Ontex Group Nv Ord

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

Thanks, Geoff. While market conditions have not been supportive in 2025 so far, our ongoing transformation journey continues to structurally improve our competitive position in the market. You can see the benefits of this in the quarter-on-quarter results, where we turn the sequential growth. Our revenue in quarter three is up 4% compared to quarter two, driven by volumes from new contract wins in a continuous soft market environment. Our EBITDA margin improved by 3% points, thanks to the revenue growth and net cost improvement, including continued delivery on our cost transformation program. And meanwhile, our leverage remained at 2.7 over the quarter. The soft market environment on the first half of the year did continue in the third quarter. Therefore, our results are still lower compared to last year. Let me pass you over to here, for a more detailed financial analysis.

Thanks a lot, Gustavo. On this slide, you will find the different components that contributed to the 5% year-on-year decrease of revenue in Q3 to reach €445 million in the quarter. The price and mix impact was almost nil and contains a limited price investment and a small positive mix contribution. Since mid-last year, prices were rather stable, leading to a neutral year-on-year impact. The lower revenue is explained by lower volumes, as in the previous quartets. The drop amounted to 4% and is in line with the construction of the consumer demand in private label in Europe and North America. In adult care, we're growing by high single digits in the retail channel and we're ramping up capacity, including the healthcare channel, where Ontex has a high exposure and demand is more stable. Overall growth in adult care was 1%. In feminine care, we performed strongly, with a volume growth of 5%. And baby care volumes were down 11%, as demand continued to be soft in private label, partly as promotional activities of A brands continued in certain countries. In North America, this was exacerbated by a decline in contract manufacturing. Positive was the startup of new contracts in North America and in Europe, albeit that some started a bit later in the quarter than originally expected. We also recorded a 1% negative impact from Forex, caused by the depreciation of the British Pound, Australian Dollar, and especially the US Dollar. What this means on a quarter-on-quarter basis can be seen on the next slide. In the first two quarters, we have experienced sequential revenue declines by 5% each, but we are now turning the curve in quarter three, with 4% sequential growth, including a positive price-mix contribution. Volumes dropped in the first quarter mainly due to soft consumer demand and in the second quarter they came down further as on top some customers decreased inventories and on-takes faced some supply chain disruptions, amongst others due to the outage in our Segovia plant. Although the market remains very soft in the third quarter, customer destocking is over and capacity constraints are being solved. Moreover, we gained new contracts that mostly started up at the end of the quarter. Forex had a positive contribution in the first quarter and turned negative afterwards, mainly due to the depreciation of the US dollar. Now let's move to the adjusted EBITDA on the next slide. On the year-on-year bridge, we find the building blocks which led to the adjusted EBITDA of €51 million. The revenue decrease had a €6 million negative impact, which is a main explanation for the year-on-year adjusted EBITDA drop. As our cost transformation journey continues, net savings for an amount of €16 million in the quarter fully offset cost increases. Contributions came from optimizations in innovation, purchasing, supply chain and manufacturing, including the contribution from the ongoing Belgian footprint transformation. Raw material costs were still up year on year, mainly for fluff and packaging materials, albeit less than in Q2. Actual prices for raw materials have started to stabilize after the peak, but still remain high, higher than the level of last year. Other operating costs were up, largely due to inflation of salaries, logistics and other services. Furthermore, there are still some supply chain inefficiencies, which, however, are declining. Also, the increase in operating costs is partly offset by lower SG&A costs, which have been adapted to the lower volume level. The margin amounted to 11.4%, while this represents a 0.6 percentage point decrease versus last year. It's a 3% point improvement versus Q2. More on the quarter-on-quarter comparison can be found on the next slide. We experienced two quarters of sequential adjusted ABDA decrease, especially in the second quarter. But in Q3, we have been turning the tides from Q2 from the Q2 low point to return to the Q1 level. You can first notice the impact of the revenue evolution, which I described earlier. It is important to see that we have already recovered in the third quarter about 75% of the negative impact of the first half of the year. Net costs started to ease in Q3 versus Q2. Stabilization of raw material costs and improved supply chain efficiency allowed our continued cost transformation efforts and SG&A streamlining to flow through. Before I pass the word to Gustavo, let's cover first the leverage and net debt on the next slide. With solid EBITDA delivery, no material restructuring cash outs, and managing the cap expense, we produced positive free cash flow in the quarter. Net debt for the group thereby reduced by €9 million to €543 billion, maintaining a solid liquidity position. The leverage ratio remained stable at 2.7 times as the lower net debt was offset by slightly lower adjusted EBITDA in the last 12 months. Gustavo will now give more insight into our expectations to further improve revenue and EBITDA in Q4.

Thanks Geert for this detailed analysis. I want to start saying in July, we have talked about the several adverse factors that affected our results in the H1. And I shared what we should expect to improve in the second half of the year. So what happened so far? Quarter 3 price is stable. Negative price carryover has stopped. New contract wins have started in North America and in Europe. Customer stocking is over. New capacity in high-growth product categories has come on stream. The Segovia plant outage, as well as the packaging material shortage, are over. The temporary measures to mitigate the U.S. tariffs have phased out. And finally, raw material prices stabilize. The second half of the year has started largely as expected. And we expect this to be reflected further in the fourth quarter, as we can see on the next slide. Looking at revenue first, on the left in dark blue, we have had 4% sequential growth in quarter three, with positive price mix, and especially thanks to volume with the new contract wins kicking in at the end of the quarter. Our current projections indicate that 5% growth in Quarter 4 is realistic, based mostly on volume from the new contract wins. On the right side, in light blue, we have the quarter-on-quarter evolution of adjusted debita. In Quarter 3, we grew by €15 million, thanks to higher revenue and improving net cost. In Quarter 4, we expect costs to improve further sequentially. with further raw material price stabilization and further operating and SG&A cost optimization. Combined with the positive impact of volume-driven revenue growth, we project a sequential increase in EBITDA at least 30 million euros. As a result, we keep our expectations for the year at the same level as in July, as shown on the next slide. Revenue for the year is expected down by low single-digit like-for-like and adjusted EBITDA in a range of 200 and 210 million euros. Solid EBITDA generation and working capital management efforts in quarter four will drive positive free cash flow further in the quarter and thereby bring the free cash flow for the year to break even. Combined with investments proceeds, This bring net debt down by year end and bring back the leverage ratio to about 2.5 times, which is the level at which we exited 2024. So let me finish saying, while we are turning the tide sequentially getting back to growth, we have continued to build on our foundations of our operations as stipulated in our strategic roadmap. resulting in non-techs becoming more strongly positioned for the future. With that, Geert and I are ready to take your questions.

Thank you, Gustavo and Geert. For the Q&A session, if you wish to ask a question, please dial the pound key followed by five to enter the queue. If you wish to withdraw your question, please dial the pound key followed by six. And please limit your questions to two at a time, please. The first question comes from Charles Eden from UBS. Charles, your line is open. Please go ahead.

Hi. Thanks for taking my question. I just wanted to dig a little bit deeper into the implied Q4 EBITDA, because I guess to get to the bottom end of the four-year guidance, that means you need to do at least 63 million of EBITDA in core markets in Q4. Could you just help us the building blocks there is it just that the phasing of the new contracts are not in the base in Q4 in Q3 so when we get to Q4 that comes in and that's the major delta are you baking in an improvement in the underlying markets in Europe and if so is there anything you're seeing to give you confidence in that and then linked to that when I think about 2026 is there anything one-off in that 63 million plus you're saying for Q4, or should we be saying that's the quarterly run rate to expect for 2026? And if so, that implies sort of 250 million of EBITDA. So if that's not the right way to think about it, could you help me bridge those factors? Thank you.

Charles, I take that question. So thanks for the two questions. First, on the Q4, if you look at the bridges we made, First of all, your calculation is right. To enter the low end of the EBITDA, we need about 63 million euro, which is 12 million extra from the quarter three. How do we think to achieve it? more than a bit more than half it's revenue related as you can see we expect about five percent at least extra revenue as compared to q3 this is mainly related to uh to the new contracts as we said those new contracts started only at the end of september as well contracts in europe but at the same time two big ones in north america that will have a full quarter impact that will be the main driver To a certain extent, also, we're expanding the capacity in adults, so that will also help us. And on the market itself, we're not assuming an improvement on the market. So if markets would improve in the last quarter, that could bring us some upside. Then the other half, but it's a bit less than half, it will be mainly cost-driven. On one hand, we said that raw material prices are stabilizing and the impact year-on-year is still negative. But quarter-on-quarter, we have a slight improvement again in Q4. And at the same time, we're also looking at our SG&A. Our activity level is lower, so we want to keep the SG&A at a level which is in line with that lower volume level. And then to translate it to next year, yeah, we're still working on the budget, so there's not much I can tell about that. But of course, the new contracts will be a very strong basis for next year. So that will be an important driver for the budget of next year.

Okay, thank you. So nothing one-off.

The cost savings in Q4 are permanent. There's not sort of you're phasing some costs into next year. I'm just trying to understand. There's nothing that you're calling out that would not suggest that 63 million can be a recurring level of profitability. Is that correct?

Yeah, there are no big one-offs, but at the same time, of course, we adjusted SG&A. It might be that we have to release it a bit more next year. So it's not that it's just copy-paste multiplied by four.

Understood. Thank you very much. Okay.

Thank you, Charles. The next question comes from Oussama Tariq. from ABN AMRO Odo BASF. Usama, the line is yours.

Hi. Good morning, team. Thank you for the opportunity. I just have two questions. Firstly, on pricing for Q4. So you indicate relatively stable pricing. Do you see some negative effects from promotional activity still in Q4? And do you expect that to have an impact on you in general terms Do you think you will be forced into cutting some prices if other brands do very strong promotional? And my second question would be, would you kindly also recall what is the restructuring cash out that you still have to do or expect in Q4 or in 2026? Thank you. That would be my two questions.

All right, Osama, thank you very much. I'm going to take the first question, and here I'm going to take the second one. On the pricing front, yes, pricing now is stable for us, and when we are talking about stable, it's always stable for us, and we are not expecting any changes in the quarter four in our front. You know, no expectation to change the pricing, our pricing. What can happen in the market is a competitive market at this moment, because when the market is in a soft mode, definitely there is more competition, but competition is not just on the pricing front. Competition is in promotions, and A brands are defending, for sure, defending their positions, and also competition from other private labels, maybe. But our contracts, they have a pricing already and we will continue with that pricing. There is no move for us depending on the market.

Okay, so I'm on the second question, non-recurring. Good news is that in Bruggenhout, which is the plant which we're completely upgrading, we're fully getting up to speed, so new machines have been installed. We expect to... a fully operational plant in a very new state, best of practice state, by the second quarter of 26. That means also that we will be getting the savings from that one, because it will be an important contributor for the cost transformation. Last quarter, because it also means that we have now the restructuring costs kicking in, Last quarter of this year, we're expecting a bit more than 5 million still as non-recurring. And for Q1, Q2 next year, it will be a bit more than 10 million related to that footprint in Belgium.

And more than 10 million, I understand, is per quarter, or is it 10 million in total?

No, no, no, in total, in total. For next year. For next year. And the last quarter of this year, 5 million, 10 million for next year. And if you add up all the amounts that we already reported in the past, you're in line with the provision that we made last year because we had a P&L provision for it. So it's a cash out on a provision that we made in our books.

Okay. Thank you so very much. Thank you. That will be all from me.

Thank you, Ousama. Our next speaker is from KBC Securities, Wim Hoster. Your line is open.

Good morning, everybody. Two questions for me, please. Can you elaborate on the contract book for next year? Are the new recently gained contracts by now fully started up or are the new contracts to be expected to contribute also into next year, if you can clarify that? And the second question would be on the contract manufacturing business. In the U.S., can you remind us how big that now is and how you expect that to further evolve in the next few quarters? Thank you.

Okay, Wim, thank you for your questions.

Contract wins, we do have contract wins this year. They kick in at the end, towards the end of the third quarter and will continue. And we continue for the entire 2026 and 2027 in some cases for sure. And we have won some, also some new contracts that are going to kick in next year. So they are not yet, you know, there is always a time when the tender happens, you win, and then you start supplying. So we're going to have very good news next year. But the good news has happened already with the contract win. So yes, we have in 2026 contracts coming. So our projections on gain and losses is positive throughout also 2026. Second question, you ask about contract manufacturing. And, you know, it's an interesting question because Years ago, contract manufacturing was the larger business that we had in US. And starting in 2023, we decided to put more strategic emphasis on retail brands, on private label segment. And we started to grow significantly our private label segment. While contract manufacturing, you know, is facing, more the soft market situation at the moment. So our contract manufacturing volume is declining as a result of the situation in the market, in general market. So contract manufacturing is a brand that we don't control at all, while in the private label sector with the retailers, we work together with the retailers on developing their private label for the baby care segment in this moment. We're growing significantly in the retail brand business, while contract manufacturing is declining at the moment.

OK, if I can just follow up on the first question. The contract wins you commented on for next year, are those in the US market or are those in Europe? Both.

Both. Both.

There are some contract wins this year for impacting in U.S. next year and contract wins, important contract wins in Europe impacting next year. Yeah.

Okay. Understood. Thank you. You're welcome.

Thank you, Wim. Our next question comes from Maxime Stranard from ING Bank. Maxime, your line is open.

Hi. Good morning, Gustavo and Gert. Two questions on my end as well. First of all, looking at adult care, where the growth is somewhat below what SCT has reported. So if you can elaborate a bit on the reason why the growth has trailed branded products in adult care and how you see this evolving in the future. Secondly, looking at Q4, especially in your guidance, Quick math on the bottom end would imply that your margin would jump by more than 200 basis points and then obviously to 13.5%, a level we haven't reached since the pandemic. So quite surprised about such guidance in terms of margin. So if you could elaborate on that and following up on Charles' question, is it a level we should see as sustainable in the long run? That would be all for me. Thank you.

All right, Maxime, thank you. On adult care growth, our adult care growth in retail brands is high single digit, which is, I would say that is higher than even what the market is growing. So we are very, very happy and pleased how we are performing there. And as we said before, more capacity in certain segments or categories uh, high growth categories are coming into stream. So, uh, w with good innovation. So we, we, we know that we are going to get, continue getting wins in the adult care segment in the retail brand. Then you have the healthcare sector for us, the channel healthcare channel, which is, is different because those contracts are much long-term is different. You know, the big tenders with the, normally with the government, or big companies in nursing homes. So those standards are long-term contracts. And sometimes happens that in one specific quarter, you can have one coming in and another one coming out. And maybe the quarter, you know, is not exactly. So we need to measure healthcare more, at least in a yearly basis, how we are doing. And the net result of the year is a positive result also for the healthcare business. So a repeat high single digit growth in the retail brand of adult care, which is higher than the market growth.

And then for the second question, Maxime, indeed, if you calculate back for Q4, based on the guidance, you arrive at about 13.5%. Of course, our margins, first of all, as you know, we are a very volume-driven company. So that means that the volume growth in Q4 and having a better absorption of our fixed costs will help us with our gross margins. So that explains the improvements. Now, your question also is, to what extent is that sustainable? Of course, there are several components. It's about raw material pricing. I was telling you also on the SG&A, currently we're curtailing the SG&A. We're also always, every quarter, we have to take positions on what are, for example, the rebates we expect to receive. So it's a combination of all those elements that will give us the 13.5%. So towards the future, I can say definitely a sustainable margin, which we think we can have in a sustainable way in the future, but it doesn't mean it's for the coming quarters that you can just same answer as before on the revenue that you can just multiply by four. That would be more a goal for the future. And it's now a positive combination of different components.

That's very clear. Thank you for the answers.

Thank you, Maxime. As a reminder, if you wish to ask a question, please dial the pound key followed by five. And our next question is from Carol from . Carol, your line should be open.

Yes, good morning. I have a question on the baby business and the capacity in Europe and that kind of relates to pricing because I think the market has been difficult for a while now and volume is about 10% down and you're probably not the only one suffering. How do you see this with regards to capacity utilization in your European platform? And how do you see price negotiations or new contracts into next year for the European baby business? And the second question is on the reduction SG&A in Q4. I don't completely understand why it should be down. You're landing a couple of new contracts that probably comes with more commercial efforts as well. So why would SG&A be down sequentially? Thank you.

All right, Carol, I'm going to take the first one. I believe that here is going to answer you the second question. On the, yeah, your point is very valid, right? Because the capacity installed in generally speaking, right, in the whole European market is now is getting high in some cases. So, but we should not also forget the transformation, right, of the baby care business. So baby diapers is going down more significantly, while baby pants, although now these past quarters slowed down the growth, but year on year it's been growing baby pants. So there is a moving, you know, move from baby diapers to baby pants. Also within baby diapers and baby pants and youth pants, there is a dynamic that is happening that is larger sizes. So there is a transformation between, you know, a movement, a more consumption in larger sizes. This is due to a trend that babies are using diapers for longer period of time. And I, you know, when we see each other next, I want to explain a little bit more, because there are very interesting insights regarding that happening. Because that trend is happening not just here, but also in the U.S. It's following something about also the aging of the couples of the parents. Interesting to know. But in our case in particular, we are renewing, as you hear from us, all the time that we are doing footprint work, footprint all the time investment in efficiencies. So we use this also momentum of more capacity or more free capacity in divers to do the adjustments where we need to do it, thinking in the future, thinking in the trends. You ask about if this excess capacity cannot impact in the next future contracts and pricing in baby care. I'm going to say that potentially, yes, if you just play in the very, very low end of the segment, definitely. We started some years ago, we started to invest significantly in innovation coupled with our partners or customers, retailer customers that partner with them in innovation. We're bringing a lot of innovation into the market, which it's very important to take into consideration that it's not just a price type of competition. Also, it's innovation, it's sustainability, it is customer service, it's quality assurance, all those things for which we as a company When I mentioned that we are working on our foundations to structurally change our foundations and be more efficient, all of that is included. And that gave us the competitiveness into the marketplace. So we are not just competing in the pricing. We need to be more efficient. Yes, definitely. But also innovative and have high customer service and quality assurance. And of course, the patents and the regulatory is also a very important subject. That's for baby care. Now, I'm going to leave here on the second question.

Gagel, on the question of the SG&A, first of all, to clarify, if you look to the quarter on quarter from Q3 to Q4, their SG&A is less an explanation because SG&A is already lower in Q3. The explanation from Q3 to Q4 in operating costs, it's more related to stabilization of raw material prices and gaining further efficiency now on the sgna itself if you look at sgna at the lower level in q3 and q4 looking at it and explaining a bit more on why sgna is lower for me there are three components First of all, important for you to understand, our SG&A, it's not that if we sell more contracts, we have more SG&A. Our SG&A, it's a rather fixed amount. All the sales teams, all the administration, it's in place. So that means it's a rather fixed cost. It doesn't mean, of course, that there are three ways to bring the SG&A down. It's first of all cost consciousness. It's about how we function, how much we travel in an organization, all that type of stuff. So we're in a very cost conscious mindset over the last months. because of the lower results, which is also logical that we do that. Second thing is, of course, we're looking extra to being a more efficient organization. How can we work more efficiently with the staff we have? So that's the second area. That's, of course, more sustainable towards the future. And then a third component, there's always a variable component, of course, in the SG&A, because part of the remuneration of management of sales, it's a variable remuneration, which is down because of the sales and the ABDA, which is down.

Okay, thank you.

All right, thank you. The next question comes from Marcus Schmidt from Adobe HF. Marcus, your line is open.

Yes, good morning. Actually, not good morning, good afternoon. Thanks for taking the question. I have one just on free cash flow guidance. So you had in Q3, 31 million is therefore left to meet the guidance. You expect apparently strong EBITDA in Q4 and you paid the cash interest on the bond already in July. You just mentioned that there will be some restructuring costs in Q4. This brings me to about 10 million of contribution from inventory releases in Q4. in Q4 to meet the guidance. Is this assumption about correct or do I do I miss something here?

Marcus, I love that you already give 90% of the answer because indeed the drivers of the better free cash flow in Q4 are EBITDA. It's indeed the high-yield bond coupon. The next one is only in January, so that's an important explanation. Non-recurring, there will be some non-recurring, but it's limited. And then the two other components is CAPEX. We are, of course, this year, because our result is less, we're not spending the full CAPEX that we intended to do without hampering the business, because I can tell you the key CAPEX, we need to build the capacity, for example, in adult care. Of course, that one continues. So we're also bringing down CAPEX. And the last element is like you say on the working capital. Now in the working capital there are always two elements. First of all at the end of the year you have the typical seasonal impact. Our inventories are always down in the Christmas period towards the end of the year because we produce less at that moment. So that's one of the components. Other component is You know that we have been talking in Q3 on inefficiencies. We solved a lot of inefficiencies in Q3, but having the full impact in Q4, and that's mainly on an inventory level, we believe we still have a step we will make in the short term on inventory. So your conclusion is quite correct.

Almost on target. Okay, great. Thank you very much.

Thank you, Markus. And then our last question comes from Karine Elias. Karine, the line is open.

Hi, thanks again for the call and taking my question. Sorry if you've covered that before, but just wondering if you can comment on the competitive environment. Are you seeing any changes with regards to the A brand's behavior on promotional activity?

That would be very helpful. Thank you.

So hi, Karina. Gustavo here.

The A brands, yes, are defending their volumes. And of course, as it was expected from our side. And that is in both regions where we are focusing on, in Europe and in US. But anyway, for them, also, it's important. The volume is important for every single company here. So, and in baby care in particular, that is a declining market at the moment. What we are expecting for the future is that we're expecting to continue competing. So private label, private label is an important, a very important business for the retailers. And we are not expecting that that is strategically changing the retailers. Retailers and I, we are all constantly working together on a continuously, you know, putting in place consumer-driven volume growth for their private label. So, yeah, we compete through to the A-brands, through the retail brands in hands-to-hand with them. So, yeah, it's going to be competitive. In other words, continue to be competitive.

That's very helpful. Thank you, and good luck.

Yeah, thank you. So there are no more questions, and thereby I hand you back over to Gustavo for your closing remarks.

All right. Thanks all for the questions and the interest and participating in the call. So perhaps I'm going to repeat something that I said earlier during the presentation. that while we are turning the tide sequentially and getting back to growth, we have continued to build our foundations of our operations as stipulated in our strategic roadmap, resulting in ONTIC becoming more strongly positioned for the future. So thank you again. Thank you very much, and see you next. Thank you. Thanks for joining today's call.

You may now disconnect. Good afternoon, everyone, and thank you for joining us today.