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

Good morning, everyone, and welcome to the video conference regarding Iochpe-Maxion's Fourth Quarter '24 Results. I'm Rodrigo Caraça, the company's Senior Investor Relations Manager. I'll be conducting today's video conference. Present in the video conference and available for Q&A session are Mr. Marcos Oliveira, CEO; and Mr. Renato Salum, CFO. We would like to inform that this video conference is being recorded and will be available on the company's IR website, along with the respective presentation. I would like to point out that those who need simultaneous translation, we have this tool available in the globe icon labeled interpretation on the bottom of your screen. When selecting it choose your preferred language between Portuguese and English. For those listening to the video conference in English, you have the option to mute the original audio in Portuguese by clicking on the option. For the Q&A session, we recommend that you use the Q&A icon and for a standard in the dynamic. Your name will be announced. And at that time, I request to activate your microphone will appear on the screen. Before proceeding, we would like to clarify that statements that may be made during this video conference regarding the company's business prospects, projections and operational and financial goals are based on beliefs and assumptions of the company's Board of directors. As well as information available to the company. Forward-looking statements are not guarantees of performance and involve risks, uncertainties and assumptions and refer to future events that may or may not occur. I would like to turn the call over to Mr. Marcos Oliveira, CEO of the company. Please, Mr. Marcos, you can proceed.

Good morning, and welcome to Iochpe-Maxion's Fourth Quarter and Full Year 2024 Earnings Conference Call. In 2024, we have achieved important results, reflecting our commitment to normalizing profitability and sustainable growth and disciplined in capital allocation and structure. With a significant increase in gross profit and EBITDA, the company has demonstrated its ability to adapt improve operational efficiency with productivity gains, adjust prices to costs and effectively launching our products to new vehicle's programs around the world. Regarding vehicle production volumes, in 2024, we had a production growth in Brazil, especially in commercial vehicles and a significant drop in production volumes in Europe and to a lesser extent, in North America. It's important to highlight the strong advance in productivity in our operations in this region, Even in the scenario of falling production volumes. With regards to our financial balance sheet. We took a significant step in reducing leverage, driven by better cash generation and strict control of financial costs. In a sense, we reduced spreads through debt restructuring while optimizing their maturity date and conditions. According to S&P Global, global light vehicle production decreased in 1.1% in 2024 compared to 2023. The consulting firm global data reported that global commercial vehicle production decreased by 5.2% compared to 2023. I will now continue with the slides provided in our presentation. On Slide #2, we can see in more details. The drop in production, we had a drop of 1% in the production of light vehicles. And when we exclude China from global production, we had a 3% drop. In commercial vehicles, we had a 5% drop in 2024 compared to 2023. And when we exclude China, we had a 6% drop compared to the previous year. With regards to 2024, we have a slight growth of 1% of commercial vehicles expect that for 2025, compared to 2025. In Slide #3, we can see some of the main highlights of the company's fourth quarter end of the year 2024. Compared to the same period of the previous year, we have achieved a net revenues of BRL 3.9 billion in the fourth quarter 2024 a growth of 12.2%. We achieved net revenue of BRL 15.3 billion in 2024 a growth of 2.5%. We had gross profit of BRL 483 million and gross margin of 12.4% in the fourth quarter of 2024, an increase of 27% and 1.5%. We have achieved a gross profit of BRL 1.8 billion and gross margin of 11.9% in 2024, an increase of 20.8% and 1.8%. We had a growth in recurring EBITDA of 33.1% in the fourth quarter of 2024. With a margin of 9.9%, an increase of 1.6%. We had recurring EBITDA growth of 26.3% in 2024, with a margin of 10.2% or growth of 1.9%. We have achieved a gross profit of net income of BRL 68.4 million in the fourth quarter of 2024. Our financial leverage was of 2.39 fold in the fourth quarter of 2024 compared to 2.3 fold in the fourth quarter of 2023 and 2.59 fold in the third quarter of 2024. We had a distribution of dividends of BRL 99.3 million for the year 2024. Of which BRL 70.2 million in JCP and BRL 29.1 million in dividends. In Slide, #4, we can see the company's consolidated operating revenue as mentioned in the previous slide. We had growth of 12.2% in the fourth quarter of '24, compared to the -- in the fourth quarter compared to grow -- 2023 with a growth of 2.5% for the year 2024. The exchange rate variation was positive with BRL 404 million in the fourth quarter of 2024 and 7 -- for the fourth quarter and BRL 744.8 million in 2024. In Slide #5, we can see the company's revenue by product. The Structural Components for commercial vehicles, the share grew from 21% in 2023 to 23% in 2024. Steel wheels for light vehicles grew it's share from 24% to 25% in 2024. Steel wheels for commercial vehicles saw a drop in its share from 22% in 2023 to 20% in 2024 affected by the dynamics of different markets in which the company operates. Aluminum wheels had a share of 31% in 2023 and 30% in 2024. In Slide #6, we can see the revenues per customer, which reflects the dynamics in the different segments and markets in which we operate. We can see a drop in the share of commercial vehicles and a slight growth in light vehicles for some customers. In Slide #7, looking at South America region. We can see the company's operational performance. We achieved a net operating revenue of BRL 1.1 billion in the fourth quarter of 2024 or a growth of 23.7% compared to the fourth quarter of '23. South America's share of consolidated net operating revenue grew from 25.9% to 28.5% in the fourth quarter of '24. This was the result of a strong growth in production in the light and commercial vehicle segments, mainly in Brazil. When we look at market performance in terms of numbers of vehicles produced, we can see the applied vehicles had a growth in production of 16.7% in the fourth quarter of '24, and commercial vehicles had a growth of 48.6% in the fourth quarter of '24, compared to the fourth quarter of the previous year. And Slide #8, looking now at North America, we can see a growth of 7.6% in the company's net operating revenue in the fourth quarter of '24, reaching BRL 1.8 billion. We can see a drop in the share of North America and the company's net operating revenue of 28.8% in the fourth quarter of '23 to 27.6% in the fourth quarter of '24. This dynamic was a result of the increase in the production of Structural Components for commercial vehicles. We had positive exchange rate variation of BRL 157.3 million in the fourth quarter of '24. Looking out now at market performance in terms of vehicles produced, we can see a drop of 4.1% in the production of light vehicles and of 15.6% in the production of commercial vehicles in the fourth quarter of '24, compared to the fourth quarter of '23. On Slide #9, the operational performance in Europe, where we had a growth of 10.9% in the company's net operating revenues. We have reached BRL 1.359 billion in the fourth quarter of '24. We can see a drop in Europe's share of the company's net operating revenues from 35.2% in the fourth quarter of '23 to 34.8% in the fourth quarter of '24. The reduction in production volume in the region, mainly in the commercial vehicle segment affected this drop in Europe share. We had a positive exchange rate variation of BRL 193 million in the fourth quarter of '24. When we look at market performance in terms of number of vehicles produced, we can see a 9.5% drop in the production of light vehicles and of 29.3% in the production of commercial vehicles in the fourth quarter of '24. On Slide #10, now looking at the operational performance of Asia and other regions, we can see a growth of 0.3% in the company's net operating revenues reaching BRL 354 million in the fourth quarter of '24. This performance led to a drop in the share of consolidated net operating revenue from 10.1% in the fourth quarter of '23 to 9.1% in the fourth quarter of '24. The reduction in the volume of aluminum wheels for light vehicles in South Africa and Thailand, an increase in the volume of steel wheels in India were the elements that made up this year in the fourth quarter of '24. We had a positive exchange rate variation of BRL 54.2 million. Looking now at the market performance in terms of vehicles produced, we can see a 3.4% growth in the production of white vehicles in India. A 15.8% drop in the production of commercial vehicles also in India, a 24.4% drop in the production of light vehicles in Thailand and a 6.8% drop in the production of light vehicles in South Africa in the fourth quarter of 2024 compared to the same quarter of the previous year. On Slide 11, we can see the company's growth profit. We have reached BRL 483 million in the fourth quarter of '24 or a growth of 27% compared to the fourth quarter of '23. Our growth -- gross margin grew from 10.9% in the fourth quarter of '23 to 12.4% in the fourth quarter of '24. Throughout the entire year of 2024, we reached the gross profit of BRL 1.821 billion or a growth of 20.8% compared to the year 2023. Our gross margin grew from 10.1% in 2023 to 11.9% in the year 2024. On Slide #12, we can see the company's EBITDA of BRL 378 million in the fourth quarter of '24 a growth of 30.7% compared to the fourth quarter of the previous year. Our EBITDA margin grew from 8.3% in the fourth quarter of '23 to 9.7% in the fourth quarter of '24. Throughout the entire year of 2024, we reached an EBITDA of BRL 1.524 billion, a growth of 21.8% compared to the year 2023. Our EBITDA margin grew from 8.4% in 2023 to 9.9% in 2024. When we reconcile the company's adjusted EBITDA in the different periods, we can see an adjusted margin of 8.3% in the fourth quarter of '23 to 9.9% in the fourth quarter of '24. And an adjusted EBITDA margin of 10.2% in '24 compared to 8.3% in 2023. On Slide #13, we can see the company's net profit. We achieved a net profit of BRL 68 million in the fourth quarter of '24, compared to a net loss of BRL 8 million in the fourth quarter of '23. For the entire year of 2024, we will achieve net profit of BRL 265 million compared to BRL 31 million in the year 2023. We had a distribution of BRL 99.3 million in dividends for the year 2024. On Slide #14, we can see the company's investments. that have reached BRL 245 million in the fourth quarter of '24 compared to BRL 222 million in the fourth quarter of '23. For the year 2024, investments were of BRL 678 million compared to BRL 552 million in 2023. Exchange rate variation impacted investments in BRL 30.9 million in the fourth quarter of '24 and BRL 52.9 million in the entire year of 2024. It is worth to remember that the cash investments were of BRL 590.9 million in 2024 compared to BRL 505.2 million in 2023. The main investments in the period were related to increasing capacity in North America and the construction of the new aluminum world plant for trucks in Europe. On Slide 15, we can see the company's financial leverage of 2.39 fold line sold in the fourth quarter of '24, compared to 2.59x in the third quarter of 2024 into 2.93 fold at the end of 2023. The devaluation of real has negatively impacted the company's net debt in the fourth quarter of '24 by BRL 78.8 million and of BRL 404.7 million in 2024 compared to 2023. On Slide 16, we can see the liquidity ratio in the fourth quarter of 2024, reaching 5.24 fold compared to 2.9 fold in the third quarter of '24. And 2.12x fold at the end of 2023. On Slide 17, we can see the breakdown of the company's growth debt at the end of 2024. It went from 43.3% in reals, 34.3% in Euro and 19.9% in dollars. We can also see the growth in the long term debt from 74.1% in the fourth quarter of '23, to 90.4% in the fourth quarter of '24. On the same slide, we can see the company's maturities tower for the coming years and the cash level and revolving credit available for the company at the end of the year 2024. We can also see the breakdown in cost of debt in different currencies in the fourth quarter of '24 in the fourth -- compared to the fourth quarter of 2023. In Slide 18, we can see some of the company's main launches in 2024 in the year, 2024, and we can observe these launches in South America, in aluminum wheels in Europe and steel wheels -- and also steel wheels in North American as well as aluminum wheels for different types of vehicles in Asia. In Slide 19, we have some of the main awards and highlights of the fourth quarter of '24 being recognized by clients such as General Motors of Brazil, Daimler in India, Hyundai, motors of Brazil in Tredit Tire and Wheel with supplies from Brazil and India. On Slide #20, we show some aspects of our sustainable journey in 2024. Confirming our commitment to best practices and governance, environment and social issues. We remain in the B3 Corporate Sustainability Index. We have debuted in the carbon-efficient index by B3 and have debuted in the B3 diversity index in 2024. We had and approximate reduction of 38% in the intensity of greenhouse gas emissions, Scope 1 and 2 compared to our 2019 baseline. We would now like to open the session for the questions and answers period.

[Operator Instructions] The first question is from Andre Silveira sell-side analysts from Bradesco.

Good morning for the strong results, and I have a couple of questions. First, about cash generation. When we look at it, it was about BRL 200 million compared to BRL 440 million, and it was even more impressive if you can see there is seasonality with the half of -- and if you just compare the performance and if you could tell us if you see an improvement, that would be interesting. And you had an EBITDA margin of 10%. And we used to have an 11% gross margin, do you consider the 11% margin, something that we could reach in 2025?

Great question. You're right, when you look at public information, which is the cash -- direct cash flow statements. When we look at the payment of forfeiting that is within financing group, and bring that into operational, we see that cash generation for the year was BRL 450 million. So the gross margin we had said that you had about BRL 300 million. We have mentioned that, and we came -- closed the year with BRL 450 million. With regards to your second question, in 2023, when we make the same analysis you mentioned. We see cash generation that is even greater than BRL 450 million. Just remember that in 2023, we had the transactions that helped in cash generation. But in 2024, we maintained level. So this BRL 450 million is effective cash generation, and it compares to the BRL 470 million of FX we had in our net debt achieving BRL 620 million at the end of the year. So when we compare the vintage flow of BRL 450 million and compare that BRL 407 million, we had a reduction of BRL 40 million, which is the reduction of that, that we've see in 2024 when compared to 2023, okay?

Andre. Thank you for the question. With regards to margin, we have been very consistent since the end of 2023 to the beginning of 2024. With a journey to recover margins, trying to go back to our historical margins. And you can see that in 2024, even though the market for light vehicles has dropped in 3%, excluding China. In the global market, for commercial vehicles has dropped. Despite this drop in global volumes in the industry, we were able to recover our gross margin in 2.8%. And our adjusted EBITDA margin has increased in 2% compared to the previous year. This is due to our productivity actions, pricing adjustments to adjust them with the current costs and a very strong work of the entire team in positioning our products, launching new programs with current and new clients and continuing to improve the profile of our products in the market. Thus, we do believe that in our goal for 2025 is to return to our historical margins. What averages that are at the level that you have mentioned, because we see the continuing productivity adjustments, adjustments in prices in some markets where that was necessary. And in a year where we see a perspective, not of growth when you look at 2025 and at the global production of light vehicles. It kind of moves sideways with an improvement in the Indian and Brazilian market, a drop in the European market and a slight drop in the North American market, but a kind of a relatively flat year in volume. And for commercial vehicles, we see a global growth of about 1%, so it's kind of flat, but with different dynamics. In Europe, it has dropped -- the production of commercial vehicle in 2023 has dropped 20% and should grow 4% in this year. Brazil that had an important growth in '23 with a recovery for the transition of Euro VI with a production that dropped almost 40% in 2023 compared to the previous year. In 2024, we already had a recovery of 35%, almost 40%. Of course, we are not back to the levels that we had previous to the transition to Euro VI but it should continue growing with more traditional levels, 3% to 4% in the production of commercial vehicles in Brazil. We should have a slight growth in the North American market. We still need to understand the eventual impacts regarding the tariffs imposed by the American government on products from other markets, which may result in a small drop, but looking at the whole, we should have stable volumes with these dynamics, our efforts in terms of productivity. In our pricing, adjustments are necessary, we do believe it is possible and our goal is to go back to our average margins -- historical margins during the year 2025. Remembering that we have the seasonality of the first and last quarters where the volumes tend to be lower regarding adjustments with brakes and the normal dynamics we usually see for the first and fourth quarter. And we do believe that our goal of going back to our average circa margins is feasible.

And Andre, I would just like to add. You mentioned working capital, and we have been talking about that. And we have a history since 2017, but we had a working capital ratio that we use of working capital over net sales, we had about 17% in 2018. After COVID in 2021, we went up to 23%. In 2022, we made some changes -- we made changes in IO and went to 18%. And in 2023 and 2024, we are closing at the percentage we have been talking about of 30%. We are still very disciplined, monitoring very strictly the results every month so that the working capital stays within the ratio that we consider ideal for the company, optimum for the company.

Our next question will come from Gabriel Rezende from Itaú BBA.

Thank you, Rodrigo. Good morning, Marcos and Renato congratulations on the results. I would like to follow up on the question regarding cash generation. I would appreciate it if you could talk about the dynamics of CapEx for the next years and compared to 2024, if you have investments that could be accelerated in your comments on margin and there's seasonality and we understand that, so that's understood. So if you could comment on the price of commodities and how that could affect the market in the first quarter for semester of 2024?

I'll address the first question -- part of the question regarding CapEx. What we had foreseen is not different from what we had in the previous years. There is -- the company has been monitoring things and applying investments in the regions where we are sure that we are going to have a return in. So for 2025, we foresee 2 investments that started in 2023, 2024 and which we are going to complete in 2025. That means expanding the Structural Components sector in Mexico, where you have start of production foreseen the second half of the year and our aluminum wheel for trucks factory with aluminum wheels. So we foresee BRL 500 million, which we consider a proper number compared to the year that we just experienced. Except for the issues regarding FX that we have started in the first half of the year at around 5%, and then we -- it went up until we got 6.20% at the end of the year, we even went a little bit over what we had foreseen regarding cash payments. But I would say that these are the 2 main investments. We continue making investments for increasing in productivity and new business. But as in the years 2024 and 2023, we were at around BRL 500 million and now with the FX issue, I would say that we should stay somewhere between BRL 500 million and BRL 520 million for CapEx. At least these are the levels for this year. And in addition to working capital, this is another issue. The company monitors monthly, understanding the variations month over month. And we understand that controlling working capital and CapEx and everything that includes interest and taxes, if we have the volume that we expect that is aligned with the market, the financial account would lead us to repeat the proper cash flow. And I would say with the possibility of growth in margin of 1% with even greater free cash flow to face the continuous reduction of our gross debt.

Gabriel, thank you for your questions. The issue of growth in raw materials, there are different dynamics in different parts of the world. In general, it is a benign environment. We had a slow increase in raw materials in Brazil, which is expected for 2025. And the greatest question is regards the real -- the actual effect of the tariffs in the North American market. Summarizing, in general terms, we basically buy steel that we used in North America, we purchased from -- most of it is used in Mexico and we import aluminum from other regions for production also in Mexico. So our -- the direct effect of raw materials are more related to the CRU or that can fluctuate regarding tariffs imposed by the North American government on different raw materials, not directly on our direct purchases, but the indexes that can be affected. And based on what has been announced, we see already some changes and a slight increase in the CRU in steel in the North American market in general. Considering all this, it is important to remember that using predefined formulas or through negotiations. We historically pass this increase on to our clients. You might have a disk compact in terms of timing regarding when the raw material prices go up and when we pass that on to the client. But through time, it will normalize, and we might have variations of 3 to 4 months, but not having a general negative effects since these costs are passed on to our clients. We are monitoring this, following that day by day, week by week and are prepared to act and react considering the levels of tariffs that will remain in the North American market and the impact that might have in the cost of raw materials. Just adding to that. I'd say that tariffs in the North America market. The greatest concern it brings us has to do with how this tariffs might affect the cost of products for the North American consumer. An increase of tariffs that might be passed on by the vendors to the producers, to the manufacturers of vehicles and are passed on to the end consumer might generate an increase in inflation and our drop in economy and a drop on demand. This is a great question. We believe that the direct impact for us is not relevant. Because we pass any adjustments to our clients when necessary. And most of the products we produce in North America are produced in Mexico. So they are ex-works Mexico. So they are under the responsibility of our clients. So they will have to manage tariffs. So the question that remains for 2025 regarding demand is very much linked to the tariffs that are being imposed in the America -- North American market. That doesn't have a direct impact on us, but it impacts the level of production of our clients.

Our next question will come from Andressa Varotto from UBS BB.

Good morning, everyone. Thank you, Marcos, and Renato for answering my questions. Marcos was already talking about tariffs, we had the announcement 1 month ago that was postponed for a month, and they're talking about on occasional or postponement. So since you have the announcement, what have you seen in terms of customers' reactions, talking to them or in general? And the second question, regards the volume for the first couple of months of the year and expectations, have you observed anything that surprised you for with lower values regarding what you have expected for the year? These are my 2 questions.

Andressa, thank you for the question. I would mention 2 aspects regarding your questions. Our clients are still waiting to understand what's going to happen regarding tariffs and all the countries that are being affected by increased tariffs. With questions with what's going to happen with Canada or Mexico tariffs for European and Asian vehicles. and everybody is still kind of waiting to understand the dynamics caused by all of this. And the impact in the short, medium term in terms of demand and a vision in the long term. Any decisions regarding the changes in sourcing in vehicle production has the time line. We're talking about 3 years to make changes in your line of production for a vehicle. So we can -- there are no immediate changes that can be made in the short term, except if any AUM can make short-term changes. But -- they might do something, but on the other hand, they will have higher increased production cost. The production cost in the United States is higher than market considering labor and other inputs. So there is a tariff advantage or disadvantage in terms of cost. It's not an easy or simple decision regarding the level of tariffs that are effectively implemented, how long they are going to last and the conditions and how they are going to affect the medium and long-term production effects. There is a challenge in terms of availability and labor in the United States and inflation costs, which are factors that must be considered. At this time, we are waiting and analyzing to understand what exactly is going to happen. To see what are the alternatives in the short, medium and long term. So this way, we are also monitoring and following everything out, trying to be prepared for whatever path our clients might decide to take in the medium and long term for this case. With regards to the beginning of the year, it's still difficult to say anything because we have 1 full month, but the positive aspects that make us very happy regarding the year of 2024 is that the consolidated results for 2024 was very much aligned to our operational plan for 2024. With different dynamics with a greater drop in the commercial vehicle production in Europe, which was higher than we expected, with the growth in commercial vehicle production in Brazil that was higher than we expected. So when you look at the consolidated effect, our results in 2024 was very much aligned with what we had been planning since the end of 2023. So when we look at 2025, it's too early to say, but the first month was very much aligned with the plans we had for this year. So this is a good indicator. Of course, when we look at global perspectives of volumes for the entire year of 2024, the indications we have so far from our clients are consistent with what our planning for the year. We still don't have any clients that have anything that is too -- with too much discrepancy from the results we expected. Our forecast seems to be very much aligned with what we are observing. And the question that still remains in that we have to monitor is the North American market concerning what I have mentioned, especially to say that they do impose tariffs at the levels they indicated this time, there might be an impact of $2,000 to $3,000 per vehicle or even 10% in commercial vehicles in the United States. And that would affect demand. That is the question that remains and that will probably take us a few months to better understand this effect. The commercial vehicle segment for 2025 already shows and we already expect a drop, maybe not as big as we expected and people expected in 2024 in that we did not see. But there is an expectation of drop in commercial vehicles for 2025, even without the impact of tariffs. And we are going to be monitoring the effects of tariffs on the prices of vehicles and on the -- actual demand and see what can happen throughout the year. For the first month, it is in line with our plan, for the next month for our clients, everything seems to be in line with what -- with our forecast, but we have to wait the next month to see how the market behaves.

The next question comes from André Mazini from Citi.

A question has to do with the North American market. Leaving tariffs and focusing on the health of wheels producers in that market. We see that there is a manufacturer that is under Chapter 11, an important manufacturer. Some other manufacturers are not doing so good. And I wanted to know after all this debate on tariffs. Do you think there is a chance of production in the United States of having -- observing a reshoring there. There, labor is expensive and we are observing Trumps actions. So do you think there are might be a growth in production in the United States? Or do you consider that Mexico is going to continue being the powerhouse for production for the Americas?

Andre, thank you for the question. Your comment on the financial health of some wheel manufacturers in North America, in the world. In general, they are going through a challenging moment. What reinforces our strategy throughout the years, throughout the last few years of maintaining a very robust financial health for the company. Our cash generation, our capacity to react to changes for up or increase or reduction in demand. Our capacity to maintain our financial health regardless of changes in the market continues to be our strategy, remaining healthy and remaining a solution for our clients, having the capacity to react for the demands of new technologies, new products, being able to offer innovation and deliver the product, the moment our clients need where they need it. So our strategy of keeping our financial health is essential. It has been so for the last few years and will continue in the future years. So when the clients are analyzing where to place their order for new products, they can look at Iochpe-Maxion, and say, well, in this company, I can trust and they will be available to deliver products in 3 months, in 3 years or 6 years because the company has a financial and business discipline that allows it to go through harder times in the market in a more positive way and being able to depend on a vendor that has a team that is experienced that knows the building with stability in the support it gives to the company's business. Because this is the recipe for the company's long-term success. In this sense, Iochpe-Maxion is in a very good position globally. And that puts us in a very good position to offer solutions when our clients face difficulties in supply or are afraid that some vendors might not be able to deliver. This is positive, and we understand that this has a very good value for our clients and for the market. Whether this is going to make the market more or less competitive, time will tell, but we are in a very good position. With regards to reshore for the United States, as you mentioned and I mentioned, it's not a simple equation. Having 20% or 25% tariff depending on whether you're importing from Canada and Mexico. So then I'm going to move everything to the states. The cost of production in the United States are much higher than the cost of production in Mexico. And the availability of labor is a limiting factor. We know unemployment in the United States is low. They have full employment. It's hard to find available labor in the industrial sector. So this is an analysis that the manufacturers are going to make and it cannot be done easily. We will have changes for tariffs in the next 2 or 3 years. Situation might be much different. So we can make a decision to increase permanently your cost for something that might turn out to be temporary. So I do believe the OEMs are going to analyze this very carefully. My personal opinion is that this should not cause any drastic changes in the production basis for North America. There might be some isolated move or specific products when there is availability and the cost tariffs comparison might be interesting. But in the -- I don't see near-shoring or a significant change from Canada and Mexico to the United States. This is my personal opinion and time will tell if I'm right.

Our next question comes from Lucas Laghi from XP Investments.

Congratulations on the results. I don't want to be redundant talking about tariffs, but there is one thing I want to understand better. Marcos mentioned the dynamics of continuing to buy raw materials from Mexico and other regions and not necessarily the United States. And there's a question regarding the change of inputs and among your clients, if you look at the premium Midwest market, in the Midwest, prices are going up. And there seems to be a higher pressure on imports coming from the clients and you seem to be kept a little bit out, not so exposed at these tariffs to the U.S. Is there any risk of not passing this increases in labor to the clients regarding sharing the risks, especially due to these tariff issues. Do you see that there might be a risk, I don't know if you're negotiating passing these tariffs on the clients. Do you believe there is a risk of not fully passing on to the clients, the effect on the increase of impact -- inputs in this scenario that you observe concerning raw materials?

Lucas, thank you for the question. Historically, we mentioned that when we look at our raw materials equation, in many regions, we have predefined formula for up or down based on indicators like CRU in the case of fuel for North America. Or others, and some of them are negotiated in regions depending on the movement. In terms of North America, it's standardized using formula. So what happens is, if the CRU or LMI go up or down, the percentage in our cost structure will go up and down accordingly. They are not negotiated on a case-by-case basis like in other regions where we have other contracts. In the case of North America, we have this standardization, this parametrization. So what we say, what we talk about, we have this formula for good or bad years, raw materials will go up and down and these factors will be considered. We have a time line that might exist. We have formulas that are defined in the price of the raw materials of indicators for the last few months. So we have a delay that might be of 3 or 4 months, but it will end up being passed on. And just to add to that, as I said, most of our production in North America happens in Mexico. We have a little bit of production in the United States. There, part of the raw materials we purchase that we buy in the United States already in part we import. So it's a composition. But all this is defined by the formulas that have been already been defined and parameterized to accompany variations in the market according to the index.

Our next question call from Gabriel Tinem from Santander.

Marcos, Renato, Rodrigo, I have a couple of questions. One has to do with efficiency. You have mentioned that you are making great efforts to increase productivity levels throughout. If you could comment a little bit more on what initiatives you have implemented in that area how that has been developed. And a second question, just to understand a little bit better the strategy for more challenging markets such as Thailand, South Africa and Europe. These are my main questions?

The microphone is closed. We have no sound from Marcos. Marcos you're on mute.

Sorry about that. Thank you, Gabriel. I'd say that in general, concerning efficiency. We have a productivity program in all our factories globally, whether wheels or Structural Components and systematically our operational efficiency -- excellence companies continuously seek productivity improvements, be that through automation, reduction in production time, reduction of waste in production, be it aluminum or steel. We have a very well established process that is continuous. That gives us year-over-year a view of how much it causes us to produce how many hours we needed to produce a specific wheel and how it costs us and takes us now. It is continuous, it includes several different aspects and vary per region in areas where we have greater automation. On the plants, we focus on different areas. In areas where we have a lesser automation, we alternate automation with production effect efficiency. This is part of the company's DNA. This is not something that we have started last year or this year. We have been doing that year-over-year. And this is essential for us to remain competitive in the market, being able to offer innovative great quality products that our clients need at competitive costs. This is what we do. Just to remind you, we have 14 companies, we have many companies in many countries, and we have different products per plant, per product line, wheels for agricultural machines, aluminum wheels for light vehicles. There are specific actions, they are unique for each of the production lines. And we measure that quarter-over-quarter, year-over-year, and we see the results in the multiple actions we implement. Gabriel, I don't know if there's anything -- any followup of -- or if that's okay.

I had a second question, focus on strategy for a more challenging markets such as Thailand, South Africa and Europe?

Thailand is a very challenging market, production in Thailand went down 20% in 2024. It had been dropping in the previous years. 2025 is shaping up to be a more stable year. But in addition to catering to the traditional clients, we have in the area and suffer with demand production challenges in the area, not only in the Southeast and Asia, not only Thailand, but the other countries Thailand exports to, but we are looking for other segments. In the presentation I gave in the beginning, you see wheels for tuk-tuk vehicles, which is a vertical areas. We are starting to produce wheels for motorcycles in Thailand itself. So we are trying to diversify our portfolio going beyond light vehicles to other segments where we might help neutralized part of the drop in demand that have been constant in the last few years. And I do believe that this is part of how we can recover results from Thailand. We have other initiatives in South Africa with more traditional clients in vehicles to find ways to neutralize even the aftermarket. Our global portfolio aftermarket is a smaller share and we're trying to increase that share in Thailand and other regions to try to reduce the impact in the drop of production by manufacturers in this region.

We have another question from Jonathan Koutras from JPMorgan.

Marcos, Renato, congratulations on the results. But just talking a little bit about this, you could comment on the continuous improvement. You have been mentioning, talking a little bit about the outlook on the companies?

Jonathan, thank you for the question. We have 2 different dynamics. Our factory in China, our aluminum wheels factory in China is going through a ramp-up and has experienced challenges in the last couple of years regarding the changes in the macro economy in China, and it goes through normal processes that we observe and we are trying to seek breakeven in these countries, gradually and part of our strategy for producing wheels in China was aimed at not only growing a market that is the largest established market, but it aims at bringing us closer to the Chinese manufacturers, not only for production in China, but for production in other areas such as Europe, South America and Asia. This strategy has worked we have come closer to the groups in China and even in our commercial group in China and that opens room for us in the market, not only in China but in other markets also, so we can achieve the profitability that we aim for in China. With regards to China -- to Argentina, we have observed very good performance regardless of the challenges of the Argentinian market. We have observed good performance considering the challenges in the company. Not only in 2024 and 2023, but throughout the last few years, and that has happened because the composition of our production in the area comprises not only production for the Argentinian market, but exports for the Brazilian market. So it suffers a positive and negative impact, not only from the market in Argentina, but from the exports to Brazil. Of course, the production of vehicles in Argentina has been improving -- has improved in 2024 compared to '23. It should grow in 2025, and we will have to observe and understand the strategy of our clients, how they're going to manage their production, their platforms. But again, the positive aspect is that the production we have in Argentina doesn't cater only to the Argentinian market. It is -- most of the production is exported to Brazil and that help us balance the variations in demand that may happen in the Argentinian market.

Due to time, we will be closing the question-and-answer session, and I'll give the floor to Mr. Marcos Oliveira for his final observation.

I think that consistently, considering all big changes in the market, geopolitical changes, inflation pressures and variation in the production volumes of our clients. We have a strategy and mentality for operational efficiency production to quickly adapt our operations in the different countries to meet the current demand regardless if the demand is being reduced or not. Flexibility and agility is very important to mitigate the impact in the profitability of our production units globally. We continue to focus on production gains operational efficiency, launching of new products, digitization in engineering investments and this strengthening -- constant strengthening of our financial balance. And the numbers we have shown show that what we have been doing consistently, what we have done in 2024 to maintain this trend of strengthening our financial statements and achieving better earnings, increasing our margins and increasing our sales always remaining a reliable supply solution for our clients and thus, generating value sustainably in the short, medium and long term. Thank you very much for being with us. Have an excellent day.

The earnings video conference for Iochpe-Maxion for fourth quarter for the 2024 is now closed. The IR department is available for questions. Have a nice day. [Statements in English on this transcript were spoken by an interpreter present on the live call.]