Ontex Group Nv Unsp/Adr

Good afternoon, everyone, and thank you for joining us today. I'm Geoff Raskin from IR, and I'm pleased to have with us Laurent Nielly, our CEO, and Stephane Re, our new CFO, to present the results of the third quarter of 26 and an update on our strategic transformation. 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. With that cleared up, Laurent, over to you.

Thank you, Geoff. Good afternoon to everyone. Today we have reported the result of a challenging quarter and a further revision of our outlook. And we thought it was important to put this in the broader context of our transformation. So let me start with that. Last July, we articulated our direction, and in particular, four major strategic shifts to improve our performance and restore value creation. Together, They aim at increasing both volume growth, margin expansion, and better cash flow generation. Our Q3 results, if anything, just reinforce the need to execute the shift even more. And we're making progress on each of the strategic shifts. We provided some concrete examples in our press release this morning. I will not have time to go through all of them, but I just wanted to give you a bit more flavor on the important Focus to Value program. Focus to Value brings together several workstreams that ladder up to our 240 million euro savings target by the end of 2028, relative to the 2025 baseline. And this program delivered a solid 45 million euro year to date. I wanted to share a couple of the progress we're making in different workstreams. First, in manufacturing excellence. We're improving plant efficiency, including overall equipment effectiveness and scrap rate, while also adapting our production footprint. We're progressing well on what we had announced earlier this year on seizing manufacturing in Australia, which will be finalized in Q4, and on resizing the tampon plant in Germany. Second, on logistics and planning, we have completed the new end-to-end planning blueprint and are moving into implementation, including a new advanced planning system to go live in the course of 27. On complexity reduction, our current focus is on standardization of raw material, which will support procurement saving and lower inventory requirements. Here again, assessment has been completed and we started to implement. And the fourth work stream that we highlighted today is on streamlining our organization. We had shared in July a target of reduction of more than 20% in white collar position outside of manufacturing, of which Around one third has already been completed or in execution. As you can see, we are attacking many fronts and I'm proud of the energy and the resolve that our team are showing in finding new ways to drive efficiency and strengthen our competitiveness. I also wanted to highlight an important view on our business regarding financial performance because I believe it underpins our confidence in our recovery and improved future. Looking at our group overall, that does not do justice to our starting position. So if you split our total business by broad geographies, you'll find that our business in Europe, and for clarity, this excludes Russia, represents around three quarter of our total group. It is the home of our adult business and it's very encouraging that he has maintained a double-digit adjusted EBITDA margin over the first nine months of this year. While the overseas operations, which include, for instance, North America and Australia, remain a source of margin dilution. But our transformation addresses this exposure directly. And in addition, we're systematically reviewing every product and customer combination across all markets to continue to drive mix and to improve the robustness of our portfolio. This is why we're confident we have a strong enough core platform upon which to build our value creation model. But clearly, it was not enough to help us address what we need to say is a very challenging environment. And so our third quarter performance and our financial results were disappointing. I want to be clear about that, about what drove the shortfall. How we're responding and why it does not change our confidence in the direction we set out in July. Let me start with revenue that were broadly stable compared with the previous three quarters at 428 million euros. The decline of around 4% year-on-year reflects soft market demand and some contract exits we had anticipated. The decline in adjusted EBITDA, however, was greater than we expected. Raw material costs reached their highest level of the year, while pricing and cost saving benefits are taking longer to materialize than we had planned. Closing that gap is a clear management priority. Discipline clash management, however, allowed us to reduce net debt slightly, despite the weaker operating results. The decline in adjusted EBITDA pushed leverage up to 375 times at the end of September, while liquidity remained solid above 270 million euros. Stephane will discuss leverage and liquidity in more detail. Let me explain the factor driving our reporting performance. This chart should be familiar to the one that follows us quarter after quarter. On the left, it shows our quarterly revenue since the onset of 2025, and you can see that revenue has stabilized sequentially in 2016. On the right, the adjusted EBITDA, where you can see the pressure on profitability as we face an exceptional external environment. And after a broadly stable first half, Q3 took the full impact of the raw material price sharp increase. Let me go deeper into what drives raw material prices today. The chart shows the indices that drive our main raw material costs. The indices were sharply at the end of Q2. and that increase is what hits our Q3 cost. Although the indices have eased slightly since, they remain well above the start of the year and we actually continue to see volatility as a result of the ongoing Middle East crisis. Overall, raw material prices rose by about 10% on the third quarter compared to the start of the year and transportation costs increased by a similar percentage. with high diesel prices impacting us since March. This is why continued pricing together with mix and productivity remain absolutely essential. But before I comment further on our revised outlook for the year, let me turn to Stephane Re, who joined us as CFO mid-September. He will now take you through the detailed Q3 financial results and our financial position.

Thank you Laurent and good afternoon. This is my first result presentation without text. Let me briefly introduce myself. I have experience in fast-moving consumer goods where understanding customers and maintaining cost discipline are absolutely essential. I have also led transformation and cash focus programs in private equity-owned businesses. That experience has reinforced the importance of cash management and a realistic assessment of performance. My focus is on financial discipline and supporting the operational improvements. needed to restore sustainable returns. And I'm looking forward to contributing to Antec's transformation. Revenues. On this slide, you'll find, as usual, the revenue bridge from Q3 last year to this year. And as Laurent explained, revenue declined by around 4%, with volume down 5%. Let me break down that performance for you. Adult care volumes were stable overall. Continued growth in European health care, offset weaker sales in retail, We continue to see adult care as an important source of future growth, while recognizing the near-term softness in retail. Feminine care volumes fell by 12%, mainly reflecting the planned contract exits in North American contract manufacturing and other overseas markets. The large volume impact came from baby care, where volumes declined by 9%. Contract exits overseas and weaker diaper demand, mainly in Europe, were the main factors. At the same time, baby pounds continue to grow, especially in North America, thanks to the ramp up of previously secured contracts, providing an important positive within the category. The change in our product mix contributed to a positive price mix effect of around 1%. The pricing actions to recover inflation have not yet made a significant contribution, and passing higher costs through is taking longer than we anticipated in those categories, with weak demand and strong competition. We remain focused on securing debt recovery while managing our customers' relationship very carefully. Currency translation added approximately 0.5% to revenue, mainly reflecting the appreciation of the US dollars and the British pounds. Now, the stronger dollar works the other way on transactional cost exposure as part of our raw materials is dollar linked. And Laurent will come back to that in the outlook. Let me now explain how these developments affected adjusted EBITDA. So here you have the same bridge for adjusted EBITDA and you immediately see the 7 million negative effect of volumes not yet balanced by price increases. The net cost effect reduced adjusted EBITDA by a further 18 million. And Laurent explained the impact of higher raw material costs but other costs are up as well by about 10% year on year. Our savings offset the cost increase partially, i.e. by reducing the cost base by some 4%. The savings are making a real contribution. Focused to value, our program delivered €16 million in the quarter. Lower volumes nevertheless limit the benefit that we can realize in manufacturing, which is why both commercial recovery and productivity improvement remain important. In the SG&E environment, expenses were more than offset inflation and reduced absolute cost. And this demonstrates progress in the areas where we can directly control with further opportunities still to capture. Currency translation provided a small positive effect, but it was insufficient to change the overall picture. Taken together, adjusted EBITDA declined by 49% to 26 million. The margin fell by 5.3 percentage point to 6.1%. And these results show the size of the gap we need to close to pricing, savings, and sustained cost improvement. I will now turn to net debt, leverage, and liquidity. Preserving liquidity is a central management priority for us. At the same time, the lowered last 12 months adjusted EBITDA is putting pressure on leverage. So we need to manage cash and carbon headroom very closely. We reduced net debt slightly despite the lower results. Working capital inflows helped, including improved payment terms under our Focus to Value program. We manage our capital expenses much more carefully, taking into account demand and the timing of our investment requirements. Leverage nevertheless increased to 3.75 times at the end of September because the last 12 months adjusted data declined. The revolving crate facility tests leveraged at the end of June and December and with a 3.5 times threshold and a one-time allowance up to 3.75 times. September is therefore not a test date for us, but the ratio highlights the limited headroom we have. As Laurent will explain, our year-end objective is to remain at or below 3.75 times, supported by earnings recovery and disciplined cash management. As the headroom covenant is limited, however, we are engaging with our banks to secure a temporary adjustment to the leverage covenant. Liquidity at the end of September was 272 million, comprising 82 million euros of cash and approximately 70% of our 270 million revolving crate facility remaining undrawn. This supports our operations and transformation program execution. And preserving that capacity remains a priority for us, and the available liquidity does not lessen the need to manage leverage. Before handing back to Laurent, I will address the recent development affecting our Russian operations and the financial implications we can assess as of today. As we announced on October 16, our Russian entity was placed under interim administration by decree of October 15. We remained a legal owner, but we currently have effectively lost control of its operations. We're assessing the situation and it is too early to predict how the relationship between ONTEX and the subsidiary will evolve. The business was already operating autonomously and in compliance with applicable regulation. The loss of control triggers deconsolidation from October onwards. On a pro forma basis, at the end of September, net debt would decrease by around 10 million euros. reflecting the removal of about 19 million euros of cash and approximately 30 million euros of lease liabilities. Our liquidity position reduces to 252 million euros pro forma. We had originally expected around 2 million euros of adjusted EBITDA contribution into Q4, and following that deconsolidation, that contribution is likely to be minimum. And with that, I will hand back to Laurent.