Rotoplas: Fourth Quarter 2022 Results

MEXICO CITY, Feb. 8, 2023 /PRNewswire/ -- Grupo Rotoplas S.A.B. de C.V. (BMV: AGUA*) ("Rotoplas", "the Company"), America's leading company in water solutions, reports its unaudited fourth quarter and full year 2022 results. The information has been prepared in accordance with the International Financial Reporting Standards (IFRS).  

Figures are expressed in millions of Mexican pesos.

HIGHLIGHTS | 4Q22 vs 4Q21

• With its fourth quarter cumulative results, Rotoplas achieved record annual net sales and EBITDA and met 100% of its financial guidance, as well as 100% of its public ESG goals.
• Rotoplas reported net sales of Ps. 3,125 million during the quarter, an increase of 11.6%, driven by the products segment and a recovery in services.
• Product sales increased by 11.1%, mainly driven by the storage and water flow categories in Mexico.
• Service sales, increased 25.9%, driven by bebbia, which continues to grow at an accelerated pace.
• Gross margin closed at 45.0%, an expansion of 560 bp, driven by the price increase strategy from previous quarters and the recovery in volumes.
• Operating income reached Ps. 452 million, 38.0% higher than the fourth quarter of 2021, even with the recognition of expenses related to businesses under development such as Acuantia in the United States, bebbia and rieggo in Mexico, as well as treatment plants in Brazil.
• Adjusted EBITDA[1] increased 8.3%, reaching Ps. 550 million with a 17.6% margin, a 50 bp contraction. EBITDA for the 4Q22 includes Ps. 68 million for expenses related to new business development, Ps. 45 million higher than in 4Q21.
• Net income was 4.0x higher than in the fourth quarter of 2021, reaching Ps. 370 million, resulting from an operating improvement.
• ROIC closed at 14.1%, 140 bp above the cost of capital. This was in line with the sustainable economic value creation strategy of continuing to make a positive environmental and social impact.
• In September, Grupo Rotoplas was recognized by HSBC with the Leading Companies in Sustainable Innovation Award.
• AGUA* remained part of the DJSI MILA Pacific Alliance sample for the sixth consecutive year

HIGHLIGHTS | Cumulative 2022 vs 2021

• Rotoplas posted record annual net sales of Ps. 12,774 million, an increase of 17.0%, exceeding market guidance.
• Net sales benefited from double-digit growth in Mexico and Argentina, as well as strong product sales that offset the services division.
• Product sales increased 18.3%, driven by double-digit growth in all three categories: storage, water flow and improvement.
• Service sales, which represent 3.4% of total sales, decreased 9.9% due to lower sales of water treatment and recycling plants in Mexico. bebbia continues to have double-digit growth; however, as it is a developing business, bebbia alone is not able to offset the other businesses.
• Gross margin expanded 450 bp, closing at 42.6%, supported by the strong leading brands allowing the Company to maintain an agile pricing strategy
• Operating income reached Ps. 1,584 million, an increase of 48.9%, despite the recognition of expenses related to the development of new businesses, whose sales have not yet covered the expenses. 
• Adjusted EBITDA[2] was Ps. 1,982 million, a 12.4% increase to reach a 15.5% margin. The margin contracted 70 bp as a result of the development of new businesses, which impacted EBITDA by Ps. 288 million.
• As a result of operating improvements, net income reached Ps. 756 million, a 2.4x increase.
• Net Debt/ Adj. EBITDA leverage closed at 1.7x and the cash conversion cycle was increased by 12 days, to close at 73 days, which reflects the strategy to secure raw material supply in the face of a volatile supply chain environment.
• The Company invested Ps. 659 million in CapEx, mostly to upgrade the traditional product business to ensure growth and continue developing new businesses.
• Operating cash flow closed at Ps. 754 million, representing 5.9% of annual sales, a significant improvement vs. the negative Ps. 22 million recorded in 2021.
• During the year, AGUA* moved up 9 places in the stock market index to 51^st, making it one of the top issuers among the "average" stock market volatility companies.

KEY FIGURES | FINANCIAL DATA³

OPERATING FIGURES | January – December 2022

MESSAGE | CEO

Dear Investors,

In 2022, we focused on maintaining growth and profitability in an environment of economic uncertainty and volatility. We were able to meet all four of our financial guidance items: sales growth, EBITDA margin, Net Debt/EBITDA leverage, and economic value creation with a spread between ROIC and cost of capital of over 100bp. 

With our record sales and EBITDA achievement for the year, we remain on track to meet our 2025 sustainable growth plan, and we have even outpaced our sales growth rate. If we continue at our current pace, we could reach our target one year earlier than initially estimated.

Likewise, during the year we met all our goals within the three pillars of our sustainability strategy: profit, people and planet, advancing on our path to become a carbon neutral company by 2040⁴, as well as an increasingly diverse and inclusive workplace.

Our long-term strategy and thesis remain stable. The industry continues to look promising as climate change becomes more evident, infrastructure issues are more present, and water consumption grows. With the discipline that the Flow program has given us, we will continue to focus on protecting the traditional business in order to drive cutting-edge initiatives, while maintaining profitability and reducing risk.

The year 2023 will bring new challenges, but we are confident that our business model and financial strength will allow us to seize opportunities and move with agility. With the support of our employees, we will continue to meet the needs of our consumers while creating value for all our stakeholders.

Carlos Rojas Aboumrad

INVITE | EARNINGS CALL 

Thursday, February 09^th, 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_1AeGbwKNSFmNcC7kpBZvFw

GUIDANCE | 2023-2025

SALES AND EBITDA | BY REGION AND SOLUTION

Adjusted EBITDA

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

Mexico

Net Sales increased 15.2% in the quarter, due to double-digit growth in both products and services.

Product sales were driven by the "Blue Offers" commercial strategy, which included various products within the water flow and storage categories. Likewise, service sales increased due to accelerated growth in bebbia.

Adjusted EBITDA for the quarter was Ps. 369 million, an increase of 44.6%, driven by product profitability. The adjusted EBITDA margin for the quarter expanded 490 bp, to 23.8%.

Cumulative net sales increased by 12.5%, driven by an increase in products, which offset the year-over-year decline in services due to a contraction in the water treatment and recycling business.

On a cumulative basis, adjusted EBITDA was up 28.7%, even when considering the impact of the increase in expenses due to inflation, as well as the expenses from new businesses and the negative EBITDA from services.

Adjusted EBITDA margin was 20.4%, an expansion of 250 bp compared to 2021 driven by the pricing strategy and strong sales volumes in the second and third quarters.

Argentina

Net sales increased 10.9%, despite a slowdown in construction and lower demand due to the prioritization of spending during the FIFA World Cup.

Additionally, during the fourth quarter the Company launched "Somos agua", the first mass media campaign with the three brands: Rotoplas, Señorial, and IPS.

On a cumulative basis, net sales increased 40.7%, driven by the continuous improvement in commercial planning and pricing in the face of an inflationary economic environment.

Adjusted EBITDA margin closed at 13.4%, a decrease of 730 bp due to lower absorption of costs and fixed expenses related to a reduction in sales volumes.

On a cumulative basis, adjusted EBITDA margin closed at 15.4%, a decrease of 170 bp due to lower operating leverage during the fourth quarter.

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 2022, the impact of the restatement resulted in an increase of Ps. 303 million in financial expense, negatively impacting the Comprehensive Financing Result. After considering taxes, the impact on net income amounted to Ps. 164 million.

United States

Net sales in the quarter increased 3.4% due to the increase in large orders from commercial customers on the e-commerce platform, as well as the development of the septic solutions business.

Cumulative net sales increased 8.4%, driven by price increases in storage solutions, as well as by the sale of septic tanks and the recording of income from installation and maintenance services for these tanks.

Pre-operating expenses in the septic business and technology expenses related to the expansion of the e-commerce platform impacted adjusted EBITDA, which was negative Ps. 20 million in the quarter and negative Ps. 64 million for the year.

Other countries

Net sales from other countries (Peru, Guatemala, El Salvador, Costa Rica, Honduras, Nicaragua, and Brazil) increased 6.2% compared to the same quarter of the previous year and decreased 2.1% for the year, compared to 2021.

In Peru, sales were affected by the slowdown in demand from political instability and slow economic growth. Cumulatively, sales contracted due to the deterioration of the population's purchasing power and a contraction of the market.

In Central America, the decrease in sales is mainly due to a slowdown in the construction sector in the region and hydro-meteorological conditions for part of the year.

In Brazil, the project portfolio benefited from new legislation, which promotes the migration from a state-owned to a private-water model. During the year, the Company continued with the construction of commercial competencies and projects, as well as the development of field services to service existing contracts.

Adjusted EBITDA margin expanded 200 bp in 4Q22 vs. 4Q21, reaching 22.6%, and decreased 330 bp vs. 2021, to 13.4%. The year-over-year contraction in the margin responds to lower sales volumes in Peru and slower demand in Central America, as well as expenses for the development of new water treatment and recycling plants in Brazil.

ANALYSIS | COSTS AND EXPENSES

Gross Profit

Gross profit increased 27.3% in the quarter and 31.1% for the year. Similarly, gross margin increased 560 bps in the quarter and 450 bps on a cumulative basis. The quarterly and year-over-year improvement in margins is due to an assertive pricing strategy adopted in the second half of 2021, which has allowed Rotoplas to maintain brand leadership, as well as a sustained sequential margin recovery.

Operating Income

Operating income reached Ps. 452 million in the quarter, an increase of 38.0%, with a 280 bp margin expansion. This expansion was lower than the improvement in gross margin due to expenses related to businesses under development.

On a cumulative basis, operating income increased 48.9% and the cumulative operating margin was 12.4%, 260 bps higher than in the same period of 2021. As well as in the quarter, the improvement in operating margin was less than the improvement in gross margin due to expenses related to the development of new businesses.

Comprehensive Financing Result

The comprehensive financing result for 4Q22 was an expense of Ps. 181 million compared to an expense of Ps. 184 million in the same period of the previous year. The expense in the quarter considers Ps. 100 million for interest on debt, commissions and leases, Ps. 15 million for the valuation of financial instruments, and Ps. 66 million for the monetary position in Argentina, which was Ps. 43 million higher than in 4Q21.

The cumulative comprehensive financing result for 2022 was an expense of Ps. 768 million vs. an expense of Ps. 623 million in 2021. Financial expenses include the payment of interest on the AGUA 17-2X sustainable bond, commissions and leasing for Ps. 396 million, Ps. 82 million for the valuation of financial instruments, and Ps. 290 million for monetary position in Argentina, which was Ps. 223 million higher than 4Q21.

Net Result

The net profit for the quarter was Ps. 370 million compared to Ps. 92 million in 4Q21, a figure 4.0x higher than 4Q21. This expansion was associated with a general improvement in the operating results.

Cumulative net profit was Ps. 756 million, vs. Ps. 312 million in 2021, 2.4x higher than the same period of the previous year due to a sequential and year-over-year improvement in the operating margin.

CapEx

Capital investments represented 5.2% of sales during 2022, an increase of 28.0% compared to the previous year.

Capital investments include:

• Ps. 414 million of investments in new technology to produce storage solutions, and machinery to increase production capacity for the water flow category in Mexico. These are part of the long-term investment in the business' sustainability, including the design of a new generation of water storage tanks and the increase in piping production capacity.
• Ps. 37 million and Ps. 9 million were allocated to water treatment and recycling plants in Brazil and in Mexico respectively.
• CapEx related to growth initiatives within the Flow program amounted to 49.5% of the total and the remainder corresponds to maintenance Capex.

ANALYSIS | BALANCE SHEET

Cash Conversion Cycle (Days)

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 was optimized by 12 days, which was related to our strategy focused on securing raw materials supply in an unstable supply chain environment and import complexity in Argentina.

Debt

Debt Maturity Profile

Total debt was Ps. 4,009 million and corresponds to the AGUA 17-2X sustainable bond.

FINANCIAL RATIOS

*Adjusted EBITDA LTM/interest payments LTM
**Net income divided by 486.2 million shares, expressed in Mexican pesos.

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

As a result of the operating improvement, the interest coverage ratio improved by 97.7%.

ROIC / Cost of Capital

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 14.1% at the end of December, a 40 bp contraction vs. the previous year despite an operating improvement of 38.0%. This effect was due to the fact that in 2021 the expenses for the implementation of the Flow program were excluded and in 2022 the adjustment was no longer made.

ROIC remains 140 bps above the cost of capital, even though the cost of capital increased 60 bp year over year.  Likewise, the Company continued to benefit stakeholders by creating sustainable economic value.

Financial derivates

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 December 31^st, 2022, the market value of Grupo Rotoplas' position was:

ESG | ENVIRONMENTAL, SOCIAL AND GOVERNANCE

Updates regarding sustainability initiatives during the quarter include:

• The achievement of 100% of the 2022 goals within the ESG strategy.

• Rotoplas received a "B" rating in CDP's Climate Change questionnaire, which places the Company in the Management category, meaning that Rotoplas is acting in a coordinated manner on climate issues. This grade is higher than the North American regional average and the average for light manufacturing.
• For the sixth consecutive year, AGUA* remains in the DJSI MILA Pacific Alliance index.
• Rotoplas moved up two points in the 2021 S&P Corporate Sustainability Assessment, with a score of 69.
• The Company increased its Bloomberg GEI Score by eight points, obtaining a score of 63 in 2022.
• Rotoplas was awarded the Leading Company in Sustainable Innovation award in the Governance category by HSBC.
• The Company held the Healthcare Fair, where its employees had the opportunity to attend courses and training sessions, including self-care and habits, investing, nutrition, and cancer prevention, among others. A total of 692 employees attended, representing 21.1% of the total workforce.
• As part of the diversity and inclusion strategy, 6 talks and workshops were given to raise awareness about gender violence, unconscious biases, inclusion of people with disabilities in the workplace, etc., and was open to the participation of the entire administrative staff. A total of 694 employees attended, representing 21.1% of the total staff.

AGUA* | PERFORMANCE AND ANALYST COVERAGE

Source: SiBolsa

Treasury shares:

As of December 31^st, 2022, the Company had 15.1 million shares in the treasury, equivalent to an invested amount of Ps. 439 million. To date, no treasury shares have been cancelled.

Analyst Coverage

As of December 31^st, 2022, analyst coverage was provided by:

FINANCIAL STATEMENTS | Balance Sheet, Income Statement and Cash Flow

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)

PRESS RELEASES | 4Q22

• Grupo Rotoplas' Results from the CDP Climate Change Questionnaire 2022– December 19^th
• Rotoplas remains for the sixth consecutive year in the DJSI MILA Pacific Alliance index– December 12^th 
• AGUA Day 2022 – December 9^th
• Independent Auditor Ratification – October 27^th 
• Rotoplas is awarded with the Leading Companies in Sustainable Innovation Prize by HSBC – October 20^th 
• Fitch ratifies 'AA(mex)' rating for Grupo Rotoplas; stable outlook – October 12^th 
• Rotoplas renews market maker agreement with BTG Pactual – October 12^th

For more information, please refer to the Relevant Events section on our website: https://rotoplas.com/investors/press-releases/

CONTACT DETAILS | INVESTOR RELATIONS

Mariana Fernández
[email protected]

María Fernanda Escobar
[email protected]

• Forward-Looking Statements

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.

• About the Company

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^th, 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 plus depreciation and amortization, plus non-recurring expenses (donations and Flow implementation expenses). In 4Q21, it considers Ps. 76 million of Flow expenses and Ps. 10 million from donations. On a cumulative basis, it considers Ps. 301 million of Flow expenses and Ps. 19 million from donations. During 2022, there were no adjustments for Flow expenses, and no donations.

² Adjusted EBITDA considers: operating income plus depreciation and amortization, plus non-recurring expenses (donations and Flow implementation expenses). In 4Q21, it considers Ps. 76 million of Flow expenses and Ps. 10 million from donations. On a cumulative basis, it considers Ps. 301 million of Flow expenses and Ps. 19 million from donations. During 2022, there were no adjustments for Flow expenses, and no donations.

³ Adjusted EBITDA considers: operating income plus depreciation and amortization, plus non-recurring expenses (donations and Flow implementation expenses In 4Q21, it considers Ps. 76 million of Flow expenses and Ps. 10 million from donations. On a cumulative basis, it considers Ps. 301 million of Flow expenses and Ps. 19 million from donations. During 2022, there were no adjustments for Flow expenses, and no donations.

⁴ Contemplates Scope 1 and Scope 2 emissions.

⁵ Adjusted EBITDA considers: operating income plus depreciation and amortization, plus non-recurring expenses (donations and Flow implementation expenses). In 4Q21, it considers Ps. 76 million of Flow expenses and Ps. 10 million from donations. On a cumulative basis, it considers Ps. 301 million of Flow expenses and Ps. 19 million from donations. During 2022, there were no adjustments for Flow expenses, and no donations.

⁶ Adjusted EBITDA considers: operating income plus depreciation and amortization, plus non-recurring expenses (donations and Flow implementation expenses). In 4Q21, it considers Ps. 76 million of Flow expenses and Ps. 10 million from donations. On a cumulative basis, it considers Ps. 301 million of Flow expenses and Ps. 19 million from donations. During 2022, there were no adjustments for Flow expenses, and no donations.

⁷ Adjusted EBITDA considers: operating income plus depreciation and amortization, plus non-recurring expenses (donations and Flow implementation expenses In 4Q21, it considers Ps. 76 million of Flow expenses and Ps. 10 million from donations. On a cumulative basis, it considers Ps. 301 million of Flow expenses and Ps. 19 million from donations. During 2022, there were no adjustments for Flow expenses, and no donations.

⁸ Adjusted EBITDA considers: operating income plus depreciation and amortization, plus non-recurring expenses (donations and Flow implementation expenses In 4Q21, it considers Ps. 76 million of Flow expenses and Ps. 10 million from donations. On a cumulative basis, it considers Ps. 301 million of Flow expenses and Ps. 19 million from donations. During 2022, there were no adjustments for Flow expenses, and no donations.

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

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