Orbia Advance Corporation SAB de CV

BMV:ORBIA

Earnings Call Transcript

[Operator]

Good morning, and welcome to the Mexichem First Quarter 2019 Earnings Conference Call. [Operator Instructions] Please note this event is being recorded.

I would now like to turn the conference over to Mr. Gerardo Lozoya, Investor Relations Director of Mexichem. Please go ahead.

[Gerardo Latapi, executive]

We're now on Slide 3. Thank you, operator. Good morning, and welcome to our earnings results conference call. We are pleased to be here today to present our first quarter 2019 results. We appreciate your time and your participation in this conference. Our speakers today will be Daniel Martínez-Valle, Mexichem's CEO; and Rodrigo Guzmán, our CFO.

I will now turn the call over to Daniel for opening comments. Please, Daniel?

[Daniel Martínez-Valle, executive]

Thank you, Gerardo. And welcome, everyone, to our first quarter 2019 conference call. Operator, please move to Slide 4.

I'd like to start by [indiscernible] proud I am of our global team and how we have been executing in these dynamic changing markets. As we mentioned in the press release, our results are in line with expectations. Overall, revenue increased 1% above the same quarter last year to $1.8 billion or 6% on a constant currency basis. Revenue for our Fluent Business Group increased 6% or 13% on a constant currency basis due mainly to double-digit growth in Netafim related in part to adding a full quarter of its revenue into our consolidated numbers. We are encouraged by the momentum in our Datacom, Precision Agriculture and Building and Infrastructure businesses within Fluent.

Our revenues in Fluor remained flat, and we'll talk about the financials in more detail later.

Our Vinyl business remained challenging. Revenue declined this quarter by 8% or 5% on a constant currency basis due mainly to lower volumes and tighter conditions in PVC and caustic soda prices. And we expect this environment to possibly continue throughout the year. However, we are taking operational efficiency and cost control measures as we are more laser-focused approach to our supplier management and sales efforts. We are [indiscernible] our control, and in addition, we are starting to see some positive indications in the market such as the new ethane cracking, ethylene capacity additions, which continue to be delayed in the U.S. And finally, I'd like to emphasize that our Vinyl business operates in a global PVC market with very strong fundamentals associated to supply and demand dynamics.

As you can see on Slide 4 -- Slide 5, our EBITDA declined by 4% year-over-year mainly driven by the tougher PVC, caustic soda and ethane/ethylene market conditions, which pressured the ethane-to-PVC value chain. Helping to drive our success is how Mexichem is diversified today as a global company, both in terms of our geographies and our products.

Our largest country today is the U.S., which represents 17% of our global business and includes our Datacom, Precision Agriculture, Fluor and Vinyl businesses. Our second largest country is Mexico, which represents 9%; followed by Germany, which represents 8%. Europe is our largest region with 38% of global sales.

To add to our diversification, the company had continuously focused on downstream growth, in particular, in more specialty solutions that carry higher margins, which, in the first quarter of 2019, represented 66% of our total EBITDA. Thus, Mexichem is increasingly more global, more diversified and more solutions focused.

Looking now at Slide 6. And as I mentioned on our previous calls, we are increasingly transitioning to our returns-driven model. Our return on invested capital continues to be above our weighted average cost of capital, something that has not been the case in past years.

We'll discuss our first quarter results further in a few minutes. But as we do every quarter, I would like to highlight some examples of our innovative solutions and how they are helping to bring about a more livable future for people around the world.

Turning to Slide 7. In March, Netafim launched the Streamline X ReGen dripline for use in short-cycle, single-use crop applications and containing material from recycled driplines. The introduction of this ReGen product to the agricultural market is a direct result of listening to growers express a need for an irrigation solution that not only delivers water and nutrient efficiencies but also fills a void in the sustainable supply chain. This human-centered, innovative solution bolsters our commitment to sustainable agriculture that already includes our dripline removal and collection service as well as the industry's first wholly owned recycling facility.

Turning to Slide 8. The earlier part of this year was marked by record rainfall in many parts of the world. Our Building and Infrastructure business in Europe deploys its Q-Bic Plus infiltration crates underground to store rainwater to prevent free flooding in cities. Now the crates are being used as a second purpose. Turned upside down, these crates are constructed around tree roots in cities to protect them as they grow next to concrete, giving the roots optimum support and aeration. In May, a municipality in Belgium will be our first customer to use this dual-purpose product.

Now on Slide 9. We'd like to highlight what we've been doing in Datacom. All companies, as you know, are moving parts of their businesses to the cloud. And we are playing an important role in this. This past quarter, we brought on a major social media company as a customer who has engaged with us to help secure cyber connections between several of their U.S. data centers. Our conduits are what carry and secure the high-speed fiber optic cables.

Turning to Slide 10 now. At our mine in San Luis Potosi, Mexico, the world's largest fluorspar mine, our innovations improve the quality and the productivity of our production facility by reducing freshwater used in the production of plastics bar by up to 20%. This translates to savings of 50,000 gallons of water per day that are no longer needed in our operations.

Moving to Slide 11. I'd like to stress that we are very focused on safety at our mines and all our plants. At our San Luis Potosi mine, we have installed guardrails and earthen berms on 90% of our internal roadways to ensure transportation safety. At all our plants, we continue to invest in several initiatives. More than 90% -- 95% of our chemical facilities are now fully in track with our process safety management implementation schedule, with the remaining facilities to be included in the coming months.

We continue to actively reduce our total recordable incident rate, and safety studies and specific action on the transportation of hazardous materials were initiated in 2018 and will continue in 2019.

We're now on Slide 12. We're proud how Mexichem is helping to solve global problems as we evolve into a more purpose-driven, future-fit organization, continuing to innovate and showing our strength in relevant areas. We're transitioning from a manufacturing-focused company to one that is much more customer-centric.

We're convinced that our 5 distinct global business groups will help us better understand our customer needs to provide them with more relevant solutions. For example, our Building and Infrastructure business provides innovative solutions in water management for municipalities and real estate developers. Our Datacom business is playing an important role in connecting cities around the world by partnering with a major service provider to roll out their 5G technology. Our Precision Agriculture business is taking a leading position in the digital revolution of the sector.Our Fluor business is helping 100 million asthmatics breathe easier, thanks to the use of our fluorene-based propellants in medical inhalers. And our Vinyl business is making buildings safer as [ were ] the world leader in flame retardant solutions for wires and cables.

Now moving to Slide 13. Continuing with our focus on innovation, earlier this month, we officially opened our Lighthouse Lab in San Francisco, which serves as home base to our global teams who are developing new ventures. The Lighthouse is already working on new solutions and new business models that will be eventually commercialized.

I am extremely proud of what the 22,000-member team is accomplishing, and I've never been more optimistic about the future of this company. We're both optimizing for today and cultivating for tomorrow. We are unremittingly improving operational efficiencies and controlling costs in all our businesses, especially ones that are facing challenging environments. We're optimizing our working capital management across all our businesses, and we are doubling down in safety and security.

I will now turn the call over to Rodrigo, our CFO, to review our financial results. Rodrigo?

[Rodrigo Guzman, executive]

Thank you, Daniel. As mentioned by Daniel earlier, this Slide 14 shows that the results are in line with our beginning of the year expectations.

In Q1 2019, revenues reached $1.8 billion, up 10% -- or 1% from Q1 2018. EBITDA was $318 million, a decrease of 4%, and net majority income was $48 million, down 39%.

As we mentioned during our third and fourth quarter calls, we expected a very challenging environment in our Vinyl business. We also expected at the beginning of the year that our Precision Agriculture, Datacom and Building and Infrastructure businesses will improve and partially offset the impacts in Vinyl. During the first quarter, the decline in our Vinyl's EBITDA of $44 million was roughly offset mainly by Fluent's increase of 30% or $29 million and Fluor's increase of 4% or $4 million.

For the first quarter 2019, as you see on Slide 15, the 1% revenue growth was led by higher sales in our Fluent Business Group, again, mainly driven by Precision Agriculture's better performance and its consolidation for the full first quarter of 2019 into Mexichem's financials as well a higher sales in our Fluor, Ethylene and Datacom businesses in the U.S. and Canada and EMEA regions.

The FX effect for Q1 2019 in sales had a negative impact on a consolidated basis compared to Q1 2018. On a constant currency basis, revenue will have been roughly $1.9 billion, an increase of 6% versus Q1 2018.

Within the Fluent Business Group, an increase in sales was due to a stronger performance in Precision Agriculture, in Datacom in the U.S. and Canada and EMEA and the consolidation of Netafim for the full first quarter.

Our Fluor business increased its sales in double digits and more than offset the decrease in our downstream business. This was driven largely, as we announced in our Q1 2018 call, by price stabilization in [indiscernible] rights and refrigerant experienced during the last 3 quarters of 2018 as well as the impact observed in prices and volumes associated to the illegal imports in Europe. We are working hard on this issue together with the European Cargo's Chemical Committee to solve it as fast as possible given the impacts we are seeing, which, as of the first quarter of 2019, we offset by our Fluor business.

In Vinyl, revenues declined mainly due to tighter market conditions in PVC and caustic soda.

For the first quarter 2019, EBITDA was $318 million, a 4% decrease compared to the $330 million reported in the same period of last year. And with an EBITDA margin of 18% during the quarter, we had a positive effect of $18.6 million in our reported consolidated figures due to the effects coming from the adoption of IFRS 16 and the FX effect on consolidated EBITDA of negative $11 million.

We are now on Slide 16. Mexichem Q1 2019 operating cash flow before CapEx, share buybacks and dividends were negatively affected by: one, $12 million lower EBITDA; two, higher financial costs due mainly to the renewal of Netafim crate facilities at much better conditions because of its integration into Mexichem's structure and the $200 million bilateral loan we took out for the Netafim acquisition at the end of January 2018; and three, lower interest earned of $3 million due to lower average cash balances in Q1 2019 versus Q1 2018. These effects were partially offset by lower FX losses and working capital. Capital expenditures decreased 9% to $60 million.

As shown here on Slide 17, our total financial debt as of March 31 was $3.6 billion, while cash and cash equivalents totaled $589 million, resulting in net financial debt of $3 billion. We are still committed to our investment grade, and our net debt to EBITDA and interest coverage ratios closed the first quarter at 2.16x or 2.19x without IFRS and 5.23x, respectively.

Going on Slide 18. We continue with a very sound balance sheet and with a very healthy financial structure in our debt. Due to Netafim's financial facilities renegotiation, we improved our weighted average cost of debt to 4.9% from 5.12%, leaving the tenure stable at 14.2 years, which will mean lower interest and consequently could increase cash flow.

I will now turn the call back over to Daniel for some remarks before we open up the call for questions. Daniel?

[Daniel Martínez-Valle, executive]

Thank you, Rodrigo. Our expectations for the full year remain unchanged. In our Vinyl Business Group, we are starting to see some positive signs, which may impact the second half of the year. And we remain optimistic on the outlook for the rest of our businesses. We are increasing the relevance of Mexichem in the role we play in helping to solve today's biggest challenges in everything, from food security to water scarcity, to making cities more livable, to connecting them over the Internet. We'll continue to work closely with our partners and customers across all our business groups and strive to exceed their expectations by providing innovative and best for the world solutions.

Furthermore, we are a resilient company with a strong balance sheet, a healthy debt profile, strong cash conversion and world-class safety and security measures.

Once again, I want to thank you all for being on the call today. Andrea, we're open and ready for questions.

[Operator]

[Operator Instructions] And our first question comes from Vanessa Quiroga of Crédit Suisse.

[Vanessa Quiroga, analyst]

My first question is regarding the Vinyl division and the comments you make on caustic soda. Can you explain the outlook that you have for caustic soda and the impact that it could have on results and also whether there is anything that you can do on your side to mitigate the impact of that on the business? And secondly also, if you can provide some color on how volumes performed for the Vinyl division. And also, regarding the overhauls that you mentioned, if it's possible to quantify the impact or the effect of that, that the overhauls had on the EBITDA performance for the quarter.

[Daniel Martínez-Valle, executive]

Thank you, Vanessa. So let me give you some color in terms of prices that impact either positively or negatively our Vinyl business in general. I'll provide you some publication numbers for the average monthly variation in prices in Q1. For ethane, the price increased 17%, ethylene decreased 16%, caustic soda prices decreased 43% and PVC resin decreased 8%. You mentioned the interest in getting some color in terms of our outlook for the caustic soda prices. We're starting, as I mentioned in my remarks, to see some initial indications that would reverse this trend. We haven't seen sort of very significant indications but just initial indications. The first one could be the restart of the Alunorte plant in Brazil. The second one, the resolution of limitation on imports of caustic soda into India. And we are starting to talk to some analysts that see more and more sort of optimism in the caustic soda and the PVC market for the second half of this year. But again, we remain unchanged in terms of how we see the full year moving forward vis-à-vis what we mentioned in our previous calls.

[Rodrigo Guzman, executive]

Vanessa, Rodrigo Guzmán. In terms of volumes from chlorine from Vinyl business, they decreased by 5% in the quarter. We will release after this call the table for vinyls in order to let all of you know what happened with the volumes.

[Vanessa Quiroga, analyst]

Okay. And is there anything that you can do to mitigate that -- this temporary impact of the caustic soda prices? Exactly how does that affect that business, if I may ask? I mean does that impact the formula that you have with Oxy under the joint venture?

[Rodrigo Guzman, executive]

Yes. As you know, we have our own business of caustic soda and chlorine. As I said in the last 3 conference calls, caustic soda directly affected us by 5% of our total revenues as a Mexichem. That is the amount of our derivative business, but also the caustic soda impacts to the formula of the VCM that we are buying from Oxy in order to produce PVC. As I have been explaining in the last year, caustic soda, it's a buffer that reduces if there is some losses in the margins when you compare PVC to ethylene. And then as the caustic soda today, it's lower than in the last year, that is not -- given us more benefits or they are not stopping necessary what we are having on a PVC -- on the change from ethylene to PVC. Only to give you a color and perhaps Daniel already mentioned that thing, if you look at the prices in the quarter for all the buyables in Vinyl business, ethane, it's higher in 17%, PVC is lower in 8%, caustic soda is lower in 43% and ethylene is lower in 26%. All of those buyables are the ones that are affecting our numbers.

[Vanessa Quiroga, analyst]

Great. And if I can go back to the second question that I had regarding the overhauls and if there's a quantification of the -- of how much that impacted...

[Daniel Martínez-Valle, executive]

So Vanessa, it's not a major impact. I can say that the plants -- all of our plants in the Vinyl business are now operating at capacity. You also mentioned the fact that you were interested in getting some additional color in terms of the mitigation measures that we are taking. We're working very diligently with the Vinyl team in terms of cost optimization in every single aspect, ranging from electricity to rationalization of every single supplier. We're optimizing our sales management in terms of really finding every single opportunity to optimize our sales operations globally. And we're very optimistic that all these measures on the cost side and on the top line will significantly mitigate the impact of these prices moving forward.

[Operator]

Our next question comes from Nikolaj Lippmann of Morgan Stanley.

[Nikolaj Lippmann, analyst]

I have 2 questions, if I may. First, on Netafim. I was wondering if you could share with us -- congratulations on the numbers there. Did you add the legacy Mexichem irrigation business to this reporting segment? And if so, what's the magnitude? And also, when we look at the working capital, I don't know if you can share, if not anything else, the magnitude of the relationship between how much of the additional working capital gets consumed in Netafim. So that's question number one. Question number two relates to Colombia and Lat Am profitability where there appears to be a big turnaround. Oil prices are very volatile, clearly going up at the moment. So how should we think about the margins and pricing in the Lat Am markets going forward?

[Rodrigo Guzman, executive]

Okay. Thank you, Nik, for the question. Rodrigo Guzmán speaking. Netafim, the numbers of Mexichem into the Netafim are very negligent. They are not relevant on the numbers of Netafim. So basically, the number that you are seeing on our press release is coming directly from the business of Netafim. So that growth, basically, it's coming from Netafim. In terms of working capital, as you may know and as you know and if you compare the first quarter of, let's say '16, '17 and '18, there is a growth in our working capital in 2017 and '18, and that comes mainly from Netafim. The structure of Netafim obliges them to have a little bit higher inventories in their balance sheet. And they are having some issues on accounts receivable in some of their countries. But we believe that we are going to solve that -- those issues in the coming quarter. That is for Netafim, and basically, that effect of the [indiscernible] in India. And also in revenues because, today, we have that new contract with India and then revenues are reflected on our numbers. In the case of Latin America and in Colombia, we already passed the prices over the market, the increase in PVC prices of the last year. What we are waiting now, it's for volumes coming back in -- specifically in Colombia. So as the government there has been changing their fiscal law in order to expand the economy, we expect that during the year, Colombia will give us very good surprises.

[Operator]

Our next question comes from Leonardo Olmos of Santander.

[Leonardo Olmos, analyst]

My question is regarding still on Netafim. Could you discuss the relationship between growth and margins? I mean is there any chance that if you accelerate growth then it impacts the margins because of the payback time of some large projects? And I'm not trying to understand if you're going to reach the guidance for 2020 or not, but the idea is to understand if maybe going forward, you are going to see an opportunity in the margins, maybe focus on different types of projects and maybe there's going to be profitability to have growth.

[Daniel Martínez-Valle, executive]

So as we mentioned in previous calls, the strong growth opportunities that we see in front of Netafim lie basically on a very low penetration associated to precise irrigation methods in the world. 70% of the water in the world is used for agriculture. Only 7% of that water is used with precise irrigation techniques such as the ones that we deliver, thanks to Netafim. The huge potential that we have in terms of growth moving forward in both emerging and developed countries is associated to just capturing more and more of that pie or that gap between the 7% penetration and the 70% of the water that is used mostly inefficiently. In terms of the margins and in terms of the guidance for 2020, I know that, that was not the nature of the question, but we feel very confident that we will deliver on the numbers that we gave when we acquired Netafim last year in February. We believe that we will reach on a constant currency basis the EBITDA number of $200 million by 2020. We're very optimistic in terms of our top line growth. We're very optimistic in terms of the EBITDA margin that we will see moving forward. And as we evolve our business model towards sort of digital, towards irrigation as a service, we will continue to see increasing trends in terms of profitability in Netafim in particular.

[Leonardo Olmos, analyst]

Okay. Okay. No harm done with the accelerated growth and profitability. Just one follow-up, I'm sorry if you have already mentioned that, but excluding January, which you didn't have last year, what was the growth in February and March year-over-year?

[Rodrigo Guzman, executive]

We cannot disclose [ a monthly ] number, Leonardo. What we can say is that the number we have for January, it's roughly $5 million at the EBITDA level in general in Netafim.

[Operator]

Our next question comes from Gabriel Barra of UBS.

[Gabriel Barra, analyst]

I had one question on the guidance. During the previous conference call, it was mentioned that 2019 guidance took into account oil price between $50 to $60 per barrel. Given the current increase in oil price, should we expect something -- expect better numbers for 2019? Or will the company continue the previous guidance ranging for a growth of minus 1% to 4%?

[Daniel Martínez-Valle, executive]

Thank you for the question, Gabriel. So as I mentioned in my remarks, our expectations for the full year remain unchanged. We are very actively monitoring every single variable that can move the needle. At this point in time, we do not expect any changes in the guidance, and we're keeping the guidance as we announced it in our last quarter call.

[Operator]

Our next question comes from Frank McGann of Bank of America.

[Frank McGann, analyst]

Just to go back to the Vinyl's situation. You mentioned in your remarks that you were seeing signs that things were going to improve. And then as answer to one of the questions, you mentioned some early indication maybe on caustic soda. But I got the impression that you were seeing other factors that could lead to an improvement in vinyls as you go into the second half of the year. I was wondering if you could go into a little bit more detail on what you were seeing.

[Rodrigo Guzman, executive]

Yes. We have been looking at the reports of different analysts in the market and also our own expectations. If you go to what is happening in caustic soda, it is expected that the Alunorte plant in Brazil will start in the second quarter. Of course, that thing will improve the conditions on the caustic soda market because today, what the U.S. used to sell to that plant in Brazil, today, it's living in the market and then that thing is reducing the prices in the caustic soda market mainly in North America. And also, there are some news coming from India and there are limitations to import caustic soda in that market. If that is solving, then the caustic soda prices will go up. And that is what we are seeing. In the ethane and ethylene markets, what we are seeing today is that crackers has been delayed a little bit. The new crackers has been delayed a little bit. And then we believe that, that will reduce the pressure on ethane -- on the ethane markets and the distribution market. At the same time, that thing will increase a little bit the price of ethylene. And that's why we said that we are seeing right now some signs of recovery in that market.

[Frank McGann, analyst]

Okay. Great. And if I could follow up just a little bit on what you're seeing in Latin America and maybe Europe in terms of demand trends in Fluent in particular, just wondering how you're seeing the pricing there. You mentioned, I believe, in the release that you had seen some of the weakness in market PVC prices and other being translated into your market prices. But I was wondering with currency weakness a possibility, how you are seeing [ on your ] diluted price in some of these key markets.

[Rodrigo Guzman, executive]

In terms of volumes in Latin America in general in Fluent, they are coming online as expected. Of course, the lower PVC prices has been benefiting us in the first quarter. And we see that in the following months. The demand on those places, on Colombia and on Brazil, will remain as expected. We will not foresee any reduction on volumes as we expected at the beginning of the year, Frank.

[Operator]

Our next question comes from Petr Grishchenko of Barclays.

[Petr Grishchenko, analyst]

So first, I'm just curious, given the large decline from Pemex production this year, I think in January and February, volumes dropped by about 15% and 9% year-over-year. I'm just curious how -- what you're seeing in terms of impact on your ethane feedstock there and if you have [ something ] import for more, I'm just curious, impact the margins.

[Daniel Martínez-Valle, executive]

Thank you for your question. So we have zero dependency on Pemex in -- none of our operations. Do we see any dependency today? That has been the case for many, many months. As you know, we're virtually -- vertically integrated, thanks to our cracker operation in Texas. And we, again, have no dependency on Pemex production of ethane.

[Petr Grishchenko, analyst]

Okay. And in terms of, I guess, P and PVC spreads performance this year versus your initial expectations. I'm just hearing from a lot of participants, they are surprised by the spread weakness. I think particularly in the P market where imports from the U.S. are increasing given domestic overcapacity. I'm just curious how the spreads are trending versus your, I guess, forecast early this year.

[Daniel Martínez-Valle, executive]

So if you're talking about PE, that does not have an impact on our upstream business, namely Vinyl. On the contrary, on our Fluent business in particular, Wavin in Europe, Datacom in the U.S. and worldwide and Netafim worldwide, we are benefited by declines in PE prices given that this is a basic raw material, mostly HDPE.

[Petr Grishchenko, analyst]

And on PVC?

[Daniel Martínez-Valle, executive]

PVC, in our pipes and fittings business for Building and Infrastructure, from a downstream perspective, we are benefited from declines in PVC resins prices.

[Petr Grishchenko, analyst]

Okay. And just given where your, I guess, leverage is today and your, I guess, forecast for cash generation this year, have you thought of any steps maybe to perhaps protect the balance sheet given where it is above your threshold? I'm just curious if you're thinking CapEx and dividends are -- should be unchanged this year.

[Rodrigo Guzman, executive]

Yes. As you may know, we already proved -- or we declared a couple of dividends last year, an extraordinary dividend and ordinary dividend. The ordinary dividend and the extraordinary dividends are going to be paid as approved by the general shareholders meeting. That will not change at all. And in the terms of CapEx, our guidance, it's being between $400 million and $450 million.

[Daniel Martínez-Valle, executive]

And we will be very keen on making capital allocation decisions to ensure that we obviously maintain our investment-grade status. And as you know, we have an internal rule not to exceed our net debt to EBITDA above 2x. We're a little bit above that, but we expect to continue sort of working in terms of capital allocation to maintain it at the 2x net debt to EBITDA level.

[Operator]

Our next question comes from Nikolay Menteshashvili of Insight Investment.

[Nikolay Menteshashvili, analyst]

Just a couple of questions on the Fluent business. With a 13% revenue growth on constant currency, what's the kind of approximate breakdown between the volumes and the prices? And do you expect that in Fluent business the prices may come down as the raw materials go down? Or there is no risk of that? And the second question I had on the announced litigation you see in Colombia and what effect it may have on the company overall.

[Rodrigo Guzman, executive]

Okay. Let's talk about, first, over the litigation. Because the litigation, first of all, is an investigation that is ongoing, so then we cannot give more details from that because it's ongoing. But at least, we believe that if it will have an impact, that will be no material. And that's the only thing we can say. And also, in the case of raw materials, given our structure and given that in Latin America, we are more closer to the final market, a decline on prices of raw material is not expected to have any impact on pricing to the final market, basically, in our emerging markets and given that we are very close to this -- to the final market.

[Nikolay Menteshashvili, analyst]

And in terms of the split between volumes and prices change for Fluent business?

[Rodrigo Guzman, executive]

Yes. The issue with the Fluent business in terms of volumes is that in the Fluent business, we have more than 40,000 SKUs in Europe and more than 9,000 SKUs in Latin America. And the weights of every one are different. And also, the profitability of each product is different. So volumes really do not tell us nothing about what the markets -- how the markets are working or how the markets are evolving. So that's why we do not release the volumes on Fluent. Basically, the idea is irrelevant because we are giving solutions to the market, not specific products.

[Operator]

Our next question is a follow-up from Vanessa Quiroga of Crédit Suisse.

[Vanessa Quiroga, analyst]

It's regarding Fluent and the FX impact that you mentioned on the press release. Do you expect to be able to pass through pricing these FX impacts?

[Rodrigo Guzman, executive]

Always, we're working that direction, Vanessa.

[Operator]

Our next question is from Liliana de Leon of GBM.

[Liliana de Leon Meza, analyst]

My question is related with Netafim. You mentioned the weather condition in terms of debt. Could you please share with us the net debt of Netafim?

[Rodrigo Guzman, executive]

I don't have the number here, but it's much more lower than our own. I think they are at 1x EBITDA -- net debt to EBITDA.

[Operator]

This concludes today's question-and-answer session. I would like to turn the conference back over to Daniel Martínez-Valle for any closing remarks.

[Daniel Martínez-Valle, executive]

Thank you, Andrea. I want to close by saying how grateful we are to all our customers and partners around the world. I also want to thank our team members who drive our growth day-to-day, and thank you all for joining us today. We appreciate your time, and we do look forward to speaking with each one of you again. Thank you.

[Operator]

The conference has now concluded. Thank you for attending today's presentation. You may now disconnect.