Rotoplas: First Quarter 2022 Results

MEXICO CITY, April 20, 2022 /PRNewswire/ -- Grupo Rotoplas S.A.B. de C.V. (BMV: AGUA*) ("Rotoplas", "the Company"), America's leading company in water solutions, reports its unaudited first quarter 2022 results. The information has been prepared in accordance with the International Financial Reporting Standards (IFRS).

Figures are expressed in millions of Mexican pesos.

• Net sales grew 9.3% driven by double-digit growth in the United States and Argentina, as well as 3% growth in Mexico, offsetting lower sales in the 'Others' segment which includes Peru, Central America, and Brazil.
• Product sales increased 10.6%, with growth in all three categories: storage, water flow, and improvement, which was driven by price increases made during 2021. However, during the months of January and February we observed a generalized contraction of sales volumes, derived from a reallocation of household spending once families resume their normal activities and the need for water management solutions decreased.  
• Service sales, which represent 3.5% of total sales, contracted 18.1%, affected by lower sales from the water treatment and recycling plants business which continues to generate no traction due to the delay in new industrial and commercial projects as a result of the pandemic. bebbia continues to register double-digit growth, however, as it is a developing business, its revenue does not offset the division.  
• Gross margin closed at 40.2% compared to 41.3% in 1Q21, a 110 bps contraction which was mainly due to lower absorption of fixed costs derived from lower sales volumes in some geographies, as well as an increase in raw material and logistics costs.
• Operating income reached Ps. 222 million, 27.2% lower than 1Q21 due to the recognition of Ps. 15 million in expenses in the United States related to the expansion of the e-commerce platform and to pre-operating expenses in the septic business. Additionally, there was a Ps. 30 million expense related to the 8,000 new bebbia subscribers in Mexico.
• Adjusted EBITDA[1] reached Ps. 322 million with a 12.1% margin, compared to 19.4% in 1Q21. In 2022, expenses related to the implementation of Flow will no longer be adjusted to EBITDA.
• Net income decreased 34.4% due to lower operating income and higher financial expenses.
• Net Debt/EBITDA Adj. leverage closed at 1.6x and the cash conversion cycle increased 26 days, mainly due to an increase in inventory days. During the period, Ps. 309 million were allocated to working capital in order to ensure the operability and supply of materials under an unstable supply chain environment.
• CapEx was Ps. 129 million, it is worth to note the investment in the technological upgrade of the plants in Mexico to launch the new generation of water tanks with the objective of ensuring the long-term sustainability of the water storage category. 
• ROIC closed at 13.1%, 100 bps above the cost of capital, in line with the sustainable economic value creation strategy to maintain a positive environmental and social impact.

• In April the Señorial water heaters plant was inagurated in Argentina with capacity to produce a water heater every 20 seconds, and it uses LEAN 4.0 technology that reduces gas and electricity consumption.
• The water, energy, and sanitation pilot project with Acciona was launched, implementing 25 water collection systems in an impoverished community in Oaxaca that already has Acciona solar energy systems.
• In partnership with the Mexican Red Cross, 20 hand-washing stations were installed in Mexico City's largest market.  
• Making progress towards the 2025 ESG public goals, the framework for the evaluation of suppliers under ESG criteria was defined and an informative session was held at the Group level, focused on diversity and inclusion.

• In March 2022, Apalache Analysis initiated coverage of AGUA* with buy recommendation and a target price of $39.40 pesos.
• A capital reimbursement in cash, at the rate of $0.45 per share with payment date on May 9^th, 2022, will be submitted for approval at the Shareholders' Meeting, to be held on April 29^th, 2022.

• 3,316 Employees
• 3.0% Government Transactions
• 10,700 e-commerce clients
• 68,000 bebbia users
• 5,400ton CO2 saved (vs bottled water)

Dear investors,

As we entered 2022, we faced new challenges, consumers have reduced investments in home improvements and water storage capacity due to the return to the new normal after the pandemic. In addition, the loss of government stimulus in some countries has deteriorated the purchasing power of the population. However, in March we began to observe weather events such as droughts and heat waves, which boosted the demand for water solutions.

We maintained a stable pace of executing initiatives within the Flow program. At the end of March, we had 1,200 initiatives, of which, 459 have matured enough to impact this year's income statement. Likewise, 160 new initiatives were created during the quarter.

The development of the e-commerce and septic businesses in the United States, as well as the bebbia business in Mexico, is still getting good traction and, as a result, required higher investment and expenses, temporarily pressuring margins, but will support medium-term growth and profitability.

One of our main long-term objectives is water digitalization. We are working and developing technology that will allow us to better collect data to be able to offer smart solutions that adapt to our customers' needs.

As for our 2025 financial and ESG goals, we continue to make good progress and are on track to meet them. Our talent, agility, and innovation are all focused on fulfilling our purpose and creating value for all our stakeholders.

Carlos Rojas Aboumrad

Thursday, April 21^st | 10:00am Mexico City Time (11:00am, EST)

Speakers: Carlos Rojas Aboumrad (CEO) and Mario Romero Orozco (CFO)

Link: https://rotoplas.zoom.us/webinar/register/WN_39Uwy3WoR6aDE82OFY29vg

Password: 1Q22

Since the second quarter of 2020, we have been recognizing "one-time" expenses for the implementation of the Flow program; non-recurring expenses that have short- and long-term benefits in revenue, expense, working capital and organizational culture to ensure permanent change. The fourth quarter 2021 was the last period in which these "one-time" expenses were recognized.

Net Sales increased 2.7% vs 1Q21 driven by growth in the products, which offset the weaker performance of the services platform.

Products sales benefited from price increases and, starting in March, droughts in several regions of the country began to increase sales volumes.

Services sales decreased due to lower water treatment and recycling plant sales, business that has no traction due to the delay in new industrial and commercial projects as a result of the pandemic; additionally, the drinking fountains division continues without registering revenues due to the prevailing impasse in the country's schools. bebbia maintained a good pace and recorded a double-digit sales increase, however, it does not offset the other divisions.

Adjusted EBITDA for the quarter was Ps. 220 million, a decrease of 28.6% compared to 1Q21, mainly related to an increase in expenses due to bebbia's accelerated growth, which added 8 thousand new subscribers in the quarter, as well as increased selling expenses from resuming trips and in-person events. Likewise, we continue to see an impact on the margin due to raw material price increases.

Adjusted EBITDA margin was 16.0% compared to 23.0% in 1Q21.

Net sales increased 34.2% vs 1Q21, driven by double-digit growth in all three categories, storage, water flow and improvement, mainly driven by better pricing and an efficient commercial execution. The brands leadership and strength in the region has allowed us to continue with our cross-selling strategy and increase the penetration of new sales channels.

Adjusted EBITDA for the quarter reached Ps. 91 million vs Ps. 69 million in 1Q21. Adjusted EBITDA margin closed at 14.2%, a 30-bps decrease compared to 14.5% recorded in 1Q21, due to higher expenses related to the return of on-site activities of the commercial area.

NOTE: Adoption of IAS 29, Financial Reporting in Hyperinflationary Economies.

Due to Argentina experiencing inflation above 100% in the last three years, it is considered a hyperinflationary economy. In accordance with IAS 29, an adjustment for inflation has been made to the Financial Statements to consider changes in purchasing power.

International Accounting Standard (IAS) 29, Financial Information in Hyperinflationary Economies establishes that the results of operations in Argentina should be reported as if they were hyperinflationary as of January 1^st, 2018. Moreover, an adjustment for inflation in the Financial Statements should be made to account for the change in the purchasing power of the local currency.

As a result of the above, in 1Q22 the impact of the restatement resulted in an increase of Ps. 41 million in financial expense, negatively impacting the Comprehensive Financing Result. After considering taxes, the impact on net income amounted to Ps. 38 million.

Net Sales for the quarter increased 29.8% to reach Ps. 332 million, driven by growth in the e-commerce business. Product availability, geographical coverage through selling points and the omnichannel strategy, contributed to the acquisition of 7 thousand new customers during the quarter.

A new store was opened in North Carolina, reaching a total of 15 units. Additionally, the strategy of increasing our presence through points of sale with commercial partners has contributed to the improvement of brand visibility and sales growth.

The septic business continues with good dynamism, and the number of partnerships with installers that provide services ranging from the installation to the maintenance of residential septic treatment systems have increased.

Expenses related to the expansion of our e-commerce platform and pre-operating expenses of the septic business, resulted in a negative adjusted EBITDA of Ps. 19 million.

Net sales from other countries (Peru, Guatemala, El Salvador, Costa Rica, Honduras, Nicaragua, and Brazil) reached Ps. 314 million in the quarter, 13.9% lower than that reported in the same period of the previous year.

In Peru, market penetration and the development of the water flow and improvement categories have continued; however, the third COVID wave and the government's suspension of subsidies to the population, modified the expense allocation and negatively impacted water storage sales in the region, resulting in a double-digit decrease in sales.

In Central America, the announcement of a price increase at the end of 2021 led distributors and customers to anticipate their purchases and increase their inventories, impacting 1Q22 sales.

In Brazil, the number of water treatment and recycling plant contracts in operation remained stable. In addition, there are some projects under construction that have not yet started to record sales.

Adjusted EBITDA reached Ps. 30 million in the quarter, a 60.2%. decrease explained by the development of the water treatment and recycling plant business in Brazil, as well as lower absorption of costs and expenses in Peru and Central America due to lower sales volumes.

Gross profit for the period increased 6.2%, reaching Ps. 1,068 million. Gross margin decreased 110 bps, from 41.3% in 1Q21 to 40.2% in 1Q22 due to a lower absorption of fixed costs as a result of lower sales volumes in certain geographies, as well as an increase in raw material costs and logistic expenses.

Operating income reached Ps. 222 million in the quarter, 27.2% lower than in 1Q21, due to higher expenses in the United States, from the development of the e-commerce platform and the pre-operating expenses of the septic business, as well as to higher expenses in Mexico related to the growth in users in bebbia. Travel reactivation, in-person events, and certain marketing strategies that were paused during the pandemic also contributed to this increase in expenses.

The Comprehensive Financing Result for 1Q22 was Ps. 155 million compared to an expense of Ps. 122 million in the same period of the previous year. The expense in the quarter includes Ps. 95 million for interest on debt, commissions and leases, Ps. 19 million for the valuation of financial instruments and Ps. 40 million for the monetary position in Argentina.

The net result for the quarter was a profit of Ps. 88 million compared to a profit of Ps. 134 million in 1Q21, a 34.4% decrease due to a lower operating margin and higher financial expenses.

Capital investments represented 4.9% of sales during the quarter, an increase of 81.8% compared to the previous year. Capital investments include:

• Investment in new technology to produce storage solutions and in machinery to increase production capacity for water flow category in Mexico.
• Ps. 20 million was allocated to water treatment and recycling plants in Brazil.
• CapEx specifically related to growth initiatives within the Flow program amounted to Ps. 92 million. This includes investments across all countries, categories and businesses.

Inventory Days: Average Inventory / (3M Cost of Sales / 90)
Accounts Receivable Days: Average Accounts Receivable (3M Sales / 90)
Accounts Payable Days: Average Suppliers / (3M Cost of Sales / 90)

During the period, the cash conversion cycle increased by 26 days as a result of an increase in inventory days due to lower sales volumes in certain countries, as well as a decrease in accounts payable days due to a change in the purchasing mix.

Total debt was Ps. 4,094 million and corresponds to the AGUA 17-2X sustainable bond.

As of March 2022, interest coverage (LTM Adjusted EBITDA / LTM interest payments) was 4.2x.

*Net income divided by 486.2 million shares, expressed in Mexican pesos.

Leverage as of the first quarter of 2022 was within the Company's debt guideline of 2.0x Net Debt/Adjusted EBITDA.

ROIC: NOPAT L12M/Average Invested Capital t, t-1.

Invested Capital: Total Assets – Cash and Cash Equivalents – Short-Term Liabilities.

ROIC excludes Flow program execution costs from 2Q20 to 4Q21 as they are one-off.

ROIC amounted to 13.1% at the end of March, a 170 bps decrease vs the previous year. However, the ROIC remains 100 bps above the cost of capital, which increased 160 bps vs 1Q21. Nevertheless, the creation of sustainable economic value is maintained in order to continue to positively impact our stakeholders.

The use of derivative financial instruments is governed by the recommendations and policies issued by the Board of Directors and supervised by the Audit Committee, which provides guidelines on the management of exchange risk, interest rate risk, credit risk, the use of derivative and non-derivative financial instruments, and the investment of excess liquidity.

As of March 2022, the market value of Grupo Rotoplas' position was:

Updates regarding sustainability initiatives during the quarter include:

• The water, energy, and sanitation pilot project was launched with Acciona, implementing 25 water collection systems in a community under poverty conditions in Oaxaca that already had Acciona's solar energy systems.
• In partnership with the Mexican Red Cross, 20 handwashing stations were installed in Mexico City's largest market.  
• As part of the progress towards our ESG 2025 public goals, the supplier evaluation framework was defined under ESG criteria, and an informative session took place at a Group level, focused on diversity and inclusion.

For more information on our ESG programs, visit our sustainability website: https://rotoplas.com/sustentabilidad/home-eng/

Source: SiBolsa

Treasury shares:

As of March 2022, the Company had 7.2 million shares in the treasury, equivalent to an invested amount of Ps. 183 million. To date, no treasury shares have been cancelled.

As of March 2022, analyst coverage was provided by:

In 2019, Rotoplas began the "Flow" transformation program to focus the business on economic value creation and sustainable growth. The strategy is based on initiatives that are divided between three pillars:

A. Profitability of the Current Portfolio

-- levers for income, cost, expenditure and working capital

B. Growth Initiatives and Execution

-- improve the execution of growth opportunities and capital allocation decisions

C. Organizational Culture and Health

-- leadership, operational discipline, talent development, accountability, and organizational climate

Flow has evolved and is part of the culture of innovation and continuous improvement.

Income Statement

(unaudited figures in millions of Mexican pesos)

Balance Sheet (unaudited figures in millions of Mexican pesos)

Cash Flow (unaudited figures in millions of Mexican pesos)

• Proposals to the GSM – April 7^th
  A capital reimbursement in cash through a capital reduction in the amount of $0.45 per share will be submitted for approval to the Shareholders' Meeting. The payment date is May 9^th, 2022.
• Apalache Análisis initiates coverage of AGUA* with buy recommendation and $39.40 pesos target price – March 17^th
• Rotoplas operations status update during February – March 1^st
• Rotoplas operations status update during January – February 1^st
  For more information, please refer to the Relevant Events section on our website: https://rotoplas.com/investors/relevant-events/#1

This press release may include certain forward-looking statements relating to Grupo Rotoplas S.A.B. de C.V. It relies on considerations of the Grupo Rotoplas S.A.B. de C.V. management which are based on current and known information; however, the expectations could vary due to facts, circumstances, and events beyond the control of Grupo Rotoplas, S.A.B. de C.V.

Grupo Rotoplas S.A.B. de C.V. is America's leading provider of water solutions, including products and services for storing, piping, improving, treating, and recycling water. With over 40 years of experience in the industry and 19 plants throughout the Americas, Rotoplas is present in 14 countries and has a portfolio that includes 27 product lines, a services platform, and an e-commerce business. Grupo Rotoplas has been listed on the Mexican Stock Exchange (BMV) under the ticker "AGUA" since December 10, 2014.

Pedregal 24, 19^th floor, Col. Molino del Rey Miguel Hidalgo 11040, Mexico City T. +52 (55) 5201 5000

www.rotoplas.com

[1] Adjusted EBITDA considers: operating income + depreciation and amortization + non-recurring expenses (donations and Flow implementation expenses). In 1Q21 it considers Ps. 75 million of Flow expense and Ps. 2 million donations. During 1Q22, there were no adjustments for Flow expenses, and no donations.

SOURCE Grupo Rotoplas S.A.B. de C.V.

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