Ontex FY 2021 Results: Solid Savings Delivery, Cash Discipline and Gradual Sales Turnaround Offset by Unprecedented Input Cost Inflation
AALST-EREMBODEGEM, Belgium–(BUSINESS WIRE)–Regulatory News:
Ontex (BSE:ONTEX):
Full year results
- Revenue: €2,026 million, down -1.5% LFL on lower volumes while prices remained overall stable, with year-on-year increase in H2 partly offsetting the decrease in H1; overall topline down -2.9% including adverse forex
- Adjusted EBITDA: €172 million, -27% lower, with margin down -2.8pp to 8.5%, following the unprecedented raw materials and operating cost inflation impact of -5.1pp, mitigated by continued gross savings of +3.6pp
- EPS: Adjusted basic EPS at €0.07 compared to €1.01 in 2020, reflecting the lower operating results and higher financing costs; basic EPS at €(0.76), including €(85) million non-recurring costs, of which €(121) million impairments
- Free cash flow: €53 million, down €7 million, with strict capex and working capital discipline offsetting most of the impact of lower operating results
- Net debt: €(725) million on December 31, 2021, €122 million lower year on year, thanks to free cash flow and the €80 million arbitration settlement obtained on the Brazil acquisition in October; Leverage ratio at 4.2x
- Dividend:Board proposal not to issue dividend for financial year 2021
Q4 results
- Revenue: €534 million, up 0.7% LFL, on initial pricing in AMEAA
- Adjusted EBITDA: €31.2 million, -41% lower, with margin down -4.1pp to 5.9%, as inflation pressure intensified
Strategic actions
- Portfolio: New strategy to focus on partner & healthcare brand businesses in the Core Markets of Europe and North America; Actively pursuing divestment opportunities for mostly own brand-focused business in Emerging Markets
- Growth drivers: Progress on growth priorities supported by continuous innovation and added capabilities: mid-single digit growth in North America and in adult care, turnaround in baby pants and further foundations build up in sustainable and natural solutions
- Cost savings: Delivered €75 million gross in 2021; Annual 4% reduction of cost base to continue going forward
- Financing: Agreement with bank lenders to waive covenant tests in June and December 2022
2022 Outlook for Core Markets [1]
- Revenue to return to growth, with cost-based pricing impact over 2022-2023, and continued momentum on growth drivers
- Additional input cost inflation in the year of €(160)-(170) million, starting in Q1
- Relentless focus on savings, to deliver €60 million in the year, and strict cash discipline to continue
- Adjusted EBITDA margin to drop sequentially in Q1, improving gradually thereafter with quarter-on-quarter delivery on pricing and savings
CEO quote
“In 2021, we put in place important building blocks necessary to turn around the Group’s operating and financial performance. We have a new strategy with clear growth drivers, a new management team, and major action plans to improve our operations with ambitious cost reduction targets. With the unprecedented rise in input costs, we are working closely with our customers to implement price increases and drive mix. The amount of structural cost savings being delivered is very promising and underwrites our potential margin improvement once the raw material crisis is behind us. In line with our strategic choices, we are pursuing divestment opportunities for the Emerging Markets activities. I am encouraged by our progress and actions on areas within our control, and I am confident that we can return Ontex to profitable growth in the mid-term.”
[1] Assuming no change in inflationary environment and for Core Markets only. These represented about 70% of 2021 revenue. Emerging Markets represented 30% and as these are planned to be divested, they will be reported as assets held for sale and discontinued operations going forward.
Key financials
Key financials
| Fourth Quarter | Full Year | ||||||||||||||||
| in € million | 2021 |
| 2020 |
| Variance | % ∆ at LFL | 2021 |
| 2020 |
| Variance | % ∆ at LFL | |||||
| Revenue | 533.5 |
| 525.5 |
| 1.5 | % | 0.7 | % | 2,026.4 |
| 2,086.8 |
| -2.9 | % | -1.5 | % | |
| Adjusted EBITDA | 31.2 |
| 52.5 |
| -40.6 | % | -43.5 | % | 172.2 |
| 235.6 |
| -26.9 | % | -22.7 | % | |
| Adjusted EBITDA Margin | 5.9 | % | 10.0 | % | -4.1pp | -4.4pp | 8.5 | % | 11.3 | % | -2.8pp | -2.4pp | |||||
| Adjusted profit/(loss) for the period | 5.3 |
| 81.6 |
| -93.6 | % | |||||||||||
| Adjusted EPS (in €) | 0.07 |
| 1.01 |
| -93.6 | % | |||||||||||
| Non-recurring income and expenses | (84.7 | ) | (37.9 | ) | 123.8 | % | |||||||||||
| Profit/(Loss) for the period | (61.9 | ) | 54.0 |
| -214.7 | % | |||||||||||
| Basic EPS (in €) | (0.76 | ) | 0.67 |
| -214.5 | % | |||||||||||
| Free Cash Flow | 52.9 |
| 59.5 |
| -11.1 | % | |||||||||||
| Net Debt | 725.5 |
| 847.6 |
| -14.4 | % | |||||||||||
| Net Debt / LTM Adj. EBITDA | 4.21x | 3.60x | 0.62x |
| |||||||||||||
Revenue split
| Fourth Quarter | Full Year | ||||||||
| in € million | 2021 | 2020 | Variance | % ∆ at LFL | 2021 | 2020 | Variance | % ∆ at LFL | |
| Europe | 325.3 | 331.5 | -1.9% | -3.2% | 1,228.0 | 1,302.2 | -5.7% | -5.7% | |
| AMEAA | 208.2 | 194.0 | 7.3% | 7.5% | 798.4 | 784.6 | 1.8% | 5.6% | |
| Baby Care | 292.1 | 290.8 | 0.5% | -0.5% | 1,099.3 | 1,162.5 | -5.4% | -3.6% | |
| Adult Care | 181.4 | 175.8 | 3.2% | 2.7% | 691.8 | 679.5 | 1.8% | 3.6% | |
| Feminine Care | 48.0 | 50.0 | -4.0% | -4.7% | 195.5 | 212.2 | -7.9% | -10.3% | |
| Other | 12.1 | 9.0 | 33.7% | 32.2% | 39.9 | 32.6 | 22.5% | 25.3% | |
Bridges
| Revenue | 2020 | Volume/ mix | Price | 2021 LFL | Forex | Scope | 2021 | ||||
| in € million | |||||||||||
| Fourth Quarter | 525.5 | (9.5 | ) | 13.3 |
| 529.3 | 4.2 |
| – | 533.5 | |
| Full Year | 2,086.8 | (29.8 | ) | (0.5 | ) | 2,056.4 | (35.6 | ) | 5.6 | 2,026.4 | |
| Adjusted EBITDA | 2020 | Volume/ mix/price | Raw materials | Operating costs | Operating savings | SG&A net savings | Forex | 2021 | |||||
| in € million | |||||||||||||
| Fourth Quarter | 52.5 | 5.3 |
| (41.5 | ) | (8.7 | ) | 17.4 | 4.8 | 1.5 |
| 31.2 | |
| Full Year | 235.6 | (23.6 | ) | (86.5 | ) | (19.1 | ) | 57.9 | 16.7 | (10.0 | ) | 172.2 | |
Unless otherwise indicated, all comments in this document on changes in revenue are on a like-for-like (LFL) basis (at constant currencies and scope). Definitions of Alternative Performance Measures (APMs) in this document can be found in note 5 of the Notes to the Consolidated Financial Information.
Due to rounding, numbers presented throughout this press release may not add up precisely to the totals provided and percentages may not precisely reflect the absolute figures.
2021 business review
Revenue
Revenue was €2,026.4 million, -1.5% down like for like on lower volumes. Prices remained overall stable with a year-on-year increase in the second half of the year offsetting the decrease in the first half. Increases in the AMEAA division in the second half, accelerated in the fourth quarter, offsetting a decrease in the Europe division resulting from pricing investments on tenders made in 2020 and early 2021. Volumes were down ‑1.4%, with improving performance in the second half, despite the impact of supply chain disruptions. These were particularly felt in the feminine care category, as well as some lifestyle brands where specialized raw materials were unavailable. The forex effect was negative for -1.7pp, linked to the devaluation of the Turkish lira and Brazilian real primarily, and to a lesser extent the US dollar. Scope changes added +0.3pp, following an acquisition mid-2020.
In the Europe division revenue was down -5.7%, mainly on lower volumes and to a lesser extent price, but showed improvement in the second half. Growth in adult care continued, driven by continued progress and share gains in the retail & pharma markets, which more than offset softness in the institutional channel. In baby and feminine care sales were lower, mostly due to lost tenders in the prior years, and to supply chain disruption in the second half. The tender gain-loss balance which had been consistently negative over the last three years, reduced and was flat in the second half, turning positive in the last quarter and entering 2022.
In the AMEAA division revenue was up +5.6% like for like, on volume, mix and price increases and across main geographies. In North America revenue growth was volume-driven, gaining share in private label business with contract wins. The scope impact from the acquisition of feminine hygiene assets mid-2020 offset the lower US dollar forex impact. In Central America the growth was more subdued and linked to adult care and the launch of baby pants. In South America revenue was spurred by pricing and volume growth in both adult and baby care, the latter with renewed brands. In the Middle East pricing was well up as well, but volume growth in adult was offset by lower sales in baby care.
Adjusted EBITDA
Adjusted EBITDA was €172.2 million, -26.9% lower year on year, as margin decreased -2.8pp to 8.5%. The revenue decrease accounted for -1.0pp, while adverse forex and scope changes were -0.3pp.
The unprecedented inflation impact was €(106) million net for the year, of which €(86) million from raw materials and €(19) million from other operating costs, contracting margin by -5.1pp combined. Oil-based ingredients such as SAP, non-woven materials and polyethylene backsheets were the main drivers behind the raw materials price increase. Higher energy prices and transport costs drove other operating expenses up.
Gross cost savings accounted for €75 million, with consistent delivery throughout the year, contributing +3.6pp to the margin. Restructuring of Ontex’s SG&A, reducing management layers and gaining efficiency, led to €17 million net savings. Footprint optimization and productivity gains across the complete supply chain generated €58 million savings. These are recurrent in nature and form the basis for continued efforts, allowing Ontex to become leaner and more competitive in the market.
Q4 2021 business review
Revenue
Revenue in the fourth quarter was up +0.7% like-for-like as a result of +2.5% higher overall prices, coming from the AMEAA division, more than offsetting a -1.8% volume and mix contraction, mainly in the Europe division. Including the positive effect of forex fluctuations, i.e. the appreciation of the Mexican peso, Brazilian real and US dollar, total revenue grew +1.5%.
In the Europe division revenue was -3.2% lower like-for-like. Volumes were down year on year in baby care and to a lesser extent feminine care, as supply chain disruptions continued to affect timely delivery. The underlying volume trend is solid, however, as the net gains/losses balance of major contracts is turning positive. In adult care volumes were well up. Prices were still lower year on year, subsequent to the price investments made earlier, but less toward year end as pricing initiatives started to have an effect, albeit slow due to the contracts structure.
In the AMEAA division prices were up. Ontex raised prices for its own brands, which make up the majority of its sales in emerging markets. The overall impact in these regions on volume was neutral. In North America, which is predominantly a partner brand business, effective price increases were limited so far. Volumes in that region were well up, mainly in baby care, despite the input supply chain complications.
Adjusted EBITDA
Adjusted EBITDA was down -41% lower as margin decreased -4.1pp to 5.9%. Inflationary headwinds intensified, impacting the margin by -9.5pp. The input price surge in the second quarter gradually translated into contractual price increases, resulting in €(42) million increase in raw material costs and €(9) million other operating costs, leading to a combined -9.5pp impact on margin. These were mitigated by continued savings efforts of €22 million, which resulted in +4.2pp margin support. The price-driven revenue increase had a +0.9pp effect on margin and favorable forex +0.2pp.
Reporting structure going forward
In 2022 the reporting will be changed to align with the reviewed strategy. “Core Markets” encompass Europe, North America and some smaller partner and healthcare focused businesses elsewhere. These businesses form the core of Ontex’s activities and will be reported as continuing operations. “Emerging Markets” are primarily driven by own brands and essentially groups the Central and South American activities, and those in the Middle East and Africa. Ontex has announced it will pursue divestment opportunities for these and will thereby report these as assets held for sale and discontinued operations going forward. The carve-out of the Emerging Markets activities is well advanced, meanwhile only preliminary unaudited figures for 2021 can be shared, which are used in the following discussion.
In 2021 the Core Markets revenue was some €1.4 billion and adjusted EBITDA margin about 11.5%. Adjusted EBITDA was resilient in the first nine months, with savings initiatives offsetting most of the inflation impact. Inflationary pressure started in the third quarter and intensified in the fourth quarter, leading to EBITDA margin in the fourth quarter to be some -3pp lower than the year average.
In Emerging Markets revenue was some €0.6 billion in 2021. Inflationary headwinds had a significant adverse effect, starting earlier as of the second quarter. EBITDA margin for the year was thereby about 2% on average over the different regions. This includes about -2pp of Group cost allocation and the majority of the Group’s adverse forex impact, accounting for about ‑1pp.
2022 outlook
As Ontex executes its strategic agenda, it is actively pursuing divestment opportunities for all its Emerging Markets activities, in order to maximize the cash value of these positions and deleverage the balance sheet. These activities will thereby be reported as assets for sale and discontinued operations going forward. Consequently, the 2022 outlook is focused on the Core activities only.
Full year revenue is expected to return back to growth, as Ontex’s growth drivers continue to develop, and pricing is being pushed through in view of input cost inflation. Price increases will build up gradually from the start of 2022 and continue into 2023, subject to the evolution of the inflationary environment.
As indicated previously, the inflation impact on raw materials and other operating costs raises the cost base by 15-20% versus 2020 for the Group. The 2021 impact on Core Markets was €(65) million and €(160) to €(170) million is expected to weigh on 2022 as of the first quarter. This expectation assumes no relaxation in the cost environment, while considerable uncertainty and volatility remains regarding the outlook for commodity, freight and packaging costs.
The Group has planned to generate recurring cost savings exceeding those in 2021. €60 million are planned to be generated in Core Markets, and the saving momentum of 4% of costs is planned to continue.
With the full input cost inflation impact flowing through from the start of the year, the adjusted EBITDA margin for Core Markets is expected to be sequentially lower in the first quarter. The performance is expected to improve thereafter, as savings and pricing efforts are delivered, quarter after quarter.
Ontex’s strict cash flow discipline will continue. Capital expenditure will grow back gradually to around 4% of sales, focused on innovation and growth driving projects, as well as supporting the savings initiatives.
2021 strategic actions
Operational excellence
In 2021 gross savings of €75 million were achieved, with consistent delivery over the quarters, and representing 4% of Ontex’s total cost structure. These represented €56 million net, after deduction of non-raw materials related cost inflation.
These include the streamlining of the SG&A structure to the One Platform approach across the whole Group, allowing to reduce hierarchic layers and bundling its expertise across regions. These resulted in €17 million savings in the year, net of wage inflation. At 11.6% of revenue with a -1.1pp reduction in the year, this brings the company closer to its ambition to bring SG&A costs below 10% of revenue.
To optimize the European manufacturing footprint the (feminine care) operations in Eeklo (Belgium) were downsized in the year. That effort will continue with the baby care production activities in Mayen (Germany) that will stop production in the second quarter of 2022.
The optimization of its operations, stretching from manufacturing to the complete supply chain has resulted in significant productivity gains. The scrap generation was reduced by -30% and Overall Equipment Efficiency (OEE) improved further by more than +5pp over the year. Simplification is one of the drivers behind this, such as reducing the number of SKU’s. The simplification and streamlining of the supply chain across the Group led to improved service levels in the first half of the year, up more than +2pp. However, these were affected in the second half by the cross-industry supply chain disruptions. To increase flexibility in the short-term, some inventories have been increased. In addition, the procurement team has been working on enlarging and diversifying sourcing in the mid-term.
Portfolio focus
In June and December 2021, Ontex laid out its strategic plan to focus on partner and healthcare brands. As a consequence it will consolidate its activities primarily in Europe and North America, where these channels are more sizeable and offer the best potential for Ontex to rebuild profitability and grow. Ontex is thereby pursuing divestment opportunities for its business activities in the emerging markets of Central America, South America as well as in the Middle-East and Africa. These efforts are in full implementation and aim to be finalized by the end of 2023.
Growth drivers
Ontex has identified specific axes on which it builds its profitable growth ambitions. Despite overall lower year-on-year revenues and supply chain disruptions in the second half of the year, these growth axes delivered superior growth.
In the North America region revenues grew +7.0% LFL, double digit in the first half, as in prior years, but shortage of raw materials held back the momentum in the second half. Future growth will be further supported by the new facility in Stokesdale, North Carolina, on the US east coast, which is ramping up. Together with the Tijuana plant in Mexico, close to the West coast, this will give Ontex a unique coast-to-coast footprint.
Adult care revenues grew +3.6% LFL in the year, driven by Europe but also in Central America and the Middle East. In Europe growth came from traction in the retail and self-service channels, which are faster growing markets than the institutional channels, where Ontex already has a solid position. These self-service channels are growing rapidly as home-care is growing, boosted by the Covid-19 pandemic. In 2021 Ontex initiated pilot production of the Orizon smart diaper, a patented technology that offers a connected incontinence care solution for improved care in elderly homes. Beyond better service it offers more efficient use of the products, reducing the eco-impact.
Sales in the baby pants [2] product line recovered, after a more subdued performance in 2020. Capabilities to supply the market in a competitive way are now fully up to speed to capture the rapidly growing segment in the coming years. The next generation of baby pants was designed and launched, significantly improving fit and performance, outperforming competitors in panel tests.
Further progress was made in Ontex’s eco solutions offer. Eco/health labelled solutions grew from 41% of sales in 2020 to 48% 2021 [3]. Ontex aims to look at the whole life cycle, collaborating with suppliers on developing and testing alternative raw materials, promoting material reuse as well as reduction and replacement of petrochemical based plastics. In 2021 cotton topsheets were introduced in feminine care, and the first baby diaper with a 100% cotton topsheet was launched in the US market. Recycled plastic packaging was introduced and paper bags were launched. Sustainable innovation projects now represent some 75% of the top growth innovation projects. One of the breakthrough projects, launched in April 2021, is the collaboration with Les Alchimistes, a French engineering firm, to create a new circular economy cycle that allows used diaper inserts to be collected, cleaned and composted, reducing waste landfilling and incineration.
Environment [3]
As a leading supplier of affordable personal hygiene products, Ontex focuses on achieving climate neutral operations by 2030 and moving towards a circular business model, creating a positive impact in its supply chain and regenerating natural resources, and it aims to enhance transparency and lead the way to a fair society.
In the context of reacting to climate change Ontex reduced its emissions across operations by 40% compared with base year 2020. The manufacturing sites are now powered by 100% renewable electricity in Europe, and by 90% for the Group, with additional solar rooftops in the Ortona (Italy) and Puebla (Mexico) plants installed in the year. Six out of 19 plants are now carbon neutral, four more than in 2020. In 2021 Ontex set its science-based targets (SBT) aiming to reduce scope 1-2 emissions by 42% and scope 3 emissions by 25% by 2030 versus 2020. These targets were submitted for validation to the Science-Based Target Initiative (SBTI) in December 2021.
Gradually Ontex is boosting its circular product & packaging solutions. In 2021, the amount of manufacturing waste recycled increased to 95%, up 4pp. More packaging had a minimum of 35% recycled material, and paper bags were introduced in the US. In March 2021 a partnership was set up with Woosh, a Belgian start-up, to enable the recycling of used disposable diapers.
The sustainable supply chain was further reenforced. Wood-based raw materials were already 100% certified or controlled and more than 90% of cotton was already organic. In 2021 more than 90% of our supplier signed Ontex’s Supplier Code of Conducts was signed by suppliers and the REDcert2 certification was received for sustainable bio- and recycled plastics.
[2] Pants are disposable solutions, which unlike classical taped diapers do not have to be opened or closed, making them easy to put on and off and giving it an underwear like feel
[3] Preliminary unaudited figures. Final figures to be presented in the annual report.
Financial review
Selected Financial Information
| Full Year | ||||||
| in € million | 2021 |
| 2020 |
| % ∆ | |
| Ontex Reported Revenue | 2,026.4 |
| 2,086.8 |
| -2.9 | % |
| Cost of sales | (1,510.4 | ) | (1,477.7 | ) | 2.2 | % |
| Gross profit | 516.0 |
| 609.1 |
| -15.3 | % |
| Operating expenses | (343.8 | ) | (373.5 | ) | -7.9 | % |
| Adjusted EBITDA | 172.2 |
| 235.6 |
| -26.9 | % |
| Non-recurring income and expenses | (84.7 | ) | (37.9 | ) | 123.8 | % |
| EBITDA | 87.5 |
| 197.7 |
| -55.8 | % |
| Depreciation and amortization | (87.7 | ) | (86.8 | ) | 1.0 | % |
| Operating profit | (0.2 | ) | 110.9 |
| -100.2 | % |
| Net finance cost | (42.7 | ) | (35.7 | ) | 19.5 | % |
| Income tax expense | (19.0 | ) | (21.3 | ) | -10.5 | % |
| Adjusted profit for the period | 5.3 |
| 81.6 |
| -93.6 | % |
| Adjusted Basic EPS | 0.07 |
| 1.01 |
| -93.6 | % |
| Profit for the period | (61.9 | ) | 54.0 |
| -214.7 | % |
| Basic EPS | ( 0.76 | ) | 0.67 |
| -214.5 | % |
| Free Cash Flow | 52.9 |
| 59.5 |
| -11.1 | % |
| – Of which change in WC | 15.8 |
| 20.8 |
| -24.2 | % |
| – Of which Capex | (56.5 | ) | (105.6 | ) | -46.5 | % |
| – Of which repayment of lease liabilities | (22.7 | ) | (26.0 | ) | -12.8 | % |
| Net debt | 725.5 |
| 847.6 |
| -14.4 | % |
P&L items
Non-recurring expenses in 2021 totaled €(84.7) million. The restructuring efforts represented €(35) million, covering both the optimization of the SG&A structure of the Group and the manufacturing footprint reduction in Europe. Non-cash impairments accounted for €(121) million, relating to the idling of assets following the footprint optimization and a €(96) million impairment of the Brazilian operations. These were offset by the settlement following the arbitration on the acquisition of the Brazilian assets for €77 million, net of advisory fees.
FY 2021 net finance cost was €(42.7) million, €(6.9) million higher, reflecting the refinancing in June 2021. These included €(6.8) million one-off costs, and led to higher interest charges in the second half of the year. Forex had a minor impact.
The income tax expense amounted to €(19) million in total, despite a negative profit before taxes, mainly due to the geographical mix, and as no deferred tax asset can currently be recognized on the impairment on the Brazilian activities and certain other losses.
Adjusted earnings per share were €0.07 compared to €1.
Contacts
Investors Geoffroy Raskin +32 53 33 37 30 [email protected]
Media Caroline De Wolf +32 478 93 43 93 [email protected]
