Grupo Rotoplas S.A.B. de C.V. (AGUA.MX) 2026-07-23 Earnings Call Transcript

Good morning, and welcome to Grupo Rotoplas' results conference call. Please note that today's call is being recorded and all participants are currently in listen only mode to prevent background noise. The host will open the floor for questions later. Today's discussion contains forward looking statements. These statements are based on the environment as we currently see it, and as such, there may be certain risk and uncertainty associated with such statements. Please refer to our press release for more information on the specific risk factors that could cause actual results to differ materially. The company disclaims any intention or obligation to update or revise any forward looking statements, whether as a result of new information, further events or otherwise. Please allow me to remind you that the company issued its earnings press release aft after market close. It can be found in the Investors section of its website. Also, the presentation for the call and the webcast link are in the Investors section Today's call will be hosted by Mr. Carlos Rojas Aboumrad, chief executive officer and Mr. Andres Pliego, chief financial officer. I will now turn the call over to the speakers.

Good morning, everyone, and thank you for joining us today. Before I walk you through the quarter, I want to take a step back. Almost 5 decades ago, Rotoplas began with a simple purpose, to improve people's lives through better access to water. That purpose is the reason we exist today. And it is a lens through which we make every decision. In a demanding environment, returning to those roots being a company that creates real positive impact in people's lives is what continues to guide us. I say this because it is what keeps us focused on the long term. This was another quarter of steady sequential progress. We delivered top line growth double digit EBITDA expansion margin improvement and a meaningful reduction in leverage. All while continuing to invest in the business that will shape the Rotoplas for the coming decades. Andres will walk you through the numbers in detail, but the message is simple. The recovery we have been building is taking hold, and it is broadening across our geographies. We are not yet where we want to be. But we are moving in the right direction. We achieved these results despite currency volatility and higher raw material costs. That speaks to something more structural. Our ability to execute. Pricing discipline, innovation, cost management, and capital allocation are becoming competitive advantages that allow us to perform even in challenging environments. We strengthened our financial position, leverage came down to 2.3 times, cash generation remained strong, and we refinanced our sustainability bond. Extending our maturity profile and giving us greater flexibility to invest for the long term. This is a solid foundation we have been patiently building. Let me now share with you how we advance on our 4 strategic priorities this quarter. Our first priority is profitable growth and core expansion. During the quarter, we continued to grow while maintaining discipline pricing across our portfolio. Protecting margins despite higher resin and freight costs, In Mexico, category level demand was mixed. But our commercial execution more than compensated. The progress we made reflects the strength of the capabilities we have been building over the past several years. At the same time, we continued strengthening our portfolio across the entire water cycle by embedding technology into the products that made us market leaders. When we think about water, we think about how we can continue improving every step of the cycle of our customers. Today, our storage solutions incorporate smart level sensors. Our smart pump improves water pressure and performance inside the home. And Bebia, completes this cycle through water purification. Together, these innovations allow us to better serve our customers while continuing to build on the businesses that have defined Rotoplas since the beginning. Products like the vertical tank and smart pump are still in the early stages of adoption, but we are encouraged by the progress we are seeing. They are already improving our commercial mix, expanding the markets we can serve, and helping us reach new customers. For example, our new vertical tank, is compact enough to fit inside a residential elevator. A small detail but it is opening up multifamily and urban apartment buildings as new use case for a product category that used to be limited to houses with space for a rooftop tank. Our smart pump is also creating new opportunities. To offer more integrated water solutions inside the home. For us, innovation is about continuing to improve the products our customers already trust. And making them even more valuable over time. But a better product only creates value when people really understand its benefits. And know how to install it. So we stepped up the work around adoption, sharing our products more actively, including a smart pump demonstration on social media, which I like to share with you now. And just as importantly, we are investing in the people who are bringing our solutions into the home. We are expanding training for our Salesforce and for the plumbers who install our products and reinforcing our plumber loyalty program. Making our products easier to choose easier to install, and easier to trust is how we continue reinforcing the leadership we have built over many years. Another encouraging aspect of the quarter is how our different markets continue to improve while navigating a challenging environment. The United States remain on a positive path. While Argentina continued narrowing its losses through disciplined pricing and operational efficiencies. Andres will walk you through each market in more detail. But together, these results reinforce our confidence that we are building a more balanced and resilient company. Our second priority is water innovation and market disruption. Delia continued its expansion with record subscriber additions and continued improvement in unit economics. Having completing our platform migration, we are now well positioned to accelerate growth. This is exactly the kind of recurring resilient, and higher value business we set out to build. And it continues to validate our long term strategy. Our third priority is technology and talent. We continue strengthening our digital capabilities through better data infrastructure and AI enabled tools that improve customer experience and commercial execution. At the same time, we continue investing in capabilities across analytics, automation, AI, and e commerce. Technology combined with the right talent is what will allow us to scale more efficiently in the years ahead. Our fourth priority is sustainable impact and operational efficiency. Sustainability remains inseparable from our business. It is and has always been part of our DNA. This quarter, our teams across the region continued moving that commitment forward. We celebrated sustainability week with more than 300 employees participating across the organization. We were once again recognized as a CDP supplier engagement leader for the second consecutive year. And we continue strengthening our transparency by reporting our contributions to the UN Sustainable Development Goals. In Peru, our operation earned its sustainable management distinction for the ninth consecutive year while joining the country's national carbon food Program for the first time. What makes me most proud is not the recognition itself, but what it represents. It reflects the commitment of our people to create a positive impact on water. Our communities, and the environment. Together, these 4 priorities reflect how Rotoplas' continues to evolve. We are strengthening the business while remaining true to the purpose that has guided us for more than 4 decades. To close, I would like to return to where I began. Behind every number we discuss today are real people. Families, schools, and communities gaining better access to water. that is what gives meaning to the work we do every day. Almost 50 years ago, Rotoplas was founded with a simple purpose, to improve people's lives through better access to water. Today, that purpose remains exactly the same. What continues to evolve is how we will fulfill it. Through innovation, technology, stronger execution, and above all, the commitment of our people. We are building a company that is better prepared for the future while staying true to who we are. We are encouraged by the progress we are making. And we remain confident in the opportunities ahead. Thank you for joining us today. I will turn the call over to Andres.

Thank you, Carlos and good morning, everyone. As Charlie walked you through our 4 strategic priorities, I will focus on our 2 financial ones. Sustaining our EBITDA margin expansion, and strengthening free cash flow. This quarter, we made progress on both, and you will see it in the numbers. Net sales reached MXN 3 billion, a 3.4% increase year over year, with products up 3.2% and services up 4.7%. Growth was broad based, Mexico, The US, and our other countries all grew. More than offsetting the ongoing pressure in Argentina. Gross profit closed at MXN 1.3 billion, with a 42% margin. A 70 basis point expansion year over year. This reflects project pricing, management and cost discipline. Which allowed us so cost of sales to grow below the sales of rates. Operating expenses grew 5%, reflecting continued investment in our digital platform Even so, gross margin expansion more than offset that and operating income reached MXN 217 million pesos. A 4.8% increase versus last year. EBITDA closed at MXN 409 million, with a margin of 13.4%. a 90-basis points expansion and an 11% increase year over year. At the net income line, we reported a loss of 201 million compared to a profit of 42 million pesos a year ago. I want to walk you through exactly where this comes from. Because it is not an operating story. Operating income actually grew this quarter. The swing comes from 2 places below the operating line. Our net financing result and taxes. Net financing cost was 304 million or 334 million pesos versus 154 million a year ago. Of that, 133 million corresponds to interest, commissions, and leases. The more normal part of our financing cost. The majority of the remainder around 164 million relates specifically to Argentina. The combined effect of IA 2029 hyperinflation accounting, which requires us to restate monetary assets and liabilities to current purchasing power each period. Together with the peso move. This can create meaningful swings from 1 quarter to the next. In the first quarter, this effect moved in our favor, and this quarter, it reversed. On taxes, we recorded 84 million, which also weighed on our net income for the quarter. This reflects the derecognition of certain deferred tax assets in Argentina. So while the headline net income numbers look weak, I want to be clear. These are largely noncash accounting driven items tied to Argentina. And they do not reflect the underlying strength of our operations. Which, as I mentioned, continued to improve this quarter. In Mexico, sales grew 4% and EBITDA grew 15%, a margin of 21%, 200 basis points above last year. Growth was broad based across categories, led by strong flow volumes and continued momentum in the strategic product lines. Particularly the vertical water tank and the smart pump. Alongside continued growth, in our services platform. Argentina sales declined 13% in Mexican pesos. In local currency, sales actually grew. Saw a gradual volume recovery across all 3 categories, water heaters on a seasonal winter demand. EBITDA remained negative, but the margin improved meaningfully versus last year. Reflecting a better cost absorption and a more disciplined pricing. In the United States, sales grew 2% in pesos and 15% in dollars. Driven by the continued mix shift towards B2B channels industrial construction, HVAC, and septic. And the ramp up of our 2 new branches, Pompano and Phoenix. EBITDA margin reached 8%. This is our fifth consecutive quarter of positive EBITDA in the US. The structural turnaround we have discussed for several quarters continues to hold. Peru, Central America, and Brazil together grew 24%. With a solid performance across every country. Peru delivered strong volumes on an extended summer season, a boost for storage, though it slightly softened demand for water heaters. Central America continued strong commercial momentum. And Brazil, while still a small business for us, kept steady building out its water treatment platform. EBITDA in this segment declined that is almost entirely explained by a 1-time impact of 74 million pesos tied to our resolved client dispute in Brazil's water treatment business. Excluding that item, EBITDA in the country would have been positive. And margin would improve both for the quarter and year to date. Products grew 3% with EBITDA up 22% and margin expansion of 280 basis points. Up 18%. Supported by cost efficiencies in Mexico solid performance in the US, Peru, and Central America. And an improvement in Argentina. Services grew almost 5% driven mainly by Bebia, which surpassed 193 thousand active subscribers and continues to strengthen its unit economics. Growth was softer than usual mainly due to the timing of our contract signings in RSA in Mexico. Services EBITDA was negative 92 million pesos versus the negative MXN 41 million a year ago. But as I mentioned, most of that swing is on the 1-time litigation impact in Brazil. Excluding it, the services EBITDA margin would have been around negative 6%. An improvement versus negative 14% a year ago. The underlying trend keeps improving and the path towards services breakeven, remains intact as Bebia and RSA continue to scale. This quarter, we took a concrete step on our capital structure. As we told you last quarter, the Board and shareholders approved a senior credit facility to refinance our sustainable bond. We have now executed on that. We prepaid the ROTO 17-2X bond and closed a new 7-year loan with Bancomext. Priced at the TIIE 28 plus 195 basis points. We will also focus on protecting that structure from interest rate volatility. This month, we hedged 50% of the notional through a 4-year interest rate swap. Fixing our rate at 7.5% through June 2030. The remaining 50% stays floating. That gives us a current blend cost of debt of 8.96. With more greater visibility and protection against future rate movements. This extend our maturity profile gives us more financial flexibility, and locks in the rate certainty for half of the balance. Giving us a stronger financial foundation to keep funding the growth priorities Charlie mentioned. Like Bebia, RSA, our digital platforms, without adding any refinancing risk. Cash and cash equivalents closed at MXN 1.2 billion. 64% above a year ago. I want to highlight that these figures come after returning 82 million to the shareholders during the period. Equivalent to 17 cents per share in cash. Our cash conversion cycle also improved. A direct result of the working capital discipline we have sustained over the past several quarters. On the debt side, the current structure is straightforward. The new 4 billion pesos Bancomext facility we just discussed, plus 431 million pesos in short term working capital lines in Mexico. Net financial debt closed at 3.2 billion pesos, down 16% year over year. Net debt to EBITDA improved to 2.3x from 3.2x a year ago. Continuing the deleveraging path we have described last quarter. When the ratio stood at 2.6x. Getting closer to where we want to be, though still though there is still work ahead. CapEx for the first half totaled MXN 194 million, or 3.4% of sales. 8% below last year. Reflecting the same selective return oriented approach we have discussed before. As usual, most of it concentrated in Mexico and went to the expansion of Bebia. Overall, this quarter the operating trends we care most about right now kept moving. in the right direction. We will keep prioritizing 3 things going forward. Margin discipline, deleveraging, and executing on the services path to breakeven. Thank you. We are ready to take your questions.

Thank you both. I will be reading the first question that comes from Regina Carrillo from GBM. Congratulations on the results. Given a strong cash flow generation in the first half of the year, what are the main drivers needed for free cash flow generation to continue in the second half?

Thank you, Regina. Thanks for the question. We will continue with a strong focus on generating cash. I mean, it starts with operating results. So the we will continue to focus on EBITDA expansion and a lot also comes from working capital discipline. So the expectation is to continue through that path. Continue investing, continue in the CapEx program that we have, CapEx should be in line with what has been for the past quarters in 3% to 4% of the total revenues. So with CapEx disciplined approach, working capital discipline, and EBITDA focus. We think we can continue to generate free cash flow in the coming months.

Thank you, Andres. So the second question is from GBM again and Orlando Alcantara from BTG. But because both have similar questions. How do you guys assessing El Nino phenomena after affecting southern versus Northern Mexico, and if we expect droughts to increase demand for similar products as acceleration such as in 2021 and 2022?

Hey, thank you very much for joining. Orlando and Regina. I think just another factor that brings tremendous volatility. It has been the standard for us, the book environment. And I think what is important is that we have the capacity to respond with agility It will bring for certain scarcity of water in some areas. In some other areas, it will bring storms. And Yeah. I understand you are asking about Mexico, but it also has a different impact in the US. It has a different impact in Peru. I think between The US and Peru geographically, all the way as far north as The US and as far south as Peru. that is where we see the main impacts. Our solutions will likely be needed for different situations. In terms of the water scarcity, whether will bring you know, demand similar to 2021, 2022. I do not necessarily see that because dams in Mexico are at high levels which were really replenished by the rains we had last year, and this year has been a good year as well. But 1 more thing is that we do anticipate more storms than usual. I mean, devastating storms. So we are also preparing to see how we can support those areas of likely disaster in our different markets. Again, I cannot tell whether the net effect is going to be increased demand or not. We do not know. it is going to bring tremendous volatility, going to be required is the capacity to respond with agility. So we will be preparing for that. Thank you.

Thank you, Charlie. The next question is from comes again from Orlando Alcantara from BTG. Can you give us more sensibility on gross margin for the next half of the year? How do you guys have been negotiating with your suppliers and have terms been settled for raw materials for the next 12 months?

Thank you, Orlando. As we mentioned in our remarks, we 1 of the things that we have been working on is pricing agility. And Charlie was mentioning with El Nino effect, and we have been working on that given the resin price volatility as well. As you know, I mean, oil has been very volatile. Hence, resin prices have been volatile as well. So I guess, the main the main action that we are implementing or that we have been implementing is pricing agility. On top of that, we have been very disciplined with our cost management and so, I mean, we do expect movements and volatility, but we do not see we do not see big impacts in our in our in our gross margin as for today. No? I do not know if Charlie wants to add something.

No, that is good. Perfect.

Thank you. So the next question and comment comes from Michell Sarelly from Zennon. Good morning, and congrats on the continued path and strengthening of core business. Mr. Bissy is leaving the US operation seemingly was instrumental to the US turnaround. Please explain what measures you take to make sure the profitable operations there continue and grow. What capabilities will you be seeking with the internal candidates to succeed Mr. Bissy?

Thanks for joining, Michell. And thanks for your question. Joe Bissy. he is a great leader, great talent. We are very proud to have had him in the company. He was very instrumental for transforming the business. We had a very good recuperation of profitability. But not only that, we had tremendous transformation also in terms of work environment, developing the strategy, then developing talent. And it was a very fluid transition from Bissy to Rebecca Clamp-Martins, who is now our leader in the US. Rebecca has been in the company for 4 years. She knows the business very well. She is a tremendous leader. We are very proud to have her as part of our leadership team and we are confident she will continue to deliver profitability and growth in the business. So I like to congratulate Rebecca and wish Joe the best going forward.

Thank you, Charlie. So we until now, we have no further questions. But if you want to share another question, you can click on the question button on your screen. We will give you 1 more minute, and if we do not get any more questions, then we can already close the webinar. Thank you. I think we are not getting any more questions. But if you want to make some closing remarks in Andres or Charlie, and then we will close the conference call.

Well, maybe the closing remark is macro environment is volatile. Challenging times ahead, but we are super confident that we have developed capabilities to face this variability. And we are very happy to see how new businesses new services, new products are contributing in a very positive way with tremendous adoption from customers. So we really appreciate you participating in this call and your continued support of our purpose to serve people with water solutions and with positive environmental impact. Thank you, guys.

Thank you.

So we will meet again next quarter. And thank you for joining. And you may now disconnect.