Fras-le S.A. (FRAS3) Earnings Call Transcript & Summary

Good morning. Welcome to the videoconference of Fras-le Mobility for the presentation of the results of the second quarter 2025. Before we begin, we'd like to go through some important notifications. This video media conference is recorded. After we finish, it will be made available on our website, ri.fraslemobility.com. We have simultaneous translation into English. [Operator Instructions] In addition, we'd like to stress that the information addressed in this video conference are not a guarantee of performance. They involve risks and uncertainties because they are about future events. Therefore, they depend on circumstances that may or may not happen. We'd like to thank you for joining us in another video conference of results. Here we have our COO, Anderson Pontalti; the Director of Business and M&A, Hermerson De Souza; our IR Manager, Mariana Guimarães; and as a guest IR Finance director, Esteban Angeletti. And we'll hear from Hemerson, who will start the presentation.

Good morning, everyone. It's a privilege to be talking to you today about the results of the second quarter in the first half of this year, Fras-le Mobility. We had a lot of positive things that had an impact in a significant way to our business. There's our future bridges for us to continue advancing and growing our businesses among which we'd like to highlight that we completed the association of Energy of Fremax This investment have started some time ago, brings to this unit 25% of additional capability. Therefore, extremely important for plans to continue offering for the domestic market and for other geographies. It's ramping up its production. So in the following months, we're going to have full capability being used because the demand for this product is pretty As a subsequent event, we also finished the purchase of the equity interest of Fras-le Mobility, Sorocaba. It used to be called Brazil. It was a joint venture. And in this context, we bought the remaining equity interest of 19.9 symbolic amount. This was widely communicated. We took on some contingencies. Since its acquisition in 2017, it was an important purchase because we are advancing on the OE market through the availability of this unit. In this context, we also -- in addition to the plant, we took another plot of land to practically 77,000 square meters in a very privileged region. Another point that I'd like to highlight is this unit is strategically located in the municipality in the heart of Sao Paulo, where we may, of course, change this into a hub for other products, for manufacturing and distribution in consumer centers such as Sao Paulo. This movement definitely has a goal to strengthen our production. So we become more and more independent and we get closer to the OE market because we're making quotations, and this has been 1 of the lines of organic growth. Moving on to the next chart. We had a subsequent event we concluded on the 15th of July. The third follow-on of Fras-le, the most recent one, where we issued -- we offer BRL 400 million, out of which almost BRL 250 million was primary offering. It's a clear objective to have more liquidity to our company because we suffered -- we kept the liquidity enough to access investors in a different range of spheres. So we can back up our shareholders with a liquid company and to give the opportunity for new shareholders to access our company. This also enables us the admission of resources, and we still have in our pipeline an agenda of acquisitions that is pretty active. We are not about -- we're not going to do anything right now, but we're always ready for that. This has been a year of dedication to the synergies that we're looking for and realizing in the context of the concept, which I'm going to address in a minute. And of course, we're concentrating this journey to internationalize the company more and more. We consider this a movement that it's pretty strong as a company. Unfortunately, the market conditions right now are not stable enough and highlighting -- being a highlight in the market and the impact of the performance of the company right now. Therefore, it's not there in the value of ours -- but it's temporary because our business is continuing in a very positive way. And this is what I'd like to share with you in the presentation today. In this movement, we also had some shares that were sold by the controller as a secondary offering that are going to be allocated in the purchase of a private purchase that was already done -- informed to the market by Randon Corp. Moving on to the next chart. Let's talk a little bit about our agenda -- our market agenda. On the 18th November, we're going to be with our universal Fras-le Mobility. In Sao Paulo, this time at arena. You know this at -- Vincent We're going to share our business executive agenda for the coming years, but also analyzing the current businesses and the possibilities that are real possibilities for growth in our company. So I'd like to invite you all. Here's the day, save the date, November 18, Sao Paulo in a very clear, transparent way as we always do, with -- in relation to the agenda of our businesses. In this next chart, I'd like to invite you to take a look to understand the dynamics of the first semester as a whole. We really have a new year in and of revenues, of course. This is promoted by the relevant acquisition, the most relevant acquisition we've had in our history We're growing about 50% -- 47.8% to be precise compared to the first semester last year. This is a component of organic growth around 11%, which is quite positive considering the macro conditions that where we operate our businesses to be pretty straightforward and frank and candid no matter how much we try to explain the results for this quarter, greater pressure for competition in some of the countries where we operate. This is not a new event for us. We've always dealt with this with competition in a very efficient way, where we operate in any geography. Especially in the domestic market this year has been suffering in a clear way in relation to the cost of capital in Brazil and this dynamics as a whole. But this does not interfere with the sales dynamics among our clients to sell out of our customers is still very positive in all geographies, Brazil, Mexico, Argentina which are major countries for our production. The sell-out dynamics is pretty positive. What has been is waiting or adaptation format in terms of inventory levels because capital costs are higher. This impacted some markets in terms of our sales. But as the inventories are consumed, they need to be filled -- refilled. And this explains the beauty of this aftermarket, which does not suffer from this. Right now, it does not suffer at all when you compare with other industries that has more direct relationship with trust or with credit that may have Our market is still relatively stable. Of course, the opportunities for growth are concentrated in the efficiency in terms of room for market share and maintenance and growth of market share, efficiency to research for new businesses in the geographies where we are in to consolidate the processes of M&A that we have remarkably. We have growth in the U.K., introduction of new lines in the U.K. We're going to use this privilege in Mexico as we introduce new product lines as we give more competitiveness in the line of products that already has because this will back up our process of sales and competitiveness. Now going back specifically to our revision of guidance. We had a small adjustment. After 6 months, we noticed some of the movements we had in the geographies where we have. this is a subtle revision process to be fair -- as fair as possible with the market. This is a reading that the market had that as a forecast already as the months by that we published our revenues, we had an idea. So we refined this, and we have a forecast of an extremely good revenue for this year. We're going to have the best year of our company. Of course, concentrated, the movements that make it unique acquisition and resilience of the aftermarket. And right now, 93% was aftermarket converging towards what we said that the acquisition of the we're going to reach 95%, which is towards a much more supportive and a resilient market in relation to the ups and downs of the market. So the numbers that you see here going down a little bit in relation to the publications from early this year in relation to the follow-on, this is concentrated to refining this concept. And likewise, the EBITDA margin, we refine this. We know that the interval -- the longer interval, the shorter interval is not going to happen again. And we have, we're sure that we're going to keep good levels of profitability of for the following quarters for this quarter, where we show the effect. Small drop because of the lack of stability, the tariffs caused by the U.S., which impacts the dynamics of our clients. Just to give you an idea, we have sales of OE to the U.S. and the heavy vehicle here goes down by 30%. So we have an impact from that because we have in the aftermarket, the freight in the U.S. We have strong sales to heavy vehicles. We're going down by 15% or 20%. So this does impact our sales marginally because today, around 6% of our sales is to the American market, but does not impact the dynamics and the consistency of these markets where we operate. So these are specific impacts. And so we adjusted this a little. Why didn't we adjust the foreign market? Because this is the range that we expect to have growth in Argentina and other countries in Latin America. We can advance some business lines in Mexico this year, especially those connected to heavy vehicles. We have a good performance in some European countries because of in the general context with a few exceptions where we have more competition, heavy vehicles in Brazil. The shares that we lost due to the floods in Controil Brazil. All the other markets are still resilient with a bias towards growth, growth with the competition dynamics that it's always been there, and we all did pretty well by using the tools and the strengths of our brands and our company as a whole. The service level, product quality, efficiency with our dealers been close to the applications. And so we're sure that we're going to continue the same level of business that we've had historically. So the guidance, like I said, for the foreign market, it's growing 75%. In relation to the first quarter of last year is still the same, have not change the interval. And investments, we have an investment that is higher in the first semester because we finished the process stabilization of the substation of Fremax and other derivatives. We had new installation of equipment in Brazil to improve productivity in the heavy lines for this break disks, break pads. So we did not change our guidance in Moving on to the next chart to be more specific tell you about some of the highlights of this quarter. 1.4 revenue because our record we never had this before. Of course, leveraged by a relevant acquisition, but I'd like to repeat this acquisition as part of our core business So it will be part not only of this pure valuation, but the following ones as well. As we move on, we noticed the domestic market that is headed would grow our market share. We lost some others. It's true Controil. Like I said, the floods 1 year ago, they hit at the state of Then Controil suffered from this. They could not continue with some of the dealers. And when our competitors get this market share. It takes time to take that back, but we are fully targeting this, and we're going to take this back again. We have competitiveness. We have room for improvements and a number of things to offer to Controil. We have availability. And right now, we have lower inventory levels with our clients. And this is because we had a hard time last year with the floods, but we are recovering this -- and pretty soon, we're going to have better results. In Brazil, heavy lines are being more competitive because of the freight and other aspects that we know here. In the foreign market, we are operating cautiously certainly due to the tariff environment at the moment. We have some some orders that have been delayed, but we are consistently growing. We're keeping our position in all geographies where we are, especially in Argentina, where we're growing due to the additional offer of products that was not possible in the past due to the restrictions that we have for exports and imports. Just to have an idea. We expanded 10x the amount of pads that we sold there. We sold 10,000 and right now, 35,000. we never had such an integration that was so positive like we had right now. We have a number of brand support type of work. And as we realize this, I'm going to give the details. It's not in the moment right now USD 1 million of synergies awaiting for us in the fifth year. We have the possibility to reach this in 1.5 years. This we have around 20% of synergies that are already implemented. They come from raw materials that we use. These are 2 or 3 bring this analysis. Manufacturing supply chains and intense round of negotiations, very positive. And it's possible in the first quarter next year, we're going to have this. And as we realize our inventories, as we have new projects, we're going to grow our market share because of our competitiveness level. We'll have better results like we had with Nakata, Fremax and other acquisitions. So the first semester -- moving on to the next chart. We had growth, 47.8% notably coming from the acquisition of the cancer, but we have 11% of organic growth in this quarter and the semester as a whole of dynamic recovery quarter due to this decoupling of the good sellout, higher inventory level. So clients are reducing their inventories as well. I mean, now the service level that gives the client the opportunity to buy in a segregated way. They don't need higher volumes because we have fast delivery and the service brings the encouragement. As they sell their inventories, they refill their inventories and this brings regularity to the market. It's important to say that advances of the revenues are connected to the -- more to the domestic market at the moment because we have stability with our workshop service levels. We also have the exchange rate and other things, but we do not have problems with price. We're selling more volumes and our product mix sometimes does not reveal this, but we are selling more volume, and the results here show very clearly how diverse our portfolio is. And the fact that we have a diversified geography and also we have the discipline to keep the coherence in the margins and the offer of products, we don't want to lose our market share. We don't like this. But we always prefer to keep our position than recovering this position. And as opposed to what some of the reports have been same, we do not have competitiveness with the Chinese. We always had. But what we see right now is Chinese products, not for the aftermarket because they're there in all geographies. This is Just to continue, we are clients of Chinese. We operate with partners, Chinese manufacturers. What we have seen is vehicles, new cars, the Chinese cars and like Argentina, Mexico, Brazil getting more relevant. And here, this translates into an opportunity for us because we're always the first player to offer solutions in a quick way. And remarkably, we have a strong offer for Chinese cars in Mexico, Argentina and Brazil. Right now, the volumes are still small. Here, we can see how the revenue breaks down. The second quarter, we had 93% of revenue coming from the aftermarket and 78% come from the light line, where we can see service level at a very good level and good profitability for the geographies where we work. I understand that the flow of cars is very positive. It enables us to grow in the domestic market, 13% -- 13.6%. It's organic growth. There was no acquisition here. So quarter-by-quarter, we have almost 14%. So the adjustments in the clients, the expressed negatively the performance. But as we adjust the inventories, we have the recovery of sales. In the foreign market, of course, we have a relevant acquisition, but we also have all this growth of sales that we had in the geographies where we operate. In the U.S. in general, we had stability and some drops when we talk about offers of OE products. So there was a relevant drop that impacts our sales. There's no scenario of change right now because the industry itself is still awaiting the sanctions and impact to -- from the American economy. It's performing well, but does not reflect the moment of the heavy products in the U.S. because it's an industry that takes some time to react.The is slightly positive -- it's not very positive, but it's slightly positive because the inventories are sold for new products, they need to produce more trucks for the sales. Mexico, like I said, we had growth year-by-year of the as you can see in the reports from 3% and 5%. Basically, this is volume. Very few we expanded the price. But in Mexico, we can see something new, which is engines because the market of engines has a demand, a faster market of spare parts. It's not going to go through the ups and downs, but there is a scenario of crisis where there is maintenance where within the scenario of crisis, it takes longer. So some for deliver it takes longer to deliver. So some clients always say, this is normal. The demand is here some clients instead of having maintenance this month, they wait 2 or 3 months. And usually, the second half is much better. So we understand as a learning curve, but in the brakes and the we grew a lot in this lines in a way that we have growing operation at 3% to 5%, basically in line with what we expected for this year. In the second half, we're going to recover some small differences that we have all right and trying to address in a clear way. I'd like to stress the competitive dynamics is present in our industry in the market. Of course, we had a year that were favorable to sales, has brought some confidence in what we do. And we got a lot of room. This doesn't change. But for a year, we've been talking about this. We have some regular sales, but they're part of our course, but we don't have this intense level of sales that we had 3 years ago that enabled us to go through such positive moments, but we're still going through some good moments, but with lower sales. But as we deal with, it's not like we don't have parts or logistics difficulties. Now these days, it's much more stable, like most regulated as part of our everyday work. We are ready to deal with this. So I'd like to sell this optimism that we have about our business for now. Now we'll hear from Mariana about the dynamics of the results of the company in a number of other aspects. Mariana, over to you.

Thanks, Hemerson. In 11 -- Slide 11, we see the EBITDA with a margin of 6%, and 2-point below showing the EBITDA -- the gross margin is stable. It's still a small drop in relation to the cost and vacation of the labor and more pressure for discounts. The expenses with sales with Dacomsa and the maintenance of the distribution center and also had more spending with freight due to the volumes that are exported to Argentina and the administrative expenses reflect the consolidation of Dacomsa. In addition, the M&A expenses are BRL 1.3 million. There were no one-off effect in this semester. In the next slide, Slide 12, we can see the main lines of variation in the operational cash flow, which closed the semester as a negative number at BRL 602 million. The financial result was impacted by the variation of financial revenues due to the availability of cash flow, reflecting the stability of Argentinian currency, in the in relation to the variation of the capital workflow, it comes from the operating higher levels compared to presumably which we are addressing right now with the synergies capture after the acquisition and comparing to with '25, we had reduction of 11 days, reflecting the efforts that were executed for credit for the funding in our clients, especially with the inventory. Next, Slide 13. We consider the company closes to '25 with a net profit of BRL 49.7 million with a net margin of BRL 3.7 million impact coming from the financial expenses coming from that level. The effective rate of income tax was 27.3%, 14% points smaller than '24, especially the impact of the restructuring of in relation to EBITDA is 2.2x per net EBIT -- net debt. And considering the EBITDA pro forma adjusted in the last 12 months, because of the comps that the company would finalize the quarter with 1.9x of leverage. Now we'll hear from Anderson to talk about the perspective of the next quarters.

Thanks, Hemerson, Mariana. Good morning, ladies and gentlemen. Surely, the question about tariff will come up, and I'd like to address this already in a more specific way, how we see this moment the snapshot, we know the volatility the uncertainties and the trajectory changes that are necessary, 6.6% of our revenues or exports, in fact, are part of our revenue. So it's a relatively small business. And we have 2 main products product friction, generally lining -- brake lining and brake pads -- heavy brake pads -- in brake and light break disks. We have the amendment 232 which overlaps. It's over the current tariffs -- on top of the current tariffs. It's attributed to cars, light vehicles, steel, aluminum and auto part. So here, we are at 7%. And right now, our vision is competitive advantage because China does not have the possibility of 232. Therefore, they're a great supplier -- a major supplier in addition to other markets. Therefore, it generates more opportunities, more orders, which is in line with our investment recently made in the substation in When we talk about lining using exported for longer contracts, it's important to bear in mind the income term. The income term is filed. So those that collect the tax is the customer does collect the taxes. So the impact will be on them. And then we look at the possibility of producing this in a competitive way in another geography. We understand that Brazil, India and China, when we look at the cost exports, costs in each geography, these are most competitive geographies because they have scale, they have and it's hard to get the same competitive level without considering terms. And these are investments that demand time in CapEx to produce at the demand level that the American market needs. So it would be too long for a change of supply change here. And given the volatility, of course, we're not sitting right now, too comfortable. We're always looking at possibility. We have a plant in India, not China. We have possibilities in Mexico and even Alabama. We're looking at dynamics, but we believe with the tariffs of 50% confirmed, the tariffs for India, 75% for China, which makes it easier for us to become a little more competitive in China. This is important, we have a contract in force. And by talking to our clients, we have a very close relationship with them. We have no intention to have migration studies. What we have is our proactive work to bring alternatives to the table for our clients there. We have an alternative, which is accounting based on accountability to minimize the longest accountability and tax law enables us to lesser profitability in Brazil, to have higher profitability in the U.S. So the import cost would be lower and the tariff will be lower. So this is a temporary competitiveness that our competitors can also have, they could also do the same thing. So right now, we are protected. The volumes are lower reflected in this quarter and reflected because of the American dynamics. The economies stressed there. It's slower. Every month, we see things are deteriorating in terms of demands there around 20% to 30% of the original market. And in the aftermarket, 5% to 10%, but we gained a lot of market share there in the past year. So we're still strong. Next slide, please. So now talking about in a wider way how can we see the outlook of the company? Hemerson points out, the demand is a safe ground for our business when we talk about aftermarket. 93% of our business is aftermarket. We may cut here your appetite inventory for capital cost. You may postpone maintenance, but the demand is there. It may not happen here. It will happen in the future. The greater decision-makers for spare parts is with the brands, and we're investing our time, and our perception of brand is growing. Brand is really a certification of good repairs from the mechanics standpoint. So we have a good timing here. We get market share, we get penetration because of that -- because the market is more limited, and we have more geographies when we can use our dealers that don't have healthier status and they get market share in relation to smaller dealers because we are #1 supplier in Brazil and Argentina and in Mexico. Right now, the demand may be soft -- I mean, look soft, but there's always sun after the rain. I'm not talking about a storm because there is no storm. Just a softer demand because of the uncertainties. But every time we had this in the past, we had positive results upcoming. It's a matter of a change of perception about risks and dynamics in the market. The pressure for cost is historical. It's been with us forever. I potentially say we sell here for the same price in dollar that we sold 10 years ago. This is competitiveness. This is looking for we're being better every day, and we're very happy with the leadership of Hemerson with the as a team. What we have found in terms of possibilities of synergies in that geography is awesome. Surprisingly, we're going to be able to get all our synergies in sourcing and in raw materials in business without considering an increase of volume in product lines due to the competitiveness, not even mentioning supplementary lines. So this makes us really positive and optimistic about the future results of the company, especially when we capture this late this year and early next year. Of course, we're investing heavily in people and structure so we can capture this at a higher level. I have a lot of people spread around the world talking to our chains, developing chains, getting sales leverage and so on. So the horizon is very positive. The quarter is a record quarter in terms of revenues, pretty favorable compared to last year without our in terms of tariffs, at least right now, we continue being strong. Our main goal is Dacomsa -- to integrate Dacomsa it's still strong, and we also have structuring movements like our follow-on, like substation and 100% Fras-le Mobility with the equity interest So we're still strong, and we'll hear from Monika again.

[Operator Instructions] The first question comes from Gabriel Tinem, Santander analyst.

I have 2 questions here. One is more connected to the guidance. We noticed that compared to April, it was the range of foreign market is still the same when you look at dollars. But when you look at the consolidated revenue, the range had a drop, I'd like to understand this effect. Was it dollar, or is it since April, you were more conservative in the foreign market, if you could share also the domestic scenario, competitiveness and the behavior of dealers. And the second point, we're focused on labor. If you could comment on the adjustments, the 1 that had an impact on the gross margin. And also provisions, contingencies, if there was a relationship. I'd like to understand this movement and if there's going to be any impact in the future.

Gabriel, first, thanks for your questions. To take your questions together, if you can talk about the wages adjustment that would be great.

So in fact, we had a performance that is more positive than we expected in the first quarter in the foreign market. There are many things that convert exchange rate that is more favorable businesses of Dacomsa that added an anticipated way, let's say. We didn't know when we were going to incorporate Dacomsa. And we had a movement of materials in the first quarter that was very positive. Even though the sales went down, we have our subsidiary there, our dealer in the U.S. ends up doing these dynamics of client control. And we have growth in a number of other geographies like Argentina and the U.K., Europe. In general, we have been growing in the foreign market. Therefore, we do not touch the range. It was more conservative when we published. And this is our forecast for the foreign market within the range that we published. When we look at the total, there is no division there of foreign or domestic. We do have there the dynamics of exchange rate and the movements that we distort just a little, but it wouldn't make sense to change the range because of perception, there's no direct link in to these 2 things. So we keep it like that because it's favorable. In the first quarter illustrates this and we had -- we don't wait a significant drop in the second semester. We're just adapting in our guidance. These movements that have a more direct impact and the movements that have to do with our clients' inventory levels, the exchange rate, we have an average stock exchange that is weakened for the second half and the hardship from the dynamics that was promoted by the tariffs promoted by the U.S., led by the U.S. that impact local market on heavy heavy products. The economy is going well. So that's why we don't have these differences here, but there is no scenario in terms of saying that the competition is harder in Brazil. Now everything is part of the regular business -- business as usual. The dealers, we have a KPI here that we say. This workshop service volume, it's growing 2%, 1%. It was not such robust growth, but there is no drop here. So the workshop are still working, and the parts are still being sold. They've informed the sellout. The sellout is pretty positive. So we're getting even market share in some lines. So the point is that the clients are buying less sell-off because they have lower inventory level. They have good service. There's no problem of shortages. And in other cases, the clients to continue buying as usual because it makes sense to expand their units, their offices, their dealers, but generally speaking, as we regulate this, we understand this is regulated. The sales flow will continue to show except the industries that have a harder time of the heavy vehicles in Brazil, the Controil lines that we are aware of what we're going to do and we are doing this. We can see every month the sales going up a little by little, but we have room to advance outside of Brazil. And when we talk about this range, I think this is the explanation. Now we'll hear from Mariana perhaps on labor.

I just would like to comment something here. Everybody talks about competition. competition, no doubt, is higher, is more abundant in terms of products, but we have 2 or 3 protections that are very relevant. One is brand. Another one is availability. And scope of our portfolio is pretty robust when compared to any player in this market that could impact us. I have a lot of room there. We have the main dealers across the geographies. So this combination is very powerful, where you can have economic cycles, but you do not have structuring movements, so you can reduce market share to be attacked in a very specific way to lose market share. It's good to keep in mind that structurally speaking, it's very hard to attack Fras-le share level. We have not seen this, which is hard not to see because of the tools that we have, we can respond very promptly to ensure that the levels volumes are good enough. So when the market wants to buy more, we can really benefit from this in terms of volume and margins.

Thanks, Anderson. A little bit about Gross margin. We had costs connected to raw materials with higher imports manufactured products from Nakata. This increase of sales of Nakata BRL 3.1 million. This impact quarter-by-quarter coming from restructuring of labor, adaptation of headcount based on the revenue forecast, elimination of low inventory turn around BRL 13 million in addition to the expenses from raw materials. How about the contingencies we're updating this constantly by health conditions. This may advance and it will be positive for the company in the future. We're sure can is Obviously, it's going to take time. There is nothing that is not healthy in our operations that it could have an impact, but we're going to update this. This is perhaps the main point in terms of contingencies. The rest is business as usual. Thank you.

Our next question from Fernanda Urbano sell side of XP Investments.

We have 2 questions here. First, I'd like to know about the competitive dynamics. You talked about some pressure -- price pressure. I'd like to understand the impact of Chinese vehicles coming to our market. The auto parts, what is the effect of cars and auto parts come into our market. And in relation to this, can you comment a little better about the categories of products that have some changes in the competitors and market share level in Brazil and Latin America. This is the first point to understand better, the competitive dynamics. And the second point is about profitability. This quarter, we saw lower leverage on revenues that were postponed that had an impact on the margin -- the lower range of the new guidance. I'd like to understand looking ahead product mix and synergies of Dacomsa. What would be the main driver for the second half? This margin to the middle or high end of the guidance.

Thanks Fernanda. Let me answer the first part. And then we'll have other some answer to the second part. First, I'd like to tell you all, more Chinese vehicles means aftermarket -- for the aftermarkets is more opportunities. It's not actually a competitiveness that is not different from support of the demand of a car made in Brazil and Europe or in India, it's the same. What it brings about is it the future component. It changes the product mix. So you'll have to develop those products and so on. And we are very good at this. We're always the first one to adopt and offer this. We know some other markets in Latin America, Mexico, for example, 18% of the sales of new cars are Chinese. This is relevant in Argentina. This is growing. I don't have the figure right now. But this is also growing. And this brings to us the opportunity of selling parts for a category for a population of cars, it's not part of our portfolio today. But we have developed some parts for them. Of course, the product takes some time for maintenance, for example, the brake discs and pads. We have majority of models sold in Brazil and Mexico. We're evolving pretty fast there because they have premature engine deterioration. So this is an opportunity. We need to consider auto parts, spare parts. The Chinese operate in all markets around the world. They provide -- they supply to many of our competitors and to ourselves in Brazil and Nakata. 75% of market share business is co-manufactured. Some partners are Chinese and they offer a very unique conditions so we can continue advancing. We have not seen advance in direct offer by the Chinese, they don't have brand. They don't have service. And this is really important for the aftermarket. How can you deal with any competitive advancement is the strength of our brands, is the service level with credit support, offering the whole product range. It's very complex. Otherwise, you would have to any new competitors every month and it doesn't happen. It takes long to get to this level. We grew as Fras-le when you compare to other entries, it would take long to develop this kind of dealership and intelligence. So there is no room for them to grow in the sense. Of course, on the other hand, the main competitors that we have in some markets. Some are stronger because of their commercial strategies. They want to take market share just like we do in other geographies. This is a push and pull kind of gaming. It's normal. So there is no competition with the Chinese. They always have their space and we have a good relationship with the Chinese that make us competitive. And in some lines, we are even more competitive in the Chinese. We talk about this sometimes. We're a relevant player in heavy friction rather of pad dampers we have very competitive levels here compared to the Chinese. We buy part of their product range with them. So this hasn't been a problem with us and we advanced market share. Some suspension products in dampers. In Mexico, we advanced market share breaks to our market share in relation to other product lines, except for the only 1 is Controil items because of the floods. They're 2 months, almost 3 months, we did not produce and the market cannot wait. If the cars they are waiting. They're going back from a different seller, and this takes some time. I'm not talking about too long. I mean, about a drop of 15%. And the company of BRL 230 million sales. Every month, we're getting better. We're recovering into the better. We need to improve supply, test and promotions, offer special offers. This is all connected in the heavy industry, which is more competitive. It is always harder in Brazil and outside Brazil because of the uncertainties. So right now, I don't see that the competition has changed. The competition is all been there. Today, the level of offer and demand is not items that are privilege higher inventory levels. But in the field, they're still buying. The cars are still working, and the aftermarket is very good. With a small delay, we're going to profit from this in a direct way. I don't think that growing 11% organically is any bad in the growth in revenues, even though the margins have not reflected this. I mean, it's bias and the levels where they are is pretty positive. It's very positive due to all we do. But we cannot have a strategy to move a new tariff with the American market. I mean, it's not done overnight. There's a whole dynamics for some products continue to deal with. It's not a movie. This is not the reality. This is a move, not just a snapshot. The snapshot is just a moment. I mean, being close to the customer to promote our brands. This is favorable. It's always been and it will continue to be so. It will be a strong hold. Would you like to answer about profitability?

Definitely, yes, this is our commitment, like you said, and we want to continue with the volumes. Therefore, we have to make some concessions even though we had inflation pressure. We guess we touched some prices, even though we know that our cost because of the spike that dollar had earlier this year, it would mean that we would have inventory levels that were higher. And that's why we say that we weight better profitability for these products in the next period. As much as we observed in some commodities, we have some retraction that may benefit our cost structure. The third -- the second quarter was marked by a specific restructuring we adapted our headcount based on the American demand that is not so strong, 2 points of drop of our domestic market adjusted our working capital, and we adjusted this working capital. We adjusted this in the leverage of the company from 2.6 to 2.2 in the quarter without considering the capital -- the follow-on capital and Dacomsa has been with us only for 4, 5 months, and it already has a very favorable leverage. So we are protecting ourselves, making sure that we're using the right tools so that when the market, has a better expectation, more of a buyer expectation and less speculative expectation then we're going to take off again as you can see in Argentina. Argentina is in a very positive cycle right now in terms of market dynamics. I can share with you this. We sold 4,000 dampers every month before because we could not import more than that. The demand was repressed. Now in the past months, in July, we sold 39,000 dampers in the Our brake pads, we're selling 60,000, very positive growth. So the markets that are taking off, we're benefiting from them. The foreign revenues are not going down. The guidance going down a little bit, it's about USD 1 exchange rate in the American market. Basically, that's what's reflected in our future perceptions without cutting the conversion that will be committed even from the initial guidance.

Next question is audio from Gabriel Tinem.

Two quick follow-ups from the initial presentation. I'd like to understand, confirm 1 point about the updated guidance that incorporates this premise of the tariff -- the new tariffs on the U.S. at 27%. I think Pontalti mentioned 50%, there's a clause that overlaps mean 27%, which is part of your new ranges for the guidance. And the second point, Hemerson mentioned, integration of Dacomsa has been very good. Give you better than expectations -- better than expected. I'd like to hear from you an update about synergies, about the integration for the second half. Any updates in relation to that.

Thanks, Gabriel, for your questions. Very quickly, 27% applies have USD 60 million in exports to the U.S., 27% is for USD 10 million of the USD 60 million risks that benefit from -- based on the explanation that Anderson gave. Steel product and products. The other 50 million brake lining, we're going to have to pay 50%. And we're having a number of movements to mitigate this for our client. And yes, we have competitiveness that is better in China and India, and our projects are trusted. We're looking for other alternatives for mitigation such as margin composition between Brazilian margin because we sell to our units in the U.S. and then they can sell to our clients to reduce the taxes. The 27% is only further BRL 10 million. The rest takes on 50%. Now Dacomsa, yes, we are extremely positive there. I don't have more specific data because it's still very recent, but as we update this, like we did with Nakata, we have the temperature But here's the thing, we promised BRL 300 million over 5 years. If we divide that by 5, BRL 60 million, USD 11 million. We captured 20% of that already USD 2.5 million. Of course, it's going to be realized in a year. You don't capture this right now. It's over a year, right? But the perspective of the outlook is really positive between today and a year ahead. We have all this amount in only a few lines product lines without counting operational efficiency and so on. It's definitely a very positive integration. It's going to continue being so. And we're going to share more data so that you know more about this but it's a well-managed company at a margin level that is very good. It has a hard time growing because it has reached its limit and its competitiveness in these lines. What we're giving you is this competitiveness so it can grow revenues, volumes and to give more results. In terms of engines, we have more market share. It's harder because they have 50%, 60% market share, but we're going to improve the product of the manufacturing process to recover the margins. So nobody gets our market share. We know how to defend our market share. I hope I I'd answer your question.

Thanks Hemerson, that was great.

The Q&A session is over. All the questions may be submitted to the IR e-mail. I will hear from Anderson for the final remarks.

Thanks Monica and all that were with us. Another quarter, a historical quarter in terms of revenue for Fras-le within the guidance with structuring things that were done with a positive outlook regardless of this turbulence, I think that the company has a model that is protected from the exposition because it's based on the aftermarket, more related to what's out there and not related to the GDPs geopolitically. It's pretty protected as well with a strong presence in all America. It's contributing very positively in the foreign market. It's a very seasoned experienced team that understands that needs to make fewer adjustments to fine-tune so that any threat does not reach us, and we're pretty successful in this. We hope that all this volatility will end or will be reduced over time as policies are applied and implemented and we're going to benefit from a more optimistic market in the near future, hopefully. As Hemerson said, regardless of a sunny weather or a cloud weather or right wing or left wing, we have a model, a business model that's pretty resilient to any market condition. Thank you all and wish you a great day. Thank you. Bye-bye. [Statements in English on this transcript were spoken by an interpreter present on the live call.]