Grupo Rotoplas S.A.B. de C.V. (AGUA) Earnings Call Transcript & Summary

Good morning, and welcome to Grupo Rotoplas conference call. Please note that today's call is being recorded. [Operator Instructions] 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 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 Aboumrad, 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 very much for joining our call today. After a strong close in the last quarter of 2021, we have observed a very challenging beginning of the year. As January and February product sales volumes that are still the core business and the cash flow generating side of the business were affected by various effects. We have seen that people made most home repairs and renewals during the social distancing phase of the pandemic. Also, government subsidies to the population have been eliminated to reduce in some geographies , diminishing the disposable income, while families are prioritizing different [indiscernible] spending. For example, kids going back to school, traveling, eating out, et cetera. Additionally, in some countries and categories, when we announced December price increases, distributors decided to anticipate purchases and build up inventories, boosting last quarter sales and creating a hangover for the first quarter demand of 2022. The positive note is that March was in line with our budget, and we have seen an improvement in demand during April. During the quarter, we saw a strong performance of our operations in the United States of America, driven by the e-commerce platform and in Argentina. We have been able to protect margins with a natural pricing strategy. As for the services platform, it is still affected by 0 revenue water fountains business due to the impact in Mexico schools and a slow recovery in [indiscernible] water treatment and recycling plants on sales after new industrial and commercial projects were halted because of the pandemic uncertainties in Mexico. While in Brazil, a promising pipeline is developing given the recent changes in water legislation. Finally, bebbia maintained an accelerated growth, adding 8,000 new subscribers in the last 3 months. But given that it is a developing business, it does not offset the low revenues from the other divisions. 2021 was an inflationary year, and our price increase strategy played well to gain market share. However, as you can see this quarter, gross margin is just 110 basis points below the first quarter of last year, which was mainly impacted by lower fixed cost absorption related to the weakness in sales volumes and not necessarily price levels. The expansion of our e-commerce platform and the septic businesses in the U.S. and the accelerated growth pace in bebbia undertook significant investments and affected our margins, but will contribute to growth and profitability in the medium term. We need to keep close eye on expenses as they grew more than sales during the quarter, affecting the EBITDA margins that stood below guidance. It is my priority to correct them, adjust as necessary to recover the margins for the coming quarters. And for that, it is going to be crucial to control travel expenses and expenses related to face-to-face activities that had been suspended during the pandemic. To monitor spending allocated to developing businesses such as ACUANTIA in the United States, Sytesa Brazil as well as bebbia in Mexico. And continue to track our market share in addition to raw materials and logistics cost behavior in order to maintain a consistent pricing strategy and achieve a sharp balance between growth and profitability. We will also have to do our best to meet the demand and fulfill our purpose in regions with high water stress such as Nuevo León in Mexico. For example, in March, we have moved machinery to Monterrey plant in order to increase production capacity. Drought is a major issue going forward. In Mexico, it is estimated that over 50% of the country is currently experiencing a drought, because of La Niña, the metrological phenomenon, there are fewer clouds, heat waves and the seasonal rains are delayed. Monterrey, one of the country's biggest urban centers, is getting towards water rationing as 2 of the 3 dams that supply the city have run dry, and the metropolitan area has less than 60 days left of available water. Also, Mexico City has less than 2 years of water availability. In fact, according to the World Research Institute, water available per capita across the country has fallen to half of what it was 4 years ago to 4,000 cubic meters, which is considered low availability. Just thinking about the outlook of the coming years facing climate change effects in Latin America and the U.S. and the fact that water is linked to priority issues for maintaining such as energy, food security, health and hygiene, we continue to expand the vision of water digitization. Specifically, water digitization for Rotoplas means innovating through incorporate data and analytics in our products and services to bring about smarter and more efficient solutions for our customers. ACUANTIA in the U.S. and bebbia in Mexico, businesses in which we have heavily invested in the past 2 years showcase the potential impact of digitization for improving user experience. For instance, by merging our e-commerce operations with our septic's businesses, we have been able to reach a broader customer base in the U.S. And in bebbia, we have introduced online maintenance scheduling and instant messaging to communicate more quickly and accurately with customers. Although we have faced a tough quarter, March results showed us that expansion expenses related to developing businesses can be absorbed by the other divisions when the expected levels of sales is reached, keeping EBITDA margins above 16%. We continue to be on track towards our goal by doubling sales -- of doubling sales by 2025 and to create value by obtaining returns on invested capital greater than our cost of capital. We are working to ensure that our solutions and our operations are actually addressing the needs of our customers, our people and our communities. Flow, which started as a transformational program, it has now become the way we conduct our day-to-day business is going to be key for achieving our goals. We have launched more than 1,800 initiatives, 160 during this quarter. Moreover, by embracing this new way of doing things, our team has been able to overcome the severe disruption that has occurred. We continue to invest and find the technology we have and develop the necessary capabilities to build the Rotoplas of the future. I am confident that with the execution discipline and the alignment we have reached, we can overcome difficult situations. As a company that is committed to the best ESG principles and practices, we have both the ability and the responsibility to play a major role in helping to address the water crisis. Part of that is the innovation in the water solutions that I just mentioned. And the other part is ensuring that we do everything we can for our stakeholders. And to do that to that end, we have continued to make significant progress in the adoption of ESG frameworks. A detailed -- as detailed in our annual report, which will be published next week, I invite you to read the report to learn more about our performance and hope you find it interesting and informative. Thank you very much for your time. I'll now turn the call to Mario so he can go over the results in further detail. I look forward to your questions.

Thanks, Charlie. Good morning, everyone, and thanks for joining us this morning. Our quarterly result in some ways reflects new changes that all of us are experiencing now that the COVID pandemic is almost behind and a new normal is emerging. This was certainly a challenging quarter, but we believe that we have a clear path forward, and we maintain a firm commitment to contributing to value generation and the well-being of our stakeholders. A brief note about COVID and our operation status. This quarter, we carried operations without interruption. We continued to comply with the stricter safety and hygiene's protocol in our manufacturing operations and in the field. As to our financials, quarterly sales increased 9% year-over-year, driven by the double-digit growth in the United States of America and Argentina and a 3% increase in Mexico, which compensated for the sales decrease in the other segment that compromises Peru, Central America and Brazil. Sales of products grew 11% year-over-year. The first quarter of 2021 was a relative high watermark due to the effects of the pandemic by storing water, which we are no longer present this quarter as people start to switch their lifestyles, such as a relatively high rate of home repairs and renewals as well as subsidies and transfer to the population in some of our markets have [ seen ]. Nevertheless, we registered growth across all 3 comparables, storage, water flow and water treatment, driven by the pricing strategy we have been executing for the past few months and the droughts and heat waves in different regions in Latin America. Products, which are still our core business and represents 97% of our total sales, continued to compensate for lack of revenue in the water fountain businesses and the absence of traction in Sytesa water treatment plant business, both as a result of the pandemic as new industrial and commercial projects are delayed or temporarily suspended and schools due to not reactivate some programs yet. As Charlie pointed out, we expect that the accelerated growth rate of bebbia, our drinking water business and the growth of our e-commerce and septic business in the United States will increase its contribution to our growth in the medium term. Our gross margin decreased by 110 basis points as lower sales volumes in some markets resulted in a lower fixed cost absorption rate, in addition to the fact that we continue to face cost increases in raw materials and logistics when compared to last year's quarter. Our operating income decreased 27% year-over-year. This is partly related to the development of the e-commerce platform and the pre-operating expenses of the septic business in the U.S. as well as to higher expenses related to new users of bebbia in Mexico. Travel reactivation, on-site events and certain marketing strategies that were paused during the pandemic also contributed to the increase in expenses. Our operating expenses grew 21%, while sales only grew 9%. This resulted in a 12% EBITDA margin. It is important to note that we are no longer adjusting EBITDA to account for the expenses associated with the implementation of the Flow program. In the coming months, we will focus on the recovery of our margins by paying attention to these key aspects of the business. First, volume growth, both in legacy and new products. Second, as Charlie mentioned, expenses control. And third, we need to keep a close eye on raw materials and logistics costs. Now moving forward to our geographic breakdown. Sales in Mexico grew 3%. Product [indiscernible] grew single digit as we continue to adjust our pricing strategy and due to the drought in the Northern states of the country that we mentioned earlier offsetting service slow recovery. We remain focused on investing in our manufacturing technology in the country to ensure the sustainability of our operations and bring about the next generation of our solutions and keep Rotoplas leadership in innovation. Sales in Argentina grew 34% as we continue to execute an efficient pricing and commercial strategy that resulted in double-digit growth across all 3 product categories: storage, water flow and water heaters. We also completed the migration of our water heater production to a bigger and more modern facility. Sales in the United States grew 30% as we continued to expand our e-commerce and septic business there. It is worth noting that we opened a new store in North Carolina and now we have 15 units in the country. We have also increased our partnership with hardware stores and service providers, which has increased our customer reach and our ability to provide a comprehensive service. Sales in Central America decreased slightly, partly because some distributors built up inventories ahead of the December price increase. Sales in Peru increased as the government stopped the pandemic subsidies to families, affecting the population disposable income. Furthermore, spending priorities shifted as schools and back to normal life reopened. Finally, the water treatment business pipeline in Brazil continues to look very attractive, and we expect a significant positive effect from the new water regulatory framework in the country. In terms of our portfolio mix, sales of product were 97% of total sales, growing 11% year-to-year. Sales of services decreased 18%, despite the accelerated growth of bebbia because of the fact that we have already described before. Our cash conversion cycle increased by 26 days due to recent inventory to maintain operational stability as we continue to address supply chain disruptions as well as a decrease in accounts payable days due to a change in the purchasing mix. Our net debt-to-EBITDA ratio is 1.6x. It's worth noting that our debt position considers only a sustainable bond AGUA 17-2X, which as we have discussed in the previous quarter, MXN 4 billion has a maturity date as of June 2027 and was issued at an 8.65% fixed rate. Moving to the next slide. CapEx was 5% of total sales, amounting to MXN 129 million. This is in line with our 5-year business plan. The CapEx was directed towards improving our production and customer outreach. We are focused on investing to create the Rotoplas of the future. It is worth highlighting that the investment for new technology in Mexico is to ensure the sustainability of our manufacturing operations, reducing our energy and raw material use as well as that of our next generation of products. It is also focused on increasing and improving our drought production capacity. Our CapEx also includes investments in the digitalization of operations, including those that directly impact our customer reach and our users' experience. Our ROIC reached 13.1% at the end of March, 100 basis points above the cost of capital, which also increased 160 basis points in the past 12 months. Nevertheless, the creation of sustainable economic value is carried on in order to maintain a positive impact in our stakeholders. Charlie has already mentioned our progress in the adoption of the key ESG frameworks and the annual report, we will be publishing next week. As you can see in the heatmap, we are now in compliance with almost all of the major frameworks and methodologies and are working towards ensuring our alignment with science-based targets. This is a significant milestone for us as it help us ensure that our operations contribute to the well-being of our stakeholders. With this frameworks, we can communicate our performance in an effective and comparable way to all of our stakeholders. Additionally, it's also worth mentioning that during the quarter, we launched a pilot water, energy and sanitation project with Acciona, installing 25 water collection systems in an extreme poverty community in Oaxaca. We also installed 20 hand-wash stations in the largest market of Mexico City in alliance with the Red Cross. We held the first of 3 Diversity and Inclusion sessions with the leadership team and the entire company focused on tolerance, inclusion and gender equality. And finally, we defined the ESG evaluation framework for our suppliers. Now as to our guidance, while we had a challenging first quarter, we believe that the discipline and agility we have achieved with the Flow program will allow us to stay close to our annual goals. Therefore, we continue to expect revenue growth to come greater or equal to 15%. However, we will be adjusting our spread of return on invested capital over our cost of capital and the EBITDA margin by 100 basis points in both cases, leaving the ROIC minus WACC at a positive 100 basis point spread and the EBITDA margin at a range of 15.5% to 16.5%, while keeping our net debt-to-EBITDA ratio below 2x. We also remain on track and focus on achieving our 2025 objectives. There also will be a shareholders meeting on April 29, where we will propose a capital reimbursement in cash of $0.45 per share and the ratification of appointment of the members of the Board and the audit corporate practices and compensation committees. All details can be found in our website. Finally, before we open the floor to your questions, we would like to share with you that Apalache Analysis started coverage of AGUA this past March with a target price of MXN 39.40 and a buy recommendation. That's all for me now. Thank you very much for your time and attention. We look forward to your questions.

[Operator Instructions] The first question is from Liliana De Leon, GBM. And I have 3 questions. I will only read the first one and then I'll come back. Volumes recovered by the end of the quarter, given current water stress and heat waves. Do you think that volumes recovery will be enough to offset profitability pressures?

Hello, Liliana, thank you for joining, and thanks for your question. It is the part of the thesis of Rotoplas that water stress is going to be a driver for Rotoplas going forward. It's not the first time we see water stress driving results for Rotoplas. And we imagine it will continue to be the case, not only in Mexico, but in other countries. We're seeing water stress situations in other relevant markets, such as Brazil and even the U.S. It's not something that's only happening to developing countries with very undeveloped infrastructure, but also countries that are leading in many practices such as the U.S. We do think that the rest of the year, demand will be much stronger. Fortunately, for this call, we were able to see that recovery in March and in April. And April is -- demand is growing even further. So we're comfortable to think that it will offset a big part of the gap we generated in January and February. Now we do foresee some other surprises, macroeconomic surprises potentially happening this year. So hopefully, that does not affect demand, but we will keep a close eye to see how markets are affected by other potentially surprising events in the year. Mario, anything that you'd like to add?

No, I think you have said -- I will just probably add on that we have recently had some access to some research. And a lot of infrastructure problems, lack of investment in infrastructure in the water space will create further stress in the coming months and years.

And just -- by the way, in some of our bigger markets, such as Mexico, we have not seen significant spending infrastructure to make sure that this water stress will be corrected. We continue to see that the participation of individual homes and businesses will have to take responsibility in making sure that they have enough of this resource. So that really plays to -- an advantage to the decentralized water approach.

I'm going to read the next question. SG&A grew well below sales. Could you give us more color on what categories are growing faster? And if this trend is temporal or related to specific projects?

Do you want to, go ahead, Mario.

Yes, sure. I think the question was well above because it grew above sales, not below. Bebbia is below. But it is tied mainly to 3 projects, which is -- one is bebbia. As you all recall, adding up our acquiring customer in bebbia has a cost of around $200, and all that is flow into the P&L. As the business is expanding, and we added 8,000 new subscribers, that's a big component of the increase of SG&A. The second one is the septic business in the U.S. You might recall the [ product ] in U.S. for septic's, it's huge. We started to gain some traction. We are hiring a new team. We're very happy about the promising future of that business. But obviously, there are some pre-op expenses that we have to do early on to achieve that opportunity. So that's the second component to it. And the third one is inflation. Logistics, which is recorded at the SG&A level in Rotoplas, has experienced inflation from different fronts, energy prices and freights are affecting -- are being highly affected by inflation as well as other -- those 3 things. One, it's a macro thing that we are managing with the pricing and those are very interesting projects. And as they start to achieve a scale, obviously, now the expenses should become lower than an increase in sales. So that's the key 3 elements of expense expansion. I don't know, Charlie, do you want to add something else too?

No.

Okay. Well, the third question from Liliana was about the guidance. I think we already commented on that, but there's also some other analysts and people asking about the pricing strategy for this year. And is there still more room to increase prices?

So we will prioritize gross margins. And if needed, we will continue to increase prices. It will depend based on cost increases and inflation. And I think there's lots of variability today in those 2 factors. So we will be deciding on pricing in a natural way, agile way. I don't know, Mario, if you'd like to comment anything regarding pricing.

Just a complement to what you said. As you might recall, last year, the strategy was to gain market share, secure raw materials and do that, and we did that. This year is more about creating profitability on what we did last year. So as Charlie mentioned, we are very focused on gross margin targets. And that's going to be the name of the game throughout 2022. And then in terms of guidance, just to complement what we have said through our presentation, we adjusted a couple of items. One is the spread. As you all know, interest rates are coming up, the cost of capital is coming up, and we are seeing that in the WACC. And in the other hand, the first quarter was really very challenging as we have presented. So all in all, we believe that spread will still be positive, but now we are reducing that guidance to 100 basis points instead of 200 basis points. And then the EBITDA margin, we will reduce it as well by 100 basis points to a range of 15.5% to 16.5% and that's due mainly to the first quarter underperformance that nobody likes. There was another question around the EBITDA margin, what to expect in the next 3 quarters? We are targeting a range between 17% and 18%. That's what we're going to be seeing in the coming quarters. And when you add up the 12% of this quarter, and that performance in the next 3 quarters, that is -- that gives you the 15.5% to 16.5% range that we guided early on.

Thank you, Mario. We have another question from Carlos Alcaraz, Apalache Analysis. Do you expect a normalization in inventory days during the second quarter?

Mario?

I don't -- well, thanks, Carlos, for joining us this morning, and this is the [ first time you joined us as a new analyst that it's ] covering the story, and thank you very much for that. Well, we don't see that in the second quarter. It might happen in the second half because I don't know how much you follow the news, I'm sure you do. There -- we're having some struggles in Asia when COVID shutdowns and so on. So we're still seeing some volatility in supply chains. So as you know, our priority is to have products and services deliver, not lose market share and serve our end customers. So that's our priority. Having said that, we believe that you start to see some inventory reduction by the second half. If things get better worldwide in terms of supply chains, and that's something that we'll keep you posted on a quarterly basis.

The second question from Carlos, when do you expect the projects under construction in Brazil to start generating revenues?

That should start happening very soon, Carlos. Again, it's a very new business, so it will not necessarily offset the results of the first quarter for Mexico, but that should be happening in the next couple of quarters to start seeing the revenues. For Brazil, to actually generate an impact in the revenues of the company, it will take a longer period of time, I'd say, a few years. We will see the CapEx being deployed because that's the first step of these kind of projects. It's a process that takes about a year. Well, I mean, it takes a little bit longer to get the customer or about a year to get a customer, about a year to build the plant and then after that the plant starts generating revenues. Mario, maybe you want to like to comment?

Well, that's the cycle of the business. But just to complement, as we've been reporting, we have some plants under construction. And in second quarter, you will start to see the first revenue coming from those products that we started last year. As we mentioned briefly during our presentation, Brazil, they came out with a new legislation Law 14,026 which -- it targets that 99% of all the population in Brazil should be served with treated water and 90% of that population need to collect it and treat it. And that's from now -- well, from last year to 2033. The estimated investment because the government, what they did is everything is going to be done by private. The investment in the next 10 years, it's going to be somewhere around $100 billion. So that's creating a lot of tailwinds within the Brazilian market. The pipeline we are seeing there, it's been very interesting. And there's more pipeline in Brazil as a country than skills to supply the demand that we are seeing. So that tells you what we are seeing in Brazil at the macro level. And then at the micro level as a company, we are executing with a lot of energy and focus on the products we have in hand. Revenues are -- you're going to start seeing revenues some of it coming in the second quarter and then ramp up throughout the rest of the year. And probably, Mariana, it can be interesting to share with our investment community. This is public information about the changes in the Brazilian law, so everyone can take a look at what is happening in that market and why we are interested on building a nice business there.

Sure. We're going to share that. And we will be going to post it in our website. And then we have another question that comes from [indiscernible]. Could you share more details about what to expect in terms of cost pressure for the coming months?

Go ahead, Mario.

We started to see some declines, for example, in freights. Back in January last year, freights were at $1,400 from Asia to Mexico, then it went all the way up to $14,000. So that's like a 10x in less than 12 months. And then now they're coming back to $9,000. So we're starting to see that coming back in the energy side. Raw materials, we are starting to see flat, not that ramp up that we saw from February to October. But again, there's a lot of macro variables affecting the environment. On one side, you have the Ukraine-Russia story. On the other one, you have the shutdowns in Asia and so on. So as we mentioned, 1 of the 3 key elements is to keep a close eye on what happened to raw materials and freights and be very agile and proactive on price management, as Charlie explained.

The next question was from Lucila Gomez, Compass Group. Where it was also related to COGS and what to expect. So I'm going to move to the next question that is from Liliana De Leon, GBM. When do you expect to...

Very briefly to clarify. I think it would be just worth going over that question, Mariana.

Sure. I am going to read it. Do you expect the higher COGS that impacted our first quarter of '22 results and caused a significant EBITDA decrease and the margin to compress to 12% to continue these following quarters?

So Mario mentioned very quickly that we expect much higher margins of EBITDA going forward. I just wanted to clarify -- Lucila thanks for joining. The biggest reason was lower volumes in sales for January and February. The margins were impacted more because of the volumes, but we did have aggressive price increases in the second half of last year. So margins or prices in the first quarter were already at the level we would have wanted them for the level of cost that we were seeing. Mario, I don't know if you want to comment...

No.

Thank you Lucila.

Thank you, Charlie. So the next question is from Liliana De Leon, GBM. When do you expect the U.S. branch to be profitable? Or when should we expect those expenses to normalize?

Well, we had already seen that business in a level of being profitable in the last year. We have been investing very heavily in new business, which is the septic's business where we see tremendous opportunity. But I have to say that the retail business is a business that's more mature, and that is in profitability levels. So we would expect to see that business be very close to breakeven throughout the year as we will continue to leverage the retail business to develop the new business for much higher growth. The retail business is a business that has very interesting potential, but there is much larger opportunities such as septic's one. And so we want to continue to invest in these bigger opportunities as the U.S. today is just about [ 20% ] of our business today, and we want it to be much larger. So it is a market where we will continue to invest aggressively going forward. Mario, anything else that you'd like to complement?

Yes, and just to a couple of what you say, Charlie. By year-end, the target that we have today is to post a positive EBITDA in the United States. Right now, what we're seeing is, as Charlie mentioned, the e-commerce retail business that's being profitable. We are heavily investing in pre-op expenses in the septic side. The traction is good. The products are good, and the team in the U.S. expect to -- throughout the year, the septic's business will become breakeven. And in the other side, we'll stay with the retail e-commerce profitable. So by year-end, you will be seeing very interesting growth in revenue in the United States with a new business, which is the septic's, and a positive EBITDA by year-end.

We have another question. It's from Rodrigo Salazar, AM Advisors. Could you expand on CapEx uses for the year and the impact expected for each investment?

[ Margin ] impact [indiscernible] on CapEx. Anyway, I'll first answer and then Mario will complement. One of the biggest projects in which we're allocating CapEx is to evolve the capabilities of our water storage business in Mexico, which is one of our main businesses. And there's a great opportunity to innovate in that product. We have been investing in R&D for multiple years in planning, which is the best way to ensure the continuity of this business for the next decade. And we've identified opportunities in improving the product to new equipment. And so most of the CapEx has been allocated to that. We will continue to invest CapEx throughout the year in that project. And then the second biggest opportunity for CapEx going forward is going to be the wastewater treatment plants. In terms of returns, this return offer for, let's say, continuing to drive our return on invested capital north, north of where we are today at 13.1% and so that we can get to the 2025 goal of 200 basis points of weighted average cost [ backdrop ], Mario?

I think you just guide right, Charlie. Nothing to complement or add on to your explanation.

We have another question from [ Paulina Paris, Miranda Partners ]. Can you give us a little more color on the digitalization of water? What specific services could you offer? And do you have any specific goals for the medium term?

Let me answer first a little bit conceptual, and then we will go to more specific. In general, the approach that Rotoplas offers to solving for water scarcity is a decentralized approach. Decentralized meaning that we offer many solutions in terms of volume that are implemented in high quantities that are of small scale. This is very different to what the world has done in the biggest investments around water, which is centralized infrastructure. And we do this with the intention, not of substituting but of complementing the centralized infrastructure, which today has been proving to be not enough by a wide margin. When you want to do many solutions of small size, and we're talking about millions of units, you can benefit very much from digital technologies. So we're getting to millions of customers today with our products per year. In the manner that we leverage digital technologies, we will be able to service more and more users with our solutions in a platform play where we will be leveraging existing capabilities that are already out there, such as installation or plumbing capabilities or product capabilities. A lot of the products that we're implementing today in our new services such as bebbia or Sytesa are products that we do not manufacture. But we're just identifying which are the best solutions around the world, and we're being that platform that connects those solutions with the customer needs. In terms of the digitization, this platform plays a very relevant role to connect capabilities with the demand side in the most efficient way and to be able to do it at scale means millions of transactions per year. One of the things that we're doing more -- innovative things such as advanced analytics is in wastewater treatment and drinking water to understand better patterns to advise our customers in a better way in how we can optimize the use of this liquid so that they can do it in a more sustainable way and in a more economical way. And in a way, that's a better experience for these users. So Mario has been playing a very key role in this project. He is very passionate about it. So Mario, please go ahead.

Well, just to give some color on the examples and that part of what we're trying to achieve. But today, we are pulling bebbia units in homes. And we're doing manually and we service them without some information that we have from the client today. The idea, for example, for bebbia specific is to do some sensors in the unit, sensors now under a chip. Part of our investment in Banyan, that we did last December, which they are very well advanced on software and coding is to build up an app. And that app can be -- can give very valuable data and analytics information to the end consumer, but also to us, how to serve or how to do preemptive service. To the end consumer, he can know how many bottles of water he has saved, how much money he has saved, how many -- what's the carbon reduction in tons or kilograms per year by drinking bebbia water instead of bottled water and so on. So that's a use case of what we are designing in terms of water digitization. Another case in point, it's for our water tanks. As you know, we manufacture a lot of water tanks per year. Probably this information might not be relevant to more mature markets, but it is for the Latin American markets. Putting some sensors into the water tanks and tell the end consumer, what's -- how many liters they have left, if there's a leakage or not at home of water, what price bracket are they're consuming the water and so on. That's very valuable information to them. And to us, it's connecting directly with the end consumer and understanding where the water tank is located, what's the water performance and what is happening with the water relationship within that family and our product. And that's the kind of things that really keep us very passionate about the future of what it might be the water digitization. And given our big scale, we are in 14 different countries, we sell a lot of these products per year. We are accelerating the bebbia units. The amount of data that we might end up having can become very interesting for the future of the business. So that's kind of just a couple of the use cases of what the company is thinking and what's -- that is what we're trying to achieve with this idea of water digitization.

We have a question from David Simon of Citi. Thank you for the additional on bebbia disclosure. If you are now comfortable accelerating the acquisition of new subscribers, suggesting metrics have stabilized, are you potentially planning more comprehensive disclosure about bebbia metrics?

Do you want to take a first [ line ], Mario?

David, probably you might hear us sharing a laugh, and we were precisely discussing this yesterday. We've been discussing this with the Board. And Charlie, please help [indiscernible] on that because we really -- I really -- yesterday conversation around that.

Let me be very frank about this. We understand, we appreciate how much this would help you in understanding the potential future value of the business. On one hand, we are one of the first players in this space for water-as-a-service subscription model. And we want to continue to have for the very short term confidential information still confidential to protect that business and being -- having this first players advantage in terms of competitive environment. On the other hand, I understand how difficult it is to understand this business with a mix of another services business which has not generated booking and has not driven sales, which is wastewater treatment plants and water fountains or water fountains even decrease in revenues. So I would ask, in general, the investor community to bear with us. We understand the need that you have for clarity on this information. We want to get to that point, but we also want to make sure that we generate the biggest potential success for this business going forward. Mario?

No, no, I think you said it perfectly. Nothing to add really.

Sure. Actually, he just mentioned, thank you both. That is perfectly reasonable. And I think the last question because of time, and I will get back then to [ Rodrigo Alonso ] for the M&A strategy, but I can tell you that it hasn't changed from the past quarter. But I'm going to read last question. It's from Mariana Cruz, BTG Pactual. I would like to know what are your expectations in terms of volumes and pricing for the Central America and Peru markets for the second half of 2022?

Mariana, thanks for joining us. So in terms of pricing, it's very similar throughout all our products markets. Both Peru and Central America are mainly driven by products. And in those businesses, we will be agile in pricing, and we will be prioritizing on gross margins. In terms of volumes, it is slightly different even throughout Central America, which country has their own strategy. Peru was one of the countries where we had support from the government and has been coming down. So that is affecting volumes. So in terms of what we see for volumes going forward is different for Central America and Peru. We saw shrinkage in terms of demand throughout the first 2 months. But similarly to the rest of our countries, we saw a much better performance in terms of volume in March and in April. So we expect volumes to become stronger throughout the year. These are other countries where we are also facing water shortages and water stress. Mario, any more specific information you'd like to give?

No, I think that's pretty much the same situation as Mexico, as Charlie commented. And again, we will be very focused on our gross margin achievement. And that's going to be the name of story going forward.

Thank you, everyone, for joining.

Yes. Thank you, guys, and have a nice day. We'll keep you posted until next quarter.

Thank you very much to all, and thanks for joining us this morning. Have a great one.