Ontex Group NV (ONTEX) Earnings Call Transcript & Summary

Good afternoon, and welcome to Ontex's Investor Update. I'm Geoffroy Raskin, the successor of Philip Ludwig, who is with us here today, and I will be your contact for Investor Relations going forward. I have a couple of practical comments to make first. The presentation can be downloaded from our website or from the webcast landing page at the right side of the player. For those of you who wish to participate in the Q&A, you need to connect through the Zoom platform, the details of which are described in the press release, but you can also find it on the right side of the player in the webcast. Obviously, we are issuing forward-looking statements, and I remind you of the disclaimer in this presentation. But without further ado, let me pass you to our CEO, Esther Berrozpe.

Thank you, Geoff. Good afternoon, and welcome to Ontex's Investor Update. Thank you for joining our video meeting this afternoon. For this investor update, I am joined by our CFO, Peter Vanneste, who most of you know; and also by Laurent Nielly, President of our Europe Division; and Vincent Crepy, Chief Supply Chain Officer. Our aim today is to update you on our strategic priorities and the execution of our strategy. I will begin and then pass the floor to my colleagues to give you more color on their areas of responsibility. As you will have read in our press release earlier today, we have finalized the key decisions that will form the foundations for the future of Ontex. First, we have decided that the route to value creation is to focus on what we do best, serve our partner brands and health care business in Europe and North America, and we have started operating accordingly. Secondly, we have defined where the structural cost base should be for the group to win in the market, leading to an extended savings program. In the short term, we remain fully focused on the elements within our control, and we have made significant progress in 2021 against the backdrop of a very, very challenging environment. We have seen sequential top line growth since the beginning of the year. Secondly, our restructuring and cost savings plans are delivering as we targeted for the year. And lastly, we have maintained strict cash discipline and directed CapEx only to the investments required to drive profitable growth. In this context, we have accelerated our plans, and I am very confident that Ontex will come out of the crisis stronger and more profitable. Turning into the next slide. The current operating environment, the situation is extremely volatile, leading to very poor visibility of what is ahead of us. I am not satisfied that we have had to announce that our margin expectations for the full year are lower than what we expected at the end of October. This is very disappointing and illustrates the challenges we face at the moment and the need to bring our structural cost down. The exceptional post-pandemic GDP growth has caused unprecedented increases in raw material prices, energy and transportation costs as well as disruption to our logistics and supply chain in general. The extent of the inflation in raw material prices has been unprecedented. As you know, indexed raw materials form the largest part of our product cost. And the increase of these indexes varies between 40% and 80%. We have also experienced significant inflation on other raw materials and operating costs. Examples is packaging, up 50%; energy, up to 150% for gas and 180% for electricity; and sea freight, up threefold. These challenges have intensified throughout the year and the pressure has steadily increased on both the top line and our margins. Turning now to the measures we are taking to mitigate this impact. In other words, the elements where we have full control. So on Slide 6, to offset the input cost situation and rebuild our mid- and longer-term value creation, we have 2 levers: cost reduction and pricing. So firstly, cost reduction. We are extending and accelerating our cost reduction program to deliver a year-on-year cost productivity of 4% going forward. This new approach differs from the past at Ontex as we are changing the fundamental cost base to bring down our breakeven point. This will make our group leaner and more agile for the future. Both Vincent and Peter will talk more about this in a minute. To tackle the headwinds of 2021 and what we expect to experience in 2022, we are targeting EUR 80 million of gross cost savings, adding to the EUR 75 million cost reduction in 2021. Secondly, pricing. Given the extent of the increase in our input cost, we are planning to pass some of this onto our customers. There are early positive signs in the market as we see A-brands increasing their prices, and this will provide headroom for retailer brands to increase prices as well. Laurent will talk in more detail, but we have a customized approach, customer by customer, and we look not just to increase the prices, but to optimize the product offering and to generate efficiencies across the value chain without impacting the quality of our products. Pricing actions will be taken across all our businesses. In June, we set out 3 financial targets for 2023, and these targets remain unchanged as an ambition. We will get to the 2023 targets, thanks to the execution of our plan and portfolio divestments that I will talk in a minute. And then Peter will come back in more detail on the scenarios we are working on today. Let us now talk about the group's portfolio. When I joined Ontex at the beginning of this year, it became very clear to me upfront that our business was way too complex, and our sources were being spread too thin. These have prevented us from supporting appropriately our core businesses. At that time, I set the objective of simplifying and bringing focus to our business and product portfolio. Ontex has been trying to deliver value on 2 fronts for a number of years now without success. On the one hand, Ontex wanted to be the partner of choice for retailer brands, lifestyle brands and institutional clients in developed markets. And on the other, the group has worked to build Ontex's own brand positions in several emerging markets. This resulted in the group losing its way in its extremely strong position in Europe, and performance has been affected. Furthermore, the emerging market positions have not generated the returns on investments required. Therefore, we have decided to refocus Ontex on partner brands and health care. And by partner brands, I am talking about retailer brands or private labels, sometimes called. Lifestyle brands are premium brands that appeal to an inspirational way of life. They typically use natural materials with a good-for-you and societal benefit value proposition. These brands are growing very strongly in both North America and Europe. Lastly, in Healthcare, we serve institutions and distributors with a very similar business model compared to the partner brands. This decision automatically brings geographical focus to Europe and North America, where partner brands are well-established, sizable and offer the greatest potential for profitable growth. This new focus will enable Ontex to continue to leverage scale benefits from raw materials to production, logistics and, of course, in our go-to-market, including customer service. In this way, Ontex can excel once again with a strong customer centricity, offering innovative products with best-in-class quality, cost and service. Leveraging of these economies of scale will reinforce our goal of always being the partner of choice for our customers. And to maximize the opportunities created by this decision, we can leverage off Ontex's inherent strengths. We will focus management, time and capital on our core businesses in Europe and North America, markets which are attractive due to their size and growth potential. Just to bring some perspective in 2020, these markets accounted for EUR 1.4 billion of revenues being around 70% of the revenues of our group. They generated an adjusted EBITDA margin of 13%, being close to 80% of the overall margin of the group. This is where we will focus our development attention to drive growth and mix, and make the necessary investments in research and development and manufacturing capabilities. Going forward, we will manage the operations in the rest of the world for value and cash. In 2020, these businesses that are outside Europe and North America had revenues of EUR 600 million with an adjusted EBITDA margin of 8%, well below the group average and value creation expectations. These activities are under review to determine the best path forward, with advisers already appointed. We will, of course, update you if and when any decisions will be made. We can now focus our attention to restoring growth in Europe and accelerating our development in the U.S. In Europe, we have seen sequential top line growth since Q2 this year, and 2 primary objectives here. First of all, strengthen our leadership position to be the partner of choice once again. And second, accelerate the focus on faster-growing margin-accretive products, and these includes all adult care products, baby pants, products with natural materials and online channels. Laurent will tell you more in a minute about how we are bringing the business in Europe back on track. In North America, where the market has great potential for partner brands, the objective is to deliver sustained double-digit profitable growth. We will accelerate our development, building on our strong foothold. And our new U.S. plant is coming on stream, which together with our Mexico operations, will give us a cost-to-cost capacity to supply all our customers. Now I would like to introduce Laurent Nielly, President of Europe Division, who will explain in a little more detail the dynamics of the European market.

Thank you, Esther, and good afternoon to all. I joined Ontex 4 years ago in Brazil after the acquisition we made in Brazil. And throughout my 30 years of career, I spent a number of positions in finance, commercial and general management capacity in consumer good companies like P&G, PepsiCo and Coty, where I acquired experiences in driving growth, turning around businesses in both stable and volatile markets. I joined the executive management team last February, and since then, worked to stabilize Europe, while restructuring our commercial organization combining our 2 previous divisions of Europe retail and health care. Now as mentioned by Esther, the key task at hand, in addition to driving more pricing initiatives, is to return the Europe business to sustain growth, by stopping the share losses on our retailer brand part of the business, which have mostly done by now, and by repositioning our portfolio to increase our exposure to the growth pockets. So first, on the retailer brand turnaround. As many as you know, this is a unique business model. The way to drive retail brand, and by the way, most of our institutional tender business in adult care is different. First, it is a business governed by sales contract and, in most cases, subject to tenders. Second, the interactions with our customers are mainly product-specific based on performance requirements within the defined price target. Third, versus the regular branded business, the levers that you can pull are different. It is harder, for instance, to stimulate short-term demand. Some customers, of course, are more sophisticated in the way they build their brands and you de facto have more you can influence, but many others do not. And if you combine this with the fact that the contracts on average last 2 to 3 years and are re-tendered 9 months before start of new shipment, you have a certain inertia. So you have to address it in a complete way, working on assortment, on mix, product specification and chasing down non-added value costs through the entire value chain customer by customer, something we have ample experience of. And as we have already shared in the past few months, after 4 years of net losses, we are turning the corner, while addressing all the fundamentals from the way we prepare tenders, we serve our customers and help them grow. It is hard foundational work, and we know how to make it work. Let me share 2 examples. The first is the continuation of the story with our top customers that some of you may have heard previously. This is a demonstrated win-win approach to a partnership, where we invest in dedicated teams and innovation, together with our customer, help grow, share and strengthen the brand, which you can see on the left side of this slide. The second example is one of a comeback, an important customers that we had lost most of the business with in 2018. We had to rebuild it by regaining trust, relationship, delivering the basics and demonstrating we could help our customer change its trajectory and thereby change our penetration within its business. But as you can see, it takes time linked to the inertia that I explained. So we cannot only rely on net gains and losses, we also have to improve our portfolio growth exposure. And that's the second part of the change of our trajectory, which, indeed, will come from us outgrowing in a few areas that we have prioritized and that we want to accelerate. First, improve our position on the growth pockets of baby markets, namely, the pants and the eco-sustainability solutions. Second, outperform in Adult by improving our presence and help our customers in winning more consumers entering the category. Third, trade up through relevant innovation and portfolio mix in all categories, and especially in fem care, where we will focus on where we can profitably make the category more attractive to us, with some synergies with our North America business. And finally, across all categories, step up our presence online directly or through our distributor and retail partners. For every of these priorities, we have a multiyear plan. For baby pants, for example, we have worked on improving our products, which we have mostly rolled out by now. Sharpening our shopper-led story to unlock growth with our customer, which we play -- which we say is our playbook. And we, in parallel, aimed to reduce the cost gap between pants and open diapers, while investing into more capacity. But I want to expand a little bit more in Adult, which is Europe clear growth engine. Adult category is the largest business of our combined Europe division. We are holding a strong #2 position in Europe. And through that, and our presence across all channels, we are well positioned to win in this margin-accretive category. To accelerate our growth, we will maintain a strong position in the health care institutional channel on one hand, while accelerating the expansion in retail on the other hand. In institutional, this means providing more service solution over time, but also improving our presence in what we call self-pay, which is the channels in which consumers can decide and pay for themselves for the product as opposition to the reimbursed channel, in which the consumers receive an allowance to cover the cost of the product. Importantly, to be able to do that, we will have to protect our equity with the caretakers and the institutional channel players that are key to build what our brand is today by respecting our roots, segmenting correctly our brand and portfolio, but also by testing several service offering. One of them that we've already shared in a couple of occasions, which is our connected diaper solutions, which we call [ Horizon ]. On the more traditional retail side, it's about helping our customers to make the category more relevant, especially in the point of entry of the category, which are the light inco and pants segments. As you may know, this category had a lot of consumer taboo for a long time, but we see those taboos being reduced over time, and the penetration of the category increased as consumer acceptance grows into shopping for those products. And then, of course, we are working to increase our online presence, but not just for Adult, across all the categories. Finally, a word on innovation because this will continue to be of the key driver for our growth. Being able to fast follow branded leaders as well as providing consumer relevant, cost-effective solutions and differentiation options for our customers remains key. We have already refocused our innovation effort based on the category-focused set of centers of excellence, which are the blue bubbles that you see on that map. And at the same time, we have already streamlined our teams of R&D. So we'll be able to tap into the depths of our R&D teams, our engineering and supplier know-how to develop those product platforms, and we have clearly separated those design teams from what we called our local adaptation teams. This allows us to better prioritize, ensure that we drive scale and balance our efforts between design for value and new benefit-led innovation. This will also allow us to continue to win tenders and improve the mix towards higher-margin products. I wish I would have more time to give you more insights into our business, but I want to thank you for the opportunity to share a little bit of our journey in Europe. We have a very good base to build off, and we are clear on the direction as well as have a high sense of urgency to improve our top line performance, both on pricing and on volume. We have decided where to focus and where to invest to accelerate growth. We know what winning looks like, and we're in the process of rebuilding non-negotiable [ table ] stakes. Now, let me now give the words to Vincent Crepy, our Chief Supply Chain Officer, who will provide you with more insights, into how we intend to drive cost and service excellence through industrial transformation. Vincent?

Thank you, Laurent. Good morning, and good afternoon to all. Now that we have seen how we are going to deliver our ambition in Europe, let's see how our industrial transformation agenda is going to support our strategy. So a few words about myself. I have joined Ontex relatively recently, in May of this year, in the position of a Chief Supply Chain Officer, which has been created to lead our supply chain truly end-to-end. My background is in consumer goods company, such as Procter & Gamble, and also Reckitt Benckiser, in which I held leadership positions in operations in the U.S., Europe, Central America and Asia Pacific. I bring in knowledge and experience in the supply chain area and also passion in transforming the business. In a nutshell, our transformation agenda is about unlocking significant value from our end-to-end supply chain, building on our network and scale to take performance to the next level, placing consumer and customer first in everything we do, being agile, lean and scalable. And we will achieve this through a holistic and synergistic approach using battle-tested tools and methods, building a winning mindset with clear accountabilities and a laser-focused execution. So we have a high fixed cost and a very high dependency to commodity, as Esther mentioned, commodity inflation through the 60% portion of raw materials and also on other operating costs. While we have a well-deployed asset base, close to our customers, which is critical, we also have a high level of complexity, which translates in excessive diversity of equipment with a low utilization. So in other words, we have plenty of opportunities. Now to support our company goals, we want to develop the capability to deliver a sustainable 4% year-over-year cost improvement to contribute to our profitability growth, keeping net working capital below 5% of sales and CapEx in the ballpark of 4% to 4.5% of sales to secure our cash conversion objectives, while investing in a disciplined manner in growth in a very focused way. We want our customers to rate us in the top tier in terms of service. This is critical in general, and that's even more important for partner brands, of course. At the same time, we will secure that the quality and performance of our product is at par with international brands. And of course, we want to do this, keeping sustainability in mind, with the ambition to improve our safety and carbon emission performance year-over-year. So we just talked about the why we have an industrial transformation agenda, which is basically to deliver the goals and objectives that we've just seen. The why is clear. Now, we need to define what and the how. The what is all about infrastructure, where do we make product, where do we ship product from and with which type of assets. the how is about ways of working and mindset. So first footprint, where do we make and ship from. This is all about balancing manufacturing and transportation costs to achieve the lowest total delivered cost. Key to that is the concept of logistic footprint. The denser the product, the farther it can travel economically. Tampons, for instance, very concentrated, if you wish, can be manufactured from a global site and distributed worldwide. While adult incontinence, much larger product, less dense, have to be produced closer to the consumer, typically within 700 kilometers radius. Now let me take specific examples of actions we already took in that area. In Europe, we have announced our intention to close our manufacturing operations in Mayen, Germany. We are also moving the production of 8 lines from Belgium to Spain and Czech Republic, closer to the customer base. Another example related to growth in North America, as Esther mentioned, we are ramping up, as we speak, manufacturing capacity on the East Coast of the U.S., which will -- and we will be the only player, actually, to provide customers with coast-to-coast sourcing flexibility. That's about footprint optimization. Now, what type of assets do we want to have? As mentioned prior, we have a very diverse asset base. We have more or less 300 lines, and none of them are identical one to another. We want to streamline that to a fewer number using faster equipment on harmonized platforms. This will allow us to reduce the numbers of line by 20%, and as a consequence, improve capacity utilization by 10 points over time. So let me take a very concrete example. We have about 80 open diapers line. And over the next few years, we are planning to accommodate the current volume and the growth on [ half ] that number. And we are going to do that by focusing on the faster equipment that we have, harmonizing product features to one platform, to then even further speed up the lines. Ways of working. So in terms of ways of working, we are improving our capabilities in strategic procurement, design to value and industrialization. The magic triangle, this magic triangle will help us to optimize material costs. Let me take a concrete example. So I talked about open diapers. And we have tremendous opportunities to standardize our open diapers, as I mentioned prior, specifically on the chassis, which is the [ bay ] shape of the diaper. We are aligning on a straight chassis, moving from cutting out the shape that fits the baby to on a straight chassis, adding [ ears ] to get the baby shape. This is design to value, removing waste. Now, reaching out to suppliers of years with the right approach in good timing, while being able to roll out a new specification very fast, which is the purpose of industrialization, is creating even more value from the design-to-value exercise and is creating value faster. This capability to industrialize better and faster, rolling out a change of specification efficiently and rapidly, is critical to our success. Now talking about waste elimination, that is exactly the purpose of our operational excellence program. Not only do we want to have one diaper design on the example I took on one type of equipment, we also want to have one optimized way to make it. This drives efficiency, which in turn increases utilization of the asset. Now specifically, we have the ambition to reduce scrap by 1/3, 30%, and thereby help to increase our OEE up by 15 points. OEE is equipment efficiency. Now we have reason to believe we can get there. As we already see in 2021, we expect our scrap to reduce by 10% and to increase our efficiency by 5 points. Now, operational excellence doesn't stop at the manufacturing lines. There are many other possibilities to streamline our ways of doing. For instance, we're actively working on increasing the number of units per pallets, optimizing pallet fit, [ autocase ] dimensions, basically to put more product in a truck. Beyond manufacturing and logistics, we want to roll out our lean and agile approach to all functions, planning, development procurement. Now all these are battle-proven methods, and there is really nothing new in taking all the source of inefficiencies at the roots and then putting in place pragmatic ways of working, focusing on getting results. The catalyst of all this is going to be to further develop the right winning mindset. Setting ambitious and clear expectations, providing proven tools and methods and holding ourselves accountable to deliver no matter what, that's going to be key to success. So as we have seen prior, for instance, with the example of the straight chassis, not only do we tackle the entire chain holistically, we tackle it in a synergistic manner. We look to maximize everything we do across the board. High efficiencies will turn in improving our asset utilization, which will reduce our fixed cost and our need for CapEx, and eventually, to operate the business. Higher efficiencies will also enable us to use the material to the most, avoiding waste, hence further decreasing our costs, et cetera. So clearly, 1 plus 1 equals more than 2. So we have ambitious objectives, and holistic and synergistic approach, using battle-tested method to become leaner, more agile and scalable, and we are building a winning mindset with clear accountabilities and laser-focused execution. Now at the end of the day, the proof is in the pudding. And as a matter of fact, our full end-to-end approach creates momentum that is visible in the P&L today, Esther mentioned a few numbers. And we are building on this momentum for 2022 and beyond. I'll pass now to Peter, who will take us through our strategy translates in financial outcome. Thank you.

Thank you, Vincent. And good morning, good afternoon, good evening, everybody. Over the next pages, I will tie this all together, and I will mostly focus on the New Ontex strategy and on how that translates into key financial metrics. So I'll be focusing on the ambitions and the targets for New Ontex perimeter, Europe plus North America. My main focus will be mid-term. I will be touching at 2022 at several occasions, but I will come back with a more elaborate view on '22 at the usual time early next year. Now as Esther pointed out, since mid this year, we and by extension, the whole sector, have been facing accelerated inflation and supply disruption in an absolutely unprecedented way. I'm surely not bringing any news to you by saying that. The extreme level of inflation is very clear from the table on this page to the left. This is showing the evolution of our main indexes as a weighted average for the last 10 years, and you can see the huge peak very recently. In our business, input costs have gradually risen 15% to 20% versus 2020, and this has disrupted our market, our sector in a very significant way. The supply crisis started to weigh on our margins, as you've seen in the last quarters. You have seen in the Q3 results a year-on-year EUR 28 million higher index-based input costs in one quarter, partly offset by EUR 15 million strong net savings also in just one quarter. And about Q4, with the current volatile environment, the expected improvement in supply is not materializing as we saw in the fourth quarter as we anticipated. Although these problems are of a temporary nature, our revenue and bottom line in Q4 are being impacted. Versus the outlook of minus 1% like-for-like revenue decline and 9% adjusted EBITDA margin for the year, we expect both the revenue and the adjusted EBITDA margin to come approximately 0.5 point lower. Within this context, it's clear that 2022 will be a challenging year with unprecedented inflation reflected in most of our supply contracts to be gradually mitigated throughout the year. As we explained earlier, we are pricing across the business, and we have strong and accelerated cost programs, and we are reassured by the strong results we are realizing on them in 2021. We believe that these unprecedented levels of inflation will normalize at some point, but we're not counting on that. And therefore, we focus on what we have under control, growing our business, accelerate the cost savings, pricing, optimization of our mix and the portfolio changes. So our plans and numbers in this section, therefore, do not include any softening on these extreme cost levels. We need to realize this is a harsh assumption as there is a strong upside potential if those levels would even partly turn back to normal. On the top line, Laurent has been showing you how the growth in Europe is being realized, and our strategic plan foresees a 1% to 2% growth over the coming years in Europe. We're coming out of a difficult period in Europe, with 3.5% decline in the years up to 2020, driven by some important contract losses. And the chart on the left of this page is actually measuring the sum of impacts of all contracts that we've won, minus contracts that we've lost. And you see before in the past, before 2021, there's net losses. The net balance of contract gains and losses has, however, stabilized in 2021 and shows a net positive balance going into 2022. And there is a time lag between the moment a contract is won and the actual first sales resulting from that, so this trend does provide confidence for what is coming. Shifting to North America, the second pillar of our core focus. We foresee double-digit growth over the coming years, and this is actually a continuation of the track record of 11% CAGR that Ontex realized from 2017 to 2020. With the combination of these 2 regions, New Ontex will demonstrate 2% to 3% growth over the next years and midterm. That is 1 point lower than when we include all emerging markets from our current scope. As you've seen earlier, the core, however, has significantly more profitable sales, U.S. and North America, so the strategy to focus on our core is positive on a margin level. In the near future, sales growth rates will be higher because of the pricing that we are and will be implementing. Next, cost. In our strategic review over the last months, we've been stepping up our cost programs significantly to mitigate inflation on the one hand and to drive year-on-year margin growth on the other hand. In 2021, we have demonstrated our capacity to generate very significant savings. In Q3, again, we reported a total of EUR 52 million savings realized over the year, which is the net that was gross and net that's EUR 42 million. And we aim to a total of EUR 75 million for the full year, which actually represents EUR 60 million net savings. Leveraging on that momentum, we target at least EUR 80 million gross savings for 2022, which is more than 4% of our cost base. As we focus in the upcoming years on our core Europe, North America perimeter, we have sharpened the programs and are confident that we can continue to deliver the 4% of productivity on our cost base as an annual drumbeat also after that. Supporting these programs, we require a one-off charge of a total of EUR 170 million. EUR 75 million of that is in 2021 already, almost EUR 20 million above what I said last June, yet all of that is noncash. So the EUR 75 million in 2021 contains EUR 50 million cash, EUR 25 million noncash. And then after 2021, EUR 95 million in the next 2 years, of which EUR 80 million cash, EUR 15 million noncash. The corresponding benefit to this is EUR 130 million, of this -- sorry, the corresponding benefit to this EUR 130 million cash is EUR 300 million over the years 2021 to '25. And that's the sum of what you see on the left, EUR 75 million realized already in 2021 and then EUR 80 million on top of that in 2022, and then 4% productivity after that. As we have extended the capacity optimization and overhead reduction programs we already discussed in June, but we accelerated, and Vincent continue to -- has been talking about. So EUR 75 million already '21, EUR 80 million already in '22, as I said. The largest components of this investment are initiatives. First, initiative to increase the capacity optimization, utilization and optimize the operations footprint. Secondly, the overhead reductions, mostly in Europe. And it also includes the cost of divestment and restructuring as we pursue our strategy that Esther has been highlighting. The savings, $300 million, completely outweigh the one-off cost investment and the average payback on the individual projects is about 3 years. It's clear that these programs are critical to offset, first, short-term inflation, but also as a major contributor to our midterm target margin growth in the New Ontex, allowing us to become leaner. Now, I have talked about a top line target of 2% to 3% on the New Ontex. Let me now elaborate on the margin. As mentioned earlier, the unprecedented inflation puts short-term pressure on our margins across the group since a few quarters and require strong cost savings and pricing to gradually offset this. Our strategic agenda is to reduce the scope and divest businesses under strategic review. Assuming a full divestment of the non-core in the next 2 years and the execution of our plan on revenue, cost, pricing for inflation, the midterm target level of 12.5% to 13.5% adjusted EBITDA can be reached for the New Ontex in 2023. On all our businesses under strategic review, portfolio projects have already started, and we engaged advisers on them. And given the margin difference on core and non-core, divesting these businesses have a positive effect of about 2 points on adjusted EBITDA margin. We believe that the unprecedented levels of inflation we see today will normalize, but as I said before, we've not assumed any softening on this. And so in this sheet, you don't see any assumption on lowering the margin from current peak levels. But just as a reference, a 5% softening -- 5% softening of the current peak inflation levels also puts the business within the margin range by 2023 without any of the divestments. Having said that, we do have an internal target and ambition to divest at least half of the businesses under strategic review over the next 12 months. However, as we do not control all the variables in this, we will keep you posted as we're making progress. And with the new perimeter, our ForEx exposure will clearly be very much reduced, and you know we have been suffering from that in the past few years. Beyond 2023, the New Ontex has a margin potential of above 15% by 2025, driven by the continued business growth and saving programs with an SG&A structure below 10%. On the cash front, looking at working capital first. Focusing on the core business and the partner brands will further enable radical simplification and a one-platform approach. We have already been making good progress in year-on-year reduction of working capital over the last years, and with the additional contribution of the Cash is King -- recently launched Cash is King program, we will continue that positive trend and take working capital around 5% of sales for the New Ontex. On CapEx, over the last years up to 2020, Ontex has been spending 4.5% to 5% of sales on CapEx. Part of that included a required catch-up on pants. And Ontex, for those of you that remember, has been at lower levels before that. In 2021, on CapEx, we have been scrutinizing our CapEx spend, optimizing our CapEx discipline with an enhanced return and return on investment mindset and grasping opportunities to be more efficient. But also, we've been applying a strict control on spend in view of the margin pressure that we are facing. We are, however, securing all necessary projects to fuel the growth and the saving programs on our North America and Europe businesses, especially in the fast-growing categories of Adults and Pants. And actually, even in this year, 2021, where we expect low CapEx, our CapEx is higher than depreciation when you exclude the IFRS 16 effect on leases, meaning that we are on the investment curve and not eating into our future. CapEx forward. The plans are based on the growth and cost-out programs that we have been presenting to you earlier, and a range of 4% to 4.5% run rate on the New Ontex is sustainable. I talked about 4% last June, which was covering the total business core and non-core. Capital intensity is somewhat higher in Europe and U.S., with more capital-intensive Pants and Adult Inco businesses. But these also have higher profitability that can carry that. The discipline that we display here on working capital and CapEx will lead to a 60% cash conversion for the future for our New Ontex, returning at the levels that we achieved in 2016. Next, to the balance sheet. Net leverage was 4.3x at the end of Q3, 3.9x pro forma, if we include the cash from the Brazil litigation that we received early October, and this has -- evolution of leverage has been impacted by our shorter margin pressure. So deleveraging to a healthier balance sheet is a crucial deliverable for Ontex. And I do want to note a few things on our debt. Over the last few years, our net debt has been slightly reducing, and we need to continue to do so. With the refinancing last summer, we have diversified our debt with EUR 580 million in bonds and EUR 220 million covenant holding bank loans. Maturities have been extended to 3 to 5 years out, and we do have a solid liquidity with about EUR 200 million of cash and a revolving credit facility of EUR 270 million that we are not utilizing. The execution of our plan with the divestment of businesses under strategic review will speed up delivery and deleverage drastically, bringing leverage below 3 in 2023, even with a partial divestment and even when making prudent assumptions on divestment proceeds. With full divestments, we should move to below 2 by 2025. This is clearly a very critical milestone in the creation of a healthy balance sheet for our company. And on that note, let me now hand back to Esther.

Thank you, Peter. So to conclude, I am confident that the New Ontex is set for success. We now have a clear strategic direction, and this ensures that we can focus our resources and efforts without dispersion. We are bringing down Ontex's structural cost base and addressing the exceptional cost inflation being experienced currently with an intensified savings program, cash discipline and pricing initiatives. Our midterm targets remain valid, with the New Ontex fully streamlined. With this renewed focus and greatly reduced structural cost base, Ontex will become leaner, more agile and more profitable. And when the full potential is leveraged, Ontex can generate 15% margins at least and have a debt leverage below 2x. Thank you very much. Now together with the team, we would like and we would be pleased to answer all your questions.

So welcome to the Q&A session. [Operator Instructions]. The first question comes from Wim Hoste. Wim, I think, you need to unmute yourself.

Yes. Sorry, is that better? Do you hear me now? Hello, do you hear me?

We can hear you.

Okay. Sorry. Yes. First question would be on the production footprint going forward. Am I right to say that you want to keep, yes, Mexico as a production hub, but all the other emerging markets would be subject to divestments? Is that how I should read into this? And then the second question would be on the whole discussion about raw materials inflation and pricing initiatives. I was wondering if you could be a bit more precise about current raw material initiatives? What kind of pricing -- raw material, sorry, headwinds would that mean for 2022? And by when should we start to see your selling price initiatives accelerate? And can you put any kind of numbers on how much that could be for 2022?

Thank you for your questions. I'm going to take the first one, and I will ask Laurent and Peter comment on the second one. So on the production footprint, of course, as a consequence of our strategic choices from the geographical perspective, they will have an implication of our footprint. I truly believe that from the European perspective, the footprint that we have in Europe can really fully support the European business. And then from North America perspective, we will continue to support the growth in the U.S. and Canada with the production facility that we have in Mexico plus the new facility that we are building and that we are starting as we speak. So just maybe to put things in perspective, when we think about Mexico, we have 2 parts there. We have the Mexico domestic business, which is a local for local business with -- it's a branded business supported by a plant located in Puebla. And then we have a second plant, which is located very close to the West Coast border with the U.S., which is mostly supporting the U.S. So it is early to say how we are going to handle that. But of course, as we progress with the project of divesting in Mexico, we will find the right setup from the manufacturing perspective. But my intention is, of course, to continue to support the U.S. growth with both Mexico and U.S. production. Now on the pricing dynamics, maybe I would like to ask Laurent to mention on the pricing moves. And then there was the raw material for 2022.

Maybe I'll start, and then I'll pass it to Laurent. Question was about 2022, can you be more specific? And then what's the pricing going to be? Let me first start with '22 and then hand over to Laurent. We -- I've talked about it in my presentation, I've talked about inflation that we're facing of 15% to 20% versus 2020. You will see that coming back in '22. So what will 2022 look like? We're going to return to growth, we're going to have cost savings and we're going to price for inflation. I mean those are the dynamics you're going to see. We're accelerating our cost programs to deliver over EUR 80 million, and we are in parallel to that, of course, going to be reviewing our strategic portfolio in 2022. You have heard some assumptions already, EUR 80 million. We'll keep our CapEx below 4%. We'll be pricing across the board. And as -- although I said we expect that inflation is going to be lax at some point, we do believe that over the next 6 months, we will at least stay on the levels. And again, we've not taken any assumption of relaxation in the strategic plan that we've been showing. To be more precise, in 2020 also will be a year of continued some volatility at this point. I cannot be very specific about margins or not as much as you probably would want me to be. We're still in a high volatility, and especially, we're in the middle also of closing agreements with suppliers, closing with customers at this time of year. So you will understand also that this year, this is more intense and uncertain than in normal years. So in absence of that visibility, we will come back on that more granularly on 2022 after next year. And on that, I'll -- pricing specifically, I'll pass to Laurent.

Yes. Let me add a bit of color comments to that. First, I think you will see a different dynamic on the branded business versus our non-branded business, or partner brand business. Because obviously, on the branded business, we can price faster, and so you will see pricing entering into action as of now and as of the quarter 1 right away. On non-branded business, you also will see price moves, but generally it takes longer. You also have to remember that on part of our business in Europe, whether it's public tenders or some of the contracts we have, we have fixed price contracts. So that business takes much longer time to be able to price because you have to go through the cycle of contract renewal or new tenders. Now that said, we will expect gradually to see the impact hitting our P&L as we progress through the year. And this approach is done customer by customer, depending on the contractual situation that we have and the opportunity that we have. Last, you have to remember that pricing is our main levers, but we have other levers to try to work on value creation with our customers and our partners on mix, on innovation and on taking cost out. Obviously, we have a huge cost program that we have, so it's all about restoring our margin over time with pricing being the key levers, but not the only one. I hope it answers your questions.

Okay. Our next question is from Karel Zoete from Kepler Cheuvreux.

Yes. The first one is with regards to the ambition to how to improve your game in Europe as a private label player and in surface levels. Where do we stand today because you had some issues in Q3? And related to Europe, I think you also had this ambition to raise capacity utilization. But at the same time, how you aim to be -- you're raising prices. So how does that coincide with each other? And related to that, I think how frequently is the portfolio tendered? Now then the other question is on innovation. You speak about a couple of segments where you want to win. How do you judge the competitive strength of Ontex in terms of being able to launch and roll out innovative products? Because ultimately, that also should bring pricing power.

Thank you, Karel. I think this is 4 questions in 2, so let me -- so first of all, you asked about the ambition in Europe, if I understood well, and how that fits with the service level issues that we experienced in Q3. And of course, we need to make sure that we have a best level of service, and this is serving especially the retailer branded business and the institutional business is extremely important. And typically, just to give you a perspective, our target in terms of level of service is above 98%, which basically means being able to fulfill more than 98% of what our customers need. And that service level has gone down starting from after the summer to the high 80s level. And this is driven by basically material shortage. So we -- and especially packaging and transportation. So we have experienced, especially on the fem care category, where our packaging used a significant amount of carton. We've been experiencing challenges to supply the necessary raw materials, and as a consequence not being able to serve the customers as we usually do. This is one of the things that has impacted our Q4 outlook. We were assuming that this disruption would go away faster than what we are seeing right now. And we are seeing slowly improving the situation, but we are not there yet. And what this means is we cannot -- we need to learn to operate in such a volatile and disruptive environment. We need to become more flexible, and we are getting there. So we are slowly improving our level of service. And I am sure that as we go ahead in the year, we will recover and establish the required level of service to appropriately serve all of our customers in Europe and in the U.S. The second question, I'm not sure I understood well. There was about capacity and prices, so extending capacity while we are increasing prices. And we are expanding capacity in the -- in the product categories that we want to focus. These are fastest-growing categories like Pants, like Adult. Most of the growth of the market is basically focused on Baby, on Pants because the market is transitioning from the traditional diaper to pants. And then the Adult category is growing very fast because the population is aging, and we have more and more consumers getting into that category. And of course, as a consequence, I mean, we want to have a laser focus on those categories. We want to focus most of our development resources, innovation in those categories. And as we need, we will continue to expand the capacity. And this has nothing to do with the price increases because, of course, we need to pass a portion of the inflation to consumers, and that will translate into pricing. But we need to remember that especially in the mature markets, we are selling products that are going to be used anyway to consumers, independent in a way of whether there is some inflation or not. On portfolio tenders, I would like maybe Laurent to...

I'd be happy to comment. As I said in my presentation, tenders is usually every 2 to 3 years. But the jury is still out on how it's going to play out in next year. We see both tenders can be reaccelerated if you go into a dispute on your pricing discussions, as an example, or tenders being extended if the retailers is focusing on, first, sorting out the service level issues and is afraid of price increase to the re-tender business. So I think it can go both ways. But in general, on our contracts is 2 to 3 years.

And then last but not least, you asked about innovation and how competitive we are on innovation. And I need to say that we are even in -- as we have gone through this very challenging period with a huge inflation and unprecedented disruption in the entire supply chain, we have continued to invest in innovation. We have continued to launch innovative products in the market, and we have seen very good successes, especially in Europe and North America, but not only with the innovation launches that we've done. As an example of that, the baby pants being redesigned and launched across Europe and North America, but not only also in the emerging markets, and new solution for the health care division, for the institutions with the smart diaper and all the services that are attached to that. I hope that we answered all your questions.

Okay. The next question is from Martin Deboo from Jefferies.

Yes, can you hear me?

Yes, we can.

Okay. Good. I want to sort of explore the other leg of the plan, which is the divestments of the non-core businesses. The challenge for you is twofold. You've got to trade those businesses successfully, while you're still keeping them. And then you've got to realize an exit multiple for them that is sufficient to deleverage the business. So I guess the question I want to ask you are, where are those businesses trading now? Maybe the question I can reasonably ask you on what you've just disclosed, are they EBITDA positive this year? I suspect the answer is yes. But are they EBIT positive this year? I'm not so sure about that, because that's going to influence buyer perceptions of value. And do you think you're capable of realizing multiples that will have the effect of delever -- clearly, they're going to relieve debt, but are they going to deleverage the net debt-to-EBITDA ratio? That's the acid test. So I would just like to hear your views on that.

Yes. So on the -- on where those businesses are today, you know that we don't report specific margins by business. However, when you look at the 2020 margins, you have seen that there is a significant difference between the margins that we have realized in Europe and North America versus emerging markets. That is 5 points difference. And as you can imagine, the inflation, the huge inflation and the disruption in the supply is impacting equally to all markets. So you could imagine that those margins have suffered pretty much in the same way across the board. Also because when we look at our cost programs, they are pretty equally spread across the board. On the proceeding and how we keep those businesses on track while we work on the projects and we look for strategic alternatives. Of course, we will have a very strong focus on making sure that we continue to extract and to improve the value structure of those businesses, while we keep them in our portfolio. And of course, our intention and our target is to rapidly find solutions for those businesses. And as we find them, start divesting them one by one. It is too early to talk about expected multiples. I can tell you that we have been pretty conservative in our assumptions. When Peter talked about getting our leverage below 3 by 2023 and below 2 by 2025, I can tell you that we have taken conservative assumptions. And of course, we will do our best to extract the maximum value for Ontex and for our shareholders.

Okay. Our next question comes from John Ennis.

Yes. So my first question is on the sort of further cost reductions. I guess, to some degree, the supply chain disruption that you've seen over the second half of the year can be, I guess, to a degree related to procurement issues and procurement savings have been a historical component within the cost saving plan. So my question is, how confident are you that the future saving programs won't have an adverse effect on the top line medium term? And then my second question is, I guess, more of a -- more of a clarification really. But if we go back to what surprised you for the fourth quarter, is it purely service related in terms of the supply chain issues that you're referencing? Or is there also a negative cost surprise embedded within that?

Thank you, John. I'm going to ask Vincent to talk about the savings programs and the link or no link to the disruption, and maybe you can talk a little bit about the disruption and what is causing that?

So to the question, is our procurement approach having an impact on the -- our capability to have access to material? The short answer is absolutely not. Why? If -- I will take the example that Esther mentioned, which is packaging material. Fundamentally, packaging material, basically paper-based packaging material, and we all are consumers, and we order from the big names, et cetera, there is basically a shortage of feedstock. So whatever approach we can have on procurement with our direct suppliers, they themselves do not have access to the feedstock, which in repercussion translates in problem of availability. Now going forward, procurement-wise, what we plan to do is have a diverse asset base qualified in order to increase the resilience of our supply chain going forward. But again, when the feedstock itself is not available, this is a common issue across the board for -- not only for Ontex, but for anyone using those feedstocks. So that's on the procurement savings having or not having an impact on the disruption, and the answer is absolutely not. Now on -- the question was about service. I'm not sure I got the question, actually.

So maybe just to close on the disruption, because we've been spending a lot of time on this disruption. I do believe that this is of a temporary nature. And of course, we need to make sure that we do everything to make -- to compensate and to -- everything in our hands to offset. As I said, be more flexible, qualifying new suppliers. But there is -- if there is a shortage of a specific source of material, there is little that we can do. And I think there is a combination of things step-by-step getting back to normal from the supply-demand perspective. And as getting better at operating in this extremely volatile environment. And we are getting there, and we are doing different changes to get there. Now on the service level, the question, I think it was more on -- in Q4, the surprises that we had were there only service related? I would say, mostly, yes. We were expecting that even if we had a prudent assumptions, we were expecting to recover our service levels much faster than what has happened in Q4. And that has impacted both top line and margins as a consequence. Okay. So next question.

Okay. Next question is from Nick Roope from Barings.

Hey, guys, can you hear me okay?

Yes, we can.

My first question is, given your 2023 margin guidance is based on disposals. Should we expect that to change based on how successful or unsuccessful you are on disposing of the low-margin part of the business?

So basically, the question is if we are not successful to this. So basically, first of all, the margins are assuming partial disposals, and we are having conservative assumptions. So we are counting on growth on the continuous cost effort with the 4% productivity year-over-year. And I need to say that we are assuming the level of raw material prices as they are today, which is highest level ever. So of course, we need to look at all the variables. So we are focusing, first of all, on committing to what we can control, which is going back to growth, this 2% to 3% growth, getting a 4% productivity year-over-year and making sure that we have a laser focus on cash and CapEx and cash. And then there are some variables that we cannot control, which is raw material prices. We are taking a very conservative assumption at this point, which is they will stay at a level they are today. While my expectation would be that at a certain point, we will see some softening of that. And we are assuming that step-by-step, we will divest the different businesses with conservative assumptions also on the proceedings. But maybe Peter can...

Maybe one thing to add. You did hear well. We -- I presented the assumption that we fully divest by 2023 to get fully in the -- in all the KPIs that we presented. We -- if that doesn't happen, we also get there without any divestment, if there is a 5% relief on the inflation. Now I've talked about 20% increase of inflation. That's how we have to benchmark it. With a 5% relief, we also get completely in that guidance without any divestment, which again is not the game plan, but that's the sensitivity around that.

Okay. That's clear. So just -- so the graph on Page 5 is all -- I mean, I know it says 40% to 80%, but you've had a roughly 20% increases in your input costs in 2021. If that reversed 5%, you were saying, so about 1/4 of it came back, you would just get there for free, so to speak, is that what you're saying?

Yes.

Exactly. It basically means we're doing our work on the cost saving programs to offset a lot of it. And then on top of that, we will have pricing that will cover the gap.

Okay. But currently, the 13% is based on flat raw materials and fully doing your disposal program.

The numbers you've seen in the whole presentation is assuming no relief on that peak level inflation.

Okay. Got it. That's clear. And then, sorry, a slightly precise question. But what's the last data point on Slide 5? Is it Q3 2021?

Slide 5. Can you refer on Slide 5?

Can you refer what...

It's the raw material price side. I'm just -- I'm basically curious what the latest data point is and how much forward looking -- I don't have these precise indices myself. I'm just curious what you think. I know you mentioned they're going to be about flat for the next 6 months. I'm just curious whether you mean Q4 and Q1 or Q1 and Q2?

The last data point is end of this year.

Okay. So you already have Q4 2021 on the Slide 5?

Based on our own estimates, yes.

Okay. Got it. And so then you're saying that prices are going to be -- so your 6-month comment was for the first half of next year on raw materials?

We are assuming raw materials. So we have seen the highest peak of those indexes in Q4, and that's the last figure, the last data point that you see in that graph. And we are assuming that level will stay throughout the entire 2022 and '23. And what we are saying is that we -- and at the same time, we are targeting the divestments. So if only we saw softening of those -- that peak by 5%, which is, as you said, a 1/4 of the increase that we've seen throughout 2021, we will get to our 2023 targets without any divestiture. Or we are divesting the businesses that are, in a way, margin dilutive to the overall company. With that level of inflation staying fixed for the next 2 years, we can also get there with all the cost programs that we are targeting the 4% productivity that we have talked about. And probably the final outcome is not going to be one or the other. And of course, if we -- as we drive the divestitures and the raw materials soften, I think there is an opportunity, and that's why we say that -- and I say that I see this business with the potential to go beyond the 15% EBITDA margins because the level of raw material prices that we see today, I don't believe will be the case in the future. We will continue to drive cost productivity, and we will basically focus on the most profitable business, driving growth and mix in the profitable businesses.

And maybe just to -- because we talk -- we talked about relief on the cost. I do want to reemphasize, we're not counting on that. Our full plan is based on -- on that we are on this peak level. And if I -- if we talk to Vincent about cost or Laurent about pricing, this is the challenge that we are looking at. That's the current level of inflation. We're not assuming any relief in what we do.

Yes, that's really clear. Sorry, I know it's my third question. But just to be clear, when you were commenting that you kind of expect them to be flat over the next 6 months. Is that based on conversations with your suppliers? Or is that just your own expectation?

It is our own expectation. I mean I don't think anybody has the crystal ball, and many people have proven to be wrong on assumptions. We know what the prices are today. And we know that some of these prices will impact Q1 because typically, when the indexes move, there is kind of a 3-month, 1- to 3-month time lag between when the index move up or down and when you see that reflected in your price. So this is what we see today, and we are assuming that they will stay, but it is very difficult to predict what is going to happen next year.

That were about 10 questions, John. Anyway, the next on the line is Eric Wilmer.

Yes. Eric Wilmer, ABN. I had a question on your European core business. I would like to dive a bit deeper in that. And most specifically, on sustainability innovations and online. In terms of sustainability, I think many of your clients have committed themselves to very strict greenhouse gas emission reductions where private label, especially for disposable hygiene products can be a very effective tool, especially if they tender it to the cleanest company out there, the [indiscernible] manufacture. For this, you will probably need to use fully recycled raw materials in your products, make your product itself also fully recyclable, use non-virgin plastic, et cetera, et cetera. I think that it's fair to conclude that several of your peers, both branded and non-branded, are quite a bit ahead of this. So I was wondering, could you shed some light on your game plan when Europe, again, becomes the core focus, so probably talking about 2023. And what is your strategy concerning online, especially in online channels where there is no private label and where basically the A-brands are mainly benefiting from the increased trend to online?

Thank you, Eric. I'm going to ask Laurent to answer both questions.

Two core questions on future proofing our business, isn't it? And on sustainability, I think that a couple of points. You're absolutely right that we see increased level of requests from our partners to -- for us to help them achieve some of their sustainability goals and for us as an actor in the society to raise the bar. Recycled material is one of them, reducing our carbon footprint and especially looking at Scope 3 over time, but how we measure it is something that is important that requires that we're going to have to partner with all our partners, upstream and downstream, and also using less material where we can. So we're looking at all of those elements. You've mentioned that some of our competitors might be ahead. I think it depends on the solution that you look at. For instance, on packaging, the greatest way you can have impact is to increase the amount of recycled PET -- that PE that you're going to use in a lot of your materials. And not just going into paper bags, if this is what you were assuming. But we're working on all those assumptions. It is fair to say, which with the current crisis on supply on a lot of those materials, and you can imagine that every kind of eco-labeled supply is even more hit with an unbalance between demand and forecast. We have a bit of delay on rolling some of those initiatives. So you're absolutely right that you should expect more focus on it on the second half of '22 and going into '23 when the situation is more stabilized. On online. I don't think it's accurate to say that private labels are not online. I think if they're not on some of the big marketplaces, like Amazon, although Amazon has a private label program of its own. But we are very present through the websites of our retailers, and we are helping them to perform better on the way they position their brands on the basics about growing online. So this is something that is really core to what we do and on which we have, you're right, lower share than some of the branded players, but it's growing nicely. And then we know that it will continue to grow. But probably never reached the full impact of a branded player until all our partners invest in their own infrastructure, so that's how we are growing through it.

And maybe to finish on online, apart from helping our customers to gain their fair share online and going directly to some of the customers with retailer brands or their own brands solutions. We also are the partner of choice of most or many of the lifestyle brands I mentioned before. These are brands that appeal to younger maybe generations with good for you, good for the environment type of promise. These are kind of premium products, typically priced higher than average, with the promise of natural materials, sustainable materials. And a big portion of the sales that these brands have are online, and we have a very, very strong presence and penetration on that segment.

Okay. The next question is from [ Mohammed Ishtiaq ].

I have 3. Perhaps we can start with a more high-level question, which is looking at the business historically, it's generated a kind of 10% to 11% EBITDA margin, and now you're saying that through the price increases that you are pushing through in a very elevated raw material input environment, you think you can still reach 13.5% -- 12% to 13.5% EBITDA margin if those prices increase -- decreased by around 5%. So I guess what I'm trying to understand from your perspective is what's changed between the last couple of years where you were 10% to 11% business versus what's going to change in 2023, if we don't assume any of the disposals take place and you just have a 5% reduction? Is it simply that you have been mispricing your product over the last couple of years and now you think that the pricing will let you achieve that higher? Is there a fundamental shift in business that we also need to take into account? That's the first question.

I'm not sure if I understand the question. So can you repeat it? So you say, historically, we had 10% to 11% EBITDA margins. We are promising by 2023, 12.5% to 13.5% with an assumption of raw materials softening 5%, so 1/4 of the increase that we've seen in 2021. So is the question -- could you repeat the question so the framework is clear?

Yes. And so the question is what's changed between when you were 10% to 11% business versus 2023? Is it simply that you're just increasing prices on your product portfolio? Or is there a fundamental shift in the business? Basically, how can we get comfortable with you achieving that margin when your historical performance hasn't been there?

Okay. Okay. So first of all, our -- the cost has gone up. So assuming the 5% softening, so it's still a 15% cost increase. In the meantime, we will have had 4 years -- 3 years, 2021, '22, '23 of around EUR 75 million of cost savings. And then, of course, we are focusing on the margin accretive categories. So we have been working, especially this year and for the years to come, on addressing the low profitable products subcategories. And in fact, when we talked about granular approach to price increase is, of course, customer by customer, but we are looking also at SKU by SKU to make sure that we address the lower profitable SKUs. Also because the inflation, the starting point was not even, and the inflation has hit differently at the different product segments. So as a summary, big inflation, but also very aggressive cost programs. And radical reduction of complexity independent on the divestments, which -- because all those businesses are kind of local for local. The work that we've been doing this year is to radically simplify our organization and the way we operate to impact also the SG&A. SG&A will play also a key role. As you know, over the years, SG&A went up, almost up to 13%. We've done a big step this year, bringing it down almost 2 points. And we will continue doing so as Peter said, my ambition and my target is to get SG&A down to below 10%. So it's going to be a combination of SG&A reduction, product efficiencies to compensate the inflation and pricing to make sure that we address the low profitable segments. And this is independent on the divestitures. This is to make our core more profitable.

Understood. That's very helpful. So staying on this point around the simplification of the product portfolio and the simplification of the process. I guess one thing that Vincent was very helpful in kind of explaining was how you were going to perhaps redesign the production process for some of your products. Is there a risk that as you move to try to simplify the production process and try to bring everything on one platform that you may risk your efficiency levels from -- or your volume targets from 98% because there is some level of malfunction or some level of -- any movement towards more simplified process? And also, are you -- you mentioned that you're seeing inability -- or sorry, unavailability of some raw materials in your current production. Does that mean that you have to ration amongst the businesses, i.e., when you do get, for example, cardboard come through. Does that -- are you making sure that, that's more available to the private label business versus the branded business where you have a higher margin because you have certain volume commitments that you have to meet? How are you managing your raw materials amongst the various businesses?

So I'm hearing 2 different type of -- 2 blocks of questions. One around harmonization and having one platform, is that going to deteriorate our capability to respond to consumer needs? So this is one block. The second one -- the second block I'm hearing in your question is around the day-to-day allocation of product and these type of things. So I hope I got it right. So on the first one. Harmonizing across categories, plants and equipment actually is going to help us to react and to be better adapted to consumer needs. Simplification and harmonization doesn't mean eliminating completely some level of adaptation to the local needs of a given customer, quite the opposite. We want to harmonize on some key elements to unlock capacity and capability and add features that we can then apply, if you wish, in a rigorous manner locally so that we serve specific customers. So I don't see how our approach to harmonize, to simplify, to build on less platforms, faster equipment, is going to be detrimental to our capability to serve customers. I mean, actually quite the opposite. Now, the second question around the way we manage the situation when there is a lack of material. So a couple of food for thought. First is this extreme volatility, unexpected lack of this and that and the rest of it is just a reality that is across the board. How we can react to that is basically doing 2 things to increase our resilience. First is get better visibility so that we can anticipate faster or better, at least. So that means, for instance, tracking containers, understanding where the supplier is, so that we can anticipate if there is a delay. The second thing is, first visibility. Second is flexibility in adapting to the change that we can see a little bit earlier. So this could be, for instance, developing the capability to ship. We took the example of -- you took the example of [ autocase ]. If there are some SKUs that we can ship without [ autocase ] agreeing to the customer, we will do that. So this combination of anticipation and better reaction will help us to actually manage. Now, if at the end of the day, we have to make a choice between an SKU and another, that's the type of things that we want to avoid doing actually. But if we have to do that, we do that in collaboration with the customers.

Understood. That's very helpful. And just my final question is the EUR 130 million of one-off costs associated with the cost savings program, how is that going to be funded? Is that a P&L cash cost every year? Or is that funded partly through your CapEx program of 4% of sales per annum?

It's a P&L funded, not within the CapEx. And again, you talked about the EUR 130 million, that's the cash indeed, that's on the P&L.

Okay. Our last question today comes from [ Anna Murray ]. Anna, please introduce yourself and limit yourself please to 2 questions. Anna, are you there? So that will be the last question then. I pass over to Esther to wrap up then.

So thank you so much for your questions. We will deliver on the turnaround of Ontex. Thanks to all the efforts to improve performance in the areas where we have full control. The benefits will become more visible once the unprecedented headwinds softened, which I am sure they will at one time. In 2 or 3 years from now, I am confident that this New Ontex will be very different from today, delivering a solid financial performance and creating value for our shareholders. Thank you. I hope you stay safe, and I take the opportunity to wish all the best for the New Year to you all. Thank you.