Marcopolo S.A. (POMO4) Earnings Call Transcript & Summary

Good morning, ladies and gentlemen. Welcome to the APIMEC Brazil Meeting of Marcopolo S.A. where we will discuss the company's second quarter 2023 results as well as the outlook for the remainder of the year. The audio of this meeting is being broadcast simultaneously on Marcopolo's IR website at ir.marcopolo.com.br in both Portuguese and English, where the slide deck is also available. Before proceeding, let me clarify that any forward-looking statements made during this call about Marcopolo's business outlook, projections and operational and financial targets and growth potential are forecast based on the management's expectations regarding the company's future performance. These expectations are highly dependent on domestic and international market conditions and the country's macroeconomic scenario and therefore, are subject to change. Joining us today for the APIMEC Brazil Meeting in Sao Paulo are Mr. Andre Vidal Armaganijan, CEO; Pablo Freitas Motta, CFO; Jose Antonio Valiati, Investor Relations Officer; and Eduardo Willrich, Planning and Investor Relations Manager. [Operator Instructions]. Good morning, ladies and gentlemen. Thank you all for joining us today. This is the 22nd meeting in this continuous partnership with APIMEC. Here with me, I have Andre Vidal Armaganijan, the company's CEO; Pablo Freitas Motta, CFO; Jose Antonio Valiati, IR Officer; and Eduardo Frederico Willrich, IR Manager. Now I turn the floor over to Andre Vidal, the company's CEO, who will present data regarding recent months.

Thank you all for joining us. Good morning to all of you who are here in person or online. Good morning, everyone. Welcome. First of all, I'd like to thank APIMEC and Mara, who's here today for the partnership and support that they always give us during the APIMEC meetings. It's a great satisfaction to be here once again to share our second quarter's -- second quarter 2023 results. Our presentation is going to be broken down into different sessions. First, Pablo Motta is going to give you some information about profile and results, then Andre is going to talk about performance and projections and Eduardo is going to talk about Marcopolo's reserves in the capital market. Without further ado, I'd like to invite Pablo to start with his presentation about the profile and results of the company.

Thank you, Valiati. Good morning, everyone. Let's get started by talking about the Marcopolo profile. We are a major player in the market of mobility solutions and more than ever. In recent quarters, after COVID, we were able to show and prove the value that Marcopolo has and has made available in its products and services. The company was founded in 1949, so 74 years of operations with 13,000 employees manufacturing more than 14,000 buses a year. In terms of the highlights for the quarter, we had a net revenue growth of around 18.5%, growth in net export revenue from Brazil of 44.5% growth in net revenue in Brazil in spite of the drop in volumes of 12.8%. And at the end of the slide here, you can see the hard work of recent years showing consistent results even in a challenging scenario. We have achieved gross margins of 20.2%, EBITDA margin of 11.6% and net margins of 10.3% this quarter. And it's important to highlight that when we look at the Brazilian scenario and Marcopolo's performance, looking at the Brazilian bus manufacturing history, we can see that the results that we are now achieving not only this quarter, but ever since we left the COVID-19 impact in the end of 2021, have been shown to be much better than what had delivered up until then, but this is the result of this internal restructuring process that we started in the past. So looking at the history here, we see that 2012 and 2013 we were benefited by federal government financing programs that boosted the demand of the domestic bus market. But then when we look back to 2008, 2009, where we had a more sustainable level in terms of fleet renewal, we see that the average of renewal is of around 25,000 buses here in Brazil. So in this context, we see that starting in 2013 and 2014, there was a significant drop in the demand volume especially 2014 and 2015, there was a political and economic crisis here in Brazil that led the country to recession and that led to a drop in the production volume of around 65%. In that initial process Marcopolo started to do its homework in order to optimize its industrial processes and at the same time to restructure its internal costs. After that, we've been resuming our previous levels in 2016 to 2019. I believe that the market could be going back to the previous renewal level, but that didn't happen because the pandemic hit, which had another major impact. What is important to highlight? Well, in 2016 and 2017, we have the consolidation of operations in Brazil. That's when we incorporated 100% of the San Marino operations with new industrial parks being settled. And then from 2016 to 2020, we started restructuring the industrial parks using our production lines. And today, we have more efficient industrial parks with available capacity for increased demands if need be. depending only on hiring greater headcount to do that. So that was an important point I wanted to highlight in this chart. Another important point is that when we go into 2019, 2020, 2021, we also did our homework to optimize our fixed cost structure and so that we could have a more sustainable scenario in that environment full of insecurity when COVID-19 hit, but all preparing for the reopening process so that we could come back and operate with an adjusted fixed cost structure. In this context, it's also important to highlight that Marcopolo never stopped developing its products, even in times in which the market did not have the same demand, we continue to develop in our products. And then in 2021, we had a low scenario, but we launched a new scenario of buses from 2021 to 2022 generation was launched the turn of the year. We were still in a low market in which people was not -- people were not using intercity buses that much, but we launched a new line to prepare for the end of the pandemic and to put in practice what we usually say that we are a major player in mobility solutions. What am I trying to say? That even in low times, we go through important cultural changes at Marcopolo. James worked hard to work on the company's culture to revitalize basic concepts, also optimizing processes, looking at pricing, looking at all the hard work in order to recover our margins considering the inflation impact that we had suffered. And then we started the year of 2022 with differentiated products renewed processes and transformed people who are ready to make things happen. And 2022 show the results of all that a manufacturing volume that is higher, but the domestic market was still way below of what we had in 2012 and 2013 and even lower than 2008 and 2009, where that market was actually stabilized. So that shows that we still have a great potential when it comes to the recovery of the domestic market. Export volumes are still going through a scenario in which we have a favorable dollar, U.S. dollar exchange rate and Volare delivered 4,600 units in 2022, adding value to our national production. Now looking at 2023, we can see that we have already delivered 9,000 units to the domestic market 1,200 units for the external market and 1,200 units of the Volare model showing a 11.25% (sic) [11.5%] growth year-over-year for the first 6 months and showing that we have a significant fleet renewal potential here in Brazil. When we look at the numbers, we can see that we have a circulating fleet that is not being renewed in Brazil for now. For 2022, we had 387,000 vehicles circulating urban buses, road buses and micro buses. And when we look at the average fleet age, this leads us to believe that the potential fleet renewal at a national level is still very significant so that Brazil can go back to an average age of around 8 years. We need a vehicle purchase above that average of the last 25 years. Now talking about our quarterly production scenario, another positive factor when it comes to the changes that were implemented during the transformation process that we went through, especially during the pandemic, we can see that we have a production volume below our potential. We are working with representative margins when compared to our historical average. We were able to reposition our prices and manage the inflation context during the pandemic. And we have effectively improved our internal processes, making this a differential for Marcopolo. Now looking at the Brazilian production. Comparing 2022 to 2023, we had a reduction in the production volume, down 12% in exports we had a reduction from 445 to 394 and in external units, a drop from 583 to 551. But in spite of this drop in production volume, we saw a significant increase in revenue in the year-over-year comparison. Now internationally speaking, South Africa went from 53 units to 88 units. South Africa is showing a recovery of the internal market with great expectations in terms of their portfolio. Australia went from 74 to 115. They are also going through restructuring process of their internal operations, improving their operational efficiency and product delivery. This is a market that is not as relevant when it comes to quantity, but it's very relevant in absolute values. So they have been through industrial process improvement. Now China had a drop from 46 to 13 units. China is a major hub of the process to develop products and technologies, especially when it comes to renewable energies. Mexico went to 215 to 283, a recovery of the Mexican market near shore is helping us boost that market and make business happen. And Argentina had a drop from 195 to 52 units. There was a change in the mix. The company left the urban mix behind, which has a greater volume and is starting to go into the heavy vehicle and road markets boosted by the local tourism and being able to price its products in line with the Argentinian context. Looking at the comparison of the second quarter with the first quarter, we went from 3,100 cars to 2,133 in terms of body production in the first quarter, 336 Volares to 881 in the second quarter. I said earlier that this was a challenging quarter because in the first quarter, we had the introduction of Euro 6 in Brazil. Euro 6 on its own needs to go through a very long process of licensing of the tests, and that led more complex processes because these products were not fully licensed. And I'm talking about the chassis on the part of the OEM. So we spent the first quarter going through the licensing projects the great OEMs had a bottleneck in the bus production and that led to a volume of deliveries in Q2 that was lower to what we had delivered in Q1. And we also had the effect of program Caminho da Escola. We had a higher volume of Caminho da Escola products delivered in Q1 and in Q2. So that led to a lower number of products delivered in Q2. But with our positioning of pricing and restructuring of internal processes, we were able to deliver gross margins of 20% and EBITDA margins of around 12%. And Marcopolo has been working really hard to keep these levels and to improve them as greater volumes come with operational leverage. Our headcount in Q1 was capped even with a lower demand in Q2. So we had lower operational efficiency in Q2. But Q3 we'll have a portfolio that will be stabilized with Euro 6, and we believe we'll be able to make better use of such structure. And finally, the revenue in Brazil grew by 12.8%. Exports, this is a quarterly comparison, a growth of 44.5% and revenue abroad growth of 16%. That was a growth in revenue. We had in spite of the lower production. Gross margin, 8.8 percentage points growth quarter-on-quarter. Looking at the first half of 2023, we had a performance of 22.1%. I mentioned earlier that our headcount was capped throughout the quarter, and that has a direct impact on gross margins. EBITDA margin 11.6%, 7.1 percentage points above second quarter of 2022. Now net profit and 10.3% net margin this quarter and 12.5% in the first half of 2023 in net profit. Now net revenue distribution, road buses or intercity Marcopolo, again, being a major player in developing products, even in times of crisis, that stands us out in this recovery process after the pandemic. We can see that today, approximately 39% of our revenue comes from higher added value products, intercity products. And we're talking here specifically about G8, as Andre will mention later. And we have the urban segment that is increasing in relevance in our business. Now we had a lower volume of Caminho da Escola so that had a small drop. But even so, we leave the pandemic with the urban segment gaining added value because the government is also coming in providing subsidies and even more economic capacity to operators. Now other revenues, Volares, still very significant share here. And the other market chart, you saw also Volares numbers so that we can look at this business line that is now completing 25 years, and that has been a major differential in terms of delivering products and value to the market. Now I'd like to turn the floor over to Andre, and I'll be available for questions later.

Good morning, everyone. It's a pleasure to see you once again. I see some familiar faces here and this great opportunity to talk about Marcopolo. So I'm going to talk about the intercity segment first. Our company has had a heavy mix of products. As we have mentioned in other occasions, the market leaving the pandemic with a significant movement of passenger in all markets. We had record levels at the end of the year and record months during the recovery in Chile and Argentina. These were markets in which we had very interesting movements, and we were already forecasting that opportunity of incentivizing our intercity sales. And the price of airfare also favored us. The airfare is very high in the market, very expensive, and we see the transition of people from higher social classes that were not from common user of buses to test this type of transportation, enjoy it and start using this. In mid-2021, Marcopolo made the decision of launching G8 in mid-2021. We were still halfway through the pandemic, everyone considering that the pandemic could last longer and Marcopolo made a brave decision to launch this product in the market. We hadn't done so we could have had a negative impact on the product line. We developed the product for 3 to 4 years. We test it on thousands of kilometers. We made use of the company's expertise to launch a product that would favor not only passengers with high comfort levels, but also drivers with safety and our main customer operators who are worried about operating costs, fuel saving and all of that. And that was all put in preface in this product. We knew that the market was going through a recovery and that the customers needed to generate revenue. So we kept the G7 line available at a more competitive price in the market so that our customers could choose. At the end of the story, while the market has been recovering. That's one of the beauties of the bus business if you don't renew a fleet in 1 year, you generate a need to review your fleet the following year because that leads to lower maintenance costs, and that happened to G8. We saw a major boost in the sales of G8 against G7. Now 90% of the DDs that leave our Marcopolo plants have the G8 model. So the market has been accepting the new generation really well. We see customers that stopped buying from the competitors to start buying from -- to start buying G8 and we have interesting stories of customers in all markets of Latin America, repeating their purchases of G8. So the project has been very well accepted with recurring purchases. These are products with higher added value, and we left the pandemic with strong sales of light intercity for use in people transportation, and we started also selling the heavy intercity products. So we have a heavier mix of products, which led to the increased revenue. Urban segment will 2022, we already had significant upsides. Passengers going back to the system after the pandemic. And the first quarter of last year, we still have the Omicron wave hitting us. So if we compare the second quarter of 2023 from the second quarter of 2022, we still had the pandemic and passengers were going back to the systems slowly with subsidies happen and also cities buying buses powered by diesel. And we now have relevant sales to Rio de Janeiro with over 400 vehicles sold, some already manufactured and built and others being manufactured. So that also generated a positive effect in the urban segment. And the major change in the electrical segment. Electrical buses were going into the market. We do that for many years now, we had been discussing with our partners the development of the electrical solution, and we made an important decision because we knew that Latin America would be the next market to be achieved by this first; China, Europe and then the U.S. and Latin America. So we made the decision of developing our own electric solution. So Marcopolo stopped being a bus body manufacturer only and started offering a full solution for electric buses. Of course, we will continue working with our testers, partners that are now offering electric solutions to the Brazilian and Latin America market, but now we have our own product to serve the national and international markets. We have produced over 30 units in the first half of the year. These buses are already available in many cities. So good product performance in this new segment. Marcopolo is now also mastering the technology of electrification in the second quarter with a batch production of 100 units that will be made available to the market. The Brazilian industry can meet the growing demand for electric vehicles and Marcopolo is fully able to do that. 2,600 by the end of 2024, one of the greatest market of urban buses in the world, and we can offer our solutions either with our full solution or in partnership with third party chassis for the electric segment. Now for microbus, the volume of the Caminho da Escola was lower 180 units in the second quarter of 2023, and we know how relevant this program Caminho da Escola is. But we knew that we would have this valley, as we call it internally, a slow season because the new competition did not happen. So we knew that valley would happen. So we worked internally to find alternatives to offset that valley. But Caminho da Escola is a very important segment for us. So during the valley, we focused on other operations, many private operations, any bidding processes and so we were able to somehow offset the lack of sales to the Caminho da Escola program. Volares, celebrating 25 years of history, a very successful product in the company, in the micro buses segment. And this is the market leader, not only in Brazil, but in markets to which we export. And it is a competitor to other senior products. This has been shown to be a very successful product with more than 77,000 units being made available in the market. This is a product with a very positive acceptance. Now talking about international operations. I'm sure we have perfect storm. Marcopolo enjoyed or make the most of the low period to do its homework and come out stronger from this period of time. We are -- we had to reduce and close out some plants. Unfortunately, we have this relevant low period, but we had a significant every afterwards. And international operations went through relevant structure changes. And now we are harvesting the fruits of that process. There is not only the recovery of the bus market, but we also implemented many internal actions to improve the company's results. In South Africa, we had relevant changes in the operations management. We knew that there was a large number of orders coming into the South African market. We brought someone from Marcopolo to do the ramp-up process and prepare the plant for that and the plant is now delivering numbers that is way higher than our history. So the plant is prepared to meet the demand of the order portfolio that we expect to receive. We already have the orders placed for the whole year, and there is a growth in the urban segment, and we also expect the intercity products to be exported from Brazil to South Africa. In this case, the G7. They had a turnaround a few years later, and now we're harvesting the fruits of this market growth. Argentina also went through a significant transformation. We consolidated 2 operations into one. We had an urban operation in Buenos Aires and an intercity operation in Rosario, we consolidated these operations, there was a need to place Marcopolo's controls and not only this, which all did greatly, but also transforming the culture. If you now go to the Rosario plant, you see that the company's culture or the company's DNA is there. We are now much better prepared to serve the market needs. We had a backlog of products that was cleared, and we're now working on the sales of new products, especially intercity products, and we have a full portfolio to sell these intercity products throughout the year of 2023. Australia, we are also turning around their operations there in Australia, just like we did in Argentina. We have a group of local people and Brazilian people working hard on these operations. We have taken our expertise in controllables, procurement, engineering processes and in the industrial area to the country. We have turned the operations around, and we now have a delivery capacity that is much higher than we had previously. And this is fruit of the increased efficiency of these operations and we see positive outlook for Australia. Australia also has a need to renew the market with electric buses. You can see the news, 2,000, 3,000 cars being announced as the need to renew the electric segment and Marcopolo is already positioned and selling electric buses with our traditional partners, either from Asia or Europe. A positive opportunity for these operations. China, a more strategic operation for Marcopolo, smaller operation, which is the foundation for the developing of new technologies. Many partnerships that we have been establishing are related to those partnerships in China. We started to export products to the African continent of products manufactured in China with local partners there. but our presence there in China is more strategic. Recently, we have developed and presented in Europe, hydrogen, hydrogen powered bus. Colombia also suffered from the spike in costs materials. We also had a backlog to be cleared. We virtually finished clearing that backlog, and we see a positive recovery there. As a reminder, Colombia is a market that relies on major bids, but we are also a market leader there in all of the segments where we operate with a differentiated position in the Colombian market. Mexico, great news for us. The Mexican market also had great acceptance of our intercity product -- that market is of around 1,500 units during the pandemic. They achieved around 700 units, and now we see a significant recovery of the market going on. This year, 1,200 units being sold in the industry, not Marcopolo, but that generates great opportunities for Marcopolo, especially because the G8 product being very well accepted. We continue developing a product for the U.S. market. We are producing vehicles weekly for this market, but we're being careful for a good launch. The vehicles are being tested. The customers have given us the first feedbacks, and we are in a testing phase so that we can have a very successful product as all other Marcopolo products in that market. Now about the projections. Well, Eduardo has been talking to you about the low period in the quarter with the Euro 6 transition OEMs had to develop and license many new projects. We knew that, that would lead to a delay that would affect our sales. We try to offset that with exports and international results. But the truth is that this is now behind us. This was happening in the second quarter. All Euro 6 microbuses and intercity buses being developed so we see a positive trend from now on when it comes to this transition. This is behind us now. Now Marcopolo was also impacted by the increased cost in materials last year as well as shortage of materials, but our suppliers are now more stable. So we don't expect any shortage of materials in the coming months. Now about our portfolio, we have an interesting order portfolio. Sales orders in the last 2 months were higher than in the previous 2 months. So we see great outlooks for the third and fourth quarter. The company is preparing in order to meet the demands of this additional volume that is coming in. An important decision was made in the past to reduce the structure partially due to the pandemic. We need to hire people, but then we hired new people, train them, develop them. And now during this selling period, we kept these people in our operations, thinking about the employees themselves and also thinking about the positive prospects for the company. We made the most of the period, training people so we now have a more qualified to meet the growing demand of the coming months. We also did an interesting work of transforming our culture at Marcopolo, Eduardo and I have been talking about that in our meetings with you. This is a slow but consistent process to make the most of our positives at Marcopolo and to boost this. Marcopolo is an intensive labor company. So our employees and the strength of our management are key to transform the company's results and that has been happening. Our team has been stronger and stronger and more united and energized to turn the company's results route. Now future outlook. Interest rates are going down. Yesterday, we saw the announcement of a drop in the sell it rate. That has a positive impact on us. the new bid for Caminho da Escola, we spent 7 months awaiting the competition, and now the did a request for prices, which was announced for over 16,000 units. So we are now establishing our partnerships to meet the market demand. Marcopolo is a company that has great conditions and we'll fight for a major share of this product. Now New Flyer, we are investors in this company. There was an increase in capital there, but we did not want to be diluted at this point. What is happening at New Flyer happened in many companies here in Brazil, Argentina and Australia with order portfolio that meets readjustments and needs efficiency improvements, and we believe that the company was going through this process as well, and we didn't want to be diluted at this time. Now I'd like to turn the floor over to Eduardo who's going to talk about the capital market.

Thank you, Andre. Well, I actually want to invite you all were here in person or connected remotely to visit Marcopolo in Caxias do Sul on September 5 (sic) [ September 9 ] during Marcopolo Day, that's a great opportunity to be in touch with the company's management and an opportunity to visit our plans and get to know more about our operations. We're going to show you an electric vehicle, you'll be able to write this vehicle. And we are going to provide a tour of our plant player. So I want to invite you all to come visit the company. This is a great opportunity to learn more about the product and about our operations and to feel what the company's situation is being there locally in person. Now the payout of dividends, we announced that we would go back to our quarterly payout policy. And at the end of the quarter, we were able to do that in July paying dividends, which something we had not done since 2014. So we were able to go back to that old policy of the company, which shows also what the company is planning to do with its resources. Now we had a valuation of over 100% in 12 months looking at the last 2 months, more than 120% increase in share value and the daily traded volume went from BRL 15 million to over BRL 40 million traded on a daily basis. And now we're going to open for questions.

Technology, the Chinese BYD technology, is that what you're using? Or have you developed the technology from scratch?

BYD is one of the Chinese players that offer this electric solution not only to Brazil but to several markets, but we have developed our own solution. Today, Marcopolo can sell electric buses with the UAT chassis, and we have done that with over 10 units in Sao Jose dos Campos and more than 400 in our Colombia market. And about 40 in Australia with the BYD chassis, but we also developed our own solution. Marcopolo made the decision of having the software intelligence in-house because the strength of the electric technology is a software which manages better and controls the product, defining the number of kilowatts hour for the product. So this technology was developed by us. We have software engineers working at Marcopolo, and that was a positive decision that we made. All of the components, access, brakes and engines, we are using market components for that, which was very well accepted because these are shelf products that our customers know and trust. So the heart of the electric solution is the software development that was done in-house here at Marcopolo and we see interesting results in the first tests.

You said that you had a big problem with Euro 6. Is that related to ESG?

So just to make it clear, I'm glad you asked this question. We didn't have a problem with Euro 6. We only had a delay because of the number of projects that chassis manufacturers had to develop in these projects led to a delay and a reduction in sales. And the first point here is about technique, the need to develop the whole range of products that the Brazilian market demands. But there is also a period for customer acceptance because Euro 6 is a new and more expensive technology. So there was also an increase in prices for the Euro chassis. And we knew that, that would lead to a lower level of deliveries in Q2 because of those projects and market acceptance. So that's not related to ESG. No, it's not.

So can you tell us more about ESG at the company?

Marcopolo's philosophy on ESG in the following. We have many actions being taken, and these are not only actions that were planned to meet the new ESG demands, but actions that we already did and believed in that at Marcopolo, governance actions environmental actions worried about the disposal of products and development of new technologies. We have a strong R&D team trying to find innovative solutions for us and that also generate opportunities in the environmental sphere. G8 also changed many materials. We decreased the number of fibers in the buses, which is more -- which are more complex to dispose of. So our buses now have innovations with lighter and more noble materials, that increase fuel efficiency. And in the social sphere, Marcopolo has also been taking many actions. We have a Marcopolo Foundation doing great work in Caxias do Sul, and we have been replicating this in other regions, not only in Brazil. Sao Mateus is an example of that, but also in our plants abroad. So ESG is one of our focuses and it's bringing results in all of the years.

I'm [ Andreas Sosa ]. I represent that [indiscernible]. I would like to greet the new CEO, Andre, the new CFO, Pablo. My question, Andre, related to 2 topics that you shared with us, and I'd like you to give us further details about this, about New Flyer. What is Marcopolo's view on this investment? Is there any other synergies that you convention with the company? And you also talked about articulated urban buses, especially in Sao Paulo and Rio. We see the new corridors are being created in Rio, an important part of Avenida Brazil with a corridor to be open soon, and I would like to know your outlook for articulated buses in the next 2 years.

Andreas, so starting with your question about the articulated buses. That's one of our hubs. If you look at the mass transportation market in many countries around the world, Marcopolo has worked intensively with the sales in Curitiba, the TransMilenio system in Colombia, the Transantiago system in Chile. Marcopolo has an active participation in all of those segments. And it interests us because this is a segment of higher added value. And we also talked about the transition from the light rolled segment, the heavy road segment that enhances the revenue. So we like working in the segments where we have higher demand and higher technology. And this is a movement that benefit the cities. This is a great opportunity to restructure the urban systems. We see the number of cars moving around the street, and we see a great opportunity to take people to public transportation, BRT and buses or other models of transportation. So we see a great opportunity there. We're selling buses to Rio de Janeiro. We see an opportunity also in Sao Paulo. We're also selling electric articulated buses. So this is in our DNA. We've been doing that for many years now. We believe that a transition like this benefits the seating, structuring the system better and it brings benefits to manufacturers who have expertise in this area. 74 years of history, we're actually celebrating 74 years of history on Sunday. So we have this amazing in this segment. Talking about New Flyer, thinking about the rationale of that investment. New Flyer was something we invested in, in 2013 in a primary offer, they increased their capital and we're able to do some M&As and strengthen their operations. And in 2016, they had significant growth. Their management interacted with operators, creating government programs in the U.S. and Canada which increased the worth of their shares and the company expanded into new markets developing products with high added value. So that's when we established a commercial partnership when Brazil was going through a political economic crisis. So we went from 1999 to around '10 at that time. And then after that, new fire serve the wave of the U.S. market developing solutions, try to expand to other markets. And of course, we were still part of those, although our representative -- representativeness was lower, but we were always on track of that. And then the pandemic hit, the company had a high leverage. All the market segments were impacted by the pandemic. And then after the pandemic, they also suffered the inflation impact on the long tail. So they're going through a complicated liquidity landscape with levels that are lower than those of 2013. We joined the company prepared doing a financial restructuring. And creating a new amortization schedule for their [indiscernible]. So although this is not a strategic investment now, we believe that this is -- the scenario they are going through right now is very similar to what happened in Brazil. We were not as impacted by inflation because we didn't have such a long take at the time, but New Flyer had a major backlog of orders, and they are now renewing their portfolio with expectations to start manufacturing and delivering products with new prices by the end of the year or beginning of next year. So this company has interesting strength and the market is benefited by the renewal movement. Now all of the Section Act that was passed in the beginning of the year, fostering BRL 2.5 billion in sales of electric vehicles and urban mobility infrastructure. So we believe it makes sense to keep our stake there at New Flyer and keep on tracking their figures without diluting our stake. We expect that the company will start generating good results again because what they're doing is very much aligned with the premises that we adopt, not only in Brazil, but in all of our units.

This is Victor from Bradesco BBI. First, I'd like to congratulate on the results. I have 2 questions. My first question is coming on this call, you mentioned under 16,000 units. I think the market was expecting around 11,000. So has the competition been published. You mentioned this number of 16,000 or not? And do you think there will be a concentration in 2024? How is Marcopolo prepared to meet this demand next year? My second question is about the U.S. market. You talked about the testing phase of the bus for the U.S. market, when do you expect to have the official launch? And what is the market size?

Thank you for your questions. So starting with Caminho da Escola. FNDE did a price request and based on the headlines, we see that we will not have sales this year, but Marcopolo understood that we would have this major gap and sales of Caminho da Escola, which was a significant part of our deliveries, but we implemented many actions to offset that. We don't have a deadline being mentioned there. They just did a request for proposals. And during low period, we kept our headcount so that we would not lose capacity as a company, and we could also prepare the people for increased plant efficiency. So Marcopolo is prepared. We have a share of this Caminho da Escola market, as you know. So we trained and developed our people to be able to meet this demand when it comes. We don't know for sure when this program will happen, but the announcement is for higher numbers than we expected. Your second question about the U.S. But before we go to the U.S., Eduardo, would you like to add anything?

Well, the public hearings had 11,400 units as public hearing happened about 2 months ago. This has been lingering since February. We've been talking about the tender since February, and this time goes by, there is a need for additional volume. So the bid could have happened in February. So it's like not of an additional volume being added there. And during the public hearing, they also talked about this additional demand that was not met in previous years. So the program had been purchasing less than they needed to renew their original fleet. So there was also this backlog of renewal. So the public hearing mentioned 11,400 and in the request for proposals, the number that was even higher of 16,000 units. We believe that delivers in 2023, and that volume will probably be capped for 2024.

Now about the U.S., the U.S. market usually launch is regionally in some specialized shows. And we showed the microbus manufactured in Mexico. They look as completely different. They or the design and the technical features, but they also mentioned some adaptation needs, and we made those adjustments recently, and we are planning to produce from 50 to 70 units by the end of the year for the U.S. market. So the product has already been manufactured. It's been tested on the roads, highways, but we received feedback and made some adjustments for also localizing some items. -- because this project was developed in Brazil, and we're now localizing the items for the Mexican market so that we can be more competitive and reduce the lead time. So that's the outlook. We have a person there live it in the U.S. We have an office open here, and we want to start working closer with the customers this year to understand the market and offer the best product we can.

[ Leonard Rebato from BBA Investments ]. I have a question about the drop in sales in the Chinese market. And about the main challenges of Euro 6. Can you tell us more about this?

What was your second question?

The main challenges of implementing Euro 6 processes.

Okay. So first, talking about China. China has been a small market in terms of sales for a very long time. If you look at all of Marcopolo plants, the lower -- I mean, the lowest manufacturing volume is in China. China had a drop in urban buses because of their high-speed train that was launched, but we almost don't sell in China. We have a plant in China, but we mostly export the products that are manufactured there to Africa and Asia. So the drop in the market there is still related to the effects of the pandemic. China went through one of the longest lockdowns in the world and traditional sales that we had to Hong Kong, Myanmar were affected there and the sales dropped. But our operations there is much smaller. We're talking about volume reduction, but it's from a small quantity to a smaller company. And we want to have this inverse presence there because of the new technologies that we have been developing there and discussing the strategic partnerships, the hydrogen-powered vehicle that we presented to the European market is an example of that. And we also have operations in Australia, not only China. So we have a level of connection between the operations, we have an opportunity for global source. So China is a market with an interesting technology. And today, the Chinese market we have this technology hub, innovation, global sourcing and development of strategic partnerships. About Euro 6. Euro 6, we had a delay in cases as we told you earlier. It wasn't one single problem, but the number of projects ongoing in Brazil for buses. It's impressive to see. This is one of the largest bus markets in the world with a huge variability of products. Micro buses, urban buses, road buses in all different configurations and set up and it took a while for the OEMs to go through the transition. And this is not happening only in Brazil but also in Colombia right now, and there is a delay happening there as well. So yes, there was a delay here on part of our partners. And the positive message I have to give, Leonardo, is that more than 90% of all of the developments needed for Euro 6 on the part of cases, manufacturers and on our part, we are in the downstream here, but 90% of all of these projects have been completed now. So we don't see any major problems from now on.

This is [ Parente from Z Quest ]. I have 2 questions. First, about the competition for Caminho da Escola, what are you expecting in terms of type of buses and so on, since we already know what the volume will be? Now about the average age what is the production level that is needed to keep the average age and what would be the additional projection to lower the average age to 8 years?

Now about Caminho da Escola, they have already mentioned air conditioning in all of the buses. So that's an improvement in the product that generates an upside for Marcopolo and for the market in general. The higher-quality product has a higher EBIT value. And also automated gear, this also generates a higher added value products. So these are the 2 main points in addition to a higher volume, right, quite significant volume there. Now another point related to the average age. We wanted to go back to a number that Marcopolo has been talking for a very long time. 10 Volares, 27,000 buses with Volare, that would add about 4,000 units. So 27,000 without Volare and another 4,000 units with Volare that would go back to a level that was -- that is close to that of 2014 or even 2001, 2008, as Pablo mentioned. So this is not volume. I mean the volume that we are manufacturing in 2022 is still low, although there is a significant growth as compared to the volumes in the pandemic. This is not a normal level yet. We would want to go back to 30,000 at least, which is something that we've been working hard to get for a very long time now. It we were expecting to reach it in 2020 within the pandemic hit. So now we are expecting to be able to achieve that number in 2024.

This is Fernanda from [ XB ]. I have a question about the government incentive program. We see higher adherence to light vehicles than trucks and buses. Have you seen changes in the demand because of this program or not?

Thank you for your question. Well, in practice, when we talk about the program, the program is much more simple and practical to be executed now because the vehicles were ready and dealers could give direct discounts to end consumers based on the inventory they had available. Now about heavy vehicles, if we look at the groups that were published, the last was published this week. So we had to work together with the Ministry of the Development and the National Traffic Council to create these ordinances with the premises to put this in practice. So we had to define the process because in a heavy vehicle, you have to buy a test it from the OEM and the body from another manufacturer. So we had to establish the setup for a product that would not have an available inventory, all the staff and the recycling of vehicles that had been used for over 20 years. So that generated some bureaucratic barriers, but the operators have been adhering to the program, and we think that this is more concentrated on the sales of theses and the vehicles of the Volare line because we already had an interest in inventory of these vehicles that will be used in the coming months. Based on the high average age of the fleet, this is an interesting program created by the government because it fosters these new businesses, and we believe that while the coming quarter, I mean this quarter, we should have an upside coming from this program and realizing this inventory and in the purchase of chassis that will then get a body. Bureaucracy for the heavy vehicles was much higher than for light vehicles indeed.

This is Federico from [ Marin ] Investments. Can you please comment on the dynamic of gross margins? And more specifically about the difference between G8 and G7. You also give us some flavor about the price of raw materials, especially in July as compared to April, May and June and your expectations for the remainder of the year?

Sure. About gross margins for G7 against G8, in practice, we are now delivering to the market a product with higher value features. When we look at all of the investments made in G8, I mean we're not trying to price these value features showing the customers all of their OpEx reduction features. We have more than 1,000 buses delivered in the G8 line and customers have been able to see us with their own eyes and when we look at the gross margins comparing to G7, we understand that increased prices that led to increased margins. And we're also working hard to get some materials that can lead to a possible raw material price reduction, but that's not the main point, but value features here. Now about the cost of materials, the inflation scenario has some specific peaks, but it's now much more stable than it was 2 years ago when we saw some raw materials getting a cost increase of more than 100% in a short period of time. We see that the scenario is more stable now, but of course, we are tracking this because when we have social programs, fostering, construction and other things, we know that this can have an impact on commodity prices. When compared to the previous months, I'd say we have a stable inflation scenario.

Can I just ask one final question. about ESG but from a different perspective? The country took on the commitment before the UN to reduce greenhouse gas emissions by 2030. And the climate issue was and to be for 2030, but many important features were made before that like some cities and states are now preparing for an energy transition. Mobility and sustainability are issues that are being discussed and most of the Brazilian capital cities. And also green fuel there are studies that show that green hydrogen can have more [indiscernible] than electric cars. So they would be more sustainable than electric cars for green hydrogen. Many companies have made commitments for 2030. We have a COP30 happening in 2025 in Belem. Do you see this as a way to accelerate the transition of the Brazilian fleet? And what do you expect to have more transition to green hydrogen, electric vehicles and by when should we expect this transition to happen?

Yes, Marcopolo is a leading player here in the region offering one of the best solutions for decarbonization. We have been developing solutions with partners for a while now, and we made the decision of manufacturing our own vehicle, and we have over 700 electric buses on the street, in the Brazilian market and in the international market. So that's our focus, to meet the decarbonization targets that are coming up in the market. The electric cars, I mean, this is something that started in China, then Europe in U.S. and it came to Latin America, starting in Colombia and Chile, and now we see a positive movement in Brazil and Mexico. We just made a partner -- we just sold 2021 vehicles with a partner in Mexico with this electric solution. About the timing, well, it's hard to say. The cities are preparing gating structure. There is a whole issue of financial model structure to make this business feasible and financing feasible. So there are many issues at stake here so that the system can be well structured. But I think that Marcopolo as a manufacturer has ready solutions to meet the market demands, and we also have the capacity needed. The national industry has a great capacity to meet the demand of electric vehicles, either with our own solution or with partners that manufacture electric chassis. And this is very much related to this decarbonization trend. We know that hydrogen is the next step after the electric vehicles, especially for long distance or long haul products. We had buses circulating in Itaipu with hydrogen, and we developed recent solution, a recent electric solution, we used our presence in China to get in touch with partners, and we presented a solution in Germany. And we were the only hydrogen -- I mean, the only hydrogen powered bus in that show in Europe -- was a Marcopolo product. So that's what we do. We are leading players in this transformation. And we can also use our bus body with other electric chassis that are available in the market. How fast is this going to happen? It's hard to say. We believe that the electrification would come not everyone believes that, but Marcopolo believed in that and was brave enough to develop its own electric vehicle. And we did this because we believe that the demand would come, and we wanted to have a solution because we didn't want to lose market share since we're market leaders in Latin America. So it's very hard to tell you when this is going to happen, but we have full conditions either in terms of capacity or product to meet those demands, and this is already happening. We have over 700 electric vehicles with Marcopolo bodies on the streets around the world, and we're also building 130 this year with our own solution.

We ask one final question to Pablo. We have expectations of other revenues or extraordinary revenues for the coming quarters especially because of assets or properties that are not being used? Are they going to be sold or leased or do you have any other plans [indiscernible]?

Well, thank you for your question. So talking about our properties. In the process that we started in 2016 and 2017 to revisit our industrial parks, after leaving the operations in Caxias do Sul, we had this property available in [indiscernible] and Tres Rios, a property where San Marino plants used to be based, San Marino, which was incorporated by Marcopolo. So we have these 2 properties, and we've been working to solve all the environmental issues to make these properties available for sales. Well, of course, we don't want to make a forced sale when to get an appropriate value for those properties. And now with these expectations in the domestic market, we believe that these properties can be valued fairway. So we're working for this to happen. So these are properties that are available for sale. We've been talking to potential buyers, but there's nothing concrete for now. But if it all happens as we expect, we will be glad to announce the sales of these properties. So for the assets we have, these are significant properties that can bring cash in-house.

Okay. That completes our session. I would like to thank you all for joining us. It's always a very good opportunity to talk to all of you. You got a questionnaire about this presentation. We want to hear your feedback. It's really important to get your feedback because this can lead to an APIMEC award at the end of the year, a quality award. All of the companies that present their results with APIMEC can compete for that award. Since we've talked about green hydrogen, I would like to tell you that APIMEC is holding an event in Fortaleza for 3 days to visit the Port of [indiscernible]. They have more than 30 MOUs with companies that are interested in producing green hydrogen there. So we will hold an event in the city of Fortaleza with a visit to the Port of [indiscernible] and there will be a day talking about sustainability and urban mobility as well. So this is a great opportunity for us to discuss all of the issues. I would like to thank Marcopolo. I'll let you know that this is the 22nd year in which we are holding these meetings. This is a finance partnership and disclosure of the company working closely with the market and very constant about governance. So I'd like to thank you all. This is the feel of 22 years of participation with your presentations together with APIMEC. Thank you for the beautiful work that you do with a lot of transparency, giving everyone the opportunity to learn more about the company.

The APIMEC Brazil meeting of Marcopolo S.A. is now closed. Thank you all for joining us, and have a great day.