Good afternoon, everyone, and thank you for joining us today. I'm Geoff Raskin from IR, and I'm pleased to have with us Laurent Nielly, our CEO, and Geert Peeters, our CFO, to present the outcome of our strategic review and the results for the first half year of 2026. Before that, let me remind you of the safe harbor regarding forward-looking statements. I will not read it out loud, but I will assume you will have duly noted it. With that cleared up, Laurent, over to you.
Thank you, Geoff. Good afternoon, everyone. Today, we have several key messages to share. Of course, our H1 results and our outlook revision, also the change of CFO we just announced. I want to take the opportunity to thank Geert not only for his numerical contribution in the last two point five years, but also to be there with me today as we guide you through some of the key changes at Ontex. In fact, today, I will spend my comments on the strategic review first before moving to highlights of H1 and our outlook. Geert will cover the financial analysis of the half year.
I will come back to give you our priorities for the remainder of the year. When I took the helm of the company, my first mission was to ensure we would stabilize our business. This task will stay with us as we face a difficult environment. We've been very fast in deploying pricing actions while at the same time pushing for more cost initiatives. In parallel, my first six months as CEO have been dedicated to taking a fresh and objective look at every aspect of our business.
With the support of the Board, we did deep review in both North America and Europe, leveraging external advisor and our full team. The outcome of this work is leading to a fundamental transformation of the company to resume both top and bottom line. We have not waited to enter into execution mode. Actually, the consequences of the Middle East crisis made it all the most urgent for us to act. As you can see here, we have taken already many steps. Finally, I have made several changes in our leadership team.
In addition to the new CFO we announced today, we have backfilled the head of Europe and have a new head of North America. Let me now explain a little bit more what is behind our fundamental transformation. It is articulated around four measure shifts. First shift is to increase structural productivity by launching an ambitious expanded program which we label Focus to Value. It will be a central pillar of the transformation.
I'll come back on the next slide with more details. Second, we are resetting our approach in North America to transition from volume-led expansion to a disciplined value creation model focused on profitability, asset efficiency, and returns. Third and fourth relate to Europe, where we will both accelerate adult care, the cornerstone of our future profitable growth, while adopting a more targeted approach to protect our important baby and feminine care positions.
So let me expand on the Focus to Value program, which encompasses all productivity initiative of the company. Reflecting on what we experienced in the past few years and building on the work with advisors, we have set clear and ambitious targets with a scope that goes deeper and broader, including cross-functional initiative to further reduce complexity and waste, and with a focus on performance-driven culture.
We aim to deliver EUR 240 million of savings over 2026-2028 versus our 2025 baseline, which represents EUR 40 million more than the EUR 200 million we had committed for. Actions have already started to further adjust the cost base, amplify product and logistics savings through simplification, lean manufacturing, and network optimization, and streamline organization across white-collar functions. There, at the end of the program, we aim to have reduced white-collar position outside manufacturing by more than 20%.
To achieve the incremental EUR 40 million identified, it will require additional restructuring costs of about EUR 30 million-EUR 35 million, leading to a total of about EUR 60 million-EUR 65 million restructuring for the total program to be phased over the next 24 months, of which about EUR 20 million impacting the second half of 2026. To ensure we don't lose any time and are able to adjust as the business evolves, we have put in place a transformation management office, which is operational today. Let me now take you through our changes in North America.
There, we have a clear case for change. Market dynamics have evolved in the past few years in the baby market. We have a complex setup that is suboptimal to drive cost leadership, combined to a business that has not delivered the returns expected on the high investments we realized. This is leading us to fundamentally reset the approach to prioritize profitability. We have a new leadership in place. We have already adjusted our plans and have started to simplify our operational setup, which includes a thorough review of our assets and capacity.
This resulted to a significant non-cash impairment to adjust both the historical goodwill and the asset base. What we're pursuing, progressively shift our portfolio where we can generate profit, and we believe there are many opportunity to do so. Deliver a simpler operating model, all aiming to return to sustained cash flow generation. Let me now touch briefly on Europe. adult care is a structurally attractive growing category where we already hold a strong position. It will become the cornerstone of our future growth.
We will increase focus and investment in capacity, innovation, and go-to-market that will reinforce our leadership and allow us to grow volume and volume share across retail and healthcare channels. This is obviously a topic that we will share more elements of in the future interactions. But at the same time, we intend to protect our very important position in baby and feminine care. But we concluded here too that we had to approach it in a different way. As market declines, especially in baby, as we still have legacy assets that drive complexity despite our many recent efforts, we are reviewing our approach to ensure we allocate our resources where we can best unlock value to our customers and to us.
At very specific times, it might mean to rely more on outsourcing partner. At other times, it might mean that we define our innovation strategy much more in tune with our asset capability to optimize investment. In all cases, this is to best position us to continue to serve our priority customers the best way possible. To execute this shift, we have identified selective opportunities to simplify our asset base, retire some old lines to again drive efficiency.
This explains why we have recorded some non-cash impairment here as well. All that to pursue clear goals, protect our volume share by focusing where we can make the difference for our customers, unlock innovation, speed, and productivity to improve return on capital. To enable the transformation, we have mentioned additional restructuring costs and alluded to two non-cash impairments, which will total EUR 144 million that Geert will detail more in this part.
This is consistent with our ambition to simplify our operations, to focus on segment best placed to improve returns, thereby shaping a more resilient cash-generating and value-driven Ontex. Let me now transition to our second key topic and share highlights of H1 and our revised outlook. Our H1 performance was mostly characterized by year-on-year lower demand leading to lower volume. It drove revenue down 2.2% like-for-like and adjusted the EBITDA margin by 0.7 percentage points. The result of the lower volume, while cost inflation was offset by productivity.
Nevertheless, we generated positive free cash flow and combined with some M&A inflows, this brought our net debt down to reduce leverage over half one to 3.2x . Let's look at quarterly evolution on the next slide. What is encouraging to see is that we have managed to stabilize the quarterly performance since the fourth quarter last year, and this despite a more challenging environment. While year-on-year, our Q1 performance was well below last year, in Q2 revenue was in line and adjusted EBITDA is stable.
In fact, adjusted EBITDA is stable over the last three quarters, a good outcome of our singular focus on stabilizing the business. Albeit, we all agree at the level we would like to see higher. We will keep this maniacal focus on stabilizing our business, yet we know that in the Middle East crisis impact will be more severe in Q3. That leads me now to look at H2, where indeed we expect to continue to operate in an equally challenging and volatile environment.
The demand side has softened a bit further compared to what we expected, and we believe it's going to remain mostly unchanged with still the opportunity that we have and the headwind that we have. On the cost side, however, the geopolitical situation remains uncertain and is pressuring our margin. It is fair to say that the speed and the intensity of the cost increase in Q2 was more than what we had expected. We are taking actions, and as we explained earlier, we expect to fully recover the cost impact over time, yet with timing delay.
The situation remains fluid as all you know, with changes every day, every weeks. Based on the evolution so far and the latest assumption, we are revising and broadening the outlook as presented on the next slide. Adjusted EBITDA to end up in the range of EUR 165 million-EUR 180 million, which midpoints is broadly aligned with prior year results and latest consensus. Driving this, we expect revenue to be broadly stable and some margin recovery as we enter Q4 as the pricing actions and efficiency initiatives start to more than offset the cost inflation.
We expect negative free cash flow between EUR 10 million and EUR 25 million. The decrease versus the previous positive outlook is a result of the lower expected Adjusted EBITDA and the higher restructuring cost partly offset by better working capital management results. The combination of both is to keep leverage below 3.5x at the end of the year. We'll point that Geert will comment further. A perfect transition to our H1 financial review. Geert, up to you.
Thanks a lot, Laurent. Let me go through the year-on-year performance of the first half year results. As Laurent pointed out, revenue declined 2% like for like, driven by volumes. Although Q2 showed a mild growth. On top of FX being mainly the U.S. dollar depreciation added another 1% decrease. Baby and feminine care volumes came out 4% lower. Both can be explained by the decrease in contract manufacturing volumes, as well some contract exits in overseas regions, which were anticipated. When we only look at retailer brands, we actually did better than the market.
Our baby care volumes were largely stable in Europe and even slightly increased in North America, while both markets for retailer brands actually showed a mid-single-digit decline. Ontex mainly benefited from a strong position in baby pants, which continues to grow double-digits. Adult care also continued to show growth, albeit more modest by 1%. This is due to a robust performance in the healthcare channel, whereas in retail, volumes were down, linked to Ontex customer exposure and temporary capacity constraints.
Although we have committed price increases in Q2 to mitigate the cost inflation, this will only impact the second half of the year. The negative price impact you notice in the revenue bridge of H1 is still a carryover from last year as a response to raw material price decreases in that year. Moving to Adjusted EBITDA on the next page. The lower volume and revenue pushed our Adjusted EBITDA EUR 12 million lower. We managed, however, to reduce costs by EUR 2 million net, thanks to savings offsetting the rising input price environment.
Raw material prices started to go up due to the Middle East crisis, especially from June onwards, as a contractually delayed impact of indices kicked in. This was primarily the case of oil derivatives such as backsheets and certain packaging materials. Other input costs rose as well, but earlier, from March onwards, in particular, transport costs driven by the higher diesel price. Supply chain inefficiencies, which started in the second quarter of the year, are improving but still impacted the comparison, especially in the first quarter.
Our cost transformation program has been continued, but at the same time deepened and broadened under the new name Focus to Value. It contributed significant savings in cost of goods sold and SG&A. Last but not least, the translation impact was slightly positive. Altogether, Adjusted EBITDA came down by 9% to EUR 78 million and margin by 0.7 percentage points to 9.1%. Let's dive a bit deeper in the full P&L on the next slide. The adjusted profit for the half year was EUR +9 million, slightly better than last year, despite the lower adjusted EBITDA.
Main reason are the net financial costs, which amounted this year to EUR 90 million, but were inflated last year by unrealized negative Forex impacts. Later were temporarily and mostly recovered in the second half of 2025. Adjusted tax was somewhat higher than last year due to the higher net profit before tax. The adjusted figures exclude two buckets of one-off costs, being on one hand, the restructuring costs, and these amount to EUR 9 million net and consists of partial provisions of EUR 21 million for the Focus to Value program, of which a small part was already expensed in H1.
That was partly offset by EUR +12 million accrual for tax that we expect to reclaim in the future in Brazil. On the other hand, we have the non-cash impairments for EUR 144 million triggered by the strategic review, as been explained by Laurent. EUR 51 million is the impairment of the goodwill on the North America business, where we have reviewed our ambitions. The other EUR 93 million is on assets, mostly equipment in baby and feminine care categories, where we adjust capacity and focus on our core assets. This brings us to a total loss for the period of EUR 143 million, which compares also to a negative amount last year of EUR 115 million. Last year, we also had non-cash impact, but for different reasons.
Namely, due to the divestment of the Brazilian business, the cumulative translation reserves were recycled from the balance sheet into the P&L in 2025. As you notice, the P&L is impacted by several non-cash effects. Let us now look into the cash flow of the first year half, which shows a much brighter picture. We managed to realize in the first half of the year a positive free cash flow before interest of EUR 27 million and including interest of EUR 7 million. Our continuous focus on improving working capital delivered results. Indeed, net working capital over revenue dropped by 0.6 percentage points to 4.5%. The improvement is a combination of optimizing payment terms and inventory levels. We had a positive impact from employee benefits.
This is due to the difference between the accrual for variable remuneration related to 2026 and the actual lower payout on the performance of 2025, which occurred in the first half of 2026. As to CapEx, that amount was EUR 29 million, which is 3.4% of revenue and is relatively low, but is linked to the phasing over the year. In the meantime, we have commitments so that CapEx levels will catch up in the second half of the year. We paid out EUR 11 million restructuring costs in the first half of the year, which are mostly related to the finalization of the Belgium footprint optimization.
Also, some initial actions have been executed on the Focus to Value program. The tax and financing cash outs were slightly lower than last year. That brings us to an overview of the net debt on the next slides. Our net debt further reduced by 6% or EUR 37 million, of which free cash flow contributed EUR +7 million, as explained on the previous slide. We also had EUR 29 million positive impact from M&A activities, mainly thanks to the repatriation of the cash in Algeria.
This cash comes from the divestment of the Algerian business in 2024, which took time to repatriate until Q1 2025, and was classified as a financial asset at the end of 2025. Within the M&A block, we also have some limited post-closing adjustments related to the Brazil and Turkey divestments last year. Net debt thereby amounted to EUR 540 million at the end of June, and gross debt to EUR 619 million. Debt included EUR 68 million drawn on the RCF, which represents 25% of the total capacity. We finished the first half year with a cash position of EUR 79 million.
The last slide on finance. Our prime focus as a management remains, of course, reducing net debt and keeping sufficient leverage headroom despite pressure on the LTM EBITDA. Thanks to decreasing net debt, as explained before, we managed to reverse the uplift of the leverage ratio at the end of 2025 by reducing it back from 3.3x last year to 3.2x at the end of the first half of the year.
This keeps us well below the 3.5x threshold of the RCF covenant, and we expect to remain below that level going forward. Our liquidity position remains strong with about EUR 280 million based on our cash position and 75% of the RCF undrawn. We can conclude that we have the financial flexibility needed to execute our plans. With that covered, I hand over to Laurent.
Thank you, Geert. Before we move to Q&A, let me close with our priorities for H2. It is very clear that we need to focus on delivering the outlooks that we just shared and to put in motion the strategic transformation we announced. First, we will continue the pricing actions to pass through cost inflation. We will also continue with our saving initiative, helped by the start of our Focus to Value program. The third focus is to ensure that the capacity that we have put in place in the last two years, especially in adult care, is ramping up to its full potential.
Of course, we will continue to work to preserve our balanced sheet strengths and financial flexibility, which again, we see sufficient to execute our transformation agenda. Finally, we will continue to evolve the organization to future requirements, be it as a result of the streamlining actions that we're taking or to ensure our operating model is best suited to deliver on our ambition. With that, Geert and I are ready to take your questions.
Thank you, Laurent and Geert. For the Q&A session, if you wish to ask a question, please dial the pound key followed by five, that will allow you to enter the queue. If you wish to withdraw your question, please dial the pound key followed by six. Please, of course, limit your questions to two. The first question comes from Karine Elias from Barclays. Karine, the floor is yours.
Thank you, Geert, and thank you, Laurent, for the presentation. I just had two questions, if I may. Looking at the Q2 performance, I saw that the net cost of a [C] benefit was EUR 7 million, I was just trying to understand what the impact from the release would have been. I think you mentioned it would have impacted June, so I am just trying to understand what the building blocks were for that.
I suppose, related to that, should we think that this obviously will annualize in Q3 and Q4? Because obviously your Q3 EBITDA last year was a bit higher than at EUR 51 million, if I remember correctly. Then my second question was if you can just remind us of what the minimum liquidity that you need to run the business. Thank you.
Hi Karine, I will take these questions on. The second one is a very easy one because we have no covenant anymore on the liquidity. It was one we had in the past, but not anymore since the renewal of the RCF a year ago. On the Q2 performance, the net cost impact, we started having impact from the Middle East, but as I said, it started in June based on the indices. There is a delay on indices. In Q1, we still had some limited positive impacts.
If you take all together our net costs, it is a sum of some negative Middle East impacts. Also some diesel, of course, that kicked in from March onwards. On the other end, some inefficiencies we had in Q1. At the same time, we of course, we continue having our cost transformation program, which we broadened now into the Focus to Value. All that together gave you the net cost impact that you find in our bridge.
I think, Karine, to give you an element on questions, we estimate that we had at least EUR 10 million of additional inflation in Q2 due to the Middle East crisis.
That's very helpful. Should we expect a similar impact in Q3, or because of the fact that the timing was end of June, we should expect inflation to be a bit higher than the EUR 10 million?
As I mentioned, we expect the biggest impact to be in Q3.
Understood.
To slide to decrease as we go into Q4.
Okay, that's great. Just for the liquidity points, I'm aware obviously of the covenant point, but just in general, what sort of cash balance you'd like to keep to run the business typically? It's been stable at EUR 70, EUR 79, obviously, you've got the availability under the RCF. Am I right in thinking that you need about EUR 150 typically to operate the business?
No, it's lower. We can run at about EUR 50 million. Important is, as you said, to stress the fact that we still have a huge headroom on the RCF, we can easily increase our cash position if we like. We typically keep it between the EUR 50 million and EUR 100 million, but EUR 50 is sufficient.
Okay. That's very helpful. That's great. Thank you so much.
Thank you, Karine. The next question comes from Sanjay Bhagwani from Citigroup. Sanjay, should be-
Hi, thank you very much.
...up to you.
Hi, thank you very much for taking my question and also presenting the strategic review outcome. My first one is on the cost-savings program. Are you able to help us understand how much of the EUR 240 million saving target actually is likely to flow into the P&L, that is the net impact? What could be the phase in of that? I can imagine some of this is already showing up in H1 2026. How should we think of this for 2026 and 2027 of the total EUR 240 million? That's my first question, and I'll just follow up the next one after this.
Maybe I'll take that question, Sanjay. Thank you for the question. The EUR 240 million is our total saving program. It's used to cover inflation, to cover also some targeted investment that we do in some categories and geographies. Then obviously the rest will go to margin expansion. This is a relatively complex equation, which we don't disclose precisely. We'll do later when we share our midterm financial ambition. What we mentioned here is that the EUR 40 million incremental, that is in this EUR 240 million, we aim to flow it through from a through EBITDA expansion.
Thank you. That is very helpful. I think the second is a bit more housekeeping question on this one-off tax benefit. What could be the cash timing of this? Around the EUR 12 million, I think you mentioned, this reclaim. When should we see the cash coming in for this? If this cash has already been baked into the full year guidance or not for the cash flow.
No, thanks also for that question, Sanjay. Very good you ask this, because it will take some time. It's because in Brazil, things are taking time in order to recover tax from government, so it can take another two, three years. It's not part of our guidance. We don't expect it this year. The reason we booked it is that we had a positive outcome of a court case, so we have a very strong position.
Thank you. Very clear.
Okay, thank you, Sanjay. Next question comes from Maxime Stranart from ING Bank. Maxime, it's up to you.
Hi. Good morning. Two questions on my side, if I may. First one would be on restructuring costs. You have announced now that you will spend EUR 60 million-EUR 65 million over the next 24 months. Could you maybe a bit elaborate on what's the payback period you see on that investment and how basically you see the phasing of those savings in the short to medium term? That would be the first one. Secondly, if I look at the new guidance of the company, and obviously given the difficult history of Ontex with regards to guidance, can you maybe elaborate on the building blocks and what basically assumptions are behind the low and the upper end of the guidance? That would be all for me. Thank you.
Okay, thanks, Maxime. I will take the first one. On restructuring, I will explain it a little bit more elaborate because I can imagine there are, from the other analysts, also questions about that. Before, we mentioned that we would have restructuring costs of EUR 10 million + EUR 30 million. That was what we explained a couple of months ago.
The EUR 10 million was related to the footprint of Belgium. That's mainly the cash out that we had in the first half of the year. That EUR 10 million is gone. The other EUR 30, that we increased now from EUR 60 million-EUR 65 million. That means it's another EUR 30 million-EUR 35 million. Out of that EUR 60 million-EUR 65 million, we believe that's what Laurent said, that EUR 20 million will be in the second half of the year.
The remaining parts of the amount, we will try to, of course, accelerate and realize as much as possible our transformation program in the course of 2027. What means that most of those costs, the cash outs will be in 2027. From a P&L point of view, it might be that we take decisions now that it will be in the P&L of 2026. Cash outs will be mainly the part on top of the EUR 20 million of the second half of this year will be mainly in 2027. Is that clear?
Yes, that was only part of my question. My focus was mainly on the payback period you see. Basically, if you invest those EUR 20 million today-
Yeah.
...what basically timeline do you expect to catch up those EUR 20 million investments? That's basically the focus I have.
Well, maybe Maxime, what we can share is that we communicated that we are committed to EUR 40 million incremental productivity to flow through, for which we're going to spend EUR 30 million-EUR 35 million. You see that's the kind of payback that you have there, right? It's a slightly below one. From an exact timing of perspective, some actions are already in implementation mode. Some will take through 2027. Roughly, this is the math that you can use.
Maybe I'll take your second question on the guidance revision and why broadening the range, or creating a range. The key reason is really linked to the volatility and the certainty on the outcome and the impact of the Middle East crisis with changes in oil price and raw material indices by the week. What we did was to look at the two key factors that are impacted by that volatility. On one hand, it's the cost that we have, we created a series of scenarios.
On the other hand, it's the speed at which the pricing will be executed. Because while we're progressing very well on executing our pricing, sometimes we still work with our customers to find the best timing to reflect that pricing so that we can find the right solution to protect the volume and their position in the market. When you combine those two variables, this is why we thought it would be more prudent, given the visibility that we have on the cost evolution to create a range.
That's very clear. Thank you for your answers.
Okay. Thank you, Maxime. The next question comes from Rebecca Clements from JP Morgan. Rebecca, the line is open.
Hi. Thanks for taking my questions. Stepping back a little bit with this strategic change, could you just elaborate a little bit on what exactly does protect mode mean for baby and fem care, in the context of do you have relationships with the same customers across all of the categories you're in, and how should we think about this? Protect could mean many things, but does it mean you're actually probably going to end up being a smaller business in those two divisions going forward? That's my first question.
No, otherwise we would not have been called protect, right? Protect is really to defend and to hold on to our position. In order to do that, to be more choiceful on where we allocate resources. If you think about it, is to really think about where we have the best chances and the best segments to be able to create value for our customers. For instance, if you talk about baby, we know that baby pants and large sizes of diapers are the two growing segments on which we want to help our customers to fully benefit from the opportunity.
On the other hand, it might mean that on some of the subcategories of fem care, we protect and we protect our position, but we are going to find solution with some co-manufacturing partners so that we can be much more choiceful on where we put our own capital across the different segment and assets. We aim to defend that business, Rebecca.
Okay. That carries over as well to North America, given the capacity expansion?
The North America, for all sake of understanding, is mostly a baby market, right? We had very tiny position in fem care. There, as we expressed earlier, what we're doing is review the full portfolio of product and customers, and really understand where we have the best chances to win. It's not that we are going to proactively exit markets, is that you have to make a choice on where you allocate your resources to win those contracts and to be the best partner for those customers. I think what we've concluded is we can't do it across the entire portfolio blindly, and we're going to be more choiceful. That doesn't mean that there are not opportunity for growth. There are many opportunity for growth. It's going to be approached in a different way.
Okay. That's extremely helpful. Then just in my second question, in the context of that, is there any change in expectation to the amount of CapEx? I don't know that you really gave formal guidance, but I think I had it running kind of almost 4% of revenue. Is that an appropriate way to look at it or is there going to be retrenchment on CapEx as well?
I can take that one, Rebecca. Indeed, in the past, we always said we would be around the 4%. Actually, most of the time we were talking about 3.5% and 4.5%. We believe it's important that we continue investing in the business. We also see a lot of opportunities there. The first one is, of course, in adult, where there's significant growth that we still expect, but it's also about automation.
We see quite some automation opportunities with a nice payback, and we're also in a large digitalization program as a group. Actually, if we find the right business cases, because we will assess everything, of course, individually with the good paybacks, then we aim to be at the higher end of the range. That means more to the 4.5% on a case-by-case basis to be assessed.
maybe to complement that, I think, versus the recent past, you could assume that there will be proportionately less CapEx in North America because we had invested heavily to build that capacity. And that in Europe, you would assume that most of the CapEx would go to either those productivity opportunity or digitalization opportunity or to adult.
Understood. Thanks very much.
Thank you, Rebecca. Just as a reminder, if you wish to ask a question, please dial the pound key followed by five. The next question comes from Wim Hoste from KBC. Wim, up to you.
Yes. Good morning, thanks for the opportunity to ask questions. I have a couple ones. First, on North America, can you offer a bit more granularity on the ambition levels you still have there with regards to revenue, also the kind of margin potential that the market would offer? Then also regarding the operational setup with the production Mexico, U.S., how should we think about that operational setup? If you can offer a bit more granularity there, that would be nice. The second question, or second set of questions, would be more on the overall level of competitiveness and promotional pressure with the A-labels certainly in Europe.
Can you offer a bit of granularity there on start of the Q3, how that is kind of evolving, what kind of signals you're getting in each of the individual countries or markets, where there's an easing or just not? Not against the pressure from A-labels, but more inside the retail brands, what is kind of the competitive fight going on over there? Is there a relatively pricing discipline in that segment? Is everybody trying to increase prices given the inflationary trends, or some people kind of trying to gain some market shares or tenders by postponing that a little bit? If you can also offer a bit of granularity on that would be helpful. Thank you.
Thank you, Wim. Pretty broad questions. I'll start with North America. No, I don't think we are at a time where we will offer granular plans. I think we aim later this year to be able to share more of our financial ambitions. I think what I can share is that we are going to probably don't expect the same level of absolute growth in North America that we were initially reflected into our long-term ambitions. That's 1/3 , but still growing, maybe not at the same rate.
The margin, I think what you should expect is, because we said that the focus would be on profitability, that we would expect a higher pace of margin rebuild in North America, which we have disclosed several times. That was a highly diluted business, which was a consequence of us being in this aggressive ramp-up mode. On the European dynamic first versus the A-brands, we haven't really seen a shift in the approach.
We're not in the boardroom of P&G and what they do for Pampers, but you probably have read that Essity, on one hand, was happy with the push they're doing on their brand Libero, and that P&G also was relatively happy with the share gains that they had on Pampers. What we observed was that those A- players retook a more aggressive stance to defend their position. We don't see a key change on that, this is something that is part of our strategy and how we fight. That's up to us to bring solution to our customers in this environment to be able to be more positioned, which is what is our focus on.
Versus the other manufacturers, the pricing dynamics, you can understand that I cannot comment on pricing and relative pricing. I'm not previewed of what our competitors do. We are sitting with objective and factual approaches with our customers where we share the evolution of our cost. We look jointly what we can do on the mix, on the product, on pricing, if we have two choices, because we understand that's the best way to preserve and build partnership and collaboration with our customers. It's a case-by-case example. I cannot comment on our competitors' approach and strategy.
Yeah, I understand. Thank you very much for the answer. Have a great day.
Thank you. Thank you, Wim. The next question comes from Floris Dijkstra from BNP Paribas. Floris, it's you.
Hi. Thanks for taking my question. I'll ask them one at a time. Very quickly, in regards to the input cost inflation due to what's happening in the Middle East, is everyone in your industry hit similarly or are there differences between you and your competitors and some of the A-brand players because of how you source them?
Thank you, Floris. Our understanding is that everybody in the industry is impacted. Of course, it will depend on whether they have hedging strategy in place, and the structure of their contract. Most of the contract for all of the players of the industry usually work with price formula, which are adjusted when the indices or the energy cost evolve, and all of them will have a slight lag, because of the inventory position that you may hold. That I would expect would be pretty similar, except if there were very different hedging strategy in place. That's for your first question.
Okay, that's helpful. Just on the updated guidance. I think, it says you get close to 3.5x net leverage number. From my understanding, that's the leverage covenant on the RCF. Could you just give a bit more information on how that covenant works? I understand you get a one-off spike. What does it exactly prevent you from doing? Is it some kind of stopping one of the draw? Just any clarity would be appreciated. Thank you.
Floris, thanks also for this question. Indeed, we have a one-off spike. Each half year, we have a testing of the covenant. The next testing is on the full year results. If we believe that we will be below the 3.5x, actually, if it would be at 3.6x, for example, it would be below that 3.75x, it would not give a covenant breach. The question you're asking is imagine we would have a covenant breach, which we don't expect at all, because otherwise we would have come with a different communication. You typically sit together with the banks, and you present your plans, and you discuss on a new covenant path. That's how it works, but that's not the case at this moment. Does it answer your question?
Okay, thank you. That's very helpful.
Okay. Thank you, Floris. The next question comes from Fernand de Boer from Degroof Petercam. Fernand, up to you.
Yes, good morning. It's Fernand de Boer from Degroof Petercam. I have a question on the impairment charges and let's say on your strategy. Why do you have to take these impairment charges related to your strategy? Because actually, if you take the impairment charge, my understanding was always that in the future, you don't expect the proceeds anymore of the EBITDA. On the other hand, you say, okay, maybe U.S. a little bit scaling down, but of less growth, less ambition, but still higher margins, et c. Why then to take these impairments? I don't understand. Also, if you are going to-
Obviously-
...use third-party players, you also have to pay them. You have your own production. You partly do your cottage lines then, you are going to outsource it. I'm totally lost in this.
Obviously, the one impairments I will take, because it's indeed also a bit a technical matter from an accounting point of view. You have to make a bit of distinction. In the EUR 144 million, you have the goodwill, and as you can read in the half year report, but also the full year report, you have to do a kind of impairment test. It looks to your future plan. First of all, important to know that goodwill in North America, it exists already for many years. It's based on past transactions that were done. It's the total structure that was built up at the time.
There's no clear, specific origin related to recent M&A, for example. What are you doing then? You look at your plan, of course, because we go from a volume strategy, you know that what was the intention to grow in sales to a more selective profitability strategy. That comes, of course, the coming years, with the cash flow, which is less modest than we expected before.
Based on that test set, we decided to take out the goodwill. It's related to the ambition and the change in the strategy. On the assets, for me, there are two parts. Some of it are very concrete, like in Europe. For us, Europe includes Australia. You have seen that we stopped the operation locally in Sydney. It will become an export business. You have perhaps seen in the H1 report also that we have an intention to restructure some activities in Mayen.
That brings some asset impairments because some assets will not be used anymore. It's partially North America and partially in Europe, with the main focus on baby and fem, because there, as Laurent explained, we focus on protecting the business, defending the business. There we say, okay, we looked at our asset base and we said, okay, if we take our assets, we want to simplify, we will also to focus on the core assets that are most efficient, the newest ones. Then we said, okay, then it's better to take the old ones out because we want to go for full efficiency within our transformation. That brought another bunch of impairments. That's the buckets we're looking at.
Sorry, I thought Mayen, Germany production was already closed down a few years ago, way off, took a lot of restructuring charges. I'm not-
It's a reorganization of-
I also said Australia.
Yeah. Fernand.
Mayen was closed.
Fernand, maybe the intention in Mayen relates to some innovation R&D activities and engineering activities that we are reorganizing. That's why, yes, it's not linked to a manufacturing production site per se, but we also had pilot lines, as you know in Mayen, or as you may know in Mayen.
To come back on North America, these lines are quite new.
Yeah. Thank you for the question again on North America. The North America business is a mix. We have two sites and it's a mix of new assets that of course are fully operational and fully used, and some older assets that we had, that some of them we were keeping as part of having eventually capacity available, part of our previous high volume growth plan.
As the market evolves as well, some of the product requirement to win in the market has changed, and we've concluded that some of those assets will no longer be in use because either too costly to modify or frankly because we could not be competitive to find the right contract to serve them volume. When you reach that conclusion, it is the right approach to adjust your asset base.
Okay. Thank you.
Thank you, Fernand. The next question comes from Usama Tariq from ODDO BHF. Usama, up to you.
Hi. Thank you for the opportunity. Good afternoon. I have just one or two general questions with regards to the review. Could you provide just a bit of more color on, for example, feminine care going forward, and specifically on that, where do you see that going in one or two years? My second question would be more of a clarification with regards to contract manufacturing. I'm sorry if I missed something. Did you indicate something on it with regards to the review? Is it going to stop completely? Those will be my two questions at the moment. Thank you.
Thank you, Usama. On the first question, our feminine care business is almost 95%+ a European business. That is a relatively stable business and we intend to keep it that way. No change there. When we say that we go with a more targeted approach is how we serve that business, but not the absolute sales of that business, which we believe play a very important role and for which we have a key role for many of our customers.
On the contract manufacturing, no, we didn't indicate any changes on our stance on contract manufacturing. What we mentioned is that in some very selective situation, we might go with an outside partner to source some product if we believe that it's a better use of resources than putting our own capital.
All right. Thank you. That will be all.
Thank you.
Thanks. That concludes the Q&A session. Laurent, do you want to finish off with a couple of words?
Yes. Thank you. Thank you everybody for joining, especially on the eve of a summer break and on a very heavy week for many of you. Today, we have communicated three important messages. First, our progress on stabilizing the business, which includes the liquidity and the leverage, which is a very solid achievement. However, we also communicated a revision of our outlook given continued uncertainty and deeper impact from the Middle East crisis.
Third, we shared the key outcome of our strategic review with the fundamental transformation at shaping a new Ontex. We have a very clear direction, a team in full execution mode. While the market is challenging, all our associates are working very hard to pave the way to a more resilient, cash generating and value oriented Ontex. Thank you for attending this call. Have a great rest of the day and summer vacation for those who will benefit from it. Thank you.
Thank you.