Iochpe-Maxion S.A. (MYPK3) Earnings Call Transcript & Summary

Good morning, ladies and gentlemen, and thank you for waiting. Welcome to Iochpe-Maxion third quarter earnings conference call. Present at the conference today and available for Q&A session are Mr. Marcos Oliveira, Chief Executive Officer; and Mr. Elcio Ito, Chief Financial and Investor Relations Officer. We inform the participants that this conference call is being broadcast in the Internet at the company's website, www.iochpe.com.br and the presentation is available to download at Investors Information section. [Operator Instructions] Before proceeding, we would like to mention that forward-looking statements are based on beliefs and assumptions of Iochpe-Maxion's management as well as information currently available to the company. Forward-looking statements are not guarantees of performance, involve risks, uncertainties and assumptions because they relate to future events and therefore, depend on circumstances that may or may not occur. Now I will turn the conference to Marcos Oliveira, Iochpe-Maxion's CEO. Mr. Oliveira, you may begin your conference.

Good morning, everyone, and welcome to Iochpe-Maxion's earnings presentation. The demand for new vehicles in the main market has been consistent. During the third semester, our automotive global market has faced uncertainties and the supply of inputs, especially semiconductors has been uncertain. According to IHS, the demand for light vehicles has gone down compared to the previous quarter. Another highlight has been the segment of commercial vehicles with a growth according to LMC. We have reached an adjusted EBITDA for the year, an increase regarding the previous year. It's important to highlight that without considering recurring events, especially the gains of the company for the factory would have been of 13 -- our adjusted EBITDA would be BRL 483.7 million with an increase -- with a margin of 13.5%. Our growth for the last quarter shows our operational efficiency and the positive effect of the diversified business model of the company based on geographies, clients, portfolio of company and segments of commercial and light vehicles. I'll follow the slides in the presentation made available in the company's website. Slide #2. We show the recovery of the global market and the forecast for light and commercial vehicles. [ With LC high ] for commercial vehicles and you can see that the global production of light vehicles forecast for 2021 is very consistent with the volume produced in 2020, reaching about 74.8 million vehicles for 2021. You can also see that the forecast shows a projected growth for 2021. When we exclude China, we can see a projected growth of 13% for light vehicles in 2022, reaching a global volume of 82.7 million vehicles for next year. On commercial vehicles, we also have a consistent volume in the global production of commercial vehicles between 2020 and 2021 when we consider all markets. And when we exclude China, you can see an important growth in 2021 of about 19% compared to the year 2020, very concentrated in North and South America and with some growth in Europe. The forecast for 2022 shows a growth of about 17% in the production of commercial vehicles, excluding China for 2022. Successive downward revisions for 2021 due to the semiconductor crisis result in a probable IHS changing, but the scenario is positive for the coming years due to repressed demand. Commercial vehicles show a positive scenario in 2021 as they have less exposure to the semiconductor crisis. In Slide #3, we can see the main highlights for 3 quarter '21 of the company, the positive effect of a diversified business model. We had net revenue of BRL 3.6 billion, an increase of 42.5% versus the third quarter of 2020. Our adjusted EBITDA was BRL 483.7 million with a 13.5% margin or BRL 455.3 million and 12.7% margin, not considering the non-recurring effects. Our gross profit was of BRL 495.6 million, [ 90.38% ] compared to the 3 quarter of 2020. Our financial leverage with a net debt over the adjusted EBITDA of 2.66x with a reduction compared to the third quarter of 2020 of 7.02x and a reduction compared to the second quarter of 2021 of 2.74x. Our net income for the third quarter of '21 was of BRL 177 million. In Slide #4, we can see a little more details on the growth of our net operating revenue. We have reached BRL 3.584 billion compared to BRL 2.515 billion for the third quarter of 2020, a growth of 43% compared to the third quarter of 2020, of 13% versus the second quarter of 2021, and 41% when compared to the third quarter of '19 -- 2019. The increase in revenue in the third quarter of '21 was due to higher sales, launches of new programs and products, and a greater product mix and a higher raw material prices. We can observe on the right of the Slide #4, the revenues per region for the third quarter of '21, and the growth in the participation of South America, especially thanks to the growth of Commercial Vehicles segment. South America has reached 32.5% of the net operating consolidated revenue of the company, North America with 29.7%, Europe 28.3% and Asia and others 9.4%. On Slide #4, we see some more details of this positive effects of our diversified business model. When we see the growth in the share of revenue from structural components and wheels for commercial vehicles. The better participation of wheels due to light vehicles due to the semiconductor crisis was compensated for the growth of commercial vehicles and we can see that when structural components from third quarter of '21 represents [ 25% ] of the company's revenues compared to 17% in the third quarter of 2020. Aluminum wheels for light vehicles is of 25%. Steel wheels for light vehicles, 24%, both lower than the third quarter of 2020. And steel wheels for commercial vehicles representing 24% of the consolidated revenues of the company compared to 20% in the third quarter of 2020. When we look at the revenue by segment, we can see a growth of 85.2% in commercial vehicle revenues. Commercial vehicles represented 37% of the revenues in the third quarter of 2020. Now represents 48% in the third quarter of '21. Likewise, the revenue by division of the company with a total growth of 100.3% in revenue from the structural components division with now structural components in the third quarter of '21 represents 27% of the company's revenues and wheels represent 73%. On Slide #6, we can see evolution of revenue by segment and the growth in the representativity of commercial vehicles, which has reached 48.4% of the company's revenue in the third quarter of 2021. It was of 39.6% in [ '20 ] and the growth has to do with the dynamics we mentioned previously with the impact of semiconductors in the production of light vehicles globally and a smaller impact on the commercial vehicle segment and the growth of commercial vehicles, especially in North America, pushed by the growth of the American economy and the increase of production in commercial vehicles in South America, especially in Brazil. In Slide #7, the revenues by clients show a little bit of the dynamics of the segments with different growth and different models or business segments and strategies for different companies compared to their business plans for the various regions. It's important to observe in Slide 7, the growth in aftermarket segment, which represents 4.2% of our revenues in the third quarter of 2020 and [ 6.21% ] of our revenues for the third quarter of 2021. And the trailers revenues has also increased, reaching about 2% of our consolidated revenues. On Slide #8, when we look at the operational performance per region, when we look at South America -- when we look at the table on the left-hand side, we can see the decrease in the Brazilian market performance in the third quarter of 2021, a decrease of almost 21% compared to 2020 and we see the growth in commercial vehicles compared to the third quarter of 2020. This dynamic is reflected in the net operating revenue, that had a growth of 100.5%, reaching BRL 1.165 billion, growing 131.5% for commercial vehicles revenue and 54.7% for light vehicles. As we mentioned before, representativity of South America was greater. It represented 23.1% in the first -- in the third quarter of 2020 and now in the third quarter of '21, representing 32.5% of the consolidated net operating revenue globally. On Slide #9, when we look at North America region, starting on the bottom left-hand side, we had a decrease of 26.6% of light vehicle production in the third quarter of 2021 compared to the third quarter of 2020 and a decrease of 7.7% in the third quarter of '21 compared to the third quarter of 2020. We can see a slightly lower decrease in the commercial vehicle segment that was less impacted by the availability of semiconductors for the factories. When we look at the net operating revenue of the company, we see a growth of 33.5%, reaching BRL 1.065 billion in 2021 and a slightly better growth in commercial vehicles, representing 56% of growth compared to 2020. And in light vehicles segment, a growth of 16.9%. North America represented 31.7% of the net revenue in 2020 is now up to 29.7% in the third quarter of '21. On Slide #10, when we look at Europe, we can see the decrease in production in light vehicle production of [ around 33.2% ] in the third quarter of '21 against the same period in the previous year and a slight growth in the production of commercial vehicles, around 2% in the third quarter of '21. When we look at the net revenue, we've reached BRL 1.016 billion, a growth of 10.3% compared to the same period in the previous year. We see a better -- slightly better growth, a growth of 50.4% for commercial vehicles compared to the same period in the previous year. Europe represented almost 37% in the third quarter of 2020, is now up to 28.3% of the consolidated net operating revenue in the third quarter of '21. On Slide #11, when we look at operational performance for Asia, looking especially for India and Thailand markets, we can see the growth in the vehicle production in India for light vehicles, around 5.9% in the third quarter of '21 and a growth of 25% in the production of commercial vehicles in India when comparing with the third quarter of 2020. Thailand had a relatively stable market when we consider produced vehicles reaching 8.6%. We can see the growth of the Indian market and when we look at the growth of the net operating revenue of around 57.2% in the third quarter of '21, reaching BRL 338 million. This is an important growth of 107.2% for commercial vehicles and 43.7% for light vehicles. This revenue growth is especially in commercial wheels in our operation in India and China, but also continuous growth in the Indian market due to our capacity of aluminum wheels being produced in our plant in India. In the third quarter of 2021, Asia and other markets represented 9.4% of the net revenue of the company compared to 8.6% in the same period in the previous year. On Slide #12, when we look at the gross profit, we can see a profit of BRL 496 million in the third quarter compared to BRL 256 million in the third quarter of 2020. The increase of gross profit in the third quarter of '21 due to the revenue growth and greater operating leverage of the company. We reached gross profit -- gross margin of 13.8% in the third quarter of 2021. When we look at the 9 months of '21 compared to the first 9 months of 2020, we can see a growth of BRL 304 million to BRL 1.326 billion in the first 9 months of '21, reaching a gross margin of 13.4%. The first 9 months of 2020 had an important impact in the beginning of the pandemic, what impacted a lot for the second quarter of 2020. On Slide #13, the adjusted EBITDA of BRL 484 million in the third quarter of '21, comparing to BRL 241 million in the third quarter of 2020, a growth of the EBITDA margin about 9.6% to 13.5% in the third quarter of '21. When we look at the first 9 months of both years, we can see a growth of the adjusted EBITDA from BRL 306 million to BRL 1.460 billion in the first 9 months of '21, and a growth in the EBITDA margin from 5.2% in 2020 to 14.8% in the first 9 months of '21. It's important for us to remember that the third quarter of '21 benefited from the gain related to the sale of the Akron plant in the United States for around BRL 18.3 million and from the net gain from the legal proceeding from the exclusion of ICMS on the PIS/COFINS basis, around BRL 10 million. If we don't consider the non-recurring effects in the first quarter of '21, the EBITDA will be BRL 455.3 million with a margin of 12.7%. On Slide #14, we see the net income profit of BRL 177 million in the third quarter of '21 versus a loss of BRL 19 million in the third quarter of 2020. Throughout the first 9 months of 2021, we reached a profit of BRL 443 million comparing to a loss of BRL 362 million in the third -- in the first 9 months of the previous year. Our investments, especially focused on health and safety, maintenance, launching new products, and improving productivity, reached BRL 112 million in the third quarter of '21 and a total of BRL 252 million in the first 9 months, almost 5% lower than the BRL 264 million of investment in the first 9 months of 2020. On Slide 16, we can see the financial leverage and liquidity ratio. We reached in the third quarter of '21 a net debt of BRL 4.523 billion and [ the adjusted EBITDA of -- versus 2.74x ] in the second quarter of '21 and the trajectory being stable with the leverage being [ around 7x ] in the previous period. In the liquidity ratio, cash and short-term debt, we reached 0.54x in the third quarter of '21. We can see the composition of the indebtedness in the gross debt breakdown represented in the third quarter of '21, around BRL 5.624 billion in gross debt with around BRL 1.007 billion of cash representing a net debt of BRL 4.523 billion. The gross debt breakdown shows 47% in reais, 11% in dollars, 37% in euros. When we look at the right-hand side, in the same graph in same slide, we can see the short-term debt that represented 43% of the company debt in the third quarter of 2020, now representing 33% in the third quarter of '21 with a average term represented 2.3 years in the third quarter of 2020, is now up to 4.1 years in the third quarter of '21. On Slide #18, we have some recognition for the company in the third quarter of '21 showing our commitment in the continuous improvement of our products and the trustability of our products and services and also our representativity, not only in commercial vehicles, but also in light vehicles, structural components, wheels in all over the world represented here with the recognition in 3 regions, especially in Brazil, Thailand, and Indian in the third quarter of 2021. On Slide #19, I'd like to mention that we will publish our second report for sustainability next week and I would also like to invite you to our Investor Day on December 7 where we'll talk more about the company focusing especially in the ESG initiatives for the company in 2021. Now let's open to the Q&A session.

[Operator Instructions] The first question comes from Lucas from XP Investments.

Congratulations on your presentation. And first, just to understand better the [ merger ] and the maintenance of this level. Just to understand a few points. First, there's still some temporal discrepancy. I want to understand if this has been resolved? And you have mentioned in the conference call, the gross margin, I would like to understand if there is a great participation in business in Brazil with added value and understand the factors behind what is affecting positively the margin. And think of it makes sense with the normalization of the light vehicle segment, it would be interesting to think -- understand better how it affects the margin for 2022 and 2023. Also, we have an expressive growth and when you look at the level of stock, we have some changes in the cost of raw materials and understand how this effect and how it can be better throughout this year? And if we should see how -- if this would be growing for the next year or if we have something more for the short-term. So we have 2 issues, the margins and the net capital.

Thank you, Lucas, for the question. I'll start with the first one, and then I'll talk a little bit about the second one. Regarding the margins, throughout the year 2021, we have been trying to align the prices of our products compared to the constant increase in raw materials observed around the world and we have been doing that quite consistently quarter-to-quarter, especially between the first and the third quarter, trying to reach a balance between the cost of raw materials and the prices practiced in the market. Today, our prices are very well aligned. We have changes that happened during -- until the third -- the first semester of this year, and we've been trying with our global clients to adjust the prices of our products based on the increase in raw materials, especially steel and aluminum in the various regions we operate. So I'd say we have not 100% alignment. There's always some difference due to different implementation with different clients and products, but I'd say that we are quite well aligned regarding cost of raw materials and the prices practiced in the market. Regarding the mix of products, we see a clear growth observed in the segment of commercial vehicles, both in wheels and structural components and a greater growth in the production of commercial vehicles in all regions, especially South America, North America, but also Europe. And this faster growth in the commercial vehicle that has been less affected by the availability of semiconductor as is the case with the light vehicle segment. So this has increased the and grow -- the production has grown for commercial verticals in 2021. We also have the launching of new products and increased capacity like this [ stamping ] plant that has presented higher growth than the growth in the rest of our product lines and also higher than the growth of the segment of commercial vehicles in North and South America and Brazil. Of course, throughout time as the light vehicle segment starts growing again more normally this balance of both segments will not stay as they are now. It should move towards historical values because we have an accelerated growth of our products in commercial vehicles and then in light vehicles, but we should have more normal index of products as both segments grow in the same speed. Once again, I believe that when we go back to normal, our mix of commercial vehicles will still be higher than the historical mix we have observed due to our programs and our capacity for commercial vehicles, which has been very well used in North and South America and also Europe. So I'll let Elcio talk a little bit more about capital.

Marcos was talking about the mix and I want to say that even in wheels, we had a reduction because of the semiconductors because the companies are directing their production to vehicles that use more added value wheels that help the revenue of the company. As we go back, as Marcos said, there might be some impact on the margin, but obviously, as we generate a higher amount of gross profit that should affect the total of the company. With regard to stocks, it's an important topic throughout the entire year due to the higher cost of aluminum and steel that we have observed during the last year. The difference that when we talk about steel, year-after-year, we had an increase of over 270% with the indicator of CRU for North America. So when we look specifically at the quarter, it's important to notice the 2 components of the stock, price and volume. So in case of the raw materials for CRU in the third quarter compared to the second quarter, we had an increase of 20% for CRU in the average from the second to the third quarter. In the case of aluminum, about 10%. Also these were increases in dollars. So if you add that to the exchange rate devaluation, we have an impact of about 9%. So this is an important component in the increase of stocks in this quarter has to do with the prices. Also, additionally, we had a small increase in volume due to the sudden stop in the factories, which affects the purchases we have scheduled in advance and production. And when you have the sudden stops, the forecast made 2 or 3 months in advance is affected. So we are always getting organized to meet the demand. And we expect for the next period, we expect 2 factors, the average price should continue to increase in the margin until the prices are completely normalized, but we should have a positive effect as semiconductors continue more constant, which is something we expect to happen with regards to the third quarter. We expect to have better planning and consequently subsequent reduction of volumes. I imagine a positive effect for the future. It shouldn't change completely in the fourth quarter. But in the following periods, we should have a more normalized adjustment. Reminding you that we didn't change our policies regarding stocks in the company. We did have a structural increase in prices but not in volumes. And a final comment regarding the dynamics of commercial and light vehicles, especially when we look at short, medium-term for 2022. If we remember the conditions of IHS, still in 2022, the growth of commercial vehicles should be higher than that of light vehicles in the main markets where the company operates, except for China. If we look at the forecast projected for the future, we should have a 13% of growth in 2022 compared to 2021. The commercial vehicles growth should be of 17% in '22 compared to '21. So in medium-term, the performance of commercial verticals would be more robust, not only thanks to the semiconductor issue that should be improved in the next 15 to 18 months, but throughout the year 2021, it should be gradually improving, but also due to the growth, economic growth and impact of actions conducted to like the [ trillionaire package ] of the American government that should have a continuous impact in the demand for trucks in North America. The performance in Brazil, thinking of the agro sector and other sectors that demand transportation of goods, specialty trucks, this showed that the production of higher growth in the segment of commercial vehicles in 2022 compared to 2021 when compared to light vehicle segment, is something that allows us, I'd say, to have an interesting mix when we look at this period starting the year 2022.

Our next question comes from [indiscernible] from BTG Pactual.

We have 2 questions. First, I would like to comment on the perspective of leverage. We saw that the leverage kept falling in this quarter and we would like to know what you expect for the next period? And if you could comment on what you expect in terms of performance regarding geography. We saw strong volumes in South America and India and we would like to know what you expect regarding geography in the next period.

Thank you for the question. I'll make some comments regarding my previous speech on stocks, but you have mentioned correctly, we had a reduction in leverage of [ 2.64% to 2.66% ] in the third quarter. And remind you that last year, our leverage was very affected by the pandemic. And this reduction that happened in this quarter had a lot to do with the international results for this quarter, an EBITDA of BRL 484 million compared to the value of the same quarter last year. So that led to a EBITDA of [ BRL 7 billion ]. We had an increase in the third semester due to 2 factors, mainly exchange rate that explains about 30% of this difference. If we had the same levels of June, our net debt would be about BRL 160 million lower. We would have a leverage of [ 58x ] and this was something that hindered the results of the third semester and the leverage would be even higher if it were not for the exchange rate. The third issue we have -- we expect a more active dynamic. We have more temporary change for the next years according to the forecast of our purchase department, we have a positive perspective of continuing the deleveraging of the company and reinforcing that our goal for the management and the council is to have this leverage of 1.5x to 2x. [ Eleni ] related to your second question, the performance by geography, we would obviously say that we see the availability of semiconductors for the factories in the short-term. In the second quarter and along the third quarter, the lack of visibility in relation to the supply of semiconductors by the factories was really great. What caused constant interruptions in the factories and, of course, in the supply chain due to the lack of semiconductors and important changes in the production programs of the factories that decided to do a certain program for the next weeks or next months and they were hindered in the last minute because the semiconductor wouldn't arrive due to lack of the components or a logistics issue that affected a lot of the logistics chains all over the world, especially in Asia and rest of the world and along the third quarter, it was highly impacted with low visibility and in the fourth quarter, we are still seeing limitations in the supply for the factories of semiconductors, but the interruptions have been lower and the planning has been a little better, which is positive for us because we are able to prepare a little better for this. The situation is not resolved yet, but it has improved. Talking about visibility and planning. It has improved in the past few weeks globally with all our clients and factories, which is positive, and we believe that throughout 2022, the situation will continue improving continuously. When we look at the projection of volumes and we use the numbers of IHS and LMC and we triangulate these numbers with our talks with the factories and we have our own market analysis, we see an interesting growth, as I mentioned in the beginning of my presentation, in the light vehicle segment, growing around 13%, excluding China because China still represents volume and revenue lower than our net revenue globally, representing 13%. When we look at light vehicles, North America growing, based on these projections, growing at around 20%, closer to 17%, actually. Europe growing around 20%, South America growing around 13% and 14% compared to 2021. These are interesting growths and are appropriate for the different regions and we believe this growth because the demand for vehicles is ongoing -- is strong in South America, Europe and North America and the vehicles stock produced is so low, but we have a demand of the retail customer. The rentals is still very strong and the possibility is limited because of the production, as we talked about this, because of low stocks and this level of growth that I mentioned for light vehicles looks interesting. At the same time, when we look at commercial vehicles, we see a growth of around 17% next year. It's higher than light vehicles, but in Europe, the closest growth -- closer to 11%, 12% of 2022 -- in North America, around 19% to 20% in 2022 compared to '21 and in South America, growth of around 11% in '22 compared to '21. South America has grown a lot this year. So there is a very interesting and attractive production, but still growing 2 digits in 2022, but the perspective is positive. It's a perspective of constant improvement in the next year due to the demand that there is in low stocks, low inventory and a gradual availability of semiconductors for the factories globally. I hope to have answered your questions.

Our next question comes from Victor Mizusaki from Bradesco BBI.

Congratulations for the results. I have 2 questions. First is about the margin discussion. The operation in Brazil has a margin superior to abroad. Could you confirm that, that's correct? As you mentioned, the mix effect, if it makes sense to expect that depending on the demand, as Marcos said, with commercial vehicles in abroad, especially in the United States. We have a margin growth in 2022. And the second question about stock. You showed the slide that for trade, the increase in sales in the production market. If it makes sense to expect that this is one of the channels for you to reduce stock level? And the last question about JV with Dongfeng results, we have seen increase in the loss -- net loss in the operation. If this is related to the expense of preoperational expense with the expectation of entries in 2022.

Elcio here. Let me just make a few comments. About the margin, what we have in the general terms, and we always talk about this, the commercial vehicles margin has averaged, globally speaking, slightly superior than light vehicles. As a reference, this aspect, of course, Brazil has grown more as we showed in the commercial vehicles but all regions have grown, but Brazil has relatively grown a little more than the other regions. Just for us to keep this in mind, commercial vehicles is positive for the gross margin due to the dynamics that we see in the different markets. About stock, this is an important market that has been growing in the last few periods, gaining in representativity, but the reduction in stock will not occur because this is an important channel in this important strategy. It will happen as we are able to replan and have more visibility and consistency in relation to the projections of the factories according to our production plan. We have to understand that in the last periods, this has been more volatile and it caused this stock issue that is temporary, and we will, month-by-month, replan and understand the changes that we have to do in the raw material purchases. And these interruptions have been sequential and continuous and sudden. So there was no time for us to -- when we adjusted, and there was another interruption. So we didn't have the ideal stock that we would like to, but as Marcos said, as this scenario starts to become more stable we will be able to plan better our stocks. We never produce for stock, we only produce for demand. And we don't want to have excess stock in our operation because of the cash flow. We will calibrate as the next months will bring more stability to the operations. About Dongfeng, you're correct in your statement, we are very close to beginning the operation. We have a few extra expenses. So we can have the plant completely prepared for the beginning of operations. In this aspect, particularly, we are in the process in the second semester of this year, 2021, hiring people producing the first prototypes in the factory, the installation of the equipment. So the gradual production will be onset in the last days of this year and the ramp-up gradual process will grow quarter-by-quarter with the training and the productive capacity and the launching of products because the products are aligned with some platforms that our clients have and we have seen this happening in India in our aluminum wheels factory that started production in the last period of '19, has grown in 2020 and continues to grow. So aligning this production of our factory with our clients. So we believe we'll start to see these volumes for our society with a partnership with Dongfeng in China, being more representative gradually over 2022 and entering 2023.

Our next question comes from Marcelo Motta from Banco JPMorgan.

A bit more generic question for you. We talked a lot about semiconductors, but the demand is still strong for light vehicles. I want to understand how you see the programming for your customers with the increase of the price for cars, especially in Brazil and the local markets, there is a fear that demand will be lower for this type of vehicle. So how do you see the programming? Does it make sense to think that we need to make a reduction so we can regain volume for next year, thinking about price and volume in the light vehicles market.

Marcelo, thank you for the question. In short-term, due to the increase of prices in raw materials and the lack of materials such as semiconductors. The factors globally have prioritized a mix using raw materials, the semiconductors that are available and produce the vehicles that have high demand and consistent demand and generate better results for the businesses. So in the limitation of semiconductors, there is a clear prioritization for more equipped vehicles in vehicles that have better results. I believe that in Brazil's case particularly, we see this in the product mix that have been sold. The growth of the SUV segment that has been important with -- in the last years, particularly in '21 and as the availability of semiconductors start to become more normal, there is a demand for entry vehicles that need to be met as well. So it is -- together with the improvement of the macroeconomic conditions in Brazil, talking about unemployment and access of the buyer to not only more expensive vehicles, but also entry vehicles. I believe that when things become normal, probably not only with a trend of buying, but the preference trend will be more for SUVs and larger and more equipped vehicles, not only the more traditional vehicles as sedans and hatches, there is a demand that will be met for entry vehicles as well. It will occur as the issue of semiconductors is more normalized.

We now close the question-and-answer session. I would like to pass the floor to Mr. Marcos for his final considerations.

The positive effect of our diversified business model with various products, geographies and segments, the improvement of operational productivity allows us to advance and meet better the current and future needs of the automotive industry and mobility as we observed in our results and growth of our business. We remain attentive to the changes in the market to timely focus on executing our long-term plan, but mainly improving our productivity, competivity, launching new products and using consistently our productive capacity globally, very well aligned with environmental, social issues. Thank you very much for participating here with us and we are at your disposal for any conversations later for any clarifications you might need.

The teleconference for Iochpe-Maxion is closed. We thank you all for participating. Have a good day. [Statements in English on this transcript were spoken by an interpreter present on the live call.]