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

We have Marcos de Oliveira, company's CEO; and Elcio Ito, company's CFO. This conference is being recorded and will be available on the company website after this presentation. [Operator Instructions] Before we proceed, we'd like to clarify that eventual declaration that may be made during the conference regarding to perspective of business in this company, projections and operational goals, financial goals, they are beliefs and premises of the Iochpe-Maxion guidelines. They are in reference to future events and they depend on circumstances that may or may not occur. We would now like to give the floor to Marcos de Oliveira, CEO of Iochpe-Maxion.

Welcome to Iochpe-Maxion's Fourth Quarter 2022 Earnings Release video conference. Year 2022 was characterized by global economic and geopolitical uncertainties with inflation levels and interest rates at historical high levels. Bottlenecks and interruptions in the supply chain continued to impact the sectors throughout the year. Even in this scenario, the global production of live vehicles, excluding China, according to HSI consultants showed an increase by 8.3% in the fourth quarter in 2022 and 6.7% in 2022 if compared to the same periods last year. The Commercial Vehicle segment showed growth in global production, excluding China, of 1.2% in the fourth quarter of 2022 and 9.5% in 2022, according to LMC Consultants. Despite the growth observed in 2022, global automotive production, excluding China, is still 13% below the volume produced in [ 2029 ] before the pandemics. Company's operating margin were negatively impacted in the fourth quarter, but the same effect observed in the third quarter of 2022, namely the lag between the cost of raw material inventory and selling prices. Lower operating efficiency due to unscheduled productions, stoppage by customers and effects of inflation across all regions, particularly energy costs in Europe. In addition to these factors, the end of the year has a seasonal effect of customer shutdowns with an impact on operational efficiency. It is worth mentioning that the main negative impacts that fell on the results of the second half of 2022 are of a temporary and transitory nature and not structural. The gap between the cost of raw material inventory and sales prices of course when there are significant changes in input prices. The production stoppages occur due to the restrictions of the supply of semiconductors. The situation shows gradual and sequential improvement. The inflation levels observed in the second half of 2022 begin to show a cooling improvement. In the main markets and the cost of energy in Europe is already at a much lower level than we observed in the second half of 2022. I will follow the presentation in the next slides. Slide #2 shows the global forecast for the production of light and commercial vehicles. As we can see on the light vehicle chart the 2022 presented a global production of 82 million vehicles or 7% above the year 2021. It indicates an industry of 85 million vehicles in 2023 with a growth of 3%. It's worth mentioning that even reaching the level of 85 million vehicles, the industry is below 2019 numbers in commercial vehicle segment. The dropping global automotive production in 2022 was [ 60% ]. And the LMC indicated a 6% growth in commercial vehicle production for 2023. Slide #3. We can see the main highlights on the fourth quarter of 2022 for Iochpe-Maxion. We had a net revenue of BRL 4.2 billion in the fourth quarter and an increase of 9.8% compared to the fourth quarter of 2021 and of BRL 16.9 billion in 2022, meaning an increase of [ 23.8% ] if compared to 2021. Our financial leverage reached 2.26x in the fourth quarter of '22 compared to 2.33x in the fourth quarter of '21 and 2.27x in the third quarter of '22. We had a reduction of 8.9% or BRL 382 million in net debt in the fourth quarter of 2022 compared to the fourth quarter of '21, and 6.1% or BRL 252 million compared to the third quarter of 2022, all supported by the company's cash generation. Our total liquidity of BRL 2.787 billion in the fourth quarter of 2022 compared with BRL 2.104 billion in the third quarter of 2022 and BRL 1.088 billion in the fourth quarter of '21. Distribution of BRL 105 million in dividends referring to the year 2022, out of which BRL 59.7 million in interest on equity net of taxes and BRL 45.5 million in dividends. One of our highlights in ESG was -- our participation for the second year -- consecutive year in the B3 Corporate Sustainability Index and the signing of the United Nations Global Compact. On Slide #4, we can see the company's consolidated operating revenue. We have reached BRL 4.160 billion in the fourth quarter of '22, reflecting a growth of 9.8% compared to the fourth quarter of '21 and a drop of 3.7% compared to the third quarter of 2022. The recovery of production volumes despite the face of a still restrictive component supply scenario allowed us this revenue growth throughout the fourth quarter of '22. On Slide #5, we see the consolidated operating revenue for the whole year of 2022 reaching BRL 16.948 billion or a growth of [ 23.8% ] compared to 2021. Disregarding the negative effect of exchange variation, total revenue growth will be 33.6% in revenue by region in 2022. We can see Europe's contribution at 31%; South America, 30%; North America with 29%; and Asia and other markets with 9%. Slide #3 -- #6, we can see the breakdown of net operating revenue by product. with an increase in the share of structural components in commercial vehicles, which represented 22% of the company's revenue in 2022 and now represents 25% in 2022. Per segment, we have an increase in the share of Commercial Vehicle segment, which represented 45% in '21 and now represents 48% in '22. In regard to revenue per division, we can see the increase in the share of structural components, which represented 24% in '21 and now represents 27% in 2022. Slide #7, revenue per customer for the full year of '22, we can see growth dynamics driven by the Commercial Vehicle segment, especially in North America, Brazil and Europe. Slide #8. We can see some of our launches for vehicles, such as the internal combustion engine and electric vehicles. Slide #8, we have the application of aluminum wheels in the European market, North America and Asia for different customers. And we highlight the participation of newcomers in the electric vehicle segments. On Slide #9, we can see some of the launches regarding wheels and structural components, all occurring in Asia and North America for commercial vehicles. We can also see the application of our wheel and chassis products for vehicles with internal combustion engines and for electric vehicles. Slide #10 also brings some other launch products in South America and North America with special focus on the electric vehicle segments. And these launches represent the strength of our portfolio to meet the need of the automotive sector today and in the future. On Slide #11, we begin to see the company's operating performance in the different regions. On this slide, we can see South America which reached a net operating revenue of BRL 1.261 billion in the fourth quarter of '22, with a growth of 14.9% if compared to the fourth quarter last year. This growth was supported by the recovery in the volume of wheels of steel for light vehicles and in the equipment of the company's chassis and [ side rails ]. When we look at the performance of the Brazilian market in terms of vehicles produced, we can observe in the fourth quarter of '22 a growth of 1.7% if compared to the fourth quarter of '21. In the segment of light vehicles and of 16% in the segment of commercial vehicles. Slide #12. Now looking at North America, where we reached a net operating revenue of BRL 1.152 billion or a growth of 0.7% compared to the same quarter of the previous year. In the fourth quarter of '22, we observed a light decrease in the volume of wheels in the Light Vehicle segment, but a stable volume throughout '22 if compared to '21. Disregarding the impact of exchange rate variation, the company revenue increase will be 7% in the fourth quarter of 2022. Looking at the market performance in terms of number of produced vehicles in the fourth quarter of 2022, we can see a growth of 7.9% in the segment of light vehicles and 3.2% in the Commercial Vehicle segment in North America compared to the prior year quarter. On Slide #13, now covering Europe, we had a growth of 17.5% in net operating revenue in the fourth quarter of '22, comparing to the fourth quarter of '21. And we've reached a revenue of BRL 1.383 billion. We have particular volume growth in the aluminum wheels segment and disregarding the impact of the exchange variation. The company's revenue increase will be 39.9% in the fourth quarter of '22. When we look at the market performance in terms of vehicles that have been produced, we can see Europe with a growth of 13.8% in the segment of light vehicles and 7.8% in the segment of commercial vehicles in the fourth quarter of 2022 compared to the fourth quarter of '21. On Slide 14, now looking at Asia and all other markets, we've reached a net operating revenue of BRL 365 million or 1.4% below the fourth quarter of '21. We had an increase in the volume of aluminum wheels, mainly due to the ramp-up of our aluminum vehicle factory in India. Disregarding the impact of the exchange variation, revenue would have increased by 16% in Q4 '22. Now looking at the performance of key markets in Asia in terms of produced vehicles, we can see an 18% growth in light vehicles production in India in Q4 '22, a quarter drop of 4% in the commercial vehicle segment and a 9% growth in light vehicle production in Thailand in Q4 '22 compared to Q3 [ '21 ]. On Slide 15, we can see the company's gross profit of BRL 324 million in the fourth quarter of 2022 or a decrease of 14.3% compared to the fourth quarter of 2021. As for the fourth quarter, our -- [ gross profit ] was negatively impacted by the lag between the cost of raw material inventory and price sales. Lower operational efficiency due to the unscheduled production stoppages by customers and impact of inflation in all regions, mainly energy costs in Europe that was for the whole of 2022 when we had a gross profit of BRL 1.808 billion or a growth of 6.1% compared to 2021. Slide 16. We can see company's EBITDA of BRL 291 million in the fourth quarter of 2022, with a decrease of 25.4% in comparison -- compared to the fourth quarter of '21. Our EBITDA was compared by the factors previously explained in the gross profit slide. Throughout 2022, we reached an EBITDA of BRL 1.737 billion, a decrease of 5.7% compared to the 2021 year. Disregarding the nonrecurring effects in both periods, company's EBITDA would have presented a growth of 1% in 2022. Slide 17, we will see the company's net loss of BRL 141 million in the fourth quarter of 2022. In this quarter, we had a negative impact of [ BRL 181.8 million ] due to the extra judicial agreement at the administrative level with the Mexican tax authorities in the fourth quarter of '22. Throughout 2022, we achieved net income of BRL 279 million compared to BRL 537 billion in 2021. We distributed BRL 105.2 million in dividends for 2021. Slide #18 shows company investments at levels of BRL 257 million in the fourth quarter of '22, with an increase of 10% compared to the fourth quarter last year, and total investment of BRL 592 million throughout 2022, with an increase of 22% compared to '21. The main investments in the period were related to the increase in capacity to meet the demand of the commercial vehicle segment, launching of new products and productivity improvement. On Slide 19, we can see the company's financial leverage of 2.33x at the end of -- 2.26x at the end of '22 compared to 2.33x in 2021. We had a reduction in net debt of [ BRL 385 million ] in comparison to the fourth quarter of '21 and BRL 252 million regarding the third quarter of '22. Performance of operating cash flow supported by working capital contributed to the reduction of net debt in 2022. On Slide #20, you see our liquidity ratio which reached 2.67x at the end of 2022, a significant improvement compared to 0.733x at the end of year 2021. On Slide 21, we can see the company's debt, which has reached the level of net debt of BRL 3.917 billion in the fourth quarter of 2022, a decrease of 8.9% compared to the fourth quarter of '21. Our gross debt, which represented 73.2% in the long-term in the fourth quarter of '21, now represented 83.9% in the fourth quarter of '22. Slide 22 shows some highlights for ESG. For the second consecutive year, we were in the portfolio of the B3 Corporate Sustainability Index with the progress in sustainable practices with better performance in the questioning. In CDP 2022, the carbon [ reduction ] project, we have reached a B score on climate change, an improvement over the previous year, which was a bit negative. Our position is higher than the global average for South America, which was a C score. In both cases, we signed the UN Global Compact in support of the mission to encourage companies and organizations to act ambitiously in solving the challenges of sustainable development. On Slide 23, we can see some of the company's record acknowledgments in the fourth quarter of 2022, such as their acknowledgment as Best Place to Work in LGBTQ+ by the Human Rights Campaign Foundation in Mexico. The quality and delivery performance award for the wheel plant in Chihuahua, in Mexico. The employer brand Stars Award from Ford at the [ Manisa ] wheel factory in Turkey. The certificate of excellence on timely shipping performance from General Motors and the automotive industry Export Association Award, the Gold Export Award, for the wheel factory in Manisa, Turkey. I would now like to open the Q&A session.

[Operator Instructions] First, we have Fernanda, a sell-side analyst from [ XP ].

Can you hear me?

Yes.

Congratulations on the results. I have 2 questions. First, I'd like you to see if you could give us some more details on performance on results, especially in Brazil and Europe? How do you see market considering Brazil as a negative in [indiscernible] impact, and the performance of Europe. And we would like to see if you have any credit crisis impacting your results. The second question regards EBITDA margin for the future and how you expect it to behave in 2023? And how -- what do you see as an acceptable time for normalization?

I'll talk about the markets and then as you can talk about margins. With regards to markets, we have started the year 2023 with a positive perspective in the main markets the company operates in. If you observe this time during the first month of the year, the prediction in selling of vehicles in Europe has grown. We see that sales in Europe in the first 2 months have grown about 11%, which is positive. In North America, we see a beginning of the year also with the growth with an average 7% to 8% growth compared to the same period in the past year. And in Brazil, despite the uncertainties rely regarding availability of credit and cost of financing. The first 2 months have shown an increase of 4% in sales and production in our country. When we look at the perspective for the entire year of 2023, [indiscernible] forecast remains positive for the main markets where the company operates, especially with the growth at 5% levels throughout the entire year of 2023, both in Europe and the United States, a growth of about 8% in India, which is also an interesting growth. We have some uncertainty regarding Brazil. [indiscernible] still shows a 4% to 5% growth for 2023, but we are carefully observing each month how the retail and direct sales market operates, so we can understand what is going to be the actual demand for the entire year of 2023. But in 70% of the markets the company operate in, we have a positive forecast with a growth that is being confirmed at least in the last 2 -- the first 2 or 3 months of the year 2023. The Commercial Vehicle segment shows a different dynamic. It still shows growth in Europe with certain growth and a certain -- instability in the United States, but with high demand in production. So the commercial vehicles is a segment that shows growth in Europe with some stability or growth -- in North America, some growth in Asia, China with expectations of growth of over 20% in commercial vehicles this year. And these are interesting markets for 2023. Brazil shows the different dynamics. Our forecast indicates decrease in the production of commercial vehicles in 2023, a drop in the first 2 or 3 months of 2023, it was of about [ 30% ] in January, February and is estimated for the entire year of 2023 at 20% or 22%, which is greater in the first semester with a gradual recovery throughout the second, third and fourth quarter of 2023. And as you can comment on other areas.

Thank you, Marcos and Fernanda. And you have asked about the credit crisis we have. It's still early to understand if it's going to have a more relevant impact on the -- our markets. Regarding the purchase and selling of vehicles, it's still early for us to have any actual opinion on that. Regarding the margins, it's still early in the year for us to understand how this is going to occur throughout the years. But today, in March 21, we see a recovery of operating margins, which is -- should be more important in the second quarter. It's important to mention that our structural margins show several variables, some of the main ones -- with the growth of about [indiscernible] even with all the teams analyzed and shown by the consultants, it is a positive growth for the industry and for our volume. And this growth and despite that, we are still going to be below than what we expected. We are with a gradual recovery. And just as a reminder, one of the back -- last in our sector, shows a gradual increase as we have been observing for the previous quarter. It hasn't been fully solved. But this is recovery process that is gradual. We also have commodity pricing because they are also letting up and down, and this is causing impact, of course, although this may be temporary. So as the market reaches its balance, it also presents interesting stability. So some of the variations and uncertainties that we had in the fourth quarter and in regard to everything that is happening in Europe, especially concerning energy, despite the many uncertainties that we see, some of them are being well managed and reaching production balance. So the scenario is positive, but with caution, as we can see, we see the macroeconomic events happening, and we are adjusting timely. So that new scenarios do not surprise us. And yes, we are in the recovery path for our margins, especially for the next semester.

Now we have a question by Gabriel [indiscernible], sell-side analyst from [indiscernible].

We have a couple of questions. What got our attention is that the company has managed to maintain a stable leverage despite the drop in EBITDA throughout the [indiscernible]. So I'd like to understand the dynamics of capital for the next few months, if you will be able to maintain that for the next months with the comments you made about margin. And also, we'd like to confirm if there is an update in the process with the antitrust in Germany, you had some problems in the second quarter. And we would like to see if there's any update.

Gabriel, thank you for the question. Clearly, the leverage has been a very relevant process for the company. As you well mentioned, the EBITDA for 2022 in the company, the decrease nominal, and even with that reduction, we had stability in reduction of the leverage from 1 year to the other, greatly thanks to the performance of the company's cash flow supported by working capital. And I'd like to take advantage of this question to reinforce some cash topics that we have mentioned. At the end of 2021, there were many questions regarding inventory. We've been talking about that every quarter, the increase of the value of the inventories composed by exchange variation, commodities prices and company deals with raw material inventories. We faced many challenges due to lockdowns to supply chain, the stoppages in the automotive companies and several other factors that throughout the past quarters represented a negative challenge for the company regarding working capital. We know that throughout 2022, the EBITDA of 2021 was due to some factors, especially PIS/COFINS that was kind of high. And to support that, we really had to work on our cash issues, mainly working capital, which was a negative factor. We have been working with a great focus and operating areas in all plants so we can improve the situation. And if you look at the working capital and the financial cycles of the company, we have a nominal reduction of BRL 198 million with an increase of the -- of BRL 200 million with an increase in revenues in 24%. If you look at it from other perspective, we left 73 days to 53 days. That's a reduction of 20 days in the financial cycle, one year to the other. And if you look at the working capital compared to revenues, it represented 21% in '21, and it came down to 15% in 2022, which is great improvement in terms of working capital, especially regarding inventory that we mentioned. And just to give you some additional details regarding inventories. This is a result of volume commodity prices and exchange rates, but thinking at what is under our control, which are the volumes. If you look at December '21 compared to December '22, we had a reduction of 36% in the volume of inventory from March and whether a great [ risk ] reduction in inventory volumes. That shows the evolution we have had. As the supply chain has gained stability, we're still not fully stable in the entire chain. We have some unexpected interruptions. But we are progressing gradually. So I wanted to highlight that aspect. Moving forward, which is part of your question, I wanted to highlight what we have done in 2022. And we should continue focusing on EBITDA. We will continue working, as I said, the operating margins, you have some transitory effects with gradual improvement throughout the year and should be better in the second quarter. We will continue working on efficiency in all areas, inventory, accounts payable. There's always the issue of exchange rate, which is an important variable regarding momentary leverage. If you have a devaluation of -- or a valuation of the Real, it's going to have an impact. But this impact might be contrary in how it translates into the results in terms of EBITDA. So we should follow the trend of the operating evolution in a continuous focus on our cash. Regarding Germany, we're still at the same -- with the same status. As you see, we have the same level. We had full [indiscernible] quarter, the same status we were at the closing of the year with no change.

Our next question is from Rogério Araújo, sell-side from Bank of America.

First of all, I'd like you to tell us a little bit more about your Turkey operation. I know it may be like a minority in your operation, but it's very relevant. Is there any one-off in your operation? Or do you believe the results are out there despite the energy situation from the third quarter? We'd like you to please elaborate a little bit more on the energy reduction and cost and how this impacts margins, especially in Turkish -- in Turkey, if you can tell us. And my second question, I believe you've explored the margin normalization. I know that many of the effects are temporary, but the mix is still a little bit above average. What is your reduction expectations in regard to the truck wheels and structural components on your results? And do you think this may be affect the consolidated margin? We have some positive points for an increase in margin. But at the same time, there is a headwind there is this effect from the truck side of your production. These are my 2 considerations.

Rogério, thank you very much. Thank you for your question. In regard to our Turkey operations. Obviously, the impact on energy costs and raw material cost variation among other impacts such as inflation, for example, and the cost of manpower, they have negatively impact us throughout 2022, especially at the beginning of the year. But as the year went by, year '22 some of the measures were taken globally but specifically in Turkey. There was a light reduction in energy cost in the second semester last year. And the performance on aluminum wheels in Europe, and the commercial vehicle segment in Europe, they have leveraged really well our operation in Turkey, and this allowed us for better results. And as a reminder, we have built another wheels plant for commercial vehicles in Turkey. And this plant started its operation in the second semester of our last year. And this allowed us to keep the positive trend, in our results in our Turkey operations. As our margin normalization and mix of truck products, for sure, the truck segment is going strong, and it was like that last year in Europe, in the United States, in Brazil itself with the production that anticipated the production for [indiscernible]. This allowed us to have the truck segment very heated. And apart from that, we have to remember that we have made some important investments in 2022. Looking into eliminating some bottlenecks in our production for commercial products components, not only wheels, but also structural components and these investments happened in Europe, in Brazil, and this allowed us to align our installed capacity and our projected demand for 2023 and '24. So the growth of mix of products for trucks has been impacted in several markets, but also there has been an increase in our capacity. And this is gradually exercising a possibility for growth for us and stability, especially in Brazil. And we hope that with this increasing capacity, we will be able to work with new programs that we are going to launch with some new components in the structural components area that is dedicated to the electric vehicles. Battery racks and other components, these are going to allow us to increase our capacity in structural components and in wheels in a more efficient fashion, towards the future. Considering that the European and the American operation is operating at elevated levels in 2023 with a slight drop in Brazil. Transitioning from [ Euro 5 to 6 ], we believe that as we move forward throughout the year of '23 and '24, our capacity is going to be well utilized in the new programs we are taking part with new capacity, they will allow us to maintain this very interesting mix of truck products. I'm not sure whether this mix is going to keep up with the same level or if it's going to change as we go by. But this is going to impact our light vehicles and commercial vehicles. We believe that with this new investment with the new products, we are going to be in a different level serving commercial vehicles with wheels and structural components in the future.

Perfect. So no one-offs as far as I understand, for Turkey in the fourth quarter, correct? -- especially on net profit. Let me just mention a few things in regard to what you're saying, Rogério. We had one one-off, which is related to tax. Due to hyperinflation, we had an evaluation of our assets in Turkey, and so all of this upside is not going to transit to the site. So there is part of it that impacts our net profit. But answering your questions, that is regarding to taxes. There will be a larger depreciation in the future, and it's going to be a more positive impact further on -- there is an improvement, but most of it is going to be regarding the operational effect, everything that Marcos said.

Our next question is with Andressa Varotto, [ SUB ].

This is my question regarding the recent news of the idle operation due to low demand. We know that last year, this is one of the concerns that tampered with your efficiency, especially with the issues with the semiconductors. Now with the OMBs stopping working due to demand, how do you think this is going to impact your operations? And do you think these idle moments can be planned? Do you think this is going to happen in other parts of the world?

Andressa, thank you for your question. We are following this very close following what's happening with the demand, especially with the Brazilian market and the concern with interest rates and the OMB demand, everything that they've been showing us to date and the stopping of operations in the idle moments with commercial vehicles and light vehicles, the commercial vehicles are still on the ramp-up to be 6, but these planned operations idle moments are things that we are reacting accordingly, whether stopping our production or putting them into pause to adequate production to the level that is being signaled by companies. We see that throughout 2022, has been impacted by the semiconductor situation. The same way it happened in 2022 and at the beginning of '23, I apologize. This concerned with the semiconductors is less relevant all over the world. It doesn't mean that this is not still happening. There are some bottlenecks here and there and some very short idle moments due to semiconductors, but they can affect not as much as in 2022 the productions of OMBs. The demand indications whether in Europe or the United States and in India, they are still positive despite the market. And apart from Brazil, of course, which is different, we do see growth in demand, of the 2-digit demand increase in Europe. For example, just about close to 8% for the very first 2 months in the United States and in North America. So despite these uncertainties concerning geopolitical matters, macroeconomical matters, in Europe and the United States, the demand has been keeping up at very good levels. And the automotive production represents 60% of our demand, which is very relevant. So we do believe that we have to be cautious, but we also have to be optimistic. And according to IHS, and the conversations we are having with OMB is confirmed that. In Brazil, we are going to monitor the demand on retail and direct sales to car rentals. They -- for example, they still keep themselves at a very good level. And in Brazil, we have to observe that in the next few weeks, we have to observe this trend on retail, how the consumer is going to purchase their products so that we can project volume for the rest of the year in the segment of light vehicles in Brazil. Obviously, a reduction in -- on the interest rate may be positive during this year, and this may help the market. And of course, the availability of vehicles, there has been very limited in 2022. This may help neutralize this concern regarding retail. But the productions for the OMBs have been larger than the sales last year. So this is why they are reducing production, giving collective holidays to employees so that they can operate during 2023 in a more efficient fashion.

Our next question is from André Mazini, sell-side analyst from Citibank.

My first question is regarding raw material price and price of sales. I remember that last call you brought a lot of interesting topics in this regard. And you work stock average price, and this stock is good for 2 months, let's say. So if I remember this correctly, that's what you mentioned last call, but I'd like to understand that from this call, do you think that the raw material price is still dropping. And do you think that the gap is still too big between the stock price and what you had is for reprice if you make a comparison to last quarter? And of course, this is a discussion that is going to change all the time because there is a rebound. There's going to be some stability. And the second question is a quick one. In regard to administration, you said BRL 1.1 million as being the impact of the situation with the taxes in Mexico. And in the financial market, you mentioned BRL 97 million. What's the difference there? Has it been through the DRE? Is it going through equity? What is the difference between this BRL 1.1 million that you're saying -- that you mentioned today in the [ BRL 97 million ] that you mentioned in your reports.

Let me just mention this concern with the raw material that you've mentioned and then Elcio is going to talk about the agreements with the Mexican authorities, okay? You've summarized it really well. During our last call with regard to the results and the dynamics of raw material costs and sale price is real. Raw material is still dropping its price, especially in Europe, in North America, getting to our stability level, especially in South America, but it's still dropping for this quarter and the previous quarter, and it's now going to reach a stable level. But just as for reference to change these dynamics and not necessarily mention raw material price, whether we buy them or not. But looking at the [ CRO ] as a price indicator for the North American market, the annual average price for 2022 is at around [ $1,100 ] per ton. In [ December '22 ], the CRO was at around $760 per ton. It's still dropping and it kept on dropping for the fourth semester and at the same dynamics that we mentioned before. So this gap between raw material cost and selling price, they will tend to normalize for the next semester of 2023. Elcio?

So concerning the situation with Mexico tax authorities, this has been transited by the total at BRL 97.7 million were due to expenses and updates of all of our financial situation, went to BRL 84 million for ER. So BRL 181 million, BRL 97 million on expenses and BRL 84 million on income tax. BRL 48 million has been paid. So to have BRL 133 million to pay during this year. Just to make things clear, the impacts on the P&L have already been registered last year, and they're part of it, it is still pending for next year.

Our next question comes from Pedro Fontana, sell-side analyst from Bradesco BBI.

I have 2. Regarding energy cost, I understand it has reduced in the fourth quarter, but there's still a risk of change, and we would like to know if there is a new clause for automatic transfer of this cost increase. And the second question has to do with this reorganization of the supply chain globally that we have been observing with Tesla announcing a new plant in Mexico. Is there any room for Iochpe to get new markets?

Pedro, thank you for your questions. In fact, energy cost has reached a peak per megawatt hour in 2022. It has dropped to very -- to much lower levels in the last year. And now we are back into [ EUR 40 ] per megawatt hour. We have done, in the case of Europe, instead of automatic adjustment, we are making adjustments looking at the actual cost of raw materials in the previous quarter, so -- sorry, energy. As energy costs stabilize, -- this transfer is observed compared to the actual cost of the previous quarter. This is the dynamics that was defined halfway through last year, and we intend to maintain throughout 2023. And we believe that this will help us equalize the matter of costs versus prices of our products. With regards to the availability of energy, what we have been observing in various operations in Europe, conditions are different for each country depending on their energy matrix the availability of energy doesn't seem to be a concern for 2023. The various countries, Germany, Czech Republic, and so on, they had the supply in and out of the region is being preserved bringing alternatives from the Middle East. So the update we have from our energy providers who work with the [ EOMs ] energy availability should not be a factor throughout 2023. We'll be monitoring that and the changes, but it doesn't seem to be a concern for of 2023. With regards to the reorganizing of the supply chain, we have a production basis in countries that are very competitive. We are looking at the countries where we have large volumes. We talk about Brazil, Mexico, Czech Republic, Turkey, India, these are very competitive countries in their specific regions. Our business volume is -- our strategy is producing end regions that are meeting the needs of our clients in the [ continents ] we operate. And this is positive for us. It has larger productions migrate to this base production countries they might generate new opportunities, and we are monitoring, working with the [ EOMs ] and trying to adapt our footprint, our production capacity in each region based on the future demand. Considering the growth of the industry and the near shoring that is occurring, we talked about Mexico, but it happens differently in different countries around the world.

We are now closing the Q&A session, and we would like to pass the floor on to Marcos Oliveira to his closing comments.

2022 was a very significant year for our company. We have made investments in the commercial vehicle segment in Brazil and Europe. We continued the ramp-up in the volume in aluminum wheels plant in India. We completed our plant for aluminum wheels in China and started its ramp-up. We started building a new forged aluminum wheels for commercial vehicles in Europe, and we have advanced a new business and electric vehicles in the 2 divisions. All of that with great discipline in allocating capital as has been proved in our NAV [indiscernible]. We still observing variations, inflation pressures and geopolitical occurrences, trying to timely adapt to the impact of these factors. We remain focused on grains of productivity and production efficiency with the launching of new products, advanced engineering development, innovation and strengthening of our balance sheet. So we can continue generate sustainable value to our stakeholders. Thank you all for being with us today.

Iochpe-Maxion's earnings release video conference is now closed. The Investor Relations department is at your disposal for further questions.