Gustavo Calvo Paz, Ontex’s CEO, said “I’m happy to see that we have turned the corner, giving us momentum to deliver further recovery in 2023. My first 100 days as CEO increased my conviction that there is a significant opportunity. Our strategy is working and I commit to accelerate its execution. Complexity reduction and laser-focus on the strategy execution, will bring us to best-in-class competitivity, which Ontex deserves as a performance-driven organization.”
While the volatile inflationary macro-economic situation is diminishing, but not over yet, Ontex believes it can continue to restore its profitability in 2023 and expects:
[1] Reported P&L figures, except for basic EPS, represent continuing operations, i.e. Core Markets, only. As from 2022, Emerging Markets, representing some 30% of revenue, are reported as assets held for sale and discontinued operations, following the strategic decision to divest these businesses.
[2] Gross proceeds are valued at about €285 million, resulting in an estimated €250 million net proceeds, after deduction of taxes and transaction costs. Some €225 million is to be received at closing, the remainder is a deferred payment.
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.
Revenue of Core Markets (continuing operations)
Revenue of Core Markets was €1,672 million, up 15% like for like, driven equally by volume and mix growth, and overall higher prices. Revenue in North America was up more than 20% like for like. Forex fluctuations added 4%, as a result of the year-on-year appreciation of the US dollar, Russian ruble and British pound, bringing revenue up 19% overall.
Volume and mix remained had a 7% impact, driven by strong market momentum supplemented by the contract gains secured in 2021 both in Europe and North America. As consumers seek better value-for-money alternatives, retailer brands gained share overall in Europe, especially in the second half of the year, when the overall market shrunk in volume, whereas retailer brands continued to grow.
Prices were up 8% on average, gradually increasing from 2% in the first quarter to 14% in the fourth quarter, supported by contract renegotiations. Additional pricing actions are being executed to respond to the persisting input cost inflation, which rose faster than pricing and which continues to rise.
In baby care revenue grew 17% like for like, based on volume growth and price increases. The retailer brand channel was favorable overall, with volume growth driven by baby pants, while diapers were largely stable. Ontex thereby outperformed both submarkets, especially on baby pants, where it outpaced at double the rate, benefitting from the success of its new Happyfit platform and supporting production capacity increases. In adult care revenue growth continued, up 12% like for like, mostly from pricing. Growth in the institutional channel was more subdued, as price pass-through is contractually limited. Retail and on-line channels grew consistently double digit, however, as this segment grows with more attention for care at home. Feminine care products grew 21% like for like, both through volume and pricing.
Adjusted EBITDA of Core Markets (continuing operations)
Adjusted EBITDA of Core Markets was €104 million, down 33%, with revenue growth contributing 164 million and gross savings €55 million. While these were still more than offset by raw material and operating cost inflation of €(280) million in the year, they reversed the negative trend in Q4. Forex fluctuations had an €8 million positive impact as the increase of the US dollar, which negatively affected the cost base, was more than offset by the appreciation of other currencies, mainly the Russian ruble and the British pound. The adjusted EBITDA margin thereby dropped to 6.2%, 4.9pp lower year on year.
Cost inflation weighed heavily on the year-on-year comparison, with a negative impact of €(209) million from raw materials and €(71) million from operating costs. The overall cost base rose 22% due to inflation, especially on raw materials, where prices rose 26% year on year, mostly on super absorbent polymers. Compared to end 2020, leading indicators for oil-based raw materials had risen about 70% by the start of 2022 to exceed 100% during H1. While that increase has reduced to about 50% by the end of 2022, the impact remains significant. For fluff, the leading indicator continued to rise over the last two years to almost 90% by year end. As Ontex has been partly protected through contractually fixed purchasing prices, part of the increase will still flow through in the first quarter of 2023. Other operating costs rose similarly, including distribution costs, energy prices and wages, reflecting the inflationary environment.
Cost reduction measures delivered €55 million in gross savings, which represents 4.2% of the total cost base, thereby maintaining the momentum to reduce costs annually by about 4%. These consisted entirely of gross savings in operations. Continuous improvement of production efficiency, including lower scrap rates, were the main lever. These were helped by the footprint optimization, with the closure of the production plant in Mayen, Germany, during the first half of the year and the operations in Reidsville, US, in the second half. Despite a challenging supply environment, savings were also realized in the supply chain and design-to-value initiatives allowed to develop more cost-efficient product platforms. After last year’s significant efforts, strict cost control continues to be applied in SG&A, allowing to offset inflation. Combined with revenue growth, this resulted in SG&A costs over revenue to drop to 9.1%, below the 10% target.
Total Group (including discontinued operations)
Discontinued operations, consisting of the Emerging Markets division generated a revenue of €792 million, up 21% like for like, driven almost entirely by pricing. Volumes were largely stable in Brazil and Mexico, where market growth was slower, whereas in the Middle East volumes continued to grow throughout the period. Forex effects added 7%, with the appreciation of the Mexican peso and Brazilian real more than offsetting the depreciation of the Turkish lira. Adjusted EBITDA came in at €32 million, doubling the 2021 figure, as revenue growth and savings exceeded cost inflation and forex. Inflation started impacting these markets earlier in 2021 and price increases were more rapidly implemented, given the preponderance of branded channels. The net forex effect was negative since the adverse impact of the US dollar appreciation on cost outweighed the forex gains in revenue. The adjusted EBITDA margin was 4.0%, increasing by 1.4pp.
Total Group revenue rose to €2,464 million, up 17% like for like, with pricing up 11% and volume and mix contributing 6%. Adjusted EBITDA was €136 million, a 21% decrease, as inflation impacted operating costs by €(392) million and SG&A costs by €(13) million, more than offsetting the revenue growth benefit of €299 million and the gross operating savings of €81 million. The adjusted EBITDA margin thereby dropped to 5.5%, down 3.0pp year on year.
Revenue of Core Markets (continuing operations)
Revenue of Core Markets was €460 million, up 20% like for like, including steady contribution from volume and mix and significantly higher prices. Positive forex fluctuations, with the year-on-year appreciation of the US dollar and Russian ruble, added 4%, bringing overall revenue growth to 24% year on year. With a 7% increase compared to Q3, this marks seven consecutive quarters of sequential growth.
The volume and mix increase of 6%, in line with the third quarter, was based on solid market momentum and the contract gains secured earlier in Europe and North America. Retail brands are gaining share in Europe, as consumers seek better value-for-money alternatives, notably in feminine and baby care.
Prices were up 14% on average versus last year, continuing the acceleration seen through the year starting from 2% in the first quarter.
In baby care, revenue grew 23% like for like compared to last year, with baby pants volume up some 30%, driving the growth of retailer brands, which outpace the overall market. In adult care revenue growth was 14% like for like, mostly driven by pricing and volume growth in retail channels. Price increases in adult care were relatively lower due to contract structure limitations in institutional healthcare channels. Feminine care revenue grew 32% like for like.
Adjusted EBITDA of Core Markets (continuing operations)
Adjusted EBITDA of Core Markets was €40 million, up 31% year on year, marking the first quarter of year-on-year recovery. Revenue growth contributed €65 million and gross savings €16 million to the year-on-year evolution, more than offsetting the adverse impact of raw material and operating cost inflation of €(74) million. Forex fluctuations had a €3 million positive net impact, with the appreciation of the Russian ruble offsetting the net negative cost impact of US dollar appreciation. Compared to Q3, adjusted EBITDA was up 68%, as prices were raised further, volume growth and savings delivery levels were maintained and cost inflation remained largely stable versus Q3. The adjusted EBITDA margin thereby recovered to 8.8%, up 0.5pp versus Q4 2021, and up 3.2pp sequentially versus Q3 2022, but still well below historic margins.
Cost inflation continued to impact the year-on-year comparison significantly, with a negative impact of €(57) million from raw materials and €(18) million from operating costs, largely similar to the year-on-year increase in the third quarter. Raw material costs were up significantly, mostly driven by non-indexed components of the price setting, such as energy, distribution and wage inflation. These also drove Ontex’s own operating costs up significantly. The total cost base went up by 21% versus the fourth quarter of 2021.
Cost reduction measures contributed €16 million in gross savings. While gross operating savings of €14 million were in line with the previous quarter, SG&A costs were reduced quarter on quarter and year on year to 8.2% of revenue, despite wage inflation.
Total Group (including discontinued operations)
Discontinued operations, consisting of the Emerging Markets division, generated a revenue of €215 million, up 22% like for like compared with the last quarter of 2021, driven mostly by pricing, and a small positive impact of volume and mix coming from gains in the Middle East. Overall revenue growth was 32% year on year, thanks to positive forex fluctuations, with the higher Mexican peso and Brazilian real more than offsetting the lower Turkish lira. Adjusted EBITDA came in at €11 million, similar to the third quarter, and compares to €1 million in the fourth quarter of 2021. Revenue growth and savings more than compensated for cost inflation. The US dollar appreciation impact on cost offset the positive impact of forex on revenue. The adjusted EBITDA margin of 5.1%, is up 4.8pp versus 2021, and in line with the third quarter.
Total Group revenue thereby rose to €675 million, up 20% like for like compared to 2021. Prices were up 16% and volume and mix contributed 5%. Including forex fluctuations, revenue was up 26% year on year, and up 6% compared to the third quarter. Adjusted EBITDA was €51 million, a 64% year on year increase and 46% quarter-on-quarter. The revenue growth impact of €103 million and €21 million gross operating savings more than offset the cost inflation impact on raw materials, operating and SG&A costs of €(107) million combined. The adjusted EBITDA margin thereby was 7.6%, up 1.7pp year on year, and 2.1pp quarter on quarter.
Ontex continues to invest in its operations. About 1/3rd of capex in 2022 was invested in capacity expansions, notably in adult care in Europe and baby care in North America. In July Ontex opened a new plant there in Stokesdale, North Carolina, complementing Ontex’s plant in Tijuana, Mexico to supply the growing retailer and lifestyle brand channels in North America.
Continuous delivery on operational cost reduction measures delivered €81 million, of which €56 million in continuing operations, allowing to reduce the raw materials and operating costs, prior to inflation, by 4.9% in 2022, up from 3.7% in 2021. These efforts require capital and operational expenditure as well as some restructuring costs, which were mostly taken in previous years. To optimize the manufacturing footprint, several production lines were moved across Ontex’s operations and three plants were shut down. The production plants in Mayen, Germany, and in Ethiopia were closed in the first half, while the remaining lines in Reidsville, US, were discontinued in the second half, following the start-up of operations in Stokesdale. The scrap generation was reduced by a further 15% and Overall Equipment Efficiency (OEE) improved by 4pp. While service levels were still down on 2021 overall, caused by the disruption in the supply chain, they showed continuous improvement versus the end of 2021.
In 2022 innovation represented some €20 million in operational and capital expenditure. The success of Ontex’s innovation platform is demonstrated by the market uptake of its new baby pant platform Happyfit®. Developed in 2020, it was brought to the market in 2021 and represents the bulk of Ontex’s growth in the baby care category in 2022. The product platform is now being further developed for swim pants. In baby diapers, the new absorption technology Climaflex® was launched end of 2021 and commercially deployed in 2022. This technology ensures comfort, protects the skin and ensures absorption even under extensive baby motion. In adult care, Ontex has developed a smart continence management service for elderly homes and hospitals in Europe under the brand Orizon®. In 2022 field studies across Europe received enthusiastic reception of the concept. The commercial deployment is foreseen in 2023.
Ontex takes the safety of its employees at heart. The accident frequency rate was 3.78 accidents per million worked hours. While improving versus 2020, this marks a step-back compared to 2.96 in 2021. Ontex has put in place the necessary action plans to bring the trend back within its ultimate ambition to a zero accident work environment.
In 2022 Ontex managed to further reduce its scope 1 and scope 2 emissions by 47% versus 2020, compared to 41% in 2021, and is working out the steps needed to improve its scope 3 emissions. Ontex commits to achieving carbon-neutral operations by 2030, reducing its own greenhouse gas emissions by 80% by 2030, through energy savings, on-site renewable energy production as well as purchasing energy from renewable sources and carbon offsets. The company also has the ambition to cut the emissions of its global supply chain by 25% by 2030. In October, Ontex activated a large solar power installation in Italy, which will produce more than 10GWh of electricity per year. The company is opening solar power installations in Europe and the Americas to produce more energy on-site and achieve carbon-neutral operations by 2030. Ontex’s factories in Italy and seven other European countries now run on 100% renewable electricity. In June 2022, the Science-Based Targets Initiative (SBTI) approved Ontex’s climate action plan. In December 2022, Ontex received a top A-rating for leadership in corporate transparency and performance on climate change from the global non-profit Carbon Disclosure Project (CDP).
The sustainable supply chain was further reenforced. The vast majority of wood-based raw materials are 100% certified or controlled and more than 90% of cotton is organic, and in 2022 more than 95% of suppliers signed Ontex’s Supplier Code of Conducts. Gradually, Ontex is boosting its circular product & packaging solutions. The amount of manufacturing waste recycled in the year was 92%. In May 2022 Ontex renewed its support to Woosh, a Belgian startup that aims to make diaper recycling a reality in Ontex’s home country. Together with waste companies Woosh aims to set up the first diaper recycling facility in Belgium. Eco and health labels on products remained largely stable at close to half of sales.
[1] Preliminary figures
Depreciation was up 7% at €(70) million, reflecting the continued investments in growth and some forex fluctuations.
EBITDA adjustments totalled €(103) million, and consist mainly of a €(92) million non-cash impairments. This was mostly related to the €(84) million goodwill impairment on the Russian assets in June. As the continuity of the Russian operations and the associated financial transactions remains uncertain, the Group had decided to separate and then impair a portion of goodwill allocated to its Russian business. Restructuring costs represented €(11) million, covering primarily the further European footprint optimisation.
The net finance cost was €(51) million, some €9 million higher than in 2021. The increase reflects the higher average interest rate following the issuance in July 2021 of a €580 million bond at a 3.5% fixed rate, and the impact of the rising Euribor on the floating rate debt, especially in the second half of the year.
The income tax was €(28) million, mainly due to the geographical mix, certain losses than cannot be recognized, such as the impairment on the Russian activities, and some previously recognized deferred tax assets which were derecognized.
Discontinued operations booked a loss of €(122) million, compared to €(42) million in 2021. The adjusted EBITDA was €32 million and includes a €(4) million bad debt provision for certain receivables in Brazil. EBITDA adjustments were €(123) million, consisting mainly of non-cash goodwill impairment of €(76) million on the Mexican assets, following their agreed divestment, and of €(33) million on the Turkish assets, which corresponds to the hyperinflation impact on these. The remainder was related to restructuring charges and M&A costs. Financial and tax charges were €(20) million and €(11) million respectively.
Adjusted profit/loss from continuing operations was €(51) million, compared to €25 million in 2021, reflecting the lower adjusted EBITDA, and the higher financial and tax charges. Including the impact of adjustments and the contribution of discontinued operations the loss for the period was €(270) 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 €(0.62) compared to €0.30 in 2021. Basic earnings per share were €(3.34), compared to €(0.76) in 2021.
Capital expenditure was €(62) million, slightly up versus €(57) million in 2021. The pace of 2.5% of revenue remains low but consists for 2/3rd of investments in expansion, innovation and cost reduction measures. Strict capital management continues to be applied in the current challenging business conditions, but is expected to increase in the future to support further value creating initiatives.
Free cash flow (after-tax) outflow was €(54) million, compared to an inflow of €53 million in 2021, mainly as a result of lower EBITDA and the increase in working capital needs of €(46) million. Capex and lease payments, net of disposal proceeds, were €(83) million combined. The cash impact of restructuring costs and other adjustment to EBITDA was €(37) million. Cash taxes were slightly higher at €(25) million. The improving EBITDA in the second half of the year resulted in a positive free cash flow of €4 million, compared to €(59) million in the first half.
Working capital for the total Group at the end of the period was €178 million, a €47 million increase versus the end of 2021. The increase is largely attributable to continuous revenue increase throughout the year. Although working capital over revenue of the last 3 months was 6.6% at the end of the period versus 6.1% in December 2021, this hides an improvement in days of outstanding receivables and inventory. The working capital includes monetization of accounts receivables through factoring for €192 million, versus €163 million at the end of 2021.
Net financial debt of the total Group was €867 million at the end of the period including lease liabilities of €138 million. The €142 million increase over the year, includes the negative free cash flow of €(54) million, net interest payments of €(43) million and other financing outflow of €(18) million. The latter are mainly related to costs from the term loan negotiations concluded in February 2022, and hedging costs. Non-cash changes of €(27) million resulted from the increase in lease liabilities, mainly linked to the start-up of production in the US and Poland. At the end of the year Ontex had drawn €115 million from its €250 million revolving credit facility. This mainly covers temporary mismatches in the geographical cash distribution of the €209 million cash position. The leverage ratio was 6.4x at the end of the period, compared to 4.2x at the year start, as debt increased and adjusted EBITDA decreased. Over the last quarter a significant improvement was recorded compared to 7.7x at the end of September. This resulted from the strong adjusted EBITDA improvement and the decrease in net financial debt, from €895 million at the end of September with an improvement in net working capital use.
As from 2022, the Emerging Markets activities are reported as assets held for sale, representing most of the €662 million in assets. After deduction of related liabilities, the net value was €412 million.
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 twelve months ended December 31, 2022 was authorized for issue in accordance with a resolution of the Board on February 28, 2023.
Management will host an audio webcast for investors and analysts on March 1, 2023 at 13:00 CET / 12:00 GMT. 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/landingpage/ontexgroup/20230301
A full replay of the presentation will be available at the same link shortly after the conclusion of the live presentation.
May 4, 2023 Q1 2023 results
May 5, 2023 AGM
July 28, 2023 Q2 & H1 2023 results
October 27, 2023 Q3 2023 results
February 28, 2024 Q4 & FY 2023 results
Ontex is a leading international provider of personal hygiene solutions, with expertise in baby care, feminine care and adult care. Ontex’s innovative products are distributed in more than 110 countries through leading retailer brands, lifestyle brands and Ontex brands. Employing some 9,000 people all over the world, Ontex has a presence in 21 countries, with its headquarters in Aalst, Belgium. Ontex is listed on Euronext Brussels and is part of the Bel Mid®. To keep up with the latest news, visit ontex.com or follow Ontex on LinkedIn, Facebook, Instagram and YouTube.
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