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Steady progress on Ontex's transformation, realizing key strategic milestones, while continuing to deliver solid results
Gustavo Calvo Paz, Ontex's CEO, said: “ With the agreement to sell our Brazilian operations, Ontex's transformation is marking a major milestone, shifting our focus even more to retail brands and healthcare in the rapidly growing North American market and in the streamlined European market. Finalizing social negotiations to optimize our European manufacturing footprint has been another milestone to realize that. Meanwhile we delivered solid results, allowing us to confirm our adjusted EBITDA margin and free cash flow expectations, which is an excellent achievement for the entire Ontex team. ”
Ontex's management confirms its guidance for adjusted EBITDA margin, free cash flow and leverage for the full year. While new customers are on-boarded in North America, the ramp-up is phased more gradually over the third quarter and the coming months, leading management to review its revenue growth guidance, now expecting:
was €468 million, up 1.7% like for like. Lower sales prices were more than offset by the volume and mix growth, driven by adult care and by retail baby care in North America. Forex fluctuations were supportive, leading to a total 2.4% year-on-year increase versus the third quarter of 2023 and a 2.6% sequential increase versus the second quarter of 2024.
Volumes were up 4.4% including mix effects. In adult care these were up double digit thanks to market share gains in the institutional channel and an overall supportive retail market in Europe, in line with societal trends. Baby care volumes were up as well, thanks to double digit growth in North America, boosted by the recent contract gains with retailers. The growth acceleration in the region was tempered, however, by phasing of the order ramp-up and by lower deliveries in the contract manufacturing channel. In Europe baby care volumes were solidly stable, outperforming the subdued market demand, in which retail brands did not gain further market share due to intensified promotional activity by branded players. Refocusing and optimization of the portfolio, led to lower feminine care sales in North America.
Sales prices were lower across categories and 2.6% down on average compared to last year, stabilizing versus the second quarter of this year. This was expected, reflecting planned investments in competitiveness, and adjustments for the decrease of raw material price indices since 2023.
Forex fluctuations were supportive, adding 0.7%, mainly thanks to the appreciation of some non-euro denominated currencies in Europe.
was €56 million, up 29% year on year, thanks to volume and mix growth of €8 million and the cost transformation program delivery. Net pricing had a positive impact, with lower raw material prices offsetting lower sales prices. The increase of other operating and SG&A costs weighed on the result and forex fluctuations also had a slight adverse impact.
The delivered €14 million net operating savings, leading to a reduction of the operating cost base by 3.7% year on year, with purchasing, supply chain, product innovation and manufacturing initiatives. To further support these initiatives in the coming years, Ontex is transforming its operating footprint in Belgium, with the closure of its Eeklo plant by year end, and the transformation of its Buggenhout plant over the next two years into a center of excellence for research, development and production of medium and heavy incontinence care products.
Net pricing had a €4 million positive impact. The year-on-year decrease of raw material indices impacted purchase prices positively for €16 million, in particular for fluff, super-absorbent polymers and non-woven materials. This more than offset the €(12) million effect of lower sales prices. Raw material indices started to rise sequentially again in the second half of 2023 but have largely stabilized since mid-2024.
Other operating costs were up by €10 million year on year, largely due to inflation of salaries, energy and distribution costs. These were exacerbated by temporary inefficiencies resulting from the North American production ramp-up and the footprint adjustments in Europe.
SG&A expenditure was up as well, by €2 million, mainly due to salary inflation.
fluctuations had a €(2) million net negative impact, mainly linked to the depreciation of the Mexican peso affecting the contribution from the Tijuana plant.
The was 12.0%, up 2.4pp year on year compared to the third quarter of 2023, and down 0.5pp sequentially versus the second quarter of 2024.
Operating profit from continuing operations was €8 million, compared to €29 million in 2023. While adjusted EBITDA came out €12 million higher, depreciation was €(19) million, which is €(2) million more than the year before due to the increased level of investment in the recent period. Moreover, EBITDA adjustments were taken for €(29) million costs related to the transformation of its operating footprint in Belgium. It represents the additional provision taken for the recently successfully concluded social plan, and comes on top of the €(37) million provision taken in the second quarter already, which covered the redundancy cost according to the Belgian legal requirements. About half of the total amount of €(66) million is anticipated to be spent in 2024, and the remainder in 2025 and 2026.
Discontinued operations generated a revenue of €68 million, 3% lower like for like. The adjusted EBITDA was €5 million, resulting in a 7.6% margin. The revenue decrease and the 5.8pp lower margin reflect the more challenging market conditions in Brazil and in the remaining business in the Middle East. EBITDA adjustments were made for the one-time net gain on disposal of €8 million triggered by the divestment of the Brazilian business, consisting of a partial reversal of the impairment taken in 2021, netted with divestment costs. The operating profit from discontinued operations thereby amounted to € 14 million.
Net financial debt for the Total Group dropped a further €9 million to €579 million at the end of September, thanks to the solid adjusted EBITDA delivery. This represents a €86 million improvement since the start of the year and allows to minimize the need to use the revolving credit facility.
The decreased further to 2.4x, from 2.5x at the end of June and 3.3x at the start of the year, as a combination of the net financial debt reduction and the further increase of the adjusted EBITDA of the Total Group generated in the last twelve months.
This report may include forward-looking statements. Forward-looking statements are statements regarding or based upon our management's current intentions, beliefs or expectations relating to, among other things, Ontex's future results of operations, financial condition, liquidity, prospects, growth, strategies or developments in the industry in which we operate. By their nature, forward-looking statements are subject to risks, uncertainties and assumptions that could cause actual results or future events to differ materially from those expressed or implied thereby. These risks, uncertainties and assumptions could adversely affect the outcome and financial effects of the plans and events described herein. Forward-looking statements contained in this report regarding trends or current activities should not be taken as a report that such trends or activities will continue in the future. We undertake no obligation to update or revise any forward-looking statements, whether as a result of new information, future events or otherwise. You should not place undue reliance on any such forward-looking statements, which speak only as of the date of this report.
The information contained in this report is subject to change without notice. No re-report or warranty, express or implied, is made as to the fairness, accuracy, reasonableness or completeness of the information contained herein and no reliance should be placed on it. In most of the tables of this report, amounts are shown in € million for reasons of transparency. This may give rise to rounding differences in the tables presented in the report.
The financial information in this document of Ontex Group NV for the nine months ended September 30, 2024 was authorized for issue in accordance with a resolution of the Board on October 23, 2024.
Management will host an audio webcast for investors and analysts on October 24, 2024 at 12:00 CEST / 11:00 BST. To attend, click on https://channel.royalcast.com/landingpage/ontexgroup/20241024_1 . A replay will be available on the same link shortly after the live presentation. A copy of the presentation slides will be available on ontex.com .
Ontex is a leading international developer and producer of baby care, feminine care and adult care products, both for retailers and healthcare. Ontex's innovative products are distributed in around 100 countries through retailers and healthcare providers. Employing some 7,200 people, Ontex has a presence in 14 countries, with its headquarters in Aalst, Belgium. Ontex is listed on Euronext Brussel and is a constituent of the Bel Mid index. To keep up with the latest news, visit ontex.com or follow Ontex on LinkedIn , Facebook , Instagram and YouTube .
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