AALST, Belgium--(BUSINESS WIRE )--Regulatory News:
Esther Berrozpe, Ontex’s CEO, said “We are delivering on the Group’s strategic priorities: turnaround of the top-line, bringing down the structural cost base and divestments to reduce net debt and refocus the Group. The unprecedented cost inflation has however hit our adjusted EBITDA significantly during the first half, so we will continue to accelerate pricing to alleviate this negative impact. Revenue growth and the lower cost base will be a major driver to margin recovery and value creation once the raw material environment improves.”
The uncertain geo-political environment and resulting volatile inflationary macro-economic situation is persisting, causing visibility to remain low. Provided that the market momentum persists and inflationary pressure on commodity and energy prices does not further expand, Ontex expects for the full year 2022:
Unless otherwise indicated, all comments in this document on changes are on a year-on-year basis and for revenue specifically on a like-for-like (LFL) basis (at constant currencies and scope and excluding hyperinflation effects). Definitions of Alternative Performance Measures (APMs) in this document can be found further in the document.
Key H1 & Q2 2022 financials
Profit/(Loss) for the period
Net Debt / LTM Adj. EBITDA
Adjusted profit/(loss) for the period
Profit/(Loss) for the period
SG&A net savings
Revenue of Core Markets (continuing operations)
Revenue of Core Markets was €781 million, up 12% like for like, driven by 8.1% volume/mix growth and 3.5% overall higher prices. Revenue was up double digit like for like in Europe and North America. Forex fluctuations added 2.0%, mainly with the significant year-on-year appreciation of the US dollar, increasing revenue 14% overall.
Volume and mix remained the main drivers with an 8.1% impact, with strong market momentum supplemented by the contract gains secured in 2021 both in Europe and North America. Retail brands have gained share overall, especially in the second quarter, as consumers seek better value-for-money alternatives.
Prices were up 3.5% on average, gradually increasing month after month, as contracts are renegotiated. By June prices were up further and as more pricing has already been secured, these are expected to continue to increase in the coming months. Additional strong pricing actions are being executed to respond to the continued inflation of input costs.
In baby care revenue grew 15% like for like, especially in baby pants, where sales were up strong double digits, benefitting from a new product range and increased production capacities. Ontex outperformed the retail brand market both in diapers and pants. The retail brand market was favorable overall, also reflecting the significantly higher growth in pants. In adult care revenue growth continued, up 8.9% like for like, also driven by higher growth for pants. While growth in the institutional channel was subdued in the first quarter, following the impact of some contract losses in Southern Europe, retail and on-line channels grew consistently double digit. Feminine care products grew 11% like for like.
Adjusted EBITDA of Core Markets (continuing operations)
Adjusted EBITDA of Core Markets was €40 million, down 53%. The revenue drop-through contributed €51 million, while continuous cost reduction efforts contributed €29 million, reflecting the turnaround launched with the strategic plan. Cost inflation intensified as expected, resulting in an €124 million adverse impact. Forex fluctuations had no significant net impact as the increase of the US dollar, which negatively affected the cost base, was offset by the appreciation of other currencies.
Cost inflation weighed heavily on the year-on-year comparison, with a negative impact of €93 million from raw materials and €31 million on operating costs. The overall cost base rose some 20% versus the first half of 2021, especially raw materials, where prices rose some 30% year on year, with the largest impact on super absorbent polymers. By the end of 2021, indices impacting Ontex’s main raw materials were up 40% to 80% compared to the start of that year, and that increase is now largely reflected in the cost base. Since then, some indices have risen by an additional 30%, and energy prices and other cost drivers were up as well. These increases were already partly reflected in the gradual raw material cost increase over the half year. Other operating costs rose similarly. Distribution costs inflated some 15% and energy prices more than 30%, while wages were up more than 5%, reflecting the inflationary environment.
Cost reduction measures delivered €29 million in savings, which represents 4.6% of the cost base, thereby maintaining the momentum to reduce costs annually by 4%. Gross savings in operations represented the largest share at €26 million, benefitting from reduced scrap rates, improved production efficiency and the result of design-to-value initiatives. As from the second quarter Ontex’s production footprint was further optimized in Europe, mainly as the plant in Mayen, Germany, stopped production at the end of March. After last year’s significant efforts, strict cost control continues to be applied in SG&A, especially in marketing & sales, allowing to offset inflation by €3 million net. Combined with revenue growth, this resulted in SG&A costs over revenue to drop to 9.7%, below the 10% target.
The adjusted EBITDA margin thereby dropped to 5.1%, 7.2pp lower year on year and 4.8pp versus the second half of 2021.
Total Group (including discontinued operations)
Discontinued operations, consisting of the Emerging Markets division generated a revenue of €371 million, up 23% like for like, driven mostly by pricing. Volumes were largely stable in Brazil and Mexico, where market growth was slower, whereas in the Middle East volumes in baby and adult care continued to grow throughout the period. Adjusted EBITDA came in at €10 million, down 40%, as price increases are lagging cost increases, but less so than in Core Markets. Price increases can be pushed through more rapidly in branded markets, which are the main business in Emerging Markets. While the EBITDA margin at 2.6% is down 3.0pp year on year, it already marks a sequential improvement of 2.7pp versus the second half of 2021.
Total Group revenue rose to €1,152 million, up 15% like for like, with pricing up 8.4% and volume and mix contributing 6.6%. Adjusted EBITDA was €49 million, a 51% decrease, as cost inflation of €179 million more than offset the revenue growth drop-though and the total gross savings contribution of €36 million. The EBITDA margin thereby dropped to 4.3%, down 6.0pp year on year, and 2.5pp versus the second half of 2021.
Revenue of Core Markets (continuing operations)
Revenue of Core Markets was €396 million, up 10% like for like, driven by 5.1% volume/mix growth and 5.3% overall higher prices. With a 2.9% increase compared to the previous quarter, this marks five consecutive quarters of sequential growth. Revenue was up double digit in Europe, while in North America the evolution was more subdued due to a higher comparable in 2021. Forex fluctuations added 3.6%, with the significant year-on-year appreciation of the US dollar and Russian ruble, increasing revenue 14% overall.
The volume and mix increase of 5.1% was spread equally over both, with strong market momentum supplemented by the contract gains secured in 2021 both in Europe and North America. Retail brands have gained share overall, especially in the second quarter, as consumers seek better value-for-money alternatives. The year-on-year uplift is lower than in the first quarter, as the first quarter benefitted from a lower comparison base and by pre-loading by customers.
Prices were up 5.3% on average, versus1.7% in the first quarter. By June prices were up further and as more pricing has already been secured, these are expected to continue to increase in the coming months. Additional pricing actions put in place to respond to the continued inflation of input costs.
In baby care revenue grew 11% like for like. Baby pants growth accelerated compared to the first quarter, to strong double digit year on year, benefitting from a new product range and share gains from our customers. Ontex outperformed the retail brand market, which was positive overall. In adult care revenue growth was 13% like for like, with double digit growth both in the institutional channel and in retail channels. Feminine care products grew 4.0% like for like.
Adjusted EBITDA of Core Markets (continuing operations)
Adjusted EBITDA of Core Markets was €19 million, down 57% versus the second quarter of 2021, and 10% sequentially versus the first quarter of the year. The revenue drop-through represented €32 million, while continuous cost reduction efforts contributed €17 million, scaling up from the first quarter. Cost inflation intensified as expected, resulting in an €76 million adverse impact. Forex fluctuations had a €3 million positive net impact as the increase of the US dollar, which negatively affected the cost base, was more than offset by the appreciation of the Russian ruble on sales.
Cost inflation weighed heavily on the year-on-year comparison, with a negative impact of €57 million from raw materials and €19 million on operating costs. Total costs went up by some 25% versus the second quarter of 2021, mainly due to higher raw material prices increasing driven by higher energy costs and indices. Other operating costs were up as well, as higher energy prices and wage inflation also affect distribution and manufacturing costs.
Cost reduction measures represented €17 million in savings, which represents 5.5% of the cost base, well above the target to reduce costs annually by 4%. Gross savings in operations represented the largest share with €15 million, benefitting from reduced scrap rates, improved production efficiencies and the result of design-to-value initiatives. Ontex’s production footprint was further optimized in Europe, mainly as the plant in Mayen, Germany, stopped production. After last year’s significant efforts, strict cost control continues to be applied in SG&A, especially in marketing & sales, allowing to offset inflation by €2 million net. Combined with revenue growth, this resulted in SG&A costs over sales to drop to 9.0%, comfortably below the 10% target.
The adjusted EBITDA margin thereby dropped to 4.8%, 7.8pp lower year on year and 0.7pp quarter on quarter. The geopolitical context drove input costs up further sequentially more than prices were raised.
Total Group (including discontinued operations)
Discontinued operations, consisting of the Emerging Markets division generated a revenue of €202 million, up 24% driven mostly by pricing. Volumes were largely stable in Brazil and Mexico, in slower markets, whereas in the Middle East volumes grew further. Adjusted EBITDA came in at €6 million, down 25% versus the second quarter of 2021, but marking a 59% sequential increase, versus the first quarter of the year. This demonstrates the more rapid recovery in Emerging Markets, as cost inflation started earlier and price increases can be pushed through more rapidly than in Core Markets. While the EBITDA margin at 2.9% is down 2.2pp year on year, it already marks a sequential improvement of 0.7pp versus the previous quarter.
Total Group revenue thereby rose to €598 million, up 15% like for like, and up 8.3% compared to the first quarter. Prices were up 10% and volume and mix contributed 4.3%. Adjusted EBITDA was €25 million, a 52% decrease, and 0.5% up sequentially on the first quarter. Cost inflation offset the revenue growth drop-though and a total gross savings contribution of €18 million, the same amount as in the first quarter. The EBITDA margin thereby dropped to 4.1%, down 6.1pp year on year, and 0.3pp quarter on quarter.
Depreciation was slightly up at €(34) million, reflecting mainly forex fluctuations.
Non-recurring expenses totalled €(90) million, and consist mainly of a €(84) million non-cash impairment of goodwill. As the continuity of the Russian operations and the associated financial transactions remains with some uncertainties given the evolution of sanctions, the Group has decided to separate and then impair a portion of goodwill allocated to its Russian business. The remainder covers mostly restructuring efforts on the European footprint.
The net finance cost was €(22) million, largely in line with the first half of 2021. The net interest costs of €(19) million were slightly higher year on year, reflecting the higher interest rate following the issuance in July 2021 of a €580 million bond at a 3.5% fixed rate, but these were offset by forex effects.
As profit before tax was negative at €(107) million, an income tax gain was booked of €6.9 million.
Discontinued operations booked a loss of €(72) million, compared to €0.0 million in 2021. This mainly consisted of a non-cash impairment on the Mexican assets of €(60) million, following the carve-out of these activities, the non-cash net valuation impact of €(5.4) million from hyperinflation in Turkey, which affected the valuation of net assets and retained earnings in equity, and €(9) million restructuring costs, mainly related to the Ethiopian activities. These more than offset the positive business contribution.
Adjusted profit from continuing operations was €(28) million, compared to €22 million in the first half of 2021. Including the impact of non-recurring expenses and the contribution of discontinued operations the loss for the period was €(171) million, the delta being almost entirely attributable to the non-cash impairments in continuing and discontinued operations. Adjusted earnings per share of continuing operations were €(0.14) compared to €0.27 in 2021. Basic earnings per share were €(2.08), compared to €0.09 in the first half of 2021.
Capital expenditure was €(27) million, slightly up versus €(23) million in 2021. The pace of 2.3% of revenue remains low but is maintained higher than depreciation. Strict capital management continues to be applied in the current challenging business conditions, but is expected to increase gradually to about 4% in the second half to further support growth and value creating initiatives. These formed the majority of the spend in the first half, encompassing mainly the completion of the new plant in the US, operating efficiency improvement projects across operations and innovations such as the Orizon smart diaper platform.
Free cash flow (after-tax) outflow was €(59) million, compared to an inflow of €22 million in 2021, mainly as a result of lower EBITDA and the working capital outflow of €(34) million. Capex and lease payments were €(39) million combined. The cash impact of non-recurring costs, was €(22) million. Cash taxes were slightly higher at €(11) million.
Working capital for the total Group at the end of the period was €186 million, a €56 million increase versus the end of 2021. The increase is related to significantly growing revenues, especially in June, boosting both the absolute value and the ratio over revenue. The working capital excludes forex effects but includes monetization of accounts receivables through factoring for €184 million, versus €163 million at the end of 2021.
Net debt stood at €826 million at the end of the period including net financial debt of €715 million and lease liabilities of €111 million. This €101 million increase versus December 31, 2021, includes the free cash outflow, net interest of €19 million and other financing outflow of €7.8 million, mainly related to costs from the term loan waiver negotiations concluded in February. Non-cash changes brought debt up €15 million net, and encompassed mainly the increase in lease liabilities of €19 million, linked to the start-up of the plant in the US. Net debt decreased compared to €833 million on March 31, mainly thanks to working capital inflow. At the end of June Ontex drew €50 million from its €250 million revolving credit facility to cover for temporary mismatches in the geographical cash distribution. Leverage was 6.8x net debt over adjusted EBITDA at the end of the period, compared to 4.2x at the end of 2021, mainly as result of the significant reduction in the last-twelve-months adjusted EBITDA.
As from 2022, the Emerging Markets activities are reported as assets held for sale, representing €726 million in assets. The net value of these, after deduction of €(253) million of related liabilities, was €473 million. The equity value of these, after further deduction of €(293) million related cumulative translation reserves, was €179 million at the end of June.
Alternative performance measures (non-GAAP) are used in this press release since management believes that they are widely used by certain investors, securities analysts and other interested parties as supplemental measure of performance and liquidity. The alternative performance measures may not be comparable to similarly titled measures of other companies and have limitations as analytical tools and should not be considered in isolation or as a substitute for analysis of our operating results, our performance or our liquidity under IFRS.
Like-for-like revenue is defined as revenue at constant currency excluding change in scope of consolidation or M&A and hyperinflation impacts.
Income and expenses classified under the heading “non-recurring income and expenses” are those items that are considered by management not to relate to transactions, projects and adjustments to the value of assets and liabilities taking place in the ordinary course of activities of the Company. Non-recurring income and expenses are presented separately, due to their size or nature, so as to allow users of the consolidated financial statements of the Company to get a better understanding of the normalized performance of the Company. Non-recurring income and expenses relate to:
Non-recurring income and expenses of the Group are composed of the following items presented in the consolidated income statement:
EBITDA and Adjusted EBITDA and related margins
EBITDA is defined as earnings before net finance cost, income taxes, depreciations and amortizations. Adjusted EBITDA is defined as EBITDA plus non-recurring income and expenses. EBITDA and Adjusted EBITDA margins are EBITDA and Adjusted EBITDA divided by revenue.
Net financial debt/LTM Adjusted EBITDA ratio (Leverage)
Net financial debt is calculated by adding short-term and long-term debt and deducting cash and cash equivalents. LTM adjusted EBITDA is defined as EBITDA plus non-recurring income and expenses for the last twelve months (LTM).
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 above press release and related financial information of Ontex Group NV for the three months ended June 30, 2022 was authorized for issue in accordance with a resolution of the Board on July 28, 2022.
Management will host an audio webcast for investors and analysts on July 29, 2022 at 11:00 CEST / 10:00 BST. A copy of the presentation slides will be available on ontex.com.
Click on the link below to attend the presentation from your laptop, tablet or mobile device. Audio will stream through your selected device, so be sure to have headphones or your volume turned up.
https://channel.royalcast.com/ontexgroup/#!/ontexgroup/20220729_1
A full replay of the presentation will be available at the same link shortly after the conclusion of the live presentation.
[1] Reported P&L figures, except for profit, represent continuing operations, i.e. Core Markets, only. As from 2022, Emerging Markets, representing 30% of revenue in 2021, are reported as assets held for sale and discontinued operations, following the strategic decision to divest these businesses.
Enquiries Investors Geoffroy Raskin +32 53 33 37 30 investor.relations@ontexglobal.com Media Maarten Verbanck +32 492 72 42 67 corporate.communications@ontexglobal.com
Enquiries Investors Geoffroy Raskin +32 53 33 37 30 investor.relations@ontexglobal.com Media Maarten Verbanck +32 492 72 42 67 corporate.communications@ontexglobal.com