Ontex Group N.V.

Good morning. Good afternoon.

Welcome to our call. We are joined by Esther Berrozpe and Peter Vanneste.

It's a very busy day with our half year one results, amongst many other results. So, we'll start right away and I'll hand the call to Esther.

The floor is yours.

Thank you, Philip. Good morning, everyone.

And thank you for joining us this morning. As Philip said, Peter Vanneste, our CFO, is here with me today.

Please go to slide 4. I would like to start with an update on where we are with our strategic priorities.

In my first six months, I set out the actions to achieve three fundamental first steps from which to implement and drive the turnaround. Put in place a new management team and a new organizational structure.

Launch major structural cost saving plans to recover cost competitiveness. And stabilize the top line, stopping the sales decline in Europe and finding our path back to growth.

We are already well into implementation. The new management team has hit the ground running and we have been able to return to sales growth in Q2 year-on-year and also sequentially versus Q1, with good growth in emerging markets, the USA and stopping the decline in Europe.

We have generated significant structural cost savings, which has helped offset the raw material cost pressure, and we have refinanced the group's debt, removing the maturity deadline we were facing in 2022. Turning now to the Q2 and H1 results.

These results demonstrate the need for urgent and significant strengthening of Ontex's business, especially in the context of unprecedented raw material cost increases. Starting with Q2 on slide 5, for me, there are three key takeaways.

First, Ontex has returned to growth. We are up 4.5% compared to last year and 6.2% on a like-for-like basis.

Reported revenue is also up 4.4% sequentially compared to Q1. We recorded sales growth in all three categories in Europe and in the EMEA divisions.

And this is very encouraging. We also delivered a very strong performance in our strategic priorities, adult care, baby pants and the US market.

Secondly, we generated significant structural cost savings of €16 million, which offset a significant portion of the increase in raw material costs, which started to impact us in Q2. This enabled us to generate a margin of 10.3%, at the same level of Q1, despite these higher raw material costs.

The recovery in Q2 was not sufficient to make up the ground lost in Q1 as we see for the overall H1 results in slide 6. H1 revenue was down by 3.2% like-for-like despite the increase of 6.2% in Q2.

Adjusted EBITDA was well down on last year, driven by lower volumes in Q1 and the impact of higher raw material costs and negative currencies. In the first half, we launched aggressive actions to structurally reduce costs.

The net savings of €27 million offset the massive raw material cost impact that started in Q2, and we are on track to generate €60 million for the full year. Raw material and input costs are the main challenges for the group in the short term.

Some price increases are being put in place, notably in emerging markets, to help offset the cost increases. We expect the shortage in raw materials will continue and our working scenario is that commodity prices will remain at current levels for the remainder of the year.

We have also had to face price increases from other suppliers, such as logistics, freight and packaging. In this context, we are accelerating our cost reduction programs, but the benefits take time to flow through.

Net profit was significantly down at €7 million. However, this includes €30 million of one-off costs relating to restructuring and reorganization and the cost of refinancing.

Cash generation remains unsatisfactory and net debt was unchanged from the end of December. The drop in EBITDA, of course, mechanically pushes our leverage higher.

I will leave Peter to go into more depth into the numbers in a minute. So, turning to our sales on slide 7.

Two main conclusions to be drawn. Recovery in Q2 in all three categories and continued solid growth in adult care.

In baby care, revenue was up 6% in Q2, but remained down for the first half. Growth was recorded in diapers, driven by strong performance across AMEAA markets.

Baby pants grew double digit, with both EMEA and Europe in Q2 showing once more the shift in consumer trends towards these products. Interestingly, we saw an increase in birth rates in some European markets, which gives encouraging momentum for the quarters to come.

As one of our strategic priorities, we are working to improve the innovation cadence. So far this year, we have rolled out improved versions of baby pants to our customers in Europe and Mexico.

We also launched an ecoline baby diaper with key retailers in Europe. Africa revenue was up both in Q2 and for the first half, 5.7% and 3.4%, respectively.

As one of our strategic priorities, this category shows continuous growth and we are aiming to capture more. In this category, we recorded our 22% increased sales to retail customers in Q2, with double-digit growth, both in Europe and AMEAA.

However, lower occupancy rates in care homes in Europe has resulted in reduced institutional sales, but we are already seeing some signs of recovery. In this category, adult pants sales rose double-digit in the quarter.

The feminine care category recovered in Q2 with revenue up 3.6%, with growth in the AMEAA division more than offsetting a decline in Europe. The US activity continues to gain traction, with major retail contract wins.

Also, in this category, we are innovating, for example, with the rollout of an improved core on ultra-towels, which is now on customer shelves in Europe. So, turning to the divisions on slide 8.

We have operationally merged healthcare and retail both in Europe and AMEAA to better capture the demand shift across channels in the adult category. From a reporting perspective, this will be effective July 1.

So, we will report on two divisions from Q3. For Q2, Europe stabilized with an increase of 2.6%.

This was driven by Adult Care and by higher volumes following contract wins. For H1, the revenue remains negative at minus 11%.

There is a lot to do to turn around the European business. And we have already built a clear roadmap to enhance cost competitiveness, innovation cadence, service and quality levels.

The AMEAA division posted strong sales growth of 14.9% in Q2. Revenue in the Americas rose double digit, driven by strong growth in both Brazil and the USA.

Brazil delivered an 11th consecutive quarter of like-for-like sales growth, benefiting from strong growth in baby pants. We continued to ramp up our US business and gained order contracts with retail customers, continuing to increase our penetration in that market.

Revenue in Mexico was also ahead despite the market contraction, and our leading portfolio of baby and adult care brands have gained market share in 2021. Peter and I recently visited our Mexico operations and reviewed also our US business and came away with increasing confidence in our positions and the opportunities for the future.

H1 revenue in the AMEAA division was solidly ahead compared to last year at 4.5%. Finally, healthcare revenues in H1 were impacted by lower occupancy rates in care homes as a result of the pandemic.

Still, there were some signs of improvement in Q2. I will now hand over to Peter who will take you through the financial results in more detail.

Thank you, Esther. And good morning, everyone.

Before diving into the H1 results, I'd like to update you on the most important financial priorities that are key to our turnaround strategy. A month ago, in our Investor Update, I touched on the refinancing in progress, and I'm really pleased that the banks and the debt markets' confidence in our turnaround ambitions has allowed us to refinance the group debt.

A large part of that debt was due next year, as you know, and we now have extended maturities up to 2026. Now, this is securing our liquidity and allows us to concentrate fully on deleveraging and on delivering on our turnaround, profitability and cash generation.

Accelerating our cost of delivery and pricing are clearly key in current raw material inflation context. Short-term CapEx has been greatly cut back in half year one, while we are making the first decisions to get the group back on track.

We are, of course, investing in and focusing on the key growth priorities and projects, such as the US and our sizable cost-out programs. Now, a brief look on page 11, on that refinancing.

Maturities, as you can see the chart, from gray to blue have been pushed out up to five years. We have also now more diversified funding splits between €470 million syndicated credit facilities and €580 million senior notes bonds, with a 3.5% coupon.

With covenants, that provides room to execute our full turnaround roadmap. The rating agencies have kept our ratings unchanged.

And all of this shows the confidence of the credit markets in Ontex's turnaround ambitions. The annual impact on net finance costs will be €10 million per year.

Now all of this removes a major hurdle for the group just as the turnaround has been launched, so that we can now fully focus on execution. Now, let's look in more detail on the first half year results, starting with Q2 on slide 13.

First on the revenue bridge for Q2. Q2 saw a growth of 4.5% versus prior year 6.5% like-for-like.

In some geographies, Q2 last year was a softer quarter, but Q2 also grew sequentially 4.4% versus the first quarter. Performance was led, as Esther highlighted, by AMEAA with strong growth and we started to reverse the trend in Europe.

Both divisions actually also grew versus quarter one – AMEAA, 11.9%; and Europe, 1.8%. The positive price mix you see is mainly a mix effect, thanks to the positive trends in adult care, baby pants and the US business.

And we're also starting to see the first effect of price rises in some emerging countries in Q2. More to come in Q3 and Q4.

We still faced a minus 2.3% or €11 million negative currency headwind in Q2, be it less extreme than in Q1 where the currency impact on sales was almost 6% negative, €33 million. Now, this recovery in Q1 was still not enough to offset the very weak Q1.

You remember we showed the minus 16.5% lower reported sales in Q1 due to previous contract losses in Europe and tough comparables. Combined with the gradual sales recovery in Q2, it still keeps H1 revenue 7% below last year in reported currencies.

Turning now to raw materials on slide 13. Now, in raw materials, we're certainly not alone in facing input cost increases as we have seen during this reporting period.

The charts on the left with our main raw materials clearly show the level of unprecedented increases on those in a very short period of time this year. Now, when faced with this kind of challenge, every effort and tool, obviously, has to be used to reduce the negative impact.

Increasing prices where possible, especially in the emerging markets where our strong brands allow this more easily; focusing on the higher added value products across all the markets; accelerating the structural cost-out programs that we presented to you a month ago; optimizing through design-to-value initiatives; and we're, obviously, next to that also taking short-term measures to protect the group's financial situation with cash and cost cutting measures. At the same time, uncertainty and volatility remains high, with industry observers being split on the further evolution of these raw material indexes.

And now let's turn to the impact of this on page 15 on the quarter two EBITDA. Now, Q2 EBITDA decreased by € 9 million versus prior year, and we see that strong cost-outs partially offset these unprecedented raw material and currency headwinds.

So, there's two important moving parts you see on the chart here. First of all, we see the full force of the increase of the raw material indexes that I just talked about, with an increase of €23 million from last year's levels.

Second, our structural cost-out programs continue to gain momentum and generating operational and SG&A savings of €16 million over the quarter. On the operational front, several initiatives have been reinforcing this, reducing the level of scrap, improving OE and also reducing fixed costs.

The total net savings on operations totaled €13 million in the quarter. Also, on SG&A, as you see, efforts have continued, and we've been reducing by €3 million over the quarter.

Actually, our strong cost interventions are offsetting the euro-denominated raw material cost increase. But at the same time, further emerging markets currency headwinds have driven the decrease in the EBITDA.

So, as a consequence of all of this, EBITDA dropped by 40% versus last year on the quarter or €9 million. Now, the cost focus has, however, allowed us to maintain the same margin level as in quarter one, despite the much higher commodity cost increases.

So, let's move to the next page, page 15, on the H1 EBITDA bridge. H1 EBITDA is down 20% to €101 million, impacted by the weak Q1 sales and currency.

So, H1 is, like Q2, impacted by the massive increases of raw material indexes that started to strongly kick in as of Q2, but we realized very strong benefits from our cost-out programs. You can see the €27 million in H1, combining the €17 million and €10 million on the charts.

And this is more than offsetting the increase in raw material costs. It does demonstrate that our cost programs are delivering in a very significant way.

And the majority of this is structural. However, the volume price mix is very negative for the full half year and this still reflects the weak Q1 that turned positive in Q2, but this is dominated by Q1.

Forex has been negative for the full half year and explains half of the EBITDA decline. The savings that we're realizing are building up throughout the quarters, and we are still steering to €60 million savings for the total of 2021.

Now, these significant initiatives we're rolling out do incur costs and write-offs, and this brings me to the to the next slide, slide 16, on non-recurring costs. Now, in H1, we recorded €23 million non-recurring expenses that are required for cost reduction programs in operations and reducing SG&A overhead.

These numbers include €8 million of impairments. And of the €23 million, €16 million was cash-outs.

So, we will continue to implement a number of actions, which we expect to bring us to an annual total non-recurrent expenses of €55 million for the total of 2021. Now, part of the non-recurring expenses are recorded in net finance costs.

So, our active refinancing we just finished incurred €7 million of one-time impact, split between €3 million cash and €4 million non-cash charges. These costs, obviously, weigh strongly on our cash and net income, but they are unavoidable to reposition Ontex and deliver on our 2023 ambitions and realize the €60 million net savings in 2021 and beyond.

So, turning finally to the next, free cash flow, page 17. Our free cash has been strongly impacted by the lower EBITDA and the non-recurring investments I just talked about, as you can see in the first line on the table on screen.

An important offset of this is coming from lower CapEx. In the short term, we have frozen CapEx for other than the critical projects, of course.

And we will keep it below 4% for the full year. Here, we will be enforcing a more diligent return discipline, approval flows, post tracking and the right KPIs to manage CapEx allocation.

And of course, furthermore, it needs to mirror our commercial and costs agenda. We're also further driving improvements in working capital, with a cash is king program that is building on the solid base we already have.

Net debt finally was largely unchanged from the end of December at €843 million. The reduced last 12 months EBITDA, however, takes the leverage ratio to 4 times.

We do remain well under the criteria as set part of the new financing operations, but reducing this leverage, of course, remains a key challenge in the years ahead. And on that note, I will now hand back to Esther.

Thank you, Peter. Regarding our outlook for the full year, we do not expect to see any improvement in raw material costs in 2021.

The backlog caused by the shortage of product will continue to support the current level of raw material pricing throughout the second half. To limit the impact, we will benefit from the pricing and cost reduction initiatives that Peter just talked about, which are expected to ramp up during the second half and will be more visible in Q4.

In this context, for the full-year 2021, we expect stable like-for-like revenue, with further growth in H2; an adjusted EBITDA margin of around 10%, with Q3 being high single-digit due to a higher raw material impact compared to Q2; and then margins should recover in Q4, thanks to volume, price, mix and cost actions; strict cash controls, including keeping the CapEx to sales ratio below 4%, as Peter just mentioned. 2021 is clearly a very challenging year, and we will continue to take every action possible to mitigate the raw material headwinds.

Against this backdrop, we are continuing to drive the momentum with our priorities to deliver our 2023 ambitions. These will be focused in the key areas you see on slide 20.

On the growth side, the drivers will be in three main areas. In the US, our new manufacturing facility is expected to start up at the end of the year.

This will put us in the unique position of having a coast to coast production footprint for retailer brands. And we expect this to reduce our logistic costs and support our increasing penetration into retailer brands and lifestyle markets.

In Brazil, we are starting the local manufacturing of baby pants. We will be able to drive growth in this profitable and growing segment in the market.

And finally, price and mix are two levers we will need to use to restore margins. With our strong brands in emerging markets, we plan to increase prices, while also driving mix improvement like baby pants in Brazil.

We will continue to roll out baby pants in emerging markets. And in Europe, we are funding our ecoline of baby diapers to more customers, as well as introducing a new series of eco features in Feminine Care products.

Finally, we'll continue to drive qualification of our connected diaper solution in healthcare, which we expect to roll out at the end of the year. On the cost competitiveness side, we continue to drive actions to enhance operational efficiency.

And we expect these fundamental structural changes to drive our competitiveness and profitability in the future. Thank you for your time.

Peter and I will now be happy to take your questions. Laura, could you please ask the questions?

I actually have more than one question. One is on the sales and marketing expense.

I think that was also down quite nicely in the first half. I think more than 90 basis points as a percent of sales.

How sustainable is that? Because you are trying to drive top line growth by new innovations, et cetera.

I also expect that that needs some marketing. So, how sustainable is that to have this cost that low?

The second one is only non-recurring cost of €55 million? Is that including the non-recurring finance charge or excluding that one?

And then, maybe already on next year, because raw materials is still coming through, do you mean with guidance on third quarter margin that to you is going to be the absolute bottom in the margins also going forward?

I'm going to address the first one and I'm going to ask Peter to address the second one. So, on the sales and marketing expenses, of course, considering the context that we have in terms of raw materials, we pulled every lever to reduce our costs and to maximize our profitability.

And as you rightly say, this is not sustainable over time. So, when we talk about the €60 million cost savings, the biggest part of it is the structural.

But as we said, not all of it structural. And, in fact, sales and marketing expenses is the one that, at a certain point, we will need to need to recover.

The reality is that, of course, we track very carefully our actions in the market and the market share evolution. And even with the contained and significant reduction of sales and marketing expenses, we continued to gain market share in basically every market, especially in the AMEAA division, which is the area where we have our own brand and the area where most of the sales and marketing expenses are concentrated.

Regarding the second question, Peter?

Yes, second question was on non-recurrent. So, does it include – the numbers that we reported include the refinancing one-offs?

So, we've been reporting non-recurrent expenses, €23.1 million, that does not include the non-recurring financing. That's recorded on a different line, and that's €7 million.

So, if you want to have the total, it's €30 million, of which the €23 million in non-recurrent income and expenses and €7 million one-off on the net financing costs.

No, but the guidance you give of €55 million non-recurring charges for 2021, does that include the €7 million refinancing cost or does that come on top of…?

No, it doesn't. The €7 million is something we recorded separately in H1.

The €23 million is non-recurrent, and that €20 million will be €55 million for the total year as we complete our restructuring program.

Maybe your third question, which is the margins, the lower margins in Q3. When I look back on first half, as you saw in the presentation, we generated the same level of margin of 10.3% EBITDA margins in a different way.

So, in Q1, we had lower volumes because we had a significant decline year-over-year, driven by the contract losses that we had the prior year. And we did not have the impact of the higher costs because, basically, we mostly produce with the materials that have been purchased in the prior years.

And in Q2, we achieved the same level of margins with higher volume and with lower costs, but also with a massive input cost inflation that has started to impact our P&L in q2. So, Q3 is going to be the quarter in which we are foreseeing the biggest impact of raw materials at the highest level.

And of course, part of this is going to be compensated with higher volumes. As I said, we expect growth in Q3 and Q4, and also we will continue to drive the cost actions and the price and mix actions.

Q4, then we expect to keep these raw material cost levels to stay stable. We do not expect a decline at this point.

And then, it's important which – all the cost, pricing and mix actions will fully flow through the P&L. And that's why we see high-level single digit in Q3 and then strong recovery in Q4 and a good exit rate for the year.

I wondered if we could just dig a little bit into your components at the margin guidance this year. So, you're talking about adjusted EBITDA margins at around the 10% level versus 11.3% last year?

Could you give us any indication as to what you think gross margins might do? And effectively, I'm just trying to get an idea of – clearly, if your adjusted EBITDA is down 130 bps year-on-year, how much more than that do you think gross margins might be?

And how much work do you have to do at offsetting that in the in the SG&A cost line, if that makes sense?

Of course, input costs, the biggest challenge that we're facing this year is just the input cost inflation. And you need to consider that, our total cost of goods sold, raw materials represent 70% of the total cost.

Then we have – conversion is 20% and the logistics is 10%. And basically, we are suffering inflation on 80% of our costs.

And of course, this has an impact in the gross margins. We are partially offsetting that with personnel efficiencies in the manufacturing and the industrial area.

But of course, this is only 20% of the total costs. You can imagine that it is impossible to compensate what we are seeing in raw materials.

What we need to do now, and we are starting and we have started in Q2 and we will see more in Q3 and Q4, is making sure that we also focus on the price and mix. We are pricing in most of our branded businesses.

And we are planning more starting 2023. But we will have the full benefit of that on Q4.

And then, of course, for me, mix is a key lever for the company that we really need to focus more than in the past because we do see the market dynamics helping us from that perspective. We've added a category which is margin accretive for us, growing more than the average of the market.

And some of the sub-categories like pants, both in adults and in baby, growing far above the market average. In fact, last year, 80%, even more than that of the growth of the market, market growth was in these categories.

And we need to make sure that, first, we achieve our fair share in these categories, and then that we accelerate those categories. And in fact, most of our investments in the past six months, even if we have tried to contain as much as possible the CapEx investments, have been fully focused on the areas of the business, like the US and the areas and subcategories that are margin accretive and that are going to help us to drive price and mix.

A couple for me, please. Firstly, maybe for you, Peter, just could you talk a little bit where you sit in terms of the covenants post refinancing?

Maybe you could just touch on the proportion of your debt levels to which actually face the covenant now. I think that will be helpful for us.

My second question is just on the progress of the cost savings this year. Obviously, €60 million planned for the year, but are you able to say how much of this was realized in the first half, please?

Maybe specifically some details around where you're seeing these savings come from? And if I could just squeeze in a third one.

Apologies for that. Just in terms of any commentary around what you're seeing for the pipeline of net contract wins or losses through the back of 2021?

Have you seen further net contract wins since you last updated us with the Q1 results?

I'm going to ask Peter to start with the first question and then to cover the second question and I will address the third one.

Your first question was on the covenants in the new financing. We have €220 million term loan and €250 million revolving credit facility, which we currently don't use, with 12 partner banks.

And the clear goal with all of that is to deleverage. And that's the targets we've spoken out a month ago in the Investor Day.

So, that's €470 million bank loans has leverage covenants, which is not public information. But let me assure you that there is sufficient space for us to implement the turnaround plans that we've been sharing a month ago.

The other portion of our financing, the €518 million bonds, has no covenants. So, in that section, that topic does not play.

Second question was on the €60 million, the progress on the cost saving programs. There's different levels.

One is SG&A and there's – within the operating side, we have talked about working on capacity utilization and getting into 2% productivity from it, at least 2% on an annual basis. So, not just this year, but also the years ahead of us.

And the first half of your question was how much has been realized there. The first half was €27 million across all of these components.

This is what I'm talking about when I talk about €60 million or €27 million. It's absolutely a net effect.

So, it's not gross with some customer out. So, this is net.

The key drivers are – it's scrap. If I just name a few that are most dominant, scrap is an important one, procurement savings are an important one.

Some of the operational efficiencies are key, and then the SG&A parts, with the interventions that we've taken already in Q4 last year, and that we have been accelerating with the organization announcement recently. So, those are the biggest books.

But immediate to your, €27 million net first half, €60 million net total year.

And then, your last question, Charles, was on the pipeline and update on the net contract wins and losses. Maybe just to recap a little bit, we are going to have a negative impact for the entire year this year because you need to understand it takes time between when you win or lose a contract and when you start shipping or stop shipping.

And this time lag varies between 6 to 12 months, depending on the customers and the region. So, we had significant contract losses last year.

And these will impact in our European division for the entire year. However, the contract base – so this is only a part of our business.

There is another part that we are performing very well. And despite the negative impact of contract losses in Q2, we managed to record growth in the Europe division.

We are confident that this will continue over time. And then, in terms of – for the future, starting from late last year, so we have a positive output of wins and losses.

So, those positive outcomes compensate partially in Q3 and Q4 already the net losses that we had from before and then we are projecting a positive output starting from Q1. So, I think we need to drive, on the one hand, to continue to win contracts and to have that wins and losses always net positive.

And we are laser focused on that. And then, of course, continue to manage the underlying business and making sure that we continue to work with our customers to grow and to generate growth in the rest of the business.

Two questions. The first one you clearly stated that your CapEx should not – 4% of sales.

I was wondering if you could also provide some more colors on your targets for 2022 and 2023. And the second question, and I may have missed it during the call, but how much of the €32 million non-recurring expenses in H2 will be a cash-out?

Taking your two questions, first on CapEx. You're asking about 2022, 2023, right?

So, we will be keeping it below 4%, for sure, this year and including in the next few years because we've given this target guidance of keeping it below for the next few years, and we've been building our cost saving plans, our growth plans granularly to come to this level because we – as we feel it's the right level for us to be growing towards the targets that we have set. So, it's going to be below 4% as well for the 2022, 2023 within the guidance that we've given.

And then, you were asking about the non-recurrent, the €23 million this half year, of which €16 million was non-recurrent. Now, on the next, the €32 million, there's €10 million which is going to be non-cash for the total year in the €55 million that I've been expressing.

A couple of questions from me, please. More broadly, on the longer term and from history, so, first of all, I just wanted to understand what your pricing strategy at Ontex has been in the past and how would it be different going forward?

And I'm keen to understand the time you have taken to recover via pricing your input cost headwinds in emerging markets and in developed markets historically when you've seen input cost headwinds of such magnitude? And then, secondly, the list – the magnitude also of cost savings that you have announced and your predecessors have announced is quite substantial when you look at it as a percentage of your EBITDA or revenues.

How much more cost saving pool is left in this business? And is there a level where you can't further cut costs or efficiency?

Is Ontex still going to run a default to look for cost efficiencies to support your margins?

I'm going to first address the cost savings one, which is more shorter term, and then I'm going to address more the longer term. So, on the cost savings, is there more left?

Yes, definitely. I do believe that there is – yes, we have removed significantly costs, but the reality is that, in the past, we removed costs and then we added costs.

In fact, we measured gross cost takeout and then it was compensated with additional costs in different areas. Now, Peter and I are very focused on the net cost takeout.

So, whatever the headwinds are, we are targeting and holding the team accountable to deliver net cost savings. And this is a general practice of many industries or most industries that you need to have a target of annual productivity.

So, here, at Ontex, I think we have two opportunities. First, fix some structural problems that we have.

I would call that low hanging fruit, even if it might not happen in six months because some of these might take even a couple of years or three years, like at the same point, the low capacity utilization that we have in certain factories. Some operational KPIs are at a high level, the level of scrap that Peter talked about, the level of efficiencies that we have in our machines.

So, there are a few things that need to be addressed in the next couple of years. And those things reveal the significant cost savings.

The SG&A is another one. So, we simplify the organization, not only to drive cost reduction, but also to gain speed, to become much leaner and be much faster on executing in the marketplace.

So, those are maybe, I would call, potentially one-off things that will deliver and yield significant savings over the next three years. And in parallel, we need to get into this mindset of continuous improvement and make sure that we have a clear target on ongoing productivity that we are expecting from every single area of the business, especially the industrial area.

And this is not unique to Ontex. Many companies are doing that.

And I think it is important to have a very strong focus on costs, not only because it will help expanding our margins, but because I am convinced that only if we are cost competitive, we will be able to fuel growth. Because to drive growth, of course, we need to have the right cadence of innovation, we need to have the [indiscernible] go-to-market strategies.

But it is important to have cost competitiveness and have the right level of quality. So, yes, costs will be at a very important level of our strategy, not only in the short term, but in the long term, and we will continue to expand margins through costs and use part of that benefit to fuel the growth and to recover, especially in Europe.

On the longer term, could you – because I didn't catch the question – on the longer term, I think you were focused on the pricing power and the capability to recover raw material costs.

And also, [Technical Difficulty] in different geographies and what it has been historically, how long does it take for you to recover these costs? And [Technical Difficulty] we should expect the change going forward in these pricing policies?

I think we have two situations here. So, first of all, outside Europe or which we call the AMEAA division.

So, in that division, we have mostly branded business. And typically, it takes – it's very reactive market.

As soon as we have currency headwinds or raw material headwinds, we take pricing actions and typically it takes three to six months to have the full benefit in the P&L. This is not new to us.

We have done it in the past. In the past, we have had massive currency headwinds and our teams are used to drive pricing and this is pretty much ingrained in the market dynamics.

The reality is that, this year, what changed is that just the volatility of the raw materials and the inability to predict the size of the challenge, when we started the year, we didn't predict that raw materials would go up at that level and so far. Actually, we were always thinking about where it's going to start going down.

And in reality, now, we are becoming very clear that the level is very high and it will stay that way at least for the rest of the year. So, the fact – in fact, I am not happy with the pricing situation because we didn't foresee this type of increase.

And now that we have a clear view on what it's going to be, we are implementing and are planning to implement [indiscernible] pricing actions to compensate. Now, on Europe, the situation is a little different.

The market is extremely competitive. And, of course, most of our business is retailer branded business, so it takes a little longer to increase prices.

And that's why it is important to focus – of course, we will take every opportunity to increase prices. But our focus is on cost reduction and mix.

I think we still have a huge opportunity to drive margin from mix. And we are very focused and teams are very focused on the categories that are margin accretive and, by the way, are the categories that are enjoying the fastest growth in the market, and we need to focus on that and we need to extract more value for the mix opportunities that we have.

Thank you. So, thank you for joining us today.

We have made a lot of progress over the first six months and we will continue doing so. With the refinancing now completed, we are fully focused on driving the company turnaround.

Thank you so much and goodbye.