Grupo Multi S.A. (MLAS3) Earnings Call Transcript & Summary

Good morning, and thank you for holding. Welcome to the earnings conference call for the third quarter of '24, Grupo Multi. [Operator Instructions] We would like to inform that this call is being recorded and will be provided at the company's IR website, where you find all of the material available for our earnings, and you can download this presentation on the chat icon also in English. [Operator Instructions] We also highlight that the information -- the forward-looking statements that may be made during this conference call relating to the company's business prospects, projections and operational and financial targets are based on Multi's management's beliefs and assumptions as well as on currently available information. Forward-looking statements are not a guarantee of performance. So please check the legal disclaimer on the last slide of our presentation. Today, we have Ale Ostrowiecki with us, our CEO; Eduardo Belelas, our Controller; and myself, Flavio Lima, Investor Relations Director. I'll turn the floor to Ale so that he'll begin the presentation.

Good morning, everyone. Thank you for your presence here at our earnings conference call. We will start with 2 minutes of a new institutional video that the company made. It's managerial data. So it doesn't necessarily correlate to the official financial statement. They're more about operational aspects used to disclose this to our partners and retailer customers. So let's check it out. [Presentation]

Just a little bit of a few images. If you're getting to our base or want to know more, this gives you a little bit of color of what's behind the numbers. So speaking of numbers, we have -- basically, on the last call, we talked about the improvement in the results overall. We had something already improving in revenue growth, income and some logistic concerns. So let's talk about all of that today, show you how the quarter was, a little bit about our expectation looking forward. And basically, we had a major challenge. We expected higher revenue. We were supposed to deliver more revenue. But as we talked on the last call, there are a lot of delays in the logistics chain. So a lot was still delayed for the fourth quarter. Still, if you think about the continued portfolio, we have the first growth of 3% versus the second quarter. And in terms of net revenue, there's a slight drop compared to the second quarter. So we are between the first and second quarters on the year's average this quarter. So revenue was stable. We would have liked to deliver more, but there were a lot of order delays due to replenishment. Gross margin, I think, is the major piece of news. That was another 200 bps improvement in gross margin. So it's the long way towards our historical margin of above 30%. That's what we're seeking, the long-term ideal. And we need to resume or recover that 30% gross margin. We had 24.6%. So there's an additional 200 bps compared to the previous quarter. So another step towards gross margin. So in terms of absolute margin, we actually delivered slightly above the second quarter. Even with that drop in revenue, we delivered more gross margin. EBITDA is still squeezed. It's far from what we want, of course, at BRL 4 million. And net income this year -- or this quarter rather had a slight FX help, which dropped 11 bps in the quarter. Now in the fourth quarter, it went high up. Everybody knows. But our FX average in the third quarter was slightly down. So we maintained our net income not too far from EBITDA. So symbolically, that makes me very happy to see everything in the blue. Of course, it's a small number. There's a joke in the letter. I don't know if you saw it at the Board meeting. One of our members came with a box of chocolates to celebrate. And I said, bro, you -- don't book this under the company's expenses. Otherwise, our income will be negative. And people were laughing and joking that it is very small. But if we've been, for 1 year, operating in the red, to see it in the blue, it's definitely a good direction. So we had a nonrecurring in the second event of -- second quarter of '23. So if you think of net income, it's the first operating net income with nothing that is not extemporaneous since the fourth quarter of 2022. So the fourth quarter of '22, all of the quarters of '23 and all of '24, for the first time, we're in the blue. So it's a symbol of a good path that, of course, has to exceed that greatly. We can't be at the stable level. But another important point is that we continue to liquidate the lines that are being discontinued, especially in materials. Of our total inventory, only 1.5% of the discontinued lines are there. So that -- we also have slow movers, of course, that are current lines with a slow turnover, but it was -- it's not discontinued. So we're going to see that a little bit down the line. Then in terms of total inventory, we're still in a downward trajectory, improving inventory efficiency. But the inventory in-house, that's the blue, took a leap this quarter. And it was practically everything arrived at the end of the quarter. That's why the revenue wasn't so strong. So we're rushing to sell it with TVs and TV material, drones, speakers. Everything is late or stopped at customs and containers and the global chain that had these delays. So a lot of things came in at the end of the quarter. So you can see here that the share of in-house inventory went up from 48% to almost 60% today. 60% of our inventory value is in house. So in practical terms, what that means is that we have to deliver robust revenues in the fourth quarter. There's no excuse. There's no way. You can eat our liver for dinner if we get to the end of the quarter without the revenue because that's what the inventory was acquired for. So of course, we need to get everyone on the same page on the customers. There was an increase in -- seeing an increase in revenue was really good in October, a slight leap in the plan. In November, we have to deliver a lot as well. So we need to be good on the top line so that everything goes well. You see that we sold a lot and cleared. There's less orders in transit that impacts the cash because if we have to clear, we have to pay 80% straight up in Brazil. Every $1 million of materials you buy, you pay about 80% ahead of time at the exchange for customs. So that consumes cash, but it's how it is. It's what we need to grow, and we'll see this impact in cash a little bit later. A little bit of color on logistics. Everybody always wants to know issues, the Suez Canal with a lot of issues and the Panama Canal as well. To summarize what happens, you know that there's geopolitical issues in the Red Sea. There are rebels, risks to navigation. People have been decreasing navigation through Suez. Asia and Europe are going around Africa. And that increases transit time a lot, consumes more vessels. The demand for vessels going up. The prices go up. The time for delivery go up. So it's not as much a Multi direct issue, but indirectly, we are being affected because these ships that should be in the China-Brazil route have to cover the European routes as well due to the Suez Canal. The Panama Canal as well, a lot comes through there. There's a bottleneck. So basically, we're talking about a transit time that is getting to 90 days to get to Manaus. So that's pretty insane. Also getting close to the Chinese New Year, there's always a bottleneck of orders. Everybody needs to buy ahead of time before the Chinese New Year. And on the other hand, the green channels, I mean, it's not a Multi issue. You're probably seeing this broadly. It's a structural market thing. So 95% here on the green channels. And the topic about the freight cost. We had a history of $4,000, from $2,000 to $4,000. In the pandemic, we got to 20,000. In '23, we got to a low of $1,000. And again, we're at around $4,000. Let's see where these tariffs go. And with the U.S. dollar going up, it's very important for us to try and reduce freight costs to offset it. So here, the routes, we started to also do -- run weekly bids. It's nothing new. Some periods are better for you to close a big package of containers. And at other times, it's better to buy spot. So it's a lot about feeling the market and negotiating as best as possible. At this time, we have opportunities to close the 2,000, 3,000 containers at a slightly better price. It's an investment. If the market drops too much, we lose. But if the freight remains stable, there's savings to be made. Time of transit here that I mentioned, 80 to 90 days to Manaus. So whatever is from Manaus, the boards, TVs, the products that go to Manaus, they have significant delays, which have delayed deliveries as well. We're also expanding. Manaus has a big bottleneck. So we are expanding our warehouses there, leasing a new 15,000 square meter warehouse so that we'll have more space to be able to have more inventory since the share of Manaus products has been increasing. We only have 7,000 square meters of inventory in Manaus compared to almost 70,000 square meters in Minas Gerais. So it's 1 to 10, and this is out of balance. Now a little bit about inventory turnover. This is new. We broke down in 2 blocks the in-house inventory. Black would be long turnover, above 9 months in-house. Note that there is a downward trend. Even though it's slight, there's still a lot of long turnover. We have the opportunity to bring this down to 15%. And that unlocks a lot of capital. But the long turnover, as the name says, it's hard to get it out. It's easier to buy more, but then whatever doesn't sell, it's complex. Normal regular inventory, 47%. So these 2 are the actual in-house inventory. That would be the combination of blue and black. And gray is just to give you some color. It would be the stock-out or the shortage, the orders that we have in-house where we have no inventory. It's a negative inventory. That's at record high at this time, at the point that I mentioned because of the delays on shipments. There's a lot of TVs, speakers, drones, a lot of products there that are being replenished but are still bottled up. Net revenue. Those 8% drop that we mentioned, there's a lot due to a big nonrecurring event that it would have been flat. With the continued portfolio, we would have grown 3%, just to give you food for thought. Gross margin. Going back, we can't compare it with last year. Last year was really squeezed, 7% up to 22% and now 24.6%. That's the long margin that I mentioned, seeking to make the most of it to get to 30%. How we're going to do that? With commercial policies, reducing discounts, renegotiating, replenishing only high-margin products, streamlining the portfolio, removing slow movers, a lot of long-tail items. So it's a long work to remove the bad things and bring back good things. According to the logistics, it takes time, and we need to climb this every quarter. It's a fight. Many fights against it, but we have to deliver. So this gradual increase in gross margin, that's the main point for improvement of the company. And of course, EBITDA, a lot due to commercial expenses as we'll talk about. So for me, 2 focal points today are the S of SG&A. Our G&A is relatively low. It's below 4%. It doesn't really stand out, the G&A on our P&L. But sales expenses is above 20%. That's where the money is. So we need to improve commercial expenses and improve gross margin. That's where we have -- the money is there. We need to seek it. The continued line, the margin is 1% higher. Discontinued line would be a very low margin, just 1% of the gross margin. So we have to remove that from the base, and then the overall numbers improve. The point of Government here, you can see that last year, it was very robust. This year was a big drought in Government. In the second quarter, we mentioned there would be an improvement. It did improve 1 point. Fourth quarter should come slightly better as well. So there's a gradual improvement in Government business. EBITDA, slightly worse here due to commercial expenses. So a lot of funds from the past being paid, a lot of rebates, a little bit of credit, selling the -- or [ ALL ] for products. It doesn't get good for the credit. The net income, the point that we mentioned from minus 24% to minus 6% and now at least we're slightly in the blue. So we need to continue with this evolution so that we get to numbers that are suitable profitability to this level of capital invested. Talking about cash a little bit. We had that consumption that I mentioned. We had a strong agenda of cash generation in 2023 and the first half of '24. We went from BRL 600 million net debt to BRL 300 million of net cash at the peak of cash there. And then we switched the key a little bit and said, okay, we're sitting on the cash. We need to replenish the company with good things. So we released purchases again of streamlined portfolios with good gross margin levels. And the agenda is to consume that cash with good things. That's our plan. So we consumed BRL 140 million a quarter. We're at BRL 700 million -- with BRL 700 million in cash and BRL 175 million net cash. And then from now, it's still comfortable. We only have BRL 270 million here to pay in the next year, 2 months. But we have an idea to start raising funds again in the first quarter so that we can fill up this cash. So even though there is no rush, we have an agenda to refinance something to maintain the cash level for at least 1 month, 1.5 months of expenses. And we'll continue to consume. The expectation for the next 2 quarters is to consume cash, and then on the other hand, to deliver top line, EBITDA and profit. Delivering this 3 tripod using cash for good reasons, that's fine. It's part of the game. Looking down per channel. The first interesting point here. You'll see our e-commerce direct-to-consumer continues to grow gradually in share. I note that it offset the drop on the blue. So you can see the screen here on e-commerce increased 2.5%, and it dropped the same percentage in the blue that are small retailers. But Alexandre, is that bad? We're losing capillarity or -- I don't think so. It's the commercial policy. It's the effect. So what are we losing here? Basically, you're losing sellers. Fewer small sellers, fewer people buying and burning it on the Internet, bringing volume to our e-commerce with more disciplined prices. So that's one of the reasons why gross margin has been improving. That's why we've been able to maintain a healthier purchasing price. We had a planning meeting for tablets, for example. And we saw an improvement in the tablet margin. And the main factor the salespeople were talking about is that Internet is more organized. The prices are more organized. So we have fewer sellers buying, but there's less price burns. And the big players can also work so things are better in terms of discipline. So the template for tablet is an example to be used for other BUs as well. So I think in this point, it's positive. The company is healthier. Government has this turnaround. I went back in share. The Government's fair share will be closer to 15%, thinking about the long term. So that's still below, but it improved comparing to this flop here that we saw. So there's a nice pipeline. We should be able to deliver another increase in Government for the fourth quarter. Here is that nonrecurring business, and we talked -- we brought by order an import for a client. It's a favor that we did. We brought it and sold at a low margin. That increased revenue but didn't help with the gross margin. So that was in the corporate side that leaped and then went back. So this doesn't really mean much in the blue. That's a very one-off issue. And the rest is in line. Big retailers gaining some share, improving margin. And it's interesting to see that the company's gross margin increased even if the gain of -- with a gain of share of big retailers, it's that point of selling to the big ones but in a more disciplined way with healthier prices at the end. So it's not going to be -- they know it's not going to be a huge margin, but they can work at a minimally healthy level. By segment, we're going to see this drop in the blue. That's the nonrecurring business. So that's in the IT & Supplies. That went from 40% to 27% due to that deal. Kids & Sports grew again and the others growing slightly. So basically, it was the removal of that nonrecurring deal. Then getting into the different areas. We have mobile devices here. Smartphones are pretty much done. We went from minus 47% to 20% to 18%. If we exclude what's left of smartphones here, we would have delivered 20% thinking about the recurring portfolio. And there was a leap in sales, resuming sales of mobile devices. And Government also is here. So that's part of this recovery, the Government coming back in as 100% mobile devices. Part of Office & IT. That was also an important improvement in margin. Again, that nonrecurring deal squeezed the margin here significantly because it was a coupled import and then it resumes normal levels from 20% to 21%. I would look at this evolution. From 20% to 21% would be the normal for this business. This was only pulled down because of that one-off deal. So looking at the recurring portfolio, it's completely recurring. So it's 21%. Home Electric Products here is driven by screens and displays as the biggest retail category in the company. The 2 biggest ones are providers and TVs. We had here a stable margin with a slight drop but still at healthy levels, 27%. Revenue going up year-on-year. Audio is also performing well. Screens are going well. Portable appliances, it's a bit of a detractor. Health care and portable appliances are replacing portfolio a lot. So I'd say that here, there's room for improvement. The costs abroad have dropped significantly, and we have a portfolio with a lot of SKUs per type of products. So we end up having a lot of blenders, a lot of air fryers, a lot of variety. And now the agenda is to reduce to 1/3 of the number of SKUs with more in-depth, making the most of the smaller costs. So there will be a replacement of portfolio that will contribute to gross margin for portable appliances, health care as well. We're pretty much ending this line. Kids & Sports. There's a share of drones here that's significant. It's a business that's growing significantly, taking over this category. So it has a very healthy margin of 33%. But if you weigh kids, Multi kids that's toys and baby remain stable. The share of drones blew up. It's an important business, but it's an import business at a very high ticket. Remember that a baby stroller that we sell, it's BRL 400, the ticket. And a drone is more than BRL 5,000. So it's 5x the same price. So the margin is extremely healthy, but it doesn't get to 38%. It's closer to 30%. It's more of the mix. But increasing revenue, you can see that this was the family that grew the most, 21%. So this is no reason for concern. We'd like to continue to grow, and there's important news coming up for drones as well. Here are some events. Going quickly through them. We received the Reclame Aqui Award. We have a lot of awards in the post sales. And we also attended significant trade shows with ZTE, Futurecom, ABRINT, the biggest trade shows for technology and providers. We're diversifying our portfolio. We're at a point of technology change. We have Wi-Fi 5 that is getting out of -- discontinued and Wi-Fi 6 coming in to replace it. This is DWDM. That's the technology to transfer data from one provider to another. There's also the IP side of cameras, and there's energy. So all of ZTE's mix and a lot of projects that we build the provider's network. So it combines services and products. It's not just a business of selling access, the Internet access device, but it becomes a business that is more diverse to serve the needs of our providers. We launched the NEO drone. It's a revolution. Drone, as you know, is a product that's for photography, for enthusiasts. The average ticket is of around BRL 10,000. It starts at BRL 8,000, BRL 7,000. Some cost BRL 15,000, BRL 20,000. There's drones that cost BRL 100,000. But it's an average ticket of BRL 10,000. And we launched a product line that's Neo by DJI that's BRL 2,000. So it's a revolution. They're highly portable, very lightweight. They can take off from your hand. You put the drone on your hand. It takes off, filming you and records you, follows you to practice sports or make a video. So it will get into a layer of consumers who had no access before. So it will be democratized for drones. It's going to be a great growth driver for next year. That point about the campaigns, we took Cauã Reymond, a Brazilian actor that's Multi's ambassador. We have Wesley Safadão, musician. For pulse and sound, we have Viih Tube for children, a Brazilian influencer. So always adding to it. Viih Tube had a baby again here. So she renewed with us. She's a major influencer in the kids universe. We had our leadership meeting as well, Day M with our employees. The IHRSA trade show for gym equipment, noting that Multi also has a very good division that keeps growing in Kids & Sports which is the gym equipment for gyms. And another important point, we are selecting our CFO. So we are interviewing people. And I'm acting as CFO at this time, but there's no huge rush. We want to make the right choice of the right professional who will be the best for the company's needs and also someone respected by the market with credibility. So we have seen a lot of interest for this position. We're talking to a lot of good people. Finally, we have a subsequent event. You know that we have an obligation to invest in R&D. So we need to run research projects. And we have them both internally at Multi and with institutes, but there's also the possibility to invest in technology FIPs. So we invested in Bertha Capital's FIP. This fund invested on Luby, BRL 14 million. And now the decision at Bertha was to divest. I think it was a successful divestment. Part of it was paid on the spot, and the remainder will be paid in installments, a total of BRL 38 million. There's a term there, discounting present value to get the right return. But basically, we put in BRL 14 million, and we're going to get back BRL 38 million of money that was considered lost because it's stamped. If we don't make that investment, we need to pay additional taxes. So I'm happy to see that instead of paying additional taxes, we invested in a technology company. It grew. It developed, generated jobs. And we are divesting in a good position. And then this money will be invested in other business, but part of it will come back to Multi. Finally, maybe you've seen we announced yesterday -- Royal Enfield announced yesterday the partnership with Multi to manufacture motorcycles. You saw in the video that we have the motorcycle plant in Manaus by -- it's a [ Watts ] plant. It's a niche business where we expected to see great growth. But in the market, we didn't see the electric market growth. We remain as leaders. We hold about 25% of the electric motorcycle market, but the total market is still very much a niche market. It's less than 1% of the motorcycle market. So that we don't have a plant stuck serving only that. We started to seek options. And we closed with Royal Enfield. It's an Indian company with English origins. It's a giant, so one of the biggest brands of combustion engine motorcycles. And we will manufacture Royal motorcycles for them. Comparing with other partnerships, it's a business that's similar to the Hisense business. We'll import the parts. We'll manufacture and sell for Royal at a guaranteed fixed margin. So it's a capital investment that's very small. It's their working capital. We're simply manufacturing. And with that, we want to dilute fixed costs for [ Watts ]. And we want, of course, to capture some margin. It's not a high-margin business, but we learned a lot from [ Watts ] for the motorcycles, improve production and generate a small margin with these products. So in that sense, it's similar to Hisense. The old Toshiba, we do run the entire solution. So distribution, trade, marketing, everything is ours. And for OPPO, we produce and distribute. So it's a family of businesses and with partners, which have been growing and will be an important driver for next year. Our growth plans for next year, this is going to be one of the main drivers for growth in the first line -- for top line. So we'll stop at this point today. These were the messages for today. I kindly ask you to write your questions on the comment session, the Q&A. And if you want to open your microphone, please just let us know through the Q&A that you would like to ask your question verbally. Thank you. Let's move on to the Q&A.

So following the order here, starting with Rodrigo Costa. Congratulations on the earnings. Can people really -- no. Okay. I'll read the question. Congratulations. Considering the capacity you have for storage, production and distribution, could you give us an approximated idea of how much you can improve revenue without requiring additional investments?

Okay. Great. Rodrigo, no doubt we already make more than BRL 6 billion growth in 2021. It was a different mix with a lot more expensive electronics. We can't have an exact comparison. But today, there is room to operate in Extrema as we see fit, easily 30%, 40% additional in revenue without CapEx in Extrema. In Manaus, we have that space limitation for TVs. So there will be an agenda that I don't think will be that relevant for lease. We're going to lease 15,000 square meters warehouse. We'll have the amount of that lease payment to structure everything. It's going to be a few million BRLs for port of pellets, changing the location, but it's not an enormous business. It's going to be maybe BRL 5 billion, BRL 6 million to complete it with the port of pellets and take everything we already have. So it's not a lot of materials in the big picture. What's major is that we're building one warehouse, a BRL 30 million warehouse in Extrema. It was a decision made in the past. We already had the agreement of that investment, and we decided to finalize that warehouse. So there's still an additional BRL 20 million. We delayed a lot of payments. We paid BRL 10 million, and there's still BRL 20 million to be paid for that warehouse, the G7 in Extrema that we're building. That's what we have that is relevant.

Danni from XP will ask live, right? So please, Danni.

I have 2 questions on my side. First, we've been seeing a trend in the improvement of demand of physical stores, players who also have e-commerce. So Magalu, Casas Bahia have just reported earnings with this resumption of growth in that direction in that segment. So I'd like to know whether you've been seeing that as well, if it's reflected in the purchasing appetite of our customers in a broader way. They are your customers, but also you have an important share of smaller players. So to understand how you see this appetite on your customer side and how you see the impact of that recent macro deterioration for the future. So the second question is when you expect to see a normalization of the logistic challenges that you faced this quarter, if it was a one-off or if it will remain.

So Danni, the customers are at a better vibe. They're seeking us. We're holding a lot of meetings. I went to 2 of our biggest customers to have a top-to-top meeting, players who had a lot of difficulty -- or financial difficulties in the past. Everybody knows which ones we're talking about. They came to us, and we closed a strong growth program for next year. So everyone is excited to buy, but the logistic issue is there. It generated some delays. But now the entire chain is plugged in forward. So everything that came at the end of the third quarter, we are delivering. There should be no stock-out because it was delayed, but that -- the impact already came in the third quarter. So in logistics, there's no trend of increase in freight costs. It's stable, maybe even drop a little bit. But the big surprise is that in Brazil, you have to fight a lion every day. So the big thing is the U.S. dollar. We take a beating, but that's an FX aspect with 400 bps of actually 40 bps above the U.S. dollar of the previous quarter. We don't know what's going to happen until the closing. So there's still a lot that has been bought and paid for. That should not reflect on gross margin but will come at the bottom line in the FX variation. So there will -- we will take a hit in FX in the fourth quarter. We've been able to deliver revenue and EBITDA and everything. There will be FX variation. And there's an agenda to renegotiate prices. So we're there fighting because there's a good demand. If the clients don't take at least part of this FX variation, it's going to be hard for us to compose our margin. The agenda now is to get things delivered, deliver them, renegotiate price in a scaled manner to recompose our margin.

But historically, when the exchange rate is weaker, you will also gain competitiveness in relative terms, right, compared to imported products. So there could be half -- glass half full there, right?

Well, I'd look at it thinking that every game has the ideal way. Computer accessories, for example, they're 100% imported in Brazil. It's not that there's someone manufacturing mouse and that the other is importing. We play the game that everybody plays. That's import. In that sense, Multi is a competitive entry-level brand, suffers less with any adjustments compared to a premium brand. There's an accessory branch that's the Brazilian leader that makes a lot more than we do, and their tickets will go up more in absolute terms compared to ours. And there's a trade down. So historically, we do gain some and trade down. But at first, we get that stress that the market has the price at mind. So for lightweight accessories, the trend is for that to be good for us because we are more affordable and a lot of people trade down. TVs are completely manufactured in Brazil. There's no imported TV sets. That's pretty much irrelevant. So it's the same for everyone. And it's a product that has a very strong ticket on people's mindset. So everybody is there thinking, oh, 50-inch TV is BRL 2,000. If BRL 2,000 becomes BRL 2,300, it is a pain for retail. People hold on sales. They go to smaller screens. So we have some trade down advantages historically. But on the other hand, if the U.S. dollar goes up, it's the same. The client will buy less. People always ask the exchange rate that I prefer. I prefer it quiet. If it goes down too much, imported products get too cheap, and then people start trading up. If it goes up too much, it's also chaos. I like the FX rate to remain stable, slightly on the high side. I don't know if I answered your question.

Gustavo from UBS as well.

I have 2 here. First, related to this context of costs or higher costs especially driven by macro aspects. How do you understand the evolution for Q4 next year in terms of transit times? And if you can talk about how you've been able to pass through the prices, if you've done it all, if there's room for more. And my second question about the partnership that you announced with Royal Enfield. I'd like to understand the rationale. If you can talk a little bit more about the partnership, especially in terms of the manufacturing and assembly, this need for adaptation with the industrial park, if you can give us more color of how this distribution is going to work. I know it's not through you, but it's not quite as clear how it's going to happen.

Price negotiation is all based on supply and demand and fighting power and information. We'll try to pass through as much as possible of the cost increases due to the FX rate. And we'll try to bring portfolios with lower costs, lower freight costs to offset it to maintain competitive attractive prices. Historically, part of it is passed through, and part of it has to be recomprised in the chain. That's the agenda for next year and for the Q4 as well. For now, we've had a good month. October was a strong month, the biggest in the year, slightly above the previous months, nothing wow but slightly better than the best month of the year. So that's already an interesting sign, and we need to keep that up for November. December, slightly worse in historical terms, but we are on the plan for top line for now. Royal Enfield, basically what happens is that we have a plant. We have the bikes and the products. There's the business plan ramping up, and we're manufacturing 20% of capacity only. So there's still 80% of idle capacity at a factory which makes the [ Watts ] business to be in a 0-0 game at the unit cost on the parts. So seeking a solution. If we start bringing price down, burning the price of bikes, it's not how to do. It's a niche market. We have a good share. So we'd need to foster the electric motorcycle market, but there's a high marketing cost. We don't have the appetite to do it now. So we're maintaining electric bikes, running, growing organically and the profitable solution to be found for the plant. Today, there's a number of companies wanting to come to Brazil. Motorcycles are mandatory to be made in Manaus. You cannot compete in the country. If I don't -- I think it's 40% or 50% of the IPI tax for motorcycles. So you need to make it in Manaus. Otherwise, if you import or make it somewhere else, you're out. And then the brands in Brazil, Royal Enfield was already here. They were working with another player. They were not satisfied. They have their office here, the commercial department. They have everything set up in Brazil. So they signed with us for us to manufacture those motorcycles. CapEx investment is low, subsidized by Royal. All of the assembly line is the same. What changes is that we need to assemble the engine. There's an additional combustion engine line. There are a few stages, not the entire engine. And then they bring the expertise to us. They send the equipment for us as well with subsidized costs. And then there's a fee per motorcycle. Basically, we are a point of manufacturing for them. We bring the parts that they decide. We put it together according to their decision. We test and invoice, always being distributed by Royal Brazil, and they distribute. Basically, it's a [ CM ]. The objective is to dilute costs at our factory for this project.

From [ Milton ], the company is negotiating close to the value and cash. Is there an expectation for a more aggressive share buyback plan?

After we're in the blue with a good profit margin, generating cash, yes, definitely. Excessive cash that have no business plan that's very profitable with a good ROIC, it is part of our agenda. But first, we want to get the company nice and rounded before consuming cash with share buyback. We had a small plan last year, but it was symbolic. It's an indication, but it was not as relevant.

Thiago, we'll take your question, Kapulskis.

I have one that I think is slightly different, also taking from your background of the other companies that you have, Ale. So a little bit of how you see the China issues for your business with the election of Trump. Yesterday, we had an event with an American diplomat talking a lot about a more aggressive politics in the United States and the positioning of the countries vis-a-vis China. That's a very important agenda there, and we know how you rely on that. Your business relies on China. And I'd like to pick your brain a little bit to try and understand how you think about Multilaser's position and the company's positioning not only about that but about what you can do in this environment, bringing products from other places, thinking of other types of logistics. How do you think about dealing with this type of risk given this new scenario?

It's a complex question. I don't really have the knowledge to give insights in addition to what you already know. So starting speaking as a layman as here in Brazil, looking at this. There is a complementarity between Brazil and China. That's great. I mean we sell commodities. They consume commodities. We consume industrialized products. They manufacture them. These categories, 100% of the global markets done in China for us and for Europe and the United States, for everyone. Give you an example of the mouse, computer mouse. There's no mouse factory that is relevant outside of China. It's not that everything went to India and it's secure and Multi will have its own risk. Trump's agenda, I understand it's more the protectionism and increasing rates between China and the United States. How much he's actually going to do and how much he's just saying, we don't know. I could be wrong, but I don't think it affects Brazil. It's the opposite. If he increases the rates in the U.S., there will be -- China will have more of an appetite to sell to us. So I don't see a relevant difference there. What could happen is an eventual possible war scenario. Trump recently said that the United States are not obliged to defend Taiwan if China invades Taiwan. If there's a waw there and it takes long and -- well, then it will be chaos. And we'd have to -- if we get close to that scenario, we would need to really stock up the market because there will be shortages. But the scenario today is still of a more diplomatic approach. I wouldn't think China will start a war out of nowhere. I think it's something -- we always see signs before. They would have to do move -- make moves that would be quickly perceived before invading Taiwan, for instance. So there's nothing here that I see as urgent on this side. We could get another forum to get this discussion. It's very interesting.

No, great. I think your insight of having even maybe a benefit is interesting. It's not -- so thank you for your answer. Any thoughts you may have always help us.

In Brazil today, Brazil is, at the best, neutral with the United States. The current administration is friendly with China, and it has been. So if they fight, we will actually have advantages in thinking in cold terms. And if there's a problem in Taiwan, then depending on the size of the issue, the global supply chain, I mean, it's a whole different animal. It's not Multi. Then it's going to -- the general market will melt down, and it will be chaos for all global chains, for everything.

So for [ Hugo ], what are the levers to resume the 30% gross margin? Thinking about the market's demand with actual sales, dropping unemployment at a low, it should be a stronger price pass-through window, right?