramping up. In Europe, adult care grew by 10% with retail brands gaining market share and on-tech strengthening its position. As to baby care, we noticed stronger competition from the A-brands trying to recover market share with promotional activities. We, however, managed to compensate declining diapers with double-digit growth in the selected category of baby pens. Pricing, and that in line with expectations, ended slightly lower than a year ago. Prices have been coming down since the second half of last year, subsequent to the raw material price decreases. As to Forex, we continue to have a slight adverse impact, bringing the total growth to 3%. Let's move to EBITDA on the next slide. We managed to increase the adjusted EBITDA by 30% year-on-year. Let's explain step-by-step. First, there's a slight positive impact from volume and mix, as I explained on the previous slide with the revenues. The most important driver, however, remains our structural cost transformation program, which continues to deliver important structural net savings, yet again 5% of operational costs. And as explained in Revenue Bridge, prices were slightly lower, reflecting the positive evolution of raw material indices. They came down sequentially last year, with year-on-year impact turning positive in the last quarter of 2023. We do not expect further raw material price improvements in the coming months. Operating costs continue to be impacted by inflation, but at a lower pace than last year. This includes energy costs and salaries primarily. The latter also mainly explains why SG&A costs are up. On top, this SG&A includes the actualization and variable remuneration at the start of the year, which is actually more than enough in one quarter, and it's based on the solid performance of 23%. Finally, the Forex impact on EBITDA turned positive for the first time since a while. This is largely the effect of the US dollar which weakened in Q1, impacting positively our US dollar costs and this more than offsets the adverse revenue impact. And as Gustav already explained, the strong growth of the adjusted EBITDA led to a further margin increase to reach 11.5%. If you then take slide 9, you can see the quarter-on-quarter evolution of the adjusted EBDA. It has been improving since mid-2022, and this quarter is already the seventh consecutive sequential increase. That EBDA improvement has also been the main driver supporting the leverage reduction, as we can see on the next slide. The leverage ratio on this slide is presented as a bold orange line. and this has been continually coming down since September 22 and now drops below 3 to 2.8. The drivers of this balance sheet strengthening are as well the decreasing net debt as the increasing last 12 months EBITDA evolution. Presented as a blue line, the LTM adjusted EBITDA is growing significantly, already up to €229 million this quarter. On one hand, as explained before, this is driven by the strong adjusted EBITDA delivered by the continuing operations, but on the other hand, the emerging markets also contribute this quarter another €12 million. Therefore, the total group EBITDA in Q1 amounted to €65 million, taking into account also a minimum of non-recurring items. Presented as a green line, the net financial debt came down in the first quarter to 646 million euro. As to cash flow generation this quarter, working capital was slightly up with growth of the business, but capital expenditure spending was lower than expected due to phasing. We however still expect our investment levels to reach 6% of the core market's revenue for the whole year. Looking back on the graph, to the mid-2023 and I'm again at the green line, please be reminded that this was impacted by the proceeds of the Mexican divestment which pushed down the net debt. Moreover, the adjusted EBITDA was taken out from the scope of the LTM EBITDA. Since then, net financial debt has been relatively stable as we temporarily reinvest the cash flow in the transformation of the group to drive mid-term value creation. I will hand over back to Gustavo for the outlook. Thank you, Geert. What I'm pleased about the further progress, we all have it very clear that much is still to be done, and the ONTEX team is determined to do it. The delivery so far continues giving us confidence in reaching the outlook we gave earlier this year, as we confirm on the next slide, 12. We expect core markets to grow revenue by low single digits, like for like, in 2024. Adjusting the margin of our core markets is anticipated to step up from 10% in 2023 to between 11% and 12% this year, driven mostly by continuous delivery on our cost information program. Looking at the total group, we expect free cash flow to improve year on year, And this while stepping up investments to more than 6% of our core market's revenue. And finally, we expect our leverage ratio to drop from 3.3 times at the start of the year to below 3 times by end of year. With 2.8 times end of March already, we anticipate to do even better by year end. And with this, Gil and I are ready to answer your questions.

Thank you, sir. Ladies and gentlemen, if you wish to ask a question at this time, please signal by pressing star 1 on your telephone keypad. If you wish to cancel your request, please press star 2. And we can ask you to limit your questions, the number of questions, to 2. Thank you. We will now take our first question from Wim Hostet from KBCS. Please go ahead.

Yes, good morning. I have two questions, please. The first one would be on North America and the outlook there. Can you offer some clarity on how much of the new contracts you've recently signed have already contributed in in the first quarter and how much more is to come in in the second and the third quarter also how much clients you have if you can talk a little bit around that that's the the first question and the second one uh would be on the competitive environment uh in europe um You mentioned to see increased promotional activity from the A labels. Is that continuing also in Q2? Can you maybe also comment a bit on that? So those were the questions. Thank you. All right.

Thank you. Yeah, so in North America, this quarter, first quarter, 24, compares with the first quarter, 23. There is a change in the mix of customers in our portfolio and that is due that we have started to deliver to new customers that we didn't have last year. and continue delivery to the existing customers of last year. You asked about the proportions there. The majority is still in the existing customers that were existing before, but we just started to deliver on the first quarter on new customers. What I can say is that as the year progresses, we will continue delivering on those new customers of the first quarter. We are going to add new customers in the second quarter, and we're going to keep adding in the third quarter. So as much as we're progressing on increasing our capacity for supplying customers, that is what we are facing in ourselves as well. So the outlook is promising. That's regarding the first question. The second question, which is quite good, yes, it is very clear that the market in Europe has been highly competitive coming from the A labels, increasing their offering promotions starting from, I would say, November, December last year, very clear, and continue throughout Europe. the first quarter, and that, of course, that brings more competitive to the retailers' brands of our customers. But I would love to emphasize that we are side by side with our customers, working with them on bringing value to their retailers' brand and improve their competitiveness of their brand through our performance, through our innovation. And yeah, what we are expecting for the second quarter I don't know really, but we are expecting retail as a brand to be more competitive in the marketplace.

Okay, understood. Thank you. We will now take our next question from Charles Edden from UBS. Please go ahead.

Thanks for taking my questions again. I'll limit it to two. First one, we put two wrong core markets even at our margin, I guess already at the midpoint of the 11% to 12%. range for the full year, cost savings to progress through the year, should we not be seeing the top end of the guidance range as pretty much the base case here? And I guess if that's the case, is it a bit of prudence for not raising the guidance given we're still only three months through the year? Second question, and... I appreciate this may be a little bit premature, but you've leveraged now below three times for the first time in quite a while. Have you given any consideration to what level you'd want to see this drop to before you'd consider reintroducing an ordinary dividend? Or do you think that the sort of organic investments, CapEx, etc., to fund the North American expansion really is a priority over reinstating the ordinary dividend? Those are my two. Thank you.

Thanks, Charles. I will take the first question. So we are very, very pleased with the results of the first quarter, but we have to understand that it's a first quarter, so it's very early in the year. And although it could sound prudent with guidance, we want to confirm those. And when we are saying between 11 to 12, being in the first quarter in the middle of that range, It's very encouraging. So I would say let's be encouraged by the results and we have to continue working very, very hard. And that is what we want to do. We are not at this time of the year, we are not changing any of our guidelines. Hi, Charles. I take the second question on the leverage. I hope you're also encouraged by our leverage coming down. We're at 2.8 and definitely we go on. The purpose is to go definitely further down and even down below the 2.5. Currently you know that we're fully focused on our journey and the three year transformation plan we're executing with a lot of investment this year, but also next year. So there we have the focus, there we look at, and of course the purpose is to have value creation and to come to a much higher cash flow also in the coming years. So that's our focus now as a management. In one or two years, we can then see what this means as other opportunities and also dividends might be proposed at that moment, but it's not the focus we have at this moment.

Thank you very much and congrats on a strong quarter.

Thank you. Our next question comes from William Dennis from Bank of America. Please go ahead.

Thank you for taking my questions. I have two. Firstly, could you provide more detail on the drone status of the RCF, if you could, if you can? And then probably you've mentioned it already, but any clarification on drone material costs, expectations for the year? That would be all for me. Thank you. RCF.

I will take the question on the RCF, of course, William, but what exactly is your question on the RCF?

You provide the drone status as of now, as of the end of the quarter. Thank you.

Yeah, what is it? how much we took the consumption of the RCF. Yeah, you know, you can see the cash levels in our press release. So we're gradually repaying the RCF. We were slightly higher in cash, but it was mainly cut off So that means that our RCF, if you take our free cash flow, that gradually it will come down quarter to quarter with the repayments we are doing with the free cash flow. I don't have the exact figure of the RCF now that we took. It would be about €120 million, something like that.

Thank you.

On the Roma heroes, what we are expecting for the outlook, I can say that Roma heroes, there are some parts of the Roma heroes that are having a slight increase in the marketplace and some others are stable. But what we are seeing is that finally we are approaching a time where Roma heroes are Following more supply-demand curve than an inflation type of curve that we were experiencing a couple of years ago was very, very challenging. So now it's one of those when we are saying that we are stable Their variances depend on the supply-demand. Some of them could go a little bit up. Some of ours could go down. The important also is how we see our cross-information program. in which we work significantly with our procurement teams and R&D teams and to continue improving our position on the average package of those raw materials.

That's very clear. Thank you. You're welcome. And we will now take our last question from Marcus Schmidt from Oddo.

Please go ahead. Yes, thanks for taking the question. I have two. Firstly, could you please provide an update on your divestment process and if you think something could be announced in the next month, any updates would be helpful. And secondly, are there any plans to call a refinance at 2026 bond already? There should be some time, but your performance is quite sound now and maybe an advantage when you would come to the bond market and present your current credit story. So maybe any plans on that side. Thank you.

All right. I think the first question on the divestment process. So as I mentioned before, we already finished the divestment of Algeria. We are close and we are very close to finish the Pakistan. And we continue working on other strategic options for Brazil and Turkey as they are in that process. And of course, we will communicate as soon as we have any progress on those. We will communicate. At this point, we are working on those strategic options. Marcus, I will take the second question on the refinancing. As you know, the RCF expires at the end of 2025, the high-yield bonds mid-2026. So we feel still that we have plenty of time, just one year and a half before the RCF expiring. In the meantime, we're strengthening the results, we're strengthening the balance sheet. You have seen also that Standard & Poor's took the first step to take the negative outlook away. So we only hope that the rating agencies further acknowledge the improvements and can also reflect that in upgrades of the ratings. We also see the yields on our bond, which is becoming better and better. So that is the journey we're in. And we're, of course, exploring the options towards doing the refinancing in time. And we're very confident it will be successful.

Okay, thank you very much.

Thank you. And we have a question from Fernand de Boer from the group Peterkamp.

Please go ahead. Yes. Yes, good morning. Thank you for taking my questions. One question I have is on the operational leverage. You had very strong volume growth, volume mix, but your EBDA contribution of this mix of volume was only up one million. So that's my first question. And the second question, we have seen recently a very strong dollar. where in the EBDA bridge, actually the dollar impact of the Forex impact was positive. So with your current hedging, what could we expect in the remainder of the year? Those are my two main questions.

I'll take the first question. On the volume mix impact on the EBDA, $1 million. It is regarding the portfolio mixing as a total. While we are growing significantly in volumes in North America, we are bringing our scale up in that business. and improving our margins while we are building the scale is an investment period of time. And therefore, that mix of geographic mix is what you see that is a lower impact in the EBITDA. But as we are giving you different guidance What I'm saying is that while we're building that scale in the U.S., at the same time we are making it more profitable, that business, as you can imagine. So it is highly promising for the following quarters.

I'm sorry, I'm still puzzled on that because you have a higher EBDA contribution in the U.S., but the volume decline in Europe is then causing that the balance is only one million. That's the way I have to look at this, because it's our absolute figures. It's not to do with margins.

I can try to explain it in my words. Of course, the margins, as you know, in the U.S. are currently lower than in Europe because of our economies of scale. We did not scale up sufficiently, so that means it's still coming. You heard Gustavo on new contracts yesterday. Ramping up in Q2, Q3, also the existing ones are not at full speed. So that gives us, of course, a country mix impact currently, so that we have only a limited impact. But throughout the coming months and quarters, that margin will come up by building the economies of scale. And then your second question on the forex impact of the US dollar. We checked again. In the end, if you look to the US dollar in quarter one, the movement was limited also. It became a bit stronger last month, but it's very limited. Currently, with all the forecasts, we're always updating to see where we are, and we see with the hedging we have the impact towards the end of the year with the current rates is not meaningful.

Maybe one follow-up question, if I may. You mentioned also that the cost of OPEX went up because of the remuneration, where you now have to account for you have quite some shares for the long-term incentive plan. Does it mean that with every euro share price, we have to take into account around 4 million cost increase on that side? How does that mechanism work?

No, there's no impact. So I think you're referring, Fernand, to the SG&A, which was higher. Yeah, and where you actually did also the account for... a runoff related to the provisions we had on the 23 bonuses and the actual payouts, because it was a great year last year, and that's the main impact. So it's short on impact. You will not have any more in Q2, Q3. Thank you.

Okay. Thank you. Thank you, and there are currently no further questions at this time. With this, I'd like to hand the call back over to our speakers for any closing remarks.

Okay, so we delivered a strong start of the year. We finalized Algerian divestments, allowing us to focus more on our core markets. We rolled out new products and grew volumes by strong double-digit growth in North America. and our cost information program has delivered structural savings yet again. Our achievement so far and the dedication of the OnTech teams gives me confidence to make further way on our strategic journey to be the number one trusted partner of our retail and healthcare customers. So thank you very much for your participation and have a great weekend.