Ontex brings leverage ratio down to 4.5x via proceeds from divestment

By Devika Patel

Knoxville, Tenn., July 28 – Ontex Group NV used the proceeds from a divestment last quarter to repay debt, leaving the company with 80% of its debt in the form of 3.5% bonds due in mid-2026, a sharply decreased leverage ratio and nearly 25% less net debt.

Net debt decreased by 24% over the first half of 2023 to €658 million. Net debt was €867 million at the start of 2023.

Gross debt came down to €835 million as of June 30, 2023 from €1,076,000,000 as of Dec. 31, 2022.

The company’s leverage ratio decreased to 4.5x as of June 30 from its peak of 7.7x in the third quarter of 2022.

The company expects leverage to decrease to less than 3.75x by year-end, with improving profitability and cash flow discipline remaining a focus, with the ultimate goal of getting leverage below 3x.

“We have reduced our net debt by 24% over the [first half of 2023] and the EBITDA improvement drove leverage down to 4.5x, a strong improvement by two points tracking towards our objective to be below 3x,” chief executive officer Gustavo Calvo Paz said on the company’s second quarter ended June 30 earnings conference call on Friday.

Adjusted EBITDA was €84 million for the first half of 2023, 2.1 times the EBITDA of the first half of 2022 and adjusted EBITDA for the second quarter was €43 million, up 129% year on year.

“Revenue growth and cost reduction measures resulted in a strong recovery of EBITDA,” Paz said.

“We have delivered consistent sequential improvement over the last four quarters in both absolute adjusted EBITDA and adjusted EBITDA margin,” Paz said.

The adjusted EBITDA improvement brought the company’s leverage ratio down to 4.5x from 6.4x at the start of 2023.

“Progress on the portfolio refocus [through the divestment of the company’s Mexican business activities] resulted in reduced debt and the EBITDA increase in improved leverage,” Paz stated in a Friday press release.

“Combined with the extension of bank financing maturities, it results in a healthier balance sheet,” Paz stated.

The company paid down the debt through the proceeds of a divestment.

“Our net debt reduced by 24% over the first half of 2023, thanks to the proceeds of the Mexican divestments that was used to pay back our term loan,” chief financial officer Peter Vanneste said on the call.

“This brought the net financial debt to €658 million and the leverage ratio thereby came down from 7.7x at the peak in Q3 last year to 4.5x now,” Vanneste said.

The balance sheet is hedged against rising interest rates, since most of the company’s debt is fixed-rate and due in 2026.

“Eighty percent of our gross debts is covered now by our bonds with a fixed rate coupon of 3.5% and maturing in mid-2026, a very sound situation to be in, considering the current volatility in financial markets and interest rates,” Vanneste said.

“The remainder of that gross debt essentially consists of the utilized portion of our revolving credit facility at €160 million at the same level as we had at the start of the year for which we have recently extended the maturity, so this [revolver] is now the only portion of our debt that really holds maintenance covenants and this facility has been renegotiated in quarter two, resulting in an extension of the term to end 2025 and allowing some more margin on the covenant thresholds.

“We have more work to do in our journey, but the repayment of the term loan, the extension of the revolving credit facility, the strongly improving leverage ratio and the free cash turning positive are major set forward in improving our financial profile,” Vanneste said.

Cash and cash equivalents were €64.2 million as of June 30, 2023, compared to €59.7 million as of Dec. 31, 2022.

Ontex is an Aalst, Belgium-based manufacturer and distributor of hygienic disposable products.

© 2015 Prospect News.
All content on this website is protected by copyright law in the U.S. and elsewhere. For the use of the person downloading only.
Redistribution and copying are prohibited by law without written permission in advance from Prospect News.
Redistribution or copying includes e-mailing, printing multiple copies or any other form of reproduction.