Ontex Group NV (ONTEX) Earnings Call Transcript

Good morning, ladies and gentlemen, and welcome to Ontex's Full Year 2020 Results Conference Call. Today's call will be hosted by Esther Berrozpe, Chief Executive Officer; and Charles Desmartis, Chief Financial Officer. For your information, today's call is being recorded. Following the presentation, there will be a Q&A session. Today's earnings release and presentation are available on www.ontexglobal.com. I would now like to hand the call over to Philip Ludwig, Head of Investor Relations. Please go ahead, sir.

Thank you, Margaret, and good morning, everybody. I'm Philip Ludwig, Investor Relations at Ontex, and would like to welcome you to this investor and analyst call to discuss Ontex's full year 2020 performance, which we published earlier today. Before we start the call, just a few housekeeping items to take note of. First of all, I would like to remind everyone that the safe harbor statements apply to this presentation and to our subsequent remarks in the Q&A session. [Operator Instructions] Second, comments we make today about revenue are on a like-for-like basis, unless otherwise noted. And finally, definitions of the alternative performance measures can be found in our documents. With that, let me hand over the call to Ontex's CEO, Esther Berrozpe.

Thank you, Philip. Prior to taking over as CEO at the beginning of the year, I was an independent Board director of the company for around 18 months. During which time, I was able to gain a good understanding of the challenges faced by Ontex. And this has meant that I have been able to start working immediately on what needs to be done. The plan this morning is that I will say a few words on the 2020 financial results, then I'll spend some time on our key challenges. And finally, I will give you an overview of the priority selections to be put in place. Then I will hand over to Charles to take you briefly through the details of the 2020 financial results. On Slide 4, Ontex's 2020 results paint a good picture of the potential upside in the performance of the group. These set of numbers illustrate the urgency to restore top line growth, to improve free cash flow generation and to reduce the group's leverage. In short, we need to generate adequate returns on the capital employed, and we build the shareholder value creation that has been lacking over recent years. Revenues were down 8.5% at a reported currency and 3.1% on a like-for-like basis, mainly due to contract losses in Europe and the demand shift to e-commerce, especially during the COVID pandemic. Adjusted EBITDA was down nearly 4%. And with the margin was slightly better than last year, the generation of cost savings was insufficient, and margins still remain below par. This was further impacted by various significant currency losses. In my view, the T2G program was not ambitious enough in either growth or productivity objectives. And furthermore, it has not delivered on the targets that are set. Free cash flow generation was down in 2020. And even though the absolute debt level remains at a similar level to 2019, the leverage ratio increased to 3.6x, and this is too high for our business. It is clear to me that significant actions are needed to improve the financial structure of the group. First, I think it is important to set to see and establish a clear picture of the starting point today. So moving to Slide 6, I would like to remind you what Ontex stand for. We bring consumers personal hygiene and health solutions to help them with major changes in their lives. These solutions must be focused on consumer-driven innovation, be easily accessible and affordable. And we offer these solutions through different channels. On the one hand, we help develop retail brands in Europe and North America. And we bring our own local brands in other markets, where retail brands are less present. And lastly, we deliver our solutions to hospitals, nursing homes, pharmacies, medical shops and to our consumers at home. This is Ontex's DNA, and I think that this identity has been a little bit diluted in the recent past. And on Slide 7, you will see the different painting of these businesses. You can see that baby products make up more than half of our revenues, followed by incontinence, which has increased already to 1/3 of our sales in 2020, and it will continue to grow further. Feminine care at 10% has remained stable, and it allows us to offer a complete range to our retail customers. The split of these products between own brands and retailer brands is roughly 50-50. And then our geographical footprint is led by developed markets with 65%, and the emerging markets represent 35%. Now let's turn to the sector trends on Slide 8, and how this will influence our strategic priorities. Ontex has a number of opportunities to leverage looking ahead. We have a positive underlying social demographic trends. First, demographics growth. And naturally, as population increases, the demand for our products will increase as well. Second, an aging and more active population in mature markets. This trend, together with the cultural evolution where incontinence is no longer at a go, is driving the growth of income. And thirdly, the penetration and usage of our products will increase in developing markets as families reach a certain level of disposable income. We will also benefit from considerable shifts in consumer behaviors and to take a few examples. First, shoppers are looking for smart choices, affordable products that don't compromise on quality. More consumers are looking for alternative brands, usually online. These sometimes called lifestyle brands are growing very fast, and they rely on companies like Ontex to provide expertise and innovation. E-commerce continues to grow in our categories, and we can support and grow together with our customers in their online channels. The search for convenience provides new opportunities for value growth, as consumers look for alternative solutions to meet their needs. For instance, adults pants or baby pants replacing the traditional diapers. In the adult segment, we also see a migration from consumption in institutions to home care. And this has been intensified as a consequence of COVID-19. And in my view, Ontex is very well positioned to capture this opportunity because we have a well-established home delivery capabilities. And finally, sustainability. This is an increasing focus point for us as it is for consumers, retailers and governments. These trends are supported by hard data that we see on Slide 9. For Baby Care, while the forecast is for stable birth rates in the next 10 years, this does not mean stagnation for Ontex at all. First, there is the potential as economies grow in developing countries. You see on the chart, how North America daily consumption per capita is 5x higher than in emerging markets. Secondly, you have the change in product mix with a move to more convenient products. Almost the total value growth over the last 4 years in the category was in pants, which command a price premium versus diapers. For Adult Care, the population continues to age. And here, there are 2 interesting growth opportunities. First, an increase of 500 million older people by 2030, and again, emerging countries development. In this segment, you see the monthly consumption is 10x higher in the U.S. compared to developing countries. In addition, we see a similar trend towards adult pants and light inco with higher margins than the rest of the category. For Feminine Care products, the number of women in the population is expected to grow, and together with economic development, points to a further growth opportunity. Again, you can see that the monthly consumption per capita is 2.5x higher in Europe. In addition, there is an overriding opportunity, which is the shift towards natural components and sustainability. And on top of this, institutions are looking for integrated solutions to manage continent not only products, but services. All these can give value growth in the market. Now let's look at Ontex and the strength from which we can rebound. First, Ontex is very well positioned in its core markets, and I am on Slide 10 now. On the top left, you clearly see that despite we lost some ground with the European retailer brands, we are still the undisputed leader in the market, 2x bigger than the second player in baby, almost 3x in adult and more than 3x bigger in Femcare. And this gives us a significant scale advantage in our categories. On the top right, we have our positions in health care, a very strong base to benefit from the market growth. On the bottom left, our business in developing markets. We have strong brands in important markets, both in baby and Adult Care. And lastly, we are a key partner for lifestyle brands, providing natural and sustainable products. While this business is still relatively small, it is growing very fast, especially online, and it enables us to be very connected to new consumer trends and to shape our innovation pipeline. Supporting these strong positions, we have strong capabilities to build from. On Slide 11, we have a long-standing and proven knowledge and understanding of the business to support our retail customers. We have a strong industrial footprint and the flexibility that can leverage to deliver customer differentiation. And last but not least, we have a highly experienced and motivated team of people, in my view, a key requirement for success. I truly believe we have all the ingredients to succeed. But first, we have some changes to make. I think most of you on the call know where the main issues are, so I will be concise with Slide 12. In summary, the group has expanded into different geographies and markets without being able to manage the resulting complexity. Our scale has not been fully leveraged, and the silo approach hasn't enabled us to fully optimize our operating costs. In addition, G&A has grown to an unsustainable level. And most importantly, the culture of customer centricity has lost its place at the forepoint of our priorities. And as a direct consequence, financial performance and returns are insufficient. I will now take you through the key priorities to deliver improvement across the group. So moving to Slide 13. First of all, we need to simplify our business, brands and product portfolio. Second, we must bring back our customer-first culture, strengthening customer relationships and restoring confidence. Some major contracts were lost in 2019 and 2020 that will continue to impact revenues in 2021. If we are to win this back, we must rebuild our reputation and bring back on pondering customer service. The first action I have taken has been to appoint a new leader for our European business. Thirdly, we must refocus our innovation. We must optimize the R&D spend to increase the cadence of new products and solutions. Fourth, we need to leverage our industrial scale to reduce costs and maximize our competitivity. Ontex was renowned for its manufacturing excellence, and we must restore the leadership we had in this area. Environment and social covers goal areas of the business. And even though Ontex has done quite a lot already, we need to accelerate execution, starting by setting clear priorities and long-term goals. And above all, to deliver, we need to transform the culture at Ontex. We must simplify our organization with a streamlined management structure, proper accountability and an efficient decision-making process. And we must work on a pay-for-performance function, where reward is earned and measured against KPIs. The first area for action regards simplifying the business and the product portfolio, and I am now on Slide 14. We have started reviewing our geography and brand portfolio to define the footprint that will enhance value creation. We need to reduce product portfolio complexity and leverage product common platforms. And we need to define the long-term model for our D2C business and establish a strategy for scale up. Customer centricity on Slide 15. To restore growth, we must take actions on several fronts. First of all, we must rebuild our application with our customers and fix recent shortfalls in service and innovation to deliver market share in Europe. We need to accelerate our growth in North America, leveraging of local manufacturing. We must increase our focus on Adult Care to maximize the value from the growing segment. And we need to partner with our retailers to grow our share in their e-commerce business. Product innovation on Slide 16. In my view, the innovation efforts of Ontex have become too thin to spread, and this has impacted the speed of bringing new products to the market. The main solution is to maximize the synergies across our retailer and own brand in terms of product platforms to optimize our investments. And we also need to work more closely with both customers to better capture their needs and also with suppliers to better leverage off their know-how. And lastly, our business with lifestyle brands can feed our innovation pipeline to anticipate consumer trends. Looking at operational excellence on Slide 17, we will have to put in place an action plan for continuous improving mindset to deliver best cost. This will be a significant project designed to leverage scale, drive productivity end-to-end and eliminate waste along the value chain. And in parallel, we must reduce our inventories while improving our service level, and this will also help the working capital. The portfolio simplification that I talked about a moment ago will be a key enabler to help transform our industrial operations. And now I would like to turn to priorities and changes that are required across all the group, so turning to Slide 18. Ontex's environment and social commitments are more advanced than the group has communicated in the past. We need now to set clear goals and a realistic roadmap to deliver. The first main commitment concerns CO2 emissions, and Ontex's carbon neutral. We are really well positioned in responsible manufacturing, for instance, using 100% renewable electricity in our European plants and 75% globally. The next area is related to the circular economy by reducing waste in our manufacturing processes, using recycled content in our packaging and addressing the end-of-life of our products. We also must ensure transparency in our products, both in the type of component used and in the sourcing along the production chains. As an employer, we must put safety first and set a target of 0 accidents. And finally, we must seek greater diversity in our resources and ensure equal opportunities for women and men. And this leads me to the culture at Ontex on Slide 17 (sic) [ 19 ]. The overall corporate culture must be transformed in my view. This is absolutely key to change in the group. As I said a moment ago, we must simplify the organization, streamline our decision-making processes to accelerate the speed of execution and to embed accountability at every level of the organization. In this way, we can drive a new performance culture. And here, the implementation of a new remuneration policy is key. In my first weeks as the CEO of Ontex, I am impressed with how engaged Ontex's teams are, and I will continue to drive this engagement while focusing on strengthening the talent pipeline. Much of what I have said now requires in-depth analysis for final decisions to be taken to be able to set ambitions and targets and to translate them into action plans. In the meantime, we now have a good overview of the new direction of travel at Ontex. And I will now hand over to Charles to take you briefly through the 2020 financial results.

Thank you, Esther, and good morning, everybody. I propose we move now on Page 21 to review our sales. So we're reporting a like-for-like revenue decrease of 3.1% in the 2020 versus 2019. Our top line was impacted by lower volumes, which accounted for a 3.9% like-for-like revenue decrease due to several factors. First, lower demand from Q2 onwards, reflecting less in-store purchasing and a shift to e-commerce in parts of Europe and in the U.S. And we know that our retailers, customers and their propriety brands are less present in e-commerce, in particular, in our categories. Second factor accounting for the sales decrease, lower consumption for [Audio Gap] notably the Brazilian real, Mexican peso, Turkish lira and the Russian ruble, underwent a steep devaluation early March in the wake of the pandemic outburst. Devaluation, which further deepened in the following month for the real and the Turkish lira. Finally, we're reporting our full year revenue, the EUR 6 million contribution from our acquisition of Feminine Care assets in the U.S. closed on the 1st of July, and which accounted for an increase of 0.3% in reported sales. We can move now to the category review on Page 22, and looking at its category in detail. First, in Baby Care, which made up 56% of our sales in the year, revenue was down 7.1% like-for-like. The main factor accounting for the increase, as Esther mentioned for the overall revenue of the group. After a strong surge at the end of the first quarter, market demand for Baby Care products contracted in retail channels and accelerated the online channels, as consumer purchase habits shifted in particular in Europe and in the U.S. Demand also decreased in several emerging markets due to extended store closures and lower purchasing power we just reported. And contract losses in Europe, of course, also accounted for the decrease. We report organic growth in the U.S. and, to a lesser extent, in Brazil, driven by the launch of pants, and this mitigated the negative trends. In the adult category, which made up 33% of our full year sales, like-for-like revenue was up 3.3%. Adult products delivered the best category revenue performance for the third consecutive year, growing by 3.3% with the 3 divisions posting growth in the fourth quarter. Adult sales in retail channels grew 8%, thanks to both our leading position, supplying our retail customers with our property brands in Europe and strong Ontex brands in Brazil, Mexico and Turkey. In health care, growth in self-pay channels and higher activity in e-commerce and home delivery boosted by mobility restrictions, fully offset lower sales to hospital and nursing homes due to the pandemic. We get back to this later in the review of our health care division. The shift in demand towards adult pants continued, resulting in sales growth that outpace the overall category. Finally, feminine hygiene, which represented 10% of our sales in the parent, like-for-like revenue was down by 1.5% compared with last year. The division reported strong growth in the first half of the year, thanks to higher U.S. sales, while revenue decreased in Europe, mainly due to contract losses again. And reported revenue, I just mentioned, included the contribution from the business acquired in the U.S. at the middle of the year. So let's move now to Slide 9 for -- Slide 29, sorry, 23 for the review of the sales of the 3 divisions that we started in Europe. Report for Europe, a like-for-like decrease of 6.8% due to demand contraction from our customer base as well as a net negative balance of contract gain and losses, each accounting equally for the shortfall. Sales of retail brands were impacted by increasing online sales, where, again, retail brands are less present as well as more intense competition from A-brands. Consequently, the sales decrease was mostly due to lower volumes probably in Baby Care and, to a lesser extent, in feminine care while Adult Care posted growth. Currency had a negative impact year-on-year, essentially due to the Russian ruble. So that full year reported revenue in Europe was EUR 872 million, down 8.8% versus 2019. Let's move now to our Americas, Middle East, Africa and Asia division on Page 24. The division reported slight like-for-like growth for the first 3 quarters of the year, but posted a 4% shortfall in the fourth quarter due to lower demand and tougher competition in Mexico and MEAA, which was not fully offset by growth in Brazil and in the U.S. So overall, for the year, the sales in MEAA were broadly stable on a like-for-like basis, inching down by 0.7%. Improved price mix in all 3 categories, largely compensated for lower volumes, entirely in Baby Care, while adult volumes were ahead. Americas revenue rose, thanks to solid growth in Brazil and in the U.S., while our business in Mexico faced the demand contraction due to the economic downturn caused by the pandemic as well as higher competitive pressure, which has actuated in the fourth quarter as we just saw. Sales decrease in MEAA as a ramping of new business in baby diapers and continued strength of our leading adult Inco brand company in Turkey could not offset lower sales in other geographies, many of which faced lower purchasing power, extended store closures and higher competitive pressure. So our AMEAA Division is the most exposed to currency movements, and those are the major negative impact on reported sales in 2020, as mentioned earlier, all got EUR 130 million reported for Ontex as a whole, EUR 109 million came from AMEAA, essentially due to the Brazil real, the Mexican peso and the Turkish lira. Consequently, revenue of the division was down 12.3% at reported currencies. Let's turn now to health care on Page 25. Health care like-for-like revenue was broadly stable at EUR 442 million. Full year sales benefited from a stronger fourth quarter, and a 6.2% like-for-like growth we report for this quarter was against a low fourth quarter in 2019, when shipments to a large institution were suspended before resuming in Q2 2020. The full year performance was driven by market share gains in the self-pay channel, which together with higher home delivery and e-commerce shipments, offset lower demand from hospital and nursing homes with activity and occupation rates were strongly impacted by the pandemic. We estimate a 15%, the negative impact of the pandemic on our sales to hospital and nursing homes. Our home delivery and e-commerce sales grew strongly, as convenient alternatives to in-store shopping in times of lockdowns and other restrictions to personal mobility. Adult pants posted double-digit growth after the successful relaunch of our main product line. Currency movement had no material effect on the reported sale of the division for the period, as our health care business is almost operated in the European Union and in the U.K. We're done now with the category division review. So I propose we move to the adjusted EBITDA analysis. Please turn to Page 26. As reported earlier, adjusted EBITDA came in at EUR 236 million at reported currencies in 2020, down EUR 9 million or 4% compared with 2019. At constant currencies, adjusted EBITDA stood at EUR 310 million, pointing to a EUR 74 million negative impact of currencies over the year. Now looking at the same detailed adjusted EBITDA bridge we've been sharing with you since our first half results. The contribution of the main drivers of profitability report previously remain on the same trends. Despite disappointing results delivered by many of its work streams, in particular, the commercial area, gross gain from activities carried out in the framework of T2G amounted to EUR 66 million at constant currencies. Procurement and operational work streams delivered EUR 102 million of gains, while commercial work streams had negative impact of EUR 36 million. Of this EUR 36 million, lower volumes accounted for EUR 26 million, while marketing investment to support local brands and the product launches in the very beginning of the year had a negative impact of EUR 10 million on our operating profitability. Procurement accounted for EUR 18 million of EUR 102 million generated by the operational work streams, while manufacturing and supply chain generated EUR 22 million, net of the EUR 6 million incremental cost for new resources brought into lead the manufacturing transformation. Moving now to the other factors, accounting for the evolution of operating performance. Raw material indices eased over 2020, improving EBITDA by EUR 45 million compared with the same period last year. Out of this EUR 45 million, EUR 25 million came in the first half and EUR 20 million were recorded in the second half, as indices stabilized by midyear and ease stopped in the fourth quarter. The overhead cost reduction executed in November had little impact on the 2020 operating expenses, including R&D and G&A, which all together increased by EUR 31 million at constant currencies. Finally, over the year, we incurred cost of EUR 14 million related to the pandemic, essentially for protective equipment, extra compensation for employees and increased warehousing and transportation to ensure continued supply of essential agent products everywhere we operate. All in all, this resulted in adjusted EBITDA constant currencies of EUR 310 million and related margin of 14%, which is more than 300 basis points higher than in prior year. However, the strong currency headwinds from March onwards, which intensified in H2, erased all these gains. Overall, for the full year, we reported a negative currency impact of EUR 74 million on adjusted EBITDA or 268 basis point adjusted EBITDA margin compared with last year. As a result, adjusted EBITDA reported was EUR 236 million and margin was 11.3%, still up 55 basis points despite the strong ruble currency impacts. Let's turn now to nonrecurring expenses on Page 27. Nonrecurring expenses for the year amounted to EUR 38 million, down 46% compared to 2019. Most of the charges related to reorganizations, in particular, the measures implemented in Q4 2020 to reduce overhead costs as well as litigation. Expenses related to the implementation of T2G recognized in 2020 stood at EUR 0.8 million. This very low figure reflects a strong downward revisions on the forecast cost for the implementers of T2G over 2019-2022, a EUR 25 million reduction from EUR 85 million announced initially to EUR 60 million. Indeed, considering the disappointing result of most T2G work streams beside procurement as well as the overall operating results of the group, performance-based consulting fees and management incentives were cut steeply. Also the scope and expected benefits of lower reorganizations initially contemplated were reconsidered and the related cost revised accordingly. Finally, we turn to Page 28 to look at our free cash flow generation over the year. In 2020, we report free cash flow of EUR 60 million. The EUR 50 million shortfall compared with the EUR 110 million reported in 2019 reflects almost exactly the lower cash flow from operating activities, which stood at EUR 191 million in 2020 against EUR 239 million in 2019. This EUR 49 million difference is due first to lower cash generation from recurring trade activities for EUR 35 million. We generated lower cash from recurring trade operations mainly because of further reduction in working capital we achieved in 2020. We generated EUR 23 million of cash, fell short of the EUR 56 million generated in 2019, when we strongly decreased the inventories we held at the end of 2019 and initiated actions planned to accelerate the collection of trade receivables. Still, over the last 2 years, we have generated EUR 80 million from the reduction of trading working capital, excluding currency effects and brought working capital to 73% of last 12-month sales with no increased use of factoring. We also had higher cash cost related to nonrecurring items. These were EUR 14 million higher than in 2019 and stood at EUR 45 million against EUR 31 million in 2019. And they include outlays related to the implementation of T2G for EUR 26 million in 2020, essentially consulting fees and reorganization expenses. The other outflows related to other reorganization, in particular, the overhead reduction executed in the fourth quarter and to litigations. Tax payment of EUR 33 million in 2020 were EUR 9 million lower than in 2019, when we made higher tax payment related to the prior year. Finally, capital expenditure, net of disposals, stood at EUR 105 million or 5% of sales and included T2G-specific investment. And as a reminder, to conclude on cash, our net debt at the end of the year stood at EUR 848 million, including leases, down 1.6% versus prior year. And our leverage stood at 3.6. Let me hand over now to Esther Berrozpe for the outlook of this year and our concluding remarks.

Thank you, Charles. Before taking your questions, a few words on the outlook for 2021 on the next page. Based on current visibility, we expect a low double-digit decrease of group like-for-like revenue in Q1 with Europe sales keeping a low point in this quarter. I expect a sales recovery to start in Q2. Now our immediate focus is to turn our strategic priorities into deliverable action plans in the context of increasing raw material prices. And we will provide you updates on our 2021 prospect as we progress in our journey. I think we now have the beginning of a clear roadmap to restore shareholder value creation. I am convinced that Ontex has many strengths from which to leverage our recovery. For me, the priorities are clear, and we must start by transforming the culture at Ontex computing the whole organization on a new footing deliver. We will share our plans at a later date with my full management team. And now, together with Charles, we will be pleased to answer any questions you have.

[Operator Instructions] We can now take our first question from Charles Eden from UBS.

I've got a lot, but let's stick to 2. Firstly, I just wanted to dig a little bit deep on your Q1 2021 guidance and to understand the thinking behind the double-digit like-for-like decline. I appreciate your private label exposure in Europe. There is a degree of opaqueness for analysts and investors. But I guess for too often now, the surprise, if you like, has been a negative one. Highlighting incremental contract losses rather than wins. So can you give us some more details on this, what the feedback you're receiving from retailers as to why you're continuing to lose contracts and at the same time, not win new tenders. And then possibly, if you could provide us some outlook by division for Q1 as well, please? That would be helpful. And then my second question is on your margin profile. I appreciate there's a commercial sensitivity to consider. But given the share price trend for some time now, there's clearly skepticism in the market on Ontex's ability to drive sustainable margin improvement. So I was hoping you could give us some further details on where your margins stand today in your emerging markets compared to your developed market. So I think this would really help us understand where the opportunity for improvement will be coming from. Apologies, they're both quite long questions.

Charles, thank you for your questions. I'm going to hand over to Charles for the second question, which is the margin. And then I'll address your first question on the guidance.

I'll answer your second question first on margin, Charles. And first of all, we understand perfectly the perplexity of investors and of the market in relation to our ability to improve margin sustainably over time. And what is the geographic contribution of our different businesses to the whole margin leverage. I think Esther will get back to this from the other questions in Q&A. But clearly, the review of our current portfolio of activities is the first priority, and she will probably further elaborate when you take the first part of your question. And clearly, we know and we've been clear about this for the last 3 years. We are in some geographies, which have been dilutive in terms of margin ration and where we believe it will take a lot of time, lot of energy to turn around and get to a level of profitability, which will be on par with our best-performing activities. Therefore, as part of the review underway, we will have a clear priority to review where we should refocus in terms of geographies and in terms of categories. So that's the -- and therefore, where can we have legitimacy to play -- grow and play with sustainable profitability improvement of the growth .

Okay. So thank you, Charles. Just to address your first question on -- I think there were 2 questions. First is the contract losses, and why we are losing contracts, and then you had a question on potential guidance having given more color by division. I'll start with the second one, which is we do not give a divisional split. So I'm not in a position to give you any guidance by division. And then to answer your first question on why we lost contracts and why do I still confident that we can recover the losses. In my first week as a CEO, I really reached out to many different stakeholders, including many of our top customers to really have an understanding and have an answer on that question. I think I have enough internal information, but I wanted to make sure that I don't miss anything. And I was reassured by the support that we have from our customers, whether they are current customers or customers with which we lost contracts. I think they recognize the strength that I mentioned before. We have a very strong industrial footprint. We have a long history in this industry and deep understanding of the market. And I truly believe that we can be the partner who helps them developing the brands and not only that, but taking advantage and not losing the wave of e-commerce because we need to recognize that there is a significant change in the market with sales more and more moving to e-commerce. This is not new news because this was happening before the pandemic, but it has been strongly accelerated by the COVID pandemic. And we also know that retailer brands have not served, for sure, in that business, and the shift to e-commerce is a big threat for them. And we can partner together to do so. But they also told me that we lost proximity to the customers. And that's why we lost proximity, we lost flexibility to react to their need, and this has been historically our strength. And I truly believe that the international expansion, the additional complexity put us in a position that we basically invested more time in meetings than spending the time with the customers to really understand what they need and to really define together what the solutions are. But these -- what they need is pretty basic. And I think it is there because context for many, many years has been delivering that to customers. We just need to make sure that we simplify our business, I was mentioning before. And this will come from making choices on. Basically, there is no taboos here. I'm going to look at every single piece of the business to really understand their role today and the role that those pieces could have tomorrow where we need to make choices because we need to simplify our portfolio. But this is not only about making choices. This is only -- also about making sure that we simplify the complexity that was created with our expansion. And to give you an example, we have an opportunity to continue to serve different geographies and continue to serve retailer brands and own brands, but we need to leverage common platforms. Because today, the reality is that we are spreading our innovation euros too thin into many different geographies and platforms and even without making choices by rationalizing our product platforms, we could be more efficient on how to use the capital and offer our customers a better cadence of innovation. Because the reality is that the market became more dynamic. There are different trends in the consumer behavior, not only on the products that they are looking for, but how they shop. And I don't think we've been fast enough to really bring the necessary solutions to our customers to really react and take advantage of these trends. But at the same time, I am highly confident that we can get there because we've been there, and this is not rocket science. So now as to close, this is -- I think, first, we need to make the choices, and then we need to turn very rapidly into execution mode. We need to translate our strategic priorities into concrete action plans. We need to define our goals and the milestones, and then we need to turn into execution mode. And back to your question on guidance. The reason why I am not providing a guidance for the full year is because I cannot. I'd been in the world for 7 weeks, and it is clear to me what is going to happen in Q1, also because our performance in Q1 is highly dependent on the contract process that we had last year. Of course, the negative revenue performance in Q1 is also dependent on the fact that Q1 last year was artificially high because of the preloading as the pandemic was hit in the market. And then we need to understand, I am highly confident that our sales recovery will start in Q2. But I think we need to define the actions that will start impacting Q2 to really understand the full dimension of the -- so how fast and how deep we can recover on top line and also on the margin. So I hope with this, I have answered all the parts of the question.

And our next question comes from Alan Vandenberghe from KBC Securities.

This is Alan from KBC Securities. Just 2 questions. The first one is regarding -- I understand indeed that you -- at this point in time, the strategic priorities are relatively high level that you still need to do some work and put them in an action plan. But can you maybe give an idea to us by when you will be able to communicate more tangible targets or outcome of that plan? That's the first question. And the second question is regarding the comments you made on T2G. You mentioned that it was not ambitious enough and that it didn't deliver the expected results. I would appreciate if you could comment a bit further on that and maybe give some color on what were the main problems there.

Okay. So thank you, Alan, for your questions. So the first question on -- by when we are going to be able to communicate actions. The work has already started. I do recognize that the priorities that I showed today might be at a high level, but there is much more details behind that. Now I think we need to spend some time into making the choices. This is like a puzzle, and we need to put all the pieces together. We need to understand the chances that we are making and the sequence with which we are going to execute those choices. And once we have the complete picture, we will be able to define our financial ambitions and how they develop over time in the midterm. What I can't commit is that I will take the opportunity of our quarterly calls to give an update. I don't think we need to wait until we have the full picture in place to start taking action. And I can commit to you that I will communicate as we take decisions and get into execution. Of course, at the certain point this year, I have my full management team in place. I would like to come back on the Capital Market Day so that's the functional piece strategy. But also, we can bring the strategy to life with my team showcasing it. It will come later in the year. But again, I don't think we need to wait for that. You will get news as things evolve. And I can assure you that this is -- urgency is there. I personally recognize the urgent need on turning around almost all our KPIs, top line, margin, free cash flow generation and taking care of our debt leverage. And I can only commit that we will take action with the right sense of urgency. At the same time, I want to make sure that we have a very robust plan because the work here is that we start taking action and then we need to go back and change the course of action. So I think it will be very important that we put all the elements together, and we really understand the sequence how to fund all these activities and then what we expect as a return. And for me, what is going to be very critical is I do recognize that this team has not delivered the commitments that the company made over the past years. And I think it is going to be very important that I get highly confident that we will deliver what we commit and that I take into consideration headwinds. Because I think the underlying performance of the company, if you remove all the headwinds, like currency, like raw materials, has been pretty good. But the reality is that the headwinds have washed out on the improvements. And I truly believe that those headwinds are part of the daily business. I mean we need to take raw material indices. This is not new news. We know that index is up and down, and you will have good years and bad years, but of course, we need to take care of them. And currency is part of our daily business, so we need to take care of currency. So for me, it is just a question of making sure that we have the details and the depth of the plans, not only to deliver the improvement, but also to make sure that we have space to build with the headwinds. So with that, there was a second question that was...

T2G.

T2G, yes, yes. So you have T2G, I think there are a lot of good things on the T2G. I think this was a very detailed program that touched many areas of the business. But in my view, the challenge with the program is, first of all, I think the targets were not ambitious enough considering the headwinds that we are seeing right now, especially currency and raw materials. So I do believe that many of the things that are included in T2G I'm not looking to change, but I think the target should go deeper. And second, I think the execution was done very much on silos. And so first of all, on the industrial part, I think there is a very good work being done that I can leverage on. But I think my big change there is I think we need to look at the industrial part of with an end-to-end -- on an end-to-end basis. I think there are -- there is an opportunity to further drive efficiencies by looking at the industrial part in an integrated way when I look at procurement, manufacturing and supply chain because there is a very strong collection between the 3 things. And I think the T2G effort has been driven pretty much in silos. And now for me, the change is to integrate on that to further drive additional efficiencies. And so that's one point. And then the last point on T2G is the commercial part. I mean T2G had a very strong commercial component investment. I mean this was transformation for growth, and that part has not delivered. And I think that is the area where I believe there is more work to be done and changes to be made because I do believe that the portfolio certification and chances will be a key enabler of growing, of driving top line growth. Honestly speaking, to recover contracts in Europe, especially in a highly competitive market, we need to make sure that we go back to best cost, best quality and best level of service. So I think everything is connected. I think we need to review the target. We need to better integrate all the pieces, and we need to make sure that there is a very strong connection between having best cost, best quality and best level of service, we've been able to grow in the commercial side of the business.

And our next question comes from Karel Zoete from Kepler Cheuvreux.

I have 2 questions also with regards to the turnaround program. The first one, you say it's about making choices. And with regards to that, what are the main criteria when it comes to assessing whether you stay in a market position or you potentially let go of that? And related to that, of course, is also the lack of pricing power in some of the markets we've seen over the years. And the second thing is, I think, on somewhat of a time line with regards to a turnaround of Ontex, can you share your experience or thoughts with regards to turning around this business? That would be useful.

Thank you, Karel, for your question. So first, the first question on choices. What are the criteria? For me, first of all, I mean we look at the strategy and the role each of the businesses in our strategy. And -- but I think we are looking at the right wins in each of the markets and segments, and also the cost and the time to get there. So I think this is a combination of are these businesses strategic to Ontex and key enablers for us to deliver our future aspirations and goals. Can we win in those categories and markets? And what is going to be the effort and the cost and the timeline to get there? Because in itself, I don't think there are right or wrong choices. This is a question of what are the most interesting -- I mean it's a question of putting everything together and understanding what is going to be the cost and the time line to win in certain markets versus we directed the resources to markets where we have a stronger right to win and maybe the effort and the timing to drive the turnaround is going to be much faster and at a lower cost. So I think everything is pretty much interconnected, and that's why -- I mean these are not independent choices. It is more about where we potentially want to divest -- to reinvest to accelerate all the things. And I think we need to put all the pieces together to have a better portfolio that will allow us to do more faster and deeper. On the turnaround, listen, I felt from a very, very competitive industry that these appliances have been operating in this industry for 20 years in different geographies. And this is a very, very competitive industry, where very low margins, more production than demand. And I pull through this type of turnaround in different geographies in different times. And I can tell you that it takes time. This is not something that you do from one day to another. This is a significant project, especially when we talk about the industrial part and making sure that we have an integrated way to deliver continuous improvement. It takes time. I think I would see delivering results as we go. But if you ask me what is the time line to really see this business in a completely different form or shape, it takes time. So I think I look at a 2- to 3-year plan. But of course, I see and I expect to deliver improvements quarter-over-quarter. I hope that I answer to the questions.

And our next question comes from Fernand de Boer from Petercam.

Actually have 1 left, and that's maybe regarding the timing, but also to the old plan. I think it's also about capital allocation because you have postponed the decision on dividend. But you said, okay, we are planning to have a proposal before the AGM, ahead of the AGM, which means before May 26. But at that time, I think you also have thought of worked out your clear strategy how to move forward. What has -- what will be disposed? What will be refinanced? I saw the article also this morning in The Tide that you actually said all options are open. So could you give a little bit more idea about how you are going to refinance and is that part of your plan?