‘Everything is going to be changed at Ontex’

The Belgian diaper manufacturer Ontex saw sales and profits fall again. “Time for a strategic plan without taboos,” says interim CEO Thierry Navarre. Together with brand new chairman Hans Van Bylen, he has to put the ailing Ontex back on track.

“I am not satisfied with the results,” Navarre says sternly in response to the results. ‘Turnover has been falling for several quarters and that has had an impact on gross operating profit and profit. Corona made things worse. ‘

Ontex has been in dire straits for several years. Both financially and on the stock market. In June, French activist asset manager CIAM, which owns 3.5 percent, sent a scorching letter to the board expressing concern about the company’s financial failures, lack of strategic direction and the composition of its board of directors.

That letter was effective. Barely a week later, general manager Charles Bouaziz was fired after seven years. Frenchman Navarre has been appointed interim CEO. Brand-new chairman Hans Van Bylen, the Belgian ex-CEO of Henkel, shook up the board of directors. Together they decided to implement a ‘strategic plan without taboos’.

‘Everything has to be overhauled,’ says the French firmly. ‘Everything from the past years must be questioned. We are going to investigate very precisely which products are doing well and which are not, in which countries we must remain present and which are not and also where we want and can grow in.

The corona crisis made everything more urgent. Navarre: ‘We see that people stay at home more and consume less. This applies to both feminine hygiene products and incontinence diapers for the elderly. People who stay at home tend to use fewer products because they feel more relaxed and have a toilet nearby. We see that the occupancy rate in aged care centers has fallen by 15 to 20 percent. Due to corona death, but also because children are reluctant to place their parents in care centers. That has an impact on our business. ‘

Ontex is very sensitive to the effect of exchange rates in some countries. Navarre: “Four years ago, 80 percent of our transactions were in hard currency. In recent months, that has dropped to 60 percent as we increased our business in emerging economies with very volatile currencies, such as the Turkish lira, the Mexican peso and the Brazilian real, which were hit hard this year. ‘

Navarre also wants to focus more on online sales. ‘We are seeing a shift towards more online sales. We are insufficiently present there. We are too much ‘brick and mortar’. We will have to make choices and see which channels we want to follow, but also geographically and in terms of products. We remain in baby diapers, adult and feminine hygiene diapers, but there are probably products that we may not need to go into further. We can’t do everything anymore. We don’t have the reserves for that. ‘

The new strategic plan must be implemented as soon as possible, according to Navarre. ‘The effect of that plan should be noticeable from next year. We want to reap the benefits in 2021. We have been struggling with a loss of turnover for the past three years. That should not happen for a fourth year. ‘

To make the plan work, Navarre tightens the belt. The costs must fall by 11 million euros extra on an annual basis. Management has to sacrifice its variable pay. Worldwide – Ontex has 19 factories and just over 9,500 employees – about 100 jobs are being lost, mainly in management positions.

Whether it will improve immediately next year? Navarre: ‘I am sure we can make the turnaround. I am an optimist. Our foundations are good, so are our factories and our products remain necessary. Once corona is over, sales will pick up again. ‘

Navarre expects the whole of 2020 to be broadly comparable to the first nine months. ‘Although it is very difficult to predict what the impact of the new lockdown will be in many regions.’

Ontex saw its turnover in the third quarter decrease year on year by 12 percent to 508 million euros. Gross operating profit fell 7 percent to 57 million. Both figures were in line with analysts’ expectations.

Ontex is on a debt mountain of 878 million euros. That is 3.4 times the gross operating profit. ‘We have to monitor that carefully, but it is not alarming,’ says Navarre. ‘We comply with the agreements with the banks. When we were owned by investment groups it was once 7 times. ‘

According to Navarre, a tenured CEO is needed as soon as possible to implement the strategic plan. The nomination process is ongoing. Navarre is an internal candidate, but does not want to say anything about it. “You should ask the board of directors about that.”

Ontex achieved a turnover of 2.2 billion euros last year. Just under 60 percent went to baby care products. Adult incontinence diapers generated 30 percent of the income. Feminine hygiene 10 percent. No dividend will be paid this year.