Staying ahead of the curve Ontex

STAYING AHEAD OF THE CURVE

After a game-changing year in 2014, with a successful IPO and a refocusing on consumer needs, Ontex is continuing to grow, particularly in developing markets.

IN June 2014, Ontex, the Belgium-based manufacturer of hygienic disposable products, completed a successful IPO on the Euronext Brussels exchange. A total of some 33 million shares were sold, producing gross proceeds of €325 million.

“In 2014 we completely transformed the financial structure of Ontex through our IPO and a subsequent refinancing,” explained CEO Charles Bouaziz. “In fact, the IPO was a milestone for Ontex, which not only helped to reduce our debt, but significantly improved our profile towards customers, suppliers and employees. Then in November 2014 we saw an opportunity to bring forward our refinancing plans to take advantage of the low cost of debt. Our interest charge will decrease by approximately €29 million in 2015. This stronger financial position is reflected in our rating with the credit agencies.

“2014 was also the year we transformed the company from an R&D and manufacturing company operating in the consumer goods business, into a more consumer-focused company. We have worked hard to put the consumer at the center of our organization and increased efforts to work with our customers. In a tough competitive environment, customers want our insight and understanding of consumer needs across product categories. We deliver products that meet consumer needs – combining performance and affordability, and anticipate new trends, fueling our future growth.

“Over the last few years our business has expanded its geographical presence both organically and through acquisitions and has increased the weight of our brands and incontinence products in our mix. In 2014 we achieved a strong performance in developing markets, while developed markets also advanced in a very challenging environment. All Divisions and categories contributed positively for both the quarter and year, demonstrating the strength of Ontex’s balanced portfolio: growing competitive retailer brands in developed markets, and offering our own brands for institutional channels and retail in developing markets. And we delivered profitable growth while maintaining a disciplined commercial approach and continuing to invest in the business.”

Global reach

Since it began as a family company in Belgium in 1979 Ontex has grown into a truly global business. Today has a total of 15 manufacturing facilities in 12 countries across Western and Eastern Europe, the Middle East, Australia and China. It employs more than 5000

people across the globe and earned in excess of €1.4 billion in 2013 from sales in over 100 countries.

Ontex’s core business is built around three categories – products for baby care, adult incontinence and feminine care. Baby care products, mostly nappies but also baby pants and wet wipes, currently account for more than 50 per cent of revenue. Adult incontinence products, such as pants, towels and bed protectors, make up some 33 per cent and feminine care products, such as sanitary pads, panty liners and tampons, add up to around 13 per cent. The balance of sales comes from the trading of products such as cosmetics and medical gloves.

Ontex is headquartered in Erembodegem, near Aalst in Belgium, and its 15 production facilities are located in Belgium, France, Germany, Spain, Italy, Czech Republic, Algeria, Turkey, Pakistan, China and Australia. The company also reaches its customers through 23 sales and marketing teams across Europe, Asia, Africa, the Middle East and Australia.

Brand strategy

Across the world Ontex sells its products primarily to major retailers. More than 60 per cent of these sales are of retailer branded products and the rest are of products under Ontex’s own brands. The company’s core strategy over the years has been to develop deep relationships with the major European retail chains such as Ahold, Aldi, Auchan, Carrefour, E, Leclerc, Lidl, Metro, Rewe and Tesco, helping them to establish or enhance their own branded product lines. The large number of retail partners means that the total business is significantly diversified, with the largest customer accounting for only 6.4 per cent of the company’s revenue; indeed the ten largest customers together account for less than 40 per cent of total sales by value.

“When Ontex was created in 1979 the business was wholly focused on production for retailer brands,” explains Charles Bouaziz. “More recently, however, two factors have driven the development of Ontex branded product lines – our expansion outside western Europe, through which we have acquired brands in countries such as Turkey, Russia and Pakistan, and the growth of the adult incontinence market in Europe, where through acquisitions such as that of the Italian brand Serenity in 2013 we have greatly expanded our presence. The Serenity business now accounts for one third of our total Healthcare business, that is the sales and delivery of our products to nursing homes, hospitals and to consumers’ own homes. The acquisition has also delivered important financial and operation synergies, helping to drive efficiency in production and, procurement and bringing us expertise in product development and home delivery systems”

Ontex’s own brands now include Moltex, a leading top-quality eco-nappy that was invented, developed in Germany and is made with sustainable raw materials to appeal to environmentally conscious consumers, and Babycharm a value-for-money brand that is popular with cost-conscious parents across Europe. The Helen Harper range of babycare, feminine care and adult incontinence products offers top performance quality at a modest price to consumers across Europe and in Russia. The Canbebe brand was acquired by Ontex when it moved into Turkey in 1990 and is now a leading regional babycare brand that is widely distributed in many markets in the Middle East and Africa.

Expansion

A key element in Ontex’s sustained performance is its continuous investment in the development of its products and in the expansion and updating of its manufacturing facilities. “Our annual revenue growth of some 7 per cent over the last ten years has enabled us to maintain a constant level of investment at around 3 per cent per year of revenue,” says Mr Bouaziz, “and now thanks to our engineering facility in Germany, we can even manufacture some of our own production lines – it is quicker than buying in machinery and we know exactly what we need.”

In March 2015 Ontex announced a plan to regroup its current production sites in the North of France. Its two current operations, at Arras and Wasquehal, are to be united in a new site in Bourges and Noyelles Godault. This new factory will allow the company to further improve its production systems and better serve its French

and international customers. This integration amounts to a total investment of €45m in buildings, factory lay-out and machinery. The move of the production lines will be phased over 2016 and 2017 after construction of the new factory is completed in the summer of 2016.

A steady flow of innovation in babycare, feminine care and adult care also plays a vital role in the company’s success. Its three R&D Centres in Belgium and Germany develop solutions to keep the company’s retail partners ahead of the game in performance, value and consumer satisfaction.

“Understanding customer preferences is just as important as technical excellence,” says Mr Bouaziz, ”so soon after I took over as CEO in 2013 I recruited a new head of marketing and strengthened the marketing team. Success in this business today is not just about delivering an excellent product; it’s also about fully understanding changes in customer demands and hearing the voice of the consumer. To do that we have to work closely with our retail partners, our suppliers and with other sources of knowledge in universities and technical institutes. “

Sustainability is also a central concern at Ontex; it is committed to maximising energy efficiency, reducing the impact of production by minimising waste and encouraging recycling and increasing the efficiency of its logistics operations. Its central warehouse logistics project for raw material delivery in Europe, for example, has already resulted in a decrease in truck mileage of some 800,000 km – equivalent to a reduction in CO2 emissions of almost 600 tonnes.

“We are constantly working to produce lighter and thinner products with the same or even better performance – these not only reduce raw material consumption but need fewer trucks to transport them. So you reduce costs and environmental impact at the same time,” explains Mr Bouaziz. “We are also developing ranges of biodegradable products but, of course, these are more costly and therefore appeal only to certain types of consumer.”

Looking forward

Ontex’s strategy for the future centres on helping its retailer partners gain greater shares of the market and, in EMEA countries where there are no major retailers, to grow its own brands.

Commenting of the company’s performance in the first half of 2015, Charles Bouaziz said, “We have made further progress on both the top and bottom line in the first half of 2015. Despite slowing market growth and heightened competitiveness in Western Europe, group revenue moved 4.4 per cent higher on

a LFL basis, and 5.3 per cent higher on a reported basis due to net favorable foreign exchange impacts. We maintain a disciplined commercial approach where competitive pressures are particularly strong, and captured revenue growth in a number of our developing markets, confirming the benefits of our balanced portfolio. In a more volatile FX and commodities environment, our commitment remains to grow profitably, including a relentless pursuit of efficiencies which will support continued moderate margin expansion for the full year 2015.

“The benefits of our refinancing are now coming through, driving strong net profit growth. And finally, our net debt position improved further, demonstrating financial discipline.” n