Earnings call transcript: Ontex Q2 2025 reveals challenges amid market contraction

Ontex Group’s second-quarter earnings call highlighted significant challenges faced by the company, with disappointing financial results attributed to a combination of low customer demand and operational inefficiencies. Despite these setbacks, Ontex’s stock saw a slight uptick of 3.15%, closing at 6.87, as investors reacted to the company’s strategic initiatives and future guidance. According to InvestingPro data, the company maintains a healthy financial position with a "Good" overall health score and liquid assets exceeding short-term obligations.

Key Takeaways

• Ontex’s Q2 results fell short due to a 75% volume-related gap and operational inefficiencies.
• The company is focusing on private label markets and innovation to regain competitiveness.
• Ontex anticipates approximately €40 million positive free cash flow in the second half of 2025.
• The stock increased by 3.15% post-earnings, possibly influenced by strategic outlooks.

Company Performance

Ontex reported a challenging second quarter, with performance gaps largely due to reduced volumes and operational inefficiencies. The company is dealing with increased raw material costs and a contraction in market demand, exacerbated by supply chain disruptions. Despite these difficulties, Ontex is making strides in its innovation pipeline and securing new contracts in North America and Europe.

Financial Highlights

• Revenue: Not specified in the summary.
• Earnings per share: Not specified in the summary.
• Operational inefficiencies and low demand were major contributors to performance gaps.

Outlook & Guidance

Ontex is targeting revenue restoration in the second half of the year and aims to bring adjusted EBITDA back to growth. The company expects to generate approximately €40 million in positive free cash flow and reduce net leverage to 2.5x by year-end. Forward-looking projections for fiscal years 2025 and 2026 indicate anticipated EPS of 1.03 USD and 1.28 USD, respectively, with revenue forecasts of 2,130.49 USD and 2,206.64 USD. InvestingPro analysis suggests the stock is currently undervalued, with a strong free cash flow yield of 19% and a price-to-book ratio of 0.58. Access the comprehensive Pro Research Report for detailed valuation analysis and growth prospects.

Executive Commentary

CEO Gustavo emphasized the company’s improved balance sheet and readiness to tackle raw material and competitive pricing challenges. He urged stakeholders to remember the company’s progress over the past three years, underscoring the importance of a healthy balance sheet for continued operations.

Risks and Challenges

• Supply Chain Disruptions: Ongoing issues, including water shortages in the Segovia facility, could hinder production capabilities.
• Market Contraction: Continued soft market conditions and increased promotional activities by competitors pose significant challenges.
• Raw Material Costs: Rising costs remain a concern, impacting overall profitability and operational efficiency.
• Operational Efficiency: The need for transformation to align with market changes is critical for maintaining competitiveness.

Q&A

During the Q&A session, analysts inquired about the impact of raw material costs and the company’s contract pricing mechanisms. Concerns about market competitiveness were addressed, and the CEO clarified the expected proceeds from the Turkish asset sale, estimated at €20-25 million.

Full transcript - Ontex Group (ONTEX) Q2 2025:

Jeff Raskin, Investor Relations: Good morning, everyone, and thank you for joining us today. I’m Jeff Raskin from IR. I’m pleased to have with us Gustavo, our CEO and Girth, our CFO, to discuss the first half results. We will limit this to Q and A session, but first, I will let Gustavo say a few words.

Gustavo, CEO, Ontex: Thank you, Joff, and thank you very much for those attending this limited call in which I will not be presenting as usual, but let me make some remarks. Our audited full half year results are in line with our preannouncement. Quarter two and H1 results were disappointing with weak volume caused by low customer demand and some supply chain inefficiencies. We have revised the outlook accordingly two weeks ago, and it is unchanged. While we are working hard to return back to our growth plan in H2 by restoring revenue to last year levels, bringing adjusted EBITDA back to growth year on year and generate positive free cash flow.

We remain highly committed to our strategic transformation. Our balance sheet is now healthy, thanks to refinancing and to divestments. We have significantly improved our innovation pipeline in the last three years. We’re in the middle of a major step up in terms of operational efficiency, improving our footprint and our portfolio. We continue growing fast in North America, and our company culture is shifting towards being a leaner, more performance driven organization.

At the same time, we’re taking actions where needed, accelerate targeted executioner plans and by aligning cost structure to change to changing reality. So thank you.

Jeff Raskin, Investor Relations: So as just discussed, we’d like to open it up for questions. So I’ll give it over to the operator to instruct you how to do that.

Speaker 2: Ladies and gentlemen, if you wish to ask a question, please dial 5 on your telephone keypad to enter the queue. If you wish to withdraw your question, please dial 6 on your telephone keypad. The first question comes from your line is open. Please go ahead.

Speaker 3: The first question comes from Ferdinand De Beur from Degroof Petercam. I

Ferdinand De Beur, Analyst, Degroof Petercam: I have actually one question. And if I look at the miss in the second quarter, it’s not a small miss, but I think it’s huge. And if you then look at your I think last year, we did have a miss two years ago on, let’s say, more cost in the third quarter and some hiccups in the step up in the production in The U. S. And now we have the miss, and I think it’s due to a lot of different things.

What kind of feasibility do you actually have? Because, yeah, in that respect That’s actually my question.

Gustavo, CEO, Ontex: Sorry, man. You are talking about what kind of flexibility, feasibility?

Ferdinand De Beur, Analyst, Degroof Petercam: No. Feasibility because, yeah, it it’s also here, I I think you want on July 15. But I think if you if you look at the significance of the miss, then then this must must have already been known much earlier than than so I think that also here, the warning could be could have been lower because it’s it’s on the cost side. It’s on the volume side. It’s on the cost side.

Everything everything is is different than what what we should expect. So my question here is actually where where does your confidence yeah. And I think it was also asked in the previous conference call, but I I’m really both of amazed about the miss and yeah.

Gustavo, CEO, Ontex: Yeah. Yeah. Alright. So I I I will try, and then you you tell me if you feel comfortable with my answer. We explained in the in in two weeks ago in the conference call, we explained the reasons why we we significantly missed quarter two versus our the our expectations.

And it was, as you said, now it was a combination of factors. Right? Was not just one thing driving this. And at the same time, when we were explaining about what we are expecting now for quarter three and quarter four, second half of the year, we were explaining each of these drivers of negative drivers on the Q2, how we are expecting those in in the following in in these following quarters. I’m gonna try to do again the same thing.

So regarding the market trends, which has been one of our big driver, the lower demand, and we we continue expecting that same level of low demand. We are not making assumptions that the demand will increase, in our projections. Another another significant driver for the low quarter two was based on that lower demand, there were adjustments on inventories from done by the customers. And we are assuming now in the second half of the year that those adjustments in inventories are done. So we will not face a gain adjustments.

In some cases, those inventories, they have been reduced to a minimum level. Therefore, we are not expecting more adjustments in inventories affecting the volume. Another consequence of this lower demand has been a heavy activity from some A, A level brands in an attempt to reach higher volumes and promotion through promotional activities, more than significant versus other years at the same period of time. We are not counting on a reduction of the A brand’s activities, but we are assuming that they that it will be at the level of competitiveness for the private label as customers, retailers, they don’t wanna go down right in market share as they are not going down in market share. In our projections for the also, some of the reasons, and and as I explained even now, it was caused by our some supply chain challenges that we had in the in the quarter two.

Some of them totally unexpected, some others as a consequence of our transformational journey that we are going through. All those all those, the unexpected, of course, and the the the journey, they have been solved. So we should we should we put in place severe actions, to improve our customer service, our supply chain, and and not to have these inefficiencies. That is already in action. Another another topic was the cost, higher cost that has impacted in our EBITDA, not just in the not the top line as it was referring before.

But in the EBITDA was the cost of raw materials, an increased cost in raw materials. And that mainly driven by the RISI LAV index, which today, we are already seeing that index change and that it will have a positive impact in our cost, in our EBITDA, the result of that, the fourth quarter. And then a big important factor for the top line and creating volume is all these new contracts that we have. New contracts that we have in North America and new contracts that we have in Europe. And I can tell you that all of them, they are on track, and we already kick off some of them right now.

We are finishing July, so we are already leaving our second half of the year, and they have already kicked off. So that is a big portion of our in top line improvement. That would be almost my answer to you, Ferdinand. I don’t know. If if there is something else that that I haven’t answered, please let me know, Ferdinand.

Ferdinand De Beur, Analyst, Degroof Petercam: I understand you cannot predict exactly how volumes in the market operate, etcetera. But then for me, it is if I look at step up in other operating costs of in operating costs If you look, I think, in the first quarter, that was minus around €5,000,000 or €7,000,000 and then €22,000,000 for the full year.

Markus Schmitt, Analyst, ODDO BHF: But for the first half,

Ferdinand De Beur, Analyst, Degroof Petercam: there is a big delta. If I look at the cost of goods sold, minus €3,000,000 in the first quarter, minus €19,000,000 in the second quarter of first half, so minus €16,000,000 in the second quarter. So I assume this is a step up of, let’s say, 20,000,000, euros 20,000,000. And I think that when you are at the end of Q1 or in the beginning of Q2, and we do have the conference calls, I think there you should already reflect on that part that there would be such a step up in cost. And the sales, I don’t yeah, I can understand that the feasibility, yeah, you cannot exactly know every quarter what the retailers are going to bring in and sell the sale and how much has to be replenished.

But on the cost side, I’m so amazed that there, there is such a huge step up, and you didn’t flag that more properly to us.

Girth, CFO, Ontex: Perhaps, Freeland, I will add some comments to what Gustavo said because now you’re referring to Q1. First of all, our Q1 was also on the low end. We explained that at that moment. There were some of the impacts were already there, like, for example, the soft markets. And then if you look to the second quarter, and there, if you take the different elements that Gustavo mentioned there, for us, the water issue we had in Segovia, for example, was a very important one, and we only knew the impact of it became clear more in the months of May, June, because these are impacts on rebuilding inventory, delivering to customers.

So it only became clear at the end of quarter two. Another element, which was absolutely not clear, if you look structurally to our markets, what happens now, the soft markets, and as Gustavo said, we assume that it stays until the end of the year, But it’s very exceptional what happens. Typically, it’s a period of a couple of months, and then you can assume that it comes back. So we were in the belief that this was a temporary impact. Although we said at that moment already that second quarter, the achieving the guidance would more be back end loaded because the second quarter would be also, yeah, more weak as compared to the other quarters.

And that’s, in fact, what’s happening. I think if you look structurally to our business, everything you hear about supply chain, about market, about our cost transformation plan on gaining contracts, structurally, everything is green for us because we believe if we look at a period of one, two years, we are very confident that all the figures we’re aiming for, we’re able to achieve. But you see indeed, there’s quite some volatility in the markets, like for example, what happens with the fluff prices, they suddenly went up. Currently, they’re coming down again, and there’s indeed some quarterly volatility that we see in our results that we have to manage, which is intrinsic in this business. Structurally, if you take more view on one, two, three years, there we see that structurally, we have yes, all the trends that we have foreseen offer us quite visible and quite in line with our expectations.

Ferdinand De Beur, Analyst, Degroof Petercam: Okay. Could you could you quantify the additional cost for the Segovia waterflood?

Girth, CFO, Ontex: Yeah. It’s not something we we disclose individually, but if you look at because you’re talking about high numbers of costs. And, yeah, first of all, what you need to know is lower volume for us in our plants. We have quite some fixed costs, definitely on a short term, short term changes in volumes creates quite some impact because we cannot short term flex our fixed costs. That means that we have there are some cost impacts, which we believe we will have a much better absorption in the second half of the year.

And then if on top, because a lot of things that’s happening is the complexity of different elements coming together. In fact that Segovia came on top, it’s very difficult to quantify individually, but definitely there are elements like intercompany transports we have to do. And then you’re talking about a couple of million euro, at least that is hitting the cost. But at the same time, we also have the impact on the sales because also we missed some sales because of that. And on the missed sales, we

Gustavo, CEO, Ontex: have the margin impact. So So perhaps, Ferdinand, if I am I will say that 75% of of the gap between our expectation for the first half and the reality, 75% of that is volume related. And the impact that that volume, as Hirid was mentioning, in our EBITDA is big due to, you know, sudden volume changes in the market. You cannot flex the overheads so quickly. Right?

So 75% is volume related. And probably 25%, it’s other inefficiencies, and it’s a combination of other inefficiencies. You you you what you’re saying is is mostly right in terms of that at the beginning of quarter two, we knew already about the cost of the raw material increase. Yes. We did.

So it’s not that. We deliver we normally deliver we deliver on our objectives and our expectations in terms of cost transformation. Therefore, those were the were at hand, you know, to offset that extra cost and some of the inefficiency that we suffer, but we’re not able to offset the lower volume. So I would say that 25% that is on the gap as a result of some inefficiencies, most of those inefficiencies are already gone. The 70% of the gap due to volume, I was trying to explain what we are expecting in the volume before and how to recover that volume.

Ferdinand De Beur, Analyst, Degroof Petercam: All right.

Girth, CFO, Ontex: Okay. Clear.

Gustavo, CEO, Ontex: Thank you, Fernando.

Ferdinand De Beur, Analyst, Degroof Petercam: Thank you.

Markus Schmitt, Analyst, ODDO BHF: Thanks, Fernando.

Speaker 3: Next question comes from Charles Eden from UBS. Your line is now open. Please go ahead.

Charles Eden, Analyst, UBS: Hi, good afternoon. Yes, thanks for taking the time to do this. Appreciate you’re busy. I do want to just come back and it’s sort of following on from that last question. I’ll certainly answer it to the end of it.

When I look at the raw materials line, so you’ve got minus 16% in the quarter, minus 19% in the half. I’m looking at the table on Page three of the press release, just to be clear, impact on your EBITDA. And yet sales pricing obviously down, and I and I get there’s a lag between but can you just remind us how the contract structures work with your customers? Because surely, everybody’s gonna be benefiting, and certainly we’ve seen this on the branded side

Gustavo, CEO, Ontex: Yeah.

Charles Eden, Analyst, UBS: By move more quick quicker pricing to react to some Yeah. What has been a volatile period for particularly pulp markets, I guess, for you. How does it work? And how quickly can you, in reality, offset those higher costs from raw materials? Because looking at those numbers, it would suggest that you may even be doing some contracts that are barely profitable at this point.

So if you could just sort of remind us how that works? And then just the second one, probably maybe a bit more upbeat. You obviously said the contracts are coming through as you expect. So do you sort of sit here today more confident on your delivery of the full year guide? Because, look, you’ve undoubtedly changed a lot of things for the better during your time with Ontex, Gisela, but really, obviously, the guidance cut is is coming at unfortunate time.

But you still sit here, and you feel very comfortable that there is not another guidance cut to come even if the market is suffering slightly further in Europe. Thank you.

Gustavo, CEO, Ontex: Okay. So the price on on on on the price side also has it’s it’s aligned with our expectations because it’s a carryover from last year, so it’s quite simple to to to estimate it, and it was forecasted. So it’s not out of our expectations. It’s a carryover from price, competitive price adjustment that we have done last year based on the raw materials because remember that you’re comparing quarter versus a year ago, right, and or half year versus a year ago. And it is when we started to do some price adjustment based on the 23 raw materials reduction.

So that is is going is fading out at the moment, and and we are not expecting anything else than potentially any type of based on some mix, you know, or or geographic mix or differences in in channels potentially. The the the pricing could be something like that, but we are not doing any price adjustment at the moment with any customer. You asked the question about the contract. How how does it work on the contracts? There is no in some in the health care channel, it might be some contracts that it’s include that some indices, but not in the retail environment.

And, also, we have to take into consideration, and I’m sure that you will remember because in in the February analyst call, we already talked about the fluff indices expectation increase. And we I refer to that as a not a structural rate increase. I refer to that that it was more mainly due to supply, not from demand. And when it is from supply, the fluff increase, right, indices, and clearly understanding what type of supply the flap suppliers they are facing, you you we know that this momentarily. And the level of the increase also would never justify going into a market price increase.

And even less, I have to say, I’m being cautious, you know, in in the environment that we are playing today with a market contraction in consumer demand, where the competitiveness increased. So it’s not the right environment to to any pricing by any company. And and we knew that those cost increases, they were momentarily cost increases. As I said, when a company has a structurally good cost information program that as the one that we have started to implement three years ago, I would say that those needs to be absorbed by that. Definitely.

Those cyclists normal cyclists on pricing based on supply demand. But when there is something more structurally in terms of the cost of raw materials, more profound, that could be by a big change in the supply or by a big change in the demand, and therefore, the adjustment on the supply will take time and you know that that will persist, then there’s a different conversation with customers, definitely. But it’s not protected by any contract. This is open on the strategic discussion with the customers. So that that that is the answer for the first question.

And before I go to the second question, I wanna ask you if it was clear, the first one.

Charles Eden, Analyst, UBS: Yeah. It was. Appreciate that. Just very quick follow-up. How long is the average commitment at a price level with your retail customers?

Are you locked in

Gustavo, CEO, Ontex: Well, it’s by the contract. Twelve months? Yeah. No. The the price is owned by the contract.

So if they if you if you win a tender, the tender has a you know, a period of time, sometimes goes by one year, sometimes two years. It’s for the period of time of the tender, and and that’s absolutely reasonable.

Charles Eden, Analyst, UBS: Yeah. No.

Gustavo, CEO, Ontex: If No. It’s a very tricky thing. If if there is a major change in the market, you can you justify you are justified to go and renegotiate the price if there is a major change in the market. And that is what we have done, successfully done in the year 2023. So starting in I think that in the ’2, going through ’23, we increased the prices based on the increased cost, a major increased cost that the market was suffering.

So we were in the middle of tenders, right? So we were in the middle of the contracts, and we were able to to increase the prices. So it’s not that it’s not able to that nothing tells you that it’s automatic. Nothing tells you that you cannot come with a change in the price if there is a major change.

Charles Eden, Analyst, UBS: Sorry. I guess, just because I don’t wanna take it too much time. But just what is your average tender length? What is an average contract?

Girth, CFO, Ontex: Six months?

Gustavo, CEO, Ontex: Well, it it depends on the customer. There are some customers I try I tried to say. In in health care, you mean?

Charles Eden, Analyst, UBS: No. No. I’m I’m retail. Health care works. I’m talking on the retail side.

Yeah.

Gustavo, CEO, Ontex: In the retail. In the retail, I’m saying it could be one year to three years. But, honestly Correct. You know, even though if you have a tender of two years with a customer and the customer decide to anticipate the next tender, they have the right to do it, and they will tender again. It’s it’s it’s it’s more a strategic relationship with a customer, the one that you know, when I’m you you have heard from me, Charles, several times to emphasize, and I just did that at the beginning of this call, to emphasize on the importance on the significant importance that has to have a strong innovation pipeline.

Innovation, quality, service level are key pillars on a for a retailer, not just pricing. So the more the strength that you get there, it’s is way, way important as the to defend or to sustain a pricing in a customer. It’s not just pricing. So that’s why my emphasis there. And and perhaps it’s not just I I trying to bring color or different topics to the meeting, but what I’m saying that this company has been changing structurally changing in the last years is because we are we are making the changes in these things that will secure a better future for the company and valuation for the shareholders.

Ferdinand De Beur, Analyst, Degroof Petercam: Got it.

Gustavo, CEO, Ontex: Are you the second question is about my comfort about on delivery in the new contracts? Or no. Sorry. Yeah. Just, I guess,

Charles Eden, Analyst, UBS: you you took the guidance down. Yeah. You took the guidance down. There was obviously it it needed a contribution from these new contracts.

Gustavo, CEO, Ontex: It’s Yes. Yes. Yes. Started. Yeah.

Yeah. So in terms of the I I I can assure you that today, we we we are going in timing with the production and delivery on the new contracts with the customers that, as you are saying, rightly, it is essential for us to deliver on the second half of the year. So there is no indications for us today and that something will not be in the timing and in the in the amounts that we are expecting. So these new contracts are going well at the moment, very well, actually, at the moment. When I’m saying very well is because it’s excite it’s it’s very highly excited to see plans working at full speed and machines working at full speed.

That that’s very good, very comfort.

Girth, CFO, Ontex: That’s good to hear. Thanks.

Gustavo, CEO, Ontex: You’re welcome.

Speaker 3: Our next question comes from Maxime Stronart from ING Bank. Your line is now open. Please go ahead.

Maxime Stronart, Analyst, ING Bank: Hi, good afternoon. Hope you can hear me well. One question on my end as well. Now that we have seen the result of both P and G and SCT much better than what you have delivered on the like for like growth. Just wanted to check a bit with you on a comment that PNG has made flagging that private labels were pricing very aggressively right now.

Obviously, if we look at the pricing impact you had in Q2 compared to theirs, it shows well, it reflects that story. Just wanted to check with you how do you feel about this comment? How do you see this evolving in the second half of the year? That would be all for me.

Gustavo, CEO, Ontex: Yes. Maxime, first of all, I would not comment on what the competitor has said in their remarks. But I can tell you that share pricing of the private label of the a or the a brands are decided in the case of the a brands are decided entirely by the retailer, not by us. Shelf or consumer pricing. And and the level of a levels of promotion and specifically by the leader that you have mentioned in Europe as an a level has been increased perhaps by threefold versus the same period of time of last year.

So you can deduct and make your, you know, yeah, your your your insight on that. Right? Because that is what happened in the market. But they cannot talk about what the competitors say or may not say in their analyst calls.

Maxime Stronart, Analyst, ING Bank: Just to follow-up on this, clearly understand and appreciate the comment on aggressive promotion and so on. But still, if you compare the pricing impact of the two, we see a clear disconnect there. So I just wanted to make sure we understand everything correctly. So basically, if I look at Baby Care, for instance, you have underperformed SCT quite materially. Can you maybe a bit elaborate on what the difference you see in terms of pricing compared to SCT in Q2, for instance?

Gustavo, CEO, Ontex: Well, in pricing, again, it depends on what the competitor is talking about. We focus entirely in private label, while the competitor is a hybrid company and they have branded business and private label. And when you read that competitor information, you have a mix of that. At the same time, every company, and I can assure that, every company does their accounting in some things in a different way. So it’s very difficult for any of you to read exactly and and do comparable numbers in terms of baby care pricing.

So difficult to answer your question in a way that you would be able to read it because I cannot read that.

Maxime Stronart, Analyst, ING Bank: Okay, clear. Thank you for the answers.

Gustavo, CEO, Ontex: You’re welcome.

Speaker 3: Our next question comes from Markus Schmitt from ODDO BHF.

Markus Schmitt, Analyst, ODDO BHF: I have two questions actually, and it’s around Turkish asset sale and leverage. So I think in discontinued operations, you still show net cash from your Turkish activities. Maybe you can confirm if that is all Turkish cash. And when I look only at the core group, net leverage was at 3x at the end June. So in fiscal year end ’twenty five, assuming the Turkish asset sales will be finalized, completed during H2, there won’t be any discontinued operations, I think, and you’d be right then at a net leverage of about 2.5x as guided.

Can you disclose what the net proceeds will be from the asset sales in H2? And I have a little bit of hurdle to derive from the 3x of the core group to the 2.5x by year end. Maybe you can explain that bridge a little bit. I think EBITDA recovery, as just explained, will play a role, but maybe some net proceeds. So maybe you can provide these pieces a little bit.

And subsequent question would be where do you see the RCF drawn at fiscal year end 2025? It was at €185,000,000 right now, a much higher figure than what I expected, actually. So maybe you can explain where you see the RCF at year end.

Girth, CFO, Ontex: Okay, Markus, I will take that one. A lot of questions, I will try to give answers, but tell me if I missed something. First of all, you’re right, in the discontinued operations, but you can find that in our reporting, we still have some significant cash that’s indeed in the Turkish legal entity. So the purpose is to recover it in the purchase price. You know that we disclosed, if I remember well, some net proceeds last year.

If you ask about the proceeds of Turkey, it’s around EUR 20,000,000, EUR 25,000,000, something like that, if you derive it back from what we got from Brazil. But it’s without the cash, so that means that we recover also the cash and that cash is coming back to us. And if you take that then and you take out, of course, a limited EBITDA contribution we have in Turkey because it’s positive, but it’s limited, and you take then the proceeds, then you will be at the guidance that we put for the end of the year, around 2.5. That’s our guidance. But of course, it includes also the positive free cash flow that we foresee in the second half of the year in the core business.

You know that our guidance is that we will be around zero and that our free cash flow in the first half of the year was minus 40,000,000 So that means that we expect about €40,000,000 positive in the second half of the year. And then if you link that to the RCF, you can say that at €40,000,000 at the end of the year, if we generate that €40,000,000 then the RCF will decrease more or less with that amount. And for us, yes, looking at cash and RCF, we’re always a bit careful. It’s for us, it’s a bit communicating vessels. But of course, all the cash that we have in Turkey, we cannot repay on the RCF.

Once we can unlock that cash, because for us, it’s a cash it’s tax efficient way to get the cash repaid based on sale of the business instead of paying dividends, then we can probably also we will also probably use part of that cash also to decrease the RCF. So RCF, in a nutshell, it will go down then with the €40,000,000 on the free cash flow of the car. And partially, we can use also the cash in Turkey once recovered in order also to repay RCF. Is that clear, Markus? Maybe that is clear.

Markus Schmitt, Analyst, ODDO BHF: I mean, the bits and pieces at the end, we will see. I mean, other effects on working capital whatsoever will have played a role, too, I think. But I see the potential. That’s good. Secondly, maybe just a question on that, let’s say, price competition in that market on which you just elaborated.

I mean, do you see actually that a form of price war is coming back to the sector after the period where you had the chance to overcompensate raw material pressure by price increases quite nicely over the last two years. Is that for you, given the difficulty of the overall market coming to an end? And you have not set, let’s say, freedom to raise prices if you want to compensate raw material pressure? Is that the new normal in that sense?

Gustavo, CEO, Ontex: Well, in I’m going to take that one, Marcos. Sure. The the the first thing that I would say is there is no we don’t see pricing a a cost raw material cost price increases. Right? So the we don’t see a a of price increases due to raw material.

But to your question about the potential price war coming back, price war, right, due to the competition. Well, I I will not deny that the market dynamics at the moment in terms of consumer demand, the the the consumer demand in some sectors like in the baby care, it will be put pressure on the pricing because companies, they will try to defend their positions in their customers. So with their consumers, right? So, yeah, that will probably be a reality. And other sectors, not in our categories, there are other categories that in a growth mode and the supply of the right product, the supply of the right quality is essential for the customers and retailers are growing and they need product that the capacity needs to be in place.

So it’s not the same for every single category that. It’s not for every category. In terms of the intensity of that competitiveness in the in in in the price front, I I wanna say that that’s exactly why we yeah. It’s part of the game. And why this the team in OnTex has been working so hard and in terms of structurally changed our operational efficiencies because we need to generate enough cost savings to overcome these moments.

Those those are cycles all the time. And and and we are getting we are getting more and more ready to face those type of things, to face some raw material changes or to face some competitive pricing. We say from the beginning in the plan that our cost information gains, which are significant year on year, our due to the efficiencies that we are looking after in our operations are are to serve two may major objectives. One, to improve our bottom line margins and one, to improve our competitiveness in the market and the other one. So that is what we are doing.

I it’s not that I’m trying to simplify the answer of your question, but it is part of the game. I I hope that I answer you.

Markus Schmitt, Analyst, ODDO BHF: No. No. That that’s very clear. Yeah. Thank you very much.

Gustavo, CEO, Ontex: You’re welcome.

Speaker 3: There are no more questions at this time. So I will hand over the conference back to the speakers for any closing remarks.

Gustavo, CEO, Ontex: Yeah. Thank you. Yeah. Look, I really we really appreciate the the opportunity to have this call, and I know that we had one, two weeks ago and now so I appreciate the time that you’re investing in on on on our company and to understand what’s going on. And for us, it’s it’s always super important to be able to to express what’s going on and and and trying to be as much as transparent as possible.

I as a closing remark, I just wanna say, please do not forget where we were three years ago. This company today, yes, it’s true. We have a very disappointed second quarter, a disappointed first half of the year. We but don’t forget how much we have been progress in the last three years in this company, making a structural changes. Our balance sheet today is a healthy balance sheet, and that is key for any company to continue operations.

And that has enabled us at the same time to, you know, to invest in the company we generate with the cash that we are generating, investments that are transforming the operations in this company, having more technology to prove to be able to produce the innovation that our r and d teams are developing, and then we bring it through the operations into the market. So these extraordinary changes are here to stay for the long run. Yet, we have plenty of more things to do. And that’s why we are saying very emphatic that our focus today is to accelerate the implementation of this plan because this transformation journey is not yet done. And maybe we are 50 there, we are 60 there, but we have plenty of things to do and that will secure this shareholder value for the future.

So that that would be my last message. Let’s remind all the things that we have done in the last years. Thank you very much. Appreciate it. Thanks a lot.

Bye bye.

Speaker 3: Thank you for joining today’s call. You may now disconnect.

This article was generated with the support of AI and reviewed by an editor. For more information see our T&C.