Fluidra SA

MAD:FDR

Earnings Call Transcript 2021-Q4

[Abrupt Start]

[David Herrerías]

...and

welcome

to

Fluidra's

2021

Full-Year

Results

Presentation.

I'm

David

Herrerías,

Investor

Relations,

Corporate

Communications,

and

M&A

Director

at

Fluidra.

Today's

presenters

will

be

Mr.

Eloi

Planes,

our

Executive

Chairman;

Mr.

Bruce

Brooks,

our

CEO;

and

Mr.

Xavier

Tintoré,

our

CFTO.

You

can

follow

this

presentation

in

its

original

English

version

or

in

Spanish.

You

can

select

your

preferred

option

in

the

dropdown

menu

at

the

bottom

right

of

your

screen.

The

presentation

will

include

live

Q&A.

By

accessing

the

Ask

a

Question

tab

on

your

screen,

you

will

find

the

telephone

numbers

and

PIN

codes

needed

to

ask

questions

to

management.

Please

feel

free

to

dial

in

during

the

presentation

so

the

operator

can

include

you

in

the

Q&A

roster.

Presentation

materials

are

accessible

through

our

website,

fluidram.com,

and

they

have

also

been

uploaded

premarket

open

to

the

CNMV.

The

replay

of

today's

presentation

will

be

made

available

on

our

website

shortly

after

we

finish.

Let

us

start

the

presentation

by

opening

the

floor

to

our

Executive

Chairman,

Mr.

Eloi

Planes.

[Eloy Planes Corts, Executive Chairman, Fluidra SA]

Thank

you,

David.

Good

morning

to

everyone

on

the

call

and

thank

you

for

joining

us

for

this

full-year

results

presentation.

It

is

really

strange

to

communicate

in

a

day

like

today.

I

would

like

to

start

by

saying

that

our

thoughts

are

with

the

millions

of

people

facing

the

terrible

situation

in

Ukraine.

We

hope

the

situation

improves

soon.

Acknowledging

this

tragedy,

I

will

now

turn

to

our

results.

I'm

very

proud

to

present

the

results

of

this

extraordinary

year.

I'm

going

to

start

with

a

big

thank

you

to

our

team

for

the

effort

and

fantastic

execution

and

to

our

clients

for

their

trust.

During

2021,

we

confirm

quarter-after-quarter

our

positive

views

for

the

company

and

for

the

sector.

We

can

now

say

that

the

fourth

quarter

finished

off

a

record

year,

and

the

fundamentals

of

the

business

remain

very

strong.

Let

me

share

some

comments

on

today's

results

before

Bruce

and

Xavier

dive

deeper

into

the

figures.

As

we

have

shared

in

our

previous

presentations,

the

growing

importance

of

outdoor

living

has

generated

new

demand

for

pools

and

for

pool

products.

We

are

delivering

record

numbers

on

the

full

year

with

all

our

strategic

plan

targets

delivered

one

year

in

advance. As

we

said

last

year,

our

focus

was

to

service the

extraordinary

demand

from

our

customers.

Our

successful

results

prove

that

we

have

been

resilient

and

flexible

supporting

our

customers

in

the

challenging

environment.

And

despite

the

growing

inflation,

we

have

been

able

to

increase

our

gross

margins.

This

is

an

industry

that

takes

price,

and

we

are

confident

in

our

pricing

capability

to

protect

our

margins

in

the

medium

term.

On

top

of

that,

our

operating

leverage

has

allowed

us

to

generate

more

than

350

basis

points

of

EBITA

margin

expansion.

This

is

a

fantastic

achievement.

At

the

same

time,

we

are

leveraging

our

strong

cash

generation

with

value

accretive

investments.

We

have

been

very

active

on

M&A,

closing

five

acquisitions

this

past

year,

four

of

them

in

the

US.

In

addition,

to

M&A,

we

continue

with

our

increasing

shareholder

remuneration

with

an

attractive

dividend

payment

of

€78

million,

90%

higher

than

in

2020.

To

finish

with

numbers,

I

would

like

to

highlight

our

22%

returns

on

capital,

a

very

important

metric

as

it

shows

our

ability

to

generate

value

to

our

shareholders.

Let

me now

finish

with

the

appointment

of

Mrs.

Barbara

Borra

as

a

new

Independent Director

of

our

board,

effective

in

December

last

year.

She

replaced

Martín

Ariel

from

Rhône

Capital.

Barbara

brings

35

years

of

international

experience,

and

has

already

proven

to

be

a

fantastic

addition

to the

board.

Let's

move

to

page

5,

before

I

leave

the

floor

to Bruce.

I

would

like

to

take

a

couple

of

minutes

to

look

back

to

2018

and

the

merger

with

Zodiac.

We

all

knew

the

combination

had

tremendous

strategic

rationale,

and

we

share

with

you

an

ambitious

strategic

plan

for

the

period

2018

to

2022

with

significant

value

creation

opportunities.

Today,

we

can

comfortably

say

that

the

merger

was

a

success

from

all

angles,

culturally,

operationally,

and

financially.

We

have

created

a

global

sector

leader

that

has

navigated

this

complicated

period

exceptionally

well,

and

outperformed all

the 2022

targets

one

year

in advance.

And

more

importantly,

we

have

a

bright

future

ahead

of

us.

Bruce

will

give

you

more

details,

but

I

can

advance

that

we

are

looking

at

another

strong

year

with

more

organic

and

inorganic

growth,

margin

expansion

and

value

creation

for

our

shareholders.

At

this

point,

I

give

the

floor

to

Bruce,

our

CEO,

who,

along

with

our

Chief

Financial

and

Transformation

Officer,

Xavier,

will

provide

a

deeper

look

at

the

2021

numbers.

[Bruce W. Brooks, Chief Executive Officer & Director, Fluidra SA]

Gracias,

Eloi.

Let

me

start

with

comments

on

our

overall

performance

and

highlights

for

the

full

year

period

of

2021,

and

then

turn

it

over

to

Xavier,

our

CFTO

to

provide

more

details

on

the

financial

results.

I

will

then

return

to

provide

some

color

on

our

outlook.

The

numbers

you

see

on

slide

six

are

the

2020

and

2021

financial

highlights

for

January

through

December.

In

the

full-year

period

of

2021

sales

grew

36%

adjusted

for

currency

and

perimeter

compared

to

the

same

period

of

2020

to

€2.187

billion.

This

sustained

growth

was

driven

by

the

continued

demand

momentum

in

residential

pools.

Adjusted

for

currency

and

perimeter,

EBITDA

and

EBITA

grew

75%

and

89%

to

€549

million

and

€482

million,

respectively.

Both

measures

showed

excellent

operating

leverage

despite

the

accelerated

inflationary

pressures

in

the

back

half

of

the

year.

Cash

earnings

per

share

grew

an

outstanding

111%

adjusted

for

currency

and

perimeter

to

€1.72

per

share.

As

a

reminder,

in

2021,

we

have

delivered

a

90%

dividend

increase

with

a

payout

of

€0.40

per

share

as

part

of

our

approximately

50%

cash

net

profit

distribution

policy.

On

operating

net

working

capital,

we

ended

the

period

well,

only

19%

higher

on

a

currency

and

perimeter

adjusted

basis.

The

operating

net

working

capital

ratio

to

sales

increased

only

54

basis

points

to

15.6%,

principally

due

to

acquisitions.

Our

net

debt

stands

at

€1.067

billion.

Our

leverage

ratio

remains

below

our

2

times

target

despite

significant

inorganic

activity

and

the

larger

dividends

paid.

Moving

to

page

7,

let

me

share

some

highlights

for

the

quarter.

As

for

business

performance,

fundamentals

remain

strong

with

a

record

quarter

to

finish

the

year.

We

have

achieved

six

quarters

in

a

row

with

double-digit

growth,

confirming

the

step

change

in

the

industry.

Over the

last

18

months,

we

have

lifted

our

capacity

by

greater

than

70%,

by

increasing

the

number

of shifts,

investing

in

tooling

and

equipment,

while

leveraging

our

existing

manufacturing

footprint.

We

see

another

30%-plus

increase

coming

online

over

the

course

of

2022,

principally

in

the

US

where

we

face

our

largest

backlog.

The

supply

base

has

also

been

reinforcing

their

capacity,

which

should

give

us

better

flow

of

components,

enabling

us

to

take

advantage

of

our

expanding

capacity.

However,

in

the

short

term,

we

are

still

operating

in

a

supply

challenged

environment

as

we

continue

to

face

strong

demand,

combined

with

shortage

of

some

components,

price

volatility

on

raw

materials

and

transportation

issues.

We

have seen

some

improvement

from

the

peak

in

October

and November,

but

it's

still

difficult,

especially

in

North

America.

We're

very

proud

of

our

supply

chain

team

and

how

they

continue

to

deliver.

We

implemented

a

mid-single

digit

plus

price

increase

October

1,

to

protect

our

P&L

in

2022,

as

we

continue

to

experience

inflationary

pressures

on

shipping,

raw

materials,

and

some

components.

This

is

on

top

of

the

two

in

price

increases

over

the

last

year-and-a-half,

when

at

the

beginning

of

last

season

and

another

one

in

season.

As

you

all

know,

this

is

an

extraordinary

situation.

However,

as

we

operate

in

an

industry

that

takes

price,

we've

been

able

to

protect

and

expand

our

gross

margins

in

2021,

and

we

will

continue

to

do

this

as

we

look

forward.

Let's

move

to

capital

allocation.

We

paid

the

second

half

of

the

€0.40

dividend

per

share

in

November

2021,

which

in

total

represented

a

90%

increase

from

last

year.

Earnings

growth

and

cash

generation

continues

to

support

increasing

shareholders

remuneration.

Based

on

our

2021

cash

EPS,

and

keeping

our

50%

payout

policy,

our

dividends

for

2022

will

increase

by

100%.

On

the

M&A

front,

we

acquired

Taylor

Water

Technologies,

a

leading

US-based

manufacturer

of

water-testing

solutions

for

$78

million

in

November

2021.

This

has

been

an

extraordinary

year

for

M&A.

We've

completed

five

deals

in

2021,

four

of

them

in

the

US

for

an

aggregate

investment

of

€494

million.

We're

happy

to

share

that

these

acquisitions

are

performing

ahead

of

plan.

We

continue

to

monitor

the

market

for

additional

accretive

M&A

opportunities,

and

the

pipeline

remains

strong.

Finally,

yet

importantly,

we

are

focused

on

our

ESG

journey

as

it

is

a

key

part

of

our

values.

As

we

recently

shared,

we

refinanced

our

debt

in

January

2022,

thus

simplifying

the

debt

structure,

extending

maturities

and

rebalancing

the

currency

mix.

Terms

are

linked

to

some

of

the

environmental

targets

of

the

Responsibility

Blueprint

plan,

which

reinforces

our

commitment

to

ESG.

Moreover,

we

approved

the

new

Diversity,

Equity

and

Inclusion

policy,

as

well

as

launched

the

Embracing

Diversity

strategy,

which

spans

from

2021

to

2025.

Lastly,

in

terms

of

ESG

rating,

we

are

proud

of

the

CDP's

rating

improvement,

moving

from

C

to

B minus,

and

reflecting

our

commitment

to

sustainable

practices.

Turning

now

to

page

8,

you

see

the

sales

evolution

by

geography.

During

Q4,

global

sales

grew

19%

to

€483

million

on

a

constant

FX

and

perimeter,

on

top

of

17%

growth

of

Q4

2020.

In

the

full-year

period,

sales

grew

an impressive

36%

versus

2020

when

adjusted

for

currency

and

perimeter.

Southern

Europe

saw

an

excellent

performance

in

the

quarter

across

all

regions

led

by

France,

with

currency

and

perimeter-adjusted

growth

of

26%

in

Q4

and

31%

in

this

12-month

period.

The

rest

of

Europe

continued

to

deliver

strong

results

with

constant

FX

and

perimeter-adjusted

growth

of

23%

in

Q4,

driven

by

outstanding

performance

in

Germany

and

Eastern

Europe.

This

region

had

the

toughest

comparable

with

24%

growth

delivered

in

Q4

2020.

In

the

12-month

period,

this

area

saw

adjusted

growth

of

31%.

North

America

continued

its

growth

momentum

with

sales

up

22%

and

56%

on

an

adjusted

basis

for

the

quarter

and

the

12-month

period,

respectively.

The

positive

demographic

trends

driving

excellent

sell-through

along

with

inorganic

activity

drove

the

evolution

in

this

key

region.

Acquisitions

represented

about

€160

million

of

sales,

whereas

the

Texas

freeze

one-off

accounted

for

some

€40

million.

Rest

of

the

world

grew

6%

for

the

quarter

and

15%

for

the

full-year

period

on

a

currency

and

perimeter-adjusted

basis.

This

area

is

supported

by

the

solid

performance

of

Australia.

This

overall

performance

demonstrates

the

continued

growth

and

strength

of

our

markets'

fundamentals.

Next,

on

page

9,

we

see

the

evolution

by

business

unit.

Residential

Pool

is

our

largest

segment

and

accounted

for

75%

of

Q4

sales,

growing

close

to

46%

for

the

quarter,

supported

by

a

continued

robust

demand

and

M&A

activity.

Growth

was

led

by

filters,

pumps,

automatic

cleaners,

and

heaters.

This

segment

is

up

55%

for

the

full-year

period.

Commercial

Pool

recovered

well

in

the

quarter

on

an

easy

comparable

with

a

28%

increase,

helped

by

inorganic

activity.

This

business

unit

saw

a

23%

growth

in the

12-month

period

compared

to

the

same

period

of

last

year.

We

have now

recovered

above

pre-pandemic

figures,

reinforced

with

the

acquisitions,

and

positioning

us

well

for

further

growth.

Pool

Water

Treatment

grew

26%

for

the

quarter.

This

business

unit

saw

strong

performance

of

the

Water

Care

Equipment

segment,

along

with

the

good

evolution

of

Chemicals.

The

segment

is

up

27%

for

the

12-month

period.

The

Fluid

Handling

business

reached

double-digit

growth

of

19%

in

Q4.

On

a

full-year

basis,

this

business

unit

grew

32%.

In

summary,

our

global

footprint

continues

to

play

an

integral

role

in

helping

us

deliver

a strong

growth,

together

with

excellent

cash

generation.

Again,

I

want

to thank

our

talented

team

of

more

than

7,000

employees

and

business

partners

for

their

agility,

positivity

and

sacrifices during

these challenging

times. Moving

at full

speed, keeping

our customers

and values

at

the center

of

all

we

do

makes

me

confident

that

we're

ready

to

continue

executing

the

many

opportunities

that

lay

ahead

of

us.

With

that,

I'll

turn

it

over

to

Xavier

to

explain

the

financial

results

in

more

detail

before

I

return

to

share

our

outlook

and

guidance.

[Xavier Tintoré Segura]

Thank

you,

Bruce.

Let's

turn

to

page

10

now.

In

order

to

provide

you

with

a

consistent

view

of

the

performance

of

the

business,

the

profit

and

loss

account

in

this

page

excludes

non-recurring

expense

in

the

cost

of

goods

sold

and

OpEx

lines.

Below

EBITDA,

you

have

the

non-recurring

charges

identified

in

one

caption.

In

addition,

in

the

appendix,

you

have

the

reported

P&L

with

all

the

non-recurring

expense

properly

classified

by

nature.

Let's

get

started.

Sales

growth

of

47%,

that

is

36%

adjusted

for

currency

and

perimeter,

with

all

geographies

performing

nicely.

Gross

margin

reached

53.1%,

20

basis

points

higher

than

prior

year,

driven

by

price

and

positive

impact

of

value

initiatives

and

synergies,

partially

offset

by

commodity

and

freight

inflation,

country

and

product

mix.

We

have

seen

an

acceleration

of

inflation

impacting

the

quarter

as

we

have

delivered

mainly

orders

which

did

not

have

the

revised

pricing

yet.

We

expect

this

pressure

to

continue

in

Q1,

but

we

are

confident

on

our

pricing

capacity

over

the

long

haul.

Operating

expenses

of

€613

million

with

an

increase

of

32%,

which

is

20%

if

we

adjust

for

perimeter,

showing

great

operating

leverage

comparing

to

a

low

base

in

2020

as

we

had

implemented

COVID-19

expense

reduction

programs.

Provision

for

bad

debt

is

almost

zero,

showing

the

good

industry

situation

around

the

globe.

EBITDA

reached

a

record

€549

million

with

an

increase

of

71%

driven

by

the

higher

sales

volume,

margin

gains

and

excellent

operating

leverage.

EBITDA

margin

reached

25.1%

with

an

improvement

of

350

basis

points.

EBITDA

reached

€482

million,

also

showing

great

leverage,

increasing

by

84%

and

reaching

a

margin

of

22.1%.

Below

the

EBITDA

line,

the

amortization,

which

is

associated

to

M&A,

decreases

3%

despite

incorporating

the

intangible

asset

amortization

of

all

the

new

acquisitions.

Nonrecurring

expense

of

€42.5

million

showed

a

significant

increase

as

we

have

booked

€26.5

million

of

stock-based

compensation,

including

a

catch-up

adjustment

to

reflect

the

overperformance

of

the

company

versus

the

plan.

In

addition,

there

are

almost €16

million

related

to

M&A

activity

that

includes

the

CMP,

Built

Right,

Zen

and

Splash,

S.R.

Smith

and

Taylor

Water

Technology

deals.

Net

financial

result

is

€44

million,

almost

flat

to

2020.

Tax

rate

for

this

12-month

period

is

24%

due

to

a

tax

benefit

in

the

US,

associated

to

the

Zodiac

merger

that

we

have

been

able

to

apply

in

Q2.

This

is

a

one-off

positive

impact

in

2021.

From

here

onwards,

we

should

return

to

a

normal

tax

rate

between

27%

and

28%.

As

a

result

of

higher

volumes

and

margins,

great

operating

leverage,

and

lower

tax

rate,

net

income

reaches

a

record

€252

million

compared

to

€96

million

in

2020.

As

you

know,

we

track

cash

net

profit,

a

good

indicator

for

Fluidra,

as

we

have

a very

significant

amortization

entirely

purchase

accounting

related

that

impacts

our

net

profit

and

EPS

calculation.

Cash

net

profit

also

reaches

a

record

amount

of

€337

million,

with

more

than

100%

increase

over

2020.

Page

11

shows

the

evolution

of

net

working

capital

for

the

group.

Operating

net

working

capital

reached

€341

million,

and

includes

€69

million

of

acquisitions,

which

is

mainly

driven

by

the

incorporation

of

CMP

and

S.R.

Smith.

It

represents 15.6%

of

sales,

50

basis

points

higher

to

prior

year,

which

is

entirely

linked

to

the

acquisitions.

As

if

we

look

at

it

on

a

pro

forma

basis,

the

ratio

would

be

below

15%.

On

inventories,

the

76%

growth

over

2020

is

impacted

by

acquisitions,

with

a

26%

of

growth.

And

then

inflation,

higher

in

transit

due

to

supply

chain

issues

and

investments

for

the

increased

level

of

activity

in

this

supply

challenge

environment.

Excellent

performance

of

account

receivable,

driven

by

a

better

geographical

mix

and

good

collection

patterns

around

the

world.

Accounts

payable

increase

can

be

split

in

23

points

organic

and

11

points

inorganic.

The

increased

level

of

activity

drives

this

organic

growth.

The

following

page

shows

the

free

cash

flow

statement

as

well

as

the

net

debt

evolution.

Excellent

performance

in

terms

of

operating

cash

flow,

reaching

€50

million more

than

in

2020,

driven

by

better

results,

lower

interest

paid,

offset

by

investment

on

inventories

and

higher

income

tax

paid.

On

the

investment

section,

there

are

a

few

significant

changes.

We

have

completed

the

acquisitions

of

CMP,

Built

Right,

Zen

and

Splash

brands,

S.R.

Smith,

and

Taylor

Water

Technologies

for

a

total

of

almost

€500 million.

We

have

also

invested

€86

million

in

the

acquisition

of

Treasury

stock.

In

addition

it

is

important

to

highlight

the

increase

in

shareholder

remuneration

with

dividends

reaching

€78

million,

which

represents

an

increase

of

90%

in

dividend

per

share.

Even

with

all

this

activity,

we

finished

the

year

with

a

net

debt

of

€1.67

billion

and

a

leverage

ratio

of

1.9

times.

So

in

summary,

record

financials

for

an

outstanding

2021.

Before

I

turn

the

call

back

to

Bruce,

I

would

like

to

briefly

comment

on

the

debt

refinancing

that

we

have

successfully

completed

in

January.

The

process

was

neutral

from

a

leverage

point

of

view.

We

were

looking

for

extending

maturities

and

locking

interest

rates,

while

adjusting

the

currency

mix

to

our

current

EBITDA

generation

in

US

dollar

and

euro.

We

have

successfully

raised

a

term

loan

B

with

tenure

to

2029 with

two

tranches,

one

of

$750

million

and

a

margin

of

200

basis

points,

and

the

other

of

€450

million

at

the

margin

of

225

basis

points.

At

the

same

time,

we

have

simplified

the

structure

of

the

net

working

capital

financing

facilities

by

upsizing

the

RCF

to

€450

million,

and

extending

its

tenure

to

2027

and

cancelling

the

AVL,

which

was

due

in

2023.

All

this

refinancing

activity

carries

a

non-cash

write

off

of

€12

million.

We

are

now

well

structured

to

execute

our

plans.

And

with

that,

I

will

give

the

floor

to

Bruce

and

Eloi

for

the

closing.

[Bruce W. Brooks, Chief Executive Officer & Director, Fluidra SA]

Thank

you,

Xavier.

Moving

on

to

page

13.

Let's

talk

about

our

outlook

and

specific

guidance.

As

discussed

in

today's

call,

we

saw

a

superb

finish

to

2021,

and

we

remain

positive

for

2022

and

beyond.

Sales

and

sell

through

data

for

January

and

February

suggest

demand

remains

strong.

Momentum

continues

for

new

builds.

Builders

backlog

stretches

through

the

summer

season

with

pent-up

demand

from

2021.

The

aftermarket

remains

strong

driven

by

average

ticket

increase

from

higher

end

products

like

variable

speed

pumps

and

connectivity,

along

with

material

price

increases

to

offset

inflation.

In

addition,

we

continue

to

see

recovery

in

commercial

pool.

We

still

face

some

supply

challenges

mainly

in

North

America

that

are

affecting

our

ability

to

ship

to

our

clients,

increasing

our

backlog

in

the

US,

and

delaying

the

read-through

of

our

new

pricing.

That

delay,

together

with

continued

inflationary

pressures,

will

have

an

impact

on

the

first

half

margins.

In

2021,

we

increased

price

early

in

the

season

before

inflation

kicked

in,

building

a

buffer

that

will

now

play

as

a

difficult

comp

in

2022.

This

will

be

fully

offset

over

the

year

with

our

recently

announced

first

half

price

increase

and

the

full

read-through

of

the

October

2021

increase.

We're

happy

to

share

that

the

integration

of

our

recent

acquisitions

is

on

track.

We

continue

to

monitor

the

market

for

additional

accretive

M&A

opportunities

and

the

pipeline

remains

strong.

Finally,

our

growing

profitability

and

cash

generation

capacity

enables

us

to

keep

increasing

our

shareholders'

remuneration.

In

summary,

2022

will

be

another

strong

year

for

Fluidra.

We

anticipate

sales

growth

from

12%

to

17%.

These

growth

rates

already

include

run

rate

M&A

from

2021,

which

contributes

mid single-digit.

Secondly,

we

estimate

a

mid

to

high single-digit

price

read-through.

Thirdly,

we

see

volume

growth

for

the

full

year

from

new

construction

and

the

continuous

expansion

of

the

aftermarket.

Lastly,

we

adjust

for

the

one-off

impact

of

the

Texas

freeze

from

last

year.

EBIDTA

margin

higher

than

25.5%.

We're

committed

to

deliver

margin

expansion

geared

towards

the

second

half

of

the

year,

largely

driven

by

value

improvement

and

lean

while

we

begin

to

look

at

longer-term

opportunities

to

simplify

the

company.

Cash

EPS

growth

between

10%

and

16%,

driven

by

a

return

to

normalized

28%

tax

rate

after

the

Zodiac-merger

related

tax

benefits.

Additionally,

it's

important

to

point

out

that

this

guidance

should

be

taken

with

following

assumptions.

We

are

assuming

no

additional

major

disruptions

in

the

supply

chain,

inflation

decelerates

on

a

difficult

comparable

in

the

second

half,

current

FX

rates.

Although

Russia

and

Ukraine

represent

less

than

1%

of

our

sales,

the

picture

is

not

clear

yet

on

what

impact

this

tragedy

will

have

on

Europe

or

even

the

global

economy.

Therefore,

we're

not

incorporating

the

potential

impact

of

the

recent

macro

political

crisis

into

our

guidance.

Hopefully,

we

can

get

back

to

peaceful

diplomacy

quickly.

Our

highly

cash-generative

business

will

see

us

continue

with

our

policy

of

accretive

capital

allocation.

We

see

ourselves

as

market

consolidators

through

a

disciplined

process

that

delivers

value

on

the

capital

employed.

Now,

back

to

the

Chairman

to

wrap

up

the

prepared

remarks

before

moving

to

Q&A.

[Eloy Planes Corts, Executive Chairman, Fluidra SA]

Thank

you,

Bruce.

Thank

you,

Xavier.

As

you

have

seen

from

today's

presentation,

2021

has

been

a

fantastic

year

across

all

regions.

Excellent

results

that

came

with

extraordinary

efforts

from

our

team

to

service

our

clients.

Looking

at

2022,

the

terrible

situation

in

Ukraine

creates

uncertainty

that

is

too

early

to

predict.

We

will

monitor

the

situation

closely.

As

Bruce said,

hopefully,

we

get

back

to

a

peaceful

diplomacy

soon.

Operationally,

we

face

2022 with

a

strong

confidence.

Every

demand,

our

customers

backlog, our

price

increases

and

the

run

rate

of

M&A

all-in

give

us

a

solid

foundation.

We

are

expecting

another

strong

year

for

Fluidra.

And

more importantly,

our

fundamentals

remain

strong.

The

larger

number

of

installed

pools

will

generate

value

in

the

aftermarket

over

the

next

few

years.

In

addition,

those

pools

have

more

and

more

connectivity

and

sustainable

products,

increasing

the

average

ticket.

New

construction

is

running

at

healthy

levels,

and

there is

a

pent-up

demand

for

remodel

that

hasn't

been

serviced

recently.

Looking

at

the

medium

term,

we

are

still

convinced

we

have

opportunities

to

simplify

and

improve

the

company's

efficiency.

All

in,

our

strategy

and

investment

thesis

remain

unchanged.

We

are

the

global

leader

in

an

attractive

market

with

structural

growth.

We

are

reinforcing

our

global

leadership

position

with

market

share

gains

and

bolt-on

acquisitions.

We

drive

our

business

through

our

customer-focused

platform,

leading

the

field

in

IoT

and

connectivity,

where

we

are

investing

for

the

future,

reinforcing

our

ESG

range

of

products,

making

the

efficiency

and

the

sustainability

the

anchor

of

our

activity.

We

have

a

healthy

balance

sheet

and

growing

profitability.

We

plan

to

continue

our

margin

expansion

and

a

strong

cash

conversion.

Our

strong

and

solid

growth,

combined

with

margin

expansion

and

value-accretive

investment,

including

potential

M&A,

deliver

attractive

return

on

capital.

Thank

you

for

joining

us

today

and

for

your

continued

interest.

Now,

I

will

turn

the

call

back

over

to

David

to

begin

our

Q&A

session.

[David Herrerías]

Many

thanks,

Eloi,

Bruce,

Xavier

for

your

presentation.

We

will

now

begin

the

Q&A

session.

Let

me

remind

you

that

you

will

be

able

to

ask

questions

to

management

by

calling

the

telephone

numbers

on

the

Ask

a

Question

tab

of

your

screen.

Operator,

please

go

ahead

with

the

first

question.

[Operator]

Thank

you.

[Operator Instructions]



Our

first

question

comes

from

George

Featherstone

with

Bank

of

America.

George,

the

line

is

yours.

[George Featherstone, Analyst, Bank of America Merrill Lynch]

Hi.

Morning,

everyone.

I'd

like

to

start,

if

I

can,

with

a

couple

of

questions

around

the

guidance.

Looking

at

the

revenue

guidance,

the

upper

and

lower

end

of

the

ranges

suggest

there's

some

back-of-the-envelope

calculations.

At

the lower

end,

you're

expecting

low-single-digit

volume

growth,

and at

the

upper

end,

more

like

mid-single-digit.

I'd

just

like

to,

firstly,

understand

if

that's

right

in

terms

of

what

you're

assuming

and

that's

how

we

should

understand

it.

And

then,

within

the

volume

growth

assumptions,

can

you

give

a

little

bit

more

color

on

what

the

primary

drivers

are

in

terms

of

what

you're

expecting

specifically

from

new

construction

versus

the

aftermarket

and

also

by

the

different

regions?

Thanks.

[Bruce W. Brooks, Chief Executive Officer & Director, Fluidra SA]

Okay.

Thanks,

George.

I

guess,

as

far

as

the

volume

growth,

I

mean,

you're

reading

the

tea

leaves

correctly,

I

think

they

were

pretty

clearly

laid

out

that

we've

got

the

benefit

of

M&A,

we've

got

the

benefit

of

price,

and

then

the

volume

expectations

kind

of

in

the

range

that

you

said.

And

then,

when you

subtract

out

about

2%

for

the

Texas

freeze,

which

was

mostly

a

first

half

and

pretty

much

exclusively

a

North

American

event.

So,

those

are

the

key

overall

drivers.

We

think

that

new

construction

finished

the

year

of

2021

and

we

haven't

seen

final

numbers

yet,

George.

But

probably

in

the

neighborhood

of

120,000

or

a

little

bit

higher

than

that.

And

we're

expecting

that

new

construction

will

still

be

strong

into

2022.

Right

now,

our

builder

backlog

is

pretty

much

through

the

summer

season,

and

that's

really

across

the

Northern

Hemisphere.

So,

builder

backlog

is

strong

both

in

US

and

in

Europe.

So,

in

other

words,

if

you

want

a

new

pool,

you're

not

getting

it

before

sometime

in

the

back

half

of

the

year,

which

means

all

the leads

that

are

still

coming

in

are

really

setting

us

up

for

the

back

half

and

even

into

2023.

As

far

as

the

aftermarket

is

concerned,

we

continue

to

see unit

growth there.

It's

pretty

much

broad-based,

George,

really

driven

by

the

increase

of

the

number

of

pools

that

are

being

brought

into

the

market

over

the

last

couple

of

years.

So,

I

think

it's

implying

a

good

year

as

we

have

laid

out.

[George Featherstone, Analyst, Bank of America Merrill Lynch]

Thank

you,

Bruce.

And

then

maybe

turning

to

the

margin

guidance

as

well.

Could

you

give

a

little

bit

more

detail

on

the

phasing

of

SME?

I

know

you,

kind

of,

mentioned

the

H1,

there'll

be

some

headwinds.

But do

you

expect

margins

in

Q1

and

Q2

to

compare

similarly

to

Q4,

or

should

we

expect

some

different

phasing

there?

[Xavier Tintoré Segura]

Hi,

George.

This

is

Xavier.

Thanks

for

your

question.

You

know

that

we

don't

want to

be

specific

about

guiding

quarter-to-quarter,

but

clearly,

as

we

have

shared

during

the

call,

we

had

some

very

positive

results

in

the

first

half

of

2021,

which

now

will

be

a

tough

comparable.

In

addition

to

these,

we'll

have,

especially,

I

would

say,

in

Q1,

still

backlog

that

doesn't

really

reflect

the

pricing

yet,

the

pricing

impact

of

the

October

1,

as

well

as

the

new

pricing

that,

as

we

have

announced,

will

take

into

effect

at

the

start

of

the

month

of

March.

So,

really

compression,

I

would

say,

in

Q1

and

then

better

results

as

we

move

into

Q2

and

the

back

half

of

the

year.

[George Featherstone, Analyst, Bank of America Merrill Lynch]

Great.

Thank

you

very

much.

[Operator]

Our

next

question comes

from

Andre Kukhnin with

Credit

Suisse.

Andre,

please

go

ahead.

[Andre Kukhnin, Analyst, Credit Suisse Securities (Europe) Ltd.]

Hi.

Good

morning.

Thank

you

very

much

for

taking

my

questions.

I'll

go

one

at

a

time

as

well.

Can

I

just

double-check

a

couple of

things

first?

One

is

on

the

guidance

assumptions

that

you

mentioned

where

you

talked

about

deceleration

of

input

cost

inflation.

Could

you

just

help

with

a

bit

more

color

on

that?

Can

we

read

that

as

at

current

spots

or

does

your

guidance

assume

that

there

is

change

in

spot

rates

from

the

current

levels?

[Xavier Tintoré Segura]

Hi,

Andre.

Thanks

for

the

question.

Again,

without

being

very

specific

on

to

the

assumption

for

each

of

the

quarters,

what

we

assume

is

that

the

inflation

in

the

second

half

of

the

year

cannot

grow

at

current

rates

than

we

have

seen

in

the

last

half

of

2021.

And

therefore,

the

inflation

rate

of

–

the

growth

at

which

inflation

will

grow

will

be

significantly

small.

[Andre Kukhnin, Analyst, Credit Suisse Securities (Europe) Ltd.]

Okay.

That

sounds

like

you

expect

spot

rates

to

continue

to

increase

but

obviously

with

a

base

effect

at

a

lower

rate.

Is

that

then

the

right

interpretation?

[Xavier Tintoré Segura]

Right

interpretation,

Andre.

[Bruce W. Brooks, Chief Executive Officer & Director, Fluidra SA]

That's

a

good

read.

[Andre Kukhnin, Analyst, Credit Suisse Securities (Europe) Ltd.]

Okay.

Thank

you.

And

can

I

just

take

stock

of –

and

apologies

if

that's

addressed,

but

stock

of

where

2021

landed

in

terms

of

the

amount

of

raw

material

and

logistics

inflation

that

you

saw

and

how

much

of

that

was

offset

by

price?

And

then

if

we

think

about

2022,

could

you

give

us

any

idea

of

how

much

further

inflation

you

anticipate

within

your

guidance

and

how

much

price

you're

carrying

over

already

into

2022?

[Bruce W. Brooks, Chief Executive Officer & Director, Fluidra SA]

Okay.

From

a

overall

price

read-through

in

2021,

we

saw

about

6%.

And

amazingly,

commodity

increases

push

on

transportation

was

about

exactly

the

same.

So

I

think

a

good

job

by

our

team

demonstrating

again

the

ability

of

this

industry

to

get

price

and

protect

our

margins.

We

did

have

some

additional

pressure

from

mix,

which

usually

comes

from

both

countries

and

products,

as

Xavier

mentioned

in

his

remarks.

But

I'm

really

pleased

by

the

continued

work

of

our

value

improvement

and

lean

teams,

which

were

able

to

more

than

offset

that

and

ultimately

get

us

some

read-through

in

2021

in

the

margin

line.

[Andre Kukhnin, Analyst, Credit Suisse Securities (Europe) Ltd.]

Thank

you.

And

for

2022,

if

there's

any

indications

you

could

give

us

on

those

two

line

items.

[Bruce W. Brooks, Chief Executive Officer & Director, Fluidra SA]

Yeah.

I

think

the

only

real

specificity

what

I

would

give

you

there,

Andre,

is

that,

whatever

inflation

is,

we're going

to

work

to

go

get

the

price

to

offset

it.

You

might

see

some

noise

quarter

to

quarter,

but

over

that

mid-term

period,

we're

confident

that

we

can

offset

the

inflationary

pressures

with

price.

We

have

announced

a

price

increase

in

October

that

you

guys

would

have known

about.

And

then

we're

enacting

a

price

increase

right

now

here, maybe

I

guess

in

the

next

couple

of

days,

beginning

of

March

that'll

go

across

the

Northern

Hemisphere

as

we

haven't

seen

the

inflation

subside.

[Andre Kukhnin, Analyst, Credit Suisse Securities (Europe) Ltd.]

Great.

Thank

you.

And

if

I

may

just

last

question,

and

I

appreciate

that's

probably

going

to

be

got

million

dollar question,

so

don't

expect

exact

answer,

but

would

really

appreciate

any

input

from

you

on

a

question

on

how

much

of

a

demand

pull

forward

as

opposed

to

demand

creation

have

we

seen

in

the

last

12

to

18

months

as

we've

seen

this

kind of

substantial

pickup

in

demand

for

you?

Have

you

done

any

work

or

do

you

have

any

estimates

or

data

on

how

much

of

this

pick

up

and

kind

of

above

COVID

level

demand

that

we're

seeing

now

is

due

to

demand

creation?

i.e.

people

who

maybe

did

not

consider

building

a

pool

prior

to

pandemic

have

now

done

it

or

ordered,

one,

as

opposed

to

those

who

were

planning

to

do

it

or

planning

to

do

full

renovation

and

just

ended

up

doing

it

earlier?

[Bruce W. Brooks, Chief Executive Officer & Director, Fluidra SA]

Yeah.

We've

actually

spent

a

fair

amount

of

time

on

this,

but

I'm

going

to

say,

Bruce's

opinion

as

opposed

to

fact.

I

mean,

there's

no

way

to

squeeze

out

the

exact

facts,

Andre.

So

first

of

all,

I

do

think

there's

some

pull

forward

in

the

aftermarket.

The

first

clear

spot

that

I

would

say

pull

forward

is

the

Texas

freeze,

because

that

accelerated

replacements

of

pumps,

filters,

valves,

those

types

of

things

that

we

would have

not

naturally

seen.

Hence,

why

you

see

us

in

the

guidance

take

that

as

a

flat

out.

We

also

think

there's

a

couple

of categories

that

have

run

faster

than

the

rest

of

the

overall

market.

We

will

point

to

places

like

heat

and

aboveground

pool.

So

we

think

there

could

be

some

pull

forward

there.

But

the

amazing

piece

is

the

strength

of

the

aftermarket.

As

you

add

more

and more

new

pools

to

the

overall

base,

we

see

growth

there.

We're

seeing

growth

of

average

ticket

before

inflation

because

of

things

like

variable

speed

pumps.

More and

more

people

want

their

pool

connected.

So

the

average

ticket

increase

has

been

nice.

And

then

we've

got

the

addition

of

the

price

to

go

on

top

of

that.

As

you

think

about

new

construction,

I

think

that's

the

real

question.

And

what

I

would

say

is

right

now

the

backlog

continues

to

be

strong.

Leads

are

good.

And so

this

work

from

home,

I

guess,

is

now

probably

turning

into

more

of

a

hybrid

work

from

home.

Work

from

the

office

is

still

there.

The

one

that

we

still

see

incredibly

strong

in

the

US

is

the

flight

from

the

north

to

the

south.

And

as

people

move

from

the

north

to

the

south,

they

want

to put

a

pool

in.

So

right

now,

the

signals

inside

the

pool

industry

are

still

quite

positive,

hence

the

guidance

that

you

have

seen

from

us.

In

addition,

for

Fluidra,

we've

got

a

couple of

other

advantages.

Commercial

has

been

an

area

where

we're

under

indexed

and

have

invested

in.

So

we

see

growth

there,

and

we

also

see

the

benefit

of

the

M&A.

[Andre Kukhnin, Analyst, Credit Suisse Securities (Europe) Ltd.]

That's

great.

Thank

you

very

much

for

all the

answers.

[Operator]

Our

next

question

comes

from

Francisco

Ruiz

with

BNP

Paribas.

Francisco,

please

go

ahead.

[Francisco Ruiz Martin, Analyst, Exane BNP Paribas]

Hello.

Good

morning.

Buenos

días.

I

have

three

questions.

The

first

one

is,

if

you

could

give

us

a

little bit

more

clarity

on

your

margin

expansion

for

next

year. I

mean,

your

volume

growth

would

be

– as

commented

in

the

call,

I

mean,

low single

to

mid single-digit

growth.

So

I

don't know

how

much

of

this

margin

expansion

would

come

on

operating

leverage or

how

much

could

come

on

synergies

and

if

you

had

an

headwind

coming

from

inflation.

The

second

question

is

just

to

clarify,

I

mean,

this

year

we

have

seen

some

big

restructuring

charges

apart

from

the

high

compensation

of

new

shares.

So

what

should

we

expect

for

next

year?

And

last

but

not

least,

you

have

commented

that

whatever

happened

with

the

cost,

you

would

be

able

to

pass

it

through

prices.

How

is

the

competitive

situation?

How

are

your

peers

in

this

situation?

Are

they

still

willing

to

increase

prices

as

much

as

they

need

in

order

to

offset

this?

Thank

you.

[Xavier Tintoré Segura]

Yeah.

Thank you,

Paco.

Gracias.

In

terms

of

the

guidance

for

margin,

which

I

understand

was

your

first

question,

look,

I

think

we've

indicated

that

we

have

this

ability

and

we

have

proven

it

in

the

past,

so

this

ability

to

trespass to our

customers.

And

it's

something

that

comes

from

the

industry

really,

every

bit

of

inflation

that

we

suffer.

In

addition

to

us

trespassing

that

inflation,

we

have

built

into

our

guidance

our

cost

synergies

from

the

acquisitions

that

we

have

done,

as

well

as

the

traditional

1.2

to

1.5

of

value

initiatives

and

lean

manufacturing.

So

all

of

this

is

what

makes

us

feel

confident

that

we

can

deliver

on

the

margin

gain

that

we

have

included

in

the

guidance.

As

to

your

second

question,

for

nonrecurring,

we'll

get

back

to

a

more

normalized,

if

you

want,

stock-based

compensation

charge.

It's

true

that

we

are

going

to

go

to

the

next

shareholder

meeting

with

a

new

long-term

incentive

plan

for

the

management

team.

And

since

that

is

yet

not

approved,

it's

difficult

for

me

to

give

you

a

number.

But

I

think

that

if

you

assume

that

from

a

stock-based

compensation,

you

will

get

a number

of

around,

I

would

say,

€20

million

that

should

be

saved.

And

then

again,

on

the

deals,

difficult

to

know.

The

pipeline

is

strong,

and

I

would

use

an

assumption

of

around €10

million

for

that safe

bets.

[Francisco Ruiz Martin, Analyst, Exane BNP Paribas]

Okay.

Thank

you.

[Operator]

Our

next

question

comes

from

Christoph

Greulich

with

Berenberg.

Christoph,

please

go

ahead.

[Christoph Greulich]

Yes.

Good

morning

and

thanks

for

taking

my

questions.

I

would

like

to

start

with

a

question

on

pricing.

So

you

mentioned

that

you're

going

to

implement

another,

price

increase

in

the

coming

days.

So

could

you

give

us

any

indication

on

the

magnitude

of

the

price

hike

and

when

exactly it

will

really

fit

through

the

P&L?

So

I

understand

there

might

be

some

delay

between

implementing

the

price

increase and

that really affecting

the

prices of

the

products

you're

selling.

[Bruce W. Brooks, Chief Executive Officer & Director, Fluidra SA]

Okay.

Hey,

Christoph,

it's

Bruce.

Before

I

answer

that

one,

I'm

going to

go

back

and

answer

Paco's

third

question

which

was

the

price

increases,

what

are

we

seeing

in

the

pool

industry

I

guess,

from

competitors,

et cetera?

And

I

would

say,

it's

normal,

it's

historic

for

this

industry

to

take

price.

And

so

it's

not

a

fluid

or

a

standalone

initiative.

I

can't

say

that

it's

exactly

the

same

clearly.

But

I

would

say

we're

all

in

the

same

neighborhood

of

price

increases

and

timing.

There

might

be

a

month

or

two

delay

here

or

there,

or

acceleration

for

some

versus

others.

But

again,

it's

an

industry

that's

demonstrated

its

ability

to

take

price

and

will

continue

to

do

so.

And

I

think

the

good

news

at

this

point

in

time

is

it's

been

pretty

inelastic.

We

haven't

seen

any

cancellations

of

the

of

the

builder

backlog.

And

remember,

I

mean, the

majority

of this

market

is

driven

by

the

aftermarket,

the

annuity

like

aftermarket.

And

if

you

need

to

–

your

pump

breaks

down,

you

need

to

replace

it

or

your

pool's

green

in

three

days.

So

it's

not

so

discretionary.

So

that's

what

we

see

so

far.

Christophe,

I'll

go

to

you

now.

And

so

if

we

talk

about

the

recently

announced

price

increase,

it'll

take

place

over

the

next

couple

of

weeks,

depending

on

which

geography

you

are.

Let's

call

it

low

to

mid single-digit,

which

on

top

of

that

price

increase

for

in

October,

we'll

expect

that

read-through

to

be

into

that

mid

to

high

single-digit.

As

far

as

the

timing

of

the

read

through,

I

mean,

clearly

we're

going

to have

pressure

in

Q1,

maybe

a

little

better

performance in

Q2,

but

it's

really

going to

be

back

half

weighted.

And

it's

impossible

for

me

to

say

at

this

point

exactly

when

to

go

through

just

because

of

the

backlog

that

we

have

but

also

the

capacity

that's

coming

online

that

never

ramps

up

at

exact

speed

and

how

the

orders

flow,

whether

it's

more

US

based

or

whether

it's

more

European

based.

But

again,

we

feel

confident

over

the

course

of

the

year.

[Christoph Greulich]

Okay.

That's

fair.

And

you

were

saying

there

are

some

differences

between

Europe

and

the

US,

so

that

the

magnitude

of

the

price

hike

is

very

different

between

the

two

regions?

[Bruce W. Brooks, Chief Executive Officer & Director, Fluidra SA]

It's

maybe

marginally

lower

in

Europe

but

not

dramatically.

Europe

was

maybe

a

little

bit

higher

in

October,

and

the

US

was

a

little

bit

lower, and

I

think

now

we've

reversed

it

in

the

March

price

increase.

[Christoph Greulich]

Okay.

That

is

clear.

Then

I

was

wondering

when

I

look

at

the

organic

growth

figures

in

Q4

for

the

individual

regions,

I

mean,

we

have

seen

so

far

in

the

year

until

the

Q3

that

the US,

by

far,

or

North

America

was

the

strongest

growing

region

from the

organic

point

of

view

for

you.

I

mean,

it

seems

now

that

trend

has

somewhat

changed

in

the

fourth

quarter.

So

just

wondering

if

there

are

any

kind of

important

factors

that

have

led

to

this

change

in

the

trend.

[Bruce W. Brooks, Chief Executive Officer & Director, Fluidra SA]

Well,

we've

talked

about

it

all

along.

I

mean,

I

could

say

that

the

North

America

run

rate

could

have

been

higher

in

Q4,

but

we

certainly

were

facing

continued

supply

challenges,

in

particular

the

ports

in

the

West,

I

think,

hit

a

peak

of

backlog

in

October

and

November

as

other

products,

et cetera, we're

trying

to

get

in

for

the

Christmas

season.

So,

it

was

a

little

lower

on

our

production

in

Q4

than

we

would have

certainly

like

to

satisfy

our

customers'

needs.

We're

getting

better

as

more

capacity

comes

online,

and

I

would

say

that

although

there are

still

backlog

in

all

those

ports,

it's

about

half

of

what it

was

in

that

October-November

timeframe.

[Christoph Greulich]

Okay.

And

then

my

last

question

is

with

regards

to

the

inventory

levels

you

see

at

the

distributors

at

the

moment,

at

your

clients.

Are

these

levels

basically

in

line

with

what

you've

seen

pre-pandemic?

Do

you

think

there's

still

further

room

to

increase

those

as

basically

the

supply

chain

further

normalizes, or

what's

the

current

view

on

that

at

the

moment?

[Bruce W. Brooks, Chief Executive Officer & Director, Fluidra SA]

So,

interesting

question,

Christoph,

and I'll

go

to

the

really

short

answer,

which

is

inventory

turns

are

still

improving

out

in

the

marketplace

with

our

clients,

which

I

think

implies

that

inventory

levels

are

not

too

high.

I

will

tell

you

that

after

two

years

of

supply

chain

constraints,

pool

pros

are

prepping

for

another

strong

season,

builder

backlogs

there,

all

those

things.

So

they're

definitely

forecasting

a

strong

season

and

are

trying

to

prepare

for

it.

But

in

the

end,

I

think

the

best

measure

is

inventory

turns

and

inventory

turns

are

in

really

good

shape.

[Christoph Greulich]

Great. Yeah.

That's

all

from

my

side.

Thank

you

very much.

[Operator]

Our

next

question

comes

from

Álvaro

Lenze

with

Alantra.

Álvaro,

please

go

ahead.

[Álvaro Lenze, Analyst, Alantra Equities Sociedad de Valores SA]

Hi.

Thanks

for

taking

my

questions.

First

one,

apologies

for

going

back

again

to

the

margin

guidance. With

the

mid-single-digit

price

increases,

I

know

that

you

may

raise

prices

again

in

H2,

but

looking

at

the

inflation

dynamics

that

we

are

seeing

right

now

in

commodities

and

logistics

and

so

on,

and

your

exit

rate

in

terms

of

gross

margin

that

shows

a

decline

year-on-year,

should

we

expect

this

50-basis-point

expansion

in

EBITDA

margin

to

come

mostly

from

the

lean

initiatives

and

simplifying

the

structure

and

operating

leverage

on

higher

volumes

or

do

you

also

expect

to

increase

gross

margin?

That

would

be my

first

question.

And

second

question

would

be

just

to

understand

the

increase

in

volumes

you

see

for

the

industry.

Of

course,

the

supply

seems

very

constrained

right

now.

It

was

also

very

constrained

at

the

beginning

of

2021.

So

I

wanted

to

know

if you

could

provide

us

some

indication

of

how

the

capacity

on

the

side

of

the

pool

pro

is

evolving,

whether

you

see

that

they

are

increasing

their

teams

with

all

the

– especially

in

the

United

States

with

all

the

difficulties

in

the

labor

market,

whether

you

see

a

significant

increase

in

the

pool

pro

capacity

to

justify

this

volume

increase?

Thank

you.

[Bruce W. Brooks, Chief Executive Officer & Director, Fluidra SA]

Okay. So, thanks, Álvaro.

I

guess,

first,

as

far

as

the

gross

margin

increase

and

whether

we

see

it

being

driven

by

price,

we

never

really

bank

on

pricing

improving

our

gross

margin.

Our

goal

with

price

is

to

offset

any

inflation

and

maybe

to

give

a

little

bit

of

help

on

mix.

But

we

don't

really

expect

price

to

be

the

driver

of

improving

our

gross

margin.

What

we

do

is

like

to

have

that

at

a

neutral

page

and

then

all

the

work

that

we

do

on

lean,

BI

synergies

coming

through

the

deals,

some

additional

leverage

is

really

what

drives

that

margin

improvement.

Okay?

So that's

the

first

one.

As

far

as

the

supply

constraint,

yes,

industry

is

supply

constrained

right

now,

from

both

the

manufacturers

and

the

pool

pro.

From

a

manufacturer

perspective,

the

backlog

was

not

as

big

at this

time

last

year

as

it

is

this

year.

So,

the

entry

into

the

year

is

a

little

tougher,

especially

when

you're

talking

about

that

price

read-through.

But

it

certainly

gives

us a

help

as

far

as

the

look

at

the

overall

2022.

As

far

as

capacity

on

the

pool

pro,

I

do

think

that

capacity

has

expanded.

I

would

point

to

new

pool

construction

in

2021

as

a

sign

that

it

really

did

expand.

We

were

expecting

a

new

pool

construction,

probably

around

115,000

units

in

the

states,

and

it

ended

up,

we

think,

at

120,000-plus.

So,

coming

off

of

a

couple

of good

growth

years

that

says

that

we

grew

over

25%

in

pools,

and

that

means

some

new

pool

pros

had

to

be

coming

online.

But

I

agree

with

you, I

mean,

labor

is

tough,

especially

in

the

States.

And

so,

I

think

it's

still

going

to be

muted

in

how

fast

that

expansion

is.

[Álvaro Lenze, Analyst, Alantra Equities Sociedad de Valores SA]

Thank

you.

[Operator]

Our

final

question

comes

from

Manuel

Lorente

with

Mirabaud.

Manuel,

please

go

ahead.

[Manuel Lorente, Analyst, Mirabaud Securities Ltd. (Spain)]

Hi.

Good

morning.

My

first

question

is,

on

a

like-for-like

basis,

we

have

seen

revenues

go

up

roughly

36%

on

a

full-year

2021,

of

which,

if

my

understanding

is

correct,

roughly

plus

6%

has

been

a

combination

of

price

and mix.

So,

the

remaining

30%

should

be

coming

from

volume.

Can

you

give

us

an

idea

of

the

split

of

that

volume

growth?

This

is

mostly

upgrades

and

updates.

This

is

mostly

new

builds.

These

are

a combination,

more

or

less,

of

both

or

it's

too

early

to

say?

[Bruce W. Brooks, Chief Executive Officer & Director, Fluidra SA]

I

guess,

as

far

as

our

internal

official

statistics,

which

are

not

really

that

official,

it's

too

early

to

say.

We

probably

don't

have

those

until

sometime

later

in

the

second

quarter.

But

I

would

–

my

reaction

to

your

question

would

be

it's

coming

from

both.

So,

clearly,

new

construction

is

up.

Average

ticket

on

the

new

construction is

going to

be

up.

But

to

get

to

that

kind

of

growth

across

the

industry,

it

has

to

be

in

the

aftermarket,

which

is

the

much

bigger

piece

as

well.

And

so,

as

units

continue

to

upgrade, people

are

using

their

pool

more,

all

that

is

good

for

us,

seeing

more

variable

speeds,

seeing

more

connectivity,

these

things

are

all

positive

for

the

industry.

[Manuel Lorente, Analyst, Mirabaud Securities Ltd. (Spain)]

I

see.

And

my

next

question –

sorry

to

come

back

on

this

again

– it's

about

the

phasing

of

the

margin

expansion

for

this

year. I'm

a

little

bit

intrigued

about

what

Eloi

was

saying

about

a

further

margin

compression

in

Q1.

This

is

from

the

20%

margin

of

the

fourth

quarter standalone

or

from

the

25%

margin

of

the

full

year?

[Xavier Tintoré Segura]

No,

Manuel,

this

is

related

to

where

we

were

last

year,

and

that's

where

we

expect

to

see

margin

compression.

We

had

an

exceptionally

positive

Q1 in

2021,

and

that's

where

we

are

going to

be

seeing

margin

compression.

In

reality,

when

you

look

at

our

margin

quarter

to

quarter,

you

see

that

there

is

a

pattern

because

mix

of

countries

and

type

of

products

that

we

sell.

So

whenever

we

reference

compression

in

a

given

quarter

and

so

on,

it's

always

to

prior

year

because

margin

changes

quarter-to-quarter,

[Manuel Lorente, Analyst, Mirabaud Securities Ltd. (Spain)]

But

this

is

very

difficult,

because

visibility

at

this

stage

is

current,

it's

very,

very

limited.

But

is

it

fair

to

say

that

these

20%

margin

of

the

whole

quarter

should

be

the

trough

of

this

year?

[Xavier Tintoré Segura]

Can

you

elaborate

a

little

bit

more

on

this,

Manuel?

I

don't

really

understand

the

question.

[Manuel Lorente, Analyst, Mirabaud Securities Ltd. (Spain)]

Yes,

sure.

I

mean,

your

implicit

guidance

points

to

25.5%

or

more

than

that

margin

for

2022.

Is

this

back-end

loaded

type

of

margin?

My

point

is,

whether

there's

going

to

be

a

20%

margin

throughout

the

first

half

of

the

year,

and

then

roughly

30%

margin

in

the

second half

of

the

year,

or

we

should

only

expect

such

a

margin

erosion

on

the

first

part

of

the

year

because

of

the

combination

of

price

hikes,

operational

leverage,

efficiencies,

et

cetera?

[Xavier Tintoré Segura]

Yeah.

No.

As

I

was

pointing

out,

Manuel,

and

you

know

that

we

don't want to

guide

specifically

on

margins

quarter-to-quarter.

But

our

first

half,

obviously.

is

the

half

of

the

year

in

which

we

make

higher

margins.

So

what

we

are

saying

is

we're

going

to have

compression

against

that

–

the

margins

that

we

had

in

2021

first

half.

But

this

doesn't

mean

that

we're

going

to be

running

at

these

20%

levels

that

you're

pointing

out.

[Manuel Lorente, Analyst, Mirabaud Securities Ltd. (Spain)]

Okay.

Thanks.

And

my

last

question

probably.

It

looks

like

now

that

price

per

dollar

pool

with

the

price

hike

from

the

last

two,

three

years

have

significantly

increased.

So

did

you

see

any

potential

acceleration

of

the

do-it-yourself

type

of

business,

further

competition

from

the

sides

or

something

like

that?

[Bruce W. Brooks, Chief Executive Officer & Director, Fluidra SA]

Yeah.

Interesting

question.

I

think

at

this

point,

both

sides

have

shown

nice

increases.

So

I

wouldn't

say

that

there's

anything

particularly

different

one

way

or

the

other

at

this

point.

[Manuel Lorente, Analyst, Mirabaud Securities Ltd. (Spain)]

Voila.

Thank

you.

[Operator]

We

have

no further

questions

on the

phone

lines.

So

I'll

hand

back.

[David Herrerías]

Okay.

Thank

you,

everyone.

This

marks

the

end

of

today's

presentation.

We

thank

our

speakers

and

participants.

As

always,

please

feel

free

to

reach

out

to

our

Investor

Relations

department

for

further

queries.

Thank

you

very

much.