Earnings Call: Q1 2021

Apr 22, 2021

Good morning, and welcome to Grupo of the Blast Conference Call. Please note that today's call is being recorded, and all participants are currently in a listen only mode 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 yesterday 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 Abumrad, Chief Executive Officer and Mr. Mario Romero, Chief Financial Officer. I will now turn the call over to Mr. Carlos Rojas. Good morning, everybody. Thank you for joining us today. As always, I am glad to have the opportunity to discuss with you our latest efforts and results. As we talked about in our last call, 2020 was an extraordinary challenge. As it turns out, it was also an extraordinary opportunity to adapt and continue evolving, fulfilling our ultimate purpose to bring more and better water to our clients and communities. We achieved our growth and value creation goals for 2020 and continued with this trend during the Q1. But most importantly, we also strengthened our ability to address the changing needs of our societies, taking advantage of global trends that continue to change the way we use and perhaps more importantly, the way we protect our scarce water resource. What we know changes sorry, what do these changes look like specifically in the context of COVID-nineteen pandemic? We have found that more than 50% of time in this report an increase in the water bill as a result of staying at home. 2nd, people in Mexico, Central America and the United States are investing in improvements to their homes, creating a great opportunity for solutions such as ours that can help reduce water consumption. 3rd finding is even more interesting. We found that the population is more concerned and conscious about water shortages, water pollution and about poor quality of water supply. And finally, and perhaps most importantly, we have discovered that having access to drinking water became a top concern during the pandemic, Trailing only behind health, unemployment and the performance of the economy. It is clear that having access to clean and dependable water supply is now a top priority for our societies and our customers. These findings are not surprising. Across our markets and throughout the world, the demand for water continues to grow unabated. This causes water stress, which happens where demand exceeds the supply and combined with drought and other natural phenomena, it is driving society's interest for smarter and more sustainable water solutions. The pandemic has been in a way the catalyst and accelerant for changes that were already taking place. Some companies have adjusted to these changes by adopting better sustainability practices, but we need to go further. Not only have we deepened our commitment to ESG principles and practices and continue to reduce our own footprint, but we are helping our clients and communities to improve their access to water and efficiency with which they use it. We help families, companies, industries and farmers to reduce the environmental impact. We have adapted and thrived by addressing new consumer habits and global macro trends, but also, crucially, by adopting a more conscious approach, giving equal priority to people, the planet and profitability. We have been able to do so through our flow transformational program, which is now a key component of our organizational structure. As some of you may recall, we started from 2019, identifying new avenues for growth and designing the process that would help us achieve our value creation goals. In 2020, the program enabled us to reach these goals and innovate across all areas of our company, contributing very significantly to our growth and EBITDA, enabling to launch over 23 new solutions and increasing our returns on invested capital above our cost of capital. This year, Flow is already at the core of the way we operate. As reflected in our 5 year plan, driving us to continually re examine our strategies and operations. As such, it is also at the core of the comprehensive strategy we are implementing, which merges the corporate and sustainability components to create value, drive sustainable growth and give priority to our organizational health. Our organizational culture is embodied in the rotoplasm way, which we have updated, so it is aligned to the evolution of the company. At the center of our day to day operations, we have a very clear purpose, improving the quality of life through various solutions in a sustainable fashion. And with us by focusing on the development of our people, being passionate about our clients, catalyzing innovation, seeking performance multipliers, as well as learning, operating and evolving in an agile fashion. It is who we are, the culture we have built and it is our path forward. About Flow's evolution, we're happy that this path continues to bring about very positive results. We grew this quarter 26%, thanks to our ability to address the new water needs I mentioned earlier, and 17% of sales are linked to flow initiatives. During the quarter, we launched 6 new solutions across the region. In Mexico, we introduced flexible hoses, a new water filter, water softeners and electric showers electric heating showers. We also put in the market new solutions in Argentina and Peru, as well as new models of pipes in Peru. We have allocated MXN 59,000,000 of CapEx to flow related projects during the quarter, and we managed to fully execute more than 4 initiatives. Also, the cash conversion cycle was optimized by 34 days. I am also very glad to share with you that as part of our 5 year sustainable growth plan, we continue to improve our ROIC, which reached 14.8%. Our teams are fully committed to this transformation and we will continue to lead our efforts to continuous improvement. During the period, more than 750 people were directly involved in the transformation program. It is important to note that we have and we will continue to maintain our focus on the health and safety of our team. Through the efforts and the loyalty of our customers, we are well on their way to achieve our goals for this year. Now before I turn the call over to Mario, I would like to invite you to read our annual report, which will be published on April 30th in our website. The report is a key part of our transparency efforts and is elaborated and verified using the highest standards frameworks. This year, apart from GRI, we have aligned to SISB and TCFD recommendations. It is also a great way to better understand how our company is doing its part to help secure a better future for all of us. Thank you again for your time. I will now let Marie guide you through our quarterly results. We will answer any questions you may have afterwards. Thank you, Charlie, and good morning, everyone. Thank you for joining us today. As you have heard, we registered a very strong first quarter, growing by over 26% due to increased demand for our products, which was brought about by water stress, grouts and the new consumption habits that Charlie was explaining. We grew by double digits in all our markets except for Mexico, where we registered an 8% growth in sales due to the contraction in demand for certain services, which I will discuss in further detail in a moment. As a matter of fact, our net sales and EBITDA are a 1st quarter record. And even if we account the impact of the pandemic at the end of the Q1 of 2020, sales would have increased close to 20% and EBITDA around 24%. That is, we registered record growth even after considering the atypical nature of March of last year. About COVID and our operational status, we remain vigilant and we continue to comply with the strictest safety and hygiene protocols to protect the health of our personnel in our facilities and while working in the field, including periodic testing and regular workplace sanitation measures. Our administrative staff continues to work remotely. In terms of our financials, we registered strong demand for our solutions accounting for more than MXN2.4 billion in revenue. Our gross margin decreased due to pressure in raw material prices, partly as a result of extreme weather conditions in the United States in February and increasing demand as the global economy starts to catch up. However, we retain ample liquidity, are achieving consistent economies of scales and have built a network of local and global suppliers and increased our inventory to ensure an adequate supply. And while this has increased our working capital, it also insures us against future disruptions. In the same vein, we continue to add new personnel to maintain productivity by complying with all sanitation standards and guidelines. Our operating margin decreased during the quarter due to the expenses associated to the flow program, which amounted to MXN 75,000,000 and the accounting of MXN 6,000,000 related to the implementation of health and safety measures during the quarter. Nevertheless, it is worth highlighting that our expenses grew at a much lower pace than our sales, evidencing that increasing efficiency we have achieved through flow and execution discipline it entails. Our adjusted EBITDA after accounting for one time expenses grew 31%. While our net profit contracted year over year, it is important to mention that this can be attributed to the fact that in the Q1 of 2020, we recognized a one time gain when we closed our FX coverage position as significant profit. Excluding this factor, net profit will have increased 66% year over year. We believe our overall results showcases how our company has evolved and adapted to the new reality of our societies, addressing our customer needs as they also evolve and adapt to their circumstances across our markets. We are willing and able to leverage our unique corporate culture, the Rotoplast way, to ensure that we are allies of our clients and communities as they navigate the changing environment. And the execution, discipline and innovation generated by Flow allow us to adjust to adapt. Now as to our geographic breakdown, sales in Mexico grew 8% during the quarter due to the strong demand for our storage and water flow products, including the new ones that we are added to our portfolio as a result of flow. The growth in sales of our products compensated for the contraction in the sales of services. Net quarterly sales in Argentina grew 76%, driven by double digit growth across all three categories: storage, water flow and improvement, as well as a growing share of the export business, which grew more than 100% and now accounts for more than 5% of total sales. The adjusted EBITDA margin also increased to reach 14.5% as a result of the regularization of operation and an increase in sales volumes. Starting this quarter, we will disaggregate our results in the United States, reflecting its increasing importance. Sales in the United States grew 29%, amounting to MXN256 1,000,000, which represents 11% of total group's revenue. This growth was driven by increased consumer confidence resulting from vaccination rollout, a higher demand of water for agriculture in California and by the migration to smaller communities, which require further investments in water solutions due to less public infrastructure. Despite the disruption caused by the blizzards for 1 week in February in the southern region of the U. S, we increased the number of recurring and new clients, while also expanding the availability of solutions in our digital platforms, which were updated last year. This updated, combining with our improvements in delivery logistics and the evolution of our 8 physical stores to service centers has improved the customer experience and catalyzed growth. The adjusted EBITDA for the U. S. Amounted to MXN 19,000,000, a 7.5 percent EBITDA margin as a result of both increased volumes and the average sale ticket, in contrast with the negative EBITDA we recorded in the Q1 of 2020 because of the investments we made to optimize our business. Sales in Central America increased by double digits during the quarter, partly driven by the reopening of the retail sector and the reactivation of homebuilding in the region. We opened a new plant in Managua and Nicaragua at the end of March. This new plant will supply Costa Rica, Panama and Nicaragua and will enable us to increase market share and improve our logistics in those countries. Sales in Peru also increased by double digits, driven by the increased demand for our solutions, including the ones introduced during the previous quarters as well as increasing consumer spendings due to the fact that the government allowed the withdrawal of retirement funds as a pandemic relief measure. Finally, we continue to focus on strengthening the presence of our water accessories platform in Brazil, including our sales teams. We have 4 water treatment and recycling plants now in operation as of the end of March. As for the mix, product sales grew 30%, driven by the trends we have described and by the initiatives undertaken within the Flow framework. As Charlie mentioned, during the quarter, we introduced new solutions and we continue to increase our sales force efficiency and our participation in online sales, which have become a key component of the new market landscape. The strong growth of product sales compensated for the contraction in sales of services, which fell 20% due to two factors. 1, and most important, ongoing school closures in Mexico, which affected the water fountains business and 2, the delay in contract assignments for new treatment and recycling plants, resulting from the uncertainty that industries and commercial are still facing. We remain, however, in a leadership position in both markets and are fully prepared for the eventual recovery. Bevya nonetheless continues to grow solidly, increasing close to 2.5x in numbers of points of purification during the quarter. In terms of our portfolio mix, sales of products during the quarter accounted for 95% of total sales and services for 5%. Our government sales as a percentage of total sales amounted to less than 4% in the quarter, well below our 10% goal. Talking about our cash position, we optimized our cash conversion cycle by 34 days and we continue reviewing our terms with the related parties for the weekly cash control tower. Our net debt to EBITDA ratio is 0.8 times, well below our 2 times ratio policy and a level that we believe is more than adequate to sustain an accelerated growth rate as economic recovery continues across our markets. Is worth noting that our debt position consists of the sustainable bond, which as we have discussed in the previous quarter, net MXN4 1,000,000,000. It also considers a bridge loan in Argentina pesos for working capital and a loan in Solius, which was granted by the Peruvian government as a measure to reactivate the economy. During 2020, capital allocation was part of our focus. And on this quarter, on 2021, CapEx amounted for only 3% of our total sales, amounting to MXN71 1,000,000. I would like to note that as some of you may remember, we have a specialized committee to enhance control and accountability across our businesses. The capital allocation committee ensures not only that every project fulfills our criteria in terms of internal rates of return and net present value, but more importantly that is aligned with our comprehensive strategy, including ESU parameters and criteria. Furthermore, as the committee keeps track of the resource allocation and the preliminary results of each project on a quarterly basis, it is possible to adjust in an agile manner. Talking about ROIC, this was very, very good in the quarter, which stands at 14.8%, a 4 40 basis points year over year expansion. We remain committed to generating value by continuing to pursue initiatives and actions within the Flow program, including greater discipline in capital allocation, increased production efficiency in our manufacturing processes and maintain a strict expenditure discipline across all of our operations. Now moving into ESG. Charlie has already discussed the key aspects of our most recent ESG initiatives, But I would like to reiterate the invitation to check out our ESG KPI dashboard, which is available on our website as well as the annual report that we will publish in the coming days. During the 1st 3 months of the year, we have concluded the materiality assessment under the methodology proposed by the Global Reporting Initiative and the Sustainability Accounting Standards Board in order to have an approach that contemplates all stakeholders and also focus on financial risks. With the results of that materiality analysis, we are updating our sustainability strategy that is aligned with our 2021 2025 business program. As you may recall, our 5 year plan for sustainable growth has the goal of doubling sales and increasing profitability by placing the people, the planet and profit on equal footing. We believe this makes Furoplast a 3 factor story, a growth and a value investment, but also, crucially, a key failure in helping to reduce environmental footprint of our customers and community and address water stress and supply disruptions. We create value for our investors, while upholding the best ESG standards and practices and becoming an ally for those who work towards the common good. Sustainability is at the core of our purpose and our DNA. Finally, let me finish up with a heads up around 2021. We anticipate raw materials and energy cost pressures going into the Q2 and Q3 as the global economy shifts into growth mode. However, given our growth in revenue and strong leading brands, we continue to expect net sales to increase more than 10% and adjusted EBITDA equal to 19% and to keep the net debt over adjusted EBITDA ratio below 2 times. We also expect to continue creating value as we maintain our return on investment capital well above our cost of capital. Thank you very much for your time. Now, we will move to the Q and A that you may have. Thank you, Mario and Charlie. We will start with the first question. Post pandemic, are you expecting a slowdown in sales growth as we are seeing with other pandemic winners, Netflix or Amazon? Our case, I think, is a little bit different. There's a tremendous market in terms of size that is yet to adopt new solutions, this new approach of decentralized solutions for servicing customer water needs. So I think that we still have a long way ahead of us in terms of market transformation from traditional solutions to decentralized solutions. And so no, I don't think it will be the case for us. I think the case for us will be rapid growth as adoption of our solutions continue to happen now going from innovators and early adopters to early majority. Thank you, Charlie. The next question. Could you please share a guidance in terms of free cash flow generation for 2021? Mario? Good morning, Lianne, and thanks for joining us this morning on the webcast. Well, as you might see in the Q1, we saw a free cash flow reduction. This is a 2 story question. 1, the growth of 26% obviously required more capital as we increase our accounts receivables and inventory levels. But on top of that, due to the growth mode that now we are all seeing in the different components of the world economy, we are seeing shortages in some of the raw materials. So what the company has done to secure raw materials is anticipating payments to vendors and securing more inventory than usual. That I think is going to be prevailing in the Q2 and Q3. And then as the supply chains stabilize, we think that that will come back to more normal levels in the Q4. Having said that, the Company's growth will demand more working capital, which is our main focus. And those pressures coming from shortages will pressure our free cash flow generation in the second and third quarter. As for year end, we are anticipated to create a free cash flow. We are now in the ballpark anywhere from 5% to 8% of revenue as free cash flow generation. But that depends largely on how this shift to economic growth turns out. You might probably saw in the news a couple of days ago how fast is China growing GDP wise 18 plus percent. Some of our Board members are expecting 2nd or 3rd quarters in the U. S. Be a high growth economy. So that is changing a little bit how we are facing our working capital. And so far, management has decided to favor growth in market share and not despite investing more in working capital. And finally, the strong balance sheet that we have help us navigate this situation in an ample way. Thanks for the questions. A very interesting and complex question right now. Thank you, Mario. Moving to the next question. Tomas Pinto Basto is asking, can you provide some color around the flow related €75,000,000 expense? What did it comprise? And could you confirm that flow related expenses are done? Thank you. I'll let in a second Mario answering a little bit more detail. But flow for now will continue to generate expenses. Some of the expenses might be fees and fees are success based. And so that will continue to happen as initiatives materialize, other initiatives require other kinds of expenses. And we will continue to pursue growth paths, through flow, which will possibly have one time expenses. This year, we'll be focusing very much on digitization and advanced analytics. We'll be focusing also in accelerated growth businesses, also in strengthening our capabilities in agile innovation and also development of talent. So just regarding this €75,000,000 and going forward, anything else we can share? Yes. We indicated the market, I think it was 2 quarters ago or 3 quarters ago that we were anticipating to have these flow expenses until the Q4 of 2021. So that's something that we disclosed previously to the market and that we will be showing as a separate item, so for clarity and transparency for all of our communities. Thank you. Moving to the next question. Mariana Cruz from BTG is asking a follow-up question on the working capital cycle. If you are further if you are seeing further improvements in the coming years or are you already working under the most efficient structure? We have few businesses that have a better conversion cycle, such as retail. And as they grow, they might improve the conversion cycle for the business in average. On the other hand, we did invest heavily in inventories to be able to navigate these complicated supply days, as Mario was explaining before. And so I think there's opportunity for further improvement in the cash conversion cycle. I wouldn't be able to tell you how much we will improve this cash conversion cycle, but the trend should be to continue to lower in that cash conversion cycle. There might be other effects from other businesses that have a little bit longer cash conversion cycle to check as services in which we invest in equipment. So it might be an effect of a result in the speed at which these different businesses grow at. Mario? I think you just said and I think the second and third quarter in terms of inventory and accounts payable, I think those KPIs are not going to be our main focus. We rather focus on growth and not just seeing our financial strength to gain market share or launch new products. And I think it's up than losing market share. Just the quick data, in all of the market shares in different segments of the company participates in the Q1, in all of them, we gained market share. So I think that strategy is paying off. That is why I said in the Q4, once supply chains tend to normalize, I think that we will be going back to optimize the cash conversion cycle. So we will need to be a little bit patient going into 2nd and third quarter because of what we mentioned. Perfect. And we have another question from Rodrigo Salazar, AIME. Hi. Congratulations on the results. I have two questions. Sadly, there are some crucial conditions in the water availability in Mexico, and I believe some other countries have the same conditions. How can Rotaplast can take advantage of this? And what are the products that get the highest benefits of this situation? Secondly, we have seen polypropylene and polyethylene prices rise drastically recently. How big can be the impact on that front? And what are you expecting here? [SPEAKER CARLOS ALBERTO PEREIRA DE OLIVEIRA:] So let me ask answer your first question, Roderic. Thank you for your question. It is unfortunate that we're facing these scarcity situations. It's not something that we like to see in general for the world, but it is of opportunity for Rotoplast. So we look to service these opportunities with solutions that provide availability of water and quality of water. As scarcity grows, not only is there less available water, but water tends to be of lower quality. So solutions such as storage, rainwater harvesting, which are tremendous solutions to serve the lack of availability of water, our solutions are going to continue to see tremendous growth. It is a great challenge to service this growing demand in today's supply on days. But Vodafas has developed tremendous capabilities in the supply chain. What I can tell you, this may be part of the reason we're gaining market shares in businesses where we might already even have very high levels of market shares because our practices to source and anticipate this demand are very, very ahead of anyone else doing this. In terms of water availability as well, water treatment and reuse is a great opportunity. When you're suffering from lack of water for being a business and for your main operational activities such as manufacturing or let's say a hotel servicing your customers, you start looking for the alternatives to decentralized services, which is taking matters into your own hands, treating your own water, being sustainable and making sure you have more availability of water. So also great opportunity for water treatment at Citesa. Hopefully, as soon as business starts getting back online, we start improving our book. And then the last one is just on water purification for homes. People want to have and not only purification, but also filtering on people want to have better quality of water. They will see a diminishing quality as scarcity grows. And so people will want to do something different in terms of filtration and purification. Manny, would you like to answer the second one in terms of prices, Paresis? Sure. And just let me just complement to on what you just mentioned, Charlie. Charlie, at the beginning of the webcast, he was mentioning about the findings on these extensive market research that we did that took us more than 6 months to complete it. And when you see the top five priorities of what people in the Americas are saying, one is the access to drinking water, but there are other 2 that are connected to water, which is health as the number one issue and the other one is about environment and pollution. So, taking apart the economy, which affected a lot of people, there are 3 components that reinforce themselves, water, health and environment consciousness. So, I think that's going to play a big role going forward and some of our services and products have a tremendous upside on that. To your second question, Rodrigo, yes, we are facing increasing raw materials for the reasons explained. As a company, one of the good things is that we have leading brands And having a leading brand can help you manage the market prices better. So what we are doing is, we are constantly reviewing our costs and our pricing in the markets. So we can be agile on not losing or eroding our gross margin. So what we're going to be doing in the second or third quarter where we are feeling all that pressure, we're going to be very focused on pricing in all of our countries and markets and segments to offset the increase in raw materials. And thank you for being today Rodrigo. I didn't say hello and good morning. Thank you, Mario. We have another question from Bernd. Do you see the service revenues bouncing back after the pandemic has ended? And what is your future expectations, 2022 and beyond, for this business? And could you please shed some light on the Bevya business? Just thank you very much for the question, Brendon. Thanks for joining. We don't see services bouncing back after the pandemic. Vega has been performing phenomenally in attracting new customers. It is a very new service. So on the basis, very small and growth in revenues from Bevia do not impact enough on the services business yet. It is a business that's growing exponentially. So as soon as it gains some critical mass, the impact for the business will begin to be relevant. In terms of schools, hopefully, once they come back, there is more traction there. But we are really focusing on Zitesa and finding a way start closing deals with all of these customers who will be suffering from motor scarcity and from stricter regulations. So we do see great opportunity for SITESA going forward and we are strategically focusing on this business and allocating resources to this business. So I we believe revenues will bounce back in general for services. Regarding let me answer your third question first or next and then we'll go to your second question. But on Bevya, okay, I guess I already mentioned that Bevya grew very strongly last quarter, continues to grow exponentially. In general, Net Promoter Score is very high. And so we do believe that this is the way people want to move forward in terms of how they want to drink water, maybe being more sustainable, being of more providing more tranquility to people in terms of availability of clean water and the quality of water. And Net Promoter Scores are very, very high for Veda. So we do see this business continuing to grow in a very accelerated manner. In regards to our future expectations, we did share guidance for 2025. Malte, can you please share what is that guidance? Sure. We expect to double the sales using 2020 as a base year and to have a ROIC in the neighborhood of 20%. And obviously, the net debt to EBITDA ratio to be below 2x. Those are like the 3 main components for the 2025 guidance. And maybe they are getting close to 20% as well with the margins. Yes. Sorry. I would like to complement Mario with anything else. No, I think I don't have any complementary apps to do. Perfect. We have another question from Liliana. How much of the product growth comes from new launches? So what I can share with you is something I mentioned at the beginning of my statement, which is that about 17% of sales are related to new initiatives from Flow. There has been very relevant growth and this EUR 414,000,000 in additional sales that was being signaled is greatly due to Flow. And in general, there's a lot of new products being launched this year. We did already a big number in the Q1. And there's even new products such as the dual tank, which are not only just better products than our traditional ones, but they are and not only substituting traditional products, but also gaining new market share, gaining a lot of traction. Anything that you'd like to complete, Mario? I would say that probably what we were just discussing yesterday in the Board, We're going to be launching more products this year than in the last 10 years. So part of the transformation is not only about efficiencies, but this also speaks about growth. And the biggest component of growth is going to be coming from new products or services in the coming years. We have another question from Rodrigo Salazar. One more question, if I may. In the M and A front, are you still interested in the U. S? And have you seen clear any opportunities? We're most definitely thank you, Rodrigo. We're most definitely interested in the U. S. In general, organically and inorganically, we're very interested strategically to grow in the U. S. As the U. S. Is such a deep market and offers great opportunity for diversification for Otoplasm. And I'll let Mario compliment on the M and A strategy. Yes, it is a market of our interest. We are seeing very interesting dynamics in the U. S. And tailwinds as well. We at the end of last year, we do an in-depth analysis of the segments of our interest and we are reviewing opportunities to maybe grow inorganically. On top of that, recently, we as part of that study, we find out that there's a growing concern around tap water in the U. S. So that creates more opportunities to the businesses such as Bevia. So in a nutshell, yes, we are very interested in the U. S. To continue growing organically with our current set of products and services that we have. But also, if the right opportunity is presented to do it inorganically, we will consider it very thoroughly. Thank you both. Juan Fonsa is asking, what is the impact from the recently approved outsourcing bill and operating expenses? Hello, Juan, and thanks for joining us. I assume that you're referring to the Mexico outsourcing bill. Well, the effect is 0 because Rotaplas don't do outsourcing. So that's about it. Thank you. The next question is from Tomas Pindolasto. Can you provide us more color on U. S. Margin flight path? I believe the current margin in the U. S. Is below group. Do they have a timeline for when it reached or exceed group level? Thank you. In general, retail margins tend to be a little bit lower. And so for e commerce, I think margins will continue to improve, but they won't necessarily be reaching Grupo's margins in terms of retail. But in that business, we are adding additional services so that we better service our customers and provide a better user experience. So they will improve to the levels of group margins as we introduce these new offers to the U. S. Business. We are doing it first with septics. There is tremendous opportunity and traction with septics and we're very excited about that. And so maybe we can give you a little bit more color in the near future. Thank you, Charlie. The next question. You mentioned in the info splash that Riego increased its pipeline. But when are you thinking that Riego projects are going to be relevant in terms of sales, 3% to 5% of consolidated figures? It's a very new business for us, has great opportunity. And not only is the opportunity for demand very strong, but Rotorplaz has tremendous capability in servicing these customers from the capability of fuel services and our knowledge around water and our brand that we've developed over the years. So we do expect to be very successful here. On the other hand, Rotoplast, just our core business is growing at such accelerated rates that it takes time to grow at faster speed in volume of amount of dollars in relative terms. So I think it will take a little bit of time. I don't know, Matt, if you'd like to share any particular numbers, but while it's being a very successful business and we're seeing all of our hypothesis being validated, Fortunately, the rest of the business is also very healthy and growing very rapidly. Yes. And I think just a couple of items that sustains what Charlie mentioned. Water management in the ag business is crucial. And second, the food security component, not only from Mexico, but also for the U. S, it's also key. So if you put water management plus food security, it's a very promising business where just by the pipeline growth we are seeing, it might come at a positive surprise for the company. We have another question. It's also about Velia. Is it correct that Velia growth rate decelerated significantly in the quarter? Is this just base effect? Or is there something notable in the KPIs that caused you to take your foot off the pedal? Thanks. That's not correct. The growth rate continues to accelerate even, and we have allocated significant resources to Bevia, and we'll continue to do so. So we're far from taking the foot off the pedal. It's quite the opposite and we're very excited about that business in terms of its performance and where it's going. Maybe I misunderstood part of the question, Mario. Is there anything you'd like to add? No, probably we're displaying ourselves well and I'm sorry for that. What was the we grew 2.3 times quarter over quarter. So the growth is being an exponential, and I'm sorry about our confusing explanation. Okay. I think the last question is from Mariana Cruz. A follow-up question on the M and A front. Are you looking for opportunities in new products in Water Solutions, new regions? Or do you want to maintain your portfolio as it is today and only maybe to expand the business in the same regions you have presence today? In general, thank you very much for the question, Mariana, and thanks for joining. In general, we want to focus in the immediate future in the American continent in terms of regions. We participate in most of the continent. There's just a few countries we don't participate yet in that might be interesting, such as Colombia. But we are placing our focus and our resource allocation to the U. S. And North America mainly. In terms of how much we want to deviate from what we do, We're very clear that we just we do want to focus exclusively on water solutions, mainly the centralized water solution approach. And we do want to make sure that there are synergies with our capabilities, whether they may be brand or operational capabilities such as field services or manufacturing or regional operational capabilities such as our participation in the countries we already participate in. Anything you'd like to add, Mario? Yes. And I think that might bring a little bit color on your comments. When we started the transformation, one of the things that we analyzed was to understand better what are the markets where we participate adjusted by our portfolio? And we find out that we participate in a market worth around $50,000,000,000 annually. So if you take rotoplast, let's say $500,000,000 in sales, so we only have 1% of that market and it's a market it's growing probably around 5%, 6% annually. So really we have a lot to do in the countries where we are and with the products and services that we are offering. So that really was an moment for us to confirm that we need to maintain focus and discipline into the region and with the portfolio that we have. Obviously, we've been we will be complementing with additional products or services. But at the end, I think the potential is out there and we're in a good position to take a good part of it. Thank you, Mario. Thank you, both. We are running out of time. We have some other questions, but we will make sure that we will answer them after the webcast. So thank you for your time. Any comment or suggestion, please feel free to reach out. We will be more than happy to hear from you. Have a nice day, and see you next quarter. Thank you very much. Thanks for joining. We'll meet you in 3 months.