Ontex Group N.V.

Good afternoon, everyone, and thank you for joining us today. I'm Geoff Raskin from Investor Relations, and I'm pleased to have with us san Gustavo Calvo Paz, our CEO; and Geert Peeters, our CFO, to present the third quarter results.

Before that, let me remind you of the safe harbor regarding forward-looking statements. I will not read it out loud, but I will assume you will have duly noted it.

And with that cleared up, Gustavo, over to you.

Thanks, Geoff. While market conditions have not been supportive in 2025 so far, our ongoing transformation journey continues to structurally improve our competitive position in the market.

You can see the benefits of this in the quarter-on-quarter results, where we turned the sequential growth. Our revenue in quarter 3 is up 4% compared to quarter 2 driven by volumes from new contract wins in a continued soft market environment.

Our EBITDA margin improved by 3 percent points, thanks to the revenue growth and net cost improvement, including continued delivery on our cost transformation program. And meanwhile, our leverage remained at 2.7 over the quarter.

The soft market environment on the first half of the year did continue in the third quarter. Therefore, our results are still lower compared to last year.

Let me pass you over to Geert for a more detailed financial analysis.

Thanks a lot, Gustavo. On this slide, you will find the different components that contributed to the 5% year-on-year decrease of revenue in Q3 to reach EUR 445 million in the quarter.

The price and mix impact was almost nil and contains a limited price investment and a small positive mix contribution. Since mid-last year, prices were rather stable, leading to a neutral year-on-year impact.

The lower revenue is explained by lower volumes as in the previous quarters. The drop amounted to 4% and is in line with the construction of the consumer demand in private label in Europe and North America.

In Adult Care, we're growing by high single-digits in the retail channel, and we're ramping up capacity, including the healthcare channel, where Ontex has a high exposure and demand is more stable, overall growth in Adult Care was 1%. In Feminine Care, we performed strongly with a volume growth of 5%.

And Baby Care volumes were down 11% as demand continued to be soft in private label, partly as promotional activities of A brands continued in certain countries. In North America, this was exacerbated by a decline in contract manufacturing, positive was the start-up of new contracts in North America and in Europe, albeit that some started a bit later in the quarter than originally expected.

We also recorded a 1% negative impact from ForEx caused by the depreciation of the British pound, Australian dollar and especially the U.S. dollar.

What this means on a quarter-on-quarter basis can be seen on the next slide. In the first 2 quarters, we have experienced sequential revenue declines by 5% each, but we are now turning the curve in quarter 3 with 4% sequential growth, including a positive price/mix contribution.

Volumes dropped in the first quarter mainly due to soft consumer demand. And in the second quarter, they came down further as on top, some customers decreased inventories and Ontex faced some supply chain disruptions, amongst others, due to the outage in our Segovia plant.

Although the market remains very soft in the third quarter, customer destocking is over, and capacity constraints are being solved. Moreover, we gained new contracts that mostly started up at the end of the quarter.

ForEx had a positive contribution in the first quarter and turned negative afterwards, mainly due to the depreciation of the U.S. dollar.

Now let's move to the adjusted EBITDA on the next slide. On the year-on-year bridge, we find the building blocks, which led to the adjusted EBITDA of EUR 51 million.

The revenue decrease has a EUR 6 million negative impact, which is the main explanation for the year-on-year adjusted EBITDA drop. Indeed, as our cost transformation journey continues, net savings for an amount of EUR 16 million in the quarter fully offset cost increases.

Contributions came from optimizations in innovation, purchasing, supply chain and manufacturing, including the contribution from the ongoing Belgium footprint transformation. Raw material costs were still up year-on-year, mainly for fluff and packaging materials, albeit less than in Q2.

Actual prices for raw materials have started to stabilize after the peak, but still remain high, higher than the level of last year. Other operating costs were up largely due to inflation of salaries, logistics and other services.

Furthermore, there are still some supply chain inefficiencies, which, however, are declining. Also, the increase in operating costs is partly offset by lower SG&A costs, which have been adapted to the lower volume level.

The margin amounted to 11.4%, while this represents a 0.6 percentage point decrease versus last year, it's a 3 percent point improvement versus Q2. More on the quarter-on-quarter comparison can be found on the next slide.

We experienced 2 quarters of sequential adjusted EBITDA decrease, especially in the second quarter. But in Q3, we have been turning the tide from Q2 -- from the Q2 low point to return to the Q1 level.

You can first notice the impact of the revenue evolution, which I described earlier. It is important to see that we have already recovered in the third quarter about 75% of the negative impact of the first half of the year.

Net costs started to ease in Q3 versus Q2. Stabilization of raw material costs and improved supply chain efficiency allowed our continued cost transformation efforts and SG&A streamlining to flow through.

Before I pass the word to Gustavo, let's cover first the leverage and net debt on the next slide. With solid EBITDA delivery, no material restructuring cash outs and managing the CapEx spend, we produced positive free cash flow in the quarter.

Net debt for the group thereby reduced by EUR 9 million to EUR 543 million, maintaining a solid liquidity position. The leverage ratio remained stable at 2.7x as the lower net debt was offset by slightly lower adjusted EBITDA in the last 12 months.

Gustavo will now give more insight into our expectations to further improve revenue and EBITDA in Q4.

Thanks, Geert, for this detailed analysis. I want to say in July, we have talked about the several adverse factors that affected our results in the H1.

And I shared what we should expect to improve in the second half of the year. So what happened so far?

Quarter 3 price is stable. Negative price carryover has stopped.

New contract wins have started in North America and in Europe. Customer destocking is over.

New capacity in high-growth product categories has come on stream. The Segovia plant outage as well as the packaging material shortage are over.

The temporary measures to mitigate the U.S. tariffs have phased out.

And finally, raw material prices stabilized. The second half of the year has started largely as expected.

And we expect this to be reflected further in the fourth quarter, as we can see on the next slide. Looking at revenue first, on the left in dark blue, we have had 4% sequential growth in quarter 3 with positive price/mix and especially thanks to volume with the new contract wins kicking in at the end of the quarter.

Our current projections indicate that 5% growth in quarter 4 is realistic based mostly on volume from the new contract wins. On the right side, in light blue, we have the quarter-on-quarter evolution of adjusted EBITDA.

In quarter 3, we grew by EUR 50 million, thanks to higher revenue and improving net cost. In quarter 4, we expect cost to improve further sequentially with further raw material price stabilization and further operating and SG&A cost optimization.

Combined with the positive impact of volume-driven revenue growth, we project a sequential increase in EBITDA at least EUR 30 million. As a result, we keep our expectations for the year at the same level as in July, as shown on the next slide.

Revenue for the year is expected down by low single-digit like-for-like and adjusted EBITDA in a range of EUR 200 million and EUR 210 million. Solid EBITDA generation and working capital management efforts in quarter 4 will drive positive free cash flow further in the quarter and thereby bring the free cash flow for the year to breakeven.

Combined with divestments proceeds, this bring net debt down by year-end and bring back the leverage ratio to about 2.5x, which is the level at which we exited 2024. So let me finish saying, while we are turning the high sequentially getting back to growth, we have continued to build on our foundations of our operations as stipulated in our strategic road map, resulting in Ontex becoming more strongly positioned for the future.

With that, Geert and I are ready to take your questions.

[Operator Instructions] The first question comes from Charles Eden from UBS.

I just wanted to dig a little bit deeper into the implied Q4 EBITDA because I guess to get to the bottom end of the full year guidance, that means you need to do at least EUR 63 million of EBITDA in core markets in Q4. Could you just help us in the building blocks there?

Is it just that the phasing of the new contracts are not in the base in Q4 -- in Q3. So when we get to Q4, that comes in, and that's the major delta.

Are you baking in an improvement in the underlying markets in Europe? And if so, is there anything you're seeing to give you confidence in that?

And then linked to that, when I think about 2026, is there anything one-off in that EUR 63 million plus you're saying for Q4? Or should we be saying that's the quarterly run rate to expect for 2026?

And if so, that implies sort of EUR 250 million of EBITDA. So is that -- if that's not the right way to think about it, could you help me bridge those factors?

Charles, I'll take that question. So thanks for the 2 questions.

First, on the Q4, if you look at the bridges we made, yes, first of all, your calculation is right, to enter the low end of the EBITDA, we need about EUR 63 million, which is EUR 12 million extra from the quarter 3. How do we think to achieve it?

About more than -- a bit more than half, it's revenue related. As you can see, we expect about 5% at least extra revenue as compared to Q3.

This is mainly related to the new contracts. As we said, those new contracts started only at the end of September as well contracts in Europe, but at the same time, 2 big ones in North America that will have a full quarter impact.

That will be the main driver. To a certain extent, also, we're expanding the capacity in adult.

So that will also help us. And on the market itself, we're not assuming an improvement on the market.

So if markets would improve in the last quarter, that could bring us some upside. Then the other half, but it's a bit less than half, it will be mainly cost driven.

On one hand, we said that raw material prices are stabilizing, and the impact year-on-year is still negative. But quarter-on-quarter, we have a slight improvement again in Q4.

And at the same time, we're also looking at our SG&A. Our activity level is lower.

So we want to keep the SG&A at a level which is in line with that lower volume level. And then to translate it to next year, yes, we're still working on the budget.

So there's not much I can tell about that. But of course, the new contracts will be a very strong basis for next year.

So that will be an important driver for the budget of next year.

Okay. So nothing one-off.

The cost savings in Q4 are permanent. There's not sort of you're phasing some costs into next year.

I'm just trying to understand, there's nothing that you're calling out that would not suggest that EUR 63 million can be a recurring level of profitability. Is that correct?

Yes, there are no big one-offs. But at the same time, of course, we adjusted SG&A.

It might be that we have to release it a bit more next year. So it's not that it just copy paste multiply by 4.

So...

The next question comes from Usama Tariq from ABN AMRO ODDO BHF.

I just have 2 questions. Firstly, on pricing for Q4.

So you indicate relatively stable pricing. Do you see some negative effects from promotional activities still in Q4?

And do you expect that to have an impact on you? In general terms, do you think you will be forced into cutting some prices if other brands do very strong promotional activity?

And my second question would be, could you kindly also recall what is the restructuring cash out that you still have to do or expect in Q4 or in 2026? That would be my 2 questions.

All right. Usama, thank you very much.

I'm going to take the first question, and Geert is going to take the second one. On the pricing front, yes, pricing is stable for us.

And when we are talking about stable, it's always stable for us. And we are not expecting any changes in the quarter 4 in our front, no expectation to change the pricing -- our pricing.

What can happen in the market is a competitive market at this moment because when the market is in a soft mode, definitely, there is more competition, but competition is not just on the pricing front. Competition is in promotions and A brands are defending -- for sure, defending their positions and also competition from other private labels, maybe.

But our contracts, they have a pricing already, and we will continue with that pricing. There is no move for us depending on the market.

Okay. Usama on the second question on nonrecurring.

Good news is that in Buggenhout, which is the plant, which we're completely upgrading, we're fully getting up to speeds. So new machines have been installed.

We expect to have a fully operational plant in a very new state, best of practice states by the second quarter of '26. That means also that we will be getting the savings from that one because it will be an important contributor for the cost transformation.

Last quarter, because that also means that we have now the restructuring costs kicking in. Last quarter of this year, we are expecting a bit more than EUR 5 million still as nonrecurring.

And for Q1, Q2 next year, it will be a bit more than EUR 10 million related to that footprint in Belgium.

And more than EUR 10 million, I understand, is per quarter or is it EUR 10 million in total?

No, no. In total, for next year.

Last quarter of this year, EUR 5 million, EUR 10 million for next year. And if you add up all the amounts that we already reported in the past year in line with the provision that we made last year because we had a P&L provision for it.

So it's a cash out on a provision that we made in our books.

Our next speaker is from KBC Securities, Wim Hoste.

Two questions for me, please. Can you elaborate on the contract book for next year?

Are the new recently gained contracts by now fully started up? Or are the new contracts to be expected to contribute also into next year, if you can clarify that?

And the second question would be on the contract manufacturing business. In the U.S., can you remind us how big that now is and how you expect that to further evolve in the next few quarters?

Okay. Wim, thank you for your questions.

Contract wins, we do have contract wins this year that kick in at the end -- towards the end of the third quarter and will continue. And will continue for the entire 2026 and 2027 in some cases, for sure.

And we have won some -- also some new contracts that are going to kick in next year. So they are not yet -- there is always a time when the tender happens, you win and then you start supplying.

So we're going to have very good news next year, but the good news has happened already with the contract wins. So yes, we have in 2026 contracts coming.

So our projections on gain and losses is positive throughout also 2026. Second question, you asked about contract manufacturing.

And it's an interesting question because years ago, contract manufacturing was larger -- the larger business that we had in U.S. And starting in 2023, we decided to put more strategic emphasis on retail brands on private label segment.

And we started to grow significantly our private label segment, while contract manufacturing is facing more the soft market situation at the moment. So we are -- our contract manufacturing volume is declining as a result of the situation in the market, in general market.

So contract manufacturing is brands that we don't control at all, while in the private label sector with the retailers, we work together with the retailers on developing their private label for the Baby Care segment in this moment. So we're growing significantly in the retail brand business, while contract manufacturing is declining at the moment.

Okay. If I can just follow-up on the first question.

The contract wins you commented on for next year, are those in the U.S. market or are those in Europe?

Both. The contract wins this year, before impacting in U.S.

next year and contract wins -- important contract wins in Europe impacting next year.

Our next question comes from Maxime Stranart from ING Bank.

Two questions on my end as well. First of all, looking at Adult Care, where the growth is somewhat below what Essity has reported.

So if you can elaborate a bit on the reason why the growth has trailed branded products in Adult Care and how you see this evolving in the future? Secondly, looking at Q4, especially in your guidance, quick math on the bottom end would imply that your margin would jump by more than 200 basis points and then obviously to 13.5%, a level reached since the pandemic.

So quite surprised about such a guidance in terms of margin. So if you could elaborate on that?

And following up on Charles' question, is it a level we should see as sustainable in the long run? That would be all for me.

All right. Maxime, thank you.

On Adult Care growth -- our Adult Care growth in retail brands is high single-digit, which is, I would say that is higher than even what the market is growing. So we are very, very happy and pleased how we are performing there.

And as we said before, more capacity in certain segments or categories, high-growth categories are coming into stream. So with good innovation, so we know that we are going to get -- continue getting wins in the Adult Care segment in the retail brand.

Then you have the healthcare for us, the channel -- healthcare channel, which is different because those contracts are much long-term. It's different.

The big tenders with -- normally with the government or big companies in nursing homes. So those tenders are long-term contracts and sometimes happens that in one specific quarter, you can have one coming in and another one coming out and maybe the quarter is not exactly.

So we need to measure healthcare more at least in a yearly basis, how we are doing. And the net result of the year is a positive result for -- also for the healthcare business.

So I repeat high single-digit growth in the retail brand of Adult Care, which is higher than the market growth.

And then for the second question, Maxime, indeed, if you calculate back for Q4 based on the guidance, you arrive at about 13.5%. Of course, our margins, first of all, as you know, we are a very volume-driven company.

So that means that the volume growth in Q4 and having a better absorption of our fixed costs will help us with our gross margins. So that explains the improvement.

Now your question also is to what extent is that sustainable? Of course, there are several components.

It's about raw material pricing. It's -- I was telling you also on the SG&A currently, we're curtailing the SG&A.

We're also always every quarter, we have to take positions on what are, for example, the rebates we expect to receive. So it's a combination of all the elements that will give us the 13.5%.

So towards the future, I can say definitely a sustainable margin, which we think we can have in a sustainable way in the future, but it doesn't mean it's for the coming quarters that you can just -- the same answer as before on the revenue that you can just multiply by 4. That would be more a goal for the future, and it's now a positive combination of different components.

[Operator Instructions] And our next question is from Karel Zoete from Kepler Cheuvreux.

I have a question on the baby business and the capacity in Europe. And that kind of relates to pricing because I think the market has been difficult for a while now and volumes about 10% down, and you're probably not the only one suffering.

So how do you see this with regards to capacity utilization in your European platform? And what -- how do you see price negotiations or new contracts into next year for the European baby business?

And the second question is on the reduction in SG&A in Q4. I don't completely understand why it should be down.

You're landing a couple of new contracts that probably comes with more commercial efforts as well. So why would SG&A be down sequentially?

All right. Karel, I'm going to take the first one.

I believe that Geert is going to answer you the second question. On the -- yes, your point is very valid, right, because the capacity installed in generally speaking, right, in the whole European market is -- now is getting idle in some cases.

So -- but we should not also forget the transformation, right, of the Baby Care business. So baby diapers is going down more significantly, while baby pants, although now this past quarter slowed down the growth, but year-on-year, it's still growing baby pants.

So there is a move from baby diapers to baby pants. Also within baby diapers and baby pants and youth pants, there is a dynamic that is happening that is larger sizes.

So there is a transformation between a movement -- a more consumption in larger sizes. This is due to a trend that babies are using diapers for a longer period of time.

And when we see each other next, I want to explain a little bit even more because there are very interesting insights regarding that happening because that trend is happening not just here, but also in U.S. is following something about also the aging of the couples of the parents, interesting to know.

But in our case, in particular, we are renewing, as you hear from us all the time that we are doing footprint work, footprint all the time investment in efficiencies. So we use this also momentum of more capacity -- more free capacity in diapers to do the adjustments where we need to do it, thinking in the future and thinking in the trends.

Then you asked about if this excess capacity cannot impact in the next future contracts and pricing in Baby Care. I'm going to say that potentially, yes, if you just play in the very, very low end of the segment, definitely.

We -- starting some years ago, we started to invest significantly in innovation, coupled with our partners or our customers, retailer customers that partner with them in innovation. We are bringing a lot of innovation into the market, which -- it's very important to take into consideration that it's not just a price type of competition.

Also it's innovation, it's sustainability, it is customer service, it's quality assurance, all those things that for which we, as a company, when I mention that we are working on our foundations to structurally change our foundations and be more efficient, all of that is included. And that gives us the competitiveness into the marketplace.

So we are not just competing in the pricing. We need to be more efficient.

Yes, definitely, but also innovative and have high customer service and quality assurance. And of course, the patents and the regulatory is also a very important subject.

That's for Baby Care. Now I'm going to leave Geert on the second question.

Karel, on the question on the SG&A, first of all, to clarify, if you look to the quarter-on-quarter from Q3 to Q4, their SG&A is less an explanation because SG&A is already lower in Q3. The explanation from Q3 to Q4 in operating costs, it's more related to a stabilization of raw material prices and gaining further efficiency.

Now on the SG&A itself, if we look at SG&A at a lower level in Q3 and Q4 looking at it and explaining a bit more on why SG&A is lower. For me, there are 3 components.

First of all, important for you to understand our SG&A, it's not that if we sell more contracts, we have more SG&A. Our SG&A, it's a rather fixed amount.

All the sales teams, all the administration, it's in place. So that means it's a rather fixed cost.

It doesn't mean, of course, that there are 3 ways to bring the SG&A down. It's, first of all, cost consciousness.

It's about how we function, how much we travel in an organization, all that type of stuff. So we are in a very cost-conscious mindset over the last months because of the lower results, which is also logical that we do that.

Second thing is, of course, we are looking extra to being a more efficient organization, how can we work more efficiently with the staff we have. So that's the second area.

That's, of course, more sustainable towards the future. And then a third component, there's always a variable component, of course, in the SG&A because part of the remuneration of management of sales, it's a variable remuneration, which is down because of the sales and the EBITDA, which is down.

The next question comes from Markus Schmitt from ODDO BHF.

I have one just on free cash flow guidance. So you had [ EUR 9 million ] in Q3, EUR 31 million is therefore left to meet the guidance.

You expect apparently strong EBITDA in Q4, and you paid the cash interest on the bond already in July. And you just mentioned that there will be some restructuring costs in Q4.

This brings me to about EUR 10 million of contribution from inventory releases in Q4 to meet the guidance. Is this assumption about correct?

Or do I miss something here?

Markus, I love that you already give 90% of the answer because indeed the drivers of the better free cash flow in Q4 are EBITDA. It's indeed the high-yield bond coupon.

The next one is only in January. So that's an important explanation.

Nonrecurring, there will be some nonrecurring, but it's limited. And then the 2 other components is CapEx.

We are, of course, this year because our result is less, we're not spending the full CapEx that we intended to do without hampering the business because I can tell you the key CapEx we need to build the capacity, for example, in Adult Care, of course, that one continues. So we're also bringing down CapEx.

And the last element is like you say, on the working capital. Now in the working capital, there are always 2 elements.

First of all, at the end of the year, you have the typical seasonal impact, our inventories are always down in the Christmas period towards the end of the year because we produce less at that moment. So that's one of the components.

Other component is you know that we have been talking in Q3 on inefficiencies. We solved a lot of inefficiencies in Q3, but having the full impact in Q4, and that's mainly on an inventory level, we believe that we still have a step we can -- we will make in the short-term on inventory.

So your conclusion is quite correct.

Almost on target. Okay.

And then our last question comes from Karine Elias.

Sorry, if you've covered that before. But just wondering if you can comment on the competitive environment.

Are you seeing any changes with regards to the A brands behavior on promotional activity? That would be very helpful.

Karine, Gustavo here. The A brands, yes, are defending their volumes.

And of course, as it was expected from our side. And that is in both regions where we are focusing on in Europe and in U.S.

And -- but anyway, for them, also, it's an important -- the volume is important for every single company here. So -- and in Baby Care, in particular, that is a declining market at the moment.

What we are expecting for the future is that we are expecting to continue competing. So private label -- private label is an important -- a very important business for the retailers.

And we are not expecting that, that is strategically changing the retailers. So retailers and I, we are all constantly working together on continuously putting in place consumer-driven volume growth for the private label.

So yes, we compete through to A brands through the retail brands in hand-to-hand with them. So yes, it's going to be competitive.

In other words, continue to be competitive.

So there are no more questions. And thereby, I hand you back over to Gustavo for your closing remarks.

All right. Thanks all for the questions and the interest and participating in the call.

So perhaps I'm going to repeat something that I said earlier during the presentation that while we are turning the tide sequentially and getting back to growth, we have continued to build our foundations of our operations as stipulated in our strategic road map, resulting in Ontex becoming more strongly positioned for the future. So thank you again.

Thank you very much and see you next.

Thank you.

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