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

Good morning, everyone, and welcome to the video conference to debate Iochpe-Maxion Third Quarter 2022 results. Present today in today's video conference and available for the Q&A session are Mr. Marcos de Oliveira, Chief Executive Officer; and Mr. Elcio Ito, Chief Financial Investor Relations Officer; and Mr. Luis Fernando de Abreu, Investor Relations. And finally, this video conference is being recorded and will be available at the website along with the respective presentations. Simultaneous translation is available. To activate it click on the globe item called Interpretation located on the lower center of your Zoom screen and select our preferred language, Portuguese or English. You can also mute the original audio clicking on the bottom. [Operator Instructions] Before proceeding, we would like to clarify that any statements that are made during this video conference regarding prospects, projections and operational and financial goals constitute beliefs and assumptions of Iochpe-Maxion is Maxion and based on information available. Forward considerations are not performance guarantees. Now we would like to turn the floor over to Mr. Marcos de Oliveira, please continue.

Good morning, and welcome to the Third Quarter Results Video Conference. I will follow the slides made available in our presentations. In the third quarter of 2022 was characterized by a scenario of geopolitical global uncertainties. What high levels of costs, especially those regarding power in Europe. In terms of sectors, we have seen a recovery of production volumes in the segment of light vehicles despite some [indiscernible] and interruptions in the supply chain, especially regarding semiconductors. Our net revenue has grown 5% regarding the third semester of 2021 to BRL 4.3 billion with record levels for the quarter. Despite an expressive income, the company's margins were negatively impacted by some factors that are temporary during the third quarter. The difference in the cost of inputs compared to the sales prices in North America and operating efficiency due to stoppages in production from clients abroad increase in the cost of power, especially in Europe, impacts of inflation in all regions and we are working internally and with the clients to -- in the recovery from the air impact due to the higher prices of power and inflation in the globe. Despite the uncertainties in the short term, we are advancing our strategic agenda for growth in the long term with an increased capacity in steel wheels and commercial vehicles in the main markets we operate in. We also -- I'd like to announce the entry in the market of [indiscernible] in for heavy vehicles, commercial vehicles. For clients who desire a mix of products in the lines of trucks. Our new factory should be opened in 2024 with initial production capacity of 350 wheels per year. In Slide #2, we see the light and commercial vehicle forecast. The IHS auto forecast shows an increase of global production of 82 million vehicles, a growth of 4% or 6% when we exclude China from this very global variation. For 2023, IHS still forecast a growth of 3% of global production. What -- and a 6% growth in light vehicles when we exclude China, meeting a rich production level of over 3 million vehicles globally, company estimates in LMC auto forecast shows a production of [ 2.9 ] -- [ 119,000 ] units in commercial vehicles with a decrease in -- of 15% in production when globally when we include China. And we see a growth of 8% when we exclude China from this variation. For 2023, LMC to also shows a growth in global production of 11% and a growth of 3% in global production when we exclude China. And Slide #3, we see some highlights for third quarter 2022 for the company. We had net revenue of BRL 4.3 billion in the third quarter of 2022, an increase of 20.5% compared to the third quarter of '21 and net revenues of BRL 12.8 billion in the 9 months of 2022, an increase of 29.2% compared to the same period of the previous year. We had a net income of BRL 69.4 million in the third quarter of 2022 and BRL 420.1 million in the 9 months of this year. Our financial leverage matched by our net debt divided by EBITDA shows a leverage of 2.27x in the third quarter of 2022 compared to 2.81x in the third quarter of '21 and 2.21 in the second quarter of 2022. Our net debt had a reduction of 7.8% or BRL 353 million in net debt of the third quarter of 2022 compared to the third quarter of 2021 and a reduction of 3.7% or BRL 161 million compared to the second quarter of 2022. We had a total liquidity of BRL [ 2.104,000 ] in the third quarter of 2022 compared to BRL 1.892 million in the second quarter of '22 and BRL [ 1.007 ] billion in the third quarter of 2021. In Slide #4, we see our net operating revenue for the third quarter of 2022 of BRL 4.318 billion, a growth of 20% compared to the third quarter of 2021, and a growth of 3% compared to the second quarter of 2022. The increase in revenues in the third quarter was due to the increase of the production of light vehicles globally. Revenue by region shows the South America with 33%, North America with 29%, Europe with 29% and Asia and other countries with 9%, in terms of share in the company. In Slide #5, we can see our net operating revenue for the 9 months of the year with the revenues of BRL 12.988 billion (sic) [ 12.788 ] billion, a growth of 29% compared in the -- compared to the 9 months of 2021 and share that is similar between South America, North America and Europe with about 30% in Asia with 9%. In Slide #6, we see the net operating revenue breakdown for the third quarter of 2022. We have stability in the product mix with a slight increase in the share of aluminum wheels, which has grown from 25% in the fourth -- third quarter of '21 to 27% in the third quarter of 2022. In the revenues by segment, we see stability in the mix between light and commercial segments. The commercial vehicles segment represents 48% of the company's net revenue. We also need the revenue by decision. We also see stability between divisions with a slight growth and structural components, which represented 27% in the third quarter of '21 and now represented 28% in the third quarter of 2022. In the next slide, we see the net operating revenues by client, which reflects the market dynamics and the share of commercial vehicles in the company's net revenue -- operating revenue. You see that our 10 largest clients represent about 76% of the company's revenues. In the next slide, we start observing the share in operational performance by region. In South America, we had a growth in net operating revenues of 23.4% in the third quarter of 2022, reaching BRL 1.438 billion with a growth of 18.2% in the revenues from commercial vehicles and 35.1% in the segment of light vehicles, showing the recovery of this segment in the region. When we look at the production of vehicles in the Brazilian market, we see an increase of productions of 33.7% in light vehicles and 15.8% in commercial vehicles. In Slide #9, now looking at North America, we see a growth of operational -- of net operating revenue of 16.6% in the third quarter of 2022, reaching BRL 1.242 billion with a growth of 29.9% in commercial vehicles and 3.5% in light vehicles. We see that the production of vehicles in North America has grown 17% in commercial vehicles and 24.2% in the segment of light vehicles. In Slide #10, now looking at the European market. We see a growth of 22.2% and the net operating revenues of the company, reaching BRL 1.241 billion in the third quarter of 2022 or a growth of 12.1% in commercial vehicles and 26.6% in light vehicles. Looking now at the production of vehicles in the region, we see a growth of 31.1% in the production of light vehicles and 31.4% in the production of commercial vehicles in the European market. In Slide #11, we look at Asia and other markets. We see a growth of 17.4% in the net operating revenues of the company, reaching now in the third quarter of 2022 BRL 397 million with a growth of 3.5% in commercial vehicles and 22.8% in light vehicles. Looking at the main markets of the company in Asia, we see an expressive growth in the production of the vehicles in India where the segment of light vehicles grew 33.1% and 38.4% in the segment of commercial vehicles in India. There was also expressive growth in the market of Thailand with 34.1% in the third quarter of 2022. In Slide 12, looking at the gross profit of the company. We have reached BRL 339 million in the third quarter of 2022, a reduction of 31.6% when compared to the third quarter of 2021. The reduction in gross profit was due to momentary effects, especially the lag between the cost of raw material inventory compared to the sales prices in North America. Lower operational efficiency due to unscheduled production stoppages by customers and increase in energy costs, mainly in Europe. In the first 9 months of 2022, we had a gross profit of BRL 1.485 billion with a growth of 12% compared to the first 9 months of 2021. In Slide 13, we see the company's EBITDA of BRL 363 million in the third quarter of 2022, a decrease of 26% when compared to the third quarter of 2021. Due to the impact of the factors we have mentioned previously, considering the nonrecurring effects in both periods, which are described below, the company's EBITDA would have decreased in by 39% in the third quarter of 2022 and increased 7.2% in the first 9 months of 2022. When we reached EBITDA of BRL 1.445 billion in the first month of this year. In Slide 14, we see the company's net income of BRL 69 million compared to BRL 177 million in the third quarter of 2021. The first 9 months of 2022, we have reached a net income of BRL 420 million compared to BRL 443 million in the first 9 months of 2021. In Slide 15, we see the company's investments of BRL 121 million in the third quarter of 2022 compared to BRL 113 million in the third quarter of 2021. In the first 9 months of this year, we have invested BRL 335 million compared to BRL 252 million in the first 9 months of 2021. The main investments in these periods were related to increasing capacity to meet the demand of the commercial vehicle segment, launching of new products and improving productivity in our factories spread throughout the world. In Slide 16, we see the financial leverage of 2.27% measured by net debt by EBITDA of the company compared to 2021 and compared to 2.33x at the end of 2021, an important reduction of the net debt of the company of BRL 353.5 million compared to the third quarter compared to 2022. Slide 16, we can see the financial leverage, liquidity ratio of the second semester of 2022, reaching a total liquidity would be like the cash flow and the cash equivalent and rotating cash of BRL 2.104 billion compared to BRL 1.892 billion in the second quarter of 2022 and also BRL [ 1.500 ] billion in the third quarter in 2021. Slide 18. We can see the composition of the indebtedness that represents the third quarter in 2022. In Brazilian currency, 50.9%; in euros, [ 25% ] -- 35.9%; dollar, 9.3%; and other currencies, 3.9%. Indebtedness in long term, that will represent 67% in the third quarter in 2021 represents now 79% of indebtedness in the third quarter of 2022. We can see the reduction in the liquid indebtedness of BRL [ 4.452 ] billion to BRL [ 4.170 ] billion in the third quarter of 2022 with a reduction of BRL 350 million, as we mentioned before. Slide 19. We can still -- we are still growing globally in our strategy. We can see the process, the audit process that was conducted by Volvo that gave us a score of 91%, and it's one of the highest scores from the automaker suppliers. In EcoVadis evaluation of social responsibility and corporate responsibility, which is used by most of our customers in order to access the supply chain, we've reached a total score of 50 points, which is above the industry of 45. And that shows a strong performance in the 4 pillars that have been evaluated environment, labor, human rights and sustainable procurement. We were also received the recognition of the Thailand Greenhouse Gas management organization, indicating our evolution in the strategy for ESG in Asia as well. For the next slide, Slide #20. We have here one of the main recognitions we received from our clients. So CAOA Hyundai best suppliers in 2022, quality and supply. Our wheel plant in Brazil and also by Mercedes-Benz. We received the Masters of Quality in our wheels plant in San Luis Potosi in Mexico. We would like now, we want to ask for a Q&A session.

[Operator Instructions] So our first question is from Andressa [indiscernible], sell-side analyst from Bradesco BBI. So Mr. Andressa we're going to open the audio so that you can say your question.

I would like to have an update idea. So how much are you expecting for and what has been doing about the supply chain about the assembly lines if they want to have like -- if they're going to have negative actions for 2 weeks or trying to maximize production in 2022? And if I can ask a second question about this image. So what are you expecting for the fourth quarter? And how repassing the energy costs will work in Europe? And if there are any other negotiations going on?

Thank you for your question. Well, regarding the situation of semiconductors, we can see a gradual improvement in the availability in semiconductors all over the world. Through the 3,1st quarters in 2022, it's been improving slowly, but surely. From the first, second and third quarters compared to 2021, which is quite positive, but we're still observing -- we can still see interruptions in the supply and in the production for the assembly lines all over the world. These interruptions mostly speaking, they are unannounced, and they really happen due to -- they don't have the semiconductors and the assembly lines, which has been leading us to reorganize our production in an emergency matter in our plants all over the world. And quite often over a week or overnight so that we can adapt to the stoppage of our clients. So this is a gradual improvement we can see that a consistent improvement in 2022, but it hasn't finished yet. And what we can see from our clients in the market is that the situation has been improving. We have a trend to improve in the fourth quarter, but it won't be 100% solved in the beginning of 2023. But it will be normal, the regular in the second semester of next year. So -- it's definitely an important improvement if we compare to the previous year when more than 10 million vehicles were produced around the world due to the lack of semiconductors and estimate this year show a loss in the production of light vehicles and commercial vehicles globally speaking, around 3 million or 4 million fewer vehicles due to the semiconductor shortage, but we are continuing, as I said, slowly, but surely in the following quarters. Regarding the margins that you mentioned. We can see in the third quarter in 2022, all the impacts from inflation around the world and mostly due to energy in Europe. And also this transition of price of raw material that had improved a lot globally speaking, especially in North America in the first quarter, actually, the end of 2022, first Semester of 2022. So these prices, they are beginning to decrease in the second semester of 2022. We have inventory of raw material that was bought for a higher price, so we will be decreasing along the month -- so we expect that the impact of these factors will decrease and disappear from our results. Regarding the inflation, pressure and energy, historically speaking, industry has always had the structure being by formulas, equations or negotiations. So it's always been well defined to negotiate raw material be in steel, aluminum that historically speaking, happened quite often maybe on a larger magnitude and a smaller magnet, but they still take place. So that's why there were and there are predefined equations and negotiations that happen in a very natural way that happen every quarter, every time they have these variations in raw material. But regarding ore and other materials, they change from client to client. And there weren't or there isn't a predefined structure for this kind of situation. Of course, costs regarding energy have raised a lot in this -- in the year of 2022, most specifically in the third quarter. And a good example of that is, for instance, natural gas in Europe that reached [ EUR 3,000 ] by megawatt hour -- in the third quarter, so in this year, it's reaching a higher level of the previous year. But I would say it's been normalized, and we do believe that this level that went even over EUR 3,000 in the third -- the first quarter can be EUR 115 by megawatt hour in the fourth quarter. So this growth of natural gas of EUR 350 to around EUR 115 in the fourth quarter, it's important. But that led us to talk to our clients in order to establish a methodology to pacification for the [ followers ] at the same time that we have these variations and they can take place again not only in Europe, but in other markets as well, but most specifically in Europe, which has been the most affected region by all the variations in the energy costs being natural gas, electricity or any other factor. So this has been our work. Of course, we've been working tirelessly internally with our clients. And we've also been working in the improvement of our efficiency, especially the operational efficiency regarding electrical, energy and natural gas in a continuous improvement process. So over the previous years, we had a great focus on improving the productivity being improving production as with a reduced structure of costs of using manpower, automation and energy that has always represented, I would say, a smaller percentage in our cost structure. It's representing a higher value in the third quarter this year. So that's why it led us to increase our focus in continuous improvement projects in energy, being like aluminum wheels or thermal treatment of aluminum wheels. And this way, reduce the consumption of energy in our operations. So we do believe that the temporary effects that we have in 2022, they have been reduced, but still -- we have a very important work in our operations and our internal operations to improve our efficiency and also with our clients, that we can have in these eventual increase in prices in the future.

Our next question is from Lucas Laghi, analysts, sell-side and XP.

Well, actually, I have 2 questions. The first one is a follow-up regarding the margins, but what caught my eye was the idea of the iron ore. When we have the evolution, what contributed more or most -- it was 65% was iron ore, but the most of it was the ore. So again, I was thinking about the [ contabilization ] of the inventory. So what we have as costs and how much we had booked when we have the balance sheet. So this has been represented. If we have any flexibility, maybe to stretch this deadline for transition for BRE. So it's to understand the [ contabilization ] of inventory of the raw material that we have. And when you mentioned the normalization. And what we're going to, we are going to improving cost. It's just to have a better understanding. And the second point regarding bulk regarding volume. We have a sequential this year that we have in light vehicles. But in Europe, we saw a decrease. So I was trying to understand for light vehicles, it's a question of offer or demand. We have more exception that the continent is same. So these are the 2 points, I try to understand the idea for raw material and the evolution of selling light vehicles in North America and Europe, considering Europe market.

Lucas, this is Elcio. Let me get this first question that you mentioned. Just to restress what Marcos mentioned, in the third quarter regarding the margins was we had temporary context aspects, but not structural. So it's important to understand these temporary aspects. And most importantly, as you mentioned, was the detachment of the cost for raw material, inventory and the cost and the impact of that cost on the sale price. So we've had some semiannual adjustments that we do in January. We are talking about changes in price regarding the indicators, the CRU and all the equations that we have with our clients. So the accountability is going to have an average cost. So let's say, as long as you're buying the raw material in a different price, we add that to the inventory and we have on average cost of inventory. So it's something that you make this inventory flow and supplementing with the raw material new prices, you reduce on that sense because we're talking about a reduction process. So you reduce the average costs gradually as long as you have all the new purchases and what you have in the inventory. I think it's a simple equation. We are talking about a sequential impact in a way that you buy and you consume new products. So just for you to have an idea regarding average price of our inventory I'm saying on average, okay? We're talking about a little bit more of 2 months of inventory in the company. I think that's the main impact of the margins in temporary. So we have the effect of energy. Yes, we do the unexpected stoppages and what Marcelo mentioned here in a general way. So especially talking about this detachment that happened in North America, you can't see the impact on the company's revenue and in a relevant way. You could expect an important reduction on the price of the raw material, but impacting on the sales, but especially due to the -- like the warming up of this market, and we are defending the company top products. So we understand the structural aspects that we can see here and we can see the evolution regarding the semiconductors. We have other challenges to face, but as we have a normalization being in the prices for raw material, and we can see them that they are stable on that moment can be in the energy cost in Europe. So they have -- they are on a lower level. But because of the Ukraine war, there was a peak so from 100 to 300 in the third -- in the third quarter. So it returns to the regular levels of 100 and something. So let's watch where this is going to be leveled. So maybe not on the same level like pre-war, but we can have like -- we're not going to reach the 300 in the third quarter. So these prices, generally speaking, are going to be more stable, and we tend to go back to our historical margins gradually. So there are no structural changes in the company.

Just to add something, Lucas, thank you for your question, adding something to also answer especially in the case of North America, regarding raw materials, we have predefined formulas with our clients, which have a period for adjustment and adaptation between the purchase of raw material and the selling of our products. And these formulas are relatively automatic, and they tend to help when we are growing and have an impact in the short term and the price of raw materials is falling, and it stabilizes when the prices is stable. So we have transitory periods, remembering that -- and still in North America, the price has reached very high levels and it's now below [ BRL ] 1,000 per ton again. So there was on the impact of the raw materials bought, in the first semester because we needed this material for production, we have a transit inventory in the factories. And we have a working process that needs to be produced with raw materials, and we have raw materials, but at higher costs, and it stands to normalize and disappear through time. So when the raw material prices reached stability in the market and we start to see this stabilization now in the next few months. This situation should -- this appeared from the effects, the temporal effects of the company. With regards to market and volume, in general, demand is still at a positive level in the various regions we operate, even in Europe that has been growing through difficult periods due to costs, the pressure of inflation, the entire situation related to the war between Russia and Ukraine. Demand is still at an interesting level. There is still some repressed demand for production. We had not planned for that due to the lack of semiconductors in the previous quarters, but there's still some demand that is being met as production is normalized and we have been observing interest from consumers and buying despite the geopolitical uncertainties in the continent. So much so that when you look at the forecast with our clients, we have been talking to them about their view for the fourth quarter, the view -- the forecast for the next year prospects are still positive and consistent with the numbers we have mentioned previously and the projections of IHS Auto. They in its last update from October 2022, they indicate a production of 85 million vehicles globally in growth compared to the year 2022. That occurs globally in different levels in different regions, such as in Brazil growing at different speeds from the United States and Europe with where we see growth, but at a different level. But that shows a perception that demand is still to be met as production is normalized in the next quarters. Of course, eventual geopolitical situations or economic situations that might influence some regions always represent some risk, but there is not what we see for the future, even with the increase in interest rates and inflation. We don't see at this time and our clients don't see the negative forecast for production in the main markets globally. That is true for commercial and light vehicles, where we expect, for example, for 2023, we still expect a growth of 11% in the production of commercial vehicles globally. And a production of 6 -- increase of 6% in light vehicles for 2023 when we exclude China, in the case of light vehicles, which is one of the more important -- some of the more important markets for us in terms of light vehicles. Our share of light vehicles in China is very small. We are now working on our ramp-up in aluminum wheels in China. We have started this in the second semester of this year. We are increasing it gradually. So our share in the light vehicle market in China is still small, but increasing production globally, excluding China, is a better reflect of what's happening in our wheel production globally.

We now have a question from Jonathan. He is a sell-side analyst from JPMorgan.

There was a question about the mix. We had a share of commercial vehicles greening representative in the line of the company. I would like to understand if that's to the case, if there is some stability showing -- and considering the IHS data that Marcos just mentioned, considering light vehicles for the next years, which should be higher so higher growth in commercial vehicles?

Jonathan, thank you for your question. We still see this quarter a stability in the share of commercial vehicles in our consolidated net revenues with about 48% of our net revenues globally. This number can vary still throughout the next quarters as the light vehicle segment grows above the level of the commercial vehicles growth. But you need to remember that we still have had in half capacity limitations in our various operations, both in wheels and structural components and commercial vehicles. That is and was a reality in Europe. North America, Brazil, and we've been investing throughout this year to [ limit ] at this bottlenecks and constrains we have in commercial vehicles, and we might meet the demand of our clients in a way that is more efficient operationally in more normal terms of production without over time and various other efforts we have been incurring in throughout 2022, and in the third quarter of 2022. And to meet demand with restricted capacity, we have been operating with structures that considered over time and that are not so efficient in which need to be improved, to eliminate these constraints in capacity. We have been investing throughout 2022, most of our investments in 2022 are focused on commercial vehicles, so we can meet the demands from the markets, be it in Europe, South America, North America so that we can do that more efficiently without actions such as those we have incurred and lately to meet the demand with limited capacity we've had. So this mix may change depending on the growth of light vehicle segment versus commercial vehicle segment. And on the other hand, internally, as we eliminate these restrictions, this might also help. So we'll be monitoring and observing quarter-by-quarter, how things are progressing and also the variation on the cost of raw materials, which do have an effect in the final price because, of course, it has to be passed on to the price of the products, and that might affect the mix of products. Remembering that we have an important mix of aluminum wheels in the structure of costs. Almost 30% of our revenues are in aluminum wheels. And the rest in -- the other 70% are divided between steel wheels and structural components for commercial vehicles, which is very focused on production with steel. So the variation in raw material prices do affect or result in a variation of in prices and that might affect the mix of products that compose our revenues. So we'll be not monitoring, and I believe that the variation on the volumes will have an effect, but we do believe that we are at a level that is different from our previous mix of products between commercial and light vehicles due to all the factors I have mentioned. Thank you, Jonathan.

Our next question comes from Renata Cabral, sell-side analyst from Citi.

My first question is also about -- a little bit about mix. This quarter, we have aluminum wheel increasing 2% compared to the third quarter of 2021 from 25% to 27%. I'd like you to comment on that. if that's a normal variation in the mix or if there is a tendency of increase in that area? And the second one, following up on Europe. I know you have talked about it a lot. But I like you to share a little bit of what would be your contingency plan. In case there is really problems with energy. They have had an increase in prices for energy, due to positive civil interruption in the energy. If there is problems with energy supply, how are you going to work on that?

Thank you for your questions. First, regarding the mix of products, there are 2 comments very important and I'd like to make. Regarding aluminum wheels, I'd say that the most consolidated markets, the best developed markets such as North America, Europe and even Brazil in that sense. There's already stable mix combining steel and aluminum wheels. So there is no big change in this market and the mix of wheels and market production. What has been happening, which end is temporary is that the companies due to their changes, they need to make adjustments and their production schedule to meet demand for specific kinds of vehicles or vehicles that offer a better economic margin. And sometimes they need more aluminum wheels in the vehicles, they need or steel wheels. And that caused us some variations that are temporary in the mix of steel or aluminum or also connected to the availability of semiconductors that affects the production of these products. On the other hand, in the areas where we are increasing our aluminum wheels production is in Asia, especially India, remembering that we have built a new steel wheels manufacturing there that is growing well, growing fast in the last -- in the year 2022. So the mix of aluminum wheels in our revenues is growing, thanks to the Indian market. That's a market that is growing, and that shows the growth also in aluminum wheels differently from -- that differs from more developed markets. With regards to problems with energy supply, I think there are several factors. Energy problems are not occurring the same way in all countries. There are some countries with problems when they depend more on the production from Russia. And there are some areas where they count on the energy supply from the North of Africa, where you don't have problems in the supply. So this is an issue that is not -- does not occur in the same way in companies we operate even -- because you have countries with sources of energy supply that are different. We are working internally and working on the -- looking for alternatives in terms of energy supply, whenever possible, depending on the country we are in. And at the same time, the various government and the European community has been working in programs so they can face this uncertainty regarding a limited supply of energy. And they are doing that via through restriction in the use of energy regarding air conditioning, operating at different levels, inflation or other issues at different levels. So everybody is implementing different actions to face variations in the supply of energy in the future. What we have observed so far is in the cost of energy, both electricity and natural gas, there is variation in the price but no reduction in supply. And as we see things evolve, I'd say that we are acknowledging lower dependence on the supply from Russia. This is going down time, be that for production in different countries or importing natural gas or other inputs from the Middle East or other areas, and that reduces the uncertainty and the fear we had about 3 or 4 months ago. Has this disappeared, No. But we do believe that the impact for us is not the biggest concern. The main concern is that, if our clients are, at some point, affected to do restriction in energy supplies, we would not be producing to meet their needs. It is an uncertain environment. We don't know exactly what's going to happen throughout the winter in Europe and the beginning of 2023. But at a company level, we're at government level or in terms of alternatives for energy supply, I think we are all working to try to mitigate any occasional impact if we have a greater restriction in energy supply.

So we have one last question coming in the chat from Bradley [indiscernible], he is buy-side analyst in Global Investments. And he's asking about the matter of the unexpected stoppages from the clients, if that is somehow related in Europe or regarding the energy shortage. And also talking about the recovery, what are your expectations regarding recovery in the production of light vehicles for the fourth quarter, especially in the U.S. and in Europe.

Thank you for your question, Bradley. I would say that the stoppages that have been going on in the production for our clients have happened because they don't have some inputs, especially the semiconductors, but not impacted by the energy. Energy so far hasn't had an effect on the capacity of our clients to produce in some other inputs, some other raw materials. So -- regarding light vehicles, we can see a demand that hadn't been met yet. So there is a repressed demand here that has been served in some markets. There are still many other products on the waiting line. They don't have a supply and infrastructure supply because from the assembly lines, which makes clients to wait and clients are waiting for that, even in the moment such as like this. So vehicle prices have gone up in 2021 and 2022. Demand is still there. Again, our clients' view show growth for 2023. And the fourth quarter, it's usually a period of time of lower production because of the stoppages that we have in the end of the year. The assembly lines usually use the end of the year break, especially the second half of December and the first week of January of the following year in order to have like large maintenance projects. So they stop the assembly lines, they have collective vacations so that they can make many adjustments in the general conditions of like the turning of the year. So as far as we can see so far, we can say that the stoppages in the end of 2022 are mostly about -- they will be similar to those that take place in regular years, I would say, so not restricted because of a factor, but they are programmed stoppages in the end of the year, with the exceptions of the commercial vehicles, especially trucks here in Brazil. Just to remind you that there is a transition from the legislation of emissions -- so in [indiscernible], 2022, 2023. So the assembly factories are trying to produce. I mean, trying because sometimes they can't keep up because of the semiconductors, but they are still trying to produce until the end of the year so that they can sell the trends that have been produced with previous emissions in the first quarter of 2023. So I believe that globally speaking, we are going to see a scenario which is going to be similar to the regular scenario for stoppages that we have in the fourth quarter. And the commercial vehicles, especially hit in Brazil, will keep producing the most as they can until the end of the year so that they can sell these products in the turning of the year.

So with that, we are going to finish our Q&A session. I would like to call Marcos right now for his final remarks.

Well, thank you all for participating. Thank you for being here. We are keeping an eye on all the changes in the market, variations in the volume and inflation rates and geopolitical events. We try to adapt immediately to eventual effects of these factors. So we remain focused in gains and productivities and operational efficiency. And in the release of new products, developing our advanced engineering digitalization and innovation and the strengthening of our balance sheet so that we can still bring value in a sustainable way throughout in time. So thank you all for coming, and have a nice day, everybody.

So the video conference regarding results in 2023 is now closed. So the department is available to answer any other further questions. Thank you all for coming, and have a nice day.