Fluidra S A : 2021 Q1 Results - Audio Transcript

REFINITIV STREETEVENTS

EDITED TRANSCRIPT

FLUI.MC - Q1 2021 Fluidra SA Earnings Call

EVENT DATE/TIME: MAY 06, 2021 / 8:00AM GMT

REFINITIV STREETEVENTS | www.refinitiv.com | Contact Us

©2021 Refinitiv. All rights reserved. Republication or redistribution of Refinitiv content, including by framing or similar means, is prohibited without the prior written consent of Refinitiv. 'Refinitiv' and the Refinitiv logo are registered trademarks of Refinitiv and its affiliated companies.

MAY 06, 2021 / 8:00AM, FLUI.MC - Q1 2021 Fluidra SA Earnings Call

C O R P O R A T E P A R T I C I P A N T S

Bruce Walker Brooks Fluidra, S.A. - Co-CEO & Executive Director

Eloy Planes Corts Fluidra, S.A. - Executive Chairman, Executive President, MD & CEO

Javier Tintore Segura Fluidra, S.A. - CFO

Luis Boada Fluidra, S.A. - IR, Corporate Communications & Business Development Director

C O N F E R E N C E C A L L P A R T I C I P A N T S

Alvaro Lenze Julia Alantra Equities Sociedad de Valores, S.A., Research Division - Research Analyst

Christoph Greulich Joh. Berenberg, Gossler & Co. KG, Research Division - Analyst

Francisco Ruiz Exane BNP Paribas, Research Division - Research Analyst

George Featherstone BofA Securities, Research Division - Research Analyst & Associate

Manuel Lorente Mirabaud Securities Limited, Research Division - Analyst

Miguel González JB Capital Markets, Sociedad de Valores, S.A., Research Division - VP

Xiaolu Zheng Crédit Suisse AG, Research Division - Research Analyst

P R E S E N T A T I O N

Luis Boada - Fluidra, S.A. - IR, Corporate Communications & Business Development Director

Good morning, and welcome to Fluidra's 2021 First Quarter Results Presentation. I am Luis Boada, Investor Relations, Corporate Communications and Business Development Director at Fluidra, and it is a pleasure to be presenting our results to you today. Today's presenters will be Mr. Eloy Planes, our Executive Chairman; Mr. Bruce Brooks, our CEO; and Mr. Javier Tintore, our CFO.

You can follow this presentation in its original English version or in entirety in Spanish. You can select your preferred option in the drop-down menu at the bottom right of your screen. Today's presentation will include live Q&A. (Operator Instructions)

Today's presentation is accessible through our website, fluidra.com and was uploaded pre-market open to the CNMV as well. The replay of today's presentation will be made available on our website shortly after we finish.

Let us start then with the presentation by opening the floor to our Executive Chairman, Mr. Eloy Planes.

Eloy Planes Corts - Fluidra, S.A. - Executive Chairman, Executive President, MD & CEO

Thank you. Luis. Hope you are all safe and well. Some weeks ago, we had the pleasure to host our fifth Capital Markets Day and present our plan and initiatives for our company's stronger future. Today, I'm glad to report that Fluidra has recorded its strongest quarter ever. As Executive Chairman, I feel very proud of our team. I would like to start again by thanking them. They are the key factor behind Fluidra's strong figures.

Bruce and Javier will dive into the numbers later, but let me make some comments before. Superb Q1 execution, which combined with importance of outdoor living and the flight to the suburbs trend, have driven our great figures this quarter. We posted a magnificent 60% base growth from an already positive Q1 2020, and we expect a very strong 2021 residential pool season.

Our excellent cash generation allowed us to maintain our target leverage ratios even after closing 3 acquisitions this quarter and proposing to the Annual General Meeting, to be held some hours from now, EUR 78 million dividend distribution, nearly doubling the EUR 41 million distribution of 2020.

2

REFINITIV STREETEVENTS | www.refinitiv.com | Contact Us

©2021 Refinitiv. All rights reserved. Republication or redistribution of Refinitiv content, including by framing or similar means, is prohibited without the prior written consent of Refinitiv. 'Refinitiv' and the Refinitiv logo are registered trademarks of Refinitiv and its affiliated companies.

MAY 06, 2021 / 8:00AM, FLUI.MC - Q1 2021 Fluidra SA Earnings Call

Probably the most important Capital Markets Day topic for me was unveiling our ESG-focused responsibility blueprint plan, including a case study about our pool system being the most efficient in the planet. The key points of this plan are the introduction of ESG performance-based variable remuneration for managers, the commitment to becoming carbon neutral in 2027 in terms of Scope 1 and Scope 2, the commitment to aiming for 0 net wage gap between men and women by 2024 and the commitment to reaching a rating score of 80 by 2030 based on S&P Analysis. You can learn more about our ESG responsibility blueprint in our website, fluidra.com, in the section Responsibility. A summary of it is included in the fifth Capital Market Day presentation, which you can find in our website as well.

As you can tell, our business fundamentals remain extremely strong. In fact, when you look at our last 12 months performance, we have already surpassed each of the targets in our 2022 strategic plan. That is over a year ahead of schedule. Remember, my Capital Markets Day comment of this being the end, the end of the beginning. We have a superb team that has managed to build a leading company and the best opportunities lay ahead of us.

Despite the unusual quarterly comparisons, the expected strong season, combined with the strength of our company, set the foundation for a new upgrade in our 2021 guidance. This is really a fantastic news.

And at this point, I give the floor -- the pool to Bruce, Fluidra's CEO, who, along with our CFO, Javier, will provide a deeper look at the 2021 first quarter figures and outlook.

Bruce Walker Brooks - Fluidra, S.A. - Co-CEO & Executive Director

(foreign language), Eloy. It's a pleasure for me to join you from Barcelona to share our earnings for the first quarter of 2021. Let me start with comments on our overall performance and highlights for the quarter and then turn it over to Javier, our CFO, 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 5 are the 2020 and 2021 financial highlights for the first quarter. 2021 has started off incredibly strong. Our industry-leading global platform continued to demonstrate its value as we saw extraordinary growth in the quarter compared to an already positive Q1 2020, chasing the very strong demand in the channel and putting us in excellent position for the rest of the year.

In this quarter of 2021, sales grew 60% adjusted for currency and perimeter compared to the same quarter of 2020 to EUR 508 million. This superb growth was driven by strong continued demand in Residential Pool. Adjusted for currency and perimeter, EBITDA and EBITDA grew 173% and 256% to EUR 135 million and EUR 119 million, respectively. Both measures showed excellent operating leverage.

Cash earnings per share grew an outstanding 412% adjusted for currency and perimeter to EUR 0.42 per share. On operating net working capital, we ended the period 6% lower on currency and perimeter adjusted basis at EUR 449 million, improving the ratio to sales by 600 basis points.

Our net debt stood at EUR 977 million, having increased 7% on a currency and perimeter adjusted basis. Our last 12-month leverage ratio reduced a full turn to 2.4x despite an increase in net debt due to strong M&A activity.

Finally, I'm very glad to share that we have already surpassed our EUR 40 million cost synergies total target, exceeding the original target by more than EUR 5 million. The integration is officially complete. Great execution by the team.

Moving to Page 6. Let me share some highlights for the quarter. But before we do, I want to express our gratitude to the dedicated team of Fluidra that I'm fortunate to lead in these extraordinary times. Results like these month after month are not easy. They put significant strain on our infrastructure. Special thanks to all our supply chain and customer-facing employees for their tireless efforts.

The step change in the industry demand continues the hard experience and confirms the strong fundamentals of the business and the resilience of the industry, positioning us well to achieve our medium-term targets, as shared during our Capital Markets Day. We are seeing strong sell-through that along with the Texas freeze pool pros anticipating a strong 2021 pool season. It's important to keep in mind, quarterly comparisons are unusual due to COVID-19 impacts.

3

REFINITIV STREETEVENTS | www.refinitiv.com | Contact Us

©2021 Refinitiv. All rights reserved. Republication or redistribution of Refinitiv content, including by framing or similar means, is prohibited without the prior written consent of Refinitiv. 'Refinitiv' and the Refinitiv logo are registered trademarks of Refinitiv and its affiliated companies.

MAY 06, 2021 / 8:00AM, FLUI.MC - Q1 2021 Fluidra SA Earnings Call

As we shared with you in the past, we put forward an additional price increase this year as we started to experience inflationary pressures on shipping, raw materials and some components. We still see this inflation pressure, which partially offsets gross margin expansion initiatives. Moreover, we saw marginal supply chain impacts for the quarter despite significantly increasing our Q1 production output as we continue to catch up to the strong demand, pressuring our preseason inventory levels.

Let's move to capital allocation. We have proposed increasing the dividend by 90% with a payout of EUR 0.40 per share to be evenly split into 2 payments as part of our approximately 50% cash net profit distribution policy.

On the M&A front, following the acquisition of Built Right early in the year, we also acquired CMP, a U.S. manufacturer of pool and spa components, that will further strengthen our leadership position in the pool and wellness industry. The acquisition values CMP at EUR 205 million and is expected to be cash EPS accretive from day 1.

We also strengthened the fast-growing mass market channel with the agreement to acquire the Splash and Zen businesses, which consists of the sale and distribution of a range of pool and spa maintenance products in Belgium. The transaction is expected to close in the second half of 2021 for EUR 3.5 million fixed payment and 3 additional revenue contingent earn-out payments for years '22 to '24.

Continuing this string of good news, the Spanish Technical Advisory Committee announced that Fluidra was selected to become part of the main index of the Spanish Stock Exchange, the IBEX 35, as of March 29, 2021. This inclusion strengthens the visibility of the company and its presence in passively managed and indexed funds.

Lastly, I would like to share an important milestone that underpins our ESG focus. We converted our syndicated revolver credit line of EUR 130 million, which was signed off on in 2018, into green financing, also called ESG-linked loans.

Turning now to Page 7. You see the sales evolution by geography, and I'll try not to run out of superlatives here. During this quarter, global sales grew 60% compared with the same period of 2020 on a constant FX and perimeter basis. Southern Europe's excellent momentum continued with currency and perimeter adjusted growth of 63%, driven by France, Italy and Spain. The rest of Europe also continued to deliver stellar results with the constant FX and perimeter adjusted growth of 66%, driven by outstanding performance in Germany. North America accelerated its growth momentum with sales up 86% on a currency and perimeter adjusted basis for the quarter and staggering 101% for the quarter, including CMP

Residential Pool's large aftermarket-led base was favored by the flight to the Sunbelt trend and the Texas freeze disaster. The rest of the world saw sales grow 9% for the quarter on a currency and perimeter adjusted basis. It is encouraging to note that this area saw double-digit growth in residential markets, which more than offset the weaker performance in the Commercial Pool segment. This overall performance demonstrates the continued and accelerating growth or step change of our business and strength of our market's fundamentals.

Next, on Page 8. We see the evolution by business unit. Residential Pool is our largest segment and accounted for 76% of Q1 sales. It grew 78% for the quarter, supported by strong demand due to the flight to the suburbs trend and favored by the focus on outdoor living.

As expected, Commercial Pool continued to be impacted by COVID-19's effect on the hospitality sector, with a decrease in sales of 13% for the quarter. New projects execution and leads remain soft. This compares to a strong double-digit growth Commercial Pool contribution in Q1 of 2020.

Pool Water Treatment grew 40% for the quarter. This business unit saw a very strong performance of the Water Care Equipment segment and a positive evolution in Chemicals. The Fluid Handling business grew in an excellent 37% for the quarter and benefited from North America's strong performance and a greater contribution from refurbishments and new builds.

In summary, our global footprint continues to play an integral role in helping us deliver strong growth, together with excellent cash generation. Again, I want to thank our talented team of more than 6,000 employees and business partners for their agility, positivity and sacrifices during these challenging times. Moving at full speed and keeping our customers and values at the center of all we do makes me know that we are truly one Fluidra, ready to continue executing the many opportunities that lay ahead of us.

4

REFINITIV STREETEVENTS | www.refinitiv.com | Contact Us

©2021 Refinitiv. All rights reserved. Republication or redistribution of Refinitiv content, including by framing or similar means, is prohibited without the prior written consent of Refinitiv. 'Refinitiv' and the Refinitiv logo are registered trademarks of Refinitiv and its affiliated companies.

MAY 06, 2021 / 8:00AM, FLUI.MC - Q1 2021 Fluidra SA Earnings Call

With that, I'll turn it over to Javier to explain the financial results in more detail before I return to share our outlook and guidance.

Javier Tintore Segura - Fluidra, S.A. - CFO

Thank you, Bruce. Let's turn to Page 9 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 nonrecurring expense in the cost of goods sold and OpEx line. Below EBITDA, you have the nonrecurring charges identified in one caption. In addition, in the appendix, you have the reported P&L with all the nonrecurring expense properly classified by nature. I am very pleased to share with you this excellent record-breaking quarter. Congratulations to the team.

Let's get started. Sales growth of 61%, that is 65% adjusted for currency and 60% adjusted for currency and perimeter, showing an acceleration over the strong sustained growth rates that we saw in Q3 and Q4 of 2020.

Gross margin reached 53.9%, 10 basis points higher than prior year, driven by price increases and positive impact of cost synergies, partially offset by commodity and freight inflation and country and product mix.

Operating expenses of EUR 139 million with an increase of 19% showed excellent operating leverage as a result of the significant volume increase in a well-managed expense base.

Provision for bad debt is EUR 1 million, or 0.2% of sales, with a significant decrease when compared to last year, driven by the good industry situation around the globe.

EBITDA reached a record EUR 135 million, with an increase of 162%, driven by higher sales volume, margin gains and excellent operating leverage. EBITDA margin reached 26.5% with an improvement of 1,020 basis points. I want to highlight one significant point that is not included in this slide. Our last 12-month EBITDA now starts with a 4, having reached EUR 404 million and representing a margin of 24%.

Nonrecurring expense of EUR 7 million showed an increase of EUR 3.4 million due to the M&A activity in the quarter. That includes CMP, Built Right and Zen and Splash deals as well as an increase of the stock-based compensation as a result of the improved performance.

Net financial result is EUR 7.2 million, 51% lower than 2020. The decrease is driven by lower leverage and better FX impact as a result of higher volumes and margins and great operating and financial leverage. Net income for Q1 reached a record EUR 67 million compared to a small profit of EUR 1.6 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 impact our net profit and EPS calculation. Cash net profit, which is also a record amount of EUR 81 million with a 360% increase.

Page 10 shows the evolution of net working capital for the group. Operating net working capital reached EUR 449 million, flat to 2020 despite it includes EUR 38 million of acquisitions, which is mainly driven by the incorporation of CMP. It represents 27% of sales, an improvement of 600 basis points to prior year, which is linked to the significant increase in the level of activity.

On inventories, 22% increase over 2020. This is 10 points organic and almost 12 points acquisitions, driven again mainly by CMP. We invested into inventories for the start of the year, but clearly not to the level of demand that we have seen in Q1. And we continue to work hard to adjust our supply chain.

Account receivable continues to perform nicely, driven by a better geographical mix and good collection patterns around the globe. Acquisition represents 5.5 points of the increase. Accounts payable increase can be split in 32 points organic and 8 points inorganic. The increased level of activity drives the growth.

On the earnout and other items front, the most significant earnout is Fabtronics with EUR 5.8 million.

5

REFINITIV STREETEVENTS | www.refinitiv.com | Contact Us

©2021 Refinitiv. All rights reserved. Republication or redistribution of Refinitiv content, including by framing or similar means, is prohibited without the prior written consent of Refinitiv. 'Refinitiv' and the Refinitiv logo are registered trademarks of Refinitiv and its affiliated companies.