Earnings call transcript: Ontex Q4 2024 shows strong EBITDA growth

Ontex Group (EBR:ONTEX) reported robust financial results for the fourth quarter of 2024, showcasing a significant increase in adjusted EBITDA and a recovery in EBITDA margin. According to InvestingPro data, the company’s stock is currently trading below its Fair Value, suggesting potential upside opportunity. The company remains optimistic about its future growth, driven by innovation and strategic investments, with analysts projecting profitable performance this year.

Key Takeaways

• Adjusted EBITDA rose by 28% to €223 million, with a margin recovery to 12%.
• Free cash flow improved to €48 million, with net profit in core markets reaching €21 million.
• Ontex launched 13 major innovations, focusing on leak prevention and sustainability.
• The company reduced its leverage ratio to below 2.5x, indicating improved financial stability.

Company Performance

Ontex demonstrated solid performance in 2024, with a 3.5% like-for-like revenue growth. The company’s strategic focus on product innovation and operational efficiency has contributed to a healthier financial position, reflected in its strong InvestingPro Financial Health Score of 2.8 (GOOD). Trading at a P/E ratio of 14.04 and a price-to-book ratio of 0.74, Ontex’s leverage ratio reduction and enhanced cash flow position it well against industry trends, such as the declining European baby care market and the growing adult care segment.

Financial Highlights

• Revenue growth: 3.5% like-for-like
• Adjusted EBITDA: €223 million, up 28%
• EBITDA margin: 12%
• Free cash flow: €48 million
• Net profit in core markets: €21 million

Outlook & Guidance

Ontex projects a 3-5% revenue growth for 2025, with core adjusted EBITDA expected to grow between 4-7%. The company plans to continue its transformation journey, aiming for cumulative net savings of €200 million by 2025. Investments in R&D and manufacturing are expected to enhance production capabilities, particularly in North America.

Executive Commentary

Gustavo Calvo Paz, CEO of Ontex, emphasized the company’s commitment to growth and innovation. "Ontex is growing, it’s more competitive, it’s more profitable," he stated, highlighting the company’s transformation progress. He also reinforced the company’s dedication to making innovation accessible, saying, "We believe that innovation should be accessible to everyone."

Risks and Challenges

• Declining birth rates in Europe, impacting the baby care market.
• Potential tariff impacts on U.S. production could affect cost structures.
• The need for continuous innovation to maintain competitive advantage.
• Macroeconomic pressures that could influence consumer spending patterns.
• Execution risks associated with ongoing restructuring efforts.

Q&A

During the earnings call, analysts raised questions about potential tariff impacts on U.S. production and the company’s North American growth strategy. Ontex expressed confidence in its strategic direction and highlighted ongoing restructuring and cost transformation efforts as key to future success.

Full transcript - Ontex Group (ONTEX) Q4 2024:

Jeff Raskin, Investor Relations, Ontex: Good afternoon, everyone, and thank you for joining us today. This is Jeff Raskin from IR. I’m pleased to have Gustavo Calvo Paz, our CEO and Geert Peters, our CFO, with us today to present the 2024 full year results. Before that, let me remind you of the safe harbor regarding forward looking statements. I will not read them out loud, but I will assume you will have duly noted them.

You’re well aware that since 2022, our P and L is based on continuing operations, which consists of our core market activities only, while the emerging markets are reported as discontinued operations. These continue to contribute to our results and to the presented debt and cash flow figures in particular. As we close to concluding the divestments of all of the emerging activities, this should be the last year I have to say this. With that cleared up, Gustavo, over to you.

Gustavo Calvo Paz, CEO, Ontex: Thanks, Jof. Looking back on 2024, the second year of our transformation journey, we can see the delivery of our efforts in our financial results, building on the solid delivery in 2023. Let’s look into them on the next page, please. 2024 marked yet again a noticeable improvement in our performance. First, with continued revenue growth of 3.5% like for like.

While in 2023, this was largely thanks to price increases, this year it was entirely the result of volume growth of 6%, growing by double digit growth in North America, in adult care category, in baby pants and in other selected categories. Our EBITDA margin has recovered to 12%, back to our historic levels, thanks to the relentless focus on the cost transformation program, which allow us to gain competitiveness, thereby supporting growth and improved profitability. While we continue to make substantial investments in our growth and in our transformation efforts, we delivered a strong free cash flow of EUR 48,000,000, a strong improvement versus 2023. Finally, thanks to the strong EBITDA improvement by 28%, we have reduced our leverage ratio further to just below 2.5 times. This reduction in indebtedness give us greater financial flexibility.

I will pass you over to here for more details analysis on our 2024 performance.

Geert Peters, CFO, Ontex: Thanks a lot, Gustavo. Let me start explaining the like for like revenue growth of 3.5%. This growth is driven by strong volume and mix growth and largely offsets the anticipated lower prices. Our volumes grew in all categories, 5.7% overall. We thus outperformed the growth in the market demand in Europe and especially North America.

Let’s have a look at the volume development of our three product categories in Europe and then also Baby Care in The U. S. First of all, Adult Care in Europe. Market demand was up by mid to high single digits supported by societal trends with an increasing and more active elderly population. Moreover, retailer brands gained market share.

OmTech’s volumes grew by double digits, mainly thanks to market share gains in the healthcare channel. Secondly, feminine care in Europe. Demand was largely stable, but we benefited from market share gains in retailer brands. And then baby care in Europe. Market demand decreased by low single digits, reflecting the decreasing birth rate.

Retailer brands, however, consolidated their market share gains made in 2023. Consequently, our baby care volumes in Europe were lower as well, but we continued to strengthen in higher added value products like baby pants, where we grew volumes by double digits. And then last, baby care in North America. Demand was largely stable, but A brands lost some market shares to retailing and lifestyle brands. On takes grew by strong double digits boosted by the contract gains we secured with major retailers.

Let’s then go to the sales prices. These were lower across the categories, down 2.2% overall, investing in competitiveness and reflecting lower raw material prices. This explains a revenue decrease in feminine care and stable performance in baby care. In adult care, volume growth was more than compensated for the price decrease. This resulted in a strong 9% like for like revenue growth.

Let’s have a look at the adjusted EBITDA. We increased by 28% to reach EUR $223,000,000. At the same time, our margin rose to 12%, up 2.3 percentage points. As explained on the revenue graph, the volume mix improved significantly, contributing EUR 21,000,000 to the EBITDA. The cost transformation program delivered EUR17 million of net operating savings.

That means that the operating cost base thereby shrunk by close to 5% again with strong initiatives in purchasing, the supply chain, manufacturing and innovation. As you can see, we partially reinvested this improvement in sales price decreases. Raw material prices had €39,000,000 positive impact, in particular for super absorbent polymers and for fluff. In Q4 raw material prices have been flattening out. Other operating SG and A costs were up by €38,000,000 largely due to inflation of salaries as well as energy and distribution costs, but also include temporary inefficiencies consequent to our asset and footprint transformation.

Then on the next slides, we go to the full P and L, which I compare us to the previous year. Let’s start first with the core markets. The increase in adjusted EBITDA almost fully translates in an increase of adjusted profit to EUR 76,000,000, which is close to double as compared to the last year. In this amount, the depreciations were slightly up reflecting the higher investment level and that finance costs ended higher than in 2023 despite lower indebtedness. This was due to negative ForEx impacts.

Adjusted income taxes were stable, but the effective tax rate improved thanks to the recognition of historic deferred tax assets in the periods. That brings the net profits in the core markets a bit lower at EUR 21,000,000 positive, and that’s due to the important post tax non recurring costs of EUR 55,000,000. On one hand, these non recurring costs include EUR 62,000,000 restructuring provisions related to the Belgium footprint, On the other hand, also million impairments on redundant assets. Then we go to the discontinued operations, what we call the emerging markets. They ended at a loss of million.

In this, the adjusted EBITDA ended positive at EUR 29,000,000, which is lower than last year due to the reduction of scope with the divestments we did and more challenging market contacts in Brazil. It also included significant one time divestment related costs. In total, EUR 27,000,000 related to the divestments of Algeria, Pakistan, Brazil and Turkey, of which main part is non cash cumulative translation adjustments on Algeria. Adding then up those continuing and the discontinued operations, the profit of the period for the total group came at a positive of EUR 10,000,000. Then on the next slide, we go to the cash side.

Starting from the adjusted EBITDA for the group of EUR $252,000,000, which includes a contribution of the emerging markets of EUR 29,000,000. Solid working capital management contributed EUR 9,000,000 despite higher inventories due to transformation in efficiencies and thus are temporary in nature. Net financing cash out totaled EUR 31,000,000, substantially lower than in 2023 as the interest payments decreased thanks to lower indebtedness. CapEx amounted to EUR 112,000,000, representing close to 6% of the core market’s revenue. This reflects the step up in investments for growth and transformation of the group.

One time restructuring and divestment related cash out ended at EUR39 million, of which EUR29 million is a first payment of the restructuring of the Belgian operations. If we then add up everything, free cash flow ended at EUR 48,000,000 positive, which is very solid and well up compared to the EUR 9,000,000 in the previous year. Now we move to the balance sheet with the evolution of net debt which reduced 8% over the year from EUR $665,000,000 to EUR $612,000,000. Besides the EUR 48,000,000 free cash flow, M and A proceeds added to EUR 10,000,000. This mainly consists of the divestment proceeds of Algeria and Pakistan netted with costs and taxes as well as some upfront costs on the Brazilian divestment.

Gross financial depth of the total group reduced even more from EUR $834,000,000 to EUR $736,000,000, thanks to the continuing cash management optimization. Besides lease liabilities, our debt consists primarily of EUR $580,000,000 bond at a fixed 3.5% maturing in July 26 and EUR 24,000,000 drawn on the revolving credit facility. The latter was reduced end of the year and has a maximum capacity sorry, the latter was renewed of course at the end of last year and has a maximum capacity of €270,000,000 for a period of five years. We are currently looking into refinancing the high yield bonds in the course of 2025. Then our leverage ratio.

The leverage ratio decreased significantly from 6.4 at the end of twenty twenty two to 3.3 at the end of twenty twenty three to just below 2.5 at the end of twenty twenty four. That is a combination of the net financial debt reduction, which is presented as a light blue line on the graph and mostly thanks to the divestment proceeds, but also and that’s the dark blue line at the top due to the fast improvement of adjusted EBITDA of core markets, which more than offsets the impact of the scope reduction consequent to the divestments. The available liquidity of the total group increased from €22,000,000 to €370,000,000 consisting of 124,000,000 cash and the undrawn parts of the revolving credit facility. The strengthening of the balance sheet and continually improving profitability and cash flow was also recognized by the rating agencies which both upgraded Ontex in the course of the year. Let me hand you back over to Gustavo for what 2025 and beyond will bring us.

Gustavo Calvo Paz, CEO, Ontex: Thanks, Geert. Looking back on 2024, the second year of our transformation journey with several important milestones reached, we are confident that you will come to the same conclusion. Ontex is growing, it’s more competitive, it’s more profitable. And on top of that, On Tex carries less debt and generates stronger cash flow, while heavily investing in future growth and innovation. This success are the result of the passion of our Ontex people and their unwavering focus on operational efficiencies, business expansion and sustainable innovation throughout 2024 in close partnership with many of you.

Let’s move to the next page, please. Looking ahead to 2025, which is the third year of our three year transformation journey, we expect to continue to grow our revenue by 3% to 5% like for like with a strong volume growth in North America, but also continuing to focus on selected categories in Europe. Our cost information program will continue to deliver operational efficiencies, allowing us to drive our profitability while also invest in our competitiveness. We will manage pricing accordingly and also in function of the raw materials price evolution, which we currently expect to remain relatively stable. All in all, we thereby expect to continue to grow our core adjusted EBITDA by 4% to 7%, while we will continue to invest intensively in our transformation for one more year to finalize the three year transformation plan and continue to invest in our growth, we expect free cash flow continue remaining strong, which brings me to the next slide.

We are reaching the end of our divestment plans and should be fully done by end of year. In 2023, the Mexican business was sold and in 2024, we closed the Algerian and Pakistan divestments. We have reached binding agreement to serve Brazilian and Turkish business, which we expect to close in the first half and third quarter for this year, respectively. The net proceeds received from these investments help to reduce our indebtedness. With the portfolio transformation nearing completion, Ontex can focus fully on its core business, retailer and healthcare brands.

This helps in becoming an even more focused performance driven organization. Let’s move to the next page. As explained before, we have three main value creation drivers. First, competitive and sustainable innovation to offer the equivalent of A brand innovation as fast as possible to our customers second, best in class operations to structurally improve our operational costs, driving up our profitability while strengthening our competitiveness and third, business expansion, where we have set clear goals to strengthen our position in Europe and grow in North America. Let’s go into some highlights of these three value creation drivers.

At Ontex, we believe that innovation should be accessible to everyone. This philosophy drives us to make innovation available as fast as possible and to make products smarter, safer, more affordable and more sustainable than ever before. In 2024, we launched 13 major innovations across our product categories that cater to diverse market needs. A major focus has been leak prevention with the launch of DreamShield’s baby diapers with front and back barriers as well as DreamShield three sixty baby bands with back barriers. Behind this science, everybody at Ontex takes pride in being a driving force behind our efforts to constantly improve the experience of our customers and consumers today and in the future.

Protecting these efforts in our interest and especially in our customers’ interest is an important element in our innovation strategy. In the last two years, we have filed for 28 new patent families and as such we are among the top 10 in Belgium. We are also proud of our sustainability progress and delighted to see this rewarded with a CDP A Score for Leadership in Climate Action (WA:ACT). Competitive and sustainable innovation is critical to strengthen further our competitiveness for coming years. Let’s move to the next value creation driver, which is best in class operation.

We are de complexifying our organization drastically, simplifying our product portfolio. By the end of twenty twenty five, we will have reduced the number of product combinations by 45%. We harmonized and upgraded our food production footprint and by the end of this year, more than 50% of our lines will have been either renewed, upgraded, moved or scrapped. We also further optimized our manufacturing footprint and initiated the transformation of our Belgium activities into a center of excellence for R and D and manufacturing for adult care, which would be largely done by the end of twenty twenty five. The successful implementation of our cost information initiatives has resulted in a more agile supply chain, leading to a 4% to 5% reduction of our operating costs, improving overall equipment efficiencies and reducing production in scrap.

A solid $126,000,000 cumulative net savings were delivered so far over the years and we expect more than CHF200 million by the end of twenty twenty five. And meanwhile, we continue to invest in the transformation of our operations through capital expenditures and restructuring spend for a total amount slightly lower than that. Best in class operation is key to structurally improve our competitiveness and our margins. Let’s move to our third value creation driver, which is business expansion. We achieved a 7% like for like average revenue growth in the last two years, supported mainly by prices in 2023 and volumes in 2024.

In Europe, we strengthened our leadership in retailers brands across categories. We strengthened our position selectively growing by double digit in, for example, baby pants and adult care, which has now come at par with baby care category and even slightly surpasses it. In North America, currently focused on baby care, we realized double digit growth over the two years and especially on the retailer brand side, where we have secured significant contract including with top of the top five retailers. This success can be attributed to an increased focus on customer centricity and nurturing customer relationship and we thereby expect this to continue. To support this growth, we invest in our operations and more in particular for our Stockdale plant in North Carolina.

By the end of twenty twenty five, we will have more than tripled the number of lines of our stock based plan over the three years. Business expansion is key to sustain our top line growth. Next (LON:NXT) page, please. We can already see the impact of these three value creation drivers in our profitability with our adjusted EBITDA improving year on year since 2022. The three year plan included investing more intensively to transform our operations to best in class.

Requiring capital expenditure and restructuring spend represented about 2% to 3% of our revenue. This currently leave us with million in free cash flow. This is a big improvement since last year. For 2025, we expect a similar picture as in 2024 as we will continue investing in our transformation. However, our free cash flow should improve from 2026 as for transformation investment will fade away while our three year plan will be near completion.

Before we move to the Q and A, I would like to highlight the three most important points of this presentation on the following page. First, we are starting the third year of our three year transformation journey and we are well tracked to complete it successfully in the next ten months. Teams have been working incredibly hard. It has been a real marathon. And I would like to thank all my teams for their hard work so far and for the hard work that they will continue doing this year.

Second, I want to remember that we are growing and that our adjusted EBITDA margin increased significantly reaching 12%. And finally, I would like to highlight the step change in our free cash flow generation this year, building a strong confidence for the future. Thank you all and I’m looking forward to your questions.

Speaker 3: To

Geert Peters, CFO, Ontex: you.

Speaker 4: The first question comes from the line of Charles Edent calling from UBS. Please go ahead.

Charles Edent, Analyst, UBS: Hi, good afternoon. Thanks for taking my questions. Two from me. Firstly, on the EBITDA guidance for $25,000,000 if I take the midpoint of your guidance, so 5.5% EBITDA growth, then you’re expecting about $12,000,000 of additional EBITDA year on year. That’s on the sales increase of 4% at the midpoint of $74,000,000 So the incremental margin is sort of 16.5%, which feels quite low, especially as I would imagine there’s some additional cost savings still coming through in 2025.

So are there some additional cost headwinds we need to be aware of for this year? Or really is this a case of early year prudence with regards to the 2025 EBITDA growth expectations? And then my second question, on your guidance for free cash flow in ’twenty five and for it to be similar to the $48,000,000 you did in ’twenty four, can you remind us what restructuring costs will be in the cash flow, the impacts between cash flow in 2025, please? I’m trying to understand what a clean free cash flow might look like excluding any one off restructuring charges. I mean on my calculations that sort of $100,000,000 plus, Is that fair?

And could we expect that to be the run rate level of free cash flow

Speaker 3: for 2026 onwards? Thank you.

Gustavo Calvo Paz, CEO, Ontex: Thank you, Charles, for your questions. I’m going to take the first one. I believe that here we’ll take the second one. On the EBITDA growth expected in our outlook for 2025, I would say that, yes, you used the word I appreciate that you used the word prudent. And you can imagine that under the economic, social, political circumstances that all of us we are facing at this point in time.

We believe that it has been a prudent way to continue showing our growth in our plans and in our plans as a pool in terms of delivering the growth, delivering the EBITDA growth and delivering also our cash flow. So yes, we are confirming that range that we have set up in the outlook.

Geert Peters, CFO, Ontex: And Charles, for the free cash flow, the way we look at it is first of all, we guide on again a solid strong free cash flow generation in 2025. Now as components, Gustavo explained on his slides that for us a normal CapEx level would be 3.5% to 4% and we intensified our CapEx investments in that three year transformation journey. So that means we continue doing that in 2025. So we will have an extra amount on CapEx which is fading away at the end of the year. And on the other hand, we have of course our restructuring costs.

There I want to refer to the fact that in the P and L we have the full accrual for it. So there will be hardly any more accrual impact in 2025, but the expense is partially spread over 2024 and 2025. That means that out of the EUR 60,000,000 which we have as an accrual for the Belgium footprint about half has been expensed in 2024. The other half will be in 2025 and early twenty twenty six because then we’re finalizing the program of building the center of excellence in Bugenhouts.

Charles Edent, Analyst, UBS: Okay. That’s clear. So just to clarify, if you take 50,000,000 round numbers free cash flow to 24,000,000, is 30,000,000 still related to restructuring. So you’re sort of saying you’re running at a run rate of around $80,000,000 of underlying free cash flow and then obviously depends where CapEx goes from that. Is that correct?

Gustavo Calvo Paz, CEO, Ontex: Charles, those are your numbers. We cannot confirm, not deny any numbers that you are running. We are trying to be as much as transparent possible in terms of our outlook and also how we are running the business. So, yes, I’m good for you to do the numbers.

Charles Edent, Analyst, UBS: Please, I thought I’d try. Thanks, Dave. Speak to you soon. Thanks.

Gustavo Calvo Paz, CEO, Ontex: Yes. Thank you.

Speaker 4: The next question comes from the line of Wim Ost calling from KBCS. Please go ahead.

Wim Ost, Analyst, KBCS: Yes. Thank you and good morning. I also would like to ask two questions then on Mexico and North America basically. Can you maybe first elaborate a bit more in detail about your production footprint? In the slides you showed that there’s a more than tripling of capacity in Stokesdale by the end of twenty twenty five over the strategic planning periods.

But, yes, can you put that a bit more into numbers? My knowledge, I think there were or there are 12 production lines in the Mexican facility and at the moment three production lines in Stokesdale. So can you maybe update on those numbers, what that will be in the end of twenty twenty five and how much capacity would then be split between the two plants. So that’s the first question. And the second question is on the contract structures you have in North America.

I’m not sure you can elaborate on that, but I’m going to ask the question anyway. If there’s I assume that prices are just fixed excluding tariffs or VAT or anything like that. So I was wondering if there is any change in the regulatory environment, how does that affect the pricing structures you have in the contracts with clients? If you can elaborate on that, that would also be interesting. Thank you.

Gustavo Calvo Paz, CEO, Ontex: Okay. Thank you, Wim. I will try to address your questions. First of all, on the footprint that we have in North America, Stockdale is growing in capacity and as I mentioned before, we have tripled the capacity and in terms of triple the assets base in the by end of this year a little bit even more than triple and at the same time the output of those machines has also been increased significantly. So the total output of the plant in Stockdale, it’s increasing radically, I would say.

And that is by the plans up to ’25, but those plans will continue in the years to come. And yes, we still have the our footprint in Mexico supplying our customers in the West Coast Of U. S, which delivering a significant benefit in terms of supply chain, in terms of transportation for the customers and for us. So it’s a unique competitive position there. The talking about the contracts that you were asking, it’s a little bit in detail that we cannot disclose those contracts as you can imagine.

But I can tell you that the contracts today with the retailers are going very well. We have an excellent relationship with the customers, strategic relationships that go beyond specific contract. And we have signed also new contracts that will kick off more in the second half of the year. And we definitely will absolutely is in our plans to continue growth in North America business. The opportunities are fantastic there and nothing has changed in terms of that.

And we have a strong partnership with retailers in North America.

Wim Ost, Analyst, KBCS: But if there would be an introduction of a 25% tariff on anything that is imported in The U. S. From Mexico, Would that be a significant challenge to your business in your opinion or not?

Gustavo Calvo Paz, CEO, Ontex: So we all know that the tariff situation is highly fluid at this point in time, right? And we are monitoring very close all the situation and we are adjusting our actions and plans with a lot of agility and as much as needed. But let me emphasize again that nothing has changed in terms of our growth ambitions in U. S. We will continue to support our customers’ plans with sustained innovation, with quality and with the service levels as we are committed to do with all our customers.

Nothing has changed in terms of that. And we are assessing this tariff situation and implications. And it’s not just for the finished goods, but also we need to understand the whole landscape, right? As I was mentioning, the supply chain, the freights and the distribution. Tariffs is not it’s a cost for us.

It could be a cost, it’s not different than any other cost that we have to address and we will address. At the same time, we need to understand that today 85% of our sales are in Europe, around 15% sales are in U. S. And we have two plants sourced in North America. So just to give a magnitude, right, on this.

And in partnership with our customers today and with partnership with suppliers and also thanks to the hard work that our supply chain team are doing, we have developed robust plans to mitigate all these potential challenges that we could have in the cost front. All that said, I am very confident that in our EBITDA and cash flow growth plans as presented in our outlook, I can confirm those, no changes on that outlook at all.

Wim Ost, Analyst, KBCS: Okay.

Speaker 4: The next question comes from the line of Usama Tariq calling from ABN AMRO (AS:ABNd), ODDO BHF. Please go ahead.

Speaker 3: Hi, good afternoon team. Thank you for the opportunity. I have just two small set of questions. Number one being, could you give slight ballpark with regards to your net debt ratio going forward? What do you see by the end of twenty twenty five?

I believe it’s not in the guidance. And secondly, if you could provide a ballpark figure of how much do you expect from the Brazilian and Turkish sale combined if you expect any? Any ballpark figure in that regard would be like net inflow if possible, that would be really nice? Thank you.

Geert Peters, CFO, Ontex: I will start with the second one because that’s an easy one. We mentioned it even in the press release that for Brazil and Turkey, we still expect around million of proceeds. So that’s what we can confirm. On that debt, indeed, we don’t have a specific guidance on that, but you yes, we confirmed the solid cash flow that we foresee. From a leverage point of view, I can reconfirm what we said before.

First of all, as a company, we believe that all we do below a leverage ratio of 3%, it’s healthy as a company, but we have the intention that the level 2% to 2.5%, it’s a good level for the coming periods for which we have the intention to go.

Speaker 3: Okay. Thank you. Very helpful. Thank you.

Speaker 4: The next question comes from the line of Ferdinand Deboer calling from Degroof Bittercamp. Please go ahead.

Speaker 7: Yes, good morning. It’s Bernard De Beaux with Finchel Petitchem. Thank you for taking the questions. The first is on North America. Previous quarter, actually, you had to lower your guidance because of, yes, hiccups in The U.

S. Production. Now you have very strong volume growth delivered in The U. S. In North America.

So does it mean that the problems are more or less behind also given the confidence you have in the volume growth going forward? That’s the first question. And then on the second one, you renewed your revolving credit facility, actually stepping up a little bit. But you also have to refinance, I think, $580,000,000 bond in 2026. Does it mean that actually you will use part of the credit facility to refinance part of this bond refinancing?

Gustavo Calvo Paz, CEO, Ontex: Fernand, I will take the hi, hello, how are you and appreciate your questions. I’m going to take the first one and Kerst is going to take the second question. In terms of the expectations in growth in North America, our last year we grew strong double digit growth and we have already plans and contracts that it will we continue with ourselves now with existing contracts and then we have some new contracts that are kicking off in more in the second half of the year. So we are going to show continued volume strong double digit volume growth in North America in Baby Care. So our growth aspirations in North America, I can tell you that we are very solid.

Of course, there is not lack of huge work from our supply chain teams, especially, but our relationship with the customers are getting stronger quarter by quarter.

Geert Peters, CFO, Ontex: And then Ferdinand on the high yield bonds, as you rightly said, we already refinanced November the revolving credit line. We will now look into the high yield bonds. We’re, as I said, working on it. We’re confident on refinancing it in the course of 2025. For the RCF, it was also expiring six months before the high yield bond, so we have somewhat more time.

And as to the size, we will decide at that moment what size we will take on that refinancing. But of course, with all the cash flows we generate and the proceeds, it will be likely lower than the $580,000,000.

Speaker 3: Okay. Thanks.

Gustavo Calvo Paz, CEO, Ontex: Maybe And

Speaker 7: I Yes. Sorry.

Gustavo Calvo Paz, CEO, Ontex: Go ahead, Vernon.

Speaker 7: I had one other question. In Baby Care, so you have strong growth in the North America, but in Europe, I think you are still moving away from the lower end of the markets. But how far will it go? Will it continue in 2025 that you still see lower volumes in that part of the market? Of could that stabilize and at the end of the day have also higher volumes than in Europe?

Gustavo Calvo Paz, CEO, Ontex: So in Europe and as well as in North America, I want to support also the answer that I gave you before. I want to emphasize in the point about innovation, sustainable innovation that we are bringing to market and the fact that we are building very strong strategic relationship with customers. So the innovation and our pipeline is very, very strong and helping building those relationships. In Europe on this follow-up question that you asked, the market, baby care market, it is declining. The birthday sorry, the birth rate is declining.

So it has an impact on the total market, but retailers brands continue to grow lower than perhaps in years before, but continues to grow. And retail brands in many cases are getting very, very strong as a brand in the marketplace in some countries. And we are in our forecast, we contemplate continue to grow double digit in those trendy subcategories within the baby care as baby pants and including also gaining new contracts in open diapers due to our strong innovation and great performance of product as they are seen by customers. So we are confident on our volume expectations also in Europe.

Speaker 7: Okay. Thanks a lot.

Gustavo Calvo Paz, CEO, Ontex: You’re welcome.

Speaker 4: The next question comes from the line of Reg Watson calling from ING. Please go ahead.

Reg Watson, Analyst, ING: Afternoon. It’s a little bit of a follow-up to Fadhan’s question and it’s prompted by the observation that, Adult Care is, for the first time ever, the largest revenue

Wim Ost, Analyst, KBCS: contributor for

Reg Watson, Analyst, ING: the business. So given your expectations for double digit growth in North America, how do you see the revenue share evolving between adult care and baby care as we go forward?

Gustavo Calvo Paz, CEO, Ontex: All right. So I’m not sure if I understood correctly your question, but so our focus in North America today, it’s in baby care, as mentioned before. The adult care, it’s a very, very important category for us and we are growing significantly in adult care. We have a very competitive a strategic competitive position in which we are we have strong network in two channels, a strong position in two channels in the institutional channel and in the retailer channel. So in Europe, that give us a very strategic good position and we are growing double digit growth in those trends trendy categories in lighter incontinence, in some categories in lighter incontinence, in moderating continents.

So that’s why the recent incontinence is growing significantly in the total core business that we have. Although of course that while we are growing faster in double digit growth in the total baby gear in North America, the mix of the two categories, it will have in one category it’s stronger in one region, the other one is growing significantly. So it’s compensating. I don’t see a major change towards the future in terms of the mix of the categories. And I don’t see also as well that in those terms, how we are doing the things, how we are approaching the markets currently in North America and in Europe, it’s based on our plans for investments for the future.

It does not mean that we will not do investments in the future in incontinence in North America when the time comes.

Reg Watson, Analyst, ING: Okay, okay. Thanks, Gustavo. So if we look into 2025, do you expect like for like growth to be higher in adult care or higher in baby care in aggregate?

Gustavo Calvo Paz, CEO, Ontex: Based on the categories I see no even, yes.

Wim Ost, Analyst, KBCS: Okay.

Gustavo Calvo Paz, CEO, Ontex: In total if then if one arises from a total core, we see it, yes, even because Baby Care will grow coming from North America and Adult Care as it is a very big business today in Europe will continue to grow. So it’s going to compensate one and the other.

Speaker 3: Okay. That’s really helpful. Thank you, Gustavo.

Gustavo Calvo Paz, CEO, Ontex: You’re welcome.

Speaker 4: The next question comes from the line of Markus Schmidt calling from ODDO BHF. Please go ahead.

Markus Schmidt, Analyst, ODDO BHF: Yeah. Hello. Thanks for taking the questions and congrats to the progress in 2024. Firstly, on the asset sales, you spoke of a weaker Brazilian market in Q4. So just as a quick confirmation for me, is that in any way jeopardizing the sales process or do you still expect this will be completed in Q2, just I think the period you mentioned?

And in terms of the new RCF, could you disclose the margin of a Uribor on the new RCF? That would be helpful. Thank you.

Geert Peters, CFO, Ontex: Okay, Markus, two questions for me. First of all, on the Brazilian sale, this is more related now to antitrust authorities looking at it. So the facts what’s happening in the Brazilian markets that there’s some more competitive pressure in the markets, it doesn’t matter for the deal. So the deal is continuing and we expect it to close in Q2 of this year. On the RCF, the conditions, this will be very similar than the current RCF that we have, but for a period of five years.

Speaker 3: Good. Great. Thank you very much. There are

Speaker 4: no further questions, ladies and gentlemen. The next question comes from the line of Karel Zoet calling from Kepler Cheuvreux. Please go ahead.

Gustavo Calvo Paz, CEO, Ontex0: Yes. Good afternoon. Thanks for taking the questions. I have a follow-up question on Mexico and about the tariff risk. Any help here in terms of quantification would be useful, I guess, like what would be the impact in case tariffs go through?

Because if I look to the business today, we know the lion’s share of the things sold in The U. S. Are still manufactured in The U. S. So how will you act in case there’s a 25% tariff?

Is that raising prices or working on efficiencies? And the second question is a follow-up on the outlook. You guide for 4% to 7% EBITDA growth, which is more or less where you see volumes probably ending up as well. I expect it’s a bit more operating margin expansion given the big restructuring we had in Belgium with the big step on the fixed cost side. So are these savings still to be expected a bit later?

Are they partly reinvested? Those were the questions. Thank you.

Gustavo Calvo Paz, CEO, Ontex: Thank you, Carl. I will take again the tariff questions and try to address it. Again, I’m going to say that this situation is you know that is very fluid, right. So there are several things that are unknown yet, but for us is as any other cost that we have in our product. So with that philosophy that is a cost, we are treating in all the ways that you have mentioned before.

So we will treat a challenge in the cost as it were from our raw material. So we partner with customers, we partner with suppliers, we work hard in our operation efficiencies. But again, you’re asking for an amount of money, I would that would be impossible to say that because I can it can take me hours to explain to you all the different implications and potential ways to mitigate. You have to believe that we have several ways to mitigate that impact and that’s why we are confirming our outlook on our growth and in our EBITDA growth as it says in this announcement. We are not changing that.

Gustavo Calvo Paz, CEO, Ontex0: Okay. So if tariffs do come then margins will at least be at the 12% level you generated this year?

Speaker 3: Yes. Okay. That’s clear.

Geert Peters, CFO, Ontex: Kargil, on your second question, of course, it’s also a dynamic of different impacts on our results. But first of all, the savings we expect from the footprint restructuring, of course, they are coming. Of course, there’s a timing impact, as you say. You know that at the same time, we’re completely reorientating Bryggenauits, which comes with a lot of work also with some costs that will be ongoing in until Q1 twenty twenty six. So that means some of the savings currently they’re still a bit hidden because of all the costs we do to do that transformation.

So the full saving you see we’ll see that more in 2026 and of course in 2027. And at the same time you also know what we did exactly in the same in 2024. Part of our savings we also reinvest in the company. So that’s also continuing in order to make the company more competitive and grow the volumes.

Gustavo Calvo Paz, CEO, Ontex: If I can build on that as well here, I think that to clarify to Carole, our investments in restructuring, the payback as any other investment, it needs to be paid back in less than three years. And I can tell you that this one is in line with that policy that we have within us, three years payback. But then if I put together as I mentioned in the presentation before, if we put together all our investments in efficiencies that we have done in the last couple of years and in restructuring. If I put all that money together, the cost information net improvement that we have done, it’s more than the investment that we have done, so in the same period of time. So yes, very strong paybacks.

Gustavo Calvo Paz, CEO, Ontex0: Okay. And the I think the factory in Aitfall has been closed, right? So those fixed savings and those have been all those are in the base by the end of twenty twenty four, right?

Gustavo Calvo Paz, CEO, Ontex: Has been closed, yes. Yes. It has been closed.

Speaker 3: Okay. Thank you.

Speaker 4: The next question comes from again Wim Horst calling from KeyBCS. Please go ahead.

Wim Ost, Analyst, KBCS: Yes. Thank you for taking the second round of questions. Firstly, on the like for like growth guidance top line, 3% to 5% growth, can you elaborate or split up between volumes and pricing? I think that you suggested that there will be further price investments. Does that mean that volume growth will be above that 3% to 5% range and then partly compensated by lower prices?

Can you maybe elaborate on that? That’s the first question. And the second one would be on the North American supply chain for not only you, but the entire industry. Can you give us an idea about how much of the current products that are sold in The U. S.

Are manufactured in The U. S. And how much is then produced elsewhere like Canada and Mexico? Is the bulk of the industry capacity in The U. S.

Or not? That’s basically the question.

Geert Peters, CFO, Ontex: Okay. Wim, you ask a difficult question, because on the guidance, we give guidance on the overall of the revenue. What I can say on the volumes, Gustavo explained on the positive dynamic we have in Adult Care, we have in The U. S, so you can assume that continues the trends that you have seen over the last year. The same for the pricing, there’s no reason to believe it will be completely different except for the fact that with all the geopolitical uncertainties, it might be the pricing will also follow what’s happening in the market from a cost point of view.

So that’s we will see how it materializes in the coming months and quarters.

Gustavo Calvo Paz, CEO, Ontex: Very good. And regarding you specifically asked about our capacity in North America if we can search. We are sourcing two coasts from North America and that I see that it’s a little bit difficult to get. But having a West Coast sourcing and East Coast sourcing with the Stock Day plan, we are having a competitive advantage in terms of freights that for this type of category is a significantly impact on the cost. Again, freights are part of the cost of the delivery.

So balancing those things production tariff or not, balancing production in the different setup on the West and East is what we are doing. And also it grants it gives supply guarantees and assurance to the customers. So that is another addition to the competitive advantage. Tariffs are going to be one more cost for us. Our increase in production in Stockdale will continue and our plans, we have strong plans to continue to grow in capacity in Stockdale and that has not changed anything in our plans.

It has been from the beginning, from the starting of the strategy and it will continue to do like that. So I won’t be able to give you exactly capacities as you’re asking. Imagine that those are very strategic data

Wim Ost, Analyst, KBCS: No, but my question was more on the industry as a whole. If you look both private label and A brands that are being sold in North America, is the vast majority of production serving that market in both private label and A label brands, is that coming or produced in The U. S? Or is there also significant chunk being imported in The U. S.

From either Mexico or Canada as main sources? Can you just give us a bit of a feel on that whether you’re the only one producing outside U. S. Or not?

Gustavo Calvo Paz, CEO, Ontex: No, no. We are not the only one and it goes depends on the different subcategories in all this sector. In baby, feminine and adult, there are different type of products and there are different sourcing. But if you ask the question about generally speaking, is U. S.

Capable to source their demand? Generally speaking, yes, majority is sourced from U. S. So, yes, I don’t think that there are going to be a lack of products in any time in U. S.

No.

Wim Ost, Analyst, KBCS: Okay, understood. Thank you.

Gustavo Calvo Paz, CEO, Ontex: You’re welcome.

Speaker 4: There are no further questions. So I will hand you back to your host to conclude today’s conference. Thank you.

Gustavo Calvo Paz, CEO, Ontex: So I thank you very much for the questions and for this time invested by you to understand our business. And as I mentioned before, we are starting our third year of our three years transformation journey. And we are ready to go for this year as very, very strong. Teams have been working incredibly hard and they will continue and we will continue to work very hard. And I want to remember that we are growing on our top line and driven by volume growth this time and we are expecting the same for 25%.

Our adjusted EBITDA margin increased significantly reaching 12% in 2024 and our we have made a significant step change in our free cash flow generation, which build a strong confidence on all of us for the future. So thank you very much and talk soon.

Speaker 4: Thank you for joining today’s call. You may now disconnect.

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