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

Good morning. It's good to be back. It's been some years that I hadn't had the APIMEC meeting as the Chairman. So we were just now talking [Fabiana] and myself with Valiati, 23 in-person meetings in addition to all the other ways that the company uses to talk to the market. And Fabiana has been in [demand], younger she is. And I certainly did take part in some. But it's very good to be here with the company, with you and to know that in-person, things make sense because we are able to feel the company and the heat of information, the vibration of the team, and all the possibility of us absorbing more and more information about the company. So I'm very pleased. I thank you all for your attendance. It is always so important. We're also are streaming the meeting on web. So thank as well to our online attendance. So once again, I'd like to highlight that Marcopolo is part of Level 2 of corporate governance. This is also very important. Remembering that Level 2 quite often is not too far from the Novo Mercado. We may say the only difference are common shares. So the company's responsibilities has always been very clear. And also another important point is that this 23 years of APIMEC Brazil now makes sense in a way that the APIMEC firm has always been open and extended, independent and always sought to have more and more market participants through the analysis of investments, but also through different related areas and potential shareholders. This is very, very important to us. So again, I salute our Investor Relations Officer, José Antonio Valiati, that is going to be there for meeting. And later on, he's going for presentation, also the participation of our CEO, Andre Armaganijan. I trained to say your name right, but things are what they are. Pablo Motta, CFO; and Eduardo Willrich, the Investor Relations Manager. Last message, you received together with the presentation material is assessment survey. And this makes sense for us really to analyze the information provided. And later on, according to the scoring, we are going to put them in a ranking. So just to understand the information and give you a perspective in terms of business modeling, for businesses in the stock exchange and et cetera. So please fill out the forms. And now I'm going to turn to Valiati for the presentation.

Good morning, everyone. First of all, I'd like to thank Ricardo Martins, Executive President of APIMEC Brasil for once again welcoming us and giving us the opportunity of being here in-person in this meeting. Also, I'd like to thank those that are here today and all of those that are following us online. I hope that you all have an excellent meeting, and I'm going to turn to Pablo Motta that is going to start with the presentation. Later on, we are going to have our CEO, Andre, and then we are going to have the Q&A session in the end. I wish you all an excellent meeting.

Good morning, everyone. Well, talking about Marcopolo and our numbers, you see that this year was very symbolic representative to us 75 years that we are going to turn next week that the company was founded. And we indeed see that with these numbers and the consistency of deliveries along the last quarters, we really want to honor the company's history. So looking at the numbers of our second quarter comparing quarter-on-quarter, we had -- well, let me see. Is the pointer working? There you go. So 43% growth in net revenue quarter-on-quarter. Remember, the second quarter last year was a complicated quarter. We had the introduction of Euro 6 chassis, lower volumes, but we also see in this quarter a significant volume of microbuses that indeed helped us to have higher revenue. EBITDA, BRL 382 million. And somehow generated by our gross margin of 26.1%. Also, consistently, we have been delivering very significant gross margins along the quarter. And consequently, EBITDA margin up to 19.5%. So indeed, the company was able to have good operational leverage and bring good results in EBITDA. And thinking of net results, 12.8%, also compared to '23. In '24, we see more consistency, a net result of two digits, and this is basically what we have been targeting on quarter-on-quarter. And that shows also a return on invested capital of 20.6% for this quarter. As for the Brazilian bus production, everything we talk about consistency shows results of the very significant work we have been doing to deliver good margins and good net results. And we are still within an environment when you think of the Brazilian bus production, we are still at levels below what would be our historical average. So in terms of fleet aging, since 2014, basically, we have an aging of the Brazilian fleet from '12, '13, our fleet went from -- 11 years, '12 to '23, I'm sorry. From the operators' prospect, they have more consumption in the terms of vehicles, fuels, and we see in the history that the company has been delivering margins and results in the market in which we haven't reached the average necessary historical margin to keep the fleet age. So maintenance, for instance, services should be at 32,000 units, what we had in 2014, clearly, in 2023, as you can see, even with a good results, we delivered 22,000 buses. And 2024, with the delay of purchases in the renewal of the past fiscal, we are probably not going to reach the 32,000 that we've reached in 2014, which would be the reference to keep the fleet age. So we see there are good prospects in terms of volumes for us to really pick up the bus segment in Brazil. And when we think in terms of production, we see that there is significant growth. Brazil, as I mentioned, very much because of a large volume of micro buses this year, we went from 2023 in the second quarter with 2,000 buses to 3,100 in the second quarter '24. And that, if you think of international operations, we see a very significant volume coming in our businesses, not only in Brazil but also internationally. Worth highlighting here is that we have been having along the first half, less significant volume of exports. So if you think of Marcopolo history, we always had very special projects, exports to African countries, South American countries, and now we did not have a major project. So exports, the second quarter were below what we exported last year. However, in terms of external units, we do see an increase of approximately 17%, mostly concentrated on Australia that has been a country and we have been talking about that, not only Australia, but other countries really based on the restructuring we had in Brazil that was extended to international operations, and we see operations just started to perform in terms of profitability. South Africa with the same price movements that we had in Brazil, also being able to position the right prices with differentiated products in the market. Australia, we also bring this unit to a productivity level of -- profitability level close to what we have in Brazil. Still not at the '19 EBITDA we've reached this quarter, but moving on towards that. And that was a market that has always been a challenge. Since we entered the market, we have been delivering value losses along the years. But all the restructuring work is starting to yield fruit in terms of profitability. And Australia is already delivering good results this quarter. Mexico, the operation also with good profitability and good work on cost reductions and here also with an effort to seek other markets. Andre is going to talk a bit more about prospects for these businesses. But financially speaking, operations are very well structured in terms of cost, prices, with volumes that enable us to have good operational leverage. And China being a unit for us to seek more and more development projects. And consequently, we are going to see that in terms of market, although we did have growth, we are going to focus on specific markets, especially Australia. But profitability, consolidated operations, seeking to deliver the same performance. I think this is the major differentials when we think of the quarter in terms of results. Of the net consolidated results in Brazil, we see we have a greater share of international operations. And if you think of growth quarter-on-quarter by type of product, as I mentioned before, we see that bodies are increasing significantly in the second quarter '24, very much connected to the segment of micro buses. And then net revenue broken down by segment. I think this is a very interesting piece of data. In the past, you will remember, we had value creation in terms of profitability, depending on heavy vehicle segments. And now what we see in this quarter, for instance, compared to heavy vehicles, last year, we had 39% approximately of revenue coming from these products. This quarter 31.2%. And what we want to say with that is that despite having a decrease of heavier vehicle, our profitability went up. So we have been working to be able to, regardless of the segment, have very good profitability. So we are looking at margins generated per vehicle produced, and we are working at a price point that will ensure profitability and then we are going to work with the mix to strengthen operational leverage and improve efficiency related issues because we know these are vehicles that demand the different man hour work, depending on the complexity of their production. But profitability by vehicle, the objective is regardless of having more heavier, lighter vehicles to have a right mix and have the better use of our plants. And talking about our numbers. Total net revenue, second quarter '24 BRL 1.956 billion against BRL 1.3 billion of the second quarter '23, an increase of 43%. And in the half year, BRL 3.6 billion against BRL 3 billion in the first half of '23, an increase of approximately 20%. Comprising the revenue, revenue in Brazil, BRL 1.2 billion, exports BRL 203 million. Foreign revenues, BRL 495 million. So as I mentioned, very hard work in international operations. We had an increase of 25% in the volume of revenues from these operations. And this is revenues that contribute to profitability within the whole movement we are conducting not only in Brazil, but abroad. Gross margin, 26.1%. And here in this context, we also see international operations generating value, no longer the consolidated operation, depending on Brazil in terms of gross margin. So historically speaking, you see that foreign operations were destroying value products at a price point that destroyed gross margin and now in the consolidated number, the only work we have to do is how much for operations can add value to us. And you're going to see EBITDA margin, gross margin and net income at levels above what we had considering only Brazil. Remember, consolidated numbers show that all companies are adding value to our results. EBITDA margin, 19.5%, BRL 382 million against 11.6% in the second quarter '23, with BRL 158 million EBITDA there. In the half year, in terms of EBITDA, we are talking about approximately BRL 700 million against BRL 450 million that is 55% above in terms of EBITDA. And net income, so you're talking about BRL 250 million this quarter against BRL 140 million in the second quarter '23, 79% approximately, an increase. And in the half year, BRL 567 million against BRL 376 million, 50% increase and a net margin in the quarter of 15.7%, in the half year, sorry. So in terms of results, this is what I had to say, and now I'm going to turn to Andre, that is going to talk a bit about our performance and prospects. Thank you.

Good morning, everyone. It's a pleasure to be here with you on my second APIMEC. I'd hope the second of many. So let me talk a bit about the Road segment. Indeed, we have been talking about that for a long time. The segment is recovering. It is an important process. Pablo showed the need for fleet renewal. But I think the greatest success of Marcopolo was the product launch. People were talking about a weaker competition. If Marcopolo was going to develop and bring new products to the market, and that's what we did in G8. Remember, we've talked about that before. [ G8 ] was a product that was well positioned. The market was pleased, but the company really pushed itself to bring more alternatives to the market in terms of convenience, comfort, safety and the cost of maintenance. So several topics that were added to this product. Air companies are what they are. Air tickets are very expensive. Company -- people are moving from air companies to bus companies, enjoying comfort and security, are starting really to enjoy the segment. When we see the situation of air companies today, we feel that for some years now, we are going to have an opportunity of selling our road buses quite well. When we talk about portfolio -- Marcopolo portfolio with road buses, we have the year closed. We are starting already to look into the next year. And when we talk about charter buses, which was a positive surprise because remember, during the pandemic, soon after the pandemic, there was a huge need for renewal of charter buses. Remember, the second vehicle to transport more people to companies. Because of COVID-19, we thought we had a higher boom of sales and then accelerated renewal and then a drop. But the drop didn't come as sales continue to be high, especially in the agribusiness and mining sectors. And we believe we are going to continue doing quite well in the next months and years. G8, also, I would like to highlight that we launched this vehicle in June -- July '21. We have more than 4,000 buses sold. Of this 4,000, more than 2,000 are DDs and this is another differentiator for Marcopolo. Remember, this is where we have the higher differentiation. We are one of the few global manufacturers of the products and our customers can offer differentiated services to passengers. All that bringing a potential of differentiation for Marcopolo, and we already exported more than 800 [ DDs ] to the market. I'm sorry, not [ DD ]. We exported more than 800 G8s to the international market. Talking about competition in the segment, the runner up also has a full portfolio. So we believe we are going to have a very good year in terms of profitability. Urban buses, you see lots of incentives to the segment. We see the government really incentivizing the sector in the post-pandemic. We did have lots of funding for subsidies. There was the need for government support for the system to operate that was felt in the pandemic. What happened to several urban companies that needed the support, and this is something recurrent not only in Brazil, but in also in international markets. So we believe the urban segment is going to continue to be financially supported and that has been one of the factors of growth for the segment, not only volume, but in profitability. And we see the second largest movement being electric vehicles. We've talked about that before. I think the greatest leap that Marcopolo had in the urban segment was to develop an electric solution enhanced. That was an important leap. So in addition to the urban bodies, we also produce electric buses with all -- components, but the software developed in the company. This movement of electric vessels, the announcement and interest of renewal was even faster than renewals percent, but renewals target. We already have 8 buses that are going to start running in Porto Alegre this month. We sold another 20 buses with our own chassis full buses and third-party buses. So we are also working in a model with partners where we sell our buses with third parties and between our own models. And chassis bodies, we have more than 160 electric vehicles in Brazil. So in the world, we have more than 1,000 electric buses sold, most with third-party chassis. So we expect to see a movement which is lower than what we expected at first, but I think it was the time for us to get ready to bring more differentiation, more performance to our products. We are testing products with very good results. And microbuses, the best to school, government programs, the speed of renewal you see for the second half, a volume that is not going to meet our initial estimates, but the upside is that we have had the opportunity of covering demand with retail sales. So because retail of micro buses is very much heated, especially for [ Volares ], we have kind of made the swap, not selling as much for the path to school, but selling more [ Volares ], which gives us in addition to coverage for the year and good results, higher predictability for next year. So we had past questions. Analysts will ask what is going to be '25 like since '24 is practically closed? Now we see a better picture. We see that half the volume we got from [ path to school ] is going to be for the next year. Remember, it was a bit more than 7,000 units. We see that half the volume is going to be for next year. And we are going to offer those reductions with retail sales. Now talking about international operations. Pablo already made good comments about the timing and performance of each one of them. Indeed, this is work that we really took a deep dive in the last year. We got all the best practices of Brazil and took them abroad. But not only that, lots of administrative work, support work. And I think the greatest advantage is that we are having better and better integration of the Brazilian headquarters with international operations and interconnecting them all. So I'm going to start with China, just to show what I have been saying. In China, we made the decision of having in China company active not to sell 1,000, 2,000, 10,000 buses. But having a strategic plan for strategic partnerships, global sourcing, a hub of technology of innovation, learning best practices. So we are using these operations, not only Brazil, but Colombia, South Africa, Australia, Argentina, all these operations really having a direct connection between opportunities they see in their plans with cost reductions that China can provide. So we are using China's plant as a strategic asset because we were able to get to this better integration. Remember that China is also an important production base to Australia, very competitive, and we have been connecting operations more and more with China. South Africa, the operation is growing. We already saw in the past that we would grow production. That's why we had a structural movement to have the right people focused on preparing the plant for the accelerated growth, and the team is doing very well with very good support for us to reach the volumes that we target at this operation. In mid-July, I was in South Africa. We launched G8. The first G8 with the steering wheel on the right, more than 100, 150 customers were present in the launch and very positive acceptance of G8 in the market, which will lead us to very good sales of road buses in South Africa. Argentina, we are now voting 100% of preparation. This is something that we had planned before. Remember that strategically, we said that Marcopolo was going to go into operations with higher share and even not profitable operations, that was a strategic decision of the company some years ago, we implemented that. We left operations in Argentina. It's an operation we have talked a lot about that. The value of Marcopolo brand is huge in the market, one of the largest uptakers market in the world, and that has been affected by the nonrenewal fleet for a long time. The fleet is aging and there is a giant opportunity for renewal when the market recovers. So we are keeping the operation at a very low balance point for us to survive the first half of year, but we already have a close portfolio for the second quarter. So we have a positive outlook for Argentina, for the second half year. Australia, Pablo, already mentioned that, but anyway, I remember the very first trip to Argentina, Pablo, myself, and our International Business Director, to take best practices of Brazil to abroad. Together with the local team, we started the transformation of the company. The company had weakened operational structure. It has been settled. We see month after month, an increase in the quantity of vehicles produced and the increase in efficiency, production and price repositioning enabled the results that you touch today. Colombia continues to show good results. Remember that this operation is highly dependent on the TransMilenio program renewal. But why we don't have that. We sell microbuses, urban buses and mainly G8, which was also launched to the market. So G8 in addition to being manufactured in Brazil. It's also manufactured in Colombia, Mexico and exported from Brazil to South Africa. And Mexico, an operation that is growing. It is quite adjusted operationally speaking. We had opportunities to see cost reductions, as Pablo mentioned. And we've seen this operation a huge opportunity with G8 and continue to keep our footprint, especially with customers that were not buying Marcopolo buses. So the single decker is manufactured locally, exported from Brazil, and we are also sending some units to the American market. We have, I think that last year, we sold 6 units and the idea is to sell 60 this year. So the process is really to mature the sales. Talking about prospects, we see a growth production that has been one of the main factors. For our results, we've been talking about that before we had an outlook for continuous increase of production. In the beginning of the year, we had some sales from '23, then [ availing ] February and soon, we are growing volumes month after month. Even with the past just cold decrease, we are still seeing for the coming months, growth of sales, and that has brought part of the results through operational leverage and production is going to continue growing as I mentioned. We have already a positive prospect. And remember that seasonally, we always have a very positive end of the year because of the need for renewal for the vacation period and a very good period in terms of mix of products, especially in the third, fourth quarter of the year. Then in terms of efficiency, when we talk about growth pillars and potential to bring better results for the company, efficiency is the name of the game. One of the main pillars for this to happen. We are very much focused on our organization to increase efficiency by discipline, monitoring on a cultural change that we've talked before. Remember one of the first conversations with that, when we talked about culture, change in transparency, addressing problems. We've talked about that extensively. And we are still seeing the result of the seed that was planted way ago. It's not easy to produce buses and bodies. It's very complex. It's also an entry barrier to many players, but we are strengthening processes, systems, culture, so that more and more -- we have more differentiated products and reach levels of efficiency that we expect. So we are working on opportunities. Cash generation, we have some factors that bring all the cash. One is the growth of production. We had a lot of material being developed in the plants, the work that we have been developing towards efficiency is enabling us to, in addition to daily different volumes, reducing materials used in the manufacturing process, which is a source of results because we know with the growth of demand, we need more working capital for the plants. And the exports, of course, the appreciation of the dollar benefits exports. The exchange variation does affect it adversely, but we know that strong dollar favors us in exports. So we are very much focused on recovering lost volumes that you saw in the beginning of the presentation. We have lower sales compared to the same quarter last year. So the international team is focused on specialty packages for the urban segment. That's what makes the difference. In terms of the investments, we are investing in a new manufacturing complex in São Mateus. Remember, this is the plant where we started, and we are going to be introducing electric buses and electric chassis. For the full asset, we are making important investments and really accelerating the process. We already have logistics in a new area. We also have an open line for an additional line, for the production of the electric urban buses. So the company is being prepared when the urban electric -- urban renewal comes stronger. We are prepared. We opened our inflammable center. This is always a concern with our people. We had a safe environment, but it's safer now. We have separate for inflammable from the plant, improving efficiency in our operation. And we are making investments in industrial automation significant investments. We also see a huge opportunity for the improvement of our manufacturing complex and updates. We are investing in chassis. This is a new movement, both for electric and Volare buses. We are starting production of our vehicles with our own solution and new products. And here, a special invitation to you. We are celebrating 75 years of history on August the 6th. We are going to have important launches at the Lat. Bus Trade Show that takes place from 6th to 8th of August, and you are all invited to see Marcopolo invitations are on intercity, urban buses, micro buses. The company has built a beautiful history in it's 75 years, but it's still looking forward, thinking big and developing and seeking to develop more and more mobility solutions to the market. So if you have the opportunity, go visit the Trade Show, come talk to us, and see what we are launching. So I'm going to stop here and I'm going to open for your questions. Valiati, I don't know if you want to make a comment, Eduardo?

We are celebrating 23 meetings as was said before. Before opening for questions, I would briefly would like to symbolize the 23 years of relationship with the market, especially through APIMEC now APIMEC Brasil with the frequency [ ACL ]. This is something that we always want to show, relationship with the market. The market is always talking about investments, and the analysis of investments, recommendations. So we always try to show to the market and also count on you to promote all that because we know how important [ ACL ], a certification may be for the information to flow throughout analysts, influencers that are curious for us not to have opportunism. So this is what this [ ACL ] is all about. It has this mission of showing to the market that the company, its executive team, participants, in-person or online are engaged in the form of reciprocity of information. For APIMEC, this is very important. I believe this is also a huge differentiator for companies because it does make a difference in everything that we see in terms of information exchange in the market and safe sources. So thank you, Marcopolo, for the 23 years. 23 years with APIMEC alone but we know that -- through your different channels of communication with the market, you're always available. So once again, thank you, and congratulations. So this is for your team. A recognition of all your work. Thank you so much.

I think most of you are used to that. But let's have 2 questions for participants. Don't forget, just say your names and companies.

This is Victor from Bradesco BBI. I have 2 questions on my side. The first regarding the gains of efficiency, as you talked about in the release. If you can quantify how much margin increase we should expect for next year? And the second question about investments. In the second quarter, you invested BRL 39 million in São Mateus, how much is still missing for you to complete the plant. So if you could talk about the capacity -- market...

Victor. Thanks for your questions. Efficiency, I think this is work we have been developing for a long time now, qualifying our labor. You know that labor is a significant part of our cost. So we have a very high volume of labor-intensive work. We don't disclose this data, but we think we have a potential of getting to 4% to 5% in terms of better margins with better efficiency. This is relevant cost because composition, we know the higher share comes with materials and then manhour. All our process, the cost driver, are worst for the production of a vehicle. And when we talk about efficiency, it is an improvement in general costs, in direct materials and labor that somehow is key for us to make it happen. So I would say there is potential in an ideal scenario that is having the slots filled with the ideal mix, a balance of line. So we have the potential of improving our margin by 4% to 5% in this ideal scenario. In terms of investments, we still have 60% of investments to be made in terms of recognition of results in São Mateus. We already recognized about 40% of what's being done. But remember, what we are doing there is basically defined from 2013 onwards, when we started the project, we had a single purpose. And along the period, we have been adjusting the plant. So that means now the objective is, have this line that Andre mentioned, specific -- for product manufacturing, for better organizing the plant so that it can be a plant to that as we are able to have higher demands for the renewal of urban buses, we can also be prepared to meet an increase in demand to organize the plant and make it ready for the manufacturing of electric buses and chassis. As for capacity well, with electric buses, we manufactured the first electric bus taking it from Ana Rech to São Mateus to train people. We should manufacture 10 to 15 electric buses but it's a start. We want to train the team and the idea is to have the plan to prepare. We are talking about 5 electric buses per day 6 -- 5 to 6 electric buses per day at this operation. So we know as the renewal of electric buses is slowed, we want to have the operation ready. When we start receiving large orders, and we are starting to have good sales with third-party chassis, but our operation is going to be ready for third-party chassis and our chassis. And even for us not to miss the opportunity of selling high added value products and show that the Brazilian industry is truly capable of meeting the electric vehicle demand. So 5 to 6 vehicles per day, then we also have a capacity at Ana Rech. So if we have a higher demand for electric buses, the highest movement is in Espírito Santo, but we also have an operation in Caxias do Sul in Ana Rech. And as Pablo mentioned that, in addition to all the work with electric buses, chassis electric or [ Volares ] also, we want to organize the company to have higher production capacity as a whole with all mix at that operation. Remember, we have urban, micro buses and paths to school products.

This is Marcelo Motta from JPMorgan. Two questions from my side. First, if you talk about margin, how much efficiency you can still get from international markets? You said that your target was to get to the level of Brazilian operations, but just to understand the gap and how long it would take to fill this gap? With this extra 4%, 5% efficiency margin, is this also valued for international operations? And second question about M&A. Perhaps there are still 2 subsidiaries that you do not own a 100%. I think it's Colombia and Mexico. Do you want [Technical Difficulty] to get there? Does it make sense? We see the movement in Argentina. So if you could talk about this other 2, I appreciate that.

I'm going to start answering the M&A question. Remember that back there, we said that our international strategy is to leave nonprofitable assets. This is what we did. We left Egypt, India, Russia, way back when we consolidated 2 operations from [ China ] in 1, and we mentioned that in addition to leaving nonprofitable assets. We would increase our share in other assets to manage the operations. We did that in Australia. We had 75% and we are at 100%. And we did that in Argentina, First, we consolidated to 1. We are now with 100% share. The all operations in which we do not have 100% share, Colombia is 50-50. Now Colombia is an operation in which we have a very strong partner, quite representative in the market, a best operator, brings lots of know-how to the business. So we do see an opportunity of keeping the 50-50. The partnership is working very well. We have been exchanging management, sometimes Marcopolo, sometimes local. The local manager is doing very, very well. They are there for quite some time. In Mexico, we have 74% and Mercedes has 26%. But this is also an operation that management is all members. We make our decisions. The fact we have the partnership with Mercedes does not prevent us from selling products with other chassis brands, which was a concern of ours. In the Mexico market, we have a very strong sale of urban buses with Mercedes, but intercity buses are other European players. And we did not want to miss the opportunity. We didn't want to be attached to a single [ product management ] [Technical Difficulty]. One of Marcopolo differentiators is exactly flexibility. We want to be the favorite choice of our customers regardless of the chassis used. So Mexico, 74-26 is working well. And New Flyer remember, back then, we had a capital call. We didn't want to be diluted. We tried to keep our shares. We were slightly lower. But the few was that what had to be done there is what we did in other international preparations. So New Flyer still today is starting to [ manage ] the process that Marcopolo implemented [Technical Difficulty]

Fernando [indiscernible] just to start, [ aim ] to improve results...

Thanks for your question. For efficiency globally speaking. It's important just to mention something. When we talk about efficiency we're talking about seeking the [Technical Difficulty] production to meet the current portfolio with [Technical Difficulty] Profitability even not having TransMilenio now. And when we have TransMilenio, [Technical Difficulty] are our standard will truly be able in that operation to have higher profitability. And in terms of Argentina, thinking of South America. In Argentina, we have an operation that today we had all this macro environment, but the market is starting to react in terms of production. We still have lots of plant idleness. We kept the assets and knowledge to prepare for the recovery from January to June, we did have a low volume in the delivery of buses for the first quarter. Second, also little bit weaker volume that enables us to have a path for operational results. So there, we have a potential for value creation because of the restructuring and the adjustment of prices. I think that's it. New Flyer, I think that's a good point. We have also been monitoring the plant, you, as Marcopolo shareholders follow our shares. We also follow the shares of New Flyers to check on performance and ensure that the initiatives that are being put into practice are in line with what we did in Brazil and in other markets. So we have at least this revenue being implemented. So in terms of operational performance, there are also recovering profitability. So in terms of efficiency with less impact on materials that generated great disturbance at time. And in terms of seeking -- [Technical Difficulty] today, they have labor that is being trained very good knowledge in-house, which enables us, together with working with the materials being delivered on the time needed, we are going to be able to generate profitability, not only because we are renewing contracts at the right price point, but because we are increasing efficiency. This is what we are...

This is Fernanda from XP. Congratulations on your results. My question is a follow-up on your mix. I see this is one of the manufacturers that led to this improvement of margins. So I would like you to talk about mix per category. Can you give an order of magnitude of the share of products with higher value added, less G&A [Technical Difficulty]...

[Technical Difficulty] Using our product traditionally in the third and mainly fourth quarter [Technical Difficulty] good DD sales. So gradually, we are increasing our capacity. Intercity buses, we are keeping constant volumes because we've have good [ outflows ] throughout the year. Charter buses, we are increasing now because we had a slight reduction and not a reduction of demand. As I mentioned in the presentation, the portfolio is basically closed in all segments. But because we are always seeking best efficiency. We have other packages in operations. So all these are cars [Technical Difficulty] improved freights because we had a very long portfolio that and with other segments, then you leave Ana Rech and you go to other plants. And we see in micro buses, this exchange off paths to school to Volare and we see a positive portfolio in urban buses. So we see that urban buses, 1 or 2 months, we are in the process of having the chassis. But in the last months of the year, we see a good sale of urban buses. And there, slightly heavier mix for the plants that produce. Urban [Technical Difficulty] São Mateus in a nutshell, what I'm saying is that we see an interesting mix of heavier vehicles in intercity segment with double deckers, but also this combination of micro buses and urban buses. An interesting point Fernanda, as Pablo mentioned in his presentation, we more and more have less difference between the profitability of each product line. So mix is relevant, of course, but it is becoming less relevant. And more and more, we get to profitability levels of products because we are seeing an increase of demand in all segments. So the idea is to have more and more similar profitability levels.

This is Gabriel Tinem from Santander. I have 2 questions on my side. The first more connected to the paths to school program. I would like to understand the deceleration of orders from cities and to understand what's going on, the rationale behind that. And second, more related to the PAC, the P-A-C, what are the opportunities for Marcopolo in terms of volumes for electric buses.

Gabriel, as for the paths to school, when the product was announced in 2023 it was implied that distribution a long time was going to be [ different ] from what we have had in previous bidding process. Generally, it was from 12 to 14 months, and volumes would be distributed along this period. When the tender happened with a higher value at the point where the results were disclosed, they said that the period would be about 1.5 years. And that idea that it was going to be very much concentrated in '24, a change to what we saw the proposal was a higher balance between cities long time, and that enables us to have better planning in terms of distribution volumes. Pay attention to the retail market that is not concentrated only on the paths to school work with the urban buses that is going -- that are going to occupy part of the space. So we are going to work more with micro and urban buses. And also, we are going to have higher visibility about '25. So even with the cooling down, I think this is better for [Technical Difficulty] current view of the company. And about the PAC, what we see is that the government through the Ministry of Cities, is working very hard to foster fleet renewal. Of course, that's one thing is to announce the program, then create the program and then make the funds available. We know it takes time, especially now that the government is revisiting public expenditure. But we still believe, based on what's been announced. But in terms of fleet renewal, this is not going to be only for electric buses. We know that many cities in Brazil still have difficulties in terms of infrastructure. Even Sao Paulo that should be, the city with the best infrastructure for renewal, it still has difficulties to increase the number of electric buses in the city. But again, knowing that some cities are demanding smaller purchases just to start the process. We believe that 2,000, 2,500 units will be will be entered in pack, but that depends on the demands and initiatives of the government for this to start becoming.

[indiscernible] I come from [indiscernible] Assets. I don't know if it's part of the question you answered, but quite briefly, there was a bid for 6,000 buses, and I didn't see anything about that. And second, ESG. How has it impacted your costs? Are you implementing any project in Brazil or abroad? And how did the Rio Grande do Sul climate catastrophe affected you in terms of people and logistics...

[indiscernible], thanks for your questions. 6,000 buses, yes. These were for the pack 3,000, yes so 3,000 electric buses. As Pablo mentioned, they are still in the process of structuring the program. You have issues to be solved. But looking at our portfolio and increase of production, we have a good prospect regardless of the project to increase volumes. But I think the project shows that the government understands the relevance of public transportation for cities. The government in this acceleration programs understand it has to help, as they did in the post-pandemic when there was a need to incentivize urban transportation to keep operators healthy. So this is still being structured, as Pablo mentioned, but we do not see negative impacts to us. As for ESG, we have several actions developed in the environment. We have the benefit of being [ spotted ] in the business that is pro environment. Now you're going to see we have been talking option, new fuels, we launched the electric bus, and we are also going to have the opportunity at the trade show of talking about the environment. So in terms of decarbonization, the company is very much focused on that in our launches. Talking about products, we are using materials that are lighter, but also more recyclable. Lighter obviously, gives savings in fuel consumption, are less pollutant and recyclable because we are concerned about the final disposal of products. So in products, we have a very strong R&D area seeking for improvement. And decarbonization is our most important flag. And internally, we're talking about reuse of water, electric, energy from renewable sources. So a huge effort of the organization. Socially speaking, we have an important work with Marcopolo Foundation in the rain period, and I'm going to talk about that. We had lots of support to our people with money but also with materials, Marcopolo announced BRL 5 million that were made available to help with the rains and important social work we have referenced in the region of [ Caxias ] in the south of Brazil. And governance required to mention, they're a bit about that level to following all the rules, independent remedies. So with ESG, the company is working very hard and regardless of acceleration or a decrease of ESG in the market, we have been working consistently towards that. The rains, we had an impact of 1.5 in production, but the impact was not impacting our facilities. But because we have people, employees that lives outside Caxias and the roads were affected. There were lots of landslides in the region. It is a mountain region. Instead of floods, we had landslides and the roads were blocked. But we worked very hard with the government to have a best answer. We created crisis committees, and that's good because we work also with a future view of mitigating environmental risks that we might have. So we also structured several committees to work with that. The plant was not affected. Employees, as I mentioned, suppliers, we also worked very fast. We've created the crisis committee to reroute any problems with suppliers. So we exchange suppliers, we verticalized and developed some components in-house, and we also changed the product solutions to do things differently. So the company worked very hard, and therefore, the impact was quite low. It was 1.5 days in terms of losses. So I think this is one of Marcopolo's strengths. We have a huge capacity to react. Whenever we have a difficulty, the team gets together fast and works fast. And in terms of support foundation, we gave an important support to our employees, family members. Our team of sales reps that were affected were also supported and our customers. We had the task force to really bring customers' operation back to normal. And that has been recognized by all our customers in Porto Alegre, Marcopolo's capacity to cooperate, support and help.

Congratulations on your results. I'm from Bradesco BBI. You talked about a possible increase of margin from 4 to 5 percentage points considering gains in efficiency. And efficiency would be the better mix for the right slots. But there are some movements you're making going to other markets, taking practices of Brazil to international market. I would like to know how much these factors are included in the 4 to 5 percentage points and if there is an upside of margin for the long term.

I think that when we look at our [Technical Difficulty] and value to customers. There's always the potential of being able to show, especially through product that this is our qualified product that in the end of the day is just not that you're paying more. Operators themselves are able to recognize in practice that, that product can have a better business case in terms of capital allocation. So in practice, when we are launching G8, for instance, and we saw that in Brazil and also in other markets, we are working with this product is that indeed, it has reduced fuel consumption. So all CapEx that you have in terms of investments of part of internal R&D tooling to make this product available generates more added value to the sale. So in this context, we see that these new products may contribute to better margins. And when we consider positive results, you're talking about efficiency that adds value, reduce costs and therefore increases margins. On the other side, you have issues related to inflation. You see the dollar going to a level that is very good for us in terms of exports. We become even more competitive, but also we also have challenges with regards to commodities. We know that this level of volatility that we are going through, it's not that positive. It's good when the dollar is high, and it's kept high. But when you have that much of fluctuation in negotiation with suppliers, things get a bit more difficult. We don't see now a major discussion in terms of price adjustment for inputs. But we know that at the scenario, those things happen. So if you stop and think about downside in terms of costs, the instability in terms of the exchange rate can bring higher discussion in terms of commodity prices.

I am [ Andres Souza ] from [indiscernible]. The whole Board of Marcopolo, congratulations on your results. I would like to hear from Andre about Marcopolo Rail future prospects, investments, returns? And how do you see the market not only in Brazil but also outside.

Thanks for your question. Marcopolo Rail, this is an interesting movement of the company. When you think about -- thinking about the future, right, way into the future. When you think of a segment that can cannibalize our business, trains can be that. Not in Brazil. We don't see that happening in the short, midterm. But this is a diversification in a model that is synergic to ours and that could be a potential segment to cannibalize our business. We see this happening in China. China developed trains and decreased the number of road buses. So this is a movement of the company when it wants to be a leading company in mobility solutions in a sustainable manner, which is our vision. We see in rail an interesting step to Marcopolo because of synergies, because investments are not very high. We basically put together a plant, a unit in Caxias do Sul close to our operation. It has a level of demand that's quite interesting, special welding, traceability of product, not flammability. So topics that you helped us when we brought it in-house. In addition to this strategic view, it brings us differentiators and knowledge that can be replicated to buses. And we have been doing that. Rotating employees from one line to the other because you're talking about different units, but we are all [ in ahead ] crews Caxias do Sul. So rail, practically delivered the 3 compositions of 2 parts to Guarulhos Airport. The products are being tested. Remember, you're connecting the bus terminal, 2 terminals 1 and 3 of Guarulhos Airport. And now we are manufacturing also 3 compositions with 2 cars each for an operator in Chile. And we see a potential of renew and additional sales of another 3 that is very much advanced also to Chile. So we are starting small. We are not creating a distraction to our business, a complementary team. It brings improvements that can be applied to the whole of the company. And we set foot at a new model. So we are doing things gradually, continuous growth, steady developing, but it's interesting Andre. We brought several representatives from agencies, governments, operators of the system to our plant. And the kind of compliments we are hearing about what we put together, they are huge. Most operators, manufacturers, I mean, of trains left Brazil. And so we have been using this flag of having a product made in Brazil, basically resuming, gradually and slowing the national industry and placing it in the context of train manufacturer. This is the movement we have been learning a lot, and I think that we should consider diversification. I think this is a path to follow in terms of growth, diversification, using the essence of what we are good at. That's it.

I have a question that is likely long. First related to demand, road buses recovering strongly. But then the issue is we've had a stoppage because of the pandemic, orders that were not being placed. I would like to know what is related to the pandemic? Then there was also, you know passengers going from air, traveling to bus traveling, so I would like to know the share. And then actual growth, just for us to consider '25. So these 2 factors, first perhaps are going to affect less. And then we are going to have a better idea for road buses. And also urban buses, we know that Marcopolo does very well on [ election ] buses. Do you think that '25 is going to be a weaker year? Or do you think you're going to have more consistent development '24, perhaps, was not as good as other years in terms of election periods.

Well, volume is not showing so strong. When you think of volumes produced in Brazil, one of the slides that Pablo showed, the production volume is below what would be necessary for fleet renewal and even keep the fleet age. So we do see a drop in '22, '23 and '24 and aging of the fleet. We do not have a heated market, the production volume [Technical Difficulty] shows an increase, especially because of the increase of micro buses compared to last year, but the second quarter of '23, we had no paths to school. So it was very low. So most of growth is explained by micro buses, a good performance of road buses but not urban buses. So in terms of volumes, we have a market scenario. It seems we are to say by presenting the results that we are presenting, but it's not very good. We do not have anything in the market that really strongly contribute for the market to grow. In the past, for instance, we had a special financing subsidies from the government, quite the opposite. Now customers have to access credit lines at market prices or market prices very close to FINAME prices. So nothing really is helping the market. And then a little ago, we expected a drop in interest rates. So if people could delay purchases, they would. So no contributions. The market is behaving with growth that most because of micro buses. So the movement that fleets renewal, in our view is just started happen at some point because if the fleet continues to age, it's [Technical Difficulty] so trying to find [Technical Difficulty] especially in the urban buses market. [Technical Difficulty] the next month, [Technical Difficulty] you can market with what it should be. I'm going then to invite you all, if you're interested to take part of our Marcopolo Day. It's going to be on December the 5th in Caxias do Sul. You're all invited to visit. Take a look at our operations. Visit the plant. It's going to be a very nice time in the fourth quarter. And again, if you can take part of Lat. Bus, 75 years of our history, August the 6th, we are going to be showing you new projects and solutions. We thank you for your availability, a complete panel. That's not you know what we have usually in terms of possibility. I hope you have enjoyed these opportunity, questions and don't forget the assessment survey. Thank you so much. [Statements in English on this transcript were spoken by an interpreter present on the live call.]